Calian Group
Annual Report 2020

Plain-text annual report

2020 Annual Report Table of Contents 1 Chairman’s Letter 2 Message from the CEO 13 2020 Segment Highlights 14 People Driving Growth 18 Social Impact 21 Looking Forward 22 Management’s Discussion and Analysis of Financial Condition and Results of Operations 55 Independent Auditors’ Report 57 Consolidated Statements of Financial Position 58 Consolidated Statements of Net Profit 59 Consolidated Statements of Comprehensive Income 60 Consolidated Statements of Changes in Equity 61 Consolidated Statements of Cash Flows 62 Notes to the Consolidated Financial Statements Chairman’s letter Calian Group Ltd. (TSX:CGY) delivered an impressive performance in 2020 despite the unprecedented challenges created by COVID-19. Management’s long-term profitable growth strategy and diversified business model, supported by a passionate, dedicated team, has led the company through significant adversity to another year of record results. Reflecting the company’s record annual revenue of $432 million, Calian’s share price continued to outperform key benchmarks, gaining 91% in FY2020 while the S&P/TSX Composite, and S&P/TSX Small Cap indexes which gained 11%, and declined by 6%, respectively, over the same period. “Stability through diversity, growth through innovation” is how the company summarizes its investment value proposition, and the results have once again demonstrated that. Calian has continued to pay a stable dividend, returning a total of $9.9 million to shareholders through the year, which the company finished having now reported consecutive profitable quarters for 19 straight years. Dividends plus share price growth have been an impressive combination. CGY’s total shareholder return for FY2020 was 95%; over the three years to October 1, 2020, shareholders saw total returns of 147%. Calian’s management team has successfully laid a foundation for continued profitable growth and rising shareholder value. Through management’s strategy of organic and acquisitive growth, targeted investment in research and development, and a pivot toward more innovation and global markets, the company is well situated to move beyond the current public health crisis and into a stronger position than ever. In February, Calian was pleased to announce a successful bought deal offering, under which a total of 1,568,600 common shares were sold for aggregate gross proceeds of approximately $69 million. The capital strengthens Calian’s balance sheet and provides additional liquidity as the company begins execution of its new three-year growth plan and maintains strong growth momentum. An important aspect of Calian’s value proposition is its social impact. Calian’s social responsibility commitments are driven by the company’s strong desire to make a difference in people’s lives. This year, Calian’s donations largely reflected the public health crisis which has caused real and lasting damage for so many families and communities. As a result, the company supported various pandemic relief and response efforts, including those of the Canadian Red Cross Society, the Ottawa Hospital Foundation’s COVID-19 Emergency Response Fund, the Ottawa Food Bank, Saskatoon Food Bank & Learning Centre, and Dress for Success Ottawa. Calian’s social efforts continued to support health care access for military families. Many people do not know that, while the Canadian Armed Forces (CAF) provides serving members with complete health care, their military family members rely on provincial health systems for care. This presents a challenge for military families who relocate frequently due to postings. In partnership with Military Family Services, a division of Canadian Forces Morale and Welfare Services, the Military Family Doctor Network (MFDN) was established to assist military families with finding a family physician. The program marked a significant milestone, with more than 3,000 military family members being referred to a family doctor through the program since its inception in 2016. I was pleased to see Calian continue to engage in partnerships to further Indigenous relations and reflect the Indigenous relations framework Calian adopted in 2019, which aims to establish meaningful relationships with First Nations and Indigenous suppliers, advocacy groups, business councils, and employees. For example, Calian began an important collaboration with Saulteaux Tribal Nation L.P., a First Nations-owned and operated company in Manitoba, to upgrade community resilience and emergency response capacity in the province. It has been a pleasure for me to assume the role of Chair during the year, as former chair Kenneth Loeb stepped away to deal with personal matters. I know the company very well, having served as a director on the board since 2012 and an inside observer of its unprecedented growth in recent years. As Chair, I look forward to continued engagement on strategy and targeted acquisitions. Calian has seen an impressive evolution in recent years under the dynamic leadership of CEO Kevin Ford. His vision, thirst for growth and drive for positive change has been felt at the board and across the organization. With much roadway ahead, I look forward to continuing this exciting journey. George Weber Chairman 1 Calian Group Ltd.2020 Annual ReportKevin Ford President and CEO, Calian Group Ltd. The Advanced Technologies team helped position Calian for increased growth with the acquisition of Tallysman Wireless Inc., whose sector-leading antennas and related satcom components fit very well with our ground-based satellite communications business. Growth potential in our Health segment was reinforced by the acquisition of two Ottawa-based health service companies, Allphase Clinical Research Services Inc. and Alio Health Services Inc. (collectively, “Allphase/Alio”). Building on our complementary strengths, the acquisition has opened the way for Allphase/ Alio to grow its sector presence leveraging Calian’s market position, while expanding the overall Health segment customer base to hospitals, home-based patient support programs and pharmaceuticals. In our ongoing pivot to global markets, Calian’s Learning team announced the acquisition of Comprehensive Training Solutions International, a boutique training firm based in Norway that provides training exercises for NATO. The move supports our expansion in Europe where we had strengthened our European satcom solutions with the acquisition of Germany-based SatService. Aligned with Calian’s strategic pillars of customer diversification and service line innovation, this fiscal year we acquired EMSEC Solutions, which specializes in radio frequency emission security and technical surveillance countermeasures. The addition of EMSEC’s team to our Information Technology division is an Message from the CEO As CEO, I am very proud of the resilience Calian demonstrated through 2020, a year characterized by extreme challenge and uncertainty around the globe. Our diverse business, essential service delivery, and expert, dedicated team helped the company achieve record results amid the COVID-19 crisis. Calian demonstrated its consistent ability revenues while maintaining to grow profitability targeted and making in R&D to propel future investments opportunities. Four acquisitions through the fiscal year supported our growth objectives with new products, solutions and an expanded customer base in Canada internationally. Through strategic acquisitions, and customer retention and diversification and new product delivery, the company continued our strategic pivot toward establishing ourselves as an innovative, global growth company. By challenging ourselves to build on our stability and fulfill the dynamic growth potential of Calian’s four- segment business, Calian exceeded its targets and delivered our biggest year on record, recording annual revenue of $432.3 million and Adjusted EBDITA of $36.8 million, respectively growing 26% and 36% year-over- year. Importantly, our stable, steady growth continued to be profitable. Calian finished the year reporting our 76th consecutive profitable quarter, and record quarterly revenue for the ninth consecutive quarter. 2 2020 Annual ReportCalian Group Ltd.exciting development that will deepen Calian’s expertise and growth potential in the fast-expanding field of cyber security, for government, defence, and the private sector. In a testament to the commitment of our more-than 4,400 staff across the company, Calian responded to the difficulties and unique circumstances of the pandemic with several wins throughout the year that furthered our ongoing pivot to innovation, growth and global markets. These accomplishments were seen in our expanded services, successful recompetes for contracts, the launch of innovative products, and new business activities that resulted in $693 million in new contract signings over the year. The Advanced Technologies segment capitalized on our research and development efforts, starting delivery of an innovative wireless product for a Tier 1 North American mobile operator. This was our first deployment of telecom equipment for a Tier 1 operator, and showcases Calian’s ability to use our expertise to solve complex customer problems. In another significant accomplishment, the company was selected by a global satellite communications operator for the provision and installation of new radio frequency satellite ground systems. The Advanced Technology segment will support the satellite operator’s existing systems as well as future deployments in accordance with this $30 million dollar-plus contract. Roll out for our largest ground systems contract continues, with COVID creating some challenges on our ability to travel and deploy the systems. At time of this report the team continues to work through these challenges. Our product launches continued to demonstrate the company’s pivot to innovation and technology solutions addressing specific industry needs. In June, Calian commercially released the Decimator D4. This is the fourth generation of Calian’s spectrum analyzer product line, which has been a mainstay of communications monitoring for years. We also officially launched Calian ResponseReady™, a licensed software solution now available for the design, delivery and evaluation of emergency exercises and training. Calian continued to roll out its second-generation MaetroEDE™, a web-based program used for exercises supporting emergency preparedness for military operations, disasters and major events. Commitment: Calian responded to the difficulties and unique circumstances of the pandemic with several wins throughout the year that furthered our ongoing pivot to innovation, growth and global markets. Calian Group Ltd. 2020 Annual Report 3 3 Calian Group Ltd.2020 Annual ReportCalian’s consolidated results this year drove home the resilience and stability of our four-division structure. Positive growth and financial results in the Health, Advanced Technologies and Information Technology segments offset a slight decline in revenue in the Learning segment, as some training exercises and in-classroom courses were postponed by COVID-19. Health’s strong gains reflected increased demand across the segment. The company continues to evolve and invest strategically to support our growth objectives. Post year-end, I was pleased to appoint a new Chief Commercial Officer (CCO) and Chief Technology Officer (CTO) to our management team. Michele Bedford, as CCO, will help drive Calian’s sales and marketing as we expand into new markets and customer segments. We are excited about our new CTO, Seann Hamer, who will provide a focal point to propel innovation internally and strategically define Calian’s technology and innovation opportunities across the organization. We have been working diligently to refresh our brand, refine our digital presence and launch a new and improved website to further demonstrate our commitment to raising the profile of Calian as an innovative leader in the markets we serve. Our strategic recompetes this year included the Department of National Defence’s (DND) selection of Calian to provide an expanded role in the evolving cyber security landscape and help meet the growing cyber needs of the federal government. Additionally, Calian successfully re-competed to provide DND with training services for the Canadian Forces School of Aerospace (CFSATE). CFSATE Technology and Engineering delivers aerospace, technical and engineering training and provides the Royal Canadian Air Force (RCAF) with qualified aircraft maintenance personnel. Collectively, these contract rewins added over $54M to our backlog. We are truly honoured that Calian continues to provide our trusted services and solutions in support of Strong, Secure, Engaged: Canada’s Defence Policy. Our annual results demonstrated the company has remained resilient through this extreme environment, and the company is well on its way in our pivot. Year- over-year, Calian’s 2020 revenues gained 26% as EBITDA rose 36%. The team continued to successfully compete for new business and rebids that helped us end the year with a sustained revenue backlog of $1.3 billion. Importantly, this year would not have been possible if it was not for the dedication and courage demonstrated by all frontline health and essential service workers. I would like to thank and recognize all who have been out there delivering essential services like our frontline health workers, Canadian Armed Forces members and many other service workers. This has been an incredibly challenging year, and all of us at Calian offer our deepest appreciation for your service. 4 I would like to deeply thank our talented staff for their contributions in a very challenging year. Their dedication is second to none, and I am excited by the shifting corporate culture at Calian in support of our pivot. Looking forward, the team is excited about Calian’s potential. This year, the company finalized a new three- year strategy and having completed a successful round of financing in the second quarter of 2020, has the required capital to help sustain our profitable growth momentum. The Calian team is committed to completing our pivot to becoming an innovative global growth company. The recent surge in COVID-19 globally is concerning, and our team is committed to work through the challenges this creates for the company. We believe we are well positioned to keep the momentum going, but will need to ensure we prioritize the safety of our staff while building on our record accomplishments in 2020. Kevin Ford President and CEO Frontline workers: This year would not have been possible if it was not for the dedication and courage demonstrated by all frontline health and essential service workers. 2020 Annual ReportCalian Group Ltd. 2020 Segment Highlights Advanced Technologies The Advanced Technologies segment continued to focus on growth in 2020 while ensuring continuity of operations and customer deliveries amid a challenging global business environment. While providing customers with critical communications infrastructure, the segment expanded its defence and satellite communications solutions with the delivery of world-class, innovative products and the acquisition of a leading manufacturer of wireless antennas. The segment’s determined efforts to maintain workflow and minimize service interruptions during the pandemic included enhanced contact with supply chains, remote working for engineering staff, and implementation of health and safety measures at Calian’s manufacturing facilities. We were pleased to report that these efforts allowed the majority of work to continue unaffected. Among Advanced Technologies’ diverse operations, the satellite ground systems business faced the most challenges. Health and safety COVID-19 restrictions varied globally from region to region making ground system deployments and logistics very difficult for crews. Although challenging, we continued to make progress deploying ground systems for customers. In the fourth quarter, the Advanced Technologies team was excited to announce the acquisition of Ottawa- based Tallysman Wireless, a leading manufacturer of precision global navigation satellite systems (GNSS) antennas and related components. With GNSS as one of the fastest growing markets for satellite technology, Calian welcomed the opportunity to join forces with a leader in the field. Tallysman’s product line and solutions complement Calian’s ground-based satellite communications business and expand our reach in the satcom industry to markets and customers requiring smaller antennas. Tallysman has invested significantly in research and development to produce the most accurate and widest range of GNSS antenna available. With a growing product portfolio of precision and custom GNSS antennas, Tallysman is poised to maintain its growth momentum under Calian. In a significant milestone, Calian commenced deliveries of an innovative telecommunications product for a Tier 1 North American mobile operator. The new product is an example of the company’s product strategy and our research and development programs targeting the needs of customers. The product is the result of 14 months of communications technology research, development and certification. When installed with the existing customer to maximize use of existing spectrum assets and broadcast capabilities to support the ongoing evolution of the operator’s mobile network. transmission equipment, it enables Along with several other initiatives during the year, this new product was evidence of the Calian engineering team’s capability to solve complex customer problems using our deep knowledge base in leading-edge, mixed-signal analog-digital product designs. It also demonstrated an ability to satisfy the demanding performance and certification requirements of a major mobile wireless network operator. In other product launches, the segment commercially released the Decimator D4, the fourth generation of Calian’s spectrum analyzer designed to allow satellite service providers to monitor and analyze satellite and terrestrial wireless radio frequency (RF) communications signals. Our investment in the Decimator product line has produced the Decimator D4, a significant redesign of the D3 signal processing engine, providing for a number of new capabilities. The D4’s most significant new feature allows it to peer into the RF signal for deeper analysis of the quality of digital signal components. The feature proactively identifies issues in the network before they manifest as a failure. The Decimator product line has been a mainstay of communications monitoring for over a decade. The D4 complements a diverse range of services and solutions for domestic and global markets, and demonstrates Calian’s determination to continuously evolve its product lines to address challenges faced by its customers. 5 Calian Group Ltd.2020 Annual ReportAs a global supplier of communication systems solutions and products, Calian was selected by a global satellite communications operator this year to provide and install new radio frequency (RF) satellite ground systems. In January, Calian announced the appointment of a director to lead sales activities for the company’s new line of high-performance composite carbon fiber antennas. These advanced antennas are designed to meet the demanding operational requirements of Ka/Q/V-band frequencies and beyond. Considerable effort was expended this year validating the long term performance of the 10m version of our Ka/Q/V band antenna tested over satellite in a variety of operational environments. Some of the technical challenges involved in developing and deploying the RF systems, including these antennas, for our largest ground system contract have had a negative effect on our margins, however the team remains committed to the successful completion of the ground system deployment. Modern, high-throughput satellite communications are becoming increasingly complex with software- defined payloads and dynamic beamforming that creates thousands of independent beams of different sizes, bandwidth and power that can be reconfigured and repositioned across the globe in real time. Such capabilities require complex software solutions to both plan and control these resources. The Advanced Technologies segment was selected by satellite operator Inmarsat to provide next-generation software solutions for the planning, management and monitoring resources. Advanced Technologies’ of satellite software development team continues to innovate with research and development into areas of machine learning and scalable cloud computing. Our integration of Germany-based SatService continued, with growth in customers that demonstrated Calian’s success leveraging defence expertise for the European market. We were pleased to be selected by a European government defence organization and their teleport operator for the procurement, integration and installation of a receive-only RF system which included a large-aperture antenna. Satellite resource management user interface: The Advanced Technologies segment was selected by satellite operator Inmarsat to provide next-generation software solutions for the planning, management and monitoring of satellite resources. 66 2020 Annual Report Calian Group Ltd. 2020 Annual ReportCalian Group Ltd.Advanced Technologies’ engineering team continued to win projects with government and other clients. In the fourth quarter, Calian’s defence engineering team was selected by the Department of National Defence (DND) to provide scalable science and technology services in support of public safety and security. The contract supports DND and approximately 21 federal departments and agencies with the ability to scale up Canada’s science and technology capabilities to meet specific operational requirements. IntraGrain, Calian’s AgTech solutions provider, continued to expand its distribution network and evolve its solutions for new customer segments. The nuclear engineering team has continued to deliver training and consulting services to a large nuclear power operator. Calian continues to engage in dialogue and studies on potential solutions related to the commercialization and deployment of small modular nuclear reactors — an energy solution that holds tremendous potential as inexpensive, safe and readily deployable. Despite a challenging global environment, the segment had a very strong year. We remain committed to resolving the logistical challenges presented by the pandemic and successfully commissioning these ground systems during FY2021. The team remains focused on integrating acquisitions, and with continued investment in organic growth, research and development and potential M&A, Advanced Technologies is positively positioned for continuing its growth momentum. Acquisition of Ottawa-based Tallysman Wireless: Tallysman Wireless is a leading manufacturer of precision global navigation satellite systems (GNSS) antennas and related components. 7 Calian Group Ltd.2020 Annual ReportHealth Collaboration, flexibility and responsiveness were key to the Health segment’s success in 2020 as the team engaged with clients to address the COVID-19 global health crisis. Responding to increased demand for primary care needs during the pandemic, the Health team expanded its services with new contracts. These included work with SNC-Lavalin PAE Joint Venture to support the Government of Canada’s pandemic and emergency response preparedness, and public and private sector health screening contracts across Canada. Calian’s Health services continued to grow and evolve, particularly with the acquisition of two Ottawa-based health service companies, Allphase Clinical Research Services Inc. and Alio Health Services Inc. (collectively, “Allphase/Alio”). Acquired in the second quarter, the companies serve the pharmaceutical and medical device industry and the broader health care sector with clinical trial services, specialty patient support, community care and other health services, all enabled by our Health Outcomes Management Engine™, an innovative health care delivery management software application. The acquisition has provided Calian’s Health segment with access to innovative services and new customer segments in pharmaceuticals, hospital care and patient support at home. Calian’s scale and market reach has enabled Allphase/ Alio’s continued expansion within the sector and supports the company’s ability to take its proprietary software products, systems and services to the next level. For Calian, the acquisition is accelerating access to emerging technologies and business in new markets, encompassing hospitals, patient support at home and clinical trial services. As Calian prepares to leverage the Health Outcomes Management Engine application across its existing health services portfolio, the company sees significant potential to create efficiencies, bring greater value to our clients and drive new business. During the fiscal year, Allphase was pleased to launch its primary Patient Support Program, PSP One, for Novartis Canada. 8 The Health team saw increased demand in the provision of essential primary care services, largely related to COVID-19, as the segment added eight new clients during the year. Health experienced significant growth in contracts with federal departments as well as the Government of Nunavut, for which we now provide a comprehensive suite of nursing and COVID-19 screening services across multiple sites. Additional business was won in the natural resource sector for companies requiring COVID-19 screening services for employees. In June, Calian won significant new business providing expertise and medical equipment to help the Government of Canada plan and prepare for the medical surge capacity needed to protect Canadians amid the pandemic. Calian was awarded a contract by Allphase/Alio: The acquisition of Allphase/ Alio is accelerating Calian’s access to emerging technologies and business in new markets, encompassing hospitals, patient support at home and clinical trial services. 2020 Annual ReportCalian Group Ltd.SNC-Lavalin PAE Joint Venture to support the delivery of up to 10 100-bed Mobile Respiratory Care Units (MRCUs) for the government’s pandemic response efforts. The partnership allowed the government to prepare for deployment of turnkey MRCUs in various locations in Canada. The easily storable, accessible and transportable MRCUs are self-sufficient units that provide targeted care for persons with acute respiratory disease and distress. The Health team has been privileged to contribute to the federal government’s response efforts and ultimately help increase Canada’s response capabilities during this devastating pandemic. Demand continued to be stable on the Health Care Providers Requirements (HCPR) contract for the provision of health support services to the Canadian Armed Forces (CAF). We continued to maintain high customer satisfaction ratings on the contract. Calian is honoured to support the health of the serving men and women of the Canadian Armed Forces, the RCMP and the former serving members of Veterans Affairs Canada. Primacy, our medical property management brand supporting over six million patient visits per year at more than 150 locations across Canada, signed a new five-year master agreement (with a three-year renewal option) with Loblaw. This advances Primacy’s service delivery in Loblaw grocery stores, including Real Canadian Superstore®, Zehrs®, Loblaws® and No Frills®. Calian’s Military Family Doctor Network (MFDN) marked a significant milestone this year. As of fiscal year-end, more than 2,900 military family members have been referred to a family doctor since the inception of the program in 2016. (Read more about this important program for military families in the Social Impact section of this report.) Calian’s Health team had an exceptional year in an extremely challenging environment, thanks to its passionate, dedicated and courageous team. The segment remains focused on diversifying its customer base and evolving services through the implementation of health technology enabled solutions. Allphase/Alio: The companies serve the pharmaceutical and medical device industry and the broader health care sector with clinical trial services, specialty patient support, community care and other health services. Calian Group Ltd. 2020 Annual Report 9 9 Calian Group Ltd.2020 Annual ReportLearning Despite the impact of COVID-19, Calian’s emergency management and training teams continued to show impressive leadership with new contracts, business development and expansion in Canada and Europe. Although the segment experienced a year- over-year revenue decline as a result of the pandemic’s disruptions to large-scale exercises and training courses within its core defence customers, many strides were made positioning for future growth. Emergency preparedness and disaster mitigation planning is an increasing priority for communities and organizations around the world. Calian Emergency Management helps people, organizations, governments and communities prepare for events where the consequences of failure are unacceptable. With 2020 presenting an extreme environment for many organizations, the team demonstrated leadership in this evolving market which was affected by the increasing impacts of natural disasters, health, safety and security issues, and aging infrastructure. In a significant achievement this year for Calian Emergency Management, the team was selected by the Region of Peel to develop a wastewater emergency response plan and a flood response plan. Calian is providing the Region of Peel with a unique combination of engineering, security and emergency management expertise and is leading a team of specialists to conduct risk and vulnerability assessments, develop site-specific, facility-based response plans and procedures, and design and facilitate a comprehensive training program. Calian believes in building long-term relationships with clients amid growing demand for emergency management services. In other recent projects, Calian assisted the Province of New Brunswick, City of Ottawa and City of Nanaimo with emergency management after-action reviews, and City of Whitehorse with a hazard, risk and vulnerability assessment. Calian was honoured this year to partner with Saulteaux Tribal Nation L.P., a First Nations-owned and operated company in Manitoba. In this partnership, Calian is working collaboratively with Saulteaux to deliver emergency management services and best practices to other First Nations in the province. increase The unique agreement is designed to help Manitoba’s First Nations resilience, emergency management independence and build community capacity and economic opportunity. The partnership reflects the changing nature of Indigenous business relationships in Canada and a collective goal to support the 2015 Truth and Reconciliation Commission Calls Emergency Management: Emergency preparedness and disaster mitigation planning is an increasing priority for communities and organizations around the world. 1010 2020 Annual Report Calian Group Ltd. 2020 Annual ReportCalian Group Ltd.to Action, which urged the corporate sector to adopt a reconciliation framework and commit to meaningful relationships with respectful consultation and Indigenous peoples. The Emergency Management team has greatly appreciated the opportunity to work with Saulteaux to increase community resilience and capacity in the province, at a time when these vital services and capacities are needed vis-à-vis a rising number of disasters nationally. In customer retention efforts, Calian was again selected by the Department of National Defence to provide training services for the Canadian Forces School of Aerospace Technology and Engineering (CFSATE). Based at Canadian Forces Base Borden, CFSATE delivers aerospace, technical and engineering training and provides the Royal Canadian Air Force (RCAF) with qualified aircraft maintenance personnel. Under the contract, Calian is delivering training and other services to CFSATE, including course review, design and delivery and technology support. The contract award affirms Calian’s commitment training excellence for DND. to In customer diversification, the Learning segment secured its first contract with the Royal Canadian Navy in support of the Naval Training Development Centre (Pacific) as it develops the Navy’s vision of a future- ready naval training system. This system represents instruction to a shift from traditional classroom learning an environment. technologically enabled integrated, Broadening Calian’s presence in Europe, the company announced the acquisition of Comprehensive Training Solutions International (CTS), a boutique training firm based in Stavanger, Norway. CTS designs, develops and delivers complex training exercises for the Joint Warfare Centre (JWC), a multinational and multi- service organization of NATO, and the wider NATO audience across Europe. CTS signifies the European market’s importance to Calian’s overall growth strategy. Last year, Calian acquired Germany-based SatService, an innovative player in European satellite ground systems market. CTS has supported the growth of Calian’s business in Europe and furthers the strategic goal of customer diversification. In June, in support of growth through innovation, the company was pleased to officially launch Calian ResponseReady™, a licensed software solution now available for the design, delivery and evaluation of emergency exercises and training. ResponseReady, originally developed by Calian’s nuclear engineering team to support large-scale nuclear exercises, has been made available as a commercial product. The product supports the design, delivery and evaluation of realistic exercises ranging from large-scale, multi- department, multi-agency exercises, to smaller organizational exercises and drills. It is a response to the increasing need by all organizations for an exercise and training program allowing for the testing of plans and procedures, and a structured approach to managing emergencies. This year Calian continued to roll out its second- generation MaestroEDE™, a web-based program that supports the exercise design, development and delivery process (E3D) for complex, high fidelity and large scale exercises. The platform is used for exercises supporting readiness for military operations, whole- of-government and international events, disasters and security for major events. Calian showcased the software with a booth at this year’s virtual 15th NATO CA2X2 Forum (Computer Aided Analysis, Exercise, Experimentation) event in Europe. While pandemic-related headwinds reduced the ability to conduct training across the Learning segment’s customer base, significant strides have been made to open opportunities and position Learning for future growth. The segment continues to be focused on customer diversification, new geographic markets, and investment in learning products and capacity. 11 Calian Group Ltd.2020 Annual ReportInformation Technology Continuing to excel in the high-expectation information technology sector, Calian added important new strategic depth to its cyber security team and continued to support the efficiency and security of IT systems, services and networks for public- and private-sector clients. Through M&A, Calian’s IT segment was pleased to see its growth story continue with the acquisition of EMSEC Solutions, a boutique firm specializing in radio frequency (RF) emission security and technical surveillance countermeasures. Fulfilling the strategic goals of innovation and customer diversification, the addition of EMSEC’s team further strengthens Calian’s expertise in the area of government and defence cyber security, and provides the company with innovative software and technology-enabled services to expand its depth of solutions. Emissions security is a specialized, growing field as more organizations see a need to protect intellectual property. Mid-year, Calian was honoured to be selected to provide an expanded role in the evolving cyber security landscape and help meet the growing cyber needs of the Department of National Defence (DND). The IT team successfully recompeted for a contract award valued at approximately $22 million over three years to provide expanded cyber security and informatics services to DND. the contract award, Calian Under is providing consulting services to support DND’s information and cyber security initiatives. These services include project management, change management, network security, IT security vulnerability assessments, IT security system operations, and incident management. This contract award for the IT team exemplified Calian’s commitment to customer retention as the first pillar of our growth framework. Recognizing that some of the top threats to governments and national security are cyber threats, the team is honoured to continue to provide its trusted services in support of Strong, Secure, Engaged: Canada’s Defence Policy. 12 The segment continued to see growth on its IT services contract with General Dynamics Mission Systems– Canada as part of a partnership to deliver Land Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR) systems support for the Canadian Army. These Land C4ISR systems enhance the Canadian Army’s ability to protect the communications and information systems they depend on. In customer diversification, the cyber team increased its marketing and sales activities, including digital campaigns that helped grow cyber sales and the funnel of opportunities in Ottawa and the Greater Toronto Area (GTA). This included a substantial new contract for the cyber practice with Shared Services Canada to support the expansion of the customer’s data centre consolidation initiative. Moving forward, the segment will continue to focus on diversifying the customer base both geographically and in our target sectors, evolving our IT services capability in cloud migration, and deepening our cyber security offerings. Cyber security and informatics services: The IT team successfully recompeted for a contract award valued at approximately $22 million over three years to provide expanded cyber security and informatics services to DND. 2020 Annual ReportCalian Group Ltd.How our segments performed Advanced Technologies Health Core business: Engineering services, products, solutions, software development, manufacturing, training, technical services Markets: Satellite communications, aerospace, defence, cable networks, nuclear power, agriculture, government Customers: Canadian Space Agency, Sirius XM, Ontario Power Generation, DND, Inmarsat 2020 2019 Revenues: Gross margin (%): EBITDA(1): EBITDA (%): Backlog(2): 22% $ 153,382 $ 109,697 28% $ 21,003 $ 16,523 15% $ 155,000 14% $ 143,400 Core business: Health services, psychological assessment services, medical property management Markets: Defence, law enforcement and security, corrections, energy, occupational safety Customers: DND, Canada Border Services Agency, Edmonton Police Revenues: Gross margin (%): EBITDA(1): EBITDA (%): Backlog(2): 2020 2019 $ 163,035 $ 115,719 20% $ 18,496 16% $720,000 20% $ 23,396 14% $ 822,600 Learning Information Technology Core business: Custom training, emergency management solutions, software products, consulting, course development Core business: IT consulting, IT and cloud solutions, software development, SAP consulting, cyber security solutions Markets: Defence, health, energy, government, Indigenous communities Customers: DND, Province of New Brunswick, City of Victoria, Interlake Reserves Tribal Council Markets: Government, defence, private sector Customers: Shared Services Canada, DND, General Dynamics Mission Systems —Canada, Toronto Transit Commission, Ericsson Revenues: Gross margin (%): EBITDA(1): EBITDA (%): Backlog(2): 2020 2019 $ 57,834 $ 63,098 20% 22% 8,582 $ 8,787 14% 15% $ 268,000 $ 276,100 $ Revenues: Gross margin (%): EBITDA(1): EBITDA (%): Backlog(2): 2020 2019 18% $ 58,069 $ 54,531 15% $ 4,787 $ 3,567 7% $ 42,000 8% $ 65,900 Canadian dollars in thousands (1) Excludes corporate costs; see financial statements for reconciliation. (2) Total backlog is $1.5 billion (FY19 $1.3 billion) and realizable backlog is $1.3 billion (FY19 $1.1 billion). 13 Calian Group Ltd.2020 Annual Report Micah Grinstead Micah’s primary focus is supporting and enabling success for his team of manufacturing professionals. He recently joined Calian through the acquisition of Tallysman, a leading manufacturer of precision Global Navigation Satellite Systems (GNSS) antennas and components. With decades of experience in manufacturing and the complex and dynamic world of global supply chains, Tallysman’s engineering and sales teams rely on Micah’s valued insights to meet demanding innovation requirements and the complex needs of customers in a fast-evolving industry. As director of operations, he manages two facilities that support Calian’s global reputation as a trusted provider of leading-edge satellite communications products and solutions. Alexandra McCabe Alexandra applies Calian’s health services expertise to manage highly skilled nursing teams across Canada in support of northern and Inuit communities. Overseeing dedicated nursing teams in approximately 25 northern communities as well as COVID-19 isolation hubs in five Canadian cities, Alexandra ensures Calian is viewed as a trusted partner that can respond quickly with practical solutions to rapidly changing needs. She also manages relationships with a number of provincial and federal health customers receiving impactful mental health support services. People driving growth A small selection of the many people at Calian who are advancing our innovation and growth, in Canada and abroad. 14 2020 Annual ReportCalian Group Ltd.John Simpson which countermeasures, John’s specialty is emission security and technical surveillance help organizations prevent the unintentional disclosure of sensitive information through the release of electrical and electromagnetic emissions. A certified TEMPEST professional and member of the Canadian Industrial TEMPEST Program, John is Chief Technology Officer of Emsec Solutions, which joined Calian’s cyber solutions team this year through acquisition. John is recognized in NATO and Five Eyes countries for his extensive expertise in the field of radio frequency signals analysis. Jordan Miller Jordan is a program manager in strategy and public affairs who develops branding, positioning and engagement strategies to showcase Calian’s solutions to the market and potential partners. When COVID-19 hit, Jordan was asked to take charge of one of Calian’s central response services. He worked for months to overcome supply chain and design challenges and, managing a network of suppliers and consultants, coordinated expert input and delivery of materials and equipment to help strengthen the Government of Canada’s response capabilities. Jordan’s leadership helped demonstrate Calian’s marketplace position as an innovative and trusted partner delivering complex solutions to real-world challenges. Calian Group Ltd. 2020 Annual Report 15 15 Calian Group Ltd.2020 Annual ReportJohn Cullen John is Managing Director of Comprehensive Training Solutions, a full-service crisis response management training company servicing NATO, the European Union and European nations, which Calian acquired this year. For over 12 years, John has played a key role in designing, developing and delivering exercises and training events for senior leaders across NATO in support of the Joint Warfare Centre in Stavanger, Norway. With a view to business development and European expansion, he continues to participate in exercise design and training delivery to understand client needs and remain current on crisis management doctrine and processes. Peter Patterson Peter joined Calian through the acquisition of boutique security firm EMSEC Solutions, where he is President and CFO. He works closely with clients to provide solutions that may include a combination of product sales and professional and technical services, and also acts in a project management capacity for larger government and private sector programs requiring senior-level oversight. Peter maintains relationships with North American and European suppliers represented by EMSEC and helps potential partners in the growth area of emission security technologies. Besides day-to-day management, his responsibilities include managing cash flow and the company’s overall financials, short- and long-term. Hicham Farhat Hicham is a health services solutions and management professional who leads government and private sector health program growth strategies. Working closely with operations leads across Canada, Hicham is the primary point of contact for all new health related initiatives, partnerships and alliances. Hicham and his team of health solutions experts focus on building Calian’s organic growth opportunities through collaboration on new and innovative health services solutions, all while ensuring the highest possible level of customer satisfaction. 16 2020 Annual ReportCalian Group Ltd.Julien Hautcoeur Kaytlin Sadler Julien manages a team of engineers and technicians responsible for the development of new antennas and components for the Global Navigation Satellite System (GNSS) constellation of satellites. With a PhD in electronics and communications systems from Université de Rennes, Julien joined the Calian team this year through the acquisition of Tallysman, where he is director of GNSS product R&D. Julien is looking forward to bringing new products to market as Calian continues to grow, innovate and expand into new customer segments at home and abroad. Kaytlin contributes every day to the mission at Alio Health, acquired by Calian in 2020. She helps define and execute Alio’s strategic objectives and plans for new business opportunities. Overseeing internal operations and building strong client relationships, she has helped maximize Alio’s operational pace to achieve real outcomes. Kaytlin played a key role in the strategic evolution of Alio’s Health Outcomes Management Engine™, innovative software that meets industry needs and is helping to shape where the industry is headed. In keeping with Alio’s efforts to challenge and empower its employees, she has built a strong, confident team of diverse yet like- minded individuals. 17 Calian Group Ltd.2020 Annual ReportSocial impact Calian is committed to positive social impact in our communities, whether that is through our work, partnerships or social responsibility programs. We continued this approach in the past year, adjusting as much as possible to address the immense challenges the public health crisis has presented to people around the globe. Calian’s social impact approach is aligned with our oft-stated core purpose: We help the world communicate, learn, lead healthy lives and stay safe. In doing so we are committed to conducting our business with integrity, uncompromising quality and professionalism. This year, honouring CEO Kevin Ford’s commitment to step forward to help support those affected by the COVID-19 pandemic, the company provided financial support to various pandemic relief and response efforts, including those of the Canadian Red Cross, the Ottawa Hospital Foundation’s COVID-19 Emergency Response Fund, the Ottawa Food Bank, Saskatoon Food Bank & Learning Centre, and Dress for Success Ottawa. Calian is grateful for all of our employees who continued to be involved in charitable causes and campaigns, with the company encouraging staff to take paid time off to volunteer for charitable activities of their choice. the reflect relations and Working with Indigenous partners We continued to engage in partnerships to further Indigenous Indigenous relations framework Calian adopted in 2019, with three fundamental principles: Listening, Learning and Leveraging. These principles apply as Calian establishes meaningful relationships with First Nations and Indigenous suppliers, advocacy groups, business councils, and employees. We seek out Indigenous communities for partnerships and actively work towards developing a shared vision to meet their needs. As part of our corporate social responsibility commitments, the company has taken a leadership position as a sponsor in a long-term research project under the auspices of Luminary, a national initiative 18 to design and implement an Indigenous innovation strategy that supports economic transformation and well-being within Indigenous communities. Calian is a charter member of Luminary. Similarly, Calian was honoured this year to launch a collaboration with Saulteaux Tribal Nation L.P., a First Nations-owned and operated company in Manitoba, to upgrade community resilience and emergency response capacity in the province. In this partnership Calian is working collaboratively with Saulteaux to deliver emergency management services and best practices to other First Nations in the province. Through this joint effort, Calian is striving to do its part to build more respectful, long-term, economically sustainable programs with Indigenous communities based on consultation, shared knowledge and collective goals. The approach is in keeping with the need to strengthen business-Indigenous relationships and increase Indigenous economic engagement and inclusion, as prioritized in the reconciliation framework laid out the 2015 Truth and Reconciliation Commission Calls to Action. in Supporting the military community Support for Canadian Armed Forces (CAF) members and their families remained core to our social impact efforts this year. Calian moved ahead with a virtual health pilot program to expand military family access to physicians in Ontario. The Ontario Telemedicine Network (OTN) partnered with Calian to offer military family members access to a network of virtual doctors. Military family patients from the Petawawa/Pembroke region of Ontario can now access an Ontario physician at home via secure video through this pilot program. This project is the latest step in Calian’s program dedicated to helping military families access a family physician. While the CAF provides serving members with complete health care, their family members rely on the provincial health systems, presenting a unique challenge for military families who relocate frequently due to postings. In response to this issue, Calian created the Military Family Doctor Network (MFDN) in partnership with Military Family Services, a division of Canadian Forces Morale and Welfare Services. MFDN helps connect military family members to participating physicians after the families relocate to communities 2020 Annual ReportCalian Group Ltd.Saulteaux Tribal Nation L.P.: Calian is working collaboratively with Saulteaux to deliver emergency management services and best practices to other First Nations in the province. around the country. We are proud to say this project has received widespread pickup from those it is intended to support. As of fiscal year-end, more than 3,000 military family members had been referred to a family doctor through MFDN. Calian continued to work in support of military families as the founder of Innovation to Impact, a multi- disciplinary working group that is making the growing body of military family research available to physicians and health care providers across Canada. With funding from the Veteran and Family Well-Being Fund, Calian created information guides to help physicians and Military family members share the unique healthcare needs of Veterans and their families. The results- oriented Innovation to Impact group is comprised of Calian, Military Family Services, the Canadian Institute for Military and Veteran Health Research, and the Vanier Institute of the Family. Calian is passionate about making a difference in the lives of transitioning military members, Veterans and their families. It is well-known that a serving member’s transition to civilian life can be challenging, representing a sudden change in culture, the structure of daily life and application of long-held skills. Recognizing these challenges, Calian is committed to being one of the country’s top Veteran-friendly employers. We strive to assist military members find high-quality jobs as they move into civilian life. At the end of FY2020, Calian had hired more than 750 former military personnel since January 2012, and, as a participant in the Military Spousal Employment Network, we have hired approximately 190 military spouses since January 2016. Aligned with Calian’s ongoing support for military members and their families, we were pleased to once again support the Ottawa Senators’ annual Canadian Armed Forces Appreciation Night in October 2019. Health and diversity As one of Canada’s largest national health service providers, Calian supported several health-related social responsibility initiatives in 2020. We were a sponsor of the President’s Breakfast at the Ottawa Hospital, and sponsored Gloria Higdon, a Calian senior business relationship manager, for Women for Mental Health, a philanthropic undertaking of the Royal Ottawa hospital. For Operation Smile, a group that provides support to children with cleft palates, Calian offered free advertising on Primacy TV, the television health and lifestyle advertising program in the waiting rooms of Primacy’s 140-plus clinics across Canada. Throughout our growing organization, diversity in our people is recognized as one of Calian’s core strengths. We believe that building teams with widely different ethnic, racial, and social backgrounds accelerates 19 Calian Group Ltd.2020 Annual Reportour pursuit of excellence. Supporting diversity means fostering an environment that lets Calian employees fully contribute to our collective success as well as their own. We believe in nurturing a culture where everyone is valued for the unique qualities they provide. Calian remains focused on its corporate diversity policy and objectives to increase the number of women and people from underrepresented groups in its executive team. Calian was recognized this year in the “Women Work Here” special in The Globe and Mail’s Report on Business, identifying the company as one of 73 Canadian enterprises at the forefront of women in leadership positions We are committed to equal employment opportunity and to complying with all laws related to workplace opportunity. Our Equal Employment Opportunity practice applies to all phases of employment – selection, promotion and demotion, transfer, compensation and benefits, layoff and recall, and termination. Calian strives for a workplace free of discrimination, hostility, and physical or verbal harassment. Human rights and the environment Calian’s human rights principles extend internationally, with our Advanced Technologies division refusing, for instance, to support the use of minerals linked to conflicts or human rights abuses. We remain cognizant of our environmental footprint. Our Calian excellence framework includes leadership and governance drivers that emphasize social and environmental factors, and we are committed to protecting the environment and reducing waste. Wherever possible, Calian promotes the efficient use of energy and natural resources and supports environmentally friendly disposal. To this end, Calian manages our manufacturing services to maintain our reputation as a good environmental steward. We meet all of our environmental laws and regulations, in addition to offering lead-free manufacturing capabilities in compliance with Restriction of Hazardous Substances (RoHS) standards. We constantly look for ways to reduce our environmental footprint through new processes and materials. Calian remains committed to having a positive impact within our communities, whether through charitable 20 work, contributions, delivering services and solutions, or collaborations with our partners. We look forward to continuing to work with customers and partners to support our communities and the people within them, with special attention to military members and their families. Our impact will continue to be focused on helping the world communicate, learn, lead healthy lives and stay safe. Supporting charitable campaigns Some charitable organizations Calian supported FY2020 • HealthPartners • Royal Ottawa Foundation • The Ottawa Hospital Foundation • United Way • Canadian Red Cross • Centraide Outaouais • The Montfort Hospital • CHEO • Rideauwood Addiction and Family Services • Stars Air Ambulance • Saskatoon Food Bank and Learning Centre • Ottawa Food Bank • Dress for Success Ottawa • Holiday Hamper Program (Saskatoon) • Canadian International Rover Challenge • University of Saskatchewan Space Design Team • Space Camp for Kids (Saskatoon) • CJ Mackenzie Gala of Engineering Excellence • University of Saskatchewan, University of Regina and Saskatchewan Polytechnic (scholarships) 2020 Annual ReportCalian Group Ltd.Looking Forward Calian has demonstrated the ability to consistently grow the business while maintaining our profitability and making targeted investments in our growth posture. Our growth through 2020 was both challenging and rewarding. The company’s resilience was clearly evident as our diversified essential services and solutions helped the company report record revenues amid the historic public health crisis. targeted Calian’s stability remains key to our investment value proposition: Stability through diversity, growth through innovation. Strategic acquisitions and investments have expanded our products, solutions and customer base in Canada and internationally — and through this growth we have maintained our stability. We were very happy to finish the fiscal year reporting our 76th consecutive profitable quarter, that’s 19 years of consistent profitable execution. We are excited about the potential of this company as we continue our pivot to innovation, growth and global markets. This was an important year for the team as we finalized a new strategy that will take us through the second half of that pivot over the next three years. We remain proud of the impact of Calian’s services, which have been critical to customers’ operations or Corporate leadership team well-being. This has reflected our updated mission statement: “To deliver innovative solutions that help the world communicate, learn, lead healthy lives and stay safe.” Looking forward, the company is well-positioned to build on our record accomplishments in 2020. Having completed a successful round of financing in the second quarter of 2020, Calian remains well-capitalized to support our profitable growth momentum as we execute our strategy. We have invested in the management team, with the addition of a Chief Commercial Officer and Chief Technology Officer, who will help drive Calian’s customer diversification, innovation, product offerings and overall growth. The entire Calian team is excited about the opportunity to capitalize on Calian’s potential in the months and years to come. The team will continue to embrace Calian’s diversity and four-segment structure. For our customers, it comes down to continuously improving and expanding the products, services and solutions that our team of experts can deliver for critical industries. It has been an exciting journey to date, and as we often say at Calian, we’re just getting started. Kevin Ford, CEO Patrick Houston, CFO and Corporate Secretary Sue Ivay, CHRO Jerry Johnston, CIO Jacqueline Gauthier, Senior VP, Corporate Development Patrick Thera, VP and General Manager, Advanced Technologies 21 Calian Group Ltd.2020 Annual ReportThe following Management’s Discussion and Analysis is dated November 24, 2020 (this “MD&A”) and should be read in conjunction with the audited consolidated financial statements. The Company’s accounting policies are in accordance with IFRS. As in the unaudited interim condensed consolidated financial statements, all dollar amounts in this MD&A are expressed in thousands of Canadian dollars unless otherwise noted. This MD&A is the responsibility of management and has been reviewed and approved by the Board of Directors of the Company. This MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the MD&A. The Board of Directors carries out this responsibility principally through its Audit Committee. IFRS and non-GAAP measures: This MD&A contains both IFRS and non-GAAP measures. Non-GAAP measures are defined and reconciled to the most comparable IFRS measure. Forward-looking statements The Company cautions that this M&DA contains forward-looking statements. These forward-looking statements are based on certain assumptions made by the Company that may prove to be inaccurate. Forward-looking statements includes those identified by the expressions “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend” and similar expressions. Forward-looking statements are not historical facts, but reflect the Company’s current intentions, plans, expectations and assumptions regarding future results or events. Forward-looking statements are intended to assist readers in understanding management’s expectations as of the date of this MD&A and may not be suitable for other purposes. Forward-looking statements are based on assumptions, including assumptions as to the following factors: • customer demand for the Company’s services; • the Company’s ability to maintain and enhance customer relationships; • market conditions; • levels of government spending; • the Company’s ability to bring to market products and services; and • the Company’s ability to execute on its acquisition program including successful integration of previously acquired businesses; and • the Company’s ability to deliver to customers throughout the COVID-19 pandemic, and any government regulations limiting business activities. The Company cautions that the forward-looking statements in this MD&A are based on current expectations as at November 24, 2020 that are subject to change and to risks and uncertainties, including those set out under the heading “Risks and Uncertainties” below, many of which are outside the Company’s control. Actual results may materially differ from such forward-looking information due to factors such as customer demand, customer relationships, new service offerings, delivery schedules, revenue mix, competition, pricing pressure, foreign currency fluctuations and uncertainty in the markets in which the Company conducts business. Additional information identifying risks and uncertainties is contained in the Company’s filings with securities regulators. The Company does not assume any intention or obligation to publicly update or revise any forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable law. Readers should not place undue reliance on the Company’s forward-looking statements. 22 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd. The outbreak of the coronavirus, or COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020 has spread across the globe and is impacting worldwide economic activity. A public health pandemic, including COVID-19, poses the risk that the Company and its employees, contractors, suppliers, and other partners may be prevented from conducting business activities. This can especially be the case where government authorities mandate shutdowns. Certain countries may also be more heavily impacted where travel restrictions continue for longer periods and full quarantines are in effect. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. The Company and its employees have transitioned to working remotely and customer delivery has not been materially impacted. The Company is reliant on this alternative work arrangement in order to minimize the impact of outbreak on its financial results. Business overview and strategic direction Calian is a diverse company. For over 38 years, the Company has evolved into an organization that has consistently demonstrated the ability to manage numerous profitable service offerings while earning a high level of customer satisfaction. Our DNA allows us to manage this complexity, and to successfully deliver in domestic and global markets. Calian’s primary operating segments are: • Advanced Technologies • Health • Learning • Information Technology (“IT”) The diversity of this operating model is pivotal to the Company’s success. By serving many customers in wide ranging and geographically varied markets, Calian is able to capitalize on unique opportunities and upturns in a number of markets while at the same time weathering the downturns experienced in others. This diversity is most evident when comparing the business and operating models of the four segments. While our services are diverse, our growth strategy is anchored in a common four- pillar framework which can be described as follows: • Customer retention: through continued delivery excellence, maintain a valued relationship with current customer base; • Customer diversification: through increasing the percentage of revenues derived from new business in adjacent and non-government markets, balance customer revenue into numerous global and domestic sectors; • Service line innovation: continue investment in service offerings to increase differentiation and improve gross margins; and • Continuous improvement: leverage innovation to improve how the company operates with a goal to streamline processes and provide for a scalable back office support capability. The growth strategy at Calian can be summarized as follows: winning new contracts, expanding the scope of existing contracts, capitalizing on innovation demonstrated in each of the operating segments, and Mergers and Acquisitions. We have continued to demonstrate our ability to win new contracts and evolve; for example, continued expansion in our Health segment where we have not only increased our total number of contracts in the year, but also our services continue to evolve as well. This can be observed through our contract wins in the current year for COVID-19 screening, and the support in delivering up to ten 100-bed Mobile respiratory Care Units as part of the federal government’s pandemic response. Further, we have demonstrated an ability to expand the scope of services with existing customers through our cross service line pollination and growth. 23 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report A number of our services are applicable to each and every one of our customers and we have been bringing more value to the table for our customers through the diverse service offerings. Innovation is a key growth driver for Calian. Innovation in the new product and services we develop, as well as innovation in the way we deliver those services are key in maintaining our market position and winning new customers. Finally, with twelve successful acquisitions in the last nine years, we continue to demonstrate to our customers an ability to grow and expand, both in terms of geography and service offerings. In aggregate, all of these factors contributed to Calian’s profitable growth. Revenue grew 12% in fiscal 2019 and 26% in fiscal 2020 which resulted in the Company’s highest level of both adjusted net profit and EBITDA. Key attributes of our four operating segments: Customers Business units Customer Geography Government Revenue Quality initiatives Health Learning Information Technology Department of National Defence, Canada Border Services Agency, Loblaw, Police agencies across Ontario, SNC- Lavalin PAE Department of National Defence, Canadian Army Simulation Centre, Bruce Power, City of Ottawa and other municipalities across Canada Shared Services Canada, General Dynamics and other private and public high-tech companies Health services, psychological assessment services, medical property management Custom training, emergency management solutions, software products, consulting, course development IT consulting, IT and cloud solutions, software development, SAP consulting, cyber security solutions Advanced Technologies European Space Agency, Inmarsat, MDA, Sirius XM, Bruce Power Engineering services, products, solutions, software development, manufacturing, training, technical services International Canada Canada, Europe Canada 19% 64% 98% 65% Excellence Canada / ISO 9001:2015 Excellence Canada / ISO 9001:2015 Excellence Canada Excellence Canada Backlog ($ 000’s) 143,366 822,568 276,109 65,914 Calian operates at locations across Canada (ranging from British Columbia to Nova Scotia), as well as Europe (Germany, and Norway with the acquisition which closed on July 8, 2020). Calian is headquartered in Ottawa, Ontario, and is recognized as a leading professional services organization, providing services and solutions in Advanced Technologies, Health, Learning and IT. We are a continuous improvement organization, a founding partner of Excellence Canada, and accredited to Excellence Canada’s Excellence, Innovation and Wellness Gold- Level certification. 24 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd. The cost structure of Calian’s Health, Learning and Information Technology segments is for the most part variable, as contracts are typically on a per-diem basis with a majority being multi-year outsourcing assignments. This allows for predictable cash flows over long periods of time. With a long term commitment and reduced risk profile, margins are correspondingly lower. Historically our core competencies, common across all operating segments, are project, contract and workforce management; however, the segments continue to evolve their services to incorporate technology to offer full solutions to our customers. Each of these competencies is aligned to each of our segments. A large portion of our revenues are derived from Canadian sources in the public and private sectors, with a large presence in the Department of National Defence. We have been successful in our diversification strategy, and have developed a well-established private sector customer base across Indigenous communities, oil and gas, nuclear, aerospace, defence and numerous others. For example, our health service line includes the administration on behalf of Loblaw of over 150 medical clinics across Canada, as well as the provision of health care services to oil and gas customers. The Learning segment, which historically was predominantly revenue generated from the Government of Canada, has expanded its customer base to include municipalities, First Nations, healthcare, private industry, and into NATO spurring from the acquisition of Comprehensive Training Solutions. In addition, Advanced Technologies delivers to customers through usually fixed price projects and product sales to a predominantly global marker with over 80% of sales coming from international business. Revenue growth from new contract opportunities within government will be largely dependent on the issuance of the initial proposal request and the ultimate timing of the related contract award. The Company has significant realizable backlog at $1,307 million that spans over 10 years. Calian’s historical high renewal rate combined with its win strategy provides management confidence in its ability to successfully remain the customer’s preferred choice. While federal government spending priorities fluctuate, profitable business does exist for companies who have the financial strength to accommodate slowdowns in government spending, and the discipline to adjust costs to declines in revenue. Calian’s strong back office capabilities, along with our emphasis on continuous improvement and business development, ensures that we are able to identify and win new business opportunities and accommodate that new business in a scalable fashion. Of note, as our segments operate in niche areas within large markets, there exists minimal third-party data to compare with the Company’s performance. While analyzing general market trends provides some insight on the strength and potential opportunities within those markets, it is not always indicative of the health, demand, and funding of the individual customers of the Company. To compensate for the limited amount of information, and to provide an indication of future revenue potential, this MD&A provides a detailed overview of the Company’s backlog by segment showing both contracted backlog and option renewals by fiscal year. In addition, the following discussion, which refers to the type of contracts performed by each of the four segments will provide some insight into the level of customer specific demand for our services. The Company’s operations are subject to some quarterly seasonality due to the timing of vacation periods , statutory holidays and fluctuations in demand by industry. Typically, the Company’s first and last quarter will be negatively impacted because of the Christmas season and summer vacation period. During these periods, the Company can only invoice for work performed and is also required to pay for statutory holidays. This results in reduced levels of revenues and in a drop in gross margins. This seasonality may not be apparent in the overall results of the Company depending on the impact of the realized sales mix of its various projects. This is slightly offset in the summer months with IntraGrain having higher sales in this period, but further adds to the seasonality in the first quarter results. 25 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual ReportSelected quarterly financial data (Canadian dollars in millions, except per share data) Q4/20 Q3/20 Q2/20 Q1/20 Q4/19(1) Q3/19(1) Q2/19(1) Q1/19(1) Revenues Advanced Technologies $ 37.6 $ 35.9 $ 39.9 $ 40.0 $ 31.4 $ 30.5 $ 23.9 $ 23.8 56.8 14.3 14.4 43.9 11.1 14.6 32.2 17.3 15.1 30.0 15.1 14.1 31.3 14.0 14.2 29.3 15.6 13.4 27.8 17.6 14.1 27.3 15.9 12.9 $ 123.1 $ 105.5 $ 104.5 $ 99.2 $ 90.9 $ 88.8 $ 83.4 $ 79.9 79.0 20.2 70.6 20.3 69.5 19.3 65.3 18.1 63.1 16.8 Health Learning Information Technology Total revenue Cost of revenue Gross profit Selling and marketing General and administration Research and development Profit before under noted items Depreciation of equipment and application software Depreciation of right of use asset Amortization of acquired intangible assets Other changes in fair value 100.2 22.9 3.0 10.0 0.7 9.2 1.0 0.7 1.7 - 83.0 22.5 3.2 9.8 0.5 9.0 0.9 0.7 1.4 - Changes in fair value related to contingent earn-out (2.8) 0.4 Profit before interest and income tax expense Lease interest expense Interest expense (income) Profit before income tax expense Income tax expense 8.6 0.1 - 8.5 1.6 5.6 0.1 (0.1) 5.6 1.8 Net profit $ 6.9 $ 3.8 $ 81.0 23.5 3.3 9.5 0.4 10.3 0.6 0.7 1.2 - 0.3 7.5 0.1 0.2 7.2 1.8 5.4 2.8 8.6 0.4 8.4 0.5 0.7 0.9 (0.1) 0.2 6.2 0.1 0.1 6.0 1.7 2.8 9.1 0.3 8.1 0.6 - 1.4 - 2.9 9.3 0.4 6.7 0.6 - 1.0 - (4.1) (0.3) 10.2 - - 10.2 1.7 5.4 - - 5.4 1.1 4.3 2.3 8.9 0.3 6.6 0.6 - 0.4 - 0.2 5.4 - - 5.4 1.5 2.4 8.3 0.4 5.7 0.5 - 0.3 - 0.1 4.8 - - 4.8 1.5 $ 3.9 $ 3.3 $ 4.3 $ 8.5 $ Weighted average shares outstanding - Basic Weighted average shares outstanding - Diluted Net profit per share Basic Diluted Adjusted EBITDA per share Basic Diluted 9.0M 8.8M 8.8M 7.9M 7.9M 7.9M 7.8M 7.8M 9.1M 8.9M 8.9M 8.0M 8.0M 7.9M 7.9M 7.8M $ 0.70 $ 0.40 $ 0.70 $ 0.40 $ 0.94 $ 0.93 $ 0.95 $ 0.92 $ $ $ $ 0.60 0.59 1.16 1.14 $ 0.55 $ 1.08 $ 0.54 $ 0.50 $ 0.43 $ 0.54 $ 1.08 $ 0.54 $ 0.49 $ 0.43 $ 1.04 $ 1.03 $ 0.86 $ 0.84 $ 0.73 $ 1.03 $ 1.02 $ 0.85 $ 0.84 $ 0.73 (1)No restatement performed in Fiscal 2019 or 2018 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. 26 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.Certain comparative figures have been reclassified to conform to the current year’s presentation whereby facilities expense have been reclassified into general and administration expense, and research and development expense in operating expenses have been separated from general and administration expense. With the implementation of IFRS 16, facilities expenses have decreased significantly since the Company has adopted the standard using the modified retrospective method where prior period statements are not restated. The fixed lease cost portion of previous lease expenses is now depreciation and interest under IFRS 16. Lease costs not capitalized under IFRS 16 have been included in general and administration expenses. The reclassification of facilities to general and admin by quarter was Q1 FY19: $1,293, Q2 FY19: $1,305, Q3 FY19: $1,346 and Q4 FY19: $1,362. The Company is presenting comparative information for fiscal 2019 with research and development as a separate line item in the statement of profit, whereas previously it was presented in general and administrative expenses. The reclassification of research and development from general and administration by quarter was Q1 FY19: $279, Q2 FY19: $361, Q3 FY19: $343 and Q4 FY19: $436. When reporting comparative information, there is no financial statement that the Company has issued where research and development are presented separately for fiscal year 2018 or previous. The Company maintains that presentation here for 2018 where research and development operating expense costs are included in the general and administration expense. The Company has included all changes that relate to contingent earnout in the changes in fair value related to contingent earnout for the current year. A reclassification is required for the prior year when management separated changes in earnout relating to interest in changes in fair value related to contingent earnout and writing down the provision for earnout payable to other changes in fair value line. The reclassification of other changes in fair value to changes in fair value related to contingent earnout by quarter was Q3 FY19: $650, Q4 FY19: $4,522. 27 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual ReportFourth Quarter Financial Summary This fourth quarter unaudited interim condensed consolidated financial summary should be read in conjunction with the annual financial statements along with accompanying notes thereto. Consolidated Statements of Net Profit For the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share data): Three months ended September 30, Year ended September 30, 2020 2019 2020 2019 Revenue Advanced Technologies $ 37,570 $ 31,437 $ 153,382 $ 109,697 Health Learning Information Technology Total Revenue Cost of revenues Gross profit Selling and marketing General and administration Research and development Profit before under noted items Depreciation of equipment, application software and research and development Depreciation of right of use asset Amortization of acquired intangible assets Other changes in fair value Changes in fair value related to contingent earn-out Profit before interest income and income tax expense Lease obligations interest expense Interest expense (income) Profit before income tax expense Income tax expense – current Income tax expense (recovery) – deferred Total income tax expense NET PROFIT Net profit per share: Basic Diluted 28 56,848 14,282 14,357 123,057 100,190 22,867 3,028 9,978 658 9,203 969 734 1,684 - 31,286 13,983 14,208 90,914 70,571 20,343 2,769 8,990 436 8,148 622 - 1,460 - 163,035 57,834 58,069 432,320 343,164 89,156 12,336 38,012 1,998 36,810 2,976 2,771 5,166 (101) 115,718 63,098 54,531 343,044 268,387 74,657 10,499 35,592 1,420 27,146 2,220 - 3,168 - (2,772) (4,225) (1,882) (4,149) 8,588 123 19 8,446 2,122 (562) 1,560 6,886 0.70 0.70 $ $ $ $ $ $ 10,291 27,880 25,907 - 50 10,241 1,982 (217) 1,765 8,476 475 185 27,220 8,171 (1,311) 6,860 $ 20,360 $ - 36 25,871 6,318 (439) 5,879 19,992 1.08 1.08 $ $ 2.25 2.23 $ $ 2.55 2.54 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd. Consolidated Statements of Cash Flows For the years ended September 30, 2020 and 2019 (Canadian dollars in thousands): CASH FLOWS GENERATED FROM (USED IN) OPERATING ACTIVITIES Net profit Items not affecting cash: Interest expense (income) Changes in fair value related to contingent earn-out Lease obligations interest expense Income tax expense Employee share purchase plan expense Share based compensation expense Depreciation and amortization Other changes in fair value Change in non-cash working capital Accounts receivable Work in process Prepaid expenses Inventory Accounts payable and accrued liabilities Unearned contract revenue Interest received (paid) Income tax recovered (paid) CASH FLOWS GENERATED FROM FINANCING ACTIVITIES Issuance of common shares Dividends paid Draw (repayment) on line of credit Share repurchases Payment of lease obligations CASH FLOWS USED IN INVESTING ACTIVITIES Investments and loan receivable Business acquisitions Capitalized research and development Equipment and application software Three months ended September 30, Year ended September 30, 2020 2019 2020 2019 $ 6,886 $ 8,476 $ 20,360 $ 19,992 19 (2,772) 123 1,560 78 279 3,387 - 9,560 7,256 (8,508) 1,225 (133) 2,233 (12,314) (681) (142) 1,059 236 1,589 (2,747) - - (656) (1,814) - (18,855) (107) (1,521) (20,483) 50 (4,225) - 1,765 37 322 185 (1,882) 475 6,860 199 1,163 2,082 10,913 - (101) 36 (4,149) - 5,879 173 1,182 5,388 - 8,507 38,172 28,501 3,140 (11,676) (12,501) (44,911) 6,334 (20,973) (1,395) 1,216 8,167 (1,806) 20,044 (127) (6,384) 13,533 3,316 (8,803) 13,000 (118) - 7,395 (1,271) (328) 17,251 4,501 1,738 (678) (3,813) (2,753) 70,488 (9,938) (13,000) - (2,508) 45,042 (100) - (29,288) (20,849) (1,227) (4,574) (1,768) (3,018) (35,189) (25,635) 1,173 (85) 4,479 (2,587) 2,126 (50) (1,409) 667 366 (2,235) 1,000 - - (869) - - (96) (552) (648) NET CASH (OUTFLOW) INFLOW CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD $ $ $ (22,061) $ (850) $ 7,100 46,296 24,235 $ 17,985 $ 17,135 $ 17,135 $ 24,235 $ $ $ (4,707) 21,842 17,135 29 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report The diluted weighted average number of shares has been calculated as follows: Three months ended September 30, Year ended September 30, 2020 2019 2020 2019 Weighted average number of common shares – basic 9,732,754 7,915,071 9,044,588 7,843,265 Additions to reflect the dilutive effect of employee stock options and RSU’s 122,603 43,722 59,910 20,096 Weighted average number of common shares – diluted 9,855,357 7,958,793 9,104,498 7,863,361 The following table presents the revenue of the Company for the years ended September 30, 2020 and 2019 (Canadian dollars in thousands): Product revenue Advanced Technologies Health Learning Information Technology Total product revenue Service revenue Advanced Technologies Health Learning Information Technology Total service revenue Three months ended September 30, Year ended September 30, 2020 2019 2020 2019 $ 26,420 $ 19,985 $ 109,532 $ 66,204 17,534 - 1,758 - - 25,184 - - - 1,713 8,357 3,549 $ 45,712 $ 21,698 $ 143,073 $ 69,753 $ 11,150 $ 11,452 $ 43,850 $ 43,493 39,314 14,282 12,599 31,286 13,983 12,495 137,851 115,718 57,834 49,712 63,098 50,982 $ 77,345 $ 69,216 $ 289,247 $ 273,291 Total revenue $ 123,057 $ 90,914 $ 432,320 $ 343,044 30 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd. Segmented information is as follows for three months ended September 30, 2020 (Canadian dollars in thousands): For the three months ended September 30, 2020 Advanced Technologies Health Learning IT Revenue Cost of revenues Gross profit Gross profit % Selling and marketing General and administration Research and development $ 37,570 $ 56,848 $ 14,282 $ 14,357 30,544 7,026 46,976 9,872 10,955 11,715 3,327 2,642 19% 17% 23% 18% 1,136 1,559 497 526 2,069 160 230 778 - 724 829 1 Shared Services - - - N/A 412 4,743 - Total $123,057 100,190 22,867 19% 3,028 9,978 658 Profit before under noted items $ 3,834 $ 7,117 $ 2,319 $ 1,088 $ (5,155) $ 9,203 Profit before under noted items % Depreciation of equipment and application software Depreciation of right of use asset Amortization of acquired intangibles Other changes in fair value Changes in fair value related to contingent earn-out Profit before interest income and income tax expense Lease interest expense Interest expense (income) Profit before income tax expense Income tax expense – current Income tax expense – deferred Total income tax expense 10% 13% 16% 8% N/A% 7% 969 734 1,684 - (2,772) $8,588 123 19 $8,446 2,122 (562) $1,560 31 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual ReportNET PROFIT FOR THE PERIOD $6,886 Segmented information is as follows for three months ended September 30, 2019 (Canadian dollars in thousands): For the three months ended September 30, 2019 Advanced Technologies Health Learning IT Revenue Cost of revenues Gross profit Gross profit % $ 31,437 $ 31,286 $ 13,983 $ 14,208 22,974 8,463 24,870 6,416 11,025 11,702 2,958 2,506 26% 21% 21% 18% Shared Services - - - - Selling and marketing General and administration Research and development 1,320 2,117 436 191 1,002 - 198 732 - 712 587 - 348 4,552 - Total $ 90,914 70,571 20,343 22% 2,769 8,990 436 Profit before under noted items $ 4,590 $ 5,223 $ 2,028 $ 1,207 $ (4,900) $ 8,148 Profit before under noted items % Depreciation of equipment and application software Depreciation of right of use asset Amortization of acquired intangibles Other changes in fair value Changes in fair value related to contingent earn-out Profit before interest income and income tax expense Lease interest expense Interest expense (income) Profit before income tax expense Income tax expense – current Income tax expense – deferred Total income tax expense NET PROFIT FOR THE PERIOD 15% 17% 15% 9% N/A 9% 622 - 1,460 - (4,225) $10,291 - 50 $ 10,241 1,982 (217) $ 1,765 $ 8,476 Certain comparative figures have been reclassified to conform to the current year’s presentation whereby facilities expense have been reclassified into general and administration expense, and research and development expense in operating expenses have been separated from general and administration expense. With the implementation of IFRS 16, facilities expenses have decreased significantly since the Company has adopted the standard using the modified retrospective method where prior period statements are not restated. The fixed lease cost portion of previous lease expenses is now depreciation and interest under IFRS 16. Lease costs not capitalized under IFRS 16 have been included in general and administration expenses. The reclassification of facilities to general and admin by quarter was Q1 FY19: $1,293, Q2 FY19: $1,305, Q3 FY19: $1,346 and Q4 FY19: $1,362. The Company is presenting comparative information for fiscal 2019 with research and development as a separate line item in the statement of profit, whereas previously it was presented in general and administrative expenses. The reclassification of research and development from general and administration by quarter was Q1 FY19: $279, Q2 FY19: $361, Q3 FY19: $343 and Q4 FY19: $436. When reporting comparative information, there is no financial statement that the 32 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.Company has issued where research and development are presented separately for fiscal year 2018 or previous. The Company maintains that presentation here for 2018 where research and development operating expense costs are included in the general and administration expense. The Company has included all changes that relate to contingent earnout in the changes in fair value related to contingent earnout for the current year. A reclassification is required for the prior year when management separated changes in earnout relating to interest in changes in fair value related to contingent earnout and writing down the provision for earnout payable to other changes in fair value line. The reclassification of other changes in fair value to changes in fair value related to contingent earnout by quarter was Q3 FY19: $650, Q4 FY19: $4,522. Calian consolidated results During 2020, the Company made significant progress on its growth, diversification and innovation agendas. Overall consolidated growth was 26%. The realization of double digit growth in our health and advanced technologies segments, along with single digit growth in out IT segment were partially offset by shortfalls experienced in segments where the effects of the COVID-19 business environment are felt more strongly. In 2020, we also signed numerous significant contracts totaling $554 million, ending the period with a realizable backlog of $1,307 million. This compares to a realizable backlog of $1,185 million at the beginning of the year. The Company has made progress in its efforts to diversify outside its traditional customer base of government entities. Revenue from government in 2020 was 53%, compared to 69% in the previous year. Revenue growth year over year for customers outside government was 90%. Revenue Gross profit Selling and marketing General and administration Research and development Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) $ 123,057 $ 22,867 3,028 9,978 658 90,914 20,343 2,769 8,990 436 $ 432,320 $ 343,044 89,156 12,336 38,012 1,998 74,657 10,499 35,592 1,420 Profit before under noted items $ 9,203 $ 8,148 $ 36,810 $ 27,146 (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. Revenue The Company experienced significant growth in revenue in its fourth quarter and fiscal year, increasing revenue by 35% in the three-month period and 26% for the twelve months ended September 30, 2020, compared to already record levels in the same periods of the prior year. Revenue growth in the three-month period ending September 30, 2020 can be attributed to 27% from organic growth, and 8% from acquisitions while revenue growth for the twelve month period ended September 30, 2020 can be attributed to 21% organic growth, and 5% from acquisitions. We measure our growth through acquisition on trailing 12-month basis; once the acquisition has been included in our results for 12-months, we include the contribution in our organic growth metric. Our Health segment saw the most significant growth in the quarter. Revenue increased 82% quarter over quarter, and 41% year over year. This was the result of strong demand on our existing contracts despite COVID-19, increases in scope for our existing contracts with the Government of Nunavut, a new contract to supply Mobile Respiratory Care Units with SNC-Lavalin PAE and contributions from Alio Health, acquired earlier this year. Advanced Technologies revenue grew by 20% in our fourth quarter when compared to the same period of the previous year, and 40% for the twelve months when compared to the previous fiscal year. This was the result of deliveries on the company’s largest ever satellite ground system project, and growth of its business into new market verticals. 33 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report During the three and twelve-month periods ended September 30, 2020, the Company has been impacted by the COVID-19 pandemic which resulted in the pause of certain projects which required on-site delivery. This was the case in our Health, IT and Learning segments where customer engagements were structured to be delivered in-person. In cooperation with our customers, the Company was able to resume activities with increased safety protocols, or develop alternative delivery models which respected local government health and safety restrictions. The financial impact of these temporary pauses in activity in contracts that otherwise would have continued was approximately $12,200 in revenue and $3,700 in gross margins for the full fiscal year. COVID-19 also impacted the business from demand perspective as certain customer groups reduced or deferred spending. This was seen in our fourth quarter as demand for our AgTech products was lower than expected in the pandemic context. The impacts of COVID-19 were also seen on our cost to deliver existing contracts in our satellite ground system business unit. Increased costs for travel and quarantine, availability of trained staff and delays in material resulted in increased costs. At this time, we expect this environment to continue into 2021 and we have reflected this in our project estimates. Despite the business impacts described, COVID-19 has generated new opportunities in our Health and Learning segments. We won $35,500 of new business related to governments and private enterprises responding to the pandemic, of which, $27,600 was delivered in the current year. Gross profit As can be seen in the detailed discussions of each segments performance, gross margin by segment vary greatly from 15% to 28% (see discussion by segment), and the mix of business in turn affects our consolidated gross margin. We continue to see a significant portion of revenues from the Advanced Technology segment come from large ground installation projects which typically have lower gross margins which has impacted margins in the current year. Margins have also been impacted by the pandemic, as the revenues lost were at our historical margin levels while new business won in our Health segment for Mobile Respiratory Care Units have lower gross margins. The volatility of the Canadian dollar is an influencing factor for gross margins on new work in the Advanced Technologies segment to the extent that work is denominated in foreign currencies and our direct costs are incurred in Canadian dollars. Operating expenses Selling and marketing costs increased 17% for the 12-month period ended September 30, 2020, compared to the same period of the prior year. The growth of selling and marketing costs is part of the Company’s efforts to diversify our customer base and enter new market verticals. Our recent acquisitions have also resulted in additional sales and marketing. COVID-19 did see us reduce our travel, and participation in trade shows and events due to social distancing measures and travel restrictions. General and administration costs increased by 11% for the three-month period and 7% for the twelve-month period ended September 30, 2020 compared to the same periods of the year. Implementation of IFRS 16 in the current period resulted in a reduction of facilities cost of $735 for the three-month period and $2,747 for the 12-month period ended September 30, 2020, with a similar increase in depreciation and interest expense. After adjusting for this modification, general and admin expenses increased by 19% for the three-month and 15% for the 12-month periods when compared to the same period in the previous year. The increase is the result of investments within the four operating segments to enable project delivery, increased costs for technology as our staff migrated to work from home, costs acquired through recent acquisitions, increased costs in relation to share equity plans and the one-time costs to complete the acquisitions of EMSEC Solutions, Comprehensive Training Solutions International, and Tallysman Wireless. Research and development costs increased $222 in the three-month and $579 for the 12-month periods ended 34 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.September 30, 2020, compared to the same periods in the prior year. The increase was the result of investments in our AgTech product development along with software development costs from our recent acquisitions. +40% $153 2020 Segment Revenue $99 $110 +11% 2018 $153.4M $21.0M Advanced Technologies Calian’s Advanced Technologies segment offers products, engineering services and solutions for the space, communications, nuclear, agriculture, defence and government sectors. Our covering capabilities software development, product development, custom manufacturing, full life-cycle support, studies, requirements analysis, project management, multi-discipline engineered system solutions, and training. With a presence across Canada and in Europe, the Advanced Technologies segment is a full-service organization offering turnkey solutions for industry-leading customers in North American, European and global markets. 2019 Revenue (millions) 2020 Segment EBITDA are wide-ranging, developed internally 2020 A supplier of communication systems and products for terrestrial and satellite networks, Calian operates a centre of excellence in communication ground systems for satellite and cable network operators around the world. We provide satellite gateways which can include large aperture radio frequency (“RF”) antennas, telemetry tracking and control, as well as high-availability software solutions for managing and monitoring these networks. The segment’s software tools enable network operators to manage, plan and analyze network resources, including satellite power and frequencies. With an international reputation for supporting space missions, we deliver custom communication solutions and systems engineering capabilities to customers in Canada and around the world. Calian’s manufacturing capability includes a surface mount electronics manufacturing line with automated inspection and X-ray. We offer a composite carbon fiber manufacturing capability as well as an extruded cable manufacturing line. These are complemented by engineering capabilities that support custom build-to-print manufacturing services for commercial and defence clients. Calian’s AgTech products and solutions are manufactured in-house for the agriculture sector, helping to protect assets such as stored crops, fuel and water. Calian’s engineering and technical services support clients across the system engineering process, including concept development for the design and implementation of next-generation critical systems and full life-cycle support for propulsion, electrical and electronic systems, computer systems, naval architecture, and aerospace and nuclear systems. Associated services are provided in integrated logistics support, drafting, and other technical services. Our nuclear services team develops and executes comprehensive and cost-effective waste management and decommissioning solutions, and provides a systematic approach to identifying hazards, determining their consequences, and providing recommendations to mitigate identified risks. The scope of our nuclear services includes decommissioning programs, radioactive waste management programs and remediation. Financial performance Revenue Gross profit Selling and marketing General and administration Research and development Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) $ 37,570 $ 31,437 $ 153,382 $ 109,697 7,026 1,136 1,559 497 8,463 1,320 2,119 436 33,991 4,995 6,457 1,536 30,628 4,934 7,750 1,420 Profit before under noted items $ 3,834 $ 4,588 $ 21,003 $ 16,524 (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. 35 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report In 2020, Advanced Technologies’ revenues increased by 20% for the three-month and 40% for the 12-month periods ended September 30, 2020 compared to the same periods in the previous year. This continued revenue growth in the current year is attributable to ongoing ground systems projects, increases in volumes of a new mobile wireless product for a Tier 1 North American mobile operator, contract manufacturing for various defence projects, and increases due to an ongoing satellite gateways software systems project. Internally developed product sales continue to be a focus for the Company, contributing positively to revenue growth and higher margins in the future. Acquisitive revenue growth amounted to 3% for the three-month and 4% for the 12-month periods ended September 30, 2020 which is attributable to revenue from acquisitions made in the last 12 month period from September 30, 2020. During the quarter, margins were negatively impacted as higher costs for delivery and installation were seen on our large North American satellite ground system project. The environment is resulting in increased costs for travel and quarantine, availability of trained staff and delays in material resulted in increased costs. We expect this to continue in the near future and have reflected this cost in our project costs which had a negative impact on the segment’s gross margins. Gross margin percentage has decreased from 27% to 19% for the three-month period, and from 28% to 22% in the twelve-month period ended September 30, 2020 when compared to the same periods of the prior year. During the quarter, the Advanced Technologies segment was impacted by COVID-19 in three main areas. First the demand from our Fuel Lock product did not have the market penetration that we wanted due to travel restrictions and trade show cancellations hindering our marketing efforts, along with the Agriculture industry tightening their spending out of COVID-19 fears. Secondly, the ground systems projects have experienced additional costs due to additional challenges introduced by COVID-19 mentioned previously and resulted in the company re-assessing its cost to complete current ground system projects. This not only has a direct impact on the gross margin of the project, but also impacts revenues as projects are recognized over time using the input method as costs are incurred. Finally, throughout the segment we have seen projects that would have ultimately been delivered on time being delayed which push out the revenue and margin into the next fiscal year. Total COVID-19 impacts have resulted in revenue decrease of approximately $1,300 and $1,500 of gross profit for the quarter, and approximately $1,750 in revenue and $1,600 in gross margin for the twelve month period ended September 30, 2020. Selling and marketing expenses decreased by $184 for the three-month period ended September 30, 2020, compared to the same period in the year prior. Decreases in the current quarter can be attributable to the ongoing COVID-19 Pandemic, where travel restrictions and conferences have been delayed or cancelled. Increase in year to date expenses when compared to the prior year is due to additional sales efforts across the segment focused on customer diversification. General and administration expenses decreased by 26% for the three-month period, and 17% for the twelve-month period ended September 30, 2020, compared to the same periods in the year prior due to changes in estimates of amounts payable, reductions from streamlining certain processes, and a focus on arbitrary spend to offset lost revenues and margin due to the pandemic while being slightly offset by increases in revenue from acquisitions. Profitability decreased for the three-month period ended September 30, 2020 due to lower gross margin percentage compared to the previous year. For the twelve-month period ended September 30, 2020, profitability for the Advanced Technologies segment increased due to higher volumes and lower operating expenses, offset by a lower gross margin percentage. Fourth quarter and fiscal year 2020 highlights Throughout the 2020 year, the Advanced Technologies segment focused on ensuring business continuity of service for our customers in light of significant changes in the business environment due to COVID-19 as most services provided are considered essential. Efforts to maintain workflow and minimize service interruptions included enhanced close contact with supply chains, remote working for most staff, and implementation of health and safety measures at the manufacturing facilities (staggered shifts, dispersed workstations, increased cleaning and sanitation, among other measures). The majority of work continued relatively unabated throughout the year, but the various changes mentioned did result in a higher cost environment. Any project disruptions are expected to be recovered in future quarters. Limitations on travel will continue to be a factor in our ability to deliver and complete system implementations. On June 16, 2020, the Company announced the release of the Decimator D4 spectrum analyzer product. This is the 36 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.fourth generation of a previously successful product for the Advanced Technologies segment which is designed to monitor radio frequency communications and detect signal issues. Powered by a new signal processing engine, the Decimator D4 demodulates and decodes satellite signals, allowing a deeper inspection and analysis of the signals than a traditional spectrum display. The feature proactively identifies issues in the network before they manifest as a failure. The Engineering Technical Services unit was impacted by the COVID-19 customer site shutdowns early in the pandemic, but has successfully moved to a remote delivery platform and which has resulted in a subsequent increase in revenue up to the end of the year. Calian Nuclear’s work continued on existing contracts without disruption. The nuclear consulting team has started delivery on a new contract to conduct a large-scale, interoperable emergency preparedness exercise and safety analysis work with a nuclear power station. On September 1, 2020 the Company acquired Tallysman Wireless Inc. a leading manufacturer of precision Global Navigation Satellite Systems (GNSS) antennas, and related components. Tallysman designs, manufactures and sells a very wide range of GNSS, Iridium and Globalstar antennas and related products into a market with a broad range of vertical applications that include precision reference systems, survey, timing, precision agriculture, unmanned and autonomous vehicles, marine and many more. Tallysman also produces cloud-based wireless tracking systems over two-way radio systems and 4G category M cellular systems, for applications ranging from school buses to municipal public works. +41% $163 +17% $116 $99 2018 2019 Revenue (millions) 2020 Health 2020 Segment Revenue 2020 Segment EBITDA $163.0M $23.4M Calian’s health services team is one of Canada’s largest national health services organizations. The segment manages a network of more than 1,800 health care professionals delivering primary care and occupational health services to public and private sector clients across Canada. The Department of National Defence is our largest customer, with health and psychological services also provided to police, correctional institutions and border services agencies in the Canadian market. Primacy, Calian’s medical property management brand, supports over nine million patient visits per year at over 150 clinic locations across Canada. Primacy clinics are located in Loblaw grocery stores across the country (including Real Canadian Superstore®, Zehrs®, Loblaws® and No Frills®). Our Health team recently entered the pharmaceutical trial management and administering patient support programs on behalf of large Canadian pharmaceutical companies, through the acquisition of Alio and Allphase. Financial performance Revenue Gross profit Selling and marketing General and administration Research and development Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) $ 56,848 $ 31,286 $ 163,035 $ 115,718 9,872 526 2,069 160 6,416 191 1,002 - 32,370 1,699 6,815 460 23,211 767 3,948 - Profit before under noted items $ 7,117 $ 5,223 $ 23,396 $ 18,496 (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. 37 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report Revenues increased 82% for the three-month and 41% for the twelve-month periods ended September 30, 2020 when compared to the same periods of the previous year as a result of new contract wins for fast turnaround in relation to the COVID-19 Pandemic, and acquisitive revenue. Acquisitive growth represented a 20% increase for the three-month and 12% for the twelve-month periods ended September 30, 2020 when compared to the same periods of the prior year. The Company has seen increased demand from new and existing opportunities in our clinician services and services to remote locations in Northern Canada, and significant growth year-over-year from the delivery for SNC-Lavalin PAE and government customers for medical screening for travelers. Health was able to win considerable new business during the pandemic. This included a $30 million contract with SNC Lavalin-PAE as well as multiple engagements to carry out screening for private enterprises. During the quarter, the Health segment saw delays and shutdowns in certain projects due to the impact of COVID-19 which negatively affected both revenue and margin. The impact of those temporary pauses were a decrease of approximately $600 in revenue for the three-month period, and approximately $4,250 in revenue and $770 in gross margin for the twelve-month period ended September 30, 2020. Gross margin percentage decreased from 20% to 17% for the three-month, and has remained constant at 20% for the twelve-month periods ended September 30, 2020 when compared to the same periods of the prior year. The decrease in the current quarter was due to the lower margin profile on the contract to deliver mobile hospitals in response to COVID-19. Excluding this one-time item, margins overall for the fiscal year have improved by 3% as compared to the previous year. Selling and marketing expenses increased by $335 for the three-month and $932 for the twelve-month periods ended September 30, 2020 due to costs in our Alio and Allphase pharmaceutical business unit, and variable compensation costs. General and administration expenses increased by $1,067 for the three-month and $2,867 for the twelve- month periods ended September 30, 2020 when compared to the same periods of the prior year, due to increases in headcount to support new contracts and new headcount from our acquisitions completed in the previous 12 months. Research and development increased in the Health segment is the result of continued investment in our HOME software used extensively in the delivery of our patient support programs for pharmaceutical customers. Fourth quarter and fiscal year 2020 highlights During the year, the Health segment experienced increased demand in the provision of essential primary care services and health care equipment, largely related to COVID-19 health care needs. Non-primary health services workload were adjusted to comply with social distancing guidelines. Health saw significant growth in our contract with the Government of Nunavut. The segment provides a comprehensive suite of nursing services across multiple sites. During the quarter, we saw a significant increase in their need for nursing services as they managed their COVID-19 response. Health saw a 100% increase in the revenues attributable to the Government of Nunavut in the last quarter which demonstrates the satisfaction levels of the customer. Customer satisfaction has been a staple for the Health segment over the years with long-standing contracts with customers. This includes the contract with DND for the provision of health care providers which was won in 2017, and was a continuation of services from the previous contract held from 2005 to 2018. In the current year, the Health segment obtained record high performance management framework scores on the contract, which has resulted in the highest performance incentive fee in relation to the contract to-date. Customer diversification was also demonstrated in the quarter with the SNC-Lavalin PAE Joint Venture contract win to support the delivery of up to ten 100-bed Mobile Respiratory Care Units (MRCUs) for the Government of 38 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.Canada’s pandemic response efforts. Deliveries of approximately $25 million have been made in the fiscal year with the remaining scheduled to be delivered in the first quarter of fiscal 2021. This opportunity demonstrates the Health segment’s ability to generate new business through difficult times. This is our first entry into the resiliency services market, and launches a relationship which may prove strategic to the segment’s evolution. Alio Health, Calian’s second quarter acquisition, contributed significant growth as it added new pharmaceutical programs to its existing base. With the launch of “PSP One” for a large Canadian pharmaceutical company, which is the consolidation of all of the Pharmaceutical Company’s patient support programs (“PSP”) with a single partner. Wins in the energy sector across provinces of Alberta, British Columbia, and Saskatchewan over 8 locations will continue throughout the COVID-19 Pandemic and help in offsetting some of the lost revenues from the Pandemic’s impact on the segment. Primacy, Allphase Clinical Research Services, and Alio Health Services continued to provide essential services with steady demand and minimal disruptions to operations. Learning $62 $58 +2% -8% $63 2020 Segment Revenue Calian is a trusted provider of specialized training services and solutions for the Canadian Armed Forces and clients in the defence, health, energy and other sectors. We enable clients to improve competency and validate learning plans and team performance. Calian provides consulting services in emergency management, training and advanced training technologies to federal and provincial governments, municipalities, Indigenous communities, and the private sector, primarily in domestic markets. Learning offers full-service training programs and services ranging from needs analysis and program design, development and delivery to administration and evaluation. Our goal for clients is to shorten the student’s time-to-competency. Calian’s training consulting services help clients achieve learning outcomes and optimize their workforce. $57.8M $8.6M 2019 Revenue (millions) 2020 Segment EBITDA 2018 2020 Complementing our training services are our products and technology. Calian MaestroEDE™ is a tool used to design, develop and deliver high-fidelity, collective training exercises for military customers; Calian ResponseReady™ is an online platform and simulation tool that supports emergency management training exercise delivery and evaluation. Financial performance Revenue Gross profit Selling and marketing General and administration Research and development Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) $ 14,282 $ 13,983 $ 3,327 230 778 - 2,958 198 731 - $ 57,834 12,451 987 2,882 - 63,098 12,535 910 2,838 - Profit before under noted items $ 2,319 $ 2,029 $ 8,582 $ 8,787 (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. 39 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report Revenue increased by 2% for the three-month and decreased by 8% for the twelve-month periods ended September 30, 2020 when compared to the same period of the prior year due to the impact of the COVID-19 pandemic. The three-month growth is directly related to acquisitive growth. COVID-19 had a significant impact for programs that required in-person training exercises, and in-class learning environments. As much as possible, the Company has worked with customers to find alternative approaches to maintaining continuity of service and as of June, many of the engagements that had to be paused have returned to work with new regulations to maintain safety of the instructors and students. The impact to the learning segment in the current year due to the pandemic has resulted in revenue decrease of approximately $480 and $90 of gross margin, respectively, for the three-month period, and approximately $5,050 in revenue and $975 in gross margin for the twelve-month period ended September 30, 2020. Gross margin increased from 21% to 23% for the three-month period and 20% to 22% for the twelve-month periods ended September 30, 2020 due to a focus on margin efficiency for ongoing projects and some of the COVID-19 impact being on lower margin work. Operating costs remained in line with previous periods. Fourth quarter and fiscal year 2020 highlights Early in the year, the Learning segment won a contract for the Region of Peel to develop a wastewater emergency response plan and a flood response plan. Calian Emergency Management Solutions will provide the Region of Peel with engineering, security and emergency management expertise and lead a team of specialists to conduct risk and vulnerability assessments, develop site-specific, facility-based response plans and procedures, and design and facilitate a comprehensive training program. In similar recent projects, Learning segment experts have assisted the Province of New Brunswick, City of Ottawa and City of Nanaimo with after-action reviews, and City of Whitehorse with a hazard, risk and vulnerability assessment. On April 28, 2020, the Company was awarded a contract renewal for custom training with the Canadian Forces School of Aerospace Technology and Engineering. The contract is valued at $54 million over a six-year period. This continues the engagement from our previous contract which began in 2016, and continues the relationship with the Canadian Forces School of Aerospace Technology and Engineering who has been a partner of Calian’s for over 10 years. On June 17, 2020, through the Learning segment, Calian has expanded its product catalogue with the launch of ResponseReady™ for exercise simulation and training. ResponseReady™ is a licensed software solution for the design, delivery and evaluation of emergency exercises and training. The software solution is applicable to the work of emergency management professionals responsible for situations such as floods, wildfires and pandemics; communications personnel who manage public response during a crisis; experts mandated with maintaining critical infrastructure safety such as that of nuclear power facilities; or enterprise IT teams responsible for business continuity related to cyber security threats. On July 8th, 2020 the Company acquired Custom Training Solutions AS (“CTS”), a boutique training firm based in Stavanger, Norway to expand its customer base and geographical reach. CTS designs, develops and delivers complex training exercises for the Joint Warfare Centre (JWC), a multi-national and multi-service organization of NATO, and the wider NATO audience across Europe. Overall, Learning was greatly impacted by COVID-19 and temporary restrictions imposed by governments across Canada. However, through the impacts of the pandemic, the segment has won significant work, and expanded geographically along with customer base through acquisition closed in the year, which well positions the segment looking out into fiscal year 2021. 40 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.Information Technology +22% +6% $55 $58 $45 2018 2019 Revenue (millions) 2020 2020 Segment Revenue 2020 Segment EBITDA $58.1M $4.8M Calian’s IT services support customer requirements for subject matter expertise in the delivery of their complex IT solutions. With a primary focus on cloud migration, IT development, support services, SAP consulting and cyber security solutions, Calian supports customers at all levels of government and the private sector in the domestic market. Calian Cyber Security Solutions provides public and private sector organizations with the right people, processes and technology to build actionable plans and keep their environments safe and secure. Financial performance Revenue Gross profit Selling and marketing General and administration Research and development Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) $ 14,357 $ 14,208 $ 2,642 724 829 1 2,506 712 586 - 58,069 10,344 2,770 2,785 2 $ 54,531 8,283 2,219 2,497 - Profit before under noted items $ 1,088 $ 1,208 $ 4,787 $ 3,567 (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. Revenues were up by 1% for the three-month period, and increased by 6% in the twelve-month period ended September 30, 2020 compared to the same periods of the previous year. The increase in the fourth quarter is attributable to recent acquisitions. The annual revenue growth is the result of increased demand from existing customers for cyber security products, increase revenue attributable to maintenance revenue in relation to higher product sales from the previous quarters, and an increase in service delivery for IT professional services across a number of existing customers. Gross margin is consistent for the three-month period and increased from 15% to 18% in the twelve-month period ended September 30, 2020 when compared to the same period of the previous year due to higher product sales, and focus on higher margin activities in cyber security. 41 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report During the quarter, the Information Technology segment saw continued delays with certain projects which were impacted in the second quarter of 2020 through customers premises shutting down which led to the inability to deliver certain services all due to the impact of COVID-19. In the year ended September 30, 2020, this has resulted in revenue decreases of approximately $260 in revenue and $30 of gross margin, respectively, for the three-month period and approximately $2,100 in revenue and $280 in gross margin for the twelve-month period ended September 30, 2020. Selling and marketing expense increased by $551 for the twelve-month period ended September 30, 2020 when compared to the same period of the previous year. This was the result of increased investment in our sales headcount and business development in existing and new geographies. General and administrative expenses have increased by $243 in the three-month and $288 in the twelve-month periods ended September 30, 2020 due to increased supporting headcount to support the growth in number of contracts and delivery requirements to end customers. Fourth quarter and fiscal year 2020 highlights The majority of Information Technology’s revenues comes from large, stable customers. Some projects were scaled back during the previous quarters due to work-from-home measures and school closures, which impacted billings. The team has been working with customers to successfully make work-from-home arrangements for many staff and projects, which has resulted in recapture of revenues lost. Through the group’s efforts and alteration of delivery method, 97% of the work that was impacted due to COVID-19 is back to full delivery at pre-pandemic levels by year end. In the first quarter the cyber security practice won a substantial contract with Shared Services Canada to support the expansion of the customer’s data centre consolidation initiative. We continue to generate new customers and business in existing customers across the service line, but especially in the cyber security offerings. The segment continues to invest in delivery of services, implementing best-in-breed cyber security solutions in new geographies and with new customers. On May 15, 2020 the Information Technology segment has secured a $22 million cyber security defence contract with the Department of National defence for service delivery over the next three years. This re-win demonstrates the Company’s focus on customer retention. On July 14 the Company acquired EMSEC Solutions Inc. (“EMSEC”), a boutique firm specializing in radio frequency (RF) emission security and technical surveillance countermeasures located in Ottawa, Canada who will expand the current cyber product and service offering at Calian. Emissions security relates to the control and prevention of unintentional electrical and electromagnetic emissions that can disclose sensitive or classified information. EMSEC provides technical and professional services including TEMPEST products and other mitigation techniques such as facility zoning (physical distancing, building modifications, separation of IT systems, and other measures). This specialized field is growing as organizations increasingly see a need to protect intellectual property. The Information Technology segment although impacted greatly in March and April due to temporary lockdown measures by the Government of Canada, moved swiftly to shift customer delivery, and focused on margin efficiency. This has resulted in overall record revenue and margin percentage for the year ended September 30, 2020. Summary In summary, 2020 was a year of focused efforts and a demonstration of the Company’s delivery in a challenging environment. The Company entered 2020 with a strong backlog of work, and successfully added $554M of new contracts during the year to maintain its backlog position. The Company diversified its customer base and grew its non-government business by 90%. Our organic growth in FY20 was 21%. We continue to invest in research and development and sales capacity in order to support further organic growth. 42 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.Growth through acquisitions continues to be a focus. We completed four M&A transactions this year, with three of them closing during our fourth quarter. All of these transactions bring new products and services in three new customer verticals which we did not participate in previously (Emissions security, GNSS antennas and pharmaceutical health services). COVID-19 presented us with new challenges. Contracts that otherwise would have continued uninterrupted were paused in the spring due to stay-at-home measures. It also changed our operating environment in our Advanced Technology segment which resulted in higher costs. These factors resulted in revenue and gross profit impacts of approximately $1,475 and $1,600, respectively, in our fourth quarter due to the impacts of COVID-19. On a year- to-date basis ending September 30, 2020, revenue and gross profit impacts due to COVID-19 are approximately $13,200 and $3,775, respectively. COVID-19 also presented an opportunity to provide our expertise to respond to this pandemic. Our Health segment was able to win $35M in new business directly related to the health response in Canada. Calian is a diverse company which has consistently demonstrated the ability to manage this diversity and provide excellent returns for our shareholders. Under our strategic framework, each segment of the company has the ability, capacity and management focus to control and manage their respective business segment. We are an innovative company, proudly Canadian, and focused on sustaining our positive momentum into the next fiscal year. Reconciliation of non-GAAP measures to most comparable IFRS measures These non-GAAP measures are mainly derived from the consolidated financial statements, but do not have a standardized meaning prescribed by IFRS; therefore, others using these terms may calculate them differently. The exclusion of certain items from non-GAAP performance measures does not imply that these are necessarily nonrecurring. From time to time, we may exclude additional items if we believe doing so would result in a more transparent and comparable disclosure. Other entities may define the above measures differently than we do. In those cases, it may be difficult to use similarly named non-GAAP measures of other entities to compare performance of those entities to the Company’s performance. Management believes that providing certain non-GAAP performance measures, in addition to IFRS measures, provides users of the Company’s financial reports with enhanced understanding of the Company’s results and related trends and increases transparency and clarity into the core results of the business. Adjusted EBITDA excludes items that do not reflect, in our opinion, the Company’s core performance and helps users of our MD&A to better analyze our results, enabling comparability of our results from one period to another. The weighted average shares outstanding over the period presented increased largely because of equity financing in the twelve-month period ended September 30, 2020. The equity financing closed in February 2020 resulted in an additional 1,568,600 common shares being issued. Along with other equity transactions throughout the year, the total common shares outstanding grew from 7,929,238 at September 30, 2019 to 9,760,032 as at September 30, 2020. The fully diluted weighted average shares outstanding increased to 9,855,357 for the three-month period and 9,104,498 for the twelve-month period ended September 30, 2020 when compared to 7,965,442 and 7,863,361, respectively, for the same periods of the previous year. 43 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual ReportAdjusted EBITDA Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) Net profit $ 6,886 $ 8,476 $ 20,360 $ 19,992 Depreciation of equipment, application software and R&D Depreciation of right of use asset Amortization of acquired intangible assets Lease interest expense Changes in fair value related to contingent earn-out Deemed compensation Interest expense (income) Other changes in fair value Income tax Adjusted EBITDA 969 734 1,684 123 622 - 1,460 - (2,772) (4,225) - 19 - 1,560 9,203 $ - 50 - 1,765 8,148 $ 2,976 2,771 5,166 475 (1,882) - 185 (101) 6,860 $ 36,810 $ 2,220 - 3,168 - (4,149) - 36 - 5,879 27,146 (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. Adjusted net profit and adjusted EPS Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) Net profit $ 6,886 $ 8,476 $ 20,360 $ 19,992 Other changes in fair value Changes in fair value related to contingent earn-out Deemed compensation Amortization of intangibles Adjusted net profit $ Weighted average number of common shares basic Adjusted EPS Basic Adjusted EPS Diluted - (2,772) - 1,684 5,798 $ - (4,225) - 1,460 5,711 (101) (1,882) - 5,166 - (4,149) - 3,168 $ 23,543 $ 19,011 9,732,754 7,915,071 9,044,588 7,843,265 0.60 0.59 0.74 0.73 2.60 2.59 2.43 2.41 (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. The Company uses adjusted net profit and adjusted earnings per share, which remove the impact of our acquisition amortization and gains, resulting in accounting for acquisitions and changes in fair value to measure our performance. These measurements better align the reporting of our results and improve comparability against our peers. We believe that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation 44 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd. of issuers. Management also uses non-GAAP measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital expenditure and working capital requirements. Adjusted profit and adjusted earnings per share are not recognized, defined or standardized measures under the International Financial Reporting Standards. Our definition of adjusted profit and adjusted earnings per share will likely differ from that used by other companies (including our peers) and therefore comparability may be limited. Non-GAAP measures should not be considered a substitute for or be considered in isolation from measures prepared in accordance with International Financial Reporting Standards. Investors are encouraged to review our financial statements and disclosures in their entirety and are cautioned not to put undue reliance on non-GAAP measures and view them in conjunction with the most comparable International Financial Reporting Standards financial measures. The Company has reconciled adjusted profit to the most comparable International Financial Reporting Standards financial measure as shown above. Consolidated net income and other selected financial information Profit before under noted items Depreciation of equipment and application software Depreciation of right of use asset Amortization of acquired intangible assets Other changes in fair value Changes in fair value related to contingent earn-out Profit before interest income and income tax expense Lease interest expense Interest expense (income) Income tax expense Net profit $ Net profit per share, basic Total assets Dividends per share Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) $ 9,203 $ 8,148 $ 36,810 $ 27,146 $ 969 $ 622 $ 2,976 $ 2,220 734 1,684 - - 1,460 - 2,771 5,166 (101) - 3,168 - (2,772) (4,225) (1,882) (4,149) $ 8,588 $ 10,291 $ 27,880 $ 25,907 123 19 1,560 6,886 0.70 331,053 0.28 $ - 50 1,765 8,476 1.08 195,026 0.28 475 185 6,860 - 36 5,879 $ 20,360 $ 19,992 2.25 331,053 1.12 2.55 195,026 1.12 (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. Depreciation increased by 56% in the three-month and 34% in the twelve-month periods ended September 30, 2020 when compared to the same periods in the year prior due to higher balances of assets across the organization, depreciation of the capitalized research and development asset which began in the current year, and capital expenditures to sustain the Company’s growth. Depreciation of right of use assets is the result of adopting IFRS 16 at the beginning of the current period. Further information regarding the lease accounting and depreciation can be found in the first quarter 2020 financial statements in notes 3 and 12. 45 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report Amortization increased by $224 in the three-month and $1,998 in the twelve-month periods ending September 30, 2020 when compared to the same periods of the previous year due to acquisitions in the prior year of Intragrain and SatService which have a full year of amortization in the current year, along with the current year acquisitions of Alio and Allphase, Comprehensive Training Solutions, EMSEC Solutions, and Tallysman Wireless as described in note 26 to the financial statements. Other changes in fair value for the twelve-month period ended September 30, 2020 represent a gain on fair value of the Cliniconex investment as described in note 13 of the Financial Statements. The gain on changes in fair value related to contingent earn-outs decreased by $1,453 in the three-month and $2,267 in the twelve-month periods ended September 30, 2020 when compared to the same periods of the previous year. The gains represent the Company derecognizing liabilities for earnout targets that are not going to be achieved by the acquisitions. The targets are based on achievement of EBITDA levels for annual periods to which IntraGrain and Satservice are not likely to achieve. The acquisitions both attributed positive EBITDA in the annual period, but not at the level that was negotiated upon at the time of acquisition. The acquisitions were also impacted by COVID-19 impacts on sales and marketing efforts in order to bring products into expanded geographical markets, and impacted delivery ability on international products due to travel restrictions. This is offset by accruing interest charges relating to present valuing of the earnout liabilities for Allphase/Alio, Comprehensive Training Solutions, EMSEC Solutions, and Tallysman Wireless, along with recognition of a loss relating to Allphase/Alio for liabilities not accrued for at the acquisition date. For further information refer to notes 26 and 27 of the Financial Statements. Interest income increased in the twelve-month period ended September 30, 2020 due to GIC balances held by the Company in the year, whereas interest income was offset in the prior year by interest expenses due to the Company’s use of a line of credit. Finally, the Company reports its results on a fully taxed basis. The provision for income taxes for the three-month period ended September 30, 2020 was $1,560, or 27.5% of earnings before income taxes adjusted for non-taxable items compared to the $1,765, or 29.3% of earnings before income taxes in the same period of the previous fiscal year. The provision for income taxes for the twelve-month period ended September 30, 2020 was $6,860, or 27.1% of earnings before income taxes adjusted for non-taxable items compared to the $5,879, or 27.1% of earnings before income taxes in the same period of the previous fiscal year. The difference in effective tax rates is primarily due to the increase in non-taxable items in the statement of profit and loss including intangible amortization and changes in fair value related to contingent earnout amounts. Backlog The Company’s realizable backlog at September 30, 2020 was $1,307 million with terms extending to fiscal 2030. Contracted backlog represents maximum potential revenues remaining to be earned on signed contracts, whereas option renewals represent customers’ options to further extend existing contracts under similar terms and conditions. During the three-month period ended September 30, 2020 the following contracts were the major contributors to the Company’s backlog. These contracts are further described in the business overview section of this Management Discussion and Analysis. • $15 million Defence Research and Development Canada contract win to support the Center for Security Science • $14 million in added backlog from recent acquisitions • $13.5 million contract signing for a patient support program with the Canadian division of a Global pharmaceutical company • $5 million IT consulting services contract amendment with an existing customer • $5 million contract renewal with DND in supporting the Royal Canadian Air Force through Training Delivery and Concept Development services There were no contracts which were cancelled unexpectedly that would have resulted in a significant decrease in our backlog. Most fee-for-service contracts provide the customer with the ability to adjust the timing and level of effort throughout 46 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.the contract life and as such the amount actually realized could be materially different from the original contract value. The following table represents management’s best estimate of the backlog realization for fiscal year 2021, fiscal year 2022 and beyond based on management’s current visibility into customers’ existing requirements. Management’s estimate of the realizable portion (current utilization rates and known customer requirements) is less than the total value of signed contracts and related options by approximately $284 million. The Company’s policy is to reduce the reported contractual backlog once it receives confirmation from the customer that indicates the utilization of the full contract value may not materialize. Contract backlog as of September 30, 2020 Contracted backlog Option renewals Management estimate of unrealizable portion Estimated Realizable Backlog Estimated recognition of estimated realizable backlog $ $ $ 740,254 851,552 1,591,806 (283,848) 1,307,958 October 1, 2020 to September 31, 2021 October 1, 2021 to September 30, 2022 Beyond September 30, 2022 Total Advanced Technologies $ 97,563 $ 35,367 $ 10,437 $ 143,367 Health Learning Information Technology 151,641 56,524 33,800 136,960 47,708 14,833 533,968 171,877 17,281 822,569 276,109 65,913 Total $ 339,528 $ 234,868 $ 733,562 $ 1,307,958 Statement of cash flows Cash flows from operating activities before changes in working capital Changes in non-cash working capital Cash flows from (used in) operating activities Cash flows from (used in) financing activities Cash flows from (used in) investing activities Three months ended Year ended September 30, 2020 September 30, 2019(1) September 30, 2020 September 30, 2019(1) $ 10,477 $ 7,048 $ 33,681 $ 28,501 (10,241) (6,381) (36,434) (14,968) 236 (1,814) (20,483) 667 (869) (648) (850) (2,753) 13,533 45,042 7,395 (35,189) (25,635) $ 7,100 $ (4,707) Increase (decrease) in cash $ (22,061) $ (1)No restatement performed in Fiscal 2019 figures due to the entity applying the modified retrospective approach on implementation of IFRS 16 which occurred in fiscal 2020. 47 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Report Operating activities Cash inflows from operating activities for the three-month period ended September 30, 2020 were $236 compared to cash inflows of $667 in the same period of the prior year. On a twelve-month basis, cash outflows total $2,753 for the period ended September 30, 2020 when compared to inflows of $13,533 for the same period in the prior year. Working capital (accounts receivable, work in process, inventory, prepaid expenses and other, accounts payable and accrued liabilities, provisions and unearned contract revenue) impacted cash flows by a reduction of $10,528 in the three-month period ended September 30th, and stood at a net balance of $91,563. Amounts owed from customer increased by $19,000 driven by the growth in revenue. Our ongoing large North American ground system project was $8,000 of this increase. We were able to offset this by an improvement in the USD/CAD foreign exchange rate of $1,500, government programs which allowed us to defer tax payments into future periods of $1,100 and improved collections of older receivables and management of our accounts payables of $6,000. Financing activities Lease payments The Company has made payments of $656 for the three-month and $2,508 for the twelve-month periods ended September 30, 2020 due to the implementation of IFRS 16 in the current year. Dividend The Company has maintained its dividend for the three and twelve-month periods ended September 30, 2020. The Company paid dividends totaling $2,747 for the three-month period ended September 30, 2020 or $0.28 cents per share, and $9,938 for the twelve-month period then ended, or $1.12 cents per share compared to the same periods of the prior year when the Company paid $2,235 and $8,803, respectively, in dividends or the same amount per share as the current periods. The increase in dividends paid is due to a higher number of common shares outstanding year over year. Debt In the three-month period ended September 30, 2020, the Company had no activity in relation to its debt facility, this compares to a draw on the facility of $1,000 in the same period of the prior year. In the twelve-month period ended September 30, 2020, the Company repaid the Revolving Credit Facility in its entirety, which amounted to a cash outflow of $13,000, when compared to a cash inflow of $13,000 from utilizing the facility in the same period of the previous year. Shares On February 25, 2020 the Company completed an upsized public offering, under which a total of 1,568,600 Common Shares were sold at a price of $44.00 per Common Share for aggregate gross proceeds of $69,018, including shares issued pursuant to the exercise in full of the over-allotment option granted to the Underwriters. Net cash proceeds after commissions and issuance costs were $64,713. Exercises of stock options and issuances of shares under the employee share purchase plan has resulted in cash inflows of $1,589 for the three-month period ended September 30, 2020 when compared to an inflow of $366 for the same activities in the same period of the prior year. In the twelve-month period ended September 30, 2020, the cash inflow from stock option exercises and issuances of shares under the employee share purchase plan amounted to $5,775, when compared to an inflow of $3,316 for the same period of the prior year. 48 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.Investing activities Equipment expenditures and capitalized research and development The Company invested $1,521 in the three-month and $4,574 in the twelve-month periods ending September 30, 2020, when compared to $552 and $3,018, respectively, for the same periods of the prior year. Acquisitions of equipment in the current period are mainly attributed to the beginning stages of the Company’s ERP implementation and general capital expenditures. The Company invested $107 in capitalized research and development in the three-month and $1,227 in the twelve- month periods ending September 30, 2020, when compared to $96 and $1,768, respectively, for the same periods of the prior year. Acquisitions The company acquired Allphase/Alio, Comprehensive Training Solutions, EMSEC Solutions, and Tallysman Wireless along with making payment for earn out amounts related to the acquisition of Secure Technologies which resulted in a total cash outflow of $29,288 in the twelve-month period ended September 30, 2020. For the same period of the prior year, the Company acquired IntraGrain and Satservice, and made earn out payments to ISR resulting in cash outflows relating to acquisitions of $20,849. Investments A $100 minority investment was made in the nine-month period ended September 30, 2020 in Cliniconex as described in Note 13 of the Financial Statements, whereas there were no investment outflows for the same period of the prior year. Liquidity and capital resources Cash Calian’s cash and cash equivalent position was $24,235 at September 30, 2020, compared to $17,135 at September 30, 2019, with a cash net of debt position of $24,235 at September 30, 2020 when compared to $4,135 at September 30, 2019. Capital resources At September 30, 2020, the Company had a short-term credit facility of $60,000 with a Canadian chartered bank that bears interest at prime and is secured by assets of the Company. To date, the Company has drawn NIL against the credit facility and an amount of $130 was used to issue letters of credit to meet customer contractual requirements. Management believes that the company has sufficient cash resources to continue to finance its working capital requirements and pay a quarterly dividend. Off-balance sheet arrangements There were no off-balance sheet arrangements at September 30, 2020. Related-party transactions During the three-month period ended September 30, 2020 (2019), the Company had sales of $230 ($231) to GrainX in which Cailan holds a non-controlling equity investment. During the year ended September 30, 2020 (2019), the Company had sales of $1,160 ($1,552) to GrainX. At September 30, 2020 (2019), the Company had an accounts receivable balance with GrainX of $130 ($90) which is included in accounts receivable. The terms and conditions of the related party sales are within the Company’s normal course of operations and are measured at the exchange amounts agreed to by both parties. 49 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual ReportThe Company has certain office space leases with employees of the Company. The total amount of expense due to leases with related parties is $46 (46) for the three-month period ended September 30, 2020 (2019) The total amount of expense due to leases with related parties is $184 ($90) for the year ended September 30, 2020 (2019). Adoption of new accounting standards and impact on financial results In 2020 the Company adopted IFRS 16 – Leases. The accounting policies and impacts to the financial statements are expressed in note 2 to the financial statements. Had the Company not adopt IFRS16 – Leases in the current period, the Statement of Net Profit would be impacted in the following way for the twelve-months ended September 30, 2020: Operating Expenses Profit before under noted items Depreciation of right of use assets Profit before interest income and income tax expense Lease interest expense Net profit impact IAS 17 $ 5,405 IFRS 16 $ 2,494 Change $ (2,911) (5,405) - (5,405) - (2,494) 2,771 (5,265) 475 2,911 2,771 140 (475) $ (5,405) $ (5,740) $ (335) Critical accounting judgements and key sources of estimation uncertainty Estimates The preparation of financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from those estimates. Project completion for revenue A significant portion of the revenue is derived from fixed-price contracts which can extend over more than one reporting period. Revenue from these fixed-price projects is recognized over time using the input method using management’s best estimate of the costs and related risks associated with completing the projects. Management’s approach to revenue recognition is tightly linked to detailed project management processes and controls. The information provided by the project managers combined with a knowledgeable assessment of technical complexities and risks are used in estimating the percentage complete. Impairment of goodwill and intangible assets Determining whether goodwill or acquired intangibles assets are impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit, and a suitable discount rate in order to calculate present value. Income taxes The Company records deferred income tax assets and liabilities related to deductible or taxable temporary differences. The Company assesses the value of these assets and liabilities based on the likelihood of the realization as well as the timing of reversal given management assessments of future taxable income. Contingent liabilities From time-to-time the Company is involved in claims in the normal course of business. Management assesses such claims and where considered probable to result in an exposure and, where the amount of the claim can be measured reliably, provisions for loss are made based on management’s assessment of the likely outcome. 50 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.            Loss allowance The Company has extensive commercial history upon which to base its provision for doubtful accounts receivable. Due to the nature of the industry in which the Company operates, the Company does not create a general provision for bad debts but rather determines bad debts on a specific account basis. Judgments Financial instruments The Company’s accounting policy with regards to financial instruments is described in Note 2 of the September 30, 2019 annual financial statements. In applying this policy, judgments are made in applying the criteria set out in IFRS 9 – Financial instruments, to record financial instruments at fair value through profit or loss, and the assessments of the classification of financial instruments and effectiveness of hedging relationships. Business combinations The consideration transferred for an acquired business is assigned to the identifiable tangible and intangible assets purchased, along with liabilities assumed on the basis of their acquisition date fair values. The identification of assets purchased and liabilities assumed and the valuation thereof is specialized and judgemental. Where ap- propriate, the Company engages external business valuators to assist in the valuation of tangible and intangible assets acquired. When a business combination involves contingent consideration, an amount equal to the fair value of the contingent consideration is recorded as a liability at the time of acquisition. The key assumptions uti- lized in determining fair value of contingent consideration may include probabilities associated with the occurrence of specified future events, financial projections of the acquired business, the timing of future cash flows, and the appropriate discount rate. Accounting policy for equipment and intangible assets Management makes judgments in determining the most appropriate methodology for amortizing long-lived assets over their useful lives. The method chosen is intended to mirror, to the best extent possible, the consumption of the asset. Deferred income taxes The Company’s accounting policy with regards to income taxes is described in Note 2 of the September 30, 2019 annual financial statements. In applying this policy, judgments are made in determining the probability of whether deductions or tax credits can be utilized and related timing of such items. Input methodology for project completion The Company uses judgment in determining the most appropriate basis on which to determine percentage of completion. Options available to the Company include the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs, surveys of work performed, and completion of a physical proportion of the contract work. While the Company considers the costs to complete, the stage of completion is assessed based upon the assessment of the proportion of the contract completed. Judgments are also made in determining what costs are project costs for determining the percentage complete. Management’s conclusion on the effectiveness of disclosure controls The Chief Executive Officer and the Chief Financial Officer of the Company, after evaluating the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2020, have concluded that the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would have been known to them and that information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified in the securities legislation. 51 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual ReportManagement’s conclusion on the effectiveness of internal control over financial reporting The Chief Executive Officer and the Chief Financial Officer of the Company, after evaluating the effectiveness of the Company’s internal control over financial reporting as of September 30, 2020, have concluded that the Company’s internal controls over financial reporting provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with IFRS. During the most recent interim quarter ending September 30, 2020, there have been no changes in the design of the Company’s internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting. Risk and uncertainties We are exposed to risks and uncertainties in our business, including the risk factors set forth below: • The markets for the Company’s services are very competitive, rapidly evolving and subject to technological changes. • The Company has certain ongoing contracts that account for a significant portion of the Company’s revenues and if these contracts are not renewed at expiry or should a competitor win the renewal, the Company’s future revenue stream and overall profitability could be significantly reduced. • The Company must compete for qualified employees for its own operations and must have ready access to a large pool of qualified professionals to satisfy contractual arrangements with customers. • There is a risk in all fixed-price contracts that the Company will be unable to deliver the system within the time specified and at the expected cost. • The Company’s business is often dependent on performance by third parties and subcontractors in connection with contracts for which the Company is the prime contractor. • The markets in which the Company operates are characterized by changing technology and evolving industry standards and the Company’s ability to anticipate changes in technology, technical standards and service offerings will be a significant factor in the Company’s ability to compete or expand into new markets. • Erosion of our customers’ market share for a particular product could have a direct impact on the Company’s revenues and profitability. • The government may change its policies, priorities or funding levels through agency or program budget reductions or impose budgetary constraints, which could have a direct impact on the Company’s revenues and profitability. • Most fee-for-service contracts provide the applicable customer with the ability to adjust the timing and level of effort throughout the contract life so the amount actually realized by the Company could be materially different from the original contract value. • There is a risk that as the Company grows, credit risk increases with respect to accounts receivable. • In the event that an operating segment cannot secure an appropriate workforce, such operating segment may not be in a position to bid on or secure certain contracts. • The Company is subject to foreign exchange risk in that approximately 19% of the Company’s revenues are derived from non-Canadian sources, which can have a direct impact on the profitability of the Company. • The Company is exposed to a range of risk related to its foreign operations. • The Company conducts acquisitions and faces risks associated with those acquisitions and the integration of the acquired businesses. • The Company’s insurance policies may not be sufficient to insure itself for all events that could arise in the 52 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.course of the Company’s business and operations. • The Company operates in the health services sector and faces the risks inherent in that sector. • As newly formed entities in certain markets and industries are restructured and consolidated from time to time, opportunities for the Company may be diminished or work currently performed by the Company could be repatriated, resulting in a loss of revenue. • Any fraudulent, malicious or accidental breach of our data security could result in unintentional disclosure of, or unauthorized access to, third party, customer, vendor, employee or other confidential or sensitive data or information, which could potentially result in additional costs to the Company to enhance security or to respond to occurrences, lost sales, violations of privacy or other laws, penalties, fines, regulatory action or litigation. • The Company is dependent upon information technology systems in the conduct of our operations and we collect, store and use certain sensitive data, intellectual property, our proprietary business information and certain personally identifiable information of our employees and customers on our networks. • The Company is exposed to environmental and health and safety regulations associated with its manufacturing activities. • The Company faces risks related to health epidemics and other outbreaks of communicable diseases, which could significantly disrupt its operations and may materially and adversely affect its business and financial conditions. • The international response to the spread of COVID-19 has led to significant restrictions on travel; temporary business closures; quarantines; global stock market and financial market volatility; declining trade and market sentiment; all of which have and could further effect on interest rates, credit ratings and credit risk. The continued spread of the coronavirus in Canada, and globally, could adversely impact the Company’s business including without limitation, employee health, workforce productivity, increased insurance premiums, limitations on travel, the availability of industry experts and personnel, and other factors that will depend on future developments beyond the Company’s control, which may have a material and adverse effect on the its business, financial condition and results of operations. A comprehensive discussion of risks, including risks not specifically listed above, can be found in our most recently filed Annual Information Form. Additional risks and uncertainties not presently known to us or that we currently consider immaterial also may impair our business and operations and cause the price of our shares to decline. If any of the noted risks actually occur, our business may be harmed and our financial condition and results of operations may suffer significantly. Short-term outlook Revenue Adjusted EBITDA Adjusted net profit Fiscal 2021 Guidance Low High 450,000 $ 490,000 38,500 $ 42,000 $ $ $ 25,200 $ 28,300 On a year to date basis ending September 30, 2020, the Company experienced both revenue and gross profit impacts of $13,200 and $3,775, respectively related to the COVID-19 Pandemic. Long-term outlook We believe the company Company is well positioned for sustained profitable growth in the long term. The Company’s 53 Management’s Discussion and Analysis of Financial Condition and Results of OperationsCalian Group Ltd.2020 Annual Reportstrong contract backlog provides a solid base for the realization of future revenues. Leveraging the Company’s diverse services offerings, the Company operates in global and domestic markets that will continue to require the services that the Company offers. To ensure the Company is positioned to respond to market requirements, the Company will focus on the execution of its four-pillar growth strategy: • Customer retention: through continued delivery excellence, maintain a valued relationship with current customer base; • Customer diversification: through increasing the percentage of its revenues derived from new business in adjacent and non-government markets, balance customer revenue into numerous global and domestic sectors; • Service line innovation: continue investment in service offerings to increase differentiation and improve gross margin attainment; • Continuous improvement: leverage innovation to improve how the company operates with a goal to streamline processes and provide for a scalable back office support capability. The Company has completed multiple acquisitions in recent years and will proactively look for companies that can accelerate its growth strategy with a focus on customer diversification and service line evolution. Calian’s Advanced Technologies segment has been working within a sustainable satellite sector and is expecting opportunities to continue to arise as systems adopting the latest technologies will be required by customers wishing to maintain and improve their service offerings and react to an increasing demand for bandwidth. We continue to invest in communications products, software development and manufacturing equipment to strengthen the segment’s competitive position and diversify its customer base in the agriculture, cable and defence sectors. In the short-term, activity levels in custom manufacturing will continue to be directly dependent upon the segment’s customer requirements and continuing volatility in orders is anticipated as both government and commercial customers continue to re-examine their traditional spending patterns. The delays, deferrals and cancellations of DND capital procurements have created intense competition for available manufacturing work. Finally, changes in the relative value of the Canadian dollar may negatively or positively impact the segment’s competitiveness on projects denominated in foreign currencies. The Health, Learning and IT segments’ professional services are adaptable to many different markets. Currently, the strength of these segments lies in providing professional services, solutions, and delivery services across Canada with a significant portion of this work currently with the Department of National Defence. Recently these segments have been successful in diversifying their customer base and evolving their service offerings. Management believes that for the long term, the public and private sector will continue to require Health, Learning and IT services from private enterprise to achieve their business outcomes. As to the current outlook, the Federal government continues to spend on priority programs and, while there is general uncertainty as to the extent of demand from this customer, at least in the short-term, spending seems to have stabilized. With recent investments in sales, marketing, acquisitions and success in new markets outside of the Federal government, these segments are better positioned to manage through any potential government spending downturns. Recent acquisitions have also bolstered the performance of these segments and it is expected that, overall, the acquired companies will continue to meet and exceed the financial targets established as part of the acquisitions. 54 Management’s Discussion and Analysis of Financial Condition and Results of Operations2020 Annual ReportCalian Group Ltd.Independent Auditor’s Report To the Shareholders and the Board of Directors of Calian Group Ltd. Opinion We have audited the consolidated financial statements of Calian Group Ltd. (the “Company”), which comprise the consolidated statements of financial position as at September 30, 2020 and 2019, and the consolidated statements of net profit, comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “financial statements”). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. The other information comprises: • Management’s Discussion and Analysis • The information, other than the financial statements and our auditor’s report thereon, in the Annual Report. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Calian Group Ltd. 2020 Annual Report 55 Independent Auditor’s Report Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Amy deRidder. /s/ Deloitte LLP Chartered Professional Accountants Licensed Public Accountants Ottawa, Canada November 24, 2020 56 2020 Annual Report Calian Group Ltd. Calian Group Ltd. Consolidated Statements of Financial Position As at September 30, 2020 and 2019 (Canadian dollars in thousands, except per share data) NOTES September 30,  2020 September 30,  2019 ASSETS CURRENT ASSETS Cash and cash equivalents Accounts receivable Work in process Inventory Prepaid expenses Derivative assets Total current assets NON-CURRENT ASSETS Capitalized research and development Equipment Application software Right of use asset Investment and loan receivable Acquired intangible assets Goodwill Total non-current assets TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Line of Credit Accounts payables and accrued liabilities Contingent earn-out Provisions Unearned contract revenue Derivative liabilities Lease obligations Total current liabilities NON-CURRENT LIABILITIES Lease obligations Contingent earn-out Deferred tax liabilities Total non-current liabilities TOTAL LIABILITIES SHAREHOLDERS’ EQUITY Issued capital Contributed surplus Retained earnings Accumulated other comprehensive income (loss) TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY Number of common shares issued and outstanding The accompanying notes are an integral part of the audited annual consolidated financial statements. Approved by the Board on November 24, 2020: 6 7 10 8 9 25 11 11 11 12 13 14 15 18 16 27 17 10 25 12 12 27 23 19 19 $ $ $ 24,235 81,109 84,132 6,095 6,707 358 202,636 3,924 11,655 3,092 17,595 670 36,191 55,290 128,417 331,053 - 72,007 3,251 1,038 13,435 152 2,790 92,673 16,800 11,913 9,261 37,974 130,647 $ $ $ 17,135 63,977 39,221 3,147 5,403 96 128,979 3,216 10,965 1,013 - 452 16,699 33,702 66,047 195,026 13,000 45,058 800 1,129 8,778 143 - 68,908 - 5,519 5,525 11,044 79,952 107,931 2,002 92,030 (1,557) 200,406 331,053 9,760,032 $ 32,515 1,817 81,608 (866) 115,074 195,026 7,929,238 $ George Weber Chairman Richard Vickers Director Calian Group Ltd. 2020 Annual Report 57                                                                                                                                                           Calian Group Ltd. Consolidated Statements of Net Profit For the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share data) Revenue Advanced Technologies Health Learning Information Technology Total Revenue Cost of revenues Gross profit Selling and marketing General and administration Research and development Profit before under noted items Depreciation of equipment, application software and research and development Depreciation of right of use asset Amortization of acquired intangible assets Other changes in fair value Changes in fair value related to contingent earn-out Profit before interest and income tax expense Lease obligations interest expense Interest expense (income) Profit before income tax expense Income tax expense – current Income tax expense (recovery) – deferred Total income tax expense NET PROFIT Net profit per share: Basic Diluted Year ended September 30,  NOTES 2020 2019 $ 153,382 $ 109,697 163,035 57,834 58,069 432,320 343,164 89,156 12,336 38,012 1,998 36,810 2,976 2,771 5,166 (101) (1,882) 27,880 475 185 27,220 8,171 (1,311) 6,860 20,360 2.25 2.23 $ $ $ 115,718 63,098 54,531 343,044 268,387 74,657 10,499 35,592 1,420 27,146 2,220 - 3,168 - (4,149) 25,907 - 36 25,871 6,318 (439) 5,879 19,992 2.55 2.54 $ $ $ 21 31 31 11 12 14 13 27 12 23 22 22 The accompanying notes are an integral part of the audited annual consolidated financial statements. 58 2020 Annual ReportCalian Group Ltd.                                           Calian Group Ltd. Consolidated Statements of Comprehensive Income For the years ended September 30, 2020 and 2019 (Canadian dollars in thousands) NET PROFIT Other comprehensive income, net of tax Items that will be reclassified subsequently to net profit Cumulative translation adjustment Change in deferred gain on derivatives designated as cash flow hedges, net of tax of $335 (2019 - $217) Other comprehensive income (loss), net of tax COMPREHENSIVE INCOME The accompanying notes are an integral part of the consolidated financial statements. Year ended September 30,  2020 2019 $ 20,360 $ 19,992 238 (929) (691) - (683) (683) $ 19,669 $ 19,309 59 Calian Group Ltd.2020 Annual Report                       Calian Group Ltd. Consolidated Statements of Changes in Equity For the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share data) Notes Issued capital Contributed surplus Retained earnings Other Com- prehensive Income Total Balance October 1, 2019 $ 32,515 $ 1,817 $ 81,608 $ (866) $ 115,074 Net profit and comprehensive income Dividend paid ($1.12 per share) Shares issued under employee share plans Shares issued through acqui- sition Shares issued under public offering net of issuance costs Shares issued under employee stock purchase plan Share-based compensation expense 19 19 19 19 20 - - - - 20,360 (9,938) (691) - 19,669 (9,938) 5,323 (978) 2,500 65,847 1,746 - - - - 1,163 - - - - - - - - - - 4,345 2,500 65,847 1,746 1,163 Balance September 30, 2020 $ 107,931 $ 2,002 $ 92,030 $ (1,557) $ 200,406 Notes Issued capital Contributed surplus Retained earnings Other Com- prehensive Income Total Balance October 1, 2018 $ 28,647 $ 1,065 $ 70,521 $ (183) $ 100,050 Net profit and comprehensive income Dividend paid ($1.12 per share) Share repurchase Shares issued under employee share plans Shares issued under employee stock purchase plan Share-based compensation expense 19 19 19 20 - - (16) - - - 3,034   (430) 850   - - 1,182   19,992   (683)   19,309 (8,803) (102) - - - - - - - - (8,803) (118) 2,604 850 1,182 Balance September 30, 2019 $ 32,515 $ 1,817 $ 81,608 $ (866) $ 115,074 The accompanying notes are an integral part of the audited annual consolidated financial statements. 60 2020 Annual ReportCalian Group Ltd.                                                                                                         Calian Group Ltd. Consolidated Statements of Cash Flows For the years ended September 30, 2020 and 2019 (Canadian dollars in thousands) Year ended September 30,  NOTES 2020 2019 $ 20,360 $ 19,992 CASH FLOWS GENERATED FROM (USED IN) OPERATING ACTIVITIES Net profit Items not affecting cash: Interest expense (income) Changes in fair value related to contingent earn-out Lease obligations interest expense Income tax expense Employee share purchase plan expense Share based compensation expense Depreciation and amortization Other changes in fair value Change in non-cash working capital Accounts receivable Work in process Prepaid expenses Inventory Accounts payable and accrued liabilities Unearned contract revenue Interest received (paid) Income tax recovered (paid) 27 12 20 20 11, 12, 14 13 CASH FLOWS GENERATED FROM FINANCING ACTIVITIES Issuance of common shares Dividends paid Draw (repayment) on line of credit Share repurchases Payment of lease obligations CASH FLOWS USED IN INVESTING ACTIVITIES Investments and loan receivable Business acquisitions Capitalized research and development Equipment and application software 19, 20 18 12 13 26 11 11 NET CASH (OUTFLOW) INFLOW CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD CASH AND CASH EQUIVALENTS, END OF PERIOD $ $ 7,100 17,135 24,235 $ $ The accompanying notes are an integral part of the audited annual consolidated financial statements. 185 (1,882) 475 6,860 199 1,163 10,913 (101) 38,172 (11,676) (44,911) (1,271) (328) 17,251 4,501 1,738 (678) (3,813) (2,753) 70,488 (9,938) (13,000) - (2,508) 45,042 (100) (29,288) (1,227) (4,574) (35,189) 36 (4,149) - 5,879 173 1,182 5,388 - 28,501 6,334 (20,973) (1,395) 1,216 8,167 (1,806) 20,044 (127) (6,384) 13,533 3,316 (8,803) 13,000 (118) - 7,395 - (20,849) (1,768) (3,018) (25,635) (4,707) 21,842 17,135 61 Calian Group Ltd.2020 Annual Report                                                         1. Basis of Preparation Calian Group Ltd. (“the Company”) is incorporated under the Canada Business Corporations Act. The address of its registered office and principal place of business is 770 Palladium Drive, Ottawa, Ontario K2V 1C8. The company’s capabilities are diverse with services and solutions delivered through four segments: Advanced Technologies, Health, Learning and Information Technology (“IT”). Headquartered in Ottawa, Calian provides business services and solutions to both industry and government customers in the areas of health, defence, security, aerospace, engineering, AgTech and IT. Statement of compliance These consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standard Board (“IASB”) and in place for September 30, 2020. These consolidated financial statements were prepared using the accounting policies as described in Note 2 – Summary of significant accounting policies. These consolidated financial statements were authorized for issuance by the Board of Directors on November 24, 2020. 2. Summary of Significant Accounting Policies The accounting policies below have been applied consistently to all periods presented in these consolidated financial statements unless otherwise stated. Basis of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Calian Ltd. located in Ottawa, Ontario, Primacy Management Inc. (“Primacy”), located in Burlington, Ontario, DWP Solutions Inc. (“DWP”), located in Ottawa, Ontario, IntraGrain Technologies Inc. (“IntraGrain”) located in Regina, Saskatchewan, SatService Gesellschaft für Kommunikationssysteme mbH (“SatService”) located in Steisslingen, Germany, Allphase Clinical Research Services Inc., located in Ottawa, Ontario, Alio Health Services Inc., located in Ottawa, Ontario (collectively “Allphase/Alio”), Comprehensive Training Solutions AS (“CTS”) located in Stavanger, Norway, EMSEC Solutions Inc. (“EMSEC”) located in Ottawa, Ontario, and Tallysman Wireless Inc. (“Tallysman”) located in Ottawa, Ontario. All transactions and balances between these companies have been eliminated on consolidation. Basis of presentation The consolidated financial statements are presented at historical cost unless otherwise noted. Historical cost is generally based on the fair value of the consideration given in exchange for the asset or liability. Revenue recognition The Company recognizes revenue from the following sources, although this list is not exhaustive: Service revenue • Advanced Technologies support services across a number of industries, and product development • Healthcare services including clinic management, healthcare practitioner support and psychological assessments • Learning services including, Custom Training for the military, emergency preparedness and simulation training • IT services including IT support services, systems implementation services, and cyber security consulting services 62 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.2. Summary of Significant Accounting Policies (continued) Product revenue • Sale of internally developed hardware and software products • Resale of radio frequency communications product • Sale of healthcare products • Resale of IT product which can include hardware and/or software • Manufacturing and installation of large satellite antennae ground systems (a) Revenue recognition: Revenue is recognized in profit or loss in accordance with the pattern of satisfying the Company’s performance obligations under a contract. This satisfaction occurs when control of a good or service transfers to the customer. In the majority of the Company’s contracts, the customer controls the work in process as evidenced by the Company’s right to payment for work performed to date plus a reasonable profit to deliver products or services that do not have an alternative use to the Company. Based on the nature of these contractual arrangements, control is transferred over time and revenue is recognized over time. For each performance obligation satisfied over time, the Company will recognize revenue by measuring progress toward complete satisfaction of that performance obligation using the input method. In this way, the Company recognizes revenue in a pattern that reflects the transfer of control of the promised goods or services to the customer. Fixed price contracts are recognized using the input method with reference to costs incurred. If the outcome of a contract cannot be estimated reliably for management to estimate the ultimate profitability of the contract with a reasonable degree of certainty, no profit is recognized. When further clarity is gained throughout the progression of the contract, the constrained margin and associated revenue will be reassessed. Revenue from cost plus arrangements is recognized as services are performed and costs are incurred. Revenue from generic product sales, or product that does not meet criteria for over time recognition is measured at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Revenue from contract modifications, commonly referred to as change orders or purchase orders issued on contracts, will be recognized to the extent that the contract modifications have been approved by the customer and the amount can be measured reliably. In cases where the contract modification is approved, but the price has not been finalized, the Company will account for the contract modification using variable consideration guidance described below. For a portion of customer arrangements, the customer contracts with the Company to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). The Company therefore considers that the entire contract results in the delivery of a single performance obligation. Less commonly, the Company may promise to provide distinct goods or services within a contract in which case the contract is separated into the associated performance obligations as assessed from the customer’s perspective. If a contract contains multiple performance obligations, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. When the Company is contracted to construct customer specific projects, the budgets and overall transaction prices are built up using the Company’s best estimate of costs associated to complete the customized project using the appropriate overhead and subcontractor rates for a given project and location. This approach to estimate the overall costs and associated revenues is considered the most appropriate assessment of the standalone selling price for the associated performance obligations. In certain contracts for products, the Company may agree to provide warranty and maintenance services for periods that can extend up to 5 years. Warranty and maintenance are often included in the transaction price and is an after– sales service. Upon expiration, the warranty period may be extended at the customer’s option. Regardless of whether a renewal option exists in a contract, the Company does not account for a renewal option until this option is agreed upon. This is subsequently accounted for at the agreed upon price on renewal. Consequently, the option to extend the 63 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report2. Summary of Significant Accounting Policies (continued) renewal period does not represent a material right when they enter into the initial contract and therefore this does not represent a separate performance obligation, and no revenue has been deferred relating to this renewal option. The maintenance or warranty service is considered to be a distinct service when it is both regularly supplied by the Company to other customers on a stand-alone basis and is available for customers from other providers in the market. When these criteria are met, the warranty is considered a service type warranty where a portion of the transaction price is allocated to the maintenance services based on the stand-alone selling price of those services. Revenue relating to the maintenance services is recognized over time as the service is provided and incurs warranty costs over the satisfaction of the performance obligation. Assurance type warranties are those that promise to the customer that the delivered product will function as intended and will comply with agreed-upon specifications. Assurance type warranty costs are recognized as a provision in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, based on the progress of the other performance obligations in the contract, and the provision recognized is reduced as costs are incurred or reversed if no longer required. If estimated total costs on any contract, including any inefficient costs, are greater than the net contract revenues, IFRS 15, Revenue from Contracts with Customers indicates IAS37, Provisions, Contingent Liabilities and Contingent Assets, should be applied as the contract is considered onerous. IAS37 however contains no further requirements as to the measurement of onerous contracts. On adoption of IFRS15, all loss provisions for contracts with customers follow the same policy for the definition of unavoidable costs to fulfilling the contract. The Company defines unavoidable costs as the costs that the Company cannot avoid because it has the contract (for example, this would include an allocation of overhead costs if those costs are incurred for activities required to complete the contract). (b) Contract assets and liabilities Any excess of costs and estimated earnings over progress billings on construction contracts is carried as a contract asset in the financial statements. Any excess of progress billings over earned revenue on construction contracts is carried as a contract liability in the financial statements. Contract assets and liabilities (or “work in process” and “unearned contract revenue”, respectively) are reported in a net position on a contract-by-contract basis at the end of each reporting period. All contract assets and liabilities are classified as current in the financial statements as they are expected to be settled within the Company’s normal operating cycle. (c) Provisions: Provisions are recognized when, at the financial statement date, the Company has a present obligation as a result of a past event, and it is more likely than not that the Company will be required to settle that obligation and the cash outflow can be estimated reliably. The amount recognized for provisions is the best estimate of the expenditure to be incurred. Provisions are measured at their present value. Provisions include: i. Provisions for potential warranty claims relating to construction projects. These claims are usually settled during the project’s warranty period. A provision is recognized when it is more likely than not that a warranty claim will arise. The amount recognized is the best estimate of the amount required to settle the warranty issue. ii. Provisions for loss contracts are recorded when costs are determined to be greater than total revenues for the contract. Losses from any construction contracts are recognized in full in the period the loss becomes apparent. The loss provision will be net of management’s estimate of probable expected recoveries, which differs from the criterion used for revenue recognition. 64 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.2. Summary of Significant Accounting Policies (continued) Share-based compensation The Company has a stock option plan for executives and other key employees. The Company measures and recognizes compensation expense based on the grant date fair-value of the stock options issued using the Black- Scholes pricing model. The offsetting credit is recorded in contributed surplus. Each tranche of an award is considered a separate award with its own vesting period and grant date fair value. Compensation expense for each tranche is recorded on a straight-line basis over the vesting period based on the Company’s estimate of share options that will ultimately vest. At each reporting period, the Company revises its estimate of the stock options expected to vest. The impact on the change in estimate, if any, is recognized over the remaining vesting period. Consideration paid by employees on the exercise of options and related amounts of contributed surplus are recorded as issued capital when the shares are issued. The Company has a restricted share unit plan for executives and other key employees. The Company measures and recognizes compensation expense based on the grant date fair-value of the units issued using the market value based on the price at the date preceding the grant. The offsetting credit is recorded in contributed surplus. Each tranche of an award is considered a separate award with its own vesting period and grant date fair value. Compensation expense for each tranche is recorded on a straight-line basis over the vesting period based on the Company’s estimate of units that will ultimately vest. At each reporting period, the Company revises its estimate of the units expected to vest. The impact on the change in estimate, if any, is recognized over the remaining vesting period. The Company has an employee stock purchase plan available to all employees of the Company. The plan provides for a discount to the fair market value at the date the shares are issued. Compensation expense representing the discount is recorded as general and administration expenses with an offsetting amount to issued capital. Leases At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company has elected to apply the practical expedient to account for each lease component and any non-lease components as a single lease component. The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liabil- ity adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset, or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. The lease liability is initially measured at the present value of the lease payments that are not paid at the commence- ment date, discounted using the Company’s incremental borrowing rate. Variable lease payments that do not de- pend on an index or rate are not included in the measurement of the lease liability. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Company has elected to apply the practical ex- pedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease term. 65 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report2. Summary of Significant Accounting Policies (continued) Income taxes Income tax expense comprises current and deferred tax. Income tax expense is recognized in net profit, except when it relates to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. Current tax The tax currently payable is based on taxable income for the period using tax rates enacted or substantively enacted as at each reporting period and any adjustments to tax payable related to previous years. Taxable profit differs from profit as reported in the consolidated statement of net profit because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Deferred tax Deferred tax is recognized using the balance sheet method, providing for differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases used for taxation purposes calculated using the tax rates in effect when the differences are expected to reverse. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences, and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates that have been enacted or substantively enacted at each reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Capitalized Research and Development (“R&D”) Research costs are expensed as incurred. Internally developed internal-use asset costs incurred in the development phase of a project are capitalized. Certain costs incurred in connection with the development of assets to be used internally are capitalized once a project has progressed beyond a conceptual, preliminary stage to that of development. Development costs that are directly attributable to the design and testing of identifiable assets controlled by the Company are recognized as assets when the following criteria are met: 66 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.2. Summary of Significant Accounting Policies (continued) • it is technically feasible to complete the asset so that it will be available for use; • there is an ability and management intends to complete the asset for use or sale; • it can be demonstrated how the asset will generate probable future economic benefits; • adequate technical, financial and other resources to complete the development and to use or sell the asset are available; and • the expenditure attributable to the asset during its development can be reliably measured. Costs that qualify for capitalization include both internal and external costs, but are limited to those that are directly related to the specific project. Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized in net profit over the estimated useful life of the underlying assets. Capitalized R&D is measured at cost and depreciated over the useful life of the assets which is determined to be 5 years. Costs include expenditures that are directly attributable to its construction. Equipment Equipment, comprising furniture and computer equipment, along with leasehold improvements, is stated at cost less accumulated depreciation and impairment losses, if any. The carrying value is net of any related government assistance and investment tax credits. Depreciation is recognized in net profit on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the term of the leases. The estimated useful lives are as follows: • Equipment: 5 to 10 years The estimated useful lives, residual values and depreciation methods are reviewed annually, with the effect of any changes in estimate accounted for on a prospective basis. Application software Application software is measured at cost less accumulated depreciation and is amortized on a straight-line basis over its estimated useful life not exceeding five years. The amortization method and estimate of useful lives are reviewed annually. Acquired intangible assets Acquired intangible assets are measured at cost less accumulated amortization. Amortization is recognized in net profit over the estimated useful lives of the underlying assets. The estimated useful lives are as follows: • Customer relationship Primacy: indefinite • Other customer relationships: 3 to 8 years • Contracts with customers: 3 to 5 years • Non-competition agreements: 2 to 5 years • Technology and Trademarks: 2 to 9 years The customer relationship from the Primacy acquisition, representing expected renewals of the acquired contract, is considered to have an indefinite life based on the fact that the contract is renewable on an annual basis indefinitely. The amortization method and estimate of useful life for all other intangible assets is reviewed annually. 67 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report2. Summary of Significant Accounting Policies (continued) Impairment of capitalized R&D, equipment, application software and intangible assets At each reporting period, management reviews the carrying amounts of its capitalized R&D, equipment, application software and acquired intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. Intangible assets with an indefinite life are also tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, management estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units. The Company performs its annual review of acquired intangible assets with an indefinite life on September 30th each year. The recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss. Current year impairment testing occurred due to triggering events relating to intangible assets described in Note 26 where the triggering event was the change in estimate on the contingent earn out payable. In order to calculate the value in use of the intangible assets, the Company calculated the present value of discounted cash flows that relate specifically to these cash generating units for which the intangibles relate. Assumptions were made on the forecasted cash flows for the cash generating units, and discount rates used in the present value. Impairment of goodwill Goodwill arising on the acquisition of a business represents the excess of the purchase price over the net fair value of identifiable assets, liabilities and contingent liabilities of the acquired businesses recognized at the date of the acquisition. Goodwill is initially recognized as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to the cash-generating units expected to benefit from the synergies of the combination. Cash-generating units or groups of cash generating units to which goodwill has been allocated are tested for impairment annually or more frequently if events or changes in circumstances indicate that the unit might be impaired. For purposes of impairment testing of goodwill, cash- generating units or groups of cash generating units correspond to the Company’s reporting segments as disclosed in Note 24. When the recoverable amount of the cash-generating unit is less than the carrying amount of the cash-generating unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the cash-generating unit on a pro-rata basis. An impairment loss recognized for goodwill is not reversed in a subsequent period. The Company performs its annual review of goodwill on September 30th each year. At September 30, 2020 and 2019, management assessed the recoverable amount of goodwill and concluded that a goodwill impairment charge was not required. For the years ended September 30, 2020 and 2019, various assumptions were taken to arrive at estimated values per segment, including discount rates in the range of 12% to 15% and growth rate assumptions of 0% to 5%. Outlook for the next fiscal year was used as the basis for the future cash flow estimates and the future estimated growth rates were validated by comparing to average growth levels for the previous 3 years. 68 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.2. Summary of Significant Accounting Policies (continued) Business acquisition Acquisition of businesses is accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, and liabilities incurred by the Company to the former owners of the acquiree in exchange for control of the acquiree. Acquisition-related costs are generally expensed in profit or loss as incurred. At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at their fair value, except that deferred tax assets or liabilities are recognised and measured in accordance with IAS 12 Income Taxes. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. When the consideration transferred by the Company in a business combination includes a payment subject to the retention of the principal shareholders, the amount is deemed to represent deferred compensation payable to such shareholders and therefore is excluded from the total consideration of the purchase, and is expensed on a straight-line basis over the retention period in the Company’s consolidated statement of net profit as deemed compensation related to acquisitions. When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. Foreign currency translation Transactions in currencies other than the Company’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. At each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at each reporting period. Non-monetary items which are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognized in net profit in the period in which they arise except for exchange differences on transactions entered into in order to hedge certain foreign currencies (see note below for hedging policy). The functional currency of the parent company and its subsidiaries is the Canadian dollar, except for SatService which is the Euro, and CTS which is the Norwegian Krone. Financial instruments Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss. 69 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report2. Summary of Significant Accounting Policies (continued) Financial assets All financial assets are recognized and de-recognized on trade date. The classification of financial assets depends on the business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. A financial asset is measured at amortized cost if it is held within a business model whose objective is to hold assets to collect contractual cash flows, and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. The Company’s financial assets are classified as follows: Cash Accounts receivable Investment and loan receivable Derivative assets Amortized cost Amortized cost Fair value through profit and loss Fair value through other comprehensive income (“OCI”) Amortized cost Subsequent to initial recognition, financial assets at amortized cost are measured using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate except for accounts receivable, where the interest revenue would be immaterial. Interest income, foreign exchange gains and losses, and impairment and any gain or loss on de-recognition are recognized in profit and loss. Impairment of financial assets The Company measures a loss allowance based on the lifetime expected credit losses. Lifetime expected credit losses are estimated based on factors such as the Company’s past experience of collecting payments, observable changes in national or local economic conditions that correlate with default on receivables, financial difficulties of the borrower, and it becoming probable that the borrower will enter bankruptcy or financial re-organization. Financial assets are written off when there is no reasonable expectation of recovery. Financial liabilities The Company determines the classification of its financial liabilities at initial recognition. The Company’s financial liabilities are classified as follows: Line of credit Accounts payable and accrued liabilities Contingent earn-out Provisions Derivative liabilities Amortized cost Amortized cost Fair value through profit and loss Amortized cost Fair value through OCI Fair value hierarchy The Company’s fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are: Level 1 values are based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities. Level 2 values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 3 values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. When the inputs used to measure fair value fall within more than one level of the hierarchy, the level within which the fair value measurement is categorized is based on the Company’s assessment of the lowest level input that is the most significant to the fair value measurement. 70 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.2. Summary of Significant Accounting Policies (continued) Derivative financial instruments and risk management The Company enters into derivative financial instruments, mainly foreign exchange forward contracts to manage its foreign exchange rate risk. The Company’s policy does not allow management to enter into derivative financial instruments for trading or speculative purposes. Foreign exchange forward contracts are entered into to manage the foreign exchange rate risk on foreign denominated financial assets and liabilities and foreign denominated forecasted transactions. Derivatives are initially recognized at fair value at the date a derivative contract is entered into with transaction costs recognized in profit and loss. Derivatives are subsequently re-measured to their fair value at each reporting period. The resulting gain or loss is recognized in net profit immediately unless the derivative is designated and effective as a hedging instrument, in which event the effective portion of changes in the fair value of the derivative is recorded in other comprehensive income and is recognized in net profit when the hedged item affects net profit. The Company expenses transaction costs related to its foreign exchange contracts. Fair value of the forward exchange contracts reflects the cash flows due to or from the Company if settlement had taken place at the end of the period. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realized or settled within 12 months. Hedge accounting Management designates its foreign exchange forward contracts as either hedges of the fair value of recognized assets or liabilities (fair value hedges) or hedges of highly probable forecast transactions and firm commitments (cash flow hedges). At the inception of the hedge relationship, the Company documents the relationship between the hedging instruments and the hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. Furthermore, both at the hedge’s inception and on an on-going basis, the Company also assesses whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in net profit immediately, together with any changes in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in the line of the income statement relating to the hedged item. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognized immediately in net profit, and is included in other gains and losses, if any. Amounts deferred in other comprehensive income are recycled in net profit in the periods when the hedged item is recognized in net profit, in the same line of the consolidated statement of net profit as the recognized hedged item. Hedge accounting is discontinued when management revokes the hedging relationship; the hedging instrument is terminated or no longer qualifies for hedge accounting. For fair value hedges, the adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to net profit from that date. For cash flow hedges, any cumulative gain or loss deferred in other comprehensive income at that time remains in other comprehensive income and is recognized when the forecast transaction is ultimately recognized in net profit. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in other comprehensive income is recognized immediately in net profit. Note 25 sets out details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are also detailed in the consolidated statement of changes in equity. 71 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report3. Changes in Accounting Policies IFRS 16 In January 2016, the IASB released IFRS 16 Leases which replaces IAS 17 Leases. IFRS 16 set outs a single lessee accounting model that requires a lessee to recognize assets and liabilities for all lease agreements unless the underlying asset has a low value or the lease term is twelve months or less. A lessee is required to recognize a right-of-use asset for the underlying leased asset and a lease liability representing the present value of payment obligations for the lease term. IFRS 16 is effective for the Company’s annual periods beginning on October 1, 2019. The Company has elected to use the modified retrospective approach for transition to IFRS 16 whereby the lease liability is measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application and the right-of-use asset is measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the statement of financial position immediately before the date of initial adoption for leases previously classified as an operating lease. Effective October 1, 2019, the Company adopted IFRS 16 using the modified retrospective approach and accordingly the information presented for the comparative fiscal year has not been restated and the presentation remains as previously reported under IAS 17 and related interpretations. The Company has assessed the new standard and reviewed its portfolio of contracts in order to identify leases under the scope of IFRS 16. The review has identified a number of contracts that were previously accounted for as operating leases under the previous accounting standard, all of which represent leases for office space. The Company has elected to apply the practical expedient to account for leases for which the lease term ends within 12 months of the date of initial application as short-term leases. The Company has elected to apply the practical expedient to grandfather the assessment of which transactions are leases on the date of initial application, as previously assessed under IAS 17 and IFRIC 4. The Company applied the definition of a lease under IFRS 16 to contracts entered into or changed on or after October 1, 2019. The Company has used hindsight where applicable, such as in determining the lease term if the contract contains options to extend or terminate the lease. Based on management’s assessment of these contracts, the balance sheet impact is as follows: Operating leases as at September 30, 2019 Transitional adjustments Leases as at October 1, 2019 Assets Prepaid expenses Right-of-use asset Total assets Liabilities and equity $ 157 - 157 $ (157) 18,416 18,259 Accounts payable and accrued liabilities $ 2,000 $ (2,000) Lease obligation Total current liabilities Retained earnings Total liabilities and equity - 2,000 - 20,259 18,259 - $ 2,000 $ 18,259 $ 20,259 The weighted average incremental borrowing rate applied to the lease liabilities recognized in the statement of financial position on October 1, 2019 is 2.47%. 72 $ $ - 18,416 18,416 - 20,259 20,259 - Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.3. Changes in Accounting Policies (continued) The following table reconciles the Company’s operating lease obligations at September 30, 2019, as previously disclosed in the Company’s consolidated financial statements commitment note, to the lease obligations recognized on initial application of IFRS 16 at October 1, 2019: Operating lease commitments at September 30, 2019 Discounted using the incremental borrowing rate at October 1, 2019 Variable lease payments that do not depend on an index or rate Recognition exemption for short-term leases Extension options reasonably certain to be exercised Other Lease obligations recognized at October 1, 2019 $ 24,640 23,291 (7,058) (27) 4,213 (160) $ 20,259 4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty Estimates: The preparation of financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ from those estimates. Project completion for revenue A significant portion of the revenue is derived from fixed-price contracts which can extend over more than one reporting period. Revenue from these fixed-price projects is recognized over time using the input method using management’s best estimate of the costs and related risks associated with completing the projects. Management’s approach to revenue recognition is tightly linked to detailed project management processes and controls. The information provided by the project managers combined with a knowledgeable assessment of technical complexities and risks are used in estimating the percentage complete. Impairment of goodwill and intangible assets Determining whether goodwill or acquired intangibles assets are impaired requires an estimation of the value of the cash-generating units. This was done through the value in use calculation. The value in use calculation requires management to estimate the future cash flows expected to arise from the cash-generating unit, and a suitable discount rate in order to calculate present value. Income taxes The Company records deferred income tax assets and liabilities related to deductible or taxable temporary differences. The Company assesses the value of these assets and liabilities based on the likelihood of the realization as well as the timing of reversal given management assessments of future taxable income. Contingent liabilities From time-to-time the Company is involved in claims in the normal course of business. Management assesses such claims and where considered probable to result in an exposure and, where the amount of the claim can be measured reliably, provisions for loss are made based on management’s assessment of the likely outcome. 73 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report          4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty (continued) Loss allowance The Company has extensive commercial history upon which to base its provision for doubtful accounts receivable. Due to the nature of the industry in which the Company operates, the Company does not create a general provision for bad debts but rather determines bad debts on a specific account basis. Judgments: Financial instruments The Company’s accounting policy with regards to financial instruments is described in Note 2. In applying this policy, judgments are made in applying the criteria set out in IFRS9, Financial Instruments, to record financial instruments at fair value through profit or loss, and the assessments of the classification of financial instruments and effectiveness of hedging relationships. Business combinations The consideration transferred for an acquired business is assigned to the identifiable tangible and intangible assets purchased, along with liabilities assumed on the basis of their acquisition date fair values. The identification of assets purchased and liabilities assumed and the valuation thereof is specialized and judgemental. Where appropriate, the Company engages external business valuators to assist in the valuation of tangible and intangible assets acquired. When a business combination involves contingent consideration, an amount equal to the fair value of the contingent consideration is recorded as a liability at the time of acquisition. The key assumptions utilized in determining fair value of contingent consideration may include probabilities associated with the occurrence of specified future events, financial projections of the acquired business, the timing of future cash flows, and the appropriate discount rate. Accounting policy for equipment and intangible assets Management makes judgments in determining the most appropriate methodology for amortizing long-lived assets over their useful lives. The method chosen is intended to mirror, to the best extent possible, the consumption of the asset. Deferred income taxes The Company’s accounting policy with regards to income taxes is described in Note 2. In applying this policy, judgments are made in determining the probability of whether deductions or tax credits can be utilized and related timing of such items. Input methodology for project completion The Company uses judgment in determining the most appropriate basis on which to determine the completion of projects. Options available to the Company include the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs, surveys of work performed, and completion of a physical proportion of the contract work. While the Company considers the costs to complete, the stage of completion is assessed based upon the assessment of the proportion of the contract completed. Judgments are also made in determining what costs are project costs for determining the percentage complete. 5. Seasonality The results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. The Company’s revenues and earnings have historically been subject to some quarterly seasonality due to the timing of vacation periods, statutory holidays, industry specific seasonal cycles and the timing and delivery of milestones for significant projects. IntraGrain for instance generates a significant portion of its revenues during the third and fourth quarter of the Company’s fiscal year. 74 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.6. Cash and Cash Equivalents The following table presents the cash and cash equivalents as at: Cash Restricted cash Total cash and cash equivalents September 30, 2020 September 30, 2019 $ $ 23,344 891 24,235 $ $ 17,135 - 17,135 The following table presents cash and cash equivalents by currency: CAD USD GBP EUR CHF NOK Total cash and cash equivalents September 30, 2020 CAD USD GBP EUR CHF Local Currency $ 11,771 4,534 78 2,906 421 7,958 7,996 4,832 5 1,896 17 $ Foreign Exchange Presentation Currency 1.00 1.33 1.72 1.56 1.45 0.14 1.00 1.32 1.63 1.44 1.33 $ 11,771 6,048 135 4,542 609 1,130 24,235 7,996 6,378 8 2,730 23 $ $ Total cash and cash equivalents September 30, 2019 $ 17,135 7. Accounts Receivable The following table presents the trade and other receivables as at: Trade and accounts receivable $ 78,788 $ 62,507 September 30, 2020 September 30, 2019 Tax and Scientific Research and Development receivable Other Loss Allowance 1,563 803 81,154 (45) 1,500 46 64,053 (76) $ 81,109 $ 63,977 Bad debt recovery recognized in the year ended September 30, 2020 (2019) is $2 ($79). 75 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report        8. Inventory Inventories are recorded at the lower of cost or net realizable value. Cost is calculated based on the weighted average cost method. Write-downs are taken for excess and obsolete inventory and for a reduction in the carrying value of inventory to reflect realizable value based on current cost, production and sales estimates. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The following table presents inventories as at: Raw materials Work in process inventory Finished goods September 30, 2020 September 30, 2019 $ $ 3,677 957 1,461 6,095 $ 1,391 275 1,481 3,147 $ Inventory recognized as cost of revenues in the year ended September 30, 2020 (2019) is $6,942 ($5,529). No inventory provisions have been recognized in the years ended September 30, 2020 (2019). 9. Prepaid Expenses The following table presents prepaid expenses as at: Prepaid maintenance Other prepaid expenses 10. Contract assets and liabilities The following table presents net contract assets as at: Work in process Unearned contract revenue Net contract assets September 30, 2020 September 30, 2019 $ $ 3,080 3,627 6,707 $ $ 2,406 2,997 5,403 Net Contract Assets September 30, 2020 September 30, 2019 $ $ 84,132 (13,435) 70,697 $ $ 39,221 (8,778) 30,443 The following table presents changes in net contract assets for the period ended: Opening balance, October 1 Additions Billings Acquisitions Ending balance 76 Changes in Net Contract Assets September 30, 2020 September 30, 2019 $ 30,443 $ 7,335 128,772 (88,362) (156) 84,583 (61,804) 329 $ 70,697 $ 30,443 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd. 11. Equipment A continuity of the property and equipment for the year ended September 30, 2020 is as follows: Cost Depreciation Carrying Value Cost Additions/ Disposals Acquisitions Total Depreciation Accumulated Depreciation September 30, 2020 September 30, 2019 Leasehold improvements $ 2,437 $ 24 $ 76 $ 2,537 $ (244) $ (667) $ 1,870 $ 2,049 Equipment Total equipment Application software Capitalized research and development 21,379 1,873 1,577 24,829 (1,831) (15,044) 9,785 8,916 $ 23,816 $ 1,897 $ 1,653 $ 27,366 $ (2,075) $ (15,711) $ 11,655 $ 10,965 $ 4,311 $ 2,438 $ 335 $ 7,084 $ (381) $ (3,992) $ 3,092 $ 1,013 $ 3,217 $ 1,227 $ - $ 4,444 $ (520) $ (520) $ 3,924 $ 3,216 12. Right-of-Use Assets and Lease Obligations The following table presents the right-of-use assets for the Company: Balance October 1, 2019 Additions Disposals Depreciation Balance at September 30, 2020 Total Right-of-Use Assets $ 18,416 2,045 (95) (2,771) $ 17,595 The Company’s leases are for office and manufacturing space. The Company has included renewal options in the measurement of lease obligations when it is reasonably certain to exercise the renewal option. The following table presents lease obligations for the Company: Balance October 1, 2019 Additions Disposals Principal Payments Balance at September 30, 2020 Current Non-current Total Total Lease Obligations $ 20,259 1,969 (130) (2,508) 19,590 2,790 16,800 $  $ $ 19,590 77 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report          12. Right-of-Use Assets and Lease Obligations (continued) The following table presents the contractual undiscounted cash flows for lease obligations as at September 30, 2020: Less than one year One to five years More than five years Total undiscounted lease obligations Total Undiscounted Lease Obligations $ 3,167 11,667 6,629 $ 21,463 Total cash outflow for leases in the year ended September 30, 2020 (2019) was $2,983 (nil), including principal pay- ments relating to lease obligations of $2,508 (nil). Interest expense on lease obligations was $475 (nil). Expenses relating to short-term leases were $219 (nil) recognized in general and administration expenses. 13. Investment and Loan Receivable Cliniconex Cliniconex Inc., is an Ottawa-based patient outreach solutions vendor. In 2017, the Company invested $250, which included $100 in common shares, and $150 in convertible debt, which accrued interest at 12% and matures on June 6, 2021. In 2018, the Company invested an additional $150 in the form of a convertible loan with interest of 12% and maturing on June 9, 2020. On November 13, 2019, the Company elected to exchange its existing convertible debt, and accrued interest into preferred shares, as well as invest a further $100 in preferred shares. The Company recognizes the investment at fair value, and has adjusted its common and preferred shares to the most recent fair value, resulting in a gain of $101 recognized in the year ended September 30, 2020. The year ended September 2019 resulted in interest income on the convertible loans of $20. 14. Acquired Intangible Assets A continuity of the intangible assets for the year ended September 30, 2020 is as follows: September 30, 2020 Opening Balance Additions (Note 26) Amortization Closing Balance Customer relationship - Primacy $ 1,909 $ - $ - Customer relationships 8,055 12,449 (2,843) Contracts with customers & Non-competition agreements Technology and trademarks 1,083 5,652 373 11,836 (399) (1,924) 1,909 17,661 1,057 15,564 $ 16,699 $ 24,658 $ (5,166) $ 36,191 78 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.                            14. Acquired Intangible Assets (continued) A continuity of the intangible assets for the year ended September 30, 2019 is as follows: September 30, 2019 Opening Balance Additions Amortization Customer relationship - Primacy $ 1,909 $ - $ - Customer relationships 3,083 6,353 (1,381) Contracts with customers & Non-competition agreements Technology and trademarks 1,369 341 296 6,516 (582) (1,205) Closing Balance 1,909 8,055 1,083 5,652 $ 6,702 $ 13,165 $ (3,168) $ 16,699 15. Goodwill The following table presents the goodwill for the Company for the year ended September 30, 2020: Opening balance Additions: Alio/Allphase Comprehensive Training Solutions EMSEC Solutions Tallysman Wireless Ending balance September 30, 2020 $ 33,702 8,566 1,003 2,557 9,462 $ 55,290 The following table presents the goodwill for the Company for the year ended September 30, 2019: Opening balance Additions: IntraGrain SatService Ending balance September 30, 2019 $ 18,236 7,745 7,721 $ 33,702 16. Accounts Payable and Accrued Liabilities The following table presents the accounts payable and accrued liabilities for the Company as at: Trade accounts payable Payroll accruals Income tax payable Other accruals September 30, 2020 September 30, 2019 $ $ 47,827 14,785 4,906 4,489 24,748 11,387 256 8,667 $ 72,007 $ 45,058 79 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report                                17. Provisions Changes in provisions for the year ended September 30, 2020 were as follows: Balance at October 1, 2019 Additions Utilization/Reversals Balance at September 30, 2020 Product Warranties $ $ 801 646 (802) 645 Severance Other Total $ $ 301 436 (457) 280 $ $ 27 86 - $ 1,129 1,168 (1,259) 113 $ 1,038 Changes in provisions for the year ended September 30, 2019 were as follows: Balance at October 1, 2018 Additions Utilization/Reversals Balance at September 30, 2019 Product Warranties $ 1,365 425 (989) 801 $ Severance Other Total $ $ 414 471 (584) 301 $ $ 153 $ 1,932 - (126) 896 (1,699) 27 $ 1,129 18. Line of Credit The Company has a Revolving Credit Facility in the amount of $60,000 CAD available. The facility is committed for a 364 day term with maturity at June 4, 2021, at which point it can be renewed for another 364 day term. At Septem- ber 30, 2020 (2019), the Company utilized NIL ($13,000) of the facility. The facility is secured against the Company’s assets and is interest bearing at the Royal Bank of Canada’s Prime Rate plus applicable margin. 19. Issued Capital and Reserves Issued capital The Company is authorized to issue an unlimited number of Common Shares and an unlimited number of preferred shares. The holders of Common Shares are entitled to dividends if, as and when declared by the Board, to one vote per share at the meetings of holders of Common Shares and, upon liquidation, to receive such assets of the Company as are distributable to the holders of the Common Shares. No Preferred Shares are outstanding as of the September 30, 2020. Common share issued and outstanding: September 30, 2020 September 30, 2019 Shares Amount Shares Amount Balance October 1 7,929,238 $ 32,515 7,764,762 $ 28,647 Shares issued under employee share plans 153,222 Shares issued under employee stock purchase plan 46,918 Share repurchases Shares issued through acquisition Shares issued under public offering - 62,054 1,568,600 5,323 1,746 - 2,500 65,847 139,814 28,941 (4,279) - - 3,034 850 (16) - - Issued capital 9,760,032 $ 107,931 7,929,238 $ 32,515 80 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.                            19. Issued Capital and Reserves (continued) On February 25, 2020 the Company completed an upsized bought deal offering, under which a total of 1,568,600 Common Shares were sold at a price of $44.00 per Common Share for aggregate gross proceeds of $69,018, including shares issued pursuant to the exercise in full of the over-allotment option granted to the Underwriters. Net proceeds after commissions, issuance costs and deferred tax relating to issuance costs were $65,847. Subsequent to the date of the statement of financial position, on November 24, 2020, the date of issuance of these consolidated financial statements, the Company declared a dividend of $0.28 per common share payable on December 22, 2020. Contributed surplus Contributed surplus comprises the value of share-based compensation expense related to options granted that have not been exercised or have expired unexercised. 20. Share-Based Compensation Employee Share Purchase Plan During the year ended September 30, 2020 (2019), the Company issued 28,754 (28,941) shares under the Company’s previous Employee Share Purchase Plan at an average price of $24.70 ($26.65). The Company received $710 ($714) in proceeds. On February 6, 2020, the Company adopted a new Employee Share Purchase Plan (the “2020 Employee Share Purchase Plan”). This new plan replaces the previous Employee Share Plan. Under the 2020 Employee Share Purchase Plan, shares are issued monthly using the volume weighted average price for the last 5 days of the month for the contributions made by employees in that month. The Company provides matching shares at 25% for all employee contributions each month. Pursuant to the plan, 500,000 Common Shares are reserved for issuance, as of September 30, 2020 the Company can issue 481,836 shares.During the year ended September 30, 2020 under the 2020 Employee Share Purchase Plan, the Company issued 18,164 shares at an average price of $49.58. The Company received $720 in proceeds to date under the new plan. For the year ended September 30, 2020 (2019) the Company recorded Employee Share Purchase Plan expense of $196 ($136) for both plans. Stock Options The Company has an established stock option plan. Under the plan, eligible directors and employees are granted the right to purchase shares of common stock at a price established by the Board of Directors on the date the options are granted but in no circumstances below fair market value of the shares at the date of grant. Stock options are issued at market value based on the price at the date preceding the grant, and can have a contractual term of up to ten years and generally vest over 3 years. The maximum number of common shares reserved for issuance under the plan is equal to an aggregate 9% (878,403) of the Company’s issued and outstanding shares from time to time less the aggregate number of shares reserved for issuance or issuable under any other security-based compensation arrangement for the Company. As at September 30, 2020, the Company has 286,677 stock options and RSUs outstanding. As a result, the Company could grant up to 591,726 additional stock options or RSU’s pursuant to the plan. The weighted average fair value of options granted during the year ended September 30, 2020 was $7.58 per option calculated using the Black-Scholes option pricing model. Where relevant, the expected life of the options was based on historical data for similar issuance and adjusted based on management’s best estimate for the effects of non-transferability, exercises restrictions and behavioural considerations. Expected volatility is based on historical price volatility over the past 5 years. To allow for the effects of early exercise, it was assumed that options would be exercised on average 2 years after vesting. 81 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report20. Share-Based Compensation (continued) The following assumptions were used to determine the fair value of the options granted in the year ended September 30, 2020: Grant date share price Exercise price Expected price volatility Expected option life Expected dividend yield Risk-free interest rate Forfeiture rate Outstanding October 1 Exercised Forfeited Granted Outstanding September 30 Weighted Average Options Granted Year ended September 30, 2020 2019 $ $ % yrs % % % 54.01 54.01 22.3 4.00 2.14 0.68 0 $ $ % yrs % % % 29.52 29.52 22.8 4.00 3.78 2.25 0 September 30, 2020 September 30, 2019 Number of Options 239,400 (139,300) (2,000) 132,538 230,638 Weighted Avg. Exercise Price $ $ 30.57 31.17 29.55 54.01 43.69 Number of Options 247,400 (131,600) (5,000) 128,600 239,400 Weighted Avg. Exercise Price $ $ 25.43 19.79 32.57 29.52 30.57 The following share-based payment arrangements are in existence: Option series: Number of Options Grant date (1) Issued May 17, 2017 10,000 May 17, 2017 Expiry date May 17, 2022 (2) Issued November 24, 2017 15,000 November 24, 2017 November 24, 2022 (3) Issued March 27, 2018 6,000 March 27, 2018 March 27, 2023 (4) Issued November 19, 2018 70,600 November 19, 2018 November 19, 2023 (5) Issued February 8, 2019 3,000 February 8, 2019 February 8, 2024 (6) Issued November 25, 2019 28,500 November 25, 2019 November 25, 2024 (7) Issued August 13, 2020 97,538 August 13, 2020 August 13, 2025 Exercise price $ 27.30 $ 34.58 $ 31.54 $ 29.55 $ 29.06 $ 36.49 $ 60.30 Fair value at grant date $ 3.42 $ 4.53 $ 4.62 $ 3.96 $ 3.95 $ 5.18 $ 8.44 For the options issued on November 25, 2019, 7,000 options vested immediately with the remaining vesting through to November 25, 2020. Options issued on August 13, 2020 vest through to August 13, 2022. At September 30, 2020 (2019) the weighted average remaining contractual life of options outstanding is 3.85 (3.53) years of which 98,100 (143,400) options are exercisable at a weighted average price of $31.73 ($30.30). The Company has recorded $324 of share-based compensation expense in the year ended September 30, 2020 (2019 - $491) related to the options that have been granted. The Company has total unrecognized compensation expense of $766 (2019 - $86) that will be recorded in the next two fiscal years. 82 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.    20. Share-Based Compensation (continued) Restricted share units: The Company has an established a restricted stock unit (“RSU”) plan. Under the RSU plan, the maximum number of common shares reserved for issuance is equal to 9% of the Company’s issued and outstanding shares from time to time less the aggregate number of shares reserved for issuance or issuable under any other security-based compensation arrangement for the Company. Share units may be awarded to any officer or employee of the Company. Each restricted share unit will vest on the date or dates designated for that unit, conditional on any vesting conditions being met. Participants in the RSU plan may elect to redeem their share units either by the Company issuing the participant one common share for each whole vested share unit or, subject to the consent by the Company, elect to receive an amount in cash. The cash amount is equal to the number of vested share units to be redeemed multiplied by the value of the common shares otherwise issuable on redemption of the share units. The following table summarizes information about the RSU’s as of September 30, 2020: Balance at October 1 Exercised Forfeited Granted Balance at September 30 September 30, 2020 September 30, 2019 Number of RSUs 47,736 (13,922) (790) 23,015 56,039 Weighted Avg. Grant Date Fair Value $ $ 30.11 30.28 31.99 36.49 32.67 Number of RSUs 20,970 (8,214) (1,713) 36,693 47,736 Weighted Avg. Grant Date Fair Value $ $ 31.40 30.83 30.24 29.54 30.11 Of the units issued in the current year under the RSU plan, 26 have vested as of September 30, 2020. The Company has recorded $899 of share-based compensation expense in the year ended September 30, 2020 (2019 - $691) related to the RSUs that have been granted. The Company has total unrecognized compensation expense of $475 at September 30, 2020 (2019 - $579) that will be recorded over the next two years. The following unvested RSU-based payment arrangements are in existence: RSU series: Number of RSUs Grant date Vest through (1) Issued November 24, 2017 (2) Issued February 12, 2018 (3) Issued March 27, 2018 2,881 1,141 185 November 24, 2017 November 15, 2022 February 12, 2018 November 15, 2020 March 27, 2018 November 15, 2020 (4) Issued November 16, 2018 28,577 November 6, 2018 November 15, 2021 (5) Issued February 7, 2019 450 February 7, 2019 November 15, 2021 (6) Issued November 25, 2019 22,805 November 25, 2019 November 15, 2022 Fair value at grant date $ $ $ $ $ $ 34.58 31.01 31.54 29.55 29.06 36.49 Deferred share unit plan During the year ended September 30, 2020 (2019) the Company granted 3,738 (4,046) deferred share units (“DSU”). The Company recorded share-based compensation of $141 (2019 – $207) related to the DSUs in the year ended September 30, 2020 (2019). Each DSU entitles the participant to receive the value of one Common Share. The DSUs vest immediately as the participants are entitled to the value of shares upon termination of their service. There are 24,652 (20,914) DSUs outstanding at September 30, 2020 (2019). The fair value of the DSUs outstanding at September 30, 2020 (2019) was $61.71 ($29.94) per unit using the fair value of a Common Share at period end. The company recorded a fair value adjustment in general and administration expense during the year ended September 30, 2020 (2019) of $780 ($90). 83 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report    21. Revenue The following table presents the revenue of the Company for the year ended September 30, 2020 and 2019: Product revenue Advanced Technologies Health Learning Information Technology Total product revenue Service revenue Advanced Technologies Health Learning Information Technology Total service revenue Total revenue Year ended September 30, 2020 September 30, 2019 $ 109,532 $ 66,204 25,184 - 8,357 143,073 43,850 137,851 57,834 49,712 289,247 432,320 $ $ $ $ - - 3,549 69,753 43,493 115,718 63,098 50,982 273,291 343,044 $ $ $ $ Remaining performance obligations The following table presents the aggregate amount of the revenues expected to be realized in the future from partially or fully unsatisfied performance obligations as at September 30, 2020 for contracts recognized over time. The amounts disclosed below represent the value of the firm orders only. Such orders may be subject to future modifications that might materially impact the amount and/or timing of revenue recognition. The amounts disclosed below do not include unexercised options or letters of intent. Revenues expected to be recognized in: Less than 24 months Thereafter Total September 30, 2020 $ 479,820 260,435 $ 740,255 84 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.      22. Net Profit per Share The diluted weighted average number of shares has been calculated as follows: Weighted average number of common shares – basic Additions to reflect the dilutive effect of employee stock options and RSU’s Weighted average number of common shares – diluted Year ended September 30 2020 9,044,588 59,910 9,104,498 2019 7,843,265 20,096 7,863,361 Options that are anti-dilutive because the exercise price was greater than the average market price of the common shares are not included in the computation of diluted net profit per share. For the year ended September 30, 2020 (2019), NIL (204,200) options and NIL (NIL) RSU’s were excluded from the above computation. Net profit is the measure of profit or loss used to calculate profit per share. 23. Income Taxes Current Income Taxes The following table reconciles the difference between the income taxes that would result solely by applying statutory tax rates to pre-tax income and the reported income tax expenses: Profit before income taxes 2020 $ 27,220 2019 $ 25,871 Tax provision at the combined basic Canadian federal and provincial income tax rate of 26.9% (2019: 26.9%) 7,322 6,959 Increase (decrease) resulting from: Non-deductible expenses Impact of rate changes relating to deferred income tax assets Other income not taxable in determining net profit Other Income tax expense 489 (236) (854) 139 707 (327) (1,381) (79) $ 6,860 $ 5,879 85 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report        23. Income Taxes (continued) Deferred Income Taxes Reconciliation of deferred tax assets and liabilities are shown below: Deferred tax assets (liabilities) Deferred tax liability at September 30, 2018 $ (728) $ (1,776) $ Current year acquisition - (3,693) Recovery (expensed) to statement of net profit Recovery (expensed) to other comprehensive income Deferred tax liability at September 30, 2019 (574) 861 - - $ (1,302) $ (4,608) Equipment and application software Acquired intangible assets Bought deal costs Cash flow hedging reserve Other Total - - - - - - $ (10) $ - - 217 26 - $ (2,488) (3,693) 152 - 439 217 $ 207 $ 178 $ (5,525) - - - - - (6,409) 1,027 783 1,311 (6,409) - - - 1,027 (674) 1,313 (111) - - - 335 - 335 $ (1,976) $ (9,704) $ 916 $ 542 $ 961 $ (9,261) Current year acquisition Bought Deal Offering Recovery (expensed) to statement of net profit Recovery (expensed) to other comprehensive income Deferred tax liability at September 30, 2020 Investments in subsidiaries As at September 30, 2020 (2019), the Company had temporary differences of $8,396 ($5,172) associated with investments in subsidiaries for which no deferred tax liabilities have been recognized as it is not probable that these differences will reverse in the foreseeable future. 24. Segmented Information Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, regarding how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer (“CEO)”. The Company’s segments are categorized as follows: Advanced Technologies, Health, Learning, and Information Technology (“IT”). Shared Services are aggregated and incurred to support all segments. These include, but are not limited to, the Finance, Human Resources, IT support, Corporate development, Legal, Corporate marketing, and administrative functions, facilities costs, costs of operating a public company, and other costs. The Company evaluates performance and allocates resources based on profit before interest income and income tax expense. 86 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.24. Segmented Information (continued) For the year ended September 30, 2020: For the year ended September 30, 2020 Advanced Technologies Health Learning IT Shared Services Revenue Cost of revenues Gross profit Gross profit % Selling and marketing General and administration Research and development $153,382 $163,035 $ 57,834 $ 58,069 $ 119,391 130,665 33,991 32,370 45,383 12,451 47,725 10,344 - - - Total $ 432,320 343,164 89,156 22% 20% 22% 18% N/A% 21% 4,995 6,457 1,536 1,699 6,815 460 987 2,882 - 2,770 2,785 2 1,885 19,073 - 12,336 38,012 1,998 Profit before under noted items $ 21,003 $ 23,396 $ 8,582 $ 4,787 $(20,958) $ 36,810 Profit before under noted items % 14% 14% 15% 8% N/A% 9% Depreciation of equipment, application software and R&D Depreciation of right of use asset Amortization of acquired intangible assets Other changes in fair value Changes in fair value related to contingent earn-out Profit before interest and income tax expense Lease obligations interest expense Interest expense (income) Profit before income tax expense Income tax expense – current Income tax expense (recovery) – deferred Total income tax expense NET PROFIT FOR THE PERIOD 2,976 2,771 5,166 (101) (1,882) $ 27,880 475 185 $ 27,220 8,171 (1,311) $ 6,860 $ 20,360 87 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report24. Segmented Information (continued) For the year ended September 30, 2019: For the year ended September 30, 2019 Advanced Technologies Health Learning IT Shared Services Revenue Cost of revenues Gross profit Gross profit % Selling and marketing General and administration Research and development $109,697 $115,718 $ 63,098 $ 54,531 $ 79,069 30,628 92,507 23,211 50,563 12,535 46,248 8,283 - - - Total $ 343,044 268,387 74,657 28% 20% 20% 15% N/A% 22% 4,934 7,752 1,420 767 3,948 - 910 2,838 - 2,219 2,497 - 1,669 18,557 - 10,499 35,592 1,420 Profit before under noted items $ 16,522 $ 18,496 $ 8,787 $ 3,567 $(20,226) $ 27,146 Profit before under noted items % 15% 16% 14% 7% N/A% 8% Depreciation of equipment, application software and R&D Amortization of acquired intangible assets Other changes in fair value Changes in fair value related to contingent earn-out Profit before interest and income tax expense Interest expense (income) Profit before income tax expense Income tax expense – current Income tax expense (recovery) – deferred Total income tax expense NET PROFIT FOR THE PERIOD 2,220 3,168 - (4,149) $ 25,907 36 $ 25,871 6,318 (439) $ 5,879 $ 19,992 The Company operates in Canada but provides services to customers in various countries. Revenues from external customers are attributed as follows: Canada United States Europe September 30, 2020 September 30, 2019 75% 19% 6% 81% 15% 4% Revenues are attributed to foreign countries based on the location of the customer. Revenues from various departments and agencies of the Canadian federal, provincial and municipal governments for the year ended September 30, 2020 (2019) represented 53% (69%) of the Company’s total revenues. All four operating segments conduct business with this category of customer. 88 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.    25. Financial Instruments and Risk Management Capital Risk Management The Company’s objective is to maintain a strong capital base in order to maintain investor, creditor and market confidence and to sustain future development of the business and provide the ability to continue as a going concern. Management defines capital as the Company’s shareholders’ equity excluding accumulated other comprehensive income relating to cash flow hedges. The Company uses debt to fund working capital and its investment initiatives. Net profits generated from operations are available to repay debt and reinvestment in the Company or distribution to the Company’s shareholders. The Board of Directors does not establish quantitative return on capital criteria for management; but rather promotes year-over-year sustainable profitable growth. The Board of Directors also reviews on a quarterly basis the level of dividends paid to the Company’s shareholders and monitors the share repurchase program activities. The Company does not have a defined share repurchase plan and buy and sell decisions are made on a specific transaction basis and depend on market prices and regulatory restrictions. There were no changes in the Company’s approach to capital management during the period. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements. Market risk is the risk that changes in market prices, such as foreign exchange rates, and interest rates will affect the Company’s income or the value of its holding of financial instruments. Foreign currency risk related to contracts The Company is exposed to foreign currency exchange fluctuations on its cash balance, accounts receivable, accounts payable and accrued liabilities, contingent earn-out and future cash flows related to contracts denominated in a foreign currency. Future cash flows will be realized over the life of the contracts. The Company utilizes derivative financial instruments, principally in the form of forward exchange contracts, in the management of the majority of its foreign currency exposures. The Company’s objective is to manage and control exposures and secure the Company’s profitability on existing contracts and therefore, the Company’s policy is to hedge the majority of its foreign currency exposure. The Company does not utilize derivative financial instruments for trading or speculative purposes. The Company applies hedge accounting when appropriate documentation and effectiveness criteria are met. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific firm contractually related commitments on projects. The Company also formally assesses, both at the hedge’s inception and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Hedge ineffectiveness has historically been insignificant. The forward foreign exchange contracts primarily require the Company to purchase or sell certain foreign currencies with or for Canadian dollars at contractual rates. The functional currency of each of the Company’s entities is determined using the currency of the primary economic environment in which that entity operates. The Company’s functional currency is the Canadian dollar while the functional currency of its German subsidiary is the European Euro (“EUR”), and the functional currency of its Norwegian subsidiary is the Norwegian Krone (“NOK”). The presentation currency of these financial statements is the Canadian dollar. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rate of exchange prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at rates prevailing at the reporting dates and are recognized in profit and loss in the period in which they arise. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. 89 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report25. Financial Instruments and Risk Management (continued) For the purpose of preparing consolidated financial statements, the assets and liabilities of the Company’s German operations and Norwegian operations are first expressed in the Companies’ EUR and NOK functional currencies, respectively, using exchange rates prevailing at the reporting date which are then translated into the Company’s reporting currency using prevailing rates at the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Translation differences are recognized in other comprehensive income and recorded in the “cumulative translation adjustment”. At September 30, 2020, the Company had the following forward foreign exchange contracts: Type SELL BUY BUY Derivative assets BUY SELL SELL Derivative liabilities Notional Currency Maturity Equivalent Cdn. Dollars Fair Value September 30, 2020 $ 125,548 933 644 $ 45,393 6,312 421 USD EURO CHF USD EURO CHF October 2020 $ 167,217 October 2020 October 2020 1,458 932 October 2020 $ 60,459 October 2020 October 2020 9,861 609 $ $ $ $ 352 3 3 358 (127) (23) (2) (152) A 10% strengthening of the Canadian dollar against the following currencies at September 30, 2020 would have decreased other comprehensive income by the amounts shown below. USD EURO CHF NOK Total September 30, 2020 $ 9,705 5,139 (29) 272 $ 15,087 A 10% strengthening against the Canadian dollar of the currencies to which the Company had exposure that is not related to forward foreign exchange contracts would have increased Net Profit (a 10% weakening against the USD would have had the opposite effect) by the amounts shown below. USD EURO Total 90 September 30, 2020 $ $ 294 2 296 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd. 25. Financial Instruments and Risk Management (continued) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s accounts receivable and its foreign exchange contracts. The Company’s exposure to credit risk with its customers is influenced mainly by the individual characteristics of each customer. The Company’s customers are for the most part, federal and provincial government departments and large private companies. A significant portion of the Company’s accounts receivable is from long-time customers. At September 30, 2020 (2019), 56% (71%) of its accounts’ receivable were due from various departments and agencies of the Canadian federal government. Over the last five years the Company has not suffered any significant credit related losses. The Company limits its exposure to credit risks from counter-parties to derivative financial instruments by dealing only with major Canadian financial institutions. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: Cash and cash equivalents Accounts receivable Derivative assets Total The aging of accounts receivable at the reporting date was: Current Past due (61-120 days) Past due (> 120 days) Total Liquidity risk September 30, 2020 September 30, 2019 $ $ 24,235 $ 81,109   358   17,135 63,977 96 105,702 $ 81,208 September 30, 2020 September 30, 2019 $ $ 76,470 $ 60,574 3,305   1,334   1,249 2,154 81,109 $ 63,977 Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity risk is to ensure, as much as possible, that it will always have sufficient liquidity to meet liabilities when due. At September 30, 2020, the company has a secured credit facility, subject to annual renewal, that allows the Company to borrow funds up to an aggregate of $60,000. At as September 30, 2020, NIL was drawn on the facility for current operations, and Nil was drawn to issue letters of credit to meet customer contractual requirements. Fair Value The fair value of accounts receivable, accounts payable and accrued liabilities approximates their carrying values due to their short-term maturity. Fair value of the forward exchange contracts reflects the cash flows due to or from the Company if settlement had taken place on September 30, 2020 and represent the difference between the hedge rate and the exchange rate at the end of the reporting period. 91 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report        25. Financial Instruments and Risk Management (continued) The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 of the fair value hierarchy based on the degree to which the fair value is observable: • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Cash and cash equivalents Investment and loan receivable Derivative financial assets Contingent earn-out Derivative financial liabilities Total Cash and cash equivalents Investment and loan receivable Derivative financial assets Contingent earn-out Derivative financial liabilities Total September 30, 2020 Level 1 Level 2 Level 3 $ 24,235 $ - - - - $ 24,235 $  - - 358 - (152) 206 $ - 670 - (15,164) -  $ (14,494) September 30, 2019 Level 1 Level 2 Level 3 $ 17,135 $ - - - - $ 17,135  $ - - 96 - (143) (47) $ - 452 - (6,319) -  $ (5,867) There were no transfers between Level 1, Level 2 and level 3 during the three and nine month periods ended September 30, 2020. 26. Acquisitions (D.T.) Secure Technologies International Inc. On May 31, 2018, the Company acquired all of the outstanding shares of Secure Tech for a purchase price of up to $4,188. Of this amount, $2,588 was paid on the date of closing and $1,600 is payable contingently. Secure Tech is a dedicated partner in IT and Information Security. Secure Tech was acquired to expand the Company’s information technology cyber offering and is reported as part of the IT operating segment. Under the contingent consideration arrangement, the Company is required to pay the former shareholders of Secure Tech an additional $800 and $800 if Secure Tech attains specified levels of EBITDA for the years ending May 31, 2019 and 2020, respectively. Secure Tech did not achieve the level of EBITDA required for the year 1 earn-out. This resulted in a reduction of the first year earn out liability in the amount of $800 which was recognized in fiscal year 2019. At September 30, 2020, the second year target was met, and overachieved, resulting in a payment of $1,025. For the year ended September 30, 2020, the net impact was $225 reflected in ‘ changes in fair value related to contingent earn-out’. 92 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.                26. Acquisitions (continued) IntraGrain Technologies Inc. (“IntraGrain”) On November 1, 2018, the Company acquired all of the outstanding shares of IntraGrain for a purchase price of up to $17,000. Of this amount, $11,000 was paid on the date of closing and $6,000 is payable contingently. IntraGrain is the maker of the BIN-SENSE® grain storage solution. The technology combines Internet of Things (connectivity) with bin sensors to protect grain quality and eliminate the risk of stored grain spoilage and is reported as part of the Advanced Technologies operating segment. Under the contingent consideration arrangement, the Company is required to pay the former shareholders of IntraGrain an additional $2,500 and $3,500 if IntraGrain attains specified levels of EBITDA for the years ending October 31, 2019 and 2020, respectively. IntraGrain did not achieve the level of EBITDA required for the year 1 earn-out. This resulted in a decrease of the first year earn out liability in the amount of $2,447 which was recognized in fiscal year 2019. At September 30, 2020, it is estimated that IntraGrain will not achieve its second year targeted EBITDA to meet the earn- out criteria, which resulted in a decrease of the second year earn-out liability in the amount of $3,288 reflected in ‘changes in fair value related to contingent earn-out’ in the statement of Net profit. Sat Service, Gesellschaft für Kommunikationssysteme mbH. (“SatService”) On April 1, 2019, the Company acquired all of the outstanding shares of SatService for a purchase price of $16,036. Of this amount, $9,810 (6,450 EURO) was paid on the date of closing, $931 (618 EURO) was paid upon settlement of net equity and $5,295 (3,550 EURO) is payable contingently. SatService offers innovative engineering solutions and products for the satellite communications market and is reported as a part of the Advanced Technologies operating segment. Under the contingent consideration arrangement, the Company is required to pay the former shareholders of SatService an additional $2,014 and $3,282 (1,350 EURO and 2,200 EURO) if SatService attains specified levels of EBITDA for the nine-month period ended December 31, 2019 and for the twelve-month period ending December 31, 2020. SatService did not achieve the level of EBITDA required for the year 1 earn-out. This resulted in a decrease of the first year earn out liability in the amount of $1,925 which was recognized in fiscal year 2019. At September 30, 2020, it is estimated that SatService will not achieve its second year targeted EBITDA to meet the earn-out criteria, which resulted in a decrease of the second year earn-out liability in the amount of $2,988 reflected in ‘changes in fair value related to contingent earn-out’ in the statement of Net Profit. Allphase Clinical Research Services Inc. and Alio Health Services Inc. (collectively “Alio/Allphase”) On January 30, 2020, the Company acquired all of the outstanding shares of Alio/Allphase for a purchase price of up to $25,056. Of this amount, $10,500 was paid in cash on the date of closing, $56 was paid in cash on settlement of net equity, $2,500 was paid in common shares, and $12,000 is payable contingently, of which $3,000 is included in the purchase price. Alio/Allphase serve the pharmaceutical and medical device industry and the broader health care sector with clinical trial services, specialty medication support and community care and other services, all enabled by an innovative health care delivery management software application. Alio/Allphase is reported as part of the Health operating segment. Under the contingent consideration arrangement, the Company is required to pay the former shareholders of Alio/ Allphase an additional $6,000 and $6,000 if Alio/Allphase attains specified levels of EBITDA for the years ending January 30, 2021 and 2022, respectively. This contingent consideration is recognized at its present and risk adjusted value of $2,355 at the date of acquisition. On the transaction close date, it was estimated that Alio/Allphase was not going to achieve the first year target and the contingent earn-out at the date of acquisition that was accounted for only included the second year amount. At September 30, 2020, management assessed the likelihood of Alio/Allphase achieving the earn-out target for year 1, and it was determined that an amount of $3,152 is likely to be achieved. This was recognized in the current year as a change in fair value related to contingent earn out in the statement of profit. To date, $207 in changes in fair value related to the second year contingent earn out has been recognized. Alio/Allphase changed their estimate, resulting in a recovery of $100 in contingent earnout relating to an acquisition that occurred previous to January 30, 2020. This amount is included in ‘changes in fair value in the statement of Net Profit. 93 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report26. Acquisitions (continued) The following are the assets acquired and liabilities recognized at the date of the acquisitions of Alio/Allphase: Cash and equivalents Receivables Prepaids and other Fixed assets (net) Intangible assets Goodwill Payables and accrued liabilities Long term payable Deferred income Contingent earn-out Deferred tax liability Net purchase price Discount on contingent consideration Total purchase price Net Assets Acquired Purchase Price Accounting Fair Value of Net Assets Acquired $ $ $ $ $ 67 3,227 79 3,373 76 361 498 4,308 1,814 1,022 95 200 122 $ $ $ $ $ 3,253 $ - - - - - 8,555 8,068 16,623 - - - - 2,267 2,267 $ $ $ $ $ $ 67 3,227 79 3,373 76 8,916 8,566 20,931 1,814 1,022 95 200 2,389 5,520 15,411 645 $ 16,056 94 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.26. Acquisitions (continued) EMSEC Solutions Inc. (“EMSEC”) On July 14, 2020, the Company acquired all of the outstanding shares of EMSEC for a purchase price of up to $4,809. Of this amount, $3,000 was paid in cash on the date of closing, $9 is to be paid in cash on settlement of net equity and $1,800 is payable contingently. EMSEC’s customized services include vulnerability assessments, monitoring, training, risk mitigation and countermeasure sweeps. The firm’s emission analyzer software product, provides automated and manual signal analysis supporting production testing, equipment certification, as well as troubleshooting, investigation and research. EMSEC is reported as part of the IT operating segment. Under the contingent consideration arrangement, the Company is required to pay the former shareholders of EMSEC an additional $900 and $900 if EMSEC attains specific levels of EBITDA for the years ending December 31, 2021 and December 31, 2022, respectively. With the current projections, management believes that EMSEC can achieve its earn-out target in both years. Therefore, the amount of $1,297 represents the estimated present and risk adjusted value of the Company’s obligation at the acquisition date. To date, $63 in changes in fair value related to the contingent earn-outs has been recognized. Cash Accounts receivable and tax receivable Prepaid expenses and other Equipment Goodwill Intangible assets Accounts payable and accrued liabilities Deferred tax liability Taxes Payable Net purchase price Discount on contingent consideration Total purchase price Net Assets Acquired Purchase Price Accounting Fair Value of Net Assets Acquired $ $ $ $ $ $ 254 611 9 874 109 25 - 1,008 386 - 113 499 - - - - - 2,532 1,721 4,253 - 456 - 456 $ $ $ $ $ $ $ $ $ $ $ $ 254 611 9 874 109 2,557 1,721 5,261 386 456 113 955 4,306 503 4,809 95 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report26. Acquisitions (continued) Comprehensive Training Solutions International (“CTS”) On July 8, 2020, the Company acquired all of the outstanding shares of CTS for a purchase price of up to $1,983. Of this amount, $1,135 was paid in cash on the date of closing and $848 is payable contingently. CTS designs, develops and delivers complex training exercises for the Joint Warfare Centre, a multi-national and multi-service organization of North Atlantic Treaty Organization (“NATO”), and the wider NATO audience across Europe. CTS is reported as part of the Learning operating segment. Under the contingent consideration arrangement, the Company is required to pay the former shareholders of CTS an additional $417 and $431 if CTS attains specific levels of EBITDA for the years ending December 31, 2021 and December 31, 2022, respectively. With the current projections, management believes that CTS can achieve its earn- out target in both years. Therefore, the amount of $618 represents the estimated present and risk adjusted value of the Company’s obligation at the acquisition date. To date, $27 in changes in fair value related to the contingent earn-outs has been recognized. Cash Accounts receivable and tax receivable Equipment Goodwill Intangible assets Accounts payable and accrued liabilities Deferred tax liability Taxes Payable Net purchase price Discount on contingent consideration Total purchase price Tallysman Wireless Inc. (“Tallysman”) Net Assets Acquired Purchase Price Accounting Fair Value of Net Assets Acquired $ $ $ $ $ $ 408 53 461 8 - 469 112 - 122 234 - - - - 1,003 661 1,664 - 146 - 146 $ $ $ $ $ $ $ $ $ $ $ $ 408 53 461 8 1,003 661 2,133 112 146 122 380 1,753 230 1,983 On September 1, 2020, the Company acquired all of the outstanding shares of Tallysman for a purchase price of up to $25,354. Of this amount, $15,000 was paid in cash on the date of closing, $1,654 is to be paid in cash on settlement of net equity and $8,700 is payable contingently. Tallysman designs, manufactures and sells a very wide range of Global Navigation Satellite System, Iridium and Globalstar antennas and related products into a market with a broad range of vertical applications that include precision reference systems, survey, timing, precision agriculture, unmanned and autonomous vehicles and marine. The company also produces cloud based wireless tracking systems over two-way radio systems and 4G category M cellular systems, for applications ranging from school buses to municipal public works. Tallysman is reported as part of the Advanced Technologies operating segment. 96 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.26. Acquisitions (continued) Under the contingent consideration arrangement, the Company is required to pay the former shareholders of Tallysman an additional $3,950 and $4,750 if Tallysman attains specific levels of EBITDA for the years ending December 31, 2021 and December 31, 2022, respectively. With the current projections, management believes that Tallysman can achieve its earn-out target in both years. Therefore, the amount of $7,282 represents the estimated present and risk adjusted value of the Company’s obligation at the acquisition date. To date, $63 in changes in fair value related to the contingent earn-outs has been recognized. Net Assets Acquired Purchase Price Accounting Fair Value of Net Assets Acquired Cash Accounts receivable and tax receivable Prepaid expenses and other Inventory Equipment Goodwill Intangible assets Accounts payable and accrued liabilities Deferred Income Deferred tax liability Net purchase price Discount on contingent consideration Total purchase price $ $ $ $ $ $ 643 1,640 105 2,621 5,009 459 - - 5,468 753 61 - 814 - - - - - - 9,462 13,360 22,822 - - 3,540 3,540 $ $ $ $ $ $ $ $ $ $ $ 643 1,640 105 2,621 5,009 459 9,462 13,360 28,290 753 61 3,540 4,354 23,936 1,418 $ 25,354 Cash consideration paid for acquisitions during the year ended September 30, 2020: Secure Tech Alio/Allphase EMSEC CTS Tallysman Total Consideration paid in cash Less- cash balance acquired $ 1,025 10,500 3,000 1,135 15,000 30,660 - (67) $ 1,025 10,433 (254) 2,746 (408) 727 (643) 14,357 (1,372) 29,288 Cash consideration paid for acquisitions during the year ended September 30, 2019: Consideration paid in cash Less- cash balance acquired ISR 1,640 - 1,640 $ $ IntraGrain SatService Total 11,000 (111) 10,889 10,741 (2,421) 8,320 23,381 (2,532) 20,849 None of the goodwill arising on the acquisitions is expected to be deductible for tax purposes. 97 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual Report27. Contingent Earn-Out The following shows the contingent consideration activity for the year ended September 30, 2020: Company Acquired Secure Tech IntraGrain Technologies SatService Alio/Allphase Comprehensive Training Solutions EMSEC Solutions Tallysman Wireless Total Beginning balance Acquisition Payments Other Adjustment for likelihood of payment Ending balance Change in Fair Value $ 800 $ 2,885 2,634 - - - - - - - 2,555 618 1,297 7,282 $ (1,025) $ - $ 225 $ - - - - - - 403 354 207 27 63 63 (3,288) (2,988) 3,052 - - - - - - 5,814 645 1,360 7,345 $ 6,319 $ 11,752 $ (1,025) $ 1,117 $ (2,999) $ 15,164 As at September 30, 2020, the total gross value of all contingent consideration outstanding is $30,277. The following shows the contingent consideration activity for the year ended September 30, 2019: Company Acquired ISR Secure Tech IntraGrain Technologies SatService Total Change in Fair Value Beginning balance Acquisition Payments Other $ 1,566 $ 1,600 - - - 4,688 4,254 $ (1,640) $ - - - 74 - 644 305 Adjustment for likelihood of payment Ending balance $ - $ - (800) (2,447) (1,925) 800 2,885 2,634 $ 3,166 $ 8,942 $ (1,640) $ 1,023 $ (5,172) $ 6,319 28. Pension Plan The Company sponsors a defined contribution pension plan for certain of its employees. Required contributions have been fully funded to September 30, 2020. For fiscal 2020 (2019), an amount of $1,228 ($1,172) was expensed related to this pension plan. 29. Related Party Transactions During the year ended September 30, 2020 (2019), the Company had sales of $1,160 ($1,552) to GrainX in which Calian holds a non-controlling equity investment. At September 30, 2020 (2019), the Company had an accounts receivable balance with GrainX of $130 ($90) which is included in accounts receivable. The terms and conditions of the related party sales are within the Company’s normal course of operations and are measured at the exchange amounts agreed to by both parties and are representative of fair market value. The Company has certain office space leases with employees of the Company. The total amount of expense due to leases with related parties is $184 ($192) for the year ended September 30, 2020 (2019). Lease terms are within normal course of operations and are representative of fair market value. 98 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)2020 Annual ReportCalian Group Ltd.29. Related Party Transactions (continued) The compensation for directors and other members of key management during the year was as follows. The compensation of directors and key executives is determined by the compensation committee having regards to the performance of individuals and market trends. The key executives are the Chief Executive Officer, the Chief Financial Officer, Chief Information Officer, Chief Human Resource Officer and Vice-President, Engineering. Short-term benefits Share-based payments 2020 $ 2,570 1,349 $ 3,919 2019 $ $ 2,699 536 3,235 30. Contingencies In the normal course of business, the Company is party to business and employee-related claims. The potential outcomes related to existing matters faced by the Company are not determinable at this time. The Company intends to defend these actions, and management believes that the resolution of these matters will not have a material adverse effect on the Company’s financial condition. 31. Comparative Figures Certain comparative figures have been reclassified to conform to the current year’s presentation whereby facilities expense of $5,306 for the year ended September 30, 2019 have been reclassified from a stand-alone line in the statement of net profit into general and administration expense, and research and development expense of $1,420 for the year ended September 30, 2019 has been separated from general and administration expense into research and development expenses. With the implementation of IFRS16, facilities expense have decreased significantly. This is due to the fact that the fixed lease cost portion of previous lease expenses is now depreciation and interest expense under IFRS16. Without the fixed portion of the lease costs, the facilities line is not significant enough to separate from general and administration expense on the statement of net profit. In addition, certain comparative lines have been reclassified in the current year for amounts related to contingent earn out changes on the statement of Net Profit. In the current year the Company reports all changes in fair value related to contingent earn out in the Changes in fair value related to contingent earn out amount in the statement of Net Profit. This has resulted in the amounts of income of $5,172 presented in Gain on change in estimate and expense of $1,023 presented in Accretion interest expense related to acquisitions being presented in Changes in fair value related to contingent earn out for comparative purposes. 32. Subsequent Events Effective October 30, 2020, the Company acquired the outstanding shares of Cadence Consultancy Limited (“Cadence”), for total cash consideration of up to 2,000 Pound Sterling ($3,451 CAD) of which, £1,100 ($1,898 CAD) was paid on closing, and £900 ($1,553 CAD) is payable contingently. Cadence is a UK based training firm with operations across the North Atlantic Treaty Organization (NATO) with a particular focus on the Joint Forces Training Centre (JFTC). Cadence was acquired to expand the Company’s work with NATO which was initially won with the acquisition of CTS in July of fiscal 2020. Cadence will be reported as part of the Learning operating segment and fully consolidated as of November 1, 2020. 99 Calian Group Ltd. Notes to the Consolidated Financial StatementsFor the years ended September 30, 2020 and 2019 (Canadian dollars in thousands, except per share amounts)Calian Group Ltd.2020 Annual ReportAdditional Information Common Share Information The Company’s common shares are listed for trading on the Toronto Stock Exchange under the symbol CGY. Dividend Policy The Company intends to continue to declare a quarterly dividend in line with its overall financial performance and cash flow generation. Decisions on dividend payments are made on a quarterly basis by the Board of Directors. There can be no assurance as to the amount of such dividends in the future. Additional information about the Company such as the Company’s 2020 Annual Information Form and Management Circular can be found on SEDAR at www. SEDAR.com Corporate Head Office 770 Palladium Drive Ottawa, Ontario, Canada K2V 1C8 Phone: 613.599.8600 Fax: 613.592.3664 Web: www.calian.com Board of Directors George Weber President, WebX Consulting Ltd. Chairman, Calian Group Ltd. Chair of the Nominating Committee Kenneth J. Loeb Executive Chairman, Ambassador Realty Inc. Chair of the Compensation Committee Richard Vickers, FCA Consultant Chair of the Audit Committee Jo-Anne Poirier President and CEO, VON Canada Chair of the Governance Committee Ray Basler, CPA, CA Consultant Young Park Consultant Kevin Ford President and CEO, Calian Group Ltd. 2020 Annual Report 

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