UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
(Amendment No. 1)
(Mark One)
| ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission File Number 001-40717
VIQ SOLUTIONS INC.
(Exact name of Registrant as specified in its charter and translation of Registrant’s name into English)
Province of Ontario, Canada
(Jurisdiction of incorporation or organization)
5915 Airport Road
Suite 700
Mississauga, Ontario L4V 1T1
Canada
(Address of principal executive offices)
Sebastien Paré
5915 Airport Road
Suite 700
Mississauga, Ontario L4V 1T1
Canada
Telephone: (905) 948-8266
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares (no par value per share) | VQS | The Nasdaq Stock Market LLC |
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 34,649,697
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Emerging growth company ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Explanatory Note
This Amendment No. 1 on Form 20-F/A to the Annual Report on Form 20-F of VIQ Solutions Inc. (the “Company”) for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission on April 3, 2023 (the “Original Form 20-F”), is being filed to correct a typographical error, as shown in the Consolidated Statement of Cashflow on page F-8 of the Original Form 20-F. As a result of the typographical error, the subtotal “Cash provided by (used in) financing activities” for the year ended December 31, 2022 was incorrectly stated as $(2,873,816) in the Original Form 20-F. The correct number $(2,373,816) is included on page F-8 of this Amendment No. 1.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the complete text of Item 18, “Financial Statements”, as amended, is being filed herewith.
As required by Rule 12b-15 under the Exchange Act, new certificates of our principal executive officer and principal financial officer, and consents of our auditors are being filed as exhibits to this Amendment No. 1 on Form 20-F/A as Exhibits 12.1, 12.2, 13.1, 13.2, 23.1 and 23.2, respectively.
This Amendment No. 1 speaks as of April 3, 2023, which was the filing date of the Original Form 20-F. Other than as expressly set forth above, this Amendment No. 1 does not, and does not purport to, amend, update or restate the information in the Original Form 20-F as filed in the Original Form 20-F, or reflect any events that have occurred after the date of the Original Form 20-F.
Item 17.Financial Statements.
See “Item 18, “Financial Statements”.
Item 18.Financial Statements.
Our audited consolidated financial statements for the years ended December 31, 2022, 2021 and 2020 are included at the end of this Annual Report. The auditors’ report of Ernst & Young LLP for the year ended December 31, 2022 and KPMG LLP for the years ended December 31, 2021 and 2020 are included herein immediately preceding the audited consolidated financial statements.
1
Item 19.Exhibits.
Exhibit |
| Description |
| Incorporation by Reference | ||||||
Schedule/ |
| File |
| Exhibit |
| File Date | ||||
1.1 |
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| 20-F |
| 001-40717 |
| 1.1 |
| May 2, 2022 | |
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1.2 | | | S-8 | | 333-257263 | | 4.1 | | June 18, 2021 | |
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1.2 | | | S-8 | | 333-257263 | | 4.2 | | June 18, 2021 | |
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1.3 | | | S-8 | | 333-257263 | | 4.3 | | June 18, 2021 | |
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1.4 | | | S-8 | | 333-257263 | | 4.4 | | June 18, 2021 | |
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1.5 | | | S-8 | | 333-257263 | | 4.5 | | June 18, 2021 | |
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1.6 | | | S-8 | | 333-257263 | | 4.6 | | June 18, 2021 | |
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2.1 | | | 20-F | | 001-40717 | | 6.1 | | April 3, 2023 | |
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6.1 | | | 6-K | | 001-40717 | | 99.1 | | July 21, 2022 | |
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6.2 | | | 6-K | | 001-40717 | | 99.2 | | July 21, 2022 | |
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6.3 | | | 6-K | | 001-40717 | | 99.4 | | July 21, 2022 | |
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6.4 | | | 6-K | | 001-40717 | | 99.5 | | July 21, 2022 | |
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6.5† | | | 6-K | | 001-40717 | | 99.1 | | January 25, 2023 | |
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8.1 |
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| 20-F | | 001-40717 |
| 8.1 |
| April 3, 2023 | |
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12.1* |
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12.2* |
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13.1** |
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13.2** | | | | | | | | | | |
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19.1 | | | 20-F | | 001-40717 | | 19.1 | | April 3, 2023 | |
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23.1* | | | | | | | | | | |
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23.2* | | | | | | | | | | |
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99.1 | | | 20-F | | 001-40717 | | 99.1 | | April 3, 2023 | |
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101.INS* | | XBRL Instance Document | | | | | | | | |
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101.SCH* | | XBRL Taxonomy Extension Schema Document | | | | | | | | |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | |
*Filed herewith.
**Furnished herewith.
†Certain portions of this exhibit (indicated by asterisks) have been redacted in accordance with Regulation S-K, Item 601(b)(10).
#Indicates a management contract or any compensatory plan, contract or arrangement.
2
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Amendment No. 1 to the annual report on its behalf.
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| VIQ SOLUTIONS INC. |
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| By: | /s/ Sebastien Paré |
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| Chief Executive Officer (Principal Executive Officer) |
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Date: April 13, 2023 |
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3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | |
|
|
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1263) | |
Report of Independent Registered Public Accounting Firm (PCAOB ID: 85) | |
Consolidated Statements of Financial Position as at December 31, 2022 and 2021 | F-5 |
F-6 | |
F-7 | |
Consolidated Statements of Cash Flow for the Years Ended December 31, 2022, 2021 and 2020 | F-8 |
F-9 |
VIQ Solutions Inc.
Consolidated Financial Statements
and Report of Independent Registered Public Accounting Firm thereon
As of December 31, 2022 and December 31, 2021 and for the three years ended December 31, 2022
(Expressed in United States dollars)
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of VIQ Solutions Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial position of VIQ Solutions Inc. (the “Company”) as of December 31, 2022, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flow for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and its financial performance and its cash flows for the year then ended in conformity with International Financial Reporting Standards (“IFRSs”) as issued by the International Accounting Standards Board.
We also audited the adjustments described in Note 4 that were applied to restate the 2021 consolidated financial statements for measurement period adjustments in accordance with IFRS 3 Business Combinations. In our opinion, such adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2021 and 2020 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2021 and 2020 consolidated financial statements taken as a whole.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
We have served as the Company’s auditor since 2022.
Toronto Canada
March 30, 2023
F-2
KPMG LLP
Vaughan Metropolitan Centre
100 New Park Place
Suite 1400
Vaughan, ON Canada L4K 0J3
Telephone (905) 265-5900
Fax (905) 265-6390
www.kpmg.ca
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of VIQ Solutions Inc.:
Opinion on the Consolidated Financial Statements
We have audited, before the effects of the adjustments made to retrospectively adjust the purchase price allocation relating to measurement period adjustments for the business combination as described in Note 4, the consolidated statement of financial position of VIQ Solutions Inc. (the Company) as of December 31, 2021, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). The 2021 consolidated financial statements before the effects of the adjustments described in Note 4 are not presented herein. In our opinion, the consolidated financial statements, before the effects of the adjustments made to retrospectively adjust the purchase price allocation relating to measurement period adjustments for the business combination as described in Note 4, present fairly, in all material respects the financial position of the Company as of December 31, 2021 and its financial performance and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We were not engaged to audit, review, or apply any procedures to the adjustments related to the retrospective change described in Note 4 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
F-3
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
We served as the Company’s auditor from 2020 to 2022.
Vaughan, Canada
May 2, 2022
F-4
VIQ Solutions Inc.
Consolidated Statements of Financial Position
(Expressed in United States dollars)
| | | | | | |
|
| December 31, 2022 |
| December 31, 2021 | ||
| | | | | Restated (note 4) | |
Assets |
| |
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Current assets |
| |
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|
Cash | | $ | 1,657,571 | | $ | 10,583,534 |
Trade and other receivables, net of allowance for doubtful accounts (notes 5, 6) | |
| 5,305,728 | |
| 5,594,368 |
Income tax recoverable (note 21) | | | 104,670 | | | — |
Inventories | |
| 37,807 | |
| 49,557 |
Prepaid expenses and deposits | |
| 2,050,661 | |
| 2,054,793 |
Non-current assets | |
| 9,156,437 | |
| 18,282,252 |
| |
| | |
| |
Restricted cash | |
| 463,743 | |
| 303,945 |
Property and equipment (note 7) | |
| 1,432,133 | |
| 460,974 |
Right-of-use assets,net (note 19) | |
| 1,058,600 | |
| 1,134,493 |
Intangible assets, net (notes 4, 8) | |
| 10,731,917 | |
| 14,928,984 |
Goodwill (notes 4, 8) | |
| 12,047,048 | |
| 12,440,557 |
Deferred tax assets (note 21) | |
| 655,004 | |
| 464,800 |
Total assets | | $ | 35,544,882 | | $ | 48,016,005 |
| | | | | | |
Liabilities | |
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Current liabilities | |
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Trade and other payables and accrued liabilities | | $ | 5,937,880 | | $ | 5,679,628 |
Income tax payable (note 21) | |
| 45,212 | |
| 97,784 |
Share-based payment liability (note 11) | | | 31,487 | | | 551,201 |
Derivative warrant liability (note 10) | | | 290,712 | | | 1,862,876 |
Current portion of long-term debt (note 9) | |
| 8,634,258 | |
| 1,109,713 |
Current portion of lease obligations (note 20) | |
| 487,673 | |
| 287,901 |
Contract liabilities | |
| 1,745,415 | |
| 1,003,187 |
Non-current liabilities | |
| 17,172,637 | |
| 10,592,290 |
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| |
Deferred tax liability (note 21) | |
| 868,643 | |
| 1,224,640 |
Long-term debt (note 9) | |
| 19,812 | |
| 11,999,108 |
Long-term contingent consideration (note 4) | |
| — | |
| 166,603 |
Long-term lease obligations (note 20) | |
| 718,575 | |
| 900,868 |
Other long-term liabilities | |
| 1,121,805 | |
| 1,042,938 |
Total liabilities | |
| 19,901,472 | |
| 25,926,447 |
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Shareholders’ Equity | |
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Capital stock (note 11) | |
| 74,690,527 | |
| 72,191,764 |
Contributed surplus | |
| 5,892,192 | |
| 4,842,208 |
Accumulated other comprehensive income (loss) | |
| (1,214,354) | |
| 74,526 |
Deficit | |
| (63,724,955) | |
| (55,018,940) |
Total shareholders’ equity | | | 15,643,410 | | | 22,089,558 |
Total liabilities and shareholders’ equity | | $ | 35,544,882 | | $ | 48,016,005 |
Subsequent events (note 24)
See accompanying notes to consolidated financial statements.
| | |
Approved by the Board | Signed “Larry Taylor” | Signed “Sebastien Paré” |
| Larry Taylor, Director | Sebastien Paré, CEO and Director |
F-5
VIQ Solutions Inc.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in United States dollars)
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| Year ended December 31 | |||||||
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| 2022 |
| 2021 |
| 2020 | |||
Revenue (note 16) | | $ | 45,843,929 | | $ | 31,046,812 | | $ | 31,749,693 |
Cost of sales | |
| 23,918,226 | |
| 16,123,853 | | | 15,599,437 |
Gross profit | |
| 21,925,703 | |
| 14,922,959 | | | 16,150,256 |
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Expenses (note 17) | |
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Selling and administrative expenses | |
| 24,526,303 | |
| 19,119,713 | | | 11,034,902 |
Research and development expenses | |
| 734,115 | |
| 1,092,108 | | | 1,074,178 |
Stock-based compensation (note 12) | |
| 2,779,312 | |
| 8,495,189 | | | 725,316 |
Gain on revaluation of options (note 11) | | | (1,511,399) | | | (1,028,055) | | | — |
Gain on revaluation of RSUs (note 11) | | | (550,260) | | | (242,595) | | | — |
Gain on revaluation of the derivative warrant liability (note 10) | | | (4,255,017) | | | (1,368,180) | | | — |
Foreign exchange loss (gain) (note 22) | |
| (452,068) | |
| 22,130 | | | (132,306) |
Depreciation (notes 7, 19) | |
| 579,249 | |
| 257,099 | | | 445,995 |
Amortization (note 8) | |
| 5,508,954 | |
| 4,384,502 | | | 4,813,248 |
Interest expense (note 9) | |
| 1,052,618 | |
| 1,331,100 | | | 4,934,517 |
Accretion and other financing costs (note 9) | |
| 1,231,194 | |
| 967,106 | | | 1,216,949 |
Loss (gain) on contingent consideration (note 4) | |
| 80,071 | |
| (332,569) | | | (946,503) |
Loss on revaluation of conversion feature liability (note 9) | |
| — | |
| — | | | 1,308,440 |
Loss on repayment of long-term debt (note 9) | |
| — | |
| — | | | 1,497,804 |
Loss on extinguishment of debt (note 9) | | | 747,865 | | | — | | | — |
Impairment of goodwill and intangible assets | | | — | | | — | | | 2,258,369 |
Impairment of property and equipment (note 7) | |
| 15,246 | |
| — | | | — |
Restructuring costs | | | 323,075 | | | 432,702 | | | — |
Business acquisition costs | | | 433,372 | | | 539,734 | | | 19,058 |
Other income | |
| (1,291) | |
| (12,003) | | | (10,373) |
Total expenses | |
| 31,241,339 | |
| 33,657,981 | | | 28,239,594 |
| | | | | | | | | |
Current income tax (recovery) expense (note 21) | |
| (105,256) | |
| (875) | | | 106,986 |
Deferred income tax (recovery) expense (note 21) | |
| (504,365) | |
| 944,602 | | | (1,051,018) |
Income tax (recovery) expense (note 21) | |
| (609,621) | |
| 943,727 | | | (944,032) |
Net loss for the year | | $ | (8,706,015) | | $ | (19,678,749) | | $ | (11,145,306) |
Exchange gain (loss) on translating foreign operations | |
| (1,288,880) | |
| 153,432 | | | 56,152 |
Comprehensive loss for the year | | $ | (9,994,895) | | $ | (19,525,317) | | $ | (11,089,154) |
Net loss per share (note 13) | |
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Basic | | | (0.28) | | | (0.74) | | | (0.62) |
Diluted | | | (0.28) | | | (0.74) | | | (0.62) |
Weighted average number of common shares outstanding – basic (note 13) | |
| 31,648,001 | |
| 26,448,594 | | | 18,080,533 |
Weighted average number of common shares outstanding – diluted (note 13) | |
| 31,648,001 | |
| 26,448,594 | | | 18,080,533 |
See accompanying notes to consolidated financial statements.
F-6
VIQ Solutions Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in United States dollars)
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| | | | | | | | | | | | | Accumulated other | | Total | ||
| | Capital stock | | Contributed | | | | | comprehensive | | Shareholders’ | ||||||
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| Number |
| Amount |
| surplus |
| Deficit |
| income (loss) |
| equity | |||||
Balance as at December 31, 2021 |
| 29,881,717 | | $ | 72,191,764 | | $ | 4,842,208 | | $ | (55,018,940) | | $ | 74,526 | | $ | 22,089,558 |
Comprehensive loss for the year |
| — | |
| — | |
| — | |
| (8,706,015) | |
| (1,288,880) | |
| (9,994,895) |
Shares issued due to Private Placement (note 10) |
| 3,551,852 | |
| 1,898,271 | |
| — | |
| — | |
| — | |
| 1,898,271 |
Shares issued due to Crown Capital debt amendment (note 9) |
| 1,078,901 | |
| 442,626 | |
| — | |
| — | |
| — | |
| 442,626 |
Shares issued due to exercise of restricted share units (note 11) |
| 137,227 | | | 157,866 | | | (214,539) | | | — | | | — | | | (56,673) |
Stock-based compensation (note 12) |
| — | |
| — | |
| 1,264,523 | |
| — | |
| — | |
| 1,264,523 |
Balance as at December 31, 2022 |
| 34,649,697 | | $ | 74,690,527 | | $ | 5,892,192 | | $ | (63,724,955) | | $ | (1,214,354) | | $ | 15,643,410 |
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| | | | | | | | | | | | | Accumulated other | | Total | ||
| | Capital stock | | Contributed | | | | | comprehensive | | Shareholders’ | ||||||
|
| Number |
| Amount |
| surplus |
| Deficit |
| loss |
| equity | |||||
Balance at December 31, 2020 |
| 23,591,427 | | $ | 50,234,551 | | $ | 4,970,945 | | $ | (35,340,191) | | $ | (78,906) | | $ | 19,786,399 |
Comprehensive income (loss) from continuing operations for the period |
| — | |
| — | |
| — | |
| (19,678,749) | |
| 153,432 | |
| (19,525,317) |
Shares issued due to Private Placement (note 10) |
| 4,235,294 | |
| 13,485,003 | |
| — | |
| — | |
| — | |
| 13,485,003 |
Shares issued due to exercise of stock options (note 11) |
| 203,333 | |
| 393,313 | |
| (147,153) | |
| — | |
| — | |
| 246,160 |
Shares issued due to exercise of warrants (note 11) |
| 1,123,878 | |
| 2,746,706 | |
| (654,430) | |
| — | |
| — | |
| 2,092,276 |
Shares issued due to exercise of restricted share units (note 11) | | 727,785 | | | 5,332,191 | | | (6,006,736) | | | — | | | — | | | (674,545) |
Stock-based compensation (note 12) |
| — | |
| — | |
| 6,679,582 | |
| — | |
| — | |
| 6,679,582 |
Balance at December 31, 2021 |
| 29,881,717 | | $ | 72,191,764 | | $ | 4,842,208 | | $ | (55,018,940) | | $ | 74,526 | | $ | 22,089,558 |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Accumulated | | | | |
| | | | | | | | | | | | | other | | Total | ||
| | Capital stock | | Contributed | | | | | comprehensive | | Shareholders’ | ||||||
|
| Number |
| Amount |
| surplus |
| Deficit |
| loss |
| equity | |||||
Balance as at December 31, 2019 |
| 10,852,617 | | $ | 21,987,937 | | $ | 4,552,528 | | $ | (24,194,885) | | $ | (135,058) | | $ | 2,210,522 |
Comprehensive income (loss) for the year |
| — | |
| — | |
| — | |
| (11,145,306) | |
| 56,152 | |
| (11,089,154) |
Issuance of common shares in private placement, net of issuance costs (notes 10,11) |
| 4,705,900 | |
| 13,747,345 | |
| — | |
| — | |
| — | |
| 13,747,345 |
Shares issued due to exercise of stock options (note 11) |
| 92,500 | |
| 129,982 | |
| (46,416) | |
| — | |
| — | |
| 83,566 |
Shares issued due to exercise of warrants and warrant repricing (notes 10, 11) |
| 1,154,759 | |
| 1,940,925 | |
| 3,324 | |
| — | |
| — | |
| 1,944,249 |
Shares issued due to convertible note (note 9) | | 6,785,651 | | | 12,428,362 | | | — | | | — | | | — | | | 12,428,362 |
Stock-based compensation (note 12) |
| — | |
| — | |
| 461,509 | |
| — | |
| — | |
| 461,509 |
Balance as at December 31, 2020 |
| 23,591,427 | | $ | 50,234,551 | | $ | 4,970,945 | | $ | (35,340,191) | | $ | (78,906) | | $ | 19,786,399 |
See accompanying notes to consolidated financial statements.
F-7
VIQ Solutions Inc.
Consolidated Statements of Cashflow
(Expressed in United States dollars)
| | | | | | | | | |
| | Year ended December 31 | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Cash provided by (used in) |
| |
|
| |
| | | |
Operating activities |
| |
|
| |
| | | |
Net loss for the year | | $ | (8,706,015) | | $ | (19,678,749) | | $ | (11,145,306) |
Items not affecting cash: | |
|
| |
|
| | | |
Depreciation (notes 7, 19) | |
| 579,249 | |
| 257,099 | | | 445,995 |
Amortization (note 8) | |
| 5,508,954 | |
| 4,384,502 | | | 4,813,249 |
Stock-based compensation (notes 11, 12) | |
| 2,779,312 | |
| 8,495,189 | | | 725,316 |
Loss on revaluation of conversion feature liability (note 9) | |
| — | |
| — | | | 1,308,440 |
Loss on repayment of long-term debt (note 9) | |
| — | |
| — | | | 1,497,804 |
Accretion and other financing costs (note 9) | |
| 1,231,194 | |
| 967,106 | | | 1,216,949 |
Interest expense (note 9) | |
| 1,052,617 | |
| 1,331,100 | | | 4,934,517 |
Income tax (recovery) expense (note 21) | |
| (609,621) | |
| 943,727 | | | (944,032) |
(Loss) gain on contingent consideration (note 4) | |
| 80,071 | |
| (332,569) | | | (946,503) |
Gain on revaluation of options, RSUs, and derivative warrant liability (notes 10,11) | | | (6,316,676) | | | (2,638,830) | | | — |
Impairment of goodwill and intangibles (note 4) | |
| — | |
| — | | | 2,258,369 |
Impairment of property and equipment (note 7) | | | 15,246 | | | — | | | — |
Payment of taxes (note 21) | | | — | | | (113,853) | | | — |
Loss on extinguishment of debt (note 9) | | | 747,865 | | | — | | | — |
Other income | |
| (1,291) | |
| (12,003) | | | (10,373) |
Foreign exchange (gain) loss (note 22) | |
| (452,068) | |
| 22,130 | | | (132,306) |
Unrealized foreign exchange (gain) loss | |
| 360,190 | |
| 139,250 | | | 174,251 |
Changes in non-cash operating working capital (note 14) | |
| 1,395,097 | |
| (2,002,506) | | | (773,287) |
Cash provided by (used in) operating activities | |
| (2,335,876) | |
| (8,238,407) | | | 3,423,083 |
Investing activities | |
|
| |
|
| | |
|
Purchase of property and equipment (note 7) | |
| (1,202,489) | |
| (79,204) | | | (202,297) |
Business acquisitions (note 4) | |
| (298,927) | |
| (9,135,131) | | | (4,411,500) |
Earn out payment (note 4) | |
| (539,380) | |
| (2,600,536) | | | (377,312) |
Development costs related to internally generated intangible assets (note 8) | |
| (1,828,983) | |
| (2,364,733) | | | (1,642,783) |
Change in restricted cash | |
| (234,286) | |
| (261,110) | | | (5,299) |
Cash used in investing activities | |
| (4,104,065) | |
| (14,440,714) | | | (6,639,191) |
| | | | | | | | | |
Financing activities | |
|
| |
|
| | |
|
Issuance of share capital, net of issuance costs (notes 10, 11) | |
| 4,053,476 | |
| 16,715,000 | | | 13,747,345 |
Issuance cost reimbursement | | | — | | | 1,673 | | | — |
Proceeds from debt, net of issuance costs (note 9) | | | — | | | — | | | 4,827,175 |
Proceeds from exercise of stock options (note 11) | |
| — | |
| 246,160 | | | 10,568 |
Proceeds from exercise of warrants (note 11) | |
| — | |
| 2,092,276 | | | 1,859,963 |
Payment of amendment fees on debt (note 9) | | | (239,880) | | | — | | | — |
Repayment of debt (note 9) | |
| (4,761,890) | |
| (1,070,275) | | | (838,031) |
Repayment of lease obligations (note 20) | |
| (270,795) | |
| (150,924) | | | (338,276) |
Payment of interest on debt (note 9) | |
| (1,040,596) | |
| (1,277,202) | | | (1,052,576) |
Payment of interest on lease obligations (note 20) | |
| (114,131) | |
| (34,712) | | | (53,549) |
Cash provided by (used in) financing activities | |
| (2,373,816) | |
| 16,521,996 | | | 18,162,619 |
| | | | | | | | | |
Net increase (decrease) in cash for the year | |
| (8,813,757) | |
| (6,157,125) | | | 14,946,511 |
Cash, beginning of year | |
| 10,583,534 | |
| 16,835,671 | | | 1,707,654 |
Effect of exchange rate changes on cash | |
| (112,206) | |
| (95,012) | | | 181,506 |
Cash, end of year | | $ | 1,657,571 | | $ | 10,583,534 | | $ | 16,835,671 |
See accompanying notes to consolidated financial statements.
F-8
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
1.Nature of operations
VIQ Solutions Inc. (“VIQ” or the “Company”) is a technology and service platform provider for digital evidence capture, retrieval, and content management. VIQ’s modular software allows customers to easily integrate the platform at any stage of their organization’s digitization, from the capture of digital content from video and audio devices through to online collaboration, mobility, data analytics, and integration with sensors, facial recognition, speech recognition, and case management or patient record systems. VIQ operates worldwide with a network of partners including security integrators, audio-video specialists, and hardware and data storage suppliers.
The Company also provides recording and transcription services directly to a variety of clients including medical, courtrooms, legislative assemblies, hearing rooms, inquiries and quasi-judicial clients in numerous countries including Canada, the United Kingdom, the United States and Australia.
VIQ was incorporated by articles of incorporation in the province of Alberta in November 2004. On June 21, 2017, the Company continued under articles of continuance in the province of Ontario. The Company’s head offices are located at 700 – 5915 Airport Road, Mississauga, Ontario, L4V 1H1. VIQ is a public company and the Company graduated from the Toronto Venture Exchange to the Toronto Stock Exchange in 2021. The Company’s common shares began trading on the TSX and Nasdaq, under trading symbol VQS, at the market open on January 21, 2021, and August 12, 2021, respectively.
On December 13, 2021, the Company acquired the assets of Auscript Australasia Pty Ltd. (“Auscript”). Refer to note 4 for details on the acquisition.
2.Basis of preparation
(a) | Statement of compliance |
These consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements have been prepared using the accounting policies in note 3. The preparation of consolidated financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment and complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 2d and 3.
These consolidated financial statements have been authorized for issue in accordance with a resolution from the Board of Directors on March 30, 2023.
(b) | Basis of measurement |
The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets and financial liabilities to fair value as noted below. Presentation of the consolidated statements of financial position differentiates between current and non-current assets and liabilities. The consolidated statements of loss and comprehensive loss are presented using the function classification of expenses.
F-9
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(c) | Functional currency, presentation currency and foreign currency translation |
The financial results of each subsidiary consolidated in the Company’s consolidated financial statements are measured using the subsidiary’s functional currency, which is the currency of the primary economic environment in which the entity operates for each of the Company’s wholly owned subsidiaries. The following are the functional currencies of each of the subsidiaries:
| | |
Company/Subsidiary |
| Functional currency |
VIQ Solutions Inc. |
| CAD |
Dataworxs Systems Limited |
| CAD |
VIQ Solutions, Inc. |
| USD |
VIQ Australia PTY Ltd. |
| AUD |
Dataworxs Systems Australia Ltd. |
| AUD |
VIQ Solutions PTY Ltd. |
| AUD |
VIQ Solutions Australia PTY Ltd. |
| AUD |
VIQ PTY Ltd. |
| AUD |
VIQ Australia Services PTY Ltd. |
| AUD |
VIQ Services Inc. |
| USD |
Net Transcripts, Inc. |
| USD |
Hometech, Inc. |
| USD |
Transcription Express, Inc. |
| USD |
VIQ Media Transcription Inc. |
| USD |
wordZexpressed, Inc. |
| USD |
VIQ Solutions (UK) Limited |
| GBP |
VIQ Services (UK) Limited |
| GBP |
The Transcription Agency LLP |
| GBP |
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in currencies other than an operation’s functional currency are recognized in the consolidated statements of loss and comprehensive loss.
| | | | | | |
USD / CAD exchange rate |
| December 31, 2022 |
| December 31, 2021 |
| December 31, 2020 |
Closing at the reporting date |
| 0.7370 |
| 0.7874 | | 0.7847 |
Average rate for the year |
| 0.7685 |
| 0.7976 | | 0.7480 |
| | | | | | |
USD / AUD exchange rate |
| December 31, 2022 |
| December 31, 2021 |
| December 31, 2020 |
Closing at the reporting date |
| 0.6805 |
| 0.7261 | | 0.7708 |
Average rate for the year |
| 0.6940 |
| 0.7525 | | 0.6901 |
| | | | | | |
USD / GBP exchange rate |
| December 31, 2022 |
| December 31, 2021 |
| December 31, 2020 |
Closing at the reporting date |
| 1.2103 |
| 1.3510 | | 1.3648 |
Average rate for the year |
| 1.2368 |
| 1.3762 | | 1.2831 |
The financial statements of entities that have a functional currency different from the presentation currency of USD are translated into USD as follows: assets and liabilities at the closing rate at the date of the consolidated statement of financial position and income and expenses at the average rate of the period as this is considered a reasonable approximation to actual rates. All resulting changes are recognized in other comprehensive income (loss) as Exchange gain (loss) on translating foreign operations.
The Company has monetary items that are receivable from foreign operations. A monetary item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the parent company’s net investment in that foreign operation. Such exchange differences are recognized initially in other comprehensive income and reclassified from equity to net loss on disposal of the net investment in foreign operations.
F-10
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
(d) | Use of estimates and judgements |
The preparation of the consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the application of the Company’s accounting policies and the amounts reported in the consolidated financial statements and the related notes. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. These estimates have been applied in a manner consistent with that in prior periods and there are no known trends, commitments, events or uncertainties that the Company believes will materially affect the assumptions utilized in these consolidated financial statements. Estimates and underlying assumptions are reviewed on an ongoing basis and revisions to estimates are recognized prospectively. The estimates are impacted by many factors, some of which are highly uncertain, and actual results may differ from those estimates
The continuing uncertainty around the outbreak of the novel coronavirus (“COVID-19”) pandemic required the use of judgments and estimates in the preparation of the consolidated financial statements for the years ended December 31, 2022 and 2021. The future impact of COVID-19 uncertainties could generate, in future reporting periods, a significant impact to the reported amounts of assets, liabilities, revenue and expenses in these and any future consolidated financial statements. Examples of accounting estimates and judgments that may be impacted by the pandemic include, but are not limited to, impairment of goodwill and intangible assets and allowance for doubtful accounts.
The areas with significant judgements and estimates are as follows:
● | Stock-based compensation – Management uses judgment to determine the inputs to the Black-Scholes option pricing model including the expected option life volatility and forfeiture rates for equity issued under the Company’s stock option plan. Changes in these assumptions will impact the calculation of fair value and the amount of compensation expense recognized in the consolidated statements of loss and comprehensive loss. |
● | Warrants – Similar to other stock-based compensation, management uses judgment to determine the inputs to the Black-Scholes option pricing model including the volatility and expected life. Changes in these assumptions will impact the calculation of fair value and the value attributed to the warrants. |
● | Internally generated development costs – Management monitors the progress of internal research and development projects and uses judgment to distinguish research from the development phase. Expenditures during the research phase are expensed as incurred. Development costs are recognized as an intangible asset when the Company can demonstrate certain criteria in accordance with IAS 38, Intangible Assets. |
● | Functional currency – The functional currency of the Company and its subsidiaries requires management judgment and it has been assessed by management based on consideration of the currency and economic factors that mainly influence revenues, operating costs, financing and related transactions. Changes to these factors may have an impact on the judgment applied in the future determination of the Company’s and its subsidiaries’ functional currency. |
● | Income taxes – At the end of each reporting period, the Company assesses whether the realization of deferred tax benefits is sufficiently probable to recognize deferred tax assets. This assessment requires the exercise of judgment on the part of management with respect to, among other things, benefits that could be realized from available income tax strategies and future taxable income, as well as other positive and negative factors. The recorded amount of total deferred tax assets could be reduced if estimates of projected future taxable income and benefits from available income tax strategies are lowered, or if changes in current income tax regulations are enacted that impose restrictions on the timing or extent of the Company’s ability to utilize deferred tax benefits. The Company’s effective income tax rate can significantly vary quarter-to-quarter for various reasons, including the mix and volume of business in lower income tax jurisdictions and in jurisdictions for which no deferred income tax assets have been recognized because management believed it was not probable that future taxable profit would be available against which income tax losses and deductible temporary differences could be utilized. The Company’s effective income tax rate can also vary due to the impact of foreign exchange fluctuations. |
F-11
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
● | Allocation of the transaction price to multiple performance obligations in contracts with customers - Contracts with customers sometimes include promises to deliver multiple products and services. Determining whether such bundled products and services are considered i) distinct performance obligations that should be separately recognized, or ii) non-distinct and therefore should be combined with another good or service and recognized as a combined unit of accounting may require judgment. The determination of the standalone selling price (“SSP”) is based on the selling prices charged by the Company when it sells each of the products and services separately. The total transaction price is allocated to each of the distinct performance obligations using the relative SSP of the various products and services. In general, SSP for support and maintenance is established as a percentage of the software license fee as supported by internal analysis of similar vendor contracts. SSP for licenses as well as for professional services is established based on observable prices for the same or similar services when sold separately. Management exercises judgment in determining whether a contract’s outcome can be estimated reliably. Management also applies estimates in the calculation of future contract costs and related profitability as it relates to labour hours and other considerations, which are used in determining the value of amounts recoverable on contracts and timing of revenue recognition. Estimates are continually and routinely revised based on changes in the facts relating to each contract. |
● | Allowance for doubtful accounts - The Company performs impairment testing annually for accounts receivable in accordance with IFRS 9, Financial Instruments (“IFRS 9”). The expected credit loss (“ECL”) model requires judgment, including consideration of how changes in economic factors affect ECLs, which are determined on a probability-weighted basis. The Company applies the simplified approach to determine ECLs on trade receivables by using a provision matrix based on historical credit loss experiences. The historical results were used to calculate the run rates of default, which were then applied over the expected life of the trade receivables, adjusted for forward-looking estimates. |
● | Goodwill impairment testing and recoverability of assets – Goodwill and indefinite-life intangible assets are reviewed annually for impairment, or more frequently when there are indicators that impairment may have occurred, by comparing the carrying value of the asset, or the cash-generating unit (“CGU”) reflecting the lowest level at which assets generate independent cash flows, to the asset or CGU’s recoverable amount. Management uses judgment in assessing the CGUs and estimates the recoverable values of the Company’s CGUs by using internally developed valuation models that consider various factors and assumptions including earnings margins, revenue growth rates, discount rates and terminal growth rates.. The use of different assumptions and estimates could influence the determination of the existence of impairment and the valuation of goodwill and indefinite-life intangible assets. The recoverable amounts of the CGUs are estimated based on the assessment of the higher of their value in use using a discounted cash flow approach and fair value less cost to sell. |
● | Purchase price allocation – In a business combination, all identifiable assets acquired, and liabilities and contingent liabilities assumed are recorded at their fair values. For any intangible asset acquired, management or where the complexity of the estimate requires, an independent valuation expert at the direction of management, develops the fair value using appropriate valuation techniques, which are generally based on a forecast of the revenue attributable to the acquired business, annual customer attrition rates and royalty rates, earnings before interest, taxes, depreciation and amortization and discount rates. The valuations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied. All acquisitions have been accounted for using the acquisition method. Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods. However, the measurement period will last no greater than one year from the acquisition date. |
● | Contingent consideration - The Company measures the contingent consideration payable in a business combination at the estimated fair value at each reporting date. The fair value is estimated based on the range of possible outcomes and management’s assessment of the likelihood of each outcome. |
● | Incremental borrowing rate used to discount leases – The Company’s incremental borrowing rate is used to estimate the initial value of the lease liability and associated right-of-use asset. The Company’s incremental borrowing rate is determined with reference to the Company’s long-term debt, which represents the amount that the Company could borrow at within a similar time frame. |
F-12
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
● | Property and equipment and definite life Intangible assets - the recoverability of plant and equipment and definite life intangible assets are amortized over their useful economic lives and assessed for impairment whenever there is an indication that the intangible assets may be impaired. The amortization period and the amortization method for intangible assets with finite useful lives are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the assets are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. |
3.Significant accounting policies
i) | Significant accounting policies |
Basis of consolidation
The consolidated financial statements of the Company include the accounts of VIQ and the consolidated accounts of all of its wholly owned subsidiaries including (i) the operations of VIQ Solutions, Inc.; (ii) the operations of Dataworxs Systems Limited and its wholly owned subsidiary Dataworxs Australia Pty Ltd. (collectively, “Dataworxs”); (iii) the operations of VIQ Australia Pty. Limited and its wholly-owned subsidiaries VIQ Solutions Pty. Ltd. , VIQ Solutions Australia PTY Ltd, VIQ Pty Ltd and VIQ Australia Services Pty Ltd. (collectively, “VIQ Australia Pty Limited”), (iv) the operations of VIQ Services Inc. and its wholly owned subsidiaries, Net Transcripts, Inc., Transcription Express, Inc., HomeTech, Inc., VIQ Media Transcription Inc. (“VIQ Media”), and wordZXpressed, Inc., and (v) the operations of VIQ Solutions (UK) Limited, and its wholly owned subsidiary VIQ Services (UK) Limited and The Transcription Agency LLP (“TTA”).
Subsidiaries are entities controlled by the Company where control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries are included in the consolidated financial statements from the date control is obtained until the date control ceases. All intercompany balances, transactions, income and expenses have been eliminated on consolidation.
Inventories
Inventories of finished goods and raw materials and supplies are valued at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Cost is determined on a weighted average basis. Reversals of previous write-downs to net realizable value are recognized when there is a subsequent increase in the value of inventories.
Restricted cash
Restricted cash is recorded at fair value. Changes to fair value are recorded in the consolidated statements of loss and comprehensive loss in the period incurred. Restricted cash is required to satisfy operating lease and customer contractual requirements.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Rates and basis of depreciation applied to write off the cost of property and equipment to their residual values over their estimated useful lives are as follows:
| | |
Furniture and fixtures |
| 10-13 years |
Computer , software and transcription in equipment |
| 3-4 years |
Leasehold improvements |
| Over the term of the lease |
F-13
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
An asset’s residual value, useful life and depreciation method are reviewed, and adjusted prospectively if appropriate, on an annual basis. Repairs and maintenance costs are charged to the consolidated statements of loss and comprehensive loss during the period which they are incurred. Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included as part of selling and administrative expenses in the consolidated statements of loss and comprehensive loss.
Intangible assets
Intangible assets with finite lives that are acquired separately are measured on initial recognition at fair value, which comprises the purchase price plus any directly attributable costs of preparing the asset for its intended use.
The Company’s acquired intangible assets consist of customer relationships, acquired technology, non-compete agreements and brands acquired in business combinations. These intangible assets are recorded at their fair value at the respective acquisition date. The Company uses the income approach as a valuation technique that calculates the fair value of an intangible asset based on the present value of future cash flows that the asset can be expected to generate over its remaining useful life. The discounted cash flow (“DCF”) is the methodology used, which is a form of the income approach that begins with a forecast of the annual cash flows a market participant would expect the subject intangible asset to generate over a discrete projection period. The future cash flows for each of the years in the discrete projection period are then converted to their present value equivalent using a rate of return appropriate for the risk of achieving the intangible assets’ projected cash flows, again, from a market participant perspective. The Company relies on the relief-from-royalty method to value the acquired technology and brand and the Multi-Period Excess Earnings Method (“MEEM”) to value customer relationship assets. After initial recognition, intangible assets are measured at cost less accumulated amortization and impairment losses.
The estimated useful lives at acquisition date for the Company’s classes of intangible assets are as follows:
| | |
Acquired technology |
| 5 years |
Customer relationships |
| 4.8 – 13 years |
Brands |
| 1 – 2 years |
Non-compete agreements |
| Term of agreement |
The estimated useful life and amortization methods are reviewed annually, with the effect of any change in estimate being accounted for on a prospective basis. These assets are subject to an impairment test as described below. The Company’s internally generated intangible assets consist of developed technologies. The Company incurs costs associated with the design and development of new products. Expenditures during the research phase are expensed as incurred. Expenditures during the development phase are capitalized if the Company can demonstrate each of the following criteria: (i) the technical feasibility of completing the intangible asset so that it will be available for use or sale, (ii) its intention to complete the intangible asset and use or sell it, (iii) its ability to use or sell the intangible asset, (iv) how the intangible asset will generate probable future economic benefits, (v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and (vi) its ability to measure reliably the expenditure attributable to the intangible asset during its development; otherwise, they are expensed as incurred. Costs associated with maintaining computer software programs are recognized as an expense as incurred. Internally generated software development costs recognized as intangible assets are carried at cost less any accumulated amortization on a straight- line basis over 3 years after they are completed. These assets are subject to an impairment test as described below.
Business combinations
IFRS 3, Business Combinations (“IFRS 3”), requires business combinations to be accounted using the acquisition method. Under this method, the cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree.
F-14
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation based on the facts and circumstances at the acquisition date. Business acquisition costs incurred are expensed and included in transaction costs. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The excess of (i) the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the (ii) fair value of the net identifiable assets acquired is recorded as goodwill.
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. For the purposes of impairment testing, goodwill is allocated to each CGU or a group of CGUs that is expected to benefit from the synergies of the combination.
A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in the consolidated statements of loss and comprehensive loss. An impairment loss recognized for goodwill is not reversed in subsequent periods.
On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Determining whether goodwill is impaired requires an estimation of the higher of fair value less costs of disposal and value in use of the CGUs to which goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate present value.
Capital stock
Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. The proceeds from the issuance of units (shares and warrants) are bifurcated between capital stock and warrants, with the value of the warrants determined using the Black-Scholes option pricing model.
Financial instruments
Financial assets
Recognition and initial measurement
The Company recognizes financial assets when it becomes party to the contractual provisions of the instrument. Financial assets are measured initially at their fair value plus, in the case of financial assets not subsequently measured at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to their acquisition. Transaction costs attributable to the acquisition of financial assets subsequently measured at fair value through profit or loss are expensed in the consolidated statements of loss and comprehensive loss when incurred.
Classification and subsequent measurement
On initial recognition, financial assets are classified as subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or FVTPL. The Company determines the classification of its financial assets, together with any embedded derivatives, based on the business model for managing the financial assets and their contractual cash flow characteristics.
F-15
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Financial assets are classified as follows:
● | Amortized cost - Assets that are held for collection of contractual cash flows where those cash flows are solely payments of principal and interest are measured at amortized cost. Interest revenue is calculated using the effective interest method and gains or losses arising from impairment, foreign exchange and derecognition are recognized in the consolidated statements of loss and comprehensive loss. Financial assets measured at amortized cost are comprised of trade receivables. |
● | FVOCI – Assets that are held for collection of contractual cash flows and for selling the financial assets, and for which the contractual cash flows are solely payments of principal and interest, are measured at FVOCI. Interest income calculated using the effective interest method and gains or losses arising from impairment and foreign exchange are recognized in the consolidated statements of loss and comprehensive loss. All other changes in the carrying amount of the financial assets are recognized in other comprehensive income. Upon derecognition, the cumulative gain or loss previously recognized in other comprehensive income is reclassified to net loss. The Company does not hold any financial assets measured at FVOCI. |
● | Mandatorily FVTPL– Assets that do not meet the criteria to be measured at amortized cost or fair value through other comprehensive income are measured at fair value through profit or loss. All interest income and changes in the financial assets’ carrying amount are recognized in profit or loss. Financial assets mandatorily measured at FVTPL are comprised of cash and cash equivalents. |
● | Designated at FVTPL – On initial recognition, the Company may irrevocably designate a financial asset to be measured at FVTPL in order to eliminate or significantly reduce an accounting mismatch that would otherwise arise from measuring assets or liabilities, or recognizing the gains and losses on them, on different bases. All interest income and changes in the financial assets’ carrying amount are recognized in the consolidated statements of loss and comprehensive loss. The Company does not hold any financial assets designated to be measured at FVTPL. |
Business model assessment
The Company assesses the objective of its business model for holding a financial asset at a level of aggregation that best reflects the way the business is managed and information is provided to management. Information considered in this assessment includes stated policies and objectives.
Contractual cash flow assessment
The cash flows of financial assets are assessed as to whether they are solely payments of principal and interest on the basis of their contractual terms. For this purpose, “principal” is defined as the fair value of the financial asset on initial recognition. “Interest” is defined as consideration for the time value of money, the credit risk associated with the principal amount outstanding, and other basic lending risks and costs. In performing this assessment, the Company considers factors that would alter the timing and amount of cash flows such as prepayment and extension features, terms that might limit the Company’s claim to cash flows, and any features that modify consideration for the time value of money. The Company measures all equity investments at fair value. Changes in fair value are recorded in the consolidated statements of loss and comprehensive loss. The Company does not hold any equity investments.
Impairment of financial assets
The Company recognizes a loss allowance for the expected credit losses associated with its financial assets, other than financial assets measured at FVTPL. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions and forecasts of future economic conditions.
The Company applies the simplified approach for trade receivables. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses resulting from all possible default events over the assets’ contractual lifetime.
F-16
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
The Company assesses whether a financial asset is credit-impaired at the reporting date. Regular indicators that a financial instrument is credit-impaired include significant financial difficulties as evidenced through borrowing patterns or observed balances in other accounts and breaches of borrowing contracts such as default events or breaches of borrowing covenants. For financial assets assessed as credit-impaired at the reporting date, the Company continues to recognize a loss allowance equal to lifetime expected credit losses. For financial assets measured at amortized cost, loss allowances for expected credit losses are presented in the consolidated statements of financial position sheet as a deduction from the gross carrying amount of the financial asset. Financial assets are written off when the Company has no reasonable expectations of recovering all or any portion thereof.
Financial liabilities
Recognition and initial measurement
The Company recognizes a financial liability when it becomes party to the contractual provisions of the instrument. At initial recognition, the Company measures financial liabilities at their fair value plus transaction costs that are directly attributable to their issuance, with the exception of financial liabilities subsequently measured at FVTPL for which transaction costs are immediately recorded in the consolidated statements of loss and comprehensive loss.
Where an instrument contains both a liability and equity component, these components are recognized separately based on the substance of the instrument, with the liability component measured initially at fair value and the equity component assigned the
Classification and subsequent measurement
Subsequent to initial recognition, all financial liabilities are measured at amortized cost using the effective interest rate method. Interest, gains and losses relating to a financial liability are recognized in profit or loss.
IFRS 9 contains three classification categories for financial assets: measured at amortized cost, FVOCI and FVTPL. The classification for each class of the Company’s financial assets and financial liabilities is as follows:
| | |
Financial assets and liabilities |
| IFRS 9 Classification |
Cash and restricted cash |
| Amortized cost |
Trade and other receivables |
| Amortized cost |
Trade and other payables |
| Amortized cost |
Long-term debt |
| Amortized cost |
Share-based payment liability | | FVTPL |
Derivative warrant liability |
| FVTPL |
Compound financial instruments
Convertible notes issued with warrants are evaluated as to whether any embedded derivatives need to be separated from the host instrument. In accordance with IAS 32.31 for compound financial instruments, because equity instruments are defined as contracts evidencing a residual interest in the assets of an entity after deducting all of its liabilities, the warrants are assigned the residual amount of the consideration after deducting the fair value of the liability components and are subsequently carried at historical cost. The liability components represent the host debt and the embedded conversion feature.
The embedded derivative conversion option is separated from its host contract on the basis of its stated terms and initially measured at fair value using the Black-Scholes model, with the host debt contract being the residual amount after separation. Subsequently, the loan payable component is measured at amortized cost using the effective interest method over the term of the loan. The loan component is accreted to the face value by recording accretion expense. The values of the conversion feature are re-measured at each reporting date until settlement, with changes in the fair value recorded in the consolidated statements of loss and comprehensive loss.
F-17
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Unit issuances comprising one common share and one-half or one warrant share are segregated between the capital stock and warrant value components at the date of issue. The fair value of the capital stock component is calculated using the share price at the date of the issuance. The fair value of the warrants is calculated using the Black-Scholes pricing model. Amounts allocated to each component are allocated using the relative fair value basis.
Leases
In accordance with IFRS 16, Leases (“IFRS 16”), at inception of a contract, the Company assesses whether the contract is or contains a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, based on the initial amount 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. In addition, the right-of-use asset is periodically adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. 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, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, 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.
Impairment of property and equipment, definite-life intangible assets and goodwill
For purposes of assessing impairment under IFRS, assets are grouped in CGUs, the lowest levels for which the group of assets can generate largely independent cash inflows. The Company has six CGUs, which consist of VIQ Australia, VIQ US, VIQ Media, VIQ UK, Dataworx and VIQ Solutions Inc., and the CGUs with goodwill or indefinite-lived intangible assets are tested for impairment at least annually. All other long-lived assets and finite life intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized for the amount by which the asset’s or CGU’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell or value-in-use. To determine the value in use, management estimates expected future cash flows from the CGU and determines a suitable pre-tax discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures is directly linked to the Company’s latest approved budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements.
Discount rates have been determined for each of the CGUs and reflect their respective risk profile as assessed by management. Impairment losses for the CGUs reduce first the carrying amount of any goodwill allocated to that CGU, with any remaining impairment loss charged pro rata to the other assets in the CGU.
With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge is reversed if the asset’s recoverable amount exceeds its carrying amount only to the extent that the new carrying amount does not exceed the carrying value of the asset had it not originally been impaired.
F-18
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Property and equipment and definite life intangibles are tested for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. For the purpose of measuring recoverable values, assets are grouped at the lowest levels for which there are separately identifiable cash flows, which are its CGUs. The recoverable value is the higher of an asset’s fair value less costs of disposal and value in use (being the present value of the expected future cash flows of the relevant asset or CGU). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risk specific to the asset. An impairment loss is recognized for the value by which the asset’s carrying value exceeds its recoverable value.
Revenue recognition
Revenue represents the amount of consideration the Company expects to receive for the delivery of products and services in its contracts with customers, net of discounts and sales taxes. The Company reports revenue mainly under eight revenue categories, being, Technology services, Software license, Support and maintenance, Software as a service (“SaaS”), Subscription, Professional services, and Hardware and other.
Revenue is recognized upon transfer of control of products or services to customers at an amount that reflects the transaction price the Company expects to receive in exchange for the products or services. The Company’s contracts with customers may include the delivery of multiple products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The accounting for a contract or contracts with a customer that contain multiple performance obligations requires the Company to allocate the contract or contracts’ transaction price to the identified distinct performance obligations.
Technology services revenue consists of fees charged for recurring services provided to our customers. Technology service revenue is recognized when the service is delivered to the customer. The Company has select customers where a flat rate is charged and revenue is recognized over time.
Software license revenue is composed of non-recurring license fees charged for the use of the Company’s software products generally licensed under perpetual arrangements and to a lesser extent sale of third-party license software. The Company sells on- premises software licenses on a perpetual basis. On-premises software licenses are bundled with software maintenance and support services for a term. The license component and maintenance and support components are each allocated revenue using their relative estimated SSP. Revenue from the license of distinct software is recognized at the time that both the right to use the software has commenced and the software has been made available to the customer.
Support and maintenance and other recurring revenue primarily consist of fees charged for customer support on the Company’s software products post-delivery. Certain of the Company’s contracts with customers contain provisions that require the customer to agree to first-year support and maintenance in order to maintain the active right to use a perpetual license. Support and maintenance and other recurring revenue primarily consists of fees charged for customer support on software products post- delivery.
Revenue from SaaS arrangements, which allows customers to use hosted software over a term without taking possession of the software, is provided on a subscription basis. Revenue from the SaaS arrangement, which includes the hosted software and maintenance and digital transcription services, is recognized ratably over the term of the subscription.
Professional service revenue consists of fees charged for customization, implementation, integration, training and ongoing services associated with the Company’s software products and technology services. Professional services are typically billed on a time and material basis and revenue is recognized over time as the services are performed. For professional services contracts billed on a fixed price basis, revenue is recognized over time based on the proportion of services performed. Hardware revenue includes the resale of third-party hardware that forms part of the overall customer solutions. Hardware revenue is recognized when the goods are shipped.
Cost of sales
Cost of sales for the technology segment includes the cost of finished goods inventory, costs related to shipping and handling and expenses relating to software support services. Cost of sales for the technology services segment includes production wages and other associated costs.
F-19
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Income taxes
The income tax provision comprises current and deferred tax. Income tax is recognized in the consolidated statements of loss and comprehensive loss except to the extent that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.
Deferred tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period and are expected to apply when the asset is realized or liability is settled. Deferred tax assets are recognized for deductible temporary differences, unused tax losses and other income tax deductions to the extent that it is probable the Company will have taxable income against which those deductible temporary differences, unused tax losses and other income tax deductions can be utilized. The extent to which deductible temporary differences, unused tax losses and other income tax deductions are expected to be realized is reassessed at the end of each reporting period.
In a business combination, temporary differences arise as a result of differences in the fair values of identifiable assets and liabilities acquired and their respective tax bases. Deferred tax assets and liabilities are recognized for the tax effects of these differences. Deferred tax assets and liabilities are not recognized for temporary differences arising from goodwill or from the initial recognition of assets and liabilities acquired in a transaction other than a business combination that do not affect either accounting or taxable income or loss.
Net loss per common share
Basic net loss per common share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is calculated by dividing the applicable net loss by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the period. The dilutive effect of outstanding stock options and warrants on earnings per share is calculated by determining the proceeds for the exercise of such securities which are then assumed to be used to purchase common shares of the Company.
Stock-based compensation
The Company has a stock option plan, a Deferred Share Units (“DSU”) plan, a Performance Share Units (“PSU”) plan and a Restricted Share Units (“RSU”) plan, with units under such plans awarded to certain employees and directors.
The fair value of the stock options granted that represent equity awards are measured using the Black-Scholes option pricing model. For stock options, the model considers each tranche with graded vesting features as a separate share option grant. Forfeitures for the stock options are estimated on the grant date and revised if the actual forfeitures differ from previous estimates. This fair value is recognized as share-based compensation expense over the vesting periods, with a related credit to contributed surplus. The contributed surplus balance is reduced as options are exercised through a credit to share capital. The consideration paid by option holders is credited to share capital when the options are exercised.
The fair value of PSUs and RSUs granted that represent equity awards are measured at the value of the common shares. This fair value is recognized as share-based compensation expense over the vesting periods, with a related credit to contributed surplus. The contributed surplus balance is reduced as PSUs and RSUs are exercised through a credit to share capital.
Eligible executives and directors may elect to receive RSUs equivalent in value of common shares of the Company in lieu of certain cash payments. Share-based compensation expense is recorded in the year of receipt of the RSUs and changes in the fair value of outstanding RSUs, including deemed dividend equivalents, are recorded as an expense in the period that they occur with a corresponding increase to the liability.
F-20
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Eligible directors and officers may be granted awards of DSUs, PSUs and RSUs equivalent in value of the Shares of the Company. DSUs, PSUs and RSUs vest after three to five years and are settled in equity or cash at the end of the restriction period or in the case of DSUs when the executive is no longer employed with the Company.
The holders of the DSUs will only be able to redeem the DSUs in shares upon cessation of their service with the Company; therefore, the Company records DSUs as equity. Grants of DSUs are recorded at fair value in selling and administrative expense at the time of grant. The quoted market price of the underlying shares on the grant date is considered to be equivalent to fair value for the DSUs. The charge to equity for DSUs is not updated to fair value at each subsequent reporting period. Upon settlement, the amount recognized in contributed surplus for the award is reclassified to share capital, with any premium or discount applied to deficit.
Government assistance
The Company recognizes government grants when there is reasonable assurance that the grant will be received, and any conditions associated with the grant have been met. Grants that compensate the Company for expenses incurred are recognized in the consolidated statements of loss and comprehensive loss as a reduction of the related expenses in the period in which they are earned, provided the conditions for receiving the grant are met in that period.
Research and development credits
Investment tax credits are accrued when qualifying expenditures are incurred and there is reasonable assurance that the credits will be realized. Investment tax credits earned with respect to current expenditures for qualified research and development activities are included in the consolidated statements of loss and comprehensive loss as a reduction of expenses. Investment tax credits associated with capital expenditures are reflected as reductions in the carrying amounts of capital assets.
Comprehensive loss
Comprehensive loss consists of net loss and other comprehensive income (loss). Other comprehensive income (loss) represents changes in shareholders’ equity and includes foreign exchange gains and losses on the translation of the financial statements of the Company’s foreign operations into its presentation currency and is presented as accumulated other comprehensive income (loss) on the consolidated statements of financial position. The Company’s net loss per share presented on the consolidated statements of loss and comprehensive loss is based upon its net loss and not its comprehensive loss.
(ii) Standards and interpretations issued and effective
IAS 37, Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”)
Amendments to IAS 37 were issued in May 2020, and are effective for annual periods beginning on or after January 1, 2022, with earlier application permitted. The amendments address identifying onerous contracts and specify the cost of fulfilling a contract, which includes all costs directly related to the contract. These include incremental direct costs and allocations of other costs that relate directly to fulfilling the contract. The Company has concluded that there is no impact of adopting these amendments on its consolidated financial statements.
IFRS 3, Business Combinations (“IFRS 3”)
Amendments to IFRS 3 were issued in May 2020, and are effective for annual periods beginning on or after January 1, 2022, with earlier application permitted. The amendments update references within IFRS 3 to the 2018 Conceptual Framework and require that the principles in IAS 37 be used to identify liabilities and contingent assets arising from business combination. The Company has concluded there is no impact of adopting these amendments on its consolidated financial statements.
The following new and amended standards did not have a significant impact on the Company’s consolidated financial statements.
● | COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16). |
F-21
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
● | Annual Improvements to IFRS Standards 2018–2020. |
● | Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16). |
(iii) Standards and interpretations issued but not yet effective
Deferred Tax related assets and liabilities arising from a Single Transaction (Amendments to IAS 12)
The amendments narrow the scope of the initial recognition exemption to exclude transactions that give rise to equal and offsetting temporary differences – e.g. leases and decommissioning liabilities. The amendments apply for annual reporting periods beginning on or after January 1, 2023. For leases and decommissioning liabilities, the associated deferred tax asset and liabilities will need to be recognized from the beginning of the earliest comparative period presented, with any cumulative effect recognized as an adjustment to retained earnings or other components of equity at that date. For all other transactions, the amendments apply to transactions that occur after the beginning of the earliest period presented. The amendments are effective for annual periods beginning on or after January 1, 2023. Earlier adoption is permitted. The Company is currently assessing the impact of this new amendment.
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
In February 2021, the IASB issued Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2). The amendments provide guidance to help entities disclose their material (previously “significant”) accounting policies. The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The Company is currently assessing the impact of these amendments.
Definition of Accounting Estimates (Amendments to IAS 8)
In February 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors). The amendments define accounting estimates and clarify the distinction between changes in accounting estimates and changes in accounting policies. The amendments are effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The Company is currently assessing the impact of these amendments.
Other standards
The following new and amended standards are not expected to have a significant impact on the Company’s consolidated financial statements.
● | Reference to Conceptual Framework (Amendments to IFRS 3). |
● | Classification of Liabilities as Current or Non-current (Amendments to IAS 1). |
● | IFRS 17, Insurance Contracts and amendments to IFRS 17, Insurance Contracts. |
4.2021 Acquisition
On December 13, 2021, the Company, through its Australia subsidiary VIQ Solutions Australia Pty Ltd., acquired certain assets of Auscript Australasia Pty Ltd. (“Auscript”). Auscript is a leading supplier of secure court recording and transcription services for courts and law firms throughout Australia and complements the Company’s transcription services business. As part of this transaction, $150,000 was paid as contingent consideration via a performance-based earn-out paid in August 2022. The acquisition was funded by utilizing cash on hand; $7,496,856 was paid during 2021 and an additional $298,927 was paid for the final working capital adjustment contemplated in the purchase agreement and based on final negotiations between the Company and the Seller on August 5, 2022.
F-22
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
The acquisition completed during the year ended December 31, 2021 was determined to be a business combination and was accounted for using the acquisition method in accordance with IFRS 3, with the results of operations consolidated with those of the Company effective December 13, 2021 for Auscript.
The Company has retrospectively adjusted the purchase price allocation and restated the previously reported consideration and goodwill, intangible customer relationship, intangible brands and deferred tax liabilities in accordance with the requirements of IFRS 3 in regards to measurement period adjustments. The measurement period adjustment of $298,927 relates to additional consideration paid upon the finalization and settlement of the working capital adjustment with the seller. The total consideration for the Auscript acquisition and the purchase price allocation (“PPA”) is as follows:
| | | | | | | | | |
|
| Previously |
| |
| | | ||
| | Reported at | | | | Restated at | |||
| | December 31, | | | | December 31, | |||
| | 2021 | | Adjustment | | 2021 | |||
Consideration |
| |
|
| | | | |
|
Cash (i) | | $ | 7,496,856 | | $ | 298,927 | | $ | 7,795,783 |
Contingent consideration | |
| 150,000 | |
| — | | | 150,000 |
Total consideration | | $ | 7,646,856 | | $ | 298,927 | | $ | 7,945,783 |
| | | | | | | | | |
Identifiable assets acquired and liabilities assumed | |
|
| |
| | | |
|
Trade and other receivables, net of allowance for doubtful accounts | | | 2,124,687 | | | — | | | 2,124,687 |
Prepaid expenses and deposits | | | 168,009 | | | — | | | 168,009 |
Property and equipment | | | 283,394 | | | — | | | 283,394 |
Right-of-use assets | | | 912,910 | | | — | | | 912,910 |
Trade and other payable and accrued liabilities | | | (1,886,414) | | | — | | | (1,886,414) |
Current portion of contract liabilities | | | (44,313) | | | — | | | (44,313) |
Lease obligations | | | (911,101) | | | — | | | (911,101) |
Deferred tax liability | | | (852,557) | | | (25,374) | | | (877,931) |
Customer relationships | |
| 2,552,075 | |
| 152,940 | | | 2,705,015 |
Non-compete | |
| 57,030 | |
| — | | | 57,030 |
Brand | |
| 734,256 | |
| 13,904 | | | 748,160 |
Goodwill | | $ | 4,508,880 | | $ | 157,457 | | $ | 4,666,337 |
(i) | Cash consideration was recorded in Trade and other payables and accrued liabilities as at December 31, 2021 and was paid on August 5, 2022. |
2020 acquisition:
On January 31, 2020, the Company through its US subsidiary, VIQ Media Transcription Inc., acquired 100% of the assets of ASC. ASC was a provider of transcription services focused on the multi-speaker transcription market, serving both government and public ‘content creation space’ and complementing the Company’s transcription services business. As part of this transaction, an estimated $2,038,596 was to be paid as contingent consideration via a performance-based earn-out payable quarterly over 30 months. With respect to the contingent consideration, the Company had agreed to make quarterly payments to the sellers between July 15, 2020 and April 15, 2023 based on the achievement of quarterly revenue targets as defined in the purchase agreement. At the date of acquisition, contingent consideration was measured on a discounted cash flow basis, reflecting the present value of undiscounted expected future payments of $2,948,083 which is the expected payout based on forecast revenues at that date, discounted using a risk-adjusted discount rate of 20.6 percent.
On December 23, 2021, the Company entered into a settlement agreement with the former owners of ASC to settle all earnout payment obligations in the amount of $1,165,770 and recorded a gain on settlement of $130,220. The total contingent consideration payable to ASC at December 31, 2022 was $nil (2021 - $nil and 2020 - $1,145,677).
F-23
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
On February 26, 2020, the Company, through its US subsidiary VIQ Services Inc., acquired 100% of the shares of WordZXpressed Inc. WordZ is a provider of English transcription services to medical service providers and to insurance companies in the USA and complements the Company’s transcription services business. As part of this, an estimated $1,671,670 was to be paid as contingent consideration via a performance-based earnout payable quarterly over 36 months. The Company had agreed to make quarterly payments to the sellers between October 1, 2020 and July 1, 2023 based on the achievement of quarterly revenue targets as defined in the purchase agreement. At the date of acquisition, contingent consideration was measured on a discounted cash flow basis, reflecting the present value of undiscounted expected future payments of $2,175,231, which is the expected payout based on forecast revenues, discounted using a risk-adjusted discount rate of 16.1%.
The acquisitions completed during the year ended December 31, 2020 were each determined to be a business combination and were accounted for using the acquisition method in accordance with IFRS 3 with the results of operations consolidated with those of the Company effective January 31, 2020 for ASC and February 26, 2020 for WordZ During the year ended December 31, 2022, the Company further revised the forecasted quarterly revenue target achievements and reported a loss on contingent consideration of $80,071 for Wordz (2021 - $202,350, which is comprised of a loss on contingent consideration of $32,621 for the additional earnout payable for WordZ and a gain on contingent consideration of $234,971 for the reduction in earnout payable for ASC and 2020 - $946,503 was reported as a gain on contingent consideration of which $89,449 was recorded as additional earnout payable for ASC and $1,035,952 was recorded as a reduction in earnout payable for WordZ). Additionally, accretion expense of $29,669 was recorded during the year ended December 31, 2022 for WordZ (2021 - $455,675 and 2020 - $377,312 was recorded for ASC and WordZ). Earnout payments totaling $389,380 (2021 - $1,434,766 and 2020 - $377,312 were made to previous owners of ASC and WordZ) were made to the previous owners of WordZ.
As at December 31, 2022, total contingent consideration payable to WordZ sellers is $258,003 (December 31, 2021 - $523,926 and 2020 - $744,696), of which $258,003 (December 31, 2021 - $357,323 and 2020 - $314,845) is recorded as trade and other payables and accrued liabilities, and $nil has been recorded as long-term contingent consideration (December 31, 2021 - $166,603 and 2020 - $429,851).
5.Trade and other receivables
| | | | | | |
|
| December 31, 2022 |
| December 31, 2021 | ||
Trade accounts receivable | | $ | 4,956,613 | | $ | 4,423,315 |
Other receivable (note 6) | |
| 748,585 | |
| 1,487,255 |
Less: allowance for doubtful accounts | |
| (399,470) | |
| (316,202) |
| | $ | 5,305,728 | | $ | 5,594,368 |
As at December 31, 2022, other receivable relates to unbilled revenue of $634,226 (December 31, 2021 - $807,067), government assistance receivable of $nil (December 31, 2021 – $574,703) and sales tax receivable and other receivables of$114,359 (December 31, 2021- $105,485).
6.Government assistance
Australian Business Wage Subsidies
During 2021, the Australian government introduced programs to support Australian businesses whose revenues were impacted by the COVID-19 pandemic. During the year ended December 31, 2022, there were no government wage subsidies (2021 – $208,077 and 2020 - $2,017,189) recognized as a reduction to the related payroll expenses in the consolidated statements of loss and comprehensive loss.
U.S. Employee Retention Credit Program
During 2021, the Company determined it was qualified for the U.S. Employee Retention Credit. The Company received $224,812 as at December 31, 2022 (2021 - $1,453,735 and 2020 - $nil).
F-24
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
As at December 31, 2022, there is no outstanding balance reported on the consolidated statements of financial position for assistance receivable (2021 - $574,703) in trade and other receivables. The $574,703 receivable at December 31, 2021 was collected during the year ended December 31, 2022.
7.Property and equipment
Details of the Company’s property and equipment as of December 31, 2022 and December 31, 2021 are listed as follows:
| | | | | | | | | | | | |
| | Balance | | | | | | | | Balance | ||
| | December 31, | | | | | | Foreign | | December 31, | ||
|
| 2021 |
| Additions |
| Impairment |
| exchange |
| 2022 | ||
Cost |
| |
|
| | |
|
|
|
| |
|
Furniture and fixtures | | $ | 321,833 | | 12,086 | | — | | (15,040) | | $ | 318,879 |
Computer, software, and transcription equipment | |
| 1,812,771 | | 1,180,809 | | (15,246) | | (93,264) | |
| 2,885,070 |
Buildings – leasehold improvements | |
| 43,051 | | 9,594 | | — | | (2,090) | |
| 50,555 |
| | | 2,177,655 | | 1,202,489 | | (15,246) | | (110,394) | | | 3,254,504 |
Accumulated depreciation | |
|
| | | |
| |
| |
|
|
Furniture and fixtures | | | 240,611 | | 12,022 | | — | | (15,362) | | | 237,271 |
Computer, software, and transcription equipment | |
| 1,473,012 | | 152,157 | | — | | (90,711) | |
| 1,534,458 |
Buildings – leasehold improvements | |
| 3,058 | | 48,284 | | — | | (700) | |
| 50,642 |
| | | 1,716,681 | | 212,463 | | — | | (106,773) | | | 1,822,371 |
Net book value | | $ | 460,974 | | | | | |
| | $ | 1,432,133 |
| | | | | | | | | | | | | | | |
| | Balance | | | | | | | | | | | Balance | ||
| | December 31, | | Acquisitions | | Additions/ | | Foreign | | December 31, | |||||
|
| 2020 |
| (Note 4) |
| Disposals |
| exchange |
| 2021 | |||||
Cost |
| |
|
| | |
| |
|
| |
|
| |
|
Furniture and fixtures | | $ | 268,018 | | | 31,842 | | | 746 | | | 21,227 | | $ | 321,833 |
Computer, software, and transcription equipment | |
| 1,499,729 | | | 218,696 | |
| 78,458 | |
| 15,888 | |
| 1,812,771 |
Buildings – leasehold improvements | |
| 4,920 | | | 38,114 | |
| — | |
| 17 | |
| 43,051 |
| | | 1,772,667 | | | 288,652 | | | 79,204 | | | 37,132 | | | 2,177,655 |
Accumulated depreciation | |
| | | | | |
| | |
| | |
| |
Furniture and fixtures | | | 219,306 | | | — | | | 13,844 | | | 7,461 | | | 240,611 |
Computer, software, and transcription equipment | |
| 1,335,406 | | | — | |
| 111,884 | |
| 25,722 | |
| 1,473,012 |
Buildings – leasehold improvements | |
| 2,120 | | | — | |
| 938 | |
| — | |
| 3,058 |
| | | 1,556,832 | | | — | | | 126,666 | | | 33,183 | | | 1,716,681 |
Net book value | | $ | 215,835 | | | | | | | |
|
| | $ | 460,974 |
F-25
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
8.Intangible assets and goodwill
Details of the Company’s intangible assets as of December 31, 2022 and December 31, 2021 are listed as follows:
| | | | | | | | | | | | |
| | Balance | | | | | | | | |||
| | December 31, 2021 |
| |
| Foreign |
| Balance | ||||
|
| (Restated) | | Additions | | exchange | | December 31, 2022 | ||||
Cost |
| |
|
| |
|
| |
| | |
|
Customer relationships | | $ | 15,612,098 |
| | — |
| | (308,448) | | $ | 15,303,650 |
Technology | |
| 470,000 |
| | — |
| | — | |
| 470,000 |
Non-compete | |
| 176,140 |
| | — |
| | (57,195) | |
| 118,945 |
Brand | |
| 2,389,443 |
| | — |
| | (10,154) | |
| 2,379,289 |
Patents | | | 15,232 | | | — | | | — | | | 15,232 |
Internally generated intangible assets | |
| 9,371,951 |
| | 1,828,983 |
| | (613,556) | |
| 10,587,378 |
| | $ | 28,034,864 |
| | 1,828,983 |
| | (989,352) | | $ | 28,874,495 |
Accumulated amortization | |
|
|
| |
|
| |
| |
|
|
Customer relationships | | | 6,361,535 |
| | 2,722,780 |
| | (25,830) | |
| 9,058,485 |
Technology | |
| 290,499 |
| | 179,501 |
| | — | |
| 470,000 |
Non-compete | |
| 56,744 |
| | 69,687 |
| | — | |
| 126,431 |
Brand | |
| 349,495 |
| | 1,601,285 |
| | (5,619) | |
| 1,945,161 |
Patents | | | — | | | — | | | — | | | — |
Internally generated intangible assets | |
| 6,047,607 |
| | 935,701 |
| | (440,807) | |
| 6,542,501 |
| | | 13,105,880 |
| | 5,508,954 |
| | (472,256) | | | 18,142,578 |
Net book value | | $ | 14,928,984 |
| |
|
| |
| | $ | 10,731,917 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Balance | ||
| | Balance | | | | | | | | | December 31, | ||||
|
| December 31, |
| Acquisitions |
| |
| Foreign |
| 2021 | |||||
| | 2020 | | (note 4) | | Additions | | exchange | | (Restated) | |||||
Cost | |
| | |
| | |
| | |
| | |
| |
Customer relationships | | $ | 11,775,697 | | | 3,785,815 | | | — | | | 50,586 | | $ | 15,612,098 |
Technology | |
| 470,000 | | | — | | | — | | | — | |
| 470,000 |
Non-compete | | | 51,031 | | | 124,580 | | | — | | | 529 | | | 176,140 |
Brand | |
| 1,520,899 | | | 856,141 | | | — | | | 12,403 | |
| 2,389,443 |
Patents | | | — | | | — | | | 15,232 | | | — | | | 15,232 |
Internally generated intangible assets | |
| 7,015,035 | | | — | | | 2,349,501 | | | 7,415 | |
| 9,371,951 |
| | $ | 20,832,662 | | | 4,766,536 | | | 2,364,733 | | | 70,933 | | $ | 28,034,864 |
Accumulated amortization | |
|
| | |
| | |
| | |
| |
|
|
Customer relationships | | | 4,099,565 | | | — | | | 2,260,372 | | | 1,598 | | | 6,361,535 |
Technology | |
| 196,499 | | | — | | | 94,000 | | | — | |
| 290,499 |
Non-compete | | | 19,638 | | | — | | | 37,105 | | | — | | | 56,743 |
Brand | | | 133,921 | | | — | | | 215,574 | | | — | | | 349,495 |
Patents | | | — | | | — | | | — | | | — | | | — |
Internally generated intangible assets | |
| 4,264,687 | | | — | | | 1,777,451 | | | 5,470 | |
| 6,047,608 |
| | | 8,714,310 | | | — | | | 4,384,502 | | | 7,068 | | | 13,105,880 |
Net book value | | $ | 12,118,352 | | | | |
|
| |
|
| | $ | 14,928,984 |
F-26
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Details of the Company’s goodwill as of December 31, 2022 and December 31, 2021 are listed as follows:
| | | | | | | | | | |
|
| Balance |
|
| |
| | |||
| | December 31, 2021 | | | Foreign | | Balance | |||
| | (Restated) | | | exchange | | December 31, 2022 | |||
VIQ Australia | | $ | 5,350,379 | | | $ | (313,564) | | $ | 5,036,815 |
Dataworxs | | | 141,504 | | | | (9,058) | | | 132,446 |
VIQ US |
| | 3,570,275 |
|
| | — |
| | 3,570,275 |
VIQ Media |
| | 2,614,802 |
|
| | — |
| | 2,614,802 |
VIQ UK | | | 763,597 | | | | (70,887) | | | 692,710 |
| | $ | 12,440,557 | | | $ | (393,509) | | $ | 12,047,048 |
| | | | | | | | | | | | |
| | | | | | | | Balance | ||||
|
| Balance |
| Acquisitions |
| Foreign |
| December 31, 2021 | ||||
| | December 31, 2020 | | (note 4) | | exchange | | (Restated) | ||||
VIQ Australia |
| $ | 650,001 |
| $ | 4,666,337 |
| $ | 34,041 |
| $ | 5,350,379 |
Dataworxs |
| | 141,018 |
| | — |
| | 486 |
| | 141,504 |
VIQ US |
| | 3,570,275 |
| | — |
| | — |
| | 3,570,275 |
VIQ Media | | | 2,614,802 | | | — | | | — | | | 2,614,802 |
VIQ UK | | | — | | | 763,597 | | | — | | | 763,597 |
| | $ | 6,976,096 |
| $ | 5,429,934 |
| $ | 34,527 | | $ | 12,440,557 |
Impairment testing for cash-generating units containing goodwill
The annual impairment test of goodwill was performed as of December 31, 2022. The recoverable amount of the Company’s CGUs were assessed using the higher of value in use or fair value less cost to sell.
● | Value in use was estimated using a discounted cash flow approach over a discrete period. Cash flows for the terminal years are estimated using terminal growth rate. The risk premiums expected by market participants related to uncertainties about the industry and assumptions relating to future cash flows may differ or change quickly, depending on economic conditions and other events. The Company has made certain assumptions in determining the cash flow projections based over a five-year period from 2023 to 2027 and include management’s best estimate of expected market conditions. These assumptions may differ or change quickly depending on economic conditions or other events. It is therefore possible that future changes in assumptions may negatively affect future valuations of CGUs and goodwill, which could result in impairment losses. The Company determined the forecasted cash flows based on earnings margins, revenue growth rate and the terminal revenue growth rate based on past performance and its expectations for market development. The pre-tax discount rates used reflect specific risks in relation to the CGUs. |
● | Fair value less cost to sell was estimated by using a discounted cash flow approach, similar to the approach under the value in use amounts, but adjusted for market participant assumptions and estimates. The market participant assumptions and estimates include cost savings for outsourcing of cost of sales and the assessment of multiples of operating performance of comparable entities and precedent transactions. |
The Company made certain assumptions when deriving expected future cash flows, which may include assumptions pertaining to the earnings margins, revenue growth rates, discount rates and terminal growth rates.
Goodwill is allocated to groups of CGUs, based on the level at which management monitors goodwill, which cannot be higher than an operating segment. The allocation of goodwill is made to groups of CGUs that are expected to benefit from the synergies and future growth of the business combination from which the goodwill arose. The Company makes judgments in determining CGUs and the allocation of goodwill to groups of CGUs for the purpose of impairment testing. During 2022, we have grouped the VIQ Solutions PTY Ltd. and Auscript CGUs into the VIQ Australia CGU on the basis that the VIQ Australia CGU is the level in which management monitors goodwill.
F-27
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
With respect to the VIQ Solutions Inc. CGU, there are no goodwill or indefinite-life intangible assets associated with that CGU and no triggering events as at December 31, 2022. Consequently, no further impairment analysis was performed on that CGU.
For each of the following CGUs, or group of CGUs, the following are key assumptions on which management based its determinations of the recoverable amount for goodwill based on value in use:
| | | | | | | | | | |
| | | | | Revenue | | Terminal | | |
|
| | Carrying value of | | growth | | growth | | |
| |
|
| goodwill |
| rate |
| rate |
| Pre-tax discount | | |
VIQ Australia | | $ | 5,036,815 | | 3 | % | 2 | % | 12.9 | % |
Dataworxs |
| | 132,446 | | 3 | % | 2 | % | 12.9 | % |
VIQ US |
| | 3,570,275 | | 3 | % | 2 | % | 12.9 | % |
VIQ Media | | | 2,614,802 | | 3 | % | 2 | % | 12.9 | % |
VIQ UK |
| | 692,710 | | 3 | % | 2 | % | 12.9 | % |
| | $ | 12,047,048 | | | | | | | |
The Company did not recognize an impairment charge related to its goodwill in 2022 because the recoverable amounts of the CGUs, or groups of CGUs, exceeded their carrying values.
9.Long-term debt
| | | | | | | | | | | | | | | |
| | | | Word Z | | | | HomeTech | | | | ||||
| | Crown | | Promissory | | WordZ SBA | | VTB Loan | | | | ||||
|
| Capital (a) |
| note (b) |
| Loan |
| (b) |
| Total | |||||
Balance as at December 31, 2021 | | $ | 11,472,235 | ��� | $ | 323,551 | | $ | — | | $ | 203,322 | | $ | 11,999,108 |
Add: current portion | |
| 308,892 | |
| 446,552 | |
| 114,269 | |
| 240,000 | |
| 1,109,713 |
| | $ | 11,781,127 | | $ | 770,103 | | $ | 114,269 | | $ | 443,322 | | $ | 13,108,821 |
Interest expense | |
| 900,202 | |
| 29,667 | |
| 238 | |
| — | |
| 930,107 |
Accretion expense | |
| 244,611 | |
| 64,521 | |
| — | |
| 40,217 | |
| 349,349 |
Interest payment | |
| (1,005,758) | |
| (34,600) | |
| (238) | |
| — | |
| (1,040,596) |
Debt repayment | |
| (4,015,669) | |
| (411,952) | |
| (114,269) | |
| (220,000) | |
| (4,761,890) |
Amendment fee | | | (239,880) | | | — | | | — | | | — | | | (239,880) |
Loss on extinguishment of debt | | | 747,865 | | | — | | | — | | | — | | | 747,865 |
Foreign exchange translation | |
| (439,707) | |
| — | |
| — | |
| — | |
| (439,707) |
Balance as at December 31, 2022 | | $ | 7,972,791 | | $ | 417,739 | | $ | — | | $ | 263,540 | | $ | 8,654,070 |
Less: Current portion | |
| (7,972,791) | |
| (417,739) | |
| — | |
| (243,728) | |
| (8,634,258) |
| | $ | — | | $ | — | | $ | — | | $ | 19,812 | | $ | 19,812 |
| | | | | | | | | | | | | | | | | | |
|
| | | Word Z | | | | | Transcription | | | | | | ||||
| | Crown Capital | | Promissory | | WordZ SBA | | Express VTB | | HomeTech | | �� | | |||||
|
| (a) |
| note (b) |
| Loan |
| Loan (b) |
| VTB Loan (b) |
| Total | ||||||
Balance as at December 31, 2020 | | $ | 11,093,400 | | $ | 617,751 | | $ | 45,923 | | $ | — | | $ | 381,725 | | $ | 12,138,799 |
Add: current portion | | | 304,746 | | | 446,552 | | | 214,307 | | | 280,531 | | | 240,000 | | | 1,486,136 |
| | $ | 11,398,146 | | $ | 1,064,303 | | $ | 260,230 | | $ | 280,531 | | $ | 621,725 | | $ | 13,624,935 |
Interest expense | |
| 1,232,349 | |
| 49,890 | | | — | | | 5,892 | |
| — | |
| 1,288,131 |
Accretion expense | |
| 347,372 | |
| 102,462 | | | — | | | — | |
| 61,597 | |
| 511,431 |
Interest payment | |
| (1,231,369) | |
| (39,109) | | | (832) | | | (5,892) | |
| — | |
| (1,277,202) |
Debt repayment | |
| — | |
| (407,443) | | | (145,129) | | | (280,531) | |
| (240,000) | |
| (1,073,103) |
Foreign exchange translation | |
| 34,629 | |
| — | | | — | | | — | |
| — | |
| 34,629 |
Balance as at December 31, 2021 | | $ | 11,781,127 | | $ | 770,103 | | $ | 114,269 | | $ | — | | $ | 443,322 | | $ | 13,108,821 |
Less: Current portion | |
| (308,892) | |
| (446,552) | | | (114,269) | | | — | |
| (240,000) | |
| (1,109,713) |
| | $ | 11,472,235 | | $ | 323,551 | | $ | — | | $ | — | | $ | 203,322 | | $ | 11,999,108 |
F-28
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
During the year ended December 31, 2018, the Company entered into a secured debt facility with Crown Capital Funding Partner LP (“Crown”) of $11,055,000 (CAD$15,000,000) bearing an interest rate of 10% payable quarterly. The loan is secured by a general security agreement covering all assets of the Company. The outstanding principal balance of the loan is repayable on November 28, 2023. Additionally, during the period ended September 30, 2020, the Company cancelled 450,000 previously issued common share purchase warrants and reissued new warrants to reflect a price per share equal to CAD$2.06 (the “Exercise Price”) until expiry on November 28, 2023. As a result of this modification, the Company recorded $84,287 (CAD$111,387) reflecting the incremental fair value of the warrant associated with the amendment as a reduction in the carrying value of the note payable as at September 30, 2020. The Company incurred fees of $353,115 (CAD$450,000) associated with establishing the amended debt facility, which was recorded as a reduction in the carrying value of the note payable. These fees remain unpaid and is added to the Company’s outstanding principal. These fees accrue interest at 10% and repayment is due on November 28, 2023. During the year ended December 31, 2022, the Company recorded interest expense of $900,202 (2021 - $1,232,349 and 2020 - $1,409,961).
The difference between the face value and ascribed value of the Crown Capital note payable is being accreted over the remaining life of the debt facility. Corresponding transaction costs were netted against the face value of the debt facility and are recognized as accretion and other financing expense over the term of the loan. During the year ended December 31, 2022, there was $244,611 recorded (2021 - $347,372 and 2020 - $313,112) as accretion and other financing expense related to the note payable in the consolidated statements of loss and comprehensive loss.
The Company signed an amendment related to the Crown debt facility that required the Company to pay $4,005,768 (CAD$5,000,000) of the principal balance on March 30, 2022 and pay an amendment fee of approximately $239,880 (CAD $300,000). The interest on the Crown Debt facility remained at 10% annual interest and future interest payments were reduced to the reduced principal amount. The amendment did not result in the terms of the original agreement being substantially modified; as such the transaction is accounted for as a modification of the old debt. The amended secured debt facility waived the Fixed Charge Coverage Ratio for the quarter ended December 31, 2022 and the Net Debt to EBITDA ratio for quarters ended March 31, 2022 and June 30, 2022. Additional financial covenants were added to the amended Crown debt facility, which include restrictions on the amount of selling, administrative and research and development costs and restrictions on capital expenditure (including internally generated intangible assets and capitalized assets) in each of the respective quarters ended June 30, 2022, September 30, 2022 and December 31, 2022. As at December 31, 2022, the Company was in compliance with the additional financial covenants.
On July 14, 2022, the Company signed an amendment to the Crown debt facility which removed entirely the Fixed Charge Coverage Ratio and Net Debt to EBITDA covenants for the term of the facility. The covenants relating to the restrictions on the amount of selling, administrative and research and development costs and restrictions on capital expenditure for the quarter ended September 30, 2022 and December 31, 2022 were unchanged.
The July 14, 2022 amendment resulted in the terms of the agreement being substantially modified; as such the transaction is accounted for as an extinguishment of the old debt. The Company recognized a loss on extinguishment of debt of $747,865 and the new debt was recognized at fair value of $7,701,650.
In addition, the Company has agreed to make certain payments to the lender in the event that there is a balance outstanding under the debt facility as at certain periods in time. Such fees, if applicable, are payable in cash or common shares, at the Company’s sole discretion. As at December 31, 2022, the Company issued 1,078,901 common shares to Crown Capital Funding, LP in connection with these payments. Total payments were valued at $442,626.
See Note 24 for subsequent events for repayment of Crown debt facility on January 13, 2023.
F-29
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Unsecured promissory notes have been issued to the former owners of acquired companies. As part of the acquisition of Transcription Express, the Company issued an unsecured promissory note to the former owners of Transcription Express with a face value of $1,666,227, bearing interest at 10% per annum. During the year ended December 31, 2019, the terms of the Transcription Express unsecured promissory note were amended, with the principal and accrued interest to be paid monthly beginning on July 31, 2019 to the period ended April 30, 2021. As at December 31, 2021, this unsecured promissory note has been paid in full.
As part of the acquisition of HomeTech, the Company issued an unsecured interest-free promissory note to the former owners of HomeTech with a face value of $1,200,000, to be paid monthly for 60 months in equal installments of $20,000 beginning February 25, 2019 to the period ending January 25, 2024. The Company recorded the unsecured promissory note by discounting the principal amounts due using a market annual interest rate of 12%. The difference between the present value and the face value is being accreted over the term of the unsecured promissory notes.
An additional note was issued to the former owners of WordZ with a face value of $1,200,000 bearing interest at 5% to be paid quarterly for 36 months beginning January 5, 2021 to the period ending October 5, 2023. The fair value of the unsecured promissory notes was determined on a market annual interest rate of 12%. The difference between the face value and the ascribed value of the notes is being accreted over life of the notes.
During the year ended December 31, 2020, the Company entered into agreements (the “Amending Agreements”) with the holders of unsecured convertible notes (each, a “Note”) in the aggregate principal amount of approximately $6,792,934, granting the holders of such Notes (each a “Noteholder”) the option to convert the principal and the aggregate interest payable on their Notes from the date of issuance to the maturity date (the “Total Interest Payable”) into shares at a conversion price of CAD$2.18 per share (the “Conversion Option”). The modification of the convertible notes resulted in in a charge of $1,497,804 reflecting the incremental fair value of the reduced exercise price. This charge was recorded as a loss on repayment of long-term debt in the consolidated statements of loss and comprehensive loss.
Concurrent with their entry into the Amending Agreements, Noteholders holding all of the outstanding Notes exercised the Conversion Option during the year ended December 31, 2020. As a result of the exercise of the Conversion Option, the Company recognized $3,503,797 in interest expense reflecting interest charges from the date of the conversion through the maturity date. For the year ended December 31, 2020, the Company recognized a loss of $1,308,440 on the revaluation of the conversion feature liability.
During the year ended December 30, 2022, the Company repaid $114,269 of the loan balance (2021 - $145,129).
The minimum remaining principal repayments of debt under all agreements are as follows:
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Crown | | wordZ promissory | | HomeTech | | | | |||
|
| Capital |
| note |
| VTB loan |
| Total | ||||
2023 | | $ | 7,701,650 | | $ | 432,939 | | $ | 260,000 | | $ | 8,394,589 |
2024 | |
| — | |
| — | |
| 20,000 | |
| 20,000 |
| | $ | 7,701,650 | | $ | 432,939 | | $ | 280,000 | | $ | 8,414,589 |
F-30
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
10.Derivative warrant liability
On July 21, 2022, the Company completed a private placement offering to institutional investors (“PIPE”). Under the PIPE, the Company sold 3,551,852 units (the “Units”) at a price of $1.35 per Unit for gross proceeds to the Company of approximately $4,800,000 before the deduction of any fees and other PIPE expenses. Each Unit consists of one common share of the Company (a “Common Share”) and one Common Share purchase warrant (“Warrant”). Each Warrant entitles the holder thereof to purchase one Common Share at an exercise price of $1.39. The Warrants will be exercisable beginning on January 21, 2023 and will expire on July 21, 2027. Issuance costs of $741,000 were incurred with $344,000 being recorded as a reduction of common shares and $397,000 recorded in accretion and other financing costs.
On September 15, 2021, the Company closed its direct offering with institutional investors (the “Offering”). Under the Offering, the Company sold 4,235,294 units (the “Units”) at a price of $4.25 per Unit for gross proceeds to the Company of approximately $18,000,000 before the deduction of any fees and other estimated Offering expenses. Each Unit consists of one and one-half of one Common Share purchase warrant (each whole Common Share purchase warrant, a “Warrant”). A total of 2,117,647 Warrants were issued. Each Warrant entitles shareholder thereof to purchase one Common Share (a “Warrant Share”) at an exercise price of $5.00. The Warrants is exercisable as at March 15, 2022 and will expire five years from the issuance date on September 14, 2026.
In accordance with IFRS, a contract for the issuance of equity instruments that fails to meet the fixed for fixed criteria, i.e., issue a fixed number of shares for a fixed amount of cash or another financial asset, fails to meet the definition of equity. The exercise price for the Warrants issued under the PIPE and Offering are denominated in USD currency, which differs from the CAD functional currency of the issuing entity. As a result, the warrants are recorded as a derivative warrant liability since the Company will be receiving cash in a currency other than the issuing entity’s functional currency and therefore is deemed to be variable.
The derivative warrant liabilities are measured at fair value with changes in fair value recognized in the consolidated statements of loss and comprehensive loss at each year-end. The derivative warrant liabilities will ultimately be converted into the Company’s equity (common shares) when the Warrants are exercised or will be extinguished on the expiry of the outstanding Warrants and will not result in the outlay of any cash by the Company.
The Company uses the Black-Scholes pricing model to estimate fair value at initial recognition and at each reporting date. The Company considers expected volatility of its common shares in estimating its future stock price volatility. The risk-free interest rate for the life of the Warrants was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of issue and at the time of revaluation. The life of warrant is based on an estimated exercise term. The following are assumptions used by the Company to fair value at initial recognition and the year ended December 31, 2022:
PIPE July 21, 2022
| | | | | | | |
|
| December 31, 2022 |
| July 21, 2022 initial |
| ||
| | year end | | recognition |
| ||
Fair value (CAD) | | $ | 0.10 | | $ | 0.93 | |
Share price (CAD) | | $ | 0.36 | | $ | 1.41 | |
Exercise price (CAD) | | $ | 1.89 | | $ | 1.79 | |
Expected volatility | |
| 77.1 | % |
| 69.9 | % |
Risk free rate | | | 3.50 | % | | 3.06 | % |
Expected life (years) | |
| 4.55 | |
| 5.0 | |
Expected dividends | |
| 0 | % |
| 0 | % |
F-31
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Offering September 15, 2021
| | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | | September 15, 2021 |
| |||
|
| Year end |
| Year End |
| initial recognition |
| |||
Fair value (CAD) | | $ | 0.02 | | $ | 1.12 | | $ | 1.93 | |
Share price (CAD) | | $ | 0.36 | | $ | 3.11 | | $ | 4.43 | |
Exercise price (CAD) | | $ | 6.78 | | $ | 6.35 | | $ | 6.33 | |
Expected volatility | |
| 75 | % | | 64.7 | % |
| 62 | % |
Risk free rate | | | 3.67 | % | | 1.22 | % | | 0.83 | % |
Expected life (years) | |
| 3.71 | | | 4.71 | |
| 5.0 | |
Expected dividends | |
| 0 | % | | 0 | % |
| 0 | % |
For the year ended December 31, 2022, a gain on revaluation of derivative warrant liabilities was recorded in the amount of $4,255,017 (2021 - $1,368,180).
As at December 31, 2022, there were 5,669,499 warrants outstanding and nil exercised (2021 – 2,117,647 and nil exercised).
11.Capital stock
Omnibus Equity Incentive Plan
On April 29, 2021, the Company adopted a new omnibus equity incentive plan (the “Omnibus Equity Incentive Plan”) by way of a Shareholder Resolution. The Omnibus Equity Incentive Plan is a “rolling” plan that, subject to certain adjustment provisions, provides that the aggregate maximum number of Common Shares that may be issued upon the exercise or settlement of awards granted under the Omnibus Equity Incentive Plan shall not exceed 10% of the Company’s issued and outstanding Common Shares from time to time. The Omnibus Equity Incentive Plan is considered an “evergreen” plan, since the Common Shares covered by awards that have been exercised, settled or terminated shall be available for subsequent grants under the Omnibus Equity Incentive Plan, and the number of awards available to grant increases as the number of issued and outstanding Common Shares increases. As such, the Omnibus Equity Incentive Plan must be approved by the majority of the Company’s Board and its Shareholders every three years following its adoption pursuant to the requirements of the TSX.
Under the Omnibus Equity Incentive Plan, the Company is able to grant equity-based incentive awards in the form of stock options, restricted share units (“RSUs”), performance share units (“PSUs”) and deferred share units (“DSUs”). All future grants of equity-based awards will be made pursuant to the Omnibus Equity Incentive Plan, and no further equity-based awards will be made pursuant to the Company’s Stock Option Plan, DSU plan, and Stock Appreciation Rights Plan (collectively, the “Legacy Plans”). The Legacy Plans will continue to be authorized for the sole purposes of facilitating the vesting and exercise of existing awards previously granted under the Legacy Plans. Once the existing awards granted under the Legacy Plans are exercised or terminated, the Legacy Plans will terminate and be of no further force or effect.
No equity incentive securities have been granted under the Legacy Plans for the year ended December 31, 2022 (2021 – nil and 2020 – 396,000).
F-32
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Common shares
The Company’s authorized capital consists of an unlimited number of common shares with no par value. As at December 31, 2022, common shares of the Company were reserved as follows:
| | | | | | | |
| | Exercise price | | | | | |
|
| (CAD) |
| Expiry dates |
| Number outstanding | |
Options – Legacy Plan | | | $2.84 - $6.00 |
| January 2023 – December 2023 |
| 123,750 |
| | | $2.20 - $3.10 |
| January 2024 – December 2024 |
| 220,350 |
| | | $3.13 |
| January 2025 – December 2025 |
| 376,000 |
Options – Omnibus Equity Incentive Plan | | | $2.80 - 8.84 | | January 2031 – June 2031 | | 318,000 |
| | | $0.45 - 1.35 | | January 2032 – December 2032 | | 805,947 |
Deferred share units – Legacy Plan | | | $1.20 - $2.10 | | N/A | | 66,667 |
Restricted share units – Omnibus Equity Incentive Plan | | | N/A | | January 2024 – December 2024 | | 16,667 |
| | | N/A | | January 2031 – June 2031 | | 168,017 |
| | | N/A | | N/A | | 636,535 |
Performance share units – Omnibus Equity Incentive Plan | | | N/A | | N/A | | 165,000 |
Warrants
During the year ended December 31, 2022, there were no warrants exercised (2021 - 1,123,878 and 2020 – 1,154,759) for $nil proceeds (2021 - $2,092,276 and 2020 - $1,859,963). During the year ended December 31, 2022, there were no warrants issued under the Legacy Plans (2021 and 2020 – nil).
As at December 31, 2022, there were no warrants outstanding other than those classified as derivative warrant liabilities in Note 10 (2021 – nil).
Stock option plan
The Company has an incentive stock option plan for its directors, officers, employees, and contractors. The Company’s legacy stock option plan allows for the granting of options (and DSUs as described below) up to an aggregate amount equal to 10% of the aggregate number of common shares of the Company outstanding. The options, which have a term not exceeding five years when issued, generally vest as follows:
● | 1/3 at time of issue |
● | 1/3 after one year |
● | 1/3 after two years |
Under the Omnibus Equity Incentive Plan, the stock options that are granted have a term not exceeding ten years when granted, and can be fully vested on date of grant or vest as follows:
● | 1/3 after one year |
● | 1/3 after two years |
● | 1/3 after three years |
During the year ended December 31, 2021, certain stock options granted included cash settlement alternatives at the discretion of the stock option holder, subject to the approval of the Company’s Plan Administrator. The option holder could elect to perform the following on the settlement date:
● | acquire common shares of the Company on a 1:1 basis to vested options |
F-33
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
● | receive cash payment, net of withholding taxes, equal to vested options multiplied by the market price of common shares of the Company |
● | acquire and receive a combination of common shares and cash payment, respectively, as noted above |
Since the election and choice of settlement method lies with the stock option holder, which includes a cash settlement, the Company recorded the associated grants with this option as a cash-settled share-based payment and recorded a share-based payment liability, which is remeasured at each reporting period. On June 11, 2021, the Company initially recorded a share- based payment liability of $141,186 related to the 155,517 options that are deemed to be cash-settled share-based payments. As a result of additional vesting of the options as well as the result of remeasuring the options classified as cash-settled share-based payments related to the Omnibus Equity Incentive Plan at fair value, the Company recorded a gain on revaluation of options of $1,511,399 for the year ended December 31, 2022 (2021 - $1,028,055 and 2020 - $nil). As at December 31, 2022, the Company had no options outstanding that are to be cash-settled as these options were all forfeited.
As at December 31, 2022, 720,100 options were vested related to the Legacy Plan (2021 – 749,267 and 2020 – 770,283) with a weighted average exercise price of CAD $2.88 per share (2021 – CAD $3.16 and 200 - $2.62 ).
As at December 31, 2022, 486,864 options were vested related to the Omnibus Equity Incentive Plan (2021 – 46,500 and 2020 - nil) with a weighted average exercise price of CAD $1.67 per share (2021 – CAD $8.84 and 2020 - $nil).
During the year ended December 31, 2022, the Company granted 805,947 stock options respectively to directors, officers, employees, and contractors (2021 – 1,115,086 and 2020 – 396,000). The Company utilized the Black-Scholes option pricing model to fair value the stock options granted and included the following assumptions:
| | | | | |
| | Year ended December 31, 2022 | | Year ended December 31, 2021 |
|
|
| Omnibus Equity Incentive Plan |
| Omnibus Equity Incentive Plan |
|
Fair value at grant date (CAD) | | $0.20 - $ 0.81 | | $2.30 - $7.29 | |
Share price at grant date (CAD) | | $0.34 - $1.32 | | $2.80 - $8.93 | |
Exercise price (CAD) | | $0.45 - $1.35 | | $8.84 - $8.93 | |
Expected volatility | | 62.5% - 72.3% | | 81.60% - 82.7% | |
Expected option life | | 5.5 – 6.5 | | 10.0 | |
Expected dividends | | 0% | | 0% | |
Risk-free interest rate (based on government bonds) | | 2.90% - 3.16% | | 1.38% - 1.43% | |
During the year ended December 31, 2022, nil options were exercised (2021 – 203,333 and 2020 – 92,500), for $nil proceeds (2021 - CAD$312,833 and 2020 – CAD$113,500). There were 886,253 stock options forfeited during the year ended December 31, 2022 (2021 and 2020 – nil) and 72,000 stock options that expired during the year ended December 31, 2022 (2021 – 33,333 and 2020 – 53,667).
The following information applies to stock options outstanding per the Legacy Plan as at December 31, 2022, along with their respective exercise prices and related weighted average remaining contractual life:
| | | | | | | | | | | | |
|
| | | Weighted average |
| | | | | | ||
Range of exercise | | |
| remaining | | Weighted average | | |
| Weighted average | ||
prices | | Options | | contractual | | exercise price |
| Options | | exercise price | ||
(CAD) | | outstanding | | life | | (CAD) | | exercisable | | (CAD) | ||
$2.84 – $6.00 |
| 123,750 |
| 0.9 years | | $ | 3.01 |
| 123,750 | | $ | 3.01 |
$2.20 - $3.10 |
| 220,350 |
| 1.5 years | | $ | 2.37 |
| 220,350 | | $ | 2.37 |
$3.13 |
| 376,000 |
| 2.3 years | | $ | 3.13 |
| 376,000 | | $ | 3.13 |
|
| 720,100 |
| 1.8 years | | $ | 2.88 |
| 720,100 | | $ | 2.88 |
F-34
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
The following information applies to stock options outstanding per the Omnibus Equity Incentive Plan as at December 31, 2022, along with their respective exercise prices and related weighted average remaining contractual life:
| | | | | | | | | | | | |
|
| |
| Weighted |
| Weighted |
| |
| Weighted | ||
Range of exercise | | | | average | | average exercise | | | | average exercise | ||
prices | | Options | | remaining | | price | | Options | | price | ||
(CAD) | | outstanding |
| contractual life |
| (CAD) | | exercisable |
| (CAD) | ||
$2.80 - $8.84 |
| 318,000 |
| 8.9 years | | $ | 3.25 |
| 118,000 |
| $ | 3.82 |
$0.45 – $1.35 |
| 805,947 |
| 9.7 years | | $ | 0.92 |
| 368,864 | | $ | 0.98 |
|
| 1,123,947 | | 9.5 years | | $ | 1.58 |
| 486,864 | | $ | 1.67 |
Deferred Share Units Plan
The Company established a DSU Plan to provide non-employee directors to participate in the long-term success of the Company. DSUs are fully vested upon being granted.
The Board of Directors may grant DSUs (and the number of options to purchase shares described above) up to a maximum of 10% of common shares outstanding and up to a maximum of 100,000 units.
Maximum allowable grants under the option and DSU plans in aggregate as at December 31, 2022 were 3,464,970 (2021 – 2,988,172 and 2020 – 2,359,143) of which 1,844,047 were outstanding stock options, 66,667 were outstanding DSUs, 821,219 were outstanding RSUs, and 165,000 of outstanding PSUs for a total of 2,896,933 (2021 – 2,259,036 and 2020 – 1,184,600).
The Company did not grant any DSU’s to Directors of the Company during the year ended December 31, 2022 (2021 and 2020 – nil).
Restricted Share Units Plan
Under the Omnibus Equity Incentive Plan, the Company established a RSU Plan. RSUs have a term not exceeding ten years to indefinite expiry when granted and can fully vest after one year, vest each month, or vest as follows:
● | 1/3 after one year |
● | 1/3 after two years |
● | 1/3 after three years |
During the year ended December 31, 2021, certain RSUs granted included cash settlement alternatives at the discretion of the RSU holder, subject to the approval of the Company’s Plan Administrator. The RSU holder could elect to perform the following on the settlement date:
● | acquire common shares of the Company on a 1:1 basis to vested RSUs |
● | receive cash payment, net of withholding taxes, equal to vested RSUs multiplied by the market price of common shares of the Company |
● | acquire and receive a combination of common shares and cash payment, respectively, as noted above |
Certain RSUs issued by the Company included the choice of settlement method lies with the RSU holder, which includes a cash settlement, the Company has recorded the associated RSU grants as a cash settled share-based payments and recorded a share-based payment liability. As at December 31, 2022, there are 155,517 RSUs outstanding that are classified as cash-settled share-based payments.
F-35
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
As a result of remeasuring the RSUs classified as cash-settled share-based payments related to the Omnibus Equity Incentive Plan at fair value, the Company recorded a gain of $550,260 for the year ended December 31, 2022 (2021 – $242,595 and 2020 - $nil). The RSUs were valued at the following fair values:
| | | | | |
| | Year ended December 31, 2022 | | Year ended December 31, 2021 | |
|
| Omnibus Equity Incentive Plan | | Omnibus Equity Incentive Plan |
|
Fair value (CAD) | | $0.36 | | $3.11 | |
Share price (CAD) | | $0.36 | | $3.11 |
|
During the year ended December 31, 2022, 803,463 RSUs were granted to directors, officers, employees, and contractors (2021 – 1,023,378 and 2020 - nil) which are equity accounted for. 689,469 RSUs were vested and 175,261 RSUs were exercised for the year ended December 31, 2022 (2021 – 842,861 vested and 827,361 RSUs exercised and 2020 – nil). The Company recorded the RSUs granted which have a zero exercise price at the following fair values:
| | | | |
| | Year ended December 31, 2022 | | Year ended December 31, 2021 |
|
| Omnibus Equity Incentive Plan | | Omnibus Equity Incentive Plan |
Fair value (CAD) | | $0.35 - $1.32 | | $2.75 - $8.93 |
Share price (CAD) | | $0.35 - $1.32 | | $2.75 - $8.93 |
Performance Share Units Plan
Under the Omnibus Equity Incentive Plan, the Company established a PSU Plan. The PSUs have an indefinite term when granted and vest 100% after one year if the performance vesting conditions are met. As at December 31, 2022, the Company has determined that it is probable that the performance vesting condition will be met by the respective employees.
On May 16, 2022, 195,000 PSUs were granted to employees, of which 30,000 shares were forfeited during the year ended December 31, 2022. The PSUs were recorded at the fair value on the day of the grant. The PSUs were valued at the following fair value:
| | | | |
|
| Year ended December 31, 2022 |
| |
| | Omnibus Equity | | |
| | Incentive Plan |
| |
Fair value (CAD) | | $ | 1.32 |
|
Share price (CAD) | | $ | 1.32 | |
| | | | |
12.Stock-based compensation
The total compensation expense relating to the value assigned to the stock options, RSUs, and PSUs granted to directors, officers, employees and contractors for the December 31, 2022 was $2,779,312 (2021 - $8,495,189 and 2020 - $725,316), which was included in the stock-based compensation expense with a corresponding charge to contributed surplus of $1,264,523 (2021 – $6,679,582 and 2020 - $461,509) and share-based payment liability of $1,514,789 (2021 - $1,815,607 and 2020 - $nil) which was subsequently reversed through gain on revaluation of options in 2022.
F-36
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
13.Net loss per share
| | | | | | | | | |
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Numerator for basic and diluted net loss per share: | | |
| | |
| | |
|
Net loss for the year | | $ | (8,706,015) | | $ | (19,678,749) | | $ | (11,145,306) |
Denominator for basic net loss per share: | |
|
| |
|
| |
|
|
Weighted average number of common shares outstanding | |
| 31,648,001 | |
| 26,448,594 | |
| 18,080,533 |
Effect of potential dilutive securities | |
| — | |
| — | |
| — |
Adjusted denominator for diluted net loss per share | |
| 31,648,001 | |
| 26,448,594 | |
| 18,080,533 |
Basic net loss per share | | $ | (0.28) | | $ | (0.74) | | $ | (0.62) |
Diluted net loss per share | | $ | (0.28) | | $ | (0.74) | | $ | (0.62) |
For the year ended December 31, 2022, 8,566,432 of potentially dilutive common shares (2021 – 4,376,683 and 2020 – 2,308,478) issuable upon the exercise of warrants, DSUs, RSUs, PSUs, and options were not included in the computation of loss per share because their effect was anti-dilutive.
14.Supplemental cash flow information
Components of the net change in non-cash working capital are as follows:
| | | | | | | | | |
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Trade and other receivables | | $ | 72,230 | | $ | 1,180,069 | | $ | (316,778) |
Inventories | |
| 11,750 | |
| (176) | |
| 18,473 |
Prepaid expenses and deposits | |
| 4,132 | |
| (1,630,088) | |
| (53,416) |
Trade and other payables and accrued liabilities | |
| 669,427 | |
| (1,170,715) | |
| (40,937) |
Taxes | | | (104,670) | | | — | | | — |
Contract liabilities | |
| 742,228 | |
| (381,596) | |
| (380,629) |
Total | | $ | 1,395,097 | | $ | (2,002,506) | | $ | (773,287) |
Other supplemental cash flow information as follows:
| | | | | | | | | |
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Cash received for interest | | $ | 1,718 | | $ | 22,725 | | $ | 1,068 |
Cash paid for interest | |
| 1,154,727 | |
| 1,311,915 | |
| 1,105,298 |
15.Segmented financial information
The Company has determined it has two reportable business segments, namely technology and related revenue and technology services. The technology and related revenue segment develops, distributes licenses computer-based digital solutions based on the Company’s proprietary technology; and the technology service segment, provides recording and transcription services.
The Company’s reportable segments are strategic business segments that offer different products and/or services. These business segments work on different business models and operate autonomously. The Company does not segregate sales and associated costs by individual technology products. Accordingly, segmented information on revenue and associated costs is only provided for the transcription services and computer-based digital solutions currently offered by the Company.
The Chief Executive Officer, President and Chief Operating Officer, and Chief Financial Officer are the operating decision makers and regularly reviews our operations and performance by segment. They review segment income (loss) as the key measure of profit for the purpose of assessing performance of each segment and to make decisions about the allocation of resources.
F-37
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Financial information by reportable business segment is as follows:
| | | | | | | | | | | | |
| | Year ended December 31, 2022 | ||||||||||
| | Technology |
| | | | | | | | ||
| | and related | | Technology | | | | | | | ||
|
| revenue |
| services |
| Corporate |
| Total | ||||
Consolidated income (loss) | | |
|
| |
|
| |
|
| |
|
Revenue | | $ | 4,031,450 | | $ | 41,812,479 | | $ | — | | $ | 45,843,929 |
Gross profit | |
| 2,818,137 | |
| 19,107,566 | |
| — | |
| 21,925,703 |
Selling and administrative expenses | |
| 2,156,808 | |
| 19,796,235 | |
| 2,573,260 | |
| 24,526,303 |
Stock-based compensation | |
| 244,409 | |
| 2,534,903 | |
| — | |
| 2,779,312 |
Research and development expenses | |
| 64,557 | |
| 669,558 | |
| — | |
| 734,115 |
Depreciation and amortization | |
| 312,219 | |
| 5,729,361 | |
| 46,623 | |
| 6,088,203 |
Foreign exchange gain | |
| — | |
| — | |
| (452,068) | |
| (452,068) |
Interest, accretion and other financing costs | |
| — | |
| — | |
| 2,283,812 | |
| 2,283,812 |
Loss on contingent consideration | | | — | | | 80,071 | | | — | | | 80,071 |
Gain on revaluation of options | |
| — | |
| — | |
| (1,511,399) | |
| (1,511,399) |
Gain on revaluation of RSUs | |
| — | |
| — | |
| (550,260) | |
| (550,260) |
Gain on revaluation of the derivative warrant liability | |
| — | |
| — | |
| (4,255,017) | |
| (4,255,017) |
Loss on extinguishment of debt | | | — | | | — | | | 747,865 | | | 747,865 |
Restructuring costs | |
| — | |
| — | |
| 323,075 | |
| 323,075 |
Business acquisition costs | |
| — | |
| — | |
| 433,372 | |
| 433,372 |
Impairment of property and equipment | | | — | | | 15,246 | | | — | | | 15,246 |
Other income | |
| — | |
| – | |
| (1,291) | |
| (1,291) |
Current income tax recovery | |
| — | |
| (105,256) | |
| — | |
| (105,256) |
Deferred income tax recovery | |
| (33,063) | |
| (471,302) | |
| — | |
| (504,365) |
Segment income (loss) | |
| 73,207 | |
| (9,141,250) | |
| 362,028 | |
| (8,706,015) |
F-38
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| | | | | | | | | | | | |
| | Year ended December 31, 2021 | ||||||||||
| | Technology |
| | | | | | | | ||
| | and related | | Technology | | | | | | | ||
|
| revenue |
| services |
| Corporate |
| Total | ||||
Consolidated income (loss) | | |
|
| |
|
| |
|
| |
|
Revenue | | $ | 4,370,074 | | $ | 26,676,738 | | $ | — | | $ | 31,046,812 |
Gross profit | |
| 3,249,849 | |
| 11,673,110 | |
| — | |
| 14,922,959 |
Selling and administrative expenses | |
| 7,467,520 | |
| 6,799,249 | |
| 4,852,944 | |
| 19,119,713 |
Stock-based compensation | |
| 1,195,762 | |
| 7,299,427 | |
| — | |
| 8,495,189 |
Research and development expenses | |
| 1,092,108 | |
| — | |
| — | |
| 1,092,108 |
Depreciation and amortization | |
| 1,902,822 | |
| 2,738,779 | |
| — | |
| 4,641,601 |
Foreign exchange loss (gain) | |
| 110,098 | |
| (87,968) | |
| — | |
| 22,130 |
Interest, accretion and other financing expense | |
| 24,543 | |
| 10,169 | |
| 2,263,494 | |
| 2,298,206 |
Gain on contingent consideration | |
| — | |
| (332,569) | |
| — | |
| (332,569) |
Gain on revaluation of options | | | (144,707) | | | (883,348) | | | — | | | (1,028,055) |
Gain on revaluation of RSUs | | | (34,147) | | | (208,448) | | | — | | | (242,595) |
Gain on revaluation of the derivative warrant liability | | | (192,582) | | | (1,175,598) | | | — | | | (1,368,180) |
Restructuring costs | | | 312,794 | | | 119,908 | | | — | | | 432,702 |
Business acquisition costs | | | — | | | — | | | 539,734 | | | 539,734 |
Other income | | | (21,372) | | | 9,369 | | | — | | | (12,003) |
Current income tax recovery | | | — | | | (875) | | | — | | | (875) |
Deferred income tax expense | | | — | | | 944,602 | | | — | | | 944,602 |
Segment loss | |
| (8,462,990) | |
| (3,559,587) | |
| (7,656,172) | |
| (19,678,749) |
| | | | | | | | | | | | |
|
| Year ended December 31, 2020 | ||||||||||
| | Technology | | | | | | | | | | |
| | and related | | Technology | | | | | | | ||
|
| revenue |
| services |
| Corporate |
| Total | ||||
Consolidated income (loss) |
| |
|
| |
|
| |
|
| |
|
Revenue | | $ | 3,201,837 | | $ | 28,547,856 | | $ | — | | $ | 31,749,693 |
Gross profit | |
| 2,169,414 | |
| 13,980,842 | |
| — | |
| 16,150,256 |
Selling and administrative expenses | |
| 6,012,270 | |
| 4,606,557 | |
| 416,075 | |
| 11,034,902 |
Stock-based compensation | |
| — | |
| — | |
| 725,316 | |
| 725,316 |
Research and development expenses | |
| 1,074,178 | |
| — | |
| — | |
| 1,074,178 |
Depreciation and amortization | |
| 2,429,329 | |
| 2,829,914 | |
| — | |
| 5,259,243 |
Foreign exchange gain | |
| (65,303) | |
| (67,003) | |
| | |
| (132,306) |
Interest, accretion and other financing expense | |
| 26,746 | |
| — | |
| 6,124,720 | |
| 6,151,466 |
Other income | | | (25) | | | (10,348) | | | — | | | (10,373) |
Loss on revaluation of conversion feature liability | |
| — | |
| — | |
| 1,308,440 | |
| 1,308,440 |
Gain on contingent consideration | | | — | | | (946,503) | | | — | | | (946,503) |
Impairment of intangibles | | | — | | | 2,258,369 | | | — | | | 2,258,369 |
Loss on repayment of long-term debt | | | — | | | — | | | 1,497,804 | | | 1,497,804 |
Business acquisition costs | | | — | | | — | | | 19,058 | | | 19,058 |
Current income tax expense | | | — | | | 106,986 | | | — | | | 106,986 |
Deferred income tax expense (recovery) | |
| 61,879 | |
| (1,112,897) | |
| — | |
| (1,051,018) |
Segment income (loss) | |
| (7,369,660) | |
| 6,315,767 | |
| (10,091,413) | |
| (11,145,306) |
The comparative figures income statement below gross profit have been adjusted for the year ended December 31, 2021 to reflect the current year’s presentation. The segment loss originally reported for the year ended December 31, 2021 for technology and related revenue was $8,462,990. For technology services, segment loss originally reported for the year ended December 31, 2021 was $3,559,587.
The adjustments were not considered material and did not affect the Company’s consolidated revenue or consolidated net loss.
F-39
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Property and equipment are located in the following countries:
| | | | | | |
|
| Year ended December 31, | ||||
| | 2022 | | 2021 | ||
Australia | | $ | 1,316,010 | | $ | 325,228 |
United States | | | 67,307 | | | 113,242 |
Canada | |
| 35,331 | |
| 14,084 |
United Kingdom | | | 13,485 | | | 8,420 |
| | $ | 1,432,133 | | $ | 460,974 |
16.Revenue
The Company generates revenue primarily from the delivery of technology and transcription services to its customers. Revenue from contracts with customers is disaggregated by primary geographical market, major products and services and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the Company’s reportable segments (note 15).
| | | | | | | | | |
| | Year ended December 31, | |||||||
Primary geographic markets |
| 2022 |
| 2021 |
| 2020 | |||
Australia | | $ | 26,332,938 | | $ | 9,523,257 | | $ | 8,531,854 |
United States | |
| 17,473,030 | |
| 18,980,591 | |
| 22,180,946 |
United Kingdom | |
| 1,718,537 | |
| 1,948,321 | |
| 611,666 |
Canada | |
| 205,656 | |
| 160,372 | |
| 305,166 |
Other | |
| 113,768 | |
| 434,271 | |
| 120,061 |
Total | | $ | 45,843,929 | | $ | 31,046,812 | | $ | 31,749,693 |
| | | | | | | | | |
| | Year ended December 31, | |||||||
Major products/service lines |
| 2022 |
| 2021 |
| 2020 | |||
Technology services | | $ | 41,812,479 | | $ | 26,676,738 | | $ | 28,190,993 |
Software licenses | |
| 352,473 | |
| 1,365,882 | |
| 1,013,854 |
Support and maintenance | |
| 1,872,620 | |
| 1,772,203 | |
| 1,519,424 |
SaaS | |
| 89,692 | |
| 65,187 | |
| 42,662 |
Subscription | | | 493,845 | | | 189,359 | | | — |
Professional services | |
| 950,605 | |
| 451,695 | |
| 288,597 |
Hardware | |
| 272,215 | |
| 442,077 | |
| 657,711 |
Other | |
| — | |
| 83,671 | |
| 36,452 |
Total | | $ | 45,843,929 | | $ | 31,046,812 | | $ | 31,749,693 |
The Company had two customers who contributed greater than 10 % of consolidated total revenues during the year ended December 31, 2022 comprising of 18.7 % and 14.1 % respectively (2021 – one customer at 11.7 % and 2020 – one customer and 11.3 %).
Technology services, software licenses, hardware and other revenue are recognized at a point in time, except for revenue for select customers over time. Professional services, support and maintenance, SaaS, and subscription revenue is recognized over time.
F-40
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
17.Expenses by nature
Expenses incurred by nature are as follows:
| | | | | | | | | |
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Employee and contractor expenses (note 18) | | $ | 39,054,160 | | $ | 33,603,690 | | $ | 22,682,199 |
Third-party vendors and other cost of sales | |
| 3,577,368 | |
| 1,719,616 | |
| 1,043,844 |
Depreciation and amortization | |
| 6,088,203 | |
| 4,641,601 | |
| 5,259,243 |
Facilities | |
| 646,894 | |
| 470,773 | |
| 279,028 |
Professional and consulting fees | |
| 1,648,274 | |
| 4,099,129 | |
| 1,566,224 |
Investor relations and other shareholder expenses | |
| 371,389 | |
| 792,457 | |
| 288,778 |
Bad debt | |
| 100,163 | |
| 283,964 | |
| 18,116 |
Marketing and advertising/promotion expenses | |
| 294,997 | |
| 177,894 | |
| 226,104 |
Software license and IT expenses | |
| 3,999,468 | |
| 1,620,816 | |
| 1,318,239 |
Telephone and internet | |
| 568,813 | |
| 283,207 | |
| 260,634 |
Travel | |
| 264,238 | |
| 202,703 | |
| 78,467 |
Insurance | |
| 1,143,358 | |
| 630,066 | |
| 103,702 |
Office, administrative, and other operating expenses | |
| 288,834 | |
| 946,548 | |
| 568,498 |
Foreign exchange loss (gain) | |
| (452,068) | |
| 22,130 | |
| (132,306) |
Total | | $ | 57,594,091 | | $ | 49,494,594 | | $ | 33,560,770 |
18.Employee and contractor expenses
Expenditures for employee and contractor salaries and benefits are as follows:
| | | | | | | | | |
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Salaries and wages and employee benefits | | $ | 25,731,132 | | $ | 14,575,551 | | $ | 11,060,315 |
Contract labour | |
| 10,082,646 | |
| 9,550,731 | |
| 9,818,222 |
Stock-based compensation | |
| 2,779,312 | |
| 8,495,189 | |
| 725,316 |
Other staff expense | |
| 461,070 | |
| 982,219 | |
| 1,078,346 |
Total | | $ | 39,054,160 | | $ | 33,603,690 | | $ | 22,682,199 |
F-41
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
19.Right-of-use assets
Details of the Company’s right-of-use assets are the following:
| | | | | | | | | | | | | | |
|
| Balance |
| | | | |
| | |
| Balance | ||
|
| December 31, | | | | | |
| Foreign |
| December 31, | |||
|
| 2021 |
| Additions |
| Adjustments |
| exchange |
| 2022 | ||||
Cost | | | | | | | | | | | | | | |
Buildings | | $ | 2,042,126 | | | 365,303 | | — | | | (431,355) | | $ | 1,976,074 |
Equipment | |
| 75,169 | | | — | | (12,255) | | | 1,472 | |
| 64,386 |
| | $ | 2,117,295 | | | 365,303 | | (12,255) | | | (429,883) | | $ | 2,040,460 |
Accumulated depreciation | |
|
| |
|
| | | | |
| |
|
|
Buildings | | | 952,901 | | | 351,702 | | — | | | (368,197) | | $ | 936,406 |
Equipment | |
| 29,901 | | | 15,084 | | — | | | 469 | |
| 45,454 |
| | | 982,802 | | | 366,786 | | — | | | (367,728) | | $ | 981,860 |
Net book value | | $ | 1,134,493 | | | | | | |
|
| | $ | 1,058,600 |
| | | | | | | | | | | | | | | |
|
| Balance |
| | |
| | |
| | |
| Balance | ||
|
| December 31, | | | | | | |
| Foreign |
| December 31, | |||
|
| 2020 |
| Acquisitions |
| Additions |
| exchange |
| 2021 | |||||
Cost |
| |
|
| |
|
| |
|
| |
|
| |
|
Buildings | | $ | 1,105,554 | | | 915,203 | | | — | | | 21,369 | | $ | 2,042,126 |
Equipment | |
| 36,268 | |
| 38,901 | |
| — | |
| — | |
| 75,169 |
| | $ | 1,141,822 | | | 954,104 | | | — | | | 21,369 | | $ | 2,117,295 |
Accumulated depreciation | |
|
| |
|
| |
|
| |
|
| |
|
|
Buildings | | | 810,295 | | | — | | | 122,600 | | | 20,006 | | | 952,901 |
Equipment | |
| 21,961 | |
| — | |
| 7,833 | |
| 107 | |
| 29,901 |
| | | 832,256 | | | — | | | 130,433 | | | 20,113 | | | 982,802 |
Net book value | | $ | 309,566 | | | | |
|
| |
|
| | $ | 1,134,493 |
| | | | | | | | | | | | | | | |
|
| Balance | | | | | | |
| | |
| Balance | ||
|
| December 31, | | | | | | |
| Foreign |
| December 31, | |||
|
| 2019 |
| Additions | | Disposals |
| exchange |
| 2020 | |||||
Cost | | | | | | | | | | | | | | | |
Buildings | | | 1,048,596 | | | 56,925 | | | (44,725) | | | 44,758 | | | 1,105,554 |
Equipment | |
| 36,268 | | | — | | | — | | | — | |
| 36,268 |
| | $ | 1,084,864 | | | 56,925 | | | (44,725) | | | 44,758 | | $ | 1,141,822 |
Accumulated depreciation | |
|
| | | | | |
| | |
| |
|
|
Buildings | | | 426,516 | | | 333,725 | | | (22,363) | | | 72,417 | | | 810,295 |
Equipment | | | 11,302 | | | 10,659 | | | — | | | — | |
| 21,961 |
| | | 437,818 | | | 344,384 | | | (22,363) | | | 72,417 | | | 832,256 |
Net book value | | $ | 647,046 | |
| | | | | |
|
| | $ | 309,566 |
F-42
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
20.Lease obligations
Below is a summary of the activity related to the Company’s lease liabilities for the year ended December 31, 2022, 2021 and 2020:
| | | | | | | | | |
| | Year ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Lease obligations, December 31, 2021 | | $ | 1,188,769 | | $ | 354,199 | | $ | 689,644 |
Additions | |
| 386,090 | |
| 953,868 | |
| 12,199 |
Disposals | |
| — | |
| — | |
| (67,787) |
Interest on lease liabilities | |
| 114,131 | |
| 34,712 | |
| 53,549 |
Interest payments on lease liabilities | |
| (114,131) | |
| (34,712) | |
| (53,549) |
Principal payments of lease liabilities | |
| (270,795) | |
| (150,924) | |
| (338,276) |
Foreign exchange difference | |
| (97,816) | |
| 31,626 | |
| 58,419 |
Lease obligations, end of year | | $ | 1,206,248 | | $ | 1,188,769 | | $ | 354,199 |
The Company and its subsidiaries have entered into agreements to lease office premises until 2025. The annual rent expenses for premises consist of minimum rent and do not include variable costs. The minimum payments under all agreements are as follows:
| | | |
2023 |
| $ | 679,718 |
2024 |
| | 496,123 |
2025 |
| | 232,461 |
| | $ | 1,408,302 |
21.Income taxes
The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% (2021 and 2020 - 26.5%) to the effective tax rate is as follows:
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
Net loss before income taxes | | $ | (9,315,636) | | $ | (18,735,022) | | $ | (12,089,338) |
Expected income tax recovery |
| | (2,468,644) | | | (4,964,781) | | | (3,203,675) |
Difference in foreign tax rates |
| | 258,214 | | | 163,190 | | | 202,331 |
Share-based compensation and non-deductible expenses |
| | (1,075,684) | | | (3,470) | | | (114,257) |
Prior year true-ups |
| | (205,361) | | | (48,507) | | | 75,227 |
Tax rate changes and other adjustments |
| | 21,067 | | | 9,619 | | | 2,210 |
Recognition of previously unrecognized deferred tax assets |
| | — |
| | — |
| | (317,387) |
Change in tax benefits not recognized |
| | 2,860,787 | | | 5,787,676 | | | 2,411,519 |
Income tax expense (recovery) | | $ | (609,621) | | $ | 943,727 | | $ | (944,032) |
The Company’s income tax expense (recovery) is allocated as follows:
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
Current income tax expense (recovery) | | $ | (105,256) | | $ | (875) | | $ | 106,986 |
Deferred income tax expense (recovery) |
| | (504,365) |
| | 944,602 |
| | (1,051,018) |
Income tax expense (recovery) | | $ | (609,621) | | $ | 943,727 | | $ | (944,032) |
F-43
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
The significant components of deferred tax assets and liabilities are as follows:
| | | | | | |
|
| 2022 |
| 2021 | ||
| | | | | (restated - note 4) | |
Non-capital losses carried forward | | $ | 529,525 | | $ | 288,655 |
Right-of-use assets |
| | 1,056 |
| | — |
Reserves |
| | 124,423 |
| | 176,145 |
Deferred tax assets | | $ | 655,004 | | $ | 464,800 |
Non-capital losses carried forward | | | 126,029 | | | — |
Intangible assets | |
| (978,114) | |
| (1,217,527) |
Reserves | |
| (16,558) | |
| (7,113) |
Deferred tax liabilities | |
| (868,644) | |
| (1,224,640) |
Net deferred tax liabilities | | $ | (213,639) | | $ | (759,840) |
The following tables present tax effects of temporary differences and carry forwards, as well as movements in the deferred tax balances:
| | | | | | | | | | | | |
| | Balance at | | Recognized | | | | | Balance at | |||
| | December 31, | | in profit | | | | December 31, | ||||
|
| 2021 |
| and loss |
| Adjustments |
| 2022 | ||||
Deferred tax assets (liabilities): |
| | |
| | |
| | |
| | |
Non-capital losses carried forward | | | 288,655 | | | 366,900 | | | — | | | 655,555 |
Intangible assets |
| | (1,148,280) |
| | 170,166 |
| | — |
| | (978,114) |
Right-of-use assets |
| | — |
| | 1,056 |
| | — |
| | 1,056 |
Reserves |
| | 176,145 |
| | (68,280) | | | — | | | 107,864 |
Other |
| | (76,360) |
| | 34,523 | | | 41,837 | | | — |
| | $ | (759,840) | | $ | 504,365 | | $ | 41,837 | | $ | (213,639) |
| | | | | | | | | | | | |
| | Balance at | | Recognized | | | | | Balance at | |||
| | December 31, | | in profit | | | | | December 31, | |||
|
| 2020 |
| and loss |
| Adjustments |
| 2021 | ||||
| | | | | | | | | | | (restated) note 4 | |
Deferred tax assets (liabilities): |
| |
|
| |
|
| |
|
| |
|
Non-capital losses carried forward |
| | 154,406 |
| | 134,249 |
| | — |
| | 288,655 |
Intangible assets |
| | 16,104 |
| | 27,655 |
| | (1,192,039) |
| | (1,148,280) |
Reserves |
| | 1,227,868 |
| | (1,051,723) |
| | — |
| | 176,145 |
Other |
| | (17,023) |
| | (54,783) |
| | (4,554) |
| | (76,360) |
| | $ | 1,381,355 | | $ | (944,602) | | $ | (1,196,593) | | $ | (759,840) |
F-44
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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:
| | | | | | |
|
| 2022 |
| 2021 | ||
Property and equipment | | $ | 168,259 |
| $ | 317,392 |
Right-of-use assets | | | (432,053) | | | — |
Intangible assets |
| | 13,483,871 | | | 10,691,053 |
Share issuance costs – 20(1)(e) |
| | 149,410 | | | 474,873 |
Non-capital losses carried forward – Canada |
| | 22,769,811 | | | 21,725,215 |
Non-capital losses carried forward – US |
| | 14,371,217 | | | 10,537,511 |
Non-capital losses carried forward – Australia | | | 684 | | | 195,574 |
Non-capital losses carried forward – UK | | | 153,842 | | | — |
Capital losses carried forward – Canada |
| | 324,281 | | | 346,457 |
Capital losses carried forward – Australia |
| | 503,570 | | | 537,322 |
Investment tax credits |
| | 558,951 | | | 597,175 |
SR&ED pool |
| | 1,748,848 | | | 1,868,445 |
Ontario SR&ED credit |
| | 86,586 | | | 92,507 |
Contract liabilities | | | 130,834 | | | 270,320 |
Lease obligations |
| | 332,306 | | | (58,111) |
Accrued vacation | | | 1,004 | | | 38,584 |
Accrued liabilities | | | — | | | 12,409 |
Accrued interest | | | 1,786,594 | | | 1,257,173 |
Difference between cash and accrual basis | | | — | | | (676,122) |
Financing cost - Crown Capital loan | | | (165,079) | | | — |
AFDA reserve | | | 262,849 | | | 117,163 |
Contingent consideration liabilities | | | 136,663 | | | 445,972 |
Stock-based compensation | | | 397,153 | | | 149,343 |
Business acquisition expenses |
| | 691,321 | | | 314,633 |
Charitable contributions | | | 250 | | | — |
|
| $ | 57,461,172 | | $ | 49,254,888 |
The Company has available Canadian non-capital losses of approximately $22,769,811 and capital losses of approximately $324,281. The net capital loss carry forward may be carried forward indefinitely but can only be used to reduce capital gains. The Company’s Canadian non-capital income tax losses expire between the years 2026 to 2042.
During the year ended December 31, 2022, the Company utilized Canadian loss carryforwards of approximately $nil (2021 and 2020 - $nil) to reduce taxable income in the current year.
The Company also has investment tax credits available to reduce future federal taxes payable of approximately $558,951 which if not utilized will expire between the years 2025 to 2034.
The effective and statutory tax rate in the Company’s Australian subsidiaries is 30.0% (2021 – 26.0% and 2020 – 27.5%). These subsidiaries have non-capital losses of approximately $2,061,281 (2021 - $1,541,287 and 2020 - $nil) and capital losses of approximately $503,570 (2021 – $537,322 and 2020 - $570,372) available to offset future taxable capital gains. These losses do not expire.
The Company’s US subsidiaries have non-capital losses of approximately $14,371,217 available to reduce future taxable. These losses do not expire.
The Company’s UK subsidiaries have non-capital losses of approximately $316,120 available to reduce future taxable income. These losses do not expire.
F-45
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Unrecognized deferred tax liabilities
The aggregate amount of temporary differences associated with investments in subsidiaries for which the Company has not recognized deferred tax liabilities is approximately $1,033,312 as the Company ultimately controls whether the liability will be incurred and is satisfied that it will not be incurred in the foreseeable future.
22.Risk management for financial instruments
The estimated fair values of cash, trade and other receivables, restricted cash, trade and other payables and accrued liabilities approximate their carrying values due to the relatively short-term nature of the instruments. The estimated fair values of current and long-term debt and obligations under finance lease also approximate carrying values due to the fact that effective interest rates are not significantly different from market.
Fair value measurements recognized in the consolidated statement of financial position must be categorized in accordance with the following levels:
a. | Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; |
b. | Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
c. | Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
The Company’s financial instruments carried at fair value on the consolidated statements of financial position consist of cash and restricted cash. Cash and restricted cash are valued using quoted market prices (Level 1). Share-based payment liability, contingent consideration, and derivative warrant liability are categorized using observable market inputs (Level 2). The Company did not value any financial instruments using valuation techniques based on non-observable market inputs (Level 3) as at December 31, 2022.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach in managing liquidity is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, by continuously monitoring actual and budgeted cash flows.
The Company has sustained losses over the last number of periods and has financed these losses mainly through a combination of equity and debt offerings. Management believes that it has raised sufficient cash to meet all of its contractual debt that is coming due in 2023 and has the ability to fund any operating losses that may occur in the upcoming periods.
The table below summarizes the Company’s contractual obligations into relevant maturity groups at the consolidated statement of financial position date based on the expected contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows for operations:
| | | | | | | | | | | | |
|
| 2023 |
| 2024 |
| 2025 |
| Total | ||||
Trade and other payables | | $ | 5,937,880 | | $ | — | | $ | — | | $ | 5,937,880 |
Lease obligations |
| | 679,718 |
| | 496,123 |
| | 232,461 |
| | 1,408,302 |
Crown Capital debt |
| | 7,701,650 |
| | — |
| | — |
| | 7,701,650 |
Contingent consideration - WordZ |
| | 236,808 |
| | — |
| | — |
| | 236,808 |
WordZ promissory note | | | 432,939 | | | — | | | — | | | 432,939 |
HomeTech VTB loan |
| | 260,000 |
| | 20,000 |
| | — |
| | 280,000 |
Total | | $ | 15,248,995 | | $ | 516,123 | | $ | 232,461 | | $ | 15,997,579 |
F-46
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Credit risk
Credit risk arises from the potential that a customer or counterparty will fail to perform its obligations. The Company is exposed to credit risk from its customers; however, the Company has a significant number of customers, minimizing the concentration of credit risk. Further, a large majority of the Company’s customers are economically stable organizations such as government agencies or departments with whom the Company transacts with on a regular basis, further reducing the overall credit risk.
Historically, the Company has suffered losses under trade receivables. In order to minimize the risk of loss from trade receivables, the Company’s extension of credit to customers involves review and approval by senior management and conservative credit limits for new or higher-risk accounts.
The Company reviews its trade receivable accounts regularly and writes down these accounts to their expected realizable values, by making an allowance for expected credit losses based on aging and historic collection of receivables. The allowance is recorded as an expense in the consolidated statements of loss and comprehensive loss. Shortfalls in collections are applied against this provision. Estimates for allowance for expected credit losses are determined by a customer-by-customer evaluation of collectability at each consolidated statement of financial position reporting date, taking into account the amounts that are past due and any available relevant information on the customers’ liquidity and going concern issues. Normal credit terms for amounts due from customers call for payment within 30 to 60 days.
The Company’s exposure to credit risk for trade receivables by geographic area was as follows:
| | | | | |
|
| December 31, 2022 |
| December 31, 2021 |
|
United States | | 48 | % | 48 | % |
Australia |
| 29 | % | 31 | % |
United Kingdom |
| 16 | % | 14 | % |
Rest of world |
| 7 | % | 7 | % |
|
| 100 | % | 100 | % |
The Company is subject to risk of non-payment of accounts receivable. The Company mitigates credit risk by assessing the credit worthiness of customers prior to extending credit and monitoring the aging and size of credit extended to customers. All of the Company’s cash is held with major financial institutions and thus the exposure to credit risk is considered low. Management actively monitors the Company’s exposure to credit risk under its financial instruments, including with respect to trade receivables.
The following is a breakdown of trade receivables aging, net of allowance of doubtful accounts:
| | | | | | |
|
| December 31, 2022 |
| December 31, 2021 | ||
0 to 30 days | | $ | 2,723,119 | | $ | 2,490,940 |
31 to 60 days |
| | 1,034,627 |
| | 973,641 |
61 to 90 days |
| | 816,221 |
| | 623,990 |
91 days and older |
| | 731,761 |
| | 1,505,797 |
| | $ | 5,305,728 | | $ | 5,594,368 |
At December 31, 2022, the allowance for doubtful accounts recorded against trade receivables is $399,470 (2021 - $316,202 and 2020 - $123,338). The activity of the allowance for doubtful accounts provision is as follows:
| | | | | | |
|
| December 31, 2022 |
| December 31, 2021 | ||
Beginning of year | | $ | 316,202 | | $ | 123,338 |
Add: provision for allowance for doubtful accounts |
| | 100,163 |
| | 283,964 |
Less: write-offs |
| | (6,635) |
| | (112,116) |
Foreign exchange adjustments |
| | (10,260) |
| | 21,016 |
Expected credit loss – end of year | | $ | 399,470 | | $ | 316,202 |
F-47
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s interest rate risk is primarily related to the Company’s interest-bearing debts on its consolidated statement of financial position. The Company does not have a material amount of long-term debt with variable interest rates, thereby minimizing the Company’s exposure to cash flow interest rate risk.
Foreign currency risk
Foreign currency risk arises because of fluctuations in exchange rates. The Company conducts a significant portion of its business activities in foreign currencies, primarily the U.S. and Australian dollars and Great Britain pounds with a large portion of the Company’s sales and operating costs being realized in these foreign currencies. The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in Great Britain pounds, Canadian, U.S., and Australian dollars.
The financial assets and liabilities that are denominated in foreign currencies will be affected by changes in the exchange rate between the United States dollar and these foreign currencies. This primarily includes cash, restricted cash, trade and other receivables, trade and other payables, provisions and obligations under finance lease which were denominated in foreign currencies.
The Company’s Australian subsidiaries have a majority of revenue and expenses being transacted in Australian dollars. As of December 31, 2022, fluctuations of the Australian dollar relative to the United States dollar of 5% would result in an exchange gain or loss on the net financial assets, impacting the Company’s comprehensive income by approximately $6,000 (2021 – $23,000 and 2020 - $58,000).
The Company’s Canadian operations are exposed to exchange rate changes in the U.S. dollar relative to the Canadian dollar since a substantial portion of this business unit’s sales are denominated in U.S. dollars with most of the related expenses in Canadian dollars. A 5% fluctuation of the U.S. dollar would result in an exchange gain or loss on the net financial assets of approximately $53,000 as at December 31, 2022 (2021 – $22,000 and 2020 - $78,000).
The Company’s UK subsidiaries are exposed to exchange rate changes in the Great Britain pound relative to the United States dollar since a portion of this business unit’s sales are denominated in Great Britain pounds with most of the related expenses in United States dollars. A fluctuation of the Great Britain pound of 5% would result in an exchange gain or loss on the net financial assets of approximately $3,000 as at December 31, 2022 (2021 – $30,000 and 2020 - $23,000).
The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currencies cash flows as management has determined that this risk is not significant at this point in time. The Company recognized a foreign exchange gain from operations of $452,068 for the year ended December 31, 2022 (2021 – foreign exchange loss from operations of $22,130 and 2020 – foreign exchange gain of $132,306).
Capital management
The Company considers its capital structure to consist of shareholders’ equity and long-term debt. The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its organic growth strategy, fund research and development and undertake selective acquisitions, while at the same time taking a conservative approach toward financial leverage and management of financial risk.
F-48
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
23.Related party transactions
Key management personnel comprise the Company’s directors and executive officers. In addition to their salaries, key management personnel also participate in the Company’s Legacy Plan and Omnibus Equity Incentive Plan share option program and DSU Plan (note 11). Key management personnel compensation for the year ended December 31, 2022, 2021 and 2020 as follows:
| | | | | | | | | |
|
| 2022 |
| 2021 |
| 2020 | |||
Salaries and short-term employee benefits (i) | | $ | 1,258,191 | | $ | 1,821,211 | | $ | 1,141,349 |
Stock-based compensation (ii) |
| | 663,145 |
| | 7,600,415 |
| | 169,969 |
| | $ | 1,928,836 | | $ | 9,421,626 | | $ | 1,311,318 |
(i) | Short-term employee benefits include bonuses and car allowances. |
(ii) | 2022 included reversal of stock-based compensation expense for forfeitures of options for cash-settled options. |
24.Subsequent events
On January 13, 2023, the Company entered a entered into a senior debt facility (the “Loan”) with Beedie Investments Ltd. (“Beedie”), with maximum available funds of $15 million. $12 million of the Loan has been advanced to the Company as an initial advance with an additional $3 million available to the Company to be drawn in subsequent advances in a minimum of $1 million tranches (“Standby Facility”). The amount outstanding under the Loan will bear interest at 12.5% per annum, composed of cash interest of 9.5% per annum, calculated and paid monthly, and paid-in-kind interest charged at a rate of 3.0% per annum, compounded monthly and added to the outstanding principal amount of the Loan. A standby fee will be charged monthly at a rate of 1.5% per annum on the undrawn amount of the Standby Facility. The Company paid a commitment fee of 1.5% of the Loan. The Lender has also been granted a board observer right. The loan is secured by a general security agreement covering all assets of the Company. The outstanding principal balance of the loan is repayable on January 13, 2027.
On initiation of the Beedie Loan on January 13, 2023, 7,968,750 common share purchase warrants were issued to Beedie. Each warrant is convertible into one common share in the capital of the Company at a price per share equal to $0.256 until January 16, 2030. In addition, the Company has agreed to issue additional common share purchase warrants in connection with the subsequent advances, with such number of warrants to be equal to 17% of the amount of such subsequent advance divided by the exercise price of such subsequent warrants. The subsequent warrants are to have an exercise price equal to the 5-day volume weighted average price of the Company’s common shares immediately prior to the earlier of: (i) the announcement of the applicable subsequent advance, and (ii) the funding of the applicable Subsequent Advance. The subsequent warrants will expire seven years from the date of issuance.
Under the Loan, the Company has undertaken to comply with financial covenants regarding a minimum balance of unrestricted cash and cash equivalents, minimum adjusted monthly EBITDA and maximum total secured debt leverage ratio.
On January 13, 2023, the Company utilized the proceeds of the initial advance to fully repay the loan with Crown Capital in the amount of $7,805,497 (note 9).
F-49