Martello Technologies Group Inc. — Interim / Quarterly Report 2021

Feb 18, 2021

Unaudited condensed interim consolidated financial statements of

Martello Technologies Group Inc.

For the three and nine months ended December 31, 2020 and 2019.

For the three and nine months ended December 31, 2020 and 2019.

Table of contents

Condensed interim consolidated statements ofloss andcomprehensiveloss	3
Condensed interim consolidated statements offinancialposition	4
Condensed interim consolidatedstatements of changes inshareholders'equity	5
Condensed interim consolidated statements ofcashflows	6
Notes to thecondensed interim consolidatedfinancialstatements7-27

Condensed interim consolidated statements of loss and comprehensive loss For the three and nine months ended December 31, 2020 and 2019 Unaudited

(In Canadian dollars)

		December 31,	December 31,	December 31,	December 31,
	Notes	2020	2019	2020	2019
		(3 months ended)		(9 months ended)
Income
Sales	6,7	4,633,230	$2,884,789	$12,355,383	$8,337,007
Cost of goods sold		309,228	160,161	716,264	512,198
Gross margin		4,324,002	2,724,628	11,639,119	7,824,809
Expenses
Research and development	Э	1,490,031	1,050,886	3,684,915	3,011,124
Sales and marketing	9	1,733,616	967,106	3,961,868	2,864,055
General and administrative	9	1,510,344	1,262,628	4,126,339	3,409,800
Depreciation	16.20	147,262	73,542	383,796	218,383
Amortization		497,110	160,123	1,273,888	472,956
Acquisition-related costs		70,894	48,812	1,005,185	109,690
		5,449,257	3,563,097	14,435,991	10,086,008
Loss from operations		(1, 125, 255)	(838, 469)	(2,796,872)	(2,261,199)
Other income (expense)
Interest income		2,600	15,472	7,298	32,072
Interest expense		(490, 710)	(44, 693)	(1,219,518)	(157, 628)
Financing fees		7,068		(397, 449)
Accretion of long-term debt		(17, 254)	(15,581)	(1,257)	(47,073)
Foreign exchange gain (loss)		282,197	(34, 106)	400,201	(168, 524)
Other income (expense)		(23, 905)	4,597	(33, 369)	6,846
Loss from continuing operations before income tax		(1,365,259)	(912, 780)	(4,040,966)	(2,595,506)
Income tax recovery (expense)		(93, 558)	100,514	(113, 303)	263,299
Net loss from continuing operations		(1,458,817)	(812, 266)	(4, 154, 269)	(2,332,207)
Loss from discontinued operations, net of tax	5		(515, 656)	(320, 171)	(1,382,733)
Net loss		(1,458,817)	(1,327,922)	(4, 474, 440)	(3,714,940)
Other comprehensive income (loss) that may be
reclassified to net income (loss):
Cumulative translation adjustment		79,830	96,973	846,624	(260, 687)
Pension plan remeasurement	17	401,656		401,656
Pension plan fair value adjustment	17	(7, 867)		45,013
Total comprehensive loss		(985, 198)	(1,230,949)	(3, 181, 147)	(3,975,627)
Weighted average shares outstanding		268,013,856	208,052,698	254, 181, 155	197,348,492
Basic and diluted
Net loss per share from continuing operations		$(0.01)$ $*$$	(0.00)	$$(0.02)$ $*$	(0.01)
Basic and diluted
Net earnings (loss) per share from		$
discontinued operations		$0.00*$	(0.00)	$$(0.001)$ $	(0.01)
Basic and diluted		$
Net loss per share, basic and diluted		$(0.01)$ $	(0.01)	$$(0.02)$ $	(0.02)

Condensed interim consolidated statements of financial position As of December 31, 2020 and March 31, 2020

Unaudited

(In Canadian dollars)

		December 31,	March 31,
	Note	2020	2020
Assets
Current assets
Cash	11	$3,877,873	$2,900,074
Short-term investment		170,000	3,000,000
Trade and other accounts receivable	12	4,960,882	3,733,737
Investment tax credits and grants receivable	9	734,182	376,634
Prepaid expenses		531,748	547,506
Inventories		74,253	242,413
Foreign exchange forward contract asset		18,079
Lease receivable	16	65,901
Total ourrent assets		10,432,918	10,800,364
Goodwill	6,13	21,281,988	7,984,317
Intangible assets	6	14,226,977	5,427,120
Equipment and leasehold improvements		346,727	435,156
Right-of-use assets	16	1,192,351	594,642
Investment	4	303,750
Lease receivable	16	62,388
Total assets		47,847,099	25,241,599
LiabilitiesCurrent liabilities
Accounts payable and accrued liabilities	14	3,748,707	2,525,729
Foreign exchange forward contract liability			149,800
Current portion of deferred revenue	7	6,013,532	2,956,373
Current portion of long-term debt	15	199,800	1,222,330
Current portion of lease obligation	16	420,091	253,682
Total current liabilities		10,382,130	7,107,914
Deferred revenue	7	1,604,048	1,181,563
Long-term debt	15	9,443,416	1,246,517
Lease obligation	16	964,217	385,206
Pension obligation	3,17	399,473
Deferred tax liability		643,595	225,688
Total liabilities		23,436,879	10,146,888
Shareholders' equity
	18	41,592,978	31,780,139
Share capitalContributed surplus	18	2,915,509	2,726,868
Warrants	18	2,514,676	19,500
Accumulated other comprehensive income		1,684,509	391,216
Deficit		(24, 297, 452)	(19, 823, 012)
Total shareholders' equity		24,410,220	15,094,711
Total liabilities and equity		47,847,099	25,241,599

Approved by the Board on February 17, 2021 and signed on its behalf by:

Original signed "Colley Clarke" Director

Original signed "Michael Michalyshyn" Director

Condensed interim consolidated statements of changes in shareholders' equity For the nine months ended December 31, 2020 and 2019

(In Canadian Dollars)

							Accumulated Other ComprehensiveIncome
		Notes Shares outstanding	Share capital		Warrants Contributed surplus	Other	Cumulativetranslationadjustment	Deficit	Total shareholders'equity
			S	S		£.	S
Balance at April 1, 2019		191,237,568	27,443,488	37,500	2,419,902		52,791	(11.639.465)	18,314,216
Net loss for the period								(3,714,940)	(3,714,940)
Other comprehensive loss						$\sim$	(260.687)		(260.687)
Total comprehensive loss for the period		$\overline{\phantom{a}}$				$\overline{\phantom{0}}$	(260, 687)	(3.714.940)	(3.975.627)
Issuance of common stock	18	15,333,332	4,600,000						4,600,000
Less: Transaction costs attributable to share and warrant issuance	18		(604, 116)						(604, 116)
Exercise of warrants		493,715	72,309	(18,000)					54,309
Exercise of stock options	18	1,115,496	210,648		(80, 157)				130.491
Share-based compensation	18				287.652				287,652
Balance as at December 31, 2019		208.180.111	31,722,329	19,500	2,627,397		(207, 896)	(15, 354, 405)	18,806,925
Balance at April 1, 2020		208,516,111	31,780,139	19,500	2,726,868		391,216	(19.823.012)	15,094,711
Net loss for the period								(4,474,440)	(4,474,440)
Actuarial gain on remeasurement						401,656			401,656
Pension plan fair value adjustment						45,013			45,013
Other comprehensive income							846,624		846.624
Total comprehensive loss for the period					$\overline{\phantom{a}}$	446,669	846,624	(4,474,440)	(3, 181, 147)
Issuance of common stock	18	54,861,250	9,468,763						9,468,763
Issuance of Offering Warrants	18			862.466					862.466
Issuance of Bonus Warrants	15,18			1.942.100					1,942,100
Less: Transaction costs attributable to share and warrant issuance	18		(816, 130)	(289, 890)					(1, 106, 020)
Issuance of compensation option units	18				216,680				216,680
Exercise of compensation option units	18	6.079	1.277						1.277
Exercise of warrants	18	274,285	40.171	(10,000)					30,171
Expiry of warrants	18			(9,500)	9,500
Exercise of stock options	18	6,165,331	1,118,758		(423, 369)				695,389
Share-based compensation	18				385,830				385,830
Balance as at December 31, 2020		269.823.056	41.592.978	2.514.676	2.915.509	446.669	1.237.840	(24.297.452)	24.410.220

Condensed interim consolidated statements of cash flows For the nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

		December 31,	December 31,
	Note	2020	2019
Operating activities
Net loss from continuing operations before income tax	Ŝ	$(4,040,966)$ S	(2,595,506)
Net loss from discontinued operations before income tax		(320, 171)	(1,382,733)
Items not affecting cash:
Depreciation	16, 20	417,075	257,344
Amortization of leasehold incentives			(11,288)
Amortization of intangible assets		1,345,306	791,712
Amortization of debt issuance cost		329,948
Increase in fair value of hedge liability		(167, 879)	(5,713)
Accretion of long-term debt	15	7.646	52,744
Share-based compensation	9	385,830	287,652
Defined benefit plan expense	17	101,114
Lease interest expense		34,190	12,726
Accrued interest expense		164,922
Unrealised foreign exchange gain		(718,059)	(19,658)
Income tax refund			7,814
Loss on disposal of intangible assets		2,020
Loss on disposal of capital assets		31,570
Net change in operating components of working capital		(2,937,760)	(938, 803)
Total cash flows used in operations		(5,365,214)	(3,543,709)
Investing activities
Purchase of short-term investments		(350,000)	(4,000,000)
Sale of short-term investments		3,180,000
Additions to equipment and leasehold improvements		(43, 949)	(105, 222)
Proceeds from sale of subsidiary	4	424,702
Business acquisition, net of cash acquired	6	(11, 557, 474)
Total net cash flows used in investing activities		(8,346,721)	(4, 105, 222)
Financing activities
Proceeds from issuance of common stock	18	4,958,763	3,995,884
Common stock issuance costs	18	(660, 437)
Proceeds from exercise of stock options	18	695,389	130,491
Proceeds from issuance of warrants	18	1,942,100
Warrants issuance costs	18	(228, 902)
Proceeds from long-term debt	15	10,975,966	12,000
Debt issuance costs	18	(838, 806)
Repayment of long-term debt	15	(1,835,332)	(730, 847)
Repayment of lease obligations	16	(357, 845)	(155, 281)
Proceeds from exercise of warrants	18	30,171	54,309
Total cash flows provided by financing activities		14,681,067	3,306,556
Net change in cash		969,132	(4,342,375)
Cash, beginning of period		2,900,074	6,649,302
Effects of currency translation on cash		8,667	(13, 374)
Cash, end of period		3,877,873	2,293,553

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

1. Corporate information

Martello Technologies Group Inc. (the "Corporation") is a provider of digital experience monitoring (DEM) solutions. The Corporation's common shares are traded on the TSX Venture Exchange ("TSXV") under the trading symbol MTLO.

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.

2. Basis of preparation and accounting policies

The condensed interim consolidated financial statements have been prepared under the going concern assumption and using the historical cost basis, except for foreign exchange forward contracts and investment, which are measured at fair market value.

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, and should be read in conjunction with the Corporation's most recent annual audited consolidated financial statements, which are for the year ended March 31, 2020.

Significant accounting policies

The significant accounting policies used in preparing these condensed interim consolidated financial statements are the same as those disclosed in note 2 of the Corporation's 2020 annual consolidated financial statements, except for the following additions to the policies as set out below:

• (a) New accounting policies
  • i. 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:

• (a) Defined benefit obligations are determined from actuarial calculations using the projected unit credit method.
• (b) For the purposes of calculating the estimated rate of return on plan assets, assets are measured at fair value.
• (c) Actuarial gains or losses arise from the difference between the effective yield of plan assets for a 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.
• (d) Net interest is recognized in the condensed interim 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.
• (e) Net defined benefit liability is determined based on the excess of plan obligations over plan assets.
• ii. Share-based payments

For share-based compensation granted to non-employees, the expense is measured at the fair value of the compensation, except where the fair value cannot be estimated in which case it is measured at the fair value of the equity instruments granted.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Basis of preparation and accounting policies (continued)

Significant accounting policies (continued)

iii. 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 statement of changes in shareholders' equity. 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 condensed interim 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 judgments, estimates and assumptions applied in the preparation of these condensed interim consolidated financial statements are the same as those disclosed in note 3 to the 2020 annual consolidated financial statements except for the following items set out below.

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 other comprehensive income.

4. Fair value measurement

The carrying amounts of the Corporation's cash, cash equivalents, restricted cash, trade and other receivables, investment tax credits and grants receivable, 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 $18,079 at December 31, 2020. 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. The hierarchy is described in Note 21 of the March 31, 2020 annual financial statements.

In July 2020, as a result of the Company's sale of certain assets of the 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 fair value through adjustment to profit and loss. The fair value of this investment is determined using level 3 inputs. There were no losses or gains recognized during the nine months ended December 31, 2020.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

5. Discontinued Operations

In the first quarter of the 2021 fiscal year the Corporation initiated a review of the former network performance management operating segment ("NPM segment") and decided to divest the assets of this segment.

The Corporation divested the assets of this segment on July 22, 2020. Details of the disposal are as follows:

	July 22, 2020
Assets
Current assets	$
Trade and other accounts receivable	295,772
Prepaid expenses	15,841
Inventories	157,404
Total current assets	469.017
Non-current assets
Equipment and leasehold improvements	88,225
Intangible assets	821,168
Total assets	1,378,410
Liabilities
Current liabilities
Deferred revenue	497,595
Accounts payable and accrued liabilities	59,674
Lease obligation	5,394
Total current liabilities	562,663
Non-current liabilities
Deferred revenue	203,370
Total liabilities	766,033
Net assets disposed of	612,377
Gain on Sale of NPM segment
Cash proceeds of sale	424,7
Promissory note receivable	100,0
Shares of Adaptiv	303,7
Proceeds of sale	828,4
Net assets disposed of	(612, 3)
Gain on disposal, before tax	2160

The sale of the NPM segment constitutes the sale of a separate major operating segment, and as a result the Corporation has reported the financial results as discontinued operations for all periods presented.

The comparative results of the discontinued operations included in net loss for the three and nine month periods ended December 31, 2020 are set out below:

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Discontinued Operations (continued)

	Three months ended				Nine months ended
	December 31, December 30,2020		2019		December 31,2020	December 31,2019
Income
Sales	s$\overline{\phantom{0}}$	-S	485.524	s	352.915 S	1,481,378
Cost of goods sold			83.547		55,194	240,805
Gross margin			401.977		297,721	1,240,573
Expenses
Research and development			245,628		389,933	596,119
Sales and marketing			352,415		197.217	1,165,279
General and administrative			189,281		138,761	625,231
Depreciation			22.294		33.485	38.961
Amortization			106,252		71,376	318,756
	٠		915,870		830,772	2,744,346
Loss from discontinued operations	٠		(513, 893)		(533,051)	(1,503,773)
Other income/expense
Interest income						1,134
Interest expense			(1,026)		(4,560)	(5,722)
Accretion of long-term debt			(2,892)		(6, 389)	(5,671)
Foreign exchange gain (loss)			741		7.755	(2.893)
Other income			1.414			769
Gain on disposal					216,074
Loss before income tax	۰		(515.656)		(320, 171)	(1,516,156)
Income tax recovery	۰					133,423
Loss from discontinued operations	٠		(515.656)		(320.171)	(1.382.733)

The following table presents the effect of the discontinued operations on the consolidated statements of cash flows:

	Nine months ended
		December 31, 2020		December 31, 2019
Cash used in operating activities	S	$(176.950)$ $		(76, 475)
Cash (used in) provided by investing activities		424,702		(29.864)
Cash used in financing activities		(53.138)		(13.228)
Net cash inflow (outflow)		194.614		(119, 567)

6. Business acquisitions

On May 29, 2020, the Corporation purchased 100% of the issued and outstanding shares of GSX Participations SA and its wholly owned subsidiaries, Sàrl GSX Groupware Solutions and GSX Groupware Solutions, Inc. (the "GSX Acquisition"). GSX provides end-user experience monitoring for Microsoft productivity suite users, including 365. The transaction was accounted for as a business combination. The fair values of the identifiable asset and liabilities acquired have been based on management's best estimates and valuation techniques as at the acquisition date.

As of December 31, 2020, the analysis of identified intangible assets and fair values is incomplete, as such all of the differences between the purchase consideration and the assets acquired and liabilities assumed has been allocated to goodwill and intangible assets. The estimated purchase price allocation remains subject to adjustments that could arise as a result of new information that would impact the determination of fair value of the assets acquired and liabilities assumed.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Business acquisitions (continued)

In total, the consideration for the transaction amounted to $16,521,601 which included $12,011,601 in cash and $4,510,000 for the issuance of 22,000,000 common shares.

The purchase price was allocated as follows:

	$
Net assets (liabilities) acquired, other than undernoted items	(6,630,453)
Deferred tax liability	(432,982)
Goodwill and intangible assets acquired	23,585,036
Total purchase price	16,521,601
The net liabilities acquired included the following:
	$
Cash	454,127
Trade and other accounts receivable	1,377,716
Prepaid expenses	335,063
Equipment & leasehold improvements	97,830
Right-of-use assets	1,172,045
Total assets	3,436,781
Accounts payable and accrued liabilities	3,072,900
Deferred revenue	4,972,490
Lease obligation	1,190,906
Pension obligation	830,938
Total liabilities	10,067,234
Net liabilities acquired	(6,630,453)

The fair value and gross contractual amount of trade accounts receivable acquired was $1,007,551.

The net cash outflow on the acquisition of GSX is as follows:

	$
Consideration paid in cash	12,011,601
Less: Cash and cash equivalents acquired	454,127
Net cash outflow	11,557,474

Goodwill arose in the acquisition of GSX because the cost of acquisition included a control premium and, also reflected the benefit of expected revenue growth, diversification of product offering and future product development. These benefits were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes.

For the period from May 29, 2020 to December 31, 2020, GSX accounted for $1,883,323 and $4,215,091 in sales for three and nine months ended December 31, 2020. GSX also recognized $37,248 and $430,329 of net loss for three and nine months ended December 31, 2020.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

7. Revenue

The geographic location of revenues, based on the location of its customers, is as follows:

	Three months ended		Nine months ended.
	December 31.2020	2019	December 31. December 31.2020	December 31,2019
		$		$
Revenue for the period ended
Canada	1,313,646	1,406,501	4,303,079	4,088,734
United States	1,339,392	582,813	3,284,866	1,701,742
Europe	1,696.458	717,361	4.057.220	2,032,388
Asia	96.293	54,471	241.789	152.234
Latin America	22.825	2.192	33.850	5.498
Australia	152,465	92,132	394,349	266,159
Other	12,151	29,319	40,230	90,252
Total revenue	4,633,230	2,884,789	12,355,383	8,337,007

The Corporation's revenue can be analyzed by type and by basis of their recognition, as follows for the three and nine-month periods ended:

		Three months ended
	December 31, December 31,2020	2019	December 31, December 31.2020	2019S
Revenue at a point in time
Hardware	1.158	2.669	23,424	18,491
Perpetual licenses	111.687	106.306	111,687	215,206
Training and professional services	8.921	52.295	109.039	193.453
Revenue recognized over time
Subscription licenses	3.540.784	2.369.727	9.626.618	6.808.671
Maintenance and support	892,839	353.792	2,270,724	1.101.186
Term licenses	77,841		213,891
Total revenue	4,633,230	2.884.789	12.355.383	8.337.007

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:

December 31, 2020	March 31, 2020
3,816,833	1,521,616
1.994.195	1,434,757
202,504
912,451	481,789
529,519	699.774
162,078
7,617,580	4,137,936

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Revenue (continued)

Non-current assets by geographic area are as follows:

	December 31, 2020 March 31, 2020
Canada	706,458	1,614,712
Netherlands	12,088,176	12.805.208
Switzerland	24,598,269
Other	21.278	21,315
Total non-current assets	37,414,181	14.441.235

8. Operating segment information

The Corporation has assessed that it operates in three operating segments, those being Vantage DX Monitoring – Mitel UC, Vantage DX Monitoring – Microsoft 365 and Vantage DX Analytics – IT Service Analytics. Vantage Dx is the name of the Corporation's solution suite portfolio for digital experience monitoring and the operating segments have been renamed to align with the revised solution names. Vantage Dx Monitoring – Microsoft 365 is a new segment resulting from the GSX Acquisition. For operating segment reporting purposes, Vantage Dx Monitoring – Mitel UC was previously reported as Performance analytics and Vantage Dx Analytics – IT Service Analytics was previously reported as IT visualization. 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.

		Vantage Dx
	Vantage Dx Analytics - IT		Vantage Dx
	Monitoring -Mitel UC	ServiceAnalytics	Monitoring -Microsoft 365	Total
Three months ended December 31, 2020				s
Revenue at a point in time
Hardware	1.158			1.158
Perpetual licenses	111.687			111,687
Training and professional services	(3,287)	3.694	8.514	8,921
Revenue recognized over time
Subscription licenses	1,847,505	543.639	1,158,635	3,549,779
Maintenance and support	12,414	233.097	638,333	883,844
Term licenses	۰	۰	77.841	77,841
Total revenue	1,969,477	780.430	1.883.323	4,633,230

	Vantage Dx Vantage DxMonitoring - Analytics - IT		Vantage DxMonitoring -
	Mitel UC	Service	Microsoft 365	Total
Nine months ended December 31, 2020
Revenue at a point in time
Hardware	23,424		۰	23,424
Perpetual licenses	111.687		۰	111.687
Training and professional services	61.895	25,737	21.407	109.039
Revenue recognized over time
Subscription licenses	5,499,843	1,604,278	2,522,497	9,626,618
Maintenance and support	26.256	787.172	1.457.296	2.270.724
Term licenses			213,891	213,891
Total revenue	5,723,105	2,417,187	4,215,091	12,355,383

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Operating segment information (continued)

Three months ended December 31, 2019	Monitoring -Mitel UC	Vantage DxVantage Dx Analytics - ITServiceAnalytics	Total
Revenue at a point in time
Hardware	2.669		2.669
Perpetual licenses	6.004	100.302	106,306
Training and professional services	-	52.294	52.294
Revenue recognized over time
Subscription licenses	1.844.162	525.566	2,369,728
Maintenance and support	19.447	334.345	353,792
Total revenue	1,872,282	1,012,507	2,884,789

	Monitoring -Mitel UC	Vantage DxVantage Dx Analytics - ITServiceAnalytics	Total
Nine months ended December 31, 2019
Revenue at a point in time
Hardware	18,491		18,491
Perpetual licenses	39,020	176.185	215,205
Training and professional services	23,385	170.069	193.454
Revenue recognized over time
Subscription licenses	5,336,882	1,471,789	6,808,671
Maintenance and support	57,601	1,043,585	1,101,186
Total revenue	5,475,379	2,861,628	8,337,007

9. Additional disclosures related to the statements of loss and comprehensive loss

i. Research and development expense for the three and nine months ended December 31, 2020 is net of investment tax credits recognized of $171,483 and $389,095, respectively (three and nine months ended December 31, 2019 - $56,201 and $256,340, respectively) and investment grants recognized of $(7,819) and $303,520, respectively (three and nine months ended December 31, 2019 - $178,516 and $814,794, respectively).

The Corporation has investment tax credits receivable of $481,468 (March 31, 2020 - $242,218) which are earned as a result of qualifying Scientific Research and Experimental Development expenditures, and investment grants receivable of $252,714 as at December 31, 2020 (March 31, 2020 - $134,416), which are earned as a result of expenditures permitted under a grant agreement. The investment tax credits and grants are recognized when the expenditures are made, and their realization is reasonably assured.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Additional disclosures related to the statements of loss and comprehensive loss (continued)

ii. Employee benefits and share-based payments consist of the following amounts:

	Three months ended		Nine months ended
	December 31,	December 31.	December 31,	December 31.
	2020	2019	2020	2019
	$	$		$
Research and development
Short-term employee benefits	1,444,838	1,321,393	4,019,535	4,082,147
Share-based payments	29,436	37.453	78,995	101.325
Sales and marketing
Short-term employee benefits	1,261,011	931,979	3,045,249	3,029,195
Share-based payments	11,589	6.216	42,534	37,839
General and administrative
Short-term employee benefits	586,747	919,472	1,673,936	1,922,380
Share-based payments	106,657	63,007	264,301	148,527
Total staff related expense	3,440,278	3.279.520	9,124,550	9.321.413

Research and development employee costs above are presented prior to any government grants and investment tax credits.

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 of the Corporation 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.

As at December 31, 2020 and 2019, all instruments were anti-dilutive.

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.

	December 31,	December 31,
	2020	2019
	#	#
Share options	17,760,124	19,244,660
Warrants	45,638,523	534,861
Broker compensation unit options	1,636,984	-
	65,035,631	19,779,521

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

11. Cash

	December 31, 2020	March 31, 2020
Cash	3,848,286	2,870,625
Restricted cash	29,587	29.449
Total	3,877,873	2,900,074

12. Trade and other accounts receivable

			Past due but not impaired
	Total	Neitherpast duenor impaired	$<$ 30 days	$30-60$ days	60-90 days	over 90 days
December 31, 2020	4,960,882	1,331,519	1,239,809	1,428,083	736.314	225,157
March 31, 2020	3.733.737	1.131.266	871.758	950.599	603,317	176,797

Movements in the allowancefor doubtful accounts	December 31, 2020 March 31, 2020
Balance, beginning of period	22.631	18.784
Trade receivables written off		(59.759)
Additional allowance recognized	68.859	63,606
Balance, end of the period	91.490	22,631

13. Goodwill

As at December 31, 2020	21,281,988
Translation adjustments	(107,769)
Additions from acquisitions of subsidiairies	13,405,440
As at March 31, 2020	7,984,317
Impairment of goodwill	(2,381,174)
Translation adjustments	297,392
As at March 31, 2019	10,068,099
	$

14. Accounts payable and accrued liabilities

	December 31, 2020	March 31, 2020
Trade payables	772,905	374,627
Accrued key management compensation	140,999	201,950
Accrued professional fees	444,492	586,821
Salaries, benefits, and vacation payable	1,430,106	782,222
Commissions payable	72,438	60,503
Taxes payable	603,559	290,373
Other payables	284,208	229,233
Total	3,748,707	2,525,729

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

15. Long-term debt

	December 31,2020	March 31,2020
FedDev loan; advanced to support the commercialization of the Corporation'sactivities; non-interest bearing, unsecured and repayable in increasing monthlypayments between January 2018 and December 2023. The effective interest rate is10%	$554,155	$586,278
Canada Economic Development Agency (CEDA), non-interest bearing, unsecuredand repayable in 60 equal monthly payments commencing in February 2021. Theeffective interest rate is 16%.	87.006	77,237
Royal Bank of Canada, interest at 5.40% and an effective interest rate of 7.06%,secured by a general security agreement on the property of Martello Corp, as wellas secured guarantees from Elfiq Inc. and Martello Technologies Inc., SavisionB.V. and its subsidiaries, and the Corporation itself, and repayable over 36 monthscommencing in February 2019. On May 25, 2020, the term loan with Royal Bank ofCanada was fully repaid.		1.805.332
Vistara Technology Growth Fund III Limited Partnership ("Vistara"), US $8,000,000subordinated secured term loan; repayable within 36 months of closing and carriesinterest of 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. The effectiveinterest rate is 20.4%. The loan is secured by a subordinated security interest andguarantees from the Corporate Guarantors.	9,002,055
Total long-term debt	9,643,216	2,468,847
Amounts due within one year	(199, 800)	(1,222,330)
Long-term debt	9,443,416	1,246,517

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"). The financing costs expensed during the three and nine months ended December 31, 2020 in relation to the Revolving Loan totaled ($7,068) and $397,449, respectively. As at December 31, 2020, the loan has not been drawn on.

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 18) the Term Loan was used to pay the cash portion of the purchase price for the GSX Acquisition.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Long-term debt (continued)

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 20.40%. The Term Loan is secured by a subordinated security interest in and guarantees from 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 Share 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.

16. Right-of-use assets

Right-of-use asset:	$
Balance at March 31, 2020	594,642
Reclassified to lease receivable	(185,496)
Additions (Note 6)	1,172,045
Depreciation for the period	(276,226)
Termination of lease	(138,578)
Foreign exchange translation	25,964
Balance at December 31, 2020	1,192,351
Lease obligation:	$
Balance at March 31, 2020	638,888
Additions (Note 6)	1,190,906
Interest expense	34,190
Payments	(357,845)
Termination of lease	(138,578)
Foreign exchange translation	16,747
Balance at December 31, 2020	1,384,308

For the three and nine months ended December 31, 2020, the Corporation recognized $110,522 and $276,226, respectively (2019 - $55,430 and $140,757) as depreciation on right-of-use assets, and $13,184 and $34,190, respectively (2019 - $7,858 and $20,582) as interest expense on the lease liability.

In applying the practical expedient for short-term leases, the Corporation has excluded rent payments of $232,228 (2019 - $60,763) from the right-of-use asset and lease liability calculations.

When measuring lease liabilities, the Corporation discounted lease payments using incremental borrowing rates of between 2.47% and 5.40%.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Right-of-use assets (continued)

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 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, as described in Note 5. 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 on the Condensed interim consolidated statement of financial position. The balance of lease receivable at December 31, 2020 is $128,289.

17. Defined benefits retirement plan

On May 29, 2020 the Company acquired GSX, as described in Note 6, 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 May 31, 2020 as part of the purchase accounting for the acquisition of GSX. The present value of the defined benefit obligation and the related service costs were measured using the projected unit credit method.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Defined benefits retirement plan (continued)

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:

	May 31, 2020
Discount rate	0.40%
Long-term expected salary increase	1.00%
Average longevity at retirement age for Planparticipants	LPP/BVG 2015 tables

The LPP/BVG 2015 tables are Swiss generational tables used to establish the expected retirement age for the plan participants, based on experience of specific Swiss pension plans over the period 2010 to 2014.

Post-acquisition current service costs of $45,345 and $105,563 were recognized for the three and nine months ended December 31, 2020 along with net interest income of $800 and $4,449, respectively, for the three and nine months ended December 31, 2020. The current service cost is included in operating expenses on the condensed interim consolidated statements of loss and comprehensive loss. The net interest income is included in interest income.

At December 31, 2020, the Plan was in a deficit position of $399,473 (May 29, 2020 - $830,938). The movements in the defined benefit obligation for the period ending December 31, 2020 are as follows:

Defined benefit obligation at April 1, 2020
Defined benefit obligation assumed on acquisition (note 6)	2,887,145
Current service cost	105,563
Interest cost	6,885
Foreign exchange translation	23,971
Remeasurement	(1,635,923)
Defined benefit obligation December 31, 2020	1.387.641

The movements in Plan assets for the period from acquisition to December 31, 2020 are:

Fair value of pension plan December 31, 2020	988,168
Remeasurement	(1.235.662)
Foreign exchange translation	16,653
Employer contributions	68,041
Participant contributions	26,554
Return on plan assets, excluding interest income	45,041
Interest income	11,334
Plan assets acquired (note 6)	2,056,207
Plan assets at April 1, 2020
	$

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Defined benefits retirement plan (continued)

The Company's pension plan actual weighted average asset allocations by asset category were as follows:

	December 31, 2020	May 29, 2020
Debt securities	38.61%	38.59%
Real estate assets	24.75%	25.69%
Equity securities	25.16%	25.64%
Alternative investments	9.27%	9.58%
Cash and cash equivalents	2.21%	0.50%
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

Alternative investments are classified as Level 2 instruments and real estate assets as Level 3.

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 May 29, 2020.

Defined benefit obligation, $

	Increase 0.25%	Decrease 0.25%
Discount rate	2,787,981	3,074,675
	Decrease 0.25%	Increase 0.25%
Salary increase	2,893,516	2,958,754
	Decrease 0.25%	Increase 0.25%
Pension increase	2,925,292	2,925,292
	Decrease 1 year	Increase 1 year
Life expectancy	2,879,678	2,970,919

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 December 31, 2020, which relates to active members, is 19.65 years.

The Corporation expects to make contributions to the Plan totaling $128,041 during the next 12 months.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

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.

Bought deal offering

On May 26, 2020, the Corporation completed an offering (the "Offering") with a syndicate of investment dealers led by PI Financial (collectively, the "underwriters") for a total of 32,861,250 units (each, a "Unit") consisting of one common share of the Corporation and one common share purchase warrant at a price of $0.21 per unit, for gross proceeds of $6,900,863. Each warrant is exercisable into one common share at an exercise price of $0.30 per common share for a period of 36 months from the closing date. 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 warrants to the date that is 30 days following the date of such written notice.

In addition, the underwriters received a cash commission equal to 7% of the gross proceeds realized from the Offering. The Corporation granted the underwriters 1,643,063 broker compensation option units, exercisable to purchase Units at a price of $0.21 per compensation option unit for a period of 24 months from the closing date.

GSX Acquisition

In connection with the GSX Acquisition 22,000,000 common shares were issued as part of the purchase price.

ii. Warrants

During the nine months ended December 31, 2020, 45,638,523 warrants were issued (nine months ended December 31, 2019 – nil).

Date of Issue	Expiry	Type	Exercise	Number
	Date		price	outstanding
			$	#
February 27, 2015	See note below	Warrants	0.11	-
May 26, 2020	May 26, 2023	Offering Warrants	0.30	32,861,250
May 28, 2020	May 28, 2023	Bonus Warrants	0.22	12,777,273
				45,638,523

At December 31, 2020 the Corporation's outstanding warrants consisted of the following:

Of the warrants issued on February 27, 2015, 274,285 were exercised during the nine months ended December 31, 2020 (2019 – 493,715) and the remaining 260,576 expired during the nine months ended December 31, 2020. (2019 – nil).

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 "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 Offering Warrants to the date that is 30 days following the date of such written notice.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Equity instruments (continued)

Warrants (continued)

In determining the value of the Offering Warrants, the barrier option model was used. The Offering Warrants were valued at $0.0591 per warrant. The assumptions used to value the warrants were as follows:

0.29%
3 years
75.1%
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%

iii. Broker compensation option units

In connection with the Offering, the Corporation granted the underwriters 1,643,063 broker compensation option units ("Broker Option Units"), exercisable to purchase Units at a price of $0.21 per Broker Option Unit for a period of 24 months from the closing date. On November 19, 2020, 6,079 compensation option units were exercised.

In determining the value of the Broker Option Units as non-employee share-based compensation, the Black-Scholes option pricing model was used. The Broker Option Units were valued at $0.131 per Broker Option Unit. The assumptions used to determine the value of the Broker Option Units are as follows:

Market value of a 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 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 Offering.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Equity instruments (continued)

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.

The following table summarizes the continuity of options issued under the Plan:

		Option exercise
		price	Total
		$	#
Balance outstanding at March 31, 2020		0.11-0.38	18,665,993
Granted		0.195-0.22	6,376,167
Exercised		0.11-0.13	(6,165,331)
Forfeited		0.11-0.375	(1,116,705)
Balance outstanding at December 31, 2020			17,760,124
Options exercisable:
At December 31, 2020		0.11-0.38	7,436,174
At March 31, 2020		0.11-0.38	10,900,472
	Option	Number
Grant date	exercise price	exercisable	Remaining life
	$	#	Years
July 14, 2016	0.110	40,000	0.53
October 25, 2016	0.110	80,000	0.82
January 19, 2017	0.110	64,000	1.05
July 17, 2017	0.110	80,000	1.54
December 18, 2017	0.110	1,488,000	1.96
April 3, 2018	0.130	4,394,659	2.03
January 18, 2019	0.130	253,158	2.25
February 28, 2019	0.335	141,333	3.16
September 3, 2019	0.380	6,666	3.68
November 26, 2019	0.375	781,025	3.91
December 10, 2019	0.330	3,333	3.95
February 13, 2020	0.320	-	4.12
March 5, 2020	0.305	-	4.18
July 28, 2020	0.225	-	4.58
August 31, 2020	0.195	104,000	4.67
November 20, 2020	0.205	-	4.89
Weighted average	0.159		2.25
Total		7,436,174

At December 31, 2020, the fair value of share-based compensation to be recognized as an expense in future periods totaled $707,538 (March 31, 2020– $531,031). Share-based compensation expense for the period is disclosed in note 9.

Equity instruments (continued)

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. 6,376,167 options were granted in the nine

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

months ended December 31, 2020. The fair value of options granted in the nine months ended December 31, 2020 was established by applying the following assumptions:

	December 31,2020	December 31,2019
Stock price valuation	$0.195-0.22	$0.32-0.375
Exercise price	$0.195-0.22	$0.32-0.375
Risk-free interest rate	0.29-0.33%	1.23-1.63%
Expected life in years	3.5	3.5
Expected dividend yield	0%	0%
Volatility	76.30-79.30%	79.47-82.09%
Fair value of options issued in the periods	$0.106-0.116	$0.18-0.21

Volatility was determined by using the historical volatility of the stock of comparable companies over a 3.5 year 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.

19. Supplementary cash flow information

The net change in the operating components of working capital is as follows:

	December 31, 2020	December 31, 2019
Net change in operating components of working capital:
Trade and other accounts receivable	(49,748)	(371, 305)
Investment tax credits and grants receivable	(179, 137)	131,684
Prepaid expenses	344,701	29,185
Inventories	10,759	50,952
Accounts payable and accrued liabilities	(2, 141, 952)	(134, 095)
Deferred revenue	(922, 383)	(645, 224)
Total	(2,937,760)	(938, 803)

20. 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 nine months ended December 31, 2020, the Corporation paid rent to Wesley Clover International Corporation, which is reflected in the December 31, 2020 results as depreciation of right-of-use assets of $24,600 and $73,802 for the three- and nine-month periods, respectively, (December 31, 2019 – $24,600 and $73,802, respectively).
• ii. Included in accounts payable and accrued liabilities as at December 31, 2020 are balances totaling $140,999 (March 31, 2020 - $201,950) due to key management personnel for compensation and earned vacation pay.
• iii. One of the co-chairmen of the Corporation is chairman of Wesley Clover International Corporation, a shareholder owning more than 10% of the common shares of the Corporation.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Related party transactions and balances (continued)

iv. The remuneration of directors and key management personnel during the three- and ninemonth periods ended December 31 was as follows:

	Three months ended		Nine months ended
	December31.	December 31.	December31,	December 31,
	2020	2019	2020	2019
		$		$
Salaries, wages and bonuses	506,509	355,450	1,418,172	1,210,110
Other employee benefits	56,940	6,852	158,897	23,691
Share-based compensation	24,536	53,632	129,272	122,871
Termination benefits		223,022		223,022
Total	587,985	638,956	1,706,341	1,579,694

21. Financial risk management objectives and policies

There have been no significant changes to the nature and magnitude of risk exposures and to management's objectives and processes for managing them since the prior period.

Credit risk

Trade receivables at December 31, 2020 are presented net of an allowance for doubtful accounts of $91,490 (March 31, 2020 - $22,631). The Corporation's largest customer, which is included in Vantage Dx Monitoring - Mitel UC segment reporting, accounted for revenue of $1,934,763 and $5,561,161 or approximately 42% and 45% of total revenue, for the three and nine months ended December 31, 2020 (three and nine months ended December 31, 2019 - $1,790,116 and 5,215,740 or 53% and 53%, respectively). At December 31, 2020 the account receivable from this customer totaled $1,541,532 (March 31, 2020- $2,304,275). The Corporation maintains strict credit policies and limits in respect to counterparties.

Liquidity risk

The following table summarizes the maturities of financial instruments, including interest payments, as at December 31, 2020:

				2024
	2021	2022	2023	and after	Total
Accounts payable
and accrued liabilities	3.748.707	۰	$\overline{\phantom{a}}$	٠	3,748,707
Lease obligation	130.353	461.934	306,567	631.543	1,530,398
Long-term debt	48,600	216,600	267,600	10.602.498	11,135,298
Total	3,927,660	678.534	574.167	11,234,042	16,414,403

Foreign currency risk

For the three and nine months ended December 31, 2020, 93% of revenue were in foreign currencies (December 31, 2019 – 94% of revenue). For the three and nine months ended December 31, 2020, 50% and 44% of expenses were in foreign currencies, respectively.

Notes to condensed interim consolidated financial statements For the three and nine months ended December 31, 2020 and 2019

(in Canadian Dollars)

Financial risk management objectives and policies (continued)

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. With the acquisition of GSX, the Corporation has increased 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:

	December 31.	March 31.	December 31.	March 31.
	2020	2020	2020	2020
	USD	USD	EUR	EUR
Cash and restricted cash	1,723,916	1,091,003	341,309	488.827
Trade and other accounts receivables	3,367,872	3,221,803	1,323,421	247.862
Accounts payable and accrued liabilities	(1,720,967)	(849.213)	(1, 557, 243)	(528, 822)
Foreign exchange forward contract liability	18,079	(149.800)
Long-term debt	(9,002,055)
Net exposure	(5,613,155)	3.313.793	107.487	207.867

22. 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 nine months ended December 31, 2020. 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.

23. 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 is with a related party, as described in note 20 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 purchaser of the assets described in note 5 has entered into a sublease for the Elfiq Lease effective August 1, 2020, and the lease has been guaranteed by the Corporation. The Corporation is committed to a 5-year lease for office premises in Amsterdam, Netherlands commencing February 1, 2018 and extending through to January 31, 2023. During the three months ending September 30, 2020, the Corporation exercised its right to early terminate the current lease, which has a new maturity date of January 2021. The Corporation also has a lease in Kennett Square, Pennsylvania, USA expiring on March 31, 2021.

The amounts below exclude the Corporation's debt and lease related commitments which are disclosed, respectively, in notes 15 and 16.

Fiscal year ended	$
2021	31,826
2022	116,697
Total	148,523

24. Events after the reporting period

On January 27, 2021 the Company entered into derivative financial instruments (foreign exchange collars) to manage USD foreign currency risk. Under these instruments, the Company is committed to sell $150,000 per month for 6 months from April 1, 2021, if the USD/CAD rate goes above or below certain thresholds.