Alphinat inc. — Interim / Quarterly Report 2022

Apr 28, 2022

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

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

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Management Discussion and Analysis

Alphinat Inc. (“Alphinat” or the “Company”) (TSX Venture Exchange: NPA) has reported its results for the 3-month period ended February 28, 2022.

General

This MD&A has been prepared as of April 27, 2022. This MD&A should be read in conjunction with our interim condensed financial statements for the three-month period ended February 28, 2022, 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 April 27, 2022.

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

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

SmartGuide software solutions are used by federal, state and over 30 municipal governments with our secure portal technology for enterprise digital service delivery. Designed to leverage existing technologies such as CRM, Document Management, Workflow and other back-office assets SmartGuide software is designed to be compatible with leading cloud providers, enabling clients to deploy multiple applications on the same instance.

The Alphinat SmartGuide software platform is designed to allow for enterprise-level security and control over the applications it helps create, including leveraging features such as, artificial intelligence (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 software solutions 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 defined steps that make it easy to interact and to complete complex or infrequently performed tasks. It is ideally suited for complex digital service offerings.

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. SmartGuide® software also 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, insurance, 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

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

During the 3-month period ended February 28, 2022, Alphinat continues to focus 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 reenforce the sales pipeline.

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

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 (SmartGHGR.ca) is a green fintech solution allowing governments and industry to work together in reducing the harmful effects of greenhouse gases and is in process of been marketed with IT consulting partners. Alphinat currently has two provincial clients for our SmartGHRG.ca solution.

• 3) SmartGuide ® Claims (SmartClaims.ca) are developed in conjunction with a major IT consulting partner, which aim at offering unparalleled productivity to federal, state and municipal clients for financial claims applications, adjudication and settlements for financial compensation and class action settlements with customizable citizen-facing services and internal applications.

• 4) SmartGuide ® CIVIC Portal, CIVIC Portal for Amanda™[2] and SmartGuide ® Municipal Cloud are Municipal Cloud and on-premises solutions as standalone or front ending partner solutions and other digital services for improved user experience for both the client cities and their citizens.

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

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Selected quarterly financial data (unaudited)

Period	Q2 2022	Q1 2022	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019
	28-02-2022	30-11-2021	31-08-2021	31-05-2021	28-02-2021	30-11-2020	31-08-2020	31-05-2020 31-05-2020 29-02-2020 30-11-2019 31-08-2019 31-05-2019 28-02-2019
	$	$	$	$	$	$	$	$ $ $ $ $ $
Revenue	310,521	402,974	342,980	495,796	403,026	316,594	224,318	449,514 449,514 290,993 407,360 531,764 305,578 220,840
Net
earnings	(85,157)	122,358	(34,456)	105,251	(6,376)	27,509	34,328	110,960 110,960 (57,549) 40,064 253,900 (53,538) (149,097)
(Loss)
Basic
and diluted	(0.001)	0.002	(0.0005)	0.0017	(0.0001)	0.0004	0.0005	0.002 0.002 (0.001) 0.001 0.004 (0.001) (0.002)
EPS

Revenue

For the 3-month period ended February 28, 2022, the Company recorded total revenue of $310,521 compared to $403,026 for the same period in 2021.

During the period under review, revenues result from new license sales in the amount of $2,548, software support and maintenance in the amount of $94,375 principally due to a wind down of our european and some short-term federal projects in Canada. Professional services for training and SmartGuide implementations was constant in the amount of $213,598. During the quarter the company rented SmartGuide licenses for Canadian government federal mandates in normal course of business and slightly increasing our professional services revenues as compared to the corresponding quarter last year.

During the quarter ended February 28, 2021 revenues result from new license sales in the amount of $49,191, software support and maintenance in the amount of $140,369 and professional services for training and SmartGuide implementations in the amount of $213,466.

Operating experionses

For the 3-month period ended February 28, 2022 operating expenses amounted to $363,248 compared to $378,794 in for the same period in 2021. The decrease is mostly attributed to a smaller one-time noncash item charge for stock options issuance of $4,463 in the quarter ended February 28, 2022, versus $41,899 in the 3-month period ended February 28, 2021, without these charges the comparable operating expenses would be $358,785 for the current period compared to $336,895 for the period ended February 28, 2021.

The cost of services, selling and administrative expenses amounted to $312,035 for the quarter ended February 28, 2022, compared to $265,253 for the quarter ended February 28, 2021. Research expenses for the quarter ended February 28, 2022 amounted to $145,453 compared to $78,455 for the quarter ended February 28, 2021 due to an increase in development expenses and increased tax credits for the current period

During the quarter under review, stockbased compensation expenses for options were $4,463 compared to $41,899 for the period ended February 28, 2021.

Financing expenses

Financing expenses amounted to $13,245 for the quarter ended February 28, 2022 compared to $11,480 for the quarter ended February 28, 2021. This increase is due mainly to higher financing charges and a small foreign exchange gain compared to a small foreign exchange gain for the period ended February 28, 2021. For more information on financing expenses, please refer to note 19 of the financial statements.

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Earnings (loss) for the period

The net loss for the period ended February 28, 2022 amounted to $(85,157) or (0.001) per outstanding common shares compared to net loss of $(6,376) or (0.0001) per outstanding common shares for the 3- month period ended February 28, 2021.

Assets

Cash amounted to $0 as at February 28, 2022 compared to $0 as at August 31, 2021.

As at February 28, 2022 accounts receivable amounted to $437,449 compared to $391,511 as at August 31, 2021. This increase is due to an increase in trade receivables and tax credits with nil work in process on February 28, 2022, with $27,977 of work in process as at 28 February 2021.

As at February 28, 2022 prepaid expenses amounted to $52,729 compared to $37,166 as at August 31, 2021 reflecting higher prepaid insurance expenses.

As at February 28, 2022 to account for IFRS 16 a Right of Use asset for the companies head office lease in the amount of $159,247 compared to $198,883 as at August 31, 2021 as explained in note 8 under IFRS 16 in the interim condensed financial statements.

Liabilities

Bank overdraft amounted to $26,183 as at February 28, 2022 compared to $18,944 as at August 31, 2021.

Accounts payable and accrued charges amounted to $945,640 as at February 28, 2022 compared to $985,656 as at August 31, 2021. The decrease is due to a reduction in Accounts payable as at February 28, 2022.

Deferred revenue amounted to $204,282 as at February 28, 2022 compared to $161,881 as at August 31, 2022 as a result of more presold SaaS licenses and support contracts.

As at February 28, 2022 the loans from a private company amounted to $0 and $625 as at August 31, 2021 bearing interest at an annual rate of 9% and 12% on a declining balance, which were payable quarterly, as well as principal in 8 equal repayments starting January 1[st] , 2019 until maturity date.

As at February 28, 2022 loan from from directors amounted to $0 compared to $2,293 as at August 31, 2021 which bore an interest at an annual rate of 12% on a declining balance.

As at February 28, 2022 debentures amounted to $120,000 compared to $120,000 as at August 31, 2021 which bore an interest at an annual rate of 10%. For more information please refer to note 11 of the financial statements.

As at February 28, 2022 to account for IFRS 16 current lease and lease liabilities for the company’s head office lease of $74,305 and $108,940 respectively, compared to $98,806 and $146,956 as at August 31, 2021 as explained in note 8 under IFRS 16 in the interim condensed financial statements.

Shareholders’ equity

As at February 28, 2022 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.

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Options and warrants

During the quarter ended February 28, 2022, 0 options had been issued nor expired. As at February 28, 2022 there were 6,250,000 options outstanding with a weighted average exercise price of $0.12 and a weighted remaining contractual life of 16 months. As of the date of this report, there were 6,250,000 options outstanding.

During the quarter ended February 28, 2022 no warrants were issued, had expired or were cancelled. As at February 28, 2022 there were 0 warrants outstanding. As of the date of this report, there were 0 warrants outstanding.

Liquidity and solvency

As at February 28, 2022 the Company had bank overdraft of $26,183 compared to $18,944 as at August 31, 2021

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” and highlight the financial risks that exit for the company. 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 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 April 30, 2022, 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 February 28, 2022, was $67,308 and $67,539 for the three-month period ended February 28, 2021. Key management compensation, paid as professional fees, for the three-month period ended February 28, 2022 was $7,350 and was $8,188 for the three-month period ended February 28, 2021. Key management compensation, paid as stock options, for the three-month period ended February 28, 2022 was $2,373 and was $8.778 for the three-month period ended February 28, 2021.

Key management compensation, paid as salaries, for the six-month period ended February 28,2022 was $125,099 ($125,363 for the six-month period ended February 28,2021). Key management compensation, paid as professional fees, for the six-month period ended February 28,2021 was $11,400 ($10,700 for the six-month period ended February 28, 2021). Key management compensation, paid as stock options, for the six-month period ended February 28, 2022 was $6,363 ($12,755 for the six-month period ended February 28,2021).

§ Related party transactions

• During the three-month period ended February 28, 2022 the Company has incurred interest charges to:

• directors and individuals related to directors totaling $0 ($92 for the three-month period ended February 28, 2021) on loans from directors and shareholders.

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• companies related to directors and a company owned by a director, totaling $0 ($871 for the three-month period ended February 28, 2021) on loans from private companies.

• shareholders and a company owned by a controlling shareholder, totaling $0 ($283 for the three-month period ended February 28, 2021) on a loan from shareholders and a company common control.

During the six-month period ended February 28, 2022 the Company has incurred interest charges to:

• directors and individuals related to directors totaling $0 ($217 for the six-month period ended February 28, 2021) on loans from directors and shareholders.

• companies related to directors and a company owned by a director, totaling $0 ($2,046 for the six-month period ended February 28, 2021) on loans from private companies.

• shareholders and a company owned by a controlling shareholder, totaling $0 ($602 for the sixmonth period ended February 28, 2021) on a loan from shareholders and a company common control.

As at February 28, 2022 accounts payable include an amount of $0 ($1,950 as at February 28, 2021) 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 by a department of the Government of Canada for a period of one year with two optional years for up to 3 years to maintain and enhance a Grants and Contributions platform that went into production earlier this year. Alphinat SmartGrants solution could be leveraged by any department or agency within the Government of Canada to automate the application, evaluation and management of these grants programmes.

The company continues to be engaged with its partners for multiple tender submissions for federal, provincial and municipal markets.

As at February 28, 2022 the company was late in debenture repayment for amounts due of $120,000. The Company has made the full principal payment as at the date of this report.

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.

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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.

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 secure digital solutions for governments and enterprises 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

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applications (i.e. assembly and reuse of existing functionalities) rather than traditional applications development.

The Company’s SmartGuide® solutions 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.

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