6-K
VIQ Solutions Inc. (VQSSF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TORULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2021
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.
| ¨ Form<br> 20-F | x 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: August 18, 2021 | By: | /s/ Alexie Edwards | |
| Name: | Alexie Edwards | ||
| Title: | Chief Financial Officer |
Form 6-K Exhibit Index
Exhibit 99.1
VIQ Solutions to Report Second Quarter 2021 Financial Results on Monday, August 16, 2021
PHOENIX,ARIZONA, August 16, 2021 - VIQ Solutions Inc. (“VIQ” or the “Company”) (TSX:VQS and NASDAQ:VQS), a global provider of secure, AI-driven, digital voice and video capture technology and transcription services, will release its financial results for the second quarter ended June 30, 2021, after market close today. VIQ management will host a conference call to discuss these results on Tuesday, August 17th at 11:00 AM Eastern Time.
Investors may access a live webcast of the call on the Company’s website at www.viqsolutions.com/investors or by dialing 1-833-378-1030 (North America toll-free) or +1-236-712-2544 (international) to be connected to the call by an operator using conference ID number 3387846. Participants should dial in at least 10 minutes prior to the start of the call.
A replay of the webcast will be available on the Company’s website through the same link approximately one hour after the conference call concludes.
For additional information:
| Media Contact: | Investor Relations Contact: |
|---|---|
| Laura Haggard | Laura Kiernan |
| Chief Marketing Officer | High Touch Investor Relations |
| VIQ Solutions | Phone: 1-914-598-7733 |
| Phone: (800) 263-9947 | Email: [email protected] |
| Email: [email protected] |
For more information about VIQ, please visit viqsolutions.com.
AboutVIQ Solutions Inc.
VIQ Solutions is a global provider of secure, AI-driven, digital voice and video capture technology and transcription services. VIQ offers a seamless, comprehensive solution suite that delivers intelligent automation, enhanced with human review, to drive transformation in the way content is captured, secured, and repurposed into actionable information. The cyber-secure, AI technology and services platform are implemented in the most rigid security environments including criminal justice, legal, insurance, government, corporate finance, media, and transcription service provider markets, enabling them to improve the quality and accessibility of evidence, to easily identify predictive insights and to achieve digital transformation faster and at a lower cost.
Exhibit 99.2
VIQ Solutions Reports Second Quarter 2021 Financial Results and Third Quarter 2021 Outlook
PHOENIX, ARIZONA, August 16, 2021 - VIQ Solutions Inc. (“VIQ” or the “Company”) (TSX and Nasdaq: VQS), a global provider of secure, AI-driven, digital voice and video capture technology and transcription services, today reported unaudited financial results for the second quarter 2021 ended June 30, 2021 and provided an outlook for the third quarter 2021. Results are reported in US dollars and are prepared in accordance with International Financial Reporting Standards ("IFRS").
“VIQ Solutions reached a significant milestone and began trading on the Nasdaq Stock Exchange on the Nasdaq Capital Market (“the Nasdaq”) last Thursday. This milestone cements our commitment to change the way evidentiary documentation is captured, transformed, analyzed, and distributed. While we were disappointed to terminate our IPO due to market conditions, we are very excited about our recent listing on the Nasdaq. We expect this move will lead to increased liquidity for our shareholders with the trading of our shares occurring on both the Nasdaq and the TSX markets,” said Sebastien Paré, VIQ Chief Executive Officer.
“Earlier this month, we provided a look into our operational results. At that time, we felt it was prudent to align expectations with lockdowns in Australia and the UK, which delayed some revenue. Despite the impact on our revenue, we decided to protect our workforce in preparation for work with existing accounts, as well as new contracts expected to begin when we emerge from these region-specific lockdowns. These shutdowns also temporarily impacted our gross margin as we incurred expenses without revenue. The level of subsidies to offset this impact was significantly reduced this year versus the prior year with approximately $2.5 million less in Covid-19 wage subsidies,” said Susan Sumner, VIQ President and Chief Operating Officer.
Second Quarter 2021Financial Highlights:
| · | Revenue of $8.2 million compares to $8.3 million<br>in the same quarter of 2020 and in the first quarter 2021. The decrease of approximately 1% both year-over-year and sequentially was driven<br>by delayed revenue resulting from COVID-19 impact as courts in Australia and in the UK were intermittently shutdown. The estimated Covid-19<br>related impact on revenue in the quarter exceeded $1 million, and was moved into backlog; |
|---|---|
| · | Gross profit of $4.0 million represented 49%<br>of revenue compared to $5.0 million, or 61% of revenue, in the same quarter of 2020. The decrease in gross margin for the three months<br>ended June 30, 2021 versus the prior year was primarily related to a few factors including: delayed revenue due to the Covid-19 shutdowns<br>moving into backlog; preparation costs for new contracts, for which revenue are expected to commence during the second half of 2021; strategic<br>operating commitments to maintain the Company’s editing capacity to meet expected demand; and phased out Covid-19 wage subsidies; |
| --- | --- |
| · | Adjusted EBITDA was negative $0.3 million versus<br>the prior year Adjusted EBITDA of $1.8 million. In addition to the gross profit impacts previously mentioned, the decrease in Adjusted<br>EBITDA was driven by approximately $0.6 million in significant one-time professional service fees associated with the completion of capital<br>market milestones including our Nasdaq listing, filing the Company’s Base shelf prospectus dated June 10, 2021 and the F-10 registration<br>statement in the U.S., and acquisition due diligence. For a reconciliation of net loss to Adjusted EBITDA, please see the table at the<br>end of this press release; |
| --- | --- |
| · | Net loss was $10.5 million versus net loss of<br>$1.0 million in 2020. Approximately $6.7 million of the current quarter’s loss is related non-cash stock-based compensation following<br>the shareholder approval of new Omnibus plan, and approximately $0.2 million in restructuring related expenses. |
| --- | --- |
Expenses Relatedto Corporate Actions Impacting 2021
Mr. Paré continued, “We completed a significant amount of due diligence on potential acquisitions over the past several months, and we believe that the stage is set for us to continue executing on our M&A roll-up strategy.”
VIQ plans to complete several corporate milestones related to the acceleration of its innovation and global expansion initiatives in 2021. The one-time expenses associated with these corporate milestones are and will be included in the Company’s financial results.
The Company invested significantly in a variety of corporate actions during the first half of 2021 aimed at executing key growth milestones. Investments include upfront expenses in cost of sale and employee retention related to staffing for backlog and expanded contract in Australia, banking, legal and advisory fees related to the Company’s Nasdaq listing, and due diligence for planned acquisitions. These one-time fees are estimated to be approximately $0.2 million in the first quarter and $0.6 million in the second quarter and additional amounts are expected in the second half of 2021. These expenses, while considered “one-time” in nature, will not be added back as part of the Company’s adjusted EBITDA calculation.
“We continue to focus on improving the quality of our revenue as we grow our SaaS strategy and AI innovation at a faster pace. FirstDraft, powered by aiAssist™, creates machine-based documentation with breakthrough accuracy and has proven to improve gross margin by approximately 80% when compared to traditional services. We are improving our productivity and scalability, which should drive significant margin expansion in the future,” said Alexie Edwards, Chief Financial Officer of VIQ.
First Half of 2021 Financial Highlights:
| · | Revenue<br>of $16.4 million increased 4% compared to $15.8 million in revenue in 2020; |
|---|---|
| · | Gross<br>profit of $8.0 million represented 49% of revenue versus $8.3 million or 52% in 2020. Gross profit for the first six months of 2021 was<br>negatively impacted by the effects of Covid-19 shutdowns including delayed revenue, and reduced Covid-19 subsidies of approximately $1.1<br>million, while the Company retained its workforce ahead of the delivery for existing customers and new contracts scheduled for the second<br>half of 2021; |
| --- | --- |
| · | Adjusted<br>EBITDA was nil ($0.0 million) compared to a positive $2.4 million in 2020. The Adjusted EBITDA was negatively impacted by lower gross<br>margins and higher SG&A expenses related to corporate initiatives of $0.8 million (all described previously). For a reconciliation<br>of Net loss to Adjusted EBITDA, please see the table at the end of this press release; |
| --- | --- |
| · | Net<br>loss was $12.2 million versus a net loss of $7.7 million in 2020. Approximately $6.8 million of the current period’s loss relates<br>to non-cash stock-based compensation following the shareholder approval of a new Omnibus plan, $0.8 million related to corporate initiatives,<br>and approximately $0.4 million in restructuring related expenses. |
| --- | --- |
“Our $12 million cash balance at quarter end, provides the liquidity to begin acquiring more accretive companies with a tremendous amount of rich domain specific content to help us improve our offerings and expand our client base globally while maintaining a substantial pipeline of potential acquisitions to consider,” Mr. Edwards continued.
2
Long-term Global Growth Strategy for VIQ asthe Branded Industry Leader – Secure, Accurate, Fast
VIQ remains on track to grow organically this year and next year at double-digit rates despite the impacts of Covid-19, which continue to affect some of the Company’s industry verticals and regions, particularly in Australian courts.
VIQ’s scalable technology utilizes sophisticated technology and artificial intelligence (AI) designed to securely ingest significant amounts of evidentiary content to produce accurate, verbatim, diarized documents for mission critical events that have lasting financial and social impact.
AI-powered workflow processed over 20 million minutes of recorded, multi-speaker, multi-channel audio and video in 2020 and transcribed 40 million pages of secure, industry specific evidence documentation creating actionable information for use by their more than 1,800 clients worldwide.
“We generated consistent growth in multi-speaker, highly regulated, evidentiary voice and video data in our core verticals across the globe,” said Susan Sumner. “The U.S. total addressable market in the industries we serve is estimated to be over $10 billion with an annual CAGR of 6.1%. This highlights the increased need for technology and innovative capabilities to manage the vast amount of data collected. Our proprietary workflow solution, powered by AI, will drive transformation in the marketplace while driving margin expansion.”
“We are regarded as the leader in our core verticals, providing advanced technology solutions solving compliance and workflow challenges for our global client base. With the addition of FirstDraft, powered by aiAssist™, we will expand the overall opportunity to digitize an entire library of client content versus only the critical files that are professionally edited for final consumption today. Product innovation remains central to our core strategy and initiatives to drive revenue and increase gross margin,” Ms. Sumner continued.
The Company expects to migrate clients to bundled SaaS hybrid pricing models during the fourth quarter of 2021 and during 2022. These pricing models are expected to drive stronger, long-term client relationships with predictable recurring revenue and higher margins.
Q3 Outlook:
VIQ reiterates from its July 30, 2021 news release that it anticipates revenue in the third quarter to be in the range of $8.2 to $8.5 million. Gross margins are expected to be in the range of 46.0% to 47.0%. Gross margin estimates do not include any potential positive impact related to wage subsidies.
The Company continues to execute its planned commitment to scale its technology editing infrastructure, M&A, and sales globally to meet new demands and opportunities for its products and services.
3
Conference Call Details
VIQ will host a conference call to discuss its second quarter 2021 results on Tuesday, August 17 at 11:00 AM Eastern Time. The call will consist of a brief update by Sebastien Paré, VIQ’s CEO, Alexie Edwards, VIQ’s CFO, and Susan Sumner, VIQ’s President and COO, followed by a question-and-answer period.
Investors may access a live webcast of the call on the Company’s website at www.viqsolutions.com/investors or by dialing 1-833-378-1030 (North America toll-free) or +1-236-712-2544 (international) to be connected to the call by an operator using conference ID number 3387846. Participants should dial in at least 10 minutes prior to the start of the call. A replay of the webcast will be available on the Company’s website through the same link approximately one hour after the conference call concludes.
For additional information:
| Media Contact: | Investor Relations Contact: |
|---|---|
| Laura Haggard | Laura Kiernan |
| Chief Marketing Officer | High Touch Investor Relations |
| VIQ Solutions | Phone: 1-914-598-7733 |
| Phone: (800) 263-9947 | Email: [email protected] |
| Email: [email protected] |
For more information about VIQ, please visit viqsolutions.com.
4
AboutVIQ Solutions Inc.
VIQ Solutions is a global provider of secure, AI-driven, digital voice and video capture technology and transcription services. VIQ offers a seamless, comprehensive solution suite that delivers intelligent automation, enhanced with human review, to drive transformation in the way content is captured, secured, and repurposed into actionable information. The cyber-secure, AI technology and services platform are implemented in the most rigid security environments including criminal justice, legal, insurance, government, corporate finance, media, and transcription service provider markets, enabling them to improve the quality and accessibility of evidence, to easily identify predictive insights and to achieve digital transformation faster and at a lower cost.
Forward-lookingStatements
Certain statements included in this news release constitute forward-looking statements or forward-looking information under applicable securities legislation. Such forward-looking statements or information are provided for the purpose of providing information about management’s current expectations and plans relating to the future, which are considered reasonable by management. Readers are cautioned that reliance on such information may not be appropriate for other purposes.
Forward-looking statements or information typically contain statements with words such as “anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “project” or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information in this news release include, but are not limited to, the impact of the Nasdaq listing on shareholder liquidity, the Company continuing to execute its M&A roll-up strategy, the timing of revenue from the Company’s contract backlog, the Company’s plans to complete several of its corporate milestones related to the acceleration of its innovation, global expansion, and public market related initiatives in 2021, the estimated fees associated with the Company’s corporate actions during the first half of 2021, the Company improving the quality of its revenue as it grows its SaaS strategy and AI innovation, the Company improving its productivity and scalability and the anticipated effect of driving significant margin expansion in the future, the Company growing organically this year and next year at double-digit rates, the estimated size of the U.S. total addressable market in the industries the Company serves, the Company’s proprietary workflow solution, powered by AI, driving transformation in the marketplace while driving margin expansion, the Company expanding the overall opportunity to digitize its client’s entire library of content, the Company migrating its clients to bundled SaaS hybrid pricing models during the fourth quarter of 2021 and during 2022 and the anticipated effect of these pricing models, the Company executing on its planned commitment to scale its technology editing infrastructure and sales globally to meet new demands and to address new opportunities for its products and services, the Company’s expected one-time strategic initiative costs and the Company’s ability to begin acquiring bigger, more accretive companies with tremendous amount of rich domain specific content that help us improve our offerings and expand our client base globally while maintaining a substantial pipeline of potential acquisitions to consider.
5
In this news release, forward-looking information that constitutes “financial outlooks” within the meaning of applicable Canadian securities laws, consists of VIQ’s expectations regarding its future performance, as disclosed under the heading “Q3 Outlook”, including expectations with respect to revenue and gross margin. These estimates are preliminary and are inherently uncertain due to a number of factors, and remain subject to VIQ management and its audit committee reviews and the completion of regular financial closing and review procedures and audit procedures for the period ended September 30, 2021. Additional adjustments to the preliminary estimates presented above may be identified, and final results for the relevant fiscal periods may differ materially from these preliminary estimates and will not be finalized until after the Company completes its normal year-end accounting procedures, including execution of internal controls over financial reporting. These preliminary estimates are intended to provide information about management’s current expectations regarding certain aspects of VIQ’s financial performance. Reliance on the information presented herein may not be appropriate for other purposes.
These forward-looking statements or information are based on several factors and assumptions which have been used to develop such statements and information, but which may prove to be incorrect. Although VIQ 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 VIQ 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 news release, assumptions have been made regarding, among other things; the Company’s ability to execute its business plan as currently contemplated; the Company’s ability to migrate its customers to the bundled SaaS hybrid pricing models in accordance with projected timelines; the Company’s ability to maintain its existing customer contracts in good standing; the Company’s ability to identify and acquire suitable acquisition targets; the accuracy of the Company’s financial projections; the Company’s ability to continue to grow its customer base in accordance with current projections; and the Company’s ability to execute its productivity and scalability strategy. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions that have been used.
Forward-looking statements or information is based on current expectations, estimates and projections that involve several risks and uncertainties which could cause actual results to differ materially from those anticipated by VIQ, including but not limited to; the risk that the Company will be unable to successfully execute its business plan; the risk that Company will be unable to successfully migrate its customers to its bundled SaaS hybrid pricing models as anticipated or at all; the risk that certain of the Company’s customer contracts will be terminated; the risk that the Company’s projections are not accurate; the risk that the Company will be unable to identify or acquire suitable acquisition targets; the risk that the Company will be unable to integrate future acquisitions into its existing operations and the risks and uncertainties described under the heading “Risk Factors” in VIQ’s Annual Information Form for the year ended December 31, 2020, filed with the Canadian securities regulatory authorities under VIQ’s SEDAR profile at www.sedar.com.
These risks and uncertainties may cause actual results to differ materially from the forward-looking statements or information. Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties. The forward-looking statements contained in this release are made as of the date of this release and, except as required by applicable law, VIQ undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
6
VIQ Solutions Inc.
Interim Condensed Consolidated Statements of Financial Position
(Expressed in United States dollars) (Unaudited)
| June 30,<br> 2021 | December 31,<br> 2020 | |||||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Current assets | ||||||
| Cash | $ | 12,374,826 | $ | 16,835,671 | ||
| Trade and other receivables,<br> net of allowance for doubtful accounts (note 5, 6) | 5,733,043 | 4,475,751 | ||||
| Inventories | 76,248 | 49,381 | ||||
| Prepaid expenses and deposits | 621,021 | 254,230 | ||||
| 18,805,138 | 21,615,033 | |||||
| Non-current assets | ||||||
| Restricted cash | 92,428 | 42,835 | ||||
| Property and equipment | 199,536 | 215,835 | ||||
| Right of use assets | 229,557 | 309,566 | ||||
| Intangible assets (note 7) | 11,018,562 | 12,118,352 | ||||
| Goodwill (note 7) | 6,963,118 | 6,976,096 | ||||
| Deferred tax assets | 389,481 | 1,441,942 | ||||
| Total assets | $ | 37,697,820 | $ | 42,719,659 | ||
| Liabilities | ||||||
| Current liabilities | ||||||
| Trade and other payables and accrued liabilities | $ | 4,737,942 | $ | 5,305,600 | ||
| Income tax payable | 190,284 | 201,592 | ||||
| Share appreciation rights plan obligations<br> (note 9) | 37,416 | 126,503 | ||||
| Share based payment<br> liability (note 9) | 177,316 | – | ||||
| Current portion of<br> long-term debt (note 8) | 1,260,251 | 1,486,136 | ||||
| Current portion of lease obligations (note<br> 17) | 50,479 | 113,218 | ||||
| Current portion of contract liabilities | 1,007,300 | 1,252,957 | ||||
| 7,460,988 | 8,486,006 | |||||
| Non-current liabilities | ||||||
| Deferred tax liability | 59,778 | 60,587 | ||||
| Long-term debt (note 8) | 12,347,567 | 12,138,799 | ||||
| Long-term contingent consideration (note 4) | 1,111,940 | 1,575,528 | ||||
| Long-term lease obligations (note 17) | 217,021 | 240,981 | ||||
| Long-term contract liabilities | 3,139 | 70,834 | ||||
| Other long-term liabilities | 384,851 | 360,525 | ||||
| Total liabilities | 21,585,284 | 22,933,260 | ||||
| Shareholders’ Equity | ||||||
| Capital stock (note 9) | 58,630,831 | 50,234,551 | ||||
| Contributed surplus | 4,800,219 | 4,970,945 | ||||
| Accumulated other comprehensive<br> income (loss) | 187,128 | (78,906 | ) | |||
| Deficit | (47,505,642 | ) | (35,340,191 | ) | ||
| Total liabilities and<br> shareholders’ equity | $ | 37,697,820 | $ | 42,719,659 |
7
VIQ Solutions Inc.
Interim Condensed Consolidated Statements of Loss and Comprehensive Loss
(Expressed in United States dollars) (Unaudited)
| Three Months<br> ended June 30, | Six Months<br> ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Revenue (note<br> 14) | $ | 8,191,812 | $ | 8,253,015 | $ | 16,446,034 | $ | 15,801,219 | ||||
| Cost of Sales | 4,210,733 | 3,202,737 | 8,447,120 | 7,521,049 | ||||||||
| Gross Profit | 3,981,079 | 5,050,278 | 7,998,914 | 8,280,170 | ||||||||
| Expenses (note 15) | ||||||||||||
| Selling and administrative<br> expenses | 3,953,046 | 3,090,612 | 7,492,156 | 5,467,766 | ||||||||
| Research and development<br> expenses | 260,010 | 209,537 | 499,673 | 461,858 | ||||||||
| Stock based compensation<br> (note 10) | 6,687,792 | 483,253 | 6,773,787 | 530,978 | ||||||||
| Foreign exchange (gain)<br> loss (note 18) | 153,400 | (54,651 | ) | 368,725 | (306,900 | ) | ||||||
| Depreciation | 70,101 | 95,219 | 143,656 | 203,073 | ||||||||
| Amortization | 1,118,014 | 1,083,910 | 2,292,822 | 2,074,607 | ||||||||
| 12,242,363 | 4,907,880 | 17,570,819 | 8,431,382 | |||||||||
| Income (loss) before undernoted<br> items | (8,261,284 | ) | 142,398 | (9,571,905 | ) | (151,212 | ) | |||||
| Interest expense | (335,594 | ) | (375,018 | ) | (667,013 | ) | (4,070,970 | ) | ||||
| Accretion and other<br> financing costs (note 8) | (254,712 | ) | (334,013 | ) | (519,661 | ) | (564,561 | ) | ||||
| Loss on revaluation<br> of conversion feature liability (note 8) | – | (72,791 | ) | – | (1,191,552 | ) | ||||||
| Loss on repayment<br> of long-term debt (note 8) | – | – | – | (1,290,147 | ) | |||||||
| Loss on contingent<br> consideration (note 4) | (109,269 | ) | – | (13,275 | ) | – | ||||||
| Restructuring costs | (238,037 | ) | – | (360,253 | ) | – | ||||||
| Other income (expense) | 4,841 | (99 | ) | 8,294 | 105 | |||||||
| (9,194,055 | ) | (639,523 | ) | (11,123,813 | ) | (7,268,337 | ) | |||||
| Current income tax expense | (43,348 | ) | (390,831 | ) | (1,358 | ) | (444,275 | ) | ||||
| Deferred income tax expense | (1,261,259 | ) | – | (1,040,280 | ) | – | ||||||
| Income tax expense | (1,304,607 | ) | (390,831 | ) | (1,041,638 | ) | (444,275 | ) | ||||
| Net loss for the period | $ | (10,498,662 | ) | $ | (1,030,354 | ) | $ | (12,165,451 | ) | $ | (7,712,612 | ) |
| Exchange gain (loss) on translating<br> foreign operations | 101,642 | (166,265 | ) | 266,034 | (150,326 | ) | ||||||
| Comprehensive loss for the<br> period | $ | (10,397,020 | ) | $ | (1,196,619 | ) | $ | (11,899,417 | ) | $ | (7,862,938 | ) |
| Net loss per share (note 11) | ||||||||||||
| Basic | (0.42 | ) | (0.06 | ) | (0.49 | ) | (0.46 | ) | ||||
| Diluted | (0.42 | ) | (0.06 | ) | (0.49 | ) | (0.46 | ) | ||||
| Weighted average number of common<br> shares <br><br> outstanding - basic (note 11) | 25,029,019 | 18,364,354 | 24,749,637 | 16,728,647 | ||||||||
| Weighted average number of common<br> shares<br><br> outstanding - diluted (note 11) | 25,029,019 | 18,364,354 | 24,749,637 | 16,728,647 |
8
Reconciliation of Non-IFRS Measures
The following is a reconciliation of Net Loss to Adjusted EBITDA, the most directly comparable IFRS measure for the periods ended June 30, 2021 and 2020:
Unaudited
| Three months<br> ended June 30 | Six months<br> ended June 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Net Loss | (10,498,662 | ) | (1,030,354 | ) | (12,165,451 | ) | (7,712,612 | ) | ||||
| Add: | ||||||||||||
| Depreciation | 70,101 | 95,219 | 143,656 | 203,073 | ||||||||
| Amortization | 1,118,014 | 1,083,910 | 2,292,822 | 2,074,607 | ||||||||
| Interest expense | 335,594 | 375,018 | 667,013 | 4,070,970 | ||||||||
| Current income tax expense | 43,348 | 390,831 | 1,358 | 444,275 | ||||||||
| Deferred income tax expense | 1,261,259 | - | 1,040,280 | - | ||||||||
| EBITDA | (7,670,346 | ) | 914,624 | (8,020,322 | ) | (919,687 | ) | |||||
| Accretion and other financing<br> expense | 254,712 | 334,013 | 519,661 | 564,561 | ||||||||
| Loss on revaluation of conversion<br> feature liability | - | 72,791 | - | 1,191,552 | ||||||||
| Loss on repayment of long-term<br> debt | - | - | - | 1,290,147 | ||||||||
| Restructuring Costs | 238,037 | - | 360,253 | - | ||||||||
| Other expense (income) | (4,841 | ) | 99 | (8,294 | ) | (105 | ) | |||||
| Stock-based compensation | 6,687,792 | 483,253 | 6,773,787 | 530,978 | ||||||||
| Foreign exchange (gain)<br> loss | 153,400 | (54,651 | ) | 368,725 | (306,900 | ) | ||||||
| Adjusted EBITDA | (341,246 | ) | 1,750,129 | (6,190 | ) | 2,350,546 |
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. This MD&A also includes certain measures which have not been prepared in accordance with IFRS such as Adjusted EBITDA. To evaluate the Company’s operating performance as a complement to results provided in accordance with IFRS, the term “Adjusted EBITDA” refers to net income (loss) before adjusting earnings for stock-based compensation, depreciation, amortization, interest expense, accretion and other financing expense, (gain) loss on revaluation of conversion feature liability, loss on repayment of long-term debt, business acquisition costs, impairment of goodwill and intangibles, other expense (income), foreign exchange (gain) loss, current and deferred income tax expense. We believe that the items excluded from Adjusted EBITDA are not connected to and do not represent the operating performance of the Company.
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, impairment of goodwill and intangibles, 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.
Adjusted EBITDA is not a measure recognized by IFRS and do not have standardized meanings prescribed by IFRS. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that Adjusted EBITDA should not be construed as an alternative to net income (loss) as determined in accordance with IFRS.
9
Exhibit 99.3
VIQ SolutionsInc.
Q2 2021 Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Expressed in United States dollars)
https://viqsolutions.com/
VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
The following Management’s Discussion and Analysis (“MD&A”) comments on the financial condition and results of operations of VIQ Solutions Inc. (“VIQ” or the “Company”) for the three months and six months ended June 30, 2021. The information contained herein should be read in conjunction with the Q2 2021 unaudited condensed consolidated interim financial statements prepared in accordance to International Financial Reporting Standards (“IFRS”), IAS 34, Interim Financial Reporting and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations, as issued by the International Accounting Standards Board (“IASB”). This MD&A should also be read in conjunction with our annual MD&A and audited financial statements for the years ended December 31, 2020 and 2019, which we prepared in accordance with IFRS 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 discussion is provided as of August 16, 2021 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, and the Company’s annual information form, is available on SEDAR at www.sedar.com.
As a result of the Company’s graduation to TSX, there will be no further trading of VIQ shares on TSX-V after January 20, 2021. VIQ’s common shares were delisted from TSX-V at the commencement of trading on TSX. The trading symbol for the common shares of VIQ on TSX will remain unchanged as “VQS.”
All amounts herein are presented in United States dollars, unless otherwise indicated.
Forward-lookingStatements
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 including COVID-19 pandemic globally.
As a consequence, 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.
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VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
The purpose of the forward-looking statements is to provide the reader with a description of management’s expectations regarding the Company’s 2021 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.
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. This MD&A also includes certain measures which have not been prepared in accordance with IFRS such as, Adjusted EBITDA. “Adjusted 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 “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 expense, (gain) loss on revaluation of conversion feature liability, loss on repayment of long-term debt, restructuring 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.
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, 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.
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. For a description of the methodology used to calculate these non-IFRS measures, see under the heading “Reconciliation of Non-IFRS Measures” below.
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VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
Overview
VIQ Solutions combines artificial intelligence driven voice and video capture technology and services to securely manage digital content in the most rigid security environments including courts, law enforcement, insurance, conferencing and media.
We help our cybersecurity focused clients 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 our security focused customers can utilize.
The Company is a global market leader in the capture, management, and transformation of sensitive digital evidence. We enable our 1,300+ clients’ digital transformation by implementing cybersecure capture solutions, driving the migration to cloud solutions, enabling hybrid technology services with human to machine workflow, and employing Artificial Intelligence (“AI”) tools such as speech recognition, sentiment analysis, market specific lexicon and algorithms.
Revenue
The recurring nature of our revenue base is a key indication of performance. The Majority 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 customers are tied to government entities and multinational Fortune 500 companies that provide little to no credit risk and accordingly provide a reliable revenue stream.
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.
Our revenue consists primarily of technology services, software license fees, support and maintenance and other recurring fees, professional service fees, and hardware sales. Technology service revenue consists of fees charged for recurring transcription services provided to our customers. 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 more variable and unpredictable in nature as the purchase decision and its timing fluctuate with the customers needs and budgets. Support and maintenance and other recurring revenue primarily consist of fees charged for customer support on our software products post-delivery and, to a lesser extent, recurring fees derived from software-as-a-service arrangements. 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 customer solutions. Occasionally our customers may purchase a combination of software, maintenance, professional services and hardware, although the type, mix and quantity vary by customer and by product.
Cost of Sales
Cost of sales consists primarily of staff costs, professional services and the cost of hardware and third-party licenses to fulfill customer arrangements.
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VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
Selling andAdministrative 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.
Research andDevelopment Expenses
Research and development expenses include personnel and related costs for ongoing research, development and product management initiatives.
Key Operating Highlights during thethree and six months ended June 30 2021
| · | Total<br> revenue for the three months ended June 30, 2021 was $8,191,812, a decrease of $61,203<br> or 1% from $8,253,015 recognized in the comparative period in 2020. Total revenue for the<br> six months ended June 30, 2021 was $16,446,034, an increase of $644,815 or 4% from $15,801,219<br> recognized in the comparative period in 2020. |
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| · | Gross<br> margin for the three months ended June 30, 2021 was $3,981,079 representing 49% of revenue<br> versus 61% of revenue in the comparative period in 2020. Gross margin for the six months<br> ended June 30 was $7,998,914 representing 49% of revenue versus 52% of revenue in the<br> comparative period in 2020. |
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| · | Adjusted<br> EBITDA for the three months ended June 30, 2021 was a deficit of $341,246, a decrease<br> of $2,091,375, or 119% from an Adjusted EBITDA of $1,750,129 recognized in the comparative<br> period in 2020. Adjusted EBITDA for the six months ended June 30, 2021 was a deficit<br> of $6,190, a decrease of $2,356,736, or 100% from an Adjusted EBITDA of $2,350,546 recognized<br> in the comparative period in 2020. The decrease in Adjusted EBITDA was driven primarily by<br> professional service fees and reduction in COVID-19 subsidies compared to 2020. |
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| · | Net<br> loss for the three months ended June 30, 2021 was $10,498,662, an increase of $9,468,308<br> or 919% from a net loss of $1,030,354 recognized in the comparative period in 2020. Net loss<br> for the six months ended June 30, 2021 was $12,165,451, an increase of $4,452,839 or<br> 58% from a net loss of $7,712,612 recognized in the comparative period in 2020. |
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Results of Operations
Key performance indicators that we use to manage our business and evaluate our financial results and operating performance include: revenue, expenses, Adjusted EBITDA, and net income (loss). We evaluate our performance on these metrics by comparing our actual results to management budgets, forecasts, and prior period performance.
Certain comparative figures have been updated for the three and six months ended June 30, 2020 for immaterial adjustments related to the revaluation of the conversion feature as well as the repayment of long-term debt.
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VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
The following table sets forth a summary of our results of operations for the three months and six months ended June 30, 2021 and 2020:
Unaudited
| Three<br> months ended<br> June 30 | Period<br> over Period Change | Six months ended June 30 | Period<br> over Period Change | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | % | 2021 | 2020 | % | |||||||||||||||||
| Revenue | 8,191,812 | 8,253,015 | ) | (1 | ) | 16,446,034 | 15,801,219 | 4 | ||||||||||||||
| Cost of sales | 4,210,733 | 3,202,737 | 31 | 8,447,120 | 7,521,049 | 12 | ||||||||||||||||
| Gross profit | 3,981,079 | 5,050,278 | ) | (21 | ) | 7,998,914 | 8,280,170 | ) | (3 | ) | ||||||||||||
| Operating Expenses | ||||||||||||||||||||||
| Selling and administrative expenses | 3,953,046 | 3,090,612 | 28 | 7,492,156 | 5,467,766 | 37 | ||||||||||||||||
| Research and development expenses | 260,010 | 209,537 | 24 | 499,673 | 461,858 | 8 | ||||||||||||||||
| Loss on<br> contingent consideration | 109,269 | - | - | 13,275 | - | - | ||||||||||||||||
| Total Operating<br> expenses | 4,322,325 | 3,300,149 | 31 | 8,005,104 | 5,929,624 | 35 | ||||||||||||||||
| Adjusted EBITDA ^(1)^ | (341,246 | ) | 1,750,129 | ) | (119 | ) | (6,190 | ) | 2,350,546 | ) | (100 | ) | ||||||||||
| Stock-based compensation | 6,687,792 | 483,253 | 1,284 | 6,773,787 | 530,978 | 1,176 | ||||||||||||||||
| Depreciation | 70,101 | 95,219 | ) | (26 | ) | 143,656 | 203,073 | ) | (29 | ) | ||||||||||||
| Amortization | 1,118,014 | 1,083,910 | 3 | 2,292,822 | 2,074,607 | 11 | ||||||||||||||||
| Interest expense | 335,594 | 375,018 | ) | (11 | ) | 667,013 | 4,070,970 | ) | (84 | ) | ||||||||||||
| Accretion and other financing<br> expense | 254,712 | 334,013 | ) | (24 | ) | 519,661 | 564,561 | ) | (8 | ) | ||||||||||||
| Loss on revaluation of conversion<br> feature liability | - | 72,791 | ) | (100 | ) | - | 1,191,552 | ) | 100 | |||||||||||||
| Loss on repayment of long-term<br> debt | - | - | - | - | 1,290,147 | ) | (100 | ) | ||||||||||||||
| Impairment of goodwill and intangibles | - | - | - | - | - | - | ||||||||||||||||
| Restructuring Costs | 238,037 | - | - | 360,253 | - | - | ||||||||||||||||
| Other expense (income) | (4,841 | ) | 99 | ) | (4,990 | ) | (8,294 | ) | (105 | ) | ) | 7,799 | ||||||||||
| Foreign<br> exchange (gain) loss | 153,400 | (54,651 | ) | 381 | 368,725 | (306,900 | ) | 220 | ||||||||||||||
| Loss before<br> income taxes | (9,194,055 | ) | (639,523 | ) | ) | (1,338 | ) | (11,123,813 | ) | (7,268,337 | ) | ) | (53 | ) | ||||||||
| Current income tax expense | (43,348 | ) | (390,831 | ) | (89 | ) | (1,358 | ) | (444,275 | ) | (100 | ) | ||||||||||
| Deferred<br> income tax expense | (1,261,259 | ) | - | ) | - | (1,040,280 | ) | - | ) | - | ||||||||||||
| Income<br> tax expense | (1,304,607 | ) | (390,831 | ) | ) | (234 | ) | (1,041,638 | ) | (444,275 | ) | ) | (134 | ) | ||||||||
| Net Loss | (10,498,662 | ) | (1,030,354 | ) | ) | (919 | ) | (12,165,451 | ) | (7,712,612 | ) | ) | (58 | ) | ||||||||
| Weighted average number of common shares<br> outstanding | ||||||||||||||||||||||
| Basic | 25,029,019 | 18,364,354 | 24,749,637 | 16,728,647 | ||||||||||||||||||
| Diluted | 25,029,019 | 18,364,354 | 24,749,637 | 16,728,647 | ||||||||||||||||||
| Net loss per share | ||||||||||||||||||||||
| Basic | (0.42 | ) | (0.06 | ) | (0.49 | ) | (0.46 | ) | ||||||||||||||
| Diluted | (0.42 | ) | (0.06 | ) | (0.49 | ) | (0.46 | ) |
All values are in US Dollars.
| (1) | Adjusted<br> EBITDA, Earnings before stock-based compensation, depreciation, amortization, interest expense,<br> accretion and other financing expense, loss on revaluation of conversion feature liability,<br> loss on repayment of long-term debt, restructuring costs, other expense (income), foreign<br> exchange (gain) loss, and current and deferred income tax expense (recovery), is a non-IFRS<br> measure. Please refer to the section entitled “Non-IFRS Measures.” |
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VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
Comparison of the three month andsix month periods ended June 30, 2021 and 2020
Revenue
Total revenue for the three months ended June 30, 2021 was $8,191,812, a decrease of $61,203, or 1%, from $8,253,015 recognized in the comparative period in 2020. Total revenue for the six months ended June 30, 2021 was $16,446,034, an increase of $644,815, or 4%, from $15,801,219 recognized in the comparative period in 2020. The decrease in revenue for the three months ended June 30, 2021 is primarily due to delayed revenue resulting from COVID-19 impact. The increase in revenue for the six months ended June 30, 2021 is mainly driven by higher software license sales, professional service revenue, software support and the fact that six months of revenue generated from the Q120 acquisitions were in included for the 2021 periods as compared to less than six months of revenue in 2020, offset by lower revenue from technology services due to the continuing impact of COVID-19.
Cost of Sales
Cost of Sales for the three months ended June 30, 2021 increased by $1,007,996, or 31%, to $4,210,733, from $3,202,737 for the comparative period in 2020. Cost of Sales for the six months ended June 30, 2021 increased by $926,071, or 12%, to $8,447,120, from $7,521,049 for the comparative period in 2020. The increase in cost of sales is primarily due to set up costs for new contracts and reduction of COVID-19 wage subsidies. During the three months ended June 30, 2021, the Company received $221,519 of COVID-19 wage subsidies vs. $1,399,986 received in the comparative period in 2020. During the six months ended June 30, 2021, the Company received $336,590 of COVID-19 subsidies vs. $1,399,986 received in the comparative period in 2020.
Gross Profit
Gross profit for the three months ended June 30, 2021 decreased by $1,069,199, or 21%, to $3,981,079, from $5,050,278, for the comparative period in 2020. Gross profit for the six months ended June 30, 2021 decreased by $281,256, or 3%, to $7,998,914, from $8,280,170, for the comparative period in 2020. The decrease in gross profit is primarily due to reduction in COVID-19 wage subsidies received in the periods ended June 30, 2021 and delayed revenue resulting from COVID-19 impact.
Selling andAdministrative Expenses
Selling and Administrative expenses for the three months ended June 30, 2021 increased by $862,434, or 28%, to $3,953,046, from $3,090,612, for the comparative period in 2020. Selling and Administrative expenses for the six months ended June 30, 2021 increased by $2,024,390, or 37%, to $7,492,156, from $5,467,766, for the comparative period in 2020. The Company has taken appropriate measures to manage selling and administrative expenses in conjunction with the negative organic growth resulting from COVID-19. The increase in Selling and Administrative expenses was primarily due to professional service fees and TSX listing fees. In addition, Selling and Administrative expenses includes full six-month period of costs incurred from Q120 acquisitions compared to only part of the comparative period in 2020. and growth in the number of employees compared to the same period in 2020. Selling and Administrative expenses for the three months ended June 30, 2021 was reduced by $188,395 for COVID-19 wage subsidies vs. $80,536 in the comparative period in 2020. Selling and Administrative expenses for the six months ended June 30, 2021 was reduced by $549,459 for COVID-19 wage subsidies vs. $485,778 in the comparative period in 2020.
Research andDevelopment Expenses
Research and development expenses for the three months ended June 30, 2021 increased by $50,473, or 24%, to $260,010, from $209,537, for the comparative period in 2020. Research and development expenses for the six months ended June 30, 2021 increased by $37,815, or 8%, to $499,673, from $461,858, for the comparative period in 2020. The increase in Research and development expenses is due to project costs and additional hires to support growth in innovation and acceleration of R&D projects.
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VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
Loss on ContingentConsideration
For the three months ended June 30, 2021, loss on Contingent Consideration increased by $109,269, to $109,269, from $0 recognized in the comparative period in 2020. For the six months ended June 30, 2021, loss on Contingent Consideration increased by $13,275, to $13,275, from $0 recognized in the comparative period in 2020. This increase is mainly due to changes in anticipated acquisition earnout payments primarily as a result of increases to revenue forecasts for ASC and WordZ acquisitions. Revenue forecasts are updated on a quarterly basis and the related anticipated acquisition earnout payment accruals are updated accordingly.
Stock-BasedCompensation
For the three months ended June 30, 2021, Stock Based Compensation increased by $6,204,539 to $6,687,792, from $483,253, recognized in the same period of 2020. For the six months ended June 30, 2021, Stock Based Compensation increased by $6,242,809, to $6,773,787, from $530,978, recognized in the same period of 2020. The increase in Stock Based Compensation is due to the impact of 998,378 Registered Stock Units (RSUs) and 790,086 stock options granted in the three and six months ended Q221 compared to 396,000 options granted during the three and six months ended Q220. A number of the options and RSUs that were granted in the three and six-months ended June 30, 2021, vests immediately, therefore, resulting in a greater expense on grant date. The RSU’s and stock options granted in Q221 were under the new Omnibus Equity Incentive plan that was approved by shareholders on April 29, 2021. Under the Omnibus Equity Incentive Plan, the stock options and RSUs 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
Depreciation
For the three months ended June 30, 2021, Depreciation decreased by $25,118, to $70,101, from $95,219 recognized in the comparative period in 2020. For the six months ended June 30, 2021, Depreciation decreased by $59,417, to $143,656, from $203,073 recognized in the comparative period in 2020. Decrease in depreciation expense for the three months and six months ended June 30, 2021 is due primarily to the declining balance method of depreciation used by the Company in that as the net book value decreases, in the absence of any significant additions, the depreciation expense is expected to decrease over the life of the assets.
Amortization
For the three months ended June 30, 2021, Amortization increased by $34,104, or 3%, to $1,118,014, from $1,083,910 recognized in the comparative period in 2020. For the six months ended June 30, 2021, Amortization increased by $218,215, or 11%, to $2,292,822, from $2,074,607 recognized in the comparative period in 2020. The increase in amortization expense is primarily attributable to the launch of new products and six months of amortization from Q120 acquisitions compared to pro-rated amortization in the first six months of 2020.
Interest Expense
For the three months ended June 30, 2021, Interest Expense decreased by $39,424, to $335,594, from $375,018 recognized in the comparative period in 2020. For the six months ended June 30, 2021, Interest Expense decreased by $3,403,957, to $667,013, from $4,070,970 recognized in the comparative period in 2020. The decrease in Interest Expense for the three months and six months ended June 30, 2021 is primarily due to the conversion of the convertible debenture to equity that occurred in 2020.
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VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
Accretion andOther Financing Expense
For the three months ended June 30, 2021, Accretion and Other Financing expense decreased by $79,301, to $254,712, from $334,013 recognized in the comparative period in 2020. For the six months ended June 30, 2021, Accretion and Other Financing expense decreased by $44,900, to $519,661, from $564,561 recognized in the comparative period in 2020. The decrease in accretion and other financing expense for the three months and six months ended June 30, 2021 is primarily due to conversion of the convertible debenture that occurred in 2020.
Loss on Revaluationof Conversion Feature Liability
For the three months ended June 30, 2021, Loss on Revaluation of Conversion Feature Liability decreased by $72,791, to $0, from $72,791 recognized in the comparative period in 2020. For the six months ended June 30, 2021, Loss on Revaluation of Conversion Feature Liability decreased by $1,191,552, to $0, from $1,191,552 recognized in the comparative period in 2020.The decrease in Loss on Revaluation of Conversion Feature Liability for the three months and six months ended June 30, 2021 relates to the conversion of convertible debt to equity that occurred in 2020. All convertible debt has been fully converted at the end of 2020.
Loss on Repaymentof Long-term Debt
For the six months ended June 30, 2021, Loss on repayment of long-term debt decreased by $1,290,147, to $0, from $1,290,147 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 of the convertible debenture to C$2.18 per share resulting in a charge of $1,290,147 reflecting the incremental fair value of the reduced exercise price.
RestructuringCosts
For the three months ended June 30, 2021, Restructuring Costs increased by $238,037, to $238,037, from $0 recognized in the comparative period in 2020. For the six months ended June 30, 2021, Restructuring Costs increased by $360,253, to $360,253, from $0 recognized in the comparative period in 2020. The increase in Restructuring Costs for the three and six months ended June 30, 2021 is primarily due to organizational restructuring costs.
Other Expense(Income)
For the three months ended June 30, 2021, Other Expense (Income) increased by $4,940, to an income of $4,841, from an expense of $99 recognized in the comparative period in 2020. For the six months ended June 30, 2021, Other Expense (Income) increased by $8,189, to an income of $8,294 from an income of $105 recognized in the comparative period in 2020. The increase for Other Expense (Income) for the three months and six months ended June 30, 2021 is primarily due to interest income on short-term deposit.
Foreign Exchange(Gain) Loss
For the three months ended June 30, 2021, Foreign Exchange (Gain) Loss decreased by $208,051, from a gain of $54,651 recognized in the comparative period in 2020 to a loss of $153,400 for the three months ended June 30, 2021. For the six months ended June 30, 2021, Foreign Exchange (Gain) Loss decreased by $675,625, from a gain of $306,900 recognized in the comparative period in 2020 to a loss of $368,725 for the three months ended June 30, 2021. 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 non-US dollar denominated working capital balances to US dollars.
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VIQSolutions Inc.
| VIQ Solutions Inc. |
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| Management’s Discussion and<br> Analysis of Financial Condition and |
| Results of Operations for Three and<br> Six Months ended June 30, 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 June 30, 2021, income taxes expense, net of deferred income tax recovery, increased by $913,776, to a tax expense of $1,304,607, from an expense of $390,831 in the comparative period in 2020. For the six months ended June 30, 2021, Income Taxes, net of deferred income tax recovery, increased by $597,363, to an expense of $1,041,638, from an expense of $444,275 in the comparative period in 2020. The change is due primarily to the recognition of a valuation allowance against the deferred tax asset for our US entities.
Net Loss and Earnings Per Share
Net loss for the three months ended June 30, 2021 was $10,498,662 compared to net loss of $1,030,354, for the same period in 2020. Net loss for the six months ended June 30, 2021 was $12,165,451 compared to net loss of $7,712,612, for the same period in 2020. On a per weighted average share basis, this translated into a net loss per share of $0.42 and $0.49 in the three months and six months ended June 30, 2021 compared to a net loss per weighted average share of $0.06 and $0.46 for the comparative periods in 2020.
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 June 30, 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) | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Jun-21 | Mar-21 | Dec-20 | Sep-20 | Jun-20 * | Mar-20 * | Dec-19 | Sep-19 | |||||||||
| Revenue | 8,191,812 | 8,254,222 | 7,775,674 | 8,172,800 | 8,253,015 | 7,548,204 | 6,096,550 | 6,451,077 | ||||||||
| Net income (loss) | (10,498,662 | ) | (1,666,789 | ) | (3,857,540 | ) | (345,862 | ) | (1,030,354 | ) | (6,682,258 | ) | (2,525,682 | ) | 291,994 | |
| Weighted average number of shares outstanding: | ||||||||||||||||
| Basic | 25,029,019 | 24,467,151 | 20,341,203 | 18,494,247 | 18,364,354 | 15,092,939 | 10,848,296 | 9,549,609 | ||||||||
| Diluted | 25,029,019 | 24,467,151 | 20,341,203 | 18,494,247 | 18,364,354 | 15,092,939 | 10,848,296 | 10,044,578 | ||||||||
| Net income (loss) per share: | ||||||||||||||||
| Basic | (0.42 | ) | (0.07 | ) | (0.19 | ) | (0.02 | ) | (0.06 | ) | (0.44 | ) | (0.23 | ) | 0.03 | |
| Diluted | (0.42 | ) | (0.07 | ) | (0.19 | ) | (0.02 | ) | (0.06 | ) | (0.44 | ) | (0.23 | ) | 0.03 |
* Net Loss for Q1 2020 and Q2 2020 reflect adjustments that were recorded in the Company’s amended filings for the three and six-months ended June 30, 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 debentures issued by the Company in 2018 and 2019 as well as the repayment of long-term debt which were transactions that occurred in the six-months and three-months ended June 30, 2020.
| Management Discussion & Analysis | Page 10 |
| --- | --- |
VIQSolutions Inc.
| VIQ Solutions Inc. |
|---|
| Management’s Discussion and<br> Analysis of Financial Condition and |
| Results of Operations for Three and<br> Six Months ended June 30, 2021 |
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 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.
Liquidity
As of June 30, 2021, we held cash of $12,374,826 as compared to $16,835,671 as at 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:
| Three months ended June 30, | Six months ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Cash provided by (used in) operating activities | (2,592,922 | ) | 3,416,306 | (3,500,350 | ) | 3,484,433 | ||||||
| Cash used in investing activities | (442,717 | ) | (458,431 | ) | (1,938,650 | ) | (5,230,404 | ) | ||||
| Cash provided by (used in) financing activities | (620,998 | ) | (119,886 | ) | 929,697 | 5,469,863 | ||||||
| Net increase (decrease) in cash for the period | (3,656,637 | ) | 2,837,989 | (4,509,303 | ) | 3,723,892 | ||||||
| Cash, beginning of period | 16,020,297 | 2,485,340 | 16,835,671 | 1,707,654 | ||||||||
| Effect of foreign exchange | 11,166 | 60,878 | 48,458 | (47,339 | ) | |||||||
| Cash, end of period | 12,374,826 | 5,384,207 | 12,374,826 | 5,384,207 |
Cash provided by (used in) operating activities
We used cash of $2,592,922 in operating activities for the three months ended June 30, 2021. The $2,592,922 used for operating activities resulted from $10,498,662 in net loss plus $10,614,474 of non-cash adjustments to net loss and $2,708,734 attributable to movements in non-cash working capital with changes primarily arising from an increase in accounts receivable, inventories, prepaid expenses, and decrease in accounts payable, contract liabilities and taxes.
We used cash of $3,500,350 in operating activities for the six months ended June 30, 2021. The $3,500,350 used for operating activities resulted from $12,165,451 in net loss plus $12,523,420 of non-cash adjustments to net loss and $3,858,319 attributable to movements in non-cash working capital with changes primarily arising from an increase in accounts receivable, inventories, prepaid expenses, and decrease in accounts payable, contract liabilities and taxes.
| Management Discussion & Analysis | Page 11 |
| --- | --- |
VIQSolutions Inc.
| VIQ Solutions Inc. |
|---|
| Management’s Discussion and<br> Analysis of Financial Condition and |
| Results of Operations for Three and<br> Six Months ended June 30, 2021 |
Cash provided by (used in) investing activities
For the three months ended June 30, 2021, cash used in investing activities was $442,717, which consisted of purchase of property and equipment of $34,707, development costs related to internally generated intangible assets $569,011, earnout payout for ASC and WordZ $358,674, offset by employee loan repayment $518,431 and change in restricted cash of $1,244.
For the six months ended June 30, 2021, cash used in investing activities was $1,938,650, which consisted of purchase of property and equipment of $42,247, development costs related to internally generated intangible assets $1,101,309, earnout payout for ASC and WordZ $745,501, and change in restricted cash of $49,593.
Cash provided by (used in) financing activities
Cash used in financing activities for the three months ended June 30, 2021 was $620,998, which consisted repayment of debt of $228,391, repayment of lease obligations of $60,687, repayment of interest on lease obligations of $7,042, and repayment of interest on debt of $324,878.
Cash provided by financing activities for the six months ended June 30, 2021 was $929,697, which consisted of proceeds from the exercise of stock options and warrants of $202,857 and $2,092,276 respectively, issuance of share capital of $1,673, offset by repayment of debt of $609,548, repayment of lease obligations of $105,955, repayment of interest on lease obligations of $14,819, and repayment of interest on debt of $636,787.
Debt covenants
The Company received a waiver in March 2021 to remove the Fixed Charge Coverage Ratio covenant for all four quarters of 2021. The Company is in compliance of other covenants as at June 30, 2021. Subsequent to June 30, 2021, the Company received a waiver in August 2021, to remove the Net Debt to EBITDA Ratio for the remainder of fiscal 2021. In addition, the Company received a waiver to remove the Fixed Charge Coverage Ratio covenant for the first three quarters of 2022.
Contractual Obligations
The following table summarizes our contractual obligations as at June 30, 2021, including commitments relating to leasing contracts:
| 2021 | 2022 | 2023 | 2024 | 2025 | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Trade and other payables | 4,737,942 | – | – | – | – | 4,737,942 | ||||||
| Share appreciation rights | 37,416 | – | – | – | – | 37,416 | ||||||
| Lease obligations | 62,448 | 115,878 | 99,814 | 74,862 | 64,462 | 417,464 | ||||||
| Crown Capital debt | 310,696 | – | 12,461,970 | – | – | 12,772,666 | ||||||
| Contingent Consideration - ASC | 743,860 | 1,530,994 | 459,482 | – | – | 2,734,336 | ||||||
| Contingent Consideration - WZ | 141,762 | 352,626 | 282,537 | – | – | 776,925 | ||||||
| WordZ SBA Loan | 214,307 | 45,923 | – | – | – | 260,230 | ||||||
| WordZ promissory note | 223,276 | 446,552 | 446,552 | – | – | 1,116,380 | ||||||
| HomeTech VTB loan | 120,000 | 240,000 | 240,000 | 20,000 | – | 620,000 | ||||||
| Total | $ | 6,591,707 | $ | 2,731,973 | $ | 13,990,355 | $ | 94,862 | $ | 64,462 | $ | 23,473,359 |
| Management Discussion & Analysis | Page 12 |
| --- | --- |
VIQSolutions Inc.
| VIQ Solutions Inc. |
|---|
| Management’s Discussion and<br> Analysis of Financial Condition and |
| Results of Operations for Three and<br> Six Months ended June 30, 2021 |
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 |
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.
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, partially in trade and other payables and accrued liabilities of $1,428,055 and long-term contingent consideration of $1,111,940 in our June 30, 2021 Consolidated Financial Statements was $2,539,995. Aside from the aforementioned, we do not have any other business arrangements or any equity interests in any non-consolidated entity.
| Management Discussion & Analysis | Page 13 |
| --- | --- |
VIQSolutions Inc.
| VIQ Solutions Inc. |
|---|
| Management’s Discussion and<br> Analysis of Financial Condition and |
| Results of Operations for Three and<br> Six Months ended June 30, 2021 |
Contingent Off-Balance Sheet Arrangements
As a general practice, we have not entered into off-balance sheet financing arrangements.
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 and a director of the Company in the aggregate amount of USD$518,431 (CAD$657,838) to: (i) facilitate Mr. Paré exercise of certain vested outstanding stock options; and (ii) facilitate Mr. Paré repaying certain indebtedness incurred in connection with Mr. Paré previous exercise of convertible securities of the Company. The Executive Loan matures on February 10, 2028 and bears interest at a rate of 1.0% per annum. The Executive Loan is secured by a pledge of 175,000 common shares in the capital of the Company held by Sebastien Paré in favour of the Company (the “Share Pledge”). Pursuant to the terms of the Share Pledge, Mr. Paré has agreed to comply with certain covenants in favour of the Company. The loan was repaid on May 28, 2021. As at June 30, 2021, there are no balances outstanding.
Critical Accounting Policies and Estimates
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, 2020 and 2019 which are available on SEDAR (www.sedar.com). 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 three months and six months ended June 30, 2021 from the years presented in our annual financial statements for the years ended December 31, 2020 and 2019.
Reconciliation of Non-IFRS Measures
We believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of performance. Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital expenditure and working capital requirements.
| Management Discussion & Analysis | Page 14 |
| --- | --- |
VIQSolutions Inc.
| VIQ Solutions Inc. |
|---|
| Management’s Discussion and<br> Analysis of Financial Condition and |
| Results of Operations for Three and<br> Six Months ended June 30, 2021 |
The following is a reconciliation of Net Loss to Adjusted EBITDA, the most directly comparable IFRS measure for the three months ended June 30, 2021 and 2020:
| Three months ended June 30 | Six months ended June 30 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Net Loss | (10,498,662 | ) | (1,030,354 | ) | (12,165,451 | ) | (7,712,612 | ) | ||||
| Add: | ||||||||||||
| Depreciation | 70,101 | 95,219 | 143,656 | 203,073 | ||||||||
| Amortization | 1,118,014 | 1,083,910 | 2,292,822 | 2,074,607 | ||||||||
| Interest expense | 335,594 | 375,018 | 667,013 | 4,070,970 | ||||||||
| Current income tax expense | 43,348 | 390,831 | 1,358 | 444,275 | ||||||||
| Deferred income tax expense | 1,261,259 | - | 1,040,280 | - | ||||||||
| EBITDA | (7,670,346 | ) | 914,624 | (8,020,322 | ) | (919,687 | ) | |||||
| Accretion and other financing expense | 254,712 | 334,013 | 519,661 | 564,561 | ||||||||
| Loss on revaluation of conversion feature liability | - | 72,791 | - | 1,191,552 | ||||||||
| Loss on repayment of long-term debt | - | - | - | 1,290,147 | ||||||||
| Restructuring Costs | 238,037 | - | 360,253 | - | ||||||||
| Other expense (income) | (4,841 | ) | 99 | (8,294 | ) | (105 | ) | |||||
| Stock-based compensation | 6,687,792 | 483,253 | 6,773,787 | 530,978 | ||||||||
| Foreign exchange (gain) loss | 153,400 | (54,651 | ) | 368,725 | (306,900 | ) | ||||||
| Adjusted EBITDA | (341,246 | ) | 1,750,129 | (6,190 | ) | 2,350,546 |
Internal Controls over FinancialReporting and Disclosure Controls and Procedures
Management is responsible for establishing and maintaining disclosure controls and procedures as defined under National Instrument 52-109. At June 30, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective and that material information relating to the Company was made known to them and was recorded, processed, summarized and reported within the time periods specified under applicable securities legislation.
Management is responsible for designing and maintaining internal controls over financial reporting (“ICFR”) as defined under National Instrument 52-109. At June 30, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these internal controls and procedures was effective in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Framework (2013).
The Chief Executive Officer and the Chief Financial Officer have evaluated, or caused to be evaluated under their supervision, whether or not there were changes to its ICFR during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect the Company’s ICFR. No such changes were identified through their evaluation.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that its objectives are met. Due to inherent limitations in all systems, no evaluations of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures and our internal controls over financial reporting are effective in providing reasonable, not absolute assurance that the objectives of our control systems have been met. During the quarter ended June 30, 2021, the Company documented its ICFR framework and processes and will continue to evaluate and enhance its internal controls environment to ensure the internal controls over financial reporting are designed and implemented appropriately and operating effectively.
There have been no material changes to the internal controls of the Company for the three months and six months ended June 30, 2021.
| Management Discussion & Analysis | Page 15 |
| --- | --- |
VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
Risk Factors
***COVID-19:***COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. Governments around the world have enacted emergency measures to combat the spread of the virus. These measures which include the implementation of travel bans, self-imposed quarantine periods and social distancing and closure of businesses have caused material disruption to businesses resulting in an economic slowdown. Governments and central banks have responded with significant monetary and fiscal interventions designed to stabilize the financial markets. The duration and impact of the COVID-19 outbreak is unknown at this time and it is not possible to reliably estimate the duration and severity of these developments.
The Company is closely monitoring the impact of COVID-19 on all aspects of its business.
The pandemic may also have an adverse impact on many of the Company’s customers, including their ability to satisfy ongoing payment obligations to the Company, which could increase the Company’s bad debt exposure. The future impacts of the pandemic and any resulting economic impact are largely unknown and rapidly evolving. It is possible that the COVID-19 pandemic, the measures taken by the governments of countries affected and the resulting economic impact may continue to adversely affect the Company’s results of operations, cash flows and financial position as well as its customers in future periods, and this impact could be material.
The Governments of various jurisdictions in which we have operations have approved legislation and taken administrative actions intended to aid businesses that have been adversely impacted by COVID-19, including making grants or credits available to eligible entities to subsidize or offset qualifying expenses, including employee wages and associated costs, office rent, utilities, in each case subject to limits and other specified criteria. During the three months ended June 30, 2021, we determined that we qualified for the U.S. employee retention credit program and have received a credit of $580,973. The credit has been recognized as a reduction in Cost of Sales of $219,908 and Selling and Administrative expenses of $361,065. During the six months ended June 30, 2021, we determined that we qualified for the employee retention credit program and received a credit of $865,129. The credit has been recognized as a reduction in Cost of Sales of $334,979 and Selling and Administrative expenses of $530,150. As at June 30, 2021, the amount of assistance receivable totaled $588,782. We will continue to evaluate all applicable government relief programs and intend to apply for subsequent application periods, if we meet the qualification criteria. There can be no assurance that COVID-19 related governmental assistance to offset our costs will be available in Q3 2021 (or thereafter), and if so whether we will qualify for or receive any such assistance.
***Cash-flow:***VIQ Solutions' business operations are subject to all of the risks inherent in the establishment and maintenance of a developing business enterprise, such as competition and viable operations management. The future earnings and cash flow from operations of the Company are dependent, in part, on its ability to further develop and market its products. There can be no assurances that the Company will grow and achieve profitability. The operations of VIQ Solutions have been funded to date by external financing and if sufficient cash flow from operations or earnings is not generated in the future, additional financing might be required.
Transitionto SaaS Revenue: The Company is in the process of transitioning its software product offerings from license sales to a SaaS offering. This may cause revenue levels to decline compared to prior periods. License sales allow the Company to recognize revenue upon the initial sale of the software to a client. Revenues from SaaS are earned over a period of time contracted with the client and their use of the software. Initial SaaS revenue will be lower but over the course of the contract will generally be cumulatively higher compared to license sales.
Fluctuationsin 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 Company's 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.
| Management Discussion & Analysis | Page 16 |
| --- | --- |
VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
AdditionalFinancing and Access to Capital: The Company may need to raise additional funds to bring its potential products to market, enhance our marketing capabilities, and pursue potential future acquisitions. The Company's future capital requirements will depend on many factors, including continued progress in its research and development programs, competing technological and market developments, the cost of production scale-up, effective commercialization activities and arrangements and other factors not within the Company's control. The Company may seek additional funding through public or private financings.
Identifyand Acquire Suitable Acquisitions: The Company may not be able to identify suitable new acquisitions 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. When conducting due diligence on a potential acquisition, it cannot be assured that all the risks and costs inherent in the business being acquired will be identified. If an acquisition of an identified business were to proceed in which a portion or all of the consideration consisted of cash, additional funding may be required through public or private financings if internally generated cash resources are not sufficient.
SuccessfullyIntegrate Acquired Businesses: Integration of completed business acquisitions and any future acquisitions involves a number of special risks, including the following:
| · | Failure<br> to integrate successfully the personnel, information systems, technology and operations of<br> the acquired business; |
|---|---|
| · | Failure<br> to maximize the potential financial and strategic benefits of the acquisition; |
| --- | --- |
| · | Failure<br> to realize the expected synergies of the acquired business; |
| --- | --- |
| · | Possible<br> impairment of relationships with employees and clients as a result of any integration of<br> new businesses and management personnel; |
| --- | --- |
| · | Impairment<br> of goodwill; and |
| --- | --- |
| · | Reductions<br> in future operating results from 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 the 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. The acquisition and integration of businesses may not be managed effectively and any failure to do so could lead to disruptions in the overall activities of the Company, a loss of clients and revenue, and increased expenses. The Company may acquire contingent liabilities in connection with the acquisitions of business, which may be material. Best efforts are used to identify and estimate these contingent liabilities and the likelihood that they will materialize but, these estimates could differ materially from the liabilities actually incurred.
***Competition:***The Company competes with a number of firms in various business segments. Competitors in Courts, for example, are different from the ones we are competing against in public safety, medical, and legal. Some of these companies have greater financial, technological, and personnel resources than those of the Company.
| Management Discussion & Analysis | Page 17 |
| --- | --- |
VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
InternationalOperations: The Company's operations are currently located in Canada, the United States, and Australia and its 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, which could have a materially adverse effect on the Company's business, operating results, and financial condition.
ProprietaryIntellectual Property: The Company relies on protecting its proprietary intellectual property in part through confidentiality agreements with its corporate resellers, strategic partners, employees, consultants and certain contractors. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or independently discovered by its competitors. It is possible that the Company's products or processes will infringe, or will be found to infringe, on patents not owned or controlled by the Company. If any relevant claims of third-party patents are upheld as valid and enforceable, the Company could be prevented from practicing the subject matter claimed in such patents or would be required to obtain licenses or redesign its products and processes to avoid infringement. There can be no assurance that such licenses would be available at all or on terms commercially reasonable to the Company or that the Company could redesign its products or processes to avoid infringement. 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.
Product LiabilityExposure: The Company faces an inherent business risk of exposure to product liability and other claims in the event that the development or use of its technology or prospective products is alleged to have resulted in adverse effects. While the Company has taken, and will continue to take, what it believes are appropriate precautions, there can be no assurance that it will avoid significant liability exposure. Although the Company currently carries product liability insurance, there can be no assurance that the Company has sufficient coverage or can obtain sufficient coverage at a reasonable cost. An inability to obtain product liability insurance at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of products developed by the Company. A product liability claim could have a material adverse effect on the Company's business financial condition and results of operations.
Volatilityof Stock Price and Absence of Dividends: The market price of the Company's common shares, like that of the common shares of many other software companies, has been and is likely to be somewhat volatile. Factors such as the Company’s strategic alliances or its competitors', announcements of technological innovations or new products by the Company or its competitors, governmental regulatory actions, developments with the Company's collaborators, developments concerning patent or other proprietary rights of the Company or its competitors (including litigation), period-to-period fluctuation of the Company's operating results, changes in estimates of the Company's performance by securities analysts, market conditions for shares of software companies in general and other factors not within the control of the Company could have a significant adverse impact on the market price of the Company’s common shares. The Company has never paid cash dividends on its common shares and does not anticipate paying any cash dividends in the foreseeable future.
Foreign CurrencyFluctuations: Our monetary assets and liabilities denominated in currencies other than the United States dollar will give rise to a foreign currency gain or loss reflected in our comprehensive earnings. To the extent the Canadian dollar or Australian dollar weakens against the United States dollar, we may incur foreign exchange losses. Such losses would be included in our financial results and, consequently, may have an adverse effect on our share price. As we currently have a global client base, a significant portion of our income is in US dollars and Australian dollars. However, a significant part of our expenses are currently generated in Canadian dollars, and we expect this will continue for the foreseeable future. The exchange rates between the Canadian dollar, the US dollar and the Australian dollar 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 our consolidated revenues as well as our consolidated costs. Also, changes in foreign exchange rates may affect the relative costs of operations and prices at which we and our foreign competitors sell products in the same market. We do not currently have any currency hedging through financial instruments.
| Management Discussion & Analysis | Page 18 |
| --- | --- |
VIQSolutions Inc.
VIQ Solutions Inc.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations for Three and Six Months ended June 30, 2021
Disclosure ofOutstanding Share Data
VIQ Solutions Inc. common shares trade on the TSX Exchange under the symbol “VQS” and VQSLF on the OTCQX in the United States. The Company is authorized to issue an unlimited number of common shares without par value. As at June 30, 2021 there were (i) 25,618,324 common shares issued and outstanding, (ii) 939,600 stock options outstanding with a weighted average exercise price per common share of $3.15 CAD expiring between 2021 and 2025 under the Legacy Plan (iii) 790,086 stock options outstanding with a weighted average exercise price per common share of $8.85 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) 176,699 restricted share units outstanding expiring 2031 under the Omnibus Equity Incentive Plan.
Subsequent Events
The Company announced its common shares are trading on August 12, 2021 on the Nasdaq Capital Market under the ticker “VQS”.
| Management Discussion & Analysis | Page 19 |
| --- | --- |
Exhibit 99.4
VIQ Solutions Inc.
Interim Condensed Consolidated Financial Statements
Three and six months ended June 30, 2021 and 2020
(Unaudited)
(Expressed in United States dollars)
VIQ Solutions Inc.
Interim Condensed Consolidated Statements of Financial Position
(Expressed in United States dollars, unaudited)
| June 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Assets | ||||||
| Current assets | ||||||
| Cash | $ | 12,374,826 | $ | 16,835,671 | ||
| Trade and other receivables, net of allowance for doubtful accounts (note 5, 6) | 5,733,043 | 4,475,751 | ||||
| Inventories | 76,248 | 49,381 | ||||
| Prepaid expenses and deposits | 621,021 | 254,230 | ||||
| 18,805,138 | 21,615,033 | |||||
| Non-current assets | ||||||
| Restricted cash | 92,428 | 42,835 | ||||
| Property and equipment | 199,536 | 215,835 | ||||
| Right of use assets | 229,557 | 309,566 | ||||
| Intangible assets (note 7) | 11,018,562 | 12,118,352 | ||||
| Goodwill (note 7) | 6,963,118 | 6,976,096 | ||||
| Deferred tax assets | 389,481 | 1,441,942 | ||||
| Total assets | $ | 37,697,820 | $ | 42,719,659 | ||
| Liabilities | ||||||
| Current liabilities | ||||||
| Trade and other payables and accrued liabilities | $ | 4,737,942 | $ | 5,305,600 | ||
| Income tax payable | 190,284 | 201,592 | ||||
| Share appreciation rights plan obligations (note 9) | 37,416 | 126,503 | ||||
| Share based payment liability (note 9) | 177,316 | – | ||||
| Current portion of long-term debt (note 8) | 1,260,251 | 1,486,136 | ||||
| Current portion of lease obligations (note 17) | 50,479 | 113,218 | ||||
| Current portion of contract liabilities | 1,007,300 | 1,252,957 | ||||
| 7,460,988 | 8,486,006 | |||||
| Non-current liabilities | ||||||
| Deferred tax liability | 59,778 | 60,587 | ||||
| Long-term debt (note 8) | 12,347,567 | 12,138,799 | ||||
| Long-term contingent consideration (note 4) | 1,111,940 | 1,575,528 | ||||
| Long-term lease obligations (note 17) | 217,021 | 240,981 | ||||
| Long-term contract liabilities | 3,139 | 70,834 | ||||
| Other long-term liabilities | 384,851 | 360,525 | ||||
| Total liabilities | 21,585,284 | 22,933,260 | ||||
| Shareholders' Equity | ||||||
| Capital stock (note 9) | 58,630,831 | 50,234,551 | ||||
| Contributed surplus | 4,800,219 | 4,970,945 | ||||
| Accumulated other comprehensive income (loss) | 187,128 | (78,906 | ) | |||
| Deficit | (47,505,642 | ) | (35,340,191 | ) | ||
| Total liabilities and shareholders' equity | $ | 37,697,820 | $ | 42,719,659 |
Subsequent events (Note 8(a))
See accompanying notes to interim condensed consolidated financial statements.
| Approved by the Board | Signed “Larry Taylor” | Signed “Sebastien Paré” |
|---|---|---|
| Larry Taylor, Director | Sebastien Paré, CEO and Director |
VIQ Solutions Inc.
Interim Condensed Consolidated Statements of Loss and Comprehensive Loss
(Expressed in United States dollars, unaudited)
| Three Months ended June 30, | Six Months ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020<br> (note 2(b)) | 2021 | 2020<br> (note 2(b)) | |||||||||
| Revenue (note<br> 14) | $ | 8,191,812 | $ | 8,253,015 | $ | 16,446,034 | $ | 15,801,219 | ||||
| Cost of Sales | 4,210,733 | 3,202,737 | 8,447,120 | 7,521,049 | ||||||||
| Gross Profit | 3,981,079 | 5,050,278 | 7,998,914 | 8,280,170 | ||||||||
| Expenses (note 15) | ||||||||||||
| Selling and administrative expenses | 3,953,046 | 3,090,612 | 7,492,156 | 5,467,766 | ||||||||
| Research and development expenses | 260,010 | 209,537 | 499,673 | 461,858 | ||||||||
| Stock based compensation (note 10) | 6,687,792 | 483,253 | 6,773,787 | 530,978 | ||||||||
| Foreign exchange (gain) loss (note 18) | 153,400 | (54,651 | ) | 368,725 | (306,900 | ) | ||||||
| Depreciation | 70,101 | 95,219 | 143,656 | 203,073 | ||||||||
| Amortization | 1,118,014 | 1,083,910 | 2,292,822 | 2,074,607 | ||||||||
| 12,242,363 | 4,907,880 | 17,570,819 | 8,431,382 | |||||||||
| Income (loss) before undernoted items | (8,261,284 | ) | 142,398 | (9,571,905 | ) | (151,212 | ) | |||||
| Interest expense | (335,594 | ) | (375,018 | ) | (667,013 | ) | (4,070,970 | ) | ||||
| Accretion and other financing costs (note 8) | (254,712 | ) | (334,013 | ) | (519,661 | ) | (564,561 | ) | ||||
| Loss on revaluation of conversion feature liability (note 8) | – | (72,791 | ) | – | (1,191,552 | ) | ||||||
| Loss on repayment of long-term debt (note 8) | – | – | – | (1,290,147 | ) | |||||||
| Loss on contingent consideration (note 4) | (109,269 | ) | – | (13,275 | ) | – | ||||||
| Restructuring costs | (238,037 | ) | – | (360,253 | ) | – | ||||||
| Other income (expense) | 4,841 | (99 | ) | 8,294 | 105 | |||||||
| (9,194,055 | ) | (639,523 | ) | (11,123,813 | ) | (7,268,337 | ) | |||||
| Current income tax expense | (43,348 | ) | (390,831 | ) | (1,358 | ) | (444,275 | ) | ||||
| Deferred income tax expense | (1,261,259 | ) | – | (1,040,280 | ) | – | ||||||
| Income tax expense | (1,304,607 | ) | (390,831 | ) | (1,041,638 | ) | (444,275 | ) | ||||
| Net loss for the period | $ | (10,498,662 | ) | $ | (1,030,354 | ) | $ | (12,165,451 | ) | $ | (7,712,612 | ) |
| Exchange gain (loss) on translating foreign operations | 101,642 | (166,265 | ) | 266,034 | (150,326 | ) | ||||||
| Comprehensive loss for the period | $ | (10,397,020 | ) | $ | (1,196,619 | ) | $ | (11,899,417 | ) | $ | (7,862,938 | ) |
| Net loss per share (note<br> 11) | ||||||||||||
| Basic | (0.42 | ) | (0.06 | ) | (0.49 | ) | (0.46 | ) | ||||
| Diluted | (0.42 | ) | (0.06 | ) | (0.49 | ) | (0.46 | ) | ||||
| Weighted average number of common shares outstanding - basic (note 11) | 25,029,019 | 18,364,354 | 24,749,637 | 16,728,647 | ||||||||
| Weighted average number of common shares outstanding - diluted (note 11) | 25,029,019 | 18,364,354 | 24,749,637 | 16,728,647 |
See accompanying notes to interim condensed consolidated financial statements.
VIQ Solutions Inc.
Interim Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in United States dollars, unaudited)
| Accumulated | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| other | ||||||||||||||||
| Capital Stock | Contributed | comprehensive | Total | |||||||||||||
| Number | Amount | surplus | Deficit | loss | equity | |||||||||||
| Balance as at December 31, 2019 | 10,852,617 | $ | 21,987,937 | $ | 4,552,528 | $ | (24,194,885 | ) | $ | (135,058 | ) | $ | 2,210,522 | |||
| Comprehensive loss for the period | – | – | – | (7,712,612 | ) | (150,326 | ) | (7,862,938 | ) | |||||||
| Shares issued due to exercise of stock options (note 9) | 82,500 | 113,023 | (40,061 | ) | – | – | 72,962 | |||||||||
| Shares issued due to exercise of warrants (note 9) | 1,154,759 | 1,859,963 | 81,467 | – | – | 1,941,430 | ||||||||||
| Shares issued due to debenture conversion (note 8) | 6,395,648 | 11,312,161 | (80,963 | ) | – | – | 11,231,198 | |||||||||
| Stock-based compensation (note 10) | – | – | 267,170 | – | – | 267,170 | ||||||||||
| Balance at June 30, 2020 (note 2 (b)) | 18,485,524 | $ | 35,273,084 | $ | 4,780,141 | $ | (31,907,497 | ) | $ | (285,384 | ) | $ | 7,860,344 | |||
| Accumulated | ||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| other | ||||||||||||||||
| Capital Stock | Contributed | comprehensive | Total | |||||||||||||
| Number | Amount | surplus | Deficit | 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 period | – | – | – | (12,165,451 | ) | 266,034 | (11,899,417 | ) | ||||||||
| Shares issued due to exercise of stock options (note 9) | 178,333 | 322,547 | (119,690 | ) | – | – | 202,857 | |||||||||
| Shares issued due to exercise of warrants (note 9) | 1,123,878 | 2,746,706 | (654,430 | ) | – | – | 2,092,276 | |||||||||
| Shares issued due to exercise of restricted share units (note 9) | 724,686 | 5,325,354 | (5,999,951 | ) | – | – | (674,597 | ) | ||||||||
| Shares issued due to debenture conversion (note 8) | – | 1,673 | – | – | – | 1,673 | ||||||||||
| Stock-based compensation (note 10) | – | – | 6,603,345 | – | – | 6,603,345 | ||||||||||
| Balance at June 30, 2021 | 25,618,324 | $ | 58,630,831 | $ | 4,800,219 | $ | (47,505,642 | ) | $ | 187,128 | $ | 16,112,536 |
See accompanying notes to interim condensed consolidated financial statements.
| Page 4 |
| --- |
VIQ Solutions Inc.
Interim Condensed Consolidated Statements of Cash Flows
(Expressed in United States dollars, unaudited)
| Three Months ended June 30, | Six Months ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020<br> (note 2(b)) | 2021 | 2020<br> (note 2(b)) | |||||||||
| Cash provided by (used in) | ||||||||||||
| Operating activities | ||||||||||||
| Net loss for the period | $ | (10,498,662 | ) | $ | (1,030,354 | ) | $ | (12,165,451 | ) | $ | (7,712,612 | ) |
| Items not affecting cash: | ||||||||||||
| Depreciation | 70,101 | 95,219 | 143,656 | 203,073 | ||||||||
| Amortization | 1,118,014 | 1,083,910 | 2,292,822 | 2,074,607 | ||||||||
| Stock-based compensation (note 10) | 6,687,792 | 483,253 | 6,773,787 | 530,978 | ||||||||
| Loss on revaluation of conversion feature liability (note 8) | – | 72,791 | – | 1,191,552 | ||||||||
| Loss on repayment of long-term debt (note 8) | – | – | – | 1,290,147 | ||||||||
| Accretion and other financing expense (note 8) | 254,712 | 334,013 | 519,661 | 564,561 | ||||||||
| Interest expense (note 8) | 335,594 | 375,018 | 667,013 | 4,070,970 | ||||||||
| Income tax expense | 1,304,607 | 390,831 | 1,041,638 | 444,275 | ||||||||
| Loss on contingent consideration (note 4) | 109,269 | – | 13,275 | – | ||||||||
| Restructuring costs | 238,037 | – | 360,253 | – | ||||||||
| Other (income) expense | (4,841 | ) | 99 | (8,294 | ) | (105 | ) | |||||
| Foreign exchange (gain) loss (note 18) | 153,400 | (54,651 | ) | 368,725 | (306,900 | ) | ||||||
| Unrealized foreign exchange (gain) loss | 347,789 | (252,880 | ) | 350,884 | (52,783 | ) | ||||||
| Changes in non-cash operating working capital (note 12) | (2,708,734 | ) | 1,919,057 | (3,858,319 | ) | 1,186,670 | ||||||
| Cash provided by (used in) operating activities | (2,592,922 | ) | 3,416,306 | (3,500,350 | ) | 3,484,433 | ||||||
| Investing activities | ||||||||||||
| Purchase of property and equipment | (34,707 | ) | (94,638 | ) | (42,247 | ) | (121,626 | ) | ||||
| Business acquisitions | – | – | – | (4,411,500 | ) | |||||||
| Earn out payment | (358,674 | ) | – | (745,501 | ) | – | ||||||
| Development costs related to internally generated intangible assets (note 7) | (569,011 | ) | (359,754 | ) | (1,101,309 | ) | (698,116 | ) | ||||
| Employee loan advancement (note 5) | 518,431 | – | – | – | ||||||||
| Change in restricted cash | 1,244 | (4,039 | ) | (49,593 | ) | 838 | ||||||
| Cash provided by (used in) investing activities | (442,717 | ) | (458,431 | ) | (1,938,650 | ) | (5,230,404 | ) | ||||
| Financing activities | ||||||||||||
| Issuance costs reimbursements | – | – | 1,673 | – | ||||||||
| Proceeds from debt, net of issuance costs | – | – | – | 4,566,945 | ||||||||
| Proceeds from exercise of stock options (note 9) | – | 298,924 | 202,857 | – | ||||||||
| Proceeds from exercise of warrants (note 9) | – | – | 2,092,276 | 1,859,963 | ||||||||
| Repayment of debt (note 8) | (228,391 | ) | (60,000 | ) | (609,548 | ) | (314,382 | ) | ||||
| Repayment of lease obligations (note 17) | (60,687 | ) | (114,760 | ) | (105,955 | ) | (194,602 | ) | ||||
| Payment of interest on debt (note 8) | (324,878 | ) | (231,935 | ) | (636,787 | ) | (420,266 | ) | ||||
| Payment of interest on lease obligations (note 17) | (7,042 | ) | (12,115 | ) | (14,819 | ) | (27,795 | ) | ||||
| Cash provided by (used in) financing activities | (620,998 | ) | (119,886 | ) | 929,697 | 5,469,863 | ||||||
| Net increase (decrease) in cash for the period | (3,656,637 | ) | 2,837,989 | (4,509,303 | ) | 3,723,892 | ||||||
| Cash, beginning of period | 16,020,297 | 2,485,340 | 16,835,671 | 1,707,654 | ||||||||
| Effect of exchange rate changes on cash | 11,166 | 60,879 | 48,458 | (47,339 | ) | |||||||
| Cash, end of period | $ | 12,374,826 | $ | 5,384,208 | $ | 12,374,826 | $ | 5,384,207 |
See accompanying notes to interim condensed consolidated financial statements
| Page 5 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed 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 offices are located at 700 – 5915 Airport Road, Mississauga, Ontario, L4V 1H1. VIQ is a public Company. Subsequent to yearend, the Company graduated from the Toronto Venture Exchange to the Toronto Stock Exchange. The Company's common shares began trading on TSX under trading symbol VQS at the market open on January 21, 2021.
| 2. | Basis of preparation |
|---|---|
| (a) | Statement of compliance |
| --- | --- |
The Company prepares its interim condensed consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), IAS 34, Interim Financial Reporting and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations, as issued by the International Accounting Standards Board (“IASB”) and using the same accounting policies as described in the Company’s December 31, 2020 consolidated financial statements. The preparation of the interim condensed 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 interim condensed consolidated financial statements, are disclosed in note 3. The accounting policies applied in these interim condensed consolidated financial statements are based on IFRS issued as at August 16, 2021, the date the Board of Directors approved the interim condensed consolidated financial statements.
| (b) | Comparative figures |
|---|
Certain comparative figures have been updated to reflect immaterial adjustments related to the repayment of long-term debt which occurred in the three and six months ended June 30, 2020. Additionally, immaterial adjustments related to the amortization of intangible assets as well as the revaluation of the conversion feature have also been reflected for the six months ended June 30, 2020.
| Three<br> months ended<br> June 30, 2020 | ||||||
|---|---|---|---|---|---|---|
| As originally<br><br> reported | Correction | Re-presented | ||||
| Accretion interest expense | 240,190 | 93,823 | 334,013 | |||
| Total impact to net and comprehensive loss | 240,190 | 93,823 | 334,013 |
| Page 6 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 2. | Basis of preparation (continued) | ||||||
|---|---|---|---|---|---|---|---|
| Six months<br> ended<br> June 30, 2020 | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| As originally<br> <br> reported | Correction | Re-presented | |||||
| Accretion interest expense | 404,053 | 160,508 | 564,561 | ||||
| Depreciation and amortization | 2,368,221 | (90,541 | ) | 2,277,680 | |||
| Loss on revaluation of conversion<br> feature | 490,811 | 700,741 | 1,191,552 | ||||
| Total impact to net and comprehensive<br> loss | 5,733,043 | 4,475,751 | 5,733,043 | ||||
| (c) | Basis of preparation | ||||||
| --- | --- |
The notes presented in these interim condensed consolidated financial statements include only significant changes and transactions occurring since the Company’s last year end and are not fully inclusive of all disclosures required by International Financial Reporting Standards (“IFRS”). These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements, including the notes thereto, for the years ended December 31, 2020 and 2019. The interim condensed 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.
| (e) | Functional currency, presentation currency and foreign currency<br>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, Spark & Cannon Pty – AUD, VIQ Services Inc. – USD, Net Transcripts – USD, Transcription Express – USD, HomeTech – USD, VIQ Media Transcriptions – USD, and WordZXpressed – Inc. – USD. All financial information is presented in USD unless otherwise stated.
The exchange rates used were as follows:
| USD / CAD exchange rate | June 30,<br> 2021 | December 31,<br> 2020 | June 30, 2020 | |||
|---|---|---|---|---|---|---|
| Closing at the reporting date | 0.8066 | 0.7672 | 0.7330 | |||
| Average rate for the period | 0.8138 | 0.7480 | 0.7371 | |||
| USD / AUD exchange rate | June 30,<br> 2021 | December 31,<br> 2020 | June 30, 2020 | |||
| --- | --- | --- | --- | --- | --- | --- |
| Closing at the reporting date | 0.7506 | 0.7311 | 0.6876 | |||
| Average rate for the period | 0.7695 | 0.6901 | 0.6573 |
The financial results of each subsidiary consolidated in the Company’s interim condensed 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 interim condensed consolidated statements of loss and comprehensive loss.
| Page 7 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 2. | Basis of preparation (continued) |
|---|
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.
| (f) | Use of estimates and judgements |
|---|
The preparation of the interim condensed 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 interim condensed 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 interim condensed 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 interim condensed consolidated financial statements for the period ended June 30, 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 interim condensed 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.
| 3. | Significant accounting policies, estimates and judgements |
|---|
The preparation of the financial statements in accordance with IAS 34 requires management to make estimates and assumptions that affect the amounts reported in the interim condensed consolidated financial statements and notes to the interim condensed consolidated financial statements. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future. Actual results may differ from those estimates. Significant estimates and judgments made by the Company include the valuation of acquired intangible assets, the determination of the recoverable amount of goodwill, amounts recorded as provisions, recognition of deferred tax assets, the provision for long-term service leave and other employee benefits, contingent consideration, stock based compensation, and the determination of functional currency.
| 4. | 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.
| Page 8 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 4. | Acquisitions (continued) |
|---|
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, 2020, the contingent consideration of WordZ and ASC was adjusted based on the revision of the estimated quarterly revenue target achievements, due to an anticipated improvement in operational performance. During the three and six-months period ended June, 30, 2021, the Company further revised the forecasted quarterly revenue target achievements and reported a loss on contingent consideration of $109,269 (2020 – $nil) and $13,275 (2020 - $nil), respectively. During the six months ended June 30, 2021, earnout payments totalling $745,501 (June 30, 2020 - $nil) was made to the previous owners of ASC and WordZ.
As at June 30, 2021, total contingent consideration is $2,539,995 (December 31, 2020 - $3,015,434), of which $1,428,055 (December 31, 2020 - $1,439,906) is recorded as trade and other payables and accrued liabilities, and $1,111,940 has been recorded as long-term contingent consideration (December 31, 2020
- $1,575,528).
The accounting for the acquisitions is complete as of December 31, 2020. The finalization of the above purchase price allocations of the valuation of fair value for the assets acquired and liabilities assumed, including intangible assets and taxation-related balances as well as for potential unrecorded liabilities was completed as of December 31, 2020.
| 5. | Trade and<br>other receivables |
|---|
| June 30,<br> 2021 | December<br> 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Trade accounts receivable | $ | 4,857,759 | $ | 4,233,012 | ||
| Other receivable (note 6) | 1,083,412 | 366,077 | ||||
| Less: allowance for doubtful accounts<br> (note 18) | (208,128 | ) | (123,338 | ) | ||
| $ | 5,733,043 | $ | 4,475,751 |
As at June 30, 2021, other receivable relates to accruals for government assistance programs of $588,782 (December 31, 2020 - $nil), work in progress and unbilled receivables of $356,234 (December 31, 2020 - $297,581), sales tax receivable of $122,255 (December 31, 2020 - $6,761) and employee receivable of $16,141 (December 31, 2020 - $nil). Please refer to note 6 for additional details on government assistance programs applicable to the Company.
| 6. | Government Assistance |
|---|
Australian Business Wage Subsidies
For the period ended June 30, 2021, the Australian government provided the Company with $19,310 (June 30, 2020, - $nil). This amount was recognized as a reduction in selling and administrative expenses in the interim condensed consolidated statements of loss and comprehensive loss.
| Page 9 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 6. | Government Assistance (continued) |
|---|
The Company qualified for subsidies for the year ended December 31, 2020, of which $7,809 is receivable as of June 30, 2021 (December 31, 2020 - $8,019)
U.S. Employee Retention Credit Program
For the three and six months ended June 30, 2021, the Company determined that it qualified for the U.S. Employee Retention Credit Program and recorded a reduction to its expenses of $580,973 and $865,129, respectively (three and six months ended June 30, 2020 - $nil). For the three and six months ended June 30, 2021, $361,065 and $530,150, respectively, (three and six months ended June 30, 2020 - $nil) was recognized as a reduction to operating expenses against related salary costs and $219,908 and $334,979, respectively, (three and six months ended June 30, 2020 - $nil) as a reduction to cost of sales in the interim condensed consolidated statement of loss and comprehensive loss.
As at June 30, 2021, the interim condensed consolidated statement of financial position included government assistance receivable of $588,782 (December 31, 2020 - $68,496) in trade and other receivables.
| 7. | Intangible assets and goodwill |
|---|
Details of the Company’s intangible assets as of June 30, 2021 are listed as follows:
| Balance<br> January 1, <br> 2021 | Additions | Foreign<br> exchange | Balance<br> June 30, <br> 2021 | |||||
|---|---|---|---|---|---|---|---|---|
| Cost | ||||||||
| Customer relationships | $ | 11,775,697 | $ | – | $ | 11,224 | $ | 11,786,921 |
| Technology | 470,000 | – | – | 470,000 | ||||
| Non-compete | 51,031 | – | – | 51,031 | ||||
| Brand | 1,520,899 | – | – | 1,520,899 | ||||
| Internally generated intangible assets | 7,015,035 | 1,101,309 | 218,007 | 8,334,351 | ||||
| $ | 20,832,662 | $ | 1,101,309 | $ | 229,231 | $ | 22,163,202 | |
| Accumulated amortization | ||||||||
| Customer relationships | 4,099,565 | 1,161,000 | 11,224 | 5,271,789 | ||||
| Technology | 196,499 | 47,000 | – | 243,499 | ||||
| Non-compete | 19,638 | 11,666 | – | 31,304 | ||||
| Brand | 133,921 | 74,656 | – | 208,577 | ||||
| Internally generated intangible assets | 4,264,687 | 998,500 | 126,284 | 5,389,471 | ||||
| 8,714,310 | 2,292,822 | 137,508 | 11,144,640 | |||||
| Net book value | $ | 12,118,352 | $ | 11,018,562 |
Details of the Company’s goodwill as at June 30, 2020 are as follows:
| Balance<br> <br> January 1, 2021 | Foreign<br> exchange | Balance<br> <br><br> June 30, 2021 | |||||
|---|---|---|---|---|---|---|---|
| VIQ Solutions PTY Ltd. | $ | 650,001 | $ | (16,914 | ) | $ | 633,087 |
| Dataworxs | 141,018 | 3,936 | 144,954 | ||||
| Net Transcripts | 1,575,511 | – | 1,575,511 | ||||
| Transcription Express | 1,516,904 | – | 1,516,904 | ||||
| HomeTech | 477,860 | – | 477,860 | ||||
| ASC | 2,614,802 | – | 2,614,802 | ||||
| $ | 6,976,096 | $ | (12,978 | ) | $ | 6,963,118 |
| Page 10 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 8. | Long-term debt | |||||
|---|---|---|---|---|---|---|
| June 30,<br> 2021 | December<br> 31, 2020 | |||||
| --- | --- | --- | --- | --- | --- | --- |
| Crown Capital Funding Partner LP Note Payable<br> (a) | $ | 11,887,950 | $ | 11,398,146 | ||
| Unsecured Transcription Express 10% promissory note (b) | – | 280,531 | ||||
| Unsecured HomeTech interest-free promissory note (b) | 536,274 | 621,725 | ||||
| Unsecured WordZ 5% promissory note (b) | 923,364 | 1,064,303 | ||||
| U.S. Paycheck Protection Program loan (c) | 260,230 | 260,230 | ||||
| Less current portion of long term debt | (1,260,251 | ) | (1,486,136 | ) | ||
| $ | 12,347,567 | $ | 12,138,799 | |||
| (a) | Crown<br> Capital Funding Partner LP Note Payable | |||||
| --- | --- |
During the year ended December 31, 2018, the Company entered into a secured debt facility with Crown Capital Funding Partner LP (“Crown”) of $11,770,500 (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. Additionally, during the period ended June 30, 2020, the Company cancelled previously issued 450,000 common share purchase warrants and reissued new warrants to reflect a price per Share equal to CAD$2.06 (the “Exercise Price”) until expiry on November 28, 2023. As a result of this modification, the Company recorded $84,287 (CAD$111,387) reflecting the incremental fair value of the warrant associated with the amendment as a reduction in the carrying value of the note payable as at June 30, 2020. The Company incurred fees of $353,115 (CAD$450,000) associated with establishing the amended debt facility which was recorded as a reduction in the carrying value of the note payable. These fees remain unpaid and the long-term payable is added to the Company’s outstanding principal. These fees accrue interest at 10 percent and repayment is due on November 28, 2023. At inception, the loan was recorded at the fair value of $11,031,120. During the three and six months ended June 30, 2021, the Company recorded interest expense of $313,469 and $614,254, respectively (three and six months ended June 30, 2020 - $279,922 and $515,812, respectively)
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 three and six months ended June 30, 2021, there was $88,252 and $173,193 recorded, respectively (three and six months ended June 30, 2020 - $81,423 and $140,695, respectively) as accretion and other financing expense related to the note payable in the interim condensed consolidated statements of loss and comprehensive loss.
The Company received a waiver in March 2021 to remove the Fixed Charge Coverage Ratio covenant for all four quarters of 2021. The Company is in compliance of other covenants as at June 30, 2021. Subsequent to June 30, 2021, the Company received a waiver in August 2021, to remove the Net Debt to EBITDA Ratio for the remainder of fiscal 2021. In addition, the Company received a waiver to remove the Fixed Charge Coverage Ratio covenant for the first three quarters of 2022.
| (b) | Unsecured<br> Promissory Notes |
|---|
Unsecured promissory notes have been issued to the former owners of acquired companies. As part of the acquisition of Transcription Express, the Company issued an unsecured promissory note to the former owners of Transcription Express with a face value of $1,666,227, bearing interest at 10% per annum. During the year ended December 31, 2019, the terms of the Transcription Express unsecured promissory note were amended with the principal and accrued interest to be paid monthly beginning on July 31, 2019 to the period ending April 30, 2021.
| Page 11 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 8. | Long-term debt (continued) |
|---|
As part of the acquisition of HomeTech, the Company issued an unsecured interest-free promissory note to the former owners of HomeTech with a face value of $1,200,000, to be paid monthly for 60 months in equal installments of $20,000 beginning February 25, 2019 to the period ending January 25, 2024. The Company recorded the unsecured promissory note by discounting the principal amounts due using a market annual interest rate of 12%. The difference between the present value and the face value is being accreted over the term of the unsecured promissory notes.
An additional note was issued to the former owners of WordZ with a face value of $1,200,000 bearing interest at 5% to be paid quarterly for 36 months beginning January 5, 2021 to the period ending October 5, 2023. The fair value of the unsecured promissory notes was determined on a market annual interest rate of 12%. The difference between the face value and the ascribed value of the notes is being accreted over life of the notes.
| (c) | U.S.<br> 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 Ban at an interest rate of 1% maturing in two years. Principal and interest are due beginning 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 June 30, 2021, the Company determined that it qualified for forgiveness criteria associated with the loan in the amount of $1,898,770, with a balance of $260,230 (December 31, 2020 - $260,230) that was unutilized and reported as a note payable.
| (d) | Convertible<br> Notes |
|---|
During the year ended December 31, 2020, the Company entered into agreements (the “Amending Agreements”) with the holders of unsecured convertible notes (each, a “Note”) in the aggregate principal amount of approximately $6,792,934, granting the holders of such Notes (each a “Noteholder”) the option to convert the principal and the aggregate interest payable on their Notes from the date of issuance to the maturity date (the “Total Interest Payable”) into Shares at a conversion price of CAD$2.18 per Share (the “Conversion Option”). During the year ended, December 31, 2020, the Company issued 6,785,651 common shares to settle its outstanding Notes. Noteholders holding all of the outstanding Notes exercised the conversion option during the year ended December 31, 2020.
As a result, for the three and six months ended June 30, 2021, the Company recognized $nil and $nil, respectively, of interest expense (three months ended June 30, 2020 - $10,592 and six months ended June 30, 2020 - $3,429,633) reflecting interest charges from the convertible notes and accretion expense of $nil (three months ended June 30, 2020 - $4,487 and six months ended June 30, 2020 - $67,665). For the three and six months ended June 30, 2021, the Company recognized a loss of $nil and $nil, respectively on the revaluation of the conversion feature liability (three months ended June 30, 2020 2020 – loss of $72,791 and six months ended June 30, 2020 – loss of $1,191,552).
As a result of the exercise of the Conversion Option during the year ended December 31, 2020, during the period ended June 30, 2021, the Company issued $nil common shares (2020 – 6,395,648) to settle its outstanding Notes having $nil amount of aggregate principal (2020 - $7,189,627) and total interest payable of $nil (2020 - $4,041,571) for a total amount of $nil (2020 - $11,231,198).
| 9. | 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.
| Page 12 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 9. | Capital stock (continued) |
|---|
Under the Omnibus Equity Incentive Plan, the Company is able to grant equity-based incentive awards in the form of Stock Options, Restricted Share Units (“RSUs”), Performance Share Units (“PSUs”) and Deferred Share Units (“DSUs”). All future grants of equity-based awards will be made pursuant to the Omnibus Equity Incentive Plan, and no further equity-based awards will be made pursuant to the Company’s Stock Option Plan, DSU plan, and Stock Appreciation Rights Plan (collectively, the “Legacy Plans”). The Legacy Plans will continue to be authorized for the sole purposes of facilitating the vesting and exercise of existing awards previously granted under the Legacy Plans. Once the existing awards granted under the Legacy Plans are exercised or terminated, the Legacy Plans will terminate and be of no further force or effect.
No equity incentive securities have been granted under the Legacy Plans for the period ended June 30, 2021 (December 31, 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 June 30, 2021, common shares of the Company were reserved as follows:
| Exercise Price <br> (CAD) | Expiry dates | Number outstanding | ||
|---|---|---|---|---|
| Options – Legacy Plan | $2.10 – $4.20 | January 2021 – December 2021 | 58,333 | |
| $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 | ||
| 939,600 | ||||
| Options – Omnibus Equity Incentive Plan | $8.84 | January 2031 – June 2031 | 721,500 | |
| $8.93 | January 2031 – June 2031 | 68,586 | ||
| 790,086 | ||||
| Deferred share units – Legacy Plan | $1.20 | N/A | 66,667 | |
| Restricted share units – Omnibus<br> Equity Incentive plan | N/A | January 2031 – June 2031 | 176,699 |
Warrants
During the three and six months ended June 30, 2021, there were nil and 1,123,878 of warrants exercised, respectively (three and six months ended June 30, 2020 – 139,885 and 1,154,759, respectively) for proceeds of $nil and $2,092,276, respectively (three months ended June 30, 2020 - $380,391 and six months ended June 30, 2020 - $1,941,430). During the period ended June 30, 2021, there were no warrants issued (three and six months ended June 30, 2020 – nil).
As at June 30, 2021, there were no warrants outstanding (December 31, 2020 – 1,123,878).
| Page 13 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 9. | Capital stock (continued) |
|---|
Stock Option Plan
The Company had an incentive stock option plan for its directors, officers, employees, and contractors as part of its Legacy Plans. 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 |
| --- | --- |
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 three and six months ended June 30, 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<br> of the Company on a 1:1 basis to vested Options |
|---|---|
| • | receive cash payment, net of withholding<br> 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,<br> 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. As at June 30, 2021, the Company has recorded a share based payment liability of $141,186 related to the Options that are deemed to be cash-settled share-based payments.
As at June 30, 2021, the Company had vested 751,650 options related to the legacy plan (December 31, 2020 – 770,283) with a weighted average exercise price of CAD $3.22 per share (December 31, 2020 – CAD $2.84).
As at June 30, 2021, the Company had vested 45,600 options related to the Omnibus Equity Incentive plan (December 31, 2020 – nil) with a weighted average exercise price of CAD $8.84 per share (December 31, 2020 - $nil).
During the three and six months ended June 30, 2021, there were 790,086 stock options granted to directors, officers, employees, and contractors (three and six months ended June 30, 2020 – 396,000). The Company utilized the Black-Scholes option pricing model to fair value the stock options granted and included the following assumptions:
| Three and Six months ended <br> June 30th, 2021 | |||
|---|---|---|---|
| Omnibus<br> Equity Incentive Plan | |||
| Fair<br> value at grant date | 7.29 | $0.09 | |
| Share price at grant date | 8.93 | $0.16 | |
| Exercise price | 8.84<br> - 8.93 | $0.16 | |
| Expected volatility | 81.60% | 73.41% | |
| Option life | 10.0 | 5.0 | |
| Expected dividends | 0% | 0% | |
| Risk-free interest<br> rate (based on government bonds) | 1.38% | 0.42% |
All values are in US Dollars.
| Page 14 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 9. | Capital stock (continued) |
|---|
During the three and six months ended June 30, 2021, nil and 178,333 options were exercised (three and six months ended June 30, 2020 – 82,500) for proceeds of $nil and $202,857, respectively (three and six months ended June 30, 2020 – CAD $99,000). There were no stock options forfeited during the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 – nil). There were no stock options that were expired during the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 – nil)).
The following information applies to stock options outstanding and exercisable per the legacy plan as at June 30, 2021, along with their respective exercise prices and related weighted averaged remaining contractual life:
| Range of exercise prices<br> (CAD) | Weighted <br> average <br><br> remaining <br> contractual life | Weighted <br><br> average <br> exercise price <br>(CAD) | Options<br><br> exercisable | Weighted<br><br> average <br> exercise price <br>(CAD) | ||||
|---|---|---|---|---|---|---|---|---|
| 2.10 – 4.20 | 58,333 | 0.2 years | $ | 3.06 | 58,333 | $ | 3.06 | |
| 4.40 – 6.40 | 97,000 | 0.9 years | $ | 4.92 | 97,000 | $ | 4.92 | |
| 2.84 - 6.00 | 141,250 | 2.3 years | $ | 3.28 | 141,250 | $ | 3.28 | |
| 2.20 - 3.10 | 247,017 | 3.0 years | $ | 2.44 | 191,067 | $ | 2.50 | |
| 3.13 | 396,000 | 3.8 years | $ | 3.13 | 264,000 | $ | 3.13 | |
| 939,600 | 2.8<br> years | $ | 3.15 | 751,650 | $ | 3.22 |
All values are in US Dollars.
The following information applies to stock options outstanding and exercisable per the Omnibus Equity Incentive plan as at June 30, 2021, along with their respective exercise prices and related weighted averaged remaining contractual life:
| Range of exercise prices<br> (CAD) | Weighted <br> average <br><br> remaining <br> contractual life | Weighted <br><br> average <br> exercise price <br>(CAD) | Options<br><br> exercisable | Weighted <br><br> average<br> exercise price <br>(CAD) | ||||
|---|---|---|---|---|---|---|---|---|
| 8.84 – 8.93 | 790,086 | 10.0 years | $ | 8.85 | 46,500 | $ | 8.84 | |
| 790,086 | 10.0 years | $ | 8.85 | 46,500 | $ | 8.84 |
All values are in US Dollars.
Deferred Share Units Plan
In 2015, the Company established a Deferred Share Units Plan to provide non-employee directors to participate in the long-term success of the Company. DSUs are fully vested upon being granted.
The Board of Directors may grant DSUs (and the number of options to purchase shares described above) up to a maximum of 10% of common shares outstanding and up to a maximum of 100,000 units.
Maximum allowable grants under the Stock Option and DSU plans in aggregate as at June 30, 2021 were 2,561,832 (December 31, 2020 – 2,359,143) of which 1,729,686 were outstanding stock options, 66,667 were outstanding DSUs, and 176,699 were outstanding RSUs for a total of 1,973,052 (December 31, 2020 – 1,184,600).
The Company did not grant any DSU’s to Directors of the Company during the three and six months ended June 30, 2021 (three and six months ended June 30, 2020 – nil).
| Page 15 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
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:
| 9. | Capitalstock (continued) |
|---|---|
| • | 1/3 after one year |
| --- | --- |
| • | 1/3 after two years |
| • | 1/3 after three years |
During the three and six months ended June 30, 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<br>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 three and six months ended June 30, 2021, 998,378 RSUs were granted. 842,861 RSUs were vested and 821,679 RSUs were exercised (December 31, 2020 – nil, nil and nil, respectively). As at June 30, 2021, the Company has 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 fair value the RSUs granted and included the following assumptions:
| Three and Six months ended <br> June 30th, 2021 | Three and Six months ended <br> June 30th, 2020 | ||
|---|---|---|---|
| Omnibus Equity Incentive Plan | Legacy Plans | ||
| Fair value at grant date | $ | 8.93 | N/A |
| Share price at grant date | $ | 8.93 | N/A |
| Exercise price | N/A | N/A | |
| Expected volatility | 81.58% | N/A | |
| Option life | 10.0 | N/A | |
| Expected dividends | 0% | N/A | |
| Risk-free interest rate (based on government bonds) | 1.38% | N/A |
Share Appreciation Rights Plan
In 2015, the Company established a Share Appreciation Rights (“SARs”) plan for its Service Providers (as defined in VIQ’s SARs plan). The Company's SARs 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 SARs units, which have a term not exceeding five years when granted and vest as follows:
| • | 1/3 at time of issue |
|---|---|
| • | 1/3 after one year |
| • | 1/3 after two years |
| Page 16 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 9. | Capitalstock (continued) |
|---|
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 SARs unit at the grant date, the Company shall be entitled to require the disposition of the vested SARs units by the grantee to the Company, by the Company paying the bonus in cash to the grantee.
The value of each SARs unit when issued is based on the market price of the Company's stock on the date of grant.
As at June 30, 2021, previously exercised SARs had a remaining share appreciation rights plan obligation balance of $37,416 (December 31, 2020 - $126,503) has been recognized in the consolidated statement of financial position to reflect the outstanding cash settlement.
10. Stock-basedcompensation
The total compensation expense relating to the value assigned to the stock options and RSUs granted to directors, officers, employees and contractors for the three and six months ended June 30, 2021 was $6,687,792 and $6,773,787, respectively (three and six months ended June 30, 2020 - $483,253 and $530,978, respectively) which was included in the stock-based compensation expense with a corresponding charge to contributed surplus of $6,603,345 and share based payment liability of $170,442.
11. Net loss per share
| Three months ended June 30, | Six months ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020<br> (note 2 (b)) | 2021 | 2020<br> (note 2 (b)) | |||||||||
| Numerator for basic and diluted net loss per share: | ||||||||||||
| Net loss for the period | $ | (10,498,662 | ) | $ | (1,030,354 | ) | $ | (12,165,451 | ) | $ | (7,712,612 | ) |
| Denominator for basic net loss per share: | ||||||||||||
| Weighted average number of common shares outstanding | 25,029,019 | 18,364,354 | 24,749,637 | 16,728,647 | ||||||||
| Effect of potential dilutive securities | – | – | – | – | ||||||||
| Adjusted denominator for diluted net loss per share | 25,029,019 | 18,364,354 | 24,749,637 | 16,728,647 | ||||||||
| Basic net loss per share | $ | (0.42 | ) | $ | (0.06 | ) | $ | (0.49 | ) | $ | (0.46 | ) |
| Diluted net loss per share | $ | (0.42 | ) | $ | (0.06 | ) | $ | (0.49 | ) | $ | (0.46 | ) |
For the three and six months ended June 30, 2021, 966,785 and 1,973,052, respectively, of potentially dilutive common shares (three and six months ended June 30, 2020 - (1,431,454) and 1,197,100, respectively) issuable upon the exercise of the conversion option related to convertible debt, warrants, deferred share units, and options were not included in the computation of loss per share because their effect was anti-dilutive.
| Page 17 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
12. Supplementalcash flow information
Components of the net change in non-cash working capital are as follows:
| Three Months ended June 30, | Six Months ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020<br> (note 2 (b)) | 2021 | 2020<br> (note 2 (b)) | |||||||||
| Trade and other receivables | $ | (565,087 | ) | $ | (377,758 | ) | $ | (1,284,261 | ) | $ | (574,479 | ) |
| Inventories | (16,140 | ) | 3,161 | (25,749 | ) | 10,231 | ||||||
| Prepaid expenses | (176,792 | ) | (21,296 | ) | (364,465 | ) | (54,399 | ) | ||||
| Trade and other payables | (1,580,296 | ) | 2,177,032 | (1,864,396 | ) | 1,846,234 | ||||||
| Contract liabilities and taxes | (370,419 | ) | 137,918 | (319,448 | ) | (40,917 | ) | |||||
| Total | $ | (2,708,734 | ) | $ | 1,919,057 | $ | (3,858,319 | ) | $ | 1,186,670 |
Other supplemental cash flow information as follows:
| Three Months ended June 30, | Six Months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020<br> (note 2 (b)) | 2021 | 2020<br> (note 2 (b)) | |||||
| Cash received for interest | $ | 4,941 | $ | 198 | $ | 8,394 | $ | 402 |
| Cash paid for interest | 331,920 | 244,050 | 651,606 | 448,061 |
13. Segmentedfinancial 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 its proprietary technology; and the technology service segment, provides recording and transcription services.
The Company’s reportable segments are strategic business segments that offer different products and/or services. These business segments work on different business models and operate autonomously. The Company does not segregate sales and associated costs by individual technology products. Accordingly, segmented information on revenue and associated costs is only provided for the full line of software solutions currently offered by the Company.
The Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer are the operating decision makers and regularly review 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.
| Page 18 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
Financial information by reportable business segment is as follows:
13. Segmentedfinancial information (continued)
| Three months ended June 30, 2021 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Technology and<br><br> related revenue | Technology<br><br> services | Corporate | Total | |||||||||
| Consolidated loss | ||||||||||||
| Revenue | $ | 1,164,088 | $ | 7,027,724 | $ | – | $ | 8,191,812 | ||||
| Gross profit | 1,139,056 | 2,842,023 | – | 3,981,079 | ||||||||
| Selling and administrative expenses | 2,372,069 | 800,806 | 780,171 | 3,953,046 | ||||||||
| Stock-based compensation | – | – | 6,687,792 | 6,687,792 | ||||||||
| Research and development expenses | 260,010 | – | – | 260,010 | ||||||||
| Depreciation and amortization | 500,613 | 687,502 | – | 1,188,115 | ||||||||
| Foreign exchange loss | 152,729 | 671 | – | 153,400 | ||||||||
| Interest, accretion and other financing expense | 6,406 | 636 | 583,264 | 590,306 | ||||||||
| Gain on contingent consideration | – | 109,269 | – | 109,269 | ||||||||
| Restructuring costs | 238,037 | – | – | 238,037 | ||||||||
| Other income | (8,049 | ) | (345 | ) | 3,553 | (4,841 | ) | |||||
| Current income tax expense | – | 43,348 | – | 43,348 | ||||||||
| Deferred income tax expense (recovery) | – | 1,261,259 | – | 1,261,259 | ||||||||
| Segment loss | $ | (2,382,759 | ) | $ | (61,123 | ) | $ | (8,054,780 | ) | $ | (10,498,662 | ) |
| Three months ended June 30, 2020 | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Technology and<br><br> related revenue | Technology<br><br> services | Corporate | Total | |||||||||
| Consolidated income (loss) | ||||||||||||
| Revenue | $ | 863,314 | $ | 7,389,701 | $ | - | $ | 8,253,015 | ||||
| Gross profit | 553,769 | 4,496,509 | – | 5,050,278 | ||||||||
| Selling and administrative expenses | 1,159,277 | 1,146,072 | 785,263 | 3,090,612 | ||||||||
| Stock-based compensation | – | – | 483,253 | 483,253 | ||||||||
| Research and development expenses | 209,537 | – | – | 209,537 | ||||||||
| Depreciation and amortization | 383,330 | 795,800 | – | 1,179,130 | ||||||||
| Foreign exchange loss | 14,106 | (68,757 | ) | – | (54,651 | ) | ||||||
| Interest, accretion and other financing expense | 6,943 | – | 702,088 | 709,031 | ||||||||
| Loss on revaluation of conversion feature liability | – | – | 72,791 | 72,791 | ||||||||
| Other income | – | (198 | ) | 297 | 99 | |||||||
| Current income tax expense | – | 390,831 | – | 390,831 | ||||||||
| Deferred income tax expense (recovery) | – | – | – | – | ||||||||
| Segment income (loss) | $ | (1,219,423 | ) | $ | 2,232,761 | $ | (2,043,692 | ) | $ | (1,030,354 | ) |
| Page 19 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
13. Segmentedfinancial information (continued)
| Six months ended June 30, 2021 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Technology and<br><br> related revenue | Technology<br><br> services | Corporate | Total | |||||||||
| Consolidated income (loss) | ||||||||||||
| Revenue | $ | 2,587,443 | $ | 13,858,591 | $ | – | $ | 16,446,034 | ||||
| Gross profit | 2,440,095 | 5,558,819 | – | 7,998,914 | ||||||||
| Selling and administrative expenses | 3,712,723 | 2,486,741 | 1,292,692 | 7,492,156 | ||||||||
| Stock-based compensation | – | – | 6,773,787 | 6,773,787 | ||||||||
| Research and development expenses | 499,673 | – | – | 499,673 | ||||||||
| Depreciation and amortization | 1,060,739 | 1,375,739 | – | 2,436,478 | ||||||||
| Foreign exchange loss | 367,978 | 747 | – | 368,725 | ||||||||
| Interest, accretion and other financing expense | 12,892 | 1,927 | 1,171,855 | 1,186,674 | ||||||||
| Gain on contingent consideration | – | 13,275 | – | 13,275 | ||||||||
| Restructuring costs | 240,344 | 119,909 | – | 360,253 | ||||||||
| Other income | (8,049 | ) | (345 | ) | 100 | (8,294 | ) | |||||
| Current income tax expense | – | 1,358 | – | 1,358 | ||||||||
| Deferred income tax expense (recovery) | – | 1,040,280 | – | 1,040,280 | ||||||||
| Segment income (loss) | $ | (3,446,205 | ) | $ | 519,188 | $ | (9,238,434 | ) | $ | (12,165,451 | ) | |
| Consolidated balance sheet | ||||||||||||
| Total segment assets | $ | 16,287,919 | $ | 21,409,902 | $ | – | $ | 37,697,821 | ||||
| Total segment current liabilities | 1,637,272 | 5,786,299 | 37,417 | 7,460,988 | ||||||||
| Total segment non-current liabilities | – | 2,236,346 | 11,887,950 | 14,124,296 |
| Six months ended June 30, 2020 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Technology and<br><br> related revenue | Technology<br><br> services | Corporate | Total | |||||||||
| Consolidated income (loss) | ||||||||||||
| Revenue | $ | 1,547,093 | $ | 14,254,126 | $ | – | $ | 15,801,219 | ||||
| Gross profit | 1,052,284 | 7,227,886 | – | 8,280,170 | ||||||||
| Selling and administrative expenses | 1,918,212 | 2,244,736 | 1,304,818 | 5,467,766 | ||||||||
| Stock-based compensation | – | – | 530,978 | 530,978 | ||||||||
| Research and development expenses | 461,858 | – | – | 461,858 | ||||||||
| Depreciation and amortization | 869,295 | 1,408,385 | – | 2,277,680 | ||||||||
| Foreign exchange loss | (282,907 | ) | (23,993 | ) | – | (306,900 | ) | |||||
| Interest, accretion and other financing expense | 14,046 | – | 4,621,485 | 4,635,531 | ||||||||
| Loss on revaluation of conversion feature liability | – | – | 1,191,552 | 1,191,552 | ||||||||
| Loss on repayment of long-term debt | – | – | 1,290,147 | 1,290,147 | ||||||||
| Other income | – | (402 | ) | 297 | (105 | ) | ||||||
| Current income tax expense | – | 444,275 | – | 444,275 | ||||||||
| Deferred income tax expense (recovery) | – | – | – | – | ||||||||
| Segment income (loss) | $ | (1,928,220 | ) | $ | 3,154,885 | $ | (8,939,277 | ) | $ | (7,712,612 | ) | |
| Consolidated balance sheet | ||||||||||||
| Total segment assets | $ | 8,284,665 | $ | 25,762,829 | $ | – | $ | 34,047,494 | ||||
| Total segment current liabilities | 1,908,247 | 9,257,724 | 448,612 | 11,614,583 | ||||||||
| Total segment non-current liabilities | – | 14,414,151 | 158,416 | 14,572,567 |
| Page 20 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
13. Segmentedfinancial information (continued)
Property and equipment are located in the following countries:
| June 30, 2021 | December 31, 2020 | |||
|---|---|---|---|---|
| Canada | $ | 131,262 | $ | 120,511 |
| Australia | 68,274 | 95,324 | ||
| $ | 199,536 | $ | 215,835 |
14. Revenue
The Company generates revenue primarily from the delivery of technology 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 13).
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| Primary geographical markets | 2021 | 2020 | 2021 | 2020 | ||||
| United States | $ | 4,803,436 | $ | 5,915,740 | $ | 9,681,948 | $ | 11,376,411 |
| Australia | 2,538,424 | 2,048,777 | 4,951,878 | 4,034,571 | ||||
| United Kingdom | 538,486 | 196,004 | 1,206,874 | 232,521 | ||||
| Canada | 97,466 | 48,198 | 107,867 | 96,585 | ||||
| Other | 214,000 | 44,296 | 497,467 | 61,131 | ||||
| Total | $ | 8,191,812 | $ | 8,253,015 | $ | 16,446,034 | $ | 15,801,219 |
| Three months ended June 30, | Six months ended June 30, | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Major products/service lines | 2021 | 2020 | 2021 | 2020 | ||||
| Technology services | $ | 6,959,628 | $ | 7,141,215 | $ | 13,527,561 | $ | 13,979,209 |
| Software licenses | 550,462 | 428,621 | 1,262,755 | 630,660 | ||||
| Support and maintenance | 411,949 | 360,187 | 1,000,656 | 716,303 | ||||
| SaaS | 46,593 | 10,432 | 78,692 | 20,637 | ||||
| Professional services | 53,756 | 18,528 | 297,019 | 50,977 | ||||
| Hardware | 144,974 | 288,357 | 236,176 | 385,425 | ||||
| Other | 24,450 | 5,675 | 43,175 | 18,008 | ||||
| Total | $ | 8,191,812 | $ | 8,253,015 | $ | 16,446,034 | $ | 15,801,219 |
The Company had one customer who contributed greater than 10 percent of consolidated total revenues during the period ended June 30, 2021 (2020 – one customer). During the period ended June 30, 2021, this customer comprised 11.4 percent of consolidated revenue (2020 – 11.8 percent).
| Page 21 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 15. | Expenses by nature |
|---|
Expenses incurred by nature are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020<br> (note 2 (b)) | 2021 | 2020<br> (note 2 (b)) | |||||||
| Employee and contractor expenses (note 16) | $ | 13,215,528 | $ | 5,367,804 | $ | 19,353,206 | $ | 11,131,204 | ||
| Inventory, materials and other cost of sales | 199,605 | 312,831 | 775,302 | 498,787 | ||||||
| Depreciation and amortization | 1,188,115 | 1,179,129 | 2,436,478 | 2,277,680 | ||||||
| Facilities | 81,686 | 45,940 | 191,865 | 166,589 | ||||||
| Professional and consulting fees | 573,746 | 563,020 | 1,036,329 | 836,643 | ||||||
| Investor relations and other shareholder expenses | 176,396 | 75,939 | 382,339 | 141,223 | ||||||
| Acquisition costs | – | 19,058 | – | 19,058 | ||||||
| Restructuring costs | 238,037 | – | 360,253 | – | ||||||
| Bad debt | 124,449 | – | 105,213 | – | ||||||
| Marketing and advertising/promotion expenses | 31,312 | 52,205 | 78,854 | 81,060 | ||||||
| Software license and IT expenses | 359,530 | 295,711 | 706,729 | 516,564 | ||||||
| Telephone and internet | 63,183 | 33,856 | 137,992 | 154,250 | ||||||
| Travel | 46,681 | 16,509 | 55,920 | 92,364 | ||||||
| Insurance | 39,917 | 23,306 | 76,910 | 41,062 | ||||||
| Office, administrative, and other operating expenses | 199,548 | 179,960 | 312,077 | 302,847 | ||||||
| Foreign exchange (gain) loss | 153,400 | (54,651 | ) | 368,725 | (306,900 | ) | ||||
| Total | $ | 16,691,133 | $ | 8,110,617 | $ | 26,378,192 | $ | 15,952,431 |
| 16. | Employee benefit expense |
|---|
Expenditures for employee benefits are as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2021 | 2020<br> (note 2 (b)) | 2021 | 2020<br> (note 2 (b)) | |||||
| Salaries and wages and employee benefits | $ | 2,077,387 | $ | 2,751,361 | $ | 4,951,352 | $ | 5,471,897 |
| Contract labour | 4,208,819 | 1,670,049 | 7,399,355 | 4,598,044 | ||||
| Stock-based compensation | 6,687,792 | 483,253 | 6,773,787 | 530,978 | ||||
| Other staff expense | 241,530 | 463,143 | 228,712 | 530,285 | ||||
| Total | $ | 13,215,528 | $ | 5,367,806 | $ | 19,353,206 | $ | 11,131,204 |
| Page 22 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 17. | Lease obligations |
|---|
Below is a summary of the activity related to our lease liabilities for the three and six months ended June 30, 2021 and 2020:
| Three months ended June 30, | Six months ended June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Lease liabilities, beginning of period | $ | 309,492 | $ | 575,397 | $ | 354,199 | $ | 689,644 | ||||
| Additions | - | - | - | 56,924 | ||||||||
| Disposals | - | - | - | - | ||||||||
| Interest on lease liabilities | 7,042 | 12,115 | 14,819 | 27,795 | ||||||||
| Interest payments on lease liabilities | (7,042 | ) | (12,115 | ) | (14,819 | ) | (27,795 | ) | ||||
| Principal payments of lease liabilities | (60,687 | ) | (114,760 | ) | (105,955 | ) | (194,602 | ) | ||||
| Adjustments | - | 110,034 | (1,736 | ) | 62,301 | |||||||
| Foreign exchange difference | 18,695 | 26,506 | 20,992 | (17,090 | ) | |||||||
| Lease obligations, end of period | $ | 267,500 | $ | 597,177 | $ | 267,500 | $ | 597,177 | ||||
| Less: current portion of lease obligations | (50,479 | ) | (259,064 | ) | (50,479 | ) | (259,064 | ) | ||||
| Long-term lease obligations | $ | 217,021 | $ | 338,113 | $ | 217,021 | $ | 338,113 |
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:
| 2021 | $ | 62,448 |
|---|---|---|
| 2022 | 115,878 | |
| 2023 | 99,814 | |
| 2024 | 74,862 | |
| 2025 | 64,462 | |
| $ | 417,464 | |
| 18. | Risk management for financial instruments | |
| --- | --- |
Fair values
The estimated fair values of cash, trade and other receivables, restricted cash, trade and other payables, and share appreciation rights 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 following levels:
| · | Level 1: quoted prices (unadjusted) in active<br>markets for identical assets or liabilities; |
|---|---|
| · | Level 2: inputs other than quoted prices included<br>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<br>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 and the conversion feature derivative 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 June 30, 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.
| Page 23 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 18. | Risk management for financial instruments (continued) |
|---|
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 2021 and has the ability to fund any operating losses that may occur in the upcoming periods.
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, as soon as the account is determined not to be fully collectible. 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:
| June 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| United States | 58 | % | 65 | % | ||
| Australia | 12 | % | 17 | % | ||
| United Kingdom | 20 | % | 16 | % | ||
| Canada | 2 | % | 0 | % | ||
| Rest of world | 8 | % | 2 | % | ||
| 100 | % | 100 | % |
The activity of the allowance for doubtful accounts provision is as follows:
| June 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Beginning of period | $ | 123,338 | $ | 902,215 | ||
| Add: provision for allowance for doubtful accounts | 85,976 | 18,116 | ||||
| Less: write-offs | - | (815,817 | ) | |||
| Foreign exchange adjustments | (1,186 | ) | 18,824 | |||
| Expected credit loss – end of period | $ | 208,128 | $ | 123,338 |
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.
| Page 24 |
| --- |
VIQ Solutions Inc.
Notes to Interim Condensed Consolidated Financial Statements
(Expressed in United States dollars)
| 18. | Risk management for financial instruments (continued) |
|---|
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 June 30, 2021, fluctuations of the Australian dollar relative to the United States dollar of 5% would result in an exchange gain or loss on the net financial assets, impacting the Company’s comprehensive income by approximately $37,000 (2020 – $18,000).
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 $54,000 (2020 – $20,000) as at June 30, 2021.
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 $49,000 (2020 – $nil) as at June 30, 2021.
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 $153,400 and $368,725 for the three and six months ended June 30, 2021, respectively (three and six months ended June 30, 2020 – foreign exchange gain of $54,651 and $306,900 respectively).
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.
| 19. | Subsequent events |
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The Company announced its common shares are trading on August 12, 2021 on the Nasdaq Capital Market under the ticker “VQS”.
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