Exhibit 4.7


 


Form 51-102F4


Business Acquisition Report


 


		Item 1	Identity of Company



 


		1.1	Name and Address of Company



 


Sangoma Technologies Corporation
(the “Company” or “Sangoma”)


100 Renfrew Drive, Suite 100


Markham, Ontario


L3R 9R6


 


		1.2	Executive Officer



 


David Moore


Chief Financial Officer


(905) 474-1990, extension 4107.


 


		Item 2	Details of Acquisition



 


		2.1	Nature of Business Acquired



 


On March 31, 2021, the Company
completed an acquisition (the “Acquisition”)
of all of the shares of StarBlue Inc. (“StarBlue”)
(the parent company of Star2Star Communications, LLC, herein “Star2Star”)
from Star2Star Holdings, LLC (“Holdings”)
and Blue Face Holdings Limited (collectively, the “Sellers”).


 


StarBlue, through Star2Star, is a partner-driven communications
provider dedicated to providing both mid-market and enterprise customers as well as global and large services providers with market-leading
cloud communications solutions. Star2Star has a patented cloud-native collaboration platform designed for the modern business. Star2Star
carries on business or maintains property, offices, facilities, or employees in each of the fifty states in the United States. Star2Star
is a leading provider of full-spectrum, internally developed, cloud-native communications services on a high availability, multi-tenant
platform.


 


The Acquisition and the
respective business of both the Company and StarBlue are more fully described in the management information circular of the Company dated
February 26, 2021 (the “Circular”) and
filed on SEDAR at www.sedar.com under the Company’s
SEDAR profile.


 


		2.2	Acquisition Date



 


March 31, 2021.


 


		2.3	Consideration



 


Pursuant to the
Acquisition, the Company will issue an aggregate of 110,000,000 common shares in the capital of the Company (“Common
Shares”) at a deemed price of CAD$4.17 per Common Share, representing an aggregate
price of CAD$458,700,000 (the “Share Consideration”),
and paid cash consideration of CAD$128,971,168 (US$102,106,855, reduced from US$105,000,000 as a result of initial closing
adjustments). 22,000,000 of the Share Consideration (less 869,202 Common Shares representing a holdback for indemnification
purposes) were issued on closing of the Acquisition (“Closing”),
with the remaining Common Shares to be issued and distributed in quarterly installments commencing on April 1, 2022.


 






     


     


    

 


Pursuant to a direction received by the Company from the
Sellers and an optionholder of StarBlue entitled to receive the Share Consideration issuable on Closing, 480,000 of the Common Shares
that were issuable to such parties on Closing were instead issued to Q Advisors LLC, a financial advisor engaged by StarBlue as partial
consideration of the fee payable in connection with the Acquisition.


 


In addition, Sangoma issued
129,198 Common Shares to INFOR Financial Inc. (“INFOR Financial”)
as partial consideration of the fee payable to INFOR Financial in respect of financial advisory services rendered in connection with the
Acquisition.


 


The Common Shares issued to Blue Face Holdings Limited,
Q Advisors LLC and INFOR Financial on Closing are subject to resale restrictions for four months and one day, expiring August 1, 2021.
Holdings and Q Advisors LLC each entered into a 12-month lock-up agreement for the Common Shares received on Closing.


 


The cash consideration delivered by Sangoma in connection
with the Acquisition was paid from available cash and through an extension of its existing credit facility with TD Bank and Bank of Montreal.


 


		2.4	Effect on Financial Position



 


Pursuant to the Acquisition,
the Company acquired direct control of StarBlue, which became a wholly-owned subsidiary of the Company, and indirect control of Star2Star,
a wholly-owned subsidiary of StarBlue. The effect of the Acquisition on the Company’s financial
position is as outlined in the unaudited pro-forma consolidated financial statements included as Appendix “E”
to the Circular.


 


Other than the foregoing, the Company does not have any
plans or proposals for any other material changes in its business affairs, or the affairs of StarBlue which may have a significant effect
on the financial performance or position of the Company, including any proposal to liquidate the business of the Company or StarBlue,
to sell, lease or exchange all or a substantial part of its assets, to amalgamate the business or to make any other material changes to
the business of the Company or StarBlue.


 


In connection with the Acquisition, the Company appointed
two new directors to the board of directors of the Company, Norman Worthington and Marc Lederman.


 


		2.5	Prior Valuations



 


No valuation opinions were obtained in the last 12 months
by the Company or StarBlue required by securities legislation or a Canadian exchange or market to support the consideration paid by the
Company in connection with the Acquisition.


 



     


     


    

 


However Sangoma obtained a fairness opinion from INFOR Financial
dated January 29, 2021 attesting to the fairness of the consideration to be paid by Sangoma.


 


		2.6	Parties to Transaction



 


The Acquisition was not
with an informed person (as defined in Section 1.1 of National Instrument 51-102 Continuous Disclosure Obligations (“NI
51-102”)), associate or affiliate of the Company.


 


		2.7	Date of Report



 


June 14, 2021


 


		Item 3	Financial Statements and Other Information



 


Pursuant to Part 8 of NI
51-102, StarBlue’s audited annual consolidated financial statements and related notes for
the years ended December 31, 2020 and December 31, 2019 are attached hereto as Schedule “A”
and form an integral part of this business acquisition report (this “Report”).


 


Grant Thornton LLP, Certified Public Accountants, the auditor
of StarBlue, have given their consent to include their audit report in this Report.


 


Please note that the valuation
used in the subsequent event note of the financial statements of StarBlue attached in Schedule “A”
to this Report refers to the Sangoma Common Share price and exchange rate as of January 28, 2021 (the
date of immediately preceding the date Sangoma issued a press release announcing the Acquisition) whereas Item 2.3 of this Report refers
to the Sangoma Common Share price and exchange rate as of March 30, 2021 (the date of immediately preceding the date Sangoma issued a
press release announcing the Closing) and expected closing adjustments. The difference in valuation results from the change in Sangoma
Common Share price, the movement in exchange rate and the incorporation of expected closing adjustments.


 






     


     


    

 


Cautionary Note Regarding Forward-looking Information


 


This Report contains forward-looking
statements. When used in this Report, the words such as “could”,
“plan”, “estimate”,
“expect”, “intend”,
“may”, “potential”,
“should” and similar expressions indicate forward-looking
statements. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans,
intentions or expectations upon which they are based will occur. Forward-looking statements speak only as of the date they are made,
and the Company does not undertake to update these statements other than as required by law. By their nature, forward-looking statements
are based on the opinions and estimates of management on the date that the statements are made and involve numerous assumptions, known
and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections
and other events contemplated by the forward-looking statements will not occur or will differ materially from those expected. Such risks
and uncertainties include but are not limited to the impact of the recent cyber attack experienced by Sangoma and resulting data breach
and other risk factors as disclosed more fully in the Circular. Although Sangoma believes that the expectations represented by such forward-looking
statements are reasonable based on the current business environment, there can be no assurance that such expectations will prove to be
correct as these expectations are inherently subject to business, economic and competitive uncertainties and contingencies. The forward-looking
statements contained in this Report are expressly qualified by this cautionary statement and Sangoma undertakes no obligation to update
forward-looking statements if circumstances or management’s estimates or opinions should
change except as required by law. Readers are directed to the Circular and Sangoma’s filings
on SEDAR with respect to additional risk factors relating to the Acquisition.





 






     


     


    

 


SCHEDULE “A”


 


STARBLUE AUDITED ANNUAL CONSOLIDATED FINANCIAL
STATEMENTS


FOR THE YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019


 


(Please see attached.)





 






     


     


    

 


Consolidated Financial Statements


 


StarBlue Inc.


 


For the years ended December 31, 2020 and December 31, 2019


 






     


     


    

 





Contents


 


	 	Page
	 	 
	Report of independent certified public accountants	3
	Consolidated statements of financial position	6
	Consolidated statements of income and comprehensive income	7
	Consolidated statements of changes in shareholders’ equity (deficit)	8
	Consolidated statements of cash flows	9
	Notes to the consolidated financial statements	10


 






     


     


    

 


 


 













	GRANT
THORNTON LLP


 


101 E Kennedy Blvd., Suite 3850


Tampa, FL 33602-5152


 


D +1 813.229.7201


F +1 813.223.3015
	 


	

                                      REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


 

 

 

 


Board of Directors


StarBlue Inc.







 


We have audited the accompanying
consolidated financial statements of StarBlue Inc. a Delaware limited liability corporation and subsidiaries (collectively, the “Company”),
which comprise the consolidated statements of financial position as of December 31, 2020 and 2019, and the related consolidated statements
of income and comprehensive income, changes in shareholders’ equity (deficit), and cash flows
for the years then ended, and the related notes to the financial statements.


 


We are independent of the Company
in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United States of America
together with the International Ethics Standards Board for Accountants’ Code of Ethics for
Professional Accountants and we have fulfilled our other ethical responsibilities in accordance with these requirements, respectively.


 


Responsibilities of management and those charged with governance
for the financial statements


 


Management is responsible for
the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for evaluating whether there
are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s
ability to continue as a going concern within one year after the date that the financial statements are issued, or available to be issued,
and disclosing, as applicable, matters related to this evaluation unless the liquidation basis of accounting is being used by the Company.


 


Those charged with governance
are responsible for overseeing the Company’s financial reporting process.


 


Auditor’s
responsibility


 


Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States of America and the International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement, whether due to fraud or error. Reasonable
assurance is a high level of assurance but is not a guarantee that an audit will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.


 


	 	 	 	 
	GT.COM		Grant Thornton LLP is the U.S. member firm of Grant Thornton
International Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership.	 



 


 






     


     


    

 





 


An audit involves performing
procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. We design audit procedures responsive to those risks and obtain
audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error because fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.


 


In making those risk assessments,
the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation, structure, and content of the
consolidated financial statements, including disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.


 


As part of an audit, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also


 


		·	conclude on the appropriateness of management’s
use of the going concern basis of accounting and based on the audit evidence obtained, whether substantial doubt exists related to the
Company’s ability to continue as a going concern. If we conclude that substantial doubt exists,
we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions
may cause the Company to cease to continue as a going concern.



 


		·	obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our
audit opinion.



 


We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies
or material weaknesses in internal control that we identify during our audit.


 


We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.


 



     


     


    

 








 


Opinion


 


In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of StarBlue Inc. and subsidiaries as of December 31, 2020 and
2019, and the results of their operations and their cash flows for the years then ended in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.


 


 


 


Tampa, Florida


June 11, 2021





 



     


     


    

 






StarBlue Inc.


Consolidated statements of financial position


(in United States dollars) 





 



 


	 	 	 	 	 	December	 	 	December 	 
	As at	 	Note	 	 	31, 2020	 	 	31, 2019	 
	Assets	 	 	 	 	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	 	 	 	$	9,481,683	 	 	$	2,467,699	 
	Accounts receivable	 	 	14	 	 	 	5,259,618	 	 	 	5,084,042	 
	Inventory	 	 	 	 	 	 	1,685,047	 	 	 	1,064,903	 
	Prepaid and other current assets	 	 	 	 	 	 	831,450	 	 	 	885,357	 
	Current portion of contract cost assets	 	 	19	 	 	 	1,369,622	 	 	 	987,984	 
	Assets held for sale	 	 	6	 	 	 	-	 	 	 	14,547,944	 
	Total current assets	 	 	 	 	 	 	18,627,420	 	 	 	25,037,929	 
	Property and equipment	 	 	3	 	 	 	5,386,675	 	 	 	5,429,743	 
	Right-of-use assets	 	 	11	 	 	 	246,301	 	 	 	1,308,158	 
	Intangible assets	 	 	4	 	 	 	5,759,398	 	 	 	4,944,796	 
	Contract cost assets	 	 	19	 	 	 	3,394,519	 	 	 	4,155,104	 
	Other assets	 	 	 	 	 	 	1,036,405	 	 	 	1,057,423	 
	Total assets	 	 	 	 	 	$	34,450,718	 	 	$	41,933,153	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Liabilities and Shareholders’ Equity	 	 	 	 	 	 	 	 	 	 	 	 
	Current Liabilities	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts payable and accrued liabilities	 	 	 	 	 	$	8,211,336	 	 	$	9,294,423	 
	Current portion of deferred revenues	 	 	19	 	 	 	3,004,559	 	 	 	2,793,608	 
	Current portion of lease liabilities	 	 	11	 	 	 	257,896	 	 	 	967,500	 
	Revolving line of credit facility	 	 	7	 	 	 	-	 	 	 	10,500,000	 
	Current portion of term loan	 	 	7	 	 	 	425,000	 	 	 	2,976,191	 
	Liabilities held for sale	 	 	6	 	 	 	-	 	 	 	2,905,434	 
	Total current liabilities	 	 	 	 	 	 	11,898,791	 	 	 	29,437,156	 
	Deferred revenues, long term portion	 	 	19	 	 	 	1,399,260	 	 	 	1,462,498	 
	Lease liability, long term portion	 	 	11	 	 	 	-	 	 	 	421,908	 
	Term loan	 	 	7	 	 	 	40,554,821	 	 	 	9,323,382	 
	Other non-current liabilities	 	 	 	 	 	 	1,116,008	 	 	 	1,159,731	 
	Deferred income taxes	 	 	8	 	 	 	2,305,385	 	 	 	1,044,865	 
	Total liabilities	 	 	 	 	 	 	57,274,265	 	 	 	42,849,540	 
	Shareholders’ equity (deficit)	 	 	 	 	 	 	 	 	 	 	 	 
	Common stock	 	 	9	 	 	 	1,000	 	 	 	1,000	 
	Contributed surplus	 	 	 	 	 	 	-	 	 	 	42,568,697	 
	Cumulative currency translation adjustment	 	 	 	 	 	 	-	 	 	 	(230,554	)
	Accumulated deficit	 	 	 	 	 	 	(22,824,547	)	 	 	(43,255,530	)
	Total shareholders’ equity (deficit)	 	 	 	 	 	 	(22,823,547	)	 	 	(916,387	)
	Total liabilities and shareholders’ equity (deficit)	 	 	 	 	 	$	34,450,718	 	 	$	41,933,153	 



 


	On behalf of the Board on June 11, 2021	 
	 	 
	(Siqned) William J. Wignall	 
	Director	 


 


See accompanying notes to the consolidated financial
statements.


 






    	 	6



     


    

 





StarBlue Inc.


Consolidated statements of income and comprehensive income


(in United States dollars)





 



 


	 	 	 	 	 	December	 	 	December	 
	 	 	Note	 	 	31, 2020	 	 	31, 2019	 
	Revenues	 	 	19	 	 	 	 	 	 	 	 	 
	Recurring subscription services	 	 	 	 	 	$	74,575,093	 	 	$	69,942,439	 
	Product sales	 	 	 	 	 	 	6,446,764	 	 	 	7,443,783	 
	Total revenues	 	 	 	 	 	 	81,021,857	 	 	 	77,386,222	 
	Cost of revenues	 	 	 	 	 	 	 	 	 	 	 	 
	Recurring subscription services	 	 	 	 	 	 	5,875,610	 	 	 	5,454,762	 
	Product sales	 	 	 	 	 	 	4,072,964	 	 	 	4,464,102	 
	Total cost of revenues	 	 	 	 	 	 	9,948,574	 	 	 	9,918,864	 
	Gross profit	 	 	 	 	 	 	71,073,283	 	 	 	67,467,358	 
	Operating expenses	 	 	 	 	 	 	 	 	 	 	 	 
	Selling, general, and administrative	 	 	 	 	 	 	 	 	 	 	 	 
	expenses	 	 	16	 	 	 	60,522,484	 	 	 	58,737,841	 
	Impairment of capitalized software	 	 	4	 	 	 	509,263	 	 	 	449,238	 
	Total operating expenses	 	 	 	 	 	 	61,031,747	 	 	 	59,187,079	 
	Operating income	 	 	 	 	 	 	10,041,536	 	 	 	8,280,279	 
	Other income (expense)	 	 	 	 	 	 	 	 	 	 	 	 
	Interest expense	 	 	17	 	 	 	(3,309,594	)	 	 	(2,052,381	)
	Grant income	 	 	7	 	 	 	4,199,200	 	 	 	-	 
	Income before income taxes	 	 	 	 	 	 	10,931,142	 	 	 	6,227,898	 
	Income tax expense	 	 	 	 	 	 	(2,271,594	)	 	 	(1,240,580	)
	Net income from continuing operations	 	 	 	 	 	 	8,659,548	 	 	 	4,987,318	 
	Income (loss) from discontinued operations	 	 	6	 	 	 	29,202,738	 	 	 	(2,665,555	)
	Net income	 	 	 	 	 	 	37,862,286	 	 	 	2,321,763	 
	Other comprehensive income (loss)	 	 	 	 	 	 	 	 	 	 	 	 
	Translation of foreign operations	 	 	 	 	 	 	230,554	 	 	 	(305,884	)
	Total comprehensive income	 	 	 	 	 	$	38,092,840	 	 	$	2,015,879	 



 


See accompanying notes to the consolidated financial
statements.


 






    	 	7



     


    

 





StarBlue Inc.


Consolidated statements of changes
in shareholders’ equity (deficit)


(in United States dollars)





 



 


	 	 	 	 	 	 	 	 	 	 	 	Cumulative	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	currency	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Contributed	 	 	translation	 	 	 	 	 	Total shareholders’	 
	 	 	Note	 	 	Common stock	 	 	surplus	 	 	adjustment	 	 	Accumulated deficit	 	 	equity (deficit)	 
	Balance at December 31, 2018	 	 	 	 	 	$	1,000	 	 	$	42,568,697	 	 	$	75,330	 	 	$	(45,577,293	)	 	$	(2,932,266	)
	Currency translation adjustment	 	 	 	 	 	 	-	 	 	 	-	 	 	 	(305,884	)	 	 	-	 	 	 	(305,884	)
	Net income	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,321,763	 	 	 	2,321,763	 
	Balance at December 31, 2019	 	 	 	 	 	$	1,000	 	 	$	42,568,697	 	 	$	(230,554	)	 	$	(43,255,530	)	 	$	(916,387	)
	Currency translation adjustment	 	 	 	 	 	 	-	 	 	 	-	 	 	 	230,554	 	 	 	-	 	 	 	230,554	 
	Net income	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	37,862,286	 	 	 	37,862,286	 
	Distribution	 	 	7	 	 	 	-	 	 	 	(42,568,697	)	 	 	-	 	 	 	(17,431,303	)	 	 	(60,000,000	)
	Balance at December 31, 2020	 	 	 	 	 	$	1,000	 	 	$	-	 	 	 	-	 	 	$	(22,824,547	)	 	$	(22,823,547	)



 


See accompanying notes to the consolidated financial
statements.


 



    	 	8



     


    

 


StarBlue Inc.


Consolidated statements of cash flows


(in United States dollars)





 



 


	 	 	December	 	 	December 	 
	 	 	
    31, 2020	 	 	31,
    2019	 
	Cash flows from operating activities:	 	 	 	 	 	 	 	 
	Net income from continuing operations	 	$	8,659,548	 	 	$	4,987,318	 
	Net income (loss) from discontinued operations	 	 	29,202,738	 	 	 	(2,665,555	)
	Net income	 	 	37,862,286	 	 	 	2,321,763	 
	 	 	 	 	 	 	 	 	 
	Adjustments for items not involving cash	 	 	 	 	 	 	 	 
	Depreciation of property and equipment and right-of-use assets	 	 	3,463,944	 	 	 	4,693,600	 
	Loss on disposal of assets	 	 	431,429	 	 	 	380,707	 
	Impairment of capitalized software	 	 	509,263	 	 	 	449,238	 
	Gain on sale of Blue Face Entities	 	 	(32,344,389	)	 	 	-	 
	Bad debt expense	 	 	528,795	 	 	 	265,483	 
	Recoveries of bad debt expense	 	 	-	 	 	 	30,000	 
	Income taxes	 	 	1,282,783	 	 	 	1,038,995	 
	Changes in operating assets and liabilities:	 	 	 	 	 	 	 	 
	Accounts receivable, net	 	 	(822,163	)	 	 	(208,582	)
	Contract cost assets	 	 	378,947	 	 	 	(1,818,197	)
	Inventories	 	 	(620,468	)	 	 	185,363	 
	Prepaid and other current / non-current assets	 	 	28,426	 	 	 	(693,554	)
	Accounts payable and accrued liabilities	 	 	(552,828	)	 	 	(2,153,890	)
	Deferred revenues	 	 	(180,895	)	 	 	(474,482	)
	Other non-current liabilities	 	 	(356,888	)	 	 	73,020	 
	Proceeds from PPP - Newtek	 	 	4,199,200	 	 	 	-	 
	Grant income PPP- Newtek	 	 	(4,199,200	)	 	 	-	 
	Net cash provided by operating activities	 	 	9,608,242	 	 	 	4,089,464	 
	 	 	 	 	 	 	 	 	 
	Cash flows from investing activities:	 	 	 	 	 	 	 	 
	Purchases of property and equipment	 	 	(1,450,366	)	 	 	(2,885,352	)
	Expenditures for internal use software	 	 	(2,598,353	)	 	 	(3,212,197	)
	Proceeds from sale of Blue Face entities, net of cash sold	 	 	44,125,145	 	 	 	-	 
	Net cash provided by (used in) investing activities	 	 	40,076,426	 	 	 	(6,097,549	)
	 	 	 	 	 	 	 	 	 
	Cash flows from financing activities:	 	 	 	 	 	 	 	 
	Payments on term loan - ABPCI	 	 	(318,750	)	 	 	-	 
	Proceeds from term loan - ABPCI	 	 	42,500,000	 	 	 	-	 
	Payments on revolving credit facility - WAB	 	 	(13,500,000	)	 	 	(23,600,000	)
	Proceeds from revolving credit facility - WAB	 	 	3,000,000	 	 	 	22,800,000	 
	Payments on term loan -WAB	 	 	(12,500,000	)	 	 	-	 
	Proceeds from term loan - WAB	 	 	-	 	 	 	5,000,000	 
	Debt financing costs	 	 	(1,001,002	)	 	 	(79,146	)
	Payments on lease liabilities	 	 	(1,131,512	)	 	 	(1,429,388	)
	Member distributions	 	 	(60,000,000	)	 	 	-	 
	Net cash provided by (used in) financing activities	 	 	(42,951,264	)	 	 	2,691,466	 
	 	 	 	 	 	 	 	 	 
	Effects on cash of currency translation	 	 	280,580	 	 	 	(301,112	)
	 	 	 	 	 	 	 	 	 
	Net increase in cash	 	 	7,013,984	 	 	 	382,269	 
	 	 	 	 	 	 	 	 	 
	Cash, beginning of year	 	 	2,467,699	 	 	 	2,085,430	 
	 	 	 	 	 	 	 	 	 
	Cash, end of year	 	$	9,481,683	 	 	$	2,467,699	 



 


Supplemental cash-flow information (Note 18)


 


See accompanying notes to the consolidated
financial statements.



    	 	9



     


    

 






StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


1. Nature of operations


 


StarBlue Inc. (“StarBlue”
or “the Company”),
was formed as a Delaware corporation on December 4, 2017 pursuant to a Contribution Agreement between Star2Star Holdings, LLC (“S2S
Holdings”) and Blue Face Holdings Limited (“BF
Holdings”).


 


On December 31, 2017, S2S Holdings
and BF Holdings each contributed to the Company its interests in its wholly-owned subsidiaries, Star2Star Communications, LLC (“Communications”)
and Blue Face Limited, Blue Face Italia Sr.1., Blueface Limited, and Blueface, Inc. (collectively, “Blue
Face Entities”), respectively, in exchange for all the outstanding stock in the Company.
This transaction constituted an Internal Revenue Code Section (“IRC S”)
351 exchange whereby no gain or loss was recognized on the contribution of property in exchange for stock of a corporation. Following
this transaction, S2S Holdings held a controlling interest of 95% of the outstanding shares in the Company, and BF Holdings held 5% of
the remaining outstanding shares. Prior to the formation of StarBlue, the Company previously reported its operations under Communications,
which was founded in 2004 in Sarasota, Florida. Communications operates throughout the United States of America.


 


Effective December 31, 2017, Communications became a wholly-owned subsidiary
of StarBlue and the results of operations of Communications are included in these consolidated financial statements for 2020 and 2019.
The operating results of the Blue Face Entities are included for 2020 and 2019


 


On February 18, 2019, the Company formed
a fully owned subsidiary, NSV Connect, LLC. (“NSV”).
NSV was formed in the state of Delaware as a limited liability company. NSV is a disregard entity for federal tax purposes. NSV provides
Unified Communications-as-a-Service (“UCaas”)
solutions via the Blue Face Proprietary platform in North America.


 


On January 24, 2020, the Company sold the Blue Face Entities and NSV
to Comcast Cable Communications, LLC by means of a share purchase agreement. See Note 6. The operating results of the Blue Face Entities
and NSV are included for the periods ended December 31, 2019 and 2020 up to the date of sale as discontinued operations.


 


The Company provides a scalable cloud-based
UCaas solution that unifies customers’ voice, video, fax, instant messaging, and presence
management into a single, easy-to-use system that enables visibility and improves productivity. The Company offers voice over internet
communication systems (“VoIP”), software and
related services. The Company’s solution is sold through a diversified network of partners
that includes distributors, master agents, managed service providers, licensees, wholesalers and certified installing dealers. The Company
also has a professional services team which focuses on best practices and providing custom applications and training. Available across
North America, the Company’s solution has an installed base of approximately 24,000 locations,
including large national chains with multi-location communications footprints. The Blue Face Entities operated throughout Ireland, Italy,
UK, France, Germany and Spain.


 


The Company’s
registered office is 600 Tallevast Rd., Suite 202 Sarasota, FL 34243.


 


COVID-19


 


The Company has and continues to closely
monitor sales and other financial metrics to assess the impact of COVID-19 on its operations. These metrics suggest that there has been
some decline in revenue attributable to COVID-19, but this decline has so far been minimal and appears to largely be reversing itself.
It is too early to determine if COVID-19 will have a long-term impact on the Company’s operations
and revenue.


 


In recognition of the potential impact COVID-19 may have on its customers,
starting in April 2020, the Company offered customers standard payment deferral options for up to three months. Customers electing payment
deferral options agreed to extend their contract term consistent with the length of the deferral, repay the deferred amount over a twelve
(12) month period, and/or pay additional administrative fees. There has been only modest interest in this option with very few customers
electing to accept the deferral option.


 






    	 	10



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


In June 2020, The Company received a loan under the SBA Paycheck Protection
Program (PPP) under the United States Coronavirus Aid, Relief, and Economic Security Act. The PPP loan proceeds were segregated from the
operating funds of the Company. By mid-third quarter 2020, The Company had used 100% of the PPP loan proceeds on eligible expenses. The
Company has ten months in which to complete the loan forgiveness application from the date of the final expenditure. The loan and accrued
interest are forgivable as long as proceeds are used for certain eligible expenses, including payroll, benefits, and occupancy expenses,
and the Company maintains its payroll levels. The Company has filed for loan forgiveness in March 2021. The Company made the accounting
policy election to account for the forgivable loan as a government grant. The loan proceeds and grant income are presented in the Consolidated
Statements of Cash Flows in the cash flows from operating activities section. The grant income is presented in the Consolidated Statements
of Income and Comprehensive Income in the other income (expense) section. See Note 7.


 


In response to the economic uncertainty
created by COVID-19, The Company implemented a number of cost savings and expense reduction measures in 2020. These included eliminating
senior leadership bonuses, reducing or eliminating annual compensation increases for employees, a hiring freeze on non-essential positions,
eliminating non-essential business travel and in-person marketing events, negotiating reduced rent at the Company’s
head office and closing the Company’s Atlanta office at the end of the existing lease term
in September 2020.


 


The Company has had little to no impact
on its supply chain side from COVID-19. Advance work by the Company’s operations teams ensured
that it was able to successfully manage any possible disruption without any material impact on sales opportunities.


 


The Company took precautions early in March 2020 when the pandemic
started and had all non-essential employees work from home. A handful of employees in distribution and IT do come in regularly to the
office but are socially distanced and required to wear personal protective equipment. The Company also has increased hand sanitizing stations
throughout the building and reminder policies on the importance of continued vigilance on hand washing hygiene. The Company has also eliminated
non-essential travel and required waivers of any employee who chooses to travel during the pandemic.


 


2. Significant
accounting policies


 


		i)	Statement of compliance



 


These consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”)
and Interpretations of the IFRS Interpretations Committee (“IFRIC”).


 


		ii)	Basis of measurement



 


These consolidated financial statements have been prepared on the going
concern basis, under historical cost, unless otherwise indicated.


 


		iii)	Basis of consolidation



 


Subsidiaries are entities controlled
by the Company. The Company ‘controls’ an entity
when it is exposed to, or has the right to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements
from the date on which control commences until the date on which control ceases.


 






    	 	11



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


These consolidated financial statements include the accounts of the
Company and the following entities which are material subsidiaries of the Company:


 


	 	 	Jurisdiction of	 	Functional	 	 	 
	Subsidiaries	 	incorporation	 	currency	 	Ownership interest	 
	Star2Star Communications, LLC	 	United States	 	USD	 	 	100	%
	NSV Connect, LLC *	 	United States	 	USD	 	 	100	%
	Blue Face Limited *	 	Ireland	 	Euro	 	 	100	%
	Blue Face Italia Sr. 1. *	 	Italy	 	Euro	 	 	100	%
	Blueface Limited *	 	United Kingdom	 	Pound/Sterling	 	 	100	%
	Blueface, Inc. *	 	United States	 	USD	 	 	100	%



 


*Through January 24, 2020 (the date of sale)


 


All intercompany transactions and balances with subsidiaries have been
eliminated in consolidation.


 


		iv)	Functional and presentation
currency



 


These consolidated financial statements
are presented in United States dollars (“USD”),
which is also the Company’s functional currency.


 


		v)	Foreign currency transactions
and translation



 


Foreign currency transactions are translated into the functional currency
using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the remeasurement of monetary items denominated in foreign currency at year-end exchange rates are recognized in
profit or loss.


 


The assets and liabilities of foreign operations, including goodwill
and fair value adjustments arising on acquisition, are translated to United States dollars at exchange rates at the reporting date. The
revenue and expenses of foreign operations are translated to United States dollars at exchange rates at the date of the transaction. Foreign
currency differences are recognized in other comprehensive income. When a foreign operation is disposed of, in whole, the relevant amount
in the foreign currency translation account is transferred to earnings as part of the gain or loss on disposal.


 


		vi)	Cash



 


Cash includes cash on hand and balances with banks.


 


		vii)	Inventories



 


Inventories are initially valued at cost, and subsequently at the lower
of cost and net realizable value, using the first-in, first-out method. Net realizable value is the estimated selling price in the ordinary
course of business, less the estimated costs to sell. On an on-going basis, the Company reviews inventories for obsolete, redundant and
slow-moving goods and any such inventories identified are written down to net realizable value.


 


		viii)	Discontinued operations and
held for sale



 


A discontinued operation is a component of the Company that either
has been disposed of or is classified as held for sale. A discontinued operation represents a separate major line of the business. Profit
or loss from discontinued operations comprises the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognized
on the measurement to fair value less costs to sell or on the disposal group(s) constituting the discontinued operation.


 


Non-current assets classified as held
for sale are presented separately and measured at the lower of their carrying amounts immediately prior to their classification as held
for sale and their fair value less costs to sell. However, some held for sale assets such as financial assets or deferred tax assets,
continue to be measured in accordance with the Company’s relevant accounting policy for those
assets. Once classified as held for sale, the assets are not subject to depreciation or amortization.


 






    	 	12



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


Any profit or loss arising from the sale of a discontinued operation
or its remeasurement to fair value less costs to sell is presented as part of a single line item, profit or loss from discontinued operations.


 


		ix)	Property and equipment



 


Property and equipment are measured at cost less accumulated depreciation
and impairment losses. Depreciation commences when the assets are available for use and is charged to the statements of income and comprehensive
income on a straight-line basis over its useful life as outlined below:


 


	Leasehold improvements	 	Shorter of: estimated useful life or lease
    term
	Computers	 	3-5 years
	Furniture, fixtures and equipment	 	3 years
	Telephony equipment	 	7 years



 


Subsequent costs are included in the
asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. Repairs
and maintenance costs are charged to the statement of income and comprehensive income during the period in which they are incurred.


 


An asset’s
residual value, useful life and depreciation method are reviewed at each financial year-end and adjusted if appropriate. When parts of
an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property
and equipment. Depreciation of property and equipment commences when the asset is available for use.


 


Gains and losses on disposal of an item of property and equipment are
determined by comparing the proceeds from disposal with the carrying amount of the item and are recognized in profit or loss.


 


		x)	Intangibles



 


Intangible assets with finite lives that are acquired separately are
measured on initial recognition at cost, which comprises its purchase price plus any directly attributable costs of preparing the asset
for its intended use. Intangible assets consist of technology, IP and domain properties, brand, and customer relationships. IP and domain
properties includes static IP addresses. Following initial recognition, such intangible assets are carried at cost less any accumulated
amortization on a straight-line basis over the following periods:


 


	Technology	 	5 years
	IP and domain properties	 	10 years
	Brand	 	10 years
	Customer relationships	 	20 years
	Capitalized software	 	3 years



 


		xi)	Capitalized software costs



 


The Company incurs costs for the acquisition of computer software used
in providing services to its customers as well as for internal use. Software acquisition costs are capitalized if the software has a useful
life of greater than one year. Acquisition costs include computer software that is acquired, internally developed, and externally developed.
Subsequent additions, modifications or upgrades to software are capitalized only to the extent that they provide additional functionality.
Software development costs incurred during the application development stage are capitalized in accordance with IAS 38 Intangibles. Planning,
software maintenance, and training costs are expensed as incurred.


 


		xii)	Goodwill



 


Goodwill represents the excess of the
acquisition cost in a business combination over the fair value of the Company’s share of
the identifiable net-assets acquired.


 






    	 	13



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


		xiii)	Impairment testing of goodwill
and long-lived assets



 


For purposes of assessing impairment
under IFRS, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). The
Company’s cash generating units to which goodwill has been assigned and intangible assets
that are not yet available for use are tested for impairment at least annually. All other long-lived assets and finite life intangible
assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.


 


An impairment loss is recognized for
the amount by which the asset’s or cash-generating unit’s
carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal or value-in-use. To determine
the value-in-use, management estimates expected future cash flows from the cash-generating unit and determines a suitable pre-tax discount
rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked
to the Company’s latest approved budget, adjusted as necessary to exclude the effects of
future reorganizations and asset enhancements. Discount factors have been determined for the cash-generating units and reflect its risk
profile as assessed by management.


 


Impairment losses for the cash-generating
units reduce first the carrying amount of any goodwill allocated to that cash-generating unit, with any remaining impairment loss charged
pro rata to the other assets in the cash-generating unit. In allocating an impairment loss, the Company does not reduce the carrying amount
of an asset below the highest of its fair value less costs of disposal or its value in use and zero. With the exception of goodwill, all
assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge
is reversed if the assets’ recoverable amount exceeds its carrying amount only to the extent
the new carrying amount does not exceed the carrying value of the asset had it not originally been impaired. During the year-ended December
31, 2020, the Company recorded an impairment charge of certain capitalized software costs of $509,263 (2019-$449,238).


 


		xiv)	Leases



 


The Company as Lessor


 


The Company classifies its leases as either operating or finance leases.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of the underlying
asset and classified as an operating lease if it does not.


 


The Company as Lessee


 


The Company assesses whether a contract is or contains a lease at inception
of the contract. The Company recognizes a right-of-use asset and a corresponding lease liability with respect to all lease agreements
in which it is lessee, except for short-term leases (defined as leases with lease term of 12 months or less) and leases of low value assets
(defined as leases for which the underlying asset is less than $5,000). For these leases, the Company recognizes the leases as an operating
expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern
in which economic benefits from the leased assets are assumed.


 


Lease liability


 


The lease liability is initially measured at the present value of the
lease payments that are not paid at the commencement date, discounted using the rate implicit in the lease. If this rate cannot be readily
determined, the Company uses its incremental borrowing rate. The incremental borrowing rate is defined as the rate of interest to obtain
an asset of a similar value to the right-of-use asset in a similar economic environment.


 


Lease payments included in the measurement of the lease liability comprises:


 


		·	Fixed lease payments (including in-substance fixed payments),
less any lease incentives;



		·	Variable lease payments that depend on an index or rate,
initially measured using the index or rate at the commencement date;



		·	The amount expected to be payable by the lessee under
residual value guarantees;



		·	The exercise of purchase options, if the lessee is reasonably
certain to exercise the options; and



 






    	 	14



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


		·	Payments of penalties for terminating the lease, if the
lease term reflects the exercise of an option to terminate the lease.



 


The lease liability is subsequently measured by increasing the carrying
amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect
the lease payments made. The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use
asset) when:


 


		·	The lease term has changed or there is a change in the
assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payment
using a revised discount rate.



		·	The lease payments change due to changes in the index
or rate or a change in expected payment under a guaranteed residual value, in which the lease liability is remeasured by discounting the
revised lease payments using the initial discount rate (unless the lease payments change due to a change in a floating interest rate,
in which case a revised discount rate is used).



		·	A lease contract is modified, and the lease modification
is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using
a revised discount rate.



 


Right-of-use assets


 


The right-of-use assets comprises the initial measurements of the corresponding
lease liability, lease payments made at or before commencement day and any initial direct costs. They are subsequently measured at cost
less accumulated depreciation and impairment losses.


 


Whenever the Company incurs an obligation for costs to dismantle and
remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms
and conditions of the lease, a provision is recognized and measured under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.


 


Right-of-use assets are depreciated
over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset
or the cost of the right-of-use asset reflects the Company’s expectation to exercise a purchase
option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement
date of the lease.


 


		xv)	Share-based payments



 


The Company grants stock options to
its employees pursuant to equity incentive plans which include issuances of non-qualified options (“NQOs”),
Restricted Unit Awards, Deferred Units, and Unit Appreciation Rights. The Company measures equity settled share-based payments based on
their fair value at the grant date and recognizes compensation expense over the vesting period based on the Company’s
estimate of the equity instruments that will ultimately vest. The amount recognized as an expense is adjusted to reflect the number of
awards for which the related service and non-market performance conditions are expected to be satisfied, such that the amount ultimately
recognized is based on the number of awards that ultimately vest. The fair value of the share-based payments granted is measured using
the Black Scholes option pricing model, taking into account the terms and conditions upon which the share-based payments were granted.


 


		xvi)	Revenue recognition



 


The Company determines revenue recognition through the following steps:
a) identification of the contract with a customer; b) identification of the performance obligations in the contract; c) determination
of the transaction price; d) allocation of the transaction price for the performance obligations in the contract; and e) recognition of
revenue when the Company satisfies a performance obligation.


 


Revenue is recognized when control of the promised goods or services
is transferred to the customers, in an amount that reflects the consideration receivable in exchange for those goods or services, net
of discounts and sales taxes.


 






    	 	15



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


The Company enters into contracts with
customers that may include various combinations of products and related services, which are generally capable of being distinct and accounted
for as separate performance obligations. The predominant model of customer procurement includes multiple deliverables and generally include
product, including related software licenses (perpetual), provisioning, and porting, and recurring subscription services (“communication
services”). Revenues are allocated to each performance obligation within an arrangement based
on estimated relative stand-alone selling price (“SSP”).
Revenue is then recognized for each performance obligation upon transfer of control of the good or service to the customer in an amount
that reflects the consideration expected to be received.


 


Revenues are comprised of both contracts with customers and lease revenues.
Lease revenues are derived from the rental of telecommunication hardware and related components as a part of a communication services
contract. Lease revenue represents an arrangement where the customer has the right to use an identified asset for a specified term and
such revenue is recognized over the term the customer is given exclusive access to the asset. All other recurring subscription services
are considered revenue from contracts with customers.


 


Generally, revenue is recognized under IFRS 15 for each performance
obligation as follows:


 


Product revenues including related porting, provisioning and software
licenses


 


Product revenues are mainly composed of hardware product components
of telephony and IP equipment. The provisioning of new hardware including the related license are included with the hardware as a combined
performance obligation as the integration of the goods and services create a combined output. For product sales, transfer of control occurs
at a point in time, which is generally based on the shipping terms stated within the contract with the customer. For sales where control
transfers prior to the shipping and handling activities, the Company has elected to treat shipping and handling activities related to
contracts with customers as fulfillment activities, and not as separate performance obligations, and accrues the related costs when the
related revenue is recognized. For sales of porting, provisioning or software license, related to existing customer hardware, the transfer
of control occurs at a point in time, which is generally when the hardware is shipped to the customer. Product sales include the one-year
warranty from the original manufacturer that ensures the products operate as intended. The Company does not offer any form of assurance
warranty related to its product sales.


 


Communication service revenues


 


Communication service revenues are
composed primarily of monthly recurring telecommunication services and support charges pursuant to long-term subscription agreements.
For communication service revenues, transfer of control occurs over time as the customer simultaneously receives and consumes the benefits
related to the Company’s performance as it performs. Communication service arrangements are
typically rendered over a three to five-year period and the nature of each month’s service
is distinct and can be assessed on a stand-alone basis. As such, the monthly performance obligations meet the series guidance and are
recognized over time on a time-based measure. Communication services include maintenance plans that provide customers with support services
and the right to replace equipment that no longer operates as intended. The Company has determined that the maintenance plans include
a service warranty that represents a stand-ready obligation.


 


Under the terms of the Company’s
standard subscription agreement, new customers can terminate services within 30 days of installation of their first service location and
receive a refund of fees previously paid. The Company believes that this limits the enforceable rights in obligations to the first 30
days of an arrangement but after the first 30 days the agreements contain substantive cancellation provisions that accelerate payment
of all expected service fees for the remainder of the term upon cancellation as such the term after the first 30 days is generally the
stated term of the contract, plus any additional months related to activation of all customer locations.


 


Transaction Price


 


The transaction price is the amount of consideration to which the Company
expects to be entitled in exchange for transferring goods and services to its customer. Revenue is recorded based on the transaction price,
which includes estimates of variable consideration. The amount of variable consideration included in the transaction price is constrained
and is included only to the extent it is probable that a significant reversal of revenue recognized will not occur when the uncertainty
associated with the variable consideration is subsequently resolved.


 






    	 	16



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


Certain arrangements contain variable consideration such as late payment
fees and rights to refund. The Company includes estimates for variable consideration within its determination of the transaction price,
subject to the constraint. Generally, these estimates of variable consideration are not found to be materially different from actual results.
The Company estimates the impact of such variable consideration using the expected value method. Based on historical experience, the impact
of both late payment fees and rights of refund are expected to be immaterial.


 


The communication services meet the series guidance requirements. Variable
consideration related to usage fees and service level guarantees are accounted for under the variable consideration allocation exception
as the variable consideration relates to the distinct month of services provided in the series.


 


Payment terms and conditions vary by contract type, although terms
generally include a requirement of payment within 30 to 60 days. Payment is made as services are provided over time in monthly increments.
The Company does not adjust the transaction price for the effects of a significant financing component, at contract inception, when the
period between the transfer of a promised product or service to the customer and payment for that product or service will be one year
or less.


 


The Company excludes from revenue sales taxes and other government-assessed
and imposed taxes on revenue generating activities that are invoiced to customers.


 


Contracts with Multiple Performance Obligations


 


The Company enters into contracts with
customers that frequently include both product and communication services both of which are deemed to be separate performance obligations.
The Company allocates the contract’s transaction price to each performance obligation within
an arrangement based on estimated relative SSP. Revenue is then recognized for each performance obligation upon transfer of control of
the good or service to the customer in an amount that reflects the consideration the Company expects to receive.


 


Judgment is required in estimating
SSP price for each distinct performance obligation. The Company determines SSP including the use of reference to stand-alone sales to
maximize the use of observable inputs for each product and service. SSP typically is established as a range. When any obligation within
an arrangement falls outside the developed SSP range, the contract price for that obligation is adjusted to the mid-point of the established
SSP range and the arrangement’s transaction price is allocated to each performance obligation
based on relative selling price.


 


Contract Assets


 


The timing of revenue recognition may not align with the right to invoice
the customer. The Company records accounts receivable when it has the unconditional right to invoice regardless of whether revenue has
been recognized. If revenue has not yet been recognized, then a contract liability is also recorded as deferred revenue on the consolidated
statements of financial position. Such amounts are classified in the consolidated statements of financial position as deferred revenue.
If revenue is recognized in advance of the right to invoice, a contract asset is recorded.


 


Cost to Obtain a Contract (Contract Cost Assets)


 


The Company capitalizes incremental costs of obtaining customer contracts.
The capitalized amounts consist primarily of: (i) sales commissions paid to the direct sales force and amounts paid to employees other
than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired
plus (ii) the associated payroll taxes and fringe benefit costs associated with the payments to the employees. These costs are deferred
and are included within contract cost assets on the consolidated statements of financial position. The judgments made in determining the
amount of costs incurred include whether the commissions are in fact incremental and would not have occurred absent the customer contract.
Costs to obtain a contract are allocated to the performance obligations based on their selling price, taking into consideration anticipated
renewals, and are amortized as control of the performance obligations are transferred, which may extend beyond the contract term as it
takes into consideration anticipated renewals. As a result, a portion of costs to obtain a contract are recognized as products are shipped.
Cost to obtain contracts allocated to communication service obligations are deferred and amortized over a period between five and seven
years based on the expected period of benefit of these costs which gives consideration to expected contract renewals and the useful life
of the technology.


 






    	 	17



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


The Company periodically reviews these deferred costs to determine
whether events or changes in circumstances have occurred that could affect the period of benefit for these deferred contract acquisition
costs.


 


		xvii)	Cost of Revenues



 


Cost of recurring subscription services primarily consists of network
capacity and usage purchased from third-party carriers, data center storage fees, network hosting licenses, and depreciation of telecommunication
equipment. Cost of recurring subscription services is expensed as incurred.


 


Cost of product revenues is comprised primarily of the costs associated
with purchased telecommunication equipment, packing costs, shipping costs, and costs of professional services. Cost of product sales is
expensed in the period product is delivered to the customer.


 


		xviii)	Income taxes



 


Income taxes are calculated using the
liability method, which requires the recognition of deferred tax assets and liabilities based on differences between the financial reporting
and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The Company calculates taxes on an individual entity basis for its wholly-owned subsidiaries. As a result, the
Company’s consolidated effective tax rate may fluctuate from period to period based on the
relative mix of earnings and losses within the taxing jurisdictions in which the subsidiaries operate during their respective periods.


 


Deferred tax assets are recognized
to the extent it is probable that the underlying tax loss or deductible temporary difference will be utilized against future taxable income.
This is assessed based on the Company’s forecast of future operating results, adjusted for
significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit. If the amount of taxable
temporary difference is insufficient to recognize a deferred tax asset in full, then future taxable profits, adjusted for reversals of
existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Company. Deferred tax assets
are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized;
such reductions are reversed when the probability of future taxable profit improves.


 


Unrecognized deferred tax assets are reassessed at each reporting date
and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
In the ordinary course of business, the Company and its subsidiaries may be examined by various federal, state, and foreign tax authorities.
The Company regularly assesses the potential outcomes of these examinations and any future examinations or the current or prior years
in determining the adequacy of its provision for income taxes.


 


		xix)	Financial instruments



 


Financial assets and financial liabilities are recognized when the
Company becomes party to the contractual provisions of the financial instrument. All financial instruments are initially measured at fair
value adjusted for transaction costs (where applicable).


 


Financial assets


 


On initial recognition, financial assets
are classified as subsequently measured at “amortized cost”,
“fair value through other comprehensive income” (“FVOCI”)
or “fair value through profit or loss” (“FVTPL”).
The classification is determined based on the Company’s business model for managing the financial
asset and the contractual cash flow characteristics of the financial asset. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial assets, or both.


 


Financial assets are measured at amortized cost if they are held within
a business model whose objective is to hold the financial assets and collect its contractual cash flows, and the contractual terms of
the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. These
assets are recorded initially at fair value and subsequently measured at amortized cost using the effective interest rate method. Interest
and realized gains or losses are included in the consolidated statements of loss and comprehensive loss. Financial assets measured at
amortized cost are comprised of cash and accounts receivable.


 






    	 	18



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


The Company derecognizes a financial asset when its contractual rights
to control the financial asset expire.


 


Financial liabilities


 


Financial liabilities are initially
classified as ‘subsequently measured at amortized cost’ or
‘financial liabilities at fair value through profit or loss’.
Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs, unless designated as
a financial liability at fair value through profit or loss.


 


Subsequently, financial liabilities are measured at amortized cost
using the effective interest method except for derivatives and financial liabilities for which the Company has elected to measure at fair
value through profit or loss, which are carried subsequently at fair value with gains or losses recognized in profit or loss.


 


All interest related charges and, if
applicable, changes in a financial liability’s fair value that are reported in profit or
loss are included within finance expenses, net.


 


Financial liabilities are derecognized when they are extinguished or
there is a substantial modification of the terms of an existing financial liability. The difference between the carrying amount of the
financial liability extinguished and consideration paid, or financial liability assumed, is recognized in profit and loss.


 


The Company’s
financial liabilities which are classified and measured at amortized cost include accounts payable and accrued liabilities, revolving
line of credit facility and term loan.


 


Impairment


 


The Company recognizes a loss allowance
for the expected credit losses associated with its financial assets, other than financial assets measured at fair value through profit
or loss. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable
information regarding past events, current conditions and forecasts of future economic conditions. The Company applies the simplified
approach for trade receivables. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses
resulting from all possible default events over the assets’ contractual lifetime.


 


The Company assesses whether a financial asset is credit-impaired at
the reporting date. Regular indicators that a financial instrument is credit-impaired include significant financial difficulties as evidenced
through borrowing patterns or observed balances in other accounts and breaches of borrowing contracts such as default events or breaches
of borrowing covenants. For financial assets assessed as credit-impaired at the reporting date, the Company continues to recognize a loss
allowance equal to lifetime expected credit losses.


 


For financial assets measured at amortized cost, loss allowances for
expected credit losses are presented in the consolidated statements of financial position as a deduction from the gross carrying amount
of the financial asset. Financial assets are written off when the Company has no reasonable expectations of recovering all or any portion
thereof.


 


		xx)	Provisions



 


Provisions represent liabilities of the Company for which the amount
or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past
events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated.
Provisions are not recognized for future operating losses. Where material, provisions are measured at the present value of the expected
expenditures to settle the obligation using a discount rate that reflects current market assessments of the time value of money and the
risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.


 






    	 	19



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


		xxi)	Fair value



 


Fair value is the price that would be received to sell an asset, or
paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value measurement for
invested assets are categorized into levels within a fair value hierarchy based on the nature of the valuation inputs (Levels 1, 2 or
3). The three levels are defined based on the observability of significant inputs to the measurement, as follows:


 


		·	Level 1: quoted prices (unadjusted) in active markets
for identical or liabilities;



		·	Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly or indirectly;



		·	Level 3: unobservable inputs for the asset or liability



 


		xxii)	Employee benefits



 


Long-term employee benefits include contributions made on behalf of
the employee to a defined contribution plan whereby the Company has a discretionary match of up to 100% of employee contributions up to
4% of eligible employee earnings. Long-term employee benefits are measured on an undiscounted basis and are recognized as an expense as
the contribution is made. No liabilities are recognized in regard to the defined benefit plan. For the year ended December 31, 2020, the
Company made contributions of $605,953 (2019 - $547,188)


 


		xxiii)	Critical accounting estimates and judgements



 


The preparation of consolidated financial
statements in accordance with IFRS requires management to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and notes to the consolidated financial statements. These estimates are based on management’s
best knowledge of current events and actions the Company may undertake in the future. Actual results could differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognized in the period
in which the estimates are revised. Significant areas requiring the Company to make estimates include goodwill impairment testing and
recoverability of assets, business combinations, income taxes, estimated useful life of long-lived assets, the fair value of share-based
payments and provision for expected credit losses. These estimates and judgments are further discussed below:


 


Goodwill impairment testing and recoverability of assets


 


The Company has multiple cash-generating units and reviews the recoverable
amount compared to the carrying value both in total and for each of the individual assets. The recoverable amount of the cash-generating
units was estimated based on fair value less costs of disposal using a market approach. The approach uses a multiple of revenues to determine
the recoverable amount. Refer to Note 6.


 


Business combinations


 


In a business combination, all identifiable assets, liabilities and
contingent liabilities acquired are recorded at their fair values. One of the most significant estimates relates to the determination
of the fair value of these assets and liabilities.


 


For any intangible asset identified, depending on the type of intangible
asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using
appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations
are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the
discount rate applied. All acquisitions have been accounted for using the acquisition method.


 


Income taxes


 


Deferred tax assets, including those
arising from tax loss carry-forwards, requires management to assess the likelihood that the Company will generate sufficient taxable earnings
in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of future taxable profits depend
on the Company’s estimates of future cash flows. In addition, future changes in tax laws
could limit the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income
differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date
could be impacted. Refer to Note 9.


 






    	 	20



     


    

 






 






StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019





 



 


Estimated useful lives of long-lived assets


 


Management reviews useful lives of depreciable assets at each reporting
date. Management assesses that the useful lives represent the expected utilization in terms of duration of the assets to the Company.
Actual utilization, however, may vary due to technical obsolescence, particularly relating to software and information technology equipment.
Refer to Note 2 (ix) and (x).


 


Share-based payments


 


The fair value of all share-based payments granted are determined using
the Black-Scholes option pricing model which incorporates assumptions regarding risk-free interest rates, dividend yield, expected volatility,
estimated forfeitures, and the expected life of the options. The Company has a significant number of options outstanding and expects to
continue to make grants. Refer to Note 10.


 


Provision for expected credit losses
(“ECLs”)


 


The Company is exposed to credit risk associated with its trade receivables.
Management reviews the trade receivables at each reporting date in accordance with IFRS 9 Financial Instruments. The ECL method requires
considerable judgment, including consideration of how changes in economic factors affect ECLs, which are determined on a probability-weighted
basis. IFRS 9 outlines a three-stage approach to recognizing ECLs which is intended to reflect the increase in credit risks of a financial
instrument based on 1) 12-month expected credit losses or 2) lifetime expected credit losses. The Company measures provision for ECLs
at an amount equal to the lifetime ECLs.


 


The Company applies the simplified approach to determine ECLs on trade
receivables by using a provision matrix based on historical credit loss experiences adjusted for forward-looking estimates. The historical
results and the forward-looking estimates are used to calculate the run rates of default which are then applied over the expected life
of the trade receivables. Refer to Note 14.


 


		xxiv)	Accounting standards implemented as of January 1, 2020



 


Government assistance


 


Government grants are recognized when there is reasonable assurance
that the grant will be received, and all associated conditions will be complied with. When the grant relates to an expense item, it is
recognized in income on a systematic basis over the periods that the related costs it is intended to compensate are expensed. When the
grant relates to an asset, it is recognized as income in equal amounts over the expected useful life of the related asset. When the Company
receives a forgivable loan from the government, it is treated as a government grant only when there is reasonable assurance that the Company
will meet the terms for forgiveness of the loan.


 


The Company has elected the accounting policy to account for the PPP
forgivable loan as a government grant.


 






    	 	21



     


    

 


 






StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019





 



 


		3.	Property and equipment



 


Depreciation expense is included in general and administration expense
in the consolidated statements of income and comprehensive income.


 


	 	 	Leasehold	 	 	Furniture and	 	 	 	 
	 	 	improvements	 	 	equipment	 	 	Total	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, December 31, 2018	 	 	2,551,292	 	 	 	7,134,476	 	 	 	9,685,768	 
	Additions	 	 	6,682	 	 	 	2,878,670	 	 	 	2,885,352	 
	Disposals	 	 	(237,185	)	 	 	(505,000	)	 	 	(742,185	)
	Foreign exchange conversion	 	 	-	 	 	 	(17,205	)	 	 	(17,205	)
	Transfer to held for sale	 	 	-	 	 	 	(1,239,761	)	 	 	(1,239,761	)
	Balance, December 31, 2019	 	$	2,320,789	 	 	$	8,251,180	 	 	$	10,571,969	 
	Additions	 	 	-	 	 	 	1,507,753	 	 	 	1,507,753	 
	Disposals	 	 	(284,981	)	 	 	(529,083	)	 	 	(814,064	)
	Balance, December 31, 2020	 	$	2,035,808	 	 	$	9,229,850	 	 	$	11,265,658	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated depreciation	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, December 31, 2018	 	 	1,880,927	 	 	 	3,158,821	 	 	 	5,039,748	 
	Additions	 	 	271,763	 	 	 	952,351	 	 	 	1,224,114	 
	Disposals	 	 	(231,389	)	 	 	(138,208	)	 	 	(369,597	)
	Foreign exchange conversion	 	 	-	 	 	 	(16,190	)	 	 	(16,190	)
	Transfer to held for sale	 	 	-	 	 	 	(735,848	)	 	 	(735,848	)
	Balance, December 31, 2019	 	$	1,921,301	 	 	$	3,220,926	 	 	$	5,142,227	 
	Additions	 	 	253,344	 	 	 	866,049	 	 	 	1,119,393	 
	Disposals	 	 	(138,837	)	 	 	(243,799	)	 	 	(382,636	)
	Balance, December 31, 2020	 	$	2,035,808	 	 	$	3,843,176	 	 	$	5,878,984	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value, December 31, 2019	 	$	399,488	 	 	$	5,030,255	 	 	$	5,429,743	 
	Net book value, December 31, 2020	 	$	-	 	 	$	5,386,675	 	 	$	5,386,675	 



 






    	 	22



     


    

 


 








StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019





 



 


		4.	Intangible assets



 


	 	 	IP and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	domain	 	 	 	 	 	 	 	 	Customer	 	 	Capitalized	 	 	 	 
	 	 	properties	 	 	Technology	 	 	Brand	 	 	Relationship	 	 	Software	 	 	Total	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, December 31, 2018	 	$	-	 	 	$	476,900	 	 	$	479,500	 	 	$	48,900	 	 	$	7,193,803	 	 	$	8,199,103	 
	Additions	 	 	27,523	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,330,421	 	 	 	3,357,944	 
	Impairment	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(449,238	)	 	 	(449,238	)
	Foreign exchange	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(9,663	)	 	 	(9,663	)
	Transfer to held for sale	 	 	-	 	 	 	(476,900	)	 	 	(479,500	)	 	 	(48,900	)	 	 	(830,863	)	 	 	(1,836,163	)
	Balance, December 31, 2019	 	$	27,523	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	9,234,460	 	 	$	9,261,983	 
	Additions	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,607,758	 	 	 	2,607,758	 
	Impairment	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(509,263	)	 	 	(509,263	)
	Balance, December 31, 2020	 	$	27,523	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	11,332,955	 	 	$	11,360,478	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated amortization	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, December 31, 2018	 	$	-	 	 	$	95,380	 	 	$	47,950	 	 	$	2,445	 	 	$	3,535,511	 	 	 	3,681,286	 
	Additions	 	 	1,356	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	895,986	 	 	 	897,342	 
	Foreign exchange	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(366	)	 	 	(366	)
	Transfer to held for sale	 	 	-	 	 	 	(95,380	)	 	 	(47,950	)	 	 	(2,445	)	 	 	(115,300	)	 	 	(261,075	)
	Balance, December 31, 2019	 	$	1,356	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	4,315,831	 	 	$	4,317,187	 
	Additions	 	 	2,752	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,281,141	 	 	 	1,283,893	 
	Balance, December 31, 2020	 	$	4,108	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	5,596,972	 	 	$	5,601,080	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value, December 31, 2019	 	$	26,167	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	4,918,629	 	 	$	4,944,796	 
	Net book value, December 31, 2020	 	$	23,415	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	5,735,983	 	 	$	5,759,398	 



 


Amortization expense is included in general and administration expense
in the consolidated statements of income and comprehensive income.


 


During the year-ended December 31, 2020, the Company determined that
certain of its capitalized software costs were no longer useable and recorded an impairment charge of $509,263 (2019 - $449,238), which
is included in the accompanying consolidated statements of income and comprehensive income.


 






    	 	23



     


    

 


 






StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019





 



 


		5.	Goodwill



 


The Company’s
goodwill relates to the Company’s acquisition of the Blue Face Entities in a prior period.
The carrying amount and movements of goodwill was as follows:


 


	Balance, December 31, 2018	 	 	9,662,451	 
	Transfer to held for sale	 	 	(9,662,451	)
	Balance, December 31, 2019	 	 	-	 
	Balance, December 31, 2020	 	$	-	 



 


Goodwill is subject to impairment testing on an annual basis. The annual
impairment test date is December 31.


 


For the year ended December 31, 2019,
the recoverable amount of the Blue Face Entities’ group of cash-generating units (“CGUs”)
was determined using a market approach based on a multiple of the Blue Face Entities’ revenues.


 


	 	 	Revenue multiple	 	 	Revenue growth rate	 
	 	 	2019	 	 	2019	 
	Blue Face Entities	 	 	2.61x
                                                                                                 – 3.80x	 	 	 	15	%



 


Sensitivity to changes in assumptions


 


The Blue Face Entities group of CGUs’
recoverable amount was determined to be more than its carrying amount. No reasonable changes to the key
assumptions resulted in a recoverable amount below the carrying amount.


 


		6.	Assets held for sale and
discontinued operations



 


As at December 31, 2019, the Company had committed to a plan to sell
Blue Face Entities and NSV and an active program to locate a buyer had been initiated. On January 24, 2020, the Company sold the Blue
Face Entities and NSV to Comcast Cable Communications, LLC by means of a share purchase agreement. At December 31, 2019 Blue Face Entities
and NSV were classified as a disposal group held for sale and as a discontinued operation. The results for Blue Face Entities and NSV
for the year are presented below:


 






    	 	24



     


    

 


 








StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019





 



 


		6.	Assets held for sale and discontinued operations (continued)



 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Revenues	 	 	 	 	 	 	 	 
	Recurring subscription services	 	$	368,873	 	 	$	5,236,198	 
	Product sales	 	 	39,063	 	 	 	768,239	 
	Total revenues, net	 	 	407,936	 	 	 	6,004,437	 
	 	 	 	 	 	 	 	 	 
	Cost of revenues	 	 	 	 	 	 	 	 
	Recurring subscription services	 	 	106,473	 	 	 	1,742,889	 
	Product sales	 	 	34,844	 	 	 	523,305	 
	Total cost of revenues	 	 	141,317	 	 	 	2,266,194	 
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	266,619	 	 	 	3,738,243	 
	 	 	 	 	 	 	 	 	 
	Selling, general, and administrative expenses	 	 	121,591	 	 	 	6,712,430	 
	Impairment of capitalized software	 	 	-	 	 	 	-	 
	 	 	 	121,591	 	 	 	6,712,430	 
	 	 	 	 	 	 	 	 	 
	Income (loss) from operations	 	 	145,028	 	 	 	(2,974,187	)
	 	 	 	 	 	 	 	 	 
	Other	 	 	 	 	 	 	 	 
	Interest expense	 	 	(3,985	)	 	 	(52,723	)
	Gain on sale	 	 	33,475,471	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Income (loss) before income taxes	 	 	33,616,514	 	 	 	(3,026,910	)
	 	 	 	 	 	 	 	 	 
	Income tax (expense) recovery	 	 	(4,413,776	)	 	 	361,355	 
	 	 	 	 	 	 	 	 	 
	Net income (loss) for the year from discontinued
    operations	 	$	29,202,738	 	 	$	(2,665,555	)



 


The major classes of assets and liabilities of Blue Face Entities and
NSV classified as held for sale at December 31, 2019 are as follows:


 


	Assets:	 	 	 
	 	 	 	 
	Accounts receivable, net	 	$	357,400	 
	Inventory, net	 	 	80,139	 
	Prepaid and other current assets	 	 	764,588	 
	Total current assets	 	 	1,202,127	 
	 	 	 	 	 
	Property and equipment, net	 	 	503,913	 
	Deferred income taxes	 	 	8,833	 
	Right-of-use assets	 	 	1,741,307	 
	Intangibles, net	 	 	1,429,313	 
	Goodwill	 	 	9,662,451	 
	Total non-current assets	 	 	13,345,817	 
	 	 	 	 	 
	Total assets classified as held for sale	 	$	14,547,944	 



 






    	 	25



     


    

 


 








StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019





 



 


	Liabilities:	 	 	 
	 	 	 	 
	Accounts payable and accrued expenses	 	$	911,251	 
	Deferred revenue	 	 	119,451	 
	Current portion of lease liability	 	 	542,335	 
	Total current liabilities	 	 	1,573,037	 
	 	 	 	 	 
	Long-term portion of lease liability	 	 	1,332,397	 
	Total non-current liabilities	 	 	1,332,397	 
	 	 	 	 	 
	Total liabilities classified as held for sale	 	$	2,905,434	 



 


The net cash flows incurred by Blue Face Entities and NSV are, as follows:


 


	 	 	2020	 	 	2019	 
	Operating	 	$	641,024	 	 	$	(3,155,265	)
	Investing	 	 	(24,465	)	 	 	(607,595	)
	Financing	 	 	(45,426	)	 	 	(49,268	)
	Net cash outflow	 	$	571,133	 	 	$	(3,812,128	)




 


Sale of Blue Face Entities and NSV


 


On January 24, 2020, the Company entered into a Securities Purchase
Agreement for the sale of the Blue Face Entities and NSV to Comcast Cable Communications, LLC. The adjusted purchase price was $45,624,503.
The transaction closed on January 24, 2020. The agreement set a targeted net working capital and allowed or an adjusted net working capital
adjustment to be completed within 90 days of the closing date. Each party was responsible for their respective expenses associated with
the transaction. Transaction expenses on behalf of the Company were settled via the flow of funds on the day of closing. The Company recognized
a gain on the sale of $33,475,471.


 


	Reconciliation of sale price to gain recognized:	 	 	 
	 	 	 	 
	Adjusted purchase price	 	$	45,624,503	 
	Value of assets and liabilities on January 24, 2020	 	 	 	 
	Cash	 	 	(1,499,358	)
	Accounts receivables, net	 	 	(475,192	)
	Inventory	 	 	(80,463	)
	Property, plant, and equipment, net	 	 	(2,390,345	)
	Intangibles	 	 	(704,345	)
	Goodwill	 	 	(9,662,451	)
	Other assets	 	 	(811,087	)
	Accounts payable and accrued expenses	 	 	1,486,938	 
	Taxes and regulatory fees	 	 	13,430	 
	Deferred revenue	 	 	(209,157	)
	Short and long-term lease liabilities	 	 	1,313,856	 
	Other liabilities	 	 	(313,165	)
	Net assets and liabilities on January 24, 2020	 	 	(13,331,339	)
	Cumulative currency translation recognized on sale	 	 	51,225	 
	Gain recognized on sale, net of transaction expenses	 	 	32,344,389	 
	Transaction expenses net from purchase price	 	 	1,131,082	 
	Gain recognized on sale	 	$	33,475,471	 



 






    	 	26



     


    

 


 








StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019





 



 


7. Operating facility and term loan


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Term loan I - WAB	 	$	-	 	 	$	7,299,573	 
	Term loan II - WAB	 	 	-	 	 	 	5,000,000	 
	Revolving line - WAB	 	 	-	 	 	 	10,500,000	 
	Term Loan – ABPCI	 	 	40,979,821	 	 	 	-	 
	Total debt	 	 	40,979,821	 	 	 	22,799,573	 
	Less: current portion	 	 	425,000	 	 	 	13,476,191	 
	Long-term debt	 	$	40,554,821	 	 	$	9,323,382	 



 


ABPCI - Credit and guarantee agreement and amendment


 


On March 13, 2020, the Company entered into a new Credit and Guaranty
Agreement (CGA) with AB Private Credit Investors LLC (ABPCI). The proceeds of the CGA were used to repay the WAB LSA, fund a closing date
dividend and for working capital and other general purposes. The CGA provided for a total of $55,000,000 of senior secured credit via
a Revolving Loan, Term Loan and Delayed Draw Term Loan. The Revolving Loan extends credit up to $7,500,000, with a maturity date of March
13, 2025. The Term Loan provided for a one time funding of $42,500,000, with a maturity date of March 13, 2025. The Delayed Draw Term
Loan provided for funding in two installments to a maximum of $5,000,000 with the commitment termination on the earlier of when the full
term has been drawn or March 12, 2022 and has a maturity date of March 13, 2025.


 


The loan proceeds were borrowed to support operations and to facilitate
a $60,000,000 dividend to the shareholders of the Company as approved by the Board of Directors on March 13, 2021.


 


The CGA provides for permitted indebtedness of equipment lease agreements
in the amounts of (1) the lesser of $10,000,000 or the fair market value of equipment leased in 2020 and (2) the lesser of $8,000,000
or the fair market value of equipment leased in subsequent fiscal years.


 


The loans bear interest on the unpaid principal amount thereof from
the date made to the date of repayment as follows, (a) if a base rate loan, at the base rate plus the applicable margin or (b) if a Eurodollar
rate loan, at the adjusted Eurodollar rate plus the applicable margin.


 


The applicable margin on the base rate loan is 4.5% and Eurodollar
rate loans is 5.5%. Interest on the CGA facility is paid quarterly in arrears on the 14th day of the month. The Term Loan is
payable in quarterly installments of principal in the amount of $106,250 beginning on June 30, 2020 with the remaining unpaid principal
and interest payable in full on March 13, 2025. The Term Loan once repaid, may not be reborrowed. The Revolving Loan is payable in full
on March 13, 2025.


 


The Delayed Draw Term Loan is payable after reaching the commitment
termination date in installments equal to 0.25% of the outstanding balance and is payable in full on March 13, 2025.


 


The interest rate on Term Loan at December 31, 2020 was 6.50%. The
interest rate on the Revolving Loan and Delayed Term Loan was nil% at December 31, 2020 as there was no outstanding balances. Total interest
expense related to the CGA for the year ended December 31, 2020 was $2,530,767.


 


The CGA contains certain financial
covenants related to Total Leverage Ratio and Fixed Charge Coverage and maintaining minimum liquidity of at least $2,500,000 at all times,
as well as requirements to provide monthly and quarterly internal prepared financial statements and annual audited financial statements
and other information. The CGA contains customary affirmative and negative covenants, including covenants restricting the Company’s
ability to incur debt, dispose of assets or enter into transactions with affiliates. The CGA grants ABPCI a perfected first priority security
interest in all assets of the Company, including intellectual property. As of December 31, 2020, the Company was in compliance with all
covenants.


 






    	 	27



     


    

 






StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


On May 22, 2020, the Company entered into the First Amendment to the
CGA. This amendment was for the purpose of allowing the Company to receive the Paycheck Protection Program loan (PPP) under the CARES
Act. Certain terms and definitions were amended and/or added to incorporate the provisions for the CARES Act indebtedness. See further
discussion on the PPP loan below.


 


All of the ABPCI Loans were repaid in March 2021. See Note 20.


 


WAB Loans


 


On December 27, 2017, the Company entered
into a Loan and Security Agreement (“LSA”) with
Western Alliance Bank (“WAB”). The primary reason
for the new LSA was to facilitate the acquisition of the Blue Face Entities. The LSA provided for extension of credit via a Revolving
Line and a Term Loan. The Revolving Line extends credit up to $12,500,000, with a maturity date of December 27, 2020. The Term Loan provided
for a one-time funding of $7,500,000, with a maturity date of December 27, 2022. The LSA provides for permitted indebtedness and permitted
liens in the aggregate of $5,000,000 for equipment financing and inventory. Both facilities bear an interest rate on the outstanding daily
balance at a rate of 2% above the Prime Rate. The Prime Rate is defined as the greater of 4.50%, or the Prime Rate published in the Money
Rates section of Western Edition of the WSJ, or such other rate of interest publicly announced from time to time by the WAB as its Prime
Rate. Interest on both facilities is paid monthly in arrears on the 10th day of the month. The Term Loan is payable in 42 equal
monthly installments of principal beginning on July 10, 2019. The Term Loan once repaid, may not
be reborrowed. The Revolving Line is payable in full on December 27, 2020. The LSA was modified
on February 11, 2019 and extended the repayment start date for the Term Loan to January 10, 2020 and payable in 36 equal monthly installments.


 


On February 11, 2019, the Company entered
into a Loan and Security Modification Agreement (“LSMA”)
with WAB. The primary reason for the LSMA was for working capital. The LSMA provided a $5,000,000 increase to the Revolving Line and added
an additional $5,000,000 Term Loan (“Term Loan II”).
The Revolving Line extends credit up to $17,500,000, with a maturity date of December 27, 2020. The Term Loan II provides for a one-time
funding of $5,000,000, with a maturity date of February 11, 2024. The Revolving Line and Term Loan I continue to bear an interest rate
on the outstanding daily balance at a rate of 2% above the Prime Rate. Term Loan II bears an interest rate on the outstanding daily balance
at a rate of 5% above the prime rate. The Prime Rate definition was updated as the greater of 5.50%, or the Prime Rate published in the
Money Rates section of the Western Edition of the WSJ, or such other rate of interest publicly announced from time to time by WAB as its
Prime Rate. Interest on all facilities is paid monthly in arrears on the 10th day of the month. Term Loan I repayment terms
were modified and is payable in 36 equal monthly installments of principal beginning on January 10, 2020. Term Loan II is payable in 42
equal monthly installments of principal beginning on September 10, 2020. The Term Loan I and Term Loan II once repaid, may not be reborrowed.
The Revolving Line is payable in full December 27, 2020.


 


The LSA with WAB contains certain financial
covenants related to revenue growth and maintaining minimum liquidity of at least $2,500,000 at all times, as well as the requirements
to provide audited financial statements and other information. The LSA customary affirmative and negative covenants, including covenants
restricting the Company’s ability to incur debt, dispose of assets or enter into transactions
with affiliates. The LSA grants WAB a perfected first priority security interest in all assets of the Company, including intellectual
property. As of December 31, 2019, the Company was in compliance with its covenants.


 


On March 13, 2020 the WAB LSA was
extinguished. Accordingly, the interest rate on the Revolving Line and Term Loan I at December 31, 2020 was Nil% (December 31, 2019
- 6.75%). The interest rate on Term Loan II was Nil% at December 31, 2020 (December 31, 2019 – 10.50%). Total interest expense
related to the WAB LSA for the year ended December 31, 2020 $739,339 (2019 - $1,965,826). The aggregate net loss realized on this
transaction, which was not material, reflects a write-off of unamortized original deferred financing costs and is included in other
income, net on the consolidated statements of net income (loss) for the year ended December 31, 2020


 


All of the WAB Loans were repaid in March 2020.


 


On December 31, 2017, the Company granted WAB a warrant to purchase
16,481 shares of Common Stock of StarBlue Inc. at an exercise price of $0,001 per share and an expiration date of December 31, 2022. Simultaneously
with the signing of the LSMA on February 11, 2019, the WAB warrant was amended and restated to a total of 20,601 shares and extended the
maturity date to February 11, 2024. The warrants are classified as derivatives liabilities and are measured at fair value through profit
or loss at each reporting date. The carrying value of the warrants was not material at any of the Company’s
reporting dates.


 






    	 	28



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


Paycheck protection program loan


 


In April 2020, the Company applied for a $4,199,200 paycheck protection
program (PPP) loan via Newtek Small Business Finance, LLC (Newtek). The loan was approved by the Small Business Administration (SBA) and
by Newtek and funded on June 16, 2020. The loan was pursuant to the Coronavirus Aid, Relief, and Economic Security Act, H.R. 748 (CARES
Act) enacted into law in response to the COVID-19 pandemic. The term of the loan is for five years at an annual interest rate of 1%, Payments
are deferred for ten months. Funds borrowed under the PPP may be forgivable by the United States government pursuant to the provisions
of the CARES Act and the PPP Flexibility Act of 2020, H.R. 7010. Based on the criteria for forgiveness of the PPP loan, the Company applied
for 100% forgiveness of the loan amount borrowed in March 2021, the loan forgiveness is dependent upon approval from the United States
government. Eligibility or forgiveness is based on the following:


 


		·	The covered period for use of the loan proceeds is 24
weeks from the time of funding or through December 31, 2020, whichever is earlier.



		·	Loan proceeds must be used for 60% payroll cost and 40%
non-payroll cost for the following covered expenses:



		·	Payroll cost – salary, wages, commission or tips
(capped at $100,000 on an annualized basis for each employee) – employee benefits including cost for vacation, separation payments,
medical and sick leave – provisions of group health care benefits including insurance premiums – payment of retirement benefits



		·	Mortgage interest



		·	Rent – operating and capital leases



		·	Utility costs



		·	The Company must apply for forgiveness of the loan amount
within 10 months of use of the proceeds.



 


As of December 31, 2020, the Company has evaluated both the eligibility
requirements and appropriateness of covered costs and has concluded that it has met all the necessary requirements for eligibility and
loan forgiveness. While this management estimate is subject to third party evaluation and audit, the Company has treated the loan as an
in-substance government grant and recognized grant income for the full amount of the $4,199,200 in 2020. There was no interest expense
recorded for the PPP loan for the year ended December 31, 2020.


 



    	 	29



     


    

 





StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


8. Income
taxes


 


The following table reconciles the difference between the actual tax
provision and amounts obtained by applying the statutory United States federal income tax rate of 21% to the pretax loss in 2020 and 2019:


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Net income before tax from continuing operations	 	$	10,931,143	 	 	$	6,227,898	 
	Net income (loss) before tax from discontinued operations	 	 	33,616,514	 	 	 	(3,026,910	)
	Net income before tax	 	 	44,547,657	 	 	 	3,200,988	 
	 	 	 	 	 	 	 	 	 
	Tax at U.S. federal statutory rate	 	 	9,436,920	 	 	 	672,207	 
	Foreign tax rate differential	 	 	-	 	 	 	320,228	 
	Meals and entertainment	 	 	19,718	 	 	 	78,186	 
	Research and development credit	 	 	-	 	 	 	(540,630	)
	Sale of Blue Face Entities	 	 	(2,616,076	)	 	 	-	 
	Deferred adjustment	 	 	(364,286	)	 	 	(127,419	)
	State income taxes, net of federal benefit	 	 	880,418	 	 	 	431,851	 
	Foreign exchange	 	 	-	 	 	 	184,062	 
	PPP loan forgiveness	 	 	(881,832	)	 	 	-	 
	Other	 	 	210,508	 	 	 	282,120	 
	Adjustment to expected income tax benefit	 	 	-	 	 	 	(421,380	)
	Income tax expense	 	 	6,685,370	 	 	 	879,225	 
	Income tax expense reported in the statements of income	 	 	2,271,594	 	 	 	1,240,580	 
	Income tax attributable to a discontinued operation	 	 	4,413,776	 	 	 	(361,355	)
	 	 	$	6,685,370	 	 	$	879,225	 



 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Current tax expense	 	$	5,424,851	 	 	$	6,029	 
	Deferred tax expense	 	 	1,260,519	 	 	 	873,196	 
	 	 	$	6,685,370	 	 	$	879,225	 



 


The provision for income taxes consisting of current and deferred State
franchise taxes at December 31, 2020 amounted to $35,481 (2019 - $30,580) as well as a current and deferred foreign income tax benefit
at December 31, 2020 of $0 (December 31, 2019 - $361,355).


 


On December 22, 2017, the U.S. Tax
Cuts and Job Act (the “Tax Act”) was enacted
into law. The Tax Act contains broad and complex provisions including, but not limited to: (i) the reduction of corporate income tax rate
from 35% to 21%, (ii) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries,
(iii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, (iv) modifying limitations on excessive
employee remuneration, (v) requiring current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations,
(vi) repeal of corporate alternative minimum tax (“AMT”)
and changing how AMT credits can be realized, (vii) creating a new minimum tax, (viii) creating a new limitation on deductible interest
expense, (ix) changing rules related to uses and limitations of net operating loss carryforwards and foreign tax credits created in tax
years beginning after December 31, 2017, and (x) eliminating the deduction for income attributable to domestic production activities.


 






    	 	30



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


The Act reduces the corporate tax rate to 21 percent, effective January
1, 2018. The recognition of a deferred tax asset and deferred tax liability for Communications took place on December 31, 2017, the date
Communications was contributed to StarBlue. Therefore, the future U.S. tax rate used to value the deferred tax asset for the change in
taxable status of Communications was 21%.


 


The Tax Act creates a new requirement
that certain income earned by controlled foreign corporations must be included currently in the gross income of the U.S. shareholder under
the Global Intangible Low-Taxed Income (“GILTI”)
provision. The Company intends to treat GILTI as a period cost.


 


On March 27, 2020, the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”)
was enacted into law. The CARES Act contained many income tax relief provisions including but not limited to: allowing for a 5-year carryback
of Federal net operating losses generated in tax years beginning in 2018, 2019, and 2020 and corporate alternative minimum tax credit
refund relief. As required under IAS 12, the effects of tax law changes will be recognized in the period in which they are enacted or
substantively enacted. Some aspects of the CARES Act are retroactive, but the Company does not expect any material adjustments to its
2020 income tax position.


 


Significant components of deferred tax assets and liabilities at December
31, 2020 and 2019 are as follows:


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Deferred tax assets	 	 	 	 	 	 	 	 
	Inventory	 	$	112,952	 	 	$	132,593	 
	Right of use assets	 	 	67,681	 	 	 	42,403	 
	Fixed assets	 	 	-	 	 	 	26,066	 
	Accruals	 	 	346,263	 	 	 	387,984	 
	Deferred revenue	 	 	418,102	 	 	 	492,463	 
	Net operating losses	 	 	-	 	 	 	597,065	 
	Total deferred tax assets	 	 	944,998	 	 	 	1,678,574	 
	 	 	 	 	 	 	 	 	 
	Deferred tax liabilities	 	 	 	 	 	 	 	 
	Contract assets	 	 	(1,250,288	)	 	 	(1,254,482	)
	Fixed assets	 	 	(525,495	)	 	 	-	 
	Intangible assets	 	 	(1,474,600	)	 	 	(1,477,790	)
	Deferred tax liability	 	 	(3,250,383	)	 	 	(2,732,272	)
	 	 	 	 	 	 	 	 	 
	Net deferred tax liability	 	 	(2,305,385	)	 	 	(1,053,698	)
	Less: assets held for sale	 	 	-	 	 	 	(8,833	)
	Net deferred income taxes	 	$	(2,305,385	)	 	$	(1,044,865	)



 



    	 	31



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


In assessing the realization of deferred tax assets, the Company uses
a more-likely-than not standard. If it is determined that it is more-likely-than-not that deferred tax assets will not be realized, the
deferred tax asset would not be recognized for financial reporting purposes. As of December 31, 2020, management concluded based on its
evaluation of positive and negative evidence that it is more-likely-than-not that its domestic deferred tax assets will be realized with
exception of its capital loss carryforward of $13,611,840 which can only be offset against capital gain income. If events or circumstances
change, the deferred tax assets will be adjusted at that time resulting in an income tax benefit.


 


The following table summarizes the components of unrecognized deferred
tax assets:


 


	 	 	December	 	 	December	 
	 	 	31, 2020	 	 	31, 2019	 
	Net operating losses	 	 	-	 	 	 	3,029,052	 
	Total unrecognized temporary differences	 	$	-	 	 	$	3,029,052	 



 


At December 31, 2020, the Company utilized all federal and state net
operating loss (NOL) carry forwards in the current year.


 


Federal and state laws impose substantial
restrictions on the utilization of net operating loss carryforwards in the event of an “ownership
change” for tax purposes, as defined in Section 382 of the Internal Revenue Code. In general,
an ownership change is deemed to occur if the percentage of stock of a loss corporation owned (actually constructively and, in some cases,
deemed) by one or more 5% shareholders has increased by more than 50% over the lowest percentage of such stock owned during a three-year
testing period. There have been no ownership change events since the conversion from a partnership to a corporation that would impose
limitations on the net operating losses as of December 31, 2020 and 2019 as discussed further in Note 1.


 


The Company evaluated its tax positions and determined that it has
no uncertain tax positions as of December 31, 2020 and 2019. As of December 31, 2020, all of the federal and state tax returns for the
tax years 2018 through 2019 remain subject to examination by tax authorities.


 


The federal audit for tax year 2017 was completed on February 20, 2020
with no proposed adjustments by the Internal Revenue Service.


 


9. Share capital


 


As of December 31, 2020, the Company’s
equity consists of one class of common stock which was part of the formation of StarBlue in association with the contribution further
described in Note 1. Prior to the formation of StarBlue, the Company’s equity structure under
Communications consisted of two classes of units, Common and Preferred which were established in accordance with the 8th Operating
Agreement of Communications, which was executed on January 1, 2015.


 


Common stock shares of the Company


 


The Company has one class of stock. There
are 11,000,000 authorized Common Stock shares, par value $0.0001 per share, of those 9,876,721 are issued and outstanding as of
December 31, 2020 (2019 - 9,876,721).


 






    	 	32



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


10. Membership
interest option compensation plans


 


2018 Equity Incentive Plan


 


In 2018, StarBlue established an Equity
Incentive Plan (the “Plan”). The purpose of
the Plan is to recruit and retain highly qualified employees, directors, consultants, and other service providers and to provide the opportunity
to share in the growth and value of the Company. The Plan provides for non-qualified options (“NQOs”),
Restricted Stock Awards, Deferred Units, and Stock Appreciation Rights. The term of each option is determined by the Company’s
Board of Directors, but not more than ten years from the date of grant. The Board of Directors has the discretion to determine the vesting
schedule of all options. Options generally vest over three to five years. All option awards provide for accelerated vesting if there is
a change in control, as defined in the option and plan document.


 


The fair value of each option award is estimated on the date of grant
(or the measurement date for non-employees) using the concluded fair market value from a Black-Scholes option pricing model. Volatility
is estimated based on the average of the historical volatilities of the common stock of entities, with characteristics that are similar
to those of the Company. The Company used the following weighted average assumptions to estimate the fair value of membership interest
options granted during the years ended December 31, 2020 and 2019:


 


	 	 	 	2020	 	 	 	2019	 
	Expected term	 	 	N/A	 	 	 	N/A	 
	Risk-free interest rate	 	 	N/A	 	 	 	N/A	 
	Volatility	 	 	N/A	 	 	 	N/A	 
	Dividend yield	 	 	N/A	 	 	 	N/A	 
	Forfeiture rate	 	 	N/A	 	 	 	N/A	 



 


As of December 31, 2020, there was a Common Stock Option pool of 154,685
units. The Company measures its stock incentive plan costs based upon fair value.


 


	 	 	 	 	 	Weighted-average	 	 	Weighted-average	 
	 	 	Number of options	 	 	exercise price	 	 	grant date fair value	 
	Outstanding at December 31, 2018	 	 	47,217	 	 	$	24.47	 	 	$	3.65	 
	Granted	 	 	-	 	 	 	-	 	 	 	-	 
	Exercised	 	 	-	 	 	 	-	 	 	 	-	 
	Forfeited	 	 	-	 	 	 	-	 	 	 	-	 
	Outstanding at December 31, 2019	 	 	47,217	 	 	$	24.47	 	 	$	3.65	 
	Granted	 	 	-	 	 	 	-	 	 	 	-	 
	Exercised	 	 	-	 	 	 	-	 	 	 	-	 
	Forfeited	 	 	-	 	 	 	-	 	 	 	-	 
	Outstanding at December 31, 2020	 	 	47,217	 	 	$	24.47	 	 	$	3.65	 



 


The options vest over a period of three years. The number of options
and weighted-average grant date fair value at December 31, 2020 and 2019 are as follows:


 


	 	 	 	 	 	Weighted-average	 	 	Weighted average	 
	 	 	Number of options	 	 	grant date fair value	 	 	remaining life	 
	As at December 31, 2018:	 	 	 	 	 	 	 	 	 	 	 	 
	Options vested	 	 	7,870	 	 	$	3.65	 	 	 	2.58 years	 
	Non-vested options	 	 	39,347	 	 	$	3.65	 	 	 	2.58 years	 
	As at December 31, 2019:	 	 	 	 	 	 	 	 	 	 	 	 
	Options vested	 	 	23,609	 	 	$	3.65	 	 	 	1.58 years	 
	Non-vested options	 	 	23,608	 	 	$	3.65	 	 	 	1.58 years	 
	As at December 31, 2020:	 	 	 	 	 	 	 	 	 	 	 	 
	Options vested	 	 	39,348	 	 	$	3.65	 	 	 	.58 years	 
	Non-vested options	 	 	7,869	 	 	$	3.65	 	 	 	.58 years	 



 









    	 	33



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


S2S Holdings


 


S2S Holdings via Communications has
established the 2006 Equity Incentive Plan (later amended and restated), the 2012 Unit Incentive Plan, the 2013 Unit Incentive Plan, the
2014 Unit Incentive Plan (later amended and restated) and the 2015 Unit Incentive Plan (collectively, the “Plans”).
The 2006, 2012, 2013 and 2014 Unit Incentive Plans were all assigned from Communications to S2S Holdings on January 1, 2015 as part of
the Assignment and Assumptions Agreement. The options issued under these plans are still active and continue with the same rights and
privileges as issued. The purpose of the Plans is to promote the interests of the Company by providing the opportunity to purchase or
receive Units or to receive compensation that is based upon appreciation in the value of Units to Eligible Recipients in order to attract
and retain Eligible Recipients and providing the Eligible Recipients an incentive to work to increase the value of the Units and a stake
in the future of the Company. The options are intended to be non-qualified options (“NQOs”),
Restricted Unit Awards, Deferred Units and Unit Appreciation Rights.


 


The term of
each option is determined by the Company’s Board of Directors, but not more than ten
years from the date of grant. Options generally vest over four years and are only exercisable upon a change in control. All option
awards provide for accelerated vesting if there is a change in control, as defined in the option and plan documents. To date, all
options issued under the Plans have been for the Company’s Class B common membership
interests. The Company’s Board of Directors is authorized to increase the number of
Class B common membership interest options available for grant from time to time. As of December 31, 2020, there were Class B common
membership interest option pool of 91,181,631 (2019 - 88,532,048) units.


 


The Company measures its unit incentive plan costs based upon fair
value. The fair value of each option award is estimated on the date of grant (or the measurement date for non-employees) using the concluded
fair market value from a Black-Scholes option pricing model as determined by a third-party specialist. Volatility is estimated based on
the average of the historical volatilities of the common stock of entities, with characteristics similar to those of the Company. The
Company used the following weighted average assumptions to estimate the fair value of membership interest options granted during the years
ended December 31, 2020 and 2019:


 


	 	 	2020	 	 	2019	 
	Expected term	 	 	2.0 years	 	 	 	2.0 years	 
	Risk-free interest rate	 	 	2.50	%	 	 	2.50	%
	Volatility	 	 	72.50	%	 	 	72.50	%
	Dividend yield	 	 	0.0	%	 	 	0.0	%
	Forfeiture rate	 	 	0.0	%	 	 	0.0	%



 


A summary of the option activity of the Plans for the year ended December
31, 2020 is as follows:


 


	 	 	 	 	 	Weighted-average	 	 	Weighted-average	 
	 	 	Number of options	 	 	exercise price	 	 	grant date fair value	 
	Outstanding at December 31, 2018	 	 	891,485,557	 	 	$	0.0030851	 	 	$	0.0019833	 
	Granted	 	 	14,835,018	 	 	 	0.0044488	 	 	 	0.0009107	 
	Exercised	 	 	-	 	 	 	-	 	 	 	-	 
	Forfeited	 	 	(13,882,960	)	 	 	0.0134892	 	 	 	0.0036604	 
	Outstanding at December 31, 2019	 	 	892,437,615	 	 	 	0.0029460	 	 	 	0.0019394	 
	Granted	 	 	40,000	 	 	 	0.0081742	 	 	 	0.0033266	 
	Exercised	 	 	-	 	 	 	-	 	 	 	-	 
	Forfeited	 	 	(231,250	)	 	 	0.0134892	 	 	 	0.0019405	 
	Outstanding at December 31, 2020	 	 	892,246,365	 	 	$	0.0029435	 	 	$	0.0019394	 



 






    	 	34



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


As a result of the performance condition on exercisability based upon
a change in control, no options were exercisable as of December 31, 2020. The number of options, weighted-average exercise price, and
weighted average remaining contractual term for options expected to become exercisable at December 31, 2020, 2019 and 2018 are as follows:


 


	 	 	 	 	 	 	 	 	Weighted-average	 
	 	 	 	 	 	Weighted-average	 	 	remaining	 
	 	 	Number of options	 	 	exercise price	 	 	contractual term	 
	As at December 31, 2018:	 	 	 	 	 	 	 	 	 	 	 	 
	Options expected to become exercisable	 	 	884,458,662	 	 	$	0.0030874	 	 	 	4.77 years	 
	As at December 31, 2019:	 	 	 	 	 	 	 	 	 	 	 	 
	Options expected to become exercisable	 	 	887,540,718	 	 	 	0.0029411	 	 	 	3.82 years	 
	As at December 31, 2020:	 	 	 	 	 	 	 	 	 	 	 	 
	Options expected to become exercisable	 	 	890,171,103	 	 	$	0.0029393	 	 	 	2.82 years	 



 


The number of options and weighted-average grant date fair value at
December 31, 2020, 2019, and 2018 are as follows:


 


	 	 	 	 	 	Weighted-average grant date	 
	 	 	Number of options	 	 	fair value	 
	As at December 31, 2018:	 	 	 	 	 	 	 	 
	Options vested	 	 	846,267,452	 	 	$	0.0020095	 
	Non-vested options	 	 	45,218,105	 	 	$	0.0014918	 
	As at December 31, 2019:	 	 	 	 	 	 	 	 
	Options vested	 	 	860,415,097	 	 	$	0.0019688	 
	Non-vested options	 	 	32,022,518	 	 	$	0.0011469	 
	As at December 31, 2020:	 	 	 	 	 	 	 	 
	Options vested	 	 	878,698,229	 	 	$	0.0019525	 
	Non-vested options	 	 	13,548,135	 	 	$	0.0010866	 



 


Recognition of compensation expense


 


The Company issues options under its
unit incentive plans that generally require future service and in all cases are only exercisable upon a change of control. The restrictions
on exercisability are a non-market performance condition that could be achieved after the requisite service period. The Company would
not recognize compensation cost until a change in control is more likely than not. A change in control is an event not solely within the
Company’s control and therefore is only more likely than not to occur once the change in
control event has occurred.


 


Upon a change of control, the Company will recognize compensation expense
for all outstanding awards for which the requisite service has been rendered. If a change in control had occurred at December 31, 2020,
the Company would have recognized compensation expense of $1,731,600 on all vested awards. As of December 31, 2020, the Company had total
accumulated unrecognized compensation expense for all outstanding awards (vested and unvested) of $1,746,322 (2019 - $1,746,637).


 


11. Leases


 


Lease liabilities are presented in the consolidated statements of financial
position as follows:


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Current	 	$	257,896	 	 	$	967,500	 
	Non-current	 	 	-	 	 	 	421,908	 
	 	 	$	257,896	 	 	$	1,389,408	 



 






    	 	35



     


    

 






StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019


 


The Company has leases for properties and equipment. With the exception
of short-term leases (leases with an expected term of 12 months or less) and leases for low value assets, each lease is reflected in the
consolidated statements of financial position as a right-of-use asset and a lease liability.


 


The table below describes the nature
of the Company’s leasing activities by type of right-of-use asset recognized on the consolidated
statement of financial position as of December 31, 2020:


 


	 	 	Number of

                                                                                right of

 use assets 

leased
	 	 	Range 

of 

remaining 

term	 	 	Average

 remaining 

lease 

term	 	 	Number of 

leases with 

extension 

options	 	 	Number of

 leases with 

options to 

purchase	 	 	Number of 

leases with 

variable 

payments 

linked to 

an index	 	 	Number of 

leases with 

termination

 option	 
	Right-of-use assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Property	 	 	1	 	 	 	0 years	 	 	 	0 years	 	 	 	1	 	 	 	-	 	 	 	-	 	 	 	1	 
	Equipment	 	 	6	 	 	 	0.5-2 years	 	 	 	1.0 years	 	 	 	-	 	 	 	6	 	 	 	-	 	 	 	-	 
	 	 	 	7	 	 	 	 	 	 	 	 	 	 	 	1	 	 	 	1	 	 	 	-	 	 	 	1	 




 


Future minimum lease payments at December 31, 2020, excluding leases
included in discontinued operations, are as follows:


 


	 	 	Minimum lease payments due	 
	 	 	Lease payments	 	 	Finance charges	 	 	Net present value	 
	Within 1 year	 	$	258,981	 	 	$	1,085	 	 	$	257,896	 
	1-2 years	 	 	-	 	 	 	-	 	 	 	-	 
	Total	 	$	258,981	 	 	$	1,085	 	 	$	257,896	 



 


Additional information on the right-of-use assets by class of assets
is as follows:


 


	 	 	Properties	 	 	Equipment	 	 	Total	 
	Gross carrying amount	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, December 31, 2018	 	$	4,141,169	 	 	$	1,501,737	 	 	$	5,642,906	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Additions	 	 	169,918	 	 	 	1,870,606	 	 	 	2,040,524	 
	Transfer to assets held for sale	 	 	(856,679	)	 	 	(1,337,115	)	 	 	(2,193,794	)
	Balance, December 31, 2019	 	$	3,454,408	 	 	$	2,035,228	 	 	$	5,489,636	 
	Additions	 	 	-	 	 	 	-	 	 	 	-	 
	Balance, December 31,2020	 	$	3,454,408	 	 	$	2,035,228	 	 	 	5,489,636	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, December 31,2018	 	 	1,908,272	 	 	 	1,192,522	 	 	 	3,100,794	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Additions	 	 	1,035,693	 	 	 	462,381	 	 	 	1,498,074	 
	Transfer to assets held for sale	 	 	(306,133	)	 	 	(111,257	)	 	 	(417,390	)
	Balance, December 31,2019	 	$	2,637,832	 	 	$	1,543,646	 	 	$	4,181,478	 
	Additions	 	 	816,576	 	 	 	245,281	 	 	 	1,061,857	 
	Balance, December 31,2020	 	 	3,454,408	 	 	 	1,788,927	 	 	 	5,243,335	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Carrying amount December 31, 2019	 	$	816,576	 	 	$	491,582	 	 	$	1,308,158	 
	Carrying amount December 31, 2020	 	$	-	 	 	$	246,301	 	 	$	246,301	 



 






    	 	36



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019



 


12. Contingencies


 


Legal proceedings


 


The Company, from time to time, is involved in various legal claims
or litigation that can arise in the normal course of operations. As of December 31, 2020, there are no legal proceedings individually
or in aggregate that, in the opinion of management, could have a material adverse effect on its financial condition, operations, or cash
flows.


 


Other taxes and regulatory fees


 


The Company’s
accrual for unpaid sales and telecommunications tax liabilities as of December 31, 2020 was $266,909 (2019 - $179,829) and is included
in accounts payable and accrued expenses on the accompanying consolidated statements of financial position.


 


During 2020 and 2019, the Company finalized the examination of certain
telecommunication tax audits with findings that did not result in material tax, penalties or fees.


 


The effect of any future laws and regulations
on the Company’s operations including, but not limited to, the Company’s
recurring service offerings, cannot be determined. The Company determines the potential exposure of such regulatory taxes and fees and
has reflected an estimate of these amounts in the accompanying consolidated financial statements. But as a general matter, the increased
regulation and the imposition of additional funding obligations increases the Company’s costs
of providing service that may or may not be recoverable from the Company’s customers.


 


13. Related
party transactions


 


During the year ended December 31, 2020, the Company paid commissions
of approximately $1,375,000 (2019 - $1,160,000) respectively, to a master distributor owned by a member of S2S Holdings. In addition,
during the year ended December 31, 2020 the Company paid commissions of approximately $289,000 (2019 - $238,600) to a master distributor
that also holds Class B common membership interests in S2S Holdings. As of December 31, 2020, the outstanding payables to these master
distributors totaled $146,489 (2019 - $125,591) and were included in accounts payable and accrued expenses in the accompanying consolidated
statements of financial position.


 


From time to time, the Company occasionally utilizes the services of
a charter aircraft company that is owned and operated by the Executive Chairman and majority owner of the Company. The Company leases
the aircraft under dry lease arrangements. These leases are executed on a flight-by-flight basis and contain no commitments, guarantees,
or purchase option clauses. The total expense incurred during the year ended December 31, 2020 approximated $23,300 (2019 - $165,100)
and was included in selling, general, and administrative expenses in the accompanying consolidated statements of income (loss) and comprehensive
income (loss).


 


The Company leases its headquarters facility in Sarasota, Florida from
an entity controlled by a related party under an operating lease agreement that expired December 31, 2020. The lease has an initial monthly
base rent of approximately $59,900 with an increase of 2% each year thereafter. The Company is also responsible for a pro-rated share
of any increase in property taxes or property insurance above a 2013 base year. The lease contains two, three-year lease extension provisions.
There was no outstanding rent payable under this lease as of December 31, 2020 and 2019. The Company is currently in the process of renegotiating
this lease.


 


Key management of the Company are its Board of Directors and members
of executive management. Key management personnel remuneration includes the following payments:


 


	 	 	December 31, 2020	 	 	December 31, 2019	 
	Payroll and benefits	 	$	2,933,674	 	 	$	2,891,008	 
	Severance	 	 	249,137	 	 	 	-	 
	Bonus	 	 	450,544	 	 	 	666,996	 
	Commission	 	 	145,519	 	 	 	114,249	 
	 	 	$	3,778,874	 	 	$	3,672,253	 



 






    	 	37



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019



 


14. Financial instruments


 


Fair values


 


Financial instruments recorded at fair value on the consolidated statements
of financial position are classified using a fair value hierarchy that reflects the observability of significant inputs used in making
the measurements.


 


The fair value hierarchy requires the use of observable market inputs
whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has
been considered in measuring fair value.


 


The fair values of the cash, accounts receivable, accounts payable
and accrued liabilities approximate their carrying values due to the relatively short-term nature of these financial instruments and fair
values of operating facility and loans approximate their carrying values due to variable interest loans or fixed rate loan, which represent
market value.


 


The Company examines the various financial instrument risks to which
it is exposed and assesses the impact and likelihood of those risks. These risks may include credit risk, liquidity risk, foreign currency
risk, interest rate risk and market risk.


 


Credit risk


 


Credit risk is
the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations. The
Company’s maximum exposure to credit risk for its accounts receivable is summarized as follows:


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Accounts receivable aging:	 	 	 	 	 	 	 	 
	0-30 days	 	$	4,075,010	 	 	$	3,810,379	 
	31-60 days	 	 	952,201	 	 	 	1,085,514	 
	61-90 days	 	 	344,794	 	 	 	569,158	 
	Greater than 90 days	 	 	163,418	 	 	 	222,147	 
	 	 	 	 	 	 	 	 	 
	Less: Allowance for credit losses	 	 	(275,805	)	 	 	(245,756	)
	Less: Amounts classified to held for sale	 	 	-	 	 	 	(357,400	)
	 	 	$	5,259,618	 	 	$	5,084,042	 



 


Management actively monitors the Company’s exposure to credit
risk under its financial instruments, including with respect to accounts receivable.


 


Liquidity risk


 


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


 






    	 	38



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019



 


The Company holds sufficient cash and working capital, maintained through
stringent cash flow management, to ensure sufficient liquidity. The Company is obligated to the following contractual maturities of undiscounted
cash flows at December 31,2020 as follows:


 


	 	 	2021	 	 	2022	 	 	2023	 	 	2024	 	 	2025	 
	Accounts payable and accrued liabilities	 	$	8,008,732	 	 	$	-	 	 	$	-	 	 	$	-	 	 	$	-	 
	Lease obligations	 	 	257,896	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Long-term debt	 	 	425,000	 	 	 	425,000	 	 	 	425,000	 	 	 	425,000	 	 	 	39,279,821	 
	 	 	$	8,266,628	 	 	$	425,000	 	 	$	425,000	 	 	$	425,000	 	 	$	39,279,821	 



 


Foreign currency risk


 


Most of the Company’s transactions are carried out in USD. Exposure
to currency exchange rates arise from the overseas operations of the Blue Face Entities which are denominated in Pounds Sterling (GBP)
and Euro. The Company does not have significant exposure to foreign currency.


 


Interest rate risk


 


The Company’s
exposure to interest rate fluctuations is with its credit facility (Note 8) which bears interest at Libor plus 1.00%. As at December 31,
2020, a change in the interest rate of 1 % per annum would have an impact of approximately $380,033 (2019 - $198,167) per annum in finance
costs.


 


15. Capital management


 


The
Company’s objectives in managing capital are to safeguard the
Company’s assets, to ensure sufficient liquidity to sustain the future development of
the business via advancement of its significant research and development efforts, to conservatively manage financial risk and to
maximize investor, creditor and market confidence. The Company considers its capital structure to include its
shareholders’ equity and operating facilities and loans which was $18,156,274 at
December 31, 2020 (2019 - $21,883,186). Working capital is optimized via stringent cash flow policies surrounding disbursement,
foreign currency exchange and investment decision-making. There have been no changes in the Company’s approach to capital management
during the year and the Company is subject to capital requirements imposed by its lenders as disclosed in Note 7.


 


16. Selling,
general, and administrative expenses


 


	 	 	2020	 	 	2019	 
	Payroll and benefits	 	$	26,193,659	 	 	$	23,475,363	 
	Commissions and third party compensation	 	 	20,213,861	 	 	 	21,691,203	 
	Travel	 	 	734,426	 	 	 	2,822,120	 
	Professional fees	 	 	4,917,824	 	 	 	4,490,291	 
	Depreciation	 	 	2,181,249	 	 	 	1,722,726	 
	Dealer training	 	 	15,833	 	 	 	102,361	 
	Marketing and advertising	 	 	2,598,837	 	 	 	1,424,572	 
	Licenses & subscriptions	 	 	1,632,509	 	 	 	1,107,651	 
	Amortization	 	 	1,283,893	 	 	 	1,043,117	 
	Other	 	 	277,368	 	 	 	371,391	 
	Utilities	 	 	261,466	 	 	 	219,826	 
	Insurance	 	 	197,599	 	 	 	220,049	 
	Training	 	 	13,960	 	 	 	47,171	 
	 	 	$	60,522,484	 	 	$	58,737,841	 



 






    	 	39



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019



 


Payroll and benefits include personnel costs for employees engaged
in network infrastructure and operations, system maintenance, and customer support functions.


 


17. Interest expense


 


	 	 	2020	 	 	2019	 
	Long-term debt	 	$	3,270,107	 	 	$	1,771,153	 
	Lease liability	 	 	38,274	 	 	 	106 493	 
	Other	 	 	1,213	 	 	 	174,735	 
	 	 	$	3,309,594	 	 	$	2,052,381	 



 


18. Supplemental cash flow information


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Non-cash transactions	 	 	 	 	 	 	 	 
	Purchases of capital expenditures through capital lease	 	 	 	 	 	 	 	 
	arrangements	 	$	            -	 	 	$	1,868,282	 




 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Interest paid	 	$	2,815,183	 	 	$	1,815,059	 
	Income taxes paid	 	 	6,452,273	 	 	 	86,661	 



 


19. Revenue, contract cost assets and deferred revenue


 


Revenue


 


The following table presents revenues disaggregated by timing and type
of revenue recognition:


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Recurring subscription revenues - revenue recognized over time	 	$	68,569,116	 	 	$	65,537,270	 
	Product sales – revenue recognized point in time	 	 	6,446,764	 	 	 	7,443,783	 
	Revenue from contracts with customers	 	 	75,015,880	 	 	 	72,981,053	 
	Lease revenue	 	 	6,005,977	 	 	 	4,405 169	 
	Total revenue	 	$	81,021,857	 	 	$	77,386,222	 



 


The Company derives lease revenue from the rental of telecommunication
hardware as part of a communication services contract. The Company manages the risk associated with rights it retains in the underlying
assets by requiring all lessees to provide security deposits and by mandatory return of equipment in working order in the event that the
lessee stops payment. Future minimum lease payments receivable under non-cancellable operating leases at December 31, 2020 and 2019 are
as follows:


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Within one year	 	$	6,571,663	 	 	$	6,268,553	 
	After one year, but not more than five years	 	 	11,915,981	 	 	 	12,958,099	 



 






    	 	40



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019



 


Contract cost assets


 


The Company capitalizes incremental costs of obtaining customer contracts.
The capitalized amounts consist primarily of: (i) sales commissions paid to the direct sales force and amounts paid to employees other
than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired
plus (ii) the associated payroll taxes and fringe benefit costs associated with the payments to the employees.


 


Amortization of contract cost assets of $1,338,583 (2019 - $1,074,070)
has been recorded in depreciation expense. The Company periodically reviews these deferred costs to determine whether events or changes
in circumstances have occurred that could affect the period of benefit for these deferred contract acquisition costs. The Company accelerated
the recognition of $288,005 of previously capitalized contract acquisition costs related to contract cancellations that occurred during
the year ending December 31, 2020 (2019 - $181,277).


 


Deferred revenue


 


Contract liabilities, which includes deferred revenues, represent the
future performance obligations to customers in respect of services or customer activation fees for which consideration has been received
upfront and is recognized over the expected term of the customer relationship. The Company has elected to apply the practical expedient
that allows the Company to not disclose the unsatisfied portions of performance obligations under contracts where the revenue we recognize
is equal to the amount invoiced to the customer.


 


Deferred revenue consists of the following amounts at each reporting
date:


 


	 	 	December 31,	 	 	December 31,	 
	 	 	2020	 	 	2019	 
	Billing deferral	 	$	2,406,516	 	 	$	1,924,063	 
	Deferred activation fees	 	 	343,453	 	 	 	386,051	 
	Deferred grants	 	 	-	 	 	 	46,028	 
	Prepaid customer deposits	 	 	1,653,850	 	 	 	1,899,964	 
	Total deferred revenues	 	 	4,403,819	 	 	 	4,256,106	 
	 	 	 	 	 	 	 	 	 
	Less: current portion	 	 	3,004,559	 	 	 	2,793,608	 
	Deferred revenues, long term portion	 	$	1,399,260	 	 	$	1,462,498	 



 


20. Subsequent events


 


The Company has evaluated subsequent events through June 11, 2021,
the date of the accompanying financial statements were available to be issued, and identified no events, other than those noted below,
that require consideration or adjustment to, or disclosure in, the financial statements.


 


Sale of Company to Sangoma Technologies


 


On January 28, 2021, the Company entered
into a stock purchase agreement (the Agreement) whereby the Company was later acquired by Sangoma Technologies Corporation (Sangoma).
Pursuant to the Agreement, Sangoma acquired StarBlue (the “Acquisition”)
for approximately $437 million, consisting of $105 million in cash and 110 million common shares of Sangoma. The transaction was approved
by Sangoma shareholders at a special meeting of shareholders held on March 26, 2021. The transaction was closed on March 31, 2021.


 


ABPCI


 


On March 31, 2021, the Company repaid the full outstanding balance
owed under the CGA agreement with AB Private Credit Investors LLC. The debt was extinguished as part of the acquisition of the Company
by Sangoma. The Company paid a prepayment penalty of 1% of the outstanding commitment under the CGA in the amount of $546,813.


 






    	 	41



     


    

 


StarBlue Inc.


Notes to the consolidated financial statements


(in United States dollars)


For the years ended December 31, 2020 and 2019



 


Signing of new lease for corporate office


 


The Company is currently negotiating a new lease for the corporate
office located at 600 Tallevast Road, Sarasota, FL with Aldina, L.C. (Landlord). The effective date of the lease will be January 1, 2021.
The lease term will be five years with automatic one (1) year renewal periods thereafter. The initial base rent will be $443,638 per annum
calculated at the rate of $12.95 per sq. ft. payable in monthly installments of $36,303.17. The lease will also include an additional
use space known as flex space. The landlord will have the right after nine (9) months to terminate the use of the flex space with a ninety
(90) day notice. Rent for the flex space will be $173,530 per annum calculated at the rate of $12.95 per sq. ft. payable in monthly installments
of $14,460.83 per month. Commencing on the first anniversary of the effective date and each anniversary date thereafter, the base rent
shall increase by two percent (2%)


 






    	 	42