Gatekeeper Systems Inc. — Audit Report / Information 2022

Dec 19, 2022

GATEKEEPER SYSTEMS INC.

Consolidated Financial Statements

For the Years Ended August 31, 2022 and 2021

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INDEPENDENT AUDITORS' REPORT

To the Shareholders of Gatekeeper Systems Inc.

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of Gatekeeper Systems Inc. (the "Company" or "Group"), which comprise the consolidated statements of financial position as at August 31, 2022 and August 31, 2021 and the consolidated statements of income and comprehensive income, changes in shareholder's equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Company as at August 31, 2022 and August 31, 2021, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the Consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter – Restated Comparative Information

We draw attention to Note 5 of the consolidated financial statements, which explains that certain comparative information presented for the year ended August 31, 2021 has been restated. Our opinion is not modified in respect of this matter.

Other Matter

The consolidated financial statements of the Company for the year ended August 31, 2021 were audited by another auditor who expressed an unmodified opinion on those consolidated financial statements on December 29, 2021.

Information other than the Consolidated Financial Statements and the Auditor's Report thereon

Management is responsible for the other information. The other information comprises the information, other than the consolidated financial statements and our auditor's report thereon, included in Management's Discussion and Analysis report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis report prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

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

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

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

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

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control;
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern;
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the financial statements.

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

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

The engagement partner on the audit resulting in this independent auditor's report is Junaid Hassam.

Vancouver, British Columbia Buckley Dodds CPA December 16, 2022 Chartered Professional Accountants

GATEKEEPER SYSTEMS INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS AT
(expressed in Canadian dollars)		(Restated – note 5)
	August 31,	August 31,
	2022	2021
ASSETS
Current Assets
Cash (note 6)	$2,604,229	$3,601,034
Trade and other receivables (note 7)	8,629,697	3,107,350
Inventories (note 8)	8,490,594	4,683,515
Prepaid expenses and other current assets	364,402	261,884
	20,088,922	11,653,783
Non-Current Assets
Loan receivable (note 23)	-	200,000
Property, plant and equipment (note 10)	1,179,904	1,237,298
Intangible asset (note 11)	10,618	11,434
Goodwill (note 9)	149,760	144,119
Deferred tax asset (note 19)	1,587,000	1,155,000
Total Assets	$ 23,016,204	$14,401,634
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit (note 12)	$3,536,593	$-
Trade and other payables and accrued liabilities (note 13)	4,807,812	2,198,536
Bonus payable (note 5 and 23)	280,000	280,000
Lease obligations – current (note 14)	189,618	143,500
Unearned revenue	78,061	9,480
	8,892,084	2,631,516
Non-Current Liabilities
Bonus payable – long term (note 5 and 23)	840,000	1,120,000
Lease obligations – long term (note 14)	738,025	670,287
Total Liabilities	10,470,109	4,421,803
Shareholders' Equity
Share capital (note 15)	17,003,700	16,520,226
Other capital reserves (notes 16 and 17)	2,289,321	2,135,711
Accumulated other comprehensive loss	6,208	(47,787)
Deficit	(6,753,134)	(8,628,319)
	12,546,095	9,979,831
Total Liabilities and Shareholders' Equity	$23,016,204	$14,401,634

DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS (note 1) COMMITMENTS AND CONTINGENCIES (note 24)

APPROVED ON BEHALF OF THE BOARD OF DIRECTORS

"Colin Sutherland" (signed)

Director

"Douglas Dyment" (signed) Director

GATEKEEPER SYSTEMS INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED AUGUST 31, 2022 AND AUGUST 31, 2021

(expressed in Canadian dollars)

		(Restated – note 5)
	August 31,2022	August 31,2021
Revenues	$ 20,031,288	$17,231,080
Cost of Sales	10,722,475	9,715,096
Gross Profit	9,308,813	7,515,984
Operating Expenses
General and administrative (note 18a)	3,656,677	4,226,450
Selling and marketing (note 18b)	2,511,243	1,877,666
Research and development (note 18c)	2,076,480	1,818,235
	8,244,400	7,922,351
Operating Income (Loss)	1,064,413	(406,367)
Other Income (Expenses)
Interest	9,631	4,073
Foreign exchange	414,077	(256,042)
Finance costs	(382)	(140)
Write-down of inventory	(44,554)	(24,751)
Net Income (Loss) before income taxes	1,443,185	(683,227)
Deferred income tax (expense) recovery (note 19)	432,000	(316,000)
Net Income (Loss)	1,875,185	(999,227)
Foreign currency translation	53,995	(12,705)
Total Comprehensive Income (Loss)	$1,929,180	$(1,011,932)
Basic earnings (loss) per share	$0.02	$(0.01)
Weighted Average Number of Shares Outstanding	90,883,613	89,804,860
Diluted earnings (loss) per shareWeighted Average Number of Shares Outstanding	$0.0294,989,201	$(0.01)94,881,077

GATEKEEPER SYSTEMS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED AUGUST 31, 2022 AND AUGUST 31, 2021

(expressed in Canadian dollars)
		(Restated – note 5)
	August 31,2022	August 31,2021
Cash Flows from Operating Activities
Net income (loss)	$ 1,875,185	$ (999,227)
Items not affecting cash from operations:
Interest on lease liability	47,153	46,026
Depreciation	365,110	358,564
Special Bonus	-	1,120,000
Amortization – intangible assets	817	817
Write-down of inventory	-	24,751
Bad debt (recovery) expense	-	(21,391)
Share-based payments	265,134	12,395
Deferred tax expense (recovery)	(432,000)	316,000
Unrealized foreign exchange loss (gain)	(437,625)	228,749
Changes in non-cash working capital balances related to operations:
Trade and other receivables	(9,009,791)	(1,011,477)
Inventories	(3,542,845)	(1,428,996)
Prepaid expenses and other current assets	(97,632)	(102,919)
Trade and other payables and accrued liabilities	6,293,030	5,297,733
Income tax receivable	6,892	11,984
Bonus payable	-	280,000
Unearned revenue	69,784	8,844
Net cash provided by (used in) operating activities	(4,596,788)	4,141,853
Cash Flows used in Investing Activities
Purchase of property, plant and equipment	(30,222)	(94,305)
Intangible assets	-	(12,251)
Net cash provided by (used in) investing activities	(30,222)	(106,556)
Cash Flows used in Financing Activities
Draws (repayment) on line of credit	3,536,593	(1,411,969)
Exercise of stock options	371,950	141,495
Loan receivable	200,000	-
Lease payments	(204,372)	(181,200)
Bonus payable	(280,000)	-
Net cash provided by (used in) financing activities	3,624,171	(1,451,674)
Foreign Exchange Gain (Loss) on Cash and Cash Equivalents held in USD	6,034	(11,913)
Increase (Decrease) in Cash and Cash Equivalents	(996,805)	2,571,710
Cash and Cash Equivalents – Beginning of year	3,601,034	1,029,324
Cash and Cash Equivalents – End of year	$ 2,604,229	$ 3,601,034

Supplemental Cash Flow Information (note 25)

GATEKEEPER SYSTEMS INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED AUGUST 31, 2022 AND 2021

(expressed in Canadian dollars, except per share and share amounts)

					(Restated – note 5)
		Common Shares
	Shares	Amount	Reserves	Accumulated OtherComprehensive Income	Deficit	Total
Balance –August 31, 2020	89,375,145	$ 16,286,919	$ 2,215,128	$(35,082)	$ (7,629,092)	$ 10,837,873
Exercise of optionsShare-based payments (note 17)Foreign currency translationNet income(loss)	928,750---	233,307---	(91,812)12,395--	--(12,705)-	---(999,227)	141,49512,395(12,705)(999,227)
Balance –August31, 2021	90,303,895	$ 16,520,226	$ 2,135,711	$(47,787)	$ (8,628,319)	$9,979,831
Balance –August 31, 2021	90,303,895	$ 16,520,226	$ 2,135,711	$(47,787)	$ (8,628,319)	$9,979,831
Exercise of optionsShare-based payments (note 17)Foreign currency translationNet income(loss)	1,095,500---	483,474---	(111,524)265,134--	--53,995-	---1,875,185	371,950265,13453,9951,875,185
Balance –August31, 2022	91,399,395	$ 17,003,700	$ 2,289,321	$6,208	$ (6,753,134)	$12,546,095

1. Description of Business and Nature of Operations

Gatekeeper Systems Inc. (the "Company" or "Gatekeeper") was incorporated pursuant to the provisions of the Business Corporations Act (British Columbia) on August 26, 2010 and completed its initial public offering as a Capital Pool Company on January 7, 2011. The Company specializes in design, manufacturing and marketing of video security solutions for mobile and extreme environments.

The head office and principal address is located at Suite 301, 31127 Wheel Avenue, Abbotsford, British Columbia, V2T 6H1. The Company's registered and records office is located at 10th floor, 595 Howe Street Vancouver, British Columbia, V6C 2T5.

On March 1, 2018, the Company formed a wholly-owned subsidiary called Gatekeeper Systems USA Inc. (the "US Subsidiary") pursuant to the General Corporation Law of the State of Delaware on March 1, 2018 with a principal address located at 221 Valley Road, Wilmington, Delaware 19804. The Subsidiary's registered and records office in the State of Delaware is 9E Lockerman Street, Suite 311, Dover, Delaware 19901, County of Kent.

2. Basis of Preparation and Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), effective for the Company's reporting for the year ended August 31, 2022. These consolidated financial statements were approved by the Board of Directors on 16, 2022.

The Company's consolidated financial statements have been prepared under the historical cost method, except for certain financial instruments which are measured at fair value and are presented in Canadian dollars except where otherwise indicated.

These consolidated financial statements incorporate the financial statements of the Company and its controlled, whollyowned subsidiary. Intercompany balances, transactions, income and expenses are eliminated on consolidation.

3. Summary of Significant Accounting Policies

The significant accounting policies used in the preparation of these consolidated financial statements are summarized below.

(a) Basis of Consolidation

The Company's consolidated financial statements include the accounts of the Company and its US Subsidiary, Gatekeeper Systems USA Inc. Subsidiaries are entities (including special purpose entities) controlled by the Company, where control is achieved by the Company having the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is obtained, and are deconsolidated from the date that control ceases.

All intercompany transactions, balances, income and expenses are eliminated on consolidation.

(b) Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash comprise of cash at banks and short-term money market instruments which are readily convertible into a known amount of cash.

(c) Goodwill

Goodwill is assessed for impairment on an annual basis and between annual tests whenever circumstances indicate that the carrying value of the goodwill and intangible assets might be impaired. Circumstances may include an adverse change in business climate or a more likely than not expectation that a cash-generating unit will be sold or disposed of. On at least a quarterly basis, an assessment is made as to whether such circumstances exist. An evaluation of recoverability of goodwill requires judgment, including the identification of cash-generating units, assigning assets and liabilities to cashgenerating units, assigning goodwill to cash-generating units, and determining the estimated recoverable amount of each cash generating unit. Significant judgments that are required to estimate the recoverable amount of cash-generating units include estimating future cash flows, determining appropriate discount rates, consideration of appropriate control premium, market conditions, and other assumptions. Changes in these estimates and assumptions could materially affect the determination of recoverable amount for each cash-generating unit and may result in impairment charges in future periods.

3. Summary of Significant Accounting Policies (continued)

(d) Inventories

Inventories are stated at lower of production cost and net realizable value. Cost for all inventory is determined using the weighted average method which, for work in process and finished goods, includes the cost of material, direct labour and applicable manufacturing overhead. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

Materials and supplies inventory consists of consumable parts and supplies which are valued at lower of weighted average cost and net realizable value. Supplies used in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. Net realizable value is defined as the selling price of the finished product less any provisions for obsolescence and costs of completion.

(e) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of property, plant and equipment consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Depreciation of property, plant and equipment is calculated using the following methods:

Asset	Method	Basis	Useful Life
Automotive	Straight-line	3.3 years	3.3 years
Computer equipment	Straight-line	5 years	5 years
Computer software	Straight-line	1 year	1 year
Furniture and fixtures	Straight-line	5 years	5 years
Office equipment	Straight-line	5 years	5 years
Technical equipment	Straight-line	5 years	5 years
Research and development equipment	Straight-line	5 years	5 years
Leasehold improvements	Straight-line	5 years	5 years
Office lease	Straight-line	Lease Term	90 months
Copier lease	Straight-line	Lease Term	60 months
Leasehold improvements (US Subsidiary)	Straight-line	5 years	5 years
Forklift lease (US Subsidiary)	Straight-line	Lease Term	36 months
Automobile lease (US Subsidiary)	Straight-line	Lease Term	48 months
Office lease (US Subsidiary)	Straight-line	Lease Term	90 months

Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with the carrying amount and are recognized within other income or expense.

3. Summary of Significant Accounting Policies (continued)

(f) Leases

At inception of a contract, the Company assesses whether a contract is, or contains, a lease by determining whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. A right of use asset and lease liability is recognized at the lease commencement date. The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right of use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, including periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option.

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

(g) Provisions

Provisions are recorded when a present legal or constructive obligation exists as a result of past events, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

The expense relating to any provision is presented in profit or loss net of any reimbursement. Provisions are discounted using a current pre-tax rate that reflects where appropriate the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

(h) Revenue Recognition

The Company recognizes revenue when it has persuasive evidence of a contract with commercial substance, performance obligations have been identified and satisfied, payment items have been identified, and it is probable that the Company will collect the consideration it is entitled to. The Company's contracts often include products or services, which are generally capable of being distinct and accounted for as separate performance obligations.

Revenue Recognition on Product

The transaction prices of products are determined based upon selling prices established and periodically reviewed by the Company. The date the product is shipped is the date when the performance obligations in the contract are fulfilled and the revenue is recognized at that point in time.

Revenue Recognition on Installation and Service

Installation and service revenue is recognized at the point in time when installation and services are completed and the performance obligations in the contract are fulfilled.

Amounts billed in accordance with customer contracts, but not yet earned, are recorded and presented as part of unearned revenue.

3. Summary of Significant Accounting Policies (continued)

(i) Research and Development Costs

The Company engages in research and development activities. Research costs are expensed as incurred. Product development costs are expensed in the year incurred unless the costs meet the criteria for deferral and amortization. These criteria are met when the Company has established:

• The technical feasibility of completing the intangible asset so that it will be available for use or sale;
• The intention to complete the intangible asset and use or sell it;
• The ability to use or sell the intangible asset;
• How the intangible asset will generate probable future economic benefits;
• The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
• The ability to reliably measure the expenditures attributable to the intangible asset during its development.

The Company is eligible for tax credits from the Scientific Research & Experimental Development ("SR&ED") program. When management determines that it is more likely than not that the Company has complied with all the terms and conditions related to the SR&ED program, the relevant tax credit is recorded in the period as a reduction to the related expenses or capital costs.

(j) Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control, related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

(k) Share-Based Payments

The Company grants stock options to buy common shares of the Company to directors, officers, employees and service providers. The Company recognizes share-based compensation expense based on the estimated fair value of the options. A fair value measurement is made for each vesting instalment within each option grant and is determined using the Black-Scholes Option-Pricing Model. The fair value of the options is recognized over the vesting period of the options granted as both share-based compensation expense and reserves. This includes a forfeiture estimate, which is revised for actual forfeitures in subsequent periods. The reserves account is subsequently reduced if the options are exercised and the amount initially recorded is then credited to capital stock.

In situations where equity instruments are issued to non-employees and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at the fair value of the share-based payment. Otherwise, share-based payments are measured at the fair value of the goods or services received.

(l) Warrants

When the Company issues united that are comprised of a combination of shares and warrants, the value is assigned to shares and warrants using the proportional method based on their relative fair values. The fair value of the shares is determined by the closing price on the date of the transaction and the fair value of the warrants is determined based on a Black-Scholes Option Pricing Model.

3. Summary of Significant Accounting Policies (continued)

(m) Current and Deferred Taxes

Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in income or loss except to the extent that they relate to a business combination or to items recognized directly in equity or in other comprehensive income.

Current taxes are the expected taxes payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous periods.

Deferred taxes are recognized based on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. However, deferred taxes are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable income nor loss. Deferred taxes are determined using tax rates and laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.

Deferred tax assets and liabilities are presented as non-current in the consolidated financial statements.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the assets can be utilized.

The Company records provisions for uncertain tax provisions if it is probable that the Company will make a payment on tax positions as a result of examinations by the tax authorities. These provisions are measured at the Company's best estimate of the amount expected to be paid. Provisions are reversed to income in the period in which management assesses that they are no longer required or determined by statute.

1. Summary of Significant Accounting Policies (continued)

(n) Foreign Currencies

The functional currency of each of the Company's entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Canadian dollars which is the parent Company's functional currency. The functional currency of the Company's US Subsidiary, is the United States dollar.

Transactions and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in profit or loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income in the statement of comprehensive income to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in income or loss, the exchange component is also recognized in income or loss.

The financial position and results of foreign operations whose functional currency is different from the Company's presentation currency are translated as follows:

• assets and liabilities are translated at period-end exchange rates prevailing at the report date; and
• income and expenses are translated at average exchange rates for the period.

Exchange differences arising on translation of foreign operations are recorded in accumulated other comprehensive income in the statement of income and comprehensive income. These differences are recognized in profit or loss in the period in which the operation is disposed.

(o) Earnings or Loss Per Share

Basic earnings (loss) per share is calculated by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is calculated using the treasury share method whereby all "in the money" options, warrants and equivalents are assumed to have been exercised at the beginning of the period and the proceeds from the exercise are assumed to have been used to purchase common shares at the average market price during the period.

1. Summary of Significant Accounting Policies (continued)

(p) Financial Instruments

Financial assets and financial liabilities are recognized on the statements of financial position when the Company becomes a party to the contractual provisions of the financial instrument.

The following is the Company's accounting policy for financial instruments under IFRS 9:

Classification

The Company classifies its financial instruments in the following categories: at fair value through profit and loss ("FVTPL"), at fair value through other comprehensive income (loss) ("FVTOCI") or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company's business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.

Measurement

Financial assets and liabilities at amortized cost

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

Financial assets and liabilities at FVTPL

Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the consolidated statements of income and comprehensive income. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the consolidated statements of loss and comprehensive loss in the period in which they arise.

Debt investments at FVOCI

These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Equity investments at FVOCI

These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

Offsetting financial assets and liabilities

Financial assets and liabilities are offset and the net amount is presented in the statement of financial position only when the Company has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Impairment of financial assets at amortized cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize in the consolidated statements of income and comprehensive income, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

3. Summary of Significant Accounting Policies (continued)

(p) Financial Instruments (continued)

Derecognition

Financial assets

The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity.

Financial liabilities

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, or expired. The Company also derecognizes a financial liability when the terms of the liability are modified such that the terms and/or cash flows of the modified instrument are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

Gains and losses on derecognition are generally recognized in profit or loss.

The Company's financial assets and liabilities are recorded and measured as follows:

Category
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost

(q) Accounting standards and amendments adopted

Other accounting standards and amendments to existing accounting standards that have been issued and have future effective dates are not applicable or are not expected to have a significant impact on the Company's consolidated financial statements.

4. Significant Accounting Judgments and Estimates

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

Areas requiring a significant degree of estimation and judgment are as outlined below. Actual results may differ from those estimates and judgments.

4. Significant Accounting Judgments and Estimates (continued)

Significant Estimates

(a) Allowances for Doubtful Accounts

The Company must make an assessment of whether trade receivables are collectible from customers. Accordingly, management establishes an allowance for estimated losses arising from non-payment, taking into consideration customer credit, current economic trends and past experience. If future collections differ from estimates, future earnings would be affected.

(b) Inventory Valuation

The Company adjusts inventory values so that the carrying values do not exceed the net realizable value. The valuation of inventory at the lower of cost or net realizable value requires the use of estimates with regards to the amount of current inventory that will be sold, the prices at which it will be sold, the amount of associated inventory costs, and an estimate of expected orders from customers. Additionally, the estimates reflect changes in products or changes in demand because of various factors, including the market for products, obsolescence, change in product offerings, technology changes and competition.

(c) Impairment of Financial Assets

At each reporting date the Company assesses financial assets not carried at fair value through profit or loss to determine whether there is objective evidence of impairment. A financial asset is impaired if objective evidence indicates that one or more events occurred during the period that negatively affected the estimated future cash flows of the financial asset.

Objective evidence that financial assets are impaired can include significant financial difficulty of the issuer or debtor, default or the disappearance of an active market for a security. If the Company determines that a financial asset is impaired, judgment is required in assessing the available information in regard to the amount of impairment; however the final outcome may be materially different than the amount recorded as a financial asset.

(d) Warranty Provision

The Company estimates a provision for future warranty claims based on historical claims as well as recent trends at each reporting date. A provision is made for estimated warranty claims in respect of products sold which are still under warranty at the end of the reporting period. These claims are expected to be settled in the next financial year.

(e) Useful Lives of Property, Plant and Equipment and Finite-Life Intangible Assets

The Company reviews estimates of the useful lives of property, plant and equipment and finite-life intangible assets on an annual basis and adjusts depreciation or amortization on a prospective basis, if needed. Changes in technology or the intended use of assets, as well as changes in business prospects or economic and industry factors, may cause the estimated useful lives of these assets to change. The estimated useful lives of property, plant and equipment and finite-life intangible assets are determined by internal asset life analysis, which takes into account actual and expected future usage, physical wear and tear, replacement history and assumptions about technology evolution. When factors indicate that assets' useful lives are different from the prior assessment, the Company depreciates or amortizes the remaining carrying value prospectively over the adjusted estimated useful lives.

1. Significant Accounting Judgments and Estimates (continued)

Significant Estimates (continued)

(f) Leases

The Company estimates the lease term by considering the facts and circumstances that can create an economic incentive to exercise an extension option, or not exercise a termination option by assessing relevant factors such as profitability and operations. Extension option (or options after termination options) are only included in the lease term if the lease is reasonably certain to be included (or not terminated). The assessment of the lease term is reviewed if a significant event or significant change in circumstance occurs, which affects this assessment and that is within the control of the lessee. The Company estimates the incremental borrowing rate used to measure its lease liability for each lease contract. This includes estimation in determining the assetspecific security impact.

(g) Share-Based Payments

Management assesses the fair value of stock options granted in accordance with the accounting policy stated in note 3 of the August 31, 2022 audited consolidated financial statements. The fair value of stock options is measured using the Black-Scholes Option Valuation Model. The fair value of stock options granted using valuation models is only an estimate of their potential value and requires the use of estimates and assumptions.

The Company has adopted a relative fair value method with respect to the measurement of shares and warrants issued as private placement units. Under the relative fair value method, the value of the private placement units are proportionally allocated between the shares and warrants issued based on their relative fair value. Judgement is required in determining the fair value of the shares, determined based on the closing price on the date of the transaction, and the fair value of the warrants, determined based on a Black-Scholes Option Pricing Model.

(h) Current and Deferred Taxes

Current and deferred tax provisions and obligations are calculated for each of the jurisdictions in which the Company operates. Actual amounts of income tax expense and obligations are not final until tax returns are filed and assessed by the relevant taxation authorities. This occurs subsequent to the issuance of the financial statements, and the final determination of actual amounts may not be completed for a number of years. Therefore, financial results in subsequent periods will be affected by the amount that estimates differ from the final tax return.

Significant Judgments

(a) Current and Deferred Taxes

Judgement is required in determining whether deferred tax assets are recognized on the statement of financial position and what tax rate is expected to be applied in the year when the related temporary differences revers, particularly in regard to the utilization of tax loss carry-forwards. Deferred tax assets, including those arising from unutilized tax losses require management to assess the likelihood that the Company will generate taxable earnings in future periods, in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that the cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the statement of financial position date, if any, could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Company and its US Subsidiary operate could limit the ability of the Company to obtain tax deductions in future periods.

4. Significant Accounting Judgments and Estimates (continued)

Significant Judgments (continued)

(b) Determination of Functional Currency

The functional currency of each of the Company's subsidiaries is the currency of the primary economic environment in which the entity operates. Determination of functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.

(c) Going Concern

Management is required to determine whether or not the going concern assumption is appropriate for the Company at the end of each reporting period. Considerations taken into account include available information about the future including the availability of financing and revenue projection, as well as current working capital balance and future commitments of the Company.

(d) Recovery of Goodwill

The Company evaluates the carrying values of the CGU's goodwill on an annual basis in the fourth quarter of each year to determine whether or not impairment of these assets has occurred and whether write-downs of the value of these assets are required. Similarly, the Company evaluates the carrying value of CGUs with longlived assets whenever circumstances arise that could indicate impairment or reversal of impairment, and at each reporting date. These impairment tests require the determination of recoverable amounts which include certain assumptions regarding discount rates and future cash flows generated by these assets in determining the valuein-use or fair value less costs of disposal calculations. Actual results could differ from these assumptions and estimates.

Goodwill is allocated to CGUs for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose, but are not allocated above the operating segment level at which management monitors the recovery of goodwill.

5. Restatement of prior year balance

During the year ended August 31, 2021, the recording of a liability and expense related to a material bonus was disclosed in the notes to the financial statements but not accrued for in the Company's financial statements. As a result, the Company was required to restate the following components of its August 31, 2021 audited financial statements for adjustments related to the special bonus expense.

	As previouslyreported	Effect ofcorrection ofprior period	As restated
Consolidated statement of financial position	$	$	$
Bonus payable – long term	-	(1,120,000)	(1,120,000)
Total liabilities	(3,301,803)	(1,120,000)	(4,421,803)
Deficit	(7,508,319)	(1,120,000)	(8,628,319)

5. Restatement of prior year balance (continued)

	As previouslyreported	Effect ofcorrection ofprior period	As restated
Consolidated statement of loss and	$	$	$
comprehensive loss
General and administrative expenses	3,106,450	1,120,000	4,266,450
Net Income (Loss) before income taxes	436,773	(1,120,000)	(683,227)
Net Income (Loss)	120,773	(1,120,000)	(999,227)
Basic earnings (loss) per common share	0.00	(0.01)	(0.01)
Diluted earnings (loss) per share	0.00	(0.01)	(0.01)

	As previouslyreported	Effect ofcorrection ofprior period	As restated
Consolidated statement of cash flows	$	$	$
Net income (loss)	120,773	(1,120,000)	(999,227)
Items not affecting cash from operations: special	-	1,120,000	1,120,000
bonus

	As previouslyreported	Effect ofcorrection ofprior period	As restated
Consolidated statement of shareholders' equity	$	$	$
Net income (loss)	120,773	(1,120,000)	(999,227)

6. Cash and Cash Equivalents

	August 31,2022	August 31,2021
Cash	$ 2,604,229	$3,601,034

7. Trade and Other Receivables

	August 31,2022	August 31,2021
Trade receivablesIncome tax receivable	$ 8,629,697-	$ 3,097,1566,836
Other receivable	-	3,358
	$ 8,629,697	$ 3,107,350

The Company has a general security agreement securing its line of credit, representing a first charge on all its present and future personal property. As at August 31, 2022, there was $8,629,697 in trade receivables secured under the line (Note 12).

8. Inventories

	August 31,2022	August 31,2021
Raw materials	$854,610	$ 186,425
Finished goods	7,635,984	4,497,090
	$ 8,490,594	$ 4,683,515

For the year ended August 31, 2022, the cost of inventories recognized as an expense and included in cost of sales was $7,390,730 (August 31, 2021 - $5,966,813).

For the year ended August 31, 2022 a write-down of inventories of $44,554 (August 31, 2021 - $24,751) which was included in other income (expense) in the consolidated statements of income and comprehensive income.

As at August 31, 2022 there was $3,536,593 owing under the line of credit (August 31, 2021 - $Nil), and there were $8,490,594 inventories secured under the line (Note 12).

9. Goodwill

Effective April 1, 2018 the Company's US Subsidiary purchased certain operating assets and service contracts from Wilmington, Delaware-based Spector Logistics, Inc. for a total purchase price of US$300,000.

A goodwill of $149,760 (US$114,225) arising from the purchase was attributable to the marketing, sale and servicing of mobile video safety and security solutions in the United States. Goodwill, which is deductible for income tax purposes, is the excess of the cost of an acquired enterprise over the net amount assigned to individual assets acquired and liabilities assumed in a business combination. Goodwill is not amortized and is tested for impairment annually by comparing the fair value of the operating cash flows to the carrying value of the reporting unit.

As at August 31, 2022 the value of goodwill was $149,760 (August 31, 2021 - $144,119) and there was no impairment recorded for the years then ended.

GATEKEEPER SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED AUGUST 31, 2022 AND AUGUST 31, 2021

(expressed in Canadian dollars except where noted)

10. Property, Plant and Equipment

The changes in the Company's property, plant and equipment are as follows:

Cost	Automotive	ComputerEquipment andSoftware	Furniture andFixtures	Right of UseAsset – CopierLease	TechnicalEquipment	Research andDevelopmentEquipment	LeaseholdImprovements	Right of Use Asset– AutomobileLeases	Right of UseAsset – OfficeLeases	Right of UseAsset – ForkliftLease	Total
August 31, 2020	$88,099	$596,549	$62,694	$3,964	$191,296	$60,525	$328,394	$118,338	$987,278	-	$2,437,137
Additions	-	68,205	1,358	11,945	17,812	-	6,750	-	-	-	106,070
Disposal	-	-	-	-	-	-	-	-	-	-	-
Foreign currency difference	(2,851)	(6,898)	(467)	-	(673)	-	(4,809)	(3,830)	(12,522)	-	(32,050)
August 31, 2021	$85,248	$657,856	$63,585	$15,909	$208,435	$60,525	$330,335	$114,508	$974,756	-	$2,511,157
Additions	-	22,990	-	-	7,217	-	-	-	249,343	16,984	296,534
Disposal	-	-	-	-	-	-	-	-	-	-	-
Foreign currency difference	3,336	9,144	547	-	1,152	-	5,894	4.484	14,659	539	39,755
August 31, 2022	$88,584	$689,990	$64,132	$15,909	$216,804	$60,525	$336,229	$118,992	$ 1,238,758	17,523	$2,847,446

Depreciation	Automotive	ComputerEquipment andSoftware	Furniture andFixtures	Right of UseAsset – CopierLease	TechnicalEquipment	Research andDevelopmentEquipment	LeaseholdImprovements	Right of Use Asset– AutomobileLeases	Right of UseAsset – OfficeLeases	Right of UseAsset – ForkliftLease	Total
August 31, 2020	$72,502	$244,788	$42,006	$3,964	$132,596	$55,632	$212,369	$38,178	$130,516	-	$932,551
Depreciation	14,732	117,803	8,246	2,389	29,848	1,087	31,748	23,554	129,157	-	358,564
Disposal	-	-	-	-	-	-	-	-	-	-	-
Foreign currency difference	(2,429)	(8,272)	(249)	-	(221)	-	(2,811)	(1,367)	(1,907)	-	(17,256)
August 31, 2021	$84,805	$354,319	$50,003	$6,353	$162,223	$56,719	$241,306	$60,365	$257,766	-	$1,273,859
Depreciation	445	115,812	7,721	2,389	23,861	1,087	32,121	23,614	154,215	4,455	365,720
Foreign currency difference	3,334	11,435	467	-	(1,466)	1	4,381	3,089	5,336	1,386	27,963
August 31, 2022	$88,584	$481,566	$58,191	$8,742	$184,618	$ 57,807	$277,808	$87,068	$417,317	$5,841	$1,667,542
Net Book Value	Automotive	ComputerEquipment	Furniture andFixtures	Leased OfficeEquipment	TechnicalEquipment	Research andDevelopmentEquipment	LeaseholdImprovements	ROU Asset -Leased Automobile	ROU Asset –Office Leases	Right of UseAsset - Forklift	Total
August 31, 2021	$443	$303,537	$13,582	$9,556	$46,212	$3,806	$89,029	$54,143	$716,990	-	$1,237,298
August 31, 2022	$-	$208,424	$5,941	$7,167	$32,186	$2,718	$58,421	$31,924	$821,441	$11,682	$1,179,904

11. Intangible Asset

On November 16, 2020, the Company acquired an intangible asset for $12,251. The intangible asset is being recognised on a straight-line basis over the useful life of 15 years of the asset and $817 in amortization was recognized for the year ended August 31, 2022 and 2021.

12. Line of Credit

On July 23, 2020, the Company entered into a $3,000,000 revolving line of credit (the "Credit Facility"), which was increased to $6,000,000 on April 29, 2022. The Credit Facility bears interest at a rate of prime plus 0.85% per annum and United States base rate (USBR) loans at a rate of prime plus 0.75%. The Credit Facility is intended to be used for general working capital purposes. The Credit Facility is secured by a general security agreement (GSA) for Gatekeeper Systems Inc., representing a first charge on the Company's present and after acquired personal property, and a uniform commercial code security agreement ("UCC") for Gatekeeper Systems USA Inc., among other customary guarantees, and is repayable upon demand. The initial drawdown under the Credit Facility is subject to satisfaction or waiver of certain conditions precedent customary for a financing of this type.

As at August 31, 2022, there was $3,536,593 owing under the Credit Facility (August 31, 2021 - $Nil).

13. Trade and Other Payables and Accrued Liabilities

	August 31,2022	August 31,2021
Trade payablesSalaries and benefits payableProvincial Sales Tax payable and State Sales Tax PayableAccrued and other liabilitiesAccrued warranty liabilities	$4,160,809288,07045285,57773,311	$1,537,778394,8152,295185,86377,785
	$4,807,812	$2,198,536

Included in trade and other payables and accrued liabilities are amounts of $217,380 (August 31, 2021 - $91,722) due to related parties (note 23).

The Company provides a one year, three year, five year, ten year, or lifetime warranty, depending on the product, to repair or replace defective components with respect to its product sales. The warranty provision in the consolidated statements of income and comprehensive income includes management's best estimate of the total costs of all raw materials, labour and travel expenses required to repair issues related to all products that were sold and shipped prior to period end.

14. Leases

The Company enters into lease arrangements for certain premises and equipment. The following table provides a continuity of the lease obligations for the Company for the years ended August 31, 2022 and 2021:

	AutomobileLeases	OfficeLeases	CopierLease	ForkliftLease	Total
	$	$	$	$	$
Balance, August 31, 2020	72,470	877,762	-	-	950,232
Additions	-	-	11,945	-	11,945
Disposals	-	-	-	-	-
Interest	3,994	43,199	627	-	47,820
Lease payments	(24,377)	(154,072)	(2,752)	-	(181,201)
FX Adjustment	(2,232)	(12,777)	-	-	(15,009)
Balance, August 31, 2021	49,855	754,112	9,820	-	813,787
Modification/reassessment	-	249,342	-	-	249,342
Additions	-	-	-	16,984	16,984
Interest	2,680	43,669	503	301	47,153
Lease payments	(24,438)	(173,231)	(2,752)	(3,951)	(204,372)
FX Adjustment	(2,662)	6,984	-	427	15,707
Balance, August 31, 2022	25,435	880,876	7,571	13,761	927,643
Less: Current portion	(25,435)	(156,019)	(2,381)	(5,783)	(189,618)
Lease obligations – long term	-	(724,857)	(5,190)	(7,978)	(738,025)

See Note 10 – Property, Plant and Equipment of these financial statements for the Right of Use Assets of these leases.

The following table discloses the undiscounted cash flow for lease obligations as of August 31, 2022 and 2021:

	AutomobileLeases	OfficeLeases	CopierLease	ForkliftLease	Total
Less than one year	$ 10,496	$ 199,606	$ 2,752	$ 4,659	$ 217,513
One to five years	-	803,712	5,504	6,600	815,816
	$ 10,496	$ 1,003,318	$ 8,256	$ 11,259	$ 1,033,329

15. Share Capital

(a) Authorized Share Capital

The Company has authorized an unlimited number of common shares with no par value, unlimited Class A preferred shares with no par value, unlimited Class B preferred shares with par value of $0.01 and unlimited Class C preferred shares with no par value.

At August 31, 2022, the Company had 91,399,395 common shares outstanding (August 31, 2021 – 90,303,895), Nil Class A preferred shares outstanding (August 31, 2021 – Nil), Nil Class B preferred shares outstanding (August 31, 2021 – Nil) and, Nil Class C preferred shares outstanding (August 31, 2021– Nil).

The Class A preferred shares are convertible to common shares, at the option of the holder, at a fixed conversion rate of one to one. The Class B preferred shares are redeemable at the option of the Company on 21 days' notice for an amount of $1,000 per share.

15. Share Capital (continued)

The Class C preferred shares may include one or more series of shares. The board of directors may, by resolution, if none of the shares of any particular series are issued, alter the Articles of the Company and authorize the alteration of the Notice of Articles of the Company to do one or more of the following:

• Determine the maximum number of shares of that series that the Company is authorized to issue, determine that there is no such maximum number, or alter any such determination;
• Create an identifying name by which the shares of that series may be identified, or alter any such identifying name; and
• Attach special rights and restrictions to the shares of that series, or alter any such special rights or restrictions.

(b) Issued Share Capital

During the year ended August 31, 2022, 1,095,500 options were exercised between $0.11 and $0.40 per share for gross proceeds of $371,950. The options exercised had a fair value of $111,523, which has been reclassified from Reserves to Share Capital.

During the year ended August 31, 2021, 928,750 options were exercised between $0.11 and $0.25 per share for gross proceeds of $141,495. The options exercised had a fair value of $91,812, which has been reclassified from Reserves to Share Capital.

16. Warrants

There were no warrants issued and outstanding as at August 31, 2022 and 2021.

17. Share-Based Payments

The Company adopted a stock option plan (the "Plan") whereby it can grant stock options to directors, officers, employees, and consultants of the Company. The maximum number of shares that may be reserved for issuance under the Plan is limited to 10% of the issued common shares of the Company at any time. The maximum term of these options will be ten years and they typically vest over no more than four years.

The changes in stock options during the years ended August 31, 2022 and 2021 were as follows:

	Weightedaverageexerciseprice	Number ofOptions
Balance – August 31, 2020	$0.17	7,643,250
Options cancelled	$0.23	(23,750)
Options granted	$0.87	850,000
Options exercised	$0.15	(928,750)
Balance – August 31, 2021	$0.25	7,540,750
Options cancelled	$0.87	(760,000)
Options granted	$0.39	2,325,000
Options exercised	$0.34	(1,095,500)
Balance – August 31, 2022	$0.23	8,010,250

17. Share-Based Payments (continued)

During the year ended August 31, 2022, the Company recorded total share-based payments of $265,134 (2021 – $12,395) which has been charged to general and administrative expense for the year.

The weighted average fair value of the options granted during the year ended August 31, 2022 was estimated at $0.17 per option as at the grant date using the Black-Scholes Option Pricing Model. The weighted average assumptions used for the calculation were:

	August 31,2022	August 30,2021
Risk free interest rateExpected life	1.57%5	--
Expected volatility	76.9%	-
Expected dividend per share	-	-

Incentive share options outstanding and exercisable at August 31, 2022 are summarized as follows:

		Options Outstanding		Options Exercisable
Exercise Price	Number ofsharesissuable onexercise	Weightedaverageremaininglife(Years)	Weightedaverageexerciseprice	Number ofsharesissuable onexercise	Weightedaverageremaininglife(Years)	Weightedaverageexerciseprice
$0.105	200,000	6.21	$0.105	200,000	6.21	$0.105
$0.11$0.12	300,0001,150,000	1.845.25	$0.11$0.12	300,0001,150,000	1.845.25	$0.11$0.12
$0.12	200,000	0.76	$0.12	200,000	0.76	$0.12
$0.12	980,000	1.92	$0.12	980,000	1.92	$0.12
$0.13	500,000	3.67	$0.13	500,000	3.67	$0.13
$0.16	75,000	2.55	$0.16	75,000	2.55	$0.16
$0.195	718,750	3.91	$0.195	718,750	3.91	$0.195
$0.25	1,440,000	0.59	$0.25	1,440,000	0.59	$0.25
$0.25	25,000	0.76	$0.25	25,000	0.76	$0.25
$0.30	277,000	1.03	$0.30	277,000	1.03	$0.30
$0.135	500,000	2.60	$0.135	250,000	2.60	$0.135
$0.87	90,000	3.62	$0.87	-	-	-
$0.385	1,100,000	4.43	$0.385	400,000	4.43	$0.385
$0.40	354,500	1.48	$0.40	204,500	1.48	$0.40
$0.40	100,000	4.75	$0.40	-	-	-
	8,010,250	2.91	$0.23	6,720,250	2.76	$0.19

18. Operating Expenses

(a) General and Administrative Expenses by Nature

The Company recorded general and administrative expenses for the following periods:

	August 31,2022	(Restated – note 5)August 31,2021
General & administrative expenses
Accounting and legal	$94,439	$ 130,461
Bad debt	10,680	(21,181)
Depreciation (note 11)	365,720	359,381
Interest charges on loans	219,848	137,343
Investor relations	374,751	119,956
Office	823,978	2,044,220
Regulatory	29,029	28,684
Rent	84,948	65,608
Salaries and benefits (note 5 and 23)	1,388,150	1,349,583
Share-based payments (notes 17 and 23)	265,134	12,395
	$ 3,656,677	$ 4,226,450

(b) Selling and Marketing Expenses by Nature

	August 31,2022	August 31,2021
Selling and marketing expensesAdvertising and promotionSalaries and benefits (note 23)	$369,6242,141,619	$180,2981,697,368
	$ 2,511,243	$1,877,666

(c) Research and Development Expenses by Nature

	August 31,2022	August 31,2021
Research & development expensesResearch and developmentmaterialsResearch and development salaries	$ 1,444,813	$1,353,036
and benefits (note 23)	631,667	465,199
	$ 2,076,480	$1,818,235

19. Income Tax

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

	August 31,2022	(Restated – note 5)August 31,2021
Earnings (loss) for the period before income taxes	$1,443,185	$(683,227)
Combined income tax rates	28%	28%
(Decrease) increase attributable to:
Expected income tax expense (recovery)	$404,000	(180,000)
Change in statutory, foreign tax, foreign exchange rates and other	(433,000)	454,000
Permanent difference	138,000	39,000
Adjustment to prior years provision versus statutory tax return	(541,000)	-
	$(432,000)	$313,000
Deferred income tax expense (recovery)	$(432,000)	$313,000
Provision for (recovery of) income taxes	$-	$-

The significant components of the Company's deferred tax assets and liabilities are as follows:

	August 31,2022	August 31,2021
Property, plant and equipmentIntangible assetsWarranty liabilityNon-capital lossesROU assetLease liability	$107,000(13,000)26,0001,452,000(199,000)214,000	$226,000(9,000)25,000904,000(217,000)226,000
Net deferred tax asset	$1,587,000	$1,155,000

During the year ended August 31, 2022 and August 31, 2021, the Company has recognized the deferred tax assets on these financial assets as it is probable that they will be realized given the increasing profitability of the Company.

The significant components of the Company's temporary differences and unused tax losses are as follows:

	August 31,2022	Expiry Date Range	August 31,2021
Property, plant and equipment	388,000	No expiry	835,000
ROU assets	(719,000)	No expiry	(781,000)
Intangible assets	(44,000)	No expiry	(33,000)
Warranty liability	93,000	No expiry	82,000
Lease liability	771,000	No expiry	814,000
Non-capital losses carry forward	5,361,000	2033 - 2039	3,369,000
Canada	5,038,000	2033 - 2039	3,367,000
USA	323,000	2038 - 2039	2,000

Tax attributes are subject to review and potential adjustment by tax authorities.

20. Financial Instruments

Financial Assets and Liabilities

Information regarding the Company's financial assets and liabilities as at August 31, 2022 and August 31, 2021 is summarized as follows:

	August 31,2022	(Restated – note 5)August 31,2021
Financial Assets
Fair value through profit and loss, at fair value
Cash	$ 2,604,229	$ 3,601,034
Loans and receivable, at amortized cost
Trade receivables and other receivables (note 7)	8,629,697	3,107,350
Total Financial Assets	$ 11,233,926	$ 6,708,384
Financial Liabilities
Line of credit (note 12)	$3,536,593	$-
Other liabilities, at amortized cost
Trade payables (note 13)	4,597,804	1,537,778
Bonus payable (note 23)	280,000	280,000
Bonus payable – long term (note 5 and 23)	840,000	1,120,000
Lease obligation - current (note 14)	189,618	143,500
Lease obligation – long term (note 14)	738,024	670,287
Salaries and benefits payable (note 13)	288,071	394,815
Total Financial Liabilities	$ 10,470,110	$ 4,421,803

The fair value of financial assets and financial liabilities at amortized cost is determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions. The Company considers that the carrying amount of its financial assets and financial liabilities, with a shortterm maturity and demand nature, and recognized at amortized cost in the financial statements approximates their fair value of these instruments.

The following table provides an analysis of the Company's financial instruments that are measured subsequent to initial recognition at fair value, grouped into Level 1 to 3 based on the degree to which the inputs used to determine the fair value are observable.

• Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities.
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are observable either directly or indirectly. As at August 31, 2022, the Company used level 2 inputs to determine the fair value of the finance lease obligation.
• Level 3 fair value measurements are those derived from valuation techniques that include inputs that are not based on observable market data. As at August 31, 2022, the Company does not have any Level 3 financial instruments.

The fair value of cash, cash equivalents and restricted cash is based on level 1 inputs.

Financial Instrument Risk Exposure

The Company's activities expose it to a variety of financial risks: market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk. These risks arise from the normal course of operations and all transactions are undertaken to support the Company's ability to continue. Risk management is carried out by management under policies approved by the Board of Directors. Management identifies and evaluates the financial risks in co-operation with the Company's operating units. The Company's overall risk management program seeks to minimize potential adverse effects on the Company's financial performance, in the context of its general capital management objectives (note 22).

20. Financial Instruments (continued)

a) Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company's primary exposure to credit risk is in its cash accounts and accounts receivable. This risk related to cash is managed through the use of a major financial institution which has high credit quality as determined by the rating agencies. Accounts receivable mainly consists of receivables from its customers. In order to reduce its credit risk, the Company has adopted credit policies which include the analysis of the financial position of its customers and the regular review of their credit limits. In some cases, the Company requires bank letters of credit or subscribes to credit insurance.

At August 31, 2022, 30% of the Company's trade accounts receivable balance is over 90 days past due (August 31, 2021 – 14%). The carrying amount of trade and other receivables as at August 31, 2022 was $8,629,697(August 31, 2021 - $3,107,350). The Company insures its non-government accounts receivables.

b) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. The Company has a planning and budgeting process in place by which it anticipates and determines the funds required to support its normal operating requirements.

The Company's ongoing liquidity is impacted by various external events and conditions. The Company expects to repay its financial liabilities in the normal course of operations and to fund future operational and capital requirements through operating cash flows, as well as future equity and debt financing.

The Company coordinates this planning and budgeting process with its financing activities through the capital management process (note 22). The Company's financial liabilities are comprised of its trade payables, bonus payable, finance lease obligation, and salaries and benefits payable, the contractual maturities of which at August 31, 2022 and August 31, 2021 are summarized as follows:

	August 31,2022	August 31,2021
Payables with contractual maturities:Within 90 days or lessIn later than 90 days, not later than one year	$ 3,262,8115,366,886	$ 1,567,941783,767
	$ 8,629,697	$ 2,351,708

c) Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company's income or the value of its holdings in financial instruments.

Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flow of a financial instrument will fluctuate because of changes in market interest rate. The Company has no significant exposure at August 31, 2022 to interest rate risk through its financial instruments.

Commodity Price Risk

Commodity price risk is the risk due to which business financial performance is adversely affected by fluctuations in the prices of commodities. The Company has no significant exposure at August 31, 2022 to commodity price risk through its financial instruments.

20. Financial Instruments (continued)

Financial Instrument Risk Exposure (continued)

c) Market Risk (continued)

Currency Risk

Currency risk is the risk that the Company will be subject to foreign currency fluctuations in satisfying obligations related to its foreign activities.

The Company's objective in managing its foreign currency risk is to minimize its net exposures to foreign currency cash flows. The Company monitors and forecasts the values of net foreign currency cash flow and statement of financial position exposures and from time to time could authorize the use of derivative financial instruments such as forward foreign exchange contracts to economically hedge a portion of foreign currency fluctuations.

The following is an analysis of Canadian dollar equivalent of financial assets and liabilities that are denominated in United States dollars as of August 31, 2022 and August 31, 2021:

	August 31,2022	August 31,2021
CashTrade and other receivablesTrade and other payablesLease obligations	$ 2,167,9308,227,864(4,079,458)(286,960)	$ 1,697,6812,796,527(1,620,361)(343,257)
	$ 6,029,376	$ 2,530,590

Based on the above net exposure at August 31, 2022, a 10% depreciation or appreciation of the United States dollar against the Canadian dollar would result in an approximately $602,938 decrease or increase respectively in both net and comprehensive income (August 31, 2021 – 253,059). The Company has not employed any currency hedging as at August 31, 2022.

21. Management of Capital

The capital managed by the Company includes a Line of Credit (note 12) and the components of shareholders' equity as described in the consolidated statements of changes in shareholders' equity. During the year, the Company was subject to financial covenants related to its line of credit. During the year ended August 31, 2022, the Company was in compliance with any required financial covenants.

The Company's objectives of capital management are to create long-term value and economic returns for its shareholders. It does this by seeking to maximize the availability of finance to fund the growth and development of its operations, and to support the working capital required to maintain its ability to continue as a going concern. The Company manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its assets, seeking to limit shareholder dilution and optimize its cost of capital while maintaining an acceptable level of risk. To maintain or adjust its capital structure, the Company considers all sources of finance reasonably available to it, including but not limited to issuance of new capital, issuance of new debt and the sale of assets in whole or in part. The Company's overall strategy with respect to management of capital at August 31, 2022 remains fundamentally unchanged from the year ended August 31, 2021.

22. Segmented Information

The Company operates in one segment in which it develops, manufactures, markets and sells high resolution mobile surveillance camera systems, which information is evaluated regularly by the Company's President and Chief Executive Officer, being the chief operating decision maker. Revenue is earned in two main regions, being Canada and United States. The following is a breakdown of revenue by geographic areas based on the customers' location:

(expressed in Canadian dollars)	For the year endedAugust 31, 2022		For the year endedAugust 31, 2021
	Canada	USA	Combined	Canada	USA	Combined
Revenues	$ 1,856,695	$ 18,174,594	$ 20,031,288	$ 2,582,438	$ 14,648,642	$ 17,231,080
Cost of Sales	1,133,147	9,589,328	10,722,475	1,683,242	8,031,854	9,715,096
Gross Profit	723,548	8,585,266	9,308,814	899,196	6,616,788	7,515,984
Operating Expenses
Interest expense (note 18a)	202,495	17,351	219,846	115,530	21,813	137,343
Depreciation expense (note 18a)	214,199	151,521	365,720	204,216	155,165	359,381
Other General & administrative(note 18a) (Restated – note 5)	2,587,370	483,741	3,071,111	3,307,822	421,904	3,729,726
Selling and marketing (note 18b)	2,286,233	225,010	2,511,243	1,826,647	51,019	1,877,666
Research and development(note 18c)	1,961,785	114,695	2,076,480	1,818,235	-	1,818,235
	7,252,083	992,318	8,244,400	7,272,450	640,901	7,913,351
	$ (6,528,534)	$ 7,592,948	$ 1,064,414	$ (6,373,254)	$ 5,966,887	$ (406,367)
Other Income (Expenses)
Interest	9,631	-	9,631	4,073	-	4,073
Foreign exchange	414,077	-	414,077	(256,042)	-	(256,042)
Finance costs	-	(382)	(382)	-	(140)	(140)
Write-down of Inventory	(35,682)	(8,873)	(44,554)	(24,751)	-	(24,751)
Net income (loss) before IncomeTaxes	(6,140,508)	7,583,693	1,443,185	(6,649974)	5,966,747	(683,227)
Income tax expense	432,000	-	432,000	(316,000)	-	(316,000)
Net Income (Loss)	(5,708,508)	7,583,693	1,875,185	(6,965,974)	5,966,747	(683,227)
Other Comprehensive Income
Foreign currency translationdifferences	-	53,995	53,995	-	(12,705)	(12,705)
Net comprehensive income (loss)	$ (5,708,508)	7,637,688	1,929,180	$ (6,965,974)	$ 5,954,042	$ (1,011,932)
Current AssetsProperty, plant and equipment	3,718,104	16,370,818	20,088,922	4,878,746	6,775,037	11,653,783
(note 10)	743,762	436,142	1,179,904	691,706	545,592	1,237,298
Goodwill	-	149,760	149,760	-	144,119	144,119

23. Related Party Transactions

The Company's related parties include its subsidiaries, key management personnel and companies related by way of directors or shareholders in common. Transactions with related parties for goods and services are made on normal commercial terms and are considered to be at arm's length.

a) Key Management Personnel Compensation

	August 31,2022	(Restated – note 5)August 31,2021
Salaries and short-term benefitsShare-based payment	$1,447,555-	$2,417,2245,023
	$1,447,555	$2,422,247

Key management includes the Company's Board of Directors and members of senior management.

b) Trade Related Party Transactions

The amounts due to related parties as at August 31, 2022 and August 31, 2021 are as follows:

	August 31,2022	(Restated – note 5)August 31,2021
Chief Executive Officer (Restated – note 5)DirectorsVice Presidents	$ 1,154,9925,000176,930	$ 1,452,6335,11839,089
	$ 1,336,922	$ 1,496,840

Amounts due from and to related parties have been included in trade and other receivables and trade and other payables, respectively (notes 7 and 13), unless otherwise noted below.

c) Other Related Party Transactions

On September 1, 2020, the Company entered in a new employment contract with the Chief Executive Officer. As a result of this, a bonus in the amount of $1,400,000 was accrued during the year ended August 31, 2021, payable to the Chief Executive Officer over the following five years. There are no set terms of payment besides the five year time frame, and will be paid at the discretion of the Chief Executive Officer. During the year ended August 31, 2022, $280,000 of the bonus was paid out, and as at August 31, 2022, $1,120,000 remains as a bonus payable. See note 5 for restatement of prior year balance.

On December 16, 2019, the Company advanced to the Chief Executive Officer a loan of $200,000 bearing an interest of 1% per annum repayable in two years, which was extended for one additional year. During the year ended August 31, 2022, the loan was repaid in full.

24. Commitments and Contingencies

As of August 31, 2022, the Company's contractual obligations and contingencies are as follows:

The Company derives its revenue from the sale of products in various tax jurisdictions, which are subject to various Canadian and foreign federal and provincial laws and regulations governing taxes. These laws and regulations are continually changing. The Company believes its operations are materially in compliance with all applicable laws and regulations. There is no guarantee that the Company's chosen tax position will not be challenged by tax authorities in these jurisdictions which could result in additional taxes, related non-income tax amounts, interest and penalties payable (note 19).

The Company regularly assesses its income tax and related non income tax amounts and obligations and the related filing obligations in the United States and Canada. It is management's position that adequate provisions have been made in the financial statements related to such obligations. However, there exists uncertainty due to the fact that the Company could be assessed differently by tax and/or other regulatory authorities in a manner that is not consistent with management's expectation. This situation would result in management being required to adjust its provision for income taxes and related non income tax amounts in the period that such a situation occurs and such adjustments could be material (note 19).

25. Supplemental Cash Flow Information

	August 31,2022	August 31,2021
Cash paid during the period for:Interest payments	$ 210,285	$ 131,953
Non-cash investing and financing transactions:
Initial recognition of right of use asset	$16,863	$11,945
Reassessment of right of use asset	249,342	-
Stock options exercised	111,524	91,472
Shares issued for bonus payable	-	135,000

26. Subsequent Events

Subsequent to August 31, 2022, on December 12, 2022, the Company announced that it received a purchase contract for approximately USD $2.94 million (approximately CAD $4 million) from the Southeastern Pennsylvania Transit Authority (SEPTA) for transit bus video upgrades and mobile data collector upgrades. The Company expects to complete the contract during its second fiscal quarter ending February 28, 2023.