solium capital inc. management’s discussion and analysis ... · solium capital inc. md&a for...

Solium Capital Inc. MD&A for the year ended DECEMBER 31, 2018

SOLIUM CAPITAL INC. MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2018

This Management’s Discussion and Analysis (“MD&A”) of Solium Capital Inc. (“Solium” or the “Company”) for the year ended December 31, 2018 is dated March 12, 2019. This MD&A should be read in conjunction with the audited Consolidated Financial Statements and the accompanying notes for the year ended December 31, 2018. The audited Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

Additional information relating to the Company, including the Company’s annual information form (“AIF”) for the year ended December 31, 2018, is available on SEDAR at www.sedar.com under Solium Capital Inc.

All dollar amounts discussed in the MD&A are in U.S. dollars unless otherwise specified.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements included or incorporated by reference in this MD&A constitute forward-looking statements or forward-looking information under applicable securities legislation. Forward-looking statements or information typically contain statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information in this MD&A include but are not limited to expectations regarding future revenues, earnings, capital expenditures and the funding thereof, and operating and other costs; the expectation that the Company will not suffer significant credit losses; business strategy and objectives; the sufficiency of cash and working capital for ongoing operations and growth strategies; the potential impact of critical accounting estimates and judgements on the Company’s consolidated financial statements; the projects with Morgan Stanley and UBS Financial Services Inc. including the revenue anticipated to be derived there from, the financial impact of new hires and plans to hire additional employees; the anticipated timing of completing migrating the Morgan Stanley and UBS customers onto Shareworks; the Company’s investment strategy, including plans to continue to invest for future revenue growth; and the anticipated timing of completing the Arrangement.

Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this MD&A, assumptions have been made regarding, among other things, the Company's transition to new products and releases; the number of customer transactions; the length of the sales cycles; the competitive environment; the ability to maintain or accurately forecast revenue from the Company's products or services; the ability of the Company to identify, hire, train, motivate and retain qualified personnel; currency fluctuations; the ability of the Company to develop, introduce and implement new products as well as enhancements or improvements for existing products that respond, in a timely fashion, to customer/product requirements and rapid technological change; risks associated with operations; the impact of any changes in the laws and regulations in the jurisdictions in which the Company operates; the effect of new accounting pronouncements or guidance; and the Company’s ability to realize the anticipated benefits from its investments in the partnerships with Morgan Stanley and UBS Financial Services Inc. and its investments to accelerate its position in the private company market; and the satisfaction of conditions to the completion of the Arrangement, the parties to the Arrangement Agreement complying with their obligations thereunder, and no event occurring that could give rise to the termination of the Arrangement Agreement.

Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements or information because the Company can give no assurance that such expectations will prove to be correct. The forward-looking statements and information are based on Solium’s current expectations, estimates and projections, and are subject to a number of significant risks and uncertainties that could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, among others, general business and economic conditions; the overall performance of stock market(s); actions of competitors and partners; the regulatory environment; the corporate governance environment and regulatory reporting requirements for Solium’s clients; product capability and acceptance; the Company’s ability to generate sufficient cash flow from operations to meet its current and future obligations; the Company’s ability to access external

http://www.sedar.com/


sources of financing if required; the inability to satisfy the conditions to the completion of the Arrangement; and the occurrence of an event that could give rise to the termination of the Arrangement Agreement. A more detailed assessment of the risks that could cause actual results to materially differ from current expectations is contained in the Risk Assessment section of this MD&A and in the Company’s AIF. The foregoing is not exhaustive and other risks are detailed from time to time in other continuous disclosure filings of the Company. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements or information prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. These forward-looking statements contained herein are made as of the date of this MD&A. The Company does not intend to nor does it assume any obligation to update publicly or to revise any of the forward-looking statements, whether as a result of new information, subsequent events or otherwise, except as required by law. OVERVIEW OF THE COMPANY

Solium Capital Inc. (TSX: SUM) provides cloud-enabled services for global equity-based incentive plans including administration, financial reporting and compliance. From offices in the United States, Canada, Europe, Australia, and Hong Kong, the Company’s innovative software-as-a-service (SaaS) technology powers share plan administration and equity transactions for more than 3,000 corporate clients with employee participants in more than 100 countries. Solium’s Shareworks platform provides functionality that streamlines a corporation’s workflow relating to the issuance of equity incentives, the exercise of incentives, reporting of incentives and day-to-day maintenance of the incentives database. The technology provides constant online access to reports for securities regulators, internal management and financial disclosure purposes.

Solium’s solutions empower plan participants of corporations by providing them with online access to review their stock incentive portfolios from any internet-connected computer or mobile device, anywhere in the world. Plan participants have access to the financial markets through Solium’s direct connection to its brokerage partners. Solium’s private company solutions include capitalization table management, valuation services, compensation data and compensation planning tools.

Revenue is primarily earned on a recurring basis through Solium’s multiple sales channels (direct sales, white-label partners, and other third party channel partners). Through these channels, revenue is derived from corporate clients, and the equity transaction activities of their associated employee plan participants. From corporate clients and white-label partners, Solium receives recurring access, subscription or maintenance fees. From share transaction activity, revenue is received from participants in the form of transaction and money movement fees, foreign exchange services, and fees that are based on the share transactions executed by the brokerage partners for Solium’s participants. In addition, the Company receives one-time (non-recurring) revenue for the implementation of plans for new clients onto the system, ad hoc customization and consulting.


FINANCIAL HIGHLIGHTS1 For the years ended December 31, (in thousands of U.S. dollars except per share amounts and percentages)

2018 %

Change 20173 %

Change

20164

Revenue 108,344 26% 86,086 11% 77,219 Adjusted EBITDA2 15,270 22% 12,481 (20%) 15,558 Earnings before taxes 7,722 15% 6,718 (2%) 6,859 Net earnings 4,900 46% 3,358 (16%) 3,974

Per share – basic 0.087 30% 0.067 (16%) 0.080 Per share – diluted 0.086 30% 0.066 (15%) 0.078

Margins Adjusted EBITDA2 14% 0% 14% (6%) 20% Earnings before taxes 7% (1%) 8% (1%) 9% Net earnings 5% 1% 4% (1%) 5% Total assets 195,181 11% 175,957 50% 117,144 Total non-current liabilities 9,894 644% 1,330 74% 765

Notes:

1. Financial information has been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

2. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are non-IFRS financial measures which do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. EBITDA and Adjusted EBITDA provide useful information to users as they reflect the net earnings prior to the effect of non-operating expenses such as finance income, income taxes, depreciation of property and equipment, depreciation of right of use assets, amortization of intangible assets, amortization of contract costs, foreign exchange gain or loss (on translation of working capital), share-based payments, adjustment of earn-out payable, gain on derecognition of liability, sales tax adjustment, and change in estimate of scientific research and experimental development (“SRED”) investment tax credits. Management uses Adjusted EBITDA in measuring the financial performance of the Company. Management monitors Adjusted EBITDA against budget and past results on a regular basis. The measure is a component in determining the annual bonus pool for staff and management. The following is a reconciliation of Adjusted EBITDA to net earnings:

For the years ended December 31, 2018 20173 20164

Adjusted EBITDA 15,270 12,481 15,558 Foreign exchange gain (loss) 1,567 (448) (1,223) Share-based payments (3,423) (2,437) (2,195) Gain on derecognition of liability - - 445 Adjustment of earn-out payable 926 - - Sales tax adjustment included in operating expenses - 1,302 (330) Change in estimate for SRED investment tax credits - - (2,185) EBITDA 14,340 10,898 10,070 Finance income 1,095 1,002 652 Depreciation of property and equipment (1,964) (1,880) (1,225) Depreciation of right of use assets (1,911) - - Amortization of intangible assets (3,060) (2,712) (2,638) Amortization of contract costs (778) (590) - Income taxes (2,822) (3,360) (2,885) Net earnings 4,900 3,358 3,974

3. Financial information for 2017 has been restated for the adoption of IFRS 15, no restatement for IFRS 16.

4. Financial information for 2016 has not been restated for the adoption of IFRS 15 and IFRS 16.


RESULTS FROM OPERATIONS Currently included in the International reportable segment are the results relating to the U.K., Europe, Australia, and Hong Kong operations.

Summary of results by geographic segment:

Years Ended December 31, Canada U.S. International Consolidated

2018 2017 2018 2017 2018 2017 2018 2017 Revenues 33,089 29,652 58,127 41,703 17,128 14,731 108,344 86,086 Adjusted EBITDA(a) 9,310 8,307 5,051 4,889 909 (715) 15,270 12,481 Adjusted EBITDA %(a) 28% 28% 9% 12% 5% (5%) 14% 14% Earnings (loss) from operations 5,323 5,253 (283) 2,472 (906) (1,561) 4,134 6,164

OVERALL PERFORMANCE

Revenue increased by 26% to $108.3 million (2017: $86.1 million) and earnings from operations decreased by 33% to $4.1 million (2017: $6.2 million) for the year ended December 31, 2018. Adjusted EBITDA(a) increased by 22% to $15.3 million (2017: $12.5 million) for the year ended December 31, 2018. (a) Adjusted EBITDA is a non-IFRS financial measure. A reconciliation of the consolidated year end adjusted EBITDA to net earnings (loss) is found under “Financial Highlights” on page 3 in this MD&A.

The key factors affecting the results for the year ended December 31, 2018 were:

• License revenue – License and subscription fees increased by $16.5 million or 29% for the year ended December 31, 2018 as compared to 2017. Based on local currencies, the growth was 27% as compared to 2017. Growth in license revenue is largely driven by the U.S. white label agreements, organic growth from new sales in all regions, and revenue from the acquired Capshare and Advanced-HR businesses.

• Transaction activity – In addition to the recurring license revenue that Solium collects for the use of its technology platforms, the Company also collects re-occurring transaction based revenue. Transaction based revenue increased by $3.4 million or 13% compared to 2017. The per-participant trading activity was 2% higher in 2018 compared to 2017 and 6% higher than the historical five-year average.

• Operating costs – Operating expenses (excluding 2017 sales tax adjustment) increased by $23.0 million or 28% compared to 2017. The increases are primarily driven by planned hiring to support the U.S. white label agreements; costs from the new businesses of Capshare, Solium Analytics and Advanced-HR; and the resulting incremental systems and infrastructure costs. The Company also incurred costs in the first half of 2018 associated with an investment opportunity that did not materialize, further contributing to the increase over 2017. The Company had 781 full-time equivalent employees (FTEs) at the end of 2018 compared to 677 FTEs at the end of 2017.

2018 acquisition:

• In February 2018, the Company acquired Advanced-HR, a U.S. company that provides compensation data and compensation planning software for private and venture backed companies. Advanced-HR provides compensation data through its products OptionDriver and OptionImpact to over 2,500 private companies and 120 venture capital firms.


Subsequent event:

• On February 10, 2019, Solium entered into a definitive arrangement agreement (the “Arrangement Agreement”) with Morgan Stanley and a wholly-owned subsidiary of Morgan Stanley (“AcquistionCo”) under which Morgan Stanley, through AcquisitionCo, will acquire all of the issued and outstanding Common Shares at a price of CAD$19.15 per Common Share (the “Arrangement”), subject to receipt of certain approvals. The total transaction was valued at approximately $900 million (CAD$1.1 billion) at the time of the announcement. Subject to receiving regulatory approvals the Arrangement is expected to close in the second quarter of 2019. Readers are referred to the management information circular (the “Arrangement Circular”) of the Company dated March 12, 2019 relating to the special meeting of the Securityholders of the Company called to consider the Arrangement and posted on SEDAR for additional information regarding the Arrangement. The Arrangement Circular is not incorporated by reference into this MD&A.

Changes in significant accounting policies: The Company has adopted IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases effective January 1, 2018. IFRS 9 Financial Instruments is also effective from January 1, 2018 but did not have a material impact on the Company’s financial information. For more information, refer to note 4 of the Company’s Consolidated Financial Statements for the year ended December 31, 2018. Revenue

Revenue increased by 26% to $108.3 million in 2018 (2017: $86.1 million). This represents an increase of $22.2 million over the results from 2017.

Canadian revenue increased by 12% to $33.1 million in 2018 (2017: $29.7 million). Revenue increased between the comparable periods due to an increase in license and subscription fees primarily driven by organic growth as well as higher transaction based revenue.

U.S. revenue increased by 39% to $58.1 million in 2018 (2017: $41.7 million). Revenue increased between the comparable periods due to higher license and subscription fees, one-time revenue and transaction based revenue. The increase in license and subscription fees is largely driven by the U.S. white label agreements and revenue from the acquired businesses Capshare and Advanced-HR, while the increase in one-time revenue is due to valuation services provided by Solium Analytics.

International revenue increased by 16% to $17.1 million in 2018 (2017: $14.7 million). Revenue increased between the comparable periods due to growth in license and subscription fees and higher transaction based revenue.

Expenses

Operating expenses were $104.2 million in 2018 (2017: $79.9 million). This represents an increase of $24.3 million over the results from 2017.

Operating expenses increased over the same period in 2017 primarily due to planned hiring to support the U.S. white label agreements, additional headcount from the acquisitions of Capshare and Advanced-HR, and the growth of the Solium Analytics valuation services.

The increase in operating expenses was also attributed to the reassessment of historical sales tax amounts in 2017, which reduced operating expenses by $1.3 million and acquisition costs of $0.1 million (2017: $0.3 million).

Finance Income and Costs

Finance income of $1.1 million was recorded during 2018 (2017: $1.0 million), representing the interest earned on cash and term deposits, partially offset by the accretion of interest expense from lease liabilities.


Foreign Exchange Gain or Loss

A foreign exchange gain of $1.6 million was recorded during 2018 (2017: loss $0.4 million). The gain or loss predominantly represents unrealized translation gains or losses on foreign currency denominated cash, trade receivables and payables, and intercompany balances held by the Canadian parent company as at December 31, 2018. A gain primarily reflects the weakening of the CAD against foreign currencies during the period, while a loss represents the strengthening of the CAD against such currencies.

Income Taxes

$2.8 million of income tax expense was recorded in 2018 (2017: $3.4 million). The effective income tax rate relative to earnings before income taxes was 36.5% in 2018, a decrease from 50.0% in 2017.

The overall effective tax rate decreased compared to 2017 mainly due to the following factors: 1) a decrease in the U.S. statutory corporate income tax rate as a result of U.S. tax reform and 2) a non-taxable adjustment relating to the change in fair value of the earn-out payable.

Other Comprehensive Income

An unrealized foreign currency translation loss of $8.0 million was recorded in 2018 (2017: gain $5.4 million) resulting from the translation of the Company’s assets and liabilities in its Canadian, U.K., European, Australian, and Hong Kong operations to USD. A gain primarily reflects the strengthening of the foreign currencies against the USD during the period, while a loss represents the weakening of the foreign currencies against the USD.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents and Working Capital

Cash and cash equivalents on hand as at December 31, 2018 was $97.0 million (2017: $100.2 million).

Working capital including cash and cash equivalents as at December 31, 2018 was $89.1 million (2017: $92.9 million). Included in working capital is trade and other receivables of $19.8 million (2017: $15.0 million) and trade payables and other accruals of $15.6 million (2017: $13.2 million).

Cash Flows

During the year ended December 31, 2018 the Company had an overall decrease in cash and cash equivalents of $3.2 million (2017: increase $36.5 million).

Total cash from operating activities was $13.1 million for the year ended December 31, 2018 (2017: $15.0 million). Cash from financing activities was $2.3 million for the year ended December 31, 2018 (2017: $38.1 million) as a result of the issuance of Common Shares from employee stock option exercises offset by payment of lease liabilities. Cash used in investing activities was $11.4 million for the year ended December 31, 2018 (2017: $21.1 million). The cash used in investing activities in 2018 is primarily as a result of the Advanced-HR acquisition.

The unrealized effect of foreign exchange on cash held in foreign currencies decreased cash by $7.2 million for the year ended December 31, 2018 (2017: increased $4.6 million). This was driven primarily by the weakening of the Canadian dollar against the USD in 2018.

Liquidity

In addition to cash and cash equivalents and non-cash working capital discussed above, the Company has a $15 million CAD undrawn revolving credit facility. During the period, the Company extended the term of its $15 million CAD revolving credit facility to November 2019. The definitions of the financial covenants were amended to reflect recent accounting policy changes. All other terms remained substantially the same.

The Company believes it will generate sufficient cash and working capital from operations to fund ongoing operations and growth strategies.


Contractual Obligations

Lease liabilities 2018 $

Maturity analysis – contractual undiscounted cash flows Less than one year 1,952 One to five years 6,582 More than five years 6,601 Total undiscounted lease liabilities 15,135 Trade payables and other accruals was $15.6 million as at December 31, 2018 and are all due within 12 months.

Capital Expenditures

Capital expenditures of $3.2 million for the year ended December 31, 2018 (2017: $7.6 million) were comprised of computer hardware and computer software, additional leasehold improvements for expansion of the Calgary office and office furniture for the new U.K. and U.S. offices.

It is expected that ongoing capital expenditures will be financed from cash flows generated by operating activities.

Capital Resources

Current economic conditions have not caused a significant change in the Company’s objectives, policies or procedures for managing capital.

The Company has regulated subsidiaries that are required to maintain minimum cash or short term investment balances, or net capital requirements. As at December 31, 2018, the subsidiaries held more than the required amount of cash or short term investments, and met net capital requirements.

Share Capital

As at December 31, 2018, the Company had 56,723,933 outstanding Common Shares.


SUMMARY OF QUARTERLY RESULTS (In thousands of U.S. dollars except per share amount) The following table summarizes the quarterly results for the eight most recently completed quarters3:

2018 20174

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Revenues2 27,086 28,257 26,907 26,094 22,876 20,542 21,432 21,236

Operating expenses2 25,643 25,660 27,591 25,316 23,054 19,566 19,450 17,852

Adjusted EBITDA1, 2 4,152 5,419 2,223 3,476 1,760 2,055 3,712 4,954

Earnings (loss) from operations2 1,443 2,597 (684) 778 (178) 976 1,982 3,384

Earnings (loss) before income taxes2 3,077 3,169 (608) 2,084 374 550 1,825 3,969

Net earnings (loss)2 1,848 2,310 (536) 1,278 (458) (306) 1,583 2,539 Net earnings (loss) per share – basic2 – diluted2

$0.033 $0.032

$0.041 $0.040

($0.010) ($0.010)

$0.023 $0.022

($0.008) ($0.008)

($0.006) ($0.006)

$0.031 $0.031

$0.051 $0.050

The following is a reconciliation of Adjusted EBITDA to net earnings (loss) for the eight most recently completed quarters:

2018 20174 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Adjusted EBITDA 4,152 5,419 2,223 3,476 1,760 2,055 3,712 4,954

Foreign exchange gain (loss) 1,392 (652) (149) 976 156 (649) (352) 397

Share-based payments (906) (872) (897) (749) (786) (629) (562) (460)

Adjustment of earn-out payable - 926 - - - - - -

Sales tax adjustment included in operating expenses - -

-

- 361 941 - -

EBITDA 4,638 4,821 1,177 3,703 1,491 1,718 2,798 4,891

Finance income 242 298 225 330 396 223 195 188

Depreciation of property and equipment (329) (523) (538) (574) (535) (621) (381) (343)

Depreciation of right of use assets (491) (474) (497) (449) - - - -

Amortization of intangible assets (771) (772) (795) (722) (823) (618) (643) (628)

Amortization of contract costs (212) (181) (180) (204) (155) (152) (144) (139)

Income taxes (1,229) (859) 72 (806) (832) (856) (242) (1,430)

Net earnings (loss) 1,848 2,310 (536) 1,278 (458) (306) 1,583 2,539 Notes:

1. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) and Adjusted EBITDA are non-IFRS financial measures which do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. EBITDA and Adjusted EBITDA provide useful information to users as they reflect the net earnings prior to the effect of non-operating expenses such as finance income, income taxes, depreciation of property and equipment, depreciation of right of use assets, amortization of intangible assets, amortization of contract costs, foreign exchange gain or loss (on translation of working capital), share-based payments, adjustment of earn-out payable, and sales tax adjustment. Management uses Adjusted EBITDA in measuring the financial performance of the Company. Management monitors Adjusted EBITDA against budget and past results on a regular basis. The measure is a component in determining the annual bonus pool for staff and management.

2. Comparability of quarterly results is affected by factors such as fluctuation of foreign currency exchange rates used to translate foreign denominated results into U.S. dollars, share-based payments, adjustment of earn-out payable and sales tax adjustment. See also “Factors Contributing to Quarterly Results – Participant Activity”.

3. Financial information has been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards

Board.

4. Financial information for 2017 has been restated for the adoption of IFRS 15, no restatement for IFRS 16.


FACTORS CONTRIBUTING TO QUARTERLY RESULTS Participant Activity

The transaction based fees collected from participants are affected by several factors, some of which are seasonal. These factors include: (i) grant vesting dates; (ii) grant termination dates; (iii) the pattern of the Canadian population of making retirement contributions in the first quarter of every year; (iv) the stock trading prices for a corporate client relative to an employee participant’s associated option exercise price; and (v) employee participant perceptions of future stock trading prices. Historically, the first three factors contribute to higher transaction based fees in the first quarter of a given year. However, the actual magnitude of transaction based fees for a specific quarter or year is difficult to predict, primarily due to the last two factors. Analysis of Fourth Quarter 2018

• Revenue increased by 18% to $27.1 million in the fourth quarter of 2018 (2017: $22.9 million) as a result of growth from license and subscription fees. Growth in license revenue is largely driven by the Morgan Stanley and UBS license agreements in the U.S., organic growth from new sales, and revenue from the acquired Advanced-HR and Capshare businesses.

• Operating expenses increased by 11% to $25.6 million in the fourth quarter of 2018 (2017: $23.1 million). The increase is primarily as a result of planned hiring to support the Morgan Stanley and UBS partnerships.

• Adjusted EBITDA increased by 136% to $4.2 million in the fourth quarter of 2018 (2017: $1.8 million).

• Net earnings of $1.8 million in the fourth quarter of 2018 (2017: net loss $0.5 million), an increase of $2.3 million as compared to the same period in 2017.

• Net earnings per share of $0.033 in the fourth quarter of 2018 (2017: net loss per share $0.008).

Currently included in the International reportable segment are the results relating to the U.K., Europe, Australia, and Hong Kong operations. Summary of results by geographic segment during the fourth quarter ended December 31, 2018 were as follows:

Three Months Ended December 31, Canada U.S. International Consolidated

2018 2017 2018 2017 2018 2017 2018 2017 Revenues 7,546 7,707 15,760 11,280 3,780 3,889 27,086 22,876 Adjusted EBITDA(a) 2,256 1,287 2,224 515 (328) (42) 4,152 1,760 Adjusted EBITDA %(a) 30% 17% 14% 5% (9%) (1%) 15% 8% Earnings (loss) from operations 1,418 380 825 (258) (800) (300) 1,443 (178) (a) Adjusted EBITDA is a non-IFRS financial measure. A reconciliation of the consolidated year end adjusted EBITDA to net earnings (loss) is found under “Financial Highlights” on page 3 in this MD&A.

Total cash from operating activities was $7.2 million for the three month period ended December 31, 2018 (2017: $8.5 million). Cash from financing activities was $0.5 million for the three month period ended December 31, 2018 (2017: $36.4 million) as a result of the issuance of Common Shares from employee stock option exercises offset by payment of lease liabilities. Cash used in investing activities was $1.8 million for the three month period ended December 31, 2018 (2017: $15.5 million). The cash used in investing activities in the three month period ended December 31, 2018 is primarily as a result of the Capshare earn-out.


CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes can differ from these estimates.

The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial statements are:

Business combinations

The Company accounts for business combinations using the acquisition method, under which it allocates the excess of the purchase price of business acquisitions over the fair value of identifiable net assets acquired to goodwill. One of the most significant estimates relates to the determination of the fair value of the assets and liabilities acquired. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, purchase price allocations are derived from a formal valuation, which, where appropriate, is performed by an independent third party valuation expert. Fair values are determined using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows and are closely linked to the assumptions made by management regarding the future performance of the assets concerned and the discount rate applied.

Any goodwill or intangible assets with indefinite useful lives acquired in business combinations are not amortized to income over their useful lives but are assessed annually for any potential impairment in value.

All other intangible assets are amortized to operations over their estimated useful lives. The Company’s intangible assets relate to acquired technology, brand, customer relationships and non-compete agreements. The Company also reviews the carrying value of amortizable intangible assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected from its use and eventual disposition. In assessing the recoverability of these intangible assets, the Company must make assumptions regarding estimated future cash flows, market conditions and other factors to determine the fair value of the assets. If these estimates or related assumptions change in the future, the Company may be required to record impairment charges for these assets.

Discount rate for the measurement of lease liability

Lease liability is measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the implicit interest rate in the lease. If the rate cannot be readily determined, the lessee’s incremental rate of borrowing is used. The Company estimates the incremental borrowing rate based on the economic environment, the nature and quality of the asset, the Company’s credit rating and other factors.

Accrual for scientific research and experimental development credits

The Company accrues an estimated reduction to its operating expenses related to SRED credits based on an estimate of eligible expenses under the Canadian government’s SRED incentive program. The estimated credits are reviewed periodically and updated if necessary. Where the final amounts of credit are different from the amounts accrued, such differences will affect the operating results in the period in which such determination is made.

Useful lives of property and equipment

The Company estimates the useful lives of property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property and equipment are based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property and equipment would increase the recorded expenses and decrease the non-current assets.


Fair value of financial instruments

The estimated fair value of financial assets and liabilities, by their very nature, are subject to measurement uncertainty.

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from financial forecasts and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

Taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net earnings to the extent they relate to a business combination or are items recognized directly in equity or comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates substantively enacted at the reporting date. Deferred tax is recognized using the asset and liability method on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, deferred tax is not recognized if it arises from initial recognition of goodwill or an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting net earnings nor taxable income. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realized or deferred tax liability is settled. A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

Share-based payment transactions

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility and dividend yield of the share option.

Determination of functional currency

The determination of the functional currency is a matter of determining the primary economic environment in which an entity operates. Solium uses judgment in the ultimate determination of each subsidiary’s functional currency based on factors in IAS 21 The Effects of Changes in Foreign Exchange Rates. The functional currency of the Canadian and U.S. operations were determined to be the Canadian and U.S. dollars, respectively. The functional currency of other operations is determined to be their local currencies.

Useful life of contracts

The Company amortizes capitalized commission fees over the expected life of the contract. The expected life of the contract is estimated based on historical attrition rates.


Determination of stand-alone selling price

The Company determines the total transaction price at the inception of the contract and allocates to each performance obligation based on their relative stand-alone selling price. When determining the stand-alone selling price, the Company considers various factors such as, the Company’s pricing strategies and objectives, market conditions, industry pricing and the geographic area where the product and services are sold.

Expected credit loss

The ECLs were calculated based on the expected credit loss for each client with an accounts receivable balance of greater than 90 days past due. When determining the ECLs, the Company considers the client’s financial position, service and payment history and economic conditions.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience, informed credit assessment and forward-looking information. FUTURE ADOPTION OF ACCOUNTING PRONOUNCEMENTS

There were no new standards, interpretations, amendments and improvements to existing standards relevant to the Company’s operations that were issued by the IASB or International Financial Reporting Interpretations Committee (“IFRIC”) that are not yet effective for the year ended December 31, 2018 and have not been applied in preparing the Company’s consolidated financial statements. FINANCIAL INSTRUMENTS

Exposure to counterparty credit risk, interest rate risk and foreign currency risk arises in the normal course of the Company’s business. The Company currently does not enter into derivative financial instruments to reduce exposure to fluctuations in any of the risks impacting the Company’s operations.

The Company has credit risk as a result of its trade accounts receivable. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated. As such, the Company does not anticipate any significant credit losses. Of the trade receivable balance at December 31, 2018, one customer represented greater than 10% of the balance.

The Company has foreign currency risk mainly because it is exposed to foreign currency fluctuations due to its operations in Canada, the United States, United Kingdom, Europe, Australia, and Hong Kong.

The Company currently has no interest rate risk as the Company has no long-term debt outstanding.

DISCLOSURE CONTROLS AND PROCEDURES

The Company has a Corporate Disclosure Policy in place to ensure that communications with the public about the Company are timely, factual and accurate; disseminated in accordance with all applicable legal and regulatory requirements; and that all material information in respect of the Company is communicated to the Chief Executive Officer and the Chief Financial Officer, and where appropriate, the Board of Directors of Solium (the “Board”) and/or committees thereof.

The Company’s Chief Executive Officer and Interim Chief Financial Officer, as the case may be, have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation and include controls and procedures designed to ensure that information required to be disclosed in the annual filings, interim filings or other reports filed or submitted under securities legislation is accumulated and communicated to the Company’s management, including its certifying officers, as appropriate to allow timely decisions regarding required disclosure.


It should be noted that while the Chief Executive Officer and Interim Chief Financial Officer, as the case may be, believe that the disclosure controls and procedures will provide a reasonable level of assurance and that they are effective, they do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and Interim Chief Financial Officer, as the case may be, of Solium are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded that, as of December 31, 2018, the Company’s internal control over financial reporting was effective based on the criteria established in the Internal Control – Integrated Framework. Also, management determined that there were no material weaknesses in Solium’s internal control over financial reporting as of December 31, 2018. OUTSTANDING SHARE DATA

The Company is authorized to issue an unlimited number of Common Shares and an unlimited number of preferred shares. As at the date of this MD&A, there were 56,744,101 Common Shares outstanding. Employees, directors, officers and consultants have been granted options to purchase Common Shares under a stock option plan. As at the date of this MD&A, there were 2,845,583 options outstanding to purchase 2,845,583 Common Shares. Employees have been granted rights to receive Common Shares under a share award incentive plan. As at the date of this MD&A, there were 860,364 restricted share units and performance share units outstanding which represent rights to receive 860,364 Common Shares upon settlement. OUTLOOK

In Q4 2016 and Q2 2017, Solium entered into white label license agreements with U.S. partners Morgan Stanley and UBS Financial Services Inc., respectively and committed additional resources in 2018 to ensure the success of these projects. The Company is actively migrating clients with conversion expected to be completed in 2020, accommodating individual client needs and partner migration schedules. Solium continues to invest for future revenue growth, and expects this to continue into 2019 resulting in some impact on profitability in the near term. The Company continues to invest in its capabilities and infrastructure – ensuring best-in-class technology and service – to drive long term investor returns.


RISK ASSESSMENT

Management of Solium defines risk as the evaluation of probability that an event might happen in the future that could negatively affect the financial condition, results of operations, and/or reputation of the Company. The following section describes specific and general risks that could affect the Company. The following descriptions of risk do not include all possible risks as there may be other risks of which management is currently unaware. Risks Related to the Arrangement Not Being Completed Risk that the Arrangement May Not Be Completed

There are risks of non-completion of the Arrangement, including that each of Solium, AcquisitionCo and Morgan Stanley has the right to terminate the Arrangement Agreement in certain circumstances. Accordingly, there is no certainty, nor can Solium provide any assurance, that the Arrangement Agreement will not be terminated by Solium, AcquisitionCo or Morgan Stanley before the completion of the Arrangement. In addition, the completion of the Arrangement is subject to the satisfaction of a number of conditions prior to the outside date contemplated by the Arrangement Agreement, certain of which are outside the control of Solium and Morgan Stanley and AcquisitionCo, including receipt of the required approvals by the Securityholders and Court of Queen’s Bench of Alberta and certain key regulatory approvals and key third-party consents described in the Arrangement Circular. There is no certainty, nor can Solium provide any assurance, that these conditions will be satisfied. Failure to Complete the Arrangement Could Negatively Impact Solium’s Share Price

If for any reason the Arrangement is not completed, the market price of Common Shares, which rose to approximately the amount of the consideration payable under the Arrangement, may be adversely affected. Moreover there is no assurance that the Board will be able to find a party willing to pay an equivalent or a more attractive price for the Securities than the value to be received by Securityholders pursuant to the terms of the Arrangement. Further, if the Arrangement Agreement is terminated, Solium will still have incurred costs for pursuing the Arrangement, including legal and accounting fees and the fee of CIBC World Markets Inc. Failure to Complete the Arrangement Could Result in Termination Fees Being Payable

Pursuant to the Arrangement Agreement, Solium is required to pay a termination fee (the "Purchaser Termination Fee") (being an amount equal to CAD$43 million) to Morgan Stanley if the Arrangement Agreement is terminated in certain circumstances. The Purchaser Termination Fee may discourage other parties from attempting to acquire the Common Shares, even if those parties would otherwise be willing to offer greater value than that offered under the Arrangement. The Arrangement Agreement also provides that Solium may be required to pay the Purchaser Termination Fee to Morgan Stanley at a date subsequent to the termination of the Arrangement Agreement if the Arrangement Agreement is terminated in certain circumstances and a “tail” transaction is subsequently consummated, as further described in the Arrangement Circular. Failure to Complete the Arrangement Would Result in Continued Public Company Risk

If the Arrangement is not completed, Solium will continue to face, and Securityholders will be exposed to, the risks associated with continuing as a public corporation and the risks that it currently faces with respect to its business and affairs, including, financing risks, competitive risks, changes in laws and the other risks described in Solium’s annual information form dated March 12, 2019 for the year ended December 31, 2018. Other Risks Related to the Arrangement Restrictive Covenants

The Arrangement Agreement restricts Solium from taking certain specified actions without the consent of Morgan Stanley until the Arrangement is completed, as further described in the Arrangement Circular. These restrictions may prevent Solium from pursuing attractive business opportunities that may arise prior to the completion of the Arrangement. The Arrangement also limits the Company’s ability to solicit additional interest from third parties.


Diversion of the Attention of Solium Management

The pendency of the Arrangement could cause the attention of Solium’s management to be diverted from day-to-day operations and customers or suppliers may seek to modify or terminate their business relationships with Solium. These disruptions could be exacerbated by a delay in the completion of the Arrangement and could have an adverse effect on the business, operating results or prospects of Solium, which could result in a material adverse effect. Risks Related to the Arrangement Being Completed Securityholders Cease to Hold Securities

Following the Arrangement, Securityholders will no longer hold Common Shares, Restricted Share Units or Stock Options, as applicable, and will forego participation in any future increase in value beyond the consideration payable pursuant to the Arrangement that might result from future growth and the potential achievement of Solium’s long-term plans. Taxable Transaction

The Arrangement will be a taxable transaction for Securityholders, requiring the payment of taxes by non-tax exempt Securityholders on any income or gains that result from their receipt of the consideration payable pursuant to the Arrangement. Risks Relating to Solium

If the Arrangement is not completed, Solium will continue to face, and Shareholders will be exposed to, the risks associated with continuing as a public corporation and the risks that it currently faces with respect to its business and affairs, as described below. Cyber Risks

As a software-as-a-service provider, Solium faces cyber risks such as data breaches, unauthorized access, phishing attacks and denial of service attacks as well as associated financial, reputational and business interruption risks. Because the Company's technology and services involve the storage and transmission of clients' proprietary information, unauthorized access or security breaches as a result of third-party action, employee error, malfeasance or otherwise could result in the loss of information, compromising of confidential client or employee information, inability to process client transactions, unauthorized access to proprietary or sensitive information, litigation, indemnity obligations and other significant liabilities. The unauthorized release of confidential or personal information could result in regulatory investigations, heightened regulatory scrutiny and regulatory penalties. In addition, Solium's reputation could be damaged, its applications could be perceived as not being secure and clients could reduce the use of, or stop using, Solium's services. These risks continue to be actively managed by the Company through enterprise-wide technology and information security programs, with the goal of maintaining overall cyber resilience that prevents, detects and responds to such threats. Solium has also implemented a disaster recovery and risk mitigation strategy. Despite its commitment to cyber security, however, Solium will not be able to fully mitigate all such risk because the techniques used to obtain unauthorized access or sabotage systems change frequently and may not be identified until they are launched against a target. The Company currently carries professional liability errors & omissions insurance to mitigate the risk of loss due to errors made by its technology systems that result in third-party claims against the Company. The Chief Technology Officer, and the compliance, risk, and security steering committee, which reports to the Risk and Compliance Committee of the Board, oversee Cyber security risks internally.


Privacy Concerns and Legislation

Solium's technology enables companies to manage equity plans that may involve the collection and use of personal information regarding their employees. The importance of protecting the confidential information held on the Solium platform and the associated regulatory requirements are increasing across the various jurisdictions in which Solium operates, its clients operate and where the clients’ associated employee participants reside. Federal, provincial, state and foreign government bodies and agencies have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, storage and disclosure of personal information obtained from consumers and individuals. These domestic and international legislative and regulatory initiatives may adversely affect the ability of Solium's clients to process, handle, store, use and transmit demographic and personal information relating to their employees, which could reduce demand for the Company's applications. Data protection authorities are also issuing larger fines related to privacy compliance than have been seen in the past. Solium is working with its clients and subcontractors to comply with such legislation, including, but not limited to, the General Data Protection Regulation, to minimize the impact of such legislation on the Company’s applications and services in general. Operational Trading Risk

The Company’s end-to-end services often involve the execution of an equity trade in the stock market through one of the Company’s brokerage partners. If the Company fails to send instructions to the brokerage partner to conduct a trade on behalf of a client or participant, forwards incorrect trade instructions to the brokerage partner, or fails to send a trade instruction to the brokerage partner in a timely manner, the market value of a trade could fluctuate adversely and result in a financial loss that may be the responsibility of the Company. Such losses could adversely affect the Company’s operating results. The Company currently carries professional liability errors & omissions insurance to partially cover the risk of significant loss due to errors made by its employees or technology systems that result in third-party claims against the Company. Operational Service Risk

The Company’s end-to-end services often involve the day-to-day administration of detailed aspects of a client’s equity-based incentive plan. If the Company fails to properly setup or implement the client, or makes an error in updating or processing client data as per the instructions from a client or participant, a financial loss could occur that may be the responsibility of the Company. Such losses could adversely affect the Company’s operating results. The Company currently carries professional liability errors & omissions insurance to partially cover the risk of significant loss due to errors made by its employees or technology systems that result in third-party claims against the Company. Regulatory Environment

Certain aspects of the Company’s business are conducted within highly regulated industries. Changes in regulations can occur at any time and the Company may become subject to more strict standards in the future. In addition, the Company is subject to uncertainty with the upcoming departure of the United Kingdom from the European Union. Non-compliance and the cost of compliance with such changes in regulations could have an adverse effect on the Company’s business, results of operation and financial condition. Delay or Failure to Realize Anticipated Benefits of Morgan Stanley and UBS Partnerships

In November 2016, the Company entered into a license agreement with Morgan Stanley pursuant to which the Company’s stock administration platform has become the equity administration technology supporting Morgan Stanley’s Global Stock Plan Services business for U.S. listed corporations and corporations that exist under U.S. laws or have headquarters in the U.S.

The new partnership with Morgan Stanley required material up-front investments by Solium, predominantly in product development. In addition, the Company is incurring expenditures associated with client conversion.

The partnership with Morgan Stanley is the Company’s largest partnership. In order to achieve the benefits of increased fee revenue as a result of the partnership, the Company is required to invest a significant amount of capital and successfully support Morgan Stanley and its clients in all aspects of the migration process, in a timely and efficient manner. In addition, the work that must be completed in order for the Company to achieve the anticipated benefits of the partnership requires the dedication of management effort, time and resources, which may divert management's


focus and resources from other strategic opportunities. Any delay in, or failure to, achieve the anticipated benefits of the Morgan Stanley partnership may have a material adverse effect on the Company's business, results of operations and financial condition.

In May 2017, the Company also entered into a new agreement with UBS, pursuant to which UBS customers upgraded to a UBS branded version of Shareworks.

The partnership with UBS requires Solium to deliver on successfully migrating UBS clients to Shareworks, in a timely and efficient manner. Significant capital investments are required to develop the features and capabilities in Shareworks required to handle the complexities of the global equity plans managed by UBS clients. Any delay in, or failure to, achieve the anticipated benefits of the UBS partnership may have a material adverse effect on the Company's business, results of operations and financial condition. Dependence on Market Growth

There can be no assurance that the market for the Company's existing solutions will continue to grow, that customers will continue to adopt the Company's solutions or that the Company will be successful in establishing markets for its new products. If the various markets in which the Company's products are offered fail to grow, or grow more slowly than the Company currently anticipates, or if the Company is unable to establish markets for its new products, the Company's business, operating results and financial condition could be materially adversely affected. Failure to Manage Growth Successfully

The Company's business has grown rapidly in the last several years. The Company’s growth places a strain on managerial, financial and human resources. The Company will need to provide adequate operational, financial and management controls and reporting procedures to manage the continued growth in the number of employees, scope of operating and financial systems and the geographic area of operations. Expanding the business into new geographic areas and to new customers requires the Company to incur costs, which may be significant, before any associated revenues materialize. Future growth will depend upon a number of factors, including the Company’s ability to:

• build and train staff to create an expanding presence in the evolving marketplace for Solium's solutions, and to keep staff informed regarding the technical features, issues and key selling points of Solium's solutions;

• hire, train and manage additional employees to provide agreed upon services;

• attract and retain qualified technical personnel to continue to develop reliable and scalable solutions and services that respond to evolving customer needs and technological developments;

• execute on, and successfully integrate, acquisitions;

• comply with regulations in the various jurisdictions where the Company has expanded; and

• expand Solium's internal management to maintain control over operations and provide support to other functional areas within Solium.

Solium's inability to achieve any of these objectives could harm the Company's business, financial condition, reputation and operating results.


Acquisition Related Risks

Strategic acquisitions are important elements to Solium’s business strategy. Although Solium engages in discussions with, and submits proposals to acquisition candidates, suitable acquisitions may not be available in the future on reasonable terms. If the Company does identify an appropriate acquisition candidate, the Company may not be able to successfully negotiate the terms of the acquisition, finance the acquisition or, if the acquisition occurs, effectively integrate the acquired business into the existing business. In addition, the negotiation of a potential acquisition and the integration of an acquired business may require a disproportionate amount of management's attention and resources. If Solium completes additional acquisitions, the new business acquired may not generate revenues as anticipated, and any anticipated cost efficiencies or synergies may not be realized. If Solium is unsuccessful in identifying, executing or effectively integrating future acquisitions, the Company’s results of operations may be negatively affected. Even though Solium performs due diligence reviews of the businesses it acquires that it believes are consistent with industry practices, such reviews are subject to risk. Even an in-depth due diligence review of a business may not necessarily reveal existing or potential problems or permit Solium to become familiar enough with the business to fully assess its risks and potential. Even when problems are identified, Solium may assume certain risks and liabilities in connection with the acquired business. Economic Conditions

The Company’s revenues and operating results are and will continue to be influenced by prevailing general economic conditions and financial market conditions. In such cases, customers may reduce their purchases of new outsourced services and plan participant trading activity may be reduced. In addition, the deterioration of economic conditions could adversely affect payment patterns which could increase the Company’s bad debt expense, decrease the level of client renewals and increase contraction in number of plan participants. During an economic downturn, there can be no assurance that the Company’s operating results, prospects and financial condition would not be adversely affected. Dependence on Partners

The Company has engaged certain service partners as part of the delivery of its solutions, including brokerage partners and financial institutions. Failure of any partner to perform required services could have a short-term adverse effect on the Company’s business, and results of operation. The Company also relies on certain distribution partners to distribute its applications to their own clients. Further, the Company provides reporting technology tools to certain partners to be incorporated in their offerings to their own clients. Although Solium believes that it has a good relationship with its partners, the termination of these relationships for any reason whatsoever could have an adverse effect on the Company's business, and results of operation. Dependence on Key Personnel

The success of the Company is largely dependent on the performance of its key employees and directors. Failure to retain key employees and directors and to attract and retain additional key employees with necessary skills could have a material adverse impact on the Company's growth and profitability. Competition for highly skilled management, developers and other employees is intense. The departure of any key personnel could have a material adverse effect on the Company's business, results of operations and financial condition. Competition

The market for the administration of alternative stock compensation arrangements for public and private companies and their employees is highly competitive. The Company has experienced and will continue to experience intense competition from other organizations with more established sales and marketing presence, more technical services, the ability to bundle equity administration with a broader set of ancillary services and greater financial resources. The Company's competitors may announce new products, services or enhancements that better meet the needs of customers or changing industry standards. Furthermore, additional competitors may enter the market and competition may intensify. Increased competition may cause price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on the Company's business, results of operation and financial condition.


Risk Associated with a Change in the Company's Pricing Model

The competitive market in which the Company conducts business may require Solium to change its pricing model. If the Company's competitors offer deep discounts on certain products or services in an effort to recapture or gain market share or to sell other products, the Company may be required to lower prices or offer other favourable terms to compete successfully. Any such changes would likely result in a reduction of margins and could adversely affect the Company’s operating results. Failure to Continue to Adapt to Technological Change and New Product Development

Solium believes that the future success of the Company depends upon its ability to enhance current products or develop and introduce new products. The Company's inability, for technological or other reasons, to develop and introduce products in a timely manner in response to changing market conditions or customer requirements could have a material adverse effect on the Company's business, results of operations and financial condition. The ability of the Company to compete successfully will depend in large measure on its ability to maintain technically competent research and development staff and to adapt to technological changes and advances in the industry. There can be no assurance that the Company will be successful in these efforts. Lengthy Sales and Implementation Cycle

The Company's sales cycle, beginning with an interested customer and culminating in entering into a commercial agreement with the customer, typically ranges from one to twelve months and may be significantly longer. The implementation cycle typically ranges from one to twelve months and may be significantly longer. During these cycles the Company may devote a significant amount of time and resources and experience delays over which it has no control. The length of time it takes to achieve sales and complete implementation makes it difficult to predict when the Company can recognize the associated revenue. Intellectual Property Risks

In part, the Company's operations and value lies in its ownership and use of intellectual property. As such, its failure to protect its intellectual property may negatively affect its operations and value. Solium regards its software as proprietary and attempts to protect it with copyrights, trademarks and trade secret measures, including restrictions on disclosure and technical measures. Despite these precautions, it may be possible for third parties to copy Solium's programs or aspects of its trade secrets or otherwise independently develop products similar to that of Solium. Solium has no patents, and existing legal and technical precautions afford only limited practical protection. Solium could incur substantial costs in protecting and enforcing its intellectual property rights. Although Solium is not aware that any of its products infringe the proprietary rights of third parties, there can be no assurance that third parties will not assert patent, trademark, copyright and other intellectual property rights to technologies that are important to Solium. In such event, Solium may be required to incur significant costs in litigating a resolution to the asserted claim, irrespective of the validity or the successful assertion of such claim. There can be no assurance that such a resolution would not require that Solium pay damages or obtain a license of a third party's proprietary rights in order to continue licensing its products as currently offered, or, if such license is required, that it will be available on terms acceptable to Solium. Risk of Defects in the Company's Solution

Software products as complex as those offered by the Company may contain errors or defects, especially when first introduced or when new versions or updates are released. The Company regularly introduces new releases and periodically introduces new versions of its software. There can be no assurance that, despite testing by the Company and by its customers, defects and errors will not be found in existing products or in new products, releases, versions or enhancements after the commencement of commercial deployment. Any such defects and errors could result in litigation, adverse customer reactions, negative publicity regarding the Company and its products, harm to the Company's reputation, loss or delay in market acceptance or required product changes, any of which could have a material adverse effect upon the Company's business, results of operations and financial condition. The Company currently carries technology errors & omissions insurance to partially cover the risk of significant loss due to errors made by its technology systems that result in third-party claims against the Company.


Brexit

Following the June 2016 referendum in the United Kingdom (“U.K.”), the country has been negotiating with the European Union (“E.U.”) concerning the U.K.’s upcoming withdrawal from the E.U. (“Brexit”) scheduled to occur at the end of the day on March 29, 2019. Until the Brexit process is completed, it is difficult to anticipate the potential impact on the Company’s business, financial condition and results of operations. As of the date of this MD&A, although the U.K. and the E.U. provisionally agreed to the terms of a withdrawal agreement, this has not been accepted by the U.K. parliament and, therefore, the terms of the U.K.’s withdrawal, and the terms of any continuing political and economic relationship between the U.K. and the E.U. following the U.K.’s withdrawal remain uncertain. The uncertainty of whether Brexit will occur, be cancelled, be delayed, and/or follow another route may adversely affect business activity, political stability and economic conditions in the U.K., the Eurozone, the E.U. and elsewhere. The economic outlook could be further adversely affected by, among others, (i) the risk that one or more other E.U. countries could come under increasing pressure to leave the E.U., (ii) the risk of a greater demand for independence by Scottish nationalists or for unification in Ireland, and/or (iii) the risk that the euro as the single currency of the Eurozone could cease to exist. Any of these developments, or the perception that any of these developments are likely to occur, could have a material adverse effect on economic growth or business activity in the U.K., the Eurozone or the E.U. and could result in the further relocation of businesses, cause business interruptions, increase market volatility, lead to economic recession or depression, and impact the stability of the financial markets, availability of credit, political systems or financial institutions and the financial and monetary system. Given that Solium conducts business in the E.U. and the U.K., any of these developments could have a material adverse effect on the Company’s regulatory licensing, business, financial position, liquidity and results of operations.

CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2018 and 2017

2

Management’s Report The accompanying consolidated financial statements of Solium Capital Inc. are the responsibility of the

Company’s management. These consolidated financial statements have been prepared by management in

accordance with International Financial Reporting Standards as issued by the International Accounting

Standards Board and, where necessary, reflects management’s best estimates based on available

information. Financial information contained in documents such as the annual report is reviewed to ensure

consistency with the financial statements.

The Company maintains appropriate internal control systems designed to reasonably ensure that assets are

safeguarded and financial records are properly maintained to provide reliable information for the

preparation of financial statements.

The Board of Directors (the “Board”) ensures that management fulfills its responsibilities for financial

reporting and internal controls through its Audit Committee, which consists solely of outside directors. The

Audit Committee meets periodically with the external auditors, with and without the Company’s

management, to ensure that management responsibilities are discharged and to review the financial

statements before they are presented to the Board for approval. The Board has approved the Company’s

consolidated financial statements on the recommendation of the Audit Committee.

The Company’s external auditors, Deloitte LLP, have audited the consolidated financial statements in

accordance with Canadian generally accepted auditing standards. Deloitte LLP have full and unrestricted

access to the Audit Committee to discuss their audit and related findings. Their auditor’s report is presented

with the consolidated financial statements.

(signed) “Marcos Lopez” (signed) “Sujeet Kini” Chief Executive Officer Interim Chief Financial Officer March 12, 2019

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Solium Capital Inc.:

Opinion We have audited the consolidated financial statements of Solium Capital Inc. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2018 and 2017 and January 1, 2017, and the consolidated statements of operations and comprehensive income or loss, changes in equity and cash flows for the years ended December 31, 2018 and 2017, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2018 and 2017 and January 1, 2017, and its financial performance and its cash flows for the years ended December 31, 2018 and 2017 in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company 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.

Other Information

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

• Management’s Discussion and Analysis

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, or otherwise appears to be materially misstated.

We obtained the Management’s Discussion and Analysis prior to the date of this auditor’s 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 this auditor’s 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 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.

Deloitte LLP 700, 850 – 2 Street SW Calgary, AB T2P 0R8 Canada Tel: 403-267-1700 Fax: 587-774-5379 www.deloitte.ca

In preparing the financial statements, management is responsible for assessing the Company’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 Company’s or to cease operations, or has no realistic alternative but to do so.

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

Auditor’s 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 auditor’s 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 GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian GAAS, 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 Company’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 Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s 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 auditor’s report. However, future events or conditions may cause the Company 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.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company 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.

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

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and

other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor’s report is David Langlois.

Chartered Professional Accountants Calgary, Alberta March 12, 2019

SOLIUM CAPITAL INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Financial Position As at (Expressed in thousands of U.S. dollars)

6

* See note 4

The accompanying notes are an integral part of these consolidated financial statements. The consolidated financial statements were approved by the Board of Directors on March 12, 2019 and were signed on its behalf.

Director (signed) “Laura Cillis” Director (signed) “Tom Muir”

December 31, 2018

December 31, 2017*

Restated

January 1, 2017*

Restated Notes $ $ $ ASSETS Current assets Cash and cash equivalents 18, 23 96,977 100,194 63,669 Trade and other receivables 4, 11 19,818 14,986 16,416 Current portion of contract costs 4, 11 897 - - Current portion of prepaid expenses 2,206 1,997 1,480 119,898 117,177 81,565 Non-current assets Property and equipment 8 7,889 7,455 2,021 Right of use assets 4, 12 10,337 - - Contract costs 4, 11 2,943 3,265 2,895 Intangible assets 9 5,485 7,556 8,237 Goodwill 10 46,802 38,293 23,368 Deferred tax assets 13 1,064 1,181 926 Prepaid expenses 763 1,030 475 75,283 58,780 37,922 Total Assets 195,181 175,957 119,487 LIABILITIES Current liabilities Trade payables and other accruals 23 15,627 13,157 10,216 Holdback payable 7 1,802 - - Current portion of earn-out payable 7, 24 600 1,770 - Current portion of deferred tenant inducements - 74 185 Current portion of lease liability 4, 12 1,492 - - Deferred revenue 4, 11 11,279 9,287 8,230 30,800 24,288 18,631 Non-current liabilities Earn-out payable 7, 24 - 940 - Deferred tenant inducements - 387 161 Lease liabilities 4, 12 9,894 - - Deferred tax liabilities 13 - 3 93 9,894 1,330 254 SHAREHOLDERS’ EQUITY Share capital 15 106,335 100,358 59,814 Contributed surplus 8,168 7,316 6,876 Retained earnings 55,182 49,903 46,545 Foreign currency translation reserve (15,198) (7,238) (12,633) 154,487 150,339 100,602 Total Liabilities and Shareholders’ Equity 195,181 175,957 119,487

SOLIUM CAPITAL INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Operations and Comprehensive Income or Loss For the years ended December 31, (Expressed in thousands of U.S. dollars except per share amounts)

7

2018 2017* Restated

Notes $ $ Revenue 4, 11 108,344 86,086 Operating expenses 17 (104,210) (79,922)Earnings from operations 4,134 6,164 Finance income 1,095 1,002 Foreign exchange gain (loss) 1,567 (448)Adjustment of earn-out payable 7, 24 926 - Earnings before income taxes 7,722 6,718 Income taxes 13 (2,822) (3,360)Net earnings 4,900 3,358 Other comprehensive income Exchange (loss) gain on translating foreign operations (7,972) 5,395 Total comprehensive (loss) income for the period (3,072) 8,753 Net earnings per share Basic 20 0.087 0.067 Diluted 20 0.086 0.066

* See note 4 The accompanying notes are an integral part of these consolidated financial statements.

SOLIUM CAPITAL INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Changes in Equity (Expressed in thousands of U.S. dollars)

8

Share capital

Contributed surplus

Retained earnings

Foreign currency

translation reserve

Total equity

$ $ $ $ $ As at January 1, 2017, as previously reported 59,814 6,876 43,547 (12,440) 97,797 Adjustment from adoption of IFRS 15 and employee

compensation accrual, net of tax (note 4) - - 2,998 (193) 2,805

Restated balance at January 1, 2017 59,814 6,876 46,545 (12,633) 100,602 Restated net earnings - - 3,358 - 3,358 Restated exchange gain on translating foreign operations,

net of tax - - - 5,395 5,395

Share based payment expense, net of tax - 2,374 - - 2,374 Share unit releases, net of tax 975 (932) - - 43 Stock options exercised, net of tax 3,138 (1,002) - - 2,136 Proceeds from shares issued subject to acquisition 2,191 - - - 2,191 Proceeds from shares issued on bought deal financing 35,761 - - - 35,761 Share issue costs, net of tax (1,521) - - - (1,521)

Restated balance at December 31, 2017 100,358 7,316 49,903 (7,238) 150,339 Adjustment on initial application of IFRS 16, net of tax

(note 4) - - 379 12 391

Adjusted balance at January 1, 2018 100,358 7,316 50,282 (7,226) 150,730 Net earnings - - 4,900 - 4,900 Exchange loss on translating foreign operations, net of tax - - - (7,972) (7,972)Share based payment expense, net of tax - 3,438 - - 3,438 Share unit releases, net of tax 1,208 (1,138) - - 70 Stock options exercised, net of tax 4,769 (1,448) - - 3,321 As at December 31, 2018 106,335 8,168 55,182 (15,198) 154,487

The accompanying notes are an integral part of these consolidated financial statements.

SOLIUM CAPITAL INC. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Cash Flows For the years ended December 31, (Expressed in thousands of U.S. dollars)

9

2018 2017* Restated

Notes $ $ Cash flows related to the following activities: Operating activities Net earnings 4,900 3,358 Adjustments for items not involving cash:

Finance costs 739 - Income taxes 13 2,822 3,360 Share based payment expense, net of tax 3,438 2,374 Depreciation of property and equipment 8, 17 1,964 1,880 Depreciation of right of use asset 12, 17 1,911 - Amortization of intangible assets 9, 17 3,060 2,712 Amortization of contract costs 4, 11, 17 778 590 Amortization of tenant inducement - (94)Gain on extinguishment of earn-out payable 24 (926) -

Changes in non-cash working capital 19 (3,882) 2,198 Tenant inducement received - 189 Cash taxes and installments paid, net of refunds (1,209) (1,567)Cash interest paid on lease liabilities (512) - Cash flow from operating activities 13,083 15,000 Financing activities Issuance of common shares, net of share issue costs 3,391 38,053 Payment of lease liabilities (1,055) - Cash flow from financing activities 2,336 38,053 Investing activities Cash outflow on business combination, net of cash acquired 7 (7,063) (13,465)Purchases of property, equipment and intangible assets (3,175) (7,646)Payment of earn-out 24 (1,191) - Cash used in investing activities (11,429) (21,111) Effect of foreign exchange on cash held in foreign currencies (7,207) 4,583 (Decrease) increase in cash and cash equivalents (3,217) 36,525 Cash and cash equivalents, beginning of period

100,194 63,669

Cash and cash equivalents, end of period 96,977 100,194

* See note 4 The accompanying notes are an integral part of these consolidated financial statements.

SOLIUM CAPITAL INC. Notes to the Consolidated Financial Statements As at December 31, 2018 and for the years ended December 31, 2018 and 2017 (Expressed in thousands of U.S. dollars, except otherwise noted)

10

1 General information Solium Capital Inc. (“Solium” or the “Company”) was incorporated in September of 1999 under the laws of the Province of Alberta. Solium (TSX: SUM) provides cloud-enabled services for global equity administration, financial reporting and compliance. From operation centers in the United States, Canada, Europe, Australia and Hong Kong, the Company’s software-as-a-service (SaaS) technology powers share plan administration and equity transactions for more than 3,000 corporate clients with employee participants in more than 100 countries. Solium's technology platforms Shareworks, Transcentive, Capshare and Advanced-HR are leading online solutions that integrate the management of multiple equity plan types including stock options, share units, share appreciation rights, restricted stock awards, and employee share purchase plans. The Company generates revenue predominantly from recurring license and subscription fees and from transaction-based fees. The address of the registered office is 1500, 600 – 3rd Avenue SW, Calgary, Alberta, T2P 0G5.

2 Basis of preparation

Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Basis of measurement These consolidated financial statements are stated in U.S. dollars (“USD”), unless otherwise stated, and were prepared on a going concern basis, under the historical cost convention. Use of estimates and judgments The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Areas where estimates are significant to the consolidated financial statements are disclosed in Note 5 of the consolidated financial statements. Functional and presentation currency The consolidated financial statements are presented in U.S. dollars, which is the Company’s presentation currency. The functional currency of the Company’s Canadian subsidiaries is the Canadian dollar (“CAD”), and of the Company’s United States (“U.S.”) subsidiaries is the USD, and of the Company’s United Kingdom (“U.K.”) subsidiaries is the British Pound Sterling (“GBP”), and of the Company’s European subsidiaries is the Euro (“EUR”), and of the Company’s Australian subsidiaries is the Australian dollar (“AUD”) and of the Company’s Hong Kong subsidiary is the Hong Kong dollar (“HKD”). Translation gains and losses resulting from the consolidation of operations in Canada, U.K., Europe, Australia, and Hong Kong, are recognized in other comprehensive income in the statement of comprehensive income, and in foreign currency translation reserve as a separate component of shareholders’ equity on the consolidated statement of changes in equity.

3 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

A) Basis of consolidation

Subsidiaries Subsidiaries are entities controlled by Solium. Control is achieved where the entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate.


11

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Company. Intra-group balances and transactions, and any unrealized gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Business combinations Acquisitions that meet the definition of a business are accounted for using the acquisition method. The consideration transferred at transaction close date for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value. Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain. When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. 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 subsequent accounting for changes in fair value of the contingent consideration that do not qualify as a measurement period adjustment depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration is classified either as a financial liability or equity. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

B) Revenue

Revenue recognition Revenue reflects the consideration the Company expects to receive upon transfer of control of products and services in its contracts with customers, net of discounts and sales. The nature of the products and services for which the Company derives its revenue from are described below.


12

Type of product/service Nature, timing of satisfaction of performance obligations,

significant payment terms

SaaS technology (Shareworks, Transcentive, Capshare, Advanced-HR)

License and subscription revenue is recognized over time when the right to access the Company’s intellectual property is transferred to the customer over the term of the license period.

Transaction based fees are received as services are provided to execute the transactions entered into by participants. As the benefits from the services are received instantaneously, the performance obligation is satisfied over time based on the progress of the transaction.

Invoices are issued according to contractual terms and are usually payable within 30 days. Uninvoiced amounts are presented as contract assets.

Transcentive software license platform

Separate from the SaaS technology discussed above, Transcentive also sold software licenses to customers that were downloadable and not hosted by the Company’s servers. Software license revenue is recognized at a point in time when the right to use the software is transferred to the customer.

The software license is not a right to access the Company’s intellectual property, rather it is the right to use the software as it exists at the time the license is transferred.

Technical support and unspecified software updates are satisfied over time and allocated based on the relative stand-alone selling price. The amount allocated is deferred and recognized over the term of the license period.

Implementation services

Implementation revenue is recognized at a point in time when control of the services provided have transferred to the customer, generally this is when the customer is fully implemented onto the Shareworks platform.

Consulting services

Consulting revenue is recognized at a point in time when those services are provided to the customer.

Contracts with multiple products or services The Company’s contracts with customers may include multiple products and services. The Company evaluates these arrangements to determine the appropriate unit of accounting (performance obligation) for revenue recognition purposes based on whether the product or service is distinct from some or all of the other products or services in the arrangement and accounted for as a separate performance obligation. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and the Company’s promise to transfer the good or service is separately identifiable from other promises in the contractual arrangement with the customer. Non-distinct products and services are combined with other goods or services until they are distinct as a bundle and therefore form a single performance obligation. Where a contract consists of more than one performance obligation, revenue is allocated to each based on their relative estimated stand-alone selling price. Costs to obtain a contract The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the costs to be recoverable and are amortized consistent with the pattern of transfer to the customer for the goods and services to which the asset relate. Capitalized commission fees are amortized over the expected life of the contract. The expected life of a contract ranges from 6 to 10 years.


13

C) Property and equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation is charged so as to write- off the cost of these assets less residual value over their estimated useful economic lives, for the following classes of assets:

Computer equipment 3 – 5 years Computer software 1 – 3 years Furniture and office equipment 5 years Leasehold improvements Term of the lease

The expected useful lives of property and equipment assets are reviewed annually to ensure that they remain appropriate. Changes in useful lives are accounted for prospectively as a change in estimate.

D) Intangible assets

Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Company’s cash-generating units (“CGUs”) expected to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the CGU 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 on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

Intangible assets acquired separately Intangible assets represent customer contracts, brands, intellectual property, and non-compete agreements. Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the consolidated statements of operations and comprehensive income or loss in the year in which the expenditure is incurred. Amortization is recognized on a straight-line basis over the estimated useful lives of the assets. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. A summary of the estimated useful lives of the Company’s intangible assets are as follows:

Brand 1 – 10 years Customer contracts 5 – 10 years Intellectual property 1 – 10 years Non-compete agreement 5 years


14

Internally-generated intangible assets – research and development expenditure Research costs are expensed as incurred. Development costs are also expensed unless they meet specific criteria under IFRS, in which case they are deferred and depreciated on a systematic basis, when possible, to the sale or use of the product or process.

Investment tax credits are recognized using the cost reduction method when there is a reasonable assurance of realization. The Company accrues an estimated reduction to its operating expenses related to scientific and experimental development (“SRED”) credits based on an estimate of eligible expenses under the Canadian government’s SRED incentive program. The estimated credits are reviewed periodically and updated if necessary.

E) Impairment of non-financial assets Assets that have an indefinite useful life – for example, goodwill or intangible assets not ready to use – are not subject to amortization and are tested annually for impairment. At the end of each reporting period, the Company reviews the carrying amounts of its assets that are subject to amortization to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGUs, or otherwise they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. 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 risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in net earnings or loss. Where an impairment loss subsequently reverses for assets with a finite useful life, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in net earnings or loss.

F) Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of the provision to be reimbursed, the expense relating to any provision is presented in the consolidated statement of comprehensive income net of the reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost in the consolidated statement of comprehensive income.


15

G) Income taxes Tax expense comprises current and deferred tax. Tax is recognized in the income statement except to the extent it relates to items recognized in other comprehensive income or directly in equity.

Current income tax Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. Certain prior year figures have been reclassified to conform with the current year’s presentation.

Deferred tax Deferred taxes are the taxes expected to be payable or recoverable on differences between the carrying amounts of assets in the statement of financial position and their corresponding tax bases used in the computation of taxable profit, and are accounted for using the liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences between the carrying amounts of assets and their corresponding tax bases. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets in a transaction that affects neither taxable profit nor accounting profit. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

H) Non-derivative financial instruments Non-derivative financial instruments are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Non-derivative financial instruments are recognized initially at fair value plus, in the case of financial assets and liabilities not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below:

Financial assets Financial assets are initially recognized at fair value plus transaction costs that are directly attributable to its acquisition. Subsequently, the financial assets are classified as measured at based on how the financial asset is managed and its contractual cash flow characteristics. For financial assets measured at amortized cost, these assets are subsequently measured at amortized cost using the effective interest method, net of the allowance for credit loss. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

Other financial liabilities Other financial liabilities are initially measured at fair value, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. Liabilities in this category include trade payables and other accruals.

Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.


16

I) Impairment of financial assets Financial assets are assessed at each reporting date in order to determine if there has been a significant increase in credit risk since the financial asset has been recognized. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. If the credit risk on a financial asset has increased significantly since initial recognition, the Company measures the loss allowances for the financial asset at an amount equal to lifetime expected credit loss (“ECL”). ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls. ECLs are discounted at the effective interest rate of the financial asset. Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets.

J) Foreign currency translation Items included in the consolidated financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in the consolidated statement of comprehensive income. Assets and liabilities of foreign operations with functional currencies other than U.S. dollars are translated at the period end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in foreign currency translation reserve in shareholders’ equity. Foreign exchange gains and losses related to intercompany loans forming part of a reporting entity’s net investment in a foreign operation are included in foreign currency translation reserve. When a gain or loss on a non-monetary item is recognized in foreign currency translation reserve, any exchange component of that gain or loss is recognized in other comprehensive income. All other foreign exchange gains and losses are recognized in the consolidated statement of comprehensive income.

K) Share-based compensation Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest. Each tranche in an award is considered a separate grant with its own vesting period and grant date fair value. A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of awards that vest. The impact of the revision of the original estimates, if any, is recognized in net earnings or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve. Equity-settled share-based payment transactions with parties other than employees are measured at the fair value of the goods or services received at the date the entity obtains the goods or the counterparty renders the service.


17

L) Earnings per share (“EPS”) Basic EPS is calculated by dividing net earnings (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. The denominator (number of shares) is calculated by adjusting the shares outstanding at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of dilutive options, convertible notes payable, and other dilutive potential shares. The effects of anti-dilutive potential shares are excluded in calculating diluted EPS.

M) Leases At inception of a contract, the Company assesses whether a contract is, or contains, a lease by determining whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. A right of use asset and lease liability is recognized at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right of use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, including periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the implicit interest rate in the lease. If the rate cannot be readily determined, the Company’s incremental rate of borrowing is used. 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 arising from a change in an index or rate, 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.

Short-term leases and leases of low-value assets The Company has elected not to recognize right of use assets and lease liabilities for leases for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

4 Changes in accounting policies and restatement IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement. The Company has adopted IFRS 9 retrospectively. There was no material impact on the carrying amounts of financial assets at January 1, 2017 upon adoption of IFRS 9. The following table notes the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s financial assets as at January 1, 2018.

Financial assets Original classification under IAS 39 New classification under IFRS 9

Cash and cash equivalents Loans and receivables Amortized cost

Trade and other receivables Loans and receivables Amortized cost


18

Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (“ECL”) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than under IAS 39.

Impairment losses on trade and other receivables, including contract costs have been presented under ‘operating expenses’, similar to the presentation under IAS 39, and are not presented separately in the statement of operations and comprehensive income due to materiality considerations. The Company has determined that the application of IFRS 9’s impairment requirements at January 1, 2018 does not result in any additional impairment allowances.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a comprehensive framework requiring revenue to be recognized at an amount that reflects the expected consideration receivable in exchange for transferring goods or services to a customer. IFRS 15 replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.

The Company has adopted IFRS 15 using the full retrospective method, applying the following practical expedients:

C5 – non-disclosure of the amount of the transaction price allocated to the remaining performance obligations, and an explanation of when it expects to recognize that amount as revenue for all reporting periods presented before the date of initial application.

B16 – revenue is recognized at the amount to which the Company has a right to invoice, which corresponds directly to the value to the customer of the entity’s performance completed to date.

The changes in accounting policies in relation to the Company’s various goods and services are set out below.

Transcentive software license platform Fees for the Company’s Transcentive software license were previously recognized as they were earned on a monthly basis over the term of the license period. Under IFRS 15, the Company recognizes license revenue for these customers at the start of the license period. The impact of these changes results in earlier recognition of revenue and a decrease in deferred revenue.

Implementation services Implementation fees were previously deferred and recognized monthly over the life of the applicable client contract or a period of 36 months if the contract had no finite life. Under IFRS 15, the Company recognizes implementation revenue when control of services have transferred to the customer. The impact of these changes results in earlier recognition of revenue and a decrease in deferred revenue.

Sales commission The Company previously recognized sales commission as expenses when they were incurred. Under IFRS 15, the Company capitalizes these sales commission as costs of obtaining a contract when they are incremental and are expected to be recovered. The sales commission are amortized over the life of the contract.

Restatement of accounting for employee compensation accrual

The Company has revised the manner in which it records the provisions for certain employee compensation accruals relating to accounting for compensated absences. For comparative purposes, the Company has applied the impact retrospectively with a $943 adjustment to decrease retained earnings and increase trade payables and other accruals at January 1, 2017.


19

The following table summarizes the impacts of adopting IFRS 15 and the restatement for employee compensation accrual on the consolidated financial statements. A) Consolidated statement of financial position

Impact of changes

January 1, 2017 As previously

reported IFRS 15

adjustment Accrual

restatement As restated Current portion of prepaid expenses 1,657 (177) - 1,480 Contract costs - 2,895 - 2,895 Deferred tax assets 1,301 (575) 200 926 Other current and non-current assets 114,186 - - 114,186 Total assets 117,144 2,143 200 119,487 Trade payables and other accruals 8,786 487 943 10,216 Deferred revenue 10,111 (1,881) - 8,230 Deferred tax liability 104 - (11) 93 Other current and non-current liabilities 346 - - 346 Total liabilities 19,347 (1,394) 932 18,885 Retained earnings 43,547 3,747 (749) 46,545 Foreign currency translation reserve (12,440) (210) 17 (12,633)Other components of shareholders’ equity 66,690 - - 66,690 Total shareholders’ equity 97,797 3,537 (732) 100,602

Impact of changes

December 31, 2017 As previously

reported IFRS 15

adjustment Accrual

restatement As restated Current portion of prepaid expenses 2,371 (374) - 1,997 Contract costs - 3,265 - 3,265 Deferred tax assets 1,532 (551) 200 1,181 Other current and non-current assets 169,514 - - 169,514 Total assets 173,417 2,340 200 175,957 Trade payables and other accruals 11,755 459 943 13,157 Deferred revenue 10,806 (1,519) - 9,287 Deferred tax liability 14 - (11) 3 Other current and non-current liabilities 3,171 - - 3,171 Total liabilities 25,746 (1,060) 932 25,618 Retained earnings 47,158 3,494 (749) 49,903 Foreign currency translation reserve (7,161) (94) 17 (7,238)Other components of shareholders’ equity 107,674 - - 107,674 Total shareholders’ equity 147,671 3,400 (732) 150,339

B) Consolidated statement of operations and comprehensive income

Impact of changes

For the year ended December 31, 2017 As previously

reported IFRS 15

adjustment As restated Revenue 86,502 (416) 86,086 Operating expenses (80,012) 90 (79,922)Income taxes (3,433) 73 (3,360)Other components of net earnings 554 - 554 Net earnings 3,611 (253) 3,358 Exchange gain on translating foreign operations 5,279 116 5,395 Comprehensive income 8,890 (137) 8,753


20

IFRS 16 Leases

The Company has early adopted IFRS 16 as permitted and in conjunction with the adoption of IFRS 15 using the modified retrospective method, under which the cumulative effect of the initial application is recognized in retained earnings at January 1, 2018. This standard replaced IAS 17 Leases. The Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases and applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 were not reassessed for whether a lease existed. The Company has elected to not recognize right of use assets and lease liabilities that have a lease term of 12 months or less and leases of low-value assets. The 2017 information presented has not been restated for this standard. Lease liabilities were measured at the present value of the remaining lease payments discounted at the incremental borrowing rate as at January 1, 2018. Right of use assets were measured at an amount equal to the lease liability. Management also used hindsight when determining the lease term if the contract contained an option to extend or terminate the lease. On transition to IFRS 16, the Company recognized $12,723 of lease liabilities, which equals to the amount of right of use assets recognized. Deferred tenant inducements previously recognized was adjusted through opening retained earnings at January 1, 2018. Any lease inducements are recognized as a reduction to the present value of the right of use asset. Lease liabilities have been measured by discounting future lease payments using the Company’s incremental borrowing rate at January 1, 2018. The weighted-average rate applied is 6.25%. Rates implicit in the leases were not readily determinable.

$ Operating lease commitment at December 31, 2017 as disclosed in the consolidated financial

statements 15,628

Discounted using the incremental borrowing rate at January 1, 2018 (4,414)Finance lease liabilities recognized as at January 1, 2018 11,214 Recognition exemption for:

Short-term leases

(43)Extension and termination options reasonably certain to be exercised 1,552 Leases liabilities recognized at January 1, 2018 12,723


21

The following table summarizes the impacts of adopting IFRS 16 on the consolidated financial statements. A) Consolidated statement of financial position

Impact of changes

January 1, 2018 As previously

reported IFRS 16

adjustment As restated Right of use assets - 12,723 12,723 Deferred tax assets 1,181 (66) 1,115 Other current and non-current assets 174,776 - 174,776 Total assets 175,957 12,657 188,614 Trade payables and other accruals 13,157 4 13,161 Deferred tenant inducement 461 (461) - Lease liabilities - 12,723 12,723 Other current and non-current liabilities 12,000 - 12,000 Total liabilities 25,618 12,266 37,884 Retained earnings 49,903 379 50,282 Foreign currency translation reserve (7,238) 12 (7,226)Other components of shareholders’ equity 107,674 - 107,674 Total shareholders’ equity 150,339 391 150,730

5 Significant accounting estimates and judgements The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes can differ from these estimates. The key sources of estimation uncertainty that have a significant risk of causing material adjustment to the amounts recognized in the consolidated financial statements are:

Business combinations

The Company accounts for business combinations using the acquisition method, under which it allocates the excess of the purchase price of business acquisitions over the fair value of identifiable net assets acquired to goodwill. One of the most significant estimates relates to the determination of the fair value of the assets and liabilities acquired. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, purchase price allocations are derived from a formal valuation, which, where appropriate, is performed by an independent third party valuation expert. Fair values are determined using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows and are closely linked to the assumptions made by management regarding the future performance of the assets concerned and the discount rate applied.

Any goodwill or intangible assets with indefinite useful lives acquired in business combinations are not amortized to income over their useful lives but are assessed annually for any potential impairment in value.

All other intangible assets are amortized to operations over their estimated useful lives. The Company’s intangible assets relate to acquired technology, brand, customer relationships and non-compete agreements. The Company also reviews the carrying value of amortizable intangible assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected from its use and eventual disposition. In assessing the recoverability of these intangible assets, the Company must make assumptions regarding estimated future cash flows, market conditions and other factors to determine the fair value of the assets. If these estimates or related assumptions change in the future, the Company may be required to record impairment charges for these assets.


22

Discount rate for the measurement of lease liability

Lease liability is measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the implicit interest rate in the lease. If the rate cannot be readily determined, the lessee’s incremental rate of borrowing is used. The Company estimates the incremental borrowing rate based on the economic environment, the nature and quality of the asset, the Company’s credit rating and other factors.

Accrual for scientific and experimental development credits

The Company accrues an estimated reduction to its operating expenses related to SRED credits based on an estimate of eligible expenses under the Canadian government’s SRED incentive program. The estimated credits are reviewed periodically and updated if necessary. Where the final amounts of credit are different from the amounts accrued, such differences will affect the operating results in the period in which such determination is made.

Useful lives of property and equipment

The Company estimates the useful lives of property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives of property and equipment are based on internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of the property and equipment would increase the recorded expenses and decrease the non-current assets.

Fair value of financial instruments

The estimated fair value of financial assets and liabilities, by their very nature, are subject to measurement uncertainty.

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from financial forecasts and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

Taxes

Income tax expense comprises of current and deferred tax. Current tax and deferred tax are recognized in net earnings to the extent they relate to a business combination or are items recognized directly in equity or comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates substantively enacted at the reporting date. Deferred tax is recognized using the asset and liability method on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. However, deferred tax is not recognized if it arises from initial recognition of goodwill or an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting net earnings nor taxable income. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realized or deferred tax liability is settled. A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.


23

Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

Share-based payment transactions

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility and dividend yield of the share option.

Determination of functional currency

The determination of the functional currency is a matter of determining the primary economic environment in which an entity operates. Solium uses judgment in the ultimate determination of each subsidiary’s functional currency based on factors in IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’. The functional currency of the Canadian and U.S. operations were determined to be the Canadian and U.S. dollars, respectively. The functional currency of other operations is determined to be their local currencies.

Useful life of contracts

The Company amortizes capitalized commission fees over the expected life of the contract. The expected life of the contract is estimated based on historical attrition rates.

Determination of stand-alone selling price

The Company determines the total transaction price at the inception of the contract and allocates to each performance obligation based on their relative stand-alone selling price. When determining the stand-alone selling price, the Company considers various factors such as, the Company’s pricing strategies and objectives, market conditions, industry pricing and the geographic area where the product and services are sold.

Expected credit loss

The ECLs were calculated based on the expected credit loss for each client with an accounts receivable balance of greater than 90 days past due. When determining the ECLs, the Company considers the client’s financial position, service and payment history and economic conditions.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience, informed credit assessment and forward-looking information.

6 Recent accounting pronouncements As at the date of authorization of these consolidated financial statements, there were no new standards, interpretations, amendments and improvements to existing standards relevant to the Company’s operations that were issued by the IASB or International Financial Reporting Interpretations Committee (“IFRIC”) that are not yet effective for the year ended December 31, 2018 and have not been applied in preparing these consolidated financial statements.


24

7 Business combination A) Business acquired

Business name

Date of acquisition

Proportion of voting equity

interests acquired (%)

Consideration transferred $

Advanced-HR, Inc. February 20, 2018 100 9,119 Capshare October 6, 2017 100 16,161

Advanced-HR, Inc. is a U.S. company that provides compensation data and compensation planning software for private and venture backed companies.

Capshare is a high-growth cloud platform for capitalization table management, electronic-share tracking, modeling and waterfall analysis, and compliance for private companies. Through this acquisition, the Company is positioned to better compete in the equity administration of private companies and expand its services to early-stage startups.

B) Consideration transferred

2018 2017 Advanced-HR

$ Capshare

$ Cash 7,317 13,500 Holdback payable 1,900 - Cash receivable – working capital adjustment (98) - Cash consideration recoverable - (49)Earn-out payable - 2,710 Total purchase consideration 9,119 16,161

Net cash consideration paid Advanced-HR

$ Capshare

$ 2018 7,317 1,191 2017 - 13,500

The holdback payable net of working capital adjustments of $1,802 related to Advanced-HR was paid in February 2019.

As a condition of the acquisition of Capshare, certain former stockholders of Capshare acquired 265,839 common shares of Solium issued from treasury with cash proceeds. Post-closing adjustments of $49 are recoverable from the former stockholders of Capshare upon final settlement of the purchase price expected in April 2019. The Earn-Out payable was assessed subsequently, which resulted in a decrease in fair value by $926. As at December 31, 2018, the Earn-Out payable was $600 (Note 24).

The Company incurred $55 (2017: $293) of acquisition related costs during the year ended December 31, 2018. These costs are recognized as general and administrative expenses within operating expenses in the period in which they are incurred.


25

C) Fair value of identifiable assets acquired


$ Capshare

$ Cash 254 35 Working capital deficiency, net of cash (686) (83)Property and equipment 8 33 Intangible assets:

Customer contracts 650 343 Intellectual property 300 542 Non-compete agreement 30 - Brand 30 100

Deferred tax (liability) asset (78) 502 Total identifiable net assets 508 1,472

D) Goodwill arising on acquisition


$ Capshare

$ Consideration transferred (see 7B above) 9,119 16,161 Fair value of identifiable net assets acquired (see 7C above) (508) (1,472)Goodwill arising on acquisition 8,611 14,689

The $8,611 of goodwill recognized upon the acquisition of Advanced-HR is included in the U.S. reportable segment and is not deductible for income tax purposes. The goodwill is attributable to the benefit of forecasted revenue growth, future market development and the assembled workforce of Advanced-HR. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

The $14,689 of goodwill recognized upon the acquisition of Capshare is included in the U.S. reportable segment and is not deductible for income tax purposes. The goodwill is attributable to the benefit of revenue growth, future market development and the assembled workforce of Capshare. These benefits are not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

E) Impact of acquisition on the results of the Company

These consolidated financial statements incorporate the results of operations of the acquired business from the date of acquisition. The additional results did not have a significant impact to the statements of operations and comprehensive income as reported for the years ended December 31, 2018 and 2017.


26

8 Property and equipment

Computer equipment

$

Computer

software $

Furniture and office

equipment $

Leaseholds $

Total $

Cost At January 1, 2017 3,295 1,099 1,073 1,714 7,181 Additions 1,549 999 820 3,608 6,976 Recognized through business combination

(Note 7) 23 - 10 - 33

Disposals (23) - (372) (1,360) (1,755)Effect of foreign currency exchange

differences 240 99 73 212 624 At December 31, 2017 5,084 2,197 1,604 4,174 13,059 Additions 1,003 502 368 1,040 2,913 Recognized through business combination

(Note 7) 5 - 3 - 8

Disposals (1,273) (365) (84) - (1,722)Effect of foreign currency exchange

differences (313) (170) (108) (347) (938)At December 31, 2018 4,506 2,164 1,783 4,867 13,320 Accumulated Depreciation At January 1, 2017 2,246 987 799 1,128 5,160 Eliminated on disposal of assets (23) - (372) (1,360) (1,755)Depreciation expense 619 605 205 451 1,880 Effect of foreign currency exchange

differences 147 81 40 51 319 At December 31, 2017 2,989 1,673 672 270 5,604 Eliminated on disposal of assets (1,273) (365) (84) - (1,722)Depreciation expense 952 379 257 376 1,964 Effect of foreign currency exchange

differences (203) (146) (37) (29) (415)At December 31, 2018 2,465 1,541 808 617 5,431 Net book value December 31, 2017 2,095 524 932 3,904 7,455 December 31, 2018 2,041 623 975 4,250 7,889


27

9 Intangible assets

Customer contracts

$

Intellectual

property $

Brand $

Non-

compete agreement

$ Total

$Cost At January 1, 2017 13,200 2,033 1,075 - 16,308Additions 987 - - - 987Recognized through business

combination (Note 7) 343 542 100

- 985Foreign exchange differences 96 96 1 - 193At December 31, 2017 14,626 2,671 1,176 - 18,473Recognized through business

combination (Note 7) 650 300 30

30 1,010Effect of foreign exchange differences (70) (37) (1) - (108)At December 31, 2018 15,206 2,934 1,205 30 19,375 Accumulated Amortization At January 1, 2017 5,717 1,747 607 - 8,071Amortization expense 2,464 123 125 - 2,712Foreign exchange differences 47 86 1 - 134At December 31, 2017 8,228 1,956 733 - 10,917Amortization expense 2,674 232 149 5 3,060Effect of foreign exchange differences (49) (37) (1) - (87)At December 31, 2018 10,853 2,151 881 5 13,890 Net book value December 31, 2017 6,398 715 443 - 7,556December 31, 2018 4,353 783 324 25 5,485


28

10 Goodwill

December 31, 2018

$

December 31, 2017

$ Balance, beginning of year 38,293 23,368 Recognized through business combination (Note 7) 8,611 14,689 Effect of foreign currency exchange differences (102) 236 Balance, end of year 46,802 38,293

Goodwill has been allocated for impairment testing purposes to the following cash-generating units:

December 31, 2018

$

December 31, 2017

$ Canada 183 199 United States 44,780 36,169 Spain 1,839 1,925 46,802 38,293

The recoverable amounts of the CGUs’ assets have been determined based on a value in use calculation. There is a degree of uncertainty with respect to the estimates of the recoverable amounts of the CGUs’ assets given the necessity of making key economic assumptions about the future. The value in use calculation uses discounted cash flow projections which employ the following key assumptions: future cash flows, including economic risk assumptions and estimates of achieving key operating metrics and efficiencies; and the future weighted average cost of capital. The Company considers reasonably possible amounts to use for key assumptions and decides upon amounts based on past experience that represent management’s best estimates of the future. In the normal course, changes are made to key assumptions to reflect current (at the time of test) economic conditions, and updating of historical information used to develop the key assumptions. The Company performed its annual test for goodwill impairment at December 31, 2018, in accordance with its policy described in Note 3 and determined that goodwill was not impaired. The recoverable amount was determined based on the value in use, calculated using a discounted cash flow model. Significant key assumptions included estimated cash flows covering a five-year period, a discount rate of 9.8% (2017: 11.4%) for the U.S., and 9.7% (2017: 9.5%) for the Spain CGUs, and terminal growth rate in line with future expected growth rate of 2%. The Company believes that any reasonably possible change in the key assumptions on which its CGUs’ recoverable amounts are based would not cause the CGUs’ carrying amounts to exceed their recoverable amounts. If the future were to adversely differ from management’s best estimate of key assumptions and associated cash flows were to be materially adversely affected, the Company could potentially experience future impairment charges in respect of its goodwill.


29

11 Revenue A) Disaggregation of revenue In the following table, revenue is disaggregated by its reportable geographical segment and timing of revenue recognition.

Years Ended December 31 Canada U.S. International Consolidated 2018 2017*

Restated2018 2017*

Restated2018 2017*

Restated 2018 2017*

RestatedTiming of revenue recognition

Transferred at point in time 575 486 4,452 2,273 1,098 1,251 6,125 4,010 Transferred over time 32,514 29,166 53,675 39,430 16,030 13,480 102,219 82,076

*See note 4 Revenue from the Company’s SaaS technology platforms (license and subscription fees and transaction based fees) are transferred over time. The Company’s Transcentive non-hosted software license fees, implementation fees and consulting fees are transferred at a point in time. B) Contract balances The following table provides information about receivables, contract assets and contract liabilities from contracts with customers.

December 31, 2018

December 31, 2017* Restated

January 1, 2017* Restated

Trade receivables included in ‘Trade and other receivables’ 15,248 12,257 11,649 Contract assets included in ‘Trade and other receivables’ 3,382 1,276 2,520 Contract liabilities included in ‘Deferred revenue’ 11,279 9,287 8,230

*See note 4 The contract assets primarily relate the Company’s rights to consideration for work complete but not billed at the reporting date. The contract assets are transferred to receivables when the rights become unconditional. The contract liabilities primarily relate to the advance consideration received from customers, for which revenue is recognized when performance obligations are satisfied. C) Contract costs During the year ended December 31, 2018, the amount of amortization was $778 (2017: $590). There was $113 (2017: nil) in impairment loss in relation to the costs capitalized for the year ended December 31, 2018.


30

12 Leases The Company’s portfolio of leases mainly consists of office space and IT infrastructure. A) Right of use assets

Office space $

IT infrastructure $

Total$

At January 1, 2018 12,222 501 12,723Additions 56 - 56Depreciation expense (1,790) (121) (1,911)Adjustment due to remeasurement of lease

liability (42) - (42)Foreign exchange differences (455) (34) (489)At December 31, 2018 9,991 346 10,337

B) Amounts recognized in the Consolidated Statements of Operations and Comprehensive Income or Loss

2018$

Interest on lease liabilities 739Expenses relating to short-term leases 279 C) Lease liabilities

2018$

Maturity analysis – contractual undiscounted cash flows Less than one year 1,952One to five years 6,582More than five years 6,601Total undiscounted lease liabilities 15,135

13 Income taxes The major components of income tax expense for the years ended are as follows: Years ended December 31, 2018

$

2017* Restated

$ Current tax expense 2,865 2,792 Deferred tax (recovery) expense (43) 568 Income tax expense reported in the statement of comprehensive income or loss 2,822 3,360


31

The provision for income taxes reflects an effective tax rate that differs from the combined federal and provincial statutory rates as follows:

Deferred tax assets (liabilities) are attributable to the following temporary differences:

Property & equipment

and intangible assets

Tax losses(1)

Deferred revenue and

deferred inducement

Share issue costs

Other

Net deferred tax asset

$ $ $ $ $ $As at January 1, 2017, as previously

reported (1,176) 1,426 228 143 576 1,197Adjustment from adoption of IFRS

15 and restatement* - - (364) - - (364)Restated balance at January 1, 2017 (1,176) 1,426 (136) 143 576 833Recognized in net earnings (restated) 420 (852) (104) (44) 12 (568)Recognized in other comprehensive

income (restated) (51) - 21 7 38 15Acquired in business combination

(Note 7c) (149)

651

-

-

- 502Recognized directly in equity - - - 452 (56) 396Restated balance at December 31,

2017 (956) 1,225 (219) 558 570 1,178Adjustment on initial application of

IFRS 16* - - (66) - - (66)Adjusted balance at January 1, 2018 (956) 1,225 (285) 558 570 1,112Recognized in net earnings 25 (65) 231 (180) 32 43Recognized in other comprehensive

income 13 - (7) (34) (3) (31)Acquired in business combination

(Note 7c) (275) 18 179 - - (78)Recognized directly in equity - - - - 18 18As at December 31, 2018 (1,193) 1,178 118 344 617 1,064

(1) Tax losses of $68 were acquired as part of the 2018 business acquisition of Advanced-HR, Inc. Tax losses also include the net operating loss carry forwards acquired as part of the business acquisition of OptionEase Inc. and Capshare in the amount of approximately $2,549 (2017: $2,815) and $1,655 (2017: $1,655), respectively. These net operating losses expire beginning in 2027 and 2032, respectively, for U.S. federal taxes.

*See note 4

Years ended December 31, 2018

$

2017* Restated

$ Earnings before income taxes 7,722 6,718 Statutory Canadian federal and provincial income tax rate 26.89% 26.89% Computed income taxes at statutory rates 2,076 1,806 Increase (decrease) resulting from:

Non-deductible amounts 444 301 Unrecognized tax loss benefit 273 406 Rate differences 103 802 Other (74) 45

Income tax expense recognized in net earnings 2,822 3,360


32

Unrecognized Deferred Tax Assets

As at December 31, 2018, the Company has net operating losses carried forward of $7,243 (2017: $7,864) in its international jurisdictions. Deferred tax assets of $2,738 (2017: $2,721) have not been recognized relating to deductible temporary differences in its international jurisdictions because it is not probable that future taxable profits will be available against which the Company can utilize the benefits.

14 Related party disclosure The consolidated financial statements include the financial statements of Solium and its subsidiaries. Significant subsidiaries are listed in the following table:

Name Country of

incorporation % equity interest

2018 2017 Solium Financial Inc. Canada 100% 100% Solium Holdings USA Inc. United States 100% 100% Solium Capital LLC United States 100% 100% Solium Plan Managers LLC United States 100% 100% Solium Transcentive LLC United States 100% 100% Solium Capital UK Limited United Kingdom 100% 100% Solium Capital (Australia) PTY Ltd. Australia 100% 100%

Balances and transactions between Solium and its subsidiaries, which are related parties of Solium, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Company and other related parties are disclosed below. Compensation of key management personnel Key management personnel is comprised of 22 members of Solium’s Executive Team and Board of Directors (2017: 20). The remuneration of key management personnel during the year was as follows:

Years ended December 31,

2018 $

2017 $

Short-term compensation 4,228 3,204 Share-based compensation 1,207 785 5,435 3,989

Short-term compensation corresponds to the amounts paid during the year. Share-based payments correspond to the amounts recorded as expense.


33

15 Share capital The Company has authorized an unlimited number of common shares and an unlimited number of preferred shares.

Number of Amount Amount Shares $ USD $ CAD

Issued - common shares Balance, January 1, 2017 50,245,459 59,814 67,048 Issued on exercise of stock options, net of tax 715,627 3,138 4,075 Issued on vesting of share units, net of tax 150,751 975 1,216 Issued subject to acquisition 265,839 2,191 2,745 Bought deal financing 4,488,450 35,761 46,007 Share issue costs, net of tax - (1,521) (1,939)Balance, December 31, 2017 55,866,126 100,358 119,152 Issued on exercise of stock options, net of tax 656,845 4,769 6,202 Issued on vesting of share units, net of tax 200,962 1,208 1,575 Balance, December 31, 2018 56,723,933 106,335 126,929

16 Share-based payments Stock options The Company has a stock option plan open to Directors, officers, employees, consultants and other key personnel of the Company and its subsidiaries. Under this plan, options granted to Directors, officers, employees and consultants may not exceed 12% of the aggregate number of issued and outstanding common shares of the Company on a non-diluted basis at the time of grant. Options generally expire five years from the date of grant. Generally, options granted vest 50% on the second anniversary, and an additional 25% on third and fourth anniversaries from the original grant date. The Company has used the Black-Scholes option pricing model in order to quantify the fair value of an option grant. The following table sets forth the weighted-average assumptions used:

2018 2017

Weighted-average fair value (per share) of options granted (USD $) $2.44 $2.48 Weighted-average fair value (per share) of options granted (CAD $)

$3.18 $3.06

Expected dividend yield 0% 0% Expected volatility 29.61% 33.45% Risk-free interest rate 2.28% 1.67% Expected life 4 years 4 years

Compensation expense related to stock options totalled $1,307 ($1,693 CAD) for the year ended December 31, 2018 (2017: $1,102 ($1,426 CAD)).


34

Stock options activity with respect to the Company’s stock option plan for the years ended December 31, 2018 and 2017 are shown below: Weighted

Average Weighted Average

Number

of Options Exercise Price

$ USD Exercise Price

$ CAD Outstanding, January 1, 2017 2,830,211 4.58 6.15 Granted 974,522 8.30 10.30 Exercised (715,627) 2.65 3.43 Forfeited (168,997) 5.60 7.36 Outstanding, December 31, 2017 2,920,109 6.47 8.13 Granted 904,508 8.83 11.42 Exercised (656,845) 4.88 6.35 Forfeited (206,091) 7.20 9.39 Expired (400) 4.38 5.65 Outstanding, December 31, 2018 2,961,281 6.93 9.44 Exercisable, December 31, 2018 835,476 7.58 5.56 The following table summarizes additional information relating to stock options outstanding and vested as at December 31, 2018: USD $

Exercise prices Number

Outstanding

Weighted Average

Remaining Contractual Life

Weighted Average Exercise

Price Number Vested


Price $5.15 to $5.83 1,007,097 2.13 $5.34 573,818 $5.39 $5.84 to $7.74 1,035,446 2.98 $7.20 253,658 $5.87 $7.75 to $8.78 918,738 4.68 $8.35 8,000 $7.85

2,961,281 835,476

CAD $

Exercise prices Number

Outstanding

Weighted Average

Remaining Contractual Life


Price Number Vested


Price $7.02 to $7.95 1,007,097 2.13 $7.29 573,818 $7.36

$7.96 to $10.56 1,035,446 2.98 $9.82 253,658 $8.00 $10.57 to $11.97 918,738 4.68 $11.39 8,000 $10.70

2,961,281 835,476


35

Share Award Incentive Plan The Company has a restricted share unit awards (“RSUs”) plan open to Directors, officers, employees, consultants, and other key personnel of the Company and its subsidiaries. RSUs is a time-vested award entitling the grantee to receive common shares at the time of vesting. Generally, RSUs granted vest 25% on the second anniversary, and 75% on the third anniversary from the original grant date. The Company has performance share unit awards (“PSUs”) under its share award incentive plan. PSU grants are denominated in a fixed number of common shares which vest in four and half years from the date of the grant and subject to certain financial performance criteria. RSUs and PSUs activity with respect to the Company’s share award incentive plan for the years ended December 31, 2018 and 2017 are shown below:

Number of Number of RSUs PSUs

Outstanding RSUs and PSUs

Outstanding, January 1, 2017 541,477 - Granted 324,081 50,000 Vested (150,751) - Forfeited (41,341) - Outstanding, December 31, 2017 673,466 50,000 Granted 402,992 - Vested (200,962) - Forfeited (56,025) - Outstanding, December 31, 2018 819,471 50,000

Compensation expense relating to RSUs totalled $2,026 ($2,629 CAD) for the year ended December 31, 2018 (2017: $1,309 ($1,693 CAD)). Compensation expense relating to PSUs totalled $90 ($116 CAD) for the year ended December 31, 2018 (2017: $26 ($33 CAD)). Employee Sharing Plan and Share Purchase Plan Under the Company’s Employee Profit Sharing Plan (“EPSP”), employees can contribute up to 5% of their eligible earnings towards the EPSP. The Company contributes out of the Company’s profits 50% of the contributions made by employees. Contributions are used to purchase the Company’s shares in the open market and are subject to certain vesting rules. Under the Company’s Employee Share Purchase Plan (“ESPP”), employees can contribute annually up to 20% of their eligible earnings to the ESPP. The Company matches employee contributions by 10%, and all such contributions are used to purchase the Company’s shares in the open market. Non-executive employees are able to participate in EPSP while the executives of the Company participate in the ESPP. The Company’s contributions to the EPSP and ESPP, and costs associated with administering the plans totalled $461 ($597 CAD) for the year ended December 31, 2018 (2017: $311 ($402 CAD)). Director Share Purchase Plan Under the Company’s Director Share Purchase Plan (“DSPP”), Directors contribute the cash compensation portion of Director Fees, net of any withholding taxes, towards the DSPP. The Company does not make any matching contributions to the DSPP. Director contributions are used to purchase the Company’s shares in the open market.


36

17 Operating Expenses Years ended December 31, 2018

$

2017* Restated

$ Salaries, wages and compensation benefits 69,794 53,415 General and administration 26,703 21,607 Depreciation of property and equipment 1,964 1,880 Depreciation of right of use asset 1,911 - Amortization of intangible assets 3,060 2,712 Amortization of contract costs 778 590 Investment tax credits - (282) 104,210 79,922

Included in salaries, wages and compensation benefits is share-based payment expense of $3,423 (2017: $2,437).

18 Cash and cash equivalents Years ended December 31, 2018

$ 2017

$ Cash 88,076 90,492 Cash equivalents 8,901 9,702 96,977 100,194

Cash and cash equivalents consist of cash in banks, and short term deposit notes. The cash and cash equivalents disclosed above for the years ended December 31, 2018 and 2017 includes $299 held as restricted cash.

19 Statement of cash flow The following tables presents the changes in non-cash working capital:

Years ended December 31, 2018

$ 2017

$ Trade and other receivables (3,685) 2,259 Contract costs (1,467) (864)Prepaid expenses (155) (920)Trade payables and other accruals (28) 883 Deferred revenue 1,453 840 (3,882) 2,198


37

20 Earnings per share Basic and diluted earnings per share The calculations of basic and diluted earnings per share for the years ended December 31, 2018 and 2017 were based on the following weighted average shares outstanding: Years ended December 31, 2018 2017*

Restated Weighted average shares outstanding – basic 56,239,525 51,459,749 Effect of dilutive stock options and share units 934,214 873,267 Weighted average shares outstanding – diluted 57,173,739 52,333,016 Net earnings per share – basic 0.087 0.067 Net earnings per share – diluted 0.086 0.066 *See note 4 For the year ended December 31, 2018, there were 2,061,933 (2017: 1,188,420) stock options, RSUs, and PSUs excluded from the diluted weighted average shares outstanding calculation due to an anti-dilutive effect.

21 Guarantees In the normal course of operations, the Company provides indemnifications that are often standard contractual terms to counterparties in transactions such as purchase and sale contracts, service agreements and leasing transactions. These indemnification agreements may require the Company to compensate the counterparties for costs incurred as a result of various events, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements will vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay counterparties. Historically, the Company has not made any payments under such indemnifications and no amounts have been accrued in the accompanying financial statements with respect to these indemnification guarantees.

22 Capital disclosures The Company’s objective is to maintain a cost effective capital structure that supports its long-term growth strategy while maintaining operating flexibility. The Company defines its capital as shareholders’ equity and long-term debt.

December 31,

2018

$

December 31,

2017* Restated

$

Shareholders’ equity 154,487 150,339 Total capital 154,487 150,339

*See note 4 In order to maintain or adjust the capital structure, the Company may purchase shares for cancellation pursuant to normal course issuer bids, issue new shares, or raise debt. The Company has regulated subsidiaries that are required to maintain minimum cash or short term investment balances, or a net capital requirement. As at December 31, 2018 and 2017, the subsidiaries held more than the required amount of cash or short term investments, and met the net capital requirements.


38

23 Financial instruments and financial risk management Fair value of financial instruments The Company’s financial instruments consist of cash and cash equivalents, trade and other receivables, trade payables and other accruals, holdback payable and earn-out payable. The fair values of cash and cash equivalents, trade and other receivables, trade payables and other accruals, holdback payable and earn-out payable approximate their carrying values due to the short-term maturities of those instruments. Financial risk management Exposure to counterparty credit risk and foreign currency risk arises in the normal course of the Company’s business. The Company currently does not enter into derivative financial instruments to reduce exposure to fluctuations in any of the risks impacting the Company’s operations. Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company’s maximum exposure to credit risk, which is a worst case scenario and does not reflect results expected by the Company, is as follows:

December 31, 2018

$

December 31, 2017

$ Cash and cash equivalents 96,977 100,194 Trade receivables 15,248 12,257 112,225 112,451

The credit risk on cash is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The Company has credit risk as a result of its trade accounts receivable. Trade accounts receivable consists of a large number of customers, spread across diverse industries. The concentration of credit risk is limited due to the fact that the customer base is large and unrelated. As such, the Company does not anticipate any significant credit losses. Of the trade receivable balance at December 31, 2018, one customer represented greater than 10% of the balance.


39

The following table presents an analysis of the age of customer accounts receivable not allowed for as at the dates of the consolidated statements of financial position.

December 31, 2018

$

December 31, 2017

$ Current 7,479 5,702 30 – 60 days past billing date 3,305 3,385 61 – 90 days past billing date 1,706 1,103 Greater than 90 days past billing date 3,085 2,171 15,575 12,361 Trade receivables 15,575 12,361 Loss allowance (327) (104) 15,248 12,257

Trade receivables are non-interest bearing and are generally on 30 day terms. Total trade accounts receivable (net of ECLs) held by the Company at December 31, 2018 amounted to $15,248 (2017: $12,257). In determining the expected credit loss amount, the Company considers the client’s financial position, service and payment history and economic conditions. The estimated credit loss for trade accounts receivable as at December 31, 2018 is $327 (2017: $104). Also included in trade and other receivables is accrued receivables of $3,382 (2017: $1,276) and other receivables of $1,188 (2017: $1,453). Included in other receivables is income tax receivable of $825 (2017: $1,221). Foreign currency risk

The Company has foreign currency risk mainly because it is exposed to foreign currency fluctuations due to its operations in Canada, the United States, the United Kingdom, Europe, Australia, and Hong Kong. The Company’s functional currency is CAD and the reporting currency is USD. Foreign exchange risk arises because the amount receivable on revenue or payable on expenditures that are denominated in CAD, British Sterling Pound (“GBP”), European euros (“EUR”), Australian dollars (“AUD”), and Hong Kong dollars (“HKD”) may vary when converted to USD due to changes in exchange rates arising from timing differences between when the revenue or expense occurs and when actual payment is received or made (“transaction exposures”) and because the foreign currency denominated net assets of the Company’s foreign subsidiaries may vary on consolidation and revaluation into USD (“translation exposure”). The translation exposure is mainly due to the fluctuation in net earnings of the foreign subsidiaries upon consolidation and revaluation into USD. Based on the balance of the foreign net monetary assets carried on the consolidated statement of financial position of the Canadian operations as at December 31, 2018, an increase of 0.01 in the exchange rate of foreign currency to CAD would, everything else being equal, have had a positive effect on earnings before taxes for the year ended and retained earnings as at December 31, 2018 of approximately $332 (2017: $240). Based on the balance of net assets carried in the statement of financial position of the Canadian, U.K., European, Australian, and Hong Kong operations as at December 31, 2018, an increase of 0.01 in the exchange rate of CAD, GBP, EUR, AUD, and HKD to USD would, everything else being equal, have had a positive effect on other comprehensive income for the year ended and foreign currency translation reserve as at December 31, 2018 of approximately $1,759 (2017: $1,731).


40

Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient funds to meet its obligations as they come due. The Company’s objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. The Company achieves this by maintaining sufficient cash, as well as through the availability of funding from committed credit facilities. As at December 31, 2018, the Company had cash and cash equivalents of $96,977, and a $15,000 CAD revolving credit facility available to be drawn against. During the period, the Company extended the term of its $15,000 CAD revolving credit facility to November 2019. The definitions of the financial covenants were amended to reflect recent accounting policy changes. All other terms remained substantially the same. The Company’s financial liabilities, based on contractual undiscounted payments, were $18,029 as at December 31, 2018 and all mature within 12 months. Management believes that future cash flows from operations will be adequate to support the financial liabilities. Trade payables are non-interest bearing and are normally settled on 30 day terms.

24 Earn-out payable In connection with the acquisition of Capshare Inc. (“Capshare”), which closed on October 6, 2017, former stockholders of Capshare may earn up to $3,000 contingent upon the acquired business meeting certain financial targets (the “Earn-Out”). The Earn-Out is measured in two tranches on September 30, 2018 and September 30, 2019, and subsequently payable within 45 days. The first tranche of $1,191 was paid out in November 2018.

The fair value of the Earn-Out at the date of acquisition was estimated based on management’s estimate of the acquired business’s financial performance over the Earn-Out period and subsequently assessed at each reporting period. As a result, the Company had decreased the fair value of the contingent consideration by $926 and is included in other income on the statement of operations for the year ended December 31, 2018. As at December 31, 2018, the fair value of the Earn-Out liability was assessed to be $600.


41

25 Segmented information The Company’s operations fall into one dominant segment, the administration of equity-based incentive and savings programs for corporations and their employees. The following is a breakdown of financial information by geographic segment (included in the International reportable segment are results for the U.K., Europe, Australia, and Hong Kong):

Years ended December 31,

2018 $

2017* $

Revenue Canada 33,089 29,652 United States 58,127 41,703 International 17,128 14,731 108,344 86,086 Earnings (loss) from operations Canada 5,323 5,253 United States (283) 2,472 International (906) (1,561) 4,134 6,164

As at December 31,

2018 $

2017* $

Total assets Canada 139,042 127,982 United States 47,145 41,771 International 8,994 6,204 195,181 175,957 Intangible assets, excluding goodwill Canada 85 156 United States 5,160 7,038 International 240 362 5,485 7,556 Goodwill Canada 183 199 United States 44,780 36,169 International 1,839 1,925 46,802 38,293

* Restated, see note 4


42

26 Subsequent events On February 10, 2019, the Company entered into a definitive arrangement agreement with Morgan Stanley which, through a wholly-owned subsidiary, will acquire all of the Company’s issued and outstanding common shares subject to the approval of the Company’s Securityholders and regulatory approvals. Under the terms of the agreement, Morgan Stanley will acquire the Company’s shares in an all-cash purchase and pay CAD$19.15 for each share. The total transaction is valued at approximately CAD$1.1 billion.

solium capital inc. management’s discussion and analysis ... · solium capital inc. md&a for...

Documents