Martello Technologies Group Inc. — Management Reports 2022

Jun 29, 2022

Martello Technologies Group Inc.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

For the three and twelve months ended March 31, 2022

June 28, 2022

Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

The following Management Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of Martello Technologies Group Inc. (“Martello” or the “Company”) was prepared by Management and approved by the Board of Directors of the Company (the “Board”) as of June 28, 2022, the effective date of this MD&A.

This MD&A is a discussion and analysis of the financial condition and results of operations of Martello for the three and twelve months ended March 31, 2022 and 2021 (“Q4 FY22” and “FY22”, and “Q4 FY21” and “FY21”, respectively). This MD&A should be read in conjunction with the Company’s consolidated financial statements and accompanying notes for the years ended March 31, 2022 and 2021. All amounts in the MD&A are stated in Canadian dollars, unless otherwise indicated.

FORWARD-LOOKING STATEMENTS

This MD&A includes certain forward-looking statements that are based on current expectations, which involve risks and uncertainties associated with our business and the environment in which the business operates. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements, including those identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, and similar expressions to the extent they relate to the Company or its management. The forward-looking statements are not facts but reflect the Company’s current assumptions and expectations regarding future results or events.

These forward-looking statements are subject to several risks and uncertainties that could cause actual results or events to differ materially from current expectations, including, but not limited to risks and uncertainties related to:

• The performance of the Company’s business and operations;

• The intention to grow the business and operations of the Company;

• Future liquidity, financial capacity and availability of future financing opportunities;

• Economic conditions, including risks associated with foreign currency fluctuations and inflation;

• The impact of the COVID-19 pandemic on the global economy and markets, and on the Company’s operations, business and financial performance;

• Competition in a continuously evolving industry;

• Customer acceptance of new products;

• Operations in international markets;

• The Company’s ability to respond to rapid technological changes with new products and services;

• The Company’s ability to successfully realize value from acquisitions;

• The return on investment from research & development investments;

• The Company’s ability to protect and enforce its intellectual property, and risks of potential claims of intellectual property infringement by third parties;

• The Company’s ability to manage product and service lifecycles;

• The Company’s ability to execute on sales strategies, including developing existing and new channels to market;

• Effective management open-source software adoption and compliance risks;

• Cybersecurity and privacy risks;

• The ability of the Company’s products to operate effectively with those of its customers; and

• The dependence of the Company’s business on Mitel Networks Corp. and its affiliates (“Mitel”), a key partner.

• A more complete discussion of these and other risks can be found in “Risk Factors”.

With respect to the forward-looking statements contained herein, although the Company believes that the expectations and assumptions are reasonable, undue reliance should not be placed on the forward-looking statements, because there can be no assurance that the anticipated results or developments will be realized. Actual results can vary from the results projected and such variances may be material and adverse.

The Company does not undertake to update or revise any forward-looking statements, whether a result of new information, future events or otherwise, except as required by law.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

COMPANY OVERVIEW

Martello is a Canadian technology company that is listed on the TSX Venture Exchange (“TSXV”). The Company develops digital experience monitoring (“DEM”) software solutions for enterprises and partners, with a focus on optimizing the Microsoft modern workplace with Vantage DX.

Martello’s mission is to become a leading vendor in the enterprise DEM market, making every user’s modern workplace experience productive, with a focus on the cloud-based Microsoft 365 and Microsoft Teams digital enterprise services. Martello’s flagship solution is Vantage DX, which gives IT teams actionable intelligence to proactively deliver a positive digital experience for users, optimizing the modern workplace. Digital experience monitoring is a Gartner-recognized market segment which includes vendors whose solutions provide insight into the user’s experience of cloud-based services. These solutions provide insight that goes beyond traditional application or network monitoring tools, by correlating network performance data with synthetic user monitoring information, to provide a clearer picture of the user’s experience of the service. Within this segment, Martello is one of only a handful of vendors focused on the Microsoft modern workplace and is the preferred solution in Microsoft’s commercial marketplace. Martello has thousands of customers in more than 65 countries around the world. The Company has acquired and integrated two companies with DEM solutions since November 2018, to expand its product portfolio, engineering expertise and global sales capacity. The launch of Vantage DX in September 2021 reflects the integration of acquired DEM products, to introduce a single platform solution to the market.

As of March 31, 2022, Martello had 97 active employees: 59 in Canada, 5 in the United States and 33 in Europe, the Middle East and Africa (EMEA).

History

On August 15, 2018, the Company completed a reverse acquisition and began trading on September 12, 2018 on the TSXV under the symbol “MTLO”. Martello was founded in April 2009 to develop performance analytics software for real-time communications and built a partnership with Mitel in which the Company’s software is now monitoring millions of devices and applications globally.

Martello, formerly Newcastle Energy Corp. (“Newcastle”), was incorporated in 1981 under the Company Act (British Columbia) and has its registered and head office at 390 March Road, Suite 110, Ottawa, Ontario, Canada, K2K 0G7.

On December 15, 2017, Martello acquired Elfiq Inc., a network performance management business. The Company divested this line of business in July 2020 to focus resources on its DEM strategy.

On November 1, 2018, Martello acquired Savision B.V. and its wholly owned subsidiaries (“Savision”). Savision provides enterprise service monitoring and analytics software that brings together metrics and events from multiple tools to present a unified view of the infrastructure that supports critical business services for companies.

On May 29, 2020, Martello acquired GSX Participations SA (“GSX”), a provider of end-user experience monitoring software for Microsoft 365. GSX was headquartered in Geneva, Switzerland.

Products

Martello develops products that monitor, analyze, report and optimize the user’s experience of cloud-based enterprise digital services such as Microsoft 365 and unified communications. Martello’s products include Vantage DX, a single platform DEM suite which optimizes the modern workplace with a focus on Microsoft 365 and Microsoft Teams, as well as UC performance analytics software which is primarily sold within Mitel. Martello’s product portfolio includes subscription-based offerings (software as a service), and software license sales. Martello’s sales are direct to enterprises and indirect, via value-added resellers and global systems integrators. End users enter into an end-user licensing agreement with Martello before using Martello software or services.

Martello is the provider of UC performance analytics software to Mitel’s channel. Martello and Mitel have entered into agreements regarding the use and resale of Martello software and services. Martello’s end users are Mitel’s channel partners, service providers and enterprise users, and the Company’s software is used in Mitel’s own global network operations centre (NOC). Martello’s software is called Mitel Performance Analytics (“MPA”) when sold in the Mitel channel. Martello has several products and

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

technologies deployed in the field, including Vantage DX, MPA, iQ, Live Maps, and Gizmo. The Company maintains an active product development and enhancement program for Vantage DX and the components of its modern workplace optimization DEM portfolio as well as MPA, while providing ongoing support for legacy and other product offerings. Martello’s product program prioritizes activities that will drive user growth, customer acquisition, total addressable market expansion, partner engagement, and cross selling of products.

In September 2021, Martello launched its Vantage DX modern workplace optimization solution to manage Microsoft 365 and Microsoft Teams user experience. Vantage DX includes capabilities and features which help Martello’s customers to prioritize and resolve problems impacting Microsoft 365 and Teams performance and optimize the user experience. These include Microsoft Teams Call Quality Analytics, Proactive Microsoft 365 Monitoring, Microsoft Active Network Path Analysis, Advanced Troubleshooting and SLA/OLA Reporting.

Martello’s products are developed internally and are not subject to material regulatory approvals. Martello follows industry best practices in its development methodology as appropriate, to ensure scalability, security and standards compliance of its products and services.

All of the Company’s research and development activities are undertaken in-house. The Company has invested in its development team and continues to seek top talent.

Growth Strategy

Martello’s objective is to generate recurring revenue growth, and as a result is focused on the following activities:

• I. Strengthening Martello’s competitive advantage with expansion of the Vantage DX DEM solution suite and sales channels:

• a. Product Innovation Driving Competitive Advantage

   - i. Developing Microsoft Teams Phone features and functionality to bridge the ‘visibility gap’ for Microsoft Teams Phone monitoring and troubleshooting with greater insight into the components of a call, including integrations with key session border controller (SBC) vendors.
  
   - ii. Improving the Vantage DX user experience, including surfacing critical information with new dashboards, and improvements which further simplify deployment and management of the solution.
  
   - iii. Improving the efficiency of customer activation with automation features.
  
   - iv. Concluding trials with key Vantage DX prospects and converting these opportunities to customers, while leveraging customer feedback for continuous product improvement.
  
   - v. Drive advancements in Martello’s cloud-based architecture to achieve product efficiencies.
  

• b. Develop Direct and Indirect Sales Channels

  • i. Building brand awareness of Vantage DX while executing on marketing and sales campaigns to continue developing a pipeline of direct Vantage DX sales opportunities, including converting customers using legacy Martello products to DEM solutions.

  • ii. Deepening Martello’s engagement with Microsoft as a Managed Partner, jointly building a pipeline of sales opportunities and building awareness of Vantage DX amongst Microsoft’s community of sellers and customers.

  • iii. Driving sales via the Microsoft Azure marketplace, which simplifies the purchase process and incents Microsoft sellers to transact Vantage DX sales.

  • iv. Expanding and developing new sales channels for Vantage DX, including large global systems integrators, Microsoft Operator Connect Partners such as Orange Business Systems and value-added resellers.

• II. Continuing to Align the Company’s business with Mitel to meet its customers’ needs . This will include driving adoption of MPA through Mitel’s communication and collaboration platforms, developing support for additional Mitel platforms and seeking additional opportunities for sales growth within Mitel.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

The Company will continue to make the necessary investments in technology, talent, and systems to implement the above strategy. Although there is significant uncertainty created by global economic conditions including inflation which may further impact operations, at this time the Company believes operations can be funded by cash and other available funding sources.

Business Objectives and Milestones:

The milestones below represent incremental investment to accomplish the Company's objectives and are in addition to funds from operations which are also allocated to these activities.

The key activities are progressing as planned and the Company expects to meet the key milestones outlined below.

Business Objective and Incremental Investment	Key Milestones – R&D	Key Milestones - Sales, Marketing & Delivery	Key Activities	Status March 31, 2022
Pursue innovation to defend and expand market share, including the launch of the Vantage Dx DEM solution suite. $2,800,000	Vantage Dx Architecture and Alpha Trials Completed (April 2021 – Sept 2021) Vantage Dx Commercial Launch (Sept 2021 – June 2022)	Sales & marketing launch of Vantage Dx to the Market (April – December 2021) Expand Capacity to Sell to Large Enterprises (April – December 2021)	• Develop and launch ‘work from anywhere’ capabilities development, including real user monitoring (RUM) and active network path monitoring (ANPM). • Improve the scalability of Proactive Microsoft 365 Monitoring and Microsoft 365 Advanced Troubleshooting for cost- effective deployment by very large enterprises. • Build brand awareness of Vantage DX while creating new opportunities to cross- sell Martello’s solutions into Microsoft, Mitel and other large channels. • Develop marketing campaigns and increase delivery and training team resources to execute on sales commitments in various regions. • Convert customers using legacy products, including Live Maps, to Vantage DX. • Add enterprise sales personnel in three regions (Americas, Europe and Asia-Pacific) to manage sales to large enterprises andpartners.	• All activities completed. Brand awareness and demand generation campaigns for Vantage DX are ongoing. • Martello has converted multiple legacy product customers to Vantage DX. • Regional enterprise sales personnel will be considered as needs dictate, supplemented with lead generation/prospecting agencies in key regions. • Expenditures (use of bought deal proceeds): $ to March 31, 2022 $1,240,000

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Expand Martello’s addressable market with indirect sales channels and strategic partnerships. $400,000	Cloud-Based Multitenancy (April 2021-Sept 2021)	Recruit, Onboard and Facilitate MSPs and Resellers on Vantage Dx (October 2021 – March 2022)	• Develop Martello’s cloud- based architecture for product efficiencies when deploying in MSP and other indirect models. • Expand sales channels for Vantage DX, including Microsoft Co-sell, Microsoft MSPs, Mitel MSPs and end customers, and large global systems integrators. • Add Partner Managers to recruit and onboard new MSP and Reseller Partners focused on Microsoft 365 & Teams offerings. • Pursue GTM activities in four key markets: 1) SMB, 2) Commercial Mid-Market 3) Enterprise and 4) Government and Public Sector. • Implement partner portal to manage Reseller and MSP Partners globally and drive revenue growth. • Develop and implement training and on-boarding material for easy channel partner self-serve adoption through online resources. • Continued development of partnerships such as that with Paessler AG.	• Continued improvements on cloud- based multitenancy for Vantage DX products as part of ongoing cost reductions associated with onboarding partners and customers. • Completion of Vantage DX listing on Microsoft Azure Marketplace via the Microsoft Global Solutions Alliance Program in December 2021 creates a new sales channel in which Microsoft sellers are compensated. • Increased co-sell and joint marketing engagement with Microsoft in Q4 FY22. • Direct GTM activities focused on Enterprise and Government in Q4 FY22, with indirect activity focused on opportunities with Microsoft, strategic partnership and large global systems integrators and telcos. • Sales team resourced to manage the Microsoft relationship and recruit and onboard new partners. • Training materials developed in Q2 FY22 to support the launch of Vantage DX, and additional partner sales training was completed subsequent to FY22. • Partner Portal launched.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

				• Continued development of Paessler partnership through joint marketing and sales activities. • Expenditures (use of bought deal proceeds) to March 31, 2022: $80,000
Aligning and growing the Company’s business with Mitel. $300,000	Mitel Development (April 2021 – March 2022) Sustaining development release (May 2021) Feature release (Sept 2021), focused on supporting and growing Mitel’s evolving MPA program	Pursue GTM strategies for Martello Microsoft DEM solutions for Mitel channel (April 2021 – March 2022) Launch MPA product releases, for sales growth in key addressable Mitel market segments (May-Sept 2021 Strategic relationship management to advance Martello product program in Mitel ecosystem. (April 2021 – March 2022)	• Drive adoption of MPA with key improvements that make the solution more readily adoptable for a greater proportion of Mitel’s customer base. • Enhancements to support Mitel’s evolving program and retain existing MPA clients, including: • Middleware updates; • Enhancements to support Mitel’s UCaaS MiCloud Flex program; and • Developing support for additional Mitel call and collaboration platforms. • Joint marketing to Mitel’s channel of resellers, MSPs and direct customers on value of incremental MPA product improvements, to drive increased attachment.	Expenditures (use of bought deal proceeds): $212,000 as of March 31, 2022 • Content defined and in development for next MPA release. • Participated in Mitel UK Partner event in March 2022.

The business objectives outlined above for completion in 12-24 months following the Bought Deal Offering which closed on March 18, 2021 have been completed, with a total investment of $1,532,000.

SIGNIFICANT DEVELOPMENTS

In FY22 the following significant developments occurred:

• On March 24, 2022, Martello announced the closing of the third tranche of its previously announced non-brokered private placement. Under the Third Tranche, the Company issued 500,000 common shares in the capital of the Company to a Martello insider, at a price of CDN$0.10 per Common Share, representing a premium of more than 80% to the closing price of the Common Shares on March 23, 2022 for aggregate gross proceeds of CDN$50,000.

• On March 16, 2022, Martello announced that the number of Vantage DX users in its trial pipeline had doubled to one million.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

• On March 16, 2022, Martello announced an investment of $2.5 million by the Federal Economic Development Agency for Southern Ontario (FedDev Ontario) through the Jobs and Growth Fund (JGF) for Martello to expand its software development capacity, create more than 25 jobs and lay the foundation for future growth.

• On February 1, 2022, Martello announced the availability of Vantage DX in the Microsoft Azure Marketplace, an online store providing applications and services for use on Azure.

• On January 31, 2022, the Company appointed Kim Butler as Interim Chief Financial Officer (CFO), effective February 16, 2022.

• On January 27, 2022, Martello announced the closing of the second tranche of its previously announced non-brokered private placement, in which the Company issued 14,370,000 common shares to certain Martello insiders, at a price of CDN$0.10 per Common Share, representing a premium of over 80% to the closing price of the Common Shares on January 26, 2022 for aggregate gross proceeds of CDN$1,437,000.

• On December 1, 2021, Martello announced the departure of Chief Financial Officer Erin Crowe, effective February 1, 2022.

• On November 11, 2021, Martello announced its intention to complete a non-brokered private placement for aggregate gross proceeds of approximately CDN$2,000,000 in conjunction with an amendment to the Vistara Growth Credit Agreement. On November 16, 2021, the Company announced the close of the first tranche of the private placement for aggregate gross proceeds of CDN$1,000,000, subscribed by insiders Terence Matthews through Wesley Clover International, and Colley Clarke. The second tranche of the private placement was expected to close by January 31, 2022.

• On November 2, 2021, Martello announced that Microsoft partner Cloud Revolution had chosen Vantage DX to proactively manage Microsoft Teams call quality and deliver a superior user experience to their customers.

• On September 15, 2021, Martello launched Vantage DX, a new single platform DEM suite designed to optimize the 'work from anywhere' Microsoft 365 and Teams user experience.

• On September 8, 2021, Martello announced the grant of an aggregate of 600,000 stock options to certain officers of the Company. In addition, the Company announced that it has launched a Deferred Share Unit (DSU) Plan in which Martello outside Directors can elect to receive up to 100% of their compensation in DSUs rather than cash.

• On August 25, 2021, Martello announced that the Company was invited to join the Microsoft Global Solutions Alliance program at the invitation of Microsoft, as a Strategic Global Independent Software Vendor (GISV) Partner.

• On June 2, 2021, Martello launched its global channel partner program and welcomed new partner LDI.

• On May 4, 2021, Martello’s multi-tenant cloud platform for Microsoft 365 monitoring was launched, allowing managed service providers (MSPs) to manage multiple small and medium-sized enterprise (SME) clients from a single Martello Microsoft 365 monitoring instance.

During FY21 the following significant developments occurred:

• On March 30, 2021, Martello announced the launch and controlled availability of its iQ digital experience analytics platform with integrated Microsoft 365 monitoring (Gizmo) capabilities.

• On March 18, 2021, Martello closed a bought deal offering of 30,263,400 units for aggregate gross proceeds of $5.75M (the “Second Bought Deal Offering”). The Company also closed a non-brokered concurrent private placement of 2,310,502 units for gross proceeds of approximately $439,000.

• On January 21, 2021, Martello completed its integration of GSX Participations SA (“GSX”) and provided insight into the Company’s growth plan.

• On December 22, 2020, Martello amended the stock option agreement with co-founder and former Director Niall Gallagher, accelerating the vesting and extending the expiry date for certain stock options which were awarded during the period that Mr. Gallagher was a Director of Martello.

• On November 18, 2020, former GSX CEO Antoine Leboyer was appointed to the Martello Board of Directors.

• On October 28, 2020, Martello announced the launch of Gizmo 2.0, with advanced Microsoft Teams video monitoring.

• On October 20, 2020, Martello announced the addition of more than 450,000 Microsoft users to its Gizmo platform since June 2020, reaching a total of 2 million users.

• In September 2020, Martello co-founder Niall Gallagher retired from the Company’s Board of Directors.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

• In September 2020, Martello announced it had reached Microsoft Gold Partner status, and had become Microsoft CoSell Prioritized.

• In July 2020, Martello subsidiary GSX was recognized as a digital experience monitoring vendor by industry research firm Gartner in three reports.

• In July 2020, Martello completed the sale of substantially all the assets and certain liabilities of the network performance management segment to Adaptiv, an arm’s length Canadian SD-WAN company for gross proceeds of $828k, consisting of cash of $425k, a promissory note of $100k and shares in Adaptiv, having a value of $303k.

• In June 2020, Martello retained PI Financial Corp. to provide market making services.

• In June 2020, Martello hired and appointed Mike Danforth as VP, Global Partnerships and Sales.

• In May 2020, Martello completed the acquisition of GSX Participations SA and its wholly owned subsidiaries, Sàrl GSX Groupware Solutions and GSX Groupware Solutions Inc. (“GSX”) (the “GSX Acquisition ” ). GSX provides end-user experience monitoring for Microsoft 365 users. The consideration for the acquisition was 22,000,000 common shares and CDN$12.0M cash for an aggregate consideration of $16.5M.

• In May 2020, concurrent with the closing of the GSX Acquisition, Martello closed a US$8M subordinated secured term loan provided by Vistara Capital Partners (the “Vistara Term Loan”), which partially funded the acquisition of GSX.

• In May 2020, Martello closed a bought deal public offering, for aggregate gross proceeds of $6.9M (the “First Bought Deal Offering”)

• In May 2020, Martello closed a secured revolving credit facility from National Bank of Canada (the “National Bank Revolver”) for up to CDN$7.5M, pursuant to a credit agreement dated April 27, 2020. The revolving facility was undrawn as of June 30, 2021 and is available to Martello to draw upon from time to time to finance its day-to-day operations.

• In April 2020, the Company entered into a non-binding letter of intent with Bruce Linton and Terry Matthews, CoChairmen of the Company’s Board of Directors to provide a $5.0M unsecured subordinated debt instrument (the “Unsecured Subordinated Loan”). The Unsecured Subordinated Loan has not been drawn on but is expected to become available to the Company as an additional source of capital, subject to the parties agreeing to definitive terms.

• In April 2020, Martello announced that partner Paessler AG launched PRTG Enterprise Monitor for businesses that need to monitor large IT infrastructures, a solution which includes the Martello iQ software.

EVENTS AFTER THE REPORTING PERIOD

Federal Economic Development Agency of Southern Ontario

On May 7, 2022, the Corporation has entered into a new FedDev contribution agreement in total of $2,500,000. 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, total the Corporation received a deposit of $1,920,000.

BASIS OF PRESENTATION

The Company’s consolidated financial statements and accompanying notes have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

Certain financial measures contained in this MD&A are non-IFRS measures and are discussed further in the “Non-IFRS Financial Measures” section below.

All amounts stated in this MD&A are in Canadian dollars unless otherwise indicated.

NON-IFRS FINANCIAL MEASURES

This MD&A includes certain non-IFRS financial measures, including EBITDA, Adjusted EBITDA, and MRR as defined below. These measures are used internally to evaluate our operating and financial performance. We believe that these non-IFRS financial measures, in addition to conventional measures prepared in accordance with IFRS, enable investors to evaluate our operating results, underlying performance and prospects in a manner similar to management. Non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

companies. Accordingly, these non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

FINANCIAL PERFORMANCE

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Balance Sheet – Highlights

Balance Sheet – Highlights
		March 31,	March 31
(in 000's)		2022	2021
Cash and short-term investment	$	5,023	8,520
Working capital		2,267	4,504
Total Assets		41,935	49,686
Total Liabilities		22,259	23,052
Share capital and contributed surplus		52,411	49,500
Warrants		2,320	3,182
Accumulated deficit and other
comprehensive income		(35,055)	(26,048)
Shares issued and outstanding	#	326,707,430	302,396,958

Highlights for the three months ended March 31, 2022 as compared to the same period in 2021:

• In Q4 FY22, Martello reached 2.76M Microsoft users on its DEM platform, an increase of 0.1M (4%) compared to 2.67M in Q4 FY21.

• Revenue of $4.27M is $0.21M (5%) lower than the same quarter in the prior year ($4.48M) primarily attributable to a decrease in Mitel subscriptions and unfavourable EUR-CAD FX translation.

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Martello Technologies Group Inc. MD&A

For the three and twelve months ended March 31, 2022 and 2021

• Revenue remains diversified with Monitoring – Mitel UC contributing 42% of revenues (vs 43% in Q4 FY21), Vantage Dx Monitoring – Microsoft 365 (GSX) contributing 42% of revenues (vs 40% in Q4 FY21) and Vantage Dx Analytics - IT Service Analytics contributing 17% in both Q4 FY22 and Q4 FY21.

• Recurring revenue increased to 99% in the Q4 FY22 compared to 98% in the same period of FY21 primarily attributable to lower perpetual licence revenue in the current quarter compared to the prior year.

• Monthly recurring revenue (MRR) is $1.41M in Q4 FY22, compared to $1.47M in Q4 FY21. The $0.06M (4%) decrease is primarily attributable to a decrease in Mitel subscriptions and unfavourable EUR-CAD FX translation. MRR is a non-IFRS measure and represents average monthly recurring revenues earned in a fiscal quarter. The MRR measure offers insight into the predictability of Martello’s monthly recurring revenue.

• Gross margin as a percentage of revenue was 90%, compared to 89% in the comparative period. The increase is primarily attributable to lower sales and operating expenses.

• Operating expenses were $5.36M in Q4 FY22 compared to $5.96M in Q4 FY21, a decrease of $0.60M (10%). Costs relating to the acquisition decreased $0.11M (100%) and depreciation and amortization decreased by $0.21M (29%) year-overyear. Other operating expenses decreased by $0.28M (5%) mainly due to a decrease in sales and marketing headcount costs due to attrition and lower G&A costs as a result of optimization of support functions.

• Loss from operations was $1.52M compared to a loss of $1.97M in the same period of FY21, a decrease of $0.45M (23%) due to lower cost of goods sold and operating expenses as described above.

• Loss from continuing operations before income tax was $2.05M in Q4 FY22 compared to a loss of $2.36M in Q4 FY21, a decrease of $0.31M (13%) due to lower loss from operations as described above partially offset by higher losses on foreign exchange.

• The net loss was $2.16M in Q4 FY22 compared to $1.90M in same period in FY21, an increase of $0.26M (14%) as a result of the items outlined above as well as increase in income tax in Q4 FY22.

• Adjusted EBITDA (a non-IFRS measure) in Q4 FY22 was a loss of $0.83M, compared to a loss of $0.99M in the same period of FY21, a decrease of $0.16M (16%) is due to lower operating losses as described above.

Highlights for the twelve months ended March 31, 2022 as compared to the same period in 2021:

• Results for the twelve months ended March 31, 2022 reflect ten months of results from the acquisition of GSX on May 29, 2020.

• Revenue of $17.54M is $0.71M (4%) higher than the same period in the prior year ($16.83M) primarily attributable to $1.31M increase in GSX year-over-year partially offset by $0.4M (5%) decrease in Monitoring – Mitel UC and $0.2M (6%) decrease in Vantage Dx Analytics - IT Service Analytics.

• Revenue remains diversified, with Monitoring – Mitel UC contributing 41% of revenues in the first twelve months of FY22 (45% in Q4 YTD FY21), Vantage Dx Monitoring – Microsoft 365 (GSX) contributing 42% of revenues (36% in Q4 YTD FY21) and Vantage Dx Analytics - IT Service Analytics contributing 17% (19% in Q4 YTD FY21).

• Recurring revenue is 98% in FY22 compared to 97% in FY21 due to lower perpetual licence and training revenue partially offset by higher hardware sales in the current year.

• Gross margin as a percentage of revenue was 91%, compared to 93% in the comparative period due an increase in hosting costs, sales and distributor commissions and cost of inventory.

• Operating expenses were $21.72M in Q4 YTD FY22 compared to $20.40M in Q4 YTD FY21, an increase of $1.32M (6%). Excluding the impact of GSX, the increase of $0.93M (7%) is primarily due to increased costs associated with return to full salaries in Q3 FY21, R&D and sales investments, increased spending on advertising and tradeshows, and lower government incentives (IRAP and Covid related) partially offset by decrease of $1.06M (95%) in costs relating to the acquisition of GSX. GSX operating expenses increased $0.39M (2%) due to the acquisition in late May 2020.

• Loss from operations was $5.81M compared to a loss of $4.76M in the same period of FY21, an increase of $1.05M (22%). Increases in operating expenses and COGS (per above) partially offset by the increase in sales.

• Loss from continuing operations before income tax was $8.23M in Q4 YTD FY22 compared to $6.40M in Q4 YTD FY21, an increase of $1.83M (29%). In addition to the items above, the Company incurred higher interest expense on twelve months of the term loan in Q4 YTD FY22 compared to ten months in Q4 YTD FY21, foreign exchange losses partially offset by lower financing fees and PPP loan forgiveness.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

• The loss from discontinued operations in the prior year represents the loss from the NPM segment. The segment was sold in Q3 FY21 and there are no ongoing operations in FY22.

• The Q4 YTD FY22 net loss was $8.22M compared to $6.37M in Q4 YTD FY21, an increase of $1.85M (29%) as a result of the items outlined above and lower income tax recovery.

• Adjusted EBITDA (a non-IFRS measure) was a loss of $2.86M, compared to $0.74M in the same period of FY21. The $2.12M (285%) decrease in Adjusted EBITDA is due to higher operating losses as described above.

Non-IFRS financial measures

The Company’s “EBITDA” and “Adjusted EBITDA” are non-IFRS financial measures used by management that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Management believes Adjusted EBITDA is a useful financial metric to assess its operating performance on an adjusted basis as described above.

EBITDA is a non-IFRS financial measure and is defined as net loss before interest income, interest expense, accretion of long-term debt, income tax recovery, depreciation and amortization of intangible assets.

ADJUSTED EBITDA is a non-IFRS financial measure and is calculated as EBITDA excluding share-based compensation expense, loss from discontinued operations, impairment of goodwill and intangible assets, acquisition-related costs and foreign exchange gain/loss.

In the three and twelve months ended March 31, 2022, the Company’s Adjusted EBITDA loss was $0.83M and $2.86M respectively, compared to a loss of $0.99M and $0.74M respectively in the same period last year. The increase in Adjusted EBITDA in Q4 yearover-year is mainly due to lower operating expenses in Q4 of FY22 while the decrease in Q4 YTD FY22 compared to Q4 YTD FY21 is due to higher operating losses mainly driven by an increase in operating expenses and cost of goods sold.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Monthly Recurring Revenue (“MRR”) is a non-IFRS measure and represents average monthly recurring revenues earned in a fiscal quarter and is a common metric used by subscription software companies to indicate a normalized monthly revenue that is predictable and recurring in the near future. MRR is unlikely to be comparable to similar measures presented by other issuers. MRR is calculated as sales for the period, less revenue recognized at a point in time or that is non-recurring in nature plus certain adjustments resulting from purchase price accounting, divided by the number of months in the quarter. Recurring revenue includes:

• Monitoring – Mitel UC: fees earned on a monthly per-user basis, fees earned monthly from device usage and revenue from subscription to software licenses, and fees earned monthly on support for UC enterprise management software.

• Vantage Dx Analytics - IT Service Analytics: subscription sales, maintenance and support on the licenses for visualization of IT systems management data.

• Vantage Dx Monitoring – Microsoft 365 (GSX): subscription sales of end user experience monitoring software, including GSX Gizmo, a Microsoft productivity suite monitoring solution.

For the three months ended March 31, 2022, income from sales ($4.27M) less revenue recognized at a point in time and other adjustments ($0.51M) resulted in $4.22M in quarterly recurring revenue and MRR of $1.41M.

adjustments ($0.51M) resulted in $4.22M in quarterly recurring revenue and MRR of $1.41M.
Reconciliation of Sales to MRR- 3 months ended
(in 000's) March 31, 2022 Sales $ 4,271 Less: Revenue recognized at point in time (10) Less: Term licenses (41) Add: other adjustments - QuarterlyRecurringRevenue 4,220 MonthlyRecurringRevenue(MRR) 1,407	March 31, 2021
	4,476 (27) (57) 12
	4,405
	1,468

SUMMARY OF RESULTS

Note: The information contained in the following tables, including the Remaining balance and Variance calculations, is intended to assist in the year-over-year comparison and provide additional clarity on the results.

Sales and Gross Margin

Sales represent:

• (a) the sale of UC - performance management solutions for real-time communications;

• (b) the sale of subscription and perpetual software licenses for visualization of IT systems management data, and maintenance and support services for these solutions; and

• (c) the sale of subscription software licences and maintenance & support services for end user experience monitoring solutions, including GSX Gizmo, a Microsoft productivity suite monitoring solution.

Martello offers subscription sales (software as a service) and software licence sales. Martello’s sales are both indirect, via distributors and value-added resellers, and direct to enterprises. Martello’s UC performance analytics software is included in Mitel’s premium software assurance plans (Mitel Performance Analytics or “MPA”) and Martello earns a monthly fee for each subscriber to the plan. The new Vantage DX platform is an integration of products which include IT analytics and GSX Gizmo.

Recurring revenue includes the components described above as MRR.

Cost of goods sold represents sales and distributor commissions, web hosting services and hardware.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Three and twelve months ended March 31, 2022

Gross Margin - Summary	Gross Margin - Summary
		March 31,	March 31,	March 31,	March 31,
(in 000's)		2022	2021	2022	2021
		(Three months ended)		(twelve months ended)
Sales	$	4,271 423	4,476 481	17,540 1,632	16,831 1,197
Cost of Goods Sold
		3,848 90.1%	3,995 89.3%	15,907 90.7%	15,634 92.9%
Gross Margin
Gross Margin

Revenue decreased $0.21M (5%) in Q4 FY22 compared to Q4 FY21. The gross margin at 90.1% in Q4 FY22 is higher than 89.3% in the same period of FY21.

Sales and Gross Margin - twelve	months ended
(in 000's)	March 31, 2021 March 31, 2022
Remaining Remaining Balance Balance Sales $ 17,540 7,234 10,306 16,831 6,010 10,821 (515) Cost of Goods Sold 1,632 1,298 334 1,197 813 384 (50) Gross Margin 15,907 5,936 9,972 15,634 5,197 10,437 (465) Gross Margin % 90.7% 82.1% 96.8% 92.9% 86.5% 96.5% 0.3% Increase / (Decrease) GSX Total GSX Total**

* To facilitate comparison with the twelve months ended March 31,2022, the Remaining balance represents the results of the Company’s operations in Q4 YTD FY22 without contributions from GSX (acquired on May 29, 2020). The analysis compares the Remaining balance to the comparable period in FY21.

Revenue increased $0.71M (4%) in Q4 YTD FY22 compared to Q4 YTD FY21. Excluding GSX, revenue decreased $0.52M (5%) in Q4 YTD FY22 compared to Q4 YTD FY21. The gross margin at 90.7% (96.8% excluding GSX) in Q4 YTD FY22 is lower than 92.9% (96.5% excluding GSX) for the same period in FY21.

Segmented information

The Company operates in three operating segments: 1) Monitoring – Mitel UC; 2) Vantage Dx Analytics - IT Service Analytics; and 3) Vantage Dx Monitoring – Microsoft 365. Vantage Dx is the name of the Corporation’s solution suite portfolio for digital experience monitoring. For operating segment reporting purposes, Monitoring – Mitel UC 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.

Three and twelve months ended March 31, 2022

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

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Monitoring – Mitel UC revenue decreased $145k (8%) in Q4 FY22 compared to Q4 FY21 and $400k (5%) in Q4 YTD FY22 compared to Q4 YTD FY21. Q4 decrease is mainly due to lower users and non-recurring revenue, while YTD is primarily due to lower USD-CAD FX rate (the majority of the Mitel UC revenue is in USD), lower non-recurring revenue (licences and training revenue) and decrease in recurring revenue from the number of users for Mitel’s premium software assurance program partially offset by an increase in hardware sold in FY22. Gross margin increased in both Q4 FY22 (98%) and Q4 YTD FY22 (97%) compared to 96% in Q4 FY21 and Q4 YTD FY21 mainly due to lower cost of goods sold related to savings in hosting costs, commissions and cost of inventory in FY22 partially offset by lower sales.

Vantage Dx Analytics - IT Service Analytics revenue decreased $45k (6%) in Q4 FY22 compared to Q4 FY21 and $199k (6%) in Q4 YTD FY22 compared to Q4 YTD FY21 mainly due to a decrease in maintenance and support revenues due to churn on the existing contracts related to the LiveMaps product as well as the shift from perpetual to subscription revenue in prior years in addition to unfavourable EUR-CAD exchange rate in Q4 FY22, partially offset by an increase in subscription license revenue related to the iQ product. Margin remained consistent in Q4 FY22 and Q4 FY21 at 97% and slightly increased to 98% in Q4 YTD FY22 from 96% in Q4 YTD FY21 due to lower commissions.

Vantage Dx Monitoring – Microsoft 365 revenue decreased $15k (1%) in Q4 FY22 compared to Q4 FY21 and increased $1,307k (22%) %) in Q4 YTD FY22 compared to Q4 YTD FY21. GSX was acquired in late May 2020 and therefore the YTD FY21 results include only ten months of revenue. Subscriptions related to the MSFT product have increased, partially offset by a decrease in

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

maintenance and support and term licences on the legacy product. Decrease in EUR-CAD exchange rate negatively impacted both Q4 and YTD results in addition to churn described earlier. Margin remained flat between at 79% in Q4 FY22 and Q4 FY21 and decreased to 82% for Q4 YTD FY22 from 86% in Q4 YTD FY21 due to an increase in sales and distributor commissions and an increase in hosting costs related to growth in cloud-based customers.

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Monthly Recurring Revenue (“MRR”) is $1.41M in Q4 FY22 compared to 1.47M in Q4 FY21. The $0.06M (4%) decrease in MRR is primarily attributable to a decrease in Mitel subscriptions and unfavourable EUR-CAD FX translation. MRR is a non-IFRS measure and represents average monthly recurring revenue earned in a fiscal quarter.

Expenses

Three and twelve months ended March 31, 2022

Expenses - Three months ended	Expenses - Three months ended		Increase / (Decrease) 175 (288) (169) (30) (183) (105) (600)
March 31, (in 000's) 2022		March 31, 2021
Research and development $ 1,583 Sales and marketing 1,832 General and administrative 1,435 Depreciation 99 Amortization 415 Acquisition-related costs 0 TOTAL 5,363 Total		1,407 2,120 1,604 128 598 105 5,963 Total
(in 000's)		March 31, 2022	Remaining Balance 5,072 4,034 4,828 190 513 50 14,688*		March 31, 2021	Increase / (Decrease) Remaining Balance 3,843 1,229 3,070 965 4,772 56 297 (107) 664 (150) 1,110 (1,060) 13,755 932*
Research and development $ 6,638 Sales and marketing 7,385 General and administrative 5,338 Depreciation 428 Amortization 1,882 Acquisition-related costs 50 TOTAL 21,721 Total		1,566 3,350 509 239 1,368 - 7,033 GSX		5,092 6,082 5,731 512 1,872 1,110 20,399 Total	1,249 3,012 958 215 1,209 - 6,643 GSX

* To facilitate comparison with the twelve months ended March 31, 2021, the Remaining balance represents the results of the Company’s operations in FY22 and FY21 without contributions from GSX (acquired on May 29, 2020). The analysis compares the Remaining balance to the comparable period in FY21.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

For the three months and twelve months ended March 31, 2022, operating expenses decreased by $0.60M (10%) and increased by $1.32M (6%) ($0.93M or 7% excluding GSX) respectively compared to the same period in FY21. Lower spending in FY21 was driven by a strategic initiative to reduce costs in view of the uncertainties around COVID, including delays in filling vacant positions, and temporary reductions in compensation and work hours. Increase in spending across all departments in FY22 was mainly driven by higher compensation costs following the return to full salaries and lower government incentives (IRAP and COVID 19 related in FY21).

Research and development (“R&D”) expenses include compensation for the research and development team as well as any subcontract costs and development tools. These costs are partially offset by government grants, primarily investment tax credits, which are earned from qualifying Scientific Research and Experimental Development (“SRED”) expenditures, funding from the National Research Council of Canada Industrial Research Assistance Program (“NRC-IRAP”) through August 2020, and Credit d’Impôt en Faveur de la Recherche (“CIR”).

• R&D expenses increased $175K (12%) in Q4 FY22 compared to Q4 FY21 and excluding the impact of GSX increased $1,229K (32%) in the twelve months of FY22 compared to FY21. In addition to the overall expense increases explained above, the Q4 and YTD increase is related to incremental headcount and higher spend on software subscriptions partially offset by lower consulting spend. Q4 FY22 compared to Q4 FY21 had reduced spend on market research due to integration of costs and lower patent filing fees (timing of spend earlier in the year).

Sales and marketing costs include headcount related compensation (excluding sales commission accounted for in cost of goods sold) and marketing spend.

• Sales and Marketing expenses decreased $288K (14%) in Q4 FY22 compared to Q4 FY21 and excluding the impact of GSX increased $965K (31%) in the twelve months of FY22 compared to FY21. In addition to increases driven by return to full salary as described above, the Q4 decrease is related to lower headcount and subcontractor cost due to attrition partially offset in increase due to higher spend in marketing activities associated with the launch of Vantage DX and investments in software. YTD increase is related to increase in headcount, investment in sales related software, increase in marketing & event costs.

General and administrative costs include headcount related compensation, board compensation, rent and professional and other fees related to corporate activities.

• General and administrative costs decreased by $169k (11%) in Q4 FY22 compared to Q4 FY21 and excluding the impact of GSX increased $56K (1%) in the twelve months of FY22 compared to FY21. In addition to the increases explained above, the Q4 decrease is related to lower spend in legal and tax support, office costs (software subscriptions and internet) and headcount and subcontractor costs related to optimization of resources following the acquisition of GSX. In addition to increases for Q4 YTD as described above, higher spend on tax, audit and recruitment fees was offset by decrease in consulting and legal fees YTD.

Depreciation relates to property, plant and equipment, as well as depreciation of right-of-use assets in accordance with IFRS 16. The depreciation decreased by $30k (23%) in Q4 FY22 compared to Q4 FY21 and excluding the impact of GSX decreased $107K (36%) in the twelve months of FY22 compared to FY21 due to the termination of a lease in Amsterdam in Q4 FY21.

Amortization of intangible assets relates to intangibles established on the acquisition of Savision and GSX. The amortization decreased by $183k (31%) in Q4 FY22 compared to Q4 FY21 and excluding the impact of GSX decreased $150k (23%) in the twelve months of FY22 compared to FY21 due to FX rates and full amortization of non-compete in Q3 FY22.

Acquisition related costs decreased by $105K (100%) in Q4 FY22 compared to Q4 FY21 and $1,060k (95%) in the twelve months of FY22 compared to FY21. The FY21 costs relate to the acquisition of GSX, including financial, tax and technical due diligence, M&A advisor fees, and legal and other professional fees.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Loss from Operations

In Q4 FY22, the loss from operations was $1.52M compared to a loss of $1.97M in the same period of FY21, a decrease of $0.45M (23%) primarily due to lower spend on operating expenses partially offset by lower margin. In Q4 FY22 YTD the loss from operations was $5.81M compared to a loss of $4.76M in Q4 FY21 YTD, an increase of $1.05M (22%) primarily due to increase in sales and margin partially offset by increased operating expenses as described above.

Other Income/Expense

Other Income/Expense
(in 000's)	March 31, March 31, March 31, March 31, 2022 2021 2022 2021
Interest income $ (1) 2 5 9 Interest expense (469) (481) (1,889) (1,701) Financing fees (9) (26) (318) (423) Accretion of long-term debt (15) (15) (59) (16) Revaluation of forward contract (5) 8 (13) 8 Foreign exchange gain (loss) (41) 111 (359) 511 PPP loan forgiveness - - 184 - Other income 3 10 35 (23) TOTAL $ (537) (390) (2,414) (1,634) (Three months ended) (twelve months ended)
	(537) (390) (2,414) (1,634)

For the twelve months ended March 31, 2022, the increase in interest expense is a result of accounting for a full 12 months of interest in FY22 compared to 10 months in FY21, since the acquisition of the loan. The interest expense includes Vistara Term Loan interest of 12.5% as well as amortization of the loan and warrant origination fees associated with the Vistara Term Loan.

During the period ended March 31, 2021, the Company also incurred financing fees related primarily to the National Bank Revolver, including setup fees, advisory fees and legal costs. As well, certain fees were incurred in terminating the RBC term loan. During the year ended March 31, 2022, the Company incurred $0.3M in costs to amend the Vistara agreement.

For the three and twelve months ended March 31, 2022, the Company had foreign exchange loss of $0.04M and $0.36M, respectively, compared to gains of $0.11M and $0.51M, respectively, for the same periods last year. The main driver for the foreign exchange loss for the 12 months ending March 31, 2022, are the exchange rate differences. The EUR and USD rates were 1.4777 and 1.25994, respectively, in March 2021 vs 1.3922 and 1.2529 in Mar 2022, which resulted in foreign exchange loss.

On October 6, 2021, the PPP loan balance was forgiven. As a result of the forgiveness, the Corporation recognized a gain of $0.18M on the forgiveness of the loan in the consolidated statements of loss and comprehensive loss.

Income Tax Expense / Recovery

For the three and twelve months ended March 31, 2022, income tax amounted to an expense of $0.11M, and a recovery of $0.01M, respectively compared to a recovery of $0.46M and $0.35M, respectively, for the same periods last year. In Q4 FY22 there was a reversal of a deferred tax liability due to NOL used, and a decrease in deferred tax liability due to amortization of intangibles.

Loss from Discontinued Operations, net of tax

The loss from discontinued operations for the three and twelve-months ending March 31, 2022 was $0, compared to a loss of $0 for the three months ended March 31, 2021 and $0.32M for FY 21. The loss from discontinued operations represents the results of the NPM segment, the net assets of which were sold in Q3 FY21.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Other Comprehensive Income / Loss

In the three and twelve months ended March 31, 2022, the Company had other comprehensive loss of $0.76M and $1.43M, respectively, (loss of $1.54M and $0.24M for the three and twelve months ended March 31, 2021). Included in other comprehensive income/(loss) are pension plan fair value adjustments, pension plan remeasurement, as well as currency translation differences for Savision and GSX operations, for which EUR is the functional currency. During FY22, the increase in CAD against EUR resulted in loss on revaluation of the net assets of Savision and GSX including goodwill and intangibles.

Net Loss and Comprehensive Loss

For the three and twelve months ended March 31, 2022, the net loss amounted to $2.16M and $8.22M compared to $1.90M and $6.37M net loss recorded in the same periods last year.

The total comprehensive loss for the three and twelve months ended March 31, 2022 was $2.9M and $9.65M, respectively, compared to $3.43M and $6.62M for the same periods last year.

The key drivers contributing to the losses are provided under Loss from Operations, Other Income/Expense, Loss from Discontinued Operations, Income Tax Recovery and Other Comprehensive Loss above.

SELECTED QUARTERLY INFORMATION

The following table presents certain unaudited financial information for each of the six fiscal quarters up to and including the quarter ended March 31, 2022. The information has been derived from our unaudited quarterly condensed interim consolidated financial statements, which in management’s opinion have been prepared on a basis consistent with the consolidated financial statements for the three- and twelve-months March 31, 2022 and 2021. Past performance is not a guarantee of future performance, and this information is not necessarily indicative of results for any future period.

performance, and this information is not necessarily indicative of results for any future period.	performance, and this information is not necessarily indicative of results for any future period.
Quarterly Financial Information Q4 Q3 Q2 Q1 Q4 Q3 (in 000s) FY22 FY22 FY22 FY22 FY21 FY21
Sales $ 4,271 4,455 4,413 4,401 4,476 4,633 Cost of Goods Sold 423 433 348 428 481 309 Gross Margin 3,848 4,021 4,065 3,973 3,995 4,324 Expenses 5,363 5,526 5,135 5,696 5,963 5,449 Loss from operations (1,515) (1,505) (1,070) (1,723) (1,968) (1,125) Other income/(expense) (537) (742) (626) (509) (390) (240) Loss before income tax (2,052) (2,247) (1,695) (2,232) (2,358) (1,365) Income tax recovery (109) 75 (23) 65 461 (94) Net loss from continuing operations (2,161) (2,173) (1,719) (2,167) (1,897) (1,459) Gain (loss) from discontinued operations, net of tax - - - - (0) - Net Loss (2,161) (2,173) (1,719) (2,167) (1,897) (1,459) Total comprehensive loss (2,917) (2,794) (1,780) (2,160) (3,435) (985)
	3,848 4,021 4,065 3,973 3,995 4,324 5,363 5,526 5,135 5,696 5,963 5,449
	(1,515) (1,505) (1,070) (1,723) (1,968) (1,125) (537) (742) (626) (509) (390) (240)
	(2,052) (2,247) (1,695) (2,232) (2,358) (1,365) (109) 75 (23) 65 461 (94)
	(2,161) (2,173) (1,719) (2,167) (1,897) (1,459) - - - - (0) -
	(2,161) (2,173) (1,719) (2,167) (1,897) (1,459)
	(2,917) (2,794) (1,780) (2,160) (3,435) (985)
EBITDA(1) Adjusted EBITDA (1) (2)	(1,045) (1,069) (601) (1,125) (1,112) (223) (830) (777) (297) (956) (985) (262)

(1) Non-IFRS measure. See "Non-IFRS Financial Measures".

(2) Adjusted EBITDA for FY21 reflects addback of discontinued operations

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Sales have been stable from Q4 FY21 through Q3 FY22 in part due to lower USD-CAD FX rate (the majority of the Mitel UC revenue is in USD, which represents 42% of the current Q4 FY22 revenue). Decrease in Q4 FY22 compared to prior quarters is driven by churn on maintenance and support of legacy products acquired in the GSX and Savision acquisitions and lower hardware sales in Mitel UC segment and slight decrease in professional services and GSX licence revenue. Declining EUR-CAD exchange rate over the last four quarters negatively impacted sales from both Vantage Dx Analytics - IT Service Analytics and Vantage Dx Monitoring – Microsoft 365.

Cost of goods sold has been consistent over the last 4 quarters with a dip in Q2 FY22 due to a decrease in vendor credits for cloud hosting costs for Gizmo. Decrease in Q1 FY22 was a result of R&D efforts on cloud-based multitenancy, driving some cost optimization.

In Q1 FY21 a strategic decision was made to reduce costs in face of uncertainty related to COVID and this continued through mid Q3 FY21. The operating expenses increased in Q4 FY21 reflects a return to full salaries, an increase in spend in marketing and investments in sales software, combined with lower government credits (IRAP and Covid related) in the subsequent periods. The sequential decrease between Q1 and Q2 FY22 is mainly related to reduced headcount due to attrition, and adjustments to vacation, pension cost and other compensation costs. Increase in Q3 FY22 is related to increase in lead generation marketing activities, reduction in government credits, increase in severance payments, vacation liabilities and bonuses. Decrease in Q4 FY22 relates to attrition, lower severance cost and decrease in marketing event cost.

Other income and expense increases reflect the cost of new financing in Q1 FY21 and ongoing interest costs, as well as foreign exchange losses YTD FY22.

Gradual increase in investments in headcount, infrastructure and lead generation in the subsequent periods is reflected in increasing adjusted EBITDA losses in the subsequent periods. The changes in the Adjusted EBITDA loss sequentially from Q3 FY22 to Q4 FY22 is due to changes in cost of goods sold and operating expenses as discussed above.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s objectives in managing its liquidity and capital structure are to generate sufficient cash to fund the Company’s operating objectives, including organic growth and growth through acquisitions. The Company’s ability to reach sustained profitability is dependent on successful implementation of the business strategy. While management is confident in the success and profitability of the business, there can be no assurance that Martello will generate enough revenue to reach sustained profitability.

To date, the Company has financed its operations through the revenue generated from the sale of its products and services, issuance of common shares, raising of long-term debt, as well as the receipt of government loans, and investment tax credits.

For the foreseeable future, the Company expects to continue financing its operations through raising equity capital and long-term debt to strengthen its financial position and to provide sufficient cash reserves for growth and development of the business. In addition, the Company is focused on generating cashflow from operations while maintaining strong investment in research and development to maintain current revenue and drive increased growth.

In November 2018, in connection with the Savision acquisition, the company closed a loan facility with RBC and drew $3.0M on the term loan. In May 2020, the remaining balance of $1.8M was fully repaid.

In September 2019, the Company completed a public offering, with gross proceeds of $4.6M (net proceeds of $4.0M) to identify and fund acquisitions, accelerate R&D activities, increase sales capacity and for general corporate purposes.

In Q1 FY21, the Company completed several transactions to both fund the GSX Acquisition and create further stability for the Company, including a bought deal offering for gross proceeds of $6.9M (the “Bought Deal Offering”). Concurrently, in connection with the GSX Acquisition, 22,000,000 common shares were issued as part of the purchase price.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

In addition, the Company entered into two debt facilities in Q1 FY21:

a) National Bank Revolver

On April 27, 2020, Martello Corp 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 $7.5M, 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 Corp and the Company, 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 facility is undrawn as of March 31, 2021.

b) Vistara Term Loan

On April 27, 2020, Martello Corp 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 has provided a USD $8.0M subordinated secured term loan (the “Vistara Term Loan”). Along with the proceeds of the Bought Deal Offering the Vistara Term Loan was used to fund the GSX Acquisition.

The Vistara Term Loan is repayable within 36 months of closing and carries interest of 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 19.70%. The Vistara Term Loan is secured by a subordinated security interest in and guarantees from the Corporate Guarantors.

As consideration for providing the Vistara 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.

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 U.S. $0.4M was paid to Vistara. The cancellation resulted in $0.3M 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.

The Company also has in place a non-binding letter of intent with Bruce Linton, and Terry Matthews through Wesley Clover International Corporation, Co-Chairmen of the Company’s Board of Directors to provide a $5.0M unsecured subordinated debt instrument (the “Unsecured Subordinated Loan”). The Unsecured Subordinated Loan has not been drawn on but is expected to become available to the Company as an additional source of capital, subject to the parties agreeing to definitive terms.

In Q4 FY21, the Company completed a second bought deal offering for gross proceeds of $5.75M, as well as a concurrent private placement for gross proceeds of $0.44M.

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.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

On January 27, 2022 the Corporation completed the second tranche of a non-brokered private placement (the “Second Private Placement”). Under the Second 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 Second Private Placement was subscribed for entirely, either directly or indirectly, by insiders of the Corporation.

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.

Cash and Working Capital

Cash and cash equivalents, including restricted cash, totaled $4.8M at March 31, 2022 compared to $8.35M at March 31, 2021. The decrease is explained below under Cashflow Analysis .

The following tables sets out the working capital position of the Company as at March 31, 2022 and March 31, 2021.

Liquidity Snapshot
(in 000's)	March 31, March 31, 2022 2021 11,168 15,132 8,901 10,628 2,267 4,504
Current Assets $ Current Liabilities Net Working Capital

The decrease in working capital in Q4 YTD FY22 was mainly due to cash used in operations of $3.5M which includes payment of lease obligation, interest and principal on the loan offset by the increase in investment tax credits receivable of $0.17M and decrease in current deferred revenue of $0.64M. In Q4 FY22, the Company received $2.5M from the private placements. As a result of warrants cancellation in Q3 FY22, Martello used $0.5M of cash towards settling this transaction.

Long-Term Debt

As at March 31, 2022 long-term debt totaled $10.2M, including $0.27M due within one year. The debt is made up of:

• $9.73M Vistara Term Loan, bearing interest at 12.5% and repayable on May 26, 2023. This represents the initial draw of USD$8M, less related fees and warrant costs which are being amortized to the loan balance over the period to maturity, plus capitalized interest. Interest is payable monthly at 10% with the balance being added to the loan principal and payable at maturity. Effective November 2021, interest is payable monthly at 12.5% with no addition of interest to loan principal.

• $0.37M non-interest bearing, unsecured loan from the Federal Economic Development Agency of Southern Ontario (“FedDev”), to support commercialization activities for a specific project.

• $0.08M non-interest-bearing, unsecured loan from Canada Economic Development Agency.

Share Capital

In the first twelve months of FY22, the following transactions in the share capital of Martello occurred:

• 8,687,000 new options were granted (6,581,167 in YTD FY21)

• 200,000 options were exercised (6,165,331 in YTD FY21)

• 1,643,000 options were forfeited (1,226,837 in YTD FY21)

• 352,603 options expired (0 in YTD F21)

• No warrants were exercised (274,285 in YTD FY21)

• 12,777,273 warrants were cancelled (0 in YTD FY21)

In the first twelve months of FY21, the following additional transactions in the share capital of Martello occurred:

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

• 32,861,250 units were issued in connection with the Bought Deal Offering. Each unit consisted of one share and one warrant (each, a “Unit”).

• 22,000,000 shares were issued in connection with the GSX Acquisition

• 1,643,063 broker compensation option units were granted in connection with the Bought Deal Offering, providing the underwriters with the option to purchase Units for 24 months from May 26, 2020.

• 12,777,273 bonus warrants were issued in connection with the Vistara Term Loan

• 1,381,591 broker compensation option units were issued in connection with the Second Offering, providing the underwriters with the option to purchase Second Offering Units for 24 months from March 18, 2021.

Cash Flow Analysis

Cash Flow Analysis
(in 000'S)	Twelve months ended March 31,
2022 2021 Operating activities Loss before income tax $ (8,227) (6,399) Net loss from discontinued operations before income tax - (320) Items not affecting cash 4,312 2,941 Net change in operating components of working capital (737) (2,572) Total cash flows used in operations (4,652) (6,350) Total cash flows used in investing activities (14) (8,356) Total cash flows provided by (used in) financing activities 1,231 20,206 Net change in cash (3,436) 5,500 Cash, beginning of period 8,350 2,900 Effects of currency translation on cash (61) (50) Cash, end ofperiod 4,853 8,350
	(4,652) (6,350) (14) (8,356) 1,231 20,206 (3,436) 5,500 8,350 2,900 (61) (50) 4,853 8,350

Cash flows used in operations were $4.65M for the twelve months ended March 31, 2022, compared to $6.35 for the twelve months ended March 31, 2021. The decrease in cashflows used in operations of $2.67M is due to the following key factors:

• The net loss was $8.23M in the twelve months ended March 31, 2022, compared to $6.39M for the same period in the prior year. Several items contribute to the loss before income tax and are not used as cashflow used in operations. Key changes in these items year over year are as follows, resulting in the decrease of $1.69M in cashflows used in operations:

• Amortization of debt issuance cost increased from $0.47M for the twelve months of FY21 to $0.56M for the same period of FY22. This relates to the Vistara Term Loan; there were 10 months of costs in FY21 as the loan was awarded in May 2020, compared to twelve months in FY22.

• Change in fair value of hedge liability in Q4 YTD FY21 represented a loss of $0.16M due to a weaker CAD against USD rate, compared to a gain of $13K for the 12 months ended FY22 due to a more favorable exchange rate between CAD and USD as well as a larger number of forward contracts were outstanding at March 31, 2021 compared to March 31, 2022.

In the FY22 the Corporation incurred $0.17M of unrealized foreign exchange loss. This is due to CAD becoming stronger against EUR which resulted in loss on revaluation of the net assets of Savision and GSX including goodwill and intangibles, offsetting with the gain on revaluation of Vistara loan denominated in USD In FY21, the total unrealized foreign exchange gain of $0.90M. During this period, the USD depreciated resulting in gain mainly from revaluation of Vistara loan. In addition, the net change in operating components of working capital was an increase of $0.74M for the twelve months of FY22 as compared to an increase of $2.57M in the prior year. This difference was due to the following:

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

• Trade and other accounts receivable decreased by $0.84 in FY22, compared to an increase of $0.43M in FY21 due primarily to timing of collection of invoices.

• Prepaid expenses increased by $0.42M in the twelve months ended March 31, 2022 as compared to a decrease of $0.34M in the twelve months ended March 31, 2021. The decrease in FY21 related primarily to loan origination and financing fees prepaid at March 31, 2020 ($0.29M) that were reclassified to loan and financing costs accounts at closing. The remaining decrease relates to expensing of prepaid subscriptions and other services. The increase in prepaid expense for FY 22 is from higher prepaid professional services by $0.2M (FY21 - $nil) and renewal of subscriptions of $0.2M

• Accounts payable and accrued liabilities decreased $1.27M during the twelve months ended March 31, 2022, compared to a decrease of $1.57M in the prior year. Of the decrease in FY 21, $0.86M related to a decrease in GSX accounts payable since the date of the acquisition. The purchase price was adjusted in relation to certain of these assumed payables. The remaining decrease in accounts payable and accrued liabilities relates primarily to payment of amounts accrued at March 31, 2020 including payroll and related accruals ($0.37M), M&A fees and other professional fees ($0.18M), and timing of trade payables ($0.12M) and sales tax filings and receipts ($0.142M). The decrease in FY22 relates to timing of payment of invoices and payroll, severance and related benefits outstanding at March 31, 2021

• Deferred revenue increased $0.33M during the twelve months of FY22, compared to a decrease of $0.74M in the prior year which is dependent on billings and contract lengths ($0.17M) and currency and effect of FX fluctuations on the balance of $0.16M. The decrease in FY21 is attributable primarily to a decrease in deferred revenue from Dx Monitoring – Microsoft 365 of $0.53M since the acquisition, as well as an adjustment relating to a change in partner terms from subscription to royalty-based revenue. In addition, there was a decrease of $0.09M in IT Service Analytics

Cashflows used in investing activities were $0.01M for the twelve months ended March 31, 2022, as compared to $8.40M for the twelve months ended March 31, 2021. The use of cash in the prior year resulted primarily from the GSX Acquisition net of cash acquired ($11.6M), offset by the sale of short-term investments (net $2.83M).

Cashflows provided by (used in) financing activities were $1.23M use of cash for the twelve months ended March 31, 2022, compared to $20.21 cash inflow for the twelve months ended March 31, 2021. Cashflows used in financing activities in FY22 reflect repayment of long-term debt $0.22M and repayment of lease obligations of $0.35M, cancellation of warrants of $0.50M, PPP loan forgiveness of $0.18M, offset against the proceeds from issuance of common stock of $2.49M. Cashflows provided by financing activities in FY21 included $10.3M in proceeds from the Vistara Term Loan, $13.96 in proceeds from the Bought Deal ($10.38M in common stock and $3.57M in warrants), partially offset by common stock and warrant issuance costs of $1.57M, debt issuance costs of $0.84M, repayment of the RBC Term Loan of $1.88M and repayment of the lease obligation of $0.48M.

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 18 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.

Total lease commitments remaining for the year-ending March 31, 2022 is $101,204.

OFF BALANCE SHEET ARRANGEMENTS

As at March 31, 2022 and 2021, Martello did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations of the Company, including, and without limitation, such considerations as liquidity and capital resources.

TRANSACTIONS WITH RELATED PARTIES

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling activities of the entity, directly or indirectly. The key management personnel of the Company are the members of the Company’s executive management team and the Board of Directors, who control approximately 19% of the Company as at March 31, 2022.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Included in accounts payable and accrued liabilities are balances as at March 31, 2022 totaling $0.33M (March 31, 2021 - $0.15M) due to key management personnel for compensation and earned vacation pay.

In addition, the Co-Chair of the Company’s Board is chairman of Wesley Clover International Corporation (“Wesley Clover”). Wesley Clover owns more than 10% of the issued and outstanding common shares of the Company as at March31, 2022.

The Company leases office premises from Wesley Clover. For the three and twelve months ended March 31, 2022, the Corporation paid rent to Wesley Clover, which is reflected in the results for the three and twelve months ended March 31, 2022 as $0.012M and $0.086M in depreciation expense, respectively (three months and twelve months ended March 31, 2021 - $0.025M and $0.10M, respectively) and $0.03M and $0.12M in rent expense (three and twelve months ended March 31, 2021 - $0.03M and $0.11M, respectively).

These transactions are in the normal course of operations and are recorded at fair value.

OUTLOOK

The explosive and continued growth of Microsoft Teams has propelled Martello’s market opportunity in modern workplace optimization as the Company begins its 2023 fiscal year. Martello’s expertise in managing the performance and user experience of real-time communications has created a competitive differentiator for the Company, particularly as the popularity of Teams phone calls grows with the help of Microsoft Operator Connect partners. There are more than 270M monthly active users of Microsoft Teams, and in its April 2022 Q3 FY22 results, Microsoft noted that “Teams usage has never been higher” and that Total Operator Connect minutes had increased 8X quarter over quarter. In a January 2022 report, Gartner predicted that by 2024, 20% of total Microsoft Teams active users will adopt telephony services for external calling on Teams.

Vantage DX Momentum

Just nine months after the launch of Vantage DX, there are early indicators of momentum behind the modern workplace optimization SaaS, with growth in paid users and trials, and strong go to market and sales support from Microsoft.

The sales cycle for a new software product sold into large enterprises is longer than some other SaaS solutions, and as a result, Martello expects to see revenue growth driven by Vantage DX in the 2023 fiscal year, as sales and trial opportunities progress and legacy revenue declines are increasingly offset by Vantage DX sales.

Among the more than 200,000 users under paid Vantage DX subscription in Q4 FY22 was Vitrolife. The medical device company based in Sweden saw an immediate return on their investment in Vantage DX, saving approximately 10,000 hours of time previously spent troubleshooting the source of performance issues for users.

Fiscal 2023 Outlook

The Company is focused on continuing to drive sales pipeline growth to increase FY23 bookings, as well as on converting prospects and customers in trials into paid Vantage DX customers as efficiently as possible. Activities to increase sales pipeline include virtual and in-person industry event participation, webinars, digital demand generation campaigns, internal and external sales prospecting and joint sales and marketing activities with partners.

Recognizing the opportunity to optimize Teams video, chat and the voice calls that are growing in popularity, Martello is leveraging its unique expertise in voice by developing partnerships with Microsoft Operator Connect partners and building unique capabilities in Vantage DX to address this specific market. The Company has seen early success with Orange Business Services, an Operator Connect partner and one of the world’s largest telecom companies. To address the ‘visibility gap’ in Microsoft telephony, Vantage DX now provides insight into the health status of AudioCodes session border controllers (SBCs) and is developing support for additional SBCs that are used in the Microsoft Teams telephony market.

Management is currently constructing plans to increase the velocity and growth trajectory of recurring revenue. This enhanced focus on operational excellence and achieving positive cash flow is expected to accelerate the opportunity for our clients and end users to realize optimal Microsoft 365 and Teams value.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Martello’s longstanding partnership with Mitel was strengthened with a renewed and extended agreement subsequent to Q4 FY22. Extending the length of the agreement to three years with an automatic two-year renewal, the amendment provides predictability for this solid and steady business line.

ACCOUNTING POLICIES

The significant accounting policies used in preparing these consolidated financial statements are disclosed in note 2 of the Company’s audited annual consolidated financial statements for the year ended March 31, 2022.

DEFINED BENEFITS RETIREMENT PLAN

At March 31, 2022, the Plan was in a deficit position of $0.36M (March 31, 2021 - $0.26M). The movements in Defined benefit obligation for the period from March 31, 2021 to March 31, 2022 are:

obligation for the period from March 31, 2021 to	March 31, 2022 are
	$
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

The movements in Plan assets for the period from March 31, 2021 to March 31, 2022 are:

==> picture [267 x 107] intentionally omitted <==

The weighted average duration of the obligation at March 31, 2022, which relates to active members, is 19.7 years.

The Corporation expects to make contributions to the Plan totaling $0.11M during the next 12 months.

CRITICAL ACCOUNTING ESTIMATES

The audited annual consolidated financial statements of Martello are prepared in accordance with IFRS. Management makes estimates and assumptions and uses judgment in applying these accounting policies and reporting the amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. 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.

Significant judgments in the consolidated financial statements of Martello for the year ended March 31, 2022 relate to business combinations, determination of functional currencies, fair value of interest free debt, revenue recognition, share-based compensation, equity, and warrants, useful life of long-lived assets, evaluation of goodwill and intangible assets impairment, classification of discontinued operations, the assumptions underlying the actuarial valuation of the defined benefit pension plan, the determination of the appropriate lease terms and the assessment of revenues occurring at a point in time, over a period of time or based on usage. For further details, reference should be made to Note 3 of the consolidated financials statements for the years ended March 31, 2022 and 2021.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

FINANCIAL INSTRUMENTS

This section should be read in conjunction with the accompanying consolidated financial statements for the three and twelve months ended March 31, 2022 and 2021. The financial instruments of the Company are as follows:

		March 31,	March 31,
(in 000's)		2022	2021
Financial assets
Cash	$	4,853	8,350
Short-term investments		170	170
Trade and other accounts receivable		4,231	5,201
Investment tax credits and grants receivable		945	779
Investment		304	304
Foreign exchange forward contract asset		-	8
Lease receivable		35	109
Total financial assets		10,538	14,921
		March 31,	March 31,
(in 000's)		2022	2021
Financial liabilities
Accounts payable and accrued liabilities	$	3,113	4,157
Lease obligation		1,214	1,195
Long-term debt (including current portion)		10,174	9,860
Total financial liabilities		14,506	15,212

As at the above dates, the carrying amounts and the fair values of financial assets and liabilities are equivalent.

The Company’s primary risk management objective is to protect the Company’s financial position and cash flows to increase the Company’s enterprise value. The Company is financed through a mixture of debt and equity. The Company is exposed to credit risk, liquidity risk, market risk, foreign exchange risk, interest rate risk. The Company’s senior management and Board oversee the management of these risks.

Market risk is the risk of fluctuation in the fair value of future cash flows because of changes in market prices, including foreign exchange rates. As a substantial portion of the Company’s sales are in United States dollar (USD) and the Euro (EUR), the Company is exposed to risk of changes in foreign exchange rates. As of March 31, 2022, the Company is committed under foreign exchange forward contracts to sell USD, representing sales commitments of USD $1M (March 31, 2021 - $1.8M). Currently, the Company has no derivative instruments to reduce its exposure to the EUR.

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or contract. Martello has one major customer which increases the concentration of credit risk. The Company reduces its exposure to credit risk by performing credit assessments on a regular basis and granting credit upon a review of the credit history of the customer. The Company maintains strict credit policies and limits in respect to counterparties and does not expect future credit losses.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity by reviewing its capital and operating requirements on an ongoing basis.

At March 31, 2022, the Company is exposed to interest rate risk as the Vistara Term Loan carries interest at a variable rate, being the greater of (i) 12.50% per annum; and (ii) the US prime rate plus 8.75% per annum. As at March 31, 2022, the US prime rate was 3.25% and the Company is paying interest at 12.50% per annum.

In addition, the Vistara Term Loan is denominated in USD. The Company is reviewing its exposure to interest rate risks and foreign currency risks and will seek to minimize its exposure to interest rate and currency rate fluctuations.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Financial assets and financial liabilities are initially measured at fair value and are subsequently measured at amortized cost, or at fair value through comprehensive income or through profit and loss.

The forward contracts are measured at fair value through profit and loss. All other financial assets and liabilities are measured at amortized cost.

RISK FACTORS

Martello’s operations are subject to many factors that may cause results to differ from expectations. Below is a summary of the risk factors, in addition to those noted above.

COVID-19

On March 11, 2020, COVID-19 was declared as a pandemic by the World Health Organization. The spread of COVID-19 has significantly impacted the global economy, and the outbreak and efforts to contain the virus may have a significant impact on the Company’s business and customers. The extent of the adverse impact of the pandemic on the global economy and markets will depend, in part, on the length and severity of the measures taken to limit the spread of the virus, the length and severity of the second or future waves of the virus, and, in part, on the size and effectiveness of the compensating measures taken by governments. The prolonged economic slowdown has and may continue to result in purchase order delays or the inability to collect receivables and it is possible that there may be continued negative impacts on the Company’s operations that could have a material adverse effect on our financial results. Changes to budgets and spending priorities as the post-COVID-19 economy evolves may impact revenues. With customer interactions having shifted entirely to virtual or digital platforms, there may be an impact on our ability to generate and convert leads, and on new and renewal sales.

The Company continues to monitor the potential effects and impact on its operations, business and financial performance, including liquidity and capital usage, resulting from COVID-19. Measures were taken early in COVID-19 to minimize the effects, including temporary salary reductions and reductions in discretionary spending. The extent to which the pandemic impacts future operations and financial results, and the duration of any such impact, depends on ongoing developments which continue to create uncertainty.

Competition

The industry in which the Company is positioned is rapidly evolving and the Company faces intense competition for its products and services. Other companies, including Microsoft, may invest more time and resources in developing competitive technology, products, or solutions. Other companies may have access to capital at a lower cost than Martello. The competitive environment could result in loss of market share.

Customer acceptance of products and services

The Company’s product development and marketing efforts are directed toward products and services that enable businesses to innovate or operate effectively, and that have value to those businesses. Success depends on customers’ belief that there are technological, operational or cost benefits associated with Martello’s products and services.

Risks inherent in acquisitions

The Company has acquired assets and may acquire assets, products or businesses in the future that it believes will complement or augment its existing business. Risks associated with acquisition activity include failure to successfully realize value from acquisitions, including greater than expected product integration or development challenges, costs and delays, disruption and diversion from the existing business, challenges of integration and retention of key personnel, unanticipated costs or liabilities associated with the new business, and inappropriate valuations of the acquired assets or business. These risks could have a material adverse impact on liquidity, capital resources and operations of the Company.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Global Economic Conditions and Inflation

Martello may be affected by worldwide economic conditions, such as economic impacts due to the Russian invasion of Ukraine. These impacts include higher interest rates and inflation, which can influence our ability to compete for talent as wage inflation increases, as well as the increased risk of cyber security breaches and attacks. Inflation could increase the Company’s operating and other costs, which may result in increased losses.

The Ability to Manage Growth

Should the Company be successful in its efforts to acquire customers, through both direct and indirect channels, operations will need to scale effectively to meet the demand. The failure to manage growth effectively could have a material adverse effect on the Company’s business, financial condition and results of operations.

Dependence on Mitel

As a strategic partner, Mitel accounted for approximately 42% and 41% of the Company’s revenue during the three and twelve months ended March 31, 2022 (43% and 45% for the three and twelve months ended March 31, 2021). Martello and Mitel have entered into the Mitel Services Agreement regarding the use and resale of Martello software and services. The Mitel Services Agreement currently in effect was entered into on April 21, 2016 for an initial term of one year with automatic annual renewal. The Mitel Services Agreement was then amended in January 2019 to expand the coverage of Martello’s software to additional Mitel communications platforms, extend the term of the agreement for an additional two years, with automatic two-year renewals thereafter and increases to the fee per user that Martello receives on certain Mitel offerings.

Among other factors, if the relationship with Mitel changes, if Mitel’s reliance on the Company’s products is reduced because of changes to their business structure or strategy, if the Company is unable to provide suitable support for new or additional products and ongoing product updates or is unable to reach commercially agreeable pricing and other terms for support, or if Mitel business decreases, this could lead to a loss of a significant portion of the Company’s business.

In November 2021, Mitel and RingCentral, Inc. (“RingCentral”) announced a strategic partnership, pursuant to which RingCentral would become Mitel’s exclusive UCaaS partner. Mitel and RingCentral’s relationship could accelerate the migration of on-premises customers into RingCentral’s UCaaS offering. This risk is mitigated by the launch of the Company’s Vantage DX integrated solution and the launch of its indirect channel strategy and acquisition activities. The Company’s deepening relationship with Microsoft through the Microsoft Global Solutions Alliance Program (announced in August 2021) is a concrete step in this mitigation strategy.

Microsoft relationship

The Company participates in Microsoft’s Global Solutions Alliance Program. In connection therewith, the Company has agreed to supplemental terms to its customer agreement with Microsoft. These supplemental terms include, among other things, a commitment by the Company to spend $4,000,000 on Microsoft Azure over a 60-month period. If the Microsoft Azure consumption is valued at less than $4,000,000 over the first 48 months, the Company must pay Microsoft any remaining difference and any amount paid will be treated as a prepayment for Microsoft Azure consumption for the following 12 months. The Company’s consumption of Microsoft Azure is dependent on maintaining DEM revenue growth, including migration and growth of customers on the Vantage DX product suite and execution of sales and channel strategies.

Rapid Technological Chan ge

The nature of Martello’s industry is one of frequent new product introductions, evolving industry standards and changing customer needs, which could cause the Company’s hardware products and software solutions to become obsolete. COVID-19 has accelerated changes in customer IT environments and resulting solution needs, including accelerated adoption of technologies which enable ‘work from anywhere’. The length or direction of Martello’s development cycle may impact its ability to react to new technology trends and customer needs.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

Currency Fluctuations

A substantial portion of the Company’s sales, cost of sales and operating expenses are denominated in foreign currencies. The Company is exposed to changes in foreign currency rates, and this could negatively impact revenue, profitability and cashflow.

Operating results may fluctuate significantly

There are many factors that influence the Company’s operating results which are outside of its control. Past results should not be relied upon as an indication of future performance. Revenue and future operating results are difficult to predict even in the near term.

Failure to effectively manage product lifecycles

Failure to effectively manage product lifecycles, including introduction of new products, release of new features and transitioning customers from end-of-life products to new products, could result in customer dissatisfaction and impact the Company’s operating results negatively.

Vistara Term Loan

The Vistara Term Loan bears interest at a variable rate. Increases in market interest rates could increase the carrying cost of the debt and impact the Company’s ability to refinance the debt on maturity. In addition, the Vistara Term Loan requires the Company to meet certain covenants. The Company’s inability to meet the covenants could result in an event of default, which, if not cured within a prescribed time, could result in acceleration of the Vistara Term Loan and the ability of Vistara to enforce other rights and remedies pursuant to the terms of the loan agreement.

Other Risk Factors

Other risk factors relating to the Company’s business are summarized as follows:

• The Company’s success is dependent on its ability to hire, retain and motivate qualified people to develop the solutions and services that respond to technological developments and evolving customer needs, and to execute on product and business strategies. Global competition for technical resources has increased significantly due to work from anywhere policies. This may make it challenging for the Company to attract and retain qualified resources.

• There is no assurance that research and development efforts will produce revenue in the near-term, if at all.

• International operations will result in increased operational, regulatory, tax, legal and other risks, including infectious diseases.

• The Company may need to raise additional capital in order to support the continued growth of the business. The interest of existing shareholders could be diluted, or restrictive covenants could be placed upon the Company by lenders. There is no assurance that sufficient capital will be available to fund future growth.

• The Company’s success is dependent upon its ability to adapt its business model to keep pace with industry trends, and development of appropriate business and pricing models. Pricing changes or changes to sales models by Martello’s competitors may also require the Company to reduce prices.

• The Company’s products are highly technical and complex and can contain errors or security vulnerabilities. These could harm Martello’s reputation, lead to returns of products or services and possibly reduced future sales.

• Public disclosure of security vulnerabilities in enterprise IT systems has caused a heightened awareness of potential vulnerabilities in software, resulting in increased scrutiny of solutions like Martello's.

• The Company’s success is dependent upon its ability to execute its sales strategy, including execution of go to market strategies which include the development of both existing and new channels to market, and successful renewal of subscription licenses and maintenance and support contracts.

• The Company’s success depends on the cooperation of its current and target hardware and software vendors and partners and on expected functionality of third-party hardware and software to ensure interoperability with the Company’s products and to offer compatible products to end users.

• The Company relies on relationships with distributors, resellers, system vendors and systems integrators for a significant portion of its revenues. Disruptions to these channels could harm its business.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2022 and 2021

• The Company’s investment tax credits from SRED have decreased and the timing of the application of the credits is negatively affected due to the Reverse Acquisition.

• The Company’s success and future growth depends in part upon its ability to protect its intellectual property. The Company relies on a combination of patents, copyrights, trademarks, trade secret laws, contractual agreements, licenses and other methods to protect its intellectual property. There is no assurance that such measures will protect the Company’s intellectual property, and despite its efforts to protect its trade secrets and proprietary rights, unauthorized parties may still infringe its intellectual property.

• The Company’s commercial success depends, in part, upon the Company not infringing intellectual property rights owned by others. A number of the Company’s competitors and other third parties have been issued patents, may have filed patent applications, or may obtain additional patents and proprietary rights for technologies similar to those used by the Company in its products. Some of these patents may grant very broad protection to the owners of such patents. It cannot be determined with certainty whether any existing third-party patents, or the issuance of any third-party patents, would require the Company to alter its technology, obtain licenses or cease certain activities.

• The Company depends on its own IT systems and the IT systems of key SaaS providers to conduct a significant amount of its business operations. Breaches of the Company’s cybersecurity systems or the systems of its vendors, partners or suppliers could seriously harm the business. Risks such as malware, computer viruses, cyber threats, extortion, employee error, malfeasance, system errors or other types of risks may occur from inside or outside of the Company. It is increasingly difficult to identify and protect against these risks due to the rapidly evolving nature of the threats.

• Failure of the Company or its partners to comply with privacy policies, and privacy-related and data protection laws and regulations could result in proceedings and/or fines with adverse effect on the operating results and on the business.

• As the Company continues to develop its SaaS offerings, it will need to continue evolving processes to meet regulatory, intellectual property, open-source software compliance and contractual and service compliance challenges. This requires significant investment and could affect operating results.

• The Company’s SaaS offerings rely on third-party providers for data center space and colocation services. Should these services be disrupted or discontinued, it could result in a loss of current and future business to the Company.

Martello’s inability to achieve any of these objectives could harm the Company's business, financial condition and operating results.

martellotech.com

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