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Martello Technologies Group Inc. — Annual Report 2023
Jun 28, 2023
44193_rns_2023-06-27_37fd8f2d-8272-4fc1-add9-7f873bdb6009.pdf
Annual Report
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Consolidated financial statements of
Martello Technologies Group Inc.
For the years ended March 31, 2023 and 2022
An Independent Member of BKR International
Martello Technologies Group Inc.
For the years ended March 31, 2023 and 2022
Table of contents
Independent Auditor’s Report .................................................................................................................... 1-4 Consolidated statements of loss and comprehensive loss ............................................................................. 5 Consolidated statements of financial position............................................................................................... 6 Consolidated statements of changes in shareholders’ equity (deficiency) .................................................... 7 Consolidated statements of cash flows ......................................................................................................... 8 Notes to the consolidated financial statements ........................................................................................ 9-49
An Independent Member of BKR International
INDEPENDENT AUDITOR'S REPORT
To the shareholders of
MARTELLO TECHNOLOGIES GROUP INC.
Opinion
We have audited the consolidated financial statements of Martello Technologies Group Inc. (the Company), which comprise the consolidated statement of financial position as at March 31, 2023, and the consolidated statements of loss and comprehensive loss, changes in shareholders equity and cash flows for the year ended March 31, 2023, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at March 31, 2023, and its financial performance and its consolidated cash flows for the year ended March 31, 2023 in accordance with International Financial Reporting Standards (IFRSs).
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 Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Matter
The consolidated financial statements of the Company for the year ended March 31, 2022 were audited by another auditor who expressed an unmodified opinion on those financial statements on June 28, 2022.
Material Uncertainty Related to Going Concern
We draw attention to Note 2 in the consolidated financial statements, which indicates that the Company has suffered recurring losses from operations, has had cash outflows from operating activities and has financial liabilities that may require significant cash outflows over the next twelve months. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Key Audit Matter
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Welch LLP - Chartered Professional Accountants 123 Slater Street, 3[rd] floor, Ottawa, ON K1P 5H2 T: 613 236 9191 F: 613 236 8258 W: welchllp.com An Independent Member of BKR International
Page 1
Key Audit Matter - Cont'd.
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the year ended March 31, 2023. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined that the matters described below to be the key audit matters to be communicated in our auditor's report.
Impairment of goodwill and intangible assets
Description of matter
As detailed in financial statement note 13, the Company recorded a goodwill impairment loss for the year ended March 31, 2023 of $18,935,053 resulting in a goodwill balance of NIL as at March 31, 2023. Management conducts an impairment assessment annually or more frequently if events or circumstances indicate the carrying value of goodwill may be impaired. An impairment loss is recognized when the carrying value of a cash generating unit (CGU) exceeds the Company's recoverable amount. As at December 31, 2022 the Company's net asset carrying value significantly exceeded the Company's market capitalization and the Company's financial performance for the modern workplace optimization CGU had not met previous forecasts. As a result of these factors management performed an impairment assessment as at December 31, 2022 that required the calculation of the recoverable amount of the modern workplace optimization CGU.
Why the matter is a key audit matter
The determination of a CGU's recoverable amount requires significant judgement when determining the inputs into the calculation of the recoverable amount including estimating the expected future net cash flows and the discount rate. This estimation uncertainty required significant auditor judgement and specialized skills and knowledge to evaluate management's estimate.
How the matter was addressed in the audit
The primary procedures performed to address the key audit matter included the following:
We evaluated the appropriateness of the future net cash flows by reviewing key assumptions used including forecasted growth rates against historical results and industry data, planned changes to legacy customer revenue, planned changes in margin against historical trends and management plans relative to industry data.
We involved a valuation professional with specialized skills and knowledge, who assisted in:
-
evaluating the appropriateness of the valuation methodology used by the Company to calculate the recoverable amount, and
-
evaluating the Company's discount rate by comparing against discount rate ranges that were independently developed using available market and industry data.
Other Information
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, in the Management's Discussion and Analysis.
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 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.
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An Independent Member of BKR International
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 International Financial Reporting Standards, 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.
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An Independent Member of BKR International
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements - Cont'd.
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 Bryan Haralovich.
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Chartered Professional Accountants Licensed Public Accountants
June 27, 2023.
Page 4
An Independent Member of BKR International
Martello Technologies Group Inc. Consolidated statements of loss and comprehensive loss For the years ended March 31, 2023 and 2022
(In Canadian dollars)
| March 31, | March 31, | ||||
|---|---|---|---|---|---|
| Notes | 2023 | 2022 | |||
| Income | |||||
| Sales | 5,6 | $ | 16,099,266 |
$ | 17,539,803 |
| Cost ofgoods sold | 6,7 | 1,853,632 | 1,632,403 | ||
| Gross margin | 14,245,634 | 15,907,400 | |||
| 1 | |||||
| Expenses | |||||
| Research and development | 8 | 5,658,362 | 6,638,388 | ||
| Sales and marketing | 8 | 6,625,273 | 7,384,597 | ||
| General and administrative | 8 | 4,408,493 | 5,337,579 | ||
| Depreciation | 12,16 | 307,594 | 428,380 | ||
| Amortization | 13 | 1,598,356 | 1,881,624 | ||
| Impairment of goodwill | 13 | 18,935,053 | - | ||
| Impairment of intangible assets | 13 | 229,087 | - | ||
| Acquisition-related costs | - | 50,000 | |||
| 37,762,218 | 21,720,568 | ||||
| Loss from operations | (23,516,584) | (5,813,168) | |||
| Other income (expense) | |||||
| Interest income | 28,580 | 5,350 | |||
| Interest expense | 15 | (2,294,624) | (1,888,948) | ||
| Financing fees | (185,972) | (318,050) | |||
| Accretion of long-term debt | 15 | (150,796) | (59,457) | ||
| Gain on Issuance of FedDev Loan | 15 | 1,131,224 | - | ||
| Revaluation of forward contract | 20 | 20,415 | (13,480) | ||
| Foreign exchange loss | 22 | (417,375) | (358,833) | ||
| PPP loan foregiveness | - | 184,354 | |||
| Other income | 57,187 | 35,260 | |||
| Loss before income tax | (25,327,945) | (8,226,972) | |||
| Income tax recovery | 138,346 | 7,663 | |||
| Net loss | (25,189,599) | (8,219,309) | |||
| Other comprehensive income (loss) that may be | |||||
| reclassified to net income (loss): | |||||
| Cumulative translation adjustment | 450,678 | (1,470,369) | |||
| Pension plan remeasurement | 17 | 394,820 | 38,776 | ||
| Pensionplan asset fair value adjustment | 17 | (109,792) | (1,311) | ||
| Total comprehensive income(loss) | (24,453,893) | (9,652,213) | |||
| Weighted average shares outstanding | 18 | 337,077,759 | 308,682,325 | ||
| Basic and diluted | |||||
| Net loss per share from continuing operations | 10 | ||||
| Basic and diluted | $ | (0.07) |
$ | (0.03) |
|
| Net loss per share from discontinued operations | 10 | ||||
| Basic and diluted | $ | 0.00 |
$ | 0.00 |
|
| Net loss per share, basic and diluted | 10 | $ | (0.07) |
$ | (0.03) |
The accompanying notes are an integral part of these consolidated financial statements.
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An Independent Member of BKR International
Martello Technologies Group Inc. Consolidated statements of financial position As at March 31, 2023 and 2022
(In Canadian dollars)
| Martello Technologies Group Inc. Consolidated statements of financial position As at March 31, 2023 and 2022 (In Canadian dollars) |
Martello Technologies Group Inc. Consolidated statements of financial position As at March 31, 2023 and 2022 (In Canadian dollars) |
|---|---|
| March 31, March 31, Note 2023 2022 |
|
| Assets Current assets Cash 2,117,652 $ 4,853,218 $ Short-term investment 101,430 170,000 Trade and other accounts receivable 11 4,397,166 4,231,065 Investment tax credits and grants receivable 8 1,454,782 944,816 Prepaid expenses 1,308,980 887,910 Inventories 41,865 45,336 Foreign exchange forward contract asset 20 15,649 - Lease receivable - 35,394 |
|
| Total current assets 9,437,524 11,167,739 Goodwill 13 - 18,310,397 Intangible assets 13 9,549,724 10,854,530 Equipment and leasehold improvements 12 111,482 180,165 Right-of-use assets 16 751,625 1,118,599 Investment 303,750 303,750 |
|
| Total assets 20,154,105 41,935,180 |
|
| Liabilities Current liabilities Accounts payable and accrued liabilities 14 2,986,302 3,113,352 Foreign exchange forward contract liability 20 - 5,015 Current portion of deferred revenue 6 5,755,227 5,215,919 Current portion of long-term debt 15 8,764,727 270,000 Current portion of lease obligation 16 175,721 296,759 |
|
| Total current liabilities 17,681,977 8,901,045 Deferred revenue 5 1,753,579 2,099,188 Long-term debt 15 1,091,042 9,903,581 Lease obligation 16 610,268 917,115 Pension obligation 17 155,782 358,643 Deferred tax liability 9 128,964 79,621 |
|
| Total liabilities 21,421,612 22,259,193 |
|
| Shareholders' equity (deficiency) Share capital 18 52,115,617 48,815,617 Contributed surplus 18 3,805,294 3,594,895 Warrants 18 2,319,977 2,319,977 Accumulated other comprehensive income (550,281) (1,285,987) Deficit (58,958,114) (33,768,515) |
|
| Total shareholders' equity (deficiency) (1,267,507) 19,675,987 |
|
| Total liabilities and equity (deficiency) 20,154,105 41,935,180 |
|
| Approved by the Board Original signed Original signed |
on June 27, 2023 and signed on its behalf by: “Colley Clarke” Director “Don Smith” __ Director |
The accompanying notes are an integral part of these consolidated financial statements.
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An Independent Member of BKR International
Martello Technologies Group Inc. Consolidated statements of changes in shareholders’ equity (deficiency) for the years ended March 31, 2023 and 2022
(In Canadian Dollars)
| Accumulated other | comprehensive | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Total | |||||||||
| Cumulative | shareholders' | ||||||||
| Shares | Contributed | translation | equity | ||||||
| Notes | outstanding | Share capital | Warrants | surplus | Other | adjustment | Deficit | (deficiency) | |
| # | $ | $ | $ | $ | $ | $ | $ | ||
| Balance at April 1, 2021 | 302,396,958 | 46,313,516 | 3,182,443 | 3,186,388 | 578,871 | (431,954) | (26,194,456) | 26,634,808 | |
| Net loss for the period | - | - | - | - | - |
- | (8,219,309) | (8,219,309) | |
| Actuarial gain on remeasurement | - | - | - | - | 38,776 | - | - | 38,776 | |
| Pension plan fair value adjustment | - | - | - | - | (1,311) | - | - | (1,311) | |
| Other comprehensive income | - | - | - | - | - |
(1,470,369) | - | (1,470,369) | |
| Total comprehensive loss for the period | - | - | - | - | 37,465 | (1,470,369) | (8,219,309) | (9,652,213) | |
| Issuance of common stock | 18 |
24,110,472 | 2,487,000 | - | - | - |
- | - | 2,487,000 |
| Less: Transaction costs attributable to share and warrant issuance | 18 | - | (25,836) | - | - | - |
- | - | (25,836) |
| Cancellation of warrants | - | - | (862,466) | - | - | - | 645,250 | (217,215) |
|
| Exercise of stock options | 200,000 | 40,937 | - | (15,736) | - | - | - | 25,200 |
|
| Share-based compensation | 18 | - | - | - | 424,243 | - |
- | - | 424,243 |
| Balance as at March 31, 2022 | 326,707,430 | 48,815,617 | 2,319,977 | 3,594,895 | 616,336 | **(1,902,323) ** | (33,768,515) | 19,675,987 | |
| Balance at April 1, 2022 | 326,707,430 | 48,815,617 | 2,319,977 | 3,594,895 | 616,336 | (1,902,323) | (33,768,515) | 19,675,987 | |
| Net loss for the period | - | - | - | - | - |
- | (25,189,599) | (25,189,599) | |
| Pension plan settlement | - | - | - | - | 394,820 | - | - | 394,820 | |
| Pension plan fair value adjustment | - | - | - | - | (109,792) | - | - | (109,792) | |
| Other comprehensive income | - | - | - | - | - |
450,678 | - | 450,678 | |
| Total comprehensive loss for the period | - | - | - | - | 285,028 | 450,678 | (25,189,599) | (24,453,893) | |
| Issuance of common stock | 18 |
66,000,000 | 3,300,000 | - | - | - |
- | - | 3,300,000 |
| Share-based compensation | 18 | - | - | - | 210,399 | - |
- | - | 210,399 |
| Balance as at March 31, 2023 | 392,707,430 | 52,115,617 | 2,319,977 | 3,805,294 | 901,364 | **(1,451,645) ** | **(58,958,114) ** | (1,267,507) |
The accompanying notes are an integral part of these consolidated financial statements.
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An Independent Member of BKR International
Martello Technologies Group Inc. Consolidated statements of cash flows
For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
| March 31, March 31, Note 2023 2022 |
March 31, March 31, Note 2023 2022 |
|---|---|
| Operating activities | |
| Net loss from continuing operations before income tax (25,327,945) $ (8,226,972) $ |
|
| Items not affecting cash: | |
| Depreciation 12,16 307,594 428,380 |
|
| Disposal of fixed assets 12 3,087 - |
|
| Amortization of intangible assets 13 1,598,356 1,881,624 Amortization of debt issuance cost 621,234 563,707 |
|
| Impairment of goodwill 13 18,935,053 - Impairment of intangible assets 13 229,087 - |
|
| ease Decrease in fair value of hedge liability 20 (20,664) 13,480 Warrant cancellation fee 18 - 287,000 Accretion of long-term debt 15 150,796 59,457 |
|
| Gain on issuance of long- term debt 15 (1,131,224) - |
|
| Share-based compensation 8 210,399 424,243 Deferred share units compensation 18 23,069 168,583 |
|
| Defined benefit plan expense 17 133,383 |
138,272 |
| Lease interest expense 16 88,527 26,506 |
|
| Gain on termination of lease 16 (27,379) - |
|
| Accrued interest expense 15 203,811 150,520 |
|
| Accrued interest on Guaranteed investment contract (1,430) - |
|
| alise Unrealised foreign exchange loss 543,992 169,095 Loss on disposal of capital assets - 890 |
|
| Net change in operatingcomponents of workingcapital 19 (1,388,233) (736,919) |
|
| Total cash flows used in operatingactivities (4,848,487) (4,652,134) |
|
| Investing activities hasePurchase of short-term investments (100,000) - Sale of short-term investments 170,000 - |
|
| Additions to equipment and leasehold improvements 12 (9,791) |
(14,342) |
| Total cash flowsprovided by (used in)investingactivities 60,209 (14,342) |
|
| Financing activities | |
| Proceeds from issuance of common stock 18 3,300,000 2,487,000 |
|
| Common stock issuance costs 18 - (25,836) Proceeds from exercise of stock options 18 - 25,200 Payment on cancellation of warrants - (503,884) |
|
| Proceeds from long-term debt 15 4,073,446 - Debt issuance costs 15 (70,938) - Repayment of long-term debt 15 (4,971,023) (219,000) PPP Loan forgiveness 15 - (184,354) Repayment of lease obligations 16 (307,314) (348,488) |
|
| Total cash flowsprovided byfinancingactivities 2,024,171 1,230,638 |
|
| Net change in cash (2,764,107) (3,435,838) Cash, beginning of period 4,853,218 8,349,904 Effects of currencytranslation on cash 28,541 (60,848) |
|
| Cash, end ofperiod 2,117,652 4,853,218 |
The accompanying notes are an integral part of these consolidated financial statements.
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An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
1. Corporate information
Martello Technologies Group Inc., formerly Newcastle Energy Corp. (the “Corporation”) was incorporated under the Company Act (British Columbia) in 1981. The Corporation’s registered office and principal place of business is 390 March Rd. #110, Ottawa, Ontario, Canada K2K 0G7. The Corporation’s common shares are traded on the TSX Venture Exchange (“TSXV”) under the trading symbol MTLO.
The Corporation has one wholly-owned subsidiary, Martello Technologies Corporation (“Martello Corp”), which had seven wholly-owned operating subsidiaries: Martello Technologies Incorporated, Netvitesse SAS, Savision B.V, Savision Inc, GSX Groupware Solutions, Inc., GSX Participations SA, and SARL GSX Groupware Solutions.
Martello Corp was incorporated in 2009 under the provisions of the Canada Business Corporations Act (“CBCA”). Martello Technologies Incorporated was incorporated in the state of Delaware in 2010. Netvitesse SAS is a limited liability company incorporated and operating in France.
On November 1, 2018, Martello Corp. acquired 100% of the shares of Savision B.V., and its wholly owned subsidiaries Savision Canada Limited and Savision, Inc. (“Savision”). Savision B.V. is incorporated and operating in the Netherlands. Savision Canada Limited was incorporated in 2011 under the provisions of the CBCA. Savision, Inc. was incorporated in the state of Delaware in 2011.
On May 29, 2020, the Corporation acquired 100% of the shares of GSX Participations SA and its wholly owned subsidiaries, Sàrl GSX Groupware Solutions and GSX Groupware Solutions Inc. (“GSX”). GSX Participations SA was incorporated in Switzerland in 2008. Sàrl GSX Groupware Solutions was incorporated in France in 2008 and GSX Groupware Solutions, Inc. was incorporated in the state of Massachusetts in 2003.
On April 1, 2021, Martello Technologies Corporation amalgamated with Savision Canada Limited and Elfiq Inc. (the “Amalgamating Corporations”) to form an amalgamated corporation, called Martello Technologies Corporation (the “Amalgamated Corporation”). Martello Technologies Corporation is a wholly- owned subsidiary of the Corporation. All the properties and assets of the Amalgamating Corporations were continued as the properties and assets of the Amalgamated Corporation and the Amalgamated Corporation is liable, and will continue to be liable, for the obligations of Martello Technologies Corporation and the other Amalgamating Corporations to their creditors.
Effective March 31, 2023, Martello Technologies Corporations amalgamated GSX Groupware Solutions, Inc and Savision, Inc, and dissolved Martello Technologies Incorporated. Subsequently, the surviving entity was renamed to Martello Technologies US, Inc.
On May 25, 2023, GSX Groupware Solutions, SARL merged with Netvitesse SAS effective June 30, 2023.
The Corporation and its subsidiaries develop and sell software products and solutions that optimize the performance of real-time applications on cloud and enterprise networks, while giving IT teams and service providers control and visibility of their entire IT infrastructure from a single platform.
2. Basis of preparation and significant accounting policies
2.1 Going concern
These consolidated financial statements have been prepared using International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board applicable to a going concern, which assumes that the Company will be able to continue its operations and will be able to realize its assets and settle its liabilities in the normal course of business as they come due in the foreseeable futures.
For the year ended March 31, 2023, the Company reported loss from operations of $23,516,584; net cash flows used in operating activities of $4,848,487 and an accumulated deficit of $58,958,114.
Existing funds on hand, when combined with operational cash flow, are not sufficient to fund existing debt
Page 9
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
repayments. Management is exploring several options to secure the necessary financing, which could include the issuance of new public or private equity or debt instruments, supplemented with operating cash inflows from operations. Nevertheless, there is no assurance that certain sources of additional future funding will be available to the company or will be available on terms which are acceptable to management.
These circumstances create material uncertainties that lend substantial doubt as to the ability of the Company to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern. The Company’s ability to continue as going concern is dependent upon its ability to fund the repayment of existing borrowings, secure additional financing and to generate positive cash flows from operations. These financial statements do not reflect the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary of the Company were unable to realize its assets and its liabilities as a going concern in the normal course of operations. Such adjustments could be material.
2.2 Statement of compliance
The consolidated financial statements have been prepared on a historical cost basis, except for foreign exchange forward contracts and investments, which are measured at fair market value.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) in effect on closing date of March 31, 2023.
The consolidated financial statements were approved by the Board of Directors and authorized for issuance by the Board of Directors on June 27, 2023.
The consolidated financial statements include the financial position and results of operations of the companies described in Note 1.
2.3 Summary of significant accounting policies
The following accounting policies have been applied consistently to both periods presented.
(a) Basis of consolidation
The consolidated financial statements comprise the financial statements of the Corporation and its subsidiaries.
The subsidiaries are fully consolidated from the date of acquisition, being the date on which the Corporation obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved when an investor has power over an investee to direct its activities, exposure to variable returns from an investee, and the ability to use the power to affect the investor’s returns.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent corporation using consistent accounting policies. All intra-group balances, income and expenses, unrealized gains and losses, and dividends resulting from intra-group transactions, if any, are eliminated in full upon consolidation.
A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.
(b) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions.
(c) Foreign currency translation
The Corporation’s consolidated financial statements are presented in Canadian dollars, which is
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An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
also its functional currency. Each entity in the Corporation determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
The functional currencies of the subsidiaries are as follows:
| currency. The functional currencies of the subsidiaries |
are as follows: |
|---|---|
| Entity | Functional currency |
| Martello Technologies Corporation, Canada | Canadian dollar |
| Martello Technologies Incorporated, USA | Canadian dollar |
| Netvitesse SAS, France | Canadian dollar |
| Savision BV, Netherlands | Euro |
| Savision Inc , USA | United States Dollar |
| GSX Participations SA | Euro |
| Sarl GSX Groupware Solutions | Euro |
| GSX Groupware Solutions, Inc | United States Dollar |
Income and expenses of subsidiaries with a different functional currency than the Corporation’s presentation currency are translated into the Corporation’s functional currency at the average exchange rate for the reporting period and assets and liabilities are translated at the closing rate of the reporting period. Equity balances are translated at historical rate. Exchange differences arising from the translation are recognized in other comprehensive income (loss).
Transactions in foreign currencies are initially recorded by the Corporation’s entities at their respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate at the reporting date. All differences are taken to the consolidated statements of net loss and comprehensive loss. Revenues and expenses are translated at average monthly rates in effect when they were earned or incurred.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the original transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
(d) Revenue recognition
The Corporation and its subsidiaries develop and sell products and solutions that optimize the performance of real-time applications on cloud and enterprise networks, while giving IT teams and service providers control and visibility of their entire IT infrastructure from a single platform.
The Corporation’s sales and performance obligations occur both over time and at a point in time.
Revenue for perpetual software licenses, training and professional services is recognized at a point in time, being when the buyer takes control of the asset or when the reseller or buyer has either: accepted the software and hardware in accordance with the sales contract; the acceptance provisions have lapsed; or the Corporation has objective evidence that all criteria for acceptance have been satisfied. A receivable is recognized when the software or hardware are delivered as this is the point in time that payment of the consideration by the buyer becomes unconditional because only the passage of time is required before the payment is due.
Revenues are recognized over a period of time for subscription licenses and maintenance services. The period for recognizing license and maintenance revenue commences when control of the software license has transferred or services have commenced, being when the software license is delivered to the buyer.
Page 11
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
The Corporation sold term licenses which include maintenance, updates and upgrades for a defined length of time. Revenues from these term licenses are recognized over the expected life of the customer, which has been assessed by management to be a period of 5 years.
Consideration received in advance of satisfying performance obligations is recorded as deferred revenue.
The Corporation’s product is sometimes sold with volume discounts based on aggregate sales over a period. Revenue from these sales is recognized based on the price specified in the contract, net of the estimated volume discounts. Accumulated experience is used to estimate and provide for the discounts, using the expected value method, and revenue is only recognized to the extent that it is highly probable that a significant reversal to revenues will not occur. A contract liability, if any, is recognized for expected volume discounts payable to resellers in relation to sales made until the end of the reporting period.
Certain resellers have some discretion over the channel and price to resell the products and take control of the goods and services before delivery to the end user and are therefore considered to be the principal. The Corporation records gross revenues as the principal and net revenues when it is not the principal in a transaction.
Where the Corporation acts as a reseller, the costs for the subscription product and other cost are recorded over time on a straight-line basis in cost of sales, over the same period during which the related revenue is recognized.
The Corporation determines the standalone selling price by considering its overall pricing objectives and market conditions. As the Corporation’s go-to-market strategies evolve, the Corporation may modify its pricing practices in the future, which could result in changes in relative standalone selling prices.
(e) Discontinued operations
A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of continuing operation and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of loss and comprehensive loss.
- (f) Taxes
Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, by the reporting date, in the countries where the Corporation operates and generates taxable income or operating losses.
Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statements of loss and comprehensive loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate in accordance with IFRIC 23 Uncertainty over Income Tax Treatments.
Deferred tax
Deferred tax is calculated using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial
Page 12
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
reporting purposes.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized, or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
(g) Financial instruments
Initial recognition and measurement
Financial assets and financial liabilities are recognized when the Corporation becomes party to the contractual provisions of the financial instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial instruments classified as amortized cost or FVTOCI are included with the carrying amount of such instruments. Transaction costs that are directly attributable to the acquisition or issue of financial instruments classified as FVTPL are recognized immediately in profit or loss within the consolidated statements of loss and comprehensive loss.
(h) Classification and subsequent measurement
Financial assets
The Corporation classifies its financial assets in the following measurement categories:
-
i. Those to be measured subsequently at amortized cost
-
ii. Those to be measured subsequently at fair value through other comprehensive income (FVTOCI)
-
iii. Those to be measured subsequently at fair value through profit or loss (FVTPL)
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. The Corporation’s financial assets comprise cash, short-term investments, trade and other accounts receivable, investments, each of which is presented at amortized cost.
i. Amortized cost
Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a financial asset that is subsequently measured at amortized cost and is not a part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in interest income using the effective interest rate method.
- ii. Fair value through other comprehensive income (FVTOCI):
Assets that are held for collection of contractual cashflows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVTOCI. Movements in the carrying amount are taken through other comprehensive income (OCI). When the financial asset is derecognized, the cumulative gain or loss previously
Page 13
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
recognized in OCI is reclassified from accumulated other comprehensive income to profit or loss and recognized in other income (expense). Interest income from these financial assets is included in interest income using the effective interest rate method.
iii. Fair value through profit or loss (FVPTL):
Assets that do not meet the criteria for amortized cost or FVTOCI are measured at FVTPL. A gain or loss on a financial asset that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and presented net in the consolidated statement of loss and comprehensive loss within other income (expense) in the period in which it arises. Interest income from these financial assets is included in finance income.
The Corporation reclassifies financial assets when and only when its business model for managing those assets changes.
Impairment
The Corporation assesses, on a forward-looking basis, the expected credit losses associated with its assets carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. For trade and other receivables, the Corporation applies the simplified approach and recognizes expected lifetime credit losses at each reporting date.
Financial liabilities
Subsequent measurement of financial liabilities depends on their classification, as described below:
i. Amortized cost
Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, lease obligations, line of credit and long-term debt. The effective interest method is used to measure financial liabilities at amortized cost and are classified as liabilities on the consolidated statement of financial position.
ii. Fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Corporation that are not designated as hedging instruments.
Gains and losses on financial liabilities at FVTPL are recognized in the consolidated statement of loss and comprehensive loss.
(i) Embedded derivatives
Embedded derivative is separated from its host contract and accounted for as a derivative or the entire contract is to be measured at FVTPL. The Corporation did not hold any embedded derivatives during the periods presented.
(j) Derivative financial instruments
The Corporation enters into foreign exchange forward contracts to manage its exposure to foreign exchange rate risks. Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in the consolidated statement of loss and comprehensive loss.
Page 14
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
- (k) Treasury shares
The Corporation’s shares which are reacquired are recognized at cost and deducted from equity. No gain or loss is recognized in the consolidated statements of loss and comprehensive loss on the purchase, sale, issue, or cancellation of the Corporation’s own equity instruments. Any difference between the carrying amount and the consideration is recognized within equity in contributed surplus.
(l) Equipment & leasehold improvements
Equipment and leasehold improvements are stated at cost, net of accumulated depreciation. Such cost includes the cost of replacing part of the equipment, leasehold improvements and furniture and fixtures. When significant parts of equipment, leasehold improvements and furniture and fixtures are required to be replaced in intervals, the Corporation recognizes such parts as individual assets with specific useful lives and depreciation, respectively. Repair and maintenance costs are recognized in the consolidated statements of loss and comprehensive loss as incurred.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
| Depreciation is calculated on | a straight-line basis over the estimated useful life of th |
|---|---|
| Computer equipment | 5 to 7 years |
| Leasehold improvements | Lesser of the lease term or useful life of the asset |
| Furniture and fixtures | 10 years |
An item of equipment and leasehold improvements and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. The assets’ residual values, useful lives, and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.
(m) Intangible assets
Intangible assets acquired separately are measured at cost on initial recognition. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Finite-lived intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. Amortization is provided on a straight-line basis over the following terms:
| Customer relationship | 7-10 years |
|---|---|
| Technology | 5-10 years |
| Brand | indefinite |
| Non- compete | 3years |
These assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statement of loss and comprehensive loss.
Indefinite-lived intangible assets are assessed for impairment at least annually, or more frequently if indicators arise.
Page 15
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
(n) Leases
Operating lease payments net of any lease inducements are recognized as an expense in the consolidated statements of loss and comprehensive loss on a straight-line basis over the lease term.
At inception of a contract, the Corporation assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Corporation recognizes a right-of-use asset and a lease liability at the lease commencement date.
The right-of-use asset is initially measured at an amount equal to 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 measured at cost net of accumulated depreciation. Depreciation is calculated on a straight-line basis over the shorter of the lease term or useful economic life of the asset. The lease term includes periods covered by an option to extend if the Corporation is reasonably certain to exercise that option.
The lease liability is initially measured at the present value of the unpaid lease payments as at the commencement date, discounted using the Corporation’s incremental borrowing rate unless the interest rate implicit in the lease is known. The Corporation’s incremental borrowing rate for a lease is the rate that the Corporation would pay to borrow an amount necessary to obtain an asset of a similar value to the right-of-use asset on a collateralized basis over a similar term.
The lease liability is subsequently measured at amortized cost using the effective interest method. It is remeasured if there is a change in future lease payments arising from a change in an index or rate; there is a change in the Corporation’s estimate of the amount expected to be payable under a residual value guarantee; or the Corporation changes its assessment of whether it will exercise a purchase, extension or termination option. On remeasurement, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or directly in profit or loss if the carrying amount of the rightof-use asset has been reduced to zero.
The Corporation has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of lowvalue assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term.
(o) Research and development
Research and development costs are expensed as incurred, based on an assessment of the criteria of IAS 38 Intangible Assets not being achieved.
(p) Impairment of non-financial assets
Non-financial assets, including equipment and leasehold improvements and intangible assets are reviewed for impairment at each statement of financial position date or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit, or "CGU").
The recoverable amount of an asset or a CGU is the higher of its fair value less costs of disposal, and its value in use. Impairment losses, if any, are recognized in the consolidated statements of loss and comprehensive loss in those expense categories consistent with the function and nature of the impaired asset.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
Page 16
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
specific to the CGU. In determining fair value less costs of disposal, an appropriate valuation model is used.
(q) Goodwill
Goodwill is measured as the excess of the sum of the fair value of the consideration for an acquisition over the net fair values of the identifiable tangible and intangible assets acquired and the liabilities assumed. Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any. Goodwill is allocated to the CGU to which it relates.
Goodwill is evaluated for impairment annually in the fourth quarter or more often if events or circumstances indicate there may be an impairment. Impairment is determined for goodwill by assessing if the carrying value of a CGU, including the allocated goodwill, exceeds its recoverable amount determined as the greater of the estimated fair value less costs of disposal and the value in use. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill and any excess is allocated to the carrying amount of assets in the CGU on a prorata basis. Any goodwill impairment is recorded in the consolidated statement of loss and comprehensive loss in the period in which the impairment is identified. Impairment losses on goodwill are not subsequently reversed.
(r) Inventories
Inventories consist of devices and other parts held for sale and are valued at the lower of cost and net realizable value. Cost is determined on the first-in, first-out basis.
(s) Cash and cash equivalents
Cash and cash equivalents comprise cash and short-term deposits with an original maturity of three months or less. The Corporation uses the indirect method of reporting cash flow from operating activities.
(t) Provisions
Provisions are recognized when the Corporation has a present obligation, legal or constructive, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the Corporation expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statements of loss and comprehensive loss net of any reimbursement as other income (expense). If the effect of the time value of money is material, 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 in the consolidated statements of loss and comprehensive loss.
(u) Government grants and assistance
Government grants and assistance are recognized when there is reasonable assurance that the grant or assistance will be received, and all attached conditions will be complied with. When the grant or assistance relates to an expense item, it is recognized as income over the period necessary to match the grant or assistance on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it reduces the carrying amount of the asset. The grant is then recognized as income over the useful life of a depreciable asset by way of a reduced depreciation charge. When government assistance is received which relates to expenses of future periods, the amount is deferred and amortized to income as the related expenditures are incurred.
(v) Revolving credit facility costs
Origination costs related to undrawn revolving facilities are fully expensed as incurred.
Page 17
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
(w) Earnings per share
Basic earnings per share is calculated by dividing the net income and comprehensive income or loss for the period by the weighted average number of common shares outstanding during the period. The Corporation uses the treasury stock method for calculating the dilutive effect of the outstanding stock options and other dilutive securities. Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted earnings per share assumes that the proceeds to be received on the exercise of dilutive stock options are used to repurchase common shares at the average market price during the period.
(x) Share-based payments
The Corporation has a stock option plan as described in Note 18 The Corporation accounts for sharebased payment options granted to directors, management, employees, and consultants using the fair value method. Under this method, compensation expense for share-based compensation granted is measured at the fair value at the grant date, using the Black-Scholes valuation model. In accordance with the fair value method, the Corporation recognizes estimated compensation expense related to share-based compensation over the vesting period of the options granted, with the related credit being charged to the contributed surplus account. Consideration paid by employees on the exercise of sharebased compensation is recorded as share capital and the related share-based compensation is transferred from contributed surplus to share capital. At the end of each reporting period, the Corporation revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the contributed surplus.
For share-based compensation granted to non-employees, the expense is measured at the fair value of the services rendered, except where the fair value cannot be estimated in which case it is measured at the fair value of the equity instruments granted.
On July 23, 2021, a Deferred Share Unit (“DSU”) Plan was established for certain directors (each, a “Participant”) in lieu of cash compensation. The DSUs are paid in cash not later than 90 days after the Participant ceases to be a director of the Corporation, based on the greater of (a) the five-day volume weighted average price of the Common Shares; and (b) the five-day average daily high and low board lot trading prices of the Common Shares (the “Market Price”) on the date the Participant ceases to be a director. The cost of the DSUs is measured initially at fair value based on the closing price of the Corporation’s common shares preceding the day the DSUs are granted. The cost of the DSUs is recognized as a liability in the consolidated statements of financial position and as a general and administrative expense in the consolidated statements of loss and comprehensive loss. The liability is remeasured to fair value based on the Market Price of the Corporation’s common shares at each reporting date up to and including the settlement date, with changes in fair value recognized as an operating expense in the consolidated statements of loss and comprehensive loss.
(y) Employee benefits
Wages, salaries, and bonuses are recognized in the year in which the services are rendered by employees of the Corporation. Employee benefits also include defined benefit pension benefits for employees of GSX Participations SA. Assets and obligations and related costs of the defined benefit plan are accounted for using the following accounting policies:
-
i. Defined benefit obligations are determined from actuarial calculations using the projected unit credit method.
-
ii. For the purposes of calculating the estimated rate of return on plan assets, assets are measured at fair value.
Page 18
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Basis of preparation and significant accounting policies (continued)
Summary of significant accounting policies (continued)
-
iii. Actuarial gains or losses arise from the difference between the effective yield of plan assets for period and the expected yield on plan assets for the period, from changes in actuarial assumptions used to determine defined benefit obligations and from emerging experience that differs from the selected assumptions. Actuarial gains or losses are recognized under other comprehensive income (loss) in the period in which they occur.
-
iv. Net interest is recognized in consolidated statements of loss and comprehensive loss calculated using the discount rate by reference to market yields at the valuation date and when plan assets and obligations are measured.
-
v. Net defined benefit liability is determined based on the excess of plan obligations over plan assets.
(z) Equity instruments
The Corporation has adopted the residual value method with respect to the measurement of common shares and warrants issued as equity units. The amount assigned to the common share is the excess of the unit price over the value of the warrant determined by using an appropriate option pricing model.
Equity issuance costs directly attributable to the issue of common shares and warrants are shown as a deduction from the proceeds within the consolidated statement of changes in shareholders’ equity (deficiency). For common shares and warrants issued as a unit, the equity issuance costs are allocated to the common shares and warrants based on the relative allocation of proceeds.
3. Significant judgments and estimates
The preparation of the Corporation’s consolidated financial statements requires management to make judgments, estimates, and assumptions that affect the reported amounts of revenues, expenses, assets, and liabilities, and the disclosure of contingent liabilities, at each reporting date. The outcome of these uncertainties about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
The following are the critical judgments, other than those involving estimates, that management has made in applying the Corporation’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.
Business combinations
Judgment is required to assess whether an acquiree consists of a business. Whether a transaction meets the definition of a business combination or not, identifying the intangible assets acquired also requires judgement.
Estimating the acquisition date fair values of intangible assets acquired, and the fair values of contingent consideration or compensation for post-acquisition services, requires considerable estimation.
Functional currencies
Determining the functional currency for an entity requires the weighing of all facts and circumstances in order to make a judgment as to the primary economic environment in which the entity operates.
Judgments made in relation to deferred tax assets
The Corporation recognizes deferred tax assets only to the extent that it considers it probable that those assets will be recoverable. The Corporation makes assumptions about when deferred tax assets are probable to reverse, the extent to which it is probable that temporary differences will reverse and whether or not there will be sufficient taxable profits available to realize the tax assets when they do reverse.
In making these judgments, the Corporation continually evaluates the magnitude and duration of any past losses, current profitability and whether it is sustainable, and earnings forecasts.
Page 19
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Significant judgments and estimates (continued)
Sources of estimation uncertainty, including assumptions made about the future, are described in the following sections:
Fair value of interest-free debt
The Corporation has secured interest-free debt. Initial recognition of such debt is at fair value which requires management to estimate a market interest rate for comparable long-term debt.
Revenue recognition
Application of the accounting principles related to the measurement and recognition of revenue requires the Corporation to make judgments and estimates. Revenue arrangements may be comprised of multiple performance obligations. Judgment is required in determining the performance obligations that exist in an arrangement and the nature of these deliverables. Revenue recognition requires the consideration of the contract to be allocated to the elements on the basis of standalone selling price of each respective performance obligation. Judgment and estimates are required when determining the relative fair value of elements utilizing standalone prices for similar deliverables where they exist or internally generated estimates of standalone price.
Share-based compensation, equity, and warrants
Share-based compensation and warrants are recognized at fair value. Management has estimated fair values using the Black-Scholes option pricing model or the barrier options model, as appropriate, using various assumptions and inputs as described in note 2. The fair value calculated is most sensitive to the estimated volatility and common share price.
Useful Life of long-lived assets
Determining the period over which the Corporation benefits from the use of its tangible and intangible assets requires estimation and use of a systematic methodology. Management reviews the estimated useful lives and the rates applied at the end of each reporting period.
Impairment of goodwill and intangible assets
The recoverable amounts of the Corporation’s CGUs are determined based on the greater of their fair value less costs of disposal and value in use. These calculations, which include a discounted cash flow model, require the use of estimates. Valuations are highly dependent on the inputs used, estimates and assumptions made by management including assumptions of a long-term nature regarding discount rates, projected revenues, royalty rates and margins derived from past experience, actual operating results and budgets, and revenue multiples. These estimates and assumptions may change in the future due to uncertain competitive and economic market conditions or changes in business strategies.
Classification of non-current assets held for sale and discontinued operations
The classification of a non-current asset held for sale is based on an assessment of whether the asset or disposal group is available for sale in its present condition and the sale is highly probable. In assessing the classification, management uses judgment to evaluate the circumstances and determine whether these criteria are met. These circumstances are reviewed regularly to determine whether the classification is appropriate.
Defined-benefit pension plans
The Corporation has a defined benefit pension plan, mandated by Swiss law, that provides certain benefits to the employees of GSX Participations SA. The actuarial valuation of this plan is based on assumptions, which include discount rates, inflation, mortality rates, retirement probabilities, employee turnover and salary escalation rates. Judgment is exercised in setting these assumptions. These assumptions impact the measurement of the pension benefit obligation, funding levels, the net benefit cost and the actuarial gains and losses recognized in income (loss).
Page 20
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
4. Fair value measurement
The carrying amounts of the Corporation’s cash, short-term investments, trade and other receivables, investment tax credits and grants receivable, foreign exchange forward contract, accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these instruments. The line of credit is a demand instrument at a variable rate and therefore the carrying amount approximates fair value. The market interest rates that would apply to the Corporation’s long-term debt is not significantly different from the effective interest rates used to amortize these debts. Therefore, the carrying amounts are comparable to fair values.
Long-term debt is measured using observable interest rates at initial recognition and is categorized within Level 2 of the fair value hierarchy. The fair value of foreign exchange forward contracts, which were entered into on November 3, 2020, represented a net asset of $15,649 as at March 31, 2023 (2022 – $(5,015)). The fair value is estimated using a market approach with forward exchange rates observable at the end of the reporting period and contract forward rates as inputs and is categorized within Level 2 of the fair value hierarchy.
In July 2020, as a result of the Company’s sale of certain assets of network performance management operating segment (“NPM segment”) to Adaptiv Networks Inc. (“Adaptiv”), the Company received cash consideration of $424,702 and common shares of Adaptiv valued at $303,750. The investment is valued as using FVTPL. The fair value of this investment is determined using level 3 inputs. There were no losses or gains recognized during the year ended March 31, 2023.
5. Revenues
The geographic location of revenues, based on the location of its customers, is as follows:
| March 31, | March 31, | |
|---|---|---|
| 2023 | 2022 | |
| $ | $ | |
| Revenue for the period ended | ||
| Canada | 5,642,211 | 5,481,219 |
| United States | 4,149,970 | 4,456,830 |
| Europe | 5,327,319 | 6,574,808 |
| Asia | 295,321 | 354,547 |
| Latin America | 46,027 | 58,977 |
| Australia | 629,644 | 536,397 |
| Other | 8,774 | 77,025 |
| Total revenue | 16,099,266 | 17,539,803 |
The Corporation’s revenue can be analyzed between the different revenues and basis of recognition, as follows:
follows: |
||
|---|---|---|
| March 31, | March 31, | |
| 2023 | 2022 | |
| $ | $ | |
| Revenue at a point in time | ||
| Hardware | 5,872 | 102,460 |
| Perpetual licenses | - | 14,344 |
| Training and professional services | 49,580 | 66,615 |
| Revenue recognized over time | ||
| Subscription licenses | 13,994,848 | 14,404,872 |
| Maintenance and support | 1,930,857 | 2,745,918 |
| Term licenses | 118,109 | 205,594 |
| Total revenue | 16,099,266 | 17,539,803 |
Page 21
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Revenues (continued)
At each reporting date, there are no unfulfilled performance obligations extending beyond a year for which the Corporation has not collected funds or deposits.
Deferred revenue is comprised of the following:
| March 31, 2023 | March 31, 2022 | |
|---|---|---|
| $ | $ | |
| Current portion of deferred revenue | ||
| Subscription licenses | 4,467,652 | 3,642,505 |
| Maintenance and support | 1,162,361 | 1,461,746 |
| Term licenses | 125,214 | 111,668 |
| Long-term portion of deferred revenue | ||
| Subscription licenses | 1,099,493 | 1,438,141 |
| Maintenance and support | 437,735 | 414,267 |
| Term licenses | 216,351 | 246,780 |
| Total deferred revenue | 7,508,806 | 7,315,107 |
6. Operating segment information
The Corporation has assessed that it operates in two operating segments, those being Modern Workplace Optimization and Mitel. Modern Workplace Optimization is the name of the Corporation’s solution suite portfolio for digital experience monitoring and includes the segments previously reported as Vantage Dx Monitoring – Microsoft 365 and Vantage Dx Analytics – IT Service Analytics and any new Vantage DX products developed in the year. Mitel was previously reported as Vantage Dx Monitoring – Mitel UC. These segments engage in business activities from which they earn revenues from subscription and perpetual software licenses, hardware, maintenance and support, and training and professional services.
| Modern | |||
|---|---|---|---|
| Workplace | |||
| Optimization | Mitel | Total | |
| Year ended March 31, 2023 | $ | $ | $ |
| Revenue at a point in time | |||
| Hardware | - | 5,872 | 5,872 |
| Training and professional services | 40,868 | 8,712 | 49,580 |
| Revenue recognized over time | |||
| Subscription licenses | 6,898,158 | 7,096,690 | 13,994,848 |
| Maintenance and support | 1,895,120 | 35,737 | 1,930,857 |
| Term licenses | 118,109 | - | 118,109 |
| Total revenue | 8,952,255 | 7,147,011 | 16,099,266 |
| Modern | |||
| Workplace | |||
| Optimization | Mitel | Total | |
| Year ended March 31, 2022 | $ | $ | $ |
| Revenue at a point in time | |||
| Hardware | - | 102,460 | 102,460 |
| Perpetual licenses | - | 14,344 | 14,344 |
| Training and professional services | 64,690 | 1,925 | 66,615 |
| Revenue recognized over time | |||
| Subscription licenses | 7,332,387 | 7,072,485 | 14,404,872 |
| Maintenance and support | 2,690,178 | 55,740 | 2,745,918 |
| Term licenses | 205,594 | - | 205,594 |
| Total revenue | 10,292,849 | 7,246,954 | 17,539,803 |
Page 22
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Operating segment information (continued)
Sales and gross margin for the year ended is as follows:
| Sales and gross margin for the year ended | is as follows: | ||
|---|---|---|---|
| Modern | |||
| Workplace | Mitel |
Total | |
| Optimization | |||
| Year ended March 31, 2023 | $ | $ | $ |
| Sales | 8,952,255 | 7,147,011 | 16,099,266 |
| Cost ofgoods sold | 1,701,787 | 151,845 | 1,853,632 |
| Gross margin | 7,250,468 | 6,995,166 | 14,245,634 |
| Modern | |||
| Workplace | Mitel |
Total | |
| Optimization | |||
| Year ended March 31, 2022 | $ | $ | $ |
| Sales | 10,292,849 | 7,246,954 | 17,539,803 |
| Cost ofgoods sold | 1,398,626 | 233,777 | 1,632,403 |
| Gross margin | 8,894,223 | 7,013,177 | 15,907,400 |
Non-current assets by geographic area are as follows:
March 31, 2023 March 31, 2022
| March 31, 2023 M | arch 31, 2022 | |
|---|---|---|
| $ | $ | |
| Canada | 738,245 | 848,656 |
| Netherlands | 2,722,095 | 10,088,616 |
| Switzerland | 7,252,184 | 19,822,658 |
| Other | 4,057 | 7,511 |
| Total non-current assets | 10,716,581 | 30,767,441 |
7. Cost of goods sold
During the year-ended March 31, 2023, the Company determined that certain hosting, commission and delivery costs were better aligned between Cost of Goods Sold and Operating Expenses. Such changes had in immaterial effect on March 31, 2022 financial statements.
Cost of goods sold consisted of the following:
| March 31, 2023 March 31, 2022 $ $ |
|
|---|---|
| Commissions and license fees Installation, Delivery and Support Costs |
126,428 488,910 |
| 465,672 - |
|
| Cloud storage services Reseller/distribution costs Hardware costs Others |
658,147 603,402 594,098 454,268 3,471 75,548 5,816 10,275 |
| Total cost ofgoods sold | 1,853,632 1,632,403 |
Page 23
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
8. Additional disclosures related to the consolidated statement of loss and comprehensive loss
- i. Research and development expense for the year ended March 31, 2023 is net of investment grants recognized in total of $Nil (2022 - $50,000) and investment tax credits recognized of $652,770 (2022 - $881,460).
The Corporation has investment tax credits receivable of $1,454,782 (March 31, 2022 - 944,816) which are earned as a result of qualifying Scientific Research and Experimental Development expenditure. The investment tax credits and grants are recognized when the expenditures are made and their realization is reasonably assured.
- ii. Employee benefits and share-based payments consist of the following amounts:
| March 31, | March 31, | |
|---|---|---|
| 2023 | 2022 | |
| $ | $ | |
| Research and development | ||
| Short-term employee benefits | 5,087,642 | 6,549,330 |
| Share-based payments | 93,950 | 131,188 |
| Sales and marketing | ||
| Short-term employee benefits | 4,654,090 | 4,870,120 |
| Share-based payments | 71,510 | 86,277 |
| General and administrative | ||
| Short-term employee benefits | 2,124,225 | 2,460,608 |
| Share-basedpayments | 44,845 | 206,809 |
| Total staff related expense | 12,076,262 | 14,304,332 |
Research and development employee costs above are presented prior to any government grants and investment tax credits.
9. Income taxes
Income tax expense varies from the amount that would be computed by applying the basic federal and provincial tax rates to losses before income taxes, shown as follows:
Page 24
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Income taxes (continued)
| Income taxes (continued) | ||
|---|---|---|
| March 31, 2023 | March 31, 2022 | |
| $ | $ | |
| Current income tax | ||
| Current income tax expense (recovery) | (25,420) | 58,812 |
| Deferred income tax | ||
| Deferred income tax recovery | (112,926) | (66,475) |
| Income tax recovery recognized in net loss | (138,346) | (7,663) |
| March 31, 2023 | March 31, 2022 | |
| $ | $ | |
| Net accounting loss before income taxes | (25,327,945) | (8,226,972) |
| Expected Canadian statutory income tax rate (26.5%) | 26.5% | 26.5% |
| Expected income tax recovery | (6,711,905) | (2,180,148) |
| Permanent non-deductible amounts | 5,154,325 | 276,386 |
| Increase in unrecognized tax assets | 1,073,911 | 1,607,093 |
| Provision to return true-up (current and deferred) | 104,909 | 43,268 |
| Foreign tax rate differential | 152,837 | 115,123 |
| Change in substantively enacted tax rate on opening temp | ||
| differences | - | 2,420 |
| Tax rate difference on current items | 91,285 | 93,479 |
| Other | (3,706) | 34,718 |
| Income tax recovery | (138,346) | (7,663) |
Deferred tax liabilities
Deferred income taxes reflect the impact of loss carryforwards and of temporary differences between amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The effect of temporary differences and loss carryforwards that give rise to significant portions of the deferred tax liability, which has been recognized during the years ended March 31, 2023 and 2022 are as follows:
| March 31, 2022 | Recognized in OCI (Pension FV) |
Recognized in OCI (Pension FV) |
Recognized in OCI (foreign currency translation) |
Recognized in **Profit and Loss ** |
March 31, 2023 | |
|---|---|---|---|---|---|---|
| $ | $ | $ | $ | $ | ||
| Non-capital loss carry-forwards | 1,840,496 | - | 31,636 | (60,005) | 1,812,127 | |
| Gain on non-interest bearing debt | - | - | - | (270,902) | (270,902) | |
| Pension OCI | - | (129,001) | - | 129,001 | - | |
| Lease Liability | 61,528 | - | - | (83,975) | (22,447) | |
| Right-to-use assets | (70,840) | - | - | 93,287 | 22,447 | |
| Foreign Exchange gain or loss | (17,648) | - | - | 17,648 | - | |
| Intangibles | (1,868,417) | - | (64,904) | 274,580 | (1,658,741) | |
| Other | (24,740) | - | - | 13,292 | (11,448) | |
| Deferred Tax Liability Recognized in Statement of Financial | ||||||
| Position | (79,621) | (129,001) | (33,268) | 112,926 | (128,964) |
| March 31, 2021 | Recognized in Business Combination |
Recognized in Business Combination |
Recognized in OCI (foreign currency translation) |
Recognized in **Profit and Loss ** |
March 31, 2022 | |
|---|---|---|---|---|---|---|
| $ | $ | $ | $ | $ | ||
| Non-capital loss carry-forwards | 1,999,471 | - | (57,415) | (101,560) | 1,840,496 | |
| Fixed Assets | (25,364) | - | - | 25,364 | - | |
| Deferred revenue | (5,441) | - | (38) | 5,479 | - | |
| Lease Liability | - | - | - | 61,528 | 61,528 | |
| Right-to-use assets | (58,114) | - | - | (12,726) | (70,840) | |
| Foreign Exchange gain or loss | (19,372) | - | - | 1,724 | (17,648) | |
| Intangibles | (2,282,328) | - | 60,712 | 353,199 | (1,868,417) | |
| SR&ED expenditure pool | 254,246 | - | 1,197 | (255,443) | - | |
| Other | (13,650) | - | - | (11,090) | (24,740) | |
| Deferred Tax Liability Recognized in Statement of Financial | ||||||
| Position | (150,552) | - | 4,456 | 66,475 | (79,621) | |
| Page 25 |
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Income taxes (continued)
The unrecognized temporary differences of the Corporation are comprised of:
| March 31, 2023 | March 31, 2022 | |
|---|---|---|
| $ | $ | |
| Fixed Assets | 21,551 | 5,605 |
| Capitalized professional fees | 14,192 | 14,939 |
| Capital Losses | 1,749,946 | 796,950 |
| Federal and Ontario ITCs Research and Development Tax Credit | 1,473,484 | 1,273,148 |
| SR&ED Expenditure Pool | 3,804,039 | 2,889,762 |
| Non-capital loss carry forward | 15,004,639 | 11,243,168 |
| Financing Costs | 1,368,947 | 2,582,083 |
| Other (includes reserves) | 1,165,217 | 612,209 |
| Total | 24,602,015 | 19,417,864 |
As at March 31, 2023, the Corporation has approximately $3,804,000 (2022 - $2,890,000) of eligible research and development expenditures (net of current year federal investment tax credits) which may be used to reduce future years’ Canadian taxable income. These expenditures carry forward with no expiry limitation. The Corporation has the following non-capital losses available to reduce future years’ taxable income at March 31, 2023, which expire as follows:
| Non-capital | |
|---|---|
| Year | losses |
| $ | |
| 2024 | - |
| 2025 | 1,293,591 |
| 2026 | 2,577,960 |
| 2027 | 711,795 |
| 2028 | 5,061,004 |
| 2029 | - |
| 2030 | - |
| 2031 | - |
| 2032 | - |
| 2033 | - |
| 2034 | - |
| 2035 | - |
| 2036 | - |
| 2037 | 33,377 |
| 2038 | 222,205 |
| 2039 | 830,314 |
| 2040 | 2,640,098 |
| 2041 | 1,462,233 |
| 2042 | 3,349,173 |
| 2043 | 2,812,685 |
| Indefinite | 3,703,585 |
| Total non capital losses carry forward |
24,698,020 |
To the extent that it is not probable that taxable profit will be available against which the unused tax losses or unused tax credits can be utilized, the deferred tax asset is not recognized.
Page 26
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
10. Loss per share
Basic loss per share amounts are calculated by dividing net loss for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period.
Diluted loss per share amounts are calculated by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding during the period plus the weighted average number of common shares, if any, that would be issued on conversion of all the dilutive potential effects.
The following securities could potentially dilute basic net loss per share in the future but have not been included in diluted loss per share because their effect was anti-dilutive:
| March 31, | March 31, | |
|---|---|---|
| 2023 | 2022 | |
| # | # | |
| Share options | 22,089,555 | 24,321,389 |
| Warrants | 32,861,250 | 49,148,201 |
| Broker compensation unit options | - | 3,018,575 |
| 54,950,805 | 76,488,165 |
11. Trade and other accounts receivable
The movements in the expected credit losses are as follows:
| Movements in the expected credit losses | March 31, 2023 | March 31, 2022 |
|---|---|---|
| $ | $ | |
| Balance, beginning of period | 18,481 | 12,080 |
| Trade receivables written off | (18,481) | (12,080) |
| Additional allowance recognized | - | 18,481 |
| Balance, end of theperiod | - | 18,481 |
The aging analysis of trade and other accounts receivable is as follows:
| Past due but not | Past due but not | impaired | ||||||
|---|---|---|---|---|---|---|---|---|
| Neither | ||||||||
| past due | ||||||||
| Total | nor impaired | < 30 days | 30-60 days | 60-90 days over 90 days | ||||
| $ | $ | $ | $ | $ | $ | |||
| March | 31, | 2023 | 4,397,166 | 3,853,313 | 506,191 | 30,996 | 6,666 | - |
| March | 31, | 2022 | 4,231,065 | 3,952,811 | 269,925 | 8,329 | - | - |
12. Equipment and leasehold improvements
| Disposals/ | Translation | March 31, | |||
|---|---|---|---|---|---|
| March 31, 2022 | Additions | Write off | adjustments | 2023 | |
| $ | $ | $ | $ | $ | |
| Cost | |||||
| Computer equipment | 694,632 | 9,791 | 415,594 | 20,201 | 309,030 |
| Software | 19,137 | - | 11,130 | 424 | 8,431 |
| Leasehold improvements | 152,420 | - | 141,646 | 639 | 11,412 |
| Furniture and fixtures | 202,052 | - | 66,967 | 2,667 | 137,752 |
| Total | 1,068,241 | 9,791 | 635,337 | 23,931 | 466,625 |
Page 27
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Equipment and leasehold improvements (continued)
| Disposals/ | Translation | March 31, | |||
|---|---|---|---|---|---|
| **March 31, 2022 ** | Depreciation | Write off | adjustments | 2023 | |
| $ | $ | $ | $ | $ | |
| Accumulated depreciation | |||||
| Computer equipment | 584,682 | 57,456 | 412,967 | 19,956 | 249,127 |
| Software | 11,644 | 1,662 | 11,130 | 424 | 2,600 |
| Leasehold improvements | 146,982 | 1,271 | 141,646 | 404 | 7,010 |
| Furniture and fixtures | 144,768 | 16,244 | 66,507 | 1,901 | 96,406 |
| Total | 888,076 | 76,633 | 632,250 | 22,685 | 355,143 |
| Net book value | 180,165 | 111,482 | |||
| Translation | March 31, | ||||
| March 31, 2021 | Additions | Disposals | adjustments | 2022 | |
| $ | $ | $ | $ | $ | |
| Cost | |||||
| Computer equipment | 720,993 | 2,409 | (10,625) | (39,394) | 694,632 |
| Software | 11,270 | 8,310 | - | (443) | 19,137 |
| Leasehold improvements | 153,086 | - | - | (666) | 152,420 |
| Furniture and fixtures | 201,211 | 3,623 | - | (2,782) | 202,052 |
| Total | 1,086,560 | 14,342 | (10,625) | (43,285) | 1,068,241 |
| Translation | March 31, | ||||
| March 31, 2021 Depreciation | Disposals | adjustments | 2022 | ||
| $ | $ | $ | $ | $ | |
| Accumulated depreciation | |||||
| Computer equipment | 536,061 | 75,041 | (9,735) | (16,685) | 584,682 |
| Software | 10,979 | 1,108 | - | (443) | 11,644 |
| Leasehold improvements | 112,959 | 34,333 | - | (310) | 146,982 |
| Furniture and fixtures | 126,536 | 21,485 | - | (3,252) | 144,768 |
| Total | 786,535 | 131,967 | (9,735) | (20,692) | 888,076 |
| Net book value | 300,025 | 180,165 |
Page 28
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
13. Intangible assets and goodwill
Intangible assets
A continuity of the intangible assets for the years ended March 31, 2023 and 2022, is as follows:
| March 31, | Acquisition | Translation | March 31, | ||
|---|---|---|---|---|---|
| 2022 | **of subsidiary ** | Impairment | Adjustments | 2023 | |
| $ | $ | $ | $ | $ | |
| Cost | |||||
| Website | 6,000 | - | - | - | 6,000 |
| Customer relationships | 6,761,915 | - | - | 398,395 | 7,160,310 |
| Technology | 6,516,888 | - | - | 383,959 | 6,900,847 |
| Brand | 1,056,680 | - | - | 62,257 | 1,118,937 |
| Non-compete | 882,655 | - | - | 52,004 | 934,659 |
| Total | 15,224,138 | - | - | 896,615 | 16,120,754 |
| March 31, | Translation | March 31, | |||
| 2022 | Amortization | Impairment | Adjustments | 2023 | |
| $ | $ | $ | $ | $ | |
| Accumulated amortization | |||||
| Website | 6,335 | (335) | - | - | 6,000 |
| Customer relationships | 1,899,066 | 936,883 | 98,629 | 179,793 | 3,114,371 |
| Technology | 1,581,551 | 661,808 | 105,337 | 142,004 | 2,490,701 |
| Brand | - | - | 25,121 | 178 | 25,299 |
| Non-compete | 882,655 | - | - | 52,004 | 934,659 |
| Total | 4,369,607 | 1,598,356 | 229,087 | 373,979 | 6,571,030 |
| Net book value | 10,854,531 | 9,549,724 |
Page 29
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Intangible assets and goodwill (continued)
| March 31, | Acquisition | Translation | March 31, | ||
|---|---|---|---|---|---|
| 2021 | of subsidiary | Disposals | Adjustments | 2022 | |
| $ | $ | $ | $ | $ | |
| Cost | |||||
| Website | 6,000 | - | - | - | 6,000 |
| Customer relationships | 7,177,528 | - | - | (415,612) | 6,761,915 |
| Technology | 6,917,441 | - | - | (400,553) | 6,516,888 |
| Brand | 1,121,627 | - | - | (64,948) | 1,056,680 |
| Non-compete | 936,906 | - | - | (54,251) | 882,655 |
| Total | 16,159,502 | - | - | (935,365) | 15,224,138 |
| March 31, | Translation | March 31, | |||
| 2021 | Amortization | Disposals | Adjustments | 2022 | |
| $ | $ | $ | $ | $ | |
| Accumulated amortization | |||||
| Website | 5,609 | 391 | - | - | 6,000 |
| Customer relationships | 1,005,235 | 996,542 | - | (102,375) | 1,899,402 |
| Technology | 964,847 | 702,608 | - | (85,905) | 1,581,550 |
| Brand | - | - | - | - | - |
| Non-compete | 754,731 | 182,083 | - | (54,158) | 882,656 |
| Total | 2,730,422 | 1,881,624 | - | (242,438) | 4,369,608 |
| Net book value | 13,429,080 | 10,854,530 |
Goodwill
The net change in goodwill for the years ended March 31, 2023 and 2022, is as follows:
| Modern | |
|---|---|
| Workplace | |
| Optimization | |
| $ | |
| As at March 31, 2021 | 19,435,937 |
| Translation adjustments | (1,125,540) |
| As at March 31, 2022 | 18,310,397 |
| Impairment of goodwill | (18,935,053) |
| Translation adjustments | 624,656 |
| As at March 31, 2023 | - |
Goodwill and intangible assets are evaluated for impairment annually in the fourth quarter or more often if events or circumstances indicate there may be an impairment. Impairment is determined by assessing if the carrying value of a CGU, including the allocated goodwill and intangible assets, exceeds its recoverable amount determined as the greater of the estimated fair value less costs to dispose and the value in use.
At March 31, 2023 management assessed the recoverable amount of goodwill and intangible assets.
The Company has two CGU's: Modern Workplace Optimization and Mitel. The goodwill and the majority of the intangible asset carrying value are allocated to the Modern Workplace Optimization CGU. The identified CGUs are consistent with the operating segments detailed in note 6, with the CGUs updated in fiscal 2023 and with change in operating segments.
Page 30
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Intangible assets and goodwill (continued)
Modern Workplace Optimization
Management reviewed the recoverable amount of goodwill and intangible assets for the CGU. The recoverable amount was assessed by reference to the value in use (“VIU”) calculation. The recoverable value was assessed by reference to discounted cash flow projections reflecting management’s assessment of projected operating results for a five-year period, including projected revenue growth rates of -6.2% to 52.0% reflecting growth from Vantage DX, expansion of new channels and sunsetting of Legacy products. The applied discount rate (WACC) of 19.3% per annum was influenced by interest rates, equity and size risk premium rates. Cash flows beyond that five-year period have been extrapolated using a steady 3% terminal growth rate. Future estimated growth rates were validated by reviewing reasonableness of pricing, independent market and industry data, and sales achieved to date.
Management determined that an impairment charge was required to write off goodwill of $18,935,053 as well as $229,087 of intangible assets. The recoverable amount was assessed by reference to fair value less costs of disposal using a market-based approach which considered the proposed sale proceeds of the net assets of the segment less estimated costs of disposal. The CGU falls within level 3 of the fair value hierarchy as the fair value inputs are not all based on observable market data. For valuation purposes, a range of revenue multiplies for comparable transactions were utilized. The recoverable amount of the MWO segment amounted to $6,794,685 as at March 31, 2023.
14. Accounts payable and accrued liabilities
| Accounts payable and accrued liabilities | ||
|---|---|---|
| March 31, 2023 | March 31, 2022 | |
| $ | $ | |
| Trade payables | 828,155 | 302,843 |
| Accrued key management compensation | 338,643 | 327,474 |
| Accrued professional fees | 499,268 | 720,891 |
| Salaries, benefits, and vacation payable | 870,319 | 1,296,933 |
| Commissions payable | 29,632 | 34,464 |
| Taxes payable | 110,585 | 73,034 |
| Other Payables | 309,700 | 357,713 |
| Total | 2,986,302 | 3,113,352 |
Page 31
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
15. Long-term debt
| ng-term debt | |
|---|---|
| As at March 31, 2021 | 9,859,888 |
| Costs of borrowing | 563,707 |
| Accretion of long-term debt (CEDA+FedDev) | 59,457 |
| Accretion of long-term debt - Vistara | 149,605 |
| Foreign exchange revaluation | (55,722) |
| Principal repaid | (219,000) |
| PPP Loan forgiveness | (184,354) |
| As at March 31, 2022 | 10,173,581 |
| Funds received | 4,073,446 |
| Costs of borrowing | 550,296 |
| Gain on Issuance of FedDev Loan | (1,131,223) |
| Accretion of long-term debt (CEDA+FedDev) | 150,795 |
| Accretion of long-term debt - WCI | 203,811 |
| Foreign exchange revaluation | 806,086 |
| Principal repaid | (4,971,023) |
| As at March 31, 2023 | 9,855,769 |
| Current portion of long term debt | 8,764,727 |
| Non-current portionof long-termdebt | 1,091,042 |
| Balance, March 31, 2023 | 9,855,769 |
| March 31, 2023 | March 31, 2022 | |
|---|---|---|
| $ | $ | |
| Current | ||
| CEDA | - | 24,000 |
| FedDev loan | 151,186 | 246,000 |
| Vistara loan | 6,388,451 | - |
| WCI Loan | 2,225,090 | - |
| 8,764,727 | 270,000 | |
| Long-term | ||
| FedDev loan | - | 125,764 |
| CEDA | - | 51,579 |
| Vistara loan | - | 9,726,238 |
| FedDev loan -Jobs & Growth | 1,091,042 | - |
| 1,091,042 | 9,903,581 | |
| Total debt | 9,855,769 | 10,173,581 |
The schedule of undiscounted principal payments is as follows:
| $ | |
|---|---|
| 2024 | 8,507,089 |
| 2025 | 90,000 |
| 2026 | 240,000 |
| 2027 | 360,000 |
| 2028 | 476,664 |
| 2029 | 533,328 |
| 2030 | 533,328 |
| 2031 | 266,680 |
| Total | 11,007,089 |
Page 32
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Long-term debt (continued)
FedDev loan
The Corporation has a loan from the Federal Economic Development Agency of Southern Ontario (“FedDev”), to support commercialization activities by funding eligible and supported costs for the submitted project. The funds provided under this contribution agreement are non-interest bearing, unsecured and are to be repaid over 60 months commencing on January 1, 2018. The loan was repayable at $500 in each of the first 12 months, $1,000 in each of the following 12 months and $20,333 in each month of the remaining months of the loan. The carrying value of the loan recorded to date has been determined by applying a discount rate of 10%. The interest-free portion is deemed to be a government grant under IAS20 Accounting for Government Grants and Disclosure of Government Assistance.
The loan was amended effective April 1, 2020 and the maturity date was extended to October 1, 2023. In addition, the payment schedule was modified as follows: no payments for 6 months following the effective date, monthly payments of $10,000 for the following 3 months, $15,000 for the following 12 months, $20,000 for the following 12 months, $22,000 for the following 9 months, with a final payment of $23,000 on the new maturity date of October 1, 2023.
An adjustment of $291,748 was recorded to recognize the government grant within the loan at fair value upon inception. After reflecting the terms of the amendment, the remaining adjustment is $128,420 at April 1, 2020. The present value will be accreted into other income (expenses) over the remaining term of the loan to accrete the loan back to its face value of $671,000.
FedDev loan – Jobs and Growth
On March 7, 2022, the Corporation entered into a new FedDev contribution agreement totaling $2,500,000, which is repayable in monthly payments of $15,000 starting from October 2024 to September 2025. The repayment amount will increase to $25,000 from October 2025 to September 2026, the payment will further increase to $35,000 between October 2026 and November 2027, and $44,444 thereafter to September 2030. The funds provided under this contribution agreement are non-interest bearing, unsecured and are to be repaid over 72 months commencing on October 1, 2024.
On May 16, 2022, the Corporation received a deposit of $1,920,000. An adjustment of $1,036,191 was recorded to recognize the government grant within the loan at fair value upon inception. The present value will be accreted into other income (expenses) over the remaining term of the loan to accrete the loan back to its face value of $1,920,000.
On November 22, 2022, the Corporation received the deposit of $65,705 towards the second tranche of the FedDev loan contribution. The funds provided under this contribution agreement are non-interest bearing, unsecured and are to be repaid over 72 months commencing on October 1, 2024. An adjustment of $33,305 was recorded to recognize the government grant within the loan at fair value upon inception. The present value will be accreted into other income (expenses) over the remaining term of the loan to accrete the loan back to its face value of $65,705.
On March 24, 2023, the Corporation received the third tranche of $127,208. An adjustment of $61,728 was recorded to recognize the government grant within the loan at fair value upon inception. The present value will be accreted into other income (expenses) over the remaining term of the loan to accrete the loan back to its face value of $127,208.
CEDA Loan
The Corporation has a loan from Canada Economic Development Agency. The loan is non-interest bearing, unsecured and repayable in 60 equal monthly payments, commencing February 2021. The carrying value of the loan recorded has applied a discount rate of 16%. The interest-free portion is deemed to be a government grant under IAS20 Accounting for Government Grants and Disclosure of Government Assistance. An adjustment of $61,466 was recorded to recognize the government grant within the loan upon inception at fair value. The present value is being accreted into other income (expenses) over the remaining term of the loan to
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An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Long-term debt (continued)
accrete the loan back to its face value of $108,000. On December 7, 2022, the Company paid the remaining principal of the outstanding loan balance in full.
National Bank of Canada revolving credit facility
On April 27, 2020, the Corporation entered into a credit agreement with National Bank of Canada. This financing is comprised of a revolving facility and other ancillary facilities (the “Revolving Loan”). The Revolving Loan is based on a multiple of monthly recurring revenue, subject to certain adjustments, up to $7,500,000, bears interest at a variable rate of prime plus 2.85% per annum and is repayable on demand. The facilities are secured by a senior security interest in and guarantees from Martello Technologies Corporation and the Corporation, as well as Savision B.V. and its subsidiaries, GSX Participations Sàrl and its subsidiaries, Martello Technologies Incorporated, and Elfiq Inc. (the “Corporate Guarantors).
Effective December 30, 2022, the Company and National Bank of Canada agreed to terminate the revolving facility and therefore releasing the Company of all security interest and guarantees from the Company and its subsidiaries. Under the terms of the current amendment, the Company is permitted a facility of up to $400,000 in respect of foreign exchange contracts and up to $100,000 in respect of corporate credit card services.
Vistara loan
On April 27, 2020, the Corporation entered a term credit facility with Vistara Technology Growth Fund III Limited Partnership (“Vistara”) (the “Vistara Credit Agreement”). Under the terms of the Vistara Credit Agreement, Vistara provided a US $8,000,000 subordinated secured term loan (the “Term Loan”). Along with the proceeds of the short-form prospectus bought deal offering closed May 26, 2020 (the “Offering”) (see Note 20) the Term Loan was used to pay the cash portion of the purchase price for the GSX Acquisition.
The Term Loan is repayable within 36 months of closing and carries interest at the greater of (i) 12.50% per annum; and (ii) the U.S. prime rate plus 8.75% per annum calculated monthly in arrears on the outstanding principal. Interest is payable monthly at 10% with the balance being added to the loan principal and payable at maturity. The effective interest rate on the Term Loan is 20.30%. The Term Loan is secured by a subordinated security interest in the Corporate Guarantors.
As consideration for providing the Term Loan, Vistara received upon closing 12,777,273 bonus warrants to purchase Common Shares (“Bonus Warrants”). Each Bonus Warrant is exercisable into one Common Share at an exercise price of $0.22 per Bonus Warrant for up to 36 months from closing.
If at any time, after four months and a day after the issue date, the volume weighted average price (“VWAP”) of the Common Shares for any twenty (20) consecutive trading days on the TSXV, during which the total volume of common shares traded in such period exceeds 5,000,000, is equal to or exceeds $0.44, and the VWAP of the Common Shares for any five (5) consecutive trading days on the TSXV is equal to or exceeds $0.44 then all of the Bonus Warrants shall be deemed to be automatically exercised by Vistara on a cashless basis.
Issuance costs relating to the Vistara Credit Agreement are allocated between the Term Loan and Bonus Warrants based on the relative fair value of each. Issuance costs related to the Term Loan are netted against the Term Loan and amortized over the life of the loan. Issuance costs related to the Bonus Warrants are netted against the value of the warrants in shareholders’ equity (deficiency).
On November 10, 2021 the Vistara Credit Agreement was amended (the “Vistara Amendment”). Under the terms of the Vistara Amendment, effective November 1, 2021 interest at the U.S. prime rate plus 8.75% per annum is payable monthly. In addition, the 12,777,273 Bonus Warrants previously issued to Vistara have been cancelled and a fee of US. $400,000 was paid to Vistara (the “Warrant Cancellation Fee”). The cancellation resulted in $287,000 recorded as a Financing fee to the consolidated statement of loss and comprehensive loss. The Vistara Amendment also sets out conditions for the Private Placement and includes adjustments to certain covenants. In connection with the Vistara Amendment, the Company issued 837,110 common shares to Vistara.
On May 28[th] 2022 the Vistara loan moved from long term to current debt. A repayment of US $1,500,000 was made on August 29[th] , 2022 using the funds raised from the Wesley Clover International Loan. Effective December 30, 2022, the Vistara Credit Agreement was amended (the “Vistara Amendment”). A condition under the Vistara Amendment was set out for a Private Placement in total of US $2,000,000 to be raised on or
Page 34
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Long-term debt (continued)
before January 24, 2023. The proceeds from the private placement were used to make a prepayment of the outstanding loan balance on January 24, 2023. The terms of Vistara agreement also included adjustments to certain covenants. The total principal and accrued balance outstanding on the Vistara loan as of 31[st] March 2023 is US $4,792,030.
Wesley Clover International Loan
Martello and Terry Matthews through Wesley Clover International (“WCI”) agreed to the subordinated term loan of US $1,500,000 advanced in August 2022 to pay down the Vistara loan. Interest accrued at US Prime plus 8.75%, consistent with the Vistara loan, and to be paid at loan maturity on May 18[th] , 2023. The effective interest rate is 19.2%.
As described in note 25, Vistara and Wesley Clover loan maturity dates were extended to September 30, 2023.
US Paycheck Protection Program loan
On March 18, 2021, the Corporation received a US Paycheck Protection Program loan ("PPP Loan"), facilitated by Bank of America. The loan is unsecured, with interest accruing at 1% per annum. Principal and interest are repayable upon maturity in March 2026.
On October 6, 2021 the PPP loan balance was forgiven. As a result of the forgiveness, the Corporation recognized a gain of $184,354 on the forgiveness of the loan in the consolidated statements of loss and comprehensive loss.
16. Right-of-use assets
| Right-of-use asset: | $ |
|---|---|
| Balance at March 31, 2022 | 1,118,599 |
| Additions | 279,955 |
| Depreciation for the period | (230,961) |
| Termination of Lease | (431,977) |
| Foreign exchange translation | 16,009 |
| Balance at March 31, 2023 | 751,625 |
| Lease obligation: | $ |
| Balance at March 31, 2022 | 1,213,871 |
| Additions | 278,364 |
| Interest expense | 88,527 |
| Payments | (343,366) |
| Termination of Lease | (493,715) |
| Foreign exchange translation | 42,308 |
| Balance at March 31, 2023 | 785,989 |
For the year-ended March 31, 2023, the Corporation recognized $230,961 (2022 - $296,413) as depreciation on right-of-use assets and $88,527 (2022 - $26,506) as interest expense on the lease liability.
In applying the practical expedient for short-term leases, the Corporation has excluded rent payments of $72,382 (2022 - $81,090) from the right-of-use asset and lease liability calculations.
The Corporation had entered into a 5-year lease for office premises in Kanata, Ontario, Canada commencing March 1, 2017 extending through to February 28, 2022. The lease was subsequently renewed, and the new maturity date is February 28, 2028 with an incremental borrowing rate of 14.08%
The Corporation has applied judgment in the process of applying IFRS 16 and determining the appropriate lease term on a lease-by-lease basis, which has a significant effect on the measurement of the lease liability and right-of-use assets recognized. Management considers many factors including any events that create an economic incentive to exercise a renewal option including expected future performance and past
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An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Right-of-use assets (continued)
business practice. The Corporation has also exercised judgment in determining the incremental borrowing rate based on the term, security, the lessee entity’s economic environment, credit rating, level of indebtedness and asset specific adjustments.
Effective August 1, 2020, the Corporation subleased its office space in Montreal to the purchaser of the assets of the network performance management segment. The lease remains guaranteed by the Corporation. As a result, the right-of-use asset for the office space in Montreal was reclassified to lease receivable in the Consolidated statements of financial position. The balance of lease receivable at March 31, 2023 is $Nil (2022- $35,394).
In January 2021, the Company exercised a right to early terminate a lease for office premises in Amsterdam, Netherlands. The remaining balance in the right-of-use asset and lease obligation was written off at the exercise date as reflected in the schedule above.
Upon acquisition of GSX, the Company recognized two leases for GSX Participations SA and its wholly owned subsidiary, Sàrl GSX Groupware Solutions. GSX Participations SA lease commenced January 2019 and expires in December 2025 with an incremental borrowing rate of 2.47%. This lease was terminated when GSX Participations SA moved to a smaller office. A new lease for the new office commenced on August 2022 and runs through to August 2027 with an incremental borrowing rate of 14.08%. Sàrl GSX Groupware Solutions lease commenced January 2019 and expires February 2025 with an incremental borrowing rate of 2.47%.
17. Defined benefits retirement plan
On May 29, 2020 the Company acquired GSX and assumed its occupational defined benefits pension plan (the “GSX Plan”). Swiss law requires GSX to arrange for an affiliation contract with a pension fund provider to provide participants with at least occupational benefits.
GSX has an affiliation contract with AXA collective foundation, Fondation LPP Suisse romande (Professional Invest) (“Collective Foundation” or “AXA”) which covers actuarial risks and the pooling of assets for all affiliated companies. The governing bodies of the Collective Foundation are responsible for risk management and the investment of Plan assets, although investment decisions can be mandated to another party.
Retirement benefits, which are based on participant salaries, are funded by the employer and employee as a fixed percentage of the insured salaries. The Collective Foundation is able to adapt the contributions and benefits at any time. If the contract with AXA is cancelled, GSX would be required to affiliate with another pension provider.
The risks of invalidity and death prior to retirement are covered by insurance. The Plan exposes the Company to the following actuarial risks:
Investment risk – a Plan deficit would be created if the return achieved on plan assets is below the discount rate used to present value of the defined benefit liability.
Foreign exchange risk – the defined benefit obligation and Plan assets are denominated in Swiss francs. The Company is exposed to changes in the value of the Swiss franc relative to the Canadian dollar to the extent of the Plan surplus or deficit.
Interest rate risk – the discount rate used to present value the defined benefit obligation is based on high quality corporate bond yields. A decrease in bond yields would increase the defined benefit obligation.
Longevity and salary risks – increases in life expectancy or the salaries of Plan participants in excess of those used in the actuarial assumptions would increase the defined benefit obligation.
An actuarial valuation of the Plan assets and the present value of the defined benefit obligation was completed as at March 31, 2023. The present value of the defined benefit obligation and the related service
Page 36
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Defined benefits retirement plan (continued)
costs were measured using the projected unit credit method.
Retirement ages are defined by Swiss statute as 65 years for men and 64 years for women. It is assumed that 30% of retirees opt to take a lump sum instead of converting retirement assets into a lifelong pension. The significant actuarial assumptions include:
| significant actuarial assumptions include: | |
|---|---|
| March 31, 2023 March 31, 2022 | |
| Discount rate | 2.10% 0.90% |
| Long-term expected salary increase | 1.00% 1.00% |
| Average longevity at retirement age for Plan participants | LPP/BVG 2020 LPP/BVG 2020 |
The LPP/BVG 2020 tables are Swiss generational tables were used for the calculation purposes and are the most up-to-date tables available in Switzerland for private pension funds.
The current service cost of $129,769 was recognized for the year ended March 31, 2023 (2022 – $137,331) along with net interest expense of $3,615 and negative return on plan assets of $109,792 for the year ended March 31, 2023 (2022 - $941 of net interest expense and negative return on plan assets of $1,311 respectively). The current service cost is included in operating expenses on the consolidated statements of loss and comprehensive loss. The net interest income is included in interest income. The return on plan assets is included in other comprehensive income (loss).
At March 31, 2023, the Plan was in a deficit position of $155,782 (March 31, 2022 - $358,643).
The movements in the defined benefit obligation for the year ended March 31, 2023 are as follows:
| $ | |
|---|---|
| Defined benefit obligation at April 1, 2022 | 1,471,929 |
| Current service cost | 129,769 |
| Interest cost | 11,742 |
| Administration cost | 798 |
| Foreign exchange translation | 100,037 |
| Participant contributions | 31,464 |
| Benefitspaid | (985,859) |
| Defined benefit obligation March 31, 2023 | 759,880 |
The movements in the defined benefit obligation for the year ended March 31, 2022 are as follows:
| $ | |
|---|---|
| Defined benefit obligation at April 1, 2021 | 1,039,523 |
| Current service cost | 137,331 |
| Interest cost | 4,722 |
| Administration cost | 1,703 |
| Foreign exchange translation | 57,274 |
| Participant contributions | 86,059 |
| Remeasurement | 145,317 |
| Defined benefit obligation March 31, 2022 | 1,471,929 |
Page 37
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Defined benefits retirement plan (continued)
The movements in Plan assets for the year ended March 31, 2023 are:
| $ | |
|---|---|
| Plan assets at April 1, 2022 | 1,113,286 |
| Interest income | 8,126 |
| Return on plan assets, excluding interest income | (109,792) |
| Participant contributions | 32,214 |
| Employer contributions | 75,165 |
| Foreign exchange translation | 76,137 |
| Benefitspaid | (591,038) |
| Fair value ofpensionplan March 31, 2023 | 604,098 |
The movements in Plan assets for the year ended March 31, 2022 are:
| $ | |
|---|---|
| Plan assets at April 1, 2021 | 781,182 |
| Interest income | 3,780 |
| Return on plan assets, excluding interest income | (1,311) |
| Participant contributions | 45,929 |
| Employer contributions | 107,155 |
| Foreign exchange translation | (7,542) |
| Remeasurement | 184,093 |
| Fair value ofpensionplan March 31, 2022 | 1,113,286 |
The Company’s pension plan actual weighted average asset allocations by asset category were as follows:
| March 31, 2023 | March 31,2022 | |
|---|---|---|
| Debt securities | 29.28% | 28.25% |
| Real estate assets | 24.54% | 23.67% |
| Equity securities | 32.08% | 32.68% |
| Alternative investments | 10.38% | 10.99% |
| Cash and cash equivalents | 3.72% | 4.41% |
| Total | 100.00% | 100.00% |
The fair values of the plan assets were determined based on the following methods:
-
Equity securities – generally quoted market prices in active markets
-
Debt securities – generally quoted market prices in active markets
-
Real estate assets – valued based on appraisal performed by a qualified external real estate appraiser
-
Alternative investments - generally quoted market prices in active markets
-
Cash and cash equivalents – generally recorded at cost which approximates fair value
Reasonably possible changes in the discount rate, salary increases, pension or life expectancy would result in a change in the DBO to the following amounts, calculated using the projected unit credit method, as at March 31, 2023.
Page 38
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Defined benefits retirement plan (continued)
| Defined benefit obligation, $ | Defined benefit obligation, $ | |
|---|---|---|
| Decrease 0.25% | Increase 0.25% | |
| Discount rate | 792,699 | 729,669 |
| Decrease 0.25% | Increase 0.25% | |
| Salary increase | 749,264 | 770,633 |
| Decrease 0.25% | Increase 0.25% | |
| Pension increase | 748,694 | 771,715 |
| Decrease 1 year | Increase 1 year | |
| Life expectancy | 754,178 | 765,554 |
The sensitivity analysis may not be representative of the actual change in the defined benefit obligation because the changes in inputs would not occur in isolation of one another.
The weighted average duration of the obligation at March 31, 2022, which relates to active members, is 16.9 years.
The Corporation expects to make contributions to the GSX Plan totaling $57,301 during the next 12 months.
18. Equity instruments
i. Common shares
The Corporation is authorized to issue an unlimited number of common shares with no par value.
The holders of the common shares are entitled to receive non-cumulative dividends, as may be determined by the Board of Directors.
by the Board of Directors. |
||
|---|---|---|
| Number of shares | Amount | |
| # | $ | |
| Common Shares | ||
| Balance at March 31, 2022 | 326,707,430 | 48,815,617 |
| Issuance of common stock | 66,000,000 | 3,300,000 |
| Balance at March 31, 2023 | 392,707,430 | 52,115,617 |
On November 10, 2021, the Corporation completed the first tranche of a non-brokered private placement (“the Private Placement”). Under the Private Placement, the Corporation issued 8,403,362 common shares at a price of $0.119 per common share, for aggregate gross proceeds of $1,000,000. The Private Placement was subscribed for entirely, either directly or indirectly, by insiders of the Corporation.
In connection with the Vistara Amendment, the Company also issued 837,110 common shares to Vistara (Note 15)
On January 27, 2022, the Corporation completed the second tranche of the Private Placement. The Corporation issued 14,370,000 common shares at a price of $0.10 per common share, for aggregate gross proceeds of $1,437,000. The Private Placement was subscribed for entirely, either directly or indirectly, by insiders of the Corporation.
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An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Equity instruments (continued)
On March 16, 2022, the Corporation completed the third tranche of the Private Placement. The Corporation issued 500,000 common shares at a price of $0.10 per common share, for aggregate gross proceeds of $50,000. The Private Placement was subscribed for entirely, either directly or indirectly, by insiders of the Corporation.
On November 15, 2022, the Corporation completed a private placement to issue 54,000,000 common shares at a price of $0.05 per common share, for the proceeds of $2,700,000. The proceeds received on January 12, 2023 were used to pay down the Vistara loan. This private placement resulted in the creation of a new Control Person (as such term is defined in the policies of the TSX Venture Exchange), being Wesley Clover International Corporation.
On January 24, 2023, the Corporation entered into a private placement for shares with Terence H. Matthews through Wesley Clover International Corporation to issue 48,000,000 common shares in four equal tranches to occur in March, April, May and June for total proceeds of $2,400,000.
On March 24, 2023, the Corporation completed the first tranche of the subscription agreement for shares and issued 12,000,000 common shares at a price of $0.05 per common share, for aggregate gross proceeds of $600,000. Subsequently, the Company has received the remaining three of the tranches in April, May and June of 2023.
ii. Warrants
During the year ended March 31, 2023, no warrants were issued (2022 – zero).
At March 31, 2023, the Corporation’s outstanding warrants consisted of the ~~fo~~ llowing:
| Date of Issue | Expiry | Type | Exercise | Number | Number | Number |
|---|---|---|---|---|---|---|
| Date | price | Issued | **Expired ** | outstanding | ||
| $ | # | # | # | |||
| May 26, 2020 | May 26, 2023 | First Offering | 0.30 | 32,861,250 | 32,861,250 | |
| March 18, 2021 | March 18, 2023 | Second Offering | 0.30 | 15,131,700 | 15,131,700 | - |
| March 18,2021 | March 18,2023 | Private Placement | 0.30 | 1,155,251 | 1,155,251 | - |
| 49,148,201 | 16,286,951 | 32,861,250 |
First Offering Warrants
As part of the share issuance of 32,861,250 common shares on May 26, 2020, 32,861,250 warrants were issued with an exercise price of $0.30 and an expiry date of May 26, 2023 (the “First Offering Warrants”) Commencing on May 26, 2021, if the daily volume weighted average exceeds $0.50, the Corporation may, upon providing written notice to the holders of the warrants, accelerate the expiry date of the First Offering Warrants to the date that is 30 days following the date of such written notice.
In determining the value of the First Offering Warrants, the barrier option model was used. The First Offering Warrants were valued at $0.0591 per warrant. The assumptions used to value the warrants were as follows:
Risk-free interest rate 0.29% Expected term 3 years Volatility 75.1% Expected dividend yield 0%
Second Offering Warrants
As part of the share issuance of 30,263,400 common shares on March 18, 2021, 15,131,700 warrants were issued with an exercise price of $0.30 and an expiry date of March 18, 2023 (the “Second Offering Warrants”). These warrants expired on March 18, 2023.
In determining the value of the Second Offering Warrants, the barrier option model was used. The Second Offering Warrants were valued at $0.0471 per warrant. The assumptions used to value the
Page 40
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements
For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Equity instruments (continued)
warrants were as follows:
Risk-free interest rate 0.27% Expected term 2 years Volatility 83.1% Expected dividend yield 0%
Concurrent Private Placement Warrants
As part of the share issuance of 2,310,502 common shares on March 18, 2021, 1,155,251 warrants were issued with an exercise price of $0.30 and an expiry date of March 18, 2023 (the “Private Placement Warrants”). These warrants expired on March 18, 2023.
In determining the value of the Private Placement Warrants, the barrier option model was used. The
Private Placement Warrants were valued at $0.0471 per warrant. The assumptions used to value the warrants were as follows:
Risk-free interest rate 0.27% Expected term 2 years Volatility 83.1% Expected dividend yield 0%
Bonus Warrants
As consideration for providing the Term Loan, on May 28, 2020 Vistara received 12,777,273 bonus warrants to purchase common shares (“Bonus Warrants”). Each Bonus Warrant is exercisable into one common share at an exercise price of $0.22 for up to 36 months from closing. If at any time, after four months and a day after the issue date, the volume weighted average price (VWAP) of the common shares for any twenty (20) consecutive trading days on the TSXV, during which the total volume of common shares traded in such period exceeds 5,000,000, is equal to or exceeds $0.44, and the VWAP of the common shares for any five (5) consecutive trading days on the TSXV is equal to or exceeds $0.44 then all of the Bonus Warrants shall be deemed to be automatically exercised by Vistara on a cashless basis.
In determining the value of the Bonus Warrants as non-employee share-based compensation, the barrier option model was used. The Bonus Warrants were valued at $0.0675 per warrant.
The total value of the warrants has been netted against the Term Loan and will be amortized over the term of the debt through interest expense in the consolidated statements of loss and comprehensive loss. The assumptions used to value the warrants were as follows:
Risk-free interest rate 0.29% Expected term 3 years Volatility 74.9% Expected dividend yield 0%
These warrants were cancelled on November 10, 2021 and a fee of US. $400,000 was paid to Vistara (Note 15).
iii. Broker compensation option units
In connection with the First Offering, the Corporation granted the underwriters 1,643,063 broker compensation option units (“First Broker Option Units”), exercisable to purchase Units at a price of $0.21 per First Broker Option Unit for a period of 24 months from the closing date. On November 19, 2020, 6,079 compensation option units were exercised. The balance 1,636,984 broker compensation units expired on May 26, 2022.
In determining the value of the First Broker Option Units as non-employee share-based compensation, the Black-Scholes option pricing model was used. The First Broker Option Units were valued at $0.131 per First Broker Option Unit. The assumptions used to determine the value of the First Broker Option Units are
Page 41
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Equity instruments (continued)
as follows:
| uments (continued) ws: |
|
|---|---|
| Market value of a First Broker Option Unit | $0.2741 |
| Exercise Price | $0.21 |
| Risk-free interest rate | 0.30% |
| Expected term | 24 months |
| Volatility | 73.9% |
| Expected dividend yield | 0% |
The market value of the First Broker Option Unit was determined by adding the value of a Broker Warrant and the market value of a common share at the date of closing of the First Offering.
In connection with the Second Offering, the Corporation granted the underwriters 1,381,591 broker compensation option units (“Second Broker Option Units”), exercisable to purchase Units at a price of $0.19 per Second Broker Option Unit for a period of 24 months from the closing date. These broker compensation options units expired on March 18, 2023.
In determining the value of the Second Broker Option Units as non-employee share-based compensation, the Black-Scholes option pricing model was used. The Second Broker Option Units were valued at $0.087 per Second Broker Option Unit. The assumptions used to determine the value of the Second Broker Option Units are as follows:
re as follows: |
|
|---|---|
| Market value of a Second Broker Option Unit | $0.17 |
| Exercise Price | $0.19 |
| Risk-free interest rate | 0.27% |
| Expected term | 24 months |
| Volatility | 83.15% |
| Expected dividend yield | 0% |
iv. Share-based payments
The Corporation has a stock option plan (the “Plan”) open to certain members of management, employees and consultants. Unless otherwise determined by the Board of Directors, options issued under the Plan vest over a three-year period and have expiry dates which are 5 years from issuance. The maximum number of common shares reserved for issuance of options that may be granted under the Plan is 10% of the total outstanding common shares of the Corporation, calculated on a fully-diluted basis.
Page 42
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Equity instruments (continued)
The following table summarizes the continuity of options issued under the Plan:
| $ | # | |
|---|---|---|
| Balance outstanding at March 31, 2021 | 0.11-0.38 | 17,829,992 |
| Granted | 0.06-0.19 | 8,687,000 |
| Exercised | 0.11-0.13 | (200,000) |
| Forfeited | 0.11-0.34 | (1,643,000) |
| Expired | 0.11-0.33 | (352,603) |
| Balance outstanding at March 31, 2022 | 0.06-0.38 | 24,321,389 |
| Granted | 0.05 | 5,615,000 |
| Exercised | - | - |
| Forfeited | 0.06-0.38 | (6,406,834) |
| Expired | 0.11 | (1,440,000) |
| Balance outstanding at March 31, 2023 | 0.05-0.38 | 22,089,555 |
| Options exercisable: | ||
| At March 31, 2023 | 0.05-0.38 | 6,930,658 |
| At March 31,2022 | 0.11-0.38 | 11,635,938 |
| Option | Number | ||
|---|---|---|---|
| Grant date | exercise price | exercisable | Remaining life |
| $ | # | Years | |
| April 3, 2018 | 0.130 | 3,776,000 | 0.01 |
| January 18, 2019 | 0.335 | 20,000 | 0.80 |
| February 28, 2019 | 0.380 | 126,000 | 0.92 |
| November 26, 2019 | 0.330 | 1,558,888 | 1.66 |
| July 28, 2020 | 0.195 | 89,999 | 2.33 |
| August 31, 2020 | 0.205 | 933,775 | 2.42 |
| November 20, 2020 | 0.220 | 69,333 | 2.64 |
| June 30, 2021 | 0.135 | 6,666 | 3.25 |
| September 8, 2021 | 0.190 | 33,333 | 3.44 |
| November 3, 2021 | 0.190 | 33,333 | 3.60 |
| January 13, 2022 | 0.100 | 283,331 | 3.79 |
| May 2, 2022 | 0.050 | - | 4.09 |
| January 12, 2023 | 0.050 | - | 4.79 |
| February14,2023 | 0.050 | - | 4.88 |
| Weighted average | 0.191 | 0.97 | |
| Total | 6,930,658 |
At March 31, 2023, the fair value of share-based compensation to be recognized as an expense in future periods totaled $164,777 (March 31, 2022– $440,442). Share-based compensation expense for
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An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Equity instruments (continued)
the period is disclosed in Note 8.
In determining the amount of share-based compensation, the Corporation uses the Black-Scholes option pricing model to establish the fair value of options granted. 5,615,000 options were granted in the year ended March 31, 2023. The fair value of options granted in the year ended March 31, 2023 was established by applying the following assumptions:
| **March 31, 2023 ** | March 31, 2022 | |
|---|---|---|
| Fair market value on grant date | 0.025-0.055 | 0.055-0.135 |
| Exercise price | 0.05 | 0.06-0.19 |
| Risk-free interest rate | 2.71-3.72% | 0.56-1.67% |
| Expected life in years | 3.5 | 3.5 |
| Expected dividend yield | 0% | 0% |
| Volatility | 77.62-85.19% | 76.44-78.49% |
| Fair value of options issued in theperiods | 0.017-0.035 | 0.022-0.073 |
Volatility was determined by using the historical volatility of the stock of comparable companies over a 3.5year period. The expected life in years represents the period of time that options granted are expected to be outstanding. The risk-free rate is based on zero-coupon Canada government bonds with a remaining term equal to the expected life of the options.
During the year 12,944,000 options were repriced to $0.05. This repricing resulted in an incremental fair value totaling $27,370 which is recorded in the statement of comprehensive loss. The incremental fair value was calculated using the following assumptions:
| Fair market value on grant date | 0.025 |
|---|---|
| Exercise price | 0.05 |
| Risk-free interest rate | 3.36% |
| Expected life in years | 3.5 |
| Expected dividend yield | 0% |
| Volatility | 84.40% |
| Fair value of options issued in theperiods | 0.011 |
19. Supplementary cash flow information
The net change in the operating components of working capital is as follows:
| March 31, | March 31, | ||
|---|---|---|---|
| Note | 2023 | 2022 | |
| $ | $ | ||
| Net change in operating components of working capital: | |||
| Trade and other accounts receivable | 11 | (46,031) | 843,316 |
| Investment tax credits and grants receivable | 8 | (443,843) | (211,857) |
| Prepaid expenses | (364,411) | (415,150) | |
| Inventories | 3,471 | (1,094) | |
| Accounts payable and accrued liabilities | 14 | (322,630) | (1,277,114) |
| Deferred revenue | 5 | (214,789) | 324,980 |
| Total | (1,388,233) | (736,919) |
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An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
20. Fair values
Set out below is a table by class of the Corporation’s financial instruments that are carried in the consolidated financial statements.
| financial statements. | ||
|---|---|---|
| March 31, 2023 | March 31,2022 | |
| $ | $ | |
| Financial assets | ||
| Cash | 2,117,652 | 4,853,218 |
| Short-term investments | 101,430 | 170,000 |
| Trade and other accounts receivable | 4,397,166 | 4,231,065 |
| Investment tax credits and grants receivable | 1,454,782 | 944,816 |
| Investment | 303,750 | 303,750 |
| Foreign exchange forward contract asset | 15,649 | - |
| Lease receivable | - | 35,394 |
| Total financial assets | 8,390,429 | 10,538,243 |
| March 31, 2023 | March 31,2022 | |
| $ | $ | |
| Financial liabilities | ||
| Accounts payable and accrued liabilities | 2,986,302 | 3,113,352 |
| Foreign exchange forward contract liability | - | 5,015 |
| Lease obligation | 785,989 | 1,213,874 |
| Long-term debt(includingcurrentportion) | 9,855,769 | 10,173,581 |
| Total financial liabilities | 13,628,060 | 14,505,822 |
The fair value of the financial assets and financial liabilities is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values:
-
a. Cash, short-term investments, trade and other accounts receivable, investment tax credits and grants receivable, lease receivable, accounts payable and accrued liabilities approximate fair value at their carrying amounts due to the short-term maturities of these instruments.
-
b. Long-term debt and lease obligations have a fair value which is based on the present value of future interest and principal payments, using the applicable discount rates.
-
c. Investments represent the Investment made in Adaptiv (Note 4) that are valued using level 3 inputs.
The market interest rates that would apply to the Corporation’s long-term debt is not significantly different from the effective interest rates used to amortize these debts. Therefore, the carrying amounts are comparable to fair values.
The Corporation’s foreign exchange forward contracts are remeasured at fair value at each reporting period.
Fair value hierarchy
The Corporation uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Page 45
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Fair values (continued)
-
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
-
Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly.
-
Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
Long-term debt is valued under the Level 2 hierarchy.
The fair value of foreign exchange forward contracts represented an asset as at March 31, 2023 of $15,649 and a liability as at March 31, 2022 of $5,015. This fair value is estimated using a market approach with forward exchange rates observable at the end of the reporting period and contract forward rates as inputs and is categorized within Level 3 of the fair value hierarchy.
21. Related party transactions and balances
During the period the Corporation entered into the following transactions with related parties in the normal course of operations.
-
i. For the year-ended March 31, 2023, the Corporation paid rent to Wesley Clover International Corporation, which is reflected in the results as depreciation of right-of-use assets of $69,386 and $75,062 in rent expense (March 31, 2022 – $85,984 depreciation of right-of-use assets and $124,770 of rent expense). Included in accounts payable and accrued liabilities as at March 31, 2023 is an advance rent of $Nil (March 31, 2022 - $19,262) to Wesley Clover International Corporation.
-
ii. On August 22, 2022, the Corporation obtained a subordinate loan from Wesley Clover International for US $1,500,000 which was used to repay the Vistara loan. Interest on the WCI loan accrue on the same terms as that of Vistara and will be paid at the maturity of the loan on May 28, 2023. For the year ended March 31, 2023 , interest of $203,811 (March 31,2022 – $Nil) was accrued and recorded on the consolidated statement of loss and comprehensive loss.
-
iii. Effective October 24,2022, the Corporation entered into an agreement with Wesley Clover Services North America for procuring Development, Security, and Operations services and technical services for the Martello Technologies platform. For the year ended March 31, 2023 expense of $141,678 (March 31,2022 – $Nil) in this regard has been recorded on the consolidated statements of loss and comprehensive loss). Included in accounts payable and accrued liabilities as at March 31, 2023 is an accrual of $14,000 (March 31, 2022 - $Nil) to Wesley Clover International Corporation.
-
iv. One of the co-chairmen of the Corporation is a chairman of Wesley Clover International Corporation, a shareholder of the Corporation.
-
v. Included in accounts payable and accrued liabilities are balances as at March 31, 2023 totaling $338,643 (March 31, 2022 - $327,474) due to key management personnel for compensation, earned vacation pay and DSU expenses.
-
vi. The remuneration of directors and key management personnel during the year was as follows:
| March 31 | March 31, | |
|---|---|---|
| 2023 | 2022 | |
| $ | $ | |
| Salaries, wages and bonuses | 1,560,334 | 1,628,425 |
| Other employee benefits | 48,015 | 53,778 |
| Share-based compensation | 114,905 | 409,342 |
| Total | 1,723,255 | 2,091,545 |
Page 46
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
22. Financial risk management objectives and policies
Transactions from operations that give rise to the recognition of financial instruments on the consolidated statement of financial position may result in an entity assuming or transferring financial risk to another party. The Corporation’s primary risk management objective is to protect the Corporation’s statement of financial position and cash flows, in order to increase the Corporation’s enterprise value.
The Corporation is exposed to credit risk, liquidity risk and market risks (related to foreign exchange rates). There have been no changes to these risk exposures since the prior period, except as noted.
The Corporation’s senior management and Board of Directors oversees the management of these risks. It is the Corporation’s policy that no trading in instruments for speculative purposes shall be undertaken. The Board of Directors reviews and defines policies for managing each of these risks which are summarized below.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument asset or customer contract, leading to a financial loss to the Corporation. Trade receivables as at March 31, 2023 are presented net of an allowance for expected credit losses of $Nil (March 31, 2022 - $18,481). The Corporation’s largest customer – Mitel UC, accounted for revenue of $6,892,742 or approximately 43% of total revenue, for the year ended March 31, 2023 (March 31, 2022 - $7,004,111 or 40%). At March 31, 2023 the account receivable from this customer totaled $1,349,459 (March 31, 2022 - $1,305,334). The Corporation maintains strict credit policies and limits in respect to counterparties.
Liquidity risk
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation manages liquidity risk by reviewing its capital and operating requirements on an ongoing basis.
The following table summarizes the maturities of financial instruments as at March 31, 2023:
| 2028 to | |||||||
|---|---|---|---|---|---|---|---|
| 2023 | 2024 | 2025 | 2026 | 2027 | 2031 | Total | |
| $ | $ | $ | $ | $ | $ | $ | |
| Accounts payable | |||||||
| and accrued liabilities | 2,986,302 | - | - | - | - | - | 2,986,302 |
| Lease obligation | - | 262,200 | 262,200 | 183,970 | 183,970 | 138,329 | 1,030,670 |
| Debt liabilties | - | 8,507,089 | 90,000 | 240,000 | 360,000 | 1,810,000 | 11,007,089 |
| Total | 2,986,302 | 8,769,289 | 352,200 | 423,970 | 543,970 | 1,948,329 | 15,024,061 |
Market risk
Market risk is the risk that the fair value or future cash flows related to a financial instrument will fluctuate because of changes in market prices. Market price exposures include foreign currency exchange rates.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates. The Corporation’s exposure to the risk of changes in foreign exchange rates relates primarily to the Corporation’s operating activities, when revenue and expense transactions are denominated in a currency other than the Canadian dollar, the Corporation’s functional currency.
During the year ended March 31, 2023, 99% of revenue and 25% of expenses were in foreign currencies (March 31, 2022 - 99% of revenue and 46% of expenses). Transactions in foreign currencies also require the Corporation to hold significant working capital balances in foreign currencies. The effect of translating financial instrument receivables and payables each period gives rise to foreign exchange gains and losses that are recognized in net loss.
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An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
Financial risk management objectives and policies (continued)
The Corporation’s exposure to foreign currency exchange rates is primarily to the United States dollar (USD) and the Euro (EUR).
During the year ended March 31, 2021, the Corporation entered into derivative financial instruments (foreign exchange forward contracts) to manage foreign currency risk with the USD. As at March 31, 2023, the Corporation is committed under outstanding foreign exchange forward contracts to sell USD (representing commitments of USD $9,900,000). The Corporation does not enter into any derivative instruments to reduce its exposure to the EUR.
The Corporation’s net exposure to the USD and EUR is denominated in CAD and is summarized in the following table:
table: |
||||
|---|---|---|---|---|
| March 31, | March 31, | March 31, | March 31, | |
| 2023 | 2022 | 2023 | 2022 | |
| USD | USD | EUR | EUR | |
| Cash and restricted cash | 956,577 | 1,089,318 | 172,887 | 379,490 |
| Trade and other accounts receivable | 3,245,689 | 3,119,131 | 1,104,804 | 1,231,624 |
| Accounts payable and accrued liabilities | (3,162,733) | (2,386,856) | (1,213,660) | (1,088,067) |
| Foreign exchange forward contract asset (liability) | 15,649 | (5,015) | - | - |
| Long-term debt | (8,900,649) | (11,369,728) | - | - |
| Net exposure | (7,845,467) | (9,553,150) | 64,031 | 523,047 |
A 10% change of the US$ and EUR against the CAD at March 31, 2023 would have increased or decreased net loss by $778,143 (March 31, 2022: $903,010)
23. Capital management
Management defines capital as total shareholders’ equity. The Board of Directors has not established capital benchmarks or other targets. There have been no changes in the Corporation’s approach to capital management during the year ended March 31, 2023. The Corporation will continually assess the adequacy of its capital structure and capacity and make adjustments within the context of the Corporation’s strategy, economic conditions, and the risk characteristics of the business.
24. Commitments
The Corporation entered into a 5-year lease for office premises in Kanata, Ontario, Canada commencing March 1, 2017 extending through to February 28, 2022. The lease was subsequently renewed, and the new maturity date is February 28, 2028. The lease is with a related party, as described in note 21 Related party transactions and balances. The Corporation is also committed to a 3-year lease for office premises in Montreal, Quebec (the “Elfiq Lease”) commencing November 1, 2019 and extending through to October 31, 2022. The Corporation has subleased the Elfiq Lease to a third party and the lease has been guaranteed by the Corporation. The sub lease ended in Q3 FY2023.
Total lease commitments remaining for the year-ending March 31, 2024, is $102,476.
On August 24, 2021, the Company signed a consumption commitment with Microsoft to use $4,000,000 of eligible services within 4 years from the agreement date. On maturity date, the Company is obligated to prepay the difference between the commitment amount and total invoiced amount and any future invoices will be applied towards the prepayment amount. At March 31, 2023, the Company has consumed $1,140,000 of eligible services since the contract date. The company projects to be within $500K of the $4M commitment by July 2025.
Page 48
An Independent Member of BKR International
Martello Technologies Group Inc. Notes to consolidated financial statements
For the years ended March 31, 2023 and 2022
(in Canadian Dollars)
25. Events after the reporting period
Vistara and Wesley Clover International loan amendment
On May 25, 2023, the Company and Vistara Technology Growth Fund III Limited Partnership, entered a new amendment to extend the maturity date of the loan from May 28, 2023 to September 28, 2023. In addition, the Borrower, Corporate Guarantors and Vistara Growth Fund III Limited Partnership, agreed to waive existing defaults.
The Company amended the agreement dated August 22, 2022 between Wesley Clover International Corporation ("Wesley Clover”) and the Company on May 25, 2023. Under the terms of the amendment Wesley Clover will increase the existing loan balance by USD $792,031, these proceeds along with additional US $500,000, were used to pay off portion of the Vistara loan.
The amendment also included a requirement to have a minimum balance in cash in accounts with Senior Lender in total of CAD $1,000,000.
Stock option grant
On May 29, 2023, the Board of Directors approved the grant of 18,635,000 stock options to employees of the Company with an exercise price of $0.05 per stock option.
Page 49
An Independent Member of BKR International