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EX-99.1 2 exh_991.htm EXHIBIT 99.1

Exhibit 99.1

SANGOMA TECHNOLOGIES CORPORATION

Condensed consolidated interim financial statements for

the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in U.S. Dollars)

100 Renfrew Drive, Suite 100,

Markham, Ontario,

Canada L3R 9R6

Sangoma Technologies Corporation

March 31, 2022 and 2021

Table of contents

Condensed consolidated interim statements of financial position	3

Condensed consolidated interim statements of income (loss) and comprehensive income (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	7-30

Sangoma Technologies Corporation

Condensed consolidated interim statements of financial position

As at March 31, 2022, June 30, 2021 and June 30, 2020

(Unaudited in US dollars)

	March 31,			June 30,			June 30,
	2022			2021			2020
		$			$			$

Assets
Current assets
Cash and cash equivalents (Note 13)		16,238,833			22,095,596			19,995,497
Trade receivables (Note 13)		18,419,378			14,734,417			8,243,720
Inventories (Note 4)		16,468,963			11,820,123			9,277,765
Income tax receivable		-			662,579			-
Contract assets		1,066,241			739,966			473,507
Derivative assets (Note 9)		716,714			-			-
Other current assets		5,202,269			3,296,354			1,749,235
		58,112,398			53,349,035			39,739,724
Non-current assets
Property and equipment (Note 5)		11,288,272			7,653,015			2,202,587
Right-of-use assets (Note 17)		16,481,982			13,529,916			11,871,529
Intangible assets (Note 6)		201,122,145			193,978,453			36,840,607
Development costs (Note 7)		2,345,844			1,532,786			1,799,805
Deferred income tax assets (Note 10)		2,154,207			2,052,084			3,879,665
Goodwill (Note 8)		307,508,846			267,397,741			32,295,582
Contract assets		2,298,573			854,101			320,484
		601,312,267			540,347,131			128,949,983


Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 13)		30,007,513			22,360,494			10,409,258
Provisions (Note 18)		278,156			442,464			486,456
Sales tax payable		6,172,967			1,318,505			592,994
Income tax payable		101,984			-			1,934,370
Consideration payable (Note 16)		9,059,353			2,335,744			-
Operating facility and loans (Note 9)		22,050,000			14,550,000			12,400,000
Contract liabilities (Note 15)		11,520,197			11,411,621			7,904,975
Derivative liability (Note 9)		-			333,315			585,104
Lease obligations on right-of-use assets (Note 17)		3,549,601			2,421,389			2,165,847
		82,739,771			55,173,532			36,479,004
Long term liabilities
Consideration payable (Note 16)		5,674,365			6,766,070			-
Operating facility and loans (Note 9)		87,000,000			60,412,500			24,650,000
Contract liabilities (Note 15)		4,121,503			4,342,110			2,915,123
Non-current lease obligations on right-of-use assets (Note 17)		13,752,181			11,821,289			10,031,680
Deferred income tax liabilities (Note 10)		15,243,336			24,760,637			-
Other non-current liabilities		882,910			917,395			-
		209,414,066			164,193,533			74,075,807

Shareholders’ equity
Share capital		189,916,051			172,461,915			47,423,358
Shares to be issued		192,101,973			192,101,973			-
Contributed surplus		14,166,916			5,392,954			1,788,397
Accumulated other comprehensive income (loss)		716,714			(333,315	)		(585,104	)
Retained earnings (deficit)		(5,003,453	)		6,530,071			6,247,525
		391,898,201			376,153,598			54,874,176
		601,312,267			540,347,131			128,949,983

Approved by the Board

(Signed)	Al Guarino	Director

(Signed)	Allan Brett	Director

The accompanying notes are an integral part of these condensed consolidated interim financial statements. The comparative periods have been retrospectively adjusted to reflect the change in presentation currency from Canadian dollars to US dollars (Note 2).

Sangoma Technologies Corporation

Condensed consolidated interim statements of income (loss) and comprehensive income (loss)

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

	Three month periods ended						Nine month periods ended
	March 31,						March 31,
	2022			2021			2022			2021
		$			$			$			$

Revenue (Note 19)		55,125,865			27,952,094			161,840,592			81,261,947
Cost of sales		16,164,948			9,637,165			45,623,926			27,702,470
Gross profit		38,960,917			18,314,929			116,216,666			53,559,477

Expenses
Sales and marketing		13,882,377			4,501,651			41,214,603			12,460,792
Research and development		8,237,889			5,171,286			24,356,762			13,954,217
General and administration		19,750,736			6,288,807			55,165,187			19,460,661
Foreign currency exchange (gain) loss		26,451			(206,688	)		111,967			(222,306	)
		41,897,453			15,755,056			120,848,519			45,653,364
Income (loss) before interest expense (net), business integration costs,
exchange listing expense, gain on change in fair value of consideration
payable, business acquisition costs and income taxes		(2,936,536	)		2,559,873			(4,631,853	)		7,906,113

Interest expense (net) (Notes 9, 13, 17)		473,835			271,137			1,726,866			1,031,627
Business acquisition costs (Note 20)		3,121,257			3,762,648			3,121,257			3,763,456
Business integration costs		-			-			836,317			-
Exchange listing expense		-			-			1,050,635			-
Gain on change in fair value of consideration payable (Note 16)		(1,312,354	)		-			(1,208,096	)		-
		2,282,738			4,033,785			5,526,979			4,795,083

Income (loss) before income tax		(5,219,274	)		(1,473,912	)		(10,158,832	)		3,111,030
Provision for income taxes
Current (Note 10)		982,996			449,014			1,790,594			1,933,671
Deferred (Note 10)		553,381			(143,696	)		(415,902	)		(395,630	)
Net income (loss)		(6,755,651	)		(1,779,230	)		(11,533,524	)		1,572,989

Other comprehensive income (loss)
Items to be reclassified to net income
Change in fair value of interest rate
swaps, net of tax (Note 9)		898,970			122,238			1,050,029			214,077
Comprehensive income (loss)		(5,856,681	)		(1,656,992	)		(10,483,495	)		1,787,066

Earnings per share
Basic (Note 11(iii))	$	(0.212	)	$	(0.112	)	$	(0.363	)	$	0.103
Diluted (Note 11(iii))	$	(0.212	)	$	(0.112	)	$	(0.363	)	$	0.101

Weighted average number
of shares outstanding (Note 11(iii))
Basic		31,806,844			15,911,529			31,749,708			15,341,613
Diluted		31,806,844			15,911,529			31,749,708			15,599,053

Sangoma Technologies Corporation

Condensed consolidated interim statements of changes in shareholders' equity

For the nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

	Number of					Shares					Accumulated other						Total
	common			Share		to be		Contributed			comprehensive			Retained			shareholders'
	shares			capital		issued		surplus			Income (loss)			earnings (deficit)			equity
				$		$		$			$			$			$
Balance, June 30, 2020		10,869,676			47,423,358		-		1,788,397			(585,104	)		6,247,525			54,874,176

Net income		-			-		-		-			-			1,572,989			1,572,989
Change in fair value of interest rate swaps,
net of tax (Note 9)		-			-		-		-			214,077			-			214,077
Common shares reserved for issuance
related to business combination (Note 20)		-			-		192,101,973		-			-			-			192,101,973
Common shares issued
for transaction cost payment (Note 11(i))		18,456			330,460		-		-			-			-			330,460
Common shares issued
through business combination(Note20)		3,018,685			66,873,399		-		-			-			-			66,873,399
Common shares issued
through short form prospectus, net of costs (Note 11(i))		5,000,857			56,295,235		-		-			-			-			56,295,235
Common shares issued
for options exercised (Note 11(i))		61,036			170,469		-		(57,680	)		-			-			112,789
Share-based compensation expense (Note 11(ii))		-			-		-		912,905			-			-			912,905
Balance, March 31, 2021		18,968,710			171,092,921		192,101,973		2,643,622			(371,027	)		7,820,514			373,288,003

Balance, June 30, 2021		19,021,644			172,461,915		192,101,973		5,392,954			(333,315	)		6,530,071			376,153,598

Net loss		-			-		-		-			-			(11,533,524	)		(11,533,524	)
Change in fair value of interest rate swaps,
net of tax (Note 9)		-			-		-		-			1,050,029			-			1,050,029
Common shares issued
through business combination (Note 11(i), 20)		1,494,536			16,681,970		-		-			-			-			16,681,970
Deferred tax benefit on share issuance costs (Note 10)		-			138,259		-		-			-			-			138,259
Common shares issued
for options exercised (Note 11(i))		49,014			633,907		-		(214,397	)		-			-			419,510
Rounding of fractional shares
after share consolidation (Note 2)		(30	)		-		-		-			-			-			-
Share-based compensation expense (Note 11(ii))		-			-		-		8,988,359			-			-			8,988,359
Balance, March 31, 2022		20,565,164			189,916,051		192,101,973		14,166,916			716,714			(5,003,453	)		391,898,201

Sangoma Technologies Corporation

Condensed consolidated interim statements of cash flows

For the nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

	2022			2021
Operating activities		$			$
Net income (loss)		(11,533,524	)		1,572,989
Adjustments for:
Depreciation of property and equipment (Note 5)		1,463,861			455,360
Depreciation of right-of-use assets (Note 17)		2,236,909			1,760,655
Amortization of intangible assets (Note 6)		22,936,057			4,398,899
Amortization of development costs (Note 7)		859,703			1,054,787
Income tax expense (recovery) (Note 10)		1,374,692			1,538,041
Income tax paid		(2,210,759	)		(1,197,933	)
Share-based compensation expense (Note 11(ii))		8,988,359			912,905
Interest on obligation on right-of-use assets (Note 17)		303,661			252,309
Unrealized foreign exchange gain		(269,165	)		(503,911	)
Gain on lease modification (Note 17)		(105,223	)		(7,460	)
Loss on disposal of property and equipment (Note 5)		195,508			-
Gain on change in fair value of consideration payable		(1,208,096	)		-
Changes in working capital
Trade receivables		(1,675,976	)		(1,277,142	)
Inventories		(3,959,628	)		(350,850	)
Contract assets		(1,770,747	)		3,213,279
Other current assets		(751,205	)		(362,431	)
Sales tax payable		(651,900	)		(231,756	)
Accounts payable and accrued liabilities		(769,995	)		3,093,854
Provisions		(164,308	)		(37,311	)
Contract liabilities		(1,779,758	)		(746,315	)
Net cash flows from operating activities		11,508,466			13,537,969
Investing activities
Purchase of property and equipment (Note 5)		(1,122,684	)		(359,305	)
Development costs (Note 7)		(1,672,761	)		(1,178,404	)
Business combinations, net of cash and cash
equivalents acquired (Note 20)		(46,708,000	)		(105,561,966	)
Net cash flows used in investing activities		(49,503,445	)		(107,099,675	)
Financing activities
Proceeds from operating facility and loan (Note 9)		45,000,000			52,500,000
Repayments of operating facility and loan (Note 9)		(10,912,500	)		(10,950,000	)
Repayment of right-of-use lease obligation (Note 17)		(2,368,794	)		(1,381,642	)
Issuance of common shares through
short form prospectus, net (Note 11(i))		-			56,295,235
Issuance of common shares for stock options exercised (Note 11(i))		419,510			112,789
Net cash flows from financing activities		32,138,216			96,576,382

(Decrease) Increase in cash and cash equivalents		(5,856,763	)		3,014,676
Cash and cash equivalents, beginning of the period		22,095,596			19,995,497
Cash and cash equivalents, end of the period		16,238,833			23,010,173

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

1.	General information

	Founded in 1984, Sangoma Technologies Corporation (“Sangoma” or the “Company”) is publicly traded on the Toronto Stock Exchange (TSX: STC) and NASDAQ (NASDAQ: SANG). The Company’s shares were traded on the TSX Venture Exchange under the symbol STC until November 1, 2021, at which point the Company’s shares commenced trading on the TSX. In conjunction with listing on the TSX, the Company’s shares were delisted from the TSX Venture Exchange. The Company’s shares commenced trading on NASDAQ on December 16, 2021. The Company was incorporated in Canada, its legal name is Sangoma Technologies Corporation and its primary operating subsidiaries for fiscal 2022 are Sangoma Technologies Inc., Sangoma US Inc., VoIP Supply LLC, Digium Inc., VoIP Innovations LLC, Star2Star Communications LLC, and NetFortris Corporation.

	Sangoma is a leading provider of hardware and software components that enable or enhance Internet Protocol Communications Systems for both telecom and datacom applications. Enterprises, small to medium sized businesses (“SMBs”) and telecom operators in over 150 countries rely on Sangoma’s technology as part of their mission critical infrastructures. The product line includes data and telecom boards for media and signal processing, as well as gateway appliances and software.

	The Company is domiciled in Ontario, Canada. The address of the Company’s registered office is 100 Renfrew Dr., Suite 100, Markham, Ontario, L3R 9R6 and the Company operates in multiple jurisdictions.

2.	Significant accounting policies

	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, 2021.

	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 May 12, 2022.

	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, 2021, except for the change in presentation currency of the Company from Canadian dollars to US dollars described below:

	Change in presentation currency of the Company

	Effective July 1, 2021, the Company elected to change the presentation currency in its condensed consolidated interim financial statements from Canadian dollars to US dollars, which was applied on a retrospective basis.

	Since July 1, 2020, the Company and all of its significant wholly-owned operating subsidiaries are measured in US dollar as the functional currency. The US dollar translated amounts of nonmonetary assets and liabilities as at July 1, 2020 became the historical accounting basis for those assets and liabilities at July 1, 2020. Transactions in currencies other than USD are initially recorded in the US dollar by applying the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in other than US dollar are revaluated at the foreign exchange rate at the reporting date. Foreign exchange differences arising on translation are recognized in the income statement. As both functional currency and presentation currency are US dollar, there is no further need to translate for its presentation.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

2.	Significant accounting policies (continued)

	Change in presentation currency of the Company (continued)

	A change in presentation currency represents a change in an accounting policy in terms of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The Company has retrospectively applied the change to its comparative information for the three and nine month periods ended March 31, 2021 and for the fiscal year ended June 30, 2021 and June 30, 2020 by removing the translation adjustments applied in prior year’s statements and reverting to present the amounts and balances in their US dollar functional currency.

	It should be noted that the functional currencies of the Company’s primary economic environments in which underlying businesses operate remain unchanged and that foreign exchange exposures will therefore be unaffected by the change, albeit that the effects of such exposures will be presented in US dollar. All other accounting policies remain consistent with those adopted in the audited consolidated financial statements for the year ended June 30, 2021.

	Share consolidation (reverse stock split)

	On November 2, 2021, the Company implemented a consolidation (the “reverse stock split”) of its outstanding Common Shares on the basis of one new Common Share for every seven currently outstanding Common Shares (the “Consolidation Ratio”). At the special meeting of the Company’s shareholders held on September 23, 2021, the Company’s shareholders granted the Company’s Board of Directors discretionary authority to implement a consolidation of the issued and outstanding common shares of the Company on the basis of a consolidation ratio of up to 20 pre-consolidation common shares for one post-consolidation common share. The Board of Directors selected a share consolidation ratio of seven pre-consolidation common shares for one post-consolidation common share. The Company’s common shares began trading on the TSX on a post-consolidation basis under the Company’s existing trade symbol "STC" on November 8, 2021. In accordance with International Financial Reporting Standards (“IFRS”), the change has been applied retrospectively.

	The reverse stock split did not cause an adjustment to the par value or the authorized shares of the common stock. As a result of the reverse stock split, the Company further adjusted the share amounts and exercise prices under its option plans and outstanding options.

	IAS 33 Earnings per Share (paragraph 64) requires retrospective adjustment of earnings per share for a reverse stock split that occurs subsequent to the balance sheet date but before the date of authorization of the statements. As a result, all disclosures of common shares, per common share data and data related to options in the accompanying condensed consolidated interim financial statements and related notes reflect this reverse stock split for all periods presented.

3.	Significant accounting judgments, estimates and uncertainties

	Except for the change in the Company’s presentation currency, 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, 2021 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, 2021.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

4.	Inventories

	Inventories recognized in the consolidated statements of financial position are comprised of:

	March 31,			June 30,
	2022			2021
		$			$
Finished goods		11,953,697			8,422,594
Parts		5,111,110			3,902,439
		17,064,807			12,325,033
Provision for obsolescence		(595,844	)		(504,910	)
Net inventory carrying value		16,468,963			11,820,123

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

5.	Property and equipment

	Office furniture and computer equipment			Software and books		Stockroom and production equipment			Tradeshow equipment		Leasehold improvements			Total
Cost		$			$		$			$		$			$
Balance at June 30, 2020		1,989,536			412,766		1,290,759			47,210		321,787			4,062,058
Additions through business combinations (Note 20)		473,123			-		4,861,810			-		-			5,334,933
Additions		867,227			3,990		235,053			-		26,676			1,132,946
Disposals		-			-		(132,789	)		-		-			(132,789	)
Balance at June 30, 2021		3,329,886			416,756		6,254,833			47,210		348,463			10,397,148
Additions through business combination (Note 20)		931,641			-		3,240,301			-		-			4,171,942
Additions		780,425			40,602		189,454			-		112,203			1,122,684
Disposals		(17,657	)		-		(170,102	)		-		(10,275	)		(198,034	)
Balance at March 31, 2022		5,024,295			457,358		9,514,486			47,210		450,391			15,493,740

Accumulated depreciation
Balance at June 30, 2020		995,761			223,697		491,742			39,063		109,208			1,859,471
Depreciation expense		375,727			90,498		380,338			1,806		36,293			884,662
Balance at June 30, 2021		1,371,488			314,195		872,080			40,869		145,501			2,744,133
Depreciation expense		482,169			71,864		879,250			890		29,688			1,463,861
Disposals		-			-		(1,350	)		-		(1,176	)		(2,526	)
Balance at March 31, 2022		1,853,657			386,059		1,749,980			41,759		174,013			4,205,468

Net book value as at:
Balance at June 30, 2021		1,958,398			102,561		5,382,753			6,341		202,962			7,653,015
Balance at March 31, 2022		3,170,638			71,299		7,764,506			5,451		276,378			11,288,272

For the three and nine month periods ended March 31, 2022, depreciation expense of $242,259 and $738,015 (three and nine month periods ended March 31, 2021 - $151,331 and $455,360) was recorded in general and administration expense in the condensed consolidated interim statements of income (loss) and comprehensive income (loss). Depreciation expense in the amounts of $237,935 and $725,846 were included in cost of sales for the three and nine month periods ended March 31, 2022 (three and nine month periods ended March 31, 2021 - $nil).

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

6.	Intangible assets

													Other
	Copyright			Purchased					Customer				purchased
	to software			technology		Website			relationships		Brand		intangibles*		Total
	$			$		$			$		$		$		$
Cost
Balance at June 30, 2020		2,163,532			8,523,164		173,690			29,855,518		6,787,317		2,748,066		50,251,287
Business combinations (Note 20)		-			86,800,000		-			82,400,000		-		-		169,200,000
Balance at June 30, 2021		2,163,532			95,323,164		173,690			112,255,518		6,787,317		2,748,066		219,451,287

Business combinations (Note 20)		-			16,543,863		-			13,535,886		-		-		30,079,749
Cost fully amortized		(2,163,532	)		-		(173,690	)		-		-		-		(2,337,222	)
Balance at March 31, 2022		-			111,867,027		-			125,791,404		6,787,317		2,748,066		247,193,814

Accumulated amortization
Balance at June 30, 2020		2,163,532			3,034,665		173,690			5,436,705		1,449,052		1,153,036		13,410,680
Amortization expense		-			4,774,716		-			5,898,778		686,021		702,639		12,062,154
Balance at June 30, 2021		2,163,532			7,809,381		173,690			11,335,483		2,135,073		1,855,675		25,472,834
Cost fully amortized		(2,163,532	)		-		(173,690	)		-		-		-		(2,337,222	)
Amortization expense		-			11,681,715		-			10,216,468		513,419		524,455		22,936,057
Balance at March 31, 2022		-			19,491,096		-			21,551,951		2,648,492		2,380,130		46,071,669

Net book value as at:
Balance at June 30, 2021		-			87,513,783		-			100,920,035		4,652,244		892,391		193,978,453
Balance at March 31, 2022		-			92,375,931		-			104,239,453		4,138,825		367,936		201,122,145

* Other purchased intangibles include non-compete agreements and backlog.

Amortization expense is included in general and administration expense in the consolidated statements of income (loss) and comprehensive income (loss). For the three and nine month periods ended March 31, 2022, amortization expenses were $7,637,909 and $22,936,057 (three and nine month periods ended March 31, 2021 - $1,468,140 and $4,398,899).

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

7.	Development costs

		$
Cost
Balance at June 30, 2020			17,284,963
Additions			1,551,158
Investment tax credits			(448,347	)
Cost fully amortized			(15,028,049	)
Balance at June 30, 2021			3,359,725
Additions			1,672,761
Balance at March 31, 2022			5,032,486

Accumulated amortization
Balance at June 30, 2020			(15,485,158	)
Amortization			(1,369,830	)
Cost fully amortized			15,028,049
Balance at June 30, 2021			(1,826,939	)
Amortization			(859,703	)
Balance at March 31, 2022			(2,686,642	)

	March 31, 2022		June 30, 2021
	$		$
Net capitalized development costs	2,345,844		1,532,786

Each period, additions to development costs are recognized net of investment tax credits accrued. In addition to the above amortization, the Company has recognized $7,893,572 and $23,497,059 of engineering expenditures as an expense during the three and nine months periods ended March 31, 2022 (three and nine month periods ended March 31, 2021 - $4,804,913 and $12,899,430).

8.	Goodwill

The carrying amount and movements of goodwill was as follows:

	$
Balance at June 30, 2020		32,295,582
Addition through business combinations (Note 20)		235,102,159
Balance at June 30, 2021		267,397,741
Addition through business combinations (Note 20)		40,111,105
Balance at March 31, 2022		307,508,846

For the nine month period ended March 31, 2022, the addition to goodwill was from the acquisition of NetFortris Corporation on March 28, 2022 and M2 on July 16, 2021 (Note 20). The addition to goodwill for the year ended June 30, 2021 was from the acquisition of StarBlue Inc. on March 31, 2021 (Note 20).

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

9.	Operating facility and loan and derivative liability

	(a)	Operating facility and loan

	(i)	The Company entered into a new loan facility with two banks and drew down the first tranche of $34,800,000 ($45,699,360 CAD) on October 18, 2019. This loan facility was used to pay down and close all existing loans and to fund part of the purchase of VoIP Innovations LLC. This term facility is repayable over six years on a straight-line basis.

		The interest rates charged were 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 was 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 each. On March 28,2022 the credit agreement was amended and the LIBOR rate was replaced with the Secured Overnight Financing Rate (SOFR). The repayment schedule for the loan has not been impacted by these changes. The balance outstanding against this term loan facility as of March 31, 2022 is $20,300,000 (June 30, 2021 - $24,650,000). As at March 31, 2022, term loan facility balance of $5,800,000 (June 30, 2021 - $5,800,000) is classified as current and $14,500,000 (June 30, 2021 - $18,850,000) as long-term in the condensed consolidated interim statements of financial position.

(ii)

The Company also had revolving credit facilities which included a committed revolving credit facility for up to CAD $8,000,000 and a committed swingline credit facility for up to CAD $2,000,000 both of which may be used for general business purposes. On April 3, 2020, the Company drew down $1,300,000 ($1,838,460 CAD) on the swingline credit facility available under the Credit Agreement. On April 17, 2020, the Company drew down $5,300,000 ($7,439,610 CAD) from the revolving credit facility. During August 2020, the Company paid back in full the outstanding amounts on the swingline credit facility and the revolving credit facility. Both facilities remain fully available to the Company.

(iii)

On March 31, 2021, the Company amended its term loan facility with its lenders and drew down an additional $52,500,000 to fund part of the acquisition of StarBlue Inc. At the time of the draw down of the additional amounts, the following amendments were made to the agreement:

The provision for additional funding related to VoIP Innovations under the original agreement was no longer necessary and was cancelled.

The swingline facility was converted from CAD $2,000,000 to USD $1,500,000.

The revolver facility was converted from CAD $8,000,000 to USD $6,000,000.

The debt to equity ratio calculation now allows the Company to offset up to US $10,000,000 of unrestrained funds against the outstanding amount of the debt.

The interest rates charged continued to be based on Prime rate, US Base rate, London Inter-Bank Offered Rate (LIBOR) or Canadian Dollar Offered Rate (CDOR) plus the applicable margin until March 28, 2022 when the LIBOR rate was replaced with the Secured Overnight Financing Rate (SOFR). The incremental draw is repayable, on a straight-line basis, through quarterly payments of $2,187,500 and is due to mature on October 18, 2024. As at March 31, 2022, $8,750,000 (June 30, 2021 - $8,750,000) of the incremental facility is classified as current and $35,000,000 (June 30, 2021 – $41,562,500) is classified as long-term in the condensed consolidated interim statements of financial position.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

9.	Operating facility and loan and derivative liability (continued)

	(iv)	On March 28, 2022, the Company amended its term loan facility with its lenders and drew down an additional $45,000,000 to fund part of the acquisition of NetFortris Corporation. At the time of the draw down of the additional amounts, the interest rates charged were based on Prime Rate Loans, U.S. Base Rate Loans, U.S. Prime Rate Loans, Secured Overnight Financing Rate (SOFR) or Canadian Dollar Offered Rate (CDOR) plus the applicable margin. The incremental draw is repayable, on a straight-line basis, through quarterly payments of $1,875,000 and is due to mature on March 28, 2027. As at March 31, 2022, $7,500,000 (June 30, 2021 - $nil) of the incremental facility is classified as current and $37,500,000 (June 30, 2021 – $nil) is classified as long-term in the condensed consolidated interim statements of financial position.

	For the three month and nine month periods ended March 31,2022, the Company incurred interest costs to service the borrowing facilities in the amount of $423,855 and $1,460,792 (for the three month and nine month periods ended March 31, 2021 - $227,516 and $830,748). During the nine month period ended March 31, 2022, the Company borrowed $45,000,000 (nine month period ended March 31, 2021 - $52,500,000) in operating facility and loans and repaid $10,912,500 (nine month period ended March 31, 2021 – 10,950,000).

	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 March 31, 2022 and June 30, 2021, the Company was in compliance with all covenants related to its credit agreements.

	(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 income (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 each to manage its exposure to changes in LIBOR-based interest rates. On March 28,2022 the underlying credit agreement was amended and the LIBOR rate was replaced with the Secured Overnight Financing Rate (SOFR). 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 and decreases in line with the term of the loan facility. Effective March 31, 2022, Sangoma US Inc. entered into a fixed rate swap transaction worth $43,750,000 over a five year period and terminating on February 28, 2027. As of March 31, 2022, the notional amount of the interest rate swaps was $54,341,304 (June 30, 2021 – $12,860,870). The interest rate swaps have a weighted average fixed rate of 1.80% (June 30, 2021 – 1.65%) and have been designated as effective cash flow hedges and therefore qualify for hedge accounting.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

9.	Operating facility and loan and derivative liability (continued)

	(b) Derivative liability

	As at March 31, 2022, the fair value of the interest rate swap assets were valued at $716,714 (June 30, 2021 liability was valued at $333,315) and was recorded as derivative liability in the condensed consolidated interim statements of financial position. For the three and nine month periods ended March 31, 2022, the change in fair value of the interest rate swaps, net of tax, was a gain of $898,970 and $1,050,029 (three and nine month periods ended March 31, 2021 – gain of $122,238 and $214,077) was recorded in other comprehensive income (loss) in the condensed consolidated interim statements of income (loss) and comprehensive income (loss). The fair value of interest rate swap is determined based on the market conditions and the terms of the interest rate swap agreement using the discounted cash flow methodology. Any differences between the hedged SOFR rate and the fixed rate are recorded as interest expense on the same period that the related interest is recorded for the loan facility based on the SOFR rate.

10.	Income tax

	The Company income tax expense is determined as follows:

	Three month periods						Nine month periods
	ended March 31,						ended March 31,
	2022			2021			2022			2021
Statutory income tax rate		26.37	%		26.30	%		26.37	%		26.30	%

		$			$			$			$

Net income (loss) before income taxes		(5,219,274	)		(1,473,912	)		(10,158,832	)		3,111,030
					-
Expected income tax expense		(1,376,139	)		(388,607	)		(2,678,494	)		820,251
Difference in foreign tax rates		13,141			(563	)		22,789			(37,645	)
Tax rate changes and other adjustments		9,351			24,874			9,358			22,889
Share based compensation		1,195,980			225,062			2,369,855			224,895
Other non deductible expenses		13,996			20,151			57,860			83,250
True-up of prior years		(8	)		-			(22,601	)		-
Business acquisition costs		528,036			424,401			528,036			424,401
Gain on consideration payable		(322,314	)		-			(296,708	)		-
Stock options deduction revaluation adjustment		1,483,678			-			1,384,597			-
Changes in tax benefits not recognized		(9,344	)		-			-			-
Income tax (recovery) expense		1,536,377			305,318			1,374,692			1,538,041

The Company's income tax expense is allocated as follows:		$			$			$			$

Current tax expense		982,996			449,014			1,790,594			1,933,671
Deferred income tax (recovery) expense		553,381			(143,696	)		(415,902	)		(395,630	)
Income tax (recovery) expense		1,536,377			305,318			1,374,692			1,538,041

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

10.	Income tax (continued)

	The following table summarizes the components of deferred tax assets (liabilities):

	March 31,			June 30,
	2022			2021
		$			$
Deferred income tax assets and liabilities
Non-deductible reserves - Canadian		371,254			316,605
Non-deductible reserves - USA		5,301,565			4,711,599
SR&ED investment tax credits, net of 12(1)(x)		1,457,391			1,457,466
Property and equipment - Canadian		(158,225	)		(211,565	)
Property and equipment - USA		(2,409,320	)		(1,492,571	)
Deferred development costs		(608,339	)		(608,370	)
Intangible assets including goodwill - Canadian		(88,039	)		(81,574	)
Intangible assets including goodwill - USA		(44,366,218	)		(41,967,482	)
Non-capital losses carried forward - USA		18,803,264			5,159,051
Non-capital losses carried forward - Canadian		103,464			-
Capital losses carried forward and other - Canadian		3,528			3,528
Right of use assets net of obligations - Canadian		38,087			29,988
Right of use assets net of obligations - USA		165,877			148,445
Share issuance costs - Canadian		1,035,086			1,146,005
Acquisition costs & other - USA		386,380			420,608
Stock options - USA		6,875,116			8,259,714
Net deferred income tax liabilities		(13,089,129	)		(22,708,553	)

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset. The following table shows the movement in net deferred tax assets (liabilities):

	March 31,			June 30,
	2022			2021
		$			$
Balance at the beginning of the period		(22,708,553	)		3,879,665
Recognized in profit/loss		415,902			(2,167,141	)
Recognized in goodwill		9,065,370			(25,462,043	)
Recognized in equity		138,258			1,162,220
Recognized in deferred development costs		-			(123,917	)
Other foreign exchange movement		(106	)		2,663
Balance at the end of the period		(13,089,129	)		(22,708,553	)

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

10.	Income tax (continued)

	Unrecognized deferred tax assets

	Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

	March 31,		June 30,
	2022		2021
	$		$
Capital losses carried forward and other - Canadian		40,635		40,637
Capital losses carried forward - USA		12,884,540		12,884,540

	The net capital loss carry forward may be carried forward indefinitely but can only be used to reduce capital gains. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the group can utilize the benefits therefrom.

	The Company has deducted available SR&ED for federal and provincial purposes and unutilized SR&ED tax credits. These 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
		$		$
2034		211,910		-
2035		233,033		-
2036		269,957		-
2037		242,364		-
2038		183,636		-
2039		262,957		-
2040		243,520		34,645
2041		332,760		49,122
		1,980,137		83,767

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

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 March 31, 2022 and 2021, the Company’s issued and outstanding common shares consist of the following:

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

11.

Shareholders’ equity (continued)

(i)

Share capital (continued)

	Three month periods				Nine month periods
	ended March 31,				ended March 31,
	2022		2021		2022			2021
		#		#		#			#
Shares issued and outstanding:
Outstanding, beginning of the period		19,061,208		15,908,469		19,021,644			10,869,676
Shares issued for business combinations (Note 20)		-		3,018,685		-			3,018,685
Shares issued for acquisition costs (Note 20)		1,494,536		18,456		1,494,536			18,456
Shares issued through short form prospectus		-		-		-			5,000,857
Shares issued upon exercise of options		9,420		23,100		49,014			61,036
Rounding of fractional shares in 2021 after share consolidation		-		-		(30	)		-
Outstanding, end of the period		20,565,164		18,968,710		20,565,164			18,968,710

	On March 28, 2022, the Company acquired NetFortris Corporation and issued 1,494,536 common shares valued in the amount of $16,681,970 as part of the consideration (Note 20).

	On March 31, 2021, the Company acquired StarBlue Inc. and issued 3,018,685 common shares valued in the amount of $66,873,399 as part of the consideration, and 18,456 common shares valued in the amount of $330,460 as part of the acquisition costs (Note 20). Under the terms of the agreement, a further 12,695,600 common shares valued in the amount of $192,101,973 will be issued in instalments over fourteen quarters commencing on April 1, 2022. The $192,101,973 discounted value of the 12,695,600 common shares not yet issued is recorded as shares to be issued in the condensed consolidated interim statements of changes in shareholders’ equity.

	On July 30, 2020, the Company closed its short-form prospectus offering with 5,000,857 common shares being issued at a price of CAD$16.10 per common share including 652,285 common shares issued upon the exercise in full of the over-allotment option grant to the Underwriter for aggregate gross proceeds of CAD $80,513,800 and net proceeds of CAD $75,283,264 ($56,295,235).

	During the three and nine month periods ended March 31, 2022, a total of 9,420 and 49,014 (three and nine month periods ended March 31, 2021 – 23,100 and 61,036) options were exercised for cash consideration of $73,027 and $419,510, (three and nine month periods ended March 31, 2021 - $45,281 and $112,789) and the Company recorded a charge of $36,690 and $214,397 (three month and nine month periods ended March 31,2021 - $21,196 and $57,680) from contributed surplus to share capital.

(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.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

11.

Shareholders’ equity (continued)

(ii)

Stock options(continued)

	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, 2020		642,600			8.52
Granted		814,286			26.39
Exercised		(61,036	)		1.78
Expired		(3,429	)		8.25
Forfeited		(36,984	)		11.00
Balance, March 31,2021		1,355,437			19.49

Balance, June 30, 2021		1,587,310			19.89
Granted		340,714			17.59
Exercised		(49,014	)		8.59
Expired		(154,408	)		27.04
Forfeited		(664,373	)		24.63
Rounding of fractional shares		(135	)		-
Balance, March 31, 2022		1,060,094			15.67

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.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

11.

Shareholders’ equity (continued)

(ii)

Stock options(continued)

On September 30, 2021, the Company granted 285,714 stock options to employees, officers, and directors at a strike price of $18.62 vesting over a period of four years. On March 30, 2022 the Company granted 55,000 options to employees and officers with a strike price of $14.09 vesting over a period of four years. On February 9, 2021, the Company granted 814,286 stock options to employees, officers, and directors at a strike price of $26.39 vesting over a period of four years

	Nine month periods
	ended March 31,
	2022			2021

Share price	$	17.59		$	26.39
Exercise price	$	17.59		$	26.39
Expected volatility		59.75	%		65.58	%
Expected option life		5 years			4 years
Risk-free interest rate		0.93	%		0.33	%

The following table summarizes information about the stock options outstanding and exercisable at the end of each period:

	March 31, 2022				March 31, 2021
Exercise price	Number of stock options outstanding and exercisable		Weighted average remaining contractual life		Number of stock options outstanding and exercisable		Weighted average remaining contractual life
$1.01 - $3.00		-		-		44,004		0.23
$3.01 - $5.00		21,323		0.75		22,827		1.75
$5.01 - $7.00		65,644		1.74		56,214		2.74
$7.01 - $10.00		-		-		6,976		3.17
$10.01 - $15.00		95,433		3.18		-		-
$15.01-$27.00		39,639		3.86		-		-
		222,039		2.64		130,021		1.74

For the three and nine month periods ended March 31, 2022, the Company recognized share-based compensation expense in the amount of $4,536,098 and $8,988,359 (three and nine month periods ended March 31, 2021 - $628,527 and $912,905).

(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.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

11.

Shareholders’ equity (continued)

(iii)

Earnings per share (continued)

	Three month periods						Nine month periods
	ended March 31,						ended March 31,
	2022			2021			2022			2021
Number of shares:
Weighted average number of shares outstanding		19,111,244			15,911,529			19,054,108			15,341,613
Shares to be issued		12,695,600	#		-			12,695,600			-
Weighted average number of shares used in basic earnings per share		31,806,844			15,911,529			31,749,708			15,341,613
Shares deemed to be issued in respect of options and warrants		-			-			-			257,440
Weighted average number of shares used in diluted earnings per share		31,806,844			15,911,529			31,749,708			15,599,053

Net income (loss) for the period		(6,755,651	)		(1,779,230	)		(11,533,524	)		1,572,989

Earnings per share:
Basic earnings (loss) per share	$	(0.212	)	$	(0.112	)	$	(0.363	)	$	0.103
Diluted earings (loss) per share	$	(0.212	)	$	(0.112	)	$	(0.363	)	$	0.101

Under the terms of the StarBlue Inc. share purchase agreement, a further 12,695,600 shares will be issued in instalments over the fourteen quarters commencing on April 1, 2022.

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 incurred no related party transactions during the nine month period ended March 31, 2022 (nine month period ended March 31, 2021 - $nil) and had no outstanding balance with related parties as at March 31, 2022 (June 30, 2021 - $nil).

13.	Financial instruments

	The fair values of the cash and cash equivalents, trade receivables, contract assets, other current assets, accounts payable and accrued liabilities, consideration payable and derivative assets approximate their carrying values due to the relatively short-term nature of these financial instruments or as these financial instruments are fair valued at each reporting period. The fair values of operating facility loans and lease obligation right of use asset approximate their carrying values due to variable interest loans or fixed rate loan, which represent market rate.

	Cash and cash equivalents are comprised of:

	March 31,		June 30,
	2022		2021
		$		$

Cash at bank and on hand		16,238,833		22,095,596

Cash includes demand deposits with financial institutions and cash equivalents consist of short-term, highly liquid investments purchased with original maturities of three months or less. As at March 31, 2022 and June 30, 2021, the Company had no cash equivalents.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

13.	Financial instruments (continued)

	Total interest income and interest expense for financial assets or financial liabilities that are not at fair value through profit or loss can be summarized as follows:

	Three month periods						Nine month periods
	ended March 31,						ended March 31,
	2022			2021			2022			2021
		$			$			$			$

Interest income		(37,046	)		(35,359	)		(37,586	)		(51,430	)
Interest expense (Notes 9, 17)		510,881			306,496			1,764,452			1,083,057
Interest expense (net)		473,835			271,137			1,726,866			1,031,627

	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:

	March 31,			June 30,
	2022			2021
	$			$
Trade receivables aging:
0-30 days		14,718,922			11,691,613
31-90 days		3,214,171			2,786,708
Greater than 90 days		3,315,825			1,350,796
		21,248,918			15,829,117
Expected credit loss provision		(2,829,540	)		(1,094,700	)
		18,419,378			14,734,417

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

	March 31,			June 30,
	2022			2021
	$			$
Expected credit loss provision:
Expected credit loss provision, beginning balance		(1,094,700	)		(431,595	)
Net change in expected credit loss provision during the period		(1,734,840	)		(663,105	)
Expected credit loss provision, ending balance		(2,829,540	)		(1,094,700	)

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

13. Financial instruments (continued)

The Company applies the simplified approach to provide for expected credit losses as prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables and contract assets. The expected credit loss provision is based on the Company’s historical collections and loss experience and incorporates forward-looking factors, where appropriate. The provision matrix below shows the expected credit loss rate for each aging category of trade receivables.

	Total		Up to 30 days past due			Over 30 days past due			Over 90 days past due

Default rates				2.36	%		14.55	%		60.73	%
Trade receivables	$	21,248,918	$	14,718,922		$	3,214,171		$	3,315,825
Expected credit loss provision	$	2,829,540	$	348,074		$	467,652		$	2,013,814

									June 30, 2021
	Total		Up to 30 days past due			Over 30 days past due			Over 90 days past due

Default rates				1.80	%		16.81	%		30.76	%
Trade receivables	$	15,829,117	$	11,691,613		$	2,786,708		$	1,350,796
Expected credit loss provision	$	1,094,700	$	210,648		$	468,484		$	415,568

	Substantially all of the Company’s cash and cash equivalents are held with major Canadian or US financial institutions and thus the exposure to credit risk is considered insignificant. Management actively monitors the Company’s exposure to credit risk under its financial instruments, including with respect to trade receivables.

	Liquidity risk

	Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements. The Company coordinates this planning and budgeting process with its financing activities through its capital management process.

	The Company holds sufficient cash and cash equivalents and working capital, maintained through stringent cash flow management, to ensure sufficient liquidity is maintained. The following are the undiscounted contractual maturities of significant financial liabilities of the Company as at March 31, 2022:

	For the twelve month periods ended
	March 31,		March 31,		March 31,		March 31,
	2023		2024		2025		2026		Thereafter		Total
	$		$		$		$		$		$
Accounts payable and accrued liabilities		30,007,513		-		-		-		-		30,007,513
Sales tax payable		6,172,967		-		-		-		-		6,172,967
Consideration payable		9,473,116		2,198,383		1,753,775		1,753,775		730,740		15,909,789
Operating facility and loans		22,050,000		22,050,000		22,050,000		19,150,000		23,750,000		109,050,000
Lease obligations on right of use assets		4,006,696		3,165,732		2,970,095		2,402,949		6,379,140		18,924,612
Other non-current liabilities		-		-		-		-		882,910		882,910
		71,710,292		27,414,115		26,773,870		23,306,724		31,742,790		180,947,791

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

13.	Financial instruments (continued)

	Foreign currency risk

	A portion of the Company’s transactions occur in a foreign currency (Canadian dollars (CAD), Euros (EUR), and Great British Pounds (GBP)) 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 March 31, 2022, a 10% depreciation or appreciation of the CAD, EUR, and GBP against the U.S. dollar would have resulted in an approximate $12,397 (March 31, 2021 - $45,779) 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 March 31, 2022, a change in the interest rate of 1% per annum would have an impact of approximately $764,000 (March 31, 2021 - $655,500) 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 an asset of $716,714 on March 31, 2022 (June 30, 2021 was a liability of $333,315).

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 period and apart from the financial covenants as discussed in Note 9, the Company is not subject to any other capital requirements imposed by external parties.

15.	Contract liabilities

	Contract liabilities, which includes deferred revenues, represent the future performance obligations to customers in respect of services or customer activation fees for which consideration has been received upfront and is recognized over the expected term of the customer relationship. Contract liabilities as at March 31, 2022 and June 30, 2021 are below:

Opening balance, June 30, 2020	10,820,098
Revenue deferred during the year	19,775,691
Deferred revenue amortized into income during the year	(20,374,484	)
Additions through business combination (Note 20)	5,532,426
Ending balance, June 30, 2021	15,753,731
Revenue deferred during the period	29,754,526
Deferred revenue amortized into income during the period	(31,534,284	)
Additions through business combination (Note 20)	1,667,727
Ending balance, March 31, 2022	15,641,700

Contract liabilities - Current	11,520,197
Contract liabilities - Non-current	4,121,503
	15,641,700

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

16.	Consideration payable

	As described in Note 20, consideration in the amount of $13,269,000 was payable as part of the acquisition of Star2Star. The fair value of consideration payable as of March 31, 2022 was determined using an effective tax rate of 24.56% and a discount rate of 4.9%. The fair value of the consideration payable is dependent upon the Company’s share price, foreign exchange rates and Company’s ability to utilize the underlying tax losses as they become available in each reporting period. As described in Note 20, estimated additional consideration in the amount of $6,840,000 is payable as part of the acquisition of NetFortris Corporation. The fair value of consideration payable as of March 31, 2022 was determined using an discount rate of 5%. For the three and nine month periods ended March 31, 2022, the Company recognized a gain $1,312,354 and $1,208,096 on change in fair value of consideration payable (three and nine month periods ended March 31, 2021 - $nil). The balance of consideration payable as at March 31, 2022 is summarized below:

	$
Opening balance, June 30, 2020	-
Additions through business combination (Note 20)		13,269,000
Gain on change in fair value		(4,167,186	)
Ending balance, June 30, 2021		9,101,814
Additions through business combination (Note 20)		6,840,000
Gain on change in fair value		(1,208,096	)
Ending balance, March 31, 2022		14,733,718

Consideration payable - Current		9,059,353
Consideration payable - Non-current		5,674,365
		14,733,718

17.	Leases: Right-of-use assets and lease obligations

	The Company’s lease obligations and right-of-use assets are presented below:

	Right-of-use assets
		$
Present value of leases
Opening IFRS 16 value as at July 1, 2020		14,353,099
Additions		1,904,906
Addition through business combination (Note 20)		2,584,109
Terminations		(886,786	)
Balance at June 30, 2021		17,955,328
Additions		3,973,528
Addition through business combination (Note 20)		3,217,627
Terminations		(791,458	)
Adjustments due to lease modification		(2,002,180	)
Balance at March 31, 2022		22,352,845

Accumulated depreciation and repayments
Opening IFRS 16 value as at July 1, 2020		2,481,570
Depreciation expense		2,513,417
Terminations		(569,575	)
Balance at June 30, 2021		4,425,412
Depreciation expense		2,236,909
Terminations		(791,458	)
Balance at March 31, 2022		5,870,863

Net book value as at:
June 30, 2021		13,529,916
March 31, 2022		16,481,982

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

17.

Leases: Right-of-use assets and lease obligations (continued)

	$
Present value of leases
Opening IFRS 16 value as at July 1, 2020		12,197,527
Additions		1,904,906
Addition through business combination (Note 20)		2,662,967
Repayments		(2,605,217	)
Interest expense		374,154
Terminations		(291,660	)
Balance at June 30, 2021		14,242,677
Additions		3,973,529
Addition through business combination (Note 20)		3,217,627
Adjustments due to lease modification		(2,107,403	)
Repayments		(2,368,794	)
Interest expense		303,661
Effects of movements on exchange rates		40,485
Balance at March 31, 2022		17,301,782

Lease Obligations - Current		3,549,601
Lease Obligations - Non-current		13,752,181
		17,301,782

18.

Provisions

				Sales returns			Stock
	Warranty			& allowances			rotation
	provision			provision			provision			Total
		$			$			$			$

Balance at June 30, 2020		157,145			69,311			260,000			486,456
Additional provision recognized		84,317			105,853			(234,162	)		(43,992	)
Balance at June 30, 2021		241,462			175,164			25,838			442,464
Additional provision recognized (reversed)		(121,826	)		(31,994	)		(10,488	)		(164,308	)
Balance at March 31, 2022		119,636			143,170			15,350			278,156

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.

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

19.	Segment disclosures

	The Company operates in one operating segment; development, manufacturing, distribution and support of voice and data connectivity components for software-based communication applications. The majority of the Company’s assets are located in Canada and the United States of America (“USA”). The Company sells into three major geographic centers: USA, Canada and other foreign countries. The Company has determined that it has a single reportable segment as the Company’s decision makers review information on a consolidated basis.

	Revenues for group of similar products and services can be summarized for the three and nine month periods ended March 31, 2022 and 2021 as follows:

	Three month periods				Nine month periods
	ended March 31,				ended March 31,
	2022		2021		2022		2021
		$		$		$		$

Products		16,426,405		12,150,289		48,513,812		35,417,983
Services		38,699,460		15,801,805		113,326,780		45,843,964
Total revenues		55,125,865		27,952,094		161,840,592		81,261,947

The sales, in US dollars, in each of these geographic locations for the three and nine month periods ended March 31, 2022 and 2021 as follows:

	Three month periods				Nine month periods
	ended March 31,				ended March 31,
	2022		2021		2022		2021
		$		$		$		$

USA		50,075,265		22,554,714		145,173,449		65,400,183
Canada		1,231,030		771,597		4,134,212		2,675,527
All other countries		3,819,570		4,625,783		12,532,931		13,186,237
Total revenues		55,125,865		27,952,094		161,840,592		81,261,947

The non-current assets, in US dollars, in each of the geographic locations as at March 31, 2022 and June 30, 2021 are below:

	March 31,		June 30,
	2022		2021
		$		$
Canada		6,872,611		6,714,850
USA		536,327,258		480,283,246
Total non-current assets		543,199,869		486,998,096

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

20.

Business combinations

	a)	On March 31, 2021, the Company acquired all of the shares of StarBlue Inc. (dba Star2Star Communications, herein “Star2Star”). The Company paid an aggregate purchase price of $381,636,405, which comprised of $109,392,033 cash consideration (adjusted from $105,000,000 as a result of initial closing adjustments), 15,714,285 common shares at a discounted value of $258,975,372, and an additional consideration payable for future tax benefit in the amount of $13,269,000. The Company issued 3,018,685 common shares (3,142,857 common shares less 124,172 shares representing a holdback for indemnification purposes) on closing of the acquisition, with the remaining 12,571,428 common shares to be issued and distributed in fourteen quarterly installments commencing on April 1, 2022. The fair value of the share consideration is determined using a put option pricing model with a share price of $22.99 ($28.91 CAD), volatility of 56.58%, risk free rate of 0.221% - 0.855%, time to maturity of 0.003 – 4.25 years. The fair value of $13,269,000 of consideration payable is related to estimated tax losses to be utilized in future years, and is determined using an effective tax rate of 24.56% and a discount rate of 4.9%. The Company acquired Star2Star to expand and broaden the suite of service offerings, add key customers and realize synergies by removing redundancies.

		The following table summarizes the fair value of consideration paid on the acquisition date and the allocation of the purchase price to the assets and liabilities acquired.

Consideration	USD
Cash consideration on closing		101,110,566
Net working capital adjustment		446,834
Cash paid relating to debt		2,581,193
Cash held in escrow for working capital		1,000,000
Cash held in escrow for PPP loan forgiveness		4,253,440
Additional consideration for tax		13,269,000
Common shares issued on closing		66,873,399
Common shares reserved in escrow for indemnification		2,129,067
Common shares reserved for future issuance		189,972,906
		381,636,405

Purchase price allocation	USD
Cash		3,830,067
Accounts receivable		5,562,064
Inventory		1,448,237
Property and equipment		5,334,933
Right-of-use assets		2,584,109
Other current assets		1,496,235
Accounts payable and accrued liabilities		(8,324,491	)
Contract liabilities		(5,532,426	)
Other liabilities		(925,334	)
Lease obligations on right-of-use assets		(2,662,967	)
Intangible assets		169,200,000
Deferred tax liability on intangible		(25,476,181	)
Goodwill		235,102,159
		381,636,405

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

20.

Business combinations (continued)

		The Company incurred estimated transaction costs in the amount of $3,887,238 which were expensed and included in the condensed consolidated interim statements of income (loss) and comprehensive income (loss) for the year ended June 30, 2021 (three and nine months ended March 31, 2021 – $3,762,648 and $3,763,456). These costs were including 18,456 common shares valued at $330,460, which were issued at closing to an advisor. The acquisition has been accounted for using the acquisition method under IFRS 3, Business Combinations. During the year ended June 30, 2021, the Company finalized the purchase price allocation and as a result, the comparative figures for the three and nine month periods ended March 31, 2021 have been retrospectively adjusted

	b)	On July 16, 2021, the Company purchased certain assets of M2 Telecom LLC. M2 was a channel partner for the Company’s wholesale Trunking as a Service “TaaS” business and the Company has taken over the sales team. The Company paid an aggregate purchase price of $2.0 million ($2.5 million CAD) which was allocated as goodwill (Note 8).

	c)	On March 28, 2022, the Company acquired NetFortris Corporation. The Company paid an aggregate purchase price of $69,838,570 which comprised of $46,316,600 cash consideration, 1,494,536 common shares at a fair value of $16,681,970. The Company issued 1,494,536 common shares including 327,241 shares representing a holdback for indemnification purposes on closing of the acquisition. The Company estimates that a further payment of $6,840,000 will be paid as part of an earn out that is up to $12,000,000 if certain operating targets are met. The Company incurred estimated transaction costs in the amount of $3,121,257 which were expensed and included in the condensed consolidated interim statements of income (loss) and comprehensive income (loss) for the three month period ended March 31, 2022. The acquisition has been accounted for using the acquisition method under IFRS 3, Business Combinations.

		The following table summarizes the fair value of consideration paid on the acquisition date and the preliminary allocation of the purchase price to the assets and liabilities acquired.

Consideration	USD
Cash consideration on closing		39,766,600
Cash held in escrow for working capital		350,000
Cash held in escrow for telecom taxes		3,400,000
Cash held in escrow for indemnification		2,800,000
Estimated earn out value		6,840,000
Common shares issued on closing		13,029,315
Common shares reserved in escrow for indemnification		3,652,655
		69,838,570

Purchase price allocation	USD
Cash		1,608,600
Accounts receivable		2,008,985
Inventory		689,212
Property and equipment		4,171,942
Right-of-use assets		3,217,627
Other current assets		1,154,710
Deferred tax asset on intangible		9,065,370
Accounts payable and accrued liabilities		(9,877,014	)
Sales tax payable		(5,506,362	)
Contract liabilities		(1,667,727	)
Lease obligations on right-of-use assets		(3,217,627	)
Intangible assets		30,079,749
Goodwill		38,111,105
		69,838,570

Sangoma Technologies Corporation

Notes to the condensed consolidated interim financial statements

For the three and nine month periods ended March 31, 2022 and 2021

(Unaudited in US dollars)

21.	Government assistance

	The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. Government Canada and the Bank of Canada have responded with significant monetary and fiscal interventions designed to stabilize economic conditions as temporary measures and one of them is the Canada Emergency Wage Subsidy (CEWS). The CEWS program offers assistance in the form of wage subsidy for qualifying businesses faced with specified levels of revenue decline, and the subsidy is targeted to either retain workforce on payroll or to re-hire furloughed employees.

	The Company received $nil under the CEWS for the three and nine month periods ended March 31, 2022 (three and nine month periods ended March 31, 2021 – $nil and $106,899) which was recorded as an offset against salaries and wages in operating expenses in the condensed consolidated interim statements of income (loss) and comprehensive income (loss).

22.	Subsequent events

	On April 5, 2022, a total of 857,142 shares were issued to StarBlue seller in accordance with the share purchase agreement. Following this issuance 11,838,458 shares remain to be issued over the next four years.

23.	Authorization of the condensed consolidated interim financial statements

	The condensed consolidated interim financial statements were authorized for issuance by the Board of Directors on May 12, 2022.

13.	Financial instruments (continued)

	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.