Martello Technologies Group Inc. - Management Reports 2023

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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, 2023

June 27, 2023

Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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 27, 2023, 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, 2023 and 2022 (“Q4 FY23”and “FY23” and “Q4 FY22” and “FY22”, respectively). This MD&A should be read in conjunction with the Company’s consolidated financial statements and accompanying notes for the period ended March 31, 2023. 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 currency exchange rates, interest rates, inflation, taxes and geopolitical events;
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 of open-source software adoption and compliance risks;
Cybersecurity and privacy risks;
Unplanned outages of the Company’s software and the broader IT ecosystems;
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.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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.

COMPANY OVERVIEW

Martello (TSXV: MTLO) monitors and optimizes the performance of enterprise cloud communications and collaboration systems for better call, meeting and workflow experiences. The Company’s Vantage DX software as a service (SaaS) optimizes the Microsoft Modern Workplace by monitoring the Microsoft Teams and Microsoft 365 user experience from end-to-end, providing IT teams and service providers with actionable insight to efficiently resolve performance problems which are impacting the Microsoft 365 and Teams user experience.

With a longstanding history of providing monitoring solutions for unified communications leader Mitel Networks (“Mitel”), 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 grows with the help of Microsoft Operator Connect partners. There are more than 300 million monthly active users of Microsoft Teams (as of April 25, 2023, per Microsoft Q3 FY23 Financial Results), with nearly 60% of enterprise Microsoft Teams customers buying Teams Phone, Rooms, or Premium. Some 80M are using Microsoft Teams Phone, the calling feature of Microsoft Teams. Among those, more than 12M use Microsoft PSTN calling, which allows users to conduct Teams calls via a telephone system. Martello’s Vantage DX supports enterprise Microsoft Teams users.

Already the Microsoft-recommended provider of Modern Workplace Optimization SaaS, Martello’s mission is to make every Microsoft Teams and Microsoft 365 user’s experience productive.

As of March 31, 2023, Martello had 76 active employees: 45 in Canada, 4 in the United States and 27 in Europe, the Middle East and Africa (EMEA).

Products

Martello develops software that monitors and optimizes the user’s experience of enterprise cloud communications and collaboration systems to help IT teams rapidly prioritize and resolve issues, with a focus on Microsoft 365, Microsoft Teams and Mitel unified communications.

Martello’s products include:

Modern Workplace Optimization

The Modern Workplace Optimization business line includes the following products:

Vantage DX , a single platform Modern Workplace Optimization suite which monitors and manages the Microsoft 365 and Microsoft Teams user experience from end-to-end. This solution provides insight that goes beyond traditional application or network monitoring tools, by correlating network performance data with synthetic and real user monitoring information, to provide a clearer picture of the user’s experience of the service, with a particular focus on Microsoft 365 and Microsoft Teams. Vantage DX is sold to enterprise IT teams through direct sales or channel partners.
Legacy Software Products, which include Gizmo, iQ, LiveMaps and Domino. Customers of these software products continue to use these products and, in many cases, renew their subscriptions, but Martello is no longer actively selling these products outside of certain partnership arrangements.
The Mitel business line includes the Mitel Performance Analytics (“MPA”) product, software which is developed by Martello and sold by Mitel to its channel partners and enterprise customers to manage the performance of Mitel unified communications solutions. Martello and Mitel have entered into agreements regarding the use and resale of Martello software and services, and the Company’s software is used in Mitel’s own global network operations centre (NOC).

Martello’s product portfolio includes subscription-based offerings and software license sales, including the provision of licenses and maintenance and support for certain legacy software products. Martello also offers professional services in connection with the trial and deployment of certain of its software products. End users enter into an end-user licensing agreement with Martello before using Martello software.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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.

The Company maintains an active product development and enhancement program for Vantage DX and MPA, while providing support for certain legacy product offerings. Martello’s product program prioritizes activities that will drive Microsoft and Mitel user growth, customer acquisition, total addressable market expansion, partner engagement, and cross selling of products. The Company has acquired and integrated two companies (Savision B.V. “Savision” and GSX Participations SA “GSX”) since November 2018, to expand its product portfolio, engineering expertise and global sales capacity.

Growth Strategy

Martello’s objective is to generate net new recurring revenue growth, convert certain legacy revenue to newer products and generate EBITDA and positive cashflow that support our growth objectives. As a result, management is focused on the following activities:

I. Strengthening competitive advantage and expanding Vantage DX market share:
a. Product Innovation Driving Competitive Advantage
- i. Evolving Vantage DX functionality to support innovation in Microsoft Teams and exploit Martello’s competitive advantage in real-time communications performance management with capabilities such as Microsoft Teams Room (MTR) monitoring and visibility into the performance of session border controllers (SBCs)).
- 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 efficiently with professional services offerings, while leveraging customer feedback for continuous product improvement.
- v. Driving advancements in Martello’s cloud-based architecture to achieve product and hosting efficiencies.
b. Develop Direct and Indirect Sales Channels and Accelerate Time to Revenue
- i. Deepening Martello’s engagement with Microsoft, building a pipeline of sales opportunities leveraging IP Co-Sell Top Tier Status and generating awareness of Vantage DX amongst Microsoft’s community of sellers and customers.
- ii. Driving sales via the Microsoft Azure marketplace, which simplifies the purchase process and incents Microsoft sellers to transact Vantage DX sales.
- iii. Expanding and developing new sales channels for Vantage DX, including large global systems integrators, Microsoft Operator Connect Partners such as Orange Business Systems, managed service providers (MSPs) and large Mitel channel partners.
- iv. Accelerate time to revenue for Vantage DX with initiatives including streamlining the sales and trial process, and disciplined management of core KPIs across the organization.
II. Continuing to Align the Company’s business with Mitel to meet its customers’ needs . This will include driving adoption of MPA by Mitel partners and customers and developing support for additional Mitel platforms. The Company will seek additional opportunities for sales growth within Mitel, including the sale of Vantage DX to Mitel partners who require a Microsoft Teams and Microsoft 365 monitoring solution.

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.

SIGNIFICANT DEVELOPMENTS

During FY23 YTD the following significant developments occurred:

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

On March 27, 2023, the Company announced the closing of the first tranche of a non-brokered private placement totalling CAD$600,000 for aggregate gross proceeds of approximately CAD$1,200,000.
On March 27, 2023, Martello announced new Microsoft Teams Room monitoring and analytics capabilities in the latest release of Vantage DX.
On March 13, 2023, the Company announced the pricing of its non-brokered private placement of common shares in the capital of the Company, stating that Martello expects to issue 24,000,000 Common Shares at a price of CAD$0.05 per Common Share, in two tranches closing in March and April 2023.
On February 14, 2023, Martello announced a non-brokered private placement of common shares in the capital of the Company, to be completed in four equal tranches in March, April, May and June for aggregate gross proceeds of approximately CAD$2,400,000. The sole subscriber in the Private Placement is Wesley Clover International Corporation, a corporation controlled by Terence Matthews, Chairman of Martello.
On February 13, 2023, Martello announced the resignations of Bruce Linton, the Co-Chairman of the Company, and Directors Mike Michalyshyn and Jennifer Camelon.
On January 23, 2023, Martello announced the close of a non-brokered private placement of common shares in the capital of the Company subscribed by Wesley Clover International for aggregate gross proceeds of approximately USD$2,000,000.
On January 12, 2023, through a Special Meeting, shareholders approved the stock option re-pricing and extension and the creation of a control person pursuant to a USD$2M private placement.
On December 30, 2022, the Company and National Bank of Canada agreed to terminate an existing revolving facility. Under the terms of the current amendment, the Company is permitted a facility of up to $400,000 in respect of foreign exchange contracts and up to $100,000 in respect of corporate credit card services.
On December 5, 2022, Martello’s board of directors approved the repricing and expiry date extension of up to 3,077,000 outstanding stock options. The repricing and extension exclude directors.
On November 16, 2022, Martello announced a USD$2M private placement pursuant to which Wesley Clover International Corporation (“WCI”), a corporation controlled by Terence Matthews, would become a Control Person of the Company (as such term is defined in the policies of the TSX Venture Exchange, subject to TSXV and disinterested shareholder approval.
In Q2 FY23 Martello won a significant deal with a Fortune 100 food manufacturer with 80,000 employees, and in Q3 FY23 won a UK government department with more than 120,000 users.
On September 20, 2022, Martello announced the launch of Vantage DX R3.7, which introduces AudioCodes session border controller (SBC) monitoring and out of the box Microsoft Teams Performance Overview Dashboards.
On September 2, 2022, Martello announced the grant of 1,500,000 stock options to Chief Financial Officer Jim Clark, a one-time stock option grant associated with Mr. Clark's appointment in May 2022.
On August 23, 2022, Martello announced an agreement with Co-Chairman Terry Matthews, through WCI for a USD $1.5M (approximately CAD $2M) subordinate loan.
On August 17, 2022, Martello announced cost optimization measures as part of a strategy to accelerate positive cashflow and profitable revenue growth.
On July 14, 2022, Martello announced a partnership with Datacom, a New Zealand headquartered IT services company, in which Datacom will offer Vantage DX to its customers.
On June 16, 2022, Martello announced that it had entered into an amended agreement with Mitel Networks, extending the term to three years and simplifying the commercial licensing model under which the Mitel Performance Analytics (MPA) product is offered, to provide increased operational efficiency and ease for partners and customers.
On April 28, 2022, Martello announced the appointment of Jim Clark as Chief Financial Officer, effective May 2, 2022.
On April 7, 2022, Martello announced a global partnership with Orange Business Services in which Martello's Vantage DX SaaS platform will be integrated in the Orange Business Together with Microsoft portfolio.

During FY22, the following significant developments occurred:

On March 16, 2022, the Company announced that it had secured CAD$2.5M in funding from the Government of Canada’s Federal Economic Development Agency for Southern Ontario (FedDev Ontario).

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

On February 1, 2022, Martello announced that Vantage DX is now available on the Microsoft Azure Marketplace.
On January 31, 2022, the Company announced the appointment of Kim Butler as interim Chief Financial Officer.
On January 27, 2022, the Company announced the closing of the USD $1.4M first tranche of a non-brokered private placement of Martello insiders.
On December 1, 2021, Martello announced the departure of Chief Financial Officer Erin Crowe, effective February 1, 2022.
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.
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 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 announced the launch of its Global Partner Program to provide Microsoft 365 digital experience monitoring to resellers and managed service providers.
On May 4, 2021, Martello launched a cloud-based multi-tenant platform for its Microsoft 365 digital experience monitoring software, to enable channel partners to host multiple customers using a single cloud instance of Martello’s software.

Subsequent events

Vistara and Wesley Clover International loan amendment

On May 25, 2023, the Company and Vistara Technology Growth Fund III Limited Partnership, entered a new amendment to extend the maturity date of the loan from May 28, 2023 to September 28, 2023. In addition, the Borrower, Corporate Guarantors and Vistara Growth Fund III Limited Partnership, agreed to waive existing defaults.

The Company amended the agreement dated August 22, 2022 between Wesley Clover International Corporation ("Wesley Clover”) and the Company on May 25, 2023. Under the terms of the amendment Wesley Clover will increase the existing loan balance by USD $792,031, these proceeds along with additional US $500,000, were used to pay off portion of the Vistara loan. The amendment also included a requirement to have a minimum balance in cash in accounts with Senior Lender in total of CAD $1,000,000.

Stock option grant

On May 29, 2023, the Board of Directors approved the grant of 18,635,000 stock options to employees of the Company with an exercise price of $0.05 per stock option.

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.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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 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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Financial Highlights March 31, March 31, March 31, March 31,
(in 000's) 2023 2022 2023 2022
(Three months ended) (Twelve months ended)
Sales $ 4,027 4,271 16,099 17,540
Cost of Goods Sold 452 423 1,854 1,632
Gross Margin 3,575 3,848 14,246 15,907
Gross Margin % 88.8% 90.1% 88.5% 90.7%
Operating Expenses 4,685 5,363 37,762 21,721
Loss from operations (1,110) (1,515) (23,517) (5,813)
Other income/(expense) (438) (537) (1,811) (2,414)
Loss before income tax (1,548) (2,052) (25,328) (8,227)
Income tax recovery (expense) 213 (109) 138 8
Net loss (1,335) (2,161) (25,190) (8,219)
Total Comprehensive income (loss) $ (1,236) (2,917) (24,454) (9,652)
EBITDA (1) $ (522) (1,045) (21,950) (3,840)
Adjusted EBITDA (1) $ (549) (830) (2,213) (2,860)
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(1) Non-IFRS measure. See "Non-IFRS Financial Measures".

Balance Sheet – Highlights

Balance Sheet – Highlights
		March 31,	March 31
(in 000's)		2023	2022
Cash and short-term investment	$	2,219	5,023
Working capital		(8,244)	2,267
Total Assets		20,154	41,935
Total Liabilities		21,422	22,259
Share capital and contributed surplus		55,921	52,411
Warrants		2,320	2,320
Accumulated deficit and other
comprehensive income		(59,508)	(35,055)
Shares issued and outstanding	#	392,707,430	326,707,430

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Highlights for the three months ended March 31, 2023, as compared to the same period in 2022:

In Q4 FY23, Martello's Vantage DX, a leading-edge product within the Modern Workplace Optimization business line, reached 1,133k users. Q4 FY23 has seen a 612% increase in Vantage DX Monthly recurring revenue (vs Q4 FY22), both from net new clients and conversion of clients from legacy products to Vantage DX. There are targeted plans to maximize the transition of legacy products to Vantage DX. Martello is focused on optimizing the performance and user experience of the Microsoft Modern Workplace, which includes Microsoft Teams and Microsoft 365.
Aggregate revenue of $4.03M in Q4 FY23 is $0.24M (6%) lower than the same quarter in the prior year ($4.27M). Normalizing for FX, revenue is $0.43M or 10% lower. This decrease is primarily attributable to a decrease in Legacy subscription licenses and maintenance and support.
Revenue remains diversified with Modern Workplace Optimization products contributing 55% and Mitel contributing 45% in Q4 FY23 compared to 58% and 42% in the same period of FY22, respectively. The Mitel segment continues to be a large and stable source of revenue and margin.
Recurring revenue remained at 99% in both Q4 FY23 and Q4 FY22.
Monthly recurring revenue (MRR) is $1.33M in Q4 FY23, compared to $1.41M in Q4 FY22. The $0.08M (6%) decrease is primarily attributable to declining subscription and maintenance and support on legacy products. Normalizing for FX, MRR is 10% lower compared to Q4 FY22. 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 89% in Q4 FY23, compared to 90% in the comparative period in FY22. The decrease is primarily attributable to the shift to cloud versus on prem and the shift in mix to Vantage DX vs Legacy products. Management continues to execute actions that will further decrease the cost of hosting instances in the future. As the Company onboards new clients to existing Cloud instances, the cost per client will continue to decrease.
Operating expenses were $4.68M in Q4 FY23 compared to $5.36M in Q4 FY22, a decrease of $0.68M (13%). The decrease in OPEX is as a result of the Q2 cost optimization actions as well as a reduction in corporate bonus liability in Q4 FY23.
Loss from operations was $1.11M compared to a loss of $1.52M in the same period of FY22, a decrease of $0.41M (27%) primarily attributable to cost optimization actions, a reduction in corporate bonus liability in Q4 FY23 and partially offset by lower gross margin as described above.
Loss before income tax was $1.55M in Q4 FY23 compared to a loss of $2.05M in Q4 FY22, a decrease of $0.50M (25%). In addition to the items above, the Company had gains on foreign exchange and revaluation of forward contract gain on issuance of the loan with Federal Economic Development Agency of Southern Ontario (“FedDev”) partially offset by higher interest expense.
The net loss was $1.33M in Q4 FY23 compared to $2.16M in same period in FY22, a decrease of $0.83M (38%) as a result of cost optimization, FX gains and an increase in income tax recovery in Q4 FY23 in addition to the items outlined above.
Adjusted EBITDA (a non-IFRS measure) in Q4 FY23 was a loss of $0.55M, compared to a loss of $0.83M in the same period of FY22. The $0.28M (34%) decrease is attributable to the explanations described above partially offset by exclusion of expense reduction from depreciation, share-based compensation and deferred stock unit plan.

Highlights for the twelve months ended March 31, 2023, as compared to the same period in 2022:

Revenue of $16.10M in FY23 is 8% lower than the same period in the prior year ($17.54M). Normalizing for FX, revenue is $1.68M or 10% lower. Mitel revenue was relatively flat and Modern Workplace optimization revenue decreased by $1.34M (13%). Consistent with the above, Vantage DX continues to achieve strong growth with the offsetting decline in sales from Legacy products.
Revenue remains diversified, with Mitel contributing 44% of revenues in FY23 (41% in FY22), and Modern Workplace Optimization contributing 56% in FY23 (59% in FY22).
Recurring revenue increased to 99% in the FY23 compared to 98% in FY22. This is primarily attributable to the growing mix of license subscriptions vs perpetual licences and hardware sales.
Gross margin as a percentage of revenue was 88% in FY23, compared to 91% in FY22. The decrease is a result of higher hosting costs and an increase in cost of inventory related to third party software resale. As mentioned above, Management is executing a four-point action plan to reduce hosting costs by 52%.
Operating expenses were $37.76M in FY23 compared to $21.72M in FY22 including the Q3 asset impairment of $19.16M.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Normalized for the asset impairment, Operating expense decreased to $18.60M vs $21.72M in FY22. The reduction is primarily attributable to cost optimization actions.

Loss from operations was $23.52M in FY23 compared to a loss of $5.81M in the same period of FY22, an increase of $17.70M (305%). Normalizing for asset impairment, loss from operations improved by $1.46M vs FY22.
Loss before income tax increased to $25.33M ($19.16M is the asset impairment) vs $8.23M in FY22. Normalized for the asset impairment loss before income tax decreased $2.06M, primarily attributable to a gain on issuance of the loan with Federal Economic Development Agency of Southern Ontario (“FedDev”) partially offset by higher interest expense.
The FY23 net loss of $25.19M has increased from $8.22M in FY22 by $16.97M (206%) as a result of the items outlined above. Normalized for the asset impairment, the net loss improved by $2.19M
Adjusted EBITDA loss (a non-IFRS measure) was $2.21M in FY23 compared to a loss of $2.86M in FY22. A decrease in loss of $0.65M (12%) is due to lower 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, 2023, the Company’s Adjusted EBITDA loss was $0.55M and $2.21M compared to a loss of $0.83M and $2.86M respectively in the same period last year. The decrease in Adjusted EBITDA loss is mainly due to lower operating expenses in FY23 and offset by lower gross margin in Q4 FY23 compared to Q4 FY22.

EBITDA and Adjusted EBITDA			March 31, March 31, March 31, March 31, 2023 2022 2023 2022	March 31, March 31, March 31, March 31, 2023 2022 2023 2022	March 31, March 31, March 31, March 31, 2023 2022 2023 2022	March 31, March 31, March 31, March 31, 2023 2022 2023 2022
(in 000's)
			(Twelve months ended) (Three months ended)

Net loss		$ (1,335)		(2,161)	(25,190)	(8,219)

Interest income	(2)
Interest expense	(2)
FinancingFees	(2)
Accretion of long-term debt	(2)
Gain on receipt of FedDev loan	(2)
PPP loan foregiveness	(2)
Income tax recovery	(2)		(213) 109 (138) (8)
Depreciation	(2)		68 99 308 428 414 415 1,598 1,882
Amortization	(2)
EBITDA	(1)		(522)	(1,045)	(21,950)	(3,840)

Foreign exchangegain(loss)	(2)		(31) 41 417 359 (61) 5 (20) 13 (14) (3) (57) (35) 54 99 210 424 26 72 23 169 - - 18,935 - - - 229 - - - - 50
Revaluation of forward contract	(2)
Other income	(2)
Share-based compensation expense	(3)
Deferred Stock Unitplan expense	(3)
Impairment ofgoodwill	(2)
Impairment of intangible assets	(2)
Acquisition-related costs	(2)
Adjusted EBITDA	(1)		(549)	(830)	(2,213)	(2,860)

(1) Non-IFRS measure. See "Non-IFRS Financial Measures".
(2) Per the Statements of loss and comprehensive loss.
(3) Per the Statement of cash flows

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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 fiscal quarter, less revenue recognized at a point in time or that is non-recurring in nature divided by the number of months in the quarter.

Reconciliation of Sales to MRR - 3 months ended

(in 000's) March 31, 2023 Sales $ 4,027 Less: Revenue recognized at point in time (7) Less: Term licenses (34) QuarterlyRecurringRevenue 3,986 Monthly Recurring Revenue (MRR) 1,329	March 31, 2022
	4,271 (10) (41) 4,220
	1,407

SUMMARY OF RESULTS

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

Sales and Gross Margin

Sales represent:

(a) the sale of subscription, perpetual software licenses and related maintenance and support as well as training and professional services for Microsoft 365 and Teams end user experience monitoring solutions, including Vantage DX, and
(b) the sale of Mitel Performance Analytics software, hardware, training and professional services..

Martello’s primary source of revenue is subscription - based license 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”). Martello earns a monthly fee for each subscriber to the plan. The new Vantage DX platform is an integration of acquired technologies (primarily Savision and GSX) coupled with Martello developed high demand functionality.

Recurring revenue includes the components described above as MRR.

Cost of goods sold includes web hosting services, delivery and support costs, hardware, and third-party software costs.

Three and twelve months ended March 31, 2023 and 2022

Gross Margin - Summary
(in 000's)	March 31, March 31, March 31, March 31, 2023 2022 2023 2022
Sales $ 4,027 4,271 16,099 17,540 Cost of Goods Sold 452 423 1,854 1,632 Gross Margin 3,575 3,848 14,246 15,907 Gross Margin 88.8% 90.1% 88.5% 90.7% (Three months ended) (Twelve months ended)
	3,575 3,848 14,246 15,907 88.8% 90.1% 88.5% 90.7%

Explanations for period changes in Revenue and margin are provided in the financial performance section above.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Segmented information

The Company operates two lines of business: 1) Modern Workplace Optimization includes; (1) Vantage DX (Martello’s software solution for; diagnostics monitoring, analytics, reporting and management of Microsoft 365 and Teams) as well as Legacy Software Products (includes Gizmo, iQ, LiveMaps and Domino) and 2) Mitel (includes the MPA product, software which is developed by Martello and sold by Mitel to its channel partners and enterprise customers to manage the performance of Mitel unified communications solutions). These lines of business engage in business activities from which they earn revenues primarily from subscription as well as perpetual software licenses, maintenance and support, training and professional services and hardware.

For line of business reporting purposes, Modern Workplace Optimization was previously reported as 2 segments: Vantage DX Analytics – IT Service Analytics and Vantage DX Monitoring – Microsoft 365. Mitel was previously reported as Monitoring – Mitel UC and Vantage DX Monitoring – Mitel UC. Based on technological functionality and market purpose, we have more effectively represented into the 2 segments: Modern Workplace Optimization and Mitel.

Three and twelve months ended March 31, 2023 and 2022

Sales and Gross Margin - Three months ended

(in 000's)	Modern Workplace Optimization Mitel Total 2,226 1,801 4,027 416 37 452 1,810 1,764 3,575 81.3% 98.0% 88.8% March 31, 2023	March 31, 2022
		Modern Workplace Optimization Mitel Total
Sales $ Cost of Goods Sold Gross Margin Gross Margin %		2,493 1,778 4,271 389 35 423 2,104 1,744 3,848 84.4% 98.1% 90.1%

Sales and Gross Margin - Twelve months ended	Sales and Gross Margin - Twelve months ended
	March 31, 2023	March 31, 2022
(in 000's)	Modern Workplace Optimization Mitel Total 8,952 7,147 16,099 1,702 152 1,854	Modern Workplace Optimization Mitel Total
Sales $ Cost of Goods Sold		10,293 7,247 17,540 1,399 234 1,632
Gross Margin Gross Margin %	7,250 6,995 14,246 81.0% 97.9% 88.5%	8,894 7,013 15,907 86.4% 96.8% 90.7%

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Within the Modern Workplace Optimization segment, Vantage DX growth continues at a strong double - digit rate. As illustrated in the bar graph directly above, Vantage DX contributed $483k in revenue in Q4 FY23 (29% increase v. Q3 FY23 and 612% increase v. Q4 FY22). Vantage DX user licenses have exceeded 1.1 million in its first full year of deployment. Legacy products decreased $267k (11%) in Q4 FY23 compared to Q4 FY22 and $1,341k (13%) in FY23 compared to FY22. The expected decrease in license, maintenance and support revenue on Legacy products was compounded by the exceptional decline attributable to the winding down of a legacy partner as well as unfavourable FX (EUR-CAD) in FY23. Modern Workplace Optimization margin decrease is attributable to higher costs of hosting customers on cloud (vs on premise), lower Legacy volume and a cost of inventory increase on third party software re-sale.

Mitel revenue increased $23k (1%) in Q4 FY23 and decreased $100k (1%) in FY23 compared to FY22. The decrease is mainly due to a marginal decline in users of Mitel’s software assurance program, while the increase in Q4 FY23 compared to Q4 FY22 is primarily due to favourable FX rates (USD-CAD). Gross margin remained relatively YoY with a marginal improvement attributable to a lower mix of hardware sales within cost of goods sold and savings in hosting costs.

MRR Reconciliation - 3 months ended

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----- Start of picture text -----

March 31, 2023 March 31, 2022
Modern Modern
Workplace Mitel Total Workplace Mitel Total
(in 000's) Optimization Optimization
Revenue $ 2,226 1,801 4,027 2,493 1,778 4,271
Adjustments:
Less Revenue recognized at point in time
Hardware - (1) (1) - (2) (2)
- - - -
Perpetual licenses (1) (1)
Training and professional services (4) (2) (6) (6) (1) (7)
Less: Term licences (34) - (34) (41) - (41)
Quarterly Recurring Revenue 2,188 1,798 3,986 2,446 1,775 4,220
Monthly Recurring Revenue (MRR) 729 599 1,329 815 592 1,407
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Monthly Recurring Revenue (“MRR”) is $1.33M in Q4 FY23 compared to $1.41M in Q4 FY22. The $0.08M (6%) decrease in MRR is primarily attributable to churn on subscriptions and maintenance and support of legacy products, a decrease in Mitel subscriptions partially offset by favourable 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, 2023

Expenses - Three months ended

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March 31, March 31, Increase /
(in 000's) 2023 2022 (Decrease)
----- End of picture text -----

Research and development $ 1,445 Sales and marketing 1,477 General and administrative 1,282 Depreciation 68 Amortization 414 TOTAL 4,685	1,583 (138) 1,832 (355) 1,435 (154) 99 (31) 415 (1) 5,364 (679)

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Expenses - Twelve months ended

Expenses - Twelve months ended
March 31, (in 000's) 2023	March 31, Increase / 2022 (Decrease)
Research and development $ 5,658 Sales and marketing 6,625 General and administrative 4,408 Depreciation 308 Amortization 1,598 Impairment of goodwill 18,935 Impairment of intangible assets 229 Acquisition-related costs - TOTAL 37,762	6,638 (980) 7,385 (759) 5,338 (929) 428 (121) 1,882 (283) - 18,935 - 229 50 (50) 21,721 16,043

Operating expenses before impairment loss : For the three and twelve months ended March 31, 2023, operating expenses before impairment decreased by $0.68M (13%) and $3.12M (14%) respectively compared to the same period in FY22. The decrease in operating expenses is primarily due to cost optimization actions resulting in lower headcount and other support costs.

Impairment loss : In Q3 F23, Management reviewed the recoverable amount of goodwill and intangible assets for the CGU. The recoverable amount was assessed by reference to the value in use (“VIU”) calculation. The fair value was assessed by reference to discounted cash flow projections reflecting management’s assessment of projected operating results for a five-year period.

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, Credit d’Impôt en Faveur de la Recherche (“CIR”) and le crédit d’impôt innovation (“CII”).

R&D expenses decreased $138K (9%) in Q4 FY23 compared to Q4 FY22 and $980K (15%) in the twelve months of FY23 compared to FY22. The decrease in spend is attributable to cost optimization actions taken in Q2 FY23 partially offset by Management’s investment in Continuous improvement initiatives primarily involving processes to accelerate time to revenue and enhanced quality.

Sales and marketing costs include headcount related compensation and marketing spend.

Sales and Marketing expenses decreased $355K (19%) in Q4 FY23 compared to Q4 FY22 and $759K (10%) in the twelve months of FY23 compared to FY22. The decrease in spend is attributable to cost optimization actions taken in Q2 FY23.

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

General and administrative costs decreased by $154k (11%) in Q4 FY23 compared to Q4 FY22 and $929K (17%) from the twelve months of FY23 to FY22. The decrease in spend is attributable to cost optimization actions taken in Q2 FY23.

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 $31k (31%) in Q4 FY23 compared to Q4 FY22 and $121k (28%) from FY23 to FY22 primarily due to decrease in right-of-use assets due to lease changes.

Amortization of intangible assets relates to intangibles established on the acquisition of Savision and GSX. The amortization remained flat in Q4 FY23 compared to Q4 FY22 and decreased by $283K (15%) from FY23 to FY22 due to full amortization of noncompete in Q3 FY22.

Acquisition related costs decreased by $50K (100%) from FY23 to FY22. There were no acquisition related costs in Q4 FY23 or Q4 FY22.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Loss from Operations

In Q4 FY23, the loss from operations was $1.11M compared to a loss of $1.52M in the same period of FY22, a decrease of $0.41M (27%). In FY23 the loss from operations (excluding asset impairment as discussed above) was $4.35M compared to a loss of $5.81M in FY22, a decrease of $1.46M. The decrease in net loss from operations is primarily due to reduction in the OPEX as a result of the Q2 cost optimization actions partially offset by lower margin.

Other Income/Expense

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March 31, March 31, March 31, March 31,
(in 000's) 2023 2022 2023 2022
(Three months ended) (Twelve months ended)
Interest income $ 19 (1) 29 5
Interest expense (576) (469) (2,295) (1,889)
Financing fees (10) (9) (186) (318)
Accretion of long-term debt (39) (15) (151) (59)
Gain on receipt of FedDev loan 62 - 1,131 -
Revaluation of forward contract 61 (5) 20 (13)
Foreign exchange gain (loss) 31 (41) (417) (359)
PPP loan forgiveness - - - 184
Other income 14 3 57 35
TOTAL $ (438) (537) (1,812) (2,414)
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For the three and twelve months ended March 31, 2023, the increase in interest expense is a result of the increase in the US prime rate for the Vistara and WCI loans from 3.25% to 8%. The WCI loan was advanced in August 2022. Interest is accrued on the WCI loan on the same terms as that on the Vistara loan. The interest expense includes Vistara Term Loan and WCI loan interest as well as amortization of the loan and warrant origination fees associated with the Vistara Term Loan and WCI loan. As described in the subsequent event note, Vistara and Wesley Clover loan maturity dates were extended to September 30, 2023.

On March 7, 2022, the Corporation entered into a new FedDev contribution agreement in total of $2.5M. The funds provided under this contribution agreement are non-interest bearing, unsecured and are to be repaid over 72 months commencing on October 1, 2024. On May 16, 2022, the Corporation received an initial deposit of $1.92M. The second and third tranches of the deposits were received for $0.06M and $0.13M on November 22, 2022 and March 24, 2023 respectively. A total adjustment of $1.13M was recorded to recognize the government grant within the loan at fair value upon inception which is recorded as a gain on receipt of FedDev loan.

For the three and twelve months ended March 31, 2023, the Company had a foreign exchange gain of $0.03M and a foreign exchange loss of $0.42M respectively, compared to foreign exchange losses of $0.04M and $0.36M, respectively for the same periods last year. The main driver for the foreign exchange loss for the twelve months ending March 31, 2023, is the revaluation of the Vistara and WCI loans which are denominated in USD. The USD was stronger than CAD on March 31, 2023 compared to the prior year which resulted in a loss from revaluation of the outstanding USD loan. The USD rates were 1.3545 on March 31, 2023 vs 1.25294 on March 31, 2022.

The Company has entered into foreign exchange forward contracts with a financial institution to hedge cash flows associated with revenue denominated in USD. Revaluation of the forward contracts for the three and twelve months ended March 31, 2023, resulted in gains of $0.06M and $0.02M respectively compared to losses of $0.01M and losses of $0.01M, respectively, for the same periods last year mainly due to fluctuations in USD rates as mentioned above.

Income Tax Expense / Recovery

For the three and twelve months ended March 31, 2023, income tax amounted to a recovery of $0.21M and $0.14M compared to an expense of $0.11M and a recovery of $0.01M for the same periods last year, respectively. In FY23 there was an increase in deferred tax liability due to net operating loss used and lower balance for intangibles. This is offset with the deferred tax recovery

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

booked in Q4 FY23 for the pension plan settlement and FV adjustments for FY23 and all the prior years.

Other Comprehensive Income / Loss

In the three and twelve months ended March 31, 2023, the Company had other comprehensive income of $0.10M and $0.74M compared to losses of $0.76M and $1.43M for the same period last year. Included in other comprehensive income/(loss) are pension plan fair value adjustments, pension plan remeasurement/settlement, as well as currency translation differences for the Savision and GSX operations, for which EUR is the functional currency. During Q4 YTD FY23, the weakening of CAD against EUR resulted in income 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, 2023, the net loss amounted to $1.33M and $25.19M compared to $2.16M and $8.22M in the same period last year.

The total comprehensive loss for the three and twelve months ended March 31, 2023, was $1.24M and $24.45M respectively compared to $2.92M and $9.65M for the same periods last year.

The key drivers contributing to the losses are provided under Loss from Operations, Other Income/Expense, 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, 2023. 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 ended March 31, 2023, and 2022. Past performance is not a guarantee of future performance, and this information is not necessarily indicative of results for any future period.

The following table presents certain unaudited financial information for each of the six fiscal quarters up to and including the quarter ended March 31, 2023. 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 ended March 31, 2023, and 2022. Past performance is not a guarantee of future performance, and this information is not necessarily indicative of results for any future period.	The following table presents certain unaudited financial information for each of the six fiscal quarters up to and including the quarter ended March 31, 2023. 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 ended March 31, 2023, and 2022. Past performance is not a guarantee of future 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) FY23 FY23 FY23 FY23 FY22 FY22
Sales $ 4,027 4,054 3,840 4,178 4,271 4,455 Cost of Goods Sold 452 447 491 463 423 433 Gross Margin 3,575 3,607 3,349 3,715 3,848 4,021 Gross Margin % 89% 89% 87% 89% 90% 90% Expenses 4,685 23,365 4,689 5,024 5,363 5,526 Loss from operations (1,110) (19,758) (1,340) (1,309) (1,515) (1,505) Other income/(expense) (438) (367) (1,168) 162 (537) (742) Loss before income tax (1,548) (20,125) (2,508) (1,147) (2,052) (2,247) Income tax recovery (expense) 213 (83) 87 (79) (109) 75 Net Loss (1,335) (20,208) (2,421) (1,226) (2,161) (2,173) Total comprehensive income(loss) (1,236) (18,614) (2,661) (1,943) (2,917) (2,794)
	3,575 3,607 3,349 3,715 3,848 4,021 89% 89% 87% 89% 90% 90% 4,685 23,365 4,689 5,024 5,363 5,526
	(1,110) (19,758) (1,340) (1,309) (1,515) (1,505) (438) (367) (1,168) 162 (537) (742)
	(1,548) (20,125) (2,508) (1,147) (2,052) (2,247) 213 (83) 87 (79) (109) 75
	(1,335) (20,208) (2,421) (1,226) (2,161) (2,173)
	(1,236) (18,614) (2,661) (1,943) (2,917) (2,794)
EBITDA(1) Adjusted EBITDA (1)	(522) (18,838) (1,431) (1,159) (1,045) (1,069) (549) (168) (850) (645) (830) (777)

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

(2) Adjusted EBITDA for FY22 reflects addback of discontinued operations

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

FY23 quarterly sales trend represents the declining revenue on legacy products, partially offset by the double - digit growth of Vantage DX. The Mitel business continues to maintain the historical run rate. The decline in Legacy products is discussed above.

Cost of goods sold fluctuates due to increasing cost of third-party software resold by Martello and unfavourable FX conversion partially offset by decreases in hosting costs as a result of cost reduction actions. Gross margin remains fairly consistent around 89%.

Cost reductions are the planned outcome of cost optimization actions. Q3 FY23 expense includes $19.16M in impairment of goodwill and intangible assets.

Other income and expense increases reflect the cost of financing and ongoing interest costs, as well as foreign exchange losses. Q1 FY23 income includes gain on the value of the FedDev loan.

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 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.

Federal Economic Development Agency of Southern Ontario

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. Effective December 30, 2022, the Company and National Bank of Canada agreed to terminate the revolving facility and therefore releasing the Company of all security interest and guarantees from the Company and its subsidiaries. Under the terms of the current amendment, the Company is permitted a facility of up to $400,000 in respect of foreign exchange contracts and up to $100,000 in respect of corporate credit card services.

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

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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 20.30%. 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.

Effective December 30, 2022, the Vistara Credit Agreement was amended (the “Vistara Amendment”). A condition under the Vistara Amendment was set out for a Private Placement in total of US $2,000,000 to be raised on or before January 24, 2023. The proceeds from the private placement were used to make a prepayment of the outstanding loan balance The terms of Vistara agreement also includes adjustments to certain covenants.

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.

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.

On January 24, 2023, the Company completed a private placement to issue 54,000,000 common shares at a price of $0.05 per common share, for aggregate gross proceeds of CAD $2,700,000. The proceeds were used to pay down the Vistara loan. This private placement resulted in the creation of a new Control Person (as such term is defined in the policies of the TSX Venture Exchange), being Wesley Clover International Corporation.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

On February 13, 2023, the Company entered into a Subscription Agreement for shares with Terence H. Matthews through Wesley Clover International Corporation to issue 12,000,000 common shares in four equal tranches and to be completed on or before June 30, 2023 for aggregate gross proceeds of CAD$2,400,000.

On March 24, 2023, the Company completed the first tranche of the non-brokered private placement of common shares and issued 12,000,000 common shares at a price of $0.05 per common share, for aggregate gross proceeds of $600,000.

Cash and Working Capital

Cash and cash equivalents, including restricted cash, totaled $2.22M at March 31, 2023 compared to $5.02M at March 31, 2022. The decrease is explained below under Cashflow Analysis .

The following tables sets out the working capital position of the Company as at March 31, 2023 and March 31, 2022.

Liquidity Snapshot

Liquidity Snapshot
(in 000's)	March 31, 2023 9,438 17,682 (8,244)	March 31, 2022
Current Assets $ Current Liabilities Net Working Capital		11,168 8,901
		2,267

The decrease in working capital in FY23 was mainly due to the Vistara loan of $6.39M and WCI subordinate loan of $2.23M reclassified as current liabilities in FY23 compared to FY22 as the loan is expected to be repayable by May 2023.

Debt

As at March 31, 2023, debt totaled $9.86M, including $8.76M due within one year. The debt is made up of:

CAD $6.39M Vistara Term Loan, bearing interest at 16.75% 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. Interest rate is from 12.5% since April 2022 to 16.75% at March 31, 2023. USD $1.5M of the loan was repaid in August 2022 and USD $2M was repaid in January 2023.
CAD $2.23M WCI subordinated loan advanced in August 2022 to pay down the Vistara loan, interest accrued at US prime rate plus 8.75% and to be paid at loan maturity on May 28, 2023.
$1.09M non-interest bearing, unsecured loan from the Federal Economic Development Agency of Southern Ontario (“FedDev”) under the Jobs and Growth Program.
$0.15M non-interest bearing, unsecured loan from the Federal Economic Development Agency of Southern Ontario (“FedDev”), to support commercialization activities for a specific project.
The non-interest-bearing, unsecured loan from Canada Economic Development Agency was fully repaid in Q3 FY23

Share Capital

In the first twelve months of FY23, the following transactions in the share capital of Martello occurred:

5,615,000 new options were granted (8,687,000 in FY22)
No options were exercised (200,000 in FY22)
6,406,834 options were forfeited (1,643,000 in FY22)
1,440,000 options expired (352,603 in FY22)
12,944,000 options repriced ($Nil in FY22)

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Cash Flow Analysis

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----- Start of picture text -----

Twelve months ended
(in 000'S) March 31,
2023 2022
Operating activities
Loss before income tax $ (25,328) (8,227)
Items not affecting cash 21,868 4,312
Net change in operating components of working capital (1,388) (737)
Total cash flows used in operations (4,848) (4,652)
Total cash flows used in investing activities 60 (14)
Total cash flows provided by (used in) financing activities 2,024 1,231
Net change in cash (2,764) (3,436)
Cash, beginning of period 4,853 8,350
Effects of currency translation on cash 29 (61)
Cash, end of period 2,118 4,853
----- End of picture text -----

Cash flows used in operations were $4.85M for the twelve months ended March 31, 2023, compared to $4.65M for the twelve months ended March 31, 2022. The increase in cashflows used in operations of $0.20M is due to the following key factors:

The net loss was $25.64M in the twelve months ended March 31, 2023, compared to $8.23M 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 $0.07M in cashflows used in operations:

In FY23 the Corporation incurred $0.54M of unrealized foreign exchange loss due to an unfavorable USD-CAD rate for revaluation of the Vistara and WCI loan which was denominated in USD. The USD rates were 1.3545 at March 31, 2023 vs 1.25294 in March 31, 2022.
Amortization of intangible assets decreased by $0.28M in FY23. The decrease is mainly due to the full amortization of intangible assets grouped as “Non-Compete” in Q3 YTD FY22 as against Nil amortization recorded for Q3 YTD FY23.
Impairment of goodwill and intangible assets were $19.16 in FY23 vs Nil forFY22.

In addition, the net change in operating components of working capital was a decrease of $1.39M for the twelve months of FY23 as compared to a decrease of $0.74M in the prior year. This difference was due to the following:

Trade and other accounts receivable increased by $0.05M in FY23, compared to a decrease of $0.84M in FY22 primarily due to timing of collection of invoices.
Accounts payable and accrued liabilities decreased by $0.32M during the twelve months ended March 31, 2023, compared to a decrease of $1.28M in the prior year. This relates to timing of payment and processing of invoices of $0.53M offset by a decrease in accrued liabilities ($0.19M), a decrease in the accrual for professional fees and taxes ($0.26M). The decrease in FY22 relates to timing of payment of invoices and payroll, severance and related benefits outstanding at March 31, 2022.
Deferred revenue decreased $0.21M during FY23, compared to an increase of $0.32M in the prior year. The change in deferred revenue for FY23 is due to a drop in deferred revenue due to existing contracts not renewing inFY23 ($1.36M) offset by net increase in existing customer deferred revenue who did renew in FY23 ($1.23M) and lower deferred revenue lost from existing customers than revenue earned from new customers ($0.32M).
Investment tax credits and grants receivable increased by $0.44M in FY23 compared to an increase of $0.21M for FY22 primarily due to increase in CIR accruals for the France entities.

Cashflows from investing activities were $0.06M for the twelve months ended March 31, 2023, as compared $0.01M of cash used for the twelve months ended March 31, 2022. The major cashflow from investing activity in FY23 is from the sale of short-term investments ($0.17M) offset by purchase of short-term investment of ($0.10M).

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Cashflows provided by financing activities were $2.02M of cash for the twelve months ended March 31, 2023, compared to $1.23M for the twelve months ended March 31, 2022. Cashflows provided by financing activities in FY23 is from the issue of common stock ($3.3M), loan proceeds of FedDev loan ($2.11M), proceeds from WCI subordinate loan ($1.96M), offset with repayment of Vistara loan($4.66M) and repayment of lease obligations of ($0.31M). Cashflows used in financing activities in FY22 mainly included proceeds from issuance of common stock ($2.49M) offset with the payment on the cancellation of warrants ($0.50M) and repayment of the lease obligation ($0.35M) and repayment of long-term debt of ($0.22M).

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 16 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 on November 1, 2019 and extending through to October 31, 2022. The Corporation has subleased the Elfiq Lease to a third party and the lease has been guaranteed by the Corporation. The sub lease ended in Q3 FY23. Total lease commitments remaining for the year-ending March 31, 2024, is $ 102,476.

On August 24, 2021, the Company signed a consumption commitment with Microsoft to use $4,000,000 of eligible services within 4 years from the agreement date. On maturity date, the Company is obligated to prepay the difference between the commitment amount and total invoiced amount and any future invoices will be applied towards the prepayment amount. At March 31, 2023, the Company has consumed $1,140,000 of eligible services since the contract date. The company projects to be within $500K of the $4M commitment by July 2025.

OFF BALANCE SHEET ARRANGEMENTS

As at March 31, 2023, and 2022, 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 34.83% of the Company as at March 31, 2023. Included in accounts payable and accrued liabilities are balances as at March 31, 2023, totaling $0.48M (March 31, 2022 - $0.33M) due to key management personnel for compensation and earned vacation pay.

In addition, the Chair of the Company’s Board is Chairman of WCI. WCI owns more than 10% of the issued and outstanding common shares of the Company as at March 31, 2023.

The Company leases office premises from WCI. For the twelve months ended March 31, 2023, the Corporation paid rent to WCI, which is reflected in the results for the three and twelve months ended March 31, 2023, as $17K and $69K in depreciation expense (three and twelve months ended March 31, 2022 - $12K and $86K, respectively) and $26K and $75K in rent expense (three and twelve months ended March 31, 2022 - $31K and $125K, respectively).

For the twelve months ended March 31, 2023, the Corporation accrued interest on the subordinate loan from Wesley Clover which is reflected in the results for the three and twelve months ended March 31, 2023, as $90K and $204K (three and twelve months ended March 31, 2022 - Nil).

Effective October 24,2022, the Corporation entered into an agreement with Wesley Clover Services North America for procuring Development, Security, and Operations services and technical services for the Martello Technologies platform. For the three and twelve months ended March 31, 2023 expense of $86K and $142K respectively (three and twelve months ended March 31, 2022 - Nil) in this regard has been recorded on the consolidated statements of loss and comprehensive loss

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

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

OUTLOOK

Martello’s mission is to optimize the power of the modern workplace by empowering enterprise IT teams to rapidly resolve Microsoft 365 and Mitel issues. The Company’s software as a service (SaaS) offerings provide deep monitoring and analytics for Microsoft 365 and Teams and Mitel unified communications systems, helping IT teams to rapidly detect and resolve problems to provide employees with a better user experience.

According to Gartner, by the end of 2023 48% of knowledge workers globally will work either fully remote or hybrid, with the remaining 52% working onsite. The global COVID-19 pandemic accelerated the adoption of cloud-based communications and collaboration tools by businesses and today the ability to connect from anywhere has become an expectation for most knowledge workers.

Martello is committed to ensuring every user of Microsoft 365 and Mitel communications platforms has a productive experience, no matter where they are located. This commitment has led to strong partnerships with both Microsoft and Mitel in which Martello’s products have become the recommended or de facto solution for monitoring and managing the performance of these vendors’ products. At the start of 2023, Martello’s Vantage DX reached Microsoft IP Co-Sell Top Tier partner status, which acts as an accelerant to Martello’s sales strategy by providing a greater incentive to Microsoft sellers to sell Vantage DX. A spring 2023 major release of Martello’s MPA software for Mitel included softphone voice quality monitoring, which was featured at Mitel’s annual Mitel Next events in the US, UK and in Europe.

Innovation to meet the needs of the evolving workforce is at the core of Martello’s product strategy. Microsoft has seen steady growth in adoption of Microsoft Teams Rooms (MTRs), reporting for the quarter ending March 31, 2023 that MTR revenue doubled year over year, and more than 60% of the Fortune 500 have adopted MTRs. Microsoft Teams Rooms facilitate better meeting experiences in today's hybrid workplaces. They deliver inclusive meeting experiences that put in-room and remote attendees on an equal footing. In its March 2023 Vantage DX product release, Martello delivered MTR monitoring features that can reduce the time IT spends troubleshooting MTR issues from hours to minutes, ensuring businesses maximize their return on investment with strong MTR adoption and usage.

There are now more than a million Microsoft 365 and Teams users monitored by Vantage DX. Growth in the Vantage DX user base is driven by new direct business and activities with partners such as Microsoft, Orange and Datacom, and Martello continues to build a pipeline of sales opportunities with these partners. Partners who sell Microsoft 365 and Teams or offer it as a managed service can realize new services revenue with Vantage DX and retain customers with reliable service quality. Another strategy driving Vantage DX user growth is the conversion of Martello customers using a legacy product to the newer Vantage DX platform. Subsequent to FY23, Martello converted a legacy Gizmo customer in the professional services industry with 400,000 users to Vantage DX, bringing the Vantage DX user count to over a million users.

The Company has defined its FY24 strategy and in Q1 FY24 is focused on execution of this strategy. Martello will place a strong focus in the near-term on developing the North American and UK medium and large enterprise markets for Microsoft 365 and Teams monitoring, working closely with partners addressing these market segments and driving direct sales opportunities through marketing efforts. Martello’s key competitive differentiators in this market include its well-developed partnership with Microsoft, and the unique Vantage DX monitoring approach that delivers comprehensive, out-of-the-box end-to-end visibility into all of the factors that impact Microsoft Teams and 365 performance.

Martello’s partnership with Mitel continues to flourish and bring a stable base of recurring, high margin revenue for the Company. Martello developed softphone voice quality monitoring capabilities in its latest product release to help Mitel ensure reliable performance of softphones, which many companies have adopted to facilitate communication in their hybrid workplaces. The two companies work closely together on a number of sales and commercial opportunities, and Martello has a strong history of aligning MPA product development to Mitel’s merger and acquisition strategy and is in regular communication with Mitel with respect to the acquisition of Unify announced in January 2023.

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, 2023.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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, 2023 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, 2023, and 2022.

FINANCIAL INSTRUMENTS

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

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial instruments classified as amortized cost or FVTOCI are included with the carrying amount of such instruments. Transaction costs that are directly attributable to the acquisition or issue of financial instruments classified as FVTPL are recognized immediately in profit or loss within the condensed interim consolidated statements of loss and comprehensive loss.

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, 2023, the Company is committed under foreign exchange forward contracts to sell USD, representing sales commitments of USD $9.9M (March 31, 2022 - $1M). 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.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company does have interest rate risk related to its term loans. At March 31, 2023, the Company is exposed to interest rate risk as the Vistara and WCI term loans carry 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, 2023, the US prime rate was 8% and the Company is paying interest at 16.75% per annum. The Vistara and WCI term loans are 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.

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.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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.

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.

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.

COVID-19

The Company continues to monitor the potential effects of the COVID-19 pandemic and impact on its operations, business and financial performance, including liquidity and capital usage. Measures were taken by the Company 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 a degree of uncertainty. Possible impacts of the ongoing COVID-19 pandemic may include: purchase order delays or the inability to collect receivables, changes to budgets and spending priorities as the post-COVID-19 economy evolves, and the possibility of reduced in-person interaction with customers should future waves impact business travel.

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.

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.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

Dependence on Mitel

As a strategic partner, Mitel accounted for approximately 44% and 43% of the Company’s revenue during the three and twelve months ended March 31, 2023 (42% and 41% for the three and twelve months ended March 31, 2022). 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. On June 16, 2022, Martello announced that it had entered into an amended agreement with Mitel Networks, extending the term to three years and simplifying the commercial licensing model under which the Mitel Performance Analytics (MPA) product is offered, to provide increased operational efficiency and ease for partners and customers.

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, including the intended acquisition of Atos Unify, announced by Mitel in January 2023. 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 customer 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.

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.

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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 and monthly payments. The Company’s inability to meet the covenants could result in increased interest expenses or in the case of non - financial covenants, may result in an event of default. An event of default 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.
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

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Martello Technologies Group Inc. MD&A For the three and twelve months ended March 31, 2023 and 2022

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 and target large enterprises with specific security assessment requirements of software vendors, it will need to continue evolving processes to meet regulatory, corporate security assessment, intellectual property, open-source software compliance and contractual and service compliance challenges. This requires significant investment and could affect operating results. The Company anticipates addressing security requirements by pursuing industry security certifications.
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.

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AI assistant

Martello Technologies Group Inc. — Management Reports 2023

44193_rns_2023-06-27_4b6f5b44-57f1-4d1b-87e6-e931cec98863.pdf