Exhibit 4.2


 





 


	VIQ Solutions Inc.   	




 


Consolidated Financial Statements


 


And Independent Auditors’ Report thereon


 


Years ended December 31, 2020 and 2019


 


(Expressed in United States dollars)


 






    


     


    




 





 





 


KPMG LLP





Vaughan Metropolitan Centre 100 New Park Place





Suite 1400





Vaughan, ON Canada L4K 0J3 Telephone (905) 265-5900





Fax (905) 265-6390





www.kpmg.ca


 


INDEPENDENT AUDITORS’ REPORT


 


To the Shareholders of VIQ Solutions Inc.


 


Opinion


 


We have audited the consolidated financial
statements of VIQ Solutions Inc. (the Entity), which comprise:


 


		·	the consolidated statement of financial position as at December 31,
2020



 


		·	the consolidated statement of loss and comprehensive loss for the year then
ended



 


		·	the consolidated statement of changes in shareholders’ equity for the
year then ended



 


		·	the consolidated statement of cash flows for the year then ended



 


		·	and notes to the consolidated financial statements, including a summary of
significant accounting policies



 


(Hereinafter referred to as the “financial statements”).


 


In
our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the
Entity as at December 31, 2020, and its consolidated financial performance
and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).


 


Basis for Opinion


 


We conducted our audit in accordance with
Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditors’
Responsibilities for the Audit of the Financial Statements” section of our auditors’ report.


 


We are independent of the Entity in accordance
with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical
responsibilities in accordance with these requirements.


 


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


 


KPMG LLP, an Ontario limited liability partnership
and member firm of the KPMG global organization of independent 

member firms affiliated with KPMG International Limited, a private English
company limited by guarantee.





KPMG Canada provides services to KPMG LLP.


 



    


     


    




 





 


Key Audit Matters


 


Key
audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements
for the year ended December 31, 2020. These matters were addressed
in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters.


 


We have determined the matters described
below to be the key audit matters to be communicated in our auditors’ report.


 


Evaluation of the fair value of
contingent consideration and acquired intangible assets for business combinations


 


Description of the matter


 


We draw attention to Notes 2(e), 3(i) and
4 to the financial statements. On January 31, 2020, the Entity acquired 100% of the assets of ASC Services LLC (“ASC”).
On February 26, 2020, the Entity acquired 100% of the shares of WordZXpressed Inc. (“WordZ”). The acquisitions of ASC
and WordZ were each determined to be a business combination and were accounted for using the acquisition method. The total consideration
was $5,175,096 for ASC, including contingent consideration of


 


$2,038,596, and $3,861,347 for
WordZ, including contingent consideration of $1,671,670. The acquisition-date fair value for the customer relationships and other
intangible assets was $2,880,000 and $550,000, respectively, for ASC and $2,220,000 and $260,000, respectively, for WordZ. The
Entity’s significant assumptions in determining the fair values of the contingent consideration and the acquired intangible
assets include:


 


		·	Forecasted revenues attributable to the acquired
businesses



 


		·	Forecasted earnings before interest, taxes, depreciation and amortization
(EBITDA)



 


		·	Discount rates.



 


Why the matter is a key audit matter


 


We identified the evaluation of the fair
value of contingent consideration and acquired intangible assets for business combinations as a key audit matter. This matter represented
significant auditor judgement due to the high degree of estimation uncertainty in determining the fair values of contingent consideration
and acquired intangible assets. In addition, specialized skills and knowledge were required in evaluating the results of our audit procedures
due to the sensitivity in the Entity’s determination of fair values to changes to certain significant assumptions.


 


How the matter was addressed in
the audit


 


The following are the primary procedures
we performed to address this key audit matter:


 





		·	We read the share purchase agreements for each of the business combinations.


 



    	2 



     


    










 





 


		·	We compared the Entity’s forecasted revenues
and EBITDA to the historical actual results to assess the Entity’s ability to accurately forecast.



 


		·	We involved valuations professionals with specialized
skills and knowledge, who assisted in evaluating the appropriateness of the Entity’s discount rates by comparing to discount rates
that were independently developed using publicly available data for comparable entities for each acquisition.



 


Impairment of goodwill and intangible
assets


 


Description of the matter


 


We draw attention to Notes 2(e), 3(i) and
8 to the financial statements. The goodwill and intangible balances are $6,976,096 and $12,118,352, respectively. The Entity reviews goodwill
and intangible assets for impairment annually, or more frequently when there are indicators that impairment may have occurred. The Entity
recorded an impairment charge of $2,258,369. When performing impairment tests, the Entity uses judgment in estimating the recoverable
values of the cash-generating units (“CGUs”) and uses internally developed valuation models that consider various factors
and assumptions including forecasted cash flows, revenue growth rates, earnings margins and discount rates. The use of different assumptions
and estimates could influence the determination of the existence of impairment and the valuation of goodwill and intangible assets. The
recoverable amount of the CGUs is estimated based on an assessment of their value in use using a discounted cash flow approach. Cash flows
for the years thereafter are extrapolated using the estimated terminal growth rate. The Entity has made certain assumptions in determining
the cash flow projections. Key assumptions include revenue growth rates, earnings margins and discount rates.


 


Why the matter is a key audit matter


 


We identified the evaluation of impairment
of goodwill and intangible assets as a key audit matter. This matter represented a significant risk of material misstatement given the
magnitude of the goodwill and intangible asset amounts and the high degree of estimation uncertainty in determining the recoverable amount
of each CGU. In addition, significant auditor judgment was required in evaluating the results of our audit procedures due to the sensitivity
of the recoverable amount to changes in certain key assumptions.


 


How the matter was addressed in
the audit


 


The following are the primary procedures we performed
to address this key audit matter.


 


		·	We assessed the historical accuracy of revenue
growth rates and earnings margins by comparing the Entity’s past projections to actual and historical performance. In addition,
we compared the revenue growth rates to current industry, market and economic trends.



 






    	3 



     


    




 





 


 


		·	To assess the impact of the discount rate assumption,
we performed sensitivity analysis on that assumption by using recent transactions.



 


Other Matter – Comparative
Information


 


The
financial statements for the year ended December 31, 2019 were audited
by another auditor who expressed an unmodified opinion on those financial statements on April 16,
2020.


 


Other Information


 


Management is responsible for the other
information. Other information comprises:


 


		·	the information included in Management’s
Discussion and Analysis filed with the relevant Canadian Securities Commissions.



 


Our opinion on the financial statements
does not cover the other information and we do not and will not express any form of assurance conclusion thereon.


 


In connection with our audit of the financial
statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information
is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that
the other information appears to be materially misstated.


 


We obtained the information included in
Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’
report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in the auditors’ report.


 


We have nothing to report in this regard.


 


Responsibilities of Management and Those Charged with
Governance for the Financial Statements


 


Management is responsible for the preparation
and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such
internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.


 


In preparing the financial statements,
management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related
to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease
operations, or has no realistic alternative but to do so.


 


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


 



    	4 



     


    




 





 





 


Auditors’ Responsibilities
for the Audit of the Financial Statements


 


Our objectives are to obtain reasonable
assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to
issue an auditors’ report that includes our opinion.


 


Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards 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 the financial statements.


 


As part of an audit in accordance with
Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the
audit.


 


We also:


 


		·	Identify and assess the risks of material misstatement
of the financial statements, whether due to fraud or error, design and perform 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, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.



 


		·	Obtain an understanding of internal control relevant
to the audit 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 Entity's internal control.



 


		·	Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates and related disclosures made by management.















 


		·	Conclude on the appropriateness of management's
use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related
to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the 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 auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern.



 


		·	Evaluate the overall presentation, structure
and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.



 






    	5 



     


    




 





 


		·	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
in internal control that we identify during our audit.



 


		·	Provide those charged with governance with a
statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships
and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.



 


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



 


		·	Determine, from the matters communicated with
those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period
and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’
report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.



 





 


Chartered Professional Accountants, Licensed Public Accountants


 


The engagement partner on the audit resulting in this auditors’
report is Lesley Bridget Luk.


Vaughan, Canada


 


April 14,
2021


 



    	6 



     


    










 


VIQ Solutions Inc.


 


Consolidated Statements of Financial Position


(Expressed in United States dollars)








	 	 	December 31, 2020	 	 	December 31, 2019	 
	Assets	 	 	 	 	 	 	 	 
	Current assets	 	 	 	 	 	 	 	 
	Cash	 	$	16,835,671	 	 	$	1,707,654	 
	Trade and other receivables, net of allowance for doubtful accounts	 	 	 	 	 	 	 	 
	(note 5)	 	 	4,475,751	 	 	 	3,169,545	 
	Inventories	 	 	49,381	 	 	 	64,706	 
	Prepaid expenses and deposits	 	 	254,230	 	 	 	184,207	 
	 	 	 	21,615,033	 	 	 	5,126,112	 
	Non-current assets	 	 	 	 	 	 	 	 
	Restricted cash	 	 	42,835	 	 	 	37,536	 
	Property and equipment (note 7)	 	 	215,835	 	 	 	111,587	 
	Right of use assets (note 18)	 	 	309,566	 	 	 	647,046	 
	Intangible assets (note 8)	 	 	12,118,352	 	 	 	10,216,461	 
	Goodwill (note 8)	 	 	6,976,096	 	 	 	4,295,515	 
	Deferred tax assets (note 20)	 	 	1,441,942	 	 	 	334,542	 
	Total assets	 	$	42,719,659	 	 	$	20,768,799	 
	 	 	 	 	 	 	 	 	 
	
Liabilities
	 	 	 	 	 	 	 	 
	Current liabilities	 	 	 	 	 	 	 	 
	Trade and other payables and accrued liabilities (note 6)	 	$	5,305,600	 	 	$	3,515,028	 
	Income tax payable (note 20)	 	 	201,592	 	 	 	94,606	 
	Share appreciation rights plan obligations (note 10)	 	 	126,503	 	 	 	149,078	 
	Current portion of long-term debt (note 9)	 	 	1,486,136	 	 	 	1,103,438	 
	Current portion of convertible note (note 9 (c))	 	 	-	 	 	 	2,336,804	 
	Current portion of lease obligations (note 19)	 	 	113,218	 	 	 	307,436	 
	Current portion of contract liabilities	 	 	1,252,957	 	 	 	455,026	 
	 	 	 	8,486,006	 	 	 	7,961,416	 
	Non-current liabilities	 	 	 	 	 	 	 	 
	Deferred tax liability (note20)	 	 	60,587	 	 	 	4,205	 
	Long-term convertible note (note 9 (c))	 	 	-	 	 	 	3,601,182	 
	Long-term debt (note 9)	 	 	12,138,799	 	 	 	6,505,637	 
	Long-term contingent consideration (note 4)	 	 	1,575,528	 	 	 	-	 
	Long-term lease obligations (note 19)	 	 	240,981	 	 	 	382,208	 
	Long-term contract liabilities	 	 	70,834	 	 	 	-	 
	Other long-term liabilities	 	 	360,525	 	 	 	103,629	 
	Total liabilities	 	 	22,933,260	 	 	 	18,558,277	 
	 	 	 	 	 	 	 	 	 
	
Shareholders’ equity
	 	 	 	 	 	 	 	 
	Capital stock (note 10)	 	 	50,234,551	 	 	 	21,987,937	 
	Contributed surplus	 	 	4,970,945	 	 	 	4,552,528	 
	Accumulated other comprehensive income (loss)	 	 	(78,906	)	 	 	(135,058	)
	Deficit	 	 	(35,340,191	)	 	 	(24,194,885	)
	Related party transactions (note 22) 	 	 	19,786,399	 	 	 	2,210,522	 
	Commitments, contractual obligations and contingencies (notes 19, 21)	 	 	 	 	 	 	 	 
	Subsequent events (notes 1, 9, 22 and 24)	 	 		 	 	 		 
	Total liabilities and shareholders’ equity	 	$	42,719,659	 	 	$	20,768,799	 



 


See accompanying notes to consolidated financial statements.


 


	Approved by the Board	 	Signed “Larry
    Taylor”	 	Signed “Sebastien
    Paré”
		 	Larry Taylor, Director	 	Sebastien Paré, CEO and Director







 






    


     


    




 


VIQ Solutions Inc.








Consolidated Statements of Loss and Comprehensive Loss 

(Expressed in
United States dollars)





	 	 	Year ended December 31,	 
	 	 	2020	 	 	2019	 
	Revenue (note 15)	 	 	$ 31,749,693	 	 	 	$ 25,096,308	 
	 Cost of sales	 	 	

 15,599,437
	 	 	 	

 14,276,321
	 
	Gross profit	 	 	16,150,256	 	 	 	10,819,987	 
	 	 	 	 	 	 	 	 	 
	
Expenses (note 16)
	 	 	 	 	 	 	 	 
	Selling and administrative expenses	 	 	11,034,902	 	 	 	8,954,512	 
	Research and development expenses	 	 	1,074,178	 	 	 	994,640	 
	Stock-based compensation (note 11)	 	 	725,316	 	 	 	195,113	 
	Foreign exchange (gain) loss	 	 	(132,306	)	 	 	217,040	 
	Depreciation	 	 	445,995	 	 	 	528,484	 
	Amortization	 	 	4,813,248	 	 	 	2,973,945	 
	 	 	 	17,961,333	 	 	 	13,863,734	 
	Loss before undernoted items and income taxes	 	 	(1,811,077	)	 	 	(3,043,747	)
	 	 	 	 	 	 	 	 	 
	Interest expense (note 9) 	 	 	(4,934,517	)	 	 	(1,549,904	)
	Accretion and other financing expense (note 9) 	 	 	(1,216,949	)	 	 	(916,734	)
	Gain (loss) on revaluation of conversion feature liability (note 9 (c)) 	 	 	(1,308,440	)	 	 	2,330,964	 
	Loss on repayment of long-term debt (note 9) 	 	 	(1,497,804	)	 	 	–	 
	Business acquisition costs (note 4) 	 	 	(19,058	)	 	 	(484,387	)
	Gain on contingent consideration (note 4) 	 	 	946,503	 	 	 	–	 
	Impairment of goodwill and intangibles (note 8)	 	 	(2,258,369	)	 	 	–	 
	 Other income (expense) (note 23)	 	 	10,373	 	 	 	(761,235	)
	 	 	 	(12,089,338	)	 	 	(4,425,043	)
	 	 	 	 	 	 	 	 	 
	Current income tax expense (note 20)	 	 	(106,986	)	 	 	(93,580	)
	Deferred income tax recovery (expense) (note 20)	 	 	1,051,018	 	 	 	(5,575	)
	Income tax (expense) recovery	 	 	944,032	 	 	 	(99,155	)
	Net loss for the year	 	$	(11,145,306	)	 	$	(4,524,198	)
	 	 	 	 	 	 	 	 	 
	
Exchange gain (loss) on translating foreign operations
	 	 	56,152	 	 	 	(262,811	)
	Comprehensive loss for the year	 	$	(11,089,154	)	 	$	(4,787,009	)
	 
Net loss per share (note 12)
	 	 	 	 	 	 	 	 
	Basic	 	$	(0.62	)	 	$	(0.46	)
	Diluted	 	$	(0.62	)	 	$	(0.46	)
	 Weighted average number of common shares	 	 	
 
 18,080,533
	 	 	 	
 
 9,752,131
	 
	outstanding – basic (note 12) 	 	 	 	 	 	 	 	 
	Weighted average number of common shares 	 	 	18,080,533	 	 	 	9,752,131	 
	outstanding – diluted (note 12)	 	 	 	 	 	 	 	 












 





See accompanying notes to consolidated financial statements.


 






    


     


    




 


VIQ Solutions Inc.





Consolidated Statements of Changes in Shareholders’ Equity


(Expressed
in United States dollars)














	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated
    other	 	 	 	 
	 	 	Capital
    stock	 	 	Contributed	 	 	 	 	 	comprehensive	 	 	Total	 
	 	 	Number	 	 	Amount	 	 	surplus	 	 	Deficit	 	 	income
    (loss)	 	 	equity	 
	Balance as at December 31,
    2018	 	 	8,729,318	 	 	$	18,662,252	 	 	$	3,595,587	 	 	$	(19,670,687	)	 	$	127,753	 	 	$	2,714,905	 
	Comprehensive loss for the year	 	 	–	 	 	 	–	 	 	 	–	 	 	 	(4,524,198	)	 	 	(262,811	)	 	 	(4,787,009	)
	Shares issued due to exercise of stock options (note
    10)	 	 	67,860	 	 	 	85,979	 	 	 	(26,348	)	 	 	–	 	 	 	–	 	 	 	59,631	 
	Shares issued due to exercise of warrants (note 10)	 	 	1,362,506	 	 	 	2,196,277	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	2,196,277	 
	Shares issued upon settlement of payables (note 23)	 	 	659,600	 	 	 	1,003,652	 	 	 	762,575	 	 	 	–	 	 	 	–	 	 	 	1,766,227	 
	Shares issued – DSU (note 10)	 	 	33,333	 	 	 	39,777	 	 	 	(39,221	)	 	 	–	 	 	 	–	 	 	 	556	 
	Options forfeited	 	 	–	 	 	 	–	 	 	 	(39,652	)	 	 	–	 	 	 	–	 	 	 	(39,652	)
	Stock-based compensation (note 11)	 	 	–	 	 	 	–	 	 	 	299,587	 	 	 	–	 	 	 	–	 	 	 	299,587	 
	Balance as at December 31, 2019	 	 	10,852,617	 	 	$	21,987,937	 	 	$	4,552,528	 	 	$	(24,194,885	)	 	$	(135,058	)	 	$	2,210,522	 


















 








	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	other	 	 	 	 
	 	 	Capital
    stock	 	 	Contributed	 	 	 	 	 	comprehensive	 	 	Total	 
	 	 	Number	 	 	Amount	 	 	surplus	 	 	Deficit	 	 	income
    (loss)	 	 	equity	 
	Balance as at December 31,
    2019	 	 	10,852,617	 	 	$	21,987,937	 	 	$	4,552,528	 	 	$	(24,194,885	)	 	$	(135,058	)	 	$	2,210,522	 
	Comprehensive loss for the period	 	 	–	 	 	 	–	 	 	 	–	 	 	 	(11,145,306	)	 	 	56,152	 	 	 	(11,089,154	)
	Issuance of common
    shares in private placement, net of issuance costs (note 10)	 	 	4,705,900	 	 	 	13,747,345	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	13,747,345	 
	Shares issued due to exercise of
    stock options (note 10)	 	 	92,500	 	 	 	129,982	 	 	 	(46,416	)	 	 	–	 	 	 	–	 	 	 	83,566	 
	Shares issued
    due to exercise of warrants and warrant repricing (note 9, 10)	 	 	1,154,759	 	 	 	1,940,925	 	 	 	3,324	 	 	 	–	 	 	 	–	 	 	 	1,944,249	 
	Shares issued due to convertible
    note (note 9)	 	 	6,785,651	 	 	 	12,428,362	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	12,428,362	 
	Stock-based
    compensation (note 11)	 	 	–	 	 	 	–	 	 	 	461,509	 	 	 	–	 	 	 	–	 	 	 	461,509	 
	Balance as
    at December 31, 2020	 	 	23,591,427	 	 	$	50,234,551	 	 	$	4,970,945	 	 	$	(35,340,191	)	 	$	(78,906	)	 	$	19,786,399	 



 


 


 












    


     


    




 





VIQ Solutions Inc.





Consolidated Statements of Cash Flows 

(Expressed in United States dollars)














	 	 	Year Ended December 31,	 
	 	 	2020	 	 	2019	 
	Cash provided by (used in):	 	 	 	 	 	 	 	 
	Operating activities	 	 	 	 	 	 	 	 
	Net loss for the year	 	$	(11,145,306	)	 	$	(4,524,198	)
	 	 	 	 	 	 	 	 	 
	Items not affecting cash:	 	 	 	 	 	 	 	 
	Depreciation	 	 	445,995	 	 	 	528,484	 
	Amortization	 	 	4,813,249	 	 	 	2,973,945	 
	Stock-based compensation (note 11)	 	 	725,316	 	 	 	195,113	 
	(Gain) loss on revaluation of conversion feature liability (note 9 (c))	 	 	1,308,440	 	 	 	(2,330,964	)
	Loss on repayment of long-term debt (note 9)	 	 	1,497,804	 	 	 	–	 
	Accretion and other financing expense (note 9)	 	 	1,216,949	 	 	 	916,734	 
	Interest expense (note 9)	 	 	4,934,517	 	 	 	1,549,904	 
	Income tax expense (recovery) (note 20)	 	 	(944,032	)	 	 	99,155	 
	(Gain) loss on contingent consideration (note 4)	 	 	(946,503	)	 	 	–	 
	Impairment of goodwill and intangibles (note 8)	 	 	2,258,369	 	 	 	–	 
	Other expense (income) (note 23)	 	 	(10,373	)	 	 	761,235	 
	Foreign exchange (gain) loss	 	 	(132,306	)	 	 	217,040	 
	Unrealized foreign exchange loss (gain)	 	 	174,251	 	 	 	(108,018	)
	Changes in non-cash operating working capital (note 13)	 	 	(773,287	)	 	 	(835,831	)
	Cash provided by (used in) operating activities	 	 	3,423,083	 	 	 	(557,401	)
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Purchase of property and equipment 	 	 	(202,297	)	 	 	(92,671	)
	Business acquisitions (note 4)	 	 	(4,411,500	)	 	 	–	 
	Earn out payment (note 4)	 	 	(377,312	)	 	 	–	 
	Development costs related to internally generated intangible assets (note 8)	 	 	(1,642,783	)	 	 	(1,689,711	)
	Change in restricted cash	 	 	(5,299	)	 	 	176	 
	Cash used in investing activities	 	 	(6,639,191	)	 	 	(1,782,206	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Issuance of share capital, net of issuance costs	 	 	13,747,345	 	 	 	–	 
	Proceeds from exercise of stock options (note 10)	 	 	10,568	 	 	 	59,631	 
	Proceeds from exercise of warrants (note 10)	 	 	1,859,963	 	 	 	2,196,277	 
	Proceeds from debt (note 9)	 	 	4,827,175	 	 	 	1,925,000	 
	Repayment of debt (note 9)	 	 	(838,031	)	 	 	(983,479	)
	Repayment of lease obligations (note 19)	 	 	(338,276	)	 	 	(392,969	)
	Payment of interest on debt (note 9)	 	 	(1,052,576	)	 	 	(657,300	)
	Payment of interest on lease obligations (note 19)	 	 	(53,549	)	 	 	(86,470	)
	Cash provided by financing activities	 	 	18,162,619	 	 	 	2,060,690	 
		 	 	 	 	 	 	 	 
	Net increase (decrease) in cash for the year	 	 	14,946,511	 	 	 	(278,917	)
	Cash, beginning of year	 	 	1,707,654	 	 	 	1,922,768	 
	Effect of exchange rate changes on cash	 	 	181,506	 	 	 	63,803	 
	Cash, end of year	 	$	16,835,671	 	 	$	1,707,654	 







 


See accompanying notes to consolidated financial statements.


 












    PAGE 4


     


    

 






 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 


		1.	Nature of operations



 


VIQ Solutions Inc. (“VIQ”
or the “Company”) is a technology and service platform provider for digital evidence capture, retrieval, and content management.
VIQ’s modular software allows customers to easily integrate the platform at any stage of their organization's digitization, from
the capture of digital content from video and audio devices through to online collaboration, mobility, data analytics, and integration
with sensors, facial recognition, speech recognition, and case management or patient record systems. VIQ operates worldwide with a network
of partners including security integrators, audio-video specialists, and hardware and data storage suppliers.


 


The Company also provides recording
and transcription services directly to a variety of clients including medical, courtrooms, legislative assemblies, hearing rooms, inquiries
and quasi-judicial clients in numerous countries including Canada, the United Kingdom, the United States and Australia.


 


VIQ was incorporated by articles of
incorporation in the province of Alberta in November 2004. On June 21, 2017, the Company continued under articles of continuance
in the province of Ontario. The Company’s offices are located at 700 – 5915 Airport Road, Mississauga, Ontario, L4V 1H1. VIQ
is a public Company. Subsequent to yearend, the Company graduated from the Toronto Venture Exchange to the Toronto Stock Exchange. The
Company's common shares began trading on TSX under trading symbol VQS at the market open on January 21, 2021.


 


In December 2019, the Company
completed a 1:20 reverse stock split. The exercise price, conversion price, and the number of common shares issuable under any stock-based
option or convertible securities of the Company were proportionately adjusted upon completion of the reverse stock split. References in
these consolidated financial statements to share amounts, per share data, share prices, exercise prices and conversion prices have been
adjusted to reflect the 1:20 reverse stock split.


 


On January 31, 2020, the Company,
through its US subsidiary VIQ Media Transcription Inc., acquired the assets of ASC Services LLC (“ASC”). On February 26,
2020, the Company through its US subsidiary VIQ Services Inc., acquired the shares of WordZXpressed Inc. (“WordZ”). Refer
to note 4 for details on the acquisition.


 


		2.	Basis of preparation



 


		(a)	Statement of compliance



 


The Company prepares its consolidated
financial statements in accordance with International Financial Reporting Standards (“IFRS”) using the accounting policies
described herein as issued by the International Accounting Standards Board (“IASB”). The preparation of consolidated financial
statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise
judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment and complexity, or areas
where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 3.


 


The accounting policies applied in
these consolidated financial statements are based on IFRS issued as at April 14, 2021, the date the Board of Directors approved the
consolidated financial statements.


 


		(b)	Comparative figures



 


Certain comparative figures have been
adjusted for the year ended December 31, 2019 to reflect the current year’s presentation. The adjustments were not considered
material and did not affect the Company’s consolidated revenue or consolidated net income.


 









    PAGE 5


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		2.	Basis of preparation (continued)



 


		(c)	Basis of measurement



 


The consolidated financial statements
have been prepared under the historical cost convention, except for the revaluation of certain financial assets and financial liabilities
to fair value as noted below. Presentation of the statements of financial position differentiates between current and non-current assets
and liabilities. The statements of loss and comprehensive loss are presented using the function classification of expenses.


 


		(d)	Functional currency, presentation currency and foreign currency translation



 


The functional currency of VIQ Solutions
Inc. is the Canadian dollar (“CAD”). The functional currency of the Company’s subsidiaries are as follows; Dataworxs
Systems Limited – CAD, VIQ Solutions, Inc. – United States dollar (“USD”), VIQ Australia Pty. Ltd –
Australian dollar (“AUD”), Dataworxs Systems Australia Pty. Ltd – AUD, VIQ Solutions PTY Ltd – AUD, Spark &
Cannon Pty – AUD, VIQ Services Inc. – USD, Net Transcripts – USD, Transcription Express – USD, HomeTech –
USD, VIQ Media Transcriptions – USD, and WordZXpressed – Inc. – USD. All financial information is presented in USD unless
otherwise stated.


 


	The exchange rates used were as follows:	 



 


	USD / CAD exchange rate	 	December 31, 2020	 	 	December 31, 2019	 
	Closing at the reporting date	 	 	0.7672	 	 	 	0.7682	 
	Average rate for the period	 	 	0.7480	 	 	 	0.7537	 




 


	USD / AUD exchange rate	 	December 31, 2020	 	 	December 31, 2019	 
	Closing at the reporting date	 	 	0.7311	 	 	 	0.7013	 
	Average rate for the period	 	 	0.6901	 	 	 	0.6954	 



 


The financial results of each subsidiary
consolidated in the Company’s consolidated financial statements are measured using the subsidiary’s functional currency, which
is the currency of the primary economic environment in which the entity operates for each of the Company’s wholly-owned subsidiaries.


 


Foreign currency transactions are translated
into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting
from the settlement of foreign currency transactions and from the translation at period-end exchange rates of monetary assets and liabilities
denominated in currencies other than an operation’s functional currency are recognized in the consolidated statements of loss and
comprehensive loss.


 


The financial statements of entities
that have a functional currency different from the presentation currency of USD are translated into USD as follows: assets and liabilities
at the closing rate at the date of the balance sheet, and income and expenses at the average rate of the period as this is considered
a reasonable approximation to actual rates. All resulting changes are recognized in other comprehensive income (loss) as translation adjustments.


 


The Company has monetary items that
are receivable from foreign operations. A monetary item for which settlement is neither planned nor likely to occur in the foreseeable
future is, in substance, a part of the parent company’s net investment in that foreign operation. Such exchange differences are
recognized initially in other comprehensive income and reclassified from equity to net loss on disposal of the net investment in foreign
operations.


 


		(e)	Use of estimates and judgements



 


The preparation of consolidated financial
statements in accordance with IFRS requires management to make estimates and assumptions that affect the application of the Company’s
accounting policies and the amounts reported in the consolidated


 







    PAGE 6


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		2.	Basis of preparation (continued)



 


		(e)	Use of estimates and judgements (continued)



 


financial statements and the related
notes. These estimates are based on management’s best knowledge of current events and actions that the Company may undertake in
the future. These estimates have been applied in a manner consistent with that in prior periods and there are no known trends, commitments,
events or uncertainties that the Company believes will materially affect the assumptions utilized in these consolidated financial statements.
Estimates and underlying assumptions are reviewed on an ongoing basis and revisions to estimates are recognized prospectively. The estimates
are impacted by many factors, some of which are highly uncertain and actual results may differ from those estimates.


 


The continuing uncertainty around the
outbreak of the novel coronavirus (“COVID-19”) pandemic required the use of judgments and estimates in the preparation of
the consolidated financial statements for the year ended December 31, 2020. The future impact of COVID-19 uncertainties could generate,
in future reporting periods, a significant impact to the reported amounts of assets, liabilities, revenue and expenses in these and any
future consolidated financial statements. Examples of accounting estimates and judgments that may be impacted by the pandemic include,
but are not limited to, impairment of goodwill and intangible assets and allowance for doubtful accounts.


 


The areas with significant judgements
and estimates are as follows:


 


		·	Stock-based compensation – Management uses judgment to determine the inputs to the Black-Scholes option pricing model
including the expected option life, and forfeiture rates. Changes in these assumptions will impact the calculation of fair value and the
amount of compensation expense recognized in the consolidated statements of loss and comprehensive loss.



 


		·	Warrants – Similar to other stock-based compensation, management uses judgment to determine the inputs to the Black-Scholes
option pricing model including the expected life. Changes in these assumptions will impact the calculation of fair value and the value
attributed to the warrants.



 


		·	Internally generated development costs – Management monitors the progress of internal research and development projects
and uses judgment to distinguish research from the development phase. Expenditures during the research phase are expensed as incurred.
Development costs are recognized as an intangible asset when the Company can demonstrate certain criteria in accordance with IAS 38, Intangible
Assets.



 


		·	Functional currency – The functional currency of the Company and its subsidiaries has been assessed by management based
on consideration of the currency and economic factors that mainly influence revenues, operating costs, financing and related transactions.
Changes to these factors may have an impact on the judgment applied in the future determination of the Company’s and its subsidiaries’
functional currency.



 


		·	Income taxes – At the end of each reporting period, the Company assesses whether the realization of deferred tax benefits
is sufficiently probable to recognize deferred tax assets. This assessment requires the exercise of judgment on the part of management
with respect to, among other things, benefits that could be realized from available income tax strategies and future taxable income, as
well as other positive and negative factors. The recorded amount of total deferred tax assets could be reduced if estimates of projected
future taxable income and benefits from available income tax strategies are lowered, or if changes in current income tax regulations are
enacted that impose restrictions on the timing or extent of the Company’s ability to utilize deferred tax benefits. The Company’s
effective income tax rate can vary significantly quarter-to-quarter for various reasons, including the mix and volume of business in lower
income tax jurisdictions and in jurisdictions for which no deferred income tax assets have been recognized because management believed
it was not probable that future taxable profit would be available against which income tax losses and deductible temporary differences
could be utilized. The Company’s effective income tax rate can also vary due to the impact of foreign exchange fluctuations.



 


		·	Allocation of the transaction price to multiple performance obligations in contracts with customers - Contracts with customers
sometimes include promises to deliver multiple products and services. Determining whether such bundled products and services are considered
i) distinct performance obligations that should be separately recognized, or ii) non-distinct and therefore should be combined with another
good or service and recognized as a combined unit of accounting may require judgment. The determination of the standalone selling price
("SSP") for distinct



 







    PAGE 7


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		2.	Basis of preparation (continued)



 


		(e)	Use of estimates and judgements (continued)



 


SSP when it sells each of the products
and services separately and needs to determine whether there is a discount that needs to be allocated based on the relative SSP of the
various products and services. In general, SSP for support and maintenance is established as a percentage of the software license fee
as supported by internal analysis of similar vendor contracts. SSP for licenses as well as for professional services is established based
on observable prices for the same or similar services when sold separately. Management exercises judgment in determining whether a contract's
outcome can be estimated reliably. Management also applies estimates in the calculation of future contract costs and related profitability
as it relates to labour hours and other considerations, which are used in determining the value of amounts recoverable on contracts and
timing of revenue recognition. Estimates are continually and routinely revised based on changes in the facts relating to each contract.


 


		·	Allowance for doubtful accounts - The Company performs impairment testing annually for accounts receivable in accordance with
IFRS 9. The expected credit loss (“ECL”) model requires judgment, including consideration of how changes in economic factors
affect ECLs, which are determined on a probability-weighted basis. The Company applies the simplified approach to determine ECLs on trade
receivables by using a provision matrix based on historical credit loss experiences. The historical results were used to calculate the
run rates of default which were then applied over the expected life of the trade receivables, adjusted for forward looking estimates.



 


		·	Goodwill impairment testing and recoverability of assets – Goodwill and indefinite-life intangible assets are reviewed
annually for impairment, or more frequently when there are indicators that impairment may have occurred, by comparing the carrying value
of the asset, or the cash-generating unit (“CGU”) reflecting the lowest level at which assets generate independence cash flows,
to the asset or CGU’s recoverable amount. Management uses judgment in estimating the recoverable values of the Company's CGUs and
uses internally developed valuation models that consider various factors and assumptions including forecasted cash flows, revenue growth
rates, earnings margins, and discount rates. The use of different assumptions and estimates could influence the determination of the existence
of impairment and the valuation of goodwill and indefinite-life intangibles. The recoverable amount of the CGUs are estimated based on
the assessment of the higher of their value in use using a discounted cash flow approach and fair value less cost to sell.



 


		·	Purchase price allocation – In a business combination, all identifiable assets acquired and liabilities and contingent
liabilities assumed are recorded at their fair values. For any intangible asset acquired, management, or where the complexity of the estimate
requires, an independent valuation expert at the direction of management, develop the fair value, using appropriate valuation techniques,
which are generally based on a forecast of the revenue attributable to the acquired business, annual customer attrition rates and royalty
rates, earnings before interest, taxes, depreciation and amortization and discount rates. The valuations are linked closely to the assumptions
made by management regarding the future performance of the assets concerned and any changes in the discount rate applied. All acquisitions
have been accounted for using the acquisition method. Certain fair values may be estimated at the acquisition date pending confirmation
or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted
retrospectively in subsequent periods. However, the measurement period will last no greater than one year from the acquisition date.



 


		·	Contingent consideration - The Company measures the contingent consideration payable in a business combination at the estimated
fair value at each reporting date. The fair value is estimated based on the range of possible outcomes and Management’s assessment
of the likelihood of each outcome.



 


		·	Incremental borrowing rate used to discount leases – The Company’s incremental borrowing rate is used to estimate
the initial value of the lease liability and associated right of use asset. The Company’s incremental borrowing rate is determined
with reference to the Company’s long-term debt which represents the amount that the Company could borrow at within a similar time
frame.



 







    PAGE 8


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		3.	Significant accounting policies



 


		i)	Significant accounting policies



 


Basis of consolidation


 


The consolidated financial statements
of the Company include the accounts of VIQ and the consolidated accounts of all of its wholly-owned subsidiaries including (i) the
operations of VIQ Solutions, Inc. (formerly VIQ Solutions (U.S.) Inc.); (ii) the operations of Dataworxs Systems Limited and
its wholly-owned subsidiary Dataworxs Australia Pty Ltd. (collectively, “Dataworxs”); (iii) the operations of VIQ Australia
Pty. Limited and its wholly-owned subsidiaries VIQ Solutions Pty. Ltd. and Spark & Cannon Pty. Ltd. (collectively, “VIQ
Solutions PTY”), and; (iv) the operations of VIQ Services Inc. and its wholly owned subsidiaries, Net Transcripts, Inc.,
Transcription Express, Inc., HomeTech, Inc., VIQ Media Transcription Inc., and wordZXpressed, Inc.


 


Subsidiaries are entities controlled
by the Company where control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits
from its activities. Subsidiaries are included in the consolidated financial statements from the date control is obtained until the date
control ceases. All intercompany balances, transactions, income and expenses have been eliminated on consolidation.


 


Inventories


 


Inventories of finished goods and raw materials and supplies
are valued at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of
business less any applicable selling expenses. Cost is determined on a weighted average basis. Reversals of previous write-downs to net
realizable value are recognized when there is a subsequent increase in the value of inventories.


 


Restricted cash


 


Restricted cash is recorded at fair value. Changes to fair
value are recorded in the consolidated statements of loss and comprehensive loss in the period incurred. Restricted cash is required to
satisfy operating lease requirements.


 


Property and equipment


 


Property and equipment are recorded
at cost less accumulated depreciation and accumulated impairment losses. Rates and basis of depreciation applied to write off the cost
of property and equipment to their residual values over their estimated useful lives are as follows:


 


	Furniture and fixtures	8%–20% declining balance
	Computer and transcription equipment	20%–50% declining balance, 33%–50% straight line 
	Leasehold improvements	Over the term of the lease



 


An asset’s residual value, useful
life and depreciation method are reviewed, and adjusted prospectively if appropriate, on an annual basis. Repairs and maintenance costs
are charged to the consolidated statements of loss and comprehensive loss during the period which they are incurred. Gains and losses
on disposals of property and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included
as part of selling and administrative expenses in the consolidated statements of loss and comprehensive loss.


 


Intangible assets


 


Intangible assets with infinite lives
that are acquired separately are measured at fair value. Intangible assets with finite lives that are acquired separately are measured
on initial recognition at fair value, which comprises its purchase price plus any directly attributable costs of preparing the asset for
its intended use.


 


Our acquired intangible assets consist
of customer relationships, acquired technology, non-compete agreements and brands acquired in business combinations. These intangible
assets are recorded at their fair value at the respective acquisition date. We use the income approach as a valuation technique that calculates
the fair value of an intangible asset based on the present value of future cash flows that the asset can be expected to generate over
its remaining useful life. The discounted cash flow (“DCF”) is the methodology used, which is a form of the income approach
that begins with a forecast of the annual cash flows a market participant would expect the subject intangible asset to generate over a
discrete projection period. The future cash flow for each


 







    PAGE 9


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		3.	Significant accounting policies (continued)



 


		i)	Significant accounting policies (continued)



 


of the years in the discrete projection
period are then converted to their present value equivalent using a rate of return appropriate for the risk of achieving the intangible
assets’ projected cash flows, again, from a market participant perspective. The Company relies on the relief-from-royalty method
to value the acquired technology and brand and the Multi-Period Excess Earnings of (“MEEM”)
method to value customer relationship assets. After initial recognition,
intangible assets are measured at cost less accumulated amortization and impairment losses.


 


The estimated useful lives at acquisition date for the Company’s
classes of intangible assets are as follows:


 


	Acquired Technology	5 years
	Customer Relationships	4.8 – 7.8 years
	Brands	4.8 years to indefinite
	Non-Compete agreements	Term of agreement



 


The estimated useful life and amortization methods are reviewed
annually, with the effect of any change in estimate being accounted for on a prospective basis. These assets are subject to an impairment
test as described below.


 


Our internally generated intangible
assets consist of developed technologies. The Company incurs costs associated with the design and development of new products. Expenditures
during the research phase are expensed as incurred. Expenditures during the development phase are capitalized if the Company can demonstrate
each of the following criteria: (i) the technical feasibility of completing the intangible asset so that it will be available for
use or sale, (ii) its intention to complete the intangible asset and use or sell it, (iii) its ability to use or sell the intangible
asset, (iv) how the intangible asset will generate probable future economic benefits, (v) the availability of adequate technical,
financial and other resources to complete the development and to use or sell the intangible asset, and (vi) its ability to measure
reliably the expenditure attributable to the intangible asset during its development; otherwise, they are expensed as incurred. Costs
associated with maintaining computer software programs are recognized as an expense as incurred. Internally generated software development
costs recognized as intangible assets are carried at cost less any accumulated amortization on a straight- line basis over 3 years after
they are completed. These assets are subject to an impairment test as described below.


 


Business combinations


 


IFRS 3, Business Combinations (“IFRS
3”), requires business combinations to be accounted using the acquisition method. Under this method, the cost of an acquisition
is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling
interest in the acquiree.


 


When the Company acquires a business,
it assesses the financial assets and liabilities assumed for appropriate classification and designation based on the facts and circumstances
at the acquisition date. Business acquisition costs incurred are expensed and included in transaction costs. Measurement period adjustments
are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year
from the acquisition date) about facts and circumstances that existed at the acquisition date. The excess of (i) the consideration
transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest
in the acquiree over the (ii) fair value of the net identifiable assets acquired is recorded as goodwill.


 


Goodwill arising on an acquisition
of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Group’s CGUs that is expected to benefit from the synergies
of the combination.


 


A CGU to which goodwill has been allocated
is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. If the recoverable amount
of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated
to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss
for goodwill is recognized directly in the consolidated statements of loss and comprehensive loss. An impairment loss recognized for goodwill
is not reversed in subsequent periods.


 







    PAGE 10


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		3.	Significant accounting policies (continued)



 


		i)	Significant accounting policies (continued)



 


On disposal of the relevant CGU, the
attributable amount of goodwill is included in the determination of the profit or loss on disposal. Determining whether goodwill is impaired
requires an estimation of the higher of fair value less costs of disposal and value in use of the CGUs which goodwill has been allocated.
The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit and
a suitable discount rate in order to calculate present value.


 


Capital stock


 


Common shares are classified as equity.
Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. The proceeds from the issuance
of units (shares and warrants) is bifurcated between capital stock and warrants, with the value of the warrants determined using the Black-Scholes
option pricing model.


 


Financial instruments


 


Financial assets


 


Recognition and initial measurement


 


The Company recognizes financial assets
when it becomes party to the contractual provisions of the instrument. Financial assets are measured initially at their fair value plus,
in the case of financial assets not subsequently measured at fair value through profit or loss, transaction costs that are directly attributable
to their acquisition. Transaction costs attributable to the acquisition of financial assets subsequently measured at fair value through
profit or loss are expensed in the consolidated statements of loss and comprehensive loss when incurred.


 


Classification and subsequent measurement


 


On initial recognition, financial assets
are classified as subsequently measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair
value through profit or loss (“FVTPL”). The Company determines the classification of its financial assets, together with any
embedded derivatives, based on the business model for managing the financial assets and their contractual cash flow characteristics.


 


Financial assets are classified as
follows:


 


		·	Amortized cost - Assets that are held for collection of contractual cash flows where those cash flows
are solely payments of principal and interest are measured at amortized cost. Interest revenue is calculated using the effective interest
method and gains or losses arising from impairment, foreign exchange and derecognition are recognized in the consolidated statements of
loss and comprehensive loss. Financial assets measured at amortized cost are comprised of trade receivables.



 


		·	Fair value through other comprehensive income (FVOCI) - Assets that are held for collection of contractual
cash flows and for selling the financial assets, and for which the contractual cash flows are solely payments of principal and interest,
are measured at fair value through other comprehensive income. Interest income calculated using the effective interest method and gains
or losses arising from impairment and foreign exchange are recognized in the consolidated statements of loss and comprehensive loss. All
other changes in the carrying amount of the financial assets are recognized in other comprehensive income. Upon derecognition, the cumulative
gain or loss previously recognized in other comprehensive income is reclassified to net loss. The Company does not hold any financial
assets measured at fair value through other comprehensive income.



 


		·	Mandatorily at fair value through profit or loss (FVTPL) - Assets that do not meet the criteria to be
measured at amortized cost or fair value through other comprehensive income are measured at fair value through profit or loss. All interest
income



 







    PAGE 11


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		3.	Significant accounting policies (continued)



 


		(i)	Significant accounting policies (continued)



 


and changes in the financial assets’ carrying amount
are recognized in profit or loss. Financial assets mandatorily measured at fair value through profit or loss are comprised of cash and
cash equivalents.


 


		·	Designated at FVTPL – On initial recognition, the Company may irrevocably designate a financial
asset to be measured at fair value through profit or loss in order to eliminate or significantly reduce an accounting mismatch that would
otherwise arise from measuring assets or liabilities, or recognizing the gains and losses on them, on different bases. All interest income
and changes in the financial assets’ carrying amount are recognized in the consolidated statements of loss and comprehensive loss.
The Company does not hold any financial assets designated to be measured at fair value through profit or loss.



 


Business model assessment


 


The Company assesses the objective
of its business model for holding a financial asset at a level of aggregation which best reflects the way the business is managed, and
information is provided to management. Information considered in this assessment includes stated policies and objectives.


 


Contractual cash flow assessment


 


The cash flows of financial assets
are assessed as to whether they are solely payments of principal and interest on the basis of their contractual terms. For this purpose,
 ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined
as consideration for the time value of money, the credit risk associated with the principal amount outstanding, and other basic lending
risks and costs. In performing this assessment, the Company considers factors that would alter the timing and amount of cash flows such
as prepayment and extension features, terms that might limit the Company’s claim to cash flows, and any features that modify consideration
for the time value of money.


 


The Company measures all equity investments
at fair value. Changes in fair value are recorded in the consolidated statements of loss and comprehensive loss. The entity does not hold
any equity investments.


 


Impairment of financial assets


 


The Company recognizes a loss allowance
for the expected credit losses associated with its financial assets, other than financial assets measured at fair value through profit
or loss. Expected credit losses are measured to reflect a probability-weighted amount, the time value of money, and reasonable and supportable
information regarding past events, current conditions and forecasts of future economic conditions.


 


The Company applies the simplified
approach for trade receivables. Using the simplified approach, the Company records a loss allowance equal to the expected credit losses
resulting from all possible default events over the assets’ contractual lifetime.


 


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


 


For financial assets measured at amortized
cost, loss allowances for expected credit losses are presented in the consolidated balance sheet as a deduction from the gross carrying
amount of the financial asset.


 


Financial assets are written off when
the Company has no reasonable expectations of recovering all or any portion thereof.


 







    PAGE 12


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		3.	Significant accounting policies (continued)



 


		(i)	Significant accounting policies (continued)



 


Financial liabilities


 


Recognition and initial measurement


 


The Company recognizes a financial
liability when it becomes party to the contractual provisions of the instrument. At initial recognition, the Company measures financial
liabilities at their fair value plus transaction costs that are directly attributable to their issuance, with the exception of financial
liabilities subsequently measured at fair value through profit or loss for which transaction costs are immediately recorded in the consolidated
statements of loss and comprehensive loss.


 


Where an instrument contains both a
liability and equity component, these components are recognized separately based on the substance of the instrument, with the liability
component measured initially at fair value and the equity component assigned the residual amount.


 


Classification and subsequent measurement


 


Subsequent to initial recognition,
all financial liabilities are measured at amortized cost using the effective interest rate method. Interest, gains and losses relating
to a financial liability are recognized in profit or loss.


 


The standard contains three classifications
categories for financial assets: measured at amortized cost, FVOCI and FVTPL. The classification for each class of the Company’s
financial assets and financial liabilities is as follows:


 


	Financial assets and liabilities	 	IFRS 9 Classification
	Cash and restricted cash	 	FVTPL
	Trade and other receivables	 	Amortized cost
	Trade and other payables	 	Amortized cost
	Long-term debt	 	Amortized cost
	Convertible note	 	Amortized cost
	Share appreciation rights plan obligations	 	FVTPL
	Conversion feature derivative liability	 	FVTPL




 


Compound financial instruments


 


Convertible notes issued with warrants
are evaluated whether any embedded derivatives need to be separated from the host instrument. In accordance with IAS 32.31 for compound
financial instruments, because equity instruments are defined as contracts evidencing a residual interest in the assets of an entity after
deducting all of its liabilities, the warrants are assigned the residual amount of the consideration after deducting the fair value of
the liability components and are subsequently carried at historical cost. The liability components represent the host debt and the embedded
conversion feature.


 


The embedded derivative conversion option is separated from
its host contract on the basis of its stated terms and initially measured at fair value using the Black-Scholes model, with the host debt
contract being the residual amount after separation. Subsequently, the loan payable component is measured at amortized cost using the
effective interest method over the term of the loan. The loan component is accreted to the face value by recording accretion expense.
The values of the conversion feature is re-measured at each reporting date until settlement, with changes in the fair value recorded in
the consolidated statements of loss and comprehensive loss.


 


Unit issuances comprising of one common
share and one-half warrant share are segregated between the capital stock and warrant value components at the date of issue. The fair
value of the capital stock component is calculated using the share price at the date of the issuance. The fair value of the warrants is
calculated using the Black Scholes pricing model. Amounts allocated to each component are allocated using the relative fair value basis.


 







    PAGE 13


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



		3.	Significant accounting policies (continued)



 


		(i)	Significant accounting policies (continued)



 


Leases


 


In accordance with IFRS 16, Leases
(“IRS 16”), at inception of a contract, the Company assesses whether the contract is or contains a lease based on
whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is
initially measured at cost, based on the initial amount of the lease liability. The assets are depreciated to the earlier of the end
of the useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the
expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if
the Company is reasonably certain to exercise that option. In addition, the right-of-use asset is periodically adjusted for certain
remeasurements of the lease liability.


 


The lease liability is initially measured
at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in
the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. The lease liability is measured at
amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments, if there is a change
in the Company's estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment
of whether it will exercise a purchase, extension or termination option.


 


When the lease liability is remeasured
in this way, a corresponding adjustment is made to the carrying amount of the right- of-use asset, or is recorded in profit or loss if
the carrying amount of the right-of-use asset has been reduced to zero.


 


The Right-of-use assets and lease obligations
of $1,072,426 were recorded on January 1, 2019, no net impact on deficit. When measuring lease liabilities, the Company discounted
lease payments using its incremental borrowing rate of 10% at January 1, 2019. The Company has elected to apply the practical expedient
to account for leases for which the lease term ends within 12 months of the date of initial application as short-term leases. The Company
has elected to apply the practical expedient to grandfather the assessment of which transactions are leases on the date of initial application,
as previously assessed under IAS 17 and IFRIC 4. The Company applied the definition of a lease under IFRS 16 to contracts entered into
or changed on or after January 1, 2019.


 


Impairment of property and equipment,
definite life intangibles, indefinite life intangibles and goodwill


 


For purposes of assessing impairment
under IFRS, assets are grouped in CGUs, the lowest levels for which there are largely independent cash inflows. The Company has eight
CGUs, which consist of VIQ Solutions PTY Ltd, Dataworxs, Net Transcripts, Transcription Express, HomeTech, wordZXpressed, VIQ Media Transcription
and VIQ Solutions Inc. and the CGUs are tested for impairment at least annually. All other long-lived assets and finite life intangible
assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.


 


An impairment loss is recognized for
the amount by which the asset’s or CGU’s carrying amount exceeds its recoverable amount, which is the higher of fair value
less costs to sell or value-in-use. To determine the value-in-use, management estimates expected future cash flows from the cash-generating
unit and determines a suitable pre-tax discount rate in 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 rates have been determined for each of the CGUs
and reflect their respective risk profile as assessed by management. Impairment losses for the CGUs reduce first the carrying amount of
any goodwill allocated to that CGU, with any remaining impairment loss charged pro rata to the other assets in the CGU.


 


With the exception of goodwill, all assets
are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An
impairment charge is reversed if the assets’ recoverable amount exceeds its carrying amount only to the extent that the new
carrying amount does not exceed the carrying value of the asset had it not originally been impaired.


 







    PAGE 14


     


    

 



 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)





 


	3.	Significant accounting policies (continued)



 


	(i)	Significant accounting policies (continued)



  


Property and equipment and definite
life intangibles are tested for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
For the purpose of measuring recoverable values, assets are grouped at the lowest levels for which there are separately identifiable cash
flows, which are its CGUs. The recoverable value is the higher of an asset’s fair value less costs of disposal and value in use
(being the present value of the expected future cash flows of the relevant asset or CGU). In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risk specific to the asset. An impairment loss is recognized for the value by which the asset’s carrying value
exceeds its recoverable value.


 


Revenue recognition


 


Revenue represents the amount of consideration the Company
expects to receive for the delivery of products and services in its contracts with customers, net of discounts and sales taxes. The Company
reports revenue mainly under seven revenue categories being, Technology services, Software license, Support and maintenance, SaaS, Professional
services, and Hardware and other.


 


Revenue is recognized upon transfer of control of products
or services to customers at an amount that reflects the transaction price the Company expects to receive in exchange for the products
or services. The Company’s contracts with customers often include the delivery of multiple products and services, which are generally
capable of being distinct and accounted for as separate performance obligations. The accounting for a contract or contracts with a customer
that contain multiple performance obligations requires the Company to allocate the contract or contracts’ transaction price to the
identified distinct performance obligations.


 


Technology services revenue consists
of fees charged for recurring services provided to our customers. Technology service revenue is recognized when the service is delivered
to the customer. The Company has select customers where a flat rate is charged and revenue is recognized on a monthly basis.


 


Software license revenue is comprised of non-recurring license
fees charged for the use of our software products generally licensed under perpetual arrangements and to a lesser extent sale of third
- party license software. The Company sells on- premise software licenses on a perpetual basis. On-premise software licenses are bundled
with software maintenance and support services for a term. The license component and maintenance and support components are each allocated
revenue using their relative estimated SSP. Revenue from the license of distinct software is recognized at the time that both the right-
to-use the software has commenced and the software has been made available to the customer.


 


Support and maintenance and other recurring revenue primarily
consist of fees charged for customer support on our software products post-delivery. Certain of the Company’s contracts with customers
contain provisions that require the customer to agree to first year support and maintenance in order to maintain the active right to use
a perpetual license. Support and maintenance and other recurring revenue primarily consists of fees charged for customer support on software
products post- delivery.


 


Revenue from software-as-a-service (SaaS) arrangements,
which allows customers to use hosted software over a term without taking possession of the software, are provided on a subscription basis.
Revenue from the SaaS arrangement, which includes the hosted software and maintenance is recognized ratably over the term of the subscription.


 










    PAGE 15


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)







 


	3.	Significant accounting policies (continued)



 


	(i)	Significant accounting policies (continued)



 


Professional service revenue consists of fees charged for
customization, implementation, integration, training and ongoing services associated with our software products and technology services.
Professional services are typically billed on a time and material basis and revenue is recognized over time as the services are performed.
For professional services contracts billed on a fixed price basis, revenue is recognized over time based on the proportion of services
performed.


 


Hardware revenue include the resale of third party hardware
that forms part of the overall customer solutions. Hardware revenue is recognized when the goods are shipped and received by the customer.


 


Cost of sales


Cost of sales for the computer products
and services business segment includes the cost of finished goods inventory, costs related to shipping and handling and expenses relating
to software support services. Cost of sales for the transcription business segments includes production wages and other associated costs.


 


Income taxes


The income tax provision comprises
current and deferred tax. Income tax is recognized in the consolidated statements of loss and comprehensive loss except to the extent
that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.


 


Current tax is the expected tax payable
on the taxable income for the year, using tax rates enacted, or substantively enacted, at the end of the reporting period, and any adjustment
to tax payable in respect of previous years.


 


Deferred tax is determined on a non-discounted
basis using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period and are expected to
apply when the asset is realized or liability is settled. Deferred tax assets are recognized for deductible temporary differences, unused
tax losses and other income tax deductions to the extent that it is probable the Company will have taxable income against which those
deductible temporary differences, unused tax losses and other income tax deductions can be utilized. The extent to which deductible temporary
differences, unused tax losses and other income tax deductions are expected to be realized is reassessed at the end of each reporting
period.


 


In a business combination, temporary
differences arise as a result of differences in the fair values of identifiable assets and liabilities acquired and their respective tax
bases. Deferred tax assets and liabilities are recognized for the tax effects of these differences. Deferred tax assets and liabilities
are not recognized for temporary differences arising from goodwill or from the initial recognition of assets and liabilities acquired
in a transaction other than a business combination which do not affect either accounting or taxable income or loss.


 


Net loss per common share


Basic net loss per common share is
calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per
common share is calculated by dividing the applicable net loss by the sum of the weighted average number of common shares outstanding
and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the period.
The dilutive effect of outstanding stock options and warrants on earnings per share is calculated by determining the proceeds for the
exercise of such securities which are then assumed to be used to purchase common shares of the Company.


 


Stock-based compensation


The Company has a stock option plan for
directors, officers and employees, a deferred share unit (“DSU”) plan for directors and a share appreciation rights (“SAR”)
plan for directors, officers, employees, and consultants. Each tranche in an award is considered a separate award with its own vesting
period and grant date fair value. Other than the DSU grants, the fair value of each tranche is measured at the date of grant using the
Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period, based on the number of
awards expected to vest, with the offset credited to contributed surplus, and share appreciation rights plan obligations. Forfeitures
are estimated at the grant date and are revised to reflect changes in actual forfeitures. The number of awards
expected to vest is reviewed quarterly, with any impact being recognized immediately. When options are exercised the amount received is
credited to capital stock and the fair value attributed to these options is transferred from contributed surplus to capital stock. As
the SAR is a cash-settled plan, the fair value is recognized as a liability in the consolidated balance sheet and is re-measured each
period using the Black- Scholes options pricing model and charged to the consolidated statements of loss and comprehensive loss at each
reporting date until the award is settled.


 









    PAGE 16


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)






 


	3.	Significant accounting policies (continued)



 


	(i)	Significant accounting policies (continued)



 


The holder of the DSU will only be able to redeem the DSUs
in shares upon cessation of their service with the Company, therefore, the Company records DSUs as equity. Grants of DSUs are recorded
at fair value in selling and administration expense at the time of grant. The quoted market price of the underlying shares on the grant
date is considered to be equivalent to fair value for the DSUs. The charge to equity for DSUs is not updated to fair value at each subsequent
reporting period. Upon settlement, the amount recognized in contributed surplus for the award is reclassified to share capital, with any
premium or discount applied to deficit.


 


Government assistance:


 


The Company recognizes government grants
when there is reasonable assurance that the grant will be received, and any conditions associated with the grant have been met. Grants
that compensate the Company for expenses incurred are recognized in the consolidated statement of loss and comprehensive loss as a reduction
of the related expenses in the period in which they are earned, provided the conditions for receiving the grant are met in that period.


 


Research and development credits


Investment tax credits are accrued
when qualifying expenditures are incurred and there is reasonable assurance that the credits will be realized. Investment tax credits
earned with respect to current expenditures for qualified research and development activities are included in the consolidated statements
of loss and comprehensive loss as a reduction of expenses. Investment tax credits associated with capital expenditures are reflected as
reductions in the carrying amounts of capital assets.


 


Comprehensive loss


Comprehensive loss consists of net
loss and other comprehensive income (loss). Other comprehensive income (loss) represents changes in shareholders’ equity and includes
foreign exchange gains and losses on the translation of the financial statements of the Company’s foreign operations into its presentation
currency and is presented as accumulated other comprehensive income (loss) on the consolidated balance sheet. The Company’s net
loss per share presented on the consolidated statements of loss and comprehensive loss is based upon its net loss and not its comprehensive
loss.


 


	(ii)	Accounting standards and amendments adopted



 


The International Accounting Standards
Board (“IASB”) has issued the following accounting standards which has been adopted by the Company:


 


Amendment to IFRS 3 – Business
Combinations


On October 22, 2018, the IASB
issued Definition of a Business (Amendments to IFRS 3: Business Combinations). The amendments to IFRS 3 are applicable for acquisitions
occurring on or after January 1, 2020 and are adopted prospectively. These amendments to the implementation guidance of IFRS 3 clarify
the definition of a business to assist entities to determine whether a transaction should be accounted for as a business combination or
an asset acquisition. The amendments to IFRS 3 – Business Combinations may affect whether future acquisitions are accounted for
as business combinations or asset acquisitions, along with the resulting allocation of the purchase price between the net identifiable
assets acquired and goodwill. The Company has adopted the amendment as of January 1, 2020.


 









    PAGE 17


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)






 


	4.	Acquisitions



 


On January 31, 2020, the Company
through its US subsidiary, VIQ Media Transcription Inc., acquired 100% of the assets of ASC. ASC was a provider of transcription services
focused on the multi-speaker transcription market, serving both government and public ‘content creation space’ and complements
the Company’s transcription services business. The purchase price paid for the ASC acquisition was $5,175,096, with $3,136,500 paid
in cash on closing and an estimated $2,038,596 to be paid as contingent consideration via a performance-based earn-out payable quarterly
over 30 months. With respect to the contingent consideration, the Company has agreed to make quarterly payments to the sellers between
July 15, 2020 and April 15, 2023 based on the achievement of quarterly revenue targets as defined in the purchase agreement.
At the date of acquisition, contingent consideration was measured on a discounted cash flow basis, reflecting the present value of undiscounted
expected future payments of $2,948,083 which is the expected payout based on forecast revenues at that date, discounted using a risk-
adjusted discount rate of 20.6 percent. The expected cash flows, which can range between $nil and $3,095,487, and the risk- adjusted discount
rate are each significant unobservable inputs in the determination of contingent consideration.


 


As at the acquisition date, the presence
of goodwill in the ASC acquisition was supported by the following factors: a long history of profitable operations, a positive reputation
in the marketplace, including providing services to a significant financial data technology company, which was a useful credentialing
tool for sales to new customers; the expectation that ASC could earn higher than typical operating margins for several years in the future
due to the specialized nature of the services offered, while also considering there could be erosion of margins over time due to eventual
competitive pressures; the potential for growth at the valuation date, including the potential to expand market share through acquiring
new customers or by participating in new market segments. The deal provided VIQ with access to a new industry (media) to market their
service offering, and this market was considered to have limited competition at the acquisition date and to provide an opportunity for
premium pricing; and, the acquisition provided access to an assembled skilled workforce.


 


On February 26, 2020, the
Company through its US subsidiary VIQ Services Inc., acquired 100% of the shares of WordZ. WordZ was a provider of English
transcription services to medical service providers and to insurance companies in the USA and complements the Company’s
transcription services business. The purchase price paid for the WordZ acquisition was $3,861,347, with $1,275,000 paid in cash on
closing, $1,200,000 paid via a promissory note payable quarterly over 36 months, recorded at the discounted value of $914,677, and
an estimated $1,671,670 to be paid as contingent consideration via a performance-based earnout payable quarterly over 36 months. The
Company has agreed to make quarterly payments to the sellers between October 1, 2020 and July 1, 2023 based on the
achievement of quarterly revenue targets as defined in the purchase agreement. At the date of acquisition, contingent consideration
is measured on a discounted cash flow basis, reflecting the present value of undiscounted expected future payments of $2,175,231,
which is the expected payout based on forecast revenues, discounted using a risk-adjusted discount rate of 16.1 percent. The
expected cash flows, which can range between $nil and $2,338,373, and the risk-adjusted discount rate are each significant
unobservable inputs in the determination of contingent consideration.


 


As at the acquisition date, the presence
of goodwill in the WordZ acquisition was supported by the following factors: a long history of operations; a positive reputation in the
marketplace, including being a leading provider of transcription services in insurance and law enforcement, providing services across
the USA. The customer base acquired included a large national Insurance company, which was a useful credentialing tool for sales to new
customers; there was potential for continued growth at the valuation date, including the potential to acquire new customers or by participating
in new market segments. The acquisition included the acquisition of medical customers. While there were competitive pressures in the medical
transcription industry at the acquisition date, management considered certain geographic segments and sub-markets (such as midwifery and
child protective services) to present opportunities for growth, and considered that the company’s experience with medical customers
could provide access to profitable growth in certain markets; the potential for achieving operating margin efficiencies resulting in operating
margins that might also be achieved by other larger entities operating in this or similar process/document management industries; and,
the acquisition provided access to an assembled skilled workforce. As at December 31, 2020, as a result of an unexpected downturn
in the acquired business, the Company recognized an impairment charge on goodwill for WordZ of 1,453,832 (2019 – nil) (note 8).


 


The acquisitions completed during the
year ended December 31, 2020 were each determined to be a business combination and were accounted for using the acquisition method
in accordance with IFRS 3 with the results of operations consolidated with those of the Company effective January 31, 2020 for ASC
and February 26, 2020 for WordZ.


 










    PAGE 18


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)






 


	4.	Acquisitions (continued)



 


During the year ended December 31,
2020, the Company incurred $19,058 in business acquisition costs related to the acquisitions which have been expensed and recorded as
business acquisitions costs in the consolidated statements of loss and comprehensive loss (December 31, 2019 - $484,387).


 


The total consideration for the acquisitions
and the purchase price allocation is as follows:


 


	 	 	Measurement	 
	 	 	ASC	 	 	WordZ	 
	Consideration	 	 	 	 	 	 	 	 
	Cash	 	$	3,136,500	 	 	$	1,275,000	 
	Promissory note	 	 	–	 	 	 	914,677	 
	Contingent consideration	 	 	2,038,596	 	 	 	1,671,670	 
	Total Consideration	 	$	5,175,096	 	 	$	3,861,347	 
	 	 	 	 	 	 	 	 	 
	Identifiable
assets acquired and liabilities assumed
	 	 	 	 	 	 	 	 
	Net tangible assets acquired (liabilities assumed)	 	 	(869,706	)	 	 	(72,485	)
	Customer relationships (note 8)	 	 	2,880,000	 	 	 	2,220,000	 
	Non-compete (note 8)	 	 	–	 	 	 	70,000	 
	Brand (note 8)	 	 	550,000	 	 	 	190,000	 
	Goodwill	 	$	2,614,802	 	 	$	1,453,832	 



 


During the year ended December 31,
2020, the contingent consideration of WordZ and ASC was adjusted based on revision of the estimated quarterly revenue target achievement.
As a result, $946,503 was reported as a gain on contingent consideration of which $89,449 was recorded as additional earnout payable for
ASC and $1,035,952 was recorded as a reduction in earnout payable for WordZ. Additionally, accretion expense of $628,983 was recorded
for ASC and WordZ during the year ended December 31, 2020. Earnout payment totalling $377,312 was made to the previous owners of
ASC and WordZ during the year ended December 31, 2020.


 


As at December 31, 2020, total
contingent consideration is $3,015,434 (2019 - $nil), of which $1,439,906 (2019 - $nil) is recorded as trade and other payables and accrued
liabilities, and $1,575,528 has been recorded as long-term contingent consideration (2019 - $nil).


 


The accounting for the acquisitions is complete as of December 31,
2020. The finalization of the above purchase price allocations of the valuation of fair value for the assets acquired and liabilities
assumed, including intangible assets and taxation- related balances as well as for potential unrecorded liabilities was completed as of
December 31, 2020.


 


For the year ended December 31,
2020 consolidated revenues of $31,749,693 include revenue from acquisitions of $9,410,821 (ASC: $6,625,930; WordZ: $2,784,891). Net loss
for the year ended December 31, 2020 of $11,145,306 include profit from acquisitions of $1,281,997 (ASC: profit of $2,500,079; WordZ:
loss of $1,218,082).


 


If the acquisitions would have occurred
on January 1, 2020, management estimates that the pro forma consolidated revenue for the year ended December 31, 2020 would
have been $33,462,074 and net loss for the year ended December 31, 2020 would have been $10,873,372 as compared to the amounts reported
in the consolidated statements of loss and comprehensive loss for the year ended December 31, 2020. This unaudited pro forma financial
information is for information purposes only and is not indicative of the results of operations that would have been achieved if the acquisition
had taken place at the beginning of the period presented or the results that may be realized in the future.


 










    PAGE 19


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)






 


	5.	Trade and other receivables



 


	 	 	December 31, 2020	 	 	December 31, 2019	 
	Trade accounts receivable	 	$	4,233,012	 	 	$	3,930,178	 
	Other receivable (note 6)	 	 	366,077	 	 	 	141,582	 
	Less: allowance for doubtful accounts (note 21)	 	 	(123,338	)	 	 	(902,215	)
	 	 	$	4,475,751	 	 	$	3,169,545	 



 


As at December 31, 2020, other
receivable relates to unbilled revenue of $297,581 (2019 - $141,582) and governance assistance receivable (note 6).


 


	6.	Government Assistance



 


Australian Business Wage Subsidies


 


The Australian government introduced
programs to support Australian businesses whose revenues were impacted by the COVID-19 pandemic. The government is providing wage subsidies
to qualifying companies of approximately AU$750 per employee per week. For the year ended December 31, 2020, the Company determined
that it qualified for the subsidies and submitted claims for $2,017,189 (2019 – nil) for the Australian Business Wage Subsidies,
which has ben received and recognized as a reduction to the related payroll expenses in the consolidated statements of loss and comprehensive
loss.


 


Canadian Emergency Wage Subsidy
(“CEWS”) and Canadian Emergency Rent Subsidy (“CERS”)


 


The Canadian government introduced
programs to support Canadian businesses whose revenues were impacted by the COVID- 19 pandemic. The government is providing wage and rent
subsidies to eligible companies based on percentage decrease in revenue per eligible periods. For the year ended December 31, 2020,
the Company determined that it qualified for these subsidies and submitted claims for $111,529 (2019 – nil) for CEWS and $6,725
for CERS which has been recognized as a reduction to the related payroll and rent expenses in the consolidated statements of loss and
comprehensive loss.


 


U.S. Paycheck Protection Program Loan


 


On April 24, 2020, the Company
received a loan for $2,159,000 under the U.S. Small Business Administration Paycheck Protection Program through BMO Harris Bank at
an interest rate of 1% maturing in two years. Principal and interest are due beginning seven months from the date of the note.
Generally, the loan will be forgiven if utilized for payment of qualifying expenses during the 24-week period that begins at the
origination date of the loan. As at December 31, 2020, the balance of $260,230 was unutilized and reported as long-term debt of
which $214,307 was recorded as current portion. Refer to note 10.


 


For the year ended December 31,
2020, the Company determined that it qualified for the subsidies and submitted claims for the three COVID-19 related government support
programs described above for a total of subsidy of $4,034,313, which has been received. Of the subsidies amount received, $1,203,327 was
recognized as a reduction to operating expenses against related salary costs and other expenses in the consolidated statement of loss
and comprehensive loss during the year ended December 31, 2020, and $2,830,986 as a reduction to cost of sales during the year ended
December 31, 2020. There was no government assistance recorded during year ended December 31, 2019.


 


As at December 31, 2020, the consolidated statement of
financial position included assistance receivable of $68,496 (2019 - $nil) in trade and other receivables.


 










    PAGE 20


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)






 


	7.	Property and equipment



 


Details of the Company’s property and equipment as
of December 31, 2020 and December 31, 2019 are listed as follows:


 


	 	 	Balance	 	 	 	 	 	 	 	 	Balance	 
	 	 	January 1,	 	 	Additions/	 	 	Foreign	 	 	December 31,	 
	 	 	2020	 	 	(Disposals)	 	 	exchange	 	 	2020	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Furniture and fixtures	 	$	253,977	 	 	$	13,971	 	 	$	70	 	 	$	268,018	 
	Computer and transcription equipment	 	 	1,298,714	 	 	 	188,327	 	 	 	12,688	 	 	 	1,499,729	 
	Building – Leasehold improvements	 	 	4,817	 	 	 	-	 	 	 	103	 	 	 	4,920	 
	 	 	$	1,557,508	 	 	$	202,298	 	 	$	12,861	 	 	$	1,772,667	 
	Accumulated depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Furniture and fixtures	 	$	204,713	 	 	$	14,543	 	 	$	50	 	 	$	219,306	 
	Computer and transcription equipment	 	 	1,239,819	 	 	 	86,400	 	 	 	9,187	 	 	 	1,335,406	 
	Building – Leasehold improvements	 	 	1,389	 	 	 	668	 	 	 	63	 	 	 	2,120	 
	 	 	$	1,445,921	 	 	$	101,611	 	 	$	9,300	 	 	$	1,556,832	 
	Net book value	 	$	111,587	 	 	 	 	 	 	 	 	 	 	$	215,835	 




 


	 	 	Balance January 1,
 2019
	 	 	Additions/ (Disposals)	 	 	Foreign exchange	 	 	Balance December 31,
 2019
	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Furniture and fixtures	 	$	253,670	 	 	$	1,309	 	 	$	(1,002	)	 	$	253,977	 
	Computer and transcription equipment	 	 	1,190,489	 	 	 	91,362	 	 	 	16,863	 	 	 	1,298,714	 
	Building – Leasehold improvements	 	 	4,595	 	 	 	-	 	 	 	222	 	 	 	4,817	 
	 	 	$	1,448,754	 	 	$	92,671	 	 	$	16,083	 	 	$	1,557,508	 
	Accumulated depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Furniture and fixtures	 	$	189,063	 	 	$	(1,758	)	 	$	17,408	 	 	$	204,713	 
	Computer and transcription equipment	 	 	1,147,545	 	 	 	17,007	 	 	 	75,267	 	 	 	1,239,819	 
	Building – Leasehold improvements	 	 	709	 	 	 	15	 	 	 	665	 	 	 	1,389	 
	 	 	$	1,337,317	 	 	$	15,264	 	 	$	93,340	 	 	$	1,445,921	 
	Net book value	 	$	111,437	 	 	 	 	 	 	 	 	 	 	$	111,587	 






 







    PAGE 21


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)






 


	8.	Intangible assets and goodwill



 


Details of the Company’s intangible assets as of December 31,
2020 and December 31, 2019 are listed as follows:


 


	 	 	Balance January 1,
 2020
	 	 	Acquisitions

 (note 4)	 	 	Additions	 	 	Impairment	 	 	Foreign
 exchange	 	 	Balance

December 31,

 2020
	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Customer relationships	 	$	7,393,708	 	 	 	5,100,000	 	 	 	–	 	 	 	(726,467	)	 	 	8,456	 	 	$	11,775,697	 
	Technology	 	 	470,000	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	470,000	 
	Non-compete	 	 	–	 	 	 	70,000	 	 	 	–	 	 	 	(18,969	)	 	 	–	 	 	 	51,031	 
	Brand	 	 	840,000	 	 	 	740,000	 	 	 	–	 	 	 	(59,101	)	 	 	–	 	 	 	1,520,899	 
	Internally generated intangible assets	 	 	5,259,287	 	 	 	–	 	 	 	1,642,783	 	 	 	–	 	 	 	112,965	 	 	 	7,015,035	 
	 	 	$	13,962,995	 	 	 	5,910,000	 	 	 	1,642,783	 	 	 	(804,537	)	 	 	121,421	 	 	$	20,832,662	 
	Accumulated depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Customer relationships	 	$	1,812,833	 	 	 	–	 	 	 	2,276,341	 	 	 	–	 	 	 	10,391	 	 	 	4,099,565	 
	Technology	 	 	102,499	 	 	 	–	 	 	 	94,000	 	 	 	–	 	 	 	–	 	 	 	196,499	 
	Non-compete	 	 	–	 	 	 	–	 	 	 	19,638	 	 	 	–	 	 	 	–	 	 	 	19,638	 
	Brand	 	 	–	 	 	 	–	 	 	 	133,921	 	 	 	–	 	 	 	–	 	 	 	133,921	 
	Internally generated intangible assets	 	 	1,831,202	 	 	 	–	 	 	 	2,289,348	 	 	 	–	 	 	 	144,137	 	 	 	4,264,687	 
	 	 	$	3,746,534	 	 	 	–	 	 	 	4,813,248	 	 	 	–	 	 	 	154,528	 	 	$	8,714,310	 
	Net book value	 	$	10,216,461	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	12,118,352	 




 


	 	 	Balance January 1,
 2019
	 	 	Acquisitions (note 4)	 	 	Additions	 	 	Impairment	 	 	Foreign

 exchange	 	 	Balance

 December
 31, 2019
	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Customer relationships	 	$	7,375,700	 	 	$	–	 	 	$	–	 	 	$	–	 	 	$	18,008	 	 	$	7,393,708	 
	Technology	 	 	470,000	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	470,000	 
	Brand	 	 	840,000	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	840,000	 
	Internally generated intangible assets	 	 	3,382,117	 	 	 	–	 	 	 	1,689,711	 	 	 	–	 	 	 	187,459	 	 	 	5,259,287	 
	 	 	$	12,067,817	 	 	$	–	 	 	$	1,689,711	 	 	$	–	 	 	$	205,467	 	 	$	13,962,995	 
	Accumulated depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Customer relationships	 	$	252,383	 	 	$	–	 	 	$	1,477,254	 	 	$	–	 	 	$	83,196	 	 	$	1,812,833	 
	Technology	 	 	8,499	 	 	 	–	 	 	 	94,000	 	 	 	–	 	 	 	–	 	 	 	102,499	 
	Internally generated intangible assets	 	 	448,122	 	 	 	–	 	 	 	1,402,691	 	 	 	–	 	 	 	(19,611	)	 	 	1,831,202	 
	 	 	$	709,004	 	 	$	–	 	 	$	2,973,945	 	 	$	–	 	 	$	63,585	 	 	$	3,746,534	 
	Net book value	 	$	11,358,813	 	 	 	                    	 	 	 	 	 	 	 	               	 	 	 	 	 	 	$	10,216,461	 







 







    PAGE 22


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)






 


	8.	Intangible assets and goodwill (continued)



 


Details of the Company’s goodwill as of December 31,
2020 and December 31, 2019 are listed as follows:


 


	 	 	December 31,
 2019
 	 	 	Acquisitions	 	 	Impairment	 	 	Foreign
 exchange	 	 	December 31,
 2020
 	 
	VIQ Solutions PTY Ltd.	 	 	587,187	 	 	 	–	 	 	 	–	 	 	 	62,814	 	 	 	650,501	 
	Dataworxs	 	 	138,053	 	 	 	–	 	 	 	–	 	 	 	2,965	 	 	 	141,018	 
	Net Transcripts	 	 	1,575,511	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	1,575,511	 
	Transcription Express	 	 	1,516,904	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	1,516,904	 
	HomeTech	 	 	477,860	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	477,860	 
	ASC	 	 	–	 	 	 	2,614,802	 	 	 	–	 	 	 	–	 	 	 	2,614,802	 
	WordZ	 	 	–	 	 	 	1,453,832	 	 	 	(1,453,832	)	 	 	–	 	 	 	–	 
	 	 	$	4,295,515	 	 	$	4,068,634	 	 	$	(1,453,832	)	 	$	65,779	 	 	$	6,976,096	 



 


	 	 	December 31,
 2018
	 	 	Acquisitions	 	 	Impairment	 	 	Foreign
 exchange
	 	 	December 31,
 2019
	 
	VIQ Solutions PTY Ltd.	 	 	589,950	 	 	 	–	 	 	 	–	 	 	 	(2,763	)	 	 	587,187	 
	Dataworxs	 	 	131,710	 	 	 	–	 	 	 	–	 	 	 	6,343	 	 	 	138,053	 
	Net Transcripts	 	 	1,575,511	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	1,575,511	 
	Transcription Express	 	 	1,516,904	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	1,516,904	 
	HomeTech	 	 	477,860	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	477,860	 
	 	 	$	4,291,935	 	 	 	       –	 	 	 	     –	 	 	$	3,580	 	 	$	4,295,515	 



 


Impairment testing for cash-generating
units containing goodwill


 


The annual impairment test of goodwill
was performed as of December 31, 2020. The recoverable amount of the Company’s CGUs was estimated based on an assessment of
their value in use using a discounted cash flow approach. Cash flows for the years thereafter are extrapolated using the estimated terminal
growth rate. The risk premiums expected by market participants related to uncertainties about the industry and assumptions relating to
future cash flows may differ or change quickly, depending on economic conditions and other events.


 


The Company has made certain assumptions
in determining the cash flow projections based over a five-year period from 2021 to 2026 on budgets approved by management and include
management’s best estimate of expected market conditions. The cash flow projections include certain key assumptions regarding revenue
growth rates, terminal revenue growth rates and current income tax rates. Accordingly, it is reasonably possible that future changes in
assumptions may negatively impact future valuations of goodwill and the Company would be required to recognize an impairment loss. The
Company determined the revenue growth rate, the terminal revenue growth rate based on past performance and its expectations for market
development. The pre-tax discount rates used reflect specific risks in relation to the CGUs.


 










    PAGE 23


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)






 


	8.	Intangible assets and goodwill (continued)



 


The Company used a discounted cash
flow approach as the primary valuation approach to determine the value of each of the 8 CGUs identified. With respect to the VIQ Solutions
Inc CGU, there are no goodwill or indefinite life intangible assets associated with that CGU and no triggering events as at December 31,
2020, Consequently, no further impairment analysis was performed on that CGU.


 


The following are key assumptions on
which management based its determinations of the recoverable amount for goodwill based on each CGU’s value in use:


 


	Assumptions	 	VIQ
    
Solutions	 	 	Dataworxs
    Australia	 	 	Net

    Transcripts	 	 	Transcription	 	 	Home

    Tech	 	 	WordZXpressed	 	 	VIQ
    Media

    Transcription	 
	2020	 	PTY	 	 	Ltd.	 	 	Inc.	 	 	Express
    Inc.	 	 	Inc.	 	 	Inc.	 	 	Inc	 
	Revenue
    Growth Rate	 	 	2.0	%	 	 	2.0	%	 	 	2.0	%	 	 	2.0	%	 	 	2.0	%	 	 	                2.0	%	 	 	2.0	%
	Terminal
  revenue growth rate	 
     	 
     	 
  2.0  	 
  %  	 
     	 
     	 
  2.0  	 
  %  	 
     	 
     	 
  2.0  	 
  %  	 
     	 
     	 
  2.0  	 
  %  	 
     	 
     	 
  2.0  	 
  %  	 
     	 
     	 
  2.0  	 
  %  	 
     	 
     	 
  2.0  	 
  %  
	Pre-tax
    discount rate	 	 	17.7	%	 	 	17.7	%	 	 	17.7	%	 	 	17.7	%	 	 	17.7	%	 	 	22.5	%	 	 	16.7	%



 


In determining the recoverable amount,
management estimated the expected future cash flows from the wordZXpressed CGU and applied a suitable pre-tax discount rate in order to
calculate the present value of those cash flows. The analysis revealed that recoverable amount of $1,328,778 of the CGU is less than the
carrying amount of $3,587,147 and as such, an impairment loss was allocated to reduce the carrying amount of the goodwill, customer relationships,
brand, and non-compete intangible assets. The Company recorded an impairment charge of $2,258,369 in the consolidated statements of loss
and comprehensive loss (2019 - $nil) for the wordZXpressed CGU reducing the carrying value of goodwill and acquired intangible assets.
The wordZXpressed CGU that provides technology services to the insurance, law enforcement, and legal industry. For the purpose of impairment
testing, goodwill is allocated to the Company’s CGU, which represent the lowest level of group of assets that generate identifiable
cash inflows.


 


	9.	Long-term debt



 


	 	 	Crown

 Capital 

Note

 Payable	 	 	WordZ 

VTB	 	 	WordZ SBA Loan (note 6)	 	 	Transcription

 Express

 VTB	 	 	HomeTech

 VTB	 	 	Total	 
	Balance as at January 1, 2020
 
	 	$	5,964,602	 	 	$	–	 	 	$	–	 	 	$	–	 	 	$	541,035	 	 	$	6,505,637	 
	Add: current portion	 	 	–	 	 	 	-	 	 	 	–	 	 	 	863,438	 	 	 	240,000	 	 	 	1,103,438	 
	 	 	$	5,964,602	 	 	$	–	 	 	$	–	 	 	$	863,438	 	 	$	781,035	 	 	$	7,609,075	 
	Debt advancement	 	 	4,482,659	 	 	 	915,105	 	 	 	260,230	 	 	 	–	 	 	 	–	 	 	 	5,657,994	 
	Interest expense	 	 	1,409,961	 	 	 	50,865	 	 	 	 	 	 	 	84,731	 	 	 	 	 	 	 	1,545,57	 
	Accretion expense	 	 	313,112	 	 	 	98,333	 	 	 	–	 	 	 	–	 	 	 	80,690	 	 	 	492,135	 
	Interest payment	 	 	(982,969	)	 	 	–	 	 	 	–	 	 	 	(69,607	)	 	 	–	 	 	 	(1,052,576	)
	Debt repayment	 	 	–	 	 	 	–	 	 	 	–	 	 	 	(598,031	)	 	 	(240,000	)	 	 	(838,031	)
	Foreign exchange translation	 	 	210,782	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	210,782	 
	Balance as at December 31, 2020	 	$	11,398,146	 	 	 	1,064,303	 	 	 	260,230	 	 	 	280,531	 	 	 	621,725	 	 	 	13,624,935	 
	Less: current portion	 	 	(304,746	)	 	 	(446,552	)	 	 	(214,307	)	 	 	(280,531	)	 	 	(240,000	)	 	 	(1,486,136	)
	 	 	$	11,093,400	 	 	$	617,751	 	 	$	45,923	 	 	$	–	 	 	$	381,725	 	 	$	12,138,799	 







 







    PAGE 24


     


    

 






 


 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)


  


	9.	Long-term
                                            debt (continued)






 


	 	 	Crown Capital
 Note Payable	 	 	Transcription
 Express VTB
 Loan	 	 	HomeTech VTB
 Loan	 	 	Total	 
	Balance as at January 1, 2019	 	$	5,489,305	 	 	$	1,639,882	 	 	$	903,392	 	 	$	8,032,579	 
	Interest expense	 	 	620,624	 	 	 	138,975	 	 	 	-	 	 	 	759,599	 
	Accretion expense	 	 	201,052	 	 	 	-	 	 	 	97,643	 	 	 	298,695	 
	Interest payment	 	 	(505,360	)	 	 	(151,940	)	 	 	-	 	 	 	(657,300	)
	Debt repayment	 	 	-	 	 	 	(763,479	)	 	 	(220,000	)	 	 	(983,479	)
	Foreign exchange translation	 	 	158,981	 	 	 	-	 	 	 	-	 	 	 	158,981	 
	Balance as at December 31, 2019	 	$	5,964,602	 	 	$	863,438	 	 	$	781,035	 	 	$	7,609,075	 
	Less: current portion	 	 	-	 	 	 	(863,438	)	 	 	(240,000	)	 	 	(1,103,438	)
	 	 	$	5,964,602	 	 	$	-	 	 	$	541,035	 	 	$	6,505,637	 




 


	(a)	Crown
                                            Capital Funding Partner LP Note Payable



 


The
Company entered a secured debt facility with Crown Capital Funding Partner LP (“Crown”) with maximum available funds of $11,770,500
(CAD$15,000,000) bearing an interest rate of 10 percent payable quarterly. The loan is secured by a general security agreement covering
all assets of the Company. The outstanding principal balance of the loan is repayable on November 28, 2023. On initiation of the
debt facility on November 28, 2018, 450,000 common share purchase warrants were issued to Crown. A value of $623,152 (CAD$828,917)
was attributed to the 450,000 warrants and was recorded in contributed surplus.


 


Each
warrant is convertible into one common share in the capital of the Company at a price per share equal to CAD$2.06 until November 28,
2023. In addition, in lieu of payment of the debt facility origination fee the Company issued 106,383 common shares to Crown at a deemed
price of CAD$2.80 which was equal to the 20-day volume weighted trading price on the trading day immediately preceding November 28,
2018. A value of $225,530 (CAD$300,000) was attributed to the 106,383 common shares and has been included in capital stock. During 2018,
the Company had drawn $6,548,461(CAD$8,935,000) of the available facility.


 


In
March 2020, in connection with the acquisition of ASC and WordZ (note 4), the Company borrowed the remaining $4,566,945 (CAD$6,065,000)
of the available facility. The fair value of this drawdown was $4,482,659. As part of this transaction, the Company and Crown entered
into an amendment to the Debt Facility, pursuant to which 450,000 new common share purchase warrants were issued to Crown on January 31,
2020 and previously issued 450,000 common share purchase warrants were concurrently cancelled. The new warrants reflect a price per Share
equal to CAD$2.06 (the “Exercise Price”) until expiry on November 28, 2023. As a result of this modification, the Company
recorded $84,287 (CAD$111,387) reflecting the incremental fair value of the warrant associated with the amendment as a reduction in the
carrying value of the note payable. Additionally, the Company incurred fees of $353,115 (CAD$450,000) associated with establishing the
amended debt facility which are recorded as a reduction in the carrying value of the note payable. These fees remain unpaid and the long-term
payable is added to the Company’s outstanding principal. These fees accrue interest at 10 percent and repayment is due on November 28,
2023.


 


The
difference between the face value and ascribed value of the Crown Capital note payable is being accreted over the remaining life of the
debt facility. Corresponding transaction costs were netted against the face value of the debt facility and are recognized as accretion
and other financing expense over the term of the loan. During the year ended December 31, 2020, there was $313,112 recorded as accretion
and other financing expense related to the note payable in the consolidated statements of loss and comprehensive loss (December 30,
2019 – $201,052).


 


In
December 2020, the Company received a waiver from Crown Capital as at December 31, 2020. The waiver removed the Fixed Charge
Coverage Ratio (FCCR) covenant and the test of FCCR is no longer required at December 31, 2020.


 






    PAGE 25


     


    

 






 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)


  



	9.	Long-term
                                            debt (continued)



 


Subsequent
to year end, in March 2021, the Company received a waiver to remove the Fixed Charge Coverage Ratio covenant for all four quarters
of 2021.


 


	(b)	Unsecured
                                            Promissory Notes



 


Unsecured
promissory notes have been issued to the former owners of acquired companies. As part of the acquisition of Transcription Express, the
Company issued an unsecured promissory note to the former owners of Transcription Express with a face value of $1,666,227, bearing interest
at 10% per annum. During the year ended December 31, 2019, the terms of the Transcription Express unsecured promissory note were
amended with the principal and accrued interest to be paid monthly beginning on July 31, 2019 to the period ending April 30,
2021.


 


As
part of the acquisition of HomeTech, the Company issued an unsecured interest-free promissory note to the former owners of HomeTech with
a face value of $1,200,000, to be paid monthly for 60 months in equal installments of $20,000 beginning February 25, 2019 to the
period ending January 25, 2024. The Company recorded the unsecured promissory note by discounting the principal amounts due using
a market annual interest rate of 12%. The difference between the present value and the face value is being accreted over the term of
the unsecured promissory notes


 


An
additional note was issued to the former owners of WordZ with a face value of $1,200,000 bearing interest at 5% to be paid quarterly
for 36 months beginning January 5, 2021 to the period ending October 5, 2023. The fair value of the unsecured promissory notes
was determined on a market annual interest rate of 12%. The difference between the face value and the ascribed value of the notes is
being accreted over life of the notes.


 


	(c)	Convertible
                                            Notes



 


On
November 28, 2018, the Company issued unsecured convertible notes with a face value of $1,000 bearing interest at a rate of 10%
per annum for gross proceeds of $3,717,934 (CAD $4,954,988) maturing in five years after issuance. The principal amount of the convertible
debt is convertible, at the option of the holder, into common shares at a conversion price of CAD $2.82 per share.


 


On
December 20, 2018, the Company issued unsecured convertible notes with a face value of $1,000 bearing interest at a rate of 10%
per annum for gross proceeds of $1,150,000 (CAD $1,551,925) maturing in five years after issuance. The principal amount of the convertible
debt is convertible, at the option of the holder, into common shares at a conversion price of CAD $2.72 per share.


 


On
May 7, 2019, the Company issued unsecured convertible notes with a face value of $1,000 bearing interest at a rate of 10% per annum
for gross proceeds of $1,925,000 (CAD $2,594,016) maturing in five years after issuance. The principal amount of the convertible debt
is convertible, at the option of the holder, into common shares at a conversion price of CAD $2.70 per share


 


During
the year ended December 31, 2020, the Company entered into agreements (the “Amending Agreements”) with the holders of
unsecured convertible notes (each, a “Note”) in the aggregate principal amount of approximately $6,792,934, granting the
holders of such Notes (each a “Noteholder”) the option to convert the principal and the aggregate interest payable on their
Notes from the date of issuance to the maturity date (the “Total Interest Payable”) into Shares at a conversion price of
CAD$2.18 per Share (the “Conversion Option”). The modification of the convertible notes resulted in in a charge of $1,497,804
reflecting the incremental fair value of the reduced exercise price. This charge was recorded as a loss on repayment of long-term debt
in the consolidated statements of loss and comprehensive loss.


 


Concurrent
with their entry into the Amending Agreements, Noteholders holding all of the outstanding Notes exercised the Conversion Option during
the year ended December 31, 2020. As a result of the exercise of the Conversion Option, the Company recognized $3,503,797 in interest
expense reflecting interest charges from the date of the conversion through the maturity date. For the year ended December 31, 2020,
the Company recognized a loss of $1,308,440 on the revaluation of the conversion feature liability (2019 – gain of $2,330,964).


 






    PAGE 26


     


    

 










 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)


  



	9.	Long-term
                                            debt (continued)



 


The
Corporation issued 6,785,651 common shares to settle its outstanding Notes having an aggregate principal amount of


 


$6,871,003,
total interest payable of $4,296,999, and a loss on revaluation of conversion feature liability to the date of exercise of $1,260,360
for a total amount of $12,428,362 credited to share capital of the Company.


 


The
minimum remaining principal repayments of debt under all agreements are as follows:


  


	 	 	Crown 
 Capital	 	 	wordZXpresse
 d Inc.	 	 	Transcription
 Express VTB
 loan	 	 	HomeTech 
 VTB loan	 	 	Total	 
	2021	 	$	-	 	 	$	400,000	 	 	$	280,531	 	 	$	240,000	 	 	$	920,531	 
	2022	 	 	-	 	 	 	400,000	 	 	 	-	 	 	 	240,000	 	 	 	640,000	 
	2023	 	 	12,123,615	 	 	 	400,000	 	 	 	-	 	 	 	240,000	 	 	 	12,763,615	 
	2024	 	 	-	 	 	 	-	 	 	 	-	 	 	 	20,000	 	 	 	20,000	 
	 	 	$	12,123,615	 	 	$	1,200,000	 	 	$	280,531	 	 	$	740,000	 	 	$	14,344,146	 




 


	10	Capital
                                            stock




  


Common Shares


 


The Company’s authorized capital consists of an unlimited number
of common shares with no par value. As at December 31, 2020, common shares of the Company were reserved as follows:


 


	 	 	Exercise Price 
 (CAD)	 	 	Expiry dates	 	Number outstanding	 
	Options	 	 	$1.20 – $4.20	 	 	January 2021 – December 2021	 	 	233,333	 
	 	 	 	$4.40 – $6.40	 	 	January 2022 – December 2022	 	 	97,000	 
	 	 	 	$2.84 - $6.00	 	 	January 2023 – December 2023	 	 	141,250	 
	 	 	 	$2.10 - $3.10	 	 	January 2024 – December 2024	 	 	250,350	 
	 	 	$	3.13	 	 	January 2025 – December 2025	 	 	396,000	 
	 	 	 	 	 	 	 	 	 	1,117,933	 
	Deferred share units	 	$	1.20	 	 	N/A	 	 	66,667	 
	Warrants	 	$	2.60	 	 	January 2021	 	 	659,600	 
	 	 	$	3.24	 	 	February 2021	 	 	14,278	 
	 	 	$	2.06	 	 	November 2023	 	 	450,000	 
	 	 	 	 	 	 	 	 	 	1,123,878	 




 


On November 6, 2020, the Company
announced a bought deal financing and issued 4,705,900 common shares at a price per share of CAD $4.25 per common share for aggregate
gross proceeds of CAD $20,000,075 (US$15,378,058) and proceeds net of issuance costs were $13,747,345. This sale of shares and receipt
of proceeds were completed on November 26, 2020.


 


Warrants


 


On March 4, 2020, VIQ announced
that it was accelerating the vesting of 1,103,526 warrants (each a “Warrant”) exercisable to acquire common shares of the
Company (each a “Common Share”), originally issued pursuant to private placements closing on November 28, 2018, December 20,
2018 and May 7, 2019. Pursuant to the terms of the Warrants (the “Warrant Certificates”), the Company has the right
to accelerate the expiry date of the Warrants in the event that the closing price of the Common Shares on the TSX Venture Exchange is equal to or greater than
CAD$2.68 for any ten (10) consecutive trading days (an “Acceleration Event”). During the year ended December 31,
2020, 1,154,759 warrants which were granted with the convertible debt issued on November 28, 2018, December 21, 2018 and May 7,
2019 were exercised (December 31, 2019 – 1,362,499) at the exercise price of CAD $2.14 and CAD $3.24 (December 31, 2019
 – $2.14) for proceeds of $1,859,963 (December 31, 2019 - $2,196,277).


 






    PAGE 27


     


    

 









 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)






 


	10.	Capital stock (continued)


  





 


During the year ended December 31, 2020, there were
no warrants issued (December 31, 2019 – 1,715,778) and as at December 31, 2020, there were 1,123,878 warrants outstanding
(December 31, 2019 – 2,519,600).


 


Stock Option Plan


 


The Company has an incentive stock
option plan for its directors, officers, employees, and contractors. The Company's stock option plan allows for the granting of options
(and Deferred Share Units as described below) up to an aggregate amount equal to 10% of the aggregate number of common shares of the
Company outstanding. The options, which have a term not exceeding five years when issued, generally vest as follows:


 


	 	•	1/3 at time of issue





	 	•	1/3 after one year





	 	•	1/3 after two years


 


As at December 31, 2020, the
Company had 770,483 options (December 31, 2019 – 613,283) that had vested with a weighted average exercise price of CAD $2.84
per share (December 31, 2019 – CAD$2.62).


 


During the year ended December 31,
2020, there were 396,000 stock options granted to directors, officers, employees, and contractors (December 31, 2019 – 257,850).
During the year ended December 31, 2020, 92,500 options were exercised (December 31, 2019 – 67,860) for proceeds of $83,566
(December 31, 2019 – $59,631). SARS were exercised for the equivalent value of the stock options exercised. There were no
stock options forfeited during the year ended December 31, 2020 (December 31, 2019 – 50,000). There were 53,667 stock
options that were expired during the year ended December 31, 2020 (December 31, 2019 – 250)


 


The following information applies
to stock options outstanding and exercisable at December 31, 2020:


 


	Range of exercise

 prices

 (CAD)	 	Options

 outstanding	 	 	Weighted

 average

 remaining

 contractual life	 	 	Weighted

 average exercise

 price 
(CAD)	 	 	Options

 exercisable	 	 	Weighted

 average exercise

 price 
(CAD)	 
	$1.20 – $1.30	 	 	140,000	 	 	 	0.3 years	 	 	$	1.26	 	 	 	140,000	 	 	$	1.26	 
	$2.10 – $4.20	 	 	93,333	 	 	 	0.5 years	 	 	$	2.70	 	 	 	93,333	 	 	$	2.70	 
	$4.40 – $6.40	 	 	97,000	 	 	 	1.4 years	 	 	$	4.92	 	 	 	97,000	 	 	$	4.92	 
	$2.84 - $6.00	 	 	141,250	 	 	 	2.8 years	 	 	$	3.28	 	 	 	141,250	 	 	$	3.28	 
	$2.20 - $3.10	 	 	250,350	 	 	 	3.5 years	 	 	$	2.44	 	 	 	166,900	 	 	$	2.44	 
	$3.13	 	 	396,000	 	 	 	4.3 years	 	 	$	3.13	 	 	 	132,000	 	 	$	3.13	 
	 	 	 	1,117,933	 	 	 	2.9 years	 	 	$	2.88	 	 	 	770,483	 	 	$	2.84	 



 


Deferred Share Units Plan


 


In 2015, the Company established a
Deferred Share Units (“DSU”) Plan to provide non-employee directors to participate in the long-term success of the Company.
DSUs are fully vested upon being granted.


 


The Board of Directors may grant DSUs
(and the number of options to purchase shares described above) up to a maximum of 10% of common shares outstanding and up to a maximum
of 100,000 units.


 






    PAGE 28


     


    

 












 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)






 


	 	10.	Capital stock (continued)


 


Maximum allowable grants under the
Stock Option and DSU plans in aggregate as at December 31, 2020 were 2,359,143 (December 31, 2019 – 1,085,261) of which
1,117,933 were outstanding stock options and 66,667 were outstanding DSUs for a total of 1,184,600 (December 31, 2019 – 934,767).


 


The Company did not grant any DSU’s
to Directors of the Company during the year ended December 31, 2020 (2019 – nil).


 


Share Appreciation Rights Plan


 


In 2015, the Company established a
Share Appreciation Rights (“SAR”) plan for its Service Providers (as defined in VIQ’s SAR plan). The Company's SAR
plan provides incentive compensation, based on the appreciation in the value of the Company’s shares, to the service providers,
thereby providing additional incentive for their efforts in promoting the continued growth and success of the business of the Company.
During the year ended December 31, 2018, the Company amended the outstanding SARs to extend the expiry of the SARs from December 31,
2018 to July 15, 2020, the date the SARs plan will expire. The aggregate number of units in respect of which SARs have been granted
and not yet exercised, shall not at any time exceed 10% of the aggregate number of shares that are then issued and outstanding. The SAR
units, which have a term not exceeding five years when granted, generally vest as follows:


 


	 	•	1/3 at time of issue





	 	•	1/3 after one year





	 	•	1/3 after two years


 


At any time on or after the date when
the trading price of one share is equal to or exceeds four times the fair value of one SAR unit at the grant date, the Company shall
be entitled to require the disposition of the vested SAR units by the grantee to the Company, by the Company paying the bonus in cash
to the grantee.


 


The value of each SAR unit when issued
is based on the market price of the Company's stock on the date of grant. At the end of December 31, 2017, the Company amended the
SARs plan by placing a limit on the appreciated value of the Company’s shares within the SARs plan to limit the overall liability.
At December 31, 2019, 188,990 outstanding SARs units were fully vested. As at December 31, 2020, 188,990 of the fully vested
outstanding SARs units were exercised and a corresponding share appreciation rights plan obligation of $126,503 has been recognized in
the consolidated statement of financial position to reflect the outstanding cash settlement.


 


	 	11.	Stock-based compensation


 


The total compensation expense relating to the value assigned
to the stock options granted to directors, officers, employees and contractors for the year ended December 31, 2020 was $461,509
(2019 - $299,587) which was included in the stock base compensation expense with a corresponding charge to contributed surplus.


 


During the year ended December 31,
2020, $263,807 (2019 – gain $104,474) was included in stock base compensation expense with a corresponding entry to share appreciation
rights plan obligation relating the value assigned to the SARS granted to directors, officers, and employees.


 






    PAGE 29


     


    

 












 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)






 


	 	12.	Net loss per share


 


	 	 	Year ended December 31,	 
	 	 	2020	 	 	2019	 
	Numerator for basic and diluted net loss per share: 	 	 	 	 	 	 	 	 
	Net loss for the year	 	$	(11,145,306	)	 	$	(4,524,198	)
	
Denominator for basic net loss per share:
	 	 	 	 	 	 	 	 
	Weighted average number of common shares outstanding	 	 	18,080,533	 	 	 	9,752,131	 
	Effect of potential dilutive securities	 	 	–	 	 	 	–	 
	Adjusted denominator for diluted net loss per share	 	 	18,080,533	 	 	 	9,752,131	 
	
Basic net loss per share
	 	$	(0.62	)	 	$	(0.46	)
	Diluted net loss per share	 	$	(0.62	)	 	$	(0.46	)



 


For the year ended December 31,
2020, 2,308,478 of potentially dilutive common shares (December 31, 2019 – 7,017,894) issuable upon the exercise of the conversion
option related to convertible debt, warrants, deferred share units, and options were not included in the computation of loss per share
because their effect was anti-dilutive.


 


The December 31, 2019 weighted
average number of common shares outstanding and corresponding net loss per share has been updated due to an immaterial error.


 


	 	13.	Supplemental cash flow information


 


Components of the net change in non-cash
working capital are as follows:


 


	 	 	Year ended December 31,	 
	 	 	2020	 	 	2019	 
	Trade and other receivables	 	$	(316,778	)	 	$	(234,649	)
	Inventories	 	 	18,473	 	 	 	(5,932	)
	Prepaid expenses	 	 	(53,416	)	 	 	(38,505	)
	Trade and other payables	 	 	(40,937	)	 	 	(644,442	)
	Contract liabilities and taxes	 	 	(380,629	)	 	 	87,697	 
	Total	 	$	(773,287	)	 	$	(835,831	)



 


Other supplemental cash flow information
as follows:


 


	 	 	Year ended December 31,	 
	 	 	2020	 	 	2019	 
	Cash received for interest	 	$	1,068	 	 	$	1,340	 
	Cash paid for interest	 	 	1,105,298	 	 	 	780,892	 




 






    PAGE 30


     


    

 





 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)


 


	 	14.	Segmented financial information


 


The Company has determined it has
two reportable business segments namely technology and related revenue and technology services. The technology segment, develops, distributes
and licenses computer-based digital solutions based on its proprietary technology; and the technology service segment, provides recording
and transcription services.


 


The Company’s reportable segments
are strategic business segments that offer different products and/or services. These business segments work on different business models
and operate autonomously. The Company does not segregate sales and associated costs by individual technology products. Accordingly, segmented
information on revenue and associated costs is only provided for the full line of software solutions currently offered by the Company.


 


The Chief Executive Officer, Chief
Operating Officer, and Chief Financial Officer are the operating decision maker and regularly reviews our operations and performance
by segment. They review segment gain (loss) as the key measure of profit for the purpose of assessing performance of each segment and
to make decisions about the allocation of resources.


 


Financial information by reportable
business segment is as follows:


 


	 	 	Year ended December 31, 2020	 
	 	 	Technology and related
 revenue
	 	 	Technology services	 	 	Corporate	 	 	Total	 
	Consolidated income (loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenue	 	$	3,201,837	 	 	$	28,547,856	 	 	$	–	 	 	$	31,749,693	 
	Gross profit	 	 	2,169,414	 	 	 	13,980,842	 	 	 	–	 	 	 	16,150,256	 
	Selling and administrative expenses	 	 	6,012,270	 	 	 	4,606,557	 	 	 	416,075	 	 	 	11,034,902	 
	Stock-based compensation	 	 	–	 	 	 	–	 	 	 	725,316	 	 	 	725,316	 
	Research and development expenses	 	 	1,074,178	 	 	 	–	 	 	 	–	 	 	 	1,074,178	 
	Depreciation and amortization	 	 	2,429,329	 	 	 	2,829,914	 	 	 	–	 	 	 	5,259,243	 
	Foreign exchange gain	 	 	(65,303	)	 	 	(67,003	)	 	 	 	 	 	 	(132,306	)
	Interest, accretion and other financing expense	 	 	26,746	 	 	 	–	 	 	 	6,124,720	 	 	 	6,151,466	 
	Other income	 	 	(25	)	 	 	(10,348	)	 	 	–	 	 	 	(10,373	)
	Loss on revaluation of conversion feature liability	 	 	–	 	 	 	–	 	 	 	1,308,440	 	 	 	1,308,440	 
	Gain on contingent consideration	 	 	–	 	 	 	(946,503	)	 	 	–	 	 	 	(946,503	)
	Impairment of intangibles	 	 	–	 	 	 	2,258,369	 	 	 	–	 	 	 	2,258,369	 
	Loss on repayment of long-term debt	 	 	–	 	 	 	–	 	 	 	1,497,804	 	 	 	1,497,804	 
	Business acquisition costs	 	 	–	 	 	 	–	 	 	 	19,058	 	 	 	19,058	 
	Current income tax expense	 	 	–	 	 	 	106,986	 	 	 	–	 	 	 	106,986	 
	Deferred income tax expense (recovery)	 	 	61,879	 	 	 	(1,112,897	)	 	 	–	 	 	 	(1,051,018	)
	Segment income (loss)	 	 	(7,369,660	)	 	 	6,315,767	 	 	 	(10,091,413	)	 	 	(11,145,306	)
	Consolidated balance sheet	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total segment assets	 	$	18,908,266	 	 	$	23,811,393	 	 	 	–	 	 	$	42,719,659	 
	Total segment current liabilities	 	 	2,411,430	 	 	 	5,948,073	 	 	 	126,503	 	 	 	8,486,006	 
	Total segment non-current liabilities	 	 	–	 	 	 	2,993,328	 	 	 	11,093,401	 	 	 	14,086,729	 



 






    PAGE 31


     


    

 





 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)


 


	 	14.	Segmented financial information (continued)


 


	 	 	Year ended December 31, 2019	 
	 	 	Technology and related revenue	 	 	Technology services	 	 	 
Corporate
	 	 	 
Total
	 
	Consolidated income (loss)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenue	 	$	3,461,060	 	 	$	21,635,248	 	 	$	–	 	 	$	25,096,308	 
	Gross profit	 	 	1,799,404	 	 	 	9,020,583	 	 	 	–	 	 	 	10,819,987	 
	Selling and administrative expenses	 	 	1,397,310	 	 	 	4,576,823	 	 	 	2,980,379	 	 	 	8,954,512	 
	Stock-based compensation	 	 	–	 	 	 	–	 	 	 	195,113	 	 	 	195,113	 
	Research and development expenses	 	 	994,640	 	 	 	–	 	 	 	–	 	 	 	994,640	 
	Depreciation and amortization	 	 	1,555,543	 	 	 	1,946,886	 	 	 	–	 	 	 	3,502,429	 
	Foreign exchange (gain) loss	 	 	660,482	 	 	 	(443,442	)	 	 	–	 	 	 	217,040	 
	Interest, accretion and other financing expense	 	 	29,918	 	 	 	2,436,720	 	 	 	–	 	 	 	2,466,638	 
	Gain on revaluation of conversion feature liability	 	 	–	 	 	 	–	 	 	 	(2,330,964	)	 	 	(2,330,964	)
	Other (income) expense	 	 	–	 	 	 	(1,340	)	 	 	762,575	 	 	 	761,235	 
	Business acquisitions costs	 	 	–	 	 	 	–	 	 	 	484,387	 	 	 	484,387	 
	Tax expense (recovery)	 	 	(18,978	)	 	 	118,133	 	 	 	–	 	 	 	99,155	 
	Segment income (loss)	 	 	(2,819,511	)	 	 	386,803	 	 	 	(2,091,490	)	 	 	(4,524,198	)
	Consolidated
balance sheet	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 Total segment assets
	 	$	6,051,627	 	 	$	14,717,172	 	 	$	
–
	 	 	$	20,768,799	 
	Total segment current liabilities	 	 	2,360,626	 	 	 	3,114,908	 	 	 	2,485,882	 	 	 	7,961,416	 
	Total segment non-current liabilities	 	 	–	 	 	 	6,995,679	 	 	 	3,601,182	 	 	 	10,596,861	 




 


Property and equipment are located in the following countries:


 


	 	 	December 31, 2020	 	 	December 31,
    2019	 
	Canada Australia	 	$	120,511	 	 	$	94,023	 
	 	 	 	95,324	 	 	 	17,564	 
	 	 	$	215,835	 	 	$	111,587	 




 






    PAGE 32


     


    

 





 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars)  



 


	 	15.	Revenue


 


The Company generates revenue primarily
from the delivery of technology transcription services to its customers. Revenue from contracts with customers is disaggregated by primary
geographical market, major products and services and timing of revenue recognition. The table also includes a reconciliation of the disaggregated
revenue with the Company’s reportable segments (note 14).


 


	Primary geographical markets	 	Year ended December 31,	 
	 	 	2020	 	 	2019	 
	United States	 	$	
22,180,946
	 	 	$	14,484,717	 
	Australia	 	 	8,531,854	 	 	 	9,042,475	 
	United Kingdom	 	 	611,666	 	 	 	1,240,068	 
	Canada	 	 	305,166	 	 	 	275,066	 
	Other	 	 	120,061	 	 	 	53,982	 
	Total	 	$	31,749,693	 	 	$	25,096,308	 



 





	Major products / service lines	 	Year ended December 31,	 
	 	 	2020	 	 	2019	 
	Technology services	 	$	
28,190,993
	 	 	$	21,013,483	 
	Software licenses	 	 	1,013,854	 	 	 	272,513	 
	Support and maintenance	 	 	1,519,424	 	 	 	2,263,952	 
	SaaS	 	 	42,662	 	 	 	103,739	 
	Professional services	 	 	288,597	 	 	 	390,021	 
	Hardware	 	 	657,711	 	 	 	715,027	 
	Other	 	 	36,452	 	 	 	337,573	 
	Total	 	$	31,749,693	 	 	$	25,096,308	 



 


The Company had one customer who contributed
greater than 10 percent of consolidated total revenues during the year ended December 31, 2020 (December 31, 2019 – two
customers). During the year, this customer comprised 11.3 percent of consolidated revenue (December 31, 2019 – 26 percent).


 






    PAGE 33


     


    

 





 


VIQ Solutions Inc.





Notes to Consolidated Financial Statements





(Expressed
in United States dollars) 



 


	 	16.	Expenses by nature


 


Expenses incurred by nature are as follows:


 


	 	 	Year ended December 31	 
	 	 	2020	 	 	2019	 
	Employee and contractor expenses (note 17)	 	$	
 22,682,199
	 	 	$	19,509,742	 
	Inventory, materials and other cost of sales	 	 	1,043,844	 	 	 	940,685	 
	Depreciation and amortization	 	 	5,259,235	 	 	 	3,502,429	 
	Facilities	 	 	279,028	 	 	 	301,859	 
	Professional and consulting fees	 	 	1,566,224	 	 	 	1,031,364	 
	Investor relations and other shareholder expenses	 	 	288,778	 	 	 	305,527	 
	Bad debt	 	 	18,116	 	 	 	114,237	 
	Marketing and advertising/promotion expenses	 	 	226,104	 	 	 	162,848	 
	Software license and IT expenses	 	 	1,318,239	 	 	 	278,966	 
	Telephone and internet	 	 	260,634	 	 	 	514,006	 
	Travel	 	 	78,467	 	 	 	376,477	 
	Insurance	 	 	103,702	 	 	 	126,709	 
	Office, administrative, and other operating expenses	 	 	568,506	 	 	 	758,166	 
	Foreign exchange (gain) loss	 	 	(132,306)
  
 
	 	 	 	217,040	 
	Total	 	$	33,560,770	 	 	$	28,140,055	 



 


	 	17.	Employee benefit expense


 


Expenditures for employee benefits are as follows:


 


	 	 	Year ended December 31,	 
	 	 	2020	 	 	2019	 
	Salaries and wages and employee benefits	 	$	11,060,315	 	 	$	10,985,999	 
	Contract labour	 	 	9,818,222	 	 	 	7,760,273	 
	Stock-based compensation	 	 	725,316	 	 	 	195,113	 
	Other staff expense	 	 	1,078,346
  
 
	 	 	 	568,357	 
	Total	 	$	22,682,199	 	 	$	19,509,742	 



 






    PAGE 34


     


    

 


 


 


 


 





 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 


	18.	Right of Use Assets



 


Details of the Company’s right of use assets are the
following:


 


	 	 	Balance 
 January
 1, 2020	 	 	Additions	 	 	Disposals	 	 	Foreign 
 exchange	 	 	Balance 
 December
 31, 2020	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Buildings	 	$	1,048,596	 	 	$	56,925	 	 	$	(44,725	)	 	$	44,758	 	 	$	1,105,554	 
	Equipment	 	 	36,268	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	36,268	 
	 	 	$	1,084,864	 	 	$	56,925	 	 	$	(44,725	)	 	$	44,759	 	 	$	1,141,822	 
	Accumulated depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Buildings	 	$	426,516	 	 	$	333,725	 	 	$	(22,363	)	 	$	72,417	 	 	$	810,295	 
	Equipment	 	 	11,302	 	 	 	10,659	 	 	 	-	 	 	 	-	 	 	 	21,961	 
	 	 	$	437,818	 	 	$	344,384	 	 	$	(22,363	)	 	$	72,417	 	 	$	832,256	 
	Net book value	 	$	647,046	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	309,566	 




 


	 	 	Balance

January 

1, 2019  	 	 	Additions 	 	 	Foreign 

exchange  	 	 	Balance 

December

31,
2019 	 
	Cost  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Buildings	 	$	-	 	 	$	1,036,158	 	 	$	12,438	 	 	$	1,048,596	 
	Equipment	 	 	-	 	 	 	36,268	 	 	 	-	 	 	 	36,268	 
	 	 	$	-	 	 	$	1,072,426	 	 	$	12,438	 	 	$	1,084,864	 
	Accumulated depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Buildings	 	$	-	 	 	$	424,090	 	 	$	2,426	 	 	$	426,516	 
	Equipment	 	 	-	 	 	 	11,302	 	 	 	-	 	 	 	11,302	 
	 	 	$	-	 	 	$	435,392	 	 	$	2,426	 	 	$	437,818	 
	Net book value	 	$	-	 	 	 	 	 	 	 	 	 	 	$	647,046	 





 


	19.	Lease obligations



 


Below is a summary of the activity related to our lease
liabilities for the year ended December 31, 2020 and 2019:


 


	 	 	Year ended December 31 	 
	 	 	2020	 	 	2019	 
	Lease obligations, January 1, 2020	 	$	689,644	 	 	$	1,072,426	 
	Additions	 	 	12,199	 	 	 	-	 
	Disposals	 	 	(67,787	)	 	 	-	 
	Interest on lease liabilities	 	 	53,549	 	 	 	86,470	 
	Interest payments on lease liabilities	 	 	(53,549	)	 	 	(86,470	)
	Principal payments of lease liabilities	 	 	(338,276	)	 	 	(392,969	)
	Adjustments	 	 	(33,869	)	 	 	(3,328	)
	Foreign exchange difference	 	 	24,550	 	 	 	13,515	 
	Lease obligations, December 31, 2020	 	$	354,199	 	 	$	689,644	 





 






    PAGE 35


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



	19.	Leases (continued)



 


The Company and its subsidiaries have
entered into agreements to lease office premises until 2025. The annual rent expenses for premises consist of minimum rent and does not
include variable costs. The minimum payments under all agreements are as follows:


 


	2021	 	$	124,223	 
	2022	 	 	114,962	 
	2023	 	 	98,698	 
	2024	 	 	73,075	 
	2025	 	 	62,711	 
	 	 	$	473,669	 



 


	20.	Income taxes



 


The reconciliation of the combined Canadian federal and provincial
statutory income tax rate of 26.5% (2019 - 26.5%) to the effective tax rate is as follows:


 


	 	 	2020	 	 	2019	 
	Net loss before income taxes	 	$	(12,089,338	)	 	$	(4,425,043	)
	Expected income tax (recovery)	 	 	(3,203,675	)	 	 	(1,172,636	)
	Difference in foreign tax rates	 	 	202,331	 	 	 	-	 
	Share based compensation and non-deductible expenses	 	 	(114,257	)	 	 	(202,553	)
	Prior year true-ups	 	 	75,227	 	 	 	119,972	 
	Tax rate changes and other adjustments	 	 	2,210	 	 	 	(15,933	)
	Recognition of previously unrecognized deferred tax assets	 	 	(317,387	)	 	 	-	 
	Foreign exchange translation adjustment	 	 	-	 	 	 	(172,081	)
	Change in tax benefits not recognized	 	 	2,411,519	 	 	 	1,542,386	 
	Income tax expense	 	$	(944,032	)	 	$	99,155	 



 


The Company’s income tax expense (recovery) is allocated
as follows:


 


	 	 	2020	 	 	2019	 
	Current income tax expense	 	$	106,986	 	 	$	93,580	 
	Deferred income tax expense	 	 	(1,051,018	)	 	 	5,575	 
	Income tax expense (recovery)	 	$	(944,032	)	 	$	99,155	 



 






    PAGE 36


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 


	20.	Income taxes (continued)



 


The significant components of deferred tax assets are as
follows:


 


	 	 	2020	 	 	2019	 
	Non-capital losses carried forward	 	$	154,406	 	 	$	183,530	 
	Intangible assets	 	 	59,668	 	 	 	61,214	 
	Right of use assets	 	 	-	 	 	 	174,264	 
	Reserves	 	 	1,227,868	 	 	 	180,927	 
	Deferred tax assets	 	$	1,441,942	 	 	$	599,935	 
	Intangible assets	 	 	(43,564	)	 	 	(98,364	)
	Right of use assets	 	 	-	 	 	 	(171,234	)
	Other	 	 	(17,023	)	 	 	-	 
	Deferred tax liabilities	 	 	(60,587	)	 	 	(269,598	)
	Net deferred tax assets	 	$	1,381,355	 	 	$	330,337	 



 


The following tables present tax effects of temporary differences
and carry-forwards, as well as movements in the deferred tax balances:


 


	 	 	Balance at 

December 31,
    

2019	 	 	Recognized


    in profit

 and loss 	 	 	Other
 	 	 	Balance
at 

December 31, 

2020  	 
	Deferred tax assets (liabilities):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-capital losses carried forward	 	 	183,530	 	 	 	(29,124	)	 	 	-	 	 	 	154,406	 
	Intangible assets	 	 	(37,150	)	 	 	53,254	 	 	 	-	 	 	 	16,104	 
	Right of use assets	 	 	3,030	 	 	 	(3,030	)	 	 	-	 	 	 	-	 
	Reserves	 	 	180,927	 	 	 	1,046,941	 	 	 	-	 	 	 	1,227,868	 
	Other	 	 	-	 	 	 	(17,023	)	 	 	-	 	 	 	(17,023	)
	 	 	$	330,337	 	 	$	1,051,018	 	 	$	-	 	 	$	1,381,355	 





 


	 	 	Balance at	 	 	Recognized	 	 	 	 	 	Balance at	 
	 	 	January 1,	 	 	in profit	 	 	 	 	 	December	 
	 	 	2019	 	 	and loss	 	 	Other	 	 	31,2019	 
	Deferred tax assets (liabilities): Non-capital losses carried forward	 	 	267,137	 	 	 	(83,607	)	 	 	-	 	 	 	183,530	 
	Intangible assets	 	 	(110,373	)	 	 	73,223	 	 	 	-	 	 	 	(37,150	)
	Right of use assets	 	 	-	 	 	 	3,030	 	 	 	-	 	 	 	3,030	 
	Reserves	 	 	182,481	 	 	 	(1,554	)	 	 	-	 	 	 	180,927	 
	Other	 	 	-	 	 	 	3,333	 	 	 	(3,333	)	 	 	-	 
	 	 	$	339,245	 	 	$	(5,575	)	 	$	(3,333	)	 	$	330,337	 



 






    PAGE 37


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



	20.	Income taxes (continued)



 


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


 


	 	 	2020	 
	Property and equipment	 	 	633,070	 
	Intangible assets	 	 	3,762,917	 
	Share issuance costs – 20(1)(e)	 	 	318,920	 
	Non-capital losses carried forward – Canada	 	 	16,387,380	 
	Non-capital losses carried forward – US	 	 	344,750	 
	Capital losses carried forward – Canada	 	 	345,288	 
	Capital losses carried forward – Australia	 	 	570,372	 
	Investment tax credits	 	 	595,160	 
	SR&ED pool	 	 	1,862,140	 
	Share appreciation rights plan obligations	 	 	153,638	 
	Ontario SR&ED credit	 	 	92,195	 
	Contract liabilities	 	 	412,831	 
	Lease obligations	 	 	19,888	 
	Unrealized foreign exchange	 	 	674,146	 
	 	 	 	26,172,695	 



 


The Company has available Canadian non-capital losses of
approximately $16,387,380 and capital losses of approximately $345,288. The net capital loss carry-forward may be carried forward
indefinitely, but can only be used to reduce capital gains. These Canadian non-capital income tax losses expire between the years
2026 to 2040.


 


During the year ended December 31, 2020, the Company
utilized Canadian loss carry-forwards of approximately $nil (2019 - $nil) to reduce taxable income in the current year.


 


The Company also has investment tax credits available to
reduce future federal taxes payable of approximately $595,160 which expire between years 2025 to 2034.


 


The effective and statutory tax rate
in the Company’s Australian subsidiaries is 27.5% (2019 – 27.5%). These subsidiaries have capital losses of approximately
$570,372 (2019 – $245,455) available to offset future taxable capital gains. These losses do not expire.


 


The Company’s US subsidiaries have non-capital losses
of approximately $344,750 available to reduce future taxable income. These losses do not expire.


 


Unrecognized deferred tax liabilities


 


The aggregate amount of temporary differences
associated with investments in subsidiaries for which the Company have not recognized deferred tax liabilities is approximately $1,600,000
as the Company ultimately controls whether the liability will be incurred and is satisfied that it will not be incurred in the foreseeable
future.


 







    PAGE 38


     


    

 


 


VIQ Solutions Inc.


Notes to Consolidated Financial
Statements


(Expressed in United States
dollars)


 



	21.	Risk management for financial instruments



 


Fair values


 


The estimated fair values of cash,
trade and other receivables, restricted cash, trade and other payables, and share appreciation rights plan obligations approximate their
carrying values due to the relatively short-term nature of the instruments. The estimated fair values of current and long-term debt and
obligations under finance lease also approximate carrying values due to the fact that effective interest rates are not significantly different
from market rates.


 


Fair value measurements recognized in the consolidated balance
sheets must be categorized in accordance with the following levels:


 


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



 


		·	Level 2: inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly (i.e.
as prices) or indirectly (i.e. derived from prices); and



 


		·	Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).



 


The Company’s financial instruments
carried at fair value on the consolidated balance sheets consist of cash and restricted cash. Cash and restricted cash are valued using
quoted market prices (Level 1). Share appreciation rights and the conversion feature derivative liability are categorized using observable
market inputs (Level 2). The Company did not value any financial instruments using valuation techniques based on non-observable market
inputs (Level 3) as at December 31, 2020.


 


Liquidity risk


 


Liquidity risk is the risk that the
Company will not be able to meet its financial obligations as they become due. The Company’s approach in managing liquidity is to
ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, by continuously monitoring actual and budgeted cash flows.


 


The Company has sustained losses over
the last number of periods and has financed these losses mainly through a combination of equity and debt offerings. Management believes
that it has raised sufficient cash to meet all of its contractual debt that is coming due in 2021 and has the ability to fund any operating
losses that may occur in the upcoming periods.


 


The table below summarizes the Company’s
contractual obligations into relevant maturity groups at the balance sheet date based on the expected contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows for operations:


 


	 	 	2021	 	 	2022	 	 	2023	 	 	2024	 	 	2025	 	 	Total	 
	Trade and other payables
    and accrued liabilities obligations	 	$	5,305,600	 	 	$	–	 	 	$	–	 	 	$	–	 	 	$	–	 	 	$	5,305,600	 
	Share appreciation
    rights plan	 	 	126,503	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	126,503	 
	Lease obligations	 	 	124,223	 	 	 	114,962	 	 	 	98,698	 	 	 	73,075	 	 	 	62,711	 	 	 	473,669	 
	Contingent
    consideration	 	 	1,758,656	 	 	 	1,505,080	 	 	 	782,990	 	 	 	 	 	 	 	 	 	 	 	4,046,726	 
	Crown Capital
    debt	 	 	304,746	 	 	 	–	 	 	 	12,123,615	 	 	 	–	 	 	 	–	 	 	 	12,428,361	 
	wordZXpressed
    SBA loan	 	 	214,307	 	 	 	45,923	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	260,230	 
	wordZXpressed
    loan	 	 	400,000	 	 	 	400,000	 	 	 	400,000	 	 	 	–	 	 	 	–	 	 	 	1,200,000	 
	Transcription
    Express VTB loan	 	 	280,531	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	280,531	 
	HomeTech
    VTB loan	 	 	240,000	 	 	 	240,000	 	 	 	240,000	 	 	 	20,000	 	 	 	–	 	 	 	740,000	 
	Total	 	$	8,754,566	 	 	$	2,305,965	 	 	$	13,645,303	 	 	$	93,075	 	 	$	62,711	 	 	$	24,861,620	 




 


Credit risk


 


Credit risk arises from the potential
that a customer or counterparty will fail to perform its obligations. The Company is exposed to credit risk from its customers; however,
the Company has a significant number of customers, minimizing the concentration of credit risk. Further, a large majority of the Company’s
customers are economically stable organizations such as government agencies or departments with whom the Company transacts with on a regular
basis, further reducing the overall credit risk.


 


Historically, the Company has suffered
losses under trade receivables. In order to minimize the risk of loss from trade


 






    PAGE 39


     


    

 



 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)


 


21.            Risk
management for financial instruments (continued)


 


receivables, the Company’s extension of credit to customers
involves review and approval by senior management and conservative credit limits for new or higher risk accounts.


 


The Company reviews its trade receivable accounts regularly
and writes down these accounts to their expected realizable values, by making an allowance for expected credit losses, as soon as the
account is determined not to be fully collectible. The allowance is recorded as an expense in the consolidated statements of loss and
comprehensive loss. Shortfalls in collections are applied against this provision. Estimates for allowance for expected credit losses
are determined by a customer-by-customer evaluation of collectability at each balance sheet reporting date, taking into account the amounts
that are past due and any available relevant information on the customers’ liquidity and going concern issues. Normal credit terms
for amounts due from customers call for payment within 30 to 60 days.


 


The Company’s exposure to credit risk for trade receivables
by geographic area was as follows:


 


	 	 	December 31, 2020	 	 	December 31, 2019	 
	United States	 	 	65	%	 	 	54	%
	Australia	 	 	17	%	 	 	33	%
	United Kingdom	 	 	16	%	 	 	11	%
	Canada	 	 	0	%	 	 	1	%
	Rest of world	 	 	2	%	 	 	1	%
	 	 	 	100	%	 	 	100	%



 


The Company is subject to risk of non-payment of accounts receivable.
The Company mitigates credit risk by assessing the credit worthiness of customers prior to extending credit and monitoring the aging
and size of credit extended to customers. All of the Company’s cash is held with major financial institution and thus the exposure
to credit risk is considered insignificant. Management actively monitors the Company’s exposure to credit risk under its financial
instruments, including with respect to trade receivables.


 


The following is a breakdown of trade receivables aging, net
of allowance of doubtful accounts:


 


	 	 	December 31, 2020	 	 	December 31, 2019	 
	0 to 30 days	 	$	2,902,154	 	 	$	2,286,445	 
	31 to 60 days	 	 	661,408	 	 	 	636,975	 
	61 to 90 days	 	 	487,560	 	 	 	51,222	 
	91 days and older	 	 	424,629	 	 	 	194,903	 
	 	 	$	4,475,751	 	 	$	3,169,545	 



 


At December 31, 2020, the for allowance for doubtful
accounts recorded against trade receivables is $123,338 (2019 - $902,215). The activity of the allowance for doubtful accounts
provision is as follows:


 


	 	 	December 31, 2020	 	 	December 31, 2019	 
	Beginning of year	 	$	902,215	 	 	$	769,930	 
	Add: provision for allowance for doubtful accounts	 	 	18,116	 	 	 	114,237	 
	Less: write-offs	 	 	(815,817	)	 	 	–	 
	Foreign exchange adjustments	 	 	18,824	 	 	 	18,048	 
	Expected credit loss – end of year	 	$	123,338	 	 	$	902,215	 




 






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VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)


 


		21.	Risk management for financial instruments (continued)



 


Interest rate risk


 


Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s interest rate risk is
primarily related to the Company’s interest-bearing debts on its consolidated balance sheet. The Company does not have a material
amount of long-term debt with variable interest rates, thereby minimizing the Company’s exposure to cash flow interest rate risk.


 


Foreign currency risk


 


Foreign currency risk arises because of fluctuations in exchange
rates. The Company conducts a significant portion of its business activities in foreign currencies, primarily the U.S. and Australian
dollars and Great Britain pounds with a large portion of the Company’s sales and operating costs being realized in these foreign
currencies. The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash
flows by transacting, to the greatest extent possible, with third parties in Canadian, U.S. and Australian dollars.


 


The financial assets and liabilities that are denominated in
foreign currencies will be affected by changes in the exchange rate between the United States dollar and these foreign currencies. This
primarily includes cash, restricted cash, trade and other receivables, trade and other payables, provisions and obligations under finance
lease which were denominated in foreign currencies.


 


The Company’s Australian subsidiaries have a majority of revenue
and expenses being transacted in Australian dollars. As of December 31, 2020, fluctuations of the Australian dollar relative to
the United States dollar of 5% would result in an exchange gain or loss on the net financial assets, impacting the Company’s comprehensive
income by approximately $58,000 (2019 –$1,000).


 


The Company’s computer products and services operations
are exposed to exchange rate changes in the U.S. dollar relative to the Canadian dollar since a substantial portion of this business
unit’s sales are denominated in U.S. dollars with most of the related expenses in Canadian dollars. A 5% fluctuation of the U.S.
dollar would result in an exchange gain or loss on the net financial assets of approximately $78,000 (2019 – $33,000) as at December 31,
2020.


 


The Company’s computer products and services operations
are exposed to exchange rate changes in the Great Britain pound relative to the United States dollar since a portion of this business
unit’s sales are denominated in Great Britain pounds with most of the related expenses in United States dollars. A fluctuation
of the Great Britain pound of 5% would result in an exchange gain or loss on the net financial assets of approximately $23,000 (2019
 – $nil) as December 31, 2020.


 


The Company does not currently use foreign exchange contracts
to hedge its exposure of its foreign currencies cash flows as management has determined that this risk is not significant at this point
in time. The Company recognized a foreign exchange gain from operations of $132,306 for the year ended December 31, 2020 (2019 –
foreign exchange loss of $217,040).


 


Capital management


 


The Company considers its capital structure to consist of shareholders’
equity, long-term debt and convertible debt. The Company’s objective in managing capital is to ensure sufficient liquidity to pursue
its organic growth strategy, fund research and development and undertake selective acquisitions, while at the same time taking a conservative
approach toward financial leverage and management of financial risk.


 






    PAGE 41


     


    




 


 


VIQ Solutions Inc.


Notes to Consolidated Financial Statements


(Expressed in United States dollars)


 


		22.	Related party transactions



 


Key management personnel are comprised of the Company’s
directors and executive officers. In addition to their salaries, key management personnel also participate in the Company’s share
option program (note 11), DSU plan, SAR plan. Key management personnel compensation for the year ended December 31, 2020 and December 31,
2019 is as follows:


 


	 	 	2020 
 
 
	 	 	2019
 
 
	 
	 Salaries and short-term employee benefits (i)	 	$	1,141,349	 	 	$	1,018,166	 
	Stock-based compensation	 	 	491,638	 	 	 	106,959	 
	 	 	$	1,632,987	 	 	$	1,125,125	 



 


		(i)	Short-term employee benefits include bonuses and car allowances



 


Subsequent to the year ended December 31, 2020, the Company
granted a non-revolving executive loan (the “Executive Loan”) to Sebastien Paré, President, Chief Executive Officer
and a director of the Company in the aggregate amount of $518,431 (CAD$657,838) to: (i) facilitate Mr. Paré exercise
of certain vested outstanding stock options; and (ii) facilitate Mr. Paré repaying certain indebtedness incurred in
connection with Mr. Paré previous exercise of convertible securities of the Company. The Executive Loan matures on February 10,
2028 and bears interest at a rate of 1.0% per annum. The Executive Loan is secured by a pledge of 175,000 common shares in the capital
of the Company held by Sebastien Paré in favor of the Company (the “Share Pledge”). Pursuant to the terms of the Share
Pledge, Mr. Paré has agreed to comply with certain covenants in favor of the Company.


 


		23.	Other income (expense)



 


During the year ended December 31, 2020, there was a gain
on disposal of $3,042 related to the termination of operating lease due to migration to remote workforce. Other income of $5,454 of was
recorded related to an allowance for doubtful account that was written off and later collected, $1,068 of interest income, and $809 of
miscellaneous income resulting in an aggregate total of $10,373 was recorded in the statements of loss and other comprehensive loss during
the year ended December 31, 2020.


 


On January 31, 2019, the Company entered into an agreement
to settle certain outstanding fees owed to an arm’s length service provider. Pursuant to such agreement, the Company issued 659,600
units (each a “Unit”) in satisfaction of $1,000,000 (CAD$1,319,200) based on the Bank of Canada Exchange Rate on January 30,
2019 of fees owed to such service provider. Each Unit is comprised of one common share and one common share purchase warrant. The common
share purchase warrants are exercisable for a period of two years from the date of issuance at an exercise price of CAD $2.60 per share.
The Company calculated the fair value of the units to be $1,766,227 and the difference of $762,575 is recorded in other expense on the
statements of loss and other comprehensive loss for 2019. Offsetting the amount, there was interest income of $1,340 for the year ended
December 31, 2019.


 


		24.	Subsequent events



 


The Company received proceeds of approximately $2,307,000 from
the exercise of 1,123,878 warrants and 178,333 stock options in January and February of 2021. The exercise prices of the warrants
ranges from C$2.06 to $3.24 and the exercise prices of the stock options ranges from C$1.20 to C$2.20.


 






    PAGE 42