EX-99.1 3 ef20017992_ex99-1.htm EXHIBIT 99.1
Exhibit 99.1

Sinqia S.A.
Audited Consolidated
Financial Statements and
Independent Auditor’s Report

CONTENTS

Independent Auditor’s Report
3
   
Consolidated Financial Statements
   
Balance Sheet
5
Statements of Income
8
Statements of Comprehensive Income
9
Statement of Changes in Equity
10
Statements of Cash Flows
11
Notes to the Financial Statements
13

INDEPENDENT AUDITOR’S REPORT
 
To the Shareholders, Board of Directors and Management of
Sinqia S.A. and Subsidiaries
 
Opinion
 
We have audited the consolidated financial statements of Sinqia S.A. and subsidiaries (the “Company”), which comprise the consolidated balance sheet as of December 31, 2022, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for the year then ended, and the related notes to the consolidated financial statements (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 of December 31, 2022, and the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards - IFRS as issued by the International Accounting Standards Board - IASB.
 
Basis for opinion
 
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (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 required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 
Other matter
 
The accompanying balance sheet of the Company as of December 31, 2021 and the related statements of income, of comprehensive income, of changes in equity and of cash flows for the year then ended were not audited, reviewed, or compiled by us, and, accordingly, we do not express an opinion or any other form of assurance on them.
 
Responsibilities of Management for the financial statements
 
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS as issued by the IASB, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
 
3
In preparing the financial statements, Management is responsible for assessing the Company’s ability to continue as a going concern at least, but not limited to, twelve months from the end of the reporting period, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
 
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 absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. 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. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
 
In performing an audit in accordance with GAAS, we:
 
•
Exercise professional judgment and maintain professional skepticism throughout the audit.
 
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
 
•
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. Accordingly, no such opinion is expressed.
 
•
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by Management, as well as evaluate the overall presentation of the financial statements.
 
•
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
 
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
 
/s/ DELOITTE TOUCHE TOHMATSU
Auditores Independentes Ltda.

São Paulo, Brazil
September 11, 2023

4
SINQIA S.A.
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
   
Note
      
12.31.2022
      
12.31.2021
  
ASSETS
                
(unaudited)
  
Current assets
                      
Cash and cash equivalents
    
5.a

   
37,941
      
24,192
  
Short-term investments
    
5.b
)
    
151,766
      
537,000
  
Trade receivables
    
6
      
40,881
      
34,510
  
Prepaid expenses
            
1,761
      
3,452
  
Recoverable taxes and contributions
    
7
      
15,840
      
7,261
  
Other receivables
            
2,861
      
2,552
  
                         
Total current assets
            
251,050
      
608,967
  
                         
Noncurrent assets
                        
Recoverable taxes and contributions
    
7
      
1,321
      
3,765
  
Financial assets
    
5.c
)
    
99,267
      
80,701
  
Escrow deposits
    
15
      
197
      
174
  
Deferred income tax and social contribution
    
21.b
)
    
78,625
      
47,596
  
Property and equipment
    
9
      
46,740
      
47,831
  
Intangible assets
    
10
      
1,078,113
      
488,883
  
                         
Total noncurrent assets
            
1,304,263
      
668,950
  
                         
TOTAL ASSETS
            
1,555,313
      
1,277,917
  

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

5
SINQIA S.A.
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
   
Note
      
12.31.2022
      
12.31.2021
  
LIABILITIES
                
(unaudited)
  
CURRENT LIABILITIES
                      
Debentures
    
11
      
74,500
      
27,300
  
Leases
    
23
      
24,334
      
16,660
  
Suppliers and service providers
            
4,724
      
2,323
  
Advances from customers
            
19,363
      
10,110
  
Payroll and related taxes
    
12
      
62,234
      
41,230
  
Profit for distribution
    
16.2.b
)
    
7,720
      
6,471
  
Taxes payable
    
13
      
6,115
      
3,993
  
Payables for investment acquisition
    
14
      
79,101
      
22,294
  
Other payables
            
491
      
-
  
                         
Total current liabilities
            
278,582
      
130,381
  
                         
NONCURRENT LIABILITIES
                        
Debentures
    
11
      
162,156
      
146,339
  
Leases
    
23
      
47,439
      
62,810
  
Provision for legal claims
    
15
      
139,866
      
63,945
  
Advances from customers
            
2,990
      
-
  
Payables for investment acquisition
    
14
      
111,637
      
71,524
  
Put option on non-controlling interests
    
24
      
142,270
      
62,386
  
                         
Total noncurrent liabilities
            
606,358
      
407,004
  

6
SINQIA S.A.
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
   
Note
      
12.31.2022
      
12.31.2021
  
                 
(unaudited)
  
EQUITY
                      
Capital
    
16.1
      
813,303
      
813,303
  
Treasury shares
    
16.4
      
(58,174
)
    
(40,896
)
Share issuance costs
    
16.5
      
(48,890
)
    
(48,890
)
Transactions with non-controlling shareholders
            
(126,810
)
    
(61,208
)
Capital reserve
    
16.3
      
11,867
      
12,227
  
Earnings reserves
    
16.2
      
59,010
      
46,915
  
                         
Total owners’ equity
            
650,306
      
721,451
  
                         
Non-controlling interests
            
20,067
      
19,081
  
                         
Total equity
            
670,373
      
740,532
  
                         
TOTAL LIABILITIES AND EQUITY
            
1,555,313
      
1,277,917
  

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

7
SINQIA S.A.
CONSOLIDATED STATEMENT OF INCOME
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$, except basic/diluted earnings per share)

   
Note
      
12.31.2022
      
12.31.2021
  
                 
(unaudited)
  
                       
NET REVENUE
    
17
      
616,472
      
352,596
  
                         
Cost of services
    
18
      
(353,524
)
    
(217,831
)
                         
GROSS PROFIT
            
262,948
      
134,765
  
                         
General, administrative and selling expenses
    
19
      
(201,847
)
    
(114,759
)
                         
OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSE)
            
61,101
      
20,006
  
                         
Financial income (expense), net
    
20
      
(27,968
)
    
2,653
  
                         
PROFIT BEFORE INCOME TAX AND SOCIAL CONTRIBUTION
            
33,133
      
22,659
  
                         
INCOME TAX AND SOCIAL CONTRIBUTION
                        
Current
    
21.a
)
    
(26,375
)
    
(21,850
)
Deferred
    
21.a
)
    
10,798
      
19,404
  
                         
NET PROFIT FOR THE YEAR
            
17,556
      
20,213
  
ATTRIBUTABLE TO:
                        
Company’s owners
            
16,785
      
20,179
  
Non-controlling interests
            
771
      
34
  
EARNINGS PER SHARE (in reais - R$)
                        
Basic earnings per share
    
22
      
0.198
      
0.266
  
Diluted earnings per share
    
22
      
0.196
      
0.264
  

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

8
SINQIA S.A.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
NET PROFIT FOR THE YEAR
    
17,556
      
20,213
  
                 
Other comprehensive income
    
-
      
-
  
                 
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
    
17,556
      
20,213
  
                 
ATTRIBUTABLE TO:
                
Owners of the Company
    
16,785
      
20,179
  
Non-controlling shareholders
    
771
      
34
  

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

9
SINQIA S.A
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)

                                 
Earnings reserve
                          
   
Capital
    
Capital
reserve
    
Treasury
shares
    
Share
issuance costs
    
Transactions
with non-
controlling
shareholders
    
Legal
reserve
    
Earnings
retention
    
Profit for the
year
    
Equity
    
Non-
controlling
interests
    
Consolidated
equity
  
Balances as at December 31, 2020 (unaudited)
    
413,261
      
15,497
      
(1,689
)
    
(23,915
)
    
-
      
2,533
      
29,841
      
-
      
435,528
      
-
      
435,528
  
Net profit for the year (unaudited)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
20,179
      
20,179
      
34
      
20,213
  
Put option on non-controlling interests (unaudited)
    
-
      
-
      
-
      
-
      
(61,208
)
    
-
      
-
      
-
      
(61,208
)
    
-
      
(61,208
)
Acquisition of non-controlling interests (unaudited)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
19,047
      
19,047
  
Capital increase (note 16.1) (unaudited)
    
400,042
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
400,042
      
-
      
400,042
  
Share-based compensation (note 16) (unaudited)
    
-
      
331
      
-
      
-
      
-
      
-
      
-
      
-
      
331
      
-
      
331
  
Stock option exercise (unaudited)
    
-
      
(1,043
)
    
1,746
      
-
      
-
      
-
      
-
      
-
      
703
      
-
      
703
  
Recognition of legal reserve (note 16) (unaudited)
    
-
      
-
      
-
      
-
      
-
      
1,009
      
-
      
(1,009
)
    
-
      
-
      
-
  
Recognition of earnings reserve (unaudited)
    
-
      
-
      
-
      
-
      
-
      
-
      
13,532
      
(13,532
)
    
-
      
-
      
-
  
Distribution of profit (note 16) (unaudited)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
(5,638
)
    
(5,638
)
    
-
      
(5,638
)
Share issuance costs (unaudited)
    
-
      
-
      
-
      
(24,975
)
    
-
      
-
      
-
      
-
      
(24,975
)
    
-
      
(24,975
)
Purchase of treasury shares (note 16) (unaudited)
    
-
      
-
      
(99,620
)
    
-
      
-
      
-
      
-
      
-
      
(99,620
)
    
-
      
(99,620
)
Shares delivered on acquisition of companies (note 16) (unaudited)
    
-
      
(2,558
)
    
58,667
      
-
      
-
      
-
      
-
      
-
      
56,109
      
-
      
56,109
  
Balances as at December 31, 2021 (unaudited)
    
813,303
      
12,227
      
(40,896
)
    
(48,890
)
    
(61,208
)
    
3,542
      
43,373
      
-
      
721,451
      
19,081
      
740,532
  
Net profit for the year
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
16,785
      
16,785
      
771
      
17,556
  
Put option on non-controlling interests
    
-
      
-
      
-
      
-
      
(65,602
)
    
-
      
-
      
-
      
(65,602
)
    
-
      
(65,602
)
Acquisition of non-controlling interests
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
      
9,565
      
9,565
  
Share-based compensation (note 16)
    
-
      
878
      
-
      
-
      
-
      
-
      
-
      
-
      
878
      
-
      
878
  
Stock option exercise
    
-
      
(1,238
)
    
4,380
      
-
      
-
      
-
      
-
      
-
      
3,142
      
-
      
3,142
  
Recognition of legal reserve (note 16)
    
-
      
-
      
-
      
-
      
-
      
839
      
-
      
(839
)
    
-
      
-
      
-
  
Recognition of earnings reserve
    
-
      
-
      
-
      
-
      
-
      
-
      
11,256
      
(11,256
)
    
-
      
-
      
-
  
Distribution of profit (note 16)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
(4,690
)
    
(4,690
)
    
(9,350
)
    
(14,040
)
Purchase of treasury shares (note 16)
    
-
      
-
      
(21,658
)
    
-
      
-
      
-
      
-
      
-
      
(21,658
)
    
-
      
(21,658
)
Balances as at December 31, 2022
    
813,303
      
11,867
      
(58,174
)
    
(48,890
)
    
(126,810
)
    
4,381
      
54,629
      
-
      
650,306
      
20,067
      
670,373
  

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

10
SINQIA S.A.
STATEMENT OF CASH FLOWS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
CASH FLOWS FROM OPERATING ACTIVITIES
                
                 
Net profit for the year
    
17,556
      
20,213
  
Adjustments for:
                
Share-based compensation plan
    
878
      
331
  
Depreciation and amortization
    
95,129
      
49,175
  
Gain on write-off/disposal of property and equipment
    
6
      
10
  
Allowance for doubtful debts
    
(144
)
    
2,165
  
Provision (reversal of provision) for legal claims
    
(2,358
)
    
(4,549
)
Accrued bonuses and profit sharing
    
24,106
      
8,117
  
Interest and PVA incurred
    
51,352
      
21,457
  
Measurement of call and put options
    
(2,710
)
    
-
  
Current and deferred income tax and social contribution
    
15,577
      
2,446
  
                 
                 
Changes in operating assets and liabilities
                
Trade receivables
    
4,417
      
(13,178
)
Escrow deposits
    
(23
)
    
65
  
Recoverable taxes and contributions
    
(4,379
)
    
(2,784
)
Other receivables
    
(25
)
    
(10,032
)
Suppliers and service providers
    
1,861
      
(1,057
)
Payroll and related taxes
    
(6,826
)
    
7,342
  
Taxes payable
    
(1,983
)
    
(2,476
)
Legal claims paid
    
(2,364
)
    
(1,669
)
Advances from customers
    
4,111
      
327
  
                 
CASH GENERATED BY OPERATIONS
    
198,247
      
75,903
  
                 
Income tax and social contribution paid
    
(26,844
)
    
(14,846
)
Interest paid
    
(41,441
)
    
(10,942
)
                 
NET CASH GENERATED BY OPERATIONS
    
125,896
      
50,115
  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
                
                 
Purchase of property and equipment and intangible assets
    
(23,002
)
    
(16,462
)
Acquisition of companies, net of cash acquired
    
(437,647
)
    
(103,202
)
Redemption of (investment in) short-term investments
    
385,234
      
(537,000
)
Payables for investment acquisition
    
-
      
(15,351
)
Investments in securities
    
(13,172
)
    
(64,900
)
                 
NET CASH USED IN INVESTING ACTIVITIES
    
(88,587
)
    
(736,915
)

11
SINQIA S.A.
STATEMENT OF CASH FLOWS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)

CASH FLOWS FROM FINANCING ACTIVITIES
            
             
     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Repayment of borrowings and financing
    
(37,558
)
    
(13,737
)
Payment of leases
    
(19,326
)
    
(12,804
)
Borrowings and financing raised
    
100,990
      
144,472
  
Purchase of treasury shares
    
(21,658
)
    
(99,620
)
Payables for investment acquisition
    
(33,217
)
    
-
  
Dividends paid
    
(12,791
)
    
(1,385
)
Capital increase
    
-
      
400,042
  
Share issuance costs
    
-
      
(27,039
)
                 
                 
NET CASH GENERATED BY (USED IN) FINANCING ACTIVITIES
    
(23,560
)
    
389,929
  
                 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
13,749
      
(296,871
)
                 
Cash and cash equivalents at the beginning of the year
    
24,192
      
321,063
  
Cash and cash equivalents at the end of the year
    
37,941
      
24,192
  
                 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
13,749
      
(296,871
)

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

12
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
1
GENERAL INFORMATION

1.1
Operations

Sinqia S.A. (“Company”) is a publicly-held company, with head office at Rua Bela Cintra, 755 - 7º andar, in the City of São Paulo, State of São Paulo, whose shares are traded in the “Novo Mercado” segment of B3 – Brasil, Bolsa, Balcão.

The Company was established in 1996 and is primarily engaged in the provision of technology for the financial sector.

The Company is the Parent of Sinqia Tecnologia Ltda., Torq Inovação Digital Ltda., Homie do Brasil Informática Ltda, Rosk Software S.A., and indirect Parent of Lote45 Participações S.A.

These financial statements were approved and authorized for disclosure by the Board of Directors on September 4, 2023.

1.2
Basis of preparation and statement of compliance

The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

The financial statements have been prepared on the historical cost basis, unless otherwise stated. The significant accounting policies adopted in the preparation of the financial statements are presented in the respective notes to the financial statements.

At the date of approval of the financial statements, Management reasonably expects that the Company has appropriate resources to continue as a going concern in the foreseeable future. Therefore, it continues to adopt the going concern basis of accounting in preparing the financial statements.

Management asserts that all relevant information for the consolidated financial statements, and only this information, is being disclosed and corresponds to the information used in managing the Company.

The financial statements are expressed in thousands of reais (R$), rounded to the nearest thousand, unless otherwise stated.

13
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
1.3
Consolidation

The Company consolidates all entities over which it exercises control, i.e., when it is exposed, or has rights, to variable returns arising from its involvement with the investee and has the ability to steer the investee’s relevant activities.

The equity interests in the subsidiaries, which are all domiciled in Brazil, are shown below:

Direct subsidiaries
12.31.2022
  
12.31.2021
  
Core business
  
             
Sinqia Tecnologia Ltda.
100%
  
100%
  
Mainly engaged in the licensing, support and maintenance of standardized applications. It also develops new solutions, customizations and provides specialized IT consulting.
  
Torq Inovação Digital Ltda.
100%
  
100%
  
CVC’s (Corporate Venture Capital) arm of the operation, engaged in strengthening the company’s innovation and accelerated growth strategy through indirect investments in the fintech ecosystem.
  
Homie do Brasil Informática Ltda.
60%
  
60%
  
Engaged in developing e-signature solutions, in batch or not, with a series of companies and powers of authority.
  
Rosk Software S.A.
-
  
51%
  
Mainly engaged in the management of the post-credit flow and digital debt renegotiation.
  

Indirect subsidiaries
12.31.2022
12.31.2021
  
Core business
         
Lote45 Participações.
52%
-
  
Engaged in managing risks for asset managers.

On October 1, 2021, Sinqia Administração Previdenciária Ltda., Dendron Tecnologia S.A., Senior Solution Seviços em Informática Ltda., and Simply Sistemas S.A. were merged into Sinqia S.A.

On September 30, 2022, Sinqia Seguridade Ltda was merged into Sinqia Tecnologia Ltda.

On December 31, 2022, Newcon Software S.A. and Newcon Tecnologia e Serviços Ltda. were merged into Sinqia Tecnologia Ltda.  

14
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
1.4
New standards, amendments and interpretations

In preparing these financial statements, the Company’s Management considered, when applicable, the new revisions and interpretations of the IFRSs below, issued by the IASB, which are mandatorily effective for accounting periods beginning on or after January 1, 2022.

Standard
  
Description
  
Effective date and
transitional provision
         
IFRS 17 – Insurance Contracts and Amendments to IFRS 17 – Insurance Contracts
  
IFRS 17 supersedes IFRS 4 - Insurance Contracts and establishes, among others, the requirements to be applied by issuers of insurance and reinsurance contracts in the standard scope, and for reinsurance contracts maintained, upon recognition, measurement, presentation and disclosure related to insurance and reinsurance contracts.
  
January 1, 2023, retrospective application with specific rules.
         
Disclosure of Accounting Policies – Amendments to IAS 1 and Practice Statement 2
  
In replacement of the requirement for disclosure of significant accounting policies, the amendments to IAS 1 - Presentation of Financial Statements establish that accounting policies must be disclosed when they are material. The amendment provides for guidance to determine such materiality, among other matters.
  
January 1, 2023, prospective application for the amendments to IAS 1.
         
Definition of Accounting Estimates – Amendments to IAS 8
  
Pursuant to the amendments to IAS 8, the definition of “change in accounting estimate” ceases to exist. As a replacement, a definition for the term “accounting estimates” was established: monetary amounts in the financial statements that are subject to measurement uncertainty.
  
January 1, 2023, prospective application.
         
Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction – Amendments to IAS 12
  
The amendments narrowed the scope of the recognition exemption for deferred tax assets and deferred tax liabilities in paragraphs 15 and 24 of IAS 12 – Income Taxes so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences.
  
January 1, 2023, retrospective application with specific rules.

15
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
Pronouncement
  
Description
  
Effective date and
transitional provision
         
Lease Liability in a Sale and Leaseback - Amendments to IFRS 16
  
Adds requirements that specify that the seller-lessee must subsequently measure the lease liability arising from the asset transfer – which fulfills the requirements of IFRS 15 to be accounted for as sale and leaseback so that it is not recognized as gain or loss relating to the right of use retained in the transaction.
  
January 1, 2024, retrospective application.
         
Classification of Liabilities as Current or Non-current / Non-current Liabilities with Covenants Amendments to IAS 1
  
The amendments establish that the liability must be classified as current when the entity has no right at the end of the reporting period to defer settlement of the liability during at least twelve months after the reporting period.
The amendments determine that the classification of a liability is not affected by the probability of exercising the right to defer settlement of the liability, among other provisions. Also, pursuant to the amendments, only covenants which compliance is mandatory before or at the end of the reporting period must affect the classification of a liability as current or noncurrent.
Additional disclosures are also required by the amendments, including information on noncurrent liabilities with covenants.
  
January 1, 2024, retrospective application.

As regards standards effective beginning January 1, 2023, according to the assessments, the Company estimates that there are no material impacts upon initial application on its consolidated financial statements.

With respect to the standards that will come into effect beginning January 1, 2024, the Company is assessing the effects arising from the initial application on its consolidated financial statements.

2
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Accounting estimates and judgments are continually assessed and are based on past experience and other factors, including expectations of future events that are considered to be reasonable under the circumstances.

16
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
2.1
Critical accounting estimates and assumptions

Based on assumptions, the Company and its subsidiaries make forward-looking estimates. By definition, the resulting accounting estimates will seldom correspond to the respective actual results. The estimates and assumptions that pose a significant risk and would probably result in a material adjustment to the carrying amounts of assets and liabilities for the next fiscal year are as follows:

  a)
Goodwill impairment test

The Company and its subsidiaries test goodwill for impairment on annual basis, in accordance with the accounting policy set out in note 27. The recoverable amount of the Cash-Generating Unit (CGU) was determined based on the calculation of the value in use, based on estimates.

The amount of the impairment loss is measured as the difference between the carrying amount of the assets and the present value of the estimated future cash flows discounted at the interest rate corresponding to the capital cost. The carrying amount of the asset is reduced and the loss amount is recognized in the statement of income.

All cash flow projections and discount rate were estimated on nominal basis. The main assumptions used to estimate the value in use are as follows:


 ✔
Revenues – revenues were projected between 2023 and 2032 considering the customer base growth (organic growth only);


✔
Operating costs and expenses – costs and expenses were projected in line with the Company's historical performance as well as with the historical revenue growth and efficiency gain;


✔
Capital investments – investments in capital goods were estimated considering the current IT infrastructure necessary to enable the offer of services, based on the Company’s history and projected growth;


✔
The estimated future cash flows were discounted at a discount rate of 13.53% p.a. in 2022 (12.28% p.a. in 2021);


✔
Perpetuity – growth in perpetuity was estimated at 2%, based on the long-term GDP obtained in the Focus report of the Central Bank of Brazil.

The key assumptions were based on the Company’s past performance and reasonable and reliable macroeconomics assumptions, based on financial market projections, documented and approved by the Company’s Management.

  b)
Income tax, social contribution and other taxes

The Company and its subsidiaries recognize deferred assets based on the differences between the carrying amount recognized in the financial statements and the tax basis of assets and liabilities using the effective rates. The Company and its subsidiaries also recognize provisions as a result of circumstances where it is probable that additional tax amounts will be due. When the result of these matters is different from the amounts initially estimated and recorded, these differences affect current and deferred tax assets and liabilities in the year in which the final amount is determined.

17
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
The Company regularly reviews the recoverability of deferred tax assets, considering the historical income and the projected future taxable income, according to a technical feasibility study.

  c)
Revenue recognition

The Company mainly recognizes revenue from software licensing, which comprises licensing fee, revenue from product maintenance and support services, customization, consulting and permanent advisory services.

Revenue is recognized to the extent the Company satisfies its performance obligations, upon transfer of the service agreed with the customer. A service is considered to be transferred when the customer obtains its control. For long-term contracts, the Company obtains formal evidence of the service acceptance by the customer.

Revenue related to software license is recognized after the software is made available to the customer, when its amount can be measured reliably (according to the terms and conditions of the contract); and it is probable that the future economic benefits will flow to the Company.

Revenue from customization and consulting services is recognized as services are provided, according to the respective contracts. Those cases where the service was provided but not yet billed are recorded as unbilled services in line item “Trade receivables” in current assets.

Service revenue is recognized in profit or loss as services are provided. Revenue is not recognized when there is significant uncertainty as to its realization.

  d)
Put option on non-controlling interests

Put options on non-controlling interests are recorded based on the gross obligation amount of the expected future exercise price discounted at present value (“redemption amount”) on the acquisition date and subsequently remeasured with impacts on profit or loss.

Revenue and future projected EBITIDA margin periodically reviewed are used to calculate the options, applying the EV/Net Revenue multiples set forth in a contract.

The key assumptions were based on the acquiree’s past performance and reasonable and reliable macroeconomics assumptions, in accordance with financial market projections.

3
FINANCIAL RISK MANAGEMENT

3.1
Financial risk factors

The Company has a financial department in charge of risk management, relying on the oversight of the Board of Directors, which is responsible for defining the policy, controlling the risks and managing financial instruments through control systems, which establish interest limits and define the allocation of resources with the financial institutions. The positions of all financial instruments, as well as the results obtained in relation to the proposed objectives, are presented and assessed on a monthly basis by the finance department and subject to the analysis of the Company’s Board of Directors.

18
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
  a)
Liquidity risk

The liquidity risk arises from the possibility of the Company and its subsidiaries not having sufficient funds to fulfill their commitments and settlement terms of their rights and obligations.

The Company’s and its subsidiaries’ liquidity and cash flow control is monitored daily by the Company’s management areas, so as to ensure that the operational generation of cash and previous funding, if necessary, are sufficient to maintain their scheduled commitments, not causing liquidity risks for the Company and its subsidiaries.

The Company manages the liquidity risk by maintaining appropriate reserves, bank credit lines and credit lines to raise borrowings it considers appropriate, through the continuous monitoring of projected and actual cash flows, and the combination of the maturity profiles of financial assets and financial liabilities.

Contractual maturity is based on the most recent date in which the Company and its subsidiaries must settle the related obligations:

Type
  
One year
    
Two
years
    
Three
years
    
Four years
and
thereafter
    
Total (i)
  
Debentures
    
74,500
      
64,050
      
61,959
      
36,147
      
236,656
  
Leases
    
24,334
      
21,360
      
13,970
      
12,109
      
71,773
  
Payables for investment acquisition
    
79,101
      
45,030
      
29,624
      
36,983
      
190,738
  
Put option on non-controlling interests
    
-
      
-
      
17,982
      
124,288
      
142,270
  
     
153,601
      
109,080
      
109,565
      
197,418
      
569,664
  

  (i)
Refers to the book balances as at December 31, 2022.

19
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
  b)
Credit risk

The Company has a major credit risk concentration, which includes cash, banks, short-term investments and trade receivables. To ensure the security and diversification of these risks, we adopt objective criteria by maintaining current accounts and short-term investments in prime financial institutions only, with concentration below 35% per counterparty, thus mitigating the risk.

The difficulty in collecting the amounts for services provided to customers and sales of licenses is an important aspect to be considered. To minimize this credit risk, we implemented a strict control over the customer base and active default management, supported by clear service provision and license sales policies. Historically, the low default rate is immaterial, and there is no concentration of transactions with customers.

Also, the amount of the estimated loss on doubtful debts is reviewed and adjusted at the end of each year, reflecting the changes in the credit risk since the initial recognition of the respective financial instruments. This adjustment process ensures an accurate and up-to-date assessment of the Company’s credit risks.

  c)
Market risk

Interest and inflation rate risk: The interest rate risk arises from portion of the debt pegged to the CDI rate and short-term investments pegged to the CDI rate, which can adversely affect finance costs or finance income in case of unfavorable changes in interest and inflation rates.

Sensitivity analysis

The main risk linked to the Company’s operations is related to the fluctuation of the Interbank Deposit Certificate (CDI) rate for borrowings and financing.

The Company’s financial instruments are represented by cash and cash equivalents, securities and financial assets, trade receivables, trade payables, borrowings, financing and put options on non-controlling interests, and are stated at cost, plus income earned or charges incurred, which approximate their market values as at December 31, 2022 and 2021.

The main risks linked to short-term investments arises from fluctuations in the yield rates of the assets, such as investments in Bank Deposit Certificate (CDB) and repurchase transactions, subject to equivalent average interest rate ranging from 85.10% to 103.50% of the CDI rate.

Financing refers to debentures issued in 2019 and 2021. Under these conditions, the amount recorded is the closest to the market value of these financial instruments.

Three different scenarios were defined to verify the sensitivity of the index applied on the short-term investments to which the Company was exposed as at December 31, 2022. As at December 31, 2022, we prepared a projection of scenarios based on the annual average CDI rate to calculate our finance income in a scenario of decrease in the CDI rate by 25% (scenario 2) and 50% (scenario 3).

The “gross finance income” was calculated for each scenario, without taking into consideration taxes on income from short-term investments. The portfolio base date used was December 31, 2022, projecting indices for one year and verifying the CDI rate sensitivity in each scenario.

20
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
Transaction
    
12.31.2022
  
Risk
  
Scenario 1
    
Scenario 2
  
Short-term investments
    
187,564
  
CDI
    
9.34
%
    
6.23
%
Equivalent average CDI rate (85% and 103%)
        
 101% CDI
    
9.43
%
    
6.29
%
Finance income
              
15,061
      
10,041
  

The Company is a party to borrowing and financing agreements, with covenants applicable to these transactions, related to the compliance with economic and financial ratios, cash generation and others. These covenants were complied with and do not limit the normal course of the operations.

Most of our debt derives from debentures held by the Company, adjusted for inflation by the CDI rate plus a fixed annual rate. As at December 31, 2022, we prepared a projection of scenarios based on the annual average CDI rate to calculate our finance costs in a scenario of increase in the CDI rate by 25% (scenario 1) and 50% (scenario 2).

Transaction
    
12.31.2022
  
Risk
  
Scenario 1
    
Scenario 2
  
Debentures
    
236,656
  
CDI
    
15.57
%
    
18.68
%
Equivalent average interest rate (14.70%)
        
 CDI+2.25%
    
18.38
%
    
22.05
%
Finance costs
              
37,544
      
45,053
  

3.2
Capital management

The Company’s capital management aims at ensuring a strong credit rating with the institutions and an optimal capital ratio, in order to support the Company’s business and maximize the value to shareholders.

The Company considers in the net debt structure: borrowings and payables for investment acquisition, less cash and cash equivalents.

21
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
As at December 31, 2022, the Company’s capital position was as follows:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Total debentures (note 11)
    
236,656
      
173,639
  
Payables for investment acquisition (note 14)
    
190,738
      
93,818
  
Cash and cash equivalents (note 5.a)
    
(37,941
)
    
(24,192
)
Short-term investments (note 5.b)
    
(151,766
)
    
(537,000
)
                 
Net debt (net cash)
    
237,687
      
(293,735
)
                 
Put option on non-controlling interests (note 24)
    
142,270
      
62,386
  
                 
Net debt + put option on non-controlling interests
    
379,957
      
(231,349
)
                 
Total equity
    
650,306
      
721,451
  

3.3
Fair value estimate

The Company classifies its financial instruments measured at fair value, according to the following valuation technique hierarchy:

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

Level 2 – inputs, other than prices negotiated in active markets included within Level 1, which are observable for the asset or liability, either directly or indirectly;

Level 3 – use of data with significant effect on the fair value recorded and that is not based on observable market inputs.

The table below shows the Company’s assets and liabilities measured at fair value:

   
Level 1
    
Level 2
    
Level 3
    
Total
balance
  
                         
Assets
                        
Fixed-income securities in local currency
    
187,564
      
-
      
-
      
187,564
  
Securities
    
38,563
      
44,828
      
-
      
83,391
  
Derivative financial instruments
    
-
      
15,876
      
-
      
15,876
  
                                 
Total assets
    
226,127
      
60,704
      
-
      
286,831
  

22
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
3.4
Offset of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the amounts recognized and the intent to either settle them on a net basis, or to realize the asset and settle the liability simultaneously.

  a)
Financial instruments by category

   
Fair value
through
other
comprehensive
income
    
Fair value
through
profit or
loss
    
Amortized
cost
    
Total
  
                         
December 31, 2022
                        
Assets, as per the balance sheet
                        
Trade receivables
    
-
      
-
      
40,881
      
40,881
  
Cash and banks
    
-
      
-
      
2,143
      
2,143
  
Fixed-income securities in local currency
    
-
      
187,564
      
-
      
187,564
  
Securities
    
-
      
83,391
      
-
      
83,391
  
Derivative financial instruments
    
-
      
15,876
      
-
      
15,876
  
                                 
     
-
      
286,831
      
44,103
      
330,934
  

   
Fair value
through
other
comprehensive
income
    
Fair value
through
profit or
loss
    
Amortized
cost
    
Total
  
                         
December 31, 2022
                        
Liabilities, as per the balance sheet
                        
Borrowings and financing
    
-
      
-
      
236,656
      
236,656
  
Payables for investment acquisition
    
-
      
-
      
190,738
      
190,738
  
Trade payables
    
-
      
-
      
4,724
      
4,724
  
Put option on non-controlling interests
    
-
      
-
      
142,270
      
142,270
  
                                 
     
-
      
-
      
574,388
      
574,388
  

The Company measures ‘Put option on non-controlling interests’ based on the gross obligation amount of the expected future exercise price discounted at present value (“redemption amount”).

23
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
4
SEGMENT REPORTING

The Company’s entities are engaged in the supply of goods and provision of information technology services, in addition to consulting services, for the financial sector. Even though the goods are provided to several segments inside the financial institutions, they are not controlled and managed by Management as independent segments, and the Company’s results of operations are controlled, monitored and assessed on an integrated basis.

Therefore, due to Management’s joint control and management approach, it is possible to conclude that the Company operates effectively in one single segment, despite providing its goods and services to several sectors inside the financial institutions.

5
CASH AND CASH EQUIVALENTS

a) Cash and cash equivalents

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Banks
    
2,143
      
5,135
  
Highly liquid fixed-income securities in local currency (i)
    
35,798
      
19,057
  
                 
     
37,941
      
24,192
  

b) Short-term investments

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Fixed-income securities in local currency (i)
    
151,766
      
537,000
  
                 
     
151,766
      
537,000
  

  (i)
The Company has financial investment policies establishing that investments are concentrated on low-risk securities and are substantially remunerated based on the percentage fluctuation of the Interbank Deposit Certificate (CDI) rate. Therefore, they refer to investments in fixed-income investment funds and Bank Deposit Certificates (CDBs), yielding equivalent average interest rate ranging from 85.10% to 103.50% of the CDI rate as at December 31, 2022 (95.10% to 112.57% of the CDI rate as at December 31, 2021) and with immediate liquidity, that is, without grace period for redemptions.

c) Financial assets

 
    
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Guarantee amounts (i)
    
38,563
      
32,069
  
Investments in private entities (ii)
    
44,828
      
38,150
  
Derivative financial instruments (iii)
    
15,876
      
10,482
  
                 
     
99,267
      
80,701
  

24
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)

(i)
The guarantee amounts correspond mainly to investments in fixed-income investment funds, yielding equivalent average interest rate ranging from 106.59% to 115.20% of the CDI rate, maintained as guarantee for the payables for investment acquisition and debentures.


(ii)
The amounts correspond to the fair value of investments in preferred shares issued by Celcoin Pagamentos S.A., Equity Funds and loans convertible into shares.


(iii)
The amounts refer to call options on non-controlling interests in subsidiaries Homie do Brasil Informática Ltda., Rosk Software S.A. and Lote45 Participações S.A.

6
TRADE RECEIVABLES

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Billed amounts
    
34,449
      
30,672
  
Unbilled services (i)
    
7,511
      
6,416
  
(-) Estimated losses on doubtful debts
    
(1,079
)
    
(2,578
)
                 
     
40,881
      
34,510
  

(i) The amount of unbilled services refers to the revenue from services actually provided to customers but which have not been billed up to the reporting date.

The variations in estimated losses on doubtful debts are broken down as follows:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
Balances as at December 31, 2021 and 2020
    
(2,578
)
    
(685
)
                 
Additions due to business acquisition (i)
    
-
      
(543
)
Additions
    
(1,053
)
    
(3,204
)
Effective losses
    
1,355
      
815
  
Reversals
    
1,197
      
1,039
  
                 
Balances as at December 31, 2022 and 2021
    
(1,079
)
    
(2,578
)

(i) The balance refers to the acquisition and merger of Itaú Administração Previdenciária Ltda.

25
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
The aging list of receivables is broken down as follows:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Unbilled services
    
7,511
      
6,416
  
Current
    
29,869
      
23,626
  
Past due - from 1 to 90 days
    
3,481
      
3,838
  
Past due - from 91 to 180 days
    
248
      
966
  
Past due - from 181 to 270 days
    
33
      
473
  
Past due - from 271 to 360 days
    
20
      
677
  
Past due - over 360 days
    
798
      
1,092
  
     
41,960
      
37,088
  

7
RECOVERABLE TAXES AND CONTRIBUTIONS

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Withholding income tax (IRRF) and income tax and social contribution (IRPJ/CSLL) for offset (i)
    
17,046
      
10,935
  
Withholding taxes on revenue (PIS and COFINS) and social contribution (CS)
    
47
      
36
  
Other
    
68
      
55
  
                 
Total
    
17,161
      
11,026
  
                 
Current
    
15,840
      
7,261
  
Noncurrent
    
1,321
      
3,765
  

(i) Refers to the withholding income tax and prepaid income tax and social contribution.

8
RELATED PARTIES

  a)
Information on related parties

The Company has a related-party transaction policy, which is reviewed and approved by the Board of Directors, as set forth in the Company’s bylaws.

The transactions between the Group companies refer to the sharing of expenses, mainly administrative, and are carried out based on agreements entered into among the parties. There are no intragroup transactions involving the purchase and sale of goods and services.

26
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
  b)
Management compensation

The Company has no additional post-employment obligation and does not offer other long-term benefits, such as leave of absence and other benefits for length of service. The Company also does not offer other severance benefits to its Senior Management, other than those prescribed by the Brazilian labor laws.

Short-term benefits

Short-term benefits include wages, fees, payroll taxes, benefits and variable bonus. Expenditures on compensation payable to the Company’s and its subsidiaries’ main executives and officers are summarized below:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Wages, fees and related taxes
    
6,173
      
4,550
  
Benefits
    
747
      
324
  
Variable bonus and share-based payment
    
3,658
      
1,237
  
     
10,578
      
6,111
  

  c)
Share-based compensation plan

The purpose of the Share-based Compensation Plan (“Plan”) is to offer to the Company’s main executives the opportunity of multiplying the amount of their annual financial bonus (“Annual Bonus”), through the granting of additional funds (“Bonus”) by the Company, which must be used by the eligible executive (“Beneficiary”) to acquire the Company’s shares (“Shares”). The Plan establishes that the Bonus amount will be calculated based on a multiplier, applied on the Annual Bonus, which is granted by the Company under the Profit Sharing Program (“PPLR”).

The Annual Bonus will be used as a basis for the application of the multiplier for purposes of determination of the Bonus under the Plan. The multiplier ranges from 50% to 80% depending on the task performed at the Company.

The number of shares to be acquired by each beneficiary will be calculated based on their average market value in a given period.

Of the total number of shares acquired, the beneficiary will hold (Vesting) 40% of the total 12 months after the acquisition, 30% of the total 24 months after the acquisition and the remaining 30% of the total 36 months after the acquisition. The acquisition date will be considered as the date on which the Company receives the sales amount from the beneficiary and executes the share purchase agreement.

The number of shares available for exercise under this plan was 56,773 shares, which has expired on March 31, 2023.

27
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
  d)
Stock Option or Share Subscription Plan

The Stock Option or Share Subscription Plan (“Plan”) provides for the granting of call options or subscription of the Company’s common shares (“Options”). The purpose of the Plan is to (a) attract, retain and engage key professionals for the Company’s management (“Beneficiaries”), (b) align the Beneficiaries’ interests with those of the Company and its shareholders in a long-term perspective and (c) encourage the Beneficiaries to contribute to the Company’s good performance.

Number of shares included in the Plan: The options granted under the Plan, including those already exercised or not, and without considering those cancelled due to dismissal, death, permanent disability or retirement, can confer rights on common shares representing up to 3% of the Company’s capital on the Plan approval date.

Option exercise: The options granted can be exercised provided that the terms and conditions set out in this Plan and by the Board of Directors, in addition to the terms and conditions set out in the respective Option Agreements, are fulfilled. The Beneficiary can exercise all or part of the exercisable Options, it being, therefore, established that the Beneficiary must exercise at least 25% of the exercisable Options held by it on each partial exercise of the Options. The exercise of part of the Options by the Beneficiary will not impair the exercise of the other Options held.

The Company recognizes in profit or loss, during the period services are provided, the grace period and the cost on the compensation payable to the beneficiaries based on the fair value of the options on the grant date, using the Black-Scholes model to determine the fair value of the options. In the year ended December 31, 2022, R$760 was recorded in line item “Stock Options”. The Company will settle this share-based compensation plan by delivering its own shares, which will be held in treasury until the actual exercise of the shares by the beneficiaries.

The main events related to the effective plans, the variables used in calculations and results are as follows:

Grants
    
Fair value assumptions
Date
  
Number of
    
Exercise
price
    
Fair value of
    
Volatility
    
Risk-free
rate
  
Maturity period
 
options/shares
    
in reais
    
the shares in
reais
  
08/01/2018
    
177,716
      
7.12
      
5.94
      
35.18
%
    
6.50
%
5 years
09/30/2019
    
98,646
      
22.08
      
18.70
      
47.82
%
    
9.75
%
4 years
03/31/2021
    
200,424
      
17.24
      
25.50
      
48.26
%
    
6.00
%
4 years
05/31/2021
    
86,382
      
29.56
      
22.46
      
47.82
%
    
7.00
%
4 years
09/02/2021
    
70,044
      
30.03
      
23.10
      
47.82
%
    
7.00
%
4 years
04/30/2022
    
273,008
      
14.90
      
19.08
      
47.82
%
    
9.38
%
4 years

28
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
9
PROPERTY AND EQUIPMENT

The Company’s and its subsidiaries’ property and equipment are stated at acquisition cost and the depreciation of assets is calculated on a straight-line basis and takes into consideration the estimated economic useful life of the assets. The details on the Company’s property and equipment are shown in the tables below:

                        12.31.2022     12.31.2021  
   
Useful life
            
Accumulated
              
   
(years)
    
Cost
    
depreciation
    
Net
    
Net
  
                               
(unaudited)
  
                                   
Facilities and improvements
    
9 – 10
      
10,866
      
(7,313
)
    
3,553
      
5,561
  
Electric devices and materials
    
9 – 12
      
2,276
      
(2,005
)
    
271
      
328
  
Furniture and fixtures
    
9 – 12
      
6,029
      
(4,553
)
    
1,476
      
1,806
  
Right-of-use asset
    
2 – 10
      
38,207
      
(11,642
)
    
26,565
      
28,384
  
Computers and peripherals
    
4 – 5
      
27,750
      
(15,760
)
    
11,990
      
11,752
  
Vehicles
    
5
      
380
      
(175
)
    
205
      
-
  
Buildings
    
25
      
3,900
      
(1,220
)
    
2,680
      
-
  
                                         
             
89,408
      
(42,668
)
    
46,740
      
47,831
  

29
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
   
Facilities and
improvements
    
Electric
 devices
and
materials
    
Furniture
and
fixtures
    
Right-of-use
asset
    
Computers and
peripherals
    
Vehicles
    
Total
  
Balances as at December 31, 2020 (unaudited)
    
6,701
      
451
      
2,057
      
22,235
      
6,670
      
24
      
38,138
  
Additions
    
98
      
2
      
99
      
-
      
7,381
      
-
      
7,580
  
Additions relating to IFRS 16 (i)
    
-
      
-
      
-
      
13,096
      
-
      
-
      
13,096
  
Additions due to business acquisition
    
-
      
198
      
135
      
-
      
192
      
-
      
525
  
Write-offs
    
-
      
-
      
-
      
-
      
(10
)
    
-
      
(10
)
Depreciation
    
(1,238
)
    
(322
)
    
(484
)
    
(6,947
)
    
(2,483
)
    
(24
)
    
(11,498
)
Balances as at December 31, 2021 (unaudited)
    
5,561
      
329
      
1,807
      
28,384
      
11,750
      
-
      
47,831
  

   
Facilities and
improvements
    
Electric
devices
and
materials
    
Furniture
and
fixtures
    
Right-of-use
asset
 

  
Computers and
peripherals
    
Vehicles
    
Buildings
    
Total
  
Balances as at December 31, 2021 (unaudited)
    
5,561
      
329
      
1,807
      
28,384
      
11,750
      
-
      
-
      
47,831
  
Additions
    
1,044
      
5
      
350
      
-
      
4,805
      
-
      
-
      
6,204
  
Additions relating to IFRS IFRS16 (i)
    
-
      
-
      
-
      
3,517
      
-
      
-
      
-
      
3,517
  
Additions due to business acquisition (ii)
    
170
      
74
      
540
      
-
      
368
      
268
      
2,849
      
4,269
  
Write-offs
    
-
      
-
      
-
      
-
      
(6
)
    
-
      
-
      
(6
)
Depreciation
    
(3,222
)
    
(137
)
    
(1,221
)
    
(5,336
)
    
(4,927
)
    
(63
)
    
(169
)
    
(15,075
)
Balances as at December 31, 2022
    
3,553
      
271
      
1,476
      
26,565
      
11,990
      
205
      
2,680
      
46,740
  

(i) The additions relating to IFRS16 consist of the recognition of the right of use of new property lease contracts.
(ii) Increase in assets arising from the business combination of Newcon Software S.A., Sinqia Seguridade Ltda. and Lote45 Participações S.A.

30
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
10
INTANGIBLE ASSETS

                       
12.31.2022
      
12.31.2021
  
   
Useful
life
(years)
    
Cost
    
Accumulated
amortization and/or
impairment (i)
    
Net
    
Net
  
                             
(unaudited)
  
                                   
Goodwill on acquisition of subsidiaries
    
-
      
633,456
      
(2,860
)
    
630,596
      
285,286
  
Software licenses
    
1-5
      
40,829
      
(31,841
)
    
8,988
      
5,054
  
Trademarks and patents
    
5-10
      
61,909
      
(10,865
)
    
51,044
      
19,729
  
Software acquired
    
5
      
100,644
      
(35,492
)
    
65,152
      
38,648
  
Customer portfolio
    
10
      
331,428
      
(55,125
)
    
276,303
      
89,844
  
Non-compete agreement
    
5
      
9,068
      
(7,947
)
    
1,121
      
1,916
  
Development of new products
    
5
      
10,563
      
(6,301
)
    
4,262
      
-
  
Right of use - servers
    
1-3
      
64,057
      
(23,410
)
    
40,647
      
48,406
  
             
1,251,954
      
(173,841
)
    
1,078,113
      
488,883
  


(i)
The main assumptions used in the impairment test of the goodwill on acquisition of subsidiaries were disclosed in note 2. Impairment losses were neither recognized nor reversed in the years ended December 31, 2022 and 2021.

31
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
   
Goodwill on
acquisition of
subsidiaries (i)
    
Software
licenses
    
Trademarks
and patents
    
Software
acquired
    
Customer
portfolio
    
Non-compete
agreement
    
Development
of new
products
    
Right-of-use
assets
    
Total
  
Balances as at December 31, 2021 (unaudited)
    
285,286
      
5,054
      
19,729
      
38,648
      
89,844
      
1,916
      
-
      
48,406
      
488,883
  
Additions
    
-
      
12,536
      
-
      
-
      
-
      
-
      
4,262
      
-
      
16,798
  
Additions due to business acquisition (ii)
    
345,310
      
2,876
      
39,610
      
39,607
      
216,757
      
-
      
-
      
-
      
644,160
  
Additions – right of use (iii)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
8,323
      
8,323
  
Amortization
    
-
      
(11,478
)
    
(8,295
)
    
(13,103
)
    
(30,298
)
    
(795
)
    
-
      
(16,082
)
    
(80,051
)
Balances as at December 31, 2022
    
630,596
      
8,988
      
51,044
      
65,152
      
276,303
      
1,121
      
4,262
      
40,647
      
1,078,113
  

The variations in intangible assets are as follows:

   
Goodwill on
acquisition of
subsidiaries (i)
    
 Software
licenses
    
   Trademarks
and patents
    
   Software
acquired
    
  Customer portfolio
    
Non-compete
agreement
    
 Development
of new
products
    
  Right-of-
use assets
    
Total
  
Balances as at December 31, 2020 (unaudited)
    
134,902
      
4,238
      
5,210
      
12,714
      
47,757
      
2,877
      
1,210
      
13,802
      
222,710
  
Additions
    
-
      
8,882
      
-
      
-
      
-
      
-
      
-
      
-
      
8,882
  
Additions due to business acquisition
    
150,427
      
-
      
15,176
      
34,319
      
52,242
      
-
      
-
      
-
      
252,164
  
Additions – right of use
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
42,802
      
42,802
  
Transfer
    
(43
)
    
36
      
-
      
-
      
7
      
-
      
-
      
-
      
-
  
Amortization
    
-
      
(8,102
)
    
(657
)
    
(8,385
)
    
(10,162
)
    
(961
)
    
(1,210
)
    
(8,198
)
    
(37,675
)
Balances as at December 31, 2021 (unaudited)
    
285,286
      
5,054
      
19,729
      
38,648
      
89,844
      
1,916
      
-
      
48,406
      
488,883
  

(i) The total goodwill balance is allocated to the Company’s sole cash-generating unit.
(ii) Increase in assets arising from the business combination of Newcon Software S.A., Sinqia Seguridade Ltda. and Lote45 Participações S.A.
(iii) The additions relating to IFRS16 consist of the recognition of the right of use of new cloud server lease contracts.

32
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
11
DEBENTURES


Charges
Maturity
    
12.31.2022
      
12.31.2021
  
               
(unaudited)
  
                     
1st issuance of debentures (i)
CDI+1.50%
02/22/2024
    
14,634
      
27,161
  
2nd issuance of debentures (ii)
CDI+2.30%
07/15/2026
    
222,022
      
146,478
  
                     
Total
        
236,656
      
173,639
  
                     
Current
        
74,500
      
27,300
  
Noncurrent
        
162,156
      
146,339
  


(i)
The first issuance of simple, non-convertible debentures is guaranteed by credit rights arising from receivables. Also, the Company is required to keep the amount of R$3,000 deposited, which was recorded in line item “Securities”, in noncurrent assets.


(ii)
The second issuance of simple, non-convertible debentures is guaranteed by credit rights from the current accounts linked to the transaction and the funds deposited in these accounts, arising from the agreements entered into between the Company and its customers.

The variations in borrowings and financing are as follows:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Balance at the beginning of the year
    
173,639
      
39,645
  
Borrowings
    
100,990
      
144,472
  
Interest incurred
    
31,420
      
7,874
  
Interest paid
    
(31,835
)
    
(4,615
)
Repayment
    
(37,558
)
    
(13,737
)
                 
Balance at the end of the year
    
236,656
      
173,639
  

The expected payment of the Company’s borrowings and financing is as follows:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
2022
    
-
      
27,300
  
2023
    
74,500
      
49,290
  
2024
    
64,050
      
38,845
  
2025
    
61,959
      
36,756
  
2026
    
36,147
      
21,448
  
                 
     
236,656
      
173,639
  

33
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
  a)
Covenants

Debentures are subject to financial covenants that must be determined as at December 31. As at December 31, 2022, the net debt-to-Ebitda ratio must be lower than or equal to 3, and from 2023 to 2026 the net debt-to-Ebitda ratio must be lower than or equal to 2.75.

The gross debt with banks corresponds to the sum of short- and long-term borrowings and financing, plus (i) discounted securities with recourse and factoring, (ii) leases, except if the lease derives from operating property rental agreements and server use agreements, (iii) non-convertible fixed-income securities from public or private issuance, at the local or international markets, (iv) liabilities arising from derivative financial instruments, (v) acquirees’ financial debts, provided that the share is higher than 50% of the acquiree’s capital, not yet consolidated, (vi) debts and convertible securities, and (vii) borrowings net of loans, duly represented in the Issuer’s consolidated balance sheet, in line item “Borrowings and financing” in the consolidated quarterly financial information or consolidated annual financial statements.

Non-financial covenants include accelerated maturity clauses as a result of events not restricted to the financial scope, according to common market practices.

As at December 31, 2022, the Company met the covenants.

12
PAYROLL AND RELATED TAXES

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Social Security Tax (INSS) and Severance Pay Fund (FGTS) payable
    
10,172
      
6,466
  
Withholding income tax (IRRF) on wages
    
7,256
      
5,306
  
Vacation pay
    
26,655
      
20,958
  
Bonus, commission and profit sharing (i)
    
17,320
      
8,001
  
Other
    
831
      
499
  
                 
     
62,234
      
41,230
  

  (i)
The accrued bonuses and profit sharing are recorded on a monthly basis, and depend on the attainment of corporate and employees’ individual goals. These amounts are paid in April of the subsequent year.

34
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
13
TAXES PAYABLE


   
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Income tax (IR) and social contribution (CS) payable
    
3,252
      
1,550
  
Service tax (ISS) payable
    
1,907
      
1,365
  
Taxes on revenue (PIS/COFINS) payable
    
769
      
779
  
Other taxes payable
    
187
      
299
  
Total
    
6,115
      
3,993
  

14
PAYABLES FOR INVESTMENT ACQUISITION

Refer to installments payable for acquisition of investments made by the Company and its subsidiaries, negotiated for installment payment, and for agreements not subject to indexed market interest rates, they are adjusted to present value (using an average rate ranging between 4.5% and 11.0%, reflecting the third-party capital rate for the acquisition period). The respective amounts are recorded in current and noncurrent liabilities as follows:


    
12.31.2022
      
12.31.2021
  

         
(unaudited)
  

               
Acquisition:
                
Atena
    
4,082
      
4,727
  
ADSPrev
    
1,070
      
1,481
  
SoftPar
    
6,230
      
7,589
  
Stock&Info
    
965
      
236
  
Tree Solution
    
3,203
      
5,444
  
Fromtis
    
7,516
      
11,794
  
ISP
    
42,372
      
50,775
  
Dendron
    
3,568
      
5,294
  
Simply
    
4,361
      
6,478
  
Lote45
    
26,833
      
-
  
Mercer
    
7,316
      
-
  
Newcon
    
83,222
      
-
  
Total
    
190,738
      
93,818
  

               
Current
    
79,101
      
22,294
  
Noncurrent
    
111,637
      
71,524
  

35
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
The variations in payables for investment acquisition are as follows:


    
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Balance at the beginning of the year
    
93,818
      
43,761
  
Interest incurred
    
10,903
      
7,569
  
Addition due to business acquisition
    
120,864
      
60,379
  
Interest paid
    
(1,630
)
    
(2,540
)
Amortization
    
(33,217
)
    
(15,351
)
                 
Balance at the end of the year
    
190,738
      
93,818
  

The expected payment of payables for investment acquisition is broken down as follows:


    
12.31.2022
      
12.31.2021
  

         
(unaudited)
  

               
2022
    
-
      
22,294
  
2023
    
79,101
      
24,488
  
2024
    
45,030
      
22,013
  
2025
    
29,624
      
12,625
  
2026
    
23,860
      
12,398
  
2027
    
13,123
      
-
  

               

   
190,738
      
93,818
  

15
PROVISION FOR LEGAL CLAIMS

In the normal course of its activities, the Company is a party to tax, civil and labor lawsuits. Management, supported by the opinion of its legal counsel, assesses the expected outcome of ongoing lawsuits and determines the need to recognize a provision based on the best estimate of the disbursement required to settle the present obligation on the balance sheet date.

The table below shows the position of the provisions for probable losses as at December 31, 2022 and 2021:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Civil
    
11,784
      
10,025
  
Labor
    
46,982
      
28,345
  
Tax
    
81,100
      
25,575
  
                 
     
139,866
      
63,945
  

36
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
The variations in the provision for legal claims are as follows:


    
12.31.2022
      
12.31.2021
  

         
(unaudited)
  
Balance at the beginning of the year
    
63,945
      
42,402
  

               
Additions (i)
    
14,204
      
1,499
  
Additions due to business acquisition (ii)
    
79,548
      
29,574
  
Reversals
    
(16,560
)
    
(6,048
)
Interest incurred
    
1,094
      
(1,783
)
Payments
    
(2,365
)
    
(1,699
)

               
Balance at the end of the year
    
139,866
      
63,945
  

(i) Additions include new lawsuits and changes in amounts of lawsuits already recorded.

(ii) Refers to amounts of tax, civil and labor lawsuits, arising from the acquisition of Newcon Software S.A., Sinqia Seguridade Ltda. and Lote45 Participações S.A.

The Company is a party to labor and tax lawsuits whose risk of loss is classified as possible, based on the opinion of the Company’s legal counsel and Management, and for which no provision was recognized. As at December 31, 2022, the adjusted value of the matter in controversy, related to these lawsuits, is R$35,082 (R$30,281 as at December 31, 2021). Also, as at December 31, 2022, the Company has escrow deposits amounting to R$197 (R$174 as at December 31, 2021).

a)
Labor

Labor lawsuits discuss overtime, health hazard and/or hazardous duty premiums, wage parity, vacation, pain and suffering arising from accident-related lawsuits, occupational disease, subsidiary liability involving service providers, etc.

b)
Tax

Tax lawsuits refer to legal claims involving municipal and federal taxes, in particular requests for offset and/or refund not approved, in addition to tax risks identified in acquisition processes.

c)
Civil

Civil lawsuits refer mainly to lawsuits filed under the allegation of certain problems in the provision of services offered and refund of amounts.

37
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
16
EQUITY

16.1
Capital

The Board of Directors approved the Company’s capital increase at the meeting held on August 26, 2021, within the authorized capital limit, pursuant to Art. 5 of the Bylaws, in the amount of R$400,042, upon the issuance of 17,393,160 common shares.
The Company’s capital amounts to R$813,303 and is currently represented by 87,941,972 registered common shares, without par value. The holders of common shares have the right to one vote per share at the meetings of the Company’s shareholders.

The table below shows the number of shares held by shareholders holding 5% or more of the Company’s common shares, in addition to treasury shares.


          
12.31.2022
    
     
12.31.2021
  
Shareholders
  
Shares
    
%
    
Shares
    
%
  

               
(unaudited)
  
HIX Investimentos Ltda.
    
9,588,025
      
10.90
%
    
6,295,047
      
7.16
%
Antonio Luciano de Camargo Filho
    
6,483,752
      
7.37
%
    
6,078,979
      
6.91
%
Bernardo Francisco Pereira Gomes
    
5,689,450
      
6.47
%
    
5,970,180
      
6.79
%
SFA Investimentos Ltda.
    
5,404,400
      
6.15
%
    
5,739,900
      
6.53
%
SK Tarpon
    
4,405,877
      
5.01
%
    
-
      
-
  
Treasury shares
    
3,362,360
      
3.82
%
    
2,191,561
      
2.49
%
Other shareholders (i)
    
53,008,108
      
60.28
%
    
61,666,305
      
70.12
%
Total
    
87,941,972
      
100.0
%
    
87,941,972
      
100.0
%

(i) Substantially refer to free float.

16.2
Earnings reserve

The earnings retention reserve is comprised of the legal reserve and the earnings retention reserve arising from the allocations of capital budgets approved at the Annual General Meetings.

a)
Legal reserve

As at December 31, 2022, the legal reserve was recognized in the amount of R$839. As at December 31, 2021, the legal reserve was recognized in the amount of R$1,009.

b)
Dividends and interest on capital

As at December 31, 2022, dividends were distributed in the amount of R$4,690. As at December 31, 2021, dividends were distributed in the amount of R$5,638. The mandatory minimum dividend corresponds to 25% of the adjusted profit.

38
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)

   
12.31.2022
      
12.31.2021
  

         
(unaudited)
  
Calculation basis – interest on capital/dividend
    
16,785
      
20,179
  
Legal reserve (5%)
    
839
      
1,009
  
Minimum dividend basis
    
15,946
      
19,170
  
Interest on capital (25%)
    
3,986
      
4,793
  
Additional interest on capital
    
704
      
846
  
Distributable dividends
    
4,690
      
5,638
  
Earnings per share
    
0.055
      
0.074
  

16.3
Capital reserve

As at December 31, 2022 and 2021, the balances of capital reserves consist of the effects from the share-based compensation plan and changes in the purchase and sales prices of treasury shares.
A variation in the amount of R$878 was recognized in 2022 (R$331 in 2021) referring to the share-based compensation plans. There was a variation in the amount of R$1,238 in 2022 (R$3,601 in 2021) in the capital reserve relating to the difference between the purchase price and the sales price of treasury shares upon acquisition and compensation plan.

16.4
Treasury shares

At the meeting held on March 10, 2021, the Board of Directors authorized the acquisition of up to 5,241,054 shares, representing 8.9% of the outstanding shares, through the launching of the Sixth Share Repurchase Program.

In 2021 shares were acquired for the amount of R$99,777 and a portion of these shares was delivered for the amount of R$56,109 upon payment for the new acquirees Simply Sistemas S.A., Dendron Tecnologia S.A., Homie do Brasil Informática Ltda. and Rosk Software S.A.

In 2022 shares were acquired for the amount of R$21,658 and shares were sold for the amount of R$4,380, resulting in a balance of treasury shares in the amount of R$58,174 (R$40,896 in 2021).

16.5
Share issuance costs

Share issuance costs reflect the changes in equity arising from the issuance of new shares. In 2021 costs in the amount of R$24,975 were recorded, relating to the Company’s capital increase, within the authorized capital limit, pursuant to Art. 5 of the Bylaws.

16.6
Non-controlling interests

Non-controlling interests refer to the interest held by the shareholders of Homie do Brasil Informática Ltda., Rosk Software S.A. and Lote45 Participações Ltda, which together correspond to the amount of R$20,067 in 2022 (R$19,081 in 2021).

16.7
Transactions with non-controlling shareholders

Transactions with non-controlling shareholders refer to put options for the sale of the remaining portions to the non-controlling shareholders. The put option was recorded at the gross price of the expected future exercise price, discounted at present value. The option exercise price will be measured based on the revenue multiple, which will be determined by the EBITDA margin on a future date; this amount corresponds to the amount of R$126,810 in 2022 (R$61,208 in 2021).

39
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
17
NET OPERATING REVENUE


   
12.31.2022
      
12.31.2021
  

         
(unaudited)
  

               
Software
    
522,479
      
275,650
  
Services
    
93,993
      
76,946
  
Net operating revenue
    
616,472
      
352,596
  

The average rate of taxes on sales in the period was 9.45% for the Consolidated (10.91% as at December 31, 2021), including taxes on revenue (PIS/PASEP and COFINS), Service Tax (ISSQN) and Social Security Contribution (INSS).

18
COSTS OF SERVICES


   
12.31.2022
      
12.31.2021
  

         
(unaudited)
  

               
Outside services
    
39,499
      
24,261
  
Personnel, payroll taxes and benefits
    
274,727
      
180,834
  
Depreciation and amortization
    
11,982
      
5,641
  
Other costs
    
27,316
      
7,095
  

   
353,524
      
217,831
  

40
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
19
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES


   
12.31.2022
      
12.31.2021
  

         
(unaudited)
  

               
Outside services
    
7,180
      
11,272
  
Personnel, payroll taxes and benefits
    
69,354
      
37,377
  
Commissions
    
4,510
      
3,499
  
Rents, insurance, common area maintenance fees and other
    
2,980
      
2,736
  
Increase in accrued bonuses and profit sharing
    
24,106
      
8,117
  
Reversal of provision for legal claims
    
(2,356
)
    
(4,549
)
Increase in estimated losses on doubtful debts
    
(144
)
    
2,165
  
Consultants, lawyers and auditors
    
2,615
      
2,465
  
Depreciation and amortization
    
83,147
      
43,534
  
Other expenses
    
10,455
      
8,142
  
     
201,847
      
114,758
  

20
FINANCIAL INCOME (EXPENSE)

     
12.31.2022
      
12.31.2021
  

         
(unaudited)
  

               
Financial income:
                
Income from short-term investments
    
20,081
      
17,092
  
Fair value adjustment to financial instruments
    
3,008
      
7,844
  
Interest receivable
    
1,266
      
-
  
Other finance income
    
-
      
269
  
     
24,355
      
25,205
  
                 
Financial expenses:
                
Interest on investment acquisition
    
(10,903
)
    
(7,569)

Interest on borrowings
    
(31,417
)
    
(7,874
)
Interest on leases
    
(7,936
)
    
(4,231
)
Present value adjustment to call/put option
    
(298
)
    
-
  
Interest and inflation adjustment to lawsuits
    
(1,094
)
    
(1,783
)
Other finance costs
    
(675
)
    
(1,095
)
     
(52,323
)
    
(22,552
)
     
(27,968
)
    
2,653
  

21
PROVISION FOR INCOME TAX AND SOCIAL CONTRIBUTION

Current income tax and social contribution were computed based on effective tax rates and deferred income tax and social contribution are calculated on temporary differences and tax loss carryforwards.

41
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
  a)
Reconciliation of income tax and social contribution (expense) income

The following amounts of current and deferred income tax and social contribution were recognized in profit or loss for the periods:


    
12.31.2022
      
12.31.2021
  

         
(unaudited)
  
                 
Profit before taxes
    
33,133
      
22,659
  
                 
Expense at the combined statutory rate (34%)
    
(11,265
)
    
(7,703
)
                 
Adjustments to the effective rate:
                
                 
Deemed income in subsidiaries (i)
    
416
      
3,928
  
Non-deductible bonus
    
(5,709
)
    
(2,351
)
Interest on capital
    
1,917
      
470
  
“Lei do bem” and credits recognized
    
1,644
      
2,559
  
Other permanent differences (ii)
    
(2,580
)
    
651
  
                 
Credit (expense) at the effective rate
    
(15,577
)
    
(2,446
)
                 
Current income tax and social contribution
    
(26,375
)
    
(21,850
)
Deferred income tax and social contribution
    
10,798
      
19,404
  

               
  (i)
Difference relating to Group companies that elect to calculate income tax and social contribution under the deemed income regime.

  (ii)
Line item “Other permanent differences” consists mainly of non-deductible expenses, differences in tax rates and the Workers’ Meal Program (PAT).

  b)
Deferred income tax and social contribution - assets

Deferred income tax and social contribution are broken down as follows:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Noncurrent assets
                
Tax loss carryforwards
    
49,070
      
41,339
  
Allowance for doubtful debts
    
367
      
877
  
Accrued profit sharing
    
443
      
365
  
Provisions for legal claims and other obligations
    
42,081
      
17,594
  
Amortization of tax goodwill in business combinations
    
(12,575
)
    
(17,089
)
Other provisions
    
1,424
      
450
  
Change in the fair value of financial assets
    
(3,736
)
    
(2,667
)
Leases
    
1,551
      
6,727
  
                 
     
78,625
      
47,596
  

Deferred income tax and social contribution were recognized based on studies prepared by Management on the generation of taxable income that allow the full realization of these amounts in the following years, in addition to the expected realization of deductible or taxable temporary differences, as shown below:

42
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)

   
12.31.2022
      
12.31.2021
  

         
(unaudited)
  

               
2022
    
-
      
3,380
  
2023
    
5,382
      
5,382
  
2024
    
7,779
      
7,779
  
2025
    
9,316
      
9,316
  
2026
    
11,370
      
11,370
  
2027
    
9,445
      
9,445
  
2028
    
10,519
      
10,607
  
2029
    
18,686
      
7,158
  
2030
    
18,703
      
-
  

               
Total deferred tax assets
    
91,200
      
64,437
  

               
Goodwill tax benefit
    
(12,575
)
    
(16,841
)

               
Deferred tax assets, net
    
78,625
      
47,596
  

22
EARNINGS PER SHARE

Basic earnings per share are calculated by dividing profit for the year, attributable to the holders of common shares, by the weighted average number of common shares outstanding during the year.

Diluted earnings per share are calculated by dividing profit for the year, attributable to the holders of common shares, by the weighted average number of common shares outstanding during the year, plus the weighted average number of common shares that would be issued upon conversion of all potential diluted common shares into common shares.

The tables below show profit or loss and share data used to calculate basic and diluted earnings per share:


    
12.31.2022
      
12.31.2021
  

         
(unaudited)
  
Basic earnings per share
                
Numerator
                
Profit for the year attributable to the Company’s shareholders
    
16,785
      
20,179
  
Denominator
                
Weighted average number of outstanding common shares
    
84,838,175
      
75,889,647
  
                 
Basic earnings per share (in reais)
    
0.198
      
0.266
  

43
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
Diluted earnings per share
                
Numerator
                
Profit for the year attributable to the Company’s shareholders
    
16,785
      
20,179
  
Denominator
                
Weighted average number of outstanding common shares
    
84,838,175
      
75,889,647
  
Potential increase in common shares due to the stock option and restricted share plan
    
906,220
      
434,913
  
                 
Diluted earnings per share (in reais)
    
0.196
      
0.264
  

23
LEASES

Lease liabilities were recognized as prescribed by accounting standard IFRS 16 in connection with the recognition of future payment liability and right of use of leased assets for all contracts within the scope of the standard. For current leases, the average discount rate of 7.38% was used.
Final maturity
    
12.31.2022
      
12.31.2021
  

           
(unaudited)
  

                 
Belo Horizonte office
12/31/2028
    
5,761
      
5,246
  
São Paulo office
07/01/2028
    
22,535
      
24,193
  
Curitiba office
08/31/2023
    
617
      
505
  
Oracle do Brasil (servers)
12/31/2022
    
-
      
229
  
Solo Network (servers)
07/30/2025
    
40,759
      
46,612
  
Claranet (servers)
09/30/2026
    
2,101
      
2,685
  
                   
Total
      
71,773
      
79,470
  
                   
Current
      
24,334
      
16,660
  
Noncurrent
      
47,439
      
62,810
  

The variations in leases are as follows:


    
12.31.2022
      
12.31.2021
  

         
(unaudited)
  

               
Balance at the beginning of the year
    
79,470
      
38,800
  
Additions
    
11,670
      
53,030
  
Interest incurred
    
7,935
      
4,231
  
Interest paid
    
(7,976
)
    
(3,787
)
Amortization
    
(19,326
)
    
(12,804
)

               
Balance at the end of the year
    
71,773
      
79,470
  

 
(i)
The amount refers to the transfer of the Parent’s lease contracts to subsidiary Senior Solution Consultoria em Informática Ltda.

44
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
24
PUT OPTION ON NON-CONTROLLING INTERESTS

As part of the business combination where the acquiree’s capital was partially acquired, the Company issued a put option for sale of the remaining portion to the non-controlling shareholders. The put option was recorded based on the expected future exercise price, discounted at present value. The option exercise price will be measured based on the revenue multiple, which will be determined by the EBITDA margin on a future date.

Currently, the following options were issued.


              

Exercise date
    
12.31.2022
      
12.31.2021
  
             
(unaudited)
  
                   
Homie do Brasil Informática Ltda.
07/31/2025
    
17,982
      
13,315
  
Rosk Software S.A.
04/30/2025 and 04/30/2026
    
32,799
      
49,071
  
Lote45 Participações S.A.
04/30/2027
    
91,489
      
-
  
                   
Total
      
142,270
      
62,386
  

25
NON-CASH TRANSACTIONS

The investing and financing transactions not involving the use of cash or cash equivalents are not included in the statement of cash flows. The Company carried out the following non-cash investing and financing activities:

     
12.31.2022
      
12.31.2021
  
           
(unaudited)
  
                 
Recognition of lease assets/liabilities
    
11,670
      
53,030
  
Portion retained in the payment for investment acquisition
    
-
      
(60,379
)
Business combination
    
(178,579
)
    
233,826
  

45
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
26
BUSINESS COMBINATION

A business combination is a transaction or another event through which an acquirer obtains control of one or more businesses, regardless of the legal form of the transaction. The acquisition method is applied for transactions where control is obtained. Business combinations of entities under common control are accounted for at cost. Under the acquisition method, the identifiable assets acquired and liabilities assumed are measured at their fair value, with limited exceptions.

During 2022, three entities were acquired: (i) Newcon Software S.A., (ii) Mercer Seguridade Ltda., and (iii) Lote45 Participações Ltda. The goodwill recognized on these acquisitions, in the amount of R$341,854, corresponds to the amount of future economic benefits (goodwill) arising from the synergies resulting from acquisitions carried out, which are aligned with the Company’s strategy of increasing its market share in the Consortium (Newcon), Pension Plan (Mercer) and Funds (Lote45) segments.

 
a)
Homie do Brasil Informática Ltda.

On April 8, 2021, the Company completed the acquisition of a 60% stake in Homie do Brasil Informática Ltda. (“Fepweb”), through its subsidiary Sinqia Tecnologia, where it undertakes to acquire, with the option to acquire another 40% in 2025, upon exercise of options. The transaction involved the amount of R$23,400 payable at sight in cash, R$15,868 payable at sight in shares and a transferred consideration adjustment of R$1,285 on the acquisition date. Additionally, the transaction provides for the Company’s purchase and seller’s sale of the remaining portion, based on the exercise price linked to Fepweb’s net revenue and EBITDA margin for 2024.

Fepweb, headquartered in São Paulo, was established in 2006 to offer to the market solutions with high levels of security, capable of serving the most complex economic sectors. With the mission of offering excellence in terms of IT solutions and creating value for its customers, in 2011, the company launched its powerful software platform (FEPWebTM) which, in one single package, ensures to customers higher productivity and process efficiency, with total legal security and validity.

a.1) Fair value on the acquisition date of the consideration transferred:

Cash disbursed
    
22,023
  
Paid in shares
    
15,868
  
Price adjustment as per contract
    
1,285
  
Total consideration transferred
    
39,176
  

46
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
a.2) Goodwill arising on the acquisition of equity interests:

Total consideration transferred
    
39,176
  

       
(-) Fair value of the main assets acquired:
        
Software
    
(10,127
)
Customer portfolio
    
(17,053
)

       
(+) Fair value of the main liabilities assumed:
        
Contingencies
    
4,218
  
 
        
(-) Total of identifiable net assets at fair value on the acquisition date
    
233
  

       
(-) Total amount of non-controlling interests
    
(9,277
)

       
Goodwill on expected future earnings arising on acquisition
    
25,258
  

       
Goodwill expected to be deductible for tax purposes
    
24,244
  

The contingent liability of R$4,218 was recognized in view of labor and social security risks in the amount of R$2,590 and tax risks in the amount of R$1,628, referring to the contingency period. As at December 31, 2022, there was no change in the amounts recognized since the acquisition date for the liability or in the expected amount ranges or also in the assumptions used for estimation.

a.3) Assets and liabilities recognized at fair value on the acquisition date:

ACQUIREE’S BALANCE SHEET


 
04/08/2021
      
04/08/2021
  
Current assets
      
Current liabilities
      
               
Cash and cash equivalents
    
308
  
Suppliers and service providers
    
59
  
Trade receivables
    
534
  
Taxes payable
    
336
  
Recoverable taxes
    
4
  
Payroll and related taxes
    
582
  
Other assets
    
255
  
Other liabilities
    
28
  
                   
Total current assets
    
1,101
  
Total current liabilities
    
1,005
  
                   
Noncurrent assets
        
Noncurrent liabilities
        
                   
Property and equipment
    
138
  
Provision for legal claims
    
4,218
  
Intangible assets
    
27,180
            
                   
Total noncurrent assets
    
27,318
  
Total noncurrent liabilities
    
4,218
  
                   
         
Total equity
    
23,196
  
                   
Total assets
    
28,419
  
Total liabilities
    
28,419
  

47
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
 
b)
Rosk Software S.A. (“QuiteJá”)

On October 22, 2021, the Company completed the acquisition of 51% stake in Rosk Software S.A. (“QuiteJá”), through Parent Sinqia S.A. The transaction closing was formalized on October 28, 2021, after fulfilling all conditions precedent.  The total transaction price initially set forth in the agreement was R$38,250, consisting of: (i) R$19,296 as initial consideration disbursed; (ii) R$17,516 payable in shares and a transferred consideration adjustment of R$1,438 on the acquisition date. Additionally, the transaction provides for the Company’s purchase and seller’s sale of the remaining portion, based on the exercise price linked to Quite Já’s net revenue and EBITDA margin. Each option is entitled to acquire 24.5% of the capital but options have different dates, one being linked to the net revenue and EBITDA margin for 2024 and another linked to that for 2025.

b.1) Fair value on the acquisition date of the consideration transferred:

Cash disbursed
    
19,296
  
Paid in shares
    
17,516
  
Price adjustment as per contract
    
1,438
  
Total consideration transferred
    
38,250
  

b.2) Goodwill arising on the acquisition of equity interests:

Total consideration transferred
    
30,152
  
 
        
(-) Fair value of the main assets acquired:
        
Software
    
(9,071
)
Customer portfolio
    
(2,951
)
Trademark
    
(15,176
)
 
        
(+) Fair value of the main liabilities assumed:
        
Contingencies
    
7,980
  
 
        
(-) Total of identifiable net assets at fair value on the acquisition date
    
(2,719
)
 
        
(-) Total amount of non-controlling interests
    
(10,751
)
 
        
Goodwill on expected future earnings arising on acquisition
    
18,966
  
 
        
Goodwill expected to be deductible for tax purposes
    
24,209
  

The contingent liability of R$7,980 was recognized in view of labor and social security risks in the amount of R$5,839 and tax risks in the amount of R$2,141, referring to the contingency period. As at December 31, 2022, there was no change in the amounts recognized since the acquisition date for the liability or in the expected amount ranges or also in the assumptions used for estimation.

48
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
b.3) Assets and liabilities recognized at fair value on the acquisition date:

ACQUIREE’S BALANCE SHEET


 
10/22/2021
      
10/22/2021
  
Current assets
      
Current liabilities
      
               
Cash and cash equivalents
    
2,679
  
Suppliers and service providers
    
1
  
Trade receivables
    
540
  
Taxes payable
    
132
  
Recoverable taxes
    
67
  
Payroll and related taxes
    
707
  
Prepaid expenses
    
19
            
                   
Total current assets
    
3,305
  
Total current liabilities
    
840
  
                   
Noncurrent assets
        
Noncurrent liabilities
        
                   
Property and equipment
    
253
  
Provision for legal claims
    
7,980
  
Intangible assets
    
27,198
            
                   
Total noncurrent assets
    
27,451
  
Total noncurrent liabilities
    
7,980
  
                   
         
Total equity
    
21,936
  
                   
Total assets
    
30,756
  
Total liabilities
    
30,756
  

 
c)
Newcon Software S.A.

On January 6, 2022, the Company completed the acquisition of a 100% stake in Newcon Software S.A., through its subsidiary Sinqia Tecnologia. The transaction involved the initial amount of R$338,872, disbursed on the acquisition date, and the total amount of R$82,500 payable in five annual installments, of which two installments of R$18,750, one of R$15,000 and two of R$11,250, and another two additional installments of R$3,750, payable in June 2022 and January 2023. Accordingly, considering the adjusted amount payable at sight and the amount payable in installments and additional installments, the total transaction price is R$421,372.

Newcon was established in 2002 and is one of the main providers of technology for the Brazilian financial system, specialized in software used by consortium managers connected to the main financial conglomerates and carmakers, in addition to the independent ones.

Sinqia Tecnologia conducts operations in the consortium market, and, upon consummation of the transaction, its objectives are to: (i) strengthen its position as leading technology provider for the financial system, with a broad product portfolio and a robust customer base; and (ii) expand the growth paths for digital solutions, accelerating the penetration of digital onboarding solutions, digital signature and digital collection in the consortium market.

In the consolidated financial statements for the year ended December 31, 2022, Newcon reported net revenue of R$93,681 and profit of R$26,293, considering the period after the abovementioned acquisition date.

49
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
c.1) Fair value on the acquisition date of the consideration transferred:

Cash disbursed
    
338,872
  
Payment in installments
    
82,500
  
Total consideration transferred
    
421,372
  

ACQUIREE’S BALANCE SHEET

   
01/06/2022
      
01/06/2022
  
Current assets
      
Current liabilities
      
               
Cash and cash equivalents
    
3,590
  
Borrowings and financing
    
4,066
  
Trade receivables
    
2,708
  
Advances from customers
    
4,715
  
Recoverable taxes
    
758
  
Trade payables
    
66
  
Advances to employees
    
118
  
Taxes payable
    
2,773
  
Advances to suppliers
    
79
  
Payroll and related taxes
    
2,957
  
Prepaid expenses
    
7
  
Payables
    
107
  
Other assets
    
2,251
            
                   
Total current assets
    
9,511
  
Total current liabilities
    
14,684
  
                   
Noncurrent assets
        
Noncurrent liabilities
        
                   
Property and equipment
    
3,788
  
Provision for legal claims
    
63,340
  
Intangible assets
    
242,212
            
Deferred income tax on contingencies
    
21,536
            
                   
Total noncurrent assets
    
267,536
  
Total noncurrent liabilities
    
63,340
  
                   
         
Total equity
    
199,023
  
                   
Total assets
    
277,047
  
Total liabilities
    
277,047
  

50
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
c.3) Goodwill on acquisition

Total consideration transferred
    
421,372
  
 
        
(-) Fair value of the main assets acquired:
        
Software
    
(16,730
)
Customer portfolio
    
(195,893
)
Trademark
    
(26,765
)
Deferred tax assets
    
(21,536
)
 
        
(+) Fair value of the main liabilities assumed:
        
Contingencies
    
63,340
  
 
        
(-) Total identifiable net assets at fair value on the acquisition date
    
1,439
  
 
        
Goodwill on expected future earnings arising on acquisition
    
222,349
  
 
        
Goodwill expected to be deductible for tax purposes
    
181,986
  

The contingent liability of R$63,340 was recognized in view of labor risks in the amount of R$11,777 and tax risks in the amount of R$51,563, referring to the contingency period. As at December 31, 2022, there was no change in the amounts recognized since the acquisition date for the liability or in the expected amount ranges or also in the assumptions used for estimation.

The table below shows the intangible assets acquired that were not initially recorded in the acquiree’s accounting records, as well as the estimated useful life and amortization method:

Intangible assets
  
Amount
  
Useful life
  
Amortization
method
                
Software
    
16,730
  
10 years
  
Straight-line
Customer portfolio
    
195,893
  
15 years
  
         Straight-line
Trademark
    
26,765
  
8 years
  
         Straight-line

  d)
Mercer Seguridade Ltda.

On July 26, 2021, the parties entered into the share purchase and sale agreement and other covenants, whereby Sinqia Tecnologia acquired 100% of the shares representing the Company’s capital. On February 1, 2022, the Company completed the acquisition of a 100% stake in Mercer Seguridade Ltda., through its subsidiary Sinqia Tecnologia. The transaction involved: (i) the initial amount of R$25,754, disbursed on the acquisition date; (ii) five annual installments of R$1,400, totaling R$7,000; and (iii) a price adjustment as per contract of R$5,298, adjusted by the CDI rate. Accordingly, considering the payments at sight, in installments and adjustments, the final transaction price is R$38,052.

Mercer Seguridade provides services to closed-end supplementary private pension entities, in the participant service, accounting, treasury, risk and social security areas.

Sinqia Tecnologia conducts operations in the private pension market, and, upon consummation of the transaction, its objectives are to: (i) strengthen Sinqia’s position as leading technology provider for the financial system, with a broad product portfolio and a robust customer base; and (ii) reinforce Sinqia’s installed participant base of the closed-end private pension sector.

51
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
In the consolidated financial statements for the year ended December 31, 2022, Mercer reported net revenue of R$25,603 and profit of R$10,118, considering the period after the abovementioned acquisition date.

d.1) Fair value on the acquisition date of the consideration transferred:

Cash disbursed
    
25,754
  
Payment in installments
    
7,000
  
Price adjustment as per contract
    
5,120
  
Total consideration transferred
    
37,874
  

d.2) Assets and liabilities recognized at fair value on the acquisition date:

ACQUIREE’S BALANCE SHEET

   
02/01/2022
      
02/01/2022
  
Current assets
      
Current liabilities
      
               
Cash and cash equivalents
    
344
  
Suppliers and service providers
    
1
  
Trade receivables
    
3,475
  
Advances from customers
    
374
  
         
Taxes payable
    
587
  
         
Payroll and related taxes
    
2,247
  
                   
Total current assets
    
3,819
  
Total current liabilities
    
3,209
  
                   
Noncurrent assets
        
Noncurrent liabilities
        
                   
Deferred income tax
    
837
            
Intangible assets
    
24,750
  
Contingencies
    
2,462
  
                   
Total noncurrent assets
    
25,587
  
Total noncurrent liabilities
    
2,462
  
                   
         
Total equity
    
23,735
  
                   
Total assets
    
29,406
  
Total liabilities
    
29,406
  

52
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
d.3) Goodwill on acquisition

Total consideration transferred
    
37,874
  
 
        
(-) Fair value of the main assets acquired:
        
Software
    
(11,617
)
Customer portfolio
    
(13,133
)
Deferred tax assets
    
(837
)
 
        
(+) Fair value of the main liabilities assumed:
        
Contingencies
    
2,462
  
Payroll and related taxes
    
2,246
  
 
        
(-) Total identifiable net assets at fair value on the acquisition date
    
2,857
  
 
        
Goodwill on expected future earnings arising on acquisition
    
14,138
  
 
        
Goodwill expected to be deductible for tax purposes
    
13,123
  

The contingent liability of R$2,462 was recognized in view of labor risks in the amount of R$328 and tax risks in the amount of R$2,134. As at December 31, 2022, there was no change in the amounts recognized since the acquisition date for the liability or in the expected amount ranges or also in the assumptions used for estimation.

The table below shows the intangible assets acquired that were not initially recorded in the acquiree’s accounting records, as well as the estimated useful life and amortization method:

Intangible assets
Useful life
Amortization
method
                         
Software
12.5 years
Straight-line
Customer portfolio
13 years
         Straight-line

  e)
Lote45 Participações S.A.

On January 18, 2022, the Company completed the acquisition of a 52% stake in Lote45 Participações Ltda., through its subsidiary Sinqia Tecnologia. The total transaction price initially set forth was R$79,773, consisting of: (i) cash payment of R$76,773; (ii) R$3,000 payable through subscription of shares; and (iii) additional amount payable in 2023, contingent on the net revenue for 2022, estimated at R$24,805 on the acquisition date. Additionally, the transaction provides for the purchase and sale of the remaining portion, based on the exercise price linked to Lote45’s net revenue and EBITDA margin for 2026.

Lote45 was established in 2006 and is specialized in enterprise risk management software used by more than 100 customers in the investment fund industry, mainly family offices and asset managers.

Sinqia Tecnologia conducts operations in the investment fund market, and, upon consummation of the transaction, its objectives are to: (i) strengthen its position as leading technology provider for the financial system, with a broad product portfolio and a robust customer base; and (ii) establish a complete and integrated suite for all investment fund industry players (administrators, custodians, distributors and managers, etc.).

53
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
In the consolidated financial statements for the year ended December 31, 2022, Lote45 reported net revenue of R$38,414 and profit of R$11,991, considering the period after the abovementioned acquisition date.

e.1) Fair value on the acquisition date of the consideration transferred:

Cash disbursed
    
91,371
  
Increase in variable price
    
24,805
  
Total consideration transferred
    
116,176
  

e.2) Assets and liabilities recognized at fair value on the acquisition date:

ACQUIREE’S BALANCE SHEET


 
01/18/2022
      
01/18/2022
  
Current assets
      
Current liabilities
      
               
Cash and cash equivalents
    
2,818
  
Suppliers and service providers
    
167
  
Trade receivables
    
1,471
  
Advances from customers
    
53
  
Recoverable taxes
    
7
  
Taxes payable
    
745
  
Advances to employees
    
21
  
Payroll and related taxes
    
1,662
  
Advances to suppliers
    
1
  
Payables
    
375
  
Prepaid expenses
    
13
            
Other assets
    
342
            
                   
Total current assets
    
4,673
  
Total current liabilities
    
3,002
  
                   
Noncurrent assets
        
Noncurrent liabilities
        
                   
Property and equipment
    
479
            
Intangible assets
    
31,855
  
Contingencies
    
13,728
  
         
Other payables
    
315
  
                   
Total noncurrent assets
    
32,334
  
Total noncurrent liabilities
    
14,043
  
                   
         
Total equity
    
19,962
  
                   
Total assets
    
37,007
  
Total liabilities
    
37,007
  

54
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
e.3) Goodwill arising on the acquisition of equity interests:

Total consideration transferred
    
116,176
  
 
        
(-) Fair value of the main assets acquired:
        
Software
    
(11,279
)
Trademark
    
(12,845
)
Customer portfolio
    
(7,732
)
 
        
(+) Fair value of the main liabilities assumed:
        
Contingencies
    
13,728
  
 
        
(-) Total identifiable net assets at fair value on the acquisition date
    
1,853
  
 
        
(-) Total amount of non-controlling interests
    
(9,600
)
 
        
Goodwill on expected future earnings arising on acquisition
    
105,795
  
 
        
Goodwill expected to be deductible for tax purposes
    
88,022
  

The contingent liability of R$13,728 was recognized in view of labor and social security risks in the amount of R$8,043, tax risks in the amount of R$5,721 and other risk exposures in the amount of R$258, referring to the contingency period. As at December 31, 2022, there was no change in the amounts recognized since the acquisition date for the liability or in the expected amount ranges or also in the assumptions used for estimation.

The table below shows the intangible assets acquired that were not initially recorded in the acquiree’s accounting records, as well as the estimated useful life and amortization method:

Intangible assets
 
Useful life
Amortization
method
         
Software
7.5 years
Straight-line
Trademark
6.7 years
         Straight-line
Customer portfolio
2.1 years
         Straight-line

27
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in preparing these financial statements are defined below. These policies were consistently applied for the reporting periods, except if otherwise stated.

27.1
CONSOLIDATION

Subsidiaries are all entities over which the Company holds control. Sinqia S.A. controls an entity when it is exposed or has rights to variable returns arising from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated when control is transferred to the Company. Consolidation is discontinued from the date on which the Company ceases to hold control.
Identifiable assets acquired and contingent liabilities assumed for the acquisition of subsidiaries in a business combination are initially measured at their fair values on the acquisition date.

55
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
The Company recognizes the interest in the acquiree, both at its fair value and at the proportional share of the interest in the acquiree’s net assets. Interests are measured at each acquisition carried out. Acquisition-related costs are recorded in profit or loss for the year, as incurred.

Intragroup transactions, balances and unrealized gains are eliminated. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the transferred asset. The accounting policies of subsidiaries are changed, when necessary, so as to ensure consistency with the policies adopted by Sinqia S.A.

27.2
FOREIGN CURRENCY TRANSLATION

Items included in the financial statements of each one of the Group companies are measured using the currency of the main economic environment in which the company operates (“functional currency”). The financial statements are presented in reais (R$), which is the Company's functional and presentation currency.

27.3
PRESENT VALUE ADJUSTMENT

Long-term and short-term monetary assets and liabilities are adjusted to present value when the effect is considered material in relation to the financial statements taken as a whole. The present value adjustment is calculated considering the contractual cash flows and the explicit, and in certain cases, implicit interest rates of the respective assets and liabilities. Accordingly, the interest embedded in revenues, expenses and costs associated with these assets and liabilities is discounted for its recognition on accrual basis. Subsequently, this interest is transferred to finance costs and finance income in profit or loss, using the effective interest rate method in relation to the contractual cash flows. The implicit interest rates applied were determined based on assumptions and are considered accounting estimates.

The main line items subject to present value adjustments are: leases, payables for investment acquisition (both in the short and long-term) and put option on non-controlling interests.

27.4
CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash, banks, other highly liquid short-term investments, with insignificant risk of change in value and readily convertible into a known amount of cash.

56
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
27.5
FINANCIAL INSTRUMENTS

27.5.1
CLASSIFICATION

Financial instruments are classified into the following categories: (i) amortized cost, (ii) fair value through profit or loss and (iii) fair value through comprehensive income.

Financial assets are reported as current assets, except for those with maturity exceeding 12 months after the balance sheet date.

27.5.2
RECOGNITION AND MEASUREMENT

Purchases and sales of financial assets are recognized on the trade date. Investments are initially recognized at fair value plus transaction costs for all financial assets not classified at fair value through profit or loss. Financial assets at fair value through profit or loss are initially recognized at fair value, and transaction costs are charged against the statement of income. Financial assets are derecognized when the rights to receive cash flows have expired or have been transferred; in the latter case, provided that the Company has significantly transferred all risks and rewards of ownership. Financial assets measured at fair value through profit or loss are subsequently recorded at fair value and assets measured at amortized cost are recorded using the effective interest method.

Dividends from financial assets measured at fair value through profit or loss, such as shares, are recognized in the statement of income as part of other income, when the Company’s right to receive the dividends is established.

27.5.3
OFFSET OF FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are offset and the net amount is recorded in the balance sheet when there is a legally enforceable right to set off recognized amounts and the intent to either settle them on a net basis, or to realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

27.5.4
IMPAIRMENT OF FINANCIAL ASSETS

The Company assesses if there is objective evidence that a financial asset or a group of financial assets might be impaired at the balance sheet date. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event") and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The amount of the impairment loss is measured as the difference between the carrying amount of the assets and the present value of the estimated future cash flows, discounted at the original effective interest rate of the financial assets. The carrying amount of the asset is reduced and the loss amount is recognized in the statement of income. If a held-to-maturity asset is subject to a variable interest rate, the discount rate for measuring an impairment loss is the current effective interest rate determined pursuant to the agreement. As a practical expedient, the Company can measure impairment based on the fair value of an instrument using an observable market price.

57
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of such previously recognized impairment loss will be recognized in the statement of income.

27.6
FINANCIAL INSTRUMENTS

The Company maintains in financial assets, short-term investments held as guarantee, investments in preferred shares of Celcoin Pagamentos S.A., equity investment funds, loans convertible into shares and call options on non-controlling interests in subsidiaries.

Financial assets are measured at fair value on the agreement date and are subsequently remeasured at their fair value, with the changes in fair value recorded in profit or loss.

27.7
TRADE RECEIVABLES

Trade receivables correspond to amounts receivable for software licenses, IT and consulting services provided in the ordinary course of the Company’s activities. If the collection term is equivalent to one year or less, trade receivables are classified in current assets. Otherwise, they are classified in noncurrent assets.

Trade receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less the allowance for doubtful debts.

The amount of the allowance corresponds to the difference between the carrying amount and the recoverable amount. The Company monthly conducts an individual analysis of the outstanding invoices to calculate the recoverable amount.

The Company and its subsidiaries adopt an allowance model that takes into account the collection terms. The Company seeks to constantly improve its analyses and projection methods to minimize the impacts arising from possible default and ensure the business financial soundness.

27.8
INTANGIBLE ASSETS

Refers to trademarks and patents, software acquired, costs and expenses on new product development (software), including goodwill, customer portfolio and other intangible assets arising from business acquisitions. Separately acquired intangible assets are carried at cost upon initial recognition and, subsequently, deducted from the accumulated amortization and impairment losses, when applicable. Goodwill arising on investment acquisition is not amortized but is annually tested for impairment.
The useful life of intangible assets is either finite or indefinite.

Intangible assets with finite useful life are amortized over their economic useful life and tested for impairment whenever there is any indication that the asset might be impaired. The amortization year and method of an intangible asset with finite useful life are revised at least at the end of each reporting period. Changes in the useful life or in the pattern of consumption of expected future benefits are accounted for through the change in the amortization year or method, as applicable, and are treated as changes in accounting estimates.

58
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
Intangible assets with indefinite useful life are not amortized but are annually tested for impairment. The assessment of indefinite useful life is revised at the end of each year to determine whether this assessment continues to be justifiable. Otherwise, the change in the useful life from indefinite to finite is made on a prospective basis.

Gains and losses arising from the derecognition of an intangible asset are measured as the difference between the net sales proceed and the asset carrying amount and are recognized in the statement of income in the year the asset is derecognized.

a)
Goodwill

Goodwill is determined upon acquisition of capital subscription in another company, represented at the acquisition cost of the investment that exceeds the book value, calculated based on the percentage rate of acquisition or subscription over the entity’s equity amount measured at the fair value (market value) of all assets and liabilities. In determining the equity amount, the existence, if any, of unrecorded assets at fair value is individualized and can also be negotiated individually.

b)
Software

Software development or maintenance costs are expensed when incurred. Expenses directly associated to exclusive, identifiable software, controlled by the Company, which will probably generate economic benefits greater than the costs for more than one year, are recognized as intangible assets. Direct costs include the compensation payable to the software development team members and the appropriate portion of the related general expenses.

Software development costs recognized as assets are amortized on a straight-line basis over their useful lives, at the rates mentioned in note 10.

c)
Customer portfolio

Customer portfolios, acquired in a business combination, are recognized at fair value on the acquisition date. Contractual relationships with customers have finite useful life and are accounted for at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the estimated life of the relationship with the customer.

59
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
d)
Trademarks and licenses

Separately acquired trademarks and licenses are initially stated at historical cost. Trademarks and licenses acquired in a business combination are recognized at fair value on the acquisition date. Subsequently, trademarks and licenses with finite useful life are accounted for at cost less accumulated amortization. Amortization is calculated on a straight-line basis to allocate the cost of trademarks and licenses over their estimated useful life.

27.9
PROPERTY AND EQUIPMENT

Stated at historical acquisition, formation or development cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis at the rates mentioned in note 9. Property and equipment are recorded gross of State VAT (“ICMS”) and taxes on revenue (“PIS” and COFINS”) credits as the Company does not utilize these taxes as tax credits.

Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated to the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of replaced items or parts is written off. All other repair and maintenance costs are recorded as a balancing item to profit or loss, when incurred.

The residual values and useful life of the assets are reviewed and adjusted, if necessary, at the end of each reporting period.

The carrying amount of an asset is immediately written down to its recoverable amount if the carrying amount of the asset is higher than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and recorded in “Other operating income (expenses), net” in the statement of income.

27.10
IMPAIRMENT OF NON-FINANCIAL ASSETS

Management annually reviews the carrying amount of non-financial assets to assess events or changes in economic, operating or technological circumstances that might indicate an impairment of non-financial assets. Whenever such evidence is identified and the net carrying amount exceeds the recoverable amount, an allowance for impairment is recognized, adjusting the net carrying amount to the recoverable amount.

The recoverable amount of an asset or certain cash-generating unit is defined as the higher of the value in use and the net sales amount.

In estimating the value in use of the asset, the estimated future cash flows are discounted to their present value, using a discount rate that reflects the weighted average cost of capital for the industry in which the cash-generating unit operates.

60
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
27.11
TRADE PAYABLES

Trade payables are obligations to pay for goods or services acquired from suppliers in the normal course of business, classified as current liabilities if payment is due within one year (or in the regular operating course of business, even if longer). Otherwise, payables are recorded as noncurrent liabilities.

The amounts are initially recognized at fair value and, subsequently, measured at amortized cost using the effective interest method. In practice, they are usually recognized at the corresponding invoice amount.

27.12
DEBENTURES

Debentures are initially recognized at fair value, net of transaction costs, and are subsequently stated at amortized cost. Any difference between the amounts raised (net of transaction costs) and the total amount payable is recognized in the statement of income during the period borrowings remain outstanding, using the effective interest method.

Debentures are classified as current liabilities unless the Company has an unconditional right to defer the liability settlement for at least 12 months after the balance sheet date.

27.13
PROVISIONS

Provisions for legal claims (labor, civil and tax) are recognized when: (i) the Company has a present or constructive obligation as a result of past events; (ii) it is probable that an outflow of funds will be required to settle the obligation; and (iii) the amount can be reliably estimated. The provisions for restructuring include fines for termination of lease contracts and severance payments.

In case of a series of similar obligations, the likelihood of settling them is determined taking into consideration the class of obligations as a whole. A provision is recognized even if the likelihood of settlement related to any individual item included in the same class of obligations is small.

Provisions are measured at the present value of the expenditures necessary to settle the obligation, using a pretax rate that reflects the current market assessments of the time value of money and the specific risks of the obligation. The increase in the obligation as a result of the time elapsed is recognized as finance costs.

27.14
CURRENT AND DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION

Income tax and social contribution expenses represent the aggregate of current and deferred taxes. Taxes on income are recognized in profit or loss for the year, except when they relate to items that are recognized directly in equity or in comprehensive income. In this case, the tax is also recognized in equity or comprehensive income.

Current and deferred income tax and social contribution charges are calculated based on the tax laws enacted or substantially enacted at the end of the reporting period. Management periodically assesses the positions assumed by the Company in the income tax returns with respect to situations in which the applicable tax regulation gives rise to interpretations.
61
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
Deferred income tax and social contribution are recognized using the liability method on temporary differences arising from differences between the tax basis of assets and liabilities and their carrying amounts in the financial statements. However, deferred income tax and social contribution are not recognized if arising from the initial recognition of an asset or a liability in a transaction other than a business combination which, at the transaction date, does not affect accounting profit or loss or taxable income (tax loss).

Deferred income tax and social contribution assets are recognized only to the extent that it is probable that future taxable income will be available against which temporary differences can be utilized.

Deferred income tax assets and liabilities are presented at the net amount in the balance sheet when there is a legally enforceable right and the intention to offset them upon the calculation of current taxes, generally when related to the same legal entity and the same tax authority.

27.15
EMPLOYEE BENEFITS

a)
Share-based compensation

Under IFRS 2 – Share-based Payment, the premium on these shares, calculated on the grant date, is recognized as expense as a balancing item to equity, during the grace period as services are provided.

b)
Profit sharing

The Company recognizes a liability and profit sharing expense in profit or loss on accrual basis, pursuant to the Company’s compensation policy.

27.16
PUT OPTIONS ON NON-CONTROLLING INTERESTS

The put options are measured based on the expected future exercise price, discounted at present value. The option exercise price will be measured based on the revenue multiple, which will be determined by the EBITDA margin on a future date, pursuant to an agreement.

27.17
CAPITAL

Shares are classified in equity. Incremental costs directly attributable to the issuance of new shares or options are stated in equity as a deduction of the amount raised, net of taxes.

62
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
27.18
REVENUE FROM CONTRACTS WITH CUSTOMERS

The service contract with customers is defined as an agreement between two or more parties that creates rights and obligations payable, which can be written, verbal or implicit.

Revenue is recognized to the extent the Company satisfies its performance obligations, upon transfer of the service agreed with the customer. A service is considered to be transferred when the customer obtains its control. For long-term contracts, the Company obtains formal evidence of the service acceptance by the customer.

Revenue from services provided to customers is measured at an amount that reflects the consideration the entity expects to receive in exchange for goods or services.

27.19
DISTRIBUTION OF DIVIDENDS AND INTEREST ON CAPITAL

The distribution of dividends and interest on capital to the Company’s shareholders is recognized as a liability in the Company’s financial statements when approved at the General Meeting, as set forth in the Company’s bylaws, or if authorized by the Board of Directors.

27.20
LEASES

At the commencement of a lease, the Company recognizes lease liabilities measured at the present value of the payments to be made over the lease term and right-of-use assets representing the right to use of the underlying assets.

The right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted by any new remeasurement of lease liabilities. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the assets' estimated useful life and are subject to impairment.

The Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. Lease payments include fixed payments, less any lease incentives receivable, variable lease payments that depend on an index or rate, and amounts expected to be paid under residual value guarantees.
In determining the present value of lease payments, the Company uses its incremental borrowing rate at the commencement date as the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of the lease liability is increased to reflect the increase in interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., changes in future payments resulting from a change in an index or rate used to determine these lease payments) or a change in the assessment of a call option on the underlying asset.

27.21
EARNINGS PER SHARE

Basic earnings per share are calculated by dividing profit for the year attributable to the holders of the Parent’s common shares, by the weighted average number of common shares outstanding during the year.

63
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
Diluted earnings per share are calculated by dividing profit for the year, attributable to the holders of the Parent’s common shares, by the weighted average number of common shares outstanding during the year, plus the weighted average number of common shares that would be issued upon conversion of all potential diluted common shares into common shares.

28
EVENTS AFTER THE REPORTING PERIOD

  a)
Acquisition of Compliasset Software e Soluções Digitais S.A.

On March 7, 2023, the Company completed the acquisition of a 60% stake in Compliasset Software e Soluções Digitais S.A., through its subsidiary Sinqia Tecnologia Ltda. The transaction involved (i) initial amount of R$17,700 payable at sight, (ii) retained portion of R$300 payable within 150 days after the acquisition date, and (iii) variable portion contingent on the net revenue for the period from August 1, 2023 to July 31, 2024. Additionally, the transaction provides for the purchase and sale of the remaining portion in 2026 and exercise price linked to Compliasset’s net revenue and adjusted EBITDA margin for 2025.

Compliasset was established in 2016 in reliance upon the legal expertise of one of its founders in relation to the compliance for the capital market. It has more than 230 customers in the capital market and offers an IT solution that supports compliance and privacy programs in a holistic manner. After some time, it has expanded its activities to other markets, such as the Closed-end Supplementary Private Pension Entities, building a strong partnership with the Brazilian Association of Closed-end Supplementary Private Pension Entities (Abrapp).

The goodwill of R$14,431, arising on the difference between the amount paid and the acquiree’s equity, was evaluated by an independent valuation company and corresponds to the amount of the future economic benefits (goodwill) arising from the synergies that are expected to obtain upon the acquisition carried out. The acquisition expands even further the offer of Sinqia’s solutions and reinforces the Company’s strategy of building a complete ecosystem to serve the financial system. With the inclusion of Compliasset in its portfolio, Sinqia expands its position as one-stop-shop for the customers, bringing one more Software as a Service (SaaS), Plug & Play solution, available in the Cloud focused on Regulatory Compliance Management.

In the consolidated interim information for the quarter ended June 30, 2023, Compliasset reported net revenue of R$2,273 and profit of R$673, considering the period after the abovementioned acquisition date.

The Company hired a third-party appraiser to conduct fair value measurement studies on the main assets acquired and liabilities assumed; as Sinqia holds less than 100% interest in the acquiree, the fair value of the non-controlling interests was determined by applying the effective percentage rate of the non-controlling interests on the subsidiaries’ equity at fair value.

64
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
a) Fair value on the acquisition date of the consideration transferred:

     
60
%
Cash disbursed
    
16,448
  
Price adjustment as per contract
    
300
  
Increase in variable price (Earn Out)
    
4,917
  
Total consideration transferred
    
21,665
  

b) Assets and liabilities recognized at fair value on the acquisition date:

ACQUIREE’S BALANCE SHEET


 
03/07/2023
      
03/07/2023
  
Current assets
      
Current liabilities
      
               
Cash and cash equivalents
    
2
  
Suppliers and service providers
    
33
  
Short-term investments
    
640
  
Taxes payable
    
164
  
Trade receivables
    
628
  
Payroll and related taxes
    
135
  
Recoverable taxes
    
-
  
Dividends
    
1,168
  
Advances to suppliers
    
102
            
Prepaid expenses
    
24
            
                   
Total current assets
    
1,396
  
Total current liabilities
    
1,500
  
                   
Noncurrent assets
        
Noncurrent liabilities
        
                   
Trade receivables
    
12
  
Leases
    
100
  
Property and equipment
    
194
  
Contingencies
    
2,997
  
Intangible assets
    
15,052
            
                   
Total noncurrent assets
    
15,258
  
Total noncurrent liabilities
    
3,097
  
                   
         
Total equity
    
12,057
  
                   
Total assets
    
16,654
  
Total liabilities
    
16,654
  

65
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
c) Goodwill arising on the acquisition of equity interests

Total consideration transferred
    
21,665
  
 
        
(-) Fair value of the main assets acquired:
        
Software
    
6,204
  
Trademark
    
1,527
  
Customer portfolio
    
7,321
  
 
        
(+) Fair value of the main liabilities assumed:
        
Contingencies
    
2,997
  
 
        
(-) Total identifiable net assets at fair value on the acquisition date
    
1
  
 
        
(+) Total amount of non-controlling interests
    
4,823
  
 
        
Goodwill on expected future earnings arising on acquisition
    
14,432
  
 
        
Goodwill expected to be deductible for tax purposes
    
13,886
  

The contingent liability of R$2,997 was recognized in view of labor and social security risks in the amount of R$1,891 and tax risks in the amount of R$1,106, referring to the contingency period. As at June 30, 2023, R$166 relating to tax risks was written off due to the statute of limitations but there was no change in the expected amount ranges or also in the assumptions used for estimation.

The table below shows the intangible assets acquired that were not initially recorded in the acquiree’s accounting records, as well as the estimated useful life and amortization method:

Intangible assets
 
Useful life
Amortization
method
           
Software
5 years
Straight-line
Trademark
9.8 years
         Straight-line
Customer portfolio
14.6 years
         Straight-line

Also, the Company states that the assets and liabilities recognized at fair value arising from business combinations disclosed in 2022 were not subject to changes.

  b)
3rd issuance of debentures

On June 14, 2023, the Company discloses, in conformity with the applicable law, that its Board of Directors has approved the 3rd issuance of simple, non-convertible, unsecured debentures, with real and additional fidejussory guarantee, in one single series, in the total amount of R$250,000,000.00, with par value of R$1,000.00 each, on the issuance date (“Debentures” and “Issuance”, respectively).

Debentures will mature within five years counted from the issuance date, will not be adjusted for inflation and will be entitled to receive compensatory interest based on the CDI rate, plus a fixed surcharge of 2.30% p.a.

The net proceeds from the Offering will be mainly used to refinance liabilities and strengthen the Company’s cash, which can include, without limitation, the use for acquisition of interests in companies considered as strategic.

66
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
  c)
Optional acquisition of debentures

On June 26, 2023, the Company’s Board of Directors approved the optional acquisition of all simple, non-convertible debentures, with real and fidejussory guarantee of the Company’s 1st issuance, issued on February 21, 2019 (“1st Issuance Debentures”), and 100,000 simple, non-convertible, unsecured debentures, in one single series, with real and fidejussory guarantee of the Company’s 2nd issuance, issued on July 15, 2021 (“2nd Issuance Debentures”, together with the 1st Issuance Debentures, the “Debentures”) (“Optional Acquisition”).

  d)
Payment of interest on capital

On July 20, 2023, the Board of Directors approved the advance of the payment date of the interest on capital for FY2022 to July 31, 2023.

The distribution of interest on capital was approved at the Annual General Meeting (“AGM”) held on April 27, 2023, in the amount of R$4,690,007.39, corresponding to R$0.055404594 per share issued by the Company (without considering treasury shares), subject to withholding income tax at the rate of 15%.

The individuals registered as the Company’s shareholders on May 5, 2023, will be entitled to receive interest on capital and payment will be made in local currency, in one single installment, on July 31, 2023.

  e)
Business combination

On July 20, 2023, the Company discloses that it has entered into, after approval by its Board of Directors, the Merger Agreement and Other Covenants (“Merger Agreement”) with Evertec, Inc., a company listed on the New York Stock Exchange (NYSE), with head office in Puerto Rico (“Evertec Inc.”), and with Evertec Brasil Informática S.A., a privately-held company established in Brazil, enrolled with CNPJ under No. 06.187.556/0001-15, with head office in the City of São Paulo (“Evertec BR” and, together with Evertec Inc., “Evertec”), whereby the terms and conditions of a business combination between the Company and Evertec BR were agreed, through the merger of the Company’s shares (“Transaction”).

The Company’s Board of Directors was advised by and received a fairness opinion from Banco BTG Pactual S.A. about the reasonableness of the exchange ratio and the Transaction financial terms and concluded that the respective terms and conditions are fair and equitable for all Company’s shareholders.

Transaction structure

As set forth in the Merger Agreement, the parties agreed that the integration of the Company’s and Evertec BR’s activities will be implemented through (i) the merger of all shares issued by the Company into Evertec BR (“Merger of Shares”), upon assignment to the Company’s shareholders of mandatorily redeemable Class A and Class B preferred shares issued by Evertec BR; and (ii) the redemption of all these new redeemable preferred shares of Evertec BR (“Redemption of Shares”), upon payment of the amount in cash and delivery of Level I BDRs accepted for trading at B3, whose underlying assets will be Class A shares issued by Evertec Inc. (“BDR”) traded at the NYSE.

67
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
The Merger of Shares will be carried out based on the following exchange ratio: for each share issued by the Company (i) one mandatorily redeemable Class A preferred share issued by Evertec BR; and (ii) mandatorily redeemable Class B preferred share issued by Evertec BR, will be assigned.

The Redemption of Shares will be carried out based on the following: (a) each Class A preferred share issued by Evertec BR will be redeemed upon Transaction closing at the amount of R$24.47; and (b) each Class B preferred share issued by Evertec BR will be redeemed upon Transaction closing through the delivery of BDRs backed by 0,014354 shares issued by Evertec Inc., whose amount on this date corresponds to R$2.72. The positive variation of the SELIC rate calculated on the base amount of R$27.50 will be added to the redemption amount of Class A preferred shares issued by Evertec BR, between this date and the Transaction consummation date, it being understood that the adjustment amount cannot exceed R$1.00 per Class A preferred share, except in those cases set forth in the Merger Agreement. Additionally, Evertec will apply its best effort to promote a repurchase program for BDRs accepted for trading at B3 after the Transaction closing.

Transaction conditions precedent

The Transaction closing is subject to the fulfillment of conditions precedent usual for this type of transaction, including (i) the approval, by the Company’s shareholders, (a) of the Merger of Shares, pursuant to article 252 of the Brazilian Corporate Law, including the respective protocol; and (b) the consent provided for in article 46, sole paragraph of the “Novo Mercado” Regulation; (ii) the obtainment of waiver from the holders (a) of the 2nd issuance of simple, non-convertible, unsecured debentures, with real and additional fidejussory guarantee, in one single series and (b) of the 3rd issuance of simple, non-convertible, unsecured debentures, with real and additional fidejussory guarantee, in one single series; and (iii) the registration of the Level I BDRs by Evertec Inc. with the CVM for trading at B3.

Exclusivity

Pursuant to the Merger Agreement, the Company assumed an exclusivity commitment to Evertec to consummate the Transaction, which failure to comply by the Company will give rise to a fine in the amount corresponding to 5% of the Transaction amount. In case of non-approval of the Transaction by the Company’s shareholders, the exclusivity period ends with no fine or penalty for the Company. Right of recourse – The Company informs that the Merger of Shares will give rise to the right of recourse for the Company’s dissenting shareholders. The details on the exercise of the right of recourse, including the reimbursement amount, will be timely disclosed to the market.

Other commitments

Within the scope of the Transaction, the holders of the Company’s shares representing more than 40% of the total voting shares entered into certain Voting Agreements, which establish these shareholders’ obligation to vote favorably to the Transaction approval at the Company’s general meeting. Also, during the term of the Voting Agreements, these shareholders agreed not to sell or otherwise dispose of their Company’s shares until the Company’s general meeting.

68
SINQIA S.A.
NOTES TO THE FINANCIAL STATEMENTS
AS AT DECEMBER 31, 2022 AND 2021
(In thousands of Brazilian reais – R$)
Interest on capital declared at the Annual General Meeting

The payment of interest on capital declared at the Company’s Annual General Meeting, which was scheduled to be made between August 31, 2023, and the end of the FY2023, will be anticipated and paid up to July 31, 2023. A Notice to the Shareholders on the payment of interest on capital will be disclosed on a timely basis.

Next stages

After the preparation of the valuation report and proforma financial statements, in accordance with CVM Resolution 78/22, the Company’s Board of Directors will approve the execution of the share merger agreement. It will also provide details and recommendations to the shareholders regarding this transaction. On the same date, the Company’s Supervisory Board will issue its opinion on the transaction. The general shareholders’ meeting will be called soon to make decisions on the transaction.

On August 14, 2023, Sinqia announced that, upon approval by the Board of Directors and issuance of favorable opinion by the Supervisory Board, it has entered into the "Protocol and Justification of Merger of Shares Issued by Sinqia S.A. into Evertec Brasil Informática S.A." with Evertec Brasil Informática S.A. This Protocol defines the terms and conditions of the merger of the Company’s shares into Evertec BR, as part of the business combination transaction described in the agreement entered into between the companies on July 20, 2023.

Due to this agreement, the Company’s Extraordinary General Meeting was called to be held on September 14, 2023. The meeting will decide on matters such as the Protocol and merger of the shares, including the delivery of preferred shares and other amounts as part of the transaction. It will also decide whether Evertec BR will be discharged from joining the “Novo Mercado” segment of B3 S.A. - Brasil, Bolsa, Balcão. Also, the meeting will discuss the termination of Sinqia’s Stock Plan after the delivery of the shares to the beneficiaries.


69