Alphinat inc. — Interim / Quarterly Report 2021

Jul 28, 2021

2000, Peel street, Suite 680 Montreal (Quebec) Canada H3A 2W5

T: (514) 398-9799 F: (514) 398-9353 www.alphinat.com

==> picture [173 x 37] intentionally omitted <==

Management Discussion and Analysis

Alphinat Inc. (“Alphinat” or the “Company”) (TSX Venture Exchange: NPA) has reported its results for the 3-month period ended May 31, 2021.

General

This MD&A has been prepared as of July 28, 2021. This MD&A should be read in conjunction with our interim condensed financial statements for the three-month period ended May 31, 2021 prepared in accordance with IAS 34, Interim financial reporting.

These financial statements were prepared by management in accordance with IFRS.

All dollar amounts are expressed in Canadian dollars unless stated otherwise.

This MD&A was prepared based on information available as at July 28, 2021.

Overview - SmartGuide® brings agile development to the Cloud, Web and mobile.

Alphinat sells SmartGuide® software solutions which are designed for development and delivery of advanced portal and electronic services technologies.

SmartGuide is being used by federal, state and over 30 municipal governments using our secure portal technology for enterprise and citizen digital services. Designed to leverage existing technologies such as CRM (Dynamics 365 and others), Document Management, Workflow and other back-office assets SmartGuide is designed to be compatible with leading cloud providers, enabling clients to deploy multiple applications on the same instance.

The Alphinat SmartGuide platform is designed to allow for enterprise-level security and control over the applications it creates, including features such as, AI, blockchain, unlimited encryption and two+-factor authentication that are specifically designed to thwart information, data and identity theft.

Deployable natively in J2EE or .NET environments, on premises or in the cloud, SmartGuide can help quickly build interactive web and mobile dialogs that guide people to the relevant response, help them diagnose problems or lead them through a series of well-defined steps that make it easy to key-in data and to complete complex—or infrequently performed—tasks. It is ideally suited for complex digital services.

SmartGuide® is a drag-and-drop development platform complete with features that many other solutions require developers to code, making applications easier to build, test and maintain. Furthermore, SmartGuide® provides easy support for accessibility standards with translation capacity supporting multiple languages and can automatically generate customizable documentation of the application being built.

The public sectors, healthcare, banking and insurance and telecommunications and others, can benefit from SmartGuide® technology to modernize, automate and make profitable a multitude of business processes by realizing substantial savings compared to solutions tailor-made and coded. For more information on Alphinat or its software suite, please visit www.alphinat.com/en.

Business operations

In the normal course of business prior to the current Covid pandemic Alphinat had a flexible policy of remote work both for office staff and with our client deliveries. We had mitigated most Covid -19 business

• 1 -

==> picture [173 x 37] intentionally omitted <==

related risk in advance. Alphinat has therefore experienced minimal business impact as the public sector continues to digitize citizen and enterprise services.

During the quarter under review, Alphinat has focused its efforts on improving its operating cashflow and on increasing solution sales including its pipeline of professional services working on delivering a number of showcase projects to reduce purchase decision risk of clients and to re-enforce the sales pipeline.

We have also continued to work on expanding our distribution channels and on diversifying our offerings including security and automation features.

In order to accelerate future growth, Alphinat has focused on four main areas of solution development with our SmartGuide technology:

• 1) SmartGuide ® Portal Edition for Dynamics 365[1] , has optimized the way that clients can now create and deploy online services on top of Microsoft Dynamics 365 CRM solutions including Grants & Contributions solutions for several federal departments and agencies. This offering is available in SaaS mode as well as on-premises;

• 2) SmartGuide® Greenhouse Gas Registry is a green fintech solution allowing governments and industry to work together in reducing the harmful effects of greenhouse gases;

• 3) SmartGuide ® Municipal Cloud aims at offering unparalleled productivity to municipalities. Municipalities will be able to choose from a catalogue of pre-built applications, further accelerating the speed at which they can deploy citizen-centric services. These services include service requests, permitting and licensing as well as numerous other citizen-facing services and internal applications;

• 4) SmartGuide ® CIVIC Portal for Amanda™[2] is a derivative of the Municipal Cloud solution front ending a partner solution for an improved user experience for both the client cities and their citizens be deployed either on-premises on in a secure-cloud offering.

The company pursues its commercialization efforts with partners at various departments and agencies of G7 governments being federal, state and municipalities levels. Furthermore, the company continues to be involved in supporting its partners delivering solutions to government clients.

Alphinat is evolving its partnership strategy with consulting firms and systems integrators to promote and ensure resale and delivery of SmartGuide and SmartGuide solutions, as well as with independent software vendors for OEM agreements and with other partners for SaaS services. Management believes that these agreements will help to reduce the sales cycle of the company’s products while giving it additional exposure to new potential clients

1 Dynamics 365 is a trademark of Microsoft Corporation

2 Amanda™ is a registered trademark of Granicus

• 2 -

==> picture [173 x 37] intentionally omitted <==

Selected quarterly financial data (unaudited)

Period	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020	Q4 2019 Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019
	31-05-2021	28-02-2021	30-11-2020	31-08-2020	31-05-2020	29-02-2020	30-11-2019	31-08-2019 31-08-2020 31-05-2020 29-02-2020 30-11-2019 31-08-2019 31-05-2020 29-02-2020 30-11-2019 31-08-2019 31-05-2019 28-02-2019
	$	$	$			$	$	$ $ $ $ $ $ $ $ $
Revenue	495,796	403,026	316,594	224,318	449,514	290,993	407,360	531,764 224,318 449,514 290,993 407,360 531,764 449,514 290,993 407,360 531,764 305,578 220,840
Net
earnings	105,251	(6,376)	27,509	34,328	110,960	(57,549)	40,064	253,900 34,328 110,960 (57,549) 40,064 253,900 110,960 (57,549) 40,064 253,900 (53,538) (149,097)
(Loss)
Basic
and diluted	0.0017	(0.0001)	0.0004	0.0005	0.002	(0.001)	0.001	0.004 0.0005 0.002 (0.001) 0.001 0.004 0.002 (0.001) 0.001 0.004 (0.001) (0.002)
EPS

Revenue

For the 3-month period ended May 31, 2021 the Company recorded total revenue of $495,976 compared to $449,514 for the same period in 2020.

During the period under review, revenues result from new license sales in the amount of $14,931, software support and maintenance in the amount of $130,801 and professional services for training and SmartGuide implementations in the amount of $350,244. During the quarter the company sold SmartGuide licenses to a department of the Canadian government in the normal course of business, increasing our professional services revenues as compared to the corresponding quarter last year.

During the quarter ended May 31, 2020 revenues resulted from new license sales in the amount of $189,559, software support and maintenance in the amount of $117,725 and professional services for training and SmartGuide implementations in the amount of $142,230.

Operating expenses

For the 3-month period ended May 31, 2021 operating expenses amounted to $372,748 compared to $293,404 in for the same period in 2020. The increase is mostly attributed to a one time commission charge on sales of $51,310 and a non cash item charge for stock options issuance of $24,780 in the 3 month period ended May 31, 2021.Without these charges the comparable operating expenses was $296,658 for the current period compared to $293,404 for the period ended May 31, 2020.

The cost of services, selling and administrative expenses amounted to $272,586 for the quarter ended May 31, 2021 compared to $235,816 for the quarter ended May 31, 2020. Research expenses for the quarter ended May 31, 2021 amounted to $75,382 compared to $57,588 for the quarter ended May 31, 2020 due to an decrease in development expenses.

During the quarter under review, stock based compensation options were issued valued at $24,780 compared to $0 for the period ended May 31, 2020.

Financing expenses

Financing expenses amounted to $(1,322) for the quarter ended May 31, 2021 compared to $43,603 for the quarter ended May 31, 2020. This decrease is due mainly to lower interest charges as loans are repaid and a $14,590 gain on foreign exchange. For more information on financing expenses, please refer to note 20 of the financial statements.

• 3 -

==> picture [173 x 37] intentionally omitted <==

Earnings (loss) for the period

The net income for the period ended May 31, 2021 amounted to $105,251 or 0.0017 per outstanding common shares compared to net income of $110,960 or 0.002 per outstanding common shares for the 3- month period ended May 31, 2020.

Assets

Cash amounted to $65,723 as at May 31, 2021 compared to $65,625 as at August 31, 2020.

As at May 31, 2021 accounts receivable amounted to $432,909 compared to $175,355 as at August 31, 2020. This increase is due to an increase in trade receivables and tax credits on May 31, 2021.

As of May 31, 2021, work in progress is $32,550 compared to $14,890 as of August 31, 2020 due to increased amounts of professional services contracts that overlapped the quarters end as of May 31, 2021.

As at May 31, 2021 prepaid expenses amounted to $59,423 compared to $14,578 as at August 31, 2020 reflecting higher prepaid insurance expenses and a membership.

As at May 31, 2021 to account for IFRS 16 a Right of Use asset for the companies head office lease in the amount of $219,095 compared to $272,389 as at August 31, 2020 as explained in note 8 under IFRS 16 in the interim condensed financial statements.

Liabilities

Bank overdraft amounted to $0 as at May 31, 2021 and August 31, 2020.

Accounts payable and accrued charges amounted to $1,011,032 as at May 31, 2021 compared to $863,797 as at August 31, 2020. The increase is due to an increase in Accounts payable as at May 31, 2021.

Deferred revenue amounted to $292,689 as at May 31, 2021 compared to $259,660 as at August 31, 2020.

As at May31, 2021 the loans from a private company amounted to $0 and $60,550 as at August 31, 2020 bearing interest at an annual rate of 9% and 12% on a declining balance, which are payable quarterly, as well as principal in 8 equal repayments starting January 1st, 2019 until maturity date.

As at May 31, 2021 loan from an individual related to an important shareholder amounted to $2,293 compared to $6,908 as at August 31, 2020 bearing interest at an annual rate of 12% on a declining balance.

As at May 31,2021 loan from directors amounted to $0, as compared to $15,125 as at August 31, 2020 bearing interest at an annual rate of 12% on a declining balance.

As at May 31, 2021 loan from company under common control amounted to $0, compared to $2,500 as at August 31, 2020 bearing interest at an annual rate of 12% on a declining balance.

As at May 31, 2021 loan from shareholders amounted to $0, as compared to $3,000 as at August 31, 2020 bearing interest at an annual rate of 12% on a declining balance.

As at May 31, 2021 debentures amounted to $120,000 compared to $120,000 as at August 31, 2020. For more information please refer to note 11 of the financial statements.

• 4 -

==> picture [173 x 37] intentionally omitted <==

As at May 31, 2021 to account for IFRS 16 current lease and lease liabilities for the company’s head office lease of $51,835 and $183,339 respectively, compared to $65,393 and $218,124 as at August 31, 2020 as explained in note 8 under IFRS 16 in the interim condensed financial statements.

Shareholders’ equity

As at May 31, 2021 the number of common shares outstanding of the Company was 63,148,956. As at the date of this report, the number of common shares outstanding of the Company was 63,148,956. For more information on the capital stock, please refer to note 12 of the financial statements.

Options and warrants

During the quarter ended May 31, 2021, 0 options expired and none were issued. As at May 31, 2021 there were 6,868,250 options outstanding with a weighted average exercise price of $0.12 and a weighted remaining contractual life of 21 months. As of the date of this report, there were 6,868,250 options outstanding.

During the quarter ended May 31, 2021 no warrants were issued, had expired or were cancelled. As at May 31, 2021 there were 0 warrants outstanding. As of the date of this report, there were 0 warrants outstanding.

Liquidity and solvency

As at May 31, 2021 the Company had cash and bank overdraft of $65,723 compared to $65,625 as at August 31, 2020

As presented in note 1 of our financial statements for the past decade "A going concern note" is a requirement of the CPA auditors to cover their potential risk for liabilities for professional disclosure”. The company has the responsibility for preparing financial statements in accordance with IFRS and the obligation to present a note on “going concern” in certain situations comes from IFRS. We continue to operate efficiently and have focussed on activities with highest certitude of liquidity generation in order to be able to maintain viable operations.

To finance its operations, the Company relies on receipts from accounts receivable, loans from shareholders, directors and individuals related to a director, Class A and Class B Debentures and future contracts for major license sales and professional services related to these licenses and on-going projects. There is a risk that the company will not be able to obtain the funds necessary to meet its obligations.

The Company believes that with current funds available and with operating profit before non-cash items generation of about $100,000 on average each 6 months, loans from shareholders, directors, non-claim of principal and interest owed to Debenture holders and loan holders as well as funds it will obtain upon entering into contracts from initiatives under way will enable it to recruit the additional personnel required to ensure its growth, to meet its loan & debenture principal and interest anticipated by November 30, 2021 and other financial obligations as they become due.

Related party transactions

• § Key management compensation

Key management compensation, paid as salaries, for the three-month period ended May 31, 2021 was $57,891 and $54,231 for the three-month period ended May 31, 2020. Key management compensation, paid as professional fees, for the three-month period ended May 31, 2021 was $3,563 and was $6,688 for the three-month period ended May 31, 2020. Key management compensation, paid as stock options, for the three-month period ended May 31, 2021 was $1,091 and was $0 for the three-month period ended May 31,2020. Each external director was awarded 50,000 options worth aproximately $549 per director on February 26, 2021.

• 5 -

==> picture [173 x 37] intentionally omitted <==

Key management compensation, paid as salaries, for the nine-month period ended May 31,2021 was $183,254 ($150,000 for the nine-month period ended May 31,2020). Key management compensation, paid as professional fees, for the nine-month period ended May 31,2021 was $14,263 ($25,050 for the nine-month period ended May 31,2020). Key management compensation, paid as stock options, for the nine-month period ended May 31,2021 was $12,755 ($0 for the nine-month period ended May 31,2020).

§ Related party transactions

During the three-month period ended May 31, 2021 the Company has incurred interest charges to:

• directors and individuals related to directors totaling $45 ($726 for the three-month period ended May 31, 2020) on loans from directors and shareholders.

• companies related to directors and a company owned by a director, totaling $524 ($5,381 for the three-month period ended May 31, 2020) on loans from private companies.

• shareholders and a company owned by a controlling shareholder, totaling $170 ($227 for the three-month period ended May 31, 2020) on a loan from shareholders and a company common control.

During the nine-month period ended May 31, 2021 the Company has incurred interest charges to:

• directors and individuals related to directors totaling $272 ($2,401 for the nine-month period ended May 31, 2020) on loans from directors and shareholders.

• companies related to directors and a company owned by a director, totaling $2,570 ($18,394 for the nine-month period ended May 31, 2020) on loans from private companies.

• shareholders and a company owned by a controlling shareholder, totaling $833 ($750 for the nine-month period ended May 31,2020) on a loan from shareholders and a company common control.

As at May 31, 2021 accounts payable include an amount of $559 ($6,414 as at May 31,2020) relating to these transactions.

These transactions were carried out in the normal course of business.

Financial instruments

Information on financial instruments is presented in note 14 to the financial statements.

Subsequent events

The company has been retained for another solution license sale and professional services mandate for a class action claims settlement for a provincial justice department.

The company was selected to deliver a second Greenhouse Gas Registry solution for another Canadian province.

As at May 31, 2021 the company was late in debenture repayment for amounts due of $120,000. The Company is planning to make these repayments upon receipt of significant receivables from certain clients and partners. Although this delays could lead the debenture holder to give notice and recall it’s loan under the terms of the debenture, it is important to note that this debenture holder is also an important shareholder of the company.

• 6 -

==> picture [173 x 37] intentionally omitted <==

Risks and uncertainties

The main uncertainty relates to the length of the sales cycle in the market sectors where the Company has thus far concentrated the bulk of its efforts.

Several factors could impact actual results and cause them to be different from expected results. These factors include the Company’s ability to develop new markets and partnerships and its dependence on a limited number of customers.

Alphinat has limited financial resources and could require additional cash resources that may not be available or be available under conditions deemed unacceptable to the Company.

The significant value of Alphinat’s Internet tools and solutions could draw attention from players who are capable of deploying considerable means to develop competing products, which would affect Alphinat’s business potential.

The Company uses and intends to continue to use various measures such as copyrights, trademarks, trade secrets legislation, confidentiality agreements and other contractual terms in order to establish, to maintain and to protect its intellectual property rights. Unauthorized parties could attempt to copy certain of the Company’s products or portions of its products or to obtain what is considered as proprietary information. With increased competition, there is a greater risk that other companies will attempt to produce new substitute products or technologies.

Revenue recognition

Professional service revenues are recognized according to the percentage-of-completion method. Work in progress is established by taking into account services rendered that have not yet been invoiced. Any payment received before services are rendered is recorded as deferred revenue.

Fees from software products, after-sales technical support and other services are normally allocated among the various elements based on vendor-specific evidence of the fair value of each element and the Company recognizes the revenue for each element when revenue recognition criteria are met. To determine the fair value of each element, the Company uses the requested price for an element when it is sold separately and any other information considered to be relevant.

Revenues from software licenses are recognized when there is persuasive evidence of a valid arrangement, the software product has been delivered and accepted from the client and no significant obligations from the Company remain. The after-sales technical support is recognized on a straight-line basis over the contractual service period and revenues from other services are recognized as the services are rendered.

Stock option agreements

The Company provides stock option and stock-based compensation plan that is described in note 13 to the financial statements.

Continuous disclosure process and disclosure controls

The Company files its financial statements, management discussions and analyses, press releases and other required documents in the Sedar database at www.sedar.com.

The Company’s shares are listed on the TSX Venture Exchange under stock symbol NPA.

The Company issued its code of ethics that was sent to all employees by the Chief Executive Officer. The company instructs all employees invited to contact the audit committee directly if they are aware of information that could potentially impact the Company’s financial statements.

• 7 -

==> picture [173 x 37] intentionally omitted <==

Given Alphinat’s current size, it is difficult to ensure segregation of all management duties. However, the Chief Executive Officer’s direct involvement in the business on a daily basis compensates for this weakness, as he is able to exercise more effective oversight than in a larger entity as well as by the having of a chief financial officer to oversee all financial reporting.

Outlook

Alphinat specializes in the development and marketing of a Cloud-related next generation rapid application development (RAD) platform with a service-oriented architecture (SOA) approach that simplify and accelerate the implementation of applications, sites and portals designed to meet specific user needs while ensuring reuse of computer resources and experience within an organization.

The Company’s products respond to a real need in the market, which is definitely moving toward the deployment of reusable services and the use of organizations’ internal expertise. Market expectations show that 80% of new applications developments will be done through the development of composite applications (i.e. assembly and reuse of existing functionalities) rather than traditional applications development.

The Company’s SmartGuide® suite is the result of years of experience with customers who also see the need to customize access to their data and processes based on users’ needs and situation regardless of where the computer systems were located. This capability is crucial for making it easier for citizens and businesses to deal with the governments, and large institutions whose operations lead to many complex procedures. The Company is actively working to build on this added value and to establish an integrated support, training and service delivery plan for its software solution.

There is a strong potential for Alphinat’s “turnkey” solution in the public and private sector markets. Indeed, in most large institutions with the number of retirements anticipated over the coming decade, the increasing number of procedures, their increasing complexity, and the reduction of operating budgets, require an improvement in the public and private sector’s productivity while users press for a radical simplification of the administrative burden.

Forward-looking statements

This MD&A contains forward-looking statements regarding the Company. These forward-looking statements are inherently subject to certain risks and uncertainties that could cause actual results to be materially different from those suggested by these statements.

The Company believes that these forward-looking statements were based on premises that were reasonable at the time they were made. However, readers are warned that future assumptions, several of which are beyond management’s control, could otherwise prove to be incorrect.

Readers are invited to refer to Sedar (www.sedar.com) for additional information on the Company.

• 8 -