VIQ Solutions Inc 6-K, filed Apr 1, 2022
VIQ Solutions Inc. (VQSSF)
About this 6-K
VIQ Solutions Inc filed this 6-K on April 1, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2022
Commission File Number: 001-40717
VIQ SOLUTIONS INC.
(Name of registrant)
5915 Airport Road
Suite 700
Mississauga, Ontario L4V 1T1
Canada
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
| x Form 20-F | ¨ Form 40-F |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VIQ SOLUTIONS INC. | |||
| (Registrant) | |||
| Date: March 31, 2022 | By: | /s/ Alexie Edwards | |
| Name: | Alexie Edwards | ||
| Title: | Chief Financial Officer | ||
Form 6-K Exhibit Index
Exhibit 99.1
VIQ Solutions Inc.
Consolidated Financial Statements
And Report of Independent Registered Public Accounting Firm thereon
As of December 31, 2021 and December 31, 2020 and for the two years ended December 31, 2021
(Expressed in United States dollars)
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 the accompanying consolidated statements of financial position of VIQ Solutions Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of loss and comprehensive loss, changes in shareholders’ equity, and cash flows for each for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, 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.
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.
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.
KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
KPMG Canada provides services to KPMG LLP.
Chartered Professional Accountants, Licensed Public Accountants
We have served as the Company’s auditor since 2020.
Vaughan, Canada
March 31, 2022
VIQ Solutions Inc.
Consolidated Statements of Financial Position
(Expressed in United States dollars)
| December 31, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 10,583,534 | $ | 16,835,671 | ||||
| Trade and other receivables, net of allowance for doubtful accounts (notes 5, 6) | 5,594,368 | 4,475,751 | ||||||
| Inventories | 49,557 | 49,381 | ||||||
| Prepaid expenses and deposits | 2,054,793 | 254,230 | ||||||
| Non-current assets | 18,282,252 | 21,615,033 | ||||||
| Restricted cash | 303,945 | 42,835 | ||||||
| Property and equipment (note 7) | 460,974 | 215,835 | ||||||
| Right of use assets (note 19) | 1,134,493 | 309,566 | ||||||
| Intangible assets (notes 4, 8) | 14,762,140 | 12,118,352 | ||||||
| Goodwill (notes 4, 8) | 12,283,100 | 6,976,096 | ||||||
| Deferred tax assets (note 21) | 464,800 | 1,441,942 | ||||||
| Total assets | $ | 47,691,704 | $ | 42,719,659 | ||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Trade and other payables and accrued liabilities | $ | 5,380,701 | $ | 5,305,600 | ||||
| Income tax payable | 97,784 | 201,592 | ||||||
| Share appreciation rights plan obligations (note 11) | – | 126,503 | ||||||
| Share based payment liability (note 11) | 551,201 | – | ||||||
| Derivative warrant liability (note 10) | 1,862,876 | – | ||||||
| Current portion of long-term debt (note 9) | 1,109,713 | 1,486,136 | ||||||
| Current portion of lease obligations (note 20) | 287,901 | 113,218 | ||||||
| Current portion of contract liabilities | 1,003,187 | 1,252,957 | ||||||
| Non-current liabilities | 10,293,363 | 8,486,006 | ||||||
| Deferred tax liability (note 21) | 1,199,266 | 60,587 | ||||||
| Long-term debt (note 9) | 11,999,108 | 12,138,799 | ||||||
| Long-term contingent consideration (note 4) | 166,603 | 1,575,528 | ||||||
| Long-term lease obligations (note 20) | 900,868 | 240,981 | ||||||
| Long-term contract liabilities | – | 70,834 | ||||||
| Other long-term liabilities | 1,042,938 | 360,525 | ||||||
| Total liabilities | 25,602,146 | 22,933,260 | ||||||
| Shareholders' Equity | ||||||||
| Capital stock (note 11) | 72,191,764 | 50,234,551 | ||||||
| Contributed surplus | 4,842,208 | 4,970,945 | ||||||
| Accumulated other comprehensive income (loss) | 74,526 | (78,906 | ) | |||||
| Deficit | (55,018,940 | ) | (35,340,191 | ) | ||||
| Total shareholders’ equity | 22,089,558 | 19,786,399 | ||||||
| Total liabilities and shareholders' equity | $ | 47,691,704 | $ | 42,719,659 | ||||
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 |
1
VIQ Solutions Inc.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in United States dollars)
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue (note 16) | $ | 31,046,812 | $ | 31,749,693 | ||||
| Cost of Sales | 16,123,853 | 15,599,437 | ||||||
| Gross Profit | 14,922,959 | 16,150,256 | ||||||
| Expenses (note 17) | ||||||||
| Selling and administrative expenses | 19,119,713 | 11,034,902 | ||||||
| Research and development expenses | 1,092,108 | 1,074,178 | ||||||
| Stock based compensation (note 11) | 8,495,189 | 725,316 | ||||||
| Gain on revaluation of options (note 11) | (1,028,055 | ) | – | |||||
| Gain on revaluation of RSUs (note 11) | (242,595 | ) | – | |||||
| Foreign exchange loss (gain) (note 22) | 22,130 | (132,306 | ) | |||||
| Depreciation (notes 7 and 19) | 257,099 | 445,995 | ||||||
| Amortization (note 8) | 4,384,502 | 4,813,248 | ||||||
| 32,100,091 | 17,961,333 | |||||||
| Loss before undernoted items | (17,177,132 | ) | (1,811,077 | ) | ||||
| Interest expense | (1,331,100 | ) | (4,934,517 | ) | ||||
| Accretion and other financing costs (note 9) | (967,106 | ) | (1,216,949 | ) | ||||
| Loss on revaluation of conversion feature liability (note 9) | – | (1,308,440 | ) | |||||
| Loss on repayment of long-term debt (note 9) | – | (1,497,804 | ) | |||||
| Gain on contingent consideration (note 4) | 332,569 | 946,503 | ||||||
| Gain on revaluation of the derivative warrant liability (note 10) | 1,368,180 | – | ||||||
| Impairment of goodwill and intangibles (note 7) | – | (2,258,369 | ) | |||||
| Restructuring costs | (432,702 | ) | – | |||||
| Business acquisition costs | (539,734 | ) | (19,058 | ) | ||||
| Other income | 12,003 | 10,373 | ||||||
| (18,735,022 | ) | (12,089,338 | ) | |||||
| Current income tax recovery (expense) (note 21) | 875 | (106,986 | ) | |||||
| Deferred income tax recovery (expense) (note 21) | (944,602 | ) | 1,051,018 | |||||
| Income tax recovery (expense) | (943,727 | ) | 944,032 | |||||
| Net loss for the year | $ | (19,678,749 | ) | $ | (11,145,306 | ) | ||
| Exchange gain on translating foreign operations | 153,432 | 56,152 | ||||||
| Comprehensive loss for the year | $ | (19,525,317 | ) | $ | (11,089,154 | ) | ||
| Net loss per share (note 13) | ||||||||
| Basic | (0.74 | ) | (0.62 | ) | ||||
| Diluted | (0.74 | ) | (0.62 | ) | ||||
| Weighted average number of common shares outstanding - basic (note 13) | 26,448,594 | 18,080,533 | ||||||
| Weighted average number of common shares outstanding - diluted (note 13) | 26,448,594 | 18,080,533 | ||||||
See accompanying notes to consolidated financial statements.
2
VIQ Solutions Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in United States dollars)
| Capital stock | Contributed | Accumulated other comprehensive | Total | |||||||||||||||||||||
| Number | Amount | surplus | Deficit | income (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 loss for the year | – | – | – | (11,145,306 | ) | 56,152 | (11,089,154 | ) | ||||||||||||||||
| Issuance of common shares in private placement, net of issuance costs (note 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 (note 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 | |||||||||||
| Accumulated | ||||||||||||||||||||||||
| other | ||||||||||||||||||||||||
| Capital Stock | Contributed | comprehensive | Total | |||||||||||||||||||||
| Number | Amount | surplus | Deficit | income (loss) | equity | |||||||||||||||||||
| Balance as at December 31, 2020 | 23,591,427 | $ | 50,234,551 | $ | 4,970,945 | $ | (35,340,191 | ) | $ | (78,906 | ) | $ | 19,786,399 | |||||||||||
| Comprehensive loss for the year | – | – | – | (19,678,749 | ) | 153,432 | (19,525,317 | ) | ||||||||||||||||
| Issuance of common shares in private placement, net of issuance costs (note 10,11) | 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 and warrant repricing (note 10, 11) | 1,123,878 | 2,746,706 | (654,430 | ) | – | – | 2,092,276 | |||||||||||||||||
| Shares issued due to exercise of restricted shares 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 | ||||||||||||
3
VIQ Solutions Inc.
Consolidated Statements of Cash Flows
(Expressed in United States dollars)
| Year Ended December 31, | ||||||||
| Cash provided by (used in) | 2021 | 2020 | ||||||
| Operating activities | ||||||||
| Net loss for the year | $ | (19,678,749 | ) | $ | (11,145,306 | ) | ||
| Items not affecting cash: | – | |||||||
| Depreciation | 257,099 | 445,995 | ||||||
| Amortization | 4,384,502 | 4,813,249 | ||||||
| Stock-based compensation (note 12) | 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 expense (note 9) | 967,106 | 1,216,949 | ||||||
| Interest expense (note 9) | 1,331,100 | 4,934,517 | ||||||
| Income tax expense (recovery) (note 21) | 943,727 | (944,032 | ) | |||||
| Gain on contingent consideration (note 4) | (332,569 | ) | (946,503 | ) | ||||
| Impairment of goodwill and intangibles (note 4) | – | 2,258,369 | ||||||
| Gain on revaluation of options, RSUs, and derivative warrant liability (note 10, 11) | (2,638,830 | ) | – | |||||
| Payment of taxes (note 21) | (113,853 | ) | – | |||||
| Other income | (12,003 | ) | (10,373 | ) | ||||
| Foreign exchange gain (note 22) | 22,130 | (132,306 | ) | |||||
| Unrealized foreign exchange loss (gain) | 139,250 | 174,251 | ||||||
| Changes in non-cash operating working capital (note 14) | (2,002,506 | ) | (773,287 | ) | ||||
| Cash provided by (used in) operating activities | (8,238,407 | ) | 3,423,083 | |||||
| Investing activities | ||||||||
| Purchase of property and equipment (note 7) | (79,204 | ) | (202,297 | ) | ||||
| Business acquisitions (note 4) | (9,135,131 | ) | (4,411,500 | ) | ||||
| Earn out payment (note 4) | (2,600,536 | ) | (377,312 | ) | ||||
| Development costs related to internally generated intangible assets (note 8) | (2,364,733 | ) | (1,642,783 | ) | ||||
| Change in restricted cash | (261,110 | ) | (5,299 | ) | ||||
| Cash used in investing activities | (14,440,714 | ) | (6,639,191 | ) | ||||
| Financing activities | ||||||||
| Issuance of share capital, net of issuance costs (note 10, 11) | 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 | ||||||
| Repayment of debt (note 9) | (1,070,275 | ) | (838,031 | ) | ||||
| Repayment of lease obligations (note 20) | (150,924 | ) | (338,276 | ) | ||||
| Payment of interest on debt (note 9) | (1,277,202 | ) | (1,052,576 | ) | ||||
| Payment of interest on lease obligations (note 20) | (34,712 | ) | (53,549 | ) | ||||
| Cash provided by financing activities | 16,521,996 | 18,162,619 | ||||||
| Net increase (decrease) in cash for the year | (6,157,125 | ) | 14,946,511 | |||||
| Cash, beginning of year | 16,835,671 | 1,707,654 | ||||||
| Effect of exchange rate changes on cash | (95,012 | ) | 181,506 | |||||
| Cash, end of year | $ | 10,583,534 | $ | 16,835,671 | ||||
See accompanying notes to consolidated financial statements.
| 4 |
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 January 31, 2020, the Company, through its US subsidiary VIQ Media Transcription Inc., acquired the assets of ASC Services LLC (“ASC”). On February 26, 2020, the Company through its US subsidiary VIQ Services Inc., acquired the shares of WordZXpressed Inc. (“WordZ”). On October 1, 2021, the Company acquired the shares of Transcription Agency (“TTA”). 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 |
The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) using the accounting policies described herein as issued by the International Accounting Standards Board (“IASB”). 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 3.
The accounting policies applied in these consolidated financial statements are based on IFRS issued as at March 31, 2022, the date the Board of Directors approved the consolidated financial statements.
| (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 statements of financial position differentiates between current and non-current assets and liabilities. The statements of loss and comprehensive loss are presented using the function classification of expenses.
| (c) | Functional currency, presentation currency and foreign currency translation |
The functional currency of VIQ Solutions Inc. is the Canadian dollar (“CAD”). The functional currency of the Company’s subsidiaries are as follows; Dataworxs Systems Limited – CAD, VIQ Solutions, Inc. – United States dollar (“USD”), VIQ Australia Pty. Ltd – Australian dollar (“AUD”), Dataworxs Systems Australia Pty. Ltd – AUD, VIQ Solutions PTY Ltd – AUD, VIQ PTY Ltd – AUD, VIQ Solutions Australia Pty Ltd. – AUD, VIQ Australia Services Pty Ltd. – AUD , VIQ Services Inc. – USD, Net Transcripts – USD, Transcription Express – USD, HomeTech – USD, VIQ Media Transcriptions – USD, WordZXpressed – Inc. – USD, VIQ Solutions (UK) Limited – British pounds (“GBP”), VIQ Services (UK) Limited – GBP, and The Transcription Agency LLP (“TTA”) – GBP.
| 5 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
All financial information is presented in USD unless otherwise stated.
| The exchange rates used were as follows: | ||||||||
| USD / CAD exchange rate | December 31, 2021 | December 31, 2020 | ||||||
| Closing at the reporting date | 0.7874 | 0.7847 | ||||||
| Average rate for the period | 0.7976 | 0.7480 | ||||||
| USD / AUD exchange rate | December 31, 2021 | December 31, 2020 | ||||||
| Closing at the reporting date | 0.7261 | 0.7708 | ||||||
| Average rate for the period | 0.7525 | 0.6901 | ||||||
| USD / GBP exchange rate | December 31, 2021 | December 31, 2020 | ||||||
| Closing at the reporting date | 1.3510 | 1.3648 | ||||||
| Average rate for the period | 1.3762 | 1.2831 | ||||||
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.
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.
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 balance sheet, 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 translation adjustments.
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.
| (d) | Use of estimates and judgements |
The preparation of 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 year ended December 31, 2021 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.
| 6 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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, and forfeiture rates for equity issued under the Company’s stock option plan and restricted share unit plan. Changes in these assumptions will impact the calculationof 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 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. |
| • | 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 amountsrecoverable 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. 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. |
| 7 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| • | 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 independence 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 considervarious factors and assumptions including forecasted cash flows, revenue growth rates, earnings margins, and discountrates. The use of different assumptions and estimates could influence the determination of the existence of impairmentand the valuation of goodwill and indefinite-life intangibles. The recoverable amount 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, develop 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. |
| 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. (formerly VIQ Solutions (U.S.) 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., 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. Netrealizable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Cost isdetermined 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 requirements.
| 8 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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 and transcription equipment | 3-4 years | |
| Leasehold improvements | Over the term of the lease |
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 infinite lives that are acquired separately are measured at fair value. Intangible assets with finite lives that are acquired separately are measured on initial recognition at fair value, which comprises its purchase price plus any directly attributable costs of preparing the asset for its intended use.
Our 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. We use 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 flow 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 of (“MEEM”) method 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 | 3 – 5 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 beingaccounted for on a prospective basis. These assets are subject to an impairment test as described below. Our 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 touse or sell the intangible asset, and (vi) its ability to measure reliably the expenditure attributable to the intangible asset duringits development; otherwise, they are expensed as incurred. Costs associated with maintaining computer software programs arerecognized 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.
| 9 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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.
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 which goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit 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, transaction costs that are directly attributable to their acquisition. Transaction costs attributable to the acquisition offinancial assets subsequently measured at fair value through profit or loss are expensed in the consolidated statements of loss andcomprehensive loss when incurred.
Classification and subsequent measurement
On initial recognition, financial assets are classified as subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). The Company determines the classification of its financial assets, together with any embedded derivatives, based on the business model for managing the financial assets and their contractual cash flow characteristics.
Financial assets are classified as follows:
| • | Amortized cost - Assets that are held for collection of contractual cash flows where those cash flows are solely payments of principal and interest are measured at amortized cost. Interest revenue is calculated using the effective interest method and gains or losses arising from impairment, foreign exchange and derecognition are recognized in the consolidated statements of loss and comprehensive loss. Financial assets measured at amortized cost are comprised of trade receivables. |
| 10 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| • | Fair value through other comprehensive income (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 fair value through other comprehensive income. Interest income calculated using the effective interest method and gains or losses arising from impairment and foreign exchange are recognized in 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 fair value through other comprehensive income. |
| • | Mandatorily at fair value through profit or loss (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 fair value through profit or loss 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 fair value through profit or loss in order to eliminate or significantly reduce an accounting mismatch that would otherwise arise from measuring assets or liabilities, or recognizing the gains and losses on them, on different bases. All interest income and changes in the financial assets’ carrying amount are recognized in the consolidated statements of loss and comprehensive loss. The Company does not hold any financial assets designated to be measured at fair value through profit orloss. |
Business model assessment
The Company assesses the objective of its business model for holding a financial asset at a level of aggregation which best reflects the way the business is managed, and information is provided to management. Information considered in this assessment includes stated policies and objectives.
Contractual cash flow assessment
The cash flows of financial assets are assessed as to whether they are solely payments of principal and interest on the basis of their contractual terms. For this purpose, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money, the credit risk associated with the principal amount outstanding, and other basic lending risks and costs. In performing this assessment, the Company considers factors that would alter the timing and amount of cash flows such as prepayment and extension features, terms that might limit the Company’s claim to cash flows, and any features that modify consideration for the time value of money. 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 entity 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 fair value through profit or loss. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable information regarding past events, current conditions and forecasts of future economic conditions.
The Company applies the simplified approach for trade receivables. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses resulting from all possible default events over the assets’ contractual lifetime.
| 11 |
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 balance 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 totheir issuance, with the exception of financial liabilities subsequently measured at fair value through profit or loss 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 residual amount.
Classification and subsequent measurement
Subsequent to initial recognition, all financial liabilities are measured at amortized cost using the effective interest rate method. Interest, gains and losses relating to a financial liability are recognized in profit or loss.
The standard contains three classifications 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 | FVTPL | |
| Trade and other receivables | Amortized cost | |
| Trade and other payables | Amortized cost | |
| Long-term debt | Amortized cost | |
| Convertible note | Amortized cost | |
| Share appreciation rights plan obligations | FVTPL | |
| Share based payment liability | FVTPL | |
| Derivative warrant liability | FVTPL | |
| Conversion feature derivative liability | FVTPL |
Compound financial instruments
Convertible notes issued with warrants are evaluated 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 ofloss and comprehensive loss.
| 12 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Unit issuances comprising of one common share and one-half 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 shareprice 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 (“IRS 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 oftime 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 intangibles, indefinite life intangibles 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 ten CGUs, which consist of VIQ Solutions PTY Ltd, Dataworxs, Net Transcripts, Transcription Express, HomeTech, wordZXpressed, VIQ Media Transcription, VIQ Solutions Inc., The Transcription Agency and Auscript and the CGUs with goodwill or indefinite lived intangibles 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 cash-generating unit and determines a suitable pre-tax discount rate in orderto calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Company’s latest approved budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements.
Discount 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 assets’ 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.
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 andthe risk specific to the asset. An impairment loss is recognized for the value by which the asset’s carrying value exceeds its recoverable value.
| 13 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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 seven revenue categories being, Technology services, Software license, Support and maintenance, SaaS, 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 often 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 on a monthly basis.
Software license revenue is comprised of non-recurring license fees charged for the use of our 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 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 our 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 software-as-a-service (SaaS) arrangements, which allows customers to use hosted software over a term without taking possession of the software, are provided on a subscription basis. Revenue from the SaaS arrangement, which includes the hosted software and maintenance 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 our 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 computer products and services business 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 transcription business segments includes production wages and other associated costs.
Income taxes
The income tax provision comprises current and deferred tax. Income tax is recognized in the consolidated statements ofloss 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.
| 14 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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 orfrom the initial recognition of assets and liabilities acquired in a transaction other than a business combination which do not affect either accounting or taxable income or loss.
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 ofsuch 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 for directors, officers and employees, a deferred share unit (“DSU”) plan for directors and a share appreciation rights (“SAR”) plan for directors, officers, employees, and consultants. Each tranche in an award is considered a separate award with its own vesting period and grant date fair value. Other than the DSU grants, the fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period, based on the number of awards expected to vest, with the offset credited to contributed surplus, and share appreciation rights plan obligations. Forfeitures are estimated at the grant date and are revised to reflect changes in actual forfeitures. The number of awards expected to vest is reviewed quarterly, with any impact being recognized immediately. When options are exercised the amount received is credited to capital stock and the fair value attributed to these options is transferred from contributed surplus to capital stock. As the SAR is a cash-settled plan, the fair value is recognized as a liability in the consolidated balance sheet and is re-measured each period using the Black- Scholes options pricing model and charged to the consolidated statements of loss and comprehensive loss at each reporting date until the award is settled.
The holder of the DSU 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 administration 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 subsequentreporting period. Upon settlement, the amount recognized in contributed surplus for the award is reclassified to sharecapital, 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 recognizedin the consolidated statement of loss and comprehensive loss as a reduction of the related expenses in the period in which theyare 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.
| 15 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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 balance sheet. 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 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 1 January 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.
IAS 37 – Provisions, Contingent Liabilities and Contingent Assets
The amendments specify which costs an entity includes in determining the cost of fulfilling a contract for the purpose of assessing whether the contract is onerous. The amendments apply for annual reporting periods beginning on or after 1 January 2022 to contracts existing at the date when the amendments are first applied. At the date of initial application, the cumulative effect of applying the amendments is recognized as an opening balance adjustment to retained earnings or other components of equity, as appropriate. The comparatives are not restated.
The amendments are effective for annual periods beginning on or after January 1, 2022 and apply to contracts existing at the date when the amendments are first applied. 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. 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.
| • | COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16). |
| • | Annual Improvements to IFRS Standards 2018–2020. |
| • | Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16). |
| • | Reference to Conceptual Framework (Amendments to IFRS 3). |
| • | Classification of Liabilities as Current or Non-current (Amendments to IAS 1). |
| 16 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| • | IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts. |
| 4. | Acquisitions 2021 Acquisitions: |
On October 1, 2021, the Company through its UK subsidiaries, VIQ Solutions (UK) Limited and VIQ Services (UK) Limited, acquired, 99% and 1% respectively of the assets of The Transcription Agency LLP (“TTA”). TTA is a leading supplier of secure outsourced transcription services to clients in private and public sectors throughout the United Kingdom and complements the Company’s transcription services business.
On December 13, 2021, the Company through its Australia subsidiary VIQ Solutions Australia Pty Ltd. acquired certain assets of Auscript Austalasia 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. The acquisition was funded by utilizing cash on hand. As part of this transaction, an estimated $150,000 is to be paid as contingent consideration via a performance-based earn-out payable over 7 months. The maximum contingent consideration to be paid is
$150,000. At the date of acquisition, contingent consideration was measured on an undiscounted cash flow basis as amounts will be paid within 7 months. The acquisitions were funded by utilizing cash on hand and $9,135,131 was paid during 2021.
The acquisitions completed during the year ended December 31, 2021 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 October 1, 2021 for TTA and December 13, 2021 for Auscript.
The total consideration for the acquisitions and the purchase price allocation are as follows:
| Measurement | ||||||||||||
| TTA (final) | Auscript (preliminary) | Total | ||||||||||
| Consideration | ||||||||||||
| Cash | $ | 1,638,275 | $ | 7,496,856 | $ | 9,135,131 | ||||||
| Contingent consideration | – | 150,000 | 150,000 | |||||||||
| Total Consideration | 1,638,275 | $ | 7,646,856 | 9,285,131 | ||||||||
| Identifiable assets acquired and liabilities assumed | ||||||||||||
| Trade and other receivables net of allowance for doubtful accounts | 86,795 | 2,124,687 | 2,211,482 | |||||||||
| 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 | (137,661 | ) | (1,886,414 | ) | (2,024,075 | ) | ||||||
| Current portion of contract liabilities | (16,679 | ) | (44,313 | ) | (60,992 | ) | ||||||
| Lease obligations | – | (911,101 | ) | (911,101 | ) | |||||||
| Deferred tax liability | (314,108 | ) | (852,557 | ) | (1,166,665 | ) | ||||||
| Customer relationships (note 8) | 1,080,800 | 2,552,075 | 3,632,875 | |||||||||
| Non-compete (note 8) | 67,550 | 57,030 | 124,580 | |||||||||
| Brand (note 8) | 107,981 | 734,256 | 842,237 | |||||||||
| Goodwill | $ | 763,597 | $ | 4,508,880 | $ | 5,272,477 | ||||||
The valuations of the property and equipment and intangible assets acquired are still under evaluation and as such the business combinations have been accounted for on a provisional basis. The Company is still assessing the future attrition and growth rates as it relates to the Customer relationships acquired. Fair values assigned to these assets and liabilities may be subsequently adjusted with a corresponding adjustment to goodwill prior to one year after the date of acquisition, which is October 1, 2023 to TTA and December 13, 2023 for Auscript.
For the year ended December 31, 2021 consolidated revenues of $31,046,812 include revenue from acquisitions of $933,299 (TTA: $315,151; Auscript: $618.148). Net loss for the year ended December 31, 2021 of $19,353,339 includes loss from acquisitions of $367,045 (TTA: loss of $90,316; Auscript: loss of $276,729).
| 17 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
During the year ended December 31, 2021, the Company incurred $539,734 in business acquisition costs related to the acquisitions which have been expensed and recorded as business acquisitions costs in the consolidated statements of loss and comprehensive loss (December 31, 2020 - $19,058).
If the TTA and Auscript acquisitions would have occurred on January 1, 2021, management estimates that the pro forma consolidated revenue for the year ended December 31, 2021 would have been $53,196,189 and net loss for the year ended December 31, 2021 would have been $18,349,208 as compared to the amounts reported in the consolidated statements of loss and comprehensive loss for the year ended December 31, 2021. This unaudited pro forma financial information is for information purposes only and is notindicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the period presented or the results that may be realized in the future.
2020 Acquisitions:
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 complements 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 February 26, 2020, the Company through its US subsidiary VIQ Services Inc., acquired 100% of the shares of WordZ. WordZ was 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 percent.
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, 2021, the contingent consideration of WordZ and ASC was adjusted based on the revision of the estimated quarterly revenue target achievements, due to decline in operational performance. During the year ended December 31, 2021, the Company further revised the forecasted quarterly revenue target achievements and reported a gain on contingent consideration of $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 (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 $455,675 was recorded for ASC and WordZ during the year ended December 31, 2021 (2020 - $377,312). Earnout payments totaling $1,434,766 (2020 - $377,312) was made to the previous owners of ASC and WordZ.
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 long-term contingent consideration payable to ASC at December 31, 2021 was nil (2020 – $1,145,677).
As at December 31, 2021, total contingent consideration payable to WordZ sellers is $523,926 (2020 - $744,696), of which $357,323 (2020 - $314,845) is recorded as trade and other payables and accrued liabilities, and $166,603 has been recorded as long-term contingent consideration (2020 - $429,851).
| 18 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
The accounting for the ASC and WordZ acquisitions were complete as of December 31, 2020. The total consideration for the acquisitions and the purchase price allocation is as follows:
| ASC | WordZ | Total | ||||||||||
| Consideration | ||||||||||||
| Cash | $ | 3,136,500 | $ | 1,275,000 | $ | 4,411,500 | ||||||
| Promissory note | – | 914,677 | 914,677 | |||||||||
| Contingent consideration | 2,038,596 | 1,671,670 | 3,710,266 | |||||||||
| Total Consideration | $ | 5,175,096 | $ | 3,861,347 | $ | 9,036,443 | ||||||
| Identifiable assets acquired and liabilities assumed | ||||||||||||
| Net tangible assets acquired (liabilities assumed) | (869,706 | ) | (72,485 | ) | (942,191 | ) | ||||||
| Customer relationships (note 8) | 2,880,000 | 2,220,000 | 5,100,000 | |||||||||
| Non-compete (note 8) | – | 70,000 | 70,000 | |||||||||
| Brand (note 8) | 550,000 | 190,000 | 740,000 | |||||||||
| Goodwill | $ | 2,614,802 | $ | 1,453,832 | $ | 4,068,634 | ||||||
| 5. | Trade and other receivables |
| December 31, 2021 | December 31, 2020 | |||||||
| Trade accounts receivable | $ | 4,423,315 | $ | 4,233,012 | ||||
| Other receivable (note 6) | 1,487,255 | 366,077 | ||||||
| Less: allowance for doubtful accounts (note 21) | (316,202 | ) | (123,338 | ) | ||||
| $ | 5,594,368 | $ | 4,475,751 | |||||
As at December 31, 2021, other receivable relates to unbilled revenue of $807,067 (2020 - $297,581) and government assistance receivable of $574,703 (2020 – $68,496) (note 6) and sales tax receivable and other receivables of $105,485 (2020 - $6,761).
| 6. | Government Assistance |
Australian Business Wage Subsidies
The Australian government introduced programs to support Australian businesses whose revenues were impacted by the COVID-19 pandemic. The government is providing wage subsidies to qualifying companies of approximately AUD$750 per employee per week. For the year ended December 31, 2021, the Company determined that it qualified for the subsidies and submitted claims for $208,077 (2020 – $2,017,189) for the Australian Business Wage Subsidies, which has been received and recognized as a reduction to the related payroll expenses in the consolidated statements of loss and comprehensive loss.
Canadian Emergency Wage Subsidy (“CEWS”) and Canadian Emergency Rent Subsidy (“CERS”)
The Canadian government introduced programs to support Canadian businesses whose revenues were impacted by the COVID- 19 pandemic. The government is providing wage and rent subsidies to eligible companies based on percentage decrease in revenue per eligible periods. For the year ended December 31, 2021, the Company determined it was not qualified for these subsidies and no claims were submitted for CEWS (2020 – $111,529) and for CERS (2020 – $6,725).
U.S. Employee Retention Credit Program
During the year ended December 31, 2021, the Company determined it was qualified for the U.S. Employee Retention Credit. This program provides the Company with a refundable tax credit against certain employment taxes equal to 50% of the qualified wages. The Company received $1,453,735 of which $917,759 was recognized as a reduction to operating expenses against related salary costs and $535,976 was a reduction to cost of sales in the consolidated statements of loss and comprehensive loss.
| 19 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
U.S. Paycheck Protection Program Loan
During the year ended December 31, 2021, no loan was received relating to the U.S. Paycheck Protection Program Loan. On April 24, 2020, the Company received a loan for $2,159,000 under the U.S. Small Business Administration Paycheck Protection Program through BMO Harris Bank at an interest rate of 1% maturing in two years. Principal and interest are duebeginning seven months from the date of the note. Generally, the loan will be forgiven if utilized for payment of qualifying expenses during the 24-week period that begins at the origination date of the loan. As at December 31, 2020, the balance of $260,230 was unutilized and reported as long-term debt of which $214,307 was recorded as current portion. Refer to note 10.
For the year ended December 31, 2020, the Company determined that it qualified for the subsidies and submitted claims for the three COVID-19 related government support programs described above for a total of subsidy of $4,034,313, which has been received. Of the subsidies amount received, $1,203,327 was recognized as a reduction to operating expenses against related salary costs and other expenses in the consolidated statement of loss and comprehensive loss during the year ended December 31, 2020, and $2,830,986 as a reduction to cost of sales during the year ended December 31, 2020. As at December 31, 2021, the consolidated statement of financial position included assistance receivable of $574,703 (2020 - $68,496) in trade and other receivables.
| 7. | Property and equipment |
Details of the Company’s property and equipment as of December 31, 2021 and December 31, 2020 are listed as follows:
| Balance January 1, 2021 |
Acquisition | Additions/ Disposals |
Foreign exchange |
Balance December 31,2021 |
||||||||||||||||
| Cost | ||||||||||||||||||||
| Furniture and fixtures | 268,018 | 31,842 | 746 | 21,227 | 321,833 | |||||||||||||||
| Computer 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 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 | ||||||||||||||||
| 20 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| Balance January 1, 2020 | Additions/ (Disposals) | Foreign exchange | Balance
| |||||||||||||
| Cost | ||||||||||||||||
| Furniture and fixtures | 253,977 | 13,971 | 70 | 268,018 | ||||||||||||
| Computer and transcription equipment | 1,298,714 | 188,327 | 12,688 | 1,499,729 | ||||||||||||
| Building – Leasehold improvements | 4,817 | - | 103 | 4,920 | ||||||||||||
| $ | 1,557,508 | 202,298 | 12,861 | $ | 1,772,667 | |||||||||||
| Accumulated depreciation | ||||||||||||||||
| Furniture and fixtures | 204,713 | 14,543 | 50 | 219,306 | ||||||||||||
| Computer and transcription equipment | 1,239,819 | 86,400 | 9,187 | 1,335,406 | ||||||||||||
| Building – Leasehold improvements | 1,389 | 668 | 63 | 2,120 | ||||||||||||
| 1,445,921 | 101,611 | 9,300 | 1,556,832 | |||||||||||||
| Net book value | $ | 111,587 | $ | 215,835 | ||||||||||||
| 21 |
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, 2021 and December 31, 2020 are listed as follows:
| Balance December 31, 2020 | Acquisitions (note 4) | Additions | Foreign exchange | Balance December 31, 2021 | ||||||||||||||||
| Cost | ||||||||||||||||||||
| Customer relationships | $ | 11,775,697 | 3,632,875 | – | 50,586 | $ | 15,459,158 | |||||||||||||
| Technology | 470,000 | – | – | – | 470,000 | |||||||||||||||
| Non-compete | 51,031 | 124,580 | – | 529 | 176,140 | |||||||||||||||
| Brand | 1,520,899 | 842,237 | – | 12,403 | 2,375,539 | |||||||||||||||
| Patents | – | 15,232 | – | 15,232 | ||||||||||||||||
| Internally generated intangible assets | 7,015,035 | – | 2,349,501 | 7,415 | 9,371,951 | |||||||||||||||
| $ | 20,832,662 | 4,599,692 | 2,364,733 | 70,933 | $ | 27,868,020 | ||||||||||||||
| 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 | $ | 14,762,140 | ||||||||||||||||
| Balance December 31, 2020 | Acquisitions (note 4) | Additions | Impairment | Foreign exchange | Balance December 31, 2020 | |||||||||||||||||||
| Cost | ||||||||||||||||||||||||
| Customer relationships | $ | 7,393,708 | 5,100,000 | – | (726,467 | ) | 8,456 | $ | 11,775,697 | |||||||||||||||
| Technology | 470,000 | – | – | – | – | 470,000 | ||||||||||||||||||
| Non-compete | – | 70,000 | – | (18,969 | ) | – | 51,031 | |||||||||||||||||
| Brand | 840,000 | 740,000 | – | (59,101 | ) | – | 1,520,899 | |||||||||||||||||
| Internally generated intangible assets | 5,259,287 | – | 1,642,783 | – | 112,965 | 7,015,035 | ||||||||||||||||||
| $ | 13,962,995 | 5,910,000 | 1,642,783 | (804,537 | ) | 121,421 | $ | 20,832,662 | ||||||||||||||||
| Accumulated depreciation | ||||||||||||||||||||||||
| Customer relationships | $ | 1,812,833 | – | 2,276,341 | – | 10,391 | 4,099,565 | |||||||||||||||||
| Technology | 102,499 | – | 94,000 | – | – | 196,499 | ||||||||||||||||||
| Non-compete | – | – | 19,638 | – | – | 19,638 | ||||||||||||||||||
| Brand | – | – | 133,921 | – | – | 133,921 | ||||||||||||||||||
| Internally generated intangible assets | 1,831,202 | – | 2,289,348 | – | 144,137 | 4,264,687 | ||||||||||||||||||
| $ | 3,746,534 | – | 4,813,248 | – | 154,528 | $ | 8,714,310 | |||||||||||||||||
| Net book value | $ | 10,216,461 | $ | 12,118,352 | ||||||||||||||||||||
| 22 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Details of the Company’s goodwill as of December 31, 2021 and December 31, 2020 are listed as follows:
| Balance January 1, 2021 | Acquisitions (note 4 ) | Foreign exchange | Balance December 31, 2021 | |||||||||||||
| VIQ Solutions PTY Ltd. | $ | 650,001 | – | (37,427 | ) | $ | 612,574 | |||||||||
| Dataworxs | 141,018 | – | 486 | 141,504 | ||||||||||||
| Net Transcripts | 1,575,511 | – | – | 1,575,511 | ||||||||||||
| Transcription Express | 1,516,904 | – | – | 1,516,904 | ||||||||||||
| HomeTech | 477,860 | – | – | 477,860 | ||||||||||||
| ASC (VIQ Media Transcription) | 2,614,802 | – | – | 2,614,802 | ||||||||||||
| The Transcription Agency LLP | – | 763,597 | – | 763,597 | ||||||||||||
| Auscript | – | 4,508,880 | 71,468 | 4,580,348 | ||||||||||||
| $ | 6,976,096 | $ | 5,272,477 | $ | 34,527 | $ | 12,283,100 | |||||||||
| Balance January 1, 2020 | Acquisitions (note 4) | Adjustments | Foreign exchange | Balance December 31, 2020 | ||||||||||||||||
| VIQ Solutions PTY Ltd. | 587,187 | – | – | 62,814 | 650,001 | |||||||||||||||
| Dataworxs | 138,053 | – | – | 2,965 | 141,018 | |||||||||||||||
| Net Transcripts | 1,575,511 | – | – | – | 1,575,511 | |||||||||||||||
| Transcription Express | 1,516,904 | – | – | – | 1,516,904 | |||||||||||||||
| HomeTech | 477,860 | – | – | – | 477,860 | |||||||||||||||
| ASC (VIQ Media Transcription) | – | 2,614,802 | – | – | 2,614,802 | |||||||||||||||
| WordZ | – | 1,453,832 | (1,453,832 | ) | – | – | ||||||||||||||
| $ 4,295,515 | $ | 4,068,634 | $ | (1,453,832 | ) | $ | 65,779 | $ | 6,976,096 | |||||||||||
Impairment testing for cash-generating units containing goodwill
The annual impairment test of goodwill was performed as of December 31, 2021. The recoverable amount of the Company’s CGUs tested determined using the higher of value in use or fair value less cost to sell.
| • | Value in use was estimated based on an assessment of their value in use using a discounted cash flow approach. Cash flows for the years thereafter are extrapolated using the estimated 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 2022 to 2025 on budgets approved by management and include management’s best estimate of expected market conditions. The cashflow projections include certain key assumptions regarding revenue growth rates, terminal revenue growth rates and current income tax rates. Accordingly, it is reasonably possible that future changes in assumptions may negatively impact future valuations of goodwill and the Company would be required to recognize an impairment loss. The Company determined the revenue growth rate, 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 costs to sell was estimated by using a discounted cash flow approach, similar to the approach under the value in use amounts; however, adjusted for market participant assumptions and estimates. The market participant assumptions and estimates include cost savings for outsourcing of cost of sales the assessment of multiples of operating performance of comparable entities and precedent transactions in that industry. |
| 23 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
We make certain assumptions when deriving expected future cash flows, which may include assumptions pertaining to discount and terminal growth rates. 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.
Goodwill is allocated to CGUs, or 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 CGUs, or groups of CGUs, that are expected to benefit from the synergies and future growth of the business combination from which the goodwill arose. We make judgments in determining CGUs and the allocation of goodwill to CGUs or group of CGUs for the purpose of impairment testing.
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, 2021. 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:
| Assumptions 2021 | VIQ Solutions PTY | Dataworxs Australia Ltd. | VIQ US | |||||||||
| Carrying value of goodwill | 612,574 | 141,504 | 3,570,275 | |||||||||
| Revenue Growth Rate | 3.0 | % | 3.0 | % | 3.0 | % | ||||||
| Terminal Growth Rate | 2.0 | % | 2.0 | % | 2.0 | % | ||||||
| Pre-tax discount rate | 16.3 | % | 16.3 | % | 16.3 | % | ||||||
The following are key assumptions on which management based its determinations of the recoverable amount for goodwill based on each CGU’s fair value less cost to sale:
| Assumptions 2021 | TTA | Auscript | VIQ Media Transcription | |||||||||
| Carrying value of goodwill | 763,597 | 4,580,348 | 2,614,802 | |||||||||
| Revenue Growth Rate | 0.4 | % | 3 | % | 3 | % | ||||||
| Terminal | ||||||||||||
| revenue | 1 | % | 3 | % | 2 | % | ||||||
| growth rate | ||||||||||||
| Pre-tax discount rate | 28.5 | % | 33.4 | % | 18.3 | % | ||||||
We did not recognize an impairment charge related to our goodwill or intangible assets in 2021 because the recoverable amounts of the CGUs, or groups of CGUs, exceeded their carrying values.
In 2020, in determining the recoverable amount, management estimated the expected future cash flows from the WordZ CGU and applied a suitable pre-tax discount rate in order to calculate the present value of those cash flows. The analysis revealed that recoverable amount of $1,328,778 of the CGU is less than the carrying amount of $3,587,147 and as such, an impairmentloss was allocated to reduce the carrying amount of the goodwill, customer relationships, brand, and non-compete intangible assets.
| 24 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
The Company recorded an impairment charge of $2,258,369 in the consolidated statements of loss and comprehensive loss in 2020 for the WordZ CGU reducing the carrying value of goodwill and acquired intangible assets. The WordZ CGU provides technology services to the insurance, law enforcement, and legal industry.
| 9. | Long term debt |
| Crown Capital (a) | Word Z Promissory note (b) | WordZ SBA Loan (b) | Transcription Express VTB Loan (b) | HomeTech VTB Loan (b) | Total | |||||||||||||||||||
| Balance as at January 1, 2021 | $ | 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 | |||||||||||||
| Crown Capital (a) | Word Z Promissory note (b) | WordZ SBA Loan | Transcription Express VTB Loan (b) | HomeTech VTB Loan (b) | Total | |||||||||||||||||||
| Balance as at January 1, 2020 | $ | 5,964,602 | $ | – | $ | – | $ | – | $ | 541,035 | $ | 6,505,637 | ||||||||||||
| Add: current portion | – | – | – | 863,438 | 240,000 | 1,103,438 | ||||||||||||||||||
| $ | 5,964,602 | $ | – | $ | – | $ | 863,438 | $ | 781,035 | $ | 7,609,075 | |||||||||||||
| Debt advancement | 4,482,659 | 915,105 | 260,230 | – | – | 5,657,994 | ||||||||||||||||||
| Interest expense | 1,409,961 | 50,865 | – | 84,731 | – | 1,545,557 | ||||||||||||||||||
| Accretion expense | 313,112 | 98,333 | – | – | 80,690 | 492,135 | ||||||||||||||||||
| Interest payment | (982,969 | ) | – | – | (69,607 | ) | – | (1,052,576 | ) | |||||||||||||||
| Debt repayment | – | – | – | (598,031 | ) | (240,000 | ) | (838,031 | ) | |||||||||||||||
| Foreign exchange translation | 210,781 | – | – | – | – | 210,781 | ||||||||||||||||||
| Balance as at December 31, 2020 | $ | 11,398,146 | $ | 1,064,303 | $ | 260,230 | $ | 280,531 | $ | 621,725 | $ | 13,624,935 | ||||||||||||
| Less: Current portion | (304,746 | ) | (446,552 | ) | (214,307 | ) | (280,531 | ) | (240,000 | ) | (1,486,136 | ) | ||||||||||||
| $ | 11,093,400 | $ | 617,751 | $ | 45,923 | $ | – | $ | 381,725 | $ | 12,138,799 | |||||||||||||
| (a) | Crown Capital Funding Partner LP |
The Company entered a secured debt facility with Crown Capital Funding Partner LP (“Crown”) with maximum available funds of
$11,811,000 (CAD$15,000,000) bearing an interest rate of 10 percent 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. On initiation of the debt facility on November 28, 2018, 450,000 common share purchase warrants were issued to Crown. A value of $623,152 (CAD$828,917) was attributed to the 450,000 warrants and was recorded in contributed surplus.
Each warrant is convertible into one common share in the capital of the Company at a price per share equal to CAD$2.06 until November 28, 2023. In addition, in lieu of payment of the debt facility origination fee, the Company issued 106,383 common shares to Crown at a deemed price of CAD$2.80 which was equal to the 20-day volume weighted trading price on the trading
day immediately preceding November 28, 2018. A value of $225,530 (CAD$300,000) was attributed to the 106,383 common shares and has been included in capital stock. During 2018, the Company had drawn $6,548,461 (CAD$8,935,000) of the available facility.
| 25 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
In March 2020, in connection with the acquisition of ASC and WordZ (note 4), the Company borrowed the remaining $4,566,945 (CAD$6,065,000) of the available facility. The fair value of this drawdown was $4,482,659 at March 2020. As part of this transaction, the Company and Crown entered into an amendment to the Debt Facility, pursuant to which 450,000 new common share purchase warrants were issued to Crown and previously issued 450,000 common share purchase warrants were concurrently cancelled. The new warrants reflect a price per Share equal to CAD$2.06 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. Additionally, the Company incurred fees of $354,330 (CAD$450,000) associated with establishing the amended debt facility which are recorded as a reduction in the carrying value of the note payable. These fees were added to the long-term payable of the Company’s outstanding principal. These fees accrue interest at 10 percent and repayment is due on November 28, 2023, together with the balance outstanding on the debt facility. During the year ended December 31, 2021, the Company recorded interest expense of $1,232,349 (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, 2021, there was $347,372 recorded as accretion and other financing expense related to the note payable in the consolidated statements of loss and comprehensive loss (December 30, 2020 – $313,112).
The Company received a waiver from Crown in March 2021 to remove the Fixed Charge Coverage Ratio covenant for all four quarters of 2021. In addition, the Company received a second waiver from Crown to remove the Fixed Charge Coverage Ratio covenant for the first three quarters of 2022. The Company received a third waiver in August 2021, to remove the Net Debt to EBITDA Ratio for the remainder of fiscal 2021. As a result, there are no covenants applicable to the Crown debt facility as of December 31, 2021. Subsequent to year end, the Company obtained a further amendment and waiver to the debt facility (note 24).
| (b) | Unsecured Promissory Notes |
Unsecured promissory notes have been issued to the former owners of acquired companies. As part of the acquisition ofTranscription Express, the Company issued an unsecured promissory note to the former owners of Transcription Express witha face value of $1,666,227, bearing interest at 10% per annum. During the year ended December 31, 2019, the terms of theTranscription 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 ownersof 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 paidquarterly 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.
| (c) | Convertible Notes |
On November 28, 2018, the Company issued unsecured convertible notes with a face value of $1,000 bearing interest at a rateof 10% per annum for gross proceeds of $3,717,934 (CAD $4,954,988) maturing in five years after issuance. The principal amount of the convertible debt is convertible, at the option of the holder, into common shares at a conversion price of CAD $2.82 per share.
| 26 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
On December 20, 2018, the Company issued unsecured convertible notes with a face value of $1,000 bearing interest at a rate of10% per annum for gross proceeds of $1,150,000 (CAD $1,551,925) maturing in five years after issuance. The principal amount of the convertible debt is convertible, at the option of the holder, into common shares at a conversion price of CAD $2.72 per share.
On May 7, 2019, the Company issued unsecured convertible notes with a face value of $1,000 bearing interest at a rate of 10%per annum for gross proceeds of $1,925,000 (CAD $2,594,016) maturing in five years after issuance. The principal amount ofthe convertible debt is convertible, at the option of the holder, into common shares at a conversion price of CAD $2.70 per share.
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 reflectingthe 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.
The Corporation issued 6,785,651 common shares to settle its outstanding Notes having an aggregate principal amount of $6,871,003, total interest payable of $4,296,999, and a loss on revaluation of conversion feature liability to the date of exercise of $1,260,360 for a total amount of $12,428,362 credited to share capital of the Company. The amount is nil for convertible notes at December 31, 2021 and December 31, 2020.
The minimum remaining principal repayments of debt under all agreements are as follows:
| Crown Capital | wordZ promissory note | wordZ SBA Loan | HomeTech VTB loan | Total | |||||||||||||||||
| 2022 | $ | - | $ | 400,000 | $ | 114,269 | $ | 240,000 | $ | 754,269 | |||||||||||
| 2023 | 12,165,330 | 400,000 | - | 240,000 | 12,805,330 | ||||||||||||||||
| 2024 | - | - | - | 20,000 | 20,000 | ||||||||||||||||
| $ | 12,165,330 | $ | 800,000 | $ | 114,269 | $ | 500,000 | $ | 13,579,599 | ||||||||||||
| 10. | Derivative warrant liability |
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 common share of the Company (a “Common Share”) 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 entitle shareholder thereof to purchase one Common Share (a “Warrant Share”) at an exercise price of $5.00. The Warrants will be exercisable beginning on the date that is six months following the September 15, 2021 issuance date and will expire five years from the issuance date.
| 27 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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 the Warrants issued pursuant to the Offering is 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 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 period-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 the contractual term. The following are assumptions used by the Company to fair value at initial recognition and:
| Year ended December 31, 2021 | ||||||||
| Derivative warrant liabilities | ||||||||
| December 31, 2021 Period-End | September 15, 2021 Initial Recognition | |||||||
| Fair value (CAD) | $ | 1.12 | $ | 1.93 | ||||
| Share price (CAD) | $ | 3.11 | $ | 4.43 | ||||
| Exercise price (CAD) | $ | 6.35 | $ | 6.33 | ||||
| Expected volatility | 64.72 | % | 62.06 | % | ||||
| Option life (years) | 4.71 | 5.0 | ||||||
| Expected dividends | 0 | % | 0 | % | ||||
As of December 31, 2021, there were 2,117,647 warrants outstanding and nil exercised (2020 – nil and nil, respectively).
The derivative warrant liabilities were recorded at inception on September 15, 2021 was $3,220,039 and as at December 31, 2021 $2,452,332.
| 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 which, 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 which 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.
| 28 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
No equity incentive securities have been granted under the Legacy Plans for the year ended December 31, 2021 (2020 – 396,000 stock options granted).
Common Shares
The Company’s authorized capital consists of an unlimited number of common shares with no par value. As at December 31, 2021, common shares of the Company were reserved as follows:
| Exercise Price (CAD) | Expiry dates | Number outstanding | ||||||||
| Options – Legacy Plan | $4.40 – $6.40 | January 2022 – December 2022 | 97,000 | |||||||
| $2.84 - $6.00 | January 2023 – December 2023 | 141,250 | ||||||||
| $2.10 - $3.10 | January 2024 – December 2024 | 247,017 | ||||||||
| $ | 3.13 | January 2025 – December 2025 | 396,000 | |||||||
| Options – Omnibus Equity Incentive Plan | $ | 8.84 | January 2031 – June 2031 | 721,500 | ||||||
| $ | 8.93 | January 2031 – June 2031 | 68,586 | |||||||
| $ | 2.80 | January 2031 – December 2031 | 150,000 | |||||||
| $ | 2.99 | January 2031 – December 2031 | 175,000 | |||||||
| Deferred share units – Legacy Plan | $ | 1.20 | N/A | 66,667 | ||||||
| Restricted share units – Omnibus Equity Incentive plan | N/A | January 2024 – June 2024 | 25,000 | |||||||
| N/A | January 2031 – June 2031 | 171,017 | ||||||||
On November 6, 2020, the Company announced a bought deal financing and issued 4,705,900 common shares at a price per share of CAD $4.25 per common share for aggregate gross proceeds of CAD $20,000,075 (US$15,378,058) and proceeds net of issuance costs of $13,747,345. The sale of shares and receipt of proceeds were completed on November 26, 2020 (Note 10).
Warrants
During the year ended December 31, 2021, there were 1,123,878 of warrants exercised (2020 – 1,154,759) for proceeds of
$2,092,276 (2020 – $1,859,963). During the year ended December 31, 2021, there were no warrants issued under the Legacy plans (2020 – nil) other than those classified as derivative warrant liabilities (Note 10).
As at December 31, 2021, there were no warrants outstanding other than those classified as derivative warrant liabilities (2020– 1,123,878).
Stock Option Plan
The Company has an incentive stock option plan for its directors, officers, employees, and contractors. The Company's stock option plan allows for the granting of options (and Deferred Share Units 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 |
| 29 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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 option 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 | |
| • | 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 has 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. The Company on June 11, 2021 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 at December 31, 2021, 749,267 options were vested related to the legacy plan (2020 – 770,283) with a weighted average exercise price of CAD $3.16 per share (2020 – CAD $2.84).
As at December 31, 2021, 46,500 options were vested related to the Omnibus Equity Incentive plan (2020 – nil) with a weighted average exercise price of CAD $8.84 per share (2020 –$nil).
During the year ended December 31, 2021, there were 1,115,086 stock options granted to directors, officers, employees, and contractors (2020 – 396,000). The Company utilized the Black-Scholes option pricing model to initially fair value the stock options granted and included the following assumptions as of grant date:
| Year ended December 31, 2021 |
Year ended December 31, 2020 | |||||
| Omnibus Equity Incentive Plan | Legacy Plans | |||||
| Fair value (CAD) | $2.30 - $ 7.29 | $1.85 | ||||
| Share price (CAD) | $2.80 - $ 8.93 | $3.20 | ||||
| Exercise price (CAD) | $8.84 - $8.93 | $3.20 | ||||
| Expected volatility | 81.60% - 82.72% | 73.41% | ||||
| Option life (years) | 10.0 | 5.0 | ||||
| Expected dividends | 0% | 0% | ||||
| Risk-free interest rate (based on government bonds) | 1.38% - 1.43% | 0.42% |
| 30 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
As a result of measuring 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 $1,028,055 for the year ended December 31, 2021 (2020 - $nil). The amount recorded at the grant date were recorded in stock-based compensation. The significant inputs used in the Black-Scholes option pricing model were as follows:
| Year ended December 31, 2021 |
Year ended December 31, 2020 | |||||
| Omnibus Equity Incentive Plan | Legacy Plans | |||||
| Fair value (CAD) | $2.13 | N/A | ||||
| Share price (CAD) | $3.11 | N/A | ||||
| Exercise price (CAD) | $8.84 - $8.93 | N/A | ||||
| Expected volatility | 82.07% | N/A | ||||
| Option life (years) | 9.45 | N/A | ||||
| Expected dividends | 0% | N/A | ||||
| Risk-free interest rate (based on government bonds) | 1.42% | N/A | ||||
During the year ended December 31, 2021, 203,333 options were exercised (2020 – 92,500) for proceeds of USD$246,160 (2020 – CAD $113,500). There were no stock options forfeited during the year ended December 31, 2021 (2020 – nil). There were 33,333 stock options that were expired during the year ended December 31, 2021 (2020 – 53,667).
The following information applies to stock options outstanding and exercisable per the legacy plan as at December 31, 2021, along with their respective exercise prices and related weighted average remaining contractual life:
| Range of exercise prices (CAD) | Options outstanding | Weighted average remaining contractual life | Weighted average exercise price (CAD) | Options exercisable | Weighted average exercise price (CAD) | |||||||||||||||
| $ | 4.40 – $6.40 | 97,000 | 0.4 years | $ | 4.92 | 97,000 | $ | 4.92 | ||||||||||||
| $ | 2.84 - $6.00 | 141,250 | 1.8 years | $ | 3.28 | 141,250 | $ | 3.28 | ||||||||||||
| $ | 2.20 - $3.10 | 247,017 | 2.5 years | $ | 2.44 | 247,017 | $ | 2.44 | ||||||||||||
| $ | 3.13 | 396,000 | 3.3 years | $ | 3.13 | 264,000 | $ | 3.13 | ||||||||||||
| 881,267 | 2.5 years | $ | 3.16 | 749,267 | $ | 3.16 | ||||||||||||||
The following information applies to stock options outstanding and exercisable per the Omnibus Equity Incentive plan as at December 31, 2021, along with their respective exercise prices and related weighted average remaining contractual life:
| Range of exercise prices (CAD) | Options outstanding | Weighted average remaining contractual life | Weighted average exercise price (CAD) | Options exercisable | Weighted average exercise price (CAD) | ||||||||||||||||
| $ | 2.80 - $2.99 | 325,000 | 10.0 years | $ | 2.90 | - | - | ||||||||||||||
| $ | 8.84 – $8.93 | 790,086 | 9.4 years | $ | 8.85 | 46,500 | $ | 8.84 | |||||||||||||
| 1,115,086 | $ | 7.11 | 46,500 | $ | 8.84 | ||||||||||||||||
Deferred Share Units Plan
In 2015, the Company established a Deferred Share Units (“DSUs”) 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.
| 31 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
Maximum allowable grants under the Stock Option and DSU plans in aggregate as at December 31, 2021 were 2,988,172 (2020 –2,359,143) of which 1,996,353 were outstanding stock options, 66,667 were outstanding DSUs, and 196,017 were outstanding RSUs for a total of 2,259,036 (2020 – 1,184,600).
The Company did not grant any DSU’s to Directors of the Company during the year ended December 31, 2021 (2020 – nil).
Restricted Share Units Plan
Under the Omnibus Equity Incentive Plan, the Company established a Restricted Share Units Plan. RSUs have a term not exceeding ten years when granted, can be fully vested 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 RSU 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 |
Since the election and 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-payment and recorded a share-based payment liability. During the year ended December 31, 2021, 1,023,378 RSUs were granted, 842,861 RSUs were vested and 827,361 RSUs were exercised (2020 – nil). As at June 11, 2021, the Company initially recorded a share-based payment liability of $36,219 related to the RSUs that are deemed to be cash-settled share-based payments.
The Company utilized the Black-Scholes option pricing model to initially fair value the RSUs granted and included the following assumptions:
| Year ended December 31, 2021 | Year ended December 31, 2020 | |||||
| Omnibus Equity Incentive Plan | Legacy Plans | |||||
| Fair value (CAD) | $2.75 - 8.93 | N/A | ||||
| Share price (CAD) | $ 2.75 - 8.93 | N/A | ||||
| Exercise price (CAD) | N/A | N/A | ||||
| Expected volatility | 68.93% - 81.58% | N/A | ||||
| Option life (years) | 3.0 to 10.0 | N/A | ||||
| Expected dividends | 0% | N/A | ||||
| Risk-free interest rate (based on government bonds) | 1.02% - 1.38% | N/A | ||||
| 32 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
As a result of measuring 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 $242,595 for the year ended December 31, 2021 (2020 – $nil). The significant inputs used in the Black-Scholes option pricing model were as follows:
| Year ended December 31, 2021 | Year ended December 31, 2020 | |||||
| Omnibus Equity Incentive Plan | Legacy Plans | |||||
| Fair value (CAD) | $3.11 | N/A | ||||
| Share price (CAD) | $3.11 | N/A | ||||
| Exercise price (CAD) | N/A | N/A | ||||
| Expected volatility | 83.07% | N/A | ||||
| Option life (years) | 9.5 | N/A | ||||
| Expected dividends | 0% | N/A | ||||
| Risk-free interest rate (based on government bonds) | 1.42% | N/A | ||||
Share Appreciation Rights Plan
In 2015, the Company established a Share Appreciation Rights (“SAR”) plan for its Service Providers (as defined in VIQ’s SAR plan). The Company's SAR plan provides incentive compensation, based on the appreciation in the value of the Company’s shares, to the service providers, thereby providing additional incentive for their efforts in promoting the continued growth and success of the business of the Company. During the year ended December 31, 2018, the Company amended the outstanding SARs to extend the expiry of the SARs from December 31, 2018 to July 15, 2020, the date the SARs plan will expire. The aggregate number of units in respect of which SARs have been granted and not yet exercised, shall not at any time exceed 10% of the aggregate number of shares that are then issued and outstanding. The SAR units, which have a term not exceeding five years when granted, generally vest as follows:
| • | 1/3 at time of issue | |
| • | 1/3 after one year | |
| • | 1/3 after two years |
At any time on or after the date when the trading price of one share is equal to or exceeds four times the fair value of one SAR unit at the grant date, the Company shall be entitled to require the disposition of the vested SAR units by the grantee to the Company, by the Company paying the bonus in cash to the grantee.
The value of each SAR unit when issued is based on the market price of the Company's stock on the date of grant. At the end of December 31, 2017, the Company amended the SARs plan by placing a limit on the appreciated value of the Company’s shares within the SARs plan to limit the overall liability. As at December 31, 2021, there were nil SARs outstanding (2020 - 188,990) and a remaining share appreciation rights plan obligation balance of $nil (2020 - $126,503).
| 12. | Stock-based compensation |
The total compensation expense relating to the value assigned to the stock options and RSUs granted to directors, officers, employees and contractors for the year ended December 31, 2021 was $8,495,189 (2020 - $725,316) which was included in the stock-based compensation expense with a corresponding charge for the year ended December 31, 2021 to contributed surplus of $6,679,582 (2020 – 461,509) and share based payment liability of $1,815,607 (2020 - $nil). The share-based payment liability was offset by the gain recorded of $1,270,650 (2020 - $nil) for year ended December 31, 2021 (see Note 10).
| 33 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| 13. | Net loss per share |
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Numerator for basic and diluted net loss per share: | ||||||||
| Net loss for the year | $ | (19,678,749 | ) | $ | (11,145,306 | ) | ||
| Denominator for basic net loss per share: | ||||||||
| Weighted average number of common shares outstanding | 26,448,594 | 18,080,533 | ||||||
| Effect of potential dilutive securities | – | – | ||||||
| Adjusted denominator for diluted net loss per share | 26,448,594 | 18,080,533 | ||||||
| Basic net loss per share | $ | (0.74 | ) | $ | (0.62 | ) | ||
| Diluted net loss per share | $ | (0.74 | ) | $ | (0.62 | ) | ||
For the year ended December 31, 2021, 4,376,683 of potentially dilutive common shares (2020 – 2,308,478) issuable upon the exercise of the conversion option related to convertible debt, warrants, deferred share units, and options werenot 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, | ||||||||
| 2021 | 2020 | |||||||
| Trade and other receivables | $ | 1,180,068 | $ | (316,778 | ) | |||
| Inventories | (176 | ) | 18,473 | |||||
| Prepaid expenses | (1,630,088 | ) | (53,416 | ) | ||||
| Trade and other payables | (1,170,715 | ) | (40,937 | ) | ||||
| Contract liabilities and taxes | (381,596 | ) | (380,629 | ) | ||||
| Total | $ | (2,002,506 | ) | $ | (773,287 | ) | ||
Other supplemental cash flow information as follows:
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash received for interest | $ | 22,725 | $ | 1,068 | ||||
| Cash paid for interest | 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 segment, develops, distributes and licenses computer-based digital solutions based on the Company’s proprietarytechnology; 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 full line of software solutions currently offered by the Company.
| 34 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
The Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer are the operating decision makers and regularly reviews our operations and performance by segment. They review segment gain (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.
Financial information by reportable business segment is as follows:
| Year ended December 31, 2021 | ||||||||||||||||
| Technology and related revenue | Technology 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 | ) | ||||||||
| Consolidated balance sheet | ||||||||||||||||
| Total segment assets | $ | 17,445,526 | $ | 30,246,178 | $ | - | $ | 47,691,704 | ||||||||
| Total segment current liabilities | 1,560,567 | 8,732,796 | – | 10,293,363 | ||||||||||||
| Total segment non-current liabilities | – | 3,527,656 | 11,781,127 | 15,308,783 | ||||||||||||
| 35 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| Year ended December 31, 2020 | ||||||||||||||||
| Technology and related revenue | Technology 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 | ) | |||||||||
| Consolidated balance sheet | ||||||||||||||||
| Total segment assets | $ | 18,908,266 | $ | 23,811,393 | – | $ | 42,719,659 | |||||||||
| Total segment current liabilities | 2,411,430 | 5,948,073 | 126,503 | 8,486,006 | ||||||||||||
| Total segment non-current liabilities | – | 2,993,328 | 11,093,401 | 14,086,729 | ||||||||||||
Property and equipment are located in the following countries:
| December 31, 2021 | December 31, 2020 | |||||||
| Australia | $ | 325,228 | $ | 95,324 | ||||
| Canada | 113,242 | 120,511 | ||||||
| United Kingdom | 14,084 | – | ||||||
| United States | 8,420 | – | ||||||
| $ | 460,974 | $ | 215,835 | |||||
| 36 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| 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 14).
| Primary geographical markets | Year ended December 31, | |||||||
| 2021 | 2020 | |||||||
| United States | $ | 18,980,591 | $ | 22,180,946 | ||||
| Australia | 9,523,257 | 8,531,854 | ||||||
| United Kingdom | 1,948,321 | 611,666 | ||||||
| Canada | 160,372 | 305,166 | ||||||
| Other | 434,271 | 120,061 | ||||||
| Total | $ | 31,046,812 | $ | 31,749,693 | ||||
| Major products / service lines | Year ended December 31, | |||||||
| 2021 | 2020 | |||||||
| Technology services | $ | 26,676,738 | $ | 28,190,993 | ||||
| Software licenses | 1,365,882 | 1,013,854 | ||||||
| Support and maintenance | 1,772,203 | 1,519,424 | ||||||
| SaaS | 65,187 | 42,662 | ||||||
| Subscription | 189,359 | - | ||||||
| Professional services | 451,695 | 288,597 | ||||||
| Hardware | 442,077 | 657,711 | ||||||
| Other | 83,671 | 36,452 | ||||||
| Total | $ | 31,046,812 | $ | 31,749,693 | ||||
The Company had one customer who contributed greater than 10 percent of consolidated total revenues during the year ended December 31, 2021 (2020 – one customer). During the year, this customer comprised 11.7 percent of consolidated revenue (2020 – 11.3 percent).
Technology services, software licenses, professional services, hardware and other revenue are recognized point in time and support and maintenance and SAAS revenue is satisfied over time
| 37 |
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 | ||||||||
| 2021 | 2020 | |||||||
| Employee and contractor expenses (note 18) | $ | 33,603,690 | $ | 22,682,199 | ||||
| Inventory, materials and other cost of sales | 1,719,616 | 1,043,844 | ||||||
| Depreciation and amortization | 4,641,601 | 5,259,243 | ||||||
| Facilities | 470,773 | 279,028 | ||||||
| Professional and consulting fees | 4,099,129 | 1,566,224 | ||||||
| Investor relations and other shareholder expenses | 792,457 | 288,778 | ||||||
| Bad debt | 283,964 | 18,116 | ||||||
| Marketing and advertising/promotion expenses | 177,894 | 226,104 | ||||||
| Software license and IT expenses | 1,620,816 | 1,318,239 | ||||||
| Telephone and internet | 283,207 | 260,634 | ||||||
| Travel | 202,703 | 78,467 | ||||||
| Insurance | 630,066 | 103,702 | ||||||
| Office, administrative, and other operating expenses | 946,548 | 568,498 | ||||||
| Foreign exchange loss (gain) | 22,130 | (132,306 | ) | |||||
| Total | $ | 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, | ||||||||
| 2021 | 2020 | |||||||
| Salaries and wages and employee benefits | $ | 14,575,551 | $ | 11,060,315 | ||||
| Contract labour | 9,550,731 | 9,818,222 | ||||||
| Stock-based compensation | 8,495,189 | 725,316 | ||||||
| Other staff expense | 982,219 | 1,078,346 | ||||||
| Total | $ | 33,603,690 | $ | 22,682,199 | ||||
| 38 |
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 January 1, 2021 | Acquisitions | Additions | Foreign exchange | Balance December 31, 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 January 1, 2020 | Additions | Disposals | Foreign exchange | Balance December 31, 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 | ||||||||||||||||
| 20. | Lease obligations |
Below is a summary of the activity related to our lease liabilities for the year ended December 31, 2021 and 2020:
| Year ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| Lease obligations, January 1 | $ | 354,199 | $ | 689,644 | ||||
| Additions | 953,868 | 12,199 | ||||||
| Disposals | - | (67,787 | ) | |||||
| Interest on lease liabilities | 34,712 | 53,549 | ||||||
| Interest payments on lease liabilities | (34,712 | ) | (53,549 | ) | ||||
| Principal payments of lease liabilities | (150,924 | ) | (338,276 | ) | ||||
| Adjustments | - | 33,869 | ||||||
| Foreign exchange difference | 31,626 | 24,550 | ||||||
| Lease obligations, December 31 | $ | 1,188,769 | $ | 354,199 | ||||
| 39 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
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 does not include variable costs. The minimum payments under all agreements are as follows:
| 2022 | $ | 446,571 | ||
| 2023 | 477,290 | |||
| 2024 | 337,842 | |||
| 2025 | 247,211 | |||
| $ | 1,508,914 |
| 21. | Income taxes |
The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% (2020 - 26.5%) to the effective tax rate is as follows:
| 2021 | 2020 | |||||||
| Net loss before income taxes | $ | (18,735,022 | ) | $ | (12,089,338 | ) | ||
| Expected income tax recovery | (4,964,781 | ) | (3,203,675 | ) | ||||
| Difference in foreign tax rates | 163,190 | 202,331 | ||||||
| Share based compensation and non-deductible expenses | (3,470 | ) | (114,257 | ) | ||||
| Prior year true-ups | (48,507 | ) | 75,227 | |||||
| Tax rate changes and other adjustments | 9,619 | 2,210 | ||||||
| Recognition of previously unrecognized deferred tax assets | - | (317,387 | ) | |||||
| Change in tax benefits not recognized | 5,787,676 | 2,411,519 | ||||||
| Income tax expense (recovery) | $ | 943,727 | $ | (944,032 | ) | |||
The Company’s income tax expense (recovery) is allocated as follows:
| 2021 | 2020 | |||||||
| Current income tax expense (recovery) | $ | (875 | ) | $ | 106,986 | |||
| Deferred income tax expense (recovery) | 944,602 | (1,051,018 | ) | |||||
| Income tax expense (recovery) | $ | 943,727 | $ | (944,032 | ) | |||
During 2021, the Company derecognized deferred tax asset relating to our US operations and $1,202,574 was recorded as a deferred income tax expense.
The significant components of deferred tax assets are as follows:
| 2021 | 2020 | |||||||
| Non-capital losses carried forward | $ | 288,654 | $ | 154,406 | ||||
| Intangible assets | - | 59,668 | ||||||
| Reserves | 176,146 | 1,227,868 | ||||||
| Deferred tax assets | $ | 464,800 | $ | 1,441,942 | ||||
| Intangible assets | (1,192,153 | ) | (43,564 | ) | ||||
| Other | (7,113 | ) | (17,023 | ) | ||||
| Deferred tax liabilities | (1,199,266 | ) | (60,587 | ) | ||||
| Net deferred tax assets | $ | (734,466 | ) | $ | 1,381,355 | |||
| 40 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
The following tables present tax effects of temporary differences and carry-forwards, as well as movements in the deferred tax balances:
| Balance at December 31, 2020 | Recognized in profit and loss | Other (Opening PPA) | Balance at December 31, 2021 | |||||||||||||
| Deferred tax assets (liabilities): | ||||||||||||||||
| Non-capital losses carried forward | 154,406 | 134,249 | 288,655 | |||||||||||||
| Intangible assets | 16,104 | 27,655 | (1,166,665 | ) | (1,122,906 | ) | ||||||||||
| Reserves | 1,227,868 | (1,051,723 | ) | 176,145 | ||||||||||||
| Other | (17,023 | ) | (54,783 | ) | (4,554 | ) | (76,360 | ) | ||||||||
| $ | 1,381,355 | $ | (944,602 | ) | $ | (1,171,219 | ) | $ | (734,466 | ) | ||||||
| Balance at December 31, 2019 | Recognized in profit and loss | Other | Balance at December 31, 2020 | |||||||||||||
| Deferred tax assets (liabilities): | ||||||||||||||||
| Non-capital losses carried forward | 183,530 | (29,124 | ) | - | 154,406 | |||||||||||
| Intangible assets | (37,150 | ) | 53,254 | - | 16,104 | |||||||||||
| Right of use assets | 3,030 | (3,030 | ) | - | - | |||||||||||
| Reserves | 180,927 | 1,046,941 | - | 1,227,868 | ||||||||||||
| Other | - | (17,023 | ) | - | (17,023 | ) | ||||||||||
| $ | 330,337 | $ | 1,051,018 | $ | - | $ | 1,381,355 | |||||||||
| 41 |
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 taxvalues and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of thefollowing deductible temporary differences:
| 2021 | 2020 | |||||||
| Property and equipment | 317,392 | 633,070 | ||||||
| Intangible assets | 10,691,053 | 3,762,917 | ||||||
| Share issuance costs – 20(1)(e) | 474,873 | 318,920 | ||||||
| Non-capital losses carried forward – Canada | 21,725,215 | 16,387,380 | ||||||
| Non-capital losses carried forward – US | 10,537,511 | 344,750 | ||||||
| Non-capital losses carried forward – Australia | 195,574 | - | ||||||
| Capital losses carried forward - Canada | 346,457 | 345,288 | ||||||
| Capital losses carried forward - Australia | 537,322 | 570,372 | ||||||
| Investment tax credits | 597,175 | 595,160 | ||||||
| SR&ED pool | 1,868,445 | 1,862,140 | ||||||
| Share appreciation rights plan obligation | - | 153,638 | ||||||
| Ontario SR&ED credit | 92,507 | 92,195 | ||||||
| Contract liabilities | 270,320 | 412,831 | ||||||
| Lease obligations | (58,111 | ) | 19,888 | |||||
| Accrued vacation | 38,584 | - | ||||||
| Accrued liabilities | 12,409 | - | ||||||
| Accrued interest | 1,257,173 | - | ||||||
| Difference between cash and accrual basis | (676,122 | ) | - | |||||
| AFDA Reserve | 117,163 | - | ||||||
| Contingent Consideration Liabilities | 445,972 | - | ||||||
| Stock-based Compensation | 149,343 | - | ||||||
| Business acquisition expenses | 314,633 | - | ||||||
| Unrealized foreign exchange | - | 674,146 | ||||||
| 49,254,888 | 26,172,695 | |||||||
The Company has available Canadian non-capital losses of approximately $21,725,215 and capital losses of approximately $346,457. 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 2041.
During the year ended December 31, 2021, the Company utilized Canadian loss carryforwards of approximately $nil (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 $597,175 if not utilized will expire between the years 2025 to 2034.
The effective and statutory tax rate in the Company’s Australian subsidiaries is 26.0% (2020 – 27.5%). These subsidiaries have capital losses of approximately $537,322 (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 $10,537,511 available to reduce future taxableincome. These losses do not expire.
The Company’s UK subsidiary have non-capital losses of approximately $26,614 available to reduce future taxable income.
| 42 |
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 have not recognized deferred tax liabilities is approximately $250,000 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 Fair values |
The estimated fair values of cash, trade and other receivables, restricted cash, trade, accrued liabilities and other payables, and
share appreciationrights plan obligations 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 rates.
Fair value measurements recognized in the consolidated balance sheets must be categorized in accordance with the followinglevels:
| • | Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; | |
| • | 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 | |
| • | 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 balance sheets consist of cash and restricted cash. Cash and restricted cash are valued using quoted market prices (Level 1). Share appreciation rights, share based payment liability, contingent considerations 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, 2021.
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 2022 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 balance sheet datebased on the expected contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cashflows for operations:
| 2022 | 2023 | 2024 | 2025 | Total | ||||||||||||||||
| Trade and other payables | 5,380,701 | – | – | – | 5,380,701 | |||||||||||||||
| Lease obligations | 446,571 | 477,290 | 337,842 | 247,211 | 1,508,914 | |||||||||||||||
| Crown Capital debt | 308,892 | 12,165,330 | – | – | 12,474,222 | |||||||||||||||
| Contingent Consideration - Wordz | 77,249 | 352,626 | 282,537 | – | 712,412 | |||||||||||||||
| Contingent Consideration - Auscript | 150,000 | 150,000 | ||||||||||||||||||
| WordZ SBA Loan | 114,507 | – | – | – | 114,507 | |||||||||||||||
| WordZ promissory note | 357,323 | 212,901 | – | – | 570,224 | |||||||||||||||
| HomeTech VTB loan | 240,000 | 240,000 | 20,000 | – | 500,000 | |||||||||||||||
| Total | $ | 7,075,243 | $ | 13,448,146 | $ | 640,379 | $ | 247,211 | $ | 21,410,979 | ||||||||||
| 43 |
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 balance sheet 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, 2021 | December 31, 2020 | |||||||
| United States | 48 | % | 65 | % | ||||
| Australia | 31 | % | 17 | % | ||||
| United Kingdom | 14 | % | 16 | % | ||||
| Rest of world | 7 | % | 2 | % | ||||
| 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 insignificant. 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, 2021 | December 31, 2020 | |||||||
| 0 to 30 days | $ | 2,490,940 | $ | 2,902,154 | ||||
| 31 to 60 days | 973,641 | 661,408 | ||||||
| 61 to 90 days | 623,990 | 487,560 | ||||||
| 91 days and older | 1,505,797 | 424,629 | ||||||
| $ | 5,594,368 | $ | 4,475,751 | |||||
At December 31, 2021, the for allowance for doubtful accounts recorded against trade receivables is $316,202 (2020 -
$123,338). The activity of the allowance for doubtful accounts provision is as follows:
| December 31, 2021 | December 31, 2020 | |||||||
| Beginning of year | $ | 123,338 | $ | 902,215 | ||||
| Add: provision for allowance for doubtful accounts | 283,964 | 18,116 | ||||||
| Less: write-offs | (112,116 | ) | (815,817 | ) | ||||
| Foreign exchange adjustments | 21,016 | 18,824 | ||||||
| Expected credit loss – end of year | $ | 316,202 | $ | 123,338 | ||||
| 44 |
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 balance sheet. 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 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, 2021, fluctuations of the Australian dollar relative to the United States dollar of 5% would result in an exchangegain or loss on the net financial assets, impacting the Company’s comprehensive income by approximately $23,000 (2020 – $58,000).
The Company’s computer products and services 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 $22,000 as at December 31, 2021 (2020 – $78,000).
The Company’s computer products and services operations 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 $30,000 as December 31, 2021 (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 loss from operations of $22,130 for the year ended December 31, 2021 (2020 – foreign exchange gain of $132,306).
Capital management
The Company considers its capital structure to consist of shareholders’ equity, long-term debt and convertible 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.
| 45 |
VIQ Solutions Inc.
Notes to Consolidated Financial Statements
(Expressed in United States dollars)
| 23. | Related party transactions |
Key management personnel are comprised of the Company’s directors and executive officers. In addition to their salaries, key management personnel also participate in the Company’s share option program (note 11), DSU plan, SAR plan (note 11). Keymanagement personnel compensation for the year ended December 31, 2021 and December 31, 2020 are as follows:
| 2021 | 2020 | |||||||
| Salaries and short-term employee benefits (i) | $ | 1,821,211 | $ | 1,141,349 | ||||
| Stock-based compensation | 7,600,415 | 169,969 | ||||||
| $ | 9,421,626 | $ | 1,311,318 | |||||
| (i) | Short-term employee benefits include bonuses and car allowances |
| 24. | Subsequent events |
On March 30, 2022, the Company signed an amendment related to the Crown debt facility that required the Company to pay
$4,000,000 (CAD $5,000,000) of the principal balance on March 30, 2022 and pay an amendment fee of approximately $235,000 (CAD $300,000). The amended secured debt facility waives the Fixed Charge Coverage Ratio for Q4, 2022 and the Net Debt to EBITDA ratio for Q1 and Q2 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 Q2 2022, Q3 2022 and Q4 2022.
| 46 |
Exhibit 99.2
VIQ Solutions Inc.
2021 Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Expressed in United States dollars)
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
The following Management’s Discussion and Analysis (“MD&A”) comments on the financial condition and results of operations of VIQ Solutions Inc. for the three months and year ended December 31, 2021. This MD&A should also be read in conjunction with our audited financial statements for the years ended December 31, 2021, and 2020, prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and are available on SEDAR at www.sedar.com. Certain information included herein is forward-looking and based upon assumptions and anticipated results that are subject to uncertainties. Should one or more of these uncertainties materialize or should the underlying assumptions prove incorrect, actual results may vary significantly from those expected. See “Forward-Looking Statements” and “Risk Factors”. The information in this MD&A is provided as of March 31, 2022, unless we indicate otherwise.
Unless the context otherwise requires, all references to “VIQ”, “Company”, “VIQ Solutions”, “our”, “us”, and “we” refer to VIQ Solutions Inc. and its subsidiaries. Additional information regarding the Company including in its annual information form for its fiscal year ended December 31, 2021, is available on SEDAR at www.sedar.com. Information regarding the Company is also available through the EDGAR system (“EDGAR”) of the U.S. Securities and Exchange Commission’s website.
As a result of the Company’s graduation to the Toronto Stock Exchange (the “TSX”), trading of VIQ shares on the TSX Venture Exchange (the “TSX-V”) ceased after January 20, 2021. VIQ’s shares were delisted from the TSX-V at the commencement of trading on the TSX. The trading symbol for the common shares of VIQ on the TSX remained unchanged as “VQS”. VIQ’s common shares commenced trading on the Nasdaq Capital Market (“Nasdaq”) under the symbol “VQS” on August 12, 2021.
All amounts herein are presented in United States dollars, unless otherwise indicated.
Forward-Looking Statements
This MD&A contains forward-looking statements about our achievements, the future success of our business and technology strategies, performance, goals and other future events. Management’s assessment of future plans and operations, cash flows, methods of financing and the ability to fund financial liabilities and the timing of and impact of adoption of IFRS and other accounting policies may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, the risks identified below.
Therefore, the Company’s actual results may differ materially from those expressed in, or implied by, the forward-looking statements. Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information, but which may prove to be incorrect. Although VIQ Solutions believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct.
In addition to other factors and assumptions which may be identified in this document and other documents filed by the Company, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which VIQ Solutions operates, including significant changes in demand from our clients as a result of the impact of a global economic crisis and capital markets weakness; the risk of potential non-performance by counterparties, including but not limited to, clients and suppliers, during uncertain economic conditions; our dependence on a limited number of clients; our dependence on industries affected by rapid technological change; our ability to successfully manage our operations internationally including in the United Kingdom, Australia and the United States; the challenge of managing our financial exposures to foreign currency fluctuations; our ability to obtain qualified staff and services in a timely and cost-efficient manner; our ability to obtain financing on acceptable terms including anticipated sources of funding of working capital and financial losses which may include securing credit facilities, accessing new equity, corporate acquisitions or business combinations or joint venture arrangements; the ability to secure new contracts on terms acceptable to the Company; the ability to successfully develop new products; the Company's ability to effectively register, for protection, its new and existing products in certain jurisdictions; the Company's ability to protect new and existing products from proprietary infringement by third parties and its ability to effectively enforce such proprietary infringements; taxes in the jurisdictions in which the Company operates, including Canada, the United Kingdom, Australia and the United States; and VIQ Solutions' ability to successfully market its products. Readers are cautioned that the foregoing list of factors is not exhaustive.
| Management Discussion & Analysis | Page 1 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
The purpose of the forward-looking statements is to provide the reader with a description of management’s expectations regarding the Company’s 2022 outlook and may not be appropriate for other purposes. Readers are encouraged to read the section entitled “Risk Factors” in this MD&A for a broader discussion of the factors that could affect our future performance. Furthermore, the forward-looking statements contained in this document are made as at the date of this document and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
Pro Forma Information
This MD&A also contains pro forma financial information, including with respect to annual recurring revenue (“ARR”) for the years ended December 31, 2021 and 2020. The Company believes the pro forma results presented provide relevant and useful information for investors because they clarify the Company's operating performance, make it easier to compare the Company's results with those of other companies and allow investors to review performance in the same way as the Company's management. Since these measures are not calculated in accordance with IFRS, they should not be considered in isolation of, or as a substitute for, our reported results as indicators of the Company's performance, and they may not be comparable to similarly named measurements from other companies. The Company disclaims any intention or obligation to update or revise any pro forma financial information contained in this MD&A, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the pro forma financial information contained in this MD&A should not be used for purposes other than for which it is disclosed herein.
Trademarks
This MD&A includes trademarks, such as “ CapturePro”, “aiAssist”, “NetScribe”, which are protected under applicable intellectual property laws and are the property of VIQ. Solely for convenience, our trademarks referred to in this MD&A may appear without the ® or TM symbol, but such references are not intended to indicate, in any way, that we will not assert our rights to these trademarks, trade names and services marks to the fullest extent under applicable law. Trademarks which may be used in this MD&A, other than those that belong to VIQ, are the property of their respective owners.
Non-IFRS Measures
The Company prepares its financial statements in accordance with IFRS. Non-IFRS measures are used by management to provide additional insight into our performance and financial condition. We believe non-IFRS measures are an important part of the financial reporting process and are useful in communicating information that complements and supplements the consolidated financial statements.
We use the following non-IFRS financial performance measures in our MD&A:
| · | Adjusted EBITDA |
| · | EBITDA |
| · | Annual Recurring Revenue (“ARR”) |
For a detailed description of each of the non-IFRS measures used in this MD&A and a detailed reconciliation to the most directly comparable measure under IFRS, please refer to the Key Operating Metrics – Non-IFRS Measures section of this MD&A. The non-IFRS measures set out in this MD&A are intended to provide additional information to investors and do not have any standardized meaning under IFRS, and therefore may not be comparable to other issuers, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
| Management Discussion & Analysis | Page 2 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Overview
VIQ Solutions is a leading provider of capture software and cloud-based transcription workflow automation solutions to assist government agencies and commercial enterprises securely digitize information-intensive voice and video content.
Our technology, which delivers a seamless, proprietary workflow and documentation platform securely captures, transforms, distributes, and manages complex digital voice and video content for over 2,560 active clients in the criminal justice, legal, insurance, media, government, and financial services verticals. We have operations in the U.S., Canada, Australia and Europe, the Middle East and Africa.
Our scalable technology utilizes artificial intelligence (AI) designed to ingest significant amounts of evidentiary content to produce accurate, verbatim, diarized transcripts for mission critical events that have lasting financial and social impacts. In 2021, our platform processed over 13.3 million minutes of recorded, multi-speaker, multi-channel audio and video and created 7.3 million pages of secure, industry specific evidence documentation creating actionable information for use by our clients.
Our technology solutions are proven to deliver productivity enhancements, which drive down our overall production costs and speed of delivery, leading to meaningful gross margin improvements. Our automated workflow has enabled profitable growth while improving the overall service levels, strengthening our AI learning, and bolstering our competitive advantage.
Revenue
The recurring nature of our revenue base is a key indication of performance. Most of our revenue is tied to major contracts and is expected to remain the same or increase in terms of the overall contribution to the Company. Also, these clients are tied to government entities and multinational Fortune 500 companies that provide little credit risk and accordingly provide a reliable revenue stream.
Our revenue consists of transcription services, software license fees, support and maintenance and other recurring fees, professional service fees, and hardware sales. Transcription, service revenue consists of fees charged for recurring editing documentation services provided to our clients. Technology service revenue consists of fees charged for recurring automated transcription services. Software license revenue is comprised of license fees charged for the use of our software products generally licensed under perpetual arrangements and to a lesser extent sale of third-party software licenses. These license sales are larger contracts with longer sales cycles and are more variable in nature. Support and maintenance and other recurring revenue primarily consist of fees charged for client support on our software products post-delivery. Professional service revenue consists of fees charged for customization, implementation, integration, training and ongoing services associated with our software products and technology services. Hardware revenue includes the resale of third-party hardware that forms part of our client solutions. Occasionally, our clients may purchase a combination of software, maintenance, professional services and hardware, although the type, mix and quantity vary by client to create a solution for the client’s unique requirements.
Cost of Sales
Cost of sales consists primarily of staff costs, professional services and the cost of hardware and third-party licenses to fulfill client arrangements.
| Management Discussion & Analysis | Page 3 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Selling and Administrative Expenses
Selling and administrative expenses consist primarily of personnel and related costs for our sales and marketing functions, including salaries and benefits, contract acquisition costs including commissions earned by sales personnel, direct marketing campaigns, public relations and other promotional activities. Selling and administrative expenses also consist primarily of personnel and related costs associated with the administrative functions of our business including corporate, finance, and internal information system support as well as legal, accounting, other professional fees, investor relations, occupancy costs and insurance.
We continue to invest globally in sales, marketing and business development to continue to diversify across segments, industries and geographies building awareness in our global brand to increase the future revenue growth of the Company.
Research and Development Expenses
Research and development expenses include personnel and related costs for ongoing research, development and product management initiatives.
Business Overview of 2021
While 2021 was challenging given COVID recovery in different geographies, significant strides were made in the overall performance of the operation. The Company is now prepared to scale profitability in 2022 after completing several strategic initiatives in 2021 in the areas of M&A, Regulatory, Cloud Infrastructure, Cybersecurity, Capital Market and Human Capital Retention. These corporate initiatives amounted to approximately $3.2M in expenses in 2021, representing 65% of the total losses for the period ended December 31, 2021. Total revenue for the year ended December 31, 2021, was $31M versus $31.7M recognized in the comparative period in 2020. Proforma ARR for the year ended December 31, 2021, increased by 63% to $48.6M from $29.7M for the comparative period in 2020.
One of the corporate initiatives was an intentional pivot to segmentation that is positively impacted by our technology and away from the core focus on Law Enforcement where we have seen less favorable results to Gross Margin from the migration to our technology due to variance in quality of audio and video. This pivot, while not impacting 2021 Gross Margin improvements, is expected to drive continued improvements in 2022 as we migrate our court revenue to our AI technology platform.
During the past two years of the pandemic, the equal diversification of our revenue among four verticals in three regions served us well. Despite negative results from operations in 2021, VIQ emerged from COVID in a better position than many in the industry who had all their revenue dependent upon one vertical and/or one region. With our last two strategic acquisitions in the UK and Australia, the Court vertical now represents 65% of our anticipated 2022 revenue globally, a very intentional increase from 32% in 2021. We see the highest productivity gains in the Court vertical and with that the highest expectation for gross margin improvement. The solid incremental gross margin gains achieved in 2021 are yet to include any of the gains anticipated from the Courts revenue. As previously disclosed, UK Court revenue is being migrated onto Netscribe, powered by aiAssist, in Q2 of 2022 and Australia will be migrated throughout Q2 and Q3. VIQ Media will transition to the platform with migrations scheduled for Q4 2022 and H1 2023.
In addition to NetScribe enhancements to improve production of Court document types, VIQ expects to launch a new eCommerce portal which will include automation of court ordering capabilities for the U.S, UK and Australian Court clients, a new Mobile app which will support video recording and the ability to receive documents on the mobile device, and NetScribe Live which provides real-time editing to a live Teams or Zoom meeting.
In 2021, we received a patent from the US Patent office for artificial intelligence innovation that covers ten unique aspects of our proprietary aiAssist automated workflow and analysis platform. We commercially released new products like FirstDraft, a new version of MobileMic Pro, enhanced versions of our capture technologies and NetScribe platforms. We also implemented our first multi-tenant platform clients.
| Management Discussion & Analysis | Page 4 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
We exited 2021 with a pro forma ARR³ of $48.6M USD, an increase of 63% in the comparative period exiting 2020 when the ARR run rate was $29.7M.
Despite financial results, the Company had to maintain a balanced approach between operating expenditures, selling, general and administrative expenses and pressured revenue, backlog and the pursuit of sale opportunities exiting 2021. While one could assume that we should have radically cut costs post subsidies based on the 2021 performance, we knew that we had significant contractual commitments and organic opportunities to meet in early 2022, like the execution of the Queensland contract (both in terms of operations and technology) and the Ministry of Justice. The balanced approach was needed in order to scale to normal volumes upon the reopening of the various economies and regions. It takes time and investment to recruit and train, especially our Editors, to reach the highest level of productivity. Despite these challenges, client attrition was almost nil, and the Net Promoter Score was high.
COVID cycles have made establishing the operational baselines used to track key metrics and forecasts that help to anticipate course corrections challenging. We believe, these pandemic related challenges are behind us starting in March 2022. We have published a set of operating metrics that will provide our shareholders with insights on how we are tracking our progression towards higher productivity and continued gains in gross margin and profitability through the implementation of technology solutions, powered by AI.
Key Operating Highlights during the three months and year ended December 31, 2021
| · | Total revenue for the three months ended December 31, 2021, was $7,514,421, a decrease of $261,253 or 3% from $7,775,674 recognized in the comparative period in 2020. Total revenue for the year ended December 31, 2021, was $31,046,812, a decrease of $702,881 or 2% from $31,749,693 recognized in the comparative period in 2020. |
| · | Gross margin for the three months ended December 31, 2021, was $3,281,947 representing 44% of revenue versus 38% of revenue in the comparative period in 2020. Gross margin for the year ended December 31, 2021, was $14,922,959 representing 48% of revenue, a decrease of $1,227,297 from $16,150,256 of gross margin recognized in the comparative period in 2020 representing 51% of revenue. |
| · | Net loss for the three months ended December 31, 2021, was $3,653,793, an increase of $554,105 or 18% from a net loss of $3,099,688 recognized in the comparative period in 2020. Net loss for the year ended December 31, 2021, was $19,678,749, an increase of $8,533,443 or 77% from a net loss of $11,145,306 recognized in the comparative period in 2020. |
| · | Adjusted EBITDA¹,² for the three months ended December 31, 2021, was a deficit of $1,838,458, a decrease of $2,502,392, or 377% from an Adjusted EBITDA of $663,9331 recognized in the comparative period in 2020. Adjusted EBITDA for the year ended December 31, 2021, was a deficit of $4,956,293, a decrease of $9,943,372, or 199% from an Adjusted EBITDA of $4,987,679 recognized in the comparative period in 2020. The decrease in Adjusted EBITDA for the three months ended December 31, 2021, was driven primarily by professional service fees and selling and administrative expenses related to Q421 acquisitions partially offset by productivity gains through NetScribe, powered by aiAssist, and lower cost of sales through use of a global workforce. The decrease in Adjusted EBITDA for the year ended was driven primarily by professional service fees related to M&A, uplisting to Nasdaq and SEC registrations and TSX listing, capital marketsrelated fees including relating to filing of the base shelf prospectus, implementation of a new Omnibus Equity Incentive Plan, a reduction in COVID-19 subsidies compared to 2020 and lower contingent consideration gain recognized in 2021 compared to 2020. |
1 Adjusted EBITDA for the three months ended December 31 2020, as reported, was $646,674 which excluded $19,058 business acquisition costs. This adjustment was included for Q4 2020 comparative purposes.
2 Adjusted EBITDA is a non-IFRS measures, further information on this non-IFRS measure including detailed reconciliations is included in the Key Operating Metrics - Non IFRS Measure section below.
3 ARR is a non-IFRS measures, further information on this non-IFRS measure including detailed reconciliations is included in the Key Operating Metrics - Non IFRS Measure section below.
| Management Discussion & Analysis | Page 5 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Impact of 2021 Acquisitions and Pro Forma
For the three month and year ended December 31, 2021, consolidated revenues of $7,514,421 and $31,046,812 include revenue from acquisitions of $904,221 (Auscript: $629,035; TTA: $275,186). Net loss for the three month and year ended December 31, 2021, of $3,653,793 and $19,678,749, include a loss from acquisitions of $348,939 (Auscript: loss of $265,860; TTA: loss of $83,079).
During the year ended December 31, 2021, the Company incurred $539,734 in business acquisition costs related to the acquisitions which have been included in the consolidated statement of loss and comprehensive loss (December 31, 2020 - $19,058).
If the acquisitions would have occurred on January 1, 2021, management estimates that the 2021 exiting ARR³ Run Rate was approximatively $48.6M as compared to the amounts reported in the consolidated statements for the year ended December 31, 2021. This unaudited pro forma financial information is for information purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of the period presented or the results that may be realized in the future.
Results of Operations
Key financial performance indicators that we use to manage our business and evaluate our financial results and operating performance include revenue, expenses, net income (loss) and Adjusted EBITDA. We evaluate our performance on these metrics by comparing our actual results to management budgets, forecasts, and prior period performance.
| Management Discussion & Analysis | Page 6 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
The following table sets forth a summary of our results of operations for the three months and year ended December 31, 2021, and 2020:
Unaudited
| Three months ended | Period over Period | Year ended December 31 | Period over Period | |||||||||||||||||||||||||||||
| December 31 | Change | Change | ||||||||||||||||||||||||||||||
| 2021 | 2020 | $ | % | 2021 | 2020 | $ | % | |||||||||||||||||||||||||
| Revenue | 7,514,421 | 7,775,674 | (261,253 | ) | (3 | ) | 31,046,812 | 31,749,693 | (702,881 | ) | (2 | ) | ||||||||||||||||||||
| Cost of sales | 4,232,474 | 4,809,709 | (577,235 | ) | (12 | ) | 16,123,853 | 15,599,437 | 524,416 | 3 | ||||||||||||||||||||||
| Gross profit | 3,281,947 | 2,965,965 | 315,982 | 11 | 14,922,959 | 16,150,256 | (1,227,297 | ) | (8 | ) | ||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||||
| Selling and administrative expenses | 5,111,108 | 2,873,318 | 2,237,790 | 78 | 19,119,713 | 11,034,902 | 8,084,811 | 73 | ||||||||||||||||||||||||
| Research and development expenses | 274,889 | 288,146 | (13,257 | ) | (5 | ) | 1,092,108 | 1,074,178 | 17,930 | 2 | ||||||||||||||||||||||
| Gain on contingent consideration | (265,592 | ) | (859,432 | ) | 593,840 | (69 | ) | (332,569 | ) | (946,503 | ) | 613,934 | (65 | ) | ||||||||||||||||||
| Stock-based compensation | 862,283 | 87,802 | 774,481 | 882 | 8,495,189 | 725,316 | 7,769,873 | 1,071 | ||||||||||||||||||||||||
| Depreciation | 67,707 | 98,632 | (30,925 | ) | (31 | ) | 257,099 | 445,995 | (188,896 | ) | (42 | ) | ||||||||||||||||||||
| Amortization | 1,102,465 | 1,522,396 | (419,931 | ) | (28 | ) | 4,384,502 | 4,813,248 | (428,746 | ) | (9 | ) | ||||||||||||||||||||
| Interest expense | 334,489 | 491,848 | (157,359 | ) | (32 | ) | 1,331,100 | 4,934,517 | (3,603,417 | ) | (73 | ) | ||||||||||||||||||||
| Accretion and other financing expense | 211,136 | 335,197 | (124,061 | ) | (37 | ) | 967,106 | 1,216,949 | (249,843 | ) | (21 | ) | ||||||||||||||||||||
| Loss on revaluation of conversion feature liability | - | 133,295 | (133,295 | ) | (100 | ) | - | 1,308,440 | (1,308,440 | ) | (100 | ) | ||||||||||||||||||||
| Loss on repayment of long-term debt | - | 207,657 | (207,657 | ) | (100 | ) | - | 1,497,804 | (1,497,804 | ) | (100 | ) | ||||||||||||||||||||
| Gain on revaluation of options | (526,081 | ) | - | (526,081 | ) | (100 | ) | (1,028,055 | ) | - | (1,028,055 | ) | (100 | ) | ||||||||||||||||||
| Gain on revaluation of RSUs | (123,583 | ) | - | (123,583 | ) | (100 | ) | (242,595 | ) | - | (242,595 | ) | (100 | ) | ||||||||||||||||||
| Gain on revaluation of the derivative warrant liabi | (604,681 | ) | - | (604,681 | ) | (100 | ) | (1,368,180 | ) | - | (1,368,180 | ) | (100 | ) | ||||||||||||||||||
| Restructuring Costs | 37,378 | - | 37,378 | 100 | 432,702 | - | 432,702 | 100 | ||||||||||||||||||||||||
| Impairment of goodwill and intangibles | - | 2,258,369 | (2,258,369 | ) | (100 | ) | - | 2,258,369 | (2,258,369 | ) | (100 | ) | ||||||||||||||||||||
| Business acquisition costs | 356,410 | 19,058 | 337,352 | 1,770 | 539,734 | 19,058 | 520,676 | 2,732 | ||||||||||||||||||||||||
| Other income | (1,483 | ) | (9,685 | ) | 8,202 | (85 | ) | (12,003 | ) | (10,373 | ) | (1,630 | ) | 16 | ||||||||||||||||||
| Foreign exchange (gain) loss | 99,382 | 152,885 | (53,503 | ) | 35 | 22,130 | (132,306 | ) | 154,436 | 117 | ||||||||||||||||||||||
| Loss before income taxes | (3,653,880 | ) | (4,633,521 | ) | 979,641 | 21 | (18,735,022 | ) | (12,089,338 | ) | (6,645,684 | ) | (55 | ) | ||||||||||||||||||
| Current income tax recovery (expense) | (40,329 | ) | 565,707 | (606,036 | ) | (107 | ) | 875 | (106,986 | ) | 107,861 | (101 | ) | |||||||||||||||||||
| Deferred income tax recovery (expense) | 40,416 | 968,126 | (927,710 | ) | (96 | ) | (944,602 | ) | 1,051,018 | (1,995,620 | ) | (190 | ) | |||||||||||||||||||
| Income tax recovery (expense) | 87 | 1,533,833 | (1,533,746 | ) | 100 | (943,727 | ) | 944,032 | (1,887,759 | ) | 200 | |||||||||||||||||||||
| Net Loss | (3,653,793 | ) | (3,099,688 | ) | (554,105 | ) | (18 | ) | (19,678,749 | ) | (11,145,306 | ) | (8,533,443 | ) | (77 | ) | ||||||||||||||||
| Adjusted EBITDA (1) | (1,838,458 | ) | 663,933 | (2,502,392 | ) | (377 | ) | (4,956,293 | ) | 4,987,679 | (9,943,972 | ) | (199 | ) | ||||||||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||||||||||||||||||
| Basic | 29,880,185 | 20,341,203 | 26,448,594 | 18,080,533 | ||||||||||||||||||||||||||||
| Diluted | 29,880,185 | 20,341,203 | 26,448,594 | 18,080,533 | ||||||||||||||||||||||||||||
| Net income (loss) per share | ||||||||||||||||||||||||||||||||
| Basic | (0.12 | ) | (0.15 | ) | (0.74 | ) | (0.62 | ) | ||||||||||||||||||||||||
| Diluted | (0.12 | ) | (0.15 | ) | (0.74 | ) | (0.62 | ) | ||||||||||||||||||||||||
| (1) | Adjusted EBITDA is earnings before stock-based compensation, depreciation, amortization, interest expense, accretion and other financing expense, loss on revaluation of conversion feature liability, loss on repayment of long-term debt, gain on revaluation of options, RSUs, and derivative warrant liability, restructuring costs, business acquisition costs, other income, foreign exchange (gain) loss, and current and deferred income tax expense (recovery), is a non-IFRS measure. Please refer to the section entitled “Non-IFRS Measures.” |
Comparison of the three months and year ended December 31, 2021, and 2020
Revenue and Insights
Total revenue for the three months ended December 31, 2021, was $7,514,421, a decrease of $261,253, or 3%, from $7,775,674 recognized in the comparative period in 2020. Total revenue for the year ended December 31, 2021, was $31,046,812, a decrease of $702,881, or 2%, from $31,749,693 recognized in the comparative period in 2020.
The decrease in revenue for the three months ended December 31, 2021, was primarily due to COVID billing days in Australia Courts associated with the Government of NSW and Victoria lockdowns, softer technology sales and lower organic technology service revenue in the US and UK which were partially offset by revenue generated from Q421 acquisitions.
| Management Discussion & Analysis | Page 7 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
The decrease in revenue for the year ended December 31, 2021, is primarily due to 163 days of COVID billing days in Australia and slower recovery in the United States in Car Accident Claims due to reduced movement of people and traffic from the lockdowns. It was also due to slower local Policing activities from the Government mandated lockdowns in various States and Local Communities. These resulted in lower volume of insurance and police interviews and transcription revenue in the Insurance and Law Enforcement segments which was partially offset by higher revenues recorded by the Australian business and higher technology sales. Without the pandemic, billings for an additional 163 billing days would have increased year end revenue by $1.2M to approximately $32.2M versus reported revenue.
Cost of Sales
Cost of Sales for the three months ended December 31, 2021, decreased by $577,235, or 12%, to $4,232,474, from $4,809,709 for the comparative period in 2020. Cost of Sales for the year ended December 31, 2021, increased by $524,416, or 3%, to $16,123,853, from $15,599,437 for the comparative period in 2020. The decrease in Cost of Sales for the three months ended December 31, 2021, is primarily due to productivity gains through NetScribe, powered by aiAssist, and our global workforce which were partially offset by Cost of Sales related to Q421 acquisitions.
The increase in Cost of Sales for the year ended December 31, 2021, is primarily due to reduction of COVID-19 wage subsidies and Q421 acquisitions which were partially offset by productivity gains through NetScribe, powered by aiAssist, and the global workforce. Also increasing the cost of sales in Q2 and Q3 2021 was the subsidies. Even as subsidies to our independent contractor labor force were reduced, challenges remained in driving full pre pandemic productivity levels from that labor. A rapid pivot to utilizing global capacity supported increased capacity and reduced costs in the last quarter of the year. During the three months ended December 31, 2021, the Company received $nil of COVID-19 wage subsidies vs. an adjustment of $8,133 in the comparative period in 2020. During the year ended December 31, 2021, the Company received $673,281 of COVID-19 subsidies vs. $2,830,986 received in the comparative period in 2020.
Throughout 2021 management was forced to maintain capacity in anticipation of a rapid recovery. The pivot made to utilization of a broader global labor force that is opportunistic in terms of incremental capacity, lower costs and 24-hour production will be another accelerator to the gross margin improvements that began in Q4 2022.
Gross Profit
Gross Profit for the three months ended December 31, 2021, increased by $315,982, or 11%, to $3,281,947, from $2,965,965, for the comparative period in 2020. Gross Profit for the year ended December 31, 2021, decreased by $1,227,297, or 8%, to $14,922,959, from $16,150,256, for the comparative period in 2020. The increase in Gross Profit for the three months ended December 31, 2021, is primarily due to productivity gains, partially offset by lower revenue vs. comparative period in 2020. The decrease in Gross Profit for the year ended December 31, 2021, is primarily due to lower COVID-19 wage subsidies received and reduction in revenue due to delayed revenue from client contracts resulting from COVID-19 impact. Excluding COVID-19 wage subsidies, Gross Profit Margin for the year ended December 31, 2021, would be 46% vs. 42% in the comparative period in 2020.
Selling and Administrative Expenses
Selling and Administrative Expenses for the three months ended December 31, 2021, increased by $2,237,790, or 78%, to $5,111,108, from $2,873,318, for the comparative period in 2020. Selling and Administrative Expenses for the year ended December 31, 2021, increased by $8,084,811, or 73%, to $19,19,713, from $11,034,902, for the comparative period in 2020. The increase for the three months ended December 31, 2021, includes Selling and Administrative Expenses related to Q421 acquisitions of approximately $900,000, professional service fees related to listing fees for the TSX and Nasdaq of approximately $180,000 and remainder of increase is mainly due to headcount. The increase for the year ended December 31, 2021, includes Selling and Administrative Expenses related to Q421 acquisitions of approximately $900,000, professional service fees related to listing fees for the TSX and Nasdaq of approximately $585,000 and the remainder of increase is due to higher professional services fees and increase in headcount. For the three months ended December 31, 2021, there was no reduction for COVID -19 wage subsidies whereas for the comparative period 2020, Selling and Administrative Expenses were reduced by $146,942 due to COVID subsidies. Selling and Administrative Expenses for the year ended December 31, 2021, were reduced by $988,531 for COVID-19 wage subsidies vs. $1,203,326 in the comparative period in 2020.
| Management Discussion & Analysis | Page 8 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Research and Development Expenses
Research and Development Expenses for the three months ended December 31, 2021, decreased by $13,257, or 5%, to $274,889, from $288,146, for the comparative period in 2020. Research and Development Expenses for the year ended December 31, 2021, increased by $17,930, or 2%, to $1,092,108, from $1,074,178, for the comparative period in 2020. The decrease in Research and Development Expenses for the three months ended December 31, 2021, is primarily due to lower project costs than the comparative period in 2020. The increase in Research and Development Expenses for the year ended December 31, 2021, is primarily due to project costs and additional hires to support growth in innovation and acceleration of R&D projects.
Gain on Contingent Consideration
For the three months ended December 31, 2021, Gain on Contingent Consideration decreased by $593,840, to $265,592, from $859,432 recognized in the comparative period in 2020. For the year ended December 31, 2021, Gain on Contingent Consideration decreased by $613,934 to $332,569, from $946,503 recognized in the comparative period in 2020. The decrease for the three months and year ended December 31, 2021, is mainly due to changes in anticipated acquisition earnout payments primarily as a result of forecasted revenue for the ASC Services LLC (“ASC”) and wordZXpressed, Inc. (“WordZ”) acquisitions. Revenue forecasts are updated on a quarterly basis and the related anticipated acquisition earnout payment accruals are updated accordingly. 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.
Stock-Based Compensation
For the three months ended December 31, 2021, Stock Based Compensation increased by $774,481 to $862,283, from $87,802, recognized in the same period of 2020. For the year ended December 31, 2021, Stock Based Compensation increased by $7,769,873, to $8,495,189, from $725,316, recognized in the same period of 2020. The increase in Stock Based Compensation is due to the impact of 1,023,378 RSUs and 1,115,086 stock options granted during the year ended December 31, 2021, compared to 396,000 options granted during the comparative period ended 2020. The RSU’s and stock options granted during the year ended December 31, 2021, were under the Company’s omnibus equity incentive plan (the “Ominibus Equity Incentive Plan”) that was approved by shareholders on April 29, 2021. A number of the options and RSUs that were granted during the year ended December 31, 2021, vested immediately, and therefore, a higher expense was recognized.
Depreciation
For the three months ended December 31, 2021, Depreciation decreased by $30,925, to $67,707, from $98,362 recognized in the comparative period in 2020. For the year ended December 31, 2021, Depreciation decreased by $188,896, to $257,099, from $445,995 recognized in the comparative period in 2020. The decrease in Depreciation for the three months and year ended December 31, 2021, is due primarily to a decrease in right of use assets’ depreciation as leases with extended period terms (i.e., greater than one year) came to an end.
| Management Discussion & Analysis | Page 9 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Amortization
For the three months ended December 31, 2021, Amortization decreased by $419,931, to $1,102,465, from $1,522,396 recognized in the comparative period in 2020. For the year ended December 31, 2021, Amortization decreased by $428,746, to $4,384,502 from $4,813,248 recognized in the comparative period in 2020. The decrease in amortization expense is attributable to the reduction in amortization on capitalized internally generated intangible assets due to timing of projects.
Interest Expense
For the three months ended December 31, 2021, Interest Expense decreased by $157,359, to $334,489, from $491,848 recognized in the comparative period in 2020. For the year ended December 31, 2021, Interest Expense decreased by $3,603,417, to $1,331,100, from $4,934,517 recognized in the comparative period in 2020. The decrease in Interest Expense for the three months and year ended December 31, 2021, is primarily due to the conversion of the convertible notes to equity that occurred in 2020. Interest expense of $11,252 and $3,503,797 related to the convertible note were recognized for the three months and year ended December 31, 2020, respectively.
Accretion and Other Financing Expense
For the three months ended December 31, 2021, Accretion and Other Financing Expense decreased by $124,061, to $211,136, from $335,197 recognized in the comparative period in 2020. For the year ended December 31, 2021, Accretion and Other Financing Expense decreased by $249,843, to $967,106, from $1,216,949 recognized in the comparative period in 2020. The decrease in Accretion and Other Financing Expense for the three months and year ended December 31, 2021, is primarily due to conversion of the convertible notes that occurred in 2020.
Loss on Revaluation of Conversion Feature Liability
For the three months ended December 31, 2021, Loss on Revaluation of Conversion Feature Liability decreased by $133,295, to $0, from a loss of $133,295 recognized in the comparative period in 2020. For the year ended December 31, 2021, Loss on Revaluation of Conversion Feature Liability decreased by $1,308,440, to $0, from a loss of $1,308,440 recognized in the comparative period in 2020. The decrease in Loss on Revaluation of Conversion Feature Liability for the three months and year ended December 31, 2021, relates to the conversion of convertible notes to equity that occurred in 2020. All convertible notes have been fully converted at the end of 2020.
Loss on Repayment of Long-term Debt
For the three months ended December 31, 2021, Loss on Repayment of Long-term Debt decreased by $207,657, to $0, from $207,657 recognized in the comparative period in 2020. For the year ended December 31, 2021, Loss on Repayment of Long-term Debt decreased by $1,497,804, to $0, from $1,497,804 recognized in the comparative period in 2020. The Loss on Repayment of Long-term Debt amount recorded in comparative period 2020 was due to the re-pricing of the conversion price on the convertible notes to C$2.18 per share resulting in a charge of $1,497,804 reflecting the incremental fair value of the reduced exercise price.
Gain on Revaluation of Options
For the three months ended December 31, 2021, Gain on Revaluation of Options increased by $526,081, to $526,081, from $0 recognized in the comparative period in 2020. For the year ended December 31, 2021, Gain on Revaluation of Options increased by $1,028,055, to $1,028,055, from $0 recognized in the comparative period in 2020. This increase is due to the revaluation of cash-settled options recorded under share-based payment liability, due to the decrease in fair value from the date of initial measurement compared to the re-measurement at the close of December 31, 2021.
| Management Discussion & Analysis | Page 10 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Gain on Revaluation of RSUs
For the three months ended December 31, 2021, Gain on Revaluation of RSUs increased by $123,583, to $123,583, from $0 recognized in the comparative period in 2020. For the year ended December 31, 2021, Gain on Revaluation of RSUs increased by $242,595 to $242,595, from $0 recognized in the comparative period in 2020. This increase is due to the revaluation of RSUs recorded under share-based payment liability, due to the decrease in fair value from the date of initial measurement compared to the re-measurement at the close of December 31, 2021.
Gain on Revaluation of Derivative Warrant Liability
For the three months ended December 31, 2021, Gain on Revaluation of Derivative Warrant Liability increased by $604,681, to $604,681, from $0 recognized in the comparative period in 2020. For the year ended December 31, 2021, Gain on Revaluation of Derivative Warrant Liability increased by $1,368,180, to $1,368,180, from $0 recognized in the comparative period in 2020. The Company closed a registered direct offering (the “RDO”) with institutional investors on September 15, 2021. Under the RDO, 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 deducting fees and other estimated RDO expenses. Each Unit consists of one common share of the Company and one-half of one common share purchase warrant (each whole common share purchase warrant, a “Warrant”). Each Warrant shall entitle the holder thereof to purchase one common share (a “Warrant Share”) at an exercise price of $5.00, subject to adjustment in certain circumstances. The Warrants are exercisable beginning on the date that is six months following the issuance date thereof (the “Issuance Date”) and will expire five years from the Issuance Date. The 2,117,647 Warrants issued were classified as Derivative Warrant Liability since they were denominated in a currency other than the Company’s functional currency. As a result, revaluation of the Derivative Warrant Liability is required at period end reporting dates. The decrease in the Company’s share price from the date of initial measurement to the close of December 31, 2021, resulted in the gain to be recognized.
Restructuring Costs
For the three months ended December 31, 2021, Restructuring Costs increased by $37,378, to $37,378, from $0 recognized in the comparative period in 2020. For the year ended December 31, 2021, Restructuring Costs increased by $432,702, to $432,702, from $0 recognized in the comparative period in 2020. The increase in Restructuring Costs for the three months and year ended December 31, 2021, is primarily due to organizational restructuring costs.
Business Acquisition Costs
For the three months ended December 31, 2021, Business Acquisition costs increased by $337,352, to $356,410, from $19,058 recognized in the comparative period in 2020. For the year ended December 31, 2021, Business Acquisition Costs increased by $520,676, to $539,734, from $19,058 recognized in the comparative period in 2020. The increase in Business Acquisition Costs for the three months and year ended December 31, 2021, is primarily due to an increase in acquisition related activities.
Other Income
For the three months ended December 31, 2021, Other Income decreased by $8,202, to $1,483, from $9,685 recognized in the comparative period in 2020. For the year ended December 31, 2021, Other Income increased by $1,630, to $12,003, from $10,373 recognized in the comparative period in 2020. The decrease in Other Income for the three months ended December 31, 2021, is primarily due to prior year adjustment entries. The increase for Other Income for the year ended December 31, 2021, is primarily due to interest income on short-term deposit.
Foreign Exchange (Gain) Loss
For the three months ended December 31, 2021, Foreign Exchange (Gain) Loss decreased by $53,503, from a loss of $152,885 recognized in the comparative period in 2020 to a loss of $99,382. For the year ended December 31, 2021, Foreign Exchange (Gain) Loss increased by $154,436, from a gain of $132,306 recognized in the comparative period in 2020 to a loss of $22,130. The gain on foreign exchange is due to fluctuations in the foreign exchange rates. Our businesses are organized geographically so many of our expenses are incurred in the same currency as our revenues, which mitigates some of our exposure to currency fluctuations. Foreign exchange gain and losses are primarily related to the unrealized foreign translation gains and losses of certain USD and AUD denominated working capital balances to CAD.
| Management Discussion & Analysis | Page 11 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Income Tax Recovery (Expense)
We operate globally and we calculate our tax provision in each of the jurisdictions in which we conduct business. Our effective tax rate on a consolidated basis is, therefore, affected by the realization and anticipated relative profitability of our operations in those various jurisdictions, as well as different tax rates that apply and our ability to utilize tax losses and other credits. For the three months ended December 31, 2021, Income tax expense, net of deferred income tax recovery, decreased by $1,533,746 to a tax recovery of $87, from a tax recovery of $1,533,833 in the comparative period in 2020. For the year ended December 31, 2021, Income tax expense, net of deferred income tax expense, increased by $1,887,759, to an expense of $943,727, from a tax recovery of $944,032 in the comparative period in 2020. The decrease for the three months ended December 31, 2021, is primarily due to the tax impact of the reversal on COVID-19 subsidies and deferred tax asset recorded for our US entities based on forecasted profitability for 2021. The increase for the year ended December 31, 2021, is primarily due to the reversal of deferred tax asset which was recorded in comparative period 2020 for our US entities, partially offset by deferred tax recovery recorded for our Australia entities and BTR adjustment for our US entities.
Net Loss and Earnings Per Share
Net loss for the three months ended December 31, 2021, was $3,653,793 compared to net loss of $3,099,688, for the same period in 2020. Net loss for the year ended December 31, 2021, was $19,678,749 compared to net loss of $11,145,306, for the same period in 2020. On a per weighted average share basis, this translated into a net loss per share of $0.12 and $0.74 in the three months and year ended December 31, 2021, respectively, compared to a net loss per weighted average share of $0.15 and $0.62 for the comparative periods in 2020, respectively.
| Management Discussion & Analysis | Page 12 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Quarterly Results of Operations
The following table sets out selected financial information for each of the eight most recent quarters, the latest of which ended December 31, 2021. Our quarterly operating results have historically fluctuated significantly and may continue to fluctuate significantly in the future. Therefore, we believe that past operating results and period to period comparisons should not be relied upon as an indication of the Company's future performance.
| (unaudited) | ||||||||||||||||||||||||||||||||
| Dec-21 | Sep-21 | Jun-21 | Mar-21 | Dec-20 * | Sept-20 * | Jun-20 * | Mar-20 * | |||||||||||||||||||||||||
| Revenue | 7,514,421 | 7,086,357 | 8,191,812 | 8,254,222 | 7,775,674 | 8,172,800 | 8,253,015 | 7,548,204 | ||||||||||||||||||||||||
| Net income (loss) | (3,653,793 | ) | (3,859,505 | ) | (10,498,662 | ) | (1,666,789 | ) | (3,099,688 | ) | (333,007 | ) | (1,030,354 | ) | (6,682,258 | ) | ||||||||||||||||
| Weighted average number of shares outstanding: | ||||||||||||||||||||||||||||||||
| Basic | 29,880,185 | 26,359,517 | 25,029,019 | 24,467,151 | 20,341,203 | 18,494,247 | 18,364,354 | 15,092,939 | ||||||||||||||||||||||||
| Diluted | 29,880,185 | 26,359,517 | 25,029,019 | 24,467,151 | 20,341,203 | 18,494,247 | 18,364,354 | 15,092,939 | ||||||||||||||||||||||||
| Net income (loss) per share: | ||||||||||||||||||||||||||||||||
| Basic | (0.12 | ) | (0.15 | ) | (0.42 | ) | (0.07 | ) | (0.15 | ) | (0.02 | ) | (0.06 | ) | (0.44 | ) | ||||||||||||||||
| Diluted | (0.12 | ) | (0.15 | ) | (0.42 | ) | (0.07 | ) | (0.15 | ) | (0.02 | ) | (0.06 | ) | (0.44 | ) | ||||||||||||||||
* Net Loss for Q1 2020, Q2 2020, Q3 2020, and Q4 2020 reflect adjustments that were recorded in the Company’s amended filings for the three months and year ended December 31, 2020, which were refiled in November 2020. The adjustments related to the accounting for acquisitions, the revaluation of the conversion feature embedded in the convertible notes issued by the Company in 2018 and 2019 as well as the repayment of long-term debt which were transactions that occurred in 2020.
Key factors that account for the fluctuation in quarterly results include the variability in the Company’s revenue due to timing of acquisitions and seasonality of revenue. Seasonality impacts the transcription services industry in that it is impacted in some cases by summer holiday seasons, such as court closings in January in Australia, and the Thanksgiving and December holidays in the US, Canada and the UK. It also has a slight impact in the US summer period. Our quarterly results may also fluctuate as a result of the various acquisitions which may be completed by the Company in any given quarter. We may experience variations in our net income/(loss) on a quarterly basis depending upon the timing of certain expenses or gains, which may include changes in provisions and acquired contract liabilities.
Key Operating Metrics – Non-IFRS Measures
ARR
Metric: Proforma ARR for the year ended December 31, 2021, increased by 63% to $48.6M USD from $29.7M for the comparative period in 2020.
Measure Definition ARR: is the annualized equivalent value of the 1- Software Support Maintenance (SSM), 2- Software Subscriptions and 3- Technology Services revenue of all existing contracts as of the date being measured. This excludes non-recurring revenue from implementation, support, and maintenance fees. The majority of our Editing Services contracts are volumes based. Accordingly, our calculation of ARR assumes that the clients will renew the contractual commitments on a periodic basis as those commitments come up for renewal. A portion of the contract renewals are through a competitive tender process. Contracts agreements may be subject to contract value increases upon renewal reflecting both inflationary increases and the additional value and added products and services provided by our solutions. ARR is not adjusted for the impact of any known or projected future client cancellations, loss of renewals, service upgrades or downgrades or price increases or decreases.
| Management Discussion & Analysis | Page 13 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
We use ARR as a measure of our revenue trend and an indicator of our future revenue opportunity from existing recurring client contracts, assuming minor cancellations.
We believe that this measure provides a fair real-time measure of performance in a volume and subscription-based environment. ARR provides us with the visibility for consistent and predictable growth to our cash flows. Our total revenue growth coupled with increasing ARR indicates the continued strength in the expansion of our business and will continue to be our focus on a go-forward basis.
Reconciliation of Technology Services, support and maintenance, SaaS and Subscription revenues to ARR
| 2021 | 2020 | |||||||
| Technology Services | 26,676,738 | 28,190,993 | ||||||
| Support & Maintenance | 2,008,877 | 1,519,424 | ||||||
| SaaS | 65,187 | 42,662 | ||||||
| Subscription | 189,359 | - | ||||||
| Add: The Transcription Agency Revenue Jan 1 - Oct 1, 2021 | 1,083,415 | - | ||||||
| Add: Auscript Revenue Jan 1 - Dec 13, 2021 | 10,163,719 | - | ||||||
| Add: Client Adjustments | 8,447,914 | - | ||||||
| Total Annual Recurring Revenue | $ | 48,635,210 | $ | 29,753,079 | ||||
Adjusted EBITDA
Measure Definition:
To evaluate the Company’s operating performance as a complement to results provided in accordance with IFRS, the term “Adjusted EBITDA”, as defined by management, refers to net income (loss) before adjusting earnings for stock-based compensation, depreciation, amortization, interest expense, accretion and other financing costs, (gain) loss on revaluation of conversion feature liability, loss on repayment of long-term debt, gain on revaluation of options, gain on revaluation of restricted share units (“RSUs”), gain on revaluation of derivative warrant liability, restructuring costs, impairment of goodwill and intangibles, business acquisition costs, other expense (income), foreign exchange (gain) loss, current and deferred income tax expense (recovery). We believe that the items excluded from Adjusted EBITDA are not connected to and do not represent the operating performance of the Company. “EBITDA” is a non-IFRS financial measure and is not a standardized financial measure under the financial reporting framework used to prepare the financial statements of the Company and accordingly might not be comparable to similar financial measures disclosed by other issuers. To evaluate the Company’s operating performance as a complement to results provided in accordance with IFRS, the term “EBITDA”, as defined by management, refers to earnings before depreciation, amortization, interest expense, current and deferred income tax expense (recovery).
The Corporation believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate its operating performance. We believe that Adjusted EBITDA is useful supplemental information as it provides an indication of the results generated by the Company’s main business activities prior to taking into consideration how those activities are financed and taxed as well as expenses related to stock-based compensation, depreciation, amortization, restructuring costs, acquisition, other expense (income), and foreign exchange (gain) loss. Accordingly, we believe that this measure may also be useful to investors in enhancing their understanding of the Company’s operating performance.
| Management Discussion & Analysis | Page 14 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income (loss) as determined in accordance with IFRS. These non-IFRS measures should be read in conjunction with the financial statements of the Company. The following is a reconciliation of Net Loss to Adjusted EBITDA, the most directly comparable IFRS measure for the three months and year ended December 31, 2021, and 2020:
| Three Months ended December 31 | Year ended December 31 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net Loss | (3,653,793 | ) | (3,099,688 | ) | (19,678,749 | ) | (11,145,306 | ) | ||||||||
| Add: | ||||||||||||||||
| Depreciation | 67,707 | 98,632 | 257,099 | 445,995 | ||||||||||||
| Amortization | 1,102,465 | 1,522,396 | 4,384,502 | 4,813,248 | ||||||||||||
| Interest expense | 334,489 | 491,848 | 1,331,100 | 4,934,517 | ||||||||||||
| Current income tax recovery (expense) | 40,329 | (565,707 | ) | (875 | ) | 106,986 | ||||||||||
| Deferred income tax recovery | (40,416 | ) | (968,126 | ) | 944,602 | (1,051,018 | ) | |||||||||
| EBITDA(1) | (2,149,219 | ) | (2,520,645 | ) | (12,762,321 | ) | (1,895,578 | ) | ||||||||
| Accretion and other financing expense | 211,136 | 335,197 | 967,106 | 1,216,949 | ||||||||||||
| Loss on revaluation of conversion feature liability | - | 133,295 | - | 1,308,440 | ||||||||||||
| Loss on repayment of long-term debt | - | 207,657 | - | 1,497,804 | ||||||||||||
| Gain on revaluation of options | (526,081 | ) | - | (1,028,055 | ) | - | ||||||||||
| Gain on revaluation of RSUs | (123,583 | ) | - | (242,595 | ) | - | ||||||||||
| Gain on revaluation of the derivative warrant liability | (604,681 | ) | - | (1,368,180 | ) | - | ||||||||||
| Impairment of goodwill and intangibles | - | 2,258,369 | - | 2,258,369 | ||||||||||||
| Restructuring Costs | 37,378 | - | 432,702 | - | ||||||||||||
| Business acquisition costs | 356,410 | 19,058 | 539,734 | 19,058 | ||||||||||||
| Other expense (income) | (1,483 | ) | (9,685 | ) | (12,003 | ) | (10,373 | ) | ||||||||
| Stock-based compensation | 862,283 | 87,802 | 8,495,189 | 725,316 | ||||||||||||
| Foreign exchange (gain) loss | 99,382 | 152,885 | 22,130 | (132,306 | ) | |||||||||||
| Adjusted EBITDA | (1,838,458 | ) | 663,933 | (4,956,293 | ) | 4,987,679 | ||||||||||
| (1) | EBITDA is earnings before Depreciation, Amortization, Interest Expense, and current and deferred income tax expense (recovery), is a non-IFRS measure. |
Please refer to the section entitled “Non-IFRS Measures.”
Key Performance Indicators
VIQ Solutions monitors several operating performance indicators to help it evaluate its business, measure its performance, identify trends affecting its business and formulate strategic plans. The Company plans to introduce the following metrics beginning with our Q1 2022 quarterly MD&A. We will have enough volume across our NetScribe platform, as well as a collection of consistent data across legacy platforms to publish our public KPIs starting next quarter. To the degree possible, the impact of seasonality influencing any of these measurements will also be disclosed.
| Management Discussion & Analysis | Page 15 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Annual Delivered Content
Measure Definition: We define Annual Delivered Content as the annualized equivalent of the total number of unstructured digital audio minutes transformed into client specific structured text that is delivered electronically to the clients in the form of delivered pages.
Productivity
Measure Definition: We define Productivity as the ratio of the time spent working on a particular document, including idle time, over the duration of the associated recording. This ratio is called OpenRT. We also track the pure editing productivity of editors, defined as the ratio of the time spent actively editing a particular document over the duration of the associated recording. This ratio is called EditRT. The difference between these ratios is also a measure of personnel efficiency.
Active Clients and Client Retention
Measure Definition: We define Active Clients as clients who have an active license and technology service agreement with us that remains in effect during the period. The retention and expansion of our relationships with existing clients are key indicators of our revenue potential.
Net Promoter Score:
Measure Definition: The Net Promoter Score (NPS) measures the loyalty of clients to a company. NPS scores are measured with a survey and reported with a number from the range -100 to +100, a higher score is desirable. We conduct transactional surveys which are sent out after the client interacts with VIQ. It is used to understand client satisfaction on a granular level and provide feedback about a very specific topic.
Total Number of Minutes of Content Processed on aiAssist
Measure Definition: We define the total number of minutes of content processed on aiAssist
Key Performance Indicators – Non-IFRS Measures
Bookings
Measure Definition: We calculate Bookings for a given period as the annualized estimated monthly value of our recurring client contracts entered into during the period from (i) new clients and (ii) net upgrades by existing clients within the same workload, plus the actual (not annualized) estimated value of professional services consulting, advisory or project-based orders received during the period. Recurring client contracts are any contracts entered into on a multi-year or month-to-month basis, but excluding any professional services contracts for consulting, advisory or project-based work.
Bookings for any period may reflect orders that we perform in the same period, orders that remain outstanding as of the end of the period and the annualized value of recurring month-to-month contracts entered into during the period, even if the terms of such contracts do not require the contract to be renewed. Any client that contracts for a new feature either on software or technology services is considered a new client and the entire estimated value of the contract or upgrade is recorded in Bookings, irrespective of whether the same client canceled or downgraded other workloads. Bookings also do not include the impact of any known contract non-renewals or service cancellations by our clients, except for positive net upgrades by existing clients. In cases where a new or upgrading client enters a multi-year contract, Bookings include only the estimated annualized contract value.
| Management Discussion & Analysis | Page 16 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
We use Bookings to measure the amount of new business generated in a period, which we believe is an important indicator of new client acquisition and our ability to cross-sell new services to existing clients. Bookings are also used by management as a factor in determining performance-based compensation for our sales force. While we believe Bookings, in combination with other metrics, is an indicator of our near-term future revenue opportunity, it is not intended to be used as a projection of future revenue. Our calculation of Bookings may differ from similarly titled metrics presented by other companies.
While we continue to acquire new clients, we also aim to deepen relationships with these clients through high-margin technology services and software bookings. In addition, we are investing in initiatives to drive sales productivity improvements.
Average Technology Services Revenue per Day
Measure Definition: Average revenue per day is calculated by region based the total technology services revenue divided by the total billing days in a month. This number is highly impacted by seasonality but should be looked at from the monthly trends. As an example, average revenue per day will likely drop in November and December in the U.S. and December and January in Australia and the U.K.
Technology Services Cost of Sales without Covid 19 subsidies per Minute of Audio
Measure Definition: Technology Services Cost of Sales per Minute of Audio is defined as the direct labor cost of edited content divided by the volume of audio content delivered.
Gross Margin for Technology Services without Covid 19 Subsidies
Measure Definition: Gross margin for technology services as reported less COVID-19 related subsidies received related to technology services employees.
Gross Margin for Technology and related revenue
Measure Definition: Gross margin for technology and related revenue as reported.
| Management Discussion & Analysis | Page 17 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Liquidity
As of December 31, 2021, we held cash of $10,583,534 as compared to $16,835,671 as of December 31, 2020. We believe that ongoing operations, working capital and associated cash flows in addition to our cash resources provide sufficient liquidity to support our ongoing business operations and satisfy our obligations as they become due. If we continue to acquire accretive businesses, we may need additional external funding depending upon the size and timing of the potential acquisitions.
Below is a summary of our cash provided by (used in) operating, investing, and financing activities for the periods indicated:
| Year ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash provided by (used in) operating activities | (8,238,407 | ) | 3,423,083 | |||||
| Cash used in investing activities | (14,440,714 | ) | (6,639,191 | ) | ||||
| Cash provided by (used in) financing activities | 16,521,996 | 18,162,619 | ||||||
| Net increase (decrease) in cash for the period | (6,157,125 | ) | 14,946,511 | |||||
| Cash, beginning of year | 16,835,671 | 1,707,654 | ||||||
| Effect of foreign exchange | (95,012 | ) | 181,506 | |||||
| Cash, end of year | $ | 10,583,534 | $ | 16,835,671 | ||||
Cash Provided by (used in) Operating Activities
We used cash of $8,238,407 in operating activities for the year ended December 31, 2021. This resulted from $19,678,749 in net loss plus $13,556,701 of non-cash adjustments and $2,002,506 attributable to movements in non-cash working capital with changes primarily arising from a decrease in accounts receivable, inventories, prepaid expenses, accounts payable, and contract liabilities. Additionally, $113,853 was used for taxes.
Cash Provided by (used in) Investing Activities
For the year ended December 31, 2021, cash used in investing activities was $14,440,714 which consisted of purchase of property and equipment of $79,204, business acquisitions of $9,135,131, development costs related to internally generated intangible assets $2,364,733, earnout payout for ASC and WordZ $2,600,536, and change in restricted cash of $261,110.
Cash Provided by (used in) Financing Activities
Cash Provided by Financing Activities for the year ended December 31, 2021 was $16,521,996, which consisted of proceeds from the exercise of stock options and warrants of $246,160 and $2,092,276 respectively, issuance of share capital from the RDO net of issuance costs of $16,715,000, issuance cost reimbursement of $1,673, offset by repayment of debt of $1,070,274, repayment of lease obligations of $150,924, repayment of interest on lease obligations of $34,712, and repayment of interest on debt of $1,277,203.
| Management Discussion & Analysis | Page 18 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Debt Covenants
In accordance with our debt agreement with Crown Capital, the Company is required to maintain quarterly (1) a Fixed Charge Coverage Ratio (“FCCR”) of greater than 1.25 calculated based on EBITDA for such period less liabilities paid in cash in connection with the Company’s share appreciation rights plan, cash dividends paid and capital expenditures divided by debt service for such period and (2) Net Debt to EBITDA Ratio less than 3.
The Company received a waiver in March 2021 to remove the FCCR covenant for all four quarters of 2021. The Company received a waiver in August 2021, to remove the Net Debt to EBITDA Ratio covenant for the remainder of fiscal 2021. In addition, the Company received a waiver to remove the FCCR covenant for the first three quarters of 2022. The Company is in compliance of other covenants as at December 31, 2021.
The Company signed a Fourth Amendment to waive certain covenants in fiscal 2022 on March 30, 2022. See “Subsequent Events”
Contractual Obligations
The following table summarizes our contractual obligations as at December 31, 2021, including commitments relating to leasing contracts:
| 2022 | 2023 | 2024 | 2025 | Total | ||||||||||||||||
| Trade and other payables | 5,380,701 | – | – | – | 5,380,701 | |||||||||||||||
| Lease obligations | 446,571 | 477,290 | 337,842 | 247,211 | 1,508,914 | |||||||||||||||
| Crown Capital debt | 308,892 | 12,165,330 | – | – | 12,474,222 | |||||||||||||||
| Contingent Consideration - WZ | 77,249 | 352,626 | 282,537 | – | 712,412 | |||||||||||||||
| Contingent Consideration - Auscript | 150,000 | – | – | – | 150,000 | |||||||||||||||
| WordZ SBA Loan | 114,507 | – | – | – | 114,507 | |||||||||||||||
| WordZ promissory note | 357,323 | 212,901 | – | – | 570,224 | |||||||||||||||
| HomeTech VTB loan | 240,000 | 240,000 | 20,000 | 500,000 | ||||||||||||||||
| Total | $ | 7,075,243 | $ | 13,448,146 | $ | 640,379 | $ | 247,211 | $ | 21,410,979 | ||||||||||
The following table summarizes our contractual obligations as at December 31, 2020, including commitments relating to leasing contracts:
| 2021 | 2022 | 2023 | 2024 | 2025 | Total | |||||||||||||||||||
| Trade and other payables | 5,305,600 | – | – | – | – | 5,305,600 | ||||||||||||||||||
| Share appreciation rights | 126,503 | – | – | – | – | 126,503 | ||||||||||||||||||
| Lease obligations | 124,223 | 114,962 | 98,698 | 73,075 | 62,711 | 473,669 | ||||||||||||||||||
| Crown Capital debt | 304,747 | – | 12,123,615 | – | – | 12,428,362 | ||||||||||||||||||
| Contingent Consideration - ASC | 1,443,811 | 1,505,080 | 531,051 | – | – | 3,479,942 | ||||||||||||||||||
| Contingent Consideration - WZ | 314,845 | 305,758 | 251,939 | – | – | 872,542 | ||||||||||||||||||
| WordZ SBA Loan | 214,307 | 45,923 | – | – | – | 260,230 | ||||||||||||||||||
| WordZ promissory note | 400,000 | 400,000 | 400,000 | – | – | 1,200,000 | ||||||||||||||||||
| Transcription Express VTB loan | 280,531 | – | – | – | – | 280,531 | ||||||||||||||||||
| HomeTech VTB loan | 240,000 | 240,000 | 240,000 | 20,000 | – | 740,000 | ||||||||||||||||||
| Total | $ | 8,754,567 | $ | 2,611,723 | $ | 13,645,303 | $ | 93,075 | $ | 62,711 | $ | 25,167,379 | ||||||||||||
| Management Discussion & Analysis | Page 19 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Capital Resources
Our objective in managing capital is to ensure sufficient liquidity to pursue our growth strategy, fund research and development to enhance existing product offerings as well as develop new ones to maintain our competitive advantage, pursue accretive acquisitions and provide sufficient resources to meet day-to-day operating requirements, while managing financial risk. We intend to use our operating income and funds on hand to meet funding requirements for the development and commercialization of our technology products and services based on anticipated market demand and working capital purposes. Our actual funding requirements will vary depending on a variety of factors, including our success in executing our business plan, the progress of our research and development efforts, our commercial sales, and our ability to manage our working capital requirements.
Our officers and senior management are responsible for managing the capital and do so through monthly meetings and regular review of financial information. Our Board of Directors is responsible for overseeing this process. We manage capital to ensure that there are adequate capital resources while maximizing the return to shareholders through the optimization of the cash flows from operations and capital transactions. For 2022, we have entered into a commitment for capital equipment refreshment for our Australian court business in the amount of $825,000 and expect to fund this through cash on hand.
Capital Allocation
A significant component of our strategy is to effectively and efficiently allocate capital between opportunities that generate the highest return on our capital with the goal over time to maximize shareholder equity.
The Company's capital allocation is centered on generating organic growth, investment in technologies, mergers and acquisitions, and balance sheet deleveraging. VIQ's focus is on closing and integrating strategic and accretive acquisitions, continuing to grow and drive market share and achieve consolidation efficiencies while maturing its AI engines through technology service volumes.
Paying out dividends, or buying back stock, are not anticipated as being part of our capital allocation strategy for the immediate future. Our goal with capital allocation is to increase the earning power of the company and reinvest the free cash flow of the business to generate more cash. We plan to demonstrate to our shareholders post pandemic, starting in Q2 throughout 2022 with a key priority being using cash to pay down debt.
Other Commitments
Commitments include operating leases for office equipment and facilities. Also, occasionally we structure some of our acquisitions with contingent consideration based on the future performance of the acquired business. The fair value of contingent consideration recorded in our December 31, 2021, audited consolidated financial statements was $687,643, partially in trade and other payables and accrued liabilities of $521,040 and the remaining recorded as long-term contingent consideration of $166,603. Aside from the aforementioned, we do not have any other business arrangements or any equity interests in any non-consolidated entity.
Contingent Off-Balance Sheet Arrangements
As a general practice, we have not entered into off-balance sheet financing arrangements.
| Management Discussion & Analysis | Page 20 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Transactions Between Related Parties
During the three months ended March 31, 2021, the Company granted a non-revolving executive loan (the “Executive Loan”) to Sebastien Paré, President, Chief Executive Officer to facilitate Mr. Pare’s exercise of certain vested outstanding stock options from legacy option plan. The loan was repaid shortly thereafter on May 28, 2021. As of December 31, 2021, there are no balances outstanding.
Critical Accounting Policies and Estimates
General
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies and historical experience, and are believed by management to be reasonable under the circumstances. Such estimates and assumptions are evaluated on an ongoing basis and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from these estimates.
Our significant accounting policies are fully described in Note 3 to our financial statements for the years ended December 31, 2021, and 2020 which are available on SEDAR (www.sedar.com) and EDGAR (www.sec.gov/edgar). Certain accounting policies are particularly important to the reporting of our financial position and results of operations, and require the application of significant judgment by our management. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different, estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could have a material impact on the financial statements. We believe that there have been no significant changes in our critical accounting estimates for the twelve months ended December 31, 2021, from the years presented in our annual financial statements for the years ended December 31, 2020, and 2019.
Management believes the following critical accounting policies and estimates reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Revenue Recognition
Revenue represents the amount of consideration the Company expects to receive for the delivery of products and services in its contracts with clients, net of discounts and sales taxes. The Company reports revenue mainly under seven revenue categories including, Technology Services, Software License, Support and Maintenance, SaaS, Professional Services, and Hardware and Other.
Revenue is recognized upon transfer of control of products or services to clients 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 clients often 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 client 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 clients. Technology Service revenue is recognized when the service is delivered to the client. The Company has select clients where a flat rate is charged, and revenue is recognized on a monthly basis.
| Management Discussion & Analysis | Page 21 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Software license revenue is comprised of non-recurring license fees charged for the use of our software products generally licensed under perpetual arrangements and to a lesser extent sale of third - party license software. The Company sells on-premise software licenses on a perpetual basis. On-premise 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 stand-alone selling price (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 client.
Support and maintenance and other recurring revenue primarily consist of fees charged for client support on our software products post-delivery. Certain of the Company’s contracts with clients contain provisions that require the client 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 client support on software products post-delivery.
Revenue from software-as-a-service (“SaaS”) arrangements, which allows clients to use hosted software over a term without taking possession of the software, are provided on a subscription basis. Revenue from the SaaS arrangement, which includes the hosted software and maintenance, 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 our 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 client solutions. Hardware revenue is recognized when the goods are shipped and received by the client.
Business Combinations
IFRS 3, Business Combinations, 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.
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 of the Group’s Cash Generating Units (“CGU”) s 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.
| Management Discussion & Analysis | Page 22 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
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 cash-generating unit and a suitable discount rate in order to calculate present value.
Acquired Intangible Assets
Our intangible assets consist of client relationships, technology, non-compete and brand acquired in a business combination. These intangible assets are recorded at their fair value at the acquisition date. We use the income approach to value acquired client relationships and technology intangible assets, which are the two material intangible asset categories reported in the financial statements.
We use 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 flow 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 of (“MEEM”) method to value client relationship assets. After initial recognition, intangible assets are measured at cost less accumulated amortization and impairment losses.
We amortize intangible assets with finite useful lives on a straight-line basis over their estimated useful lives. The estimated useful life for client relationships is five to eight years, the estimated useful life for technology is five years, the estimated useful life for non-compete is based on the term agreement and the estimated useful life for brand is five years to indefinite. Our amortization methods, useful lives and residual values are reviewed at each financial year end and adjusted prospectively if appropriate.
We test our intangible assets with finite useful lives for impairment annually and whenever there is an indication that the asset may be impaired. An impairment loss is recognized if the recoverable amount of the asset is less than the carrying amount. The recoverable amount is the higher of fair value less costs to sell and value in use.
Estimate of contingent consideration
We measure 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 our assessment of the likelihood of each outcome.
Accounting for 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.
| Management Discussion & Analysis | Page 23 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
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 which do not affect either accounting or taxable income or loss.
Internal Controls over Financial Reporting and Disclosure Controls and Procedures
Disclosure Controls & Procedures
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company is gathered and reported to senior management, including the CEO and the CFO, on a timely basis so that appropriate decisions can be made regarding public disclosure, including to ensure that information required to be disclosed by the Company in reports that the Company files or submits under Canadian securities legislation and the U.S. Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in securities legislation. Management, under the oversight of the CEO and CFO, has evaluated the design and effectiveness of the Company’s disclosure controls and procedures as of December 31, 2021. Based on this evaluation, the CEO and the CFO concluded that, as of December 31, 20201 the Company’s disclosure controls and procedures (as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings and in Rule 13a-15(e) and Rule 15d-15(e) under the U.S. Exchange Act) were ineffective as a result of material weaknesses identified in the Company’s internal control over financial reporting, which is further described below.
The Company’s disclosure controls and procedures are designed to provide reasonable assurance that material information relating to the Company is made known to us by others, particularly during the period in which the annual filings are being prepared and of achieving their objectives, and the CEO and CFO do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Notwithstanding the material weaknesses, management has concluded that the Company’s audited consolidated financial statements as at and for the year ended December 31, 2021, present fairly, in all material respects, the Company’s financial position, statement of loss and comprehensive loss, changes in shareholders’ equity and cash flows in accordance with IFRS.
Internal Controls over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial reports for external purposes in accordance with IFRS.
| Management Discussion & Analysis | Page 24 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute assurance, with respect to reporting financial information. Further, because of changes in conditions, effectiveness of internal control over financial reporting may vary over time.
An evaluation of the design and effectiveness of the Company’s internal controls over financial reporting was carried out by management, under the supervision of the CEO and CFO. In making this evaluation, the CEO and CFO used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control – Integrated Framework (2013). Based on this evaluation, the CEO and CFO have concluded that the Company’s internal control over financial reporting was ineffective as of December 31, 2021 due to the material weaknesses described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses that our management identified related to the following:
| · | the Company’s review controls in various financial reporting processes did not operate with sufficient precision, particularly with respect to the determination of the appropriate period in which to recognize revenue and expenses; |
| · | the Company did not maintain adequate review controls to ensure that complex accounting areas such as business combinations, impairment of non-financial assets, revenue recognition and accounting for income tax provisions were appropriately recorded in accordance with IFRS; and |
| · | the Company did not effectively design and maintain appropriate segregation of duties and controls over the effective preparation, review and approval, and associated documentation of journal entries. |
These material weaknesses resulted in material misstatements, which were corrected, and also immaterial misstatements, some of which were corrected, prior to the release of the consolidated financial statements as of and for the year ended December 31, 2021.
Remediation
We intend to implement a remediation plan that involves a third-party software solution to formalize the documentation and evidence of our review and approval of subjective and higher risk journal entries in our financial reporting system including implementing improved process over cut off of transactions. We will implement more formalized documentation and evidence of review over complex accounting transactions. The plan will include the involvement of management and sufficient training of all relevant personnel. We will take the measures necessary to address the material weaknesses, which may require significant management attention, and our efforts may not prove to be successful in remediating the material weaknesses and do not guarantee that we will not suffer additional material weaknesses and/or significant deficiencies in the future.
The CEO and CFO do not expect that internal controls over financial reporting will prevent all misstatements. The design of a system of internal controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that the design will succeed in achieving the stated goals under all potential future conditions.
Internal Controls over Financial Reporting
Except for the material weaknesses described above, there were no changes in the Company’s Internal Control over Financial Reporting that occurred during the period ended December 31, 2021 that has materially affected or reasonably likely to materially affect the Company’s Internal Control over Financial Reporting.
| Management Discussion & Analysis | Page 25 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
Risk Factors
A complete description of the risks and uncertainties affecting the Company is included in the most recently filed Annual Information Form. Additional risks and uncertainties not presently known to us or that we currently consider immaterial also may impair our business and operations and cause the price of the common shares to decline. If any of the noted risks actually occur, our business may be harmed and the financial condition and results of operation may suffer significantly. In that event, the trading price of the common shares could decline, and shareholders may lose all or part of their investment.
Disclosure of Outstanding Share Data
VIQ’s common shares trade on the TSX and the Nasdaq under the symbol “VQS.” The Company is authorized to issue an unlimited number of common shares. As at March 31, 2022 there were (i) 29,881,717 common shares issued and outstanding, (ii) 881,267 stock options outstanding with a weighted average exercise price per common share of $3.16 CAD expiring between 2022 and 2025 under the Company’s legacy stock option plan (iii) 1,115,086 stock options outstanding with a weighted average exercise price per common share of $7.11 CAD expiring 2031 under the Omnibus Equity Incentive Plan, (iv) 66,667 deferred share units outstanding with an average exercise price per common share of $1.20 CAD with no expiry date (v) 196,017 restricted share units outstanding expiring 2031 under the Omnibus Equity Incentive Plan and (vi) 2,117,647 warrants at an exercise price of $5.00 USD expiring 2026.
Diversity
Our success as a company continues to be made possible by our global workforce. We aim to attract, develop, and retain exceptional talent to meet the needs of our clients and create value for our shareholders. We understand that we have more to do to increase our overall representation to better reflect the world we live in. We believe that when people come from diverse backgrounds and have a variety of life experiences, they bring unique perspectives to the table. These perspectives increase innovation, creativity, and overall corporate performance.
In order to continue to produce our innovative technologies and technology services, it is crucial that we continue to attract and retain top talent. To facilitate talent attraction and retention, we strive to make VIQ a diverse and safe workplace, with opportunities for our employees in each region and functional area to grow and develop in their careers, supported by advancements and programs that build connections between our employees and their communities.
We believe that a diverse workforce is critical to our success, and we continue to focus on the hiring, retention and advancement of women and underrepresented populations. Our recent efforts have been focused in three areas: inspiring innovation through a diverse culture; expanding our efforts to recruit and hire world-class diverse talent; and identifying strategic partners to accelerate our diversity, equity and in the coming years inclusion (“DE&I”) programs.
Under the leadership of the current management team and the board of directors of the Company, VIQ has worked to create an environment and culture that enables all employees to participate and thrive. We know that onboarding people with diverse backgrounds and skillsets is a key ingredient for innovation, which is why our recruitment processes are built around improving our ability to identify the best, most diverse candidate pools. We ensure gender-neutral language in job descriptions and commit to bringing a diverse slate of candidates to a diverse interview panel at all levels of the company. VIQ has a variety of diversity-related data points that exemplify how our workforce looks like the world around us and thrives as a result of it.
| Management Discussion & Analysis | Page 26 |
VIQ Solutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for 2021
As of December 31, 2021, VIQ Diversity Metrics were as follow:
| · | Global Employee Gender Diversification for all roles: 58% women, 42% men |
| · | Global Employee Gender Diversification for leadership roles: 58% women, 42% men |
| · | Global Race and Ethnicity Representation for all roles: 81% White, 14% Asian, 2% Black and 3% Latino |
| · | Geography where we work: 72% Australia, 16% United States, 3% Canada, 4% India, 3% Mexico and 2% United Kingdom. |
| · | Brick & Mortar: 8 physical Offices in 4 Countries |
Due to its global footprint, VIQ has come to appreciate that amazing perspectives are grown all around the world and that DE&I programs are most powerful when they are localized to the individual experiences that resonate with people in the countries, cities, and communities where they live.
Further support of DE&I includes changes were made at the Board level through the Nomination Committee to align with the diversity of the organization globally as the Company scales to its next level in 2022.
Subsequent Events
Effective April 1, 2022, VIQ appointed two new members to its board of directors (“Board”). Joining the Board are Shing Pan, Woodside Capital Partners and Susan Sumner, VIQ President and Chief Operating Officer. The appointments expand the Board to eight members, six of whom are independent.
On March 30, 2022, the Company signed an amendment related to the Crown debt facility that required the Company to pay $4,000,000 (CAD $5,000,000) of the principal balance on March 30, 2022 and pay an amendment fee of approximately $235,000 (CAD $300,000). The amended secured debt facility waives the Fixed Charge Coverage Ratio for Q4, 2022 and the Net Debt to EBITDA ratio for Q1 and Q2 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 Q2 2022, Q3 2022 and Q4 2022.
| Management Discussion & Analysis | Page 27 |
Exhibit 99.3
Form 52-109F1
Certification
of Annual Filings
Full Certificate
I, Sebastien Pare, Chief Executive Officer of VIQ Solutions Inc., certify the following:
| 1. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of VIQ Solutions Inc. (the “issuer”) for the financial year ended December 31, 2021. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control – Integrated Framework (2013). |
| 5.2 | ICFR – material weakness relating to design: The issuer has disclosed in its annual MD&A for each material weakness relating to design existing at the financial year end |
| (a) | a description of the material weakness; |
| (b) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
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| (c) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Evaluation: The issuer’s other certifying officer(s) and I have |
| (a) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and |
| (b) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A |
| (i) | our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and |
| (ii) | for each material weakness relating to operation existing at the financial year end |
| (A) | a description of the material weakness; |
| (B) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
| (C) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
| 7. | Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2021 and ended on December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
| 8. | Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR. |
| Date: March 31, 2022 | |
| /s/ Sebastien Pare | |
| Sebastien Pare | |
| Chief Executive Officer |
Exhibit 99.4
Form 52-109F1
Certification
of Annual Filings
Full Certificate
I, Alexie Edwards, Chief Financial Officer of VIQ Solutions Inc., certify the following:
| 1. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A, including, for greater certainty, all documents and information that are incorporated by reference in the AIF (together, the “annual filings”) of VIQ Solutions Inc. (the “issuer”) for the financial year ended December 31, 2021. |
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the annual filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the annual filings. |
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual financial statements together with the other financial information included in the annual filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the annual filings. |
| 4. | Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
| 5. | Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the financial year end |
| (a) | designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
| (i) | material information relating to the issuer is made known to us by others, particularly during the period in which the annual filings are being prepared; and |
| (ii) | information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
| (b) | designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
| 5.1 | Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control – Integrated Framework (2013). |
| 5.2 | ICFR – material weakness relating to design: The issuer has disclosed in its annual MD&A for each material weakness relating to design existing at the financial year end |
| (a) | a description of the material weakness; |
| (b) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
| (c) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
| 5.3 | Limitation on scope of design: N/A |
| 6. | Evaluation: The issuer’s other certifying officer(s) and I have |
| (a) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s DC&P at the financial year end and the issuer has disclosed in its annual MD&A our conclusions about the effectiveness of DC&P at the financial year end based on that evaluation; and |
| (b) | evaluated, or caused to be evaluated under our supervision, the effectiveness of the issuer’s ICFR at the financial year end and the issuer has disclosed in its annual MD&A |
| (i) | our conclusions about the effectiveness of ICFR at the financial year end based on that evaluation; and |
| (ii) | for each material weakness relating to operation existing at the financial year end |
| (A) | a description of the material weakness; |
| (B) | the impact of the material weakness on the issuer’s financial reporting and its ICFR; and |
| (C) | the issuer’s current plans, if any, or any actions already undertaken, for remediating the material weakness. |
| 7. | Reporting changes in ICFR: The issuer has disclosed in its annual MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2021 and ended on December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
| 8. | Reporting to the issuer’s auditors and board of directors or audit committee: The issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of ICFR, to the issuer’s auditors, and the board of directors or the audit committee of the board of directors any fraud that involves management or other employees who have a significant role in the issuer’s ICFR. |
| Date: March 31, 2022 | |
| /s/ Alexie Edwards | |
| Alexie Edwards | |
| Chief Financial Officer |
Exhibit 99.5
FORM 13-501F1
CLASS 1 REPORTING ISSUERS AND CLASS 3B REPORTING ISSUERS – PARTICIPATION FEE
| MANAGEMENT CERTIFICATION | ||||
| I, Alexie Edwards, an officer of the reporting issuer noted below have examined this Form 13-501F1 (the Form) being submitted hereunder to the Alberta Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. | ||||
| (signed) "Alexie Edwards" | March 31 , 2022 | |||
| Name: Alexie Edwards | Date: | |||
| Title: Chief Financial Officer | ||||
| Reporting Issuer Name: | VIQ Solutions Inc. |
| End date of previous financial year: | December 31, 2021 |
| Type of Reporting Issuer: | x Class 1 reporting issuer | ¨ Class 3B reporting issuer |
Highest Trading Marketplace: Toronto Stock Exchange
Market value of listed or quoted equity securities:
Equity Symbol VQS
| 1st Specified Trading Period (dd/mm/yy) | 01/01/21 | 31/03/21 | |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 6.65 | |
| (i) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 24,893,638 | ||
| (ii) | |||
| Market value of class or series | (i) x (ii) | $ | 165,542,692.70 |
| (A) | |||
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| 2nd Specified Trading Period (dd/mm/yy) | 01/04/21 | to | 30/06/21 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 9.00 | |
| (iii) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 25,618,324 | ||
| (iv) | |||
| Market value of class or series | (iii) x (iv) | $ | 230,564,916 |
| (B) | |||
| 3rd Specified Trading Period (dd/mm/yy) | 01/07/21 | to | 30/09/21 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 3.72 | |
| (v) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 29,878,618 | ||
| (vi) | |||
| Market value of class or series | (v) x (vi) | $ | 111,148,458.96 |
| (C) | |||
| 4th Specified Trading Period (dd/mm/yy) | 01/10/21 | to | 31/12/21 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 2.99 | |
| (vii) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 29,881,717 | ||
| (viii) | |||
| Market value of class or series | (vii) x (viii) | $ | 89,346,333.83 |
| (D) | |||
-3-
| 5th Specified Trading Period (dd/mm/yy) | n/a | to | n/a |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | ||
| (ix) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | |||
| (x) | |||
| Market value of class or series | (ix) x (x) | $ | |
| (E) | |||
| Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) | $ | 149,150,600.37 | |
| (1) | |||
| (Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year) | |||
| Fair value of outstanding debt securities: | |||
| (Provide details of how value was determined) | $ | 0.00 | |
| (2) | |||
| Capitalization for the previous financial year (1) + (2) | 149,150,600.37 | ||
| Participation Fee | $ | 6,500.00 | |
| Late Fee, if applicable | $ | 0.00 | |
| Total Fee Payable | $ | 6,500.00 | |
| (Participation Fee plus Late Fee) | |||
Exhibit 99.6
FORM 13-502F1
CLASS 1 AND CLASS 3B REPORTING ISSUERS – PARTICIPATION FEE
| MANAGEMENT CERTIFICATION |
| I, Alexie Edwards, an officer of the reporting issuer noted below have examined this Form 13-502F1 (the Form) being submitted hereunder to the Ontario Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. |
| (signed) "Alexie Edwards" | March 31 ,2022 | |
| Name: Alexie Edwards | Date: | |
| Title: Chief Financial Officer | ||
Reporting Issuer Name: VIQ Solutions Inc.
End date of previous financial year: December 31, 2021
Type of Reporting Issuer: x Class 1 reporting issuer ¨ Class 3B reporting issuer
Highest Trading Marketplace: Toronto Stock Exchange
(refer to the definition of “highest trading marketplace” under OSC Rule 13-502 Fees)
Market value of listed or quoted equity securities:
(in Canadian Dollars – refer to section 7.1 of OSC Rule 13-502 Fees)
Equity Symbol VQS
| 1st Specified Trading Period (dd/mm/yy) (refer to the definition “specified trading period” under OSC Rule 13-502 Fees) | 01/01/21 | to | 31/03/21 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 6.65 | |
| (i) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 24,893,638 | ||
| (ii) | |||
| Market value of class or series | (i) x (ii) | $ | 165,542,692.70 |
| (A) | |||
- 2 -
| 2nd Specified Trading Period (dd/mm/yy) (refer to the definition “specified trading period” under OSC Rule 13-502 Fees) | 01/04/21 | to | 30/06/21 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 9.00 | |
| (iii) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 25,618,324 | ||
| (iv) | |||
| Market value of class or series | (iii) x (iv) | $ | 230,564,916 |
| (B) | |||
| 3rd Specified Trading Period (dd/mm/yy) (refer to the definition “specified trading period” under OSC Rule 13-502 Fees) | 01/07/21 | to | 31/09/21 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 3.72 | |
| (v) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 29,878,618 | ||
| (vi) | |||
| Market value of class or series | (v) x (vi) | $ | 111,148,458.96 |
| (C) | |||
| 4th Specified Trading Period (dd/mm/yy) (refer to the definition “specified trading period” under OSC Rule 13-502 Fees) | 01/10/21 | to | 31/12/21 |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | 2.99 | |
| (vii) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 29,881,717 | ||
| (viii) | |||
| Market value of class or series | (vii) x (viii) | $ | 89,346,333.83 |
| (D) | |||
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| 5th Specified Trading Period (dd/mm/yy) (refer to the definition “specified trading period” under OSC Rule 13-502 Fees) | n/a | to | n/a |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ | ||
| (ix) | |||
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | |||
| (x) | |||
| Market value of class or series | (ix) x (x) | $ | |
| (E) | |||
| Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) | $ | 149,150,600.37 | |
| (1) | |||
(Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary pursuant to paragraph 2.8(1)(c) of OSC Rule 13-502 Fees, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year)
| Fair value of outstanding debt securities: | |||
| (See paragraph 2.8(1)(b), and if applicable, paragraph 2.8(1)(c) of OSC Rule 13-502 Fees) | $ | 0.00 | |
| (Provide detail of how value was determined) | (2) | ||
| Capitalization for the previous financial year | (1) + (2) | 149,150,600.37 | |
| Participation Fee | |||
|
(For Class 1 reporting issuers, from Appendix A of OSC Rule 13-502 Fees, select the participation fee) |
$ | 13,340.00 | |
| (For Class 3B reporting issuers, from Appendix A.1 of OSC Rule 13-502 Fees, select the participation fee) | |||
| Late Fee, if applicable (As determined under section 2.7 of OSC Rule 13-502 Fees) | $ | 0.00 | |
| Total Fee Payable | $ | 13,340.00 | |
| (Participation Fee plus Late Fee) | |||
Exhibit 99.7
VIQ Solutions Inc.
ANNUAL INFORMATION FORM
For the financial year ended December 31, 2021
Dated March 31, 2022
5915 Airport Road, Suite 700
Mississauga, Ontario
L4V 1T1
Table of Contents
| DEFINITIONS AND GLOSSARY OF TERMS | 1 |
| THIS ANNUAL INFORMATION FORM | 3 |
| cAUTIONARY NOTES | 3 |
| CORPORATE STRUCTURE | 5 |
| GENERAL DEVELOPMENT OF THE BUSINESS | 6 |
| DESCRIPTION OF THE BUSINESS | 9 |
| RISK FACTORS | 14 |
| DIVIDENDS AND DISTRIBUTIONS | 22 |
| DESCRIPTION OF CAPITAL STRUCTURE | 22 |
| MARKET FOR SECURITIES | 23 |
| ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER | 24 |
| DIRECTORS and OFFICERS | 24 |
| Cease Trade Orders, Bankruptcies, Penalties or Sanctions | 27 |
| conflicts of interest | 28 |
| promotErs | 29 |
| LEGAL PROCEEDINGS AND REGULATORY ACTIONS | 29 |
| INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 29 |
| TRANSFER AGENTS AND REGISTRARS | 30 |
| MATERIAL CONTRACTS | 30 |
| INTERESTS OF EXPERTS | 30 |
| AUDIT COMMITTEE | 30 |
| ADDITIONAL INFORMATION | 32 |
SChedule “A” – Audit committee charter
| DEFINITIONS AND GLOSSARY OF TERMS |
The following is a glossary of certain general terms used in this Annual Information Form (“AIF”), including the summary hereof. Words importing the singular, where the context requires, include the plural and vice versa and words importing any gender include all genders.
“ASC” has the meaning set out under the heading “General Development of the Business – Three Year History”;
“Audit Committee” has the meaning set out under the heading “Audit Committee and Corporate Governance”;
“Auscript” has the meaning set out under the heading “General Development of the Business – Three Year History”;
“Board” means the board of directors of the Company;
“CJIS” has the meaning set out under the heading “General Development of the Business – Three Year History”;
“Code” means the United States Internal Revenue Code of 1986, as amended from time to time. Any reference to a section of the Code shall be deemed to include a reference to any regulations promulgated thereunder;
“Common Share” means a common share in the capital of the Company;
“Company” or “VIQ” means VIQ Solutions Inc.;
“Convertible Notes” has the meaning set out under the heading “Description of Capital Structure – Convertible Notes”;
“Crown” has the meaning set out under the heading “General Development of the Business – Three Year History”;
“EMEA” means Europe, the Middle East and Africa;
“IFRS” means International Financial Reporting Standards;
“Nasdaq” means the Nasdaq Capital Market;
“NI 51-102” means National Instrument 51-102 – Continuous Disclosure Obligations;
“NI 52-110” means National Instrument 52-110 – Audit Committees;
“OBCA” means the Business Corporations Act (Ontario), including the regulations promulgated thereunder, as amended;
“order” ” has the meaning set out under the heading “Cease Trade Orders, Bankruptcies, Penalties or Sanctions – Cease Trade Orders”;
“OTCQX” has the meaning set out under the heading “General Development of the Business – Three Year History”;
“Placement Agency Agreement” has the meaning set out under the heading “Material Contracts”;
“RDO” means the Company’s registered direct offering completed on September 15, 2021;
“Securities Purchase Agreement” has the meaning set out under the heading “Material Contracts”;
“SEDAR” means the System for Electronic Document Analysis and Retrieval;
“Saas” means software as a service;
“Shareholders” means the holders of Common Shares;
1
“Spark & Cannon” means Spark & Cannon Australasia Pty Ltd;
“TSX” means the Toronto Stock Exchange;
“TSXV” means the TSX Venture Exchange;
“TTA” has the meaning set out under the heading “General Development of the Business – Three Year History”;
“Unit” has the meaning set out under the heading “General Development of the Business – Three Year History”;
“United States” means the United States of America;
“Warrant” has the meaning set out under the heading “General Development of the Business – Three Year History”; and
“WordZ” has the meaning set out under the heading “General Development of the Business – Three Year History”.
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| THIS ANNUAL INFORMATION FORM |
In this AIF, unless the context otherwise requires, the “Company” or “VIQ” refers to VIQ Solutions Inc. All financial information in this AIF is prepared in Canadian dollars and using IFRS as issued by the International Accounting Standards Board. VIQ’s financial statements are presented in United States dollars.
This AIF applies to the business activities and operations of the Company for the year ended December 31, 2021. Unless otherwise indicated, the information in this AIF is given as of March 31, 2022.
Except as otherwise indicated in this AIF, references to “Canadian dollars” or “$” are to the currency of Canada and references to “US$” are to United States dollars.
| cAUTIONARY NOTES |
Forward-Looking Statements
This AIF contains forward-looking statements or information that relate to the Company’s current expectations, estimates, projections and views of future events. The forward-looking statements are contained principally in the sections titled “Description of the Business” and “Risk Factors”.
In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “believe”, “expects”, “will”, “intends”, “projects”, “anticipates”, “estimates”, “continues”, “plan”, “believe”, “aim”, “seek” or the negative of these terms, or other similar expressions intended to identify forward-looking statements. The Company has based these forward-looking statements on current expectations and projections about future events and financial trends that they believe may affect the Company’s financial condition, results of operations, business strategy and financial needs, as the case may be.
Forward-looking statements relating to the Company include, among other things, statements relating to:
| · | the results of any historic or future acquisition completed by VIQ; | |
| · | anticipated acquisitions by VIQ and expansion of VIQ’s footprint; | |
| · | VIQ’s ability to protect its intellectual property; | |
| · | anticipated changes to VIQ’s business model; | |
| · | the size and growth of VIQ’s customer base; | |
| · | the methods by which VIQ provides services to its customers; | |
| · | anticipated acceleration of growth and demand for VIQ’s services and technologies; | |
| · | the timing of the development and release of new products; | |
| · | the expansion of the scope of content solutions and value-add complimentary services VIQ intends to offer to its clients; | |
| · | VIQ’s funding requirements in order to bring new services to market; | |
| · | the impact of newly released products on VIQ’s financial position, including the transition to a SaaS revenue model; | |
| · | the availability of individuals with specialized knowledge and skill to VIQ; | |
| · | the appointment of two new directors to the Board; and | |
| · | VIQ’s intention to retain future earnings in order to finance its operations and expand its business, and to not pay dividends or make distributions in the foreseeable future. |
Forward-looking statements are based on certain key assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments as well as other factors the Company believes are appropriate and are subject to risks and uncertainties. Such assumptions include, amongst others, those relating to the consistency of VIQ’s operating results with projections, VIQ’s ability to successfully consolidate acquired businesses with VIQ’s existing operations, VIQ’s ability to incorporate acquired technologies into its platform, VIQ’s ability to realize synergies with acquired businesses, the customers of any acquired businesses remaining customers of VIQ following the completion of an acquisition, VIQ’s ability to successfully register its intellectual property rights, VIQ’s continuing to operate in compliance with regulatory requirements, VIQ having sufficient working capital and, if necessary, being able to secure additional funding necessary for the continued operation and development of its business, VIQ’s ability to enforce outstanding confidentiality agreements, the attractiveness of SaaS offerings in the markets where VIQ operates, VIQ’s ability to successfully develop, market and monetize new products, VIQ’s ability to successfully execute its business plan, the progress of VIQ’s research and development effort, VIQ’s ability to attract and retain qualified personnel, the future levels of sales of VIQ and VIQ’s ability to adequately manage its working capital requirements. Although management believes that the assumptions are reasonable, they may prove to be incorrect. Given these risks, uncertainties and assumptions, Shareholders and prospective purchasers of the Company’s securities should not place undue reliance on these forward-looking statements. The above list of forward-looking statements is not exhaustive and whether actual results, performance or achievements will conform to the Company’s expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions and other factors, including those listed under “Risk Factors”, which are summarized below.
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Business risks include:
| · | the impact of COVID-19 on the Company and its business; | |
| · | the transition to SaaS revenue may cause revenue levels to decline; | |
| · | risks related to the Company’s ability to grow its revenue; | |
| · | variance in the Company’s operating results period to period; | |
| · | risks related to identifying and acquiring suitable acquisition targets; | |
| · | integration of acquired businesses into the Company’s portfolio; | |
| · | risks related to the compatibility of the Company’s products with operating systems and computer networks; | |
| · | risks related to potential stoppages to the Company’s operations and failures of the Company’s products; | |
| · | risks related to cyber-threats; | |
| · | the Company’s ability to develop new products, penetrate new markets, and expand in existing markets; | |
| · | potential downturns in general economic and market conditions; | |
| · | competition in the Company’s industry; | |
| · | international operations; | |
| · | the Company’s reliance on protecting its proprietary intellectual property; | |
| · | the Company’s ability to protect its intellectual property and the effect of potential intellectual property claims; | |
| · | potential product liability; | |
| · | the potential for uninsured or uninsurable losses to arise; | |
| · | the Company’s ability to adapt to technological developments; | |
| · | the Company’s ability to manage growth; | |
| · | ability to retain (or acquire) skilled personnel; | |
| · | potential legal and regulatory proceedings against the Company; and | |
| · | conflicts of interest between the Company and its directors and officers. |
Financial and accounting risks include:
| · | the potential needs for additional funds through private or public financing; | |
| · | the availability of sufficient cash flows to the Company; | |
| · | the Company’s ability to access capital; | |
| · | potential inaccuracies in estimates or judgements related to critical accounting policies; | |
| · | tax related risks; | |
| · | fluctuations in the value of foreign currencies; and | |
| · | risks related to internal controls. |
Risks related to the Common Shares:
| · | volatility in the market price for the Common Shares; | |
| · | the Company’s intention not to pay dividends on the Common Shares; | |
| · | risks related to general market fluctuations; and | |
| · | the risk of future dilutive transactions. |
The above risks, uncertainties, assumptions and other factors could cause the Company’s actual results, performance, achievements and experience to differ materially from the Company’s expectations, future results, performances or achievements expressed or implied by the forward-looking statements.
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Further, any forward-looking statement made in this AIF relate only to events or information as of the date when the statements are made in this AIF. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, after the date when the statements are made or to reflect the occurrence of unanticipated events.
An investor should read this AIF with the understanding that the Company’s actual future results may differ materially from management’s current expectations. For a description of material factors that could cause the Company’s actual results to differ materially from the forward-looking statement in this AIF, please see “Risk Factors”.
Market Data
Unless otherwise indicated, information contained in this AIF concerning the industry and markets in which the Company operates is based on information from independent industry organizations, other third-party sources (including industry publications, surveys and forecasts) and management estimates.
The management estimates in this AIF are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from the Company’s internal research and are based on assumptions made by the Company based on such data and its knowledge of such industry and markets, which the Company believes to be reasonable. The Company’s internal research has not been verified by any independent source and it has not independently verified any third-party information. While the Company is not aware of any misstatement regarding any industry or market data included in this AIF, such information is inherently imprecise. In addition, projections, assumptions and estimates of the Company’s future performance and the future performance of the industry in which the Company operates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described under the heading “Risk Factors”.
| CORPORATE STRUCTURE |
Name, Address and Incorporation
The Company was incorporated pursuant to the Business Corporations Act (Alberta) on November 10, 2004, under the name “VIQ Solutions Inc.”. The Company was continued under the OBCA on April 14, 2017
The Company’s head and registered offices are located at 5915 Airport Road, Suite 700, Mississauga, Ontario L4V 1T1.
The Company is a reporting issuer in Canada in each of the provinces of Canada other than Quebec, and the Common Shares are listed on the TSX and the Nasdaq under the trading symbol “VQS”.
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Intercorporate Relationships
The corporate structure of the Company and its material subsidiaries are as indicated in the following chart:.
| GENERAL DEVELOPMENT OF THE BUSINESS |
Three Year History
| · | In June 2019, Net Transcripts, Inc. added an additional 13 clients and renewed 3 contracts with United States law enforcement agencies. |
| · | On July 9, 2019, Spark & Cannon entered into a five-year contract to provide transcription services for the Western Australia Police Force. |
| · | On October 1, 2019, VIQ announced the release of its cloud-based end-to-end workflow solution for the insurance industry. |
| · | On October 28, 2019, Spark & Cannon entered into a contract with the Queensland Department of Justice and Attorney General to provide court evidence capture and management services. The contract is for an initial six-year term plus three one-year extensions. |
| · | On November 27, 2019, Shareholders approved the consolidation of the Common Shares on a 20 to 1 basis. |
| · | On December 5, 2019, the Common Shares began trading in the United States on the OTCQX Best Market (“OTCQX”) under the symbol “VIQLF”. |
| · | On January 31, 2020, VIQ acquired ASC Services LLC (“ASC”) for an aggregate purchase price of $6.9 million, with $3.1 million paid in cash on closing and $3.8 million to be paid via an earn-out payable quarterly over 30 months following the completion the transaction. |
| · | On February 4, 2020, the Company announced that it had entered into agreements with the holders of unsecured convertible notes (each, a “Convertible Note”) in the aggregate principal amount of approximately US$6,792,934, granting the holders of such Convertible Notes the option to convert the principal and the aggregate interest payable on their Convertible Notes, from the date of issuance to the maturity date, into Common Shares at a conversion price of $2.18 per Common Share, as previously announced by the Company on December 18, 2019. |
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| · | On February 26, 2020, the Company announced the acquisition of a leading US transcription provider, wordZXpressed, Inc. (“WordZ”) of Atlanta, Georgia, VIQ’s fifth accretive acquisition in 14 months. The purchase price paid for the WordZ acquisition was approximately $4.7 million, with approximately $1.3 million paid in cash on closing, approximately $1.2 million paid via a promissory note payable quarterly over 36 months and approximately $2.2 million to be paid via an earnout payable quarterly over 36 months. |
| · | VIQ was awarded CJIS ACE after completing a rigorous audit and evaluation with Diverse Computing Inc. The audit reviewed various systems, policies and procedures and concluded that VIQ demonstrated the required competencies in managing all aspects of its security policy to be awarded such a designation. The CJIS ACE Compliance Seal is awarded to agencies and companies demonstrating executive commitment and real-world working knowledge of FBI CJIS Security Policy compliance and its critical importance to law enforcement. CJIS sets security standards for law enforcement, cloud providers, local agencies and corporate networks. CJIS monitors criminal activities in local and international communities. Their databases are a centralized source of criminal justice information (“CJIS”). |
| · | On July 7, 2020, Shareholders approved the appointment of KPMG LLP as Auditors of the Company at the annual Shareholders meeting. |
| · | On November 26, 2020, the Company closed a bought deal offering of 4,705,900 Common Shares, issued a at a price of $4.25 per Common Share, for aggregate gross proceeds of $20,000,075. |
| · | On January 19, 2021, the Company announced the receipt of final approval from the TSX to graduate to the TSX from the TSXV. On January 21, 2021, the Common Shares began trading on the TSX under the symbol “VQS”. In conjunction with the Company’s listing on the TSX, the Common Shares were voluntarily delisted from the TSXV. |
| · | On January 28, 2021, the Company announced that it had been named to the 2021 OTCQX Best 50, a ranking of top performing companies traded on the OTCQX. |
| · | On March 18, 2021, the Company announced the launch of FirstDraft™, powered by aiAssist™, a new transcription solution allowing users to quickly convert audio files to text. |
| · | On June 2, 2021, the Company announced the filing of a preliminary short form base shelf prospectus with securities regulatory authorities in each of the provinces of Canada, except Quebec, and a corresponding registration statement on Form F-10 with the United States Securities and Exchange Commission. |
| · | On July 26, 2021, the Company announced that it had entered into a partnership with Law In Order, a provider of end-to-end document and digital solutions. |
| · | On August 9, 2021, the Company announced its intention to complete a public offering of Common Shares in the United States and Canada. On August 12, 2021, the Company announced that it had elected not to proceed with the proposed public offering as a result of market conditions and no securities of the Company were issued at the time pursuant to such proposed public offering. |
| · | On August 12, 2021, the Common Shares began trading on the Nasdaq under the symbol “VQS”. |
| · | On September 15, 2021, the Company closed its registered direct offering (“RDO”) and issued an aggregate of 4,235,294 units (each, a “Unit”) at a price of $4.25 per Unit for gross proceeds of US$18,000,000. Each Unit consists of one Common Share and one-half of one Common Share purchase warrant (each whole warrant, a “Warrant”). Each Warrant entitles the holder thereof to purchase one Common Share at an exercise price of US$5.00 per Common Share. The Warrants will be exercisable beginning on the date that is six months following the September 15, 2021, issuance date and will expire five years from the issuance date. In connection with the RDO, the Company entered into the Securities Purchase Agreement and the Placement Agency Agreement. The Securities Purchase Agreement was entered into between the Company and the purchasers of Units, pursuant to which the Company agreed to sell, and the Purchasers, severally and not jointly, agreed to purchase, the Units. The Placement Agency Agreement was entered into between the Company and A.G.P./Alliance Global Partners, pursuant to which A.G.P./Alliance Global Partners agreed to serve as the placement agent for the Company, on a “reasonable best efforts” basis, to arrange for the sale of the Units under the RDO. |
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| · | On October 1, 2021, the Company acquired 100% of the issued and outstanding shares of The Transcription Agency (“TTA”), a leading supplier of secured outsourced transcription services to clients in private and public sectors throughout the United Kingdom. The purchase price paid for the TTA acquisition was approximately $1.7 million, with approximately $0.85 million paid in cash on closing and approximately $0.85 million to be paid through a deferred payment structure over the six months following closing. |
| · | On October 21, 2021, the Company announced that its subsidiary, VIQ Media, entered into two contracts, to provide rush verbatim transcripts and global newswire distribution to top global news agencies. |
| · | On October 21, 2021, the Company announced a five-year renewal of its largest media client, beginning April 2022. |
| · | On October 26, 2021, the Company announced, NetScribe™, powered by aiAssist™, had become available in the United Kingdom and Canada. |
| · | On November 2, 2021, the Company announced the appointment of Vahram Sukyas as Chief Technology Officer. |
| · | On December 13, 2021, the Company announced the closing of the acquisition of certain assets of Auscript Australasia Pty Ltd. (“Auscript”), the leading supplier of secure recording and transcription services for courts and law firms throughout Australia. the Company acquired Auscript for a total purchase price of approximately $7.65 million. |
Subsequent Events
| · | On January 4, 2022, the Company announced the appointment of Jayne Perry as Managing Director, United Kingdom and EMEA. |
| · | On February 1, 2022, the Company announced a strategic partnership with LegalCraft to create an integrated solution, using the Lexel platform, to optimize legal case analysis, trial preparation and real-time transcription to assist the legal professional globally. |
| · | On February 8, 2022, the Company announced that the United States Patent and Trademark Office granted a patent for its Parallel Processing Framework for Voice to Text Digital Media. This patent recognizes methods for extracting critical information from multi-speaker, multi-channel business interactions recorded on digital media. |
| · | On March 24, 2022, the Company announced effective April 1, 2022, two new members would be appointed to the Board. Joining the Board are Shing Pan, of Woodside Capital Partners and Susan Sumner, VIQ’s President and Chief Operating Officer. The appointments expand the Board to eight members, six of whom are independent. |
| · | On March 30, 2022, the Company entered into a fourth amendment to its credit agreement dated November 28, 2018 (the “Credit Agreement”) by and among the Company, each of its subsidiaries and Crown Capital Partner Funding, LP (“Crown”). The Company and Crown have entered into the amendment to, among other things, waive the application of certain covenants contained in the Credit Agreement with respect to the maintenance of certain financial ratios. |
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Significant Acquisitions
There have been no significant acquisitions completed by the Company during its most recently completed financial year for which disclosure is required under Part 8 of NI 51-102.
| DESCRIPTION OF THE BUSINESS |
General Summary
VIQ delivers intelligent automation, enhanced with human review, to drive transformation in the way evidentiary content is captured, secured, and transformed into actionable information. This combination along with segment specific Artificial Intelligence learning makes VIQ as the leader best positioned to disrupt and gain rapid market share.
VIQ’s innovative technology platform is made of four core software products using cloud, artificial intelligence, mobility, and cybersecurity cloud driven workflow for capture, manage, share, and create digital evidence and very specific documentation. The Company is driving the transformation of the highly secured, evidentiary data and transcription industry from 0% to 80% via AI human editors’ collaboration using an innovative patented technology platform.
VIQ operates worldwide with a network of partners including security integrators, audio-video specialists, and hardware and data storage suppliers. The Company's revenue is strategically segmented both by Geography and Industry Markets: 61% of its revenue is located in the United States, 31% in Australia and a growing 8% in the EMEA and Canada.
VIQ’s solutions serve a growing customer base across a variety of vertical and horizontal markets, the primary of which are as follows:
| · | 21% of revenue is in criminal justice; | |
| · | 34% in legal; | |
| · | 22% in insurance; and | |
| · | 23% in media, corporate finance, government and medical. |
VIQ delivers its products and services to clients through a network of resellers and integrators, as well as through direct sales, offering a variety of deployment methodologies and business models to meet customer demand including software, SaaS and managed services.
Principal Products and Services
VIQ combines artificial intelligence-driven voice and video capture technology and services to securely manage digital content in the most rigid security environments including governments, courts, insurance, law enforcement, media and conferencing. VIQ’s products and services help cybersecurity focused entities securely speed the capture, creation, and management of large volumes of information, preserve the unique value of the spoken word and video image, and deliver meaningful data that they can utilize.
VIQ offers its clients a technology services stack comprised of five core software solutions: MobileMic Pro, CapturePro™, NetScribe, FirstDraft and aiAssist that are integrated to create a seamless, end to end digital platform, as outlined further below.
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VIQ spent the last three years integrating its entire product portfolio into a modern, secured, cloud-based, scalable ecosystem. Through this established commercial platform, VIQ ingests multi-media content across its markets and delivers immediate value to customers in the form of high-quality evidentiary documentation.
The effective aggregation of customer information in the platform, which may appear as a by-product, is in fact an asset that is to be monetized. The Company's first AI-driven use of this information was aimed at improving the efficiency of the verbatim transcription process by delivering a progressively better first draft. In turn, this capability enabled the delivery of First Draft, a machine-generated transcript of a multi speaker recording while feeding back into the system the quality-controlled version of the documents delivered, refining our linguistic and industry specific corpus models, and progressively enhancing the outcome of our services, in a virtuous circle.
Looking ahead, VIQ intends to utilize this content to extend the scope of solutions that it offers and to expand the value of the content it collects. To that end, VIQ's ML-driven AI engine selection process drives the platform to serve emerging needs and unlocks the additional value in the data stream. VIQ takes advantage of all available technologies to accelerate its strategy, as the system is designed intentionally to integrate both VIQ's internal intellectual property and external applications.
VIQ's vision is to create an environment where it can cultivate the relationships with its customers through a portfolio of value-added complementary services.
VIQ is transitioning its technology services offerings towards a SaaS revenue model, in which clients are charged recurring monthly fees based on several variables. Given the size, nature, and visibility of its sales pipeline, VIQ anticipates this SaaS option will continue to gain traction in the markets in which VIQ’s software is offered.
Specialized Skill and Knowledge
The Company employs individuals with a wide range of professional and technical skills and expertise in the course of pursuing and executing its business strategy. Skills and expertise crucial to VIQ’s success in the markets where it operates includes, but is not limited to, market knowledge, specialized editors and specialized engineering and AI ability. Individuals with such knowledge and abilities are employed by VIQ or have been otherwise engaged by VIQ and are readily available to meet VIQ’s needs.
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Competitive Conditions
Although VIQ has many competitors in the manual documentation automatic speech recognition/artificial intelligence segment, VIQ’s offerings are performing competitively as they are focused on and tuned to multi-speaker evidence-based markets. In addition, VIQ holds patents and patent-pending status on key intellectual property rights associated with the design and workflow of its key platforms. Please see “Description of the Business – Intangible Property”.
Products in Development
VIQ dedicates significant effort on the refinement of its ongoing and future technology road map and execution against it to meet its growth commitments. VIQ has many advanced products and services under development including next versions of aiAssist, NetScribe, MobileMic and Capture Pro. VIQ develops its products through a combination of employed and contracted engineers. VIQ expects to bring these new products and services to market commercially will require capital expenditures in the range of $1 million-$2.6 million over the next six to twelve months.
Intangible Property
Protection of intellectual property is integral to VIQ’s success. As such, VIQ has and will continue to pursue patent protection, register trademarks, and protect other intellectual property through trade secrets, copyright, confidential disclosure agreements, and other mechanisms as appropriate. This includes the use of confidential disclosure agreements with all prospective vendors and partners.
In order to maximize the duration of patent protection during the commercial life a potential product and/or allow the generation of data to strengthen a potential patent, VIQ may on occasion delay patent filing, while ensuring it does not risk the product protection during this delay.
VIQ has in progress applications for several trademarks associated with its newer brand names. It also holds trademarks on key products such as NetScribe and other brand names associated with its business units. Most of these trademark applications are global being primarily in the EU, Australia, USA and Canada. VIQ also holds two patents on technology and has one patent-pending with one patent application work in progress. The intellectual property rights held by VIQ are summarized in the tables below:
| No. | Trademark | Jurisdiction | Status | Expiry |
| 1. | aiAssist | Canada | Pending | - |
| United States | Pending | - | ||
| Australia | Registered | January 22, 2030 | ||
| UK | Registered | December 6, 2029 | ||
| 2. | aiAssist Wordmark |
Canada United States | Pending Pending | - - |
| 3. | CapturePro | Canada | Pending | - |
| Word mark | United States | Pending | - | |
| Australia | Registered | October 22, 2029 | ||
| UK/EU | Registered | June 12, 2030 | ||
| 4. | MobileMic | Canada | Pending | - |
| Word mark | United States | Pending | - | |
| Australia | Declined | - | ||
| UK/EU | Declined | - | ||
| 5. | AccessPoint | Canada | Pending | - |
| Word mark | United States | Pending | - | |
| Australia | Declined | - | ||
| UK/EU | Declined | - | ||
| 6. | CyberCrypt | Canada | Abandoned | - |
| Word mark | United States | Abandoned | - | |
| Australia | Registered | December 24, 2029 | ||
| UK/EU | Registered | September 25, 2029, | ||
| 7. | Audioworxs Word mark |
Canada | Declined | - |
| United States | Declined | - | ||
| Australia | Declined | - | ||
| UK/EU | Registered | September 25, 2029 | ||
| 8. | NetScribe Work mark |
|||
| United States | Registered | September 7, 2024 | ||
| 9. | Net Transcript Word mark |
United States | Registered | June 24, 2024 |
| 10. | Auscript | Australia | Registered | July 24, 2031 |
| 11. | AUSCRIPT FASTER, BETTEREVIDENCE DELIVERY SINCE 1921 |
Australia | Registered | July 24, 2031 |
| 9. | AUSCRIPT FAST PRECISE SECURE EST 1921 |
Australia | Registered | September 3, 2024 |
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| No. | Patent | Jurisdiction | Expiry |
| 1. | Evidence Based Digital Training Portfolio – A1 | United States | August 18, 2037 |
| 2. | Evidence Based Digital Training Portfolio – B2 | United States | August 18, 2037 |
| 3. | Parallel Processing Framework for Voice to Text Digital Media | United States | November 27, 2039 |
| 4. | Securing And Managing Offline Digital Evidence With A Smart Data Lease System Patent application filed with United States Patent and Trademark Office on April 8, 2021 |
United States | Pending |
Cycles
VIQ’s sales cycles are largely dependent on the size and complexity of individual customers. Based on VIQ’s history and information available to date, the Company has identified that fourth quarter revenues are generally lower than revenues generated during other interim periods, specifically due to decreased historic revenues in the months of December and January related to annual holidays.
Economic Dependence
The Company is segmented by both geography and industry markets. VIQ’s revenues are well diversified between a number of long term and short term contracts and arrangements.. During the year ended December 31, 2021, VIQ had one customer that accounted for 11.7% of its revenues.
Changes to Contracts
VIQ does not reasonably believe any material aspect of its business will be affected in the current financial year by renegotiation or termination of contracts or subcontracts.
Employees
As of December 31, 2021, VIQ had approximately 539 employees, 4353 contractor – employees and 1,204 independent contractors.
Foreign Operations
VIQ has historically derived the majority of its revenues from outside of Canada. The United States and Australia are the largest markets and sources of revenue. The United Kingdom and other international regions have also provided revenue growth, and VIQ continues to strategically invest for revenue growth the United Kingdom and other international regions.
Lending
The Company does not have any investment policies or lending and investment restrictions with respect to its lending operations. Segmentation of Revenues
VIQ’s revenue is strategically segmented both by geography and industry. Geographically, VIQ’s revenue is derived as follows:
| · | 61% – United States; | |
| · | 31% – Australia; and | |
| · | 8% – Canada and EMEA (specifically the United Kingdom, Scotland, the United Arab Emirates, Qatar and Africa). |
The approximate proportion of the VIQ’s revenue derived from each industry in which it clients operate is as follows:
| 21% of revenue is in criminal justice; | ||
| · | 34% in legal; | |
| · | 22% in insurance; and | |
| · | 23% in media, corporate finance, government and medical |
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Bankruptcy and Similar Procedures
VIQ is not and has not been subject to any bankruptcy, or any receivership or similar proceedings against it or any of its subsidiaries, or any voluntary bankruptcy, receivership or similar proceedings by it or any of its subsidiaries within the three most recently completed financial years or during or proposed for the current financial year.
Reorganizations
VIQ and its subsidiaries have not been subject to any material reorganization within the three most recently completed financial years or the current financial year.
Social, Environmental and Governance Policies
VIQ has implemented a range of policies and commitments that address issues of importance to its stakeholders and are supported by various programs and initiatives. These policies and guidelines include, among others:
• Code of Business Conduct and Ethics;
• Whistleblower Policy;
• Global Privacy Policy;
• Diversity Policy;
• Social Media Policy;
• Corporate Disclosure Policy; and
•Anti-Fraud Policy.
VIQ is committed to fair dealing, honesty and integrity in all aspects of its business conduct. VIQ takes this responsibility to its employees, shareholders and other stakeholders seriously. The Code of Business Conduct and Ethics is instrumental to VIQ in the workplace and aims to demonstrate to its stakeholders and the public that VIQ commits to conduct itself ethically. Such code applies to all employees, officers, independent contractors, members of the board of directors of VIQ and its subsidiary companies. VIQ is committed to creating a culture where employees can grow, thrive and excel. This includes an even greater commitment and action plan to foster an inclusive culture that celebrates diversity and encourages innovation and collaboration. Through well-being initiatives, employee engagement opportunities, volunteerism, strong leadership, a commitment to diversity, equity and inclusion.
| RISK FACTORS |
Due to the nature of VIQ’s business, the legal and economic climate in which it operates and its present stage of development, VIQ is subject to significant risks. The risks presented below should not be considered to be exhaustive and may not be all of the risks that VIQ may face. Additional risks and uncertainties not presently known to VIQ or that VIQ currently considers immaterial may also impair its business and operations. If any of the following or other risks occur, the Company’s business, prospects, financial condition, results of operations and cash flows could be materially adversely impacted. In that event, the trading price of the Common Shares could decline and investors could lose all or part of their investment. There is no assurance that risk management steps taken will avoid future loss due to the occurrence of the risks described below or other unforeseen risks. Readers should carefully consider all such risks and other information elsewhere in this AIF before making an investment in VIQ and should not rely upon forward-looking statements as a prediction of future results. Risk factors relating to VIQ include, but are not limited to, the factors set out below.
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Business Risks
COVID-19
Since December 2019, the outbreak of COVID-19, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, mandatory quarantine periods and social distancing, have caused material disruption to business globally, resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. The pandemic has resulted in certain of our customers delaying project work, including the use of our services and software, which has resulted in a reduction in anticipated revenues. Although vaccines have been effective to date in reducing the prevalence of COVID-19 in the largest markets for our products and services, additional mutations of the COVID-19 virus may evade the protection offered by vaccines and prolong the adverse effects of the pandemic on the economy, the Company and our customers
Our transition to SaaS revenue model will cause our revenues to decline initially.
The Company is in the process of transitioning its software product offerings from license sales to a SaaS offering. License sales allow the Company to recognize the full amount of revenue upon the initial sale of the software to a client. But revenues from SaaS are recognized ratably over the period of time contracted with the client and their use of the software. Therefore, we expect that initial SaaS revenue will be lower compared to prior periods, but should recover over the course of the contract..
We may be unable to grow revenue and may never become profitable.
To increase our revenue and achieve and maintain profitability, we must regularly add new customers or sell additional solutions to our existing customers. Numerous factors may impede our ability to add new customers and sell additional solutions to our existing customers, including:
| · | our inability to convert companies that have been referred to us by our existing network into paying customers, |
| · | failure to attract and effectively train new sales and marketing personnel, |
| · | failure to retain and motivate our current sales and marketing personnel, |
| · | failure to develop relationships with partners or resellers, and |
| · | failure to ensure the effectiveness of our marketing programs.In addition, if prospective customers do not perceive our solutions to be of sufficiently high value and quality, we will not be able to attract the number and types of new customers to become profitable. |
Further, if the resellers and integrators that we work with fail to devote sufficient resources to provide effective sales and marketing support of our products, sales to our customers would be hurt.
Fluctuations in Periodic Results
The Company’s operating results can vary substantially from period to period. Planned operating expenses are normally targeted to planned revenue levels for the period and are incurred equally throughout the period. If expenses remain relatively fixed, but the Company’s revenues are less than planned in any quarter, the Company’s operating results would be adversely affected for that quarter. In addition, incurring unplanned expenses could adversely affect operating results for the period in which such expenses are incurred. Failure to achieve periodic revenue, earnings and other operating and financial results could result in an immediate and adverse effect on the market price of the Common Shares. The Company may not discover, or be able to confirm, revenue or earnings shortfalls until the end of a quarter, which could result in a greater immediate and adverse effect on the price of the Common Shares.
If we cannot continue to identify and acquire suitable acquisition targets, our Company will not grow as planned.
The Company’s strategy has historically involved pursuing accretive acquisitions.. The Company may not be able to identify suitable new acquisition targets that are available to purchase at a reasonable value. Even if a suitable acquisition can be identified the acquisition may not proceed if suitable terms cannot be negotiated. Even if the Company is able to complete additional acquisitions in the future, there are risks inherent in any such acquisition. When conducting due diligence on a potential acquisition, we may not identify all the risks and costs inherent in the business being acquired. If an acquisition of an identified business were to proceed in which a portion or all of the consideration consisted of cash, additional funding maybe required through public or private financings if internally generated cash resources are not sufficient, and such funding may not be available to us on acceptable terms, or at all.
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If we are not able to successfully integrate acquired businesses, our financial results would suffer.
Our ability to integrate recent and future acquisitions into our business is subject to a number of risks including the following:
| · | failure to integrate successfully the personnel, information systems, technology and operations of the acquired business;failure to maximize the potential financial and strategic benefits of the acquisition;failure to realize the expected synergies of the acquired business;possible impairment of relationships with employees and clients as a result of any integration of new businesses and management personnel;impairment of goodwill; increased demand on human resources and operating systems, procedures and controls; and reductions in future operating results as a result of the amortization of intangible assets. |
Future acquisitions are accompanied by the risk that obligations and liabilities of an acquired business may not be adequately reflected in the historical financial statements of that business and the risk that historical financial statements may be based on assumptions, which are incorrect or inconsistent with the Company’s assumptions or approach to accounting policies. If we do not manage effectively the acquisition and integration of businesses, this could lead to disruptions in the overall activities of the Company, a loss of clients and revenue, and increased expenses. If we assume contingent liabilities in connection with the acquisitions of businesses, which are unknown at the time of acquisition or turn out to be more than expected, our financial condition could be impaired
If we are unable to effectively integrate our products into clients’ workplaces and adapt to clients’ changes, our revenues and reputation will suffer.
A portion of our sales are made into applications that require our products to be interfaced with other enterprise workflows, enterprise information technology environments or software functionalities. Any significant changes to those enterprise workflows, IT environments or software programs may limit the use or functionality of or demand for our products. As our customers advance technologically, we must continue to advance, modify and adapt our products to effectively interface our products with customer technologies to remain competitive.
If our products cannot continue to effectively operate with changing mobile operating systems and computer networks, our sales will suffer.
The functionality of certain of our products depends upon the continued interoperability of these products with popular mobile operating systems to deliver a high-quality user experience. Any changes in these systems that degrade our products’ functionality or give preferential treatment to competitive offerings could adversely affect the operability and usage of our software products on mobile devices and, thereby, result in lower sales of our products.
If our products fail for any of a large number of reasons, our reputation, market share and financial results would suffer.
Our business is dependent upon providing customers with fast, efficient and reliable services. Any reduction in the performance, reliability or availability of required network infrastructure may harm our ability to distribute content to our customers, which would damage our reputation and ability to attract and retain customers. Our operations are susceptible to, and could be damaged or interrupted by, outages caused by fire, flood, power loss, telecommunications failure, Internet or mobile network breakdown, earthquake and similar events. Our solutions are also subject to human error, security breaches, power losses, computer viruses, break-ins, “denial of service” attacks, sabotage, intentional acts of vandalism and tampering designed to disrupt our computer systems and network communications. Our failure or our customers’ failure to protect the networks against damage from any of these events could have a material adverse effect on our business.
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Our operations also depend on web browsers, internet service providers and mobile networks operated by others to provide our customers’ end-users with access to websites, streaming and mobile content. Many of these providers have experienced outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our solutions. Any such outage, delay or difficulty could adversely affect our ability to effectively provide our products and services, which would harm our business.
The continuing risk of evolving and more sophisticated cyber-threats could be very costly and hurt our reputation.
Despite having implemented numerous security features, malware, viruses, hacking, phishing attacks, social engineering, and other electronic threats on businesses have become more prevalent, have occurred on our systems in the past, and are likely to occur on our systems in the future. While we continue to advance measures to safeguard our solutions and services from cybersecurity threats and vulnerabilities, cyber-attacks and other security incidents continue to evolve in sophistication and frequency and have become increasingly challenging to stop. An attack on our systems could serve as a way to obtain access into our customers’ systems, which could result in liability and reputational damage for us. Businesses have experienced material sales declines after discovering data breaches, and our business could be similarly impacted. The costs to continuously improve the security of our solutions and reduce the likelihood of a successful attack are high and are expected to continue to increase. Furthermore, some jurisdictions have enacted laws requiring companies to notify consumers of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of the data security measures of our solutions. Any negative incidents can quickly erode trust and confidence, particularly if they result in adverse mainstream and social media publicity, governmental investigations or litigation. Any failure to maintain performance, reliability, security and availability of our products and technical infrastructure to the satisfaction of our customers may harm our reputation, impair our ability to retain existing customers and attract new customers and expose us to legal claims and government action, each of which could have a material adverse impact on our business, results of operations and financial condition.
If we cannot timely develop new and technologically improved products, we will not be able to enter new markets or further penetrate existing markets
The industry in which the Company operates is subject to rapid technological change. Our ability to attract new customers and increase revenue from existing customers will depend in large part on our ability to enhance and improve our solutions, to introduce new features and services in a timely manner, to sell into new markets and to further penetrate our existing markets. The success of any enhancement or new feature or service depends on several factors, including the timely completion, introduction and market acceptance of the enhancement or new feature or service If we are unable to successfully develop or acquire new features, products or services, enhance existing products or services to meet customer requirements, sell products and services into new markets or sell our product and services to additional customers in our existing markets, our revenue will not grow as expected. Moreover, we are frequently required to enhance and update our products and services as a result of changing standards and technological developments, which makes it difficult to recover the cost of development and forces us to continually qualify new features with our customers.
If we do not accurately anticipate industry changes and adapt rapidly to technological developments with cost-effective solutions, we will lose existing and potential customers.
The industry in which we operate is evolving at a rapid pace. Our ability to attract new customers and increase revenue from customers will depend in significant part on our ability to anticipate industry changes and to continue to enhance our solutions or introduce or acquire new solutions on a timely basis to keep pace with technological developments. The success of new solution depends on several factors, including the timely completion and market acceptance of the enhancement or new solution. Any new solution we develop or acquire might not be introduced in a timely or cost-effective manner and might not achieve the broad market acceptance necessary to generate significant revenue.
If we cannot compete effectively in the highly competitive business segments in which we operate, we could lose market share, or be forced to cut our prices and margins.
VIQ competes with a number of firms in various business segments that are very competitive. Competitors in courts, for example, are different from the ones we are competing against in public safety, medical, and legal sectors. Many of these companies have greater financial, technological, and personnel resources and experience than those of VIQ and , therefore, we may be at competitive disadvantages.
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Competitors may be able to respond to new or emerging technologies and changes in customer requirements more effectively than VIQ can, or may devote greater resources to the development, promotion and sale of products than VIQ can. Current and potential competitors may establish cooperative relationships among themselves or with third parties, including through mergers or acquisitions, to increase the ability of their products to address the needs of VIQ's current or prospective customers. If these competitors were to acquire significantly increased market share, it could have a material adverse effect on VIQ’s business.. VIQ’s competitors may also establish or strengthen co-operative relationships with systems integrators, third-party consulting firms or other parties with whom VIQ currently has relationships, thereby limiting VIQ’s ability to promote its products and services.
To remain competitive, VIQ must continue to provide:
| · | technologically advanced products and solutions that anticipate and satisfy the demands of end-users; | |
| · | continuing advancements and innovations in VIQ's product offerings, including products with price-performance advantages or value-added features in security, reliability or other key areas of customer interest; | |
| · | a responsive and effective sales force; | |
| · | a dependable and efficient sales distribution network; | |
| · | superior customer service; and | |
| · | high levels of quality and reliability. |
Competition may result in price reductions by VIQ, lower gross profit margins, increased discounts to customers and loss of market share, and could require increased spending by VIQ on research and development, sales and marketing and customer support, which would hurt our results of operations.
Our international operations expose us to additional risks that could harm our business.
We currently operate in the United States, Australia, the United Kingdom and Canada and our products and services are sold internationally. There are certain risks inherent in international operations including, but not limited to:
| · | remote management, |
| · | unexpected changes in regulatory requirements, |
| · | export restrictions, tariffs and other trade barriers, |
| · | difficulties in staffing and managing foreign operations, |
| · | longer payment cycles, |
| · | problems in collecting accounts receivable, |
| · | fluctuations in currency exchange rates, and |
| · | potential adverse tax consequences. |
If we are affected by any of these risks, our operating results and financial condition will suffer.
.If we are unable to protect our intellectual property rights, we may not be able to compete effectively in our markets.
Our success is heavily dependent on our ability to protect our intellectual property. Although we seek to protect proprietary intellectual property in part through confidentiality agreements with corporate resellers, strategic partners, employees, consultants and certain contractors, these agreements could be breached and we may not have adequate remedies. Even if these agreements are not breached, our trade secrets could otherwise become known or independently discovered by our competitors. Any such disclosures could hurt our competitive position.
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Claims that we infringe the intellectual property rights of others, may prohibit or delay the use or sale of our products and services and would be very expensive to defend.
It is possible that our products or processes will infringe, or will be found to infringe, on patents not owned or controlled by us. Companies in the technology industry often own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. If any relevant claims of patents owned by others are upheld as valid and enforceable, we could be prevented from practicing the subject matter claimed in such patents or would be required to obtain licenses or redesign our products and processes to avoid infringement. If such licenses are not available at all or on terms commercially reasonable to us, we may be forced to redesign our products or processes to avoid infringement, which could require significant effort and expense or be infeasible. If we cannot license or develop technology for the infringing aspects of our business, we may be forced to limit product and service offerings and may be unable to compete effectively. Any of these results could harm VIQ’s brand and prevent VIQ from generating sufficient revenue or achieving profitability Litigation may be necessary to defend against claims of infringement or to protect trade secrets. Such litigation could result in substantial costs and diversion of management efforts regardless of the results of such litigation and an adverse result could subject the Company to significant liabilities to third parties, require disputed rights to be licensed or require the Company to cease using such technology.
If our insurance is inadequate to cover product liability and other claims, our financial position could deteriorate.
Our business faces an inherent risk of exposure to product liability and other claims in the event that the development or use of our technology or products is alleged to have resulted in adverse effects on our customers or others. Although we currently carry product liability insurance, coverage may be insufficient and we may not be able to obtain product liability insurance in the future at acceptable cost or adequate to protect against potential product liability claims. An uninsured claim could prevent or inhibit the commercialization of products developed by us and have a material adverse effect on our financial condition.
Inability to manage our growth would hurt our operating results.
To manage growth and changes in strategy effectively, we must:
| · | maintain adequate systems to meet customer demand; |
| · | expand sales and marketing, distribution capabilities, and administrative functions; |
| · | expand the skills and capabilities of our current management team; |
| · | attract and retain additional qualified management and employees; and |
| · | expand our internal operational and financial controls significantly, so that we can maintain control over operations and provide support to other functional areas as the number of personnel and size of business increases. |
We expect to invest any earnings and capital to support our growth, but may incur additional unexpected costs, which could impair our ability to expand quickly enough to capitalize on potential market opportunities. Our inability to achieve any of these objectives could harm our business, financial condition and results of operations.
If we cannot attract and retain skilled personnel, our business will suffer.
The loss of any member of our management team could have a material adverse effect on our business. In addition, the inability to hire, or the increased costs of hiring, new personnel, including members of executive management, could have a material adverse effect on our business. The expansion of marketing and sales of its products will require us to find, hire and retain additional capable employees who can understand, explain, and successfully market and sell our products. There is intense competition for capable personnel in all of these areas and if we are not successful in attracting, training, integrating, motivating, and retaining new personnel, vendors, or subcontractors for these required functions, our business will not grow. New employees often require significant training and in many cases, take a significant amount of time before they achieve full productivity. As a result, we may incur significant costs to attract and retain employees, including significant expenditures related to salaries and benefits and compensation expenses issued in connection with equity awards, and we may lose new employees to competitors or other companies before we realize the benefit of our investment in recruiting and training them. In addition, as we move into new jurisdictions, we will need to attract and recruit skilled employees in those new areas.
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If we are not effective in managing conflicts of interest, our competitive position could be harmed.
If any directors or officers of VIQ become directors or officers of, or have significant shareholdings in, other companies that may participate in ventures in which VIQ may participate, such directors and officers of VIQ may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation. Such other companies may also compete with VIQ. In the event that any such conflict of interest arises, a director who has such a conflict is required to disclose the conflict to a meeting of the directors of VIQ, not participate in any relevant discussions and abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, the directors of VIQ are required to act honestly, in good faith and in the best interests of VIQ. In determining whether or not VIQ will participate in a particular transaction, the directors will primarily consider the potential benefits to VIQ, the degree of risk to which VIQ may be exposed and its financial position at that time. If any such conflicts are not properly disclosed or an officer or director fails to be fully removed from all relevant discussions and consideration, VIQ’s competitive position could be harmed.
Financial and Accounting Risks
We expect to need additional financing, which may not be available on acceptable terms, or at all.
We may need to raise additional funds to bring additional products to market, enhance marketing capabilities, and pursue potential future acquisitions. Our future capital requirements will depend on many factors, including continued progress in research and development programs, competing technological and market developments, the cost of production scale-up, effective commercialization activities and arrangements and other factors, some of which are not within our control. If additional funding is not available when needed through public or private financings on acceptable terms, we may be precluded from developing or bringing to market new products, or from making acquisitions that could be of benefit to us.
Inaccurate estimates or judgments relating to critical accounting policies could result in operating results that fall below the expectations of investors, resulting in a decline in the share price of VIQ.
The preparation of 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 COVID-19 pandemic required the use of judgments and estimates in the preparation of the consolidated financial statements for the year ended December 31, 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.
VIQ’s operating results may be adversely affected if the assumptions change or if actual circumstances differ from those in the assumptions, which could cause VIQ’s operating results to fall below the expectations of investors, resulting in a decline in the share price of VIQ. Significant assumptions and estimates used in preparing the financial statements include those related to the credit quality of accounts receivable, income taxes, income tax credits receivable, share based payments, warrants, internally generated development costs, functional currency, impairment of non-financial assets, purchase price allocation, contingent consideration, incremental borrowing rate used to discount leases, allocation of the transaction price to multiple performance obligations in contracts with customers, as well as revenue and cost recognition.
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Uncertainty regarding tax laws and liabilities in multiple jurisdictions could have a negative financial impact on us.
VIQ's operations are subject to income tax and other forms of taxation in multiple jurisdictions. Taxation laws and rates which determine taxation expenses may vary significantly in different jurisdictions, and legislation governing taxation laws and rates are also subject to change. Therefore, VIQ’s earnings may be impacted by changes in the proportion of earnings taxed in different jurisdictions, changes in taxation rates, changes in estimates of liabilities and changes in the amount of other forms of taxation. VIQ may have exposure to greater than anticipated tax liabilities or expenses. VIQ may be subject to income taxes and non-income taxes in a variety of jurisdictions and its tax structure may be subject to review and challenge by both domestic and foreign taxation authorities and the determination of VIQ’s provision for income taxes and other tax liabilities will require significant judgment.
Foreign currency fluctuations could cause unexpected foreign exchange losses and reduce the trading price of our stock.
VIQ’s monetary assets and liabilities denominated in currencies other than the Canadian dollar will give rise to a foreign currency gain or loss reflected in its comprehensive earnings. To the extent the United States dollar or Australian dollar weakens against the Canadian dollar, VIQ may incur foreign exchange losses. Such losses would be included in VIQ’s financial results and, consequently, may have an adverse effect on the price of the Common Shares. As VIQ currently has a global client base, a significant portion of VIQ’s income is in US dollars and Great Britain pounds. The exchange rates between the Canadian dollar, the US dollar and the Great Britain pound are subject to daily fluctuations in the currency markets and these fluctuations in market exchange rates are expected to continue in the future. Such fluctuations affect both VIQ’s consolidated revenues as well as its consolidated expenses. Also, changes in foreign exchange rates may affect the relative costs of operations and prices at which VIQ and its foreign competitors sell products in the same market. VIQ currently does not engage in currency hedging through financial instruments.
Internal controls risk
Effective internal controls are necessary for VIQ to provide reliable financial reports and effectively prevent fraud. Under Canadian and United States securities law requirements, VIQ’s Chief Executive Officer and Chief Financial Officer are required to certify that they are responsible for establishing and maintaining disclosure controls and internal controls over financial reporting for the Company, that those disclosure controls and internal controls have been designed and are effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. VIQ maintains compliance with Canadian and United States securities law requirements by strengthening, assessing and testing the system of internal controls to provide the basis for the certification. However, the continuous process of strengthening VIQ’s internal controls and complying with Canadian and United States securities law requirements is expensive and time consuming. . Furthermore, as VIQ grows its business, the controls will become more complex and the Company could require more resources to ensure its internal controls remain effective. If the measures VIQ is taking are not adequate to ensure that it maintains adequate control over financial processes and reporting or if VIQ fails to implement required new or improved controls, or encounters difficulties in their implementation, VIQ could fail to meet its reporting obligations. If VIQ or its independent registered public accounting firm discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in VIQ’s audited consolidated financial statements and harm its share price. In addition, future non-compliance with the Canadian and United States reporting obligations or other securities law requirements could subject VIQ to a variety of administrative sanctions, including the suspension of trading or delisting of the Common Shares, which could materially adversely affect its share price.
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Risks Related to the Common Shares
Continued volatility in the market price for the Common Shares could cause investors to lose money.
We have experienced in the past and expect to continue to experience volatility and wide fluctuations in the market price of the Common Shares. Fluctuations in the market price of the Common Shares could cause an investor to lose all or part of its investment in Common Shares. Factors that could cause fluctuations in the trading price of the Common Shares include:
| · | announcements of new offerings, products, services or technologies, commercial relationships, acquisitions or other events by VIQ or its competitors; | |
| · | price and volume fluctuations in the overall stock market from time to time; | |
| · | significant volatility in the market price and trading volume of technology companies; | |
| · | fluctuations in the trading volume of the Common Shares or the size of VIQ’s public float; | |
| · | actual or anticipated changes or fluctuations in VIQ’s results of operations; | |
| · | whether VIQ’s results of operations meet or exceed the expectations of securities analysts or investors; | |
| · | actual or anticipated changes in the expectations of investors or securities analysts; | |
| · | litigation involving VIQ, its industry, or both; | |
| · | regulatory developments in Canada and other countries; | |
| · | general economic conditions and trends; | |
| · | major catastrophic events; | |
| · | escrow releases or sales (or expected sales) of large blocks of the Common Shares; | |
| · | departures of key employees or members of management; or | |
| · | an adverse impact on VIQ from any of the other risks cited herein. |
We have never paid cash dividends and investors should not expect VIQ to do so in the foreseeable future.
VIQ has not declared or paid cash dividends on the Common Shares. VIQ intends to retain future earnings to finance the operation, development, and expansion of the business. VIQ does not anticipate paying cash dividends on the Common Shares in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of the Board and will depend on VIQ’s financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that the Board considers relevant.
Your ownership interest could be diluted and our stock price could decline when we issue additional shares.
VIQ may issue Common Shares or securities convertible into Common Shares from time to time in connection with a financing, acquisition or otherwise. Any such issuance could result in substantial dilution to existing shareholders and cause the trading price of VIQ’s securities to decline.
| DIVIDENDS AND DISTRIBUTIONS |
While there are no restrictions in the Company’s articles or pursuant to any agreement or understanding that prevent the Company from paying dividends or distributions, VIQ has not declared or paid cash dividends on the Common Shares in any of the three most recently completed financial years. VIQ intends to retain future earnings to finance the operation, development and expansion of the business, and accordingly, VIQ does not anticipate paying cash dividends on Common Shares in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of the Board and will depend on VIQ’s financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that the Board considers relevant.
| DESCRIPTION OF CAPITAL STRUCTURE |
Common Shares
VIQ is authorized to issue an unlimited number of Common Shares, of which 29,881,717 are issued and outstanding as at the date of this AIF. Shareholders are entitled to receive notice of, attend, and vote at any meeting of the Shareholders, and to cast one vote for each Common Share held on the applicable record date in respect of any matter put to vote at such a meeting. Shareholders are entitled to receive dividends if, as and when declared by the Board. Shareholders are entitled to share equally in the remaining property of the Company upon the liquidation, dissolution or winding-up of the Company.
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| MARKET FOR SECURITIES |
Trading Price and Volume
The Common Shares are listed for trading on the TSX and the Nasdaq under the symbol “VQS”. On January 21, 2021, the Common Shares began trading on the TSX and, in conjunction, were voluntarily delisted from the TSXV. The Common Shares were listed and posted for trading on the Nasdaq on July 30, 2021. Information concerning the trading prices and aggregate volume of the Common Shares on the TSXV, TSX and Nasdaq during each month of the Company’s most recently completed financial year are set out below:
| TSXV | |||
| Period | High ($) | Low ($) | Aggregate Volume |
| December 2021 | N/A | ||
| November 2021 | N/A | ||
| October 2021 | N/A | ||
| September 2021 | N/A | ||
| August 2021 | N/A | ||
| July 2021 | N/A | ||
| June 2021 | N/A | ||
| May 2021 | N/A | ||
| April 2021 | N/A | ||
| March 2021 | N/A | ||
| February 2021 | N/A | ||
| January 21 to 31, 2021 | N/A | ||
| January 1 to 20, 2021 | 8.24 | 5.42 | 586,239 |
| TSX | |||
| Period | High ($) | Low ($) | Aggregate Volume |
| December 2021 | 3.33 | 2.46 | 723,258 |
| November 2021 | 3.41 | 2.75 | 1,407,538 |
| October 2021 | 4.06 | 2.95 | 1,128,884 |
| September 2021 | 6.25 | 3.36 | 2,682,689 |
| August 2021 | 8.10 | 5.42 | 1,769,410 |
| July 2021 | 9.05 | 7.86 | 552,733 |
| June 2021 | 9.10 | 8.50 | 744,515 |
| May 2021 | 9.79 | 8.00 | 2,163,794 |
| April 2021 | 7.70 | 6.37 | 442,406 |
| March 2021 | 7.01 | 6.02 | 967,647 |
| February 2021 | 7.10 | 5.99 | 1,019,048 |
| January 21 to 31, 2021 | 8.24 | 5.95 | 212,738 |
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| Nasdaq | |||
| Period | High ($) | Low ($) | Aggregate Volume |
| December 2021 | USD 2.72 | USD 1.90 | 944,900 |
| November 2021 | USD 2.74 | USD 2.18 | 2,073,300 |
| October 2021 | USD 3.18 | USD 2.37 | 2,645,600 |
| September 2021 | USD 5.01 | USD 2.63 | 5,194,800 |
| August 2021 | USD 6.57 | USD 4.18 | 3,884,800 |
| July 2021 | USD 7.43 | USD 6.27 | 554,600 |
| June 2021 | N/A | ||
| May 2021 | N/A | ||
| April 2021 | N/A | ||
| March 2021 | N/A | ||
| February 2021 | N/A | ||
| January 2021 | N/A | ||
Prior Sales
During the financial year ended December 31, 2021, the Company issued the following securities not listed or quoted on any stock exchange or other marketplace:
| Date of Issue | Class of Security | Number of Securities Issued | Issue/Exercise price per Security | |||||||||||
| September 15, 2021 | Warrants(1) | 2,117,647 | $ | 5.00 | ||||||||||
Notes:
(1) Issued pursuant to the RDO.
| ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER |
There were no securities of the Company held, to VIQ’s knowledge, in escrow or that were subject to a contractual restriction on transfer during VIQ’s most recently completed financial year.
| DIRECTORS and OFFICERS |
The table below lists the following information about the Company’s directors and officers: their names, province or state and country of residence, position(s) held with the Company, period of directorship with the Company and principal occupation. In addition, as noted above, effective April 1, 2022, Shing Pan and Susan Sumner will be joining the Board.
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| Name, Province/State and Country of Residence |
Position(s) with the Company |
Principal Occupations during the Last Five Years | Period as a Director of the Company |
| Larry Taylor(2)(3) Ontario, Canada |
Director | Mr. Taylor has been CEO Group Leader of CEO Global Network since 2011 and President of Taylor Made Solutions since 2009 Mr. Taylor is Board Chair for the Green Energy Cooperative of Ontario and Board Chair for Spark Power Group Inc. (TSX: SPG). Mr. Taylor is a Chartered Professional Accountant and a Certified Management Consultant. Mr. Taylor has previously held key senior executive positions with several companies including National Money Mart, Travelex Americas and Cap Gemini Ernst & Young Canada Inc. Mr. Taylor has experience working with private equity firms to identify, acquire and combine companies to create shareholder value. | June 2014 to present |
| Sebastien Paré(3) Ontario, Canada |
Director, President and Chief Executive Officer | Mr. Paré has been the Chief Executive Officer of the Company since January 2015 and has served as the President of the Company since August 2014. Prior thereto, Mr. Paré served as President of CSDC Systems Inc. since May of 2004. Mr. Paré is a leading digital transformation expert driving VIQ to deliver intelligent automation, enhanced with human review, to drive transformation in the way evidentiary content in highly secured and regulated agencies is captured, secured, and repurposed into actionable information. He has worked in North America, the Middle East, and West Africa. Prior to his position at the Company, he was President and Chief Operating Officer of an enterprise technology platform company dedicated to public sector digital services. Mr. Paré received a Bachelor of Science from the University of Quebec at Montreal and a Master of Science from the University of British Columbia. | February 2015 to present |
| Harvey Gordon(1)(2)(3) Ontario, Canada |
Director | Mr. Gordon is the Managing Director of Channel Solutions Inc., where he provides CEO mentoring and strategic development guidance to growth-oriented technology companies. Mr. Gordon has extensive software, professional services and technology leadership experience as the CEO of international, US and Canadian companies, both public and private. He has held key senior executive positions during high growth phases of industry leading software and service firms, including Algorithmics Inc., Changepoint Corporation, Infonet Services Corporation and Magic Lantern Group. Mr. Gordon holds a Master of Science degree in Computer Science from the University of Toronto and a Bachelor of Applied Science in Engineering Science. | June 2014 to present |
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| Name, Province/State and Country of Residence |
Position(s) with the Company |
Principal Occupations during the Last Five Years | Period as a Director of the Company |
| Mike Kessel(1) Ontario, Canada |
Director | Mr. Kessel is the President and CEO of Cleveland Clinic Canada and is responsible for the growth, strategic partnerships and enterprise value creation. He implemented a unique public/private hybrid strategy that led to formal partnerships with Sick Kids, Sunnybrook and Mt. Sinai Hospitals and the Heart and Stroke Foundation. He also led partnership efforts with the Ontario Ministry of Health resulting in important firsts in country and cross border patient care. Mr. Kessel earned an MBA from Kellogg Business School at Northwestern University in Chicago and a Bachelor of Science from The Ohio State University. He is also a Chartered Professional Accountant. | September 2017 to present |
| Joseph Quarin(1) Ontario, Canada |
Director | Mr. Quarin Is an experienced corporate executive and director. He played an integral role in Progressive Waste Solutions’ growth to US$2 billion, and was Chief Executive Officer and a Director from January 2012 until the reverse-merger with Waste Connections in 2016. He is currently the President and Chief Executive Officer of Q5 Capital Inc., a private investment company and strategic management advisor. He currently serves as a Board member of Spark Power Group Inc. (TSX:SPG), Edo Revenue Royalty GP and EJ Trademark GP, Eagle River Capital, LLC, GRT Holdings Ltd, and The Fertility Partners. He is also a Director of the Humber River Hospital Board. Mr. Quarin holds a Master of Business Administration (with Distinction) from the Ivey Business School at Western University, a Bachelor of Commerce (Honours) from the Smith School of Business at Queen’s University, and is a CPA, CA. Mr. Quarin was named one of Canada’s Top 40 Under 40TM in 2004. | November 2016 to present |
| Bradley Wells(2)(3) Ontario, Canada |
Director | Mr. Wells has been President and CEO of Momentum Group Ltd. since he founded it in 2004. He served as CEO of Sym-Tech Dealer Services for the past 25 years until the company was successfully sold in 2019. Mr. Wells currently runs operating companies in Canada, the United States and Central America. | November 2019 to present |
|
Susan Sumner Florida, USA
|
President and Chief Operating Officer | Ms. Sumner has been Chief Operating Officer since July 2018. Ms. Sumner has held executive leadership, consulting and operations management roles in Fortune 500 companies for the past 30 years. Ms. Sumner has deep insight and experience in building world-class operational infrastructure for IT companies. Ms. Sumner has successfully combined several middle-market operating companies in the medical transcription space generating a successful exit for capital providers. Ms. Sumner oversaw the acquisition and integration of multiple transcription and IT businesses at Nuance Corporation. | N/A |
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| Name, Province/State and Country of Residence |
Position(s) with the Company |
Principal Occupations during the Last Five Years | Period as a Director of the Company |
|
Alexie Edwards Ontario, Canada |
Chief Financial Officer | Mr. Edwards has been Chief Financial Officer of VIQ since May 1, 2019. Mr. Edwards has 20+ years’ experience in finance and accounting spanning various industries, namely Real Estate and Software. Mr. Edwards is a proven finance leader who has built and shaped first-class finance teams, led the integration of numerous acquisitions in various jurisdictions, and overseen implementation of incredibly challenging accounting changes. Mr. Edwards previously served as Vice President of Finance for Jonas Software (Subsidiary of Constellation Software), an international provider of market-leading software. Mr. Edwards holds a Post Graduate Diploma from the University of Manchester and is a Chartered Professional Accountant and Chartered Accountant. | N/A |
Vahram Sukyas California, USA |
Chief Technology Officer | Mr. Sukyas is a 20+ year veteran of the technology industry with a diverse background in engineering and scaling B2B/B2C/B2E digital products and platforms, cloud technologies and cloud native architectures, cybersecurity, infrastructure, and technology operations. Prior to joining VIQ, Vahram was the SVP of Application & Network Technologies at Warner Bros., where he had responsibility for a portfolio of B2C/B2B applications, global network and infrastructure, cloud engineering and architecture, and employee productivity tools. Prior to that, Vahram was a technology executive at Technicolor’s M-GO division, where he played an instrumental role in launching and scaling the M-GO platform to millions of devices across multiple platforms | N/A |
Notes:
| (1) | Member of the Audit Committee. Joseph Quarin is the Chair of the Audit Committee. | |
| (2) | Member of the Compensation Committee. Larry Taylor is the Chair of the Compensation Committee. | |
| (3) | Member of the Nominating and Corporate Governance Committee and is the Chair of the Nominating and Corporate Governance Committee. |
Term of Directors
Each of the directors of the Company is elected to hold office until the end of the next annual meeting of Shareholders.
Aggregate Ownership of Securities
As a group, the directors and executive officers of the Company beneficially own, or control or direct, directly or indirectly, approximately 6,622,433 Common Shares, representing approximately 22% of the issued and outstanding Common Shares.
| Cease Trade Orders, Bankruptcies, Penalties or Sanctions |
Cease Trade Orders
No director or executive officer of the Company is, as at the date of this AIF, or was within ten years before the date of this AIF, a director, chief executive officer or chief financial officer of any company (including the Company) that:
| (a) | was subject to a cease trade order, an order similar to a cease trade order, or an order than denied the relevant company access to any exemption under securities legislation, that was in effect for a period of more than 30 consecutive days (an “order”), that was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer, or |
| (b) | was subject to an order that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer. |
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Bankruptcy & Insolvency
No director or executive officer of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company:
| (a) | is, as at the date of this AIF, or has been within 10 years before the date of this AIF, a director or executive officer of any company (including the Company) that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or |
| (b) | has, within 10 years before the date of this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder. |
Penalties or Sanctions
No director or executive officer of the Company, or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company, has been subject to:
| (a) | any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or |
| (b) | any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision. |
| conflicts of interest |
The Company’s directors and officers may serve as directors or officers, or may be associated with, other reporting companies, or have significant shareholdings in other public companies. To the extent that such other companies may participate in business or asset acquisitions, dispositions, or ventures in which the Company may participate, the directors and officers of the Company may have a conflict of interest in negotiating and concluding terms respecting the transaction. If a conflict of interest arises, the Company will follow the provisions of the OBCA dealing with conflicts of interest. These provisions state that where a director has such a conflict, that director must, at a meeting of the Company’s directors, disclose his or her interest and refrain from voting on the matter unless otherwise permitted by the OBCA. In accordance with the laws of the Province of Ontario, the directors and officers of the Company are required to act honestly, in good faith, and the best interest of the Company.
To the best of the Company’s knowledge, there are no known existing or potential conflicts of interest among the Company or a subsidiary of the Company and the Company’s directors and officers or the directors and officers of a subsidiary of the Company as a result of their outside business interests, except that certain of the directors and officers serve as directors and officers of other companies, and therefore it is possible that a conflict may arise between their duties to the Company and their duties as a director or officer of such other companies.
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| promotErs |
A “Promoter” is defined in the Securities Act (Ontario) as a “(a) a person or company who, acting alone or in conjunction with one or more other persons, companies or a combination thereof, directly or indirectly, takes the initiative in founding, organizing or substantially reorganizing the business of an issuer; or (b) a person or company who, in connection with the founding, organizing or substantial reorganizing of the business of an issuer, directly or indirectly, receives in consideration of services or property, or both services and property, 10 per cent or more of any class of securities of the issuer or 10 per cent or more of the proceeds from the sale of any class of securities of a particular issue, but a person or company who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this definition if such person or company does not otherwise take part in founding, organizing, or substantially reorganizing the business.”
No person or company has been, within the two most recently completed financial years or during the current financial year, a promoter of the Company or of a subsidiary of the Company.
| LEGAL PROCEEDINGS AND REGULATORY ACTIONS |
Legal Proceedings
In the ordinary course of business, VIQ may be subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving tax, social security, labour lawsuits and other matters. VIQ will accrue liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated.
The Company’s management is not aware of any current or contemplated legal proceedings material to the Company to which it is a party or of which any of its property is the subject matter.
Regulatory Actions
During the financial year ended December 31, 2021, there were no: (a) penalties or sanctions imposed against the Company by a court relating to securities legislation or by a securities regulatory authority; (b) other penalties or sanctions imposed by a court or regulatory body against the Company that would likely be considered important to a reasonable investor in making an investment decision; and (c) settlement agreements the Company entered into before a court relating to securities legislation or with a securities regulatory authority.
| INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS |
There were no material interests, direct or indirect, of any director or executive officer of VIQ, of any person who beneficially owns, directly or indirectly, or exercises control or direction over more than 10% of the outstanding voting securities of VIQ, or any associate or affiliate of such persons, in any transaction within the three most recently completed financial years or during the current financial year that has materially affected or is reasonably expected to materially affect VIQ.
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| TRANSFER AGENTS AND REGISTRARS |
The transfer agent and registrar for the Common Shares in Canada is TSX Trust Company located at 100 Adelaide Street W, Suite 301, Toronto, Ontario M5H 4H1, and in United States is Continental Stock Transfer & Trust located at 1 State Street, 30th Floor, New York, NY 10004.
| MATERIAL CONTRACTS |
Except for contracts entered into in the ordinary course of business, the only contracts: (a) entered into during the 12-month period ended December 31, 2021 which are material; or (b) entered into before the 12-month period ended December 31, 2021, but are still in effect, and which are required to be filed with the Canadian securities regulatory authorities are the following:
| (a) | securities purchase agreement dated as of September 13, 2021 between VIQ and each purchaser under the RDO (the “Securities Purchase Agreement”); and |
| (b) | placement agency agreement dated September 13, 2021 between VIQ and A.G.P./Alliance Global Partners (the “Placement Agency Agreement”). |
The Securities Purchase Agreement and the Placement Agency Agreement were filed on SEDAR on September 14, 2021. For a summary of these two agreements, see “General Development of the Business – Three Year History”.
| INTERESTS OF EXPERTS |
The Company’s auditor is KPMG LLP and is located at Vaughan Metropolitan Centre, 100 New Park Place, Suite 1400, Vaughan, Ontario L4K 0J3. Such auditor is independent within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations and also has confirmed that they are independent accountants with respect to the Company under all relevant US professional and regulatory standards.
To the Company’s knowledge, neither KPMG LLP nor the designated professionals of KPMG LLP hold any registered or beneficial interest, direct or indirect, in any securities or other property of the Company.
| AUDIT COMMITTEE |
The following information regarding the audit committee of the Board (the “Audit Committee”) is required to be disclosed pursuant to NI 52-110.
Audit Committee Mandate and Terms of Reference
The Audit Committee is a committee established for the purpose of overseeing the accounting and financial reporting process of the Company and annual external audits of the consolidated financial statements. The charter of the Audit Committee is attached hereto as Schedule “A”.
Composition of the Audit Committee
| · | The members of the Audit Committee, being Messrs. Quarin (Chair), Gordon and Kessel, are independent and “financially literate” in accordance with NI 52-110, independent under Nasdaq listing rules, and “audit committee financial experts” in accordance with United States Securities and Exchange Commission rules. In addition, the members of the Audit Committee have education and experience relevant to the performance of their responsibilities as Audit Committee members, as follows: Mr. Quarin is a successful public company Chief Executive Officer (TSX and NYSE), corporate executive and director. He was the Chief Executive Officer and Director of Progressive Waste Solutions Ltd., a North American non-hazardous solid waste management company from January 2012 until the reverse-merger with Waste Connections Inc. in 2016. Joe joined Progressive’s inaugural leadership team in July 2000 and played an integral role in its growth and success from US$100 million to US$2 billion in revenue. Joe is currently the President and Chief Executive Officer of Q5 Capital Inc., a private investment company and strategic management advisor focused on leadership, growth and operating initiatives that drive value creation. Joe currently serves as a Board member of Spark Power Group Inc. (TSX: SPG), Edo Revenue Royalty GP and EJ Trademark GP, and Eagle River Capital, LLC. Joe holds a Master of Business Administration (with Distinction) from the Ivey Business School at Western University, a Bachelor of Commerce (Honours) from the Smith School of Business at Queen’s University, and is a Chartered Professional Accountant and Chartered Accountant. |
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| · | Mr. Gordon is the Managing Director of Channel Solutions Inc., where he provides CEO mentoring and strategic development guidance to growth-oriented technology companies. Mr. Gordon has extensive software, professional services and technology leadership experience as the CEO of international, US and Canadian companies, both public and private. He has held key senior executive positions during high growth phases of industry leading software and service firms, including Algorithmics Inc., Changepoint Corporation, Infonet Services Corporation and Magic Lantern Group. Mr. Gordon holds a Master of Science degree in Computer Science from the University of Toronto and a Bachelor of Applied Science in Engineering Science. |
| · | Mr. Kessel is the President and CEO of Cleveland Clinic Canada and is responsible for the growth, strategic partnerships and enterprise value creation. He implemented a unique public/private hybrid strategy that led to formal partnerships with Sick Kids, Sunnybrook and Mt. Sinai Hospitals and the Heart and Stroke Foundation. He also led partnership efforts with the Ontario Ministry of Health resulting in important firsts in country and cross border patient care. Mr. Kessel earned an MBA from Kellogg Business School at Northwestern University in Chicago and a Bachelor of Science from The Ohio State University. He is also a Chartered Professional Accountant. |
Audit Committee Oversight
At no time since the commencement of the Company’s most recently completed financial year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board.
Pre-Approval Policies and Procedures
The Audit Committee reviews and pre-approves all non-audit services to be provided to the Company by its external auditors.
External Auditor Service Fees
The following table summarizes fees paid to the Company’s independent auditors, KPMG LLP, for the years ended December 31, 2021 and December 31, 2020:
| Type of Service Provided | 2021 | 2020 | ||||||
| Audit fees(1) | $ | 1,227,321 | $ | 252,691 | ||||
| Audit-related fees(2) | $ | 80,250 | - | |||||
| Tax fees(3) | $ | 104,271 | $ | 22,973 | ||||
| Total | $ | 1,411,842 | $ | 275,664 | ||||
Notes:
| (1) | “Audit fees” include the aggregate fees billed by the Company’s external auditor for professional services rendered by the external auditor for the audit of the Company’s financial statements, reviews of interim financial statements or services that are normally provided by the external auditor in connection with statutory and regulatory filings or engagements. |
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| (2) | “Audit-related fees” include the aggregate fees billed for assurance and related services by the Company’s external auditor that are reasonably related to the performance of the audit of the Company’s financial statements and are not reported under “Audit Fees”. |
| (3) | “Tax fees” include the aggregate fees billed for professional services rendered by the Company’s external auditor for tax compliance, tax advice, and tax planning and include corporate tax returns and preparation of SR&ED returns. |
| ADDITIONAL INFORMATION |
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities and securities authorized for issuance under the Company’s equity compensation plans, where applicable, is contained in the Company’s management information circular. Additional financial information relating to the Company is contained in the Company’s comparative financial statements and associated management’s discussion and analysis for its most recently completed fiscal year ended December 31, 2021.
All of these documents as well as additional information relating to the Company are available on SEDAR at www.sedar.com. Additional information regarding the Company is also available on EDGAR at www.sec.gov/edgar.
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SCHEDULE
“A”
VIQ SOLUTIONS INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
ESTABLISHMENT OF THE AUDIT COMMITTEE
The board of directors (the "Board") of VIQ Solutions Inc. (the "Corporation") has established a committee of the Board to be called the Audit Committee (the "Committee").
PURPOSE AND AUTHORITY
The primary function of the Committee is to assist the Board in fulfilling its oversight responsibilities by:
| · | reviewing the financial reports and other financial information provided by the Corporation to any governmental body or the public and other relevant documents; |
| · | being directly responsible for the appointment, compensation, retention and oversight of the work of the Corporation’s independent auditor (including resolution of disagreements between management and the auditor regarding financial reporting) and providing an open avenue of communication among the independent auditor, financial and senior management and the Board; |
| · | serving as an independent and objective party to monitor the Corporation’s financial reporting process and internal controls, the Corporation’s processes to manage business and financial risk, and its compliance with legal, ethical and regulatory requirements; |
| · | encouraging continuous improvement of, and fostering adherence to, the Corporation’s policies, procedures and practices at all levels; |
| · | overseeing the Corporation’s internal audit function; and |
| · | overseeing related party transactions. |
| · | The Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section IV of this Charter. The Committee has the authority to: |
| ○ | engage independent counsel and other advisors as it determines necessary or advisable to carry out its duties; |
| ○ | set and pay the compensation for any advisors employed by the Committee with the funding therefor to be paid by the Corporation; |
| ○ | communicate directly with the external auditors; and |
| ○ | delegate to individual members or subcommittees of the Committee. |
COMPOSITION AND MEETINGS
| 1. | The Committee shall be comprised of three or more directors as determined by the Board. Every Committee member must be “independent” and “financially literate” as such terms are defined in applicable securities legislation and exchange listing standards. For purposes of this Charter, a Committee member is “independent” if the member has no direct or indirect material relationship with the Corporation, including a relationship which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment. In addition, a Committee member may not, other than in his capacity as a member of the Committee or the Board, (i) accept directly or indirectly any consulting, advisory, or other compensatory fee from the Corporation or any subsidiary thereof; or (ii) be an affiliated person of the Corporation or any subsidiary thereof. A Committee member is “financially literate” if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation’s financial statements. Committee members may enhance their familiarity with finance and accounting by participating in educational programs conducted by the Corporation or an outside consultant. |
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| 2. | The members of the Committee shall be elected by the Board at the annual organizational meeting of the Board or until their successors shall be duly elected and qualified. Unless a Chair is elected by the full Board, the members of the Committee may designate a Chair by majority vote of the full Committee membership. |
| 3. | The Committee shall meet at least four times annually, or more frequently as circumstances require. The Committee shall meet within fourty-five (45) days following the end of the first three financial quarters to review, discuss and recommend for approval by the Board the unaudited financial results for the preceding quarter and the related Management’s Discussion & Analysis (“MD&A”) and shall meet within ninety (90) days following the end of the fiscal year end to review, discuss and recommend for approval by the Board the audited financial results for the year and related MD&A. |
| 4. | The Committee may ask members of management or others to attend meetings and provide pertinent information as necessary. For purposes of performing their audit related duties, members of the Committee shall have full access to all corporate information and shall be permitted to discuss such information and any other matters relating to the financial position of the Corporation with senior employees, officers and independent auditors of the Corporation. |
| 5. | As part of its job to foster open communication, the Committee should meet at least annually with management and the independent auditor in separate executive sessions to discuss any matters that the Committee or each of these groups believe should be discussed privately. In addition, the Committee or at least its Chair may meet with the independent auditor and management quarterly to review the Corporation’s financial statements. |
| 6. | Quorum for the transaction of business at any meeting of the Committee shall be a majority of the number of members of the Committee or such greater number as the Committee shall by resolution determine. |
| 7. | Meetings of the Committee shall be held from time to time and at such place as the Committee or the Chair of the Committee shall determine upon 48 hours notice to each of the members. The notice period may be waived by a quorum of the Committee. Each of the Chair of the Committee, members of the Committee, Chairman of the Board, independent auditors, Chief Executive Officer, Chief Financial Officer or Secretary shall be entitled to request that the Chair of the Committee call a meeting which shall be held within 48 hours of receipt of such request. |
| 8. | If requested by a member of the Committee, the independent auditor shall attend meetings of the Committee as required during the term of office of the independent auditor. |
| 9. | The Committee shall appoint a Secretary to the Committee who need not be a director or officer of the Corporation. Minutes of meetings of the Committee shall be recorded and maintained by the Secretary to the Committee and shall be subsequently presented to the Committee for review and approval. |
| 10. | The Committee will regularly report to the Board on all significant matters it has considered and addressed and with respect to such other matters that are within its responsibilities, including any matters approved by the Committee or recommended by the Committee for approval by the Board. The Committee shall circulate to the Board copies of the minutes of each meeting held. |
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RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Committee shall:
| 1. | Create an agenda for the ensuing year. |
| 2. | Review and update this Charter at least annually, as conditions dictate. |
| 3. | Describe briefly in the Corporation's annual report and more fully in the Corporation's Management Information Circular the Committee's composition and responsibilities and how they were discharged. |
| 4. | Submit the minutes of all meetings of the Committee to the Board. |
Documents/Reports Review
| 5. | Review the Corporation’s annual and interim financial statements, annual and interim MD&A and annual and interim earnings press releases before the Corporation publicly discloses this information. |
| 6. | Ensure that adequate procedures are in place for the review of the Corporation’s public disclosure of financial information extracted or derived from the Corporation’s financial statements, other than the public disclosure referred to in the preceding section and must periodically assess the adequacy of those procedures. |
| 7. | Review any other reports or financial information submitted to any governmental body, or the public, including any certification, report, opinion, or review rendered by the independent auditor. |
| 8. | Review policies and procedures with respect to directors’ and officers’ expense accounts and management perquisites and benefits, including their use of corporate assets and expenditures related to executive travel and entertainment, and review the results of the procedures performed in these areas by the independent auditor, based on terms of reference agreed upon by the independent auditor and the Committee. |
| 9. | Review with financial management and the independent auditor any filings with regulatory bodies such as securities commissions prior to filing or prior to the release of earnings. The Chair of the Committee may represent the entire Committee for purposes of this review. |
Independent Auditor
| 10. | Be responsible for the appointment compensation, retention and oversight of the work of the independent auditor for the purpose of preparing or issuing an auditor’s report or performing other audit, review or attest services for the Corporation, considering independence and effectiveness of the independent auditor. The independent auditor is required to report directly to the Committee. |
| 11. | Resolution of disagreements between management and the independent auditor regarding financial reporting. |
| 12. | Monitor the relationship between management and the independent auditor including reviewing any management letters or other reports of the independent auditor and discussing any material differences of opinion between management and the independent auditor. |
| 13. | Review and discuss, on an annual basis, from the independent auditor a formal written statement delineating all relationships the independent auditor has with the Corporation and actively engage in dialogue with the auditor about any disclosed relationships or services that may impact the objectivity and independence of the auditor and take appropriate action to oversee their independence. |
| 14. | Review and pre-approve requests for any service engagement, including any permitted non-audit services, to be performed by the independent auditor for the Corporation or its subsidiaries that is beyond the scope of the pre-approved audit engagement letter and related fees. |
| 15. | Consider with management and the independent auditor the rationale for employing accounting/auditing firms other than the principal independent auditor. |
| 16. | Periodically consult with the independent auditor out of the presence of management about significant risks or exposures, internal controls and other steps that management has taken to control such risks, and the fullness and accuracy of the Corporation’s financial statements. Particular emphasis should be given to the adequacy of internal controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper. |
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| 17. | Arrange for the independent auditor to be available to the Committee and the full Board as needed and meet regularly in camera with the independent auditor. |
| 18. | Review the proposed audit scope, focus areas, timing and key decisions (e.g., materiality, reliance on internal audit) underlying the audit plan and the appropriateness and reasonableness of the proposed audit fees. |
| 19. | Receive and review an annual report from the external auditor on the progress against the approved audit plan, important findings, recommendations for improvements and the auditors’ final report. |
Financial Reporting Processes
| 20. | In consultation with the independent auditor, review the integrity of the Corporation’s financial reporting processes, both internal and external. |
| 21. | Consider the independent auditor’s judgments about the quality and appropriateness, not just the acceptability, of the Corporation’s accounting principles and financial disclosure practices, as applied in its financial reporting, particularly about the degree of aggressiveness or conservatism of its accounting principles and underlying estimates and whether those principles are common practices or are minority practices. |
| 22. | Consider and approve, if appropriate, major changes to the Corporation’s accounting principles and practices as suggested by management with the concurrence of the independent auditor and ensure that the accountants’ reasoning is described in determining the appropriateness of changes in accounting principles and disclosure. |
Process Improvement
| 23. | Establish regular and separate systems of reporting to the Committee by each of management and the independent auditor regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments. |
| 24. | Review the scope and plans of the independent auditor’s audit and reviews prior to the audit and reviews being conducted. The Committee may authorize the independent auditor to perform supplemental reviews or audits as the Committee may deem desirable. |
| 25. | Following completion of the annual audit, review separately with each of management and the independent auditor any significant changes to planned procedures, any difficulties encountered during the course of the audit and reviews, including any restrictions on the scope of work or access to required information and the cooperation that the independent auditor received during the course of the audit. |
| 26. | Review any significant disagreements among management and the independent auditor in connection with the preparation of the financial statements. |
| 27. | Where there are significant unsettled issues, the Committee shall ensure that there is an agreed course of action for the resolution of such matters. |
| 28. | Review with the independent auditor and management significant findings during the year and the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented. This review should be conducted at an appropriate time subsequent to implementation of changes or improvements, as decided by the Committee. |
| 29. | Review activities, organizational structure, and qualifications of the Chief Financial Officer and the staff in the financial reporting area and see ensure that matters related to succession planning within the Corporation are raised for consideration with the full Board. |
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Internal Audit
| 30. | Oversee the Corporation’s internal audit function. |
| 31. | Oversee the internal audit budget and staffing. |
Ethical and Legal Compliance
| 32. | If deemed necessary, establish and review related party transaction policies and review and approve related-party transactions entered into by the Corporation. |
| 33. | Review management’s monitoring of the Corporation’s system in place to ensure that the Corporation’s financial statements, reports and other financial information disseminated to governmental organizations and the public satisfy legal requirements. |
| 34. | Review, with the Corporation’s counsel, legal and regulatory compliance matters, including corporate securities trading policies, and matters that could have a significant impact on the Corporation’s financial statements. |
| 35. | Review regular reports from management and others concerning the Corporation’s compliance with financial related laws and regulations, such as: Review and update periodically a Code of Business Conduct and Ethics and ensure that management has established a system to enforce this Code. Review through appropriate actions taken to ensure compliance with the Code and to review the results of confirmations and violations of such Code. |
Review management's monitoring of the Corporation's system in place to ensure that the Corporation's financial statements, reports and other financial information disseminated to governmental organizations, and the public satisfy legal requirements.
Review, with the Corporation's counsel, legal and regulatory compliance matters, including corporate securities trading policies, and matters that could have a significant impact on the Corporation's financial statements.
Review regular reports from management and others concerning the Corporation's compliance with financial related laws and regulations, such as:
| · | tax and financial reporting laws and regulations; |
| · | legal withholdings requirements; |
| · | other matters for which directors face liability exposure. |
Risk Management
| 36. | Review management's program of risk assessment and steps taken to address significant risks or exposures, including insurance coverage. |
Submission Systems and Treatment of Complaints
| 37. | Establish procedures for: the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters; and the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters. |
Hiring Policy
| 38. | Review and approve the Corporation's hiring policies regarding partners, employees and former partners and employees of the present and former independent auditor of the Corporation. |
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General
| 39. | Conduct or authorize investigations into any matters within the Committee’s scope of responsibilities. The Committee shall be empowered to retain independent counsel, accountants and other professionals to assist it in the conduct of any investigation. |
| 40. | Perform any other activities consistent with this Charter, the Corporation’s By-laws and governing law, as the Committee or the Board deems necessary or appropriate. |
| 41. | Notwithstanding the foregoing and subject to applicable law, the Committee shall not be responsible to plan or conduct internal or external audits or to determine that the Corporation’s financial statements are in accordance with generally accepted accounting principles as these are the responsibility of management and the independent auditor. Nothing contained in this Charter is intended to require the Committee to ensure the Corporation’s compliance with applicable laws or regulation. Conduct or authorize investigations into any matters within the Committee's scope of responsibilities. The Committee shall be empowered to retain independent counsel, accountants and other professionals to assist it in the conduct of any investigation. |
Perform any other activities consistent with this Charter, the Corporation's By-laws and governing law, as the Committee or the Board deems necessary or appropriate.
Notwithstanding the foregoing and subject to applicable law, the Committee shall not be responsible to plan or conduct internal or external audits or to determine that the Corporation's financial statements are in accordance with generally accepted accounting principles as these are the responsibility of management and the independent auditor. Nothing contained in this Charter is intended to require the Committee to ensure the Corporation's compliance with applicable laws or regulation.
FUNDING
The Corporation must provide for appropriate funding, as determined by the Committee, in its capacity as a committee of the Board, for payment of:
1. Compensation to any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation.
2. Compensation to any advisors employed by the Committee under Section II of this Charter; and
3. Ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.
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