www.ntgclarity.com
NTG Clarity Networks Inc.
Simplifying Business Solutions
www.smart2go.ca
ANNUAL REPORT 2020
Our Vision
To be the leading provider of high quality systems and solutions
while creating an environment of success
for our customers, employees and shareholders.
Our Value Proposition
NTG Clarity partners with groups who design, build, manage, and support networks and network software
applications.
We are the experts in applying technology, methodology, process, and people to provide quality and on
time network services; on your premises or ours. We help you, our customer, to increase revenue,
improve customer satisfaction, and focus on your bottom line.
“We are your software and network services partner!”
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Table of Contents
Letter to our Shareholders ............................................................................................................................... 5
Management’s Discussion & Analysis of Financial Conditions and Results of Operations ............................. 6
Forward-Looking Statements ......................................................................................................................6
Business Overview .......................................................................................................................................6
Summary of Major NTG Events in 2020 ................................................................................................................. 7
Outlook ................................................................................................................................................................... 8
Summary of Quarterly Results ....................................................................................................................9
Quarterly and Annual Results of Operations...............................................................................................9
Revenue ................................................................................................................................................................. 9
Cost of Sales and Gross Margin ............................................................................................................................ 10
Operating Expenses .............................................................................................................................................. 11
Other Expenses .................................................................................................................................................... 12
Net Loss ................................................................................................................................................................ 13
Assets and non-current liabilities ............................................................................................................. 13
Intangible assets ................................................................................................................................................... 13
Property and equipment ...................................................................................................................................... 14
Non-current liabilities .......................................................................................................................................... 14
Liquidity and Capital Resources ................................................................................................................ 14
Cash Flow Provided by Operations ...................................................................................................................... 14
Cash Flow from Financing Activities ..................................................................................................................... 15
Cash Flow from Investing Activities ..................................................................................................................... 15
Commitments and Contractual Obligations ............................................................................................. 15
Off-Balance Sheet Arrangements ............................................................................................................. 15
Transactions with Related Parties ............................................................................................................ 16
Basis of Preparation and Significant Accounting Policies ......................................................................... 16
Proposed Transactions ............................................................................................................................. 16
Business Risk and Management ............................................................................................................... 16
Market risk ........................................................................................................................................................... 17
Interest rate risk ................................................................................................................................................... 17
Credit risk ............................................................................................................................................................. 17
Foreign currency risk ............................................................................................................................................ 18
Liquidity risk ......................................................................................................................................................... 18
Capital Management ............................................................................................................................................ 19
Legal claim contingency ....................................................................................................................................... 19
Guarantees ........................................................................................................................................................... 19
Collateral .............................................................................................................................................................. 19
Disclosure Controls and Procedures and Internal Controls over Financial Reporting ............................. 19
Standards issued but not yet effective ..................................................................................................... 20
Management’s Statement of Responsibility .................................................................................................. 20
Independent Auditor’s Report ....................................................................................................................... 21
Consolidated Statements of Financial Position ............................................................................................. 24
Consolidated Statements of Changes in Equity ............................................................................................. 25
Consolidated Statements of Profit and Loss and Comprehensive Income .................................................... 26
Consolidated Statements of Cash Flows ........................................................................................................ 27
CORPORATE INFORMATION ........................................................................................................ 28
GOING CONCERN ......................................................................................................................... 28
BASIS OF PRESENTATION ............................................................................................................. 28
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES .................................................................. 29
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS.............................. 44
STANDARDS ISSUED BUT NOT YET EFFECTIVE ............................................................................. 47
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OPERATING SEGMENT INFORMATION ........................................................................................ 47
INCOME TAXES ............................................................................................................................ 49
EARNINGS PER SHARE ................................................................................................................. 50
CASH AND CASH EQUIVALENTS ................................................................................................... 51
TRADE AND OTHER RECEIVABLES ................................................................................................ 51
PREPAID EXPENSES AND DEPOSITS ............................................................................................. 52
BID/PERFORMANCE BONDS ........................................................................................................ 52
PROPERTY AND EQUIPMENT ....................................................................................................... 53
INTANGIBLE ASSETS ..................................................................................................................... 54
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES ........................................................................ 55
OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES .............................................................. 56
GOVERNMENT GRANT ................................................................................................................. 58
EQUITY INSTRUMENTS ................................................................................................................ 58
CONTRIBUTED SURPLUS .............................................................................................................. 61
DIVIDENDS PAID AND PROPOSED ............................................................................................... 61
COST OF SALES ............................................................................................................................. 61
EXPENSES: DISCLOSURE OF FUNCTION EXPENSES ...................................................................... 61
LOANS PAYABLE ........................................................................................................................... 62
RELATED PARTY DISCLOSURES .................................................................................................... 62
FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES ...................................................... 64
COMMITMENTS, CONTINGENCIES, AND GUARANTEES .............................................................. 68
COLLATERAL ................................................................................................................................. 69
SALE OF ENTERPRISE LICENSES .................................................................................................... 69
COMPARATIVE FIGURES .............................................................................................................. 70
Corporate Information ................................................................................................................................... 71
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Letter to our Shareholders
At this time, we are mindful of the effects of COVID-19 and the impact the pandemic has had on global
economies throughout the world. Our thoughts are with those most impacted by the disease, as well as
with the frontline workers who risk their own wellbeing to protect citizens across the globe.
2020 was a good year for NTG that has seen a turnaround to profitability in third and fourth quarters. We
have capitalized on our track record and experience, and the goodwill we have built throughout the years.
NTG is now recognized as a provider of top tier quality service with very competitive pricing. We have
added new clients to our customer base, especially in the financial sector. These are outside our
traditional telecom vertical and are an important growth opportunity for us as they are going through
digital transformation.
During the year, we developed our new product Smart2go -- a digital transformation tool providing a low
code platform that enables users to develop applications quickly and easily. Subsequent to year end, in
Q1 2021, we have seen the demand for the system reflected in purchase orders and we look forward to
increasing product sales and the professional services to implement and support the system. The
Smart2go software is being sold as a service either on the cloud or implemented on premises for large
corporate clients.
Going forward, NTG will focus on promoting our Smart2Go digital transformation platform. We believe
that Smart2Go is one of the best digital transformation platforms available. It enables digital journeys and
helps clients to create new revenue streams and enhance operation efficiency. At the same time, we are
working hard to capitalize on the booming demands for IT and telecom services due to the COVID-19
pandemic and on establishing NTG as a major offshoring hub for technology and IT services.
We would again like to thank our valued shareholders for their continued support during these
challenging times. As management’s interests are closely aligned with our shareholder base, we remain
committed to working diligently to return NTG to a profitable and growing the company in the years
ahead.
"Ashraf Zaghloul"
Ashraf Zaghloul, Chair and Chief Executive Officer
NTG Clarity Networks Inc.
5
Management’s Discussion & Analysis of Financial Conditions and
Results of Operations
This management discussion and analysis focuses on key statistics from the consolidated financial
statements and pertains to known risks and uncertainties relating to the telecommunications and
consulting industry. This discussion should not be considered all-inclusive, as it excludes changes that may
occur in general economic, political and environmental conditions. This discussion and analysis of the
financial condition and results of operations has been prepared as of April 28, 2021, for the year ended
December 31, 2020 and should be read in conjunction with the audited consolidated financial statements
and related notes and material contained in other parts of this annual report.
Additional information related to the Corporation is available on SEDAR at www.sedar.com.
Forward-Looking Statements
Certain statements in this MD&A and associated notes and financial statements may be considered
“forward-looking” within the meaning of applicable securities laws. These statements reflect the
Corporation’s plans and expectations based on our experience, interpretation of past trends, key
assumptions and other relevant information available at the date that such statements are made.
The statements involve business, economic and competitive risks, uncertainties and contingencies. There
is significant risk that predictions, projections or conclusions will not prove to be accurate and actual
results may differ materially from estimates, expectations, or intentions expressed.
The forward-looking statements in this MD&A and associated notes and financial statements are based on
what we believe are reasonable assumptions, however we caution readers not to place undue reliance on
our forward-looking statements. We assume no obligation to update or revise these forward-looking
statements to reflect new events or circumstances, except as required by securities law.
Business Overview
NTG Clarity is a Canadian publicly traded Corporation (TSXV:NCI) that provides telecommunications
engineering, Information Technology, networking and related software solutions. We have been
developing niche software products directed at telecom service providers and utilities markets since our
inception in 1993. We also provide professional services network, and managed services to this same
vertical.
We are headquartered in Toronto, Canada and have subsidiaries/branch offices in Cairo, Egypt; the USA;
Riyadh, Saudi Arabia; Oman and Kuwait. The Corporation is organized into two business segments: the
Canadian segment, which is made up of activities in Canada and our offices in Saudi Arabia, Oman; and
the Egypt segment, which is our software development group and also provides professional services and
network services/hardware to customers in Egypt.
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Summary of Major NTG Events in 2020
The following outlines the events that occurred in 2020:
In January 2020, EDC approved payment of the insurance claim submitted in 2018. In February 2020,
a payment of US$60,911.53 was made to RBC Royal Bank.
In January 2020, the EDC-supported performance bond was called by the customer. On February 27,
2020, the Corporation was notified that EDC had paid the Bank’s claim of US$55,848 towards the
bond. As the bond was 100% insured by EDC, the cost was not born by the Corporation.
On February 3, 2020, after the required Stock Exchange (TSX) review, NTG’s shares resumed trading.
The Investment Industry Regulatory Organization of Canada (IIROC) had halted trading for the
Corporation’s shares on October 8, 2019.
On March 11, 2020, the World Health Organization (WHO) declared COVID-19 to be a global
pandemic. Countries restricted travel, closed non-essential businesses, and asked that people stay
home. NTG closed all offices and asked staff to work remotely.
On March 20, 2020, due to the global economic situation and the inability of NTG to renew its
Directors and Officers insurance, the Corporation announced that the two independent Board
members and one other Board member resigned from NTG’s Board.
On May 1, 2020, NTG signed an agreement with an Egyptian company, to purchase NTG Egypt’s
Enterprise business including a copy of the non-exclusive rights for the IP of two legacy software
products (Utility Billing and HMIS) for 1.2 million Egyptian pounds.
On May 6, 2020, the Corporation closed the Board-approved Shares for Debt transaction and issued
44,000,000 shares for $660,000 owed to employees and consultants. The total number of shares
outstanding after the transaction was 100,102,355.
Towards the end of June 2020, NTG’s offices re-opened with the Egypt office starting a gradual return
with enhanced health and safety protocols. Employees working at customer sites continue to follow
customers’ protocols for working onsite or remotely.
On December 3, 2020, NTG announced the election of two independent members of the Board of
Directors at the Annual General Meeting (AGM).
Egypt
Historically, Egypt has been a challenging place to do business with continued restrictions on using foreign
currency for business operations and on moving funds out of the country. We mitigate much of the risk of
doing business in the country as our expenses and the majority of our contracts in Egypt are both in the
local currency. Additionally, most of the technical and professional services are based in Egypt and allow
NTG to provide experienced resources and expertise at extremely competitive prices.
This has proven to be a successful strategy because the offshoring of resources to Egypt is becoming
increasing popular, most likely due to COVID-19. Subsequent to year end (February 16, 2021), NTG
announced the signing of a Memo of Understanding (MOU) with a major bank in the Gulf region to
provide offshore resources and facilities through our Egyptian subsidiary. Three other smaller offshoring
projects have expanded our services into the transportation sector and to government agencies.
In addition to offshoring and our existing professional services outsourcing in Egypt, we have focused
efforts more on our core software products and our Smart2Go low-code development platform.
On May 1, 2020, NTG signed a Board-approved agreement with an Egyptian company owned by a former
Director of the Corporation. This agreement allowed the Egyptian company to purchase NTG Egypt’s
7
Enterprise business including a copy of the non-exclusive rights for the intellectual property (IP) of two
software products (Utility Billing and HMIS) for 1.2 million Egyptian pounds. This was to allow us to focus
on our core products and services.
In 2020, Egypt’s revenue contribution continues to be strong with the subsidiary contributing 26% of the
Corporation’s revenue (2019: 33%).
Kingdom of Saudi Arabia (KSA)
NTG has been doing business in KSA for over 15 years, and ongoing initiatives continue to show returns
with 79% of our professional service work and 63% of our revenue being from KSA (2019: 62% and 49%
respectively). NTG has developed good brand recognition and a solid track record over the years, which is
an asset to our work in the region.
Our KSA revenue has increased by 14% over 2019 revenues. Additionally, new customers in the banking
sector and in public sectors are contributing significantly to our revenue (28%).
Oman
In 2020, we continued work for our customer in Oman, who is using our NTS Network Inventory and
Project Management modules. Recurring revenues in Oman from product maintenance, support, and
change requests as well as professional services contributed 11% to NTG’s revenue in 2020 (2019: 9%).
Outlook
We at NTG started 2020 with high expectations as we had the struggles with our indebtedness issues
resolved and we hoped to see a return to some normalcy. However NTG, along with the world, faced the
challenges associated with COVID-19 and the global shut-down. The ongoing pandemic measures
presented and continue to present a significant source of economic uncertainty and there have been
impacts on NTG’s sales and operations.
COVID-19-related business changes such as the cancellation of marketing events and many customer in-
person meetings and travel, combined with management mandated salary reductions, have combined to
reduce our cost of sales by 12% and selling and G&A expenses by more than 50%.
Providing the offshoring and outsourcing of our technical, IT and professional services resources has
proven to be a successful strategy as working remotely has become increasing popular, most likely due to
COVID-19. This has helped us grow and expand our business into new verticals that include government
and financial sectors. We are looking forward to more contracts such as those announced subsequent to
year end, in Q1 2021.
Finally, with the release of our latest software product, Smart2Go, we anticipate being able to further
expand into new verticals. Smart2Go allows enterprises to automate their processes and create
applications by offering rapid application development without the need for knowledge of development
languages. Smart2Go is built on NTG’s proven Workflow technology and provides both a Portal and
Mobile Apps for its users.
At the time of publishing of this report, it is uncertain how long COVID-19 conditions will last and what
economic impact they will have on our business, ongoing cash flows and our ability to continue as a going
concern.
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Summary of Quarterly Results
Historically, NTG’s operating results have fluctuated due to the timing of new contracts and their
corresponding billing, as well as billing for software licenses which can result in larger sales orders in any
one quarter. We expect this trend to continue.
Despite the COVID-19 lockdowns and the slowdown in Q2 2020, we have managed to keep quarter over
quarter revenues strong. In Q3 and Q4 2020 we have returned NTG to profitability.
The following table shows a summary of our eight most recent quarters (in Canadian dollars).
2020
Quarter One
Quarter Two
Quarter Three
Quarter Four
TOTAL
2019
Quarter One
Quarter Two
Quarter Three
Quarter Four
TOTAL
Revenue
$ 2,474,766
$ 1,651,209
$ 2,233,248
$ 1,593,033
$ 7,906,989
Revenue
$ 3,616,344
2,035,298
$ 575,594
2,399,193
Net Income
(Loss)
$ (598,736)
$ (1,019,715)
$ 252,059
$ 267,776
$ (1,098,617)
Profit (Loss)
per Share
Diluted Profit
per Share
$ (0.01)
$ (0.01)
$ 0.00
$ 0.00
$ (0.01)
$ (0.01)
$ (0.01)
$ 0.00
$ 0.00
$ (0.01)
Total Assets
$ 2,750,861
$ 2,165,928
$ 2,448,748
$ 3,173,303
$ 3,173,303
Net Income
(Loss)
Profit (Loss)
per Share
Diluted Profit
per Share
Total Assets
$ 304,719
$ (289,170)
(5,210,467)
(3,989,191)
$ 0.01
$ (0.01)
$ (0.09)
( 0.07)
$ (0.16)
$ 0.01
$ 8,843,130
$ (0.01)
$ (0.09)
( 0.06)
$ (0.15)
$ 6,218,754
$ 4,899,211
$2,254,321
$2,254,321
$ 8,626,429
$ (9,184,109)
Quarterly and Annual Results of Operations
Towards the end of Q1 2020, NTG’s offices were closed; staff were asked to work remotely. Q2 2020 was
significantly affected by COVID-19 and sales and collections were negatively impacted. Though revenues
have started to strengthen in Q3 and Q4 2020, cash flow remains a concern as NTG depends on
collections to finance operations.
Financial highlights for the three months and year ended December 31, 2020:
Revenue
Consolidated revenues for the three months ended December 31, 2020 was $1,593,033 compared to
$2,399,193 for the same period in 2019. Revenue for the year decreased 8% to $7,906,989 compared to
$8,626,429 reported in the prior year, due to the loss in revenue from Kuwait, and the sale of NTG Egypt’s
Enterprise group.
Professional service revenue continues to be an important strategic source of revenue for us, given its
generally recurring nature (80% as compared to 76% in 2019). We continue to work to make product sales
a more balanced part of NTG’s revenue stream.
2020 revenue is lower primarily because of the loss of Kuwait revenue starting in Q2 2020. Our main
contract expired and was not renewed and we have been unable to replace the revenue stream. Egypt
revenue is lower than in 2019 because of the sale of the Enterprise group. However Canada and KSA
showed revenue increases which significantly offset the lost revenue streams.
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Consolidated revenues for Q4 2020 for the Egypt operating segment were $393,190 compared to
$881,789 in 2019. For the year ended December 31, 2020 revenues decreased to $2,094,422 (2019:
$2,829,382). This was partially due to the sale of Egypt’s Enterprise group in May 2020.
For the Canadian operating segment, revenues for the three months ended and year ended December 31,
2020 were $1,154,577 and $5,812,568 (2019: $1,517,403 and $5,797,047). The Q4 decrease was due to
the loss of Kuwait revenue which was offset by strong KSA and Canada revenues, making the YTD revenue
slightly stronger than 2019.
Though we currently have three Canadian customers, the Middle East continues to be where the majority
of NTG’s revenue comes from and as of December 31, 2020, represents 99% of total revenue. We are
hopeful 2021 will see improved results from our past efforts with both existing and new customers.
Despite the challenges in Egypt, business development efforts have resulted in a strong contribution to
NTG's consolidated revenue (26%).
Unbilled Revenue
Unbilled revenue is revenue which had been earned and therefore recognized in compliance with IFRS,
but which has not been billed to the client(s) due to contract terms and/or billing cycle. NTG derives
revenue from fees charged to customers for licenses for software products and professional services:
support, consulting, development, training, and other services.
Revenue can be recognized for projects based on time and materials for professional services, or on a
percentage of completion basis for product implementation and support. Both can result in unbilled
revenue until the customer is invoiced. Based on NTG’s contracts, the customer is invoiced upon the
completion of defined milestones and/or the required customer acceptance. For many contracts, revenue
is recognized each month, but billed on a quarterly basis and we anticipate this to continue.
At December 31, 2020, unbilled revenue was $315,171 compared to $447,682 at December 31, 2019.
Cost of Sales and Gross Margin
Cost of sales consists of the expense of personnel providing professional services, and services to
implement and provide technical support for our solutions. In addition, it includes an allocation of certain
direct and indirect costs attributable to these activities.
Cost of sales for the three months and year ended December 31, 2020 were $1,675,034 and $5,673,356
respectively.
Cost of sales
Salaries and wages
Travel
Hardware
Other expenses
Total
December 31, 2020
December 31, 2019
$
$
5,223,849
123,344
240,393
85,770
5,673,356
$
$
5,492,507
323,345
168,752
388,859
6,373,463
For the Egypt operating segment, cost of sales for the three months and year ended December 31, 2020
were $622,475 and $1,694,496 compared to $949,747 and $2,417,245 in 2019. Decreases were due to
reduced travel and project slow downs as a result of COVID-19 lockdowns, and also due to the Enterprise
group’s removal as of May 2020.
For the Canadian operating segment, cost of sales for the three months and year ended December 31,
2020 were $1,052,559 and $3,978,860 (2019: $937,587 and $3,956,218).
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The gross margin for the year ending December 31, 2020 was 28% compared to 26% in 2019. Realistic
margins are anticipated to be between 30-40%, based on the product mix.
Operating Expenses
COVID-19-related business changes, such as the cancellation of marketing events and related travel, had a
significant impact on 2020 results. NTG’s operating expenses were significantly reduced to $3,394,410 in
2020 compared to $6,896,496 in the prior fiscal year. This is because of significantly reduced
selling/marketing and G&A costs as a result of office lockdowns and restricted travel due to COVID-19.
Selling and Marketing
Selling and marketing expenses consist primarily of sales staff remuneration, commissions, travel,
advertising, consulting, and trade show costs.
Sales and marketing expenses for the three months and year ended December 31, 2020 were $301,073
and $955,428 respectively (2019: $833,328 and $2,316,833). The significant decrease in the selling and
marketing expenses was the direct result of COVID-19. Travel, trade shows and most customer
meetings/visits continue to be suspended, and sales staff and salaries have been reduced.
Selling
Salary and wages
Marketing and advertising
Mailing and courier
Professional services
Meals and entertainment
Miscellaneous
Total
For the twelve months ended
December 31, 2020
December 31, 2019
$ 670,145
186,217
5,534
39,485
54,046
–
955,428
$
$ 1,621,273
316,816
5,787
45,104
318,947
8,906
$
2,316,833
General and Administrative
General and administration expenses (G&A) consist primarily of salary and benefits, rent and office
expenses, insurance, professional fees, accounting and legal fees, director’s fees, etc.
G&A expenses for the three months and year ended December 31, 2020 were $180,271 and $2,353,089
respectively compared to $2,042,682 and $4,063,432 in 2019. G&A costs have decreased significantly in
this period due to:
After Q1 2020, no salaries were accrued or paid for employees in the Canadian office and salaries
in Egypt and KSA were also reduced due to COVID-19.
The one-time End of Service provision for Executives in 2019 was absent in 2020.
Lower insurance costs - EDC and Euler Hermes Canada insurance policies were active in 2019 but
not in 2020 (see Note 25).
General and Administrative
December 31, 2020
December 31, 2019
Salary and wages
Occupancy
Consulting
Professional fees
Bid/performance bond fees
Insurance
Dues and subscriptions
Penalties and fees
Office and general
Total
$
1,364,997
222,847
99,800
120,645
831
242,299
25,690
37,245
238,735
$
3,046,491
282,678
104,708
119,689
3,161
426,653
23,228
31,264
25,560
$
2,353,089
$
4,063,432
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Foreign Exchange Gain/Loss
Each entity in the Corporation determines its own functional currency and items included in the financial
statements of each entity are measured using that functional currency. The functional currency and the
presentation currency of the parent entity is the Canadian dollar. Transactions in foreign currencies are
initially recorded in respective functional currency rates at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are retranslated at the functional currency rate at the
reporting date. Differences are taken to the statement of profit or loss and comprehensive income.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rates as at the dates of the initial transactions. The functional currency of the
subsidiary NTG Egypt Advanced is the Egyptian pound, and the functional currency of the subsidiary NTG
Clarity Networks US Inc. is the US Dollar.
An entity may present its financial statements in any currency (or currencies). If the presentation currency
differs from the entity's functional currency, it translates its results and financial position into the
presentation currency. For example, when a group contains individual entities with different functional
currencies, the results and financial position of each entity are expressed in a common currency so that
consolidated financial statements may be presented.
For practical reasons, an average rate for the period is often used to translate income and expense items.
When the exchange differences relate to a foreign operation that is consolidated but not wholly owned,
accumulated exchange differences arising from translation and attributable to non-controlling interests
are allocated to, and recognized as part of, non-controlling interests in the consolidated statement of
financial position.
IAS 21.–47, in addition to IAS 21.–43, apply when the results and financial position of a foreign operation
are translated into a presentation currency so that the foreign operation can be included in the financial
statements of the reporting entity by consolidation or the equity method.
For the quarter ended December 31, 2020, the Corporation recognized a foreign currency exchange gain
of $104,718, compared to a loss of $303,344 for the same period in 2019. For the year ended December
31, 2020, the Corporation recognized a smaller foreign currency exchange loss of $85,893 compared to a
loss of $516,231 the year ended 2019. For more information on foreign exchange, see Note 4(b): Foreign
currency translation.
Other Expenses
Research and Development
With the exception of Smart2Go, our flagship product, research and development is paid for by customer
requests and is therefore, included in cost of sales.
Provision for Bad Debt
NTG has made a provision for bad debt of $339,602 (2019: $1,322,485 and $807,196) which was primarily
for uncollected invoices in Kuwait.
Amortization of Intangible Assets
There are no amortization costs for 2020 (2019: $273,313).
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Interest Expense
As at December 31, 2020, the interest expense for the three months and year was $70,086 and $268,957
as compared to $279,806 and $946,881 for the same periods in 2019. The significant decrease was due to
the replacement of RBC Royal Bank as principle indebtedness carrier.
Share-based Compensation
NTG has a formal stock option plan allowing the issuance of options to directors, officers, employees and
consultants in order to attract and retain qualified and experienced individuals. All options granted are
non-assignable, generally expire three years after the grant date, and usually vest over two years but can
have varying vesting periods.
No options were granted to non-employees during 2020. Stock options granted during the three and
twelve months ended December 31, 2020 totalled 400,000 and 500,000 (2019: 800,000 and 1,670,000).
The weighted average expected contractual lives of outstanding and exercisable options are shown in
Note 18(b). 3,262,000 options have vested and there are 3,412,000 issued. The difference of 150,000 will
vest in the foreseeable future (within the next 12 months) and the expense will be charged in the future
quarters.
Income Taxes
There are no income taxes for the taxation year ending December 31, 2020 as NTG has income tax losses
in the amount of $17,799,962 that are available for Canadian federal and provincial tax purposes which
may be carried forward to reduce future years' taxable income (December 31, 2019: $16,117,458).
Net Loss
For Q4 2020, the Corporation recorded a net income of $267,776 compared to a net loss of $(3,989,191)
for the same period in 2019. For the year ending December 31, 2020, the Corporation recorded a net loss
of $(1,098,617) compared to $(9,184,109) in 2019.
The Egypt operating segment, for the three months ended December 31, 2020 recorded a net income of
$806,277 (Q4 2019: loss of $(1,030,892)). For the year ended December 31, 2020 there was a net income
of $551,784 (2019: $(1,119,463)).
For the Canadian operating segment, the net loss for the three months was $538,501 and for the year
ended December 31, 2020 a net loss of $(1,650,403) compared to a net loss of $(2,958,299) and
$(8,064,646) for the same periods last year.
Much of the loss was in Q1 and Q2 and was attributable to the impact of COVID-19 and included:
office and customer closures that resulted in project slowdown and delays.
a 27% reduction in revenue (Q1 + Q2) over 2019.
Assets and non-current liabilities
As of December 31, 2020, the Corporation closed the year with $145,224 cash on hand (2019: $31,068),
bid/performance bonds of $60,233 (2019: $85,675) and prepaid amounts of $67,501 (2019: $125,409).
Differences in prepaid amounts are due to the timing of insurance and rental renewals. The decrease in
bond values compared to year to date 2019 occurred because of bonds that expired in Egypt and KSA.
Intangible assets
In past years, intangible assets were related to the upgrade of our internally developed Operations
Support System/Business Support System (OSS/BSS) software product called NTS, and StageEM, our
13
enterprise solution that allows companies to manage many current and/or proposed projects and
maintain control of resources, budgets and other elements. As of December 2019, these products were
impaired and removed from NTG’s balance sheet, though we consider both products to be valuable
assets.
Smart2Go is our newest software development product. It is a powerful development tool that offers
rapid application development whose users need no knowledge of development languages. Powerful
templates allow users to create their own tools for HR, CRM, asset management, etc. In 2020, Smart2Go
development was capitalized for $860,636 (2019: $Nil).
Property and equipment
Property and equipment of $157,757 as of December 31, 2020 (2019: $179,162) consists mainly of
computer equipment and office furniture with a useful life of 4-10 years. We are not dependant on
tangible assets and we expect the purchase and disposal of property and equipment to be consistently
modest in the foreseeable future. NTG had additions of $19,677 during 2020 (2019: $11,438) and
depreciation of $41,082 (2019: $54,255).
Non-current liabilities
As of December 31, 2020, NTG had the following non-current liabilities:
The outstanding indebtedness of $7,189,285 held by a numbered Company is disclosed as a long-term
debt on the Statements of Financial Position. See Note 17(a) and Note 23 for more information.
Several loans payable of $659,547, provided by international investors.
Liquidity and Capital Resources
NTG’s principal requirement for capital is to provide working capital to fund its operations and support its
organic growth. Historically, we have funded operations by using profits generated by operations and
through the issuance of equity. In 2020, we funded operations, changes in non-cash working capital and
capital expenditures using internally generated cash flows, cash on hand, short-term loans, and a Shares
for Debt private placement in May 2020.
At December 31, 2020, we had a working capital deficit of $6,336,678 compared to a deficit of $4,490,883
at December 31, 2019. The increase in negative working capital was primarily due to the loss for the year.
Efforts to address our working capital needs in 2020 included:
closing a Shares for Debt transaction in May 2020 to reduce payables by $660,000.
working to expand existing customer work and retaining new customers.
continuing our increased collection activities.
loans from overseas investors.
Cash Flow Provided by Operations
The cash in-flow from operating activities for the year ended December 31, 2020 was $1,833,037
compared to $366,131 for the same period in 2019. The substantial change compared to 2019 was due to:
a much lower net loss of $(1,098,617) compared to $(9,184,109) in 2019.
lower interest expenses of $268,957 (2019: $946,881).
a smaller decrease in accounts receivable and increase in accounts payable.
14
Cash Flow from Financing Activities
The cash out-flow from financing activities for the year ended December 31, 2020 was $838,568
compared to an out-flow of $422,320 for the same period in 2019. This was primarily due to:
the significant decrease in interest paid ($268,957 compared to $946,881 in 2019).
a larger Shares for Debt transaction ($660,000 compared to $360,000 in 2019).
Cash Flow from Investing Activities
Cash out-flow from investing activities for the year ended December 31, 2020, was $880,313 compared to
an out-flow of $11,437 for the same period in 2019. This was due to the capitalization of development
costs for our Smart2Go software product.
Commitments and Contractual Obligations
The Corporation is committed under agreements for the rental of office space in Canada at a monthly rate
of $9,232 for the period from June 1, 2016 to May 31, 2021. Additionally, we have short term agreements
for the rental of office space in Saudi Arabia, Oman, and Egypt, as well as lease obligations for office
equipment. At December 31, 2020, NTG’s operating lease obligations were $298,704.
On April 6, 2020, the Corporation signed a Forbearance Agreement with its Canadian landlord where the
Corporation agreed to pay $5,200 per month and defer the balance of the rent. The Corporation will use
its best efforts to pay additional amounts against the accruing balance.
Debt and Credit Facilities
As of December 31, 2020, NTG’s indebtedness is controlled by a numbered Company, controlled by Ashraf
Zaghloul, NTG CEO and Kristine Lewis, NTG President. The numbered Company retains the Indebtedness
and the Security, and all the rights, title and interest together with the full benefit of all powers and all
covenants and provisions contained in the Security. The Company has agreed to extend the grace period
for principal installment repayments from January 2021 until May 2022. This has helped the Corporation
significantly by helping with cash flow and reducing pressure on management to allow them to focus on
business. The Indebtedness held by the Company is secured by a General Security Agreement (GSA) over
the assets of the Corporation. It is listed as Long-term debt on the Interim Consolidated Statements of
Financial Position.
As of December 31, 2020, NTG Egypt Advanced Software, a subsidiary of the Corporation, has an
overdraft facility with QNB bank in Egypt in the amount of 7 million pounds (approximately $569,734)
with an interest rate of 18%.
In April 2020, NTG applied for and received the Canada Emergency Business Account (“CEBA”) loan of
C$40,000. In December 2020, NTG applied for and received the expansion of the CEBA loan (an additional
C$20,000).
As of December 31, 2020, we have no EDC-supported bonds. In early 2019, the performance bond was
called and EDC paid the claim of US$55,848 to RBC Royal Bank. As the bond was 100% insured by EDC, the
cost was not born by the Corporation.
Off-Balance Sheet Arrangements
The Corporation has not entered into off-balance sheet financing arrangements. All commitments are
reflected on the Corporation’s balance sheet.
15
Transactions with Related Parties
Transactions between the Corporation and its subsidiaries, which are related parties to the Corporation,
have been eliminated on consolidation. Related parties include key management, the Board of Directors,
close family members and entities which are controlled by these individuals as well as certain persons
performing similar functions.
The standard key management compensation is listed in Note 23.
The Corporation’s long-term debt is controlled by a numbered Company, controlled by Ashraf Zaghloul,
NTG CEO and Kristine Lewis, NTG President.
Basis of Preparation and Significant Accounting Policies
The audited consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Significant accounting policies are presented in detail in Note 3 of our audited consolidated financial
statements for the year ended December 31, 2020. These are available on SEDAR (www.sedar.com). The
policies applied in these statements are based on IFRS issued and outstanding as of April 28, 2021, the
date the Board of Directors approved the consolidated financial statements.
Proposed Transactions
There are no Proposed Transactions.
Business Risk and Management
NTG’s primary risk management objective is to protect our balance sheet and cash flow. Principal financial
liabilities are made up of a Company Indebtedness (assumed from RBC Royal Bank in December 2019),
and trade and other payables. NTG has also taken on short term debt from overseas to assist with cash
flow.
We are exposed to market risk, interest rate risk, foreign exchange risk, credit risk, and liquidity risk.
Senior management oversees the management of these risks and is supported by a Committee that
advises on financial risks and the appropriate financial risk governance framework. The Board of Directors
reviews and agrees policies for managing risks.
In addition to risks described elsewhere, NTG is subject to a number of risk factors. We have significant
reliance on certain key personnel, some of whom are also key shareholders; Ashraf Zaghloul, CEO; Kristine
Lewis, President; and Yaser Yousef, CTO.
Though we have worked hard to diversify our customer base, we are dependent on a few large
customers. In 2020, 29% (2019: 14%) of the Corporation’s revenue was from one customer. As at
December 31, 2020, approximately 25% (2019: 13%) of the Corporation’s trade accounts receivable
balance was from one customer. Management continues to work to diversify the customer base and
country concentration.
Additional risks and uncertainties not described below or not presently known to the Corporation may
also impact our business. If any of these risks occur, the Corporation’s business, financial condition or
results of operations could be harmed and the trading price of the Corporation’s common shares could be
materially affected. The purpose of discussing these risks and uncertainties is to highlight factors that
could cause actual results to differ materially from past results or from those described in forward-looking
statements. It is not to describe facts, trends and circumstances that could have a positive impact on the
results or financial position.
16
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in market prices. Market prices comprise several types of risk: interest rate risk,
currency risk, commodity price risk, and other price risk, such as equity risk. The Corporation is not subject
to price risk from fluctuations in market prices of commodities and has no exposure to equity price risk.
There is a high concentration of competition in the telecom industry and no barrier of entry for new
competitors into the market. Many of our competitors are larger companies that have greater resources.
To help mitigate this risk, we have partnered with, or signed agreements to work through; a few of the
large competitors, as we can offer seasoned resources at extremely competitive rates.
Changes in the regulatory environment would always affect our plans and investments. As we continue to
grow, we will continually monitor and evaluate the various policies and procedures to ensure that they
take into account changes in the Corporation and its marketplace.
In 2020, approximately 63% of our revenue came from work done in KSA (2019: 49%). The majority of
NTG’s KSA customers are consistently within our 180 days payment terms.
Historically 7-11% of our revenue comes from work done through our subsidiary NTG Egypt, based in
Cairo, Egypt. Since 2014, the contribution percentage has grown from 13.7% to 26% in 2020. The
economic challenges in the region continue have a positive impact on our Egypt operations.
Oman’s one customer contributed 11% of the revenue in 2020 (2019: 9%).
Interest rate risk
The Corporation's exposure to interest rate fluctuations is primarily interest paid on its indebtedness and
long-term loans. The Corporation has performed sensitivity analysis on interest rates at December 31,
2020 to determine how a change in interest rates would impact equity and net loss.
During the year, the Corporation paid $268,957 (2019: $946,881) on its loans and liabilities. An increase or
decrease of 100 basis points in the average interest rate paid during the period would have adjusted net
earnings by approximately $26,896 (2019: $94,688). This analysis assumes that all other variables remain
constant.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to
meet its contractual obligation. NTG’s financial instruments that are exposed to credit risk consist primarily
of trade receivable. Our exposure to credit risk is impacted by the economic conditions for the industry
which could affect the customers' ability to satisfy their obligations. To reduce risks, we perform periodic
credit evaluations of the financial conditions of its customers and typically does not require collateral from
them. Management assesses the need for allowance for potential credit losses by considering the credit risk
of specific customers, historical trends and other information.
The credit quality of all the accounts receivable of the Corporation that are neither past due nor impaired
and the age of accounts receivable that are past due but not impaired have been assessed on an individual
basis and determined to have a mitigated risk profile due to their payment history. NTG previously had
receivables and pre-shipping insurance; however we did not renew this insurance due to cash flow (see
Note 26). This introduces a new level of risk of non-payment by customers which was not previously there.
17
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates. Our exposure to the risk of changes in foreign exchange rates
relates primarily to operating activities, when revenue or expense are denominated in a different currency
from our functional currency, the Canadian dollar.
We do not hedge the risk related to fluctuations of the exchange rate between USA and Canadian dollars
from the date of the sales transactions to the collection date due to the short-term nature of this exposure.
The Corporation does not hedge the risk related to fluctuations of the exchange rate between USA and
Canadian dollars from the date of the sales transactions to the collection date due to the short-term nature
of this exposure.
A 10% change in exchange rates on December 31, 2020 would have the following approximate impacts:
10% impact to:
P&L in CAD
Equity in CAD
U.S.
Dollar
USD
79,287
58,276
Omani
Riyal
OMR
7,938
5,834
Kuwait
Dinar
KWD
43,299
Saudi
Riyal
SAR
60,018
31,825
44,113
Qatari
Riyal
QAR
11
8
Egyptian
Pound
LE
25,459
18,712
Liquidity risk
Liquidity risk is the risk that NTG will not be able to meet its financial obligations as they fall due. Our
approach to managing liquidity is to ensure, as far as possible, that we will always have sufficient liquidity
to meet our liabilities when due, under normal and stressed conditions. We manage liquidity risk by
reviewing capital requirements on an ongoing basis. We continuously review both actual and forecasted
cash flows to ensure that we have appropriate capital capacity.
The following table summarizes the amount of contractual undiscounted future cash flow requirements
for financial instruments as at December 31, 2020:
Contractual obligations
2021
Accounts payable and
accrued liabilities
$ 7,126,959
2022
–
2023
2024 and after
Total
–
–
$
7,126,959
Operating lease
Long-term debt
Loans payable
184,455
7,217,784
659,547
105,878
5,371
3,000
–
–
–
–
–
–
298,704
7,217,784
659,547
The aging of trade accounts payable are as follows:
December 31,
Current
31 – 60 days
61 – 90 days
91 – 180 days
More than 180 days
2020
800,211
109,175
30,732
98,235
2,685,866
3,724,219
$
$
2019
419,918
103,642
131,302
583,163
2,220,676
3,458,701
$
$
Expenses are accrued when incurred. Accounts are deemed payable once an event occurs that requires
payment by a specific date. The contractual maturity of the majority of accounts payable is within one
month.
18
Capital Management
NTG manages its capital, which consists of cash provided from operations and long term debt, with the
primary objective being safeguarding sufficient working capital to sustain operations. The Board of
Directors has not established capital benchmarks or other targets. As at December 31, 2020, the
Corporation was pursuing additional capital through the issuance of additional equity or debt financing.
There can be no guarantee that they will be successful in raising additional capital.
There have been no changes in the NTG’s approach to capital management during the year ending
December 31, 2020. Also, no changes were made in the objectives, policies, or processes during the year
ending December 31, 2020. We will continually assess the adequacy of our capital structure and capacity
and make adjustments within the context of NTG’s strategy, economic conditions, and the risk
characteristics of the business.
NTG’s objectives when managing capital are to:
(i)
(ii)
safeguard the Corporation's ability to continue as a going concern, so that it can provide adequate
returns for shareholders and benefits for other stakeholders;
fund capital projects for facilitation of business expansion provided there is sufficient liquidly of
capital to enable the internal financing; and
(iii) maintain a capital base to maintain investor, creditor, and market confidence.
NTG considers the items included in the consolidated statements of changes in shareholders' equity as
capital. We manage the capital structure and make adjustments to it in the light of changes in economic
conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, we may issue new shares. We are not subject to externally imposed capital requirements.
Legal claim contingency
NTG is subject to a variety of claims and suits that arise from time to time in the ordinary course of
business. Although management currently believes that resolving claims against NTG, individually or in
aggregate, will not have a material adverse impact on our financial position, results of operations, and
cash flows, these matters are subject to inherent uncertainties and management's view of these matters
may change in the future. To date, there are no claims or suits outstanding.
Guarantees
NTG indemnifies its directors and officers against claims reasonably incurred and resulting from the
performance of their services to the Corporation. In March 2020, the Corporation was unable to renew its
Directors and Officers liability insurance. The insurance remains a concern and we are looking for
alternatives.
Collateral
NTG has pledged its assets under a General Security Agreement ("GSA") as disclosed in Note 17. The
Corporation did not hold collateral at December 31, 2020, and December 31, 2019.
Disclosure Controls and Procedures and Internal Controls over Financial Reporting
The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the
Corporation’s disclosure controls and procedures as of December 31, 2020 and have concluded that such
disclosure controls and procedures were effective to provide reasonable assurance that material
information relating to the Corporation or its subsidiaries is made known to them.
19
In contrast to the certificate required for non-venture issuers under National Instrument 52-109
Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), this Venture Issuer Basic
Certificate does not include representations relating to the establishment and maintenance of disclosure
controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-
109. In particular, the certifying officers (CFO and CEO) filing the NI 52-109 certificate is not making any
representations relating to the establishment and maintenance of:
i) controls and other procedures designed to provide reasonable assurance that information required to
be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under
securities legislation is recorded, processed, summarized and reported within the time periods
specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with the issuer’s GAAP (IFRS).
The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them
with sufficient knowledge to support the representations they are making in the NI 52-109 certificate.
Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer
to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52- 109 may result in
additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and
other reports provided under securities legislation.
Standards issued but not yet effective
As at April 28, 2021, the date of authorization of these financial statements, certain new standards,
amendments, and interpretations to existing IFRS standards have been published but are not yet effective
and have not been adopted by the Corporation. All other standards were early adopted as explained in
the prior year's financial statements.
Management’s Statement of Responsibility
The management of NTG Clarity Networks Inc. is responsible for the preparation of the accompanying
consolidated financial statements and the preparation and presentation of information in the Annual
Report. The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards, and are considered by management to present fairly the financial position
and operating results of the Corporation.
The Corporation maintains various systems of internal control to provide reasonable assurance that
transactions are properly authorized and recorded, that assets are safeguarded, and that financial reports
are properly maintained to provide reliable financial statements.
The Corporation's audit committee
independent directors and a management
representative and is appointed by the Board of Directors annually. The committee meets periodically
with the Corporation's management and independent auditors to review the consolidated financial
statements and the independent auditors report. The audit committee has approved the consolidated
financial statements and reported its findings to the Board of Directors.
is comprised of
The Corporation's independent auditors, NVS Professional Corporation, have examined the consolidated
financial statements and their report follows.
"Ashraf Zaghloul"
Ashraf Zaghloul
Chief Executive Officer
April 28, 2021
20
"Kristine Lewis"
Kristine Lewis
President
April 28, 2021
Independent Auditor’s Report
To the Shareholders of
NTG Clarity Networks Inc.:
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the accompanying consolidated financial statements of NTG Clarity Networks Inc. and its subsidiaries (the
"Corporation"), which comprise the consolidated statements of financial position as at December 31, 2020 and December 31,
2019, and the consolidated statements of profit and loss and comprehensive income, consolidated statements of changes in
equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Corporation as at December 31, 2020 and December 31, 2019, and its consolidated financial
performance and its consolidated 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. Our responsibilities under those
standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section
of our report. We are independent of the Corporation in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada, and we have fulfilled our ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note 2 in the consolidated financial statements, which indicates that the Corporation has attained an
loss from operations of $1,098,617 during the year ended December 31, 2020 and, as of that date, the Corporation has an
accumulated deficit of $24,796,574. As stated in Note 2, these events or conditions, along with other matters as set forth in
Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Corporation’s ability to continue as a
going concern. Our opinion is not modified in respect of this matter.
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.
21
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 Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Corporation’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 Corporation or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Corporation’s financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may
intentional omissions,
misrepresentations, or the override of internal control.
involve collusion, forgery,
• 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 Corporation’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 Corporations’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if
such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Corporation to cease to continue as
a going concern.
22
22
Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the
disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities
within the Corporation to express an opinion on the consolidated 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 Sadik Najarali.
NVS Professional Corporation
NVS Professional Corporation
Authorized to practice public accounting by
the Chartered Professional Accountants of Ontario
Markham, Ontario
April 28, 2021
23
NTG CLARITY NETWORKS INC.
Consolidated Statements of Financial Position
(In Canadian Dollars)
As at December 31,
ASSETS
Current assets
Cash and cash equivalents (Note 10)
Trade and other receivables (Note 11)
Bid/performance bonds (Note 13)
Prepaid expenses and deposits (Note 12)
Total current assets
Non-current assets
Property, plant and equipment (Note 14)
Intangible assets (Note 15)
Total non-current assets
Total Assets
LIABILITIES
Current liabilities
Bank indebtedness (Note 17)
Accounts payable and accrued liabilities (Note 16)
Current portion of leasehold liability
Due to related parties (Note 24)
Deferred revenue
Loans payable (Note 24)
Total current liabilities
Non-current liabilities
Long-term debt (Note 17) (Note 24)
Due to related parties (Note 24)
Total non-current liabilities
Total liabilities
SHAREHOLDER’S EQUITY
Capital stock (Note 19)
Contributed surplus (Note 20)
Foreign exchange account
Deficit
Total shareholders’ equity
$
$
$
$
$
$
$
$
2020
2019
$
$
$
145,224
1,881,952
60,233
67,501
2,154,910
157,757
860,636
1,018,393
31,068
2,346,824
85,675
125,409
2,588,976
179,162
–
179,162
3,173,303
$
2,768,138
569,734
7,126,959
1,551
–
133,797
659,547
8,491,588
7,217,784
–
7,217,784
15,709,372
10,808,186
1,809,523
(357,204)
(24,796,574)
$
$
$
$
–
6,507,919
5,241
566,699
–
–
7,079,859
7,100,712
689,718
7,790,430
14,870,289
10,148,186
1,808,958
(891,040)
(23,164,121)
(12,536,069)
(12,102,151)
Total liabilities and shareholders’ equity
$
3,173,303
$
2,768,138
Approved on behalf of the Board:
"Ashraf Zaghloul"
Director
See accompanying notes to consolidated financial statements.
24
"Kristine Lewis"
Director
NTG CLARITY NETWORKS INC.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2020 and December 31, 2019
Balance, January 1, 2019
Share
Capital
Contributed
Surplus
$ 9,752,186 $ 1,788,593 $ (14,352,386) $
Deficit
Foreign
Exchange
Reserve
(In Canadian Dollars)
Total
Shareholders’
Equity
(518,666) $ (3,330,273)
Income from continuing operations
–
–
(8,811,735)
–
(8,811,735)
Other comprehensive income
Share-based compensation (Note 19)
Issuance of share capital (Note 19)
Debt for share exchange (Note 19)
Reallocation of contributed surplus
(Note 19)
–
–
24,000
360,000
12,000
–
28,231
–
–
(12,000)
–
–
–
–
(372,374)
(372,374)
–
–
–
–
28,231
24,000
360,000
–
Balance, December 31, 2019
$ 10,148,186 $ 1,804,824 $ (23,164,121) $
(891,040) $ (12,102,151)
Income from continuing operations
Other comprehensive income
–
–
Share-based compensation (Note 19)
–
Debt for share exchange (Note 19)
660,000
–
(1,632,453)
–
(1,632,453)
–
4,699
–
–
–
533,836
–
–
533,836
4,699
660,000
Balance, December 31, 2020
$ 10,808,186 $ 1,809,523 $ (24,796,574) $
(357,204) $ (12,536,069)
25
NTG CLARITY NETWORKS INC.
Consolidated Statements of Profit and Loss and Comprehensive Income
(In Canadian Dollars)
For the years ended December 31,
2020
2019
REVENUE (Note 7)
COST OF SALES (Note 22)
GROSS MARGIN
OPERATING EXPENSES
Selling (Note 23)
General and administration (Note 23)
(Gain) loss on foreign exchange
Total operating expenses
INCOME (LOSS) FROM OPERATIONS
OTHER EXPENSES
Amortization (Note 15)
Depreciation (Note 14)
Government subsidy (Note 18)
Accretion (Note 18)
Loss on impairment of intangible asset (Note 15)
Provision for bad debts (Note 11)
Interest
Foreign fees
(Gain) on sale of licenses (Note 29)
Share-based payments (Note 20)
Impairment (recovery) of unbilled revenue (Note 11)
Other income
Total other expenses
$
7,906,989
$
8,626,429
5,673,356
2,233,633
955,428
2,353,089
85,893
6,373,463
2,252,966
2,316,833
4,063,432
516,231
3,394,410
(1,160,777)
6,896,496
(4,643,530)
$
$
–
41,082
(34,970)
3,470
–
339,602
268,957
–
(99,428)
4,699
–
(51,736)
471,676
364,417
54,255
–
–
644,985
1,322,485
946,881
(245)
–
28,231
807,196
–
4,168,205
(LOSS) FROM CONTINUING OPERATIONS
$
(1,632,453)
$
(8,811,735)
Other comprehensive income:
Exchange gain (loss) arising on translation of foreign operations
533,836
(372,374)
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR
$
(1,098,617)
$
(9,184,109)
Earnings (loss) per share (Note 9)
Basic
Diluted
Weighted average number of shares outstanding
Basic
Diluted
See accompanying notes to consolidated financial statements.
26
$
$
(0.01)
(0.01)
$
$
(0.16)
(0.15)
100,102,355
103,514,355
56,102,355
59,588,956
For the years ended December 31,
Cash provided by (used in)
OPERATING ACTIVITIES
Net loss for the year
Add-Items not affecting cash:
Amortization (Note 15)
Depreciation (Note 14)
Interest expense
Share-based payment (Note 19)
Loss on impairment of intangible asset (Note 15)
Shares for debt issued (Note 19)
Net change in non-cash working capital items,
Decrease in trades and accounts receivable
(Decrease) in deferred revenue
Increase in bid/performance bond
Decrease (increase) in prepaid expenses and deposits
Increase in accounts payable and accrued liabilities
Increase (decrease) increase in leasehold liability
Increase (decrease) in loans payable
TOTAL CASH IN-FLOW FROM OPERATING ACTIVITIES
FINANCING ACTIVITIES
Advances (to) related parties
Advances from related parties
Increase in long-term debt (Note 17)
Interest paid
Issuance of common shares (Note 19)
Repayment of bank indebtedness (Note 17)
TOTAL CASH (OUT-FLOW) FROM FINANCING
ACTIVITIES
NTG CLARITY NETWORKS INC.
Consolidated Statements of Cash Flows
(In Canadian Dollars)
2019
2020
$
(1,098,617)
$
(9,184,109)
–
41,082
268,957
4,699
–
660,000
(123,879)
464,872
133,797
25,442
57,908
619,040
(3,690)
659,547
1,833,037
–
(1,256,417)
117,072
(268,957)
–
569,734
$
$
$
$
364,417
54,255
946,881
4,133
644,985
360,000
(6,785,340)
3,604,321
(16,525)
25,861
82,301
3,459,203
(3,690)
–
366,131
300,000
328,416
7,100,712
(946,881)
24,000
(7,228,567)
$
$
$
$
$
(838,568)
$
(422,320)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (Note 14)
(Additions) intangible assets (Note 15)
TOTAL CASH (OUT-FLOW) FROM INVESTING
ACTIVITIES
NET INCREASE (DECREASE) IN CASH
Cash balance, beginning of period
Cash balance, end of period
(19,676)
(860,636)
(880,313)
$
114,156
31,068
145,224
$
$
$
See accompanying notes to consolidated financial statements.
(11,437)
–
(11,437)
(67,626)
98,694
31,068
27
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
1.
CORPORATE INFORMATION
NTG Clarity Networks Inc. (the “Corporation”) is domiciled in Canada and its shares are traded publicly
on the TSX Venture Exchange under ticker symbol NCI.V. The Corporation is domiciled in Canada and
was incorporated on May 15, 2001 under the laws of Alberta. The Corporation’s principal and
registered office is Suite 202, 2820 14th Avenue, Markham, Ontario, L3R 0S9.
The Corporation provides network, telecom, IT and infrastructure solutions to medium and large
network service providers. The Corporation specializes in providing telecommunications engineering,
networking and related software solutions and has developed niche software products directed at the
telecom service providers. NTG continues to offer professional telecom and IT services in the North
American and Middle Eastern markets.
The telecom industry is subject to rapid and substantial technological change which could reduce
marketability of the Corporation's technology and services.
Impact of COVID-19
The uncertainties around the outbreak of the COVID-19 pandemic required the use of significant
judgment and estimates. As at December 31, 2020, the Corporation has not noted any significant
impairment as a result of COVID-19. The uncertain future impact of COVID-19 could generate, in
future reporting periods, a significant risk of material adjustments to the carrying amount of: accounts
receivable, property, plant & equipment, finite-life intangible assets, and government authorities
loans and other loans. As an emerging risk, the duration and full financial effect of the COVID-19
pandemic is unknown at this time, and accordingly estimates of the extent to which the COVID-19
may materially and adversely affect the Corporation's consolidated financial condition, operations
and consolidated financial results are subject to significant uncertainty.
2. GOING CONCERN
The Corporation prepared consolidated financial statements on a going concern basis which presume
the realization of assets and discharge of liabilities in a normal course of business for the foreseeable
future. The Corporation’s ability to continue operations and to realize assets at their carrying values is
dependent upon generating revenues sufficient to cover its operating costs, obtaining additional
financing aid and the continued support of its shareholders.
As at December 31, 2020, the Corporation had a working capital deficit of $6,336,678 (2019: deficit of
$4,490,883), loss from operations of $1,160,777 (2019: loss of $4,643,530), and accumulated losses
since inception of $24,796,574 (2019: $23,164,121).
The financial statements have been prepared under the assumption that the Corporation is a going
concern and will continue to be in operation for the foreseeable future.
3. BASIS OF PRESENTATION
The audited consolidated financial statements have been prepared on a historical cost basis, except
for certain financial instruments that have been measured at fair value.
28
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
3. BASIS OF PRESENTATION (cont’d)
Statement of Compliance
The audited consolidated financial statements of the Corporation have been prepared in accordance
with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB), London, and the Interpretations of the International Financial Reporting
Interpretations Committee (IFRIC) and in effect at the closing date of April 28, 2021.
Management of the Corporation prepared the consolidated financial statements of the Corporation
during January and February 2020, and the Board of Directors approved them. The Audit Committee
of the Corporation discussed the audited consolidated financial statements at its meeting on April 28,
2021, and the Board of Directors approved them at its meeting on April 28, 2021.
The audited consolidated financial statements of the Corporation are drawn up in Canadian dollars.
Amounts are stated in and recorded to the nearest Canadian dollars except where otherwise
indicated. The financial statements of the individual companies is prepared as of the closing date of
the Corporation’s financial statements using the same accounting policies.
In the audited consolidated statement of profit and loss and comprehensive income, consolidated
statement of financial position, consolidated statement of cash flows, and consolidated statement of
changes in equity, certain items are combined for the sake of clarity. These are explained within the
notes. The consolidated statement of profit and loss and comprehensive income is prepared using the
cost-of-sales method. Assets and liabilities are classified by maturity. They are regarded as current if
they mature within one year or within the normal business cycle of the Corporation. The normal
business cycle is defined for this purpose as beginning with the procurement of the resources
necessary for the production process and ending with the receipt of cash or cash equivalents as
consideration for the sale of the goods or services produced in that process. Trade accounts
receivable and payable, claims for tax refunds, and tax liabilities are always presented as current
items; deferred tax assets and liabilities, if any, are presented as noncurrent items. Provisions (if any),
debt and other liabilities are shown between current and noncurrent.
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of consolidation
The audited consolidated financial statements comprise the financial statements of the Corporation
and its subsidiaries as at December 31, 2020.
The subsidiaries are fully consolidated from the date of acquisition, being the date on which the
Corporation obtains control, and continues to be consolidated until the date that such control
ceases. The financial statements of the subsidiary is prepared for the same reporting period as the
parent corporation using consistent accounting policies. All intra group balances, income and
expenses, unrealized gains and losses, and dividends resulting from intra group transactions, if any,
are eliminated in full.
A change in the ownership interest of a subsidiary, without a change of control, is accounted for as
an equity transaction.
29
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(a) Basis of consolidation (cont’d)
The subsidiary of the Corporation as of December 31, 2020 is its 95% owned subsidiary, NTG Egypt
Advanced Software, and its wholly owned U.S. subsidiary, NTG Clarity Networks US Inc.
(b) Foreign currency transaction
Translation to the presentation currency
Each entity in the Corporation determines its own functional currency and items included in the
financial statements of each entity are measured using that functional currency. The functional
currency and the presentation currency of the parent entity is the Canadian dollar. Transactions in
foreign currencies are initially recorded in respective functional currency rates at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at
the functional currency rate at the reporting date. Differences are taken to the statement of profit
or loss and comprehensive income. Non monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange rates as at the dates of the initial
transactions.
The functional currency of the subsidiary NTG Egypt Advanced is the Egyptian pound, and the
functional currency of the subsidiary NTG Clarity Networks US Inc. is the US Dollar.
An entity may present its financial statements in any currency (or currencies). If the presentation
currency differs from the entity's functional currency, it translates its results and financial position
into the presentation currency. For example, when a group contains individual entities with
different functional currencies, the results and financial position of each entity are expressed in a
common currency so that consolidated financial statements may be presented.
The results and financial position of an entity whose functional currency is not the currency of a
hyperinflationary economy shall be translated into a different presentation currency using the
following procedures:
1. Assets and liabilities for each statement of financial position presented (i.e. including
comparatives) shall be translated at the closing rate at the date of that statement of financial
position;
2.
Income and expenses for each statement presenting profit or loss and other comprehensive
income (i.e. including comparatives) shall be translated at exchange rates at the dates of the
transactions; and
3. All resulting exchange differences shall be recognized in other comprehensive income.
For practical reasons, a rate that approximates the exchange rates at the dates of the transactions,
for example an average rate for the period, is often used to translate income and expense items.
30
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(b) Foreign currency transaction (cont'd)
Translation to the presentation currency (cont’d)
However, if exchange rates fluctuate significantly, the use of the average rate for a period is
inappropriate. The exchange differences referred to in IAS 21.39(c) result from:
1. Translating income and expenses at the exchange rates at the dates of the transactions and
assets and liabilities at the closing rate.
2. Translating the opening net assets at a closing rate that differs from the previous closing rate.
These exchange differences are not recognized in profit or loss because the changes in exchange
rates have little or no direct effect on the present and future cash flows from operations. The
cumulative amount of the exchange differences is presented in a separate component of equity
until disposal of the foreign operation. When the exchange differences relate to a foreign operation
that is consolidated but not wholly owned, accumulated exchange differences arising from
translation and attributable to non-controlling interests are allocated to, and recognized as part of,
non-controlling interests in the consolidated statement of financial position.
The results and financial position of an entity whose functional currency is the currency of a
hyperinflationary economy shall be translated into a different presentation currency using the
following procedures:
1. All amounts (i.e. assets, liabilities, equity items, income and expenses, including comparatives)
shall be translated at the closing rate at the date of the most recent statement of financial
position, except that
2.
When amounts are translated into the currency of a non hyperinflationary economy,
comparative amounts shall be those that were presented as current year amounts in the
relevant prior year financial statements (i.e. not adjusted for subsequent changes in the price
level or subsequent changes in exchange rates).
When an entity's functional currency is the currency of a hyperinflationary economy, the entity shall
restate its financial statements in accordance with before applying the translation method set out in
IAS 21., except for comparative amounts that are translated into a currency of a non
hyperinflationary economy (see IAS 21.42(b)). When the economy ceases to be hyperinflationary
and the entity no longer restates its financial statements in accordance with IAS 29, it shall use as
the historical costs for translation into the presentation currency the amounts restated to the price
level at the date the entity ceased restating its financial statements.
Translation of a foreign operation
IAS 21.–47, in addition to IAS 21.–43, apply when the results and financial position of a foreign
operation are translated into a presentation currency so that the foreign operation can be included
in the financial statements of the reporting entity by consolidation or the equity method.
31
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(b) Foreign currency transaction (cont'd)
Translation of a foreign operation (cont’d)
The incorporation of the results and financial position of a foreign operation with those of the
reporting entity follows normal consolidation procedures, such as the elimination of intra-group
balances and intra-group transactions of a subsidiary (see Consolidated Financial Statements).
However, an intra-group monetary asset (or liability), whether short-term or long-term, cannot be
eliminated against the corresponding intra-group liability (or asset) without showing the results of
currency fluctuations in the consolidated financial statements. This is because the monetary item
represents a commitment to convert one currency into another and exposes the reporting entity to
a gain or loss through currency fluctuations. Accordingly, in the consolidated financial statements of
the reporting entity, such an exchange difference is recognised in profit or loss or, if it arises from
the circumstances described in IAS 21, it is recognised in other comprehensive income and
accumulated in a separate component of equity until the disposal of the foreign operation.
When the financial statements of a foreign operation are as of a date different from that of the
reporting entity, the foreign operation often prepares additional statements as of the same date as
the reporting entity's financial statements. When this is not done, allows the use of a different date
provided that the difference is no greater than three months and adjustments are made for the
effects of any significant transactions or other events that occur between the different dates. In
such a case, the assets and liabilities of the foreign operation are translated at the exchange rate at
the end of the reporting period of the foreign operation.
Adjustments are made for significant changes in exchange rates up to the end of the reporting
period of the reporting entity in accordance with IFRS 10. The same approach is used in applying the
equity method to associates and joint ventures in accordance with.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the
carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be
treated as assets and liabilities of the foreign operation. Thus they shall be expressed in the
functional currency of the foreign operation and shall be translated at the closing rate in accordance
with IAS 21. and IAS 21.42.
Disposal or partial disposal of a foreign operation
On the disposal of a foreign operation, the cumulative amount of the exchange differences relating
to that foreign operation, recognized in other comprehensive income and accumulated in the
separate component of equity, shall be reclassified from equity to profit or loss (as a reclassification
adjustment) when the gain or loss on disposal is recognized (see Presentation of Financial
Statements).
32
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(b) Foreign currency translation (cont'd)
Disposal or partial disposal of a foreign operation (cont’d)
In addition to the disposal of an entity's entire interest in a foreign operation, the following partial
disposals are accounted for as disposals:
1. When the partial disposal involves the loss of control of a subsidiary that includes a foreign
operation, regardless of whether the entity retains a non-controlling interest in its former
subsidiary after the partial disposal; and
2. When the retained interest after the partial disposal of an interest in a joint arrangement or a
partial disposal of an interest in an associate that includes a foreign operation is a financial asset
that includes a foreign operation.
On disposal of a subsidiary that includes a foreign operation, the cumulative amount of the
exchange differences relating to that foreign operation that have been attributed to the non-
controlling interests shall be derecognized, but shall not be reclassified to profit or loss.
On the partial disposal of a subsidiary that includes a foreign operation, the entity shall re attribute
the proportionate share of the cumulative amount of the exchange differences recognized in other
comprehensive income to the non-controlling interests in that foreign operation. In any other
partial disposal of a foreign operation the entity shall reclassify to profit or loss only the
proportionate share of the cumulative amount of the exchange differences recognized in other
comprehensive income.
A partial disposal of an entity's interest in a foreign operation is any reduction in an entity's
ownership interest in a foreign operation, except those reductions in paragraph that are accounted
for as disposals.
An entity may dispose or partially dispose of its interest in a foreign operation through sale,
liquidation, repayment of share capital or abandonment of all, or part of, that entity. A write down
of the carrying amount of a foreign operation, either because of its own losses or because of an
impairment recognized by the investor, does not constitute a partial disposal. Accordingly, no part
of the foreign exchange gain or loss recognized in other comprehensive income is reclassified to
profit or loss at the time of a write-down.
(c) Revenue Recognition
The Corporation derives revenue from fees charged to customers for licenses for software products
and professional services: support, consulting, development, training, and other services. Some of
the Corporation's software arrangements include product sales and professional services.
If, for any of the Corporation's product or service offerings, the Corporation determines at the
outset of an arrangement that the amount of revenue cannot be measured reliably, the Corporation
concludes that the inflow of economic benefits associated with the transaction is not probable and
defers revenue until the arrangement fee becomes due and payable by the customer.
33
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(c) Revenue Recognition (cont'd)
If, at the outset of an arrangement, it is determined that collectability is not probable, the
Corporation concludes that the inflow of economic benefits associated with the transaction is not
probable, and recognition of revenue is deferred until the earlier of when collectability becomes
probable or payment is received. If collectability becomes unlikely before all revenue from an
arrangement is recognized, revenue is recognized only to the extent of the fees that are successfully
collected unless collectability becomes reasonably assured again. If a customer is specifically
identified as a bad debtor, the Corporation stops recognizing revenue from this customer except to
the extent of the fees that have already been collected.
Software revenue represents fees earned from the sale or license of software to customers for use
on the customer’s premises, in other words, where the customer has the right to take possession of
the software for installation on the customer’s premises (on-premise software). Revenue is
recognized in line with the requirements for selling goods stated in IAS 18 (Revenue) when evidence
of an arrangement exists, delivery has occurred, the risks and rewards of ownership have been
transferred to the customer, the amount of revenue and associated costs can be measured reliably,
and collection of the related receivable is reasonably assured. The fee of the sale is recognized net
of returns and allowances, trade discounts, and volume rebates. In general, the Corporation's
software license agreements do not include acceptance testing provisions. If an arrangement allows
for customer acceptance testing of the software, revenue is deferred until the earlier of customer
acceptance or when the acceptance right lapses. The Corporation may enter into customer-specific
on-premise software development agreements. Software revenue in connection with these
arrangements is recognized using the percentage of completion method based on contract costs
incurred to date as a percentage of total estimated contract costs required to complete the
development work. If there is no sufficient basis to reasonably measure the progress of completion
or to estimate the total contract revenue and costs, revenue is recognized only to the extent of the
contract costs incurred for which recoverability is believed to be probable. When it becomes that
total contract costs exceed total contract revenue in an arrangement, the expected losses are
recognized immediately as an expense based on the costs attributable to the contract.
On-premise software may combine software and support service elements, as under these
contracts the customer is provided with current software products, rights to receive unspecified
future software products, and rights to services during the on-premise software subscription term.
Customers pay a periodic fee for a defined subscription term, and such fees are recognized ratably
over the term of the arrangement beginning with the delivery of the first product.
Support revenue represents fees earned from providing customers with unspecified future software
updates, upgrades, and enhancements, and technical product support for on-premise software
products. Support revenue is recognized based on the Corporation's performance under the
support arrangements. Under the major support services the Corporation's performance obligation
is to stand ready to provide technical product support and to provide unspecified updates and
enhancements on a when and if available basis. For these support services revenue is recognized
ratably over the term of the support arrangement. Consulting and other service revenue is
recognized when the services are performed.
34
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(c) Revenue Recognition (cont'd)
Consulting revenue primarily results from implementation contracts to install and configure our
software products and offerings. Other service revenue consists of fees from training services.
Training services provide educational services to customers and partners regarding the use of our
software products. Training revenue is recognized when the services are rendered.
Some arrangements contain multiple elements. Software, consulting and other service deliverables
are accounted for as separate units of accounting and allocate revenue based on fair value. Fair
value is determined by establishing either corporation-specific objective evidence, or an estimated
stand alone selling price. Revenue from multiple-element arrangements is allocated to the different
elements based on their individual fair values. The revenue amounts allocated to the individual
elements are recognized when the revenue recognition criteria described above have been met for
the respective element.
The Corporation determines the fair value of and allocate revenue to each element based on its
corporation-specific objective evidence of fair value, which is the price charged when that element
is sold separately or, for elements not yet sold separately, the price established by management if it
is probable that the price will not change before the element is sold separately.
Revenues from customers of Zaha Tech (Note 29) are recognized on a net basis, as the Corporation
does not control the services provided by Zaha Tech to the end user. NTG invoices the customers of
Zaha Tech, and retains a 10% administrative fee upon receipt of the funds from the customer. All
liabilities of the contract lie with Zaha Tech and NTG holds no obligation for the performance of the
contract.
(d) Taxes
Current income tax
Current income tax assets and liabilities for the respective and prior years are measured at the
amount expected to be recovered from or paid to the Canadian taxation authorities. The tax rates
and tax laws used to compute the amount are those that are enacted or substantively enacted, by
the reporting date, in the country where the Corporation operates and generates taxable income.
Current income tax relating to items recognized directly in equity is recognized in equity and not in
the statement of profit and loss and comprehensive income. Management periodically evaluates
positions taken in the tax returns with respect to situations in which applicable tax regulations are
subject to interpretation and establishes provisions where appropriate in accordance with IAS 37
Provisions, Contingent Liabilities, and Contingent Assets.
Deferred tax
Deferred tax is provided using the liability method on temporary differences at the reporting date
between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purposes.
35
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(d) Taxes (cont'd)
Deferred tax (cont’d)
Deferred tax liabilities are recognized for all taxable temporary differences, except:
• Where the deferred tax liability arises from an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting profit
nor taxable profit or loss.
•
In respect of taxable temporary differences associated with investments in the subsidiary where
the timing of the reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused
tax credits and unused tax losses, to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences, and the carry forward of unused tax
credits and unused tax losses can be utilized, except:
• Where the deferred tax asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
•
In respect of deductible temporary differences associated with investments in the subsidiary,
deferred tax assets are recognized only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against
which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be available to allow all or part
of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the
extent that it has become probable that future taxable profits will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
period when the asset is realized or the liability is settled, based on tax rates and tax laws that have
been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.
Deferred tax items are recognized in correlation to the underlying transaction either in other
comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set
off current tax assets against current income tax liabilities and the deferred tax relates to the same
taxable entity and the same taxation authority.
36
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(d) Taxes (cont'd)
Sales tax
Revenues, expenses, liabilities and assets are recognized net of the amount of sales tax except:
• Where the sales tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the sales tax is recognized as part of the cost of acquisition of
the asset or as part of the expense item as applicable.
• Receivables and payables that are stated with the amount of sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as
part of receivables or payables in the statement of financial position.
(e) Government grants and assistance and investment tax credit
Government grants and assistance are recognized where there is reasonable assurance that the
grant or assistance will be received and all attached conditions will be complied with. When the
grant or assistance relates to an expense item, it is recognized as income over the period necessary
to match the grant or assistance on a systematic basis to the costs that it is intended to
compensate. Where the grant relates to an asset, it reduces the carrying amount of the asset. The
grant is then recognized as income over the useful life of a depreciable asset by way of a reduced
depreciation charge. When government assistance is received which relates to expenses of future
periods, the amount is deferred and amortized to income as the related expenditures are incurred.
(f) Financial instruments - initial recognition and subsequent measurement
Financial assets and financial liabilities are recognized when the Corporation becomes party to the
contractual provisions of the financial instrument.
Financial assets and financial liabilities are initially measured at fair value. Transactions costs that
are directly attributable to the acquisition or issue of financial instruments classified as amortized
costs or FVTOCI are included with the carrying amount of such instruments. Transaction costs that
are directly attributable to the acquisition or issue of the financial instruments classified as fair
value through profit and loss (FVTPL) are recognized immediately in the profit or loss within the
consolidated statements of comprehensive income.
(i)
Financial assets
The Corporation classifies its financial assets in the following measurement categories: those to
be measured at amortized cost and those to be measured subsequently at fair value (either
through other comprehensive income (FVTOCI), or through profit or loss (FVTPL)). The
classification depends on the entity's business model for managing the financial assets and the
contractual terms of cash flows.
37
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(f) Financial instruments - initial recognition and subsequent measurement (cont'd)
(i)
Financial assets (cont’d)
Financial assets at amortized cost
Financial assets that meet the following conditions are measured at amortized cost less
impairment losses: the financial asset is held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows; the contractual terms of the financial
asset give rise on specific dates to cash flows that are solely payments of principal and interest
on the principal amount outstanding; and the financial asset was not acquired principally for the
purpose of selling in the near term or for short term profit making (held for trading).
Financial assets at fair value through profit or loss (FVTPL)
All other financial assets, except equity and debt instruments as described below, are
remeasured at fair value and classified as fair value through profit or loss. The gains or losses, if
any, arising on remeasurement of FVTPL are recognized in profit or loss within the consolidated
statements of comprehensive income.
The method of measurement of instruments in debt instruments will depend on the business
model in which the instrument is held. For instruments in equity instruments, it will depend on
whether the Corporation has made an irrevocable election at the time of initial recognition to
account for the equity instrument at fair value through other comprehensive income (FVTOCI).
Financial assets with embedded derivatives are considered in their entirety when determining
whether their cash flows are solely payment of principal and interest.
(ii) Financial liabilities
Financial liabilities are classified as FVTPL when the financial liability is either held for trading or
is designated at FVTPL. Financial liabilities at FVTPL are remeasured in subsequent reporting
periods at fair value. Any gains or losses arising on remeasurement of held for trading financial
liabilities are recognized in profit or loss within the consolidated statements of comprehensive
income. Such gains or losses recognized in profit or loss includes any interest paid on the
financial liabilities. Financial liabilities that are not held for trading and are not designated as
FVTPL are measured at amortized cost.
The carrying amounts of financial liabilities that are measured at amortized cost are determined
based on the effective interest rate method. The effective interest method is a method of
calculating the amortized cost of a financial liability (or financial asset) and of allocating interest
expense (or income) over the expected life of the financial liability (or financial asset). All
financial assets and financial liabilities held by the Corporation are measured at amortized cost.
38
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(f) Financial instruments - initial recognition and subsequent measurement (cont'd)
(ii) Financial liabilities (cont’d)
Impairment
The Corporation assesses on a forward looking basis the expected credit losses associated with
its assets carried at amortized cost and FVTOCI. The impairment methodology applied depends
on whether there has been a significant increase in credit risk. For trade receivables only, the
Corporation applies the simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognized from initial recognition of the receivables.
The Corporation has applied IFRS 9 retrospectively, but has elected not to restate comparative
information as there is no impact on the financial statements of the Corporation from adopting
IFRS 9. As a result, the comparative information provided continues to be accounted for in
accordance with the Corporation’s previous accounting policy which reflects the same
measurement of IFRS 9.
The accounting policies were changed to comply with the full requirements of IFRS 9 as issued
by the IASB. IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification
and measurement of financial assets and financial liabilities; derecognition of financial
instruments; impairment of financial assets and hedge accounting. IFRS 9 also significantly
amends other standards dealing with financial instruments such as IFRS 7 Financial Instruments:
Disclosures. The total impact on retained earnings due to classification and measurement of
financial instruments as at January 1, 2016 and the date of these financial statements was Nil.
(iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the statement
of financial position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the assets
and settle the liabilities simultaneously.
(g) Compound instruments
The component parts of compound instruments (e.g., debt issued with warrants) issued by the
Corporation are classified separately as financial liabilities and equity in accordance with the
substance of the contractual arrangements and the definitions of a financial liability and an equity
instrument. At the date of issue, the fair value of the liability component is estimated using the
prevailing market interest rate for similar debt without warrants. This amount is recorded as a
liability on the amortized cost basis using the effective interest method until extinguished or at the
instrument’s maturity date.
The warrants classified as equity are determined by deducting the amount of the liability
component from the fair value of the instrument as a whole. This is recognized and included in
equity and is not subsequently remeasured.
39
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(g) Compound instruments (cont’d)
Warrants classified as equity will remain in equity until the conversion option is exercised, in which
case the balance recognized in equity will be transferred to common shares within equity. When
the warrants remain unexercised at their maturity date, the balance recognized in equity will be
transferred to retained earnings or deficit. No gain or loss is recognized in profit or loss upon
conversion or expiration of the warrants.
Transaction costs that relate to the issue of the instruments are allocated to the liability and equity
components in proportion to the allocation of the gross proceeds. Transaction costs relating to the
equity component are recognized directly in equity. Transaction costs relating to the liability
component are included in the carrying amount of the liability component and are amortized over
the life of the debt using the effective interest method.
(h) Derivative financial instruments and hedge accounting
The Corporation has not entered into any derivative financial instruments and has not applied
hedge accounting for the years ending December 31, 2020 and December 31, 2019.
(i) Treasury shares
Own equity instruments which are reacquired (treasury shares) are recognized at cost and deducted
from equity. No gain or loss is recognized in the statement of profit and loss and comprehensive
income on the purchase, sale, issue, or cancellation of the Corporation’s own equity instruments.
Any difference between the carrying amount and the consideration is recognized in capital reserves.
(j) Property and equipment
Property and equipment is stated at cost, net of accumulated depreciation and accumulated
impairment losses (if any). Such cost includes the cost of replacing part of the property and
equipment and borrowing costs for long term construction projects if the recognition criterion are
met. When significant parts of property and equipment are required to be replaced in intervals, the
Corporation recognizes such parts as individual assets with specific useful lives and depreciation,
respectively.
Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the
property and equipment as a replacement if the recognition criteria are satisfied. All other repair
and maintenance costs are recognized in the statement of profit and loss and comprehensive
income as incurred. The present value of the expected cost for the decommissioning of the asset, if
any, after its use is included in the cost of the respective asset if the recognition criteria for a
provision are met.
40
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(j) Property and equipment (cont’d)
Depreciation is calculated on a straight line basis over the estimated useful life of the asset as
follows:
Computer software
Computer equipment
Office equipment
Leasehold improvements
Straight-line 1-2 years
Straight-line 2-4 years
Straight-line 4-10 years
Straight-line over the lesser of the expected term of the
lease or the useful life of the asset
An item of property and equipment and any significant part initially recognized is derecognized
upon disposal or when no future economic benefits are expected from its use. Any gain or loss
arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the statement of profit and loss and
comprehensive income when the asset is derecognized.
The assets’ residual values, useful lives, and methods of depreciation are reviewed at each financial
year end and adjusted prospectively, if appropriate.
(k) Leases
Finance leases, which transfer to the Corporation substantially all the risks and benefits incidental
to ownership of the leased item, are capitalized at the commencement of the lease at the fair value
of the leased property or, if lower, at the present value of the minimum lease payments. Lease
payments are apportioned between finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
recognized in the statement of profit and loss and comprehensive income.
Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the Corporation will obtain ownership by the end of the lease term, the asset is
depreciated over the shorter of the estimated useful life of the asset and the lease term. For the
years December 31, 2020 and December 31, 2019, the Corporation did not hold any finance leases.
Operating lease payments are recognized as an expense in the statement of profit and loss and
comprehensive income on a straight line basis over the lease term.
(l) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction, or production of an asset that
necessarily takes a substantial year of time to get ready for its intended use or sale are capitalized
as part of the cost of the respective assets. All other borrowing costs are expensed in the year they
occur. Borrowing costs consist of interest and other costs that the Corporation incurs in connection
with the borrowing of funds. For the years ending December 31, 2020 and December 31, 2019, the
Corporation did not capitalize any borrowing cost.
41
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(m) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization and any
accumulated impairment losses. Certain internally generated intangible assets are capitalized, as
they meet the criterion under IAS 38.
(n) Inventories
Inventories are measured at the lower of cost and net realizable value. Net realizable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion
and the estimated costs necessary to make the sale.
(o) Product development costs
Research and product development costs include out of pocket cost and direct overhead. Research
costs are expensed as incurred. Product development costs are expensed as incurred unless they
meet the IAS 38 criterion for deferral and amortization.
Development activities involve a plan or design for the production of a new core of substantially
improved products and processes. Development expenditure is capitalized only if development
costs can be measured reliably, the product or process is technically and commercially feasible,
future economic benefits are probable, and the Corporation intends to and has sufficient resources
to complete development and to use or sell the asset. The expenditure capitalized includes the cost
of materials, direct labour and overhead costs that are directly attributable to preparing the asset
for its intended use. All other development expenditure is recognized in statement of profit and loss
and comprehensive income as incurred.
Capitalized development costs (intangible asset) with finite useful lives are amortized over their
estimated useful lives. The amortization methods and estimated useful lives of intangible assets are
reviewed annually. Intangible assets are tested for impairment as required by IAS 38 and IAS 36 if
there are indicators of impairment. If any such indication exists, the asset’s recoverable amount is
estimated. An impairment loss is recognized whenever the carrying amount of the intangible assets
or the cash-generating unit exceeds their recoverable amount. Impairment losses are recognized in
the statements of comprehensive income. Amortization is provided on a straight line basis over 10
years.
(p) Impairment of non-financial assets
The Corporation assesses at each reporting date whether there is an indication that an asset or cash
generating unit (CGU) may be impaired. If any indication exists, or when annual impairment testing
for an asset is required, the Corporation estimates the asset’s (CGU) recoverable amount. An asset’s
(CGU) recoverable amount is the higher of its fair value less costs of disposal and its value in use.
Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
42
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(p) Impairment of non-financial assets (cont'd)
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 or cash-generating unit (CGU). In determining fair value less costs
of disposal, an appropriate valuation model is used. The Corporation has cashgenerating units
which impairment could be tested against. The Corporation had no goodwill or indefinite life
intangible assets for the years ending December 31, 2020 and December 31, 2019.
Impairment losses of continuing operations are recognized in the statement of profit and loss and
comprehensive income in those expense categories consistent with the function and nature of the
impaired asset.
For non-financial assets, an assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer exist or may have decreased.
If such indication exists, the Corporation estimates the non-financial asset’s or cash-generating
unit’s recoverable amount.
A previously recognized impairment loss is reversed only if there has been a change in the
assumptions used to determine the non-financial asset’s recoverable amount since the last
impairment loss was recognized.
The reversal is limited so that the carrying amount of the non-financial asset does not exceed its
recoverable amount, nor exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognized for the non-financial asset in prior periods.
Such reversal is recognized in the statement of profit and loss and comprehensive income.
(q) Cash and cash equivalents
Cash and cash equivalents in the statement of financial position comprise cash at banks and on
hand and short term deposits with an original maturity of three months or less. The Corporation
uses the indirect method of reporting cash flow from operating activities.
(r) Provisions
Provisions are recognized when the Corporation has a present obligation, legal or constructive, as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation, and a reliable estimate can be made of the amount of the
obligation. Where the Corporation expects some or all of a provision to be reimbursed, for example
under an insurance contract, the reimbursement is recognized as a separate asset but only when
the reimbursement is virtually certain.
The expense relating to any provision is presented in the statement of profit and loss and
comprehensive income net of any reimbursement. If the effect of the time value of money is
material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the
risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as a finance cost.
43
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(r) Provisions (cont’d)
A provision for warranties is recognized when the underlying products or services are sold. The
provision is based on the expected warranty data and an expected weighting of all possible
outcome against their associated probabilities.
A provision for restructuring is recognized when the Corporation has approved a detailed and
formal restructuring plan, and the restructuring either has commenced or has been announced
publicly. No provision is made for future operating losses.
A provision for onerous contracts is recognized when the expected benefits to be derived by the
Corporation from a contract are lower than the unavoidable cost of meeting its obligation under the
contract. The provision is measured at the present value of the lower of the expected cost of
terminating the contract and the expected cost net cost of continuing with the contract.
Before a provision is established, the Corporation recognizes any impairment loss on the asset
associated with the contract.
(s) Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the income for the year by the weighted average
number of common shares outstanding during the year. The Corporation uses the treasury stock
method for calculating the dilutive effect of the outstanding stock options and other dilutive
securities. Under the treasury stock method, the weighted average number of common shares
outstanding used for the calculation of diluted income per share assumes that the proceeds to be
received on the exercise of dilutive share options are used to repurchase common shares at the
average market price during the year.
(t) Share-based compensation
The Corporation has a share-based compensation plan. The Corporation accounts for share-based
compensation options granted to employees and consultants using the fair value method. Under
this method, compensation expense for share-based compensation granted is measured at the fair
value at the grant date, using the Black Scholes option valuation model. In accordance with the fair
value method, the Corporation recognizes estimated compensation expense related to share-based
compensation over the vesting period of the options granted, with the related credit being charged
to capital reserves. Consideration paid by employees on the exercise of share-based compensation
is recorded as capital stock and the related share-based compensation is transferred from capital
reserves to capital stock.
5.
SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS
The preparation of the Corporation’s consolidated financial statements requires management to
make judgments, estimates, and assumptions that affect the reported amounts of revenues,
expenses, assets, and liabilities, and the disclosure of contingent liabilities, at the end of the reporting
years. However, uncertainty about these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of the asset or liability affected in future years.
44
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
5. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS (cont’d)
In the process of applying the Corporation’s accounting policies, management has made the following
judgments, which has the most significant effect on the amounts recognized in the consolidated
financial statements.
Revenues
The Corporation derives revenue from fees charged to customers for licenses for software products
and for professional services (support, consulting, development, training, etc.). Some of the software
arrangements may contain multiple elements (product sales and professional services). The
Corporation accounts for software, consulting and other service deliverables as separate units of
accounting and allocate revenue based on their individual fair values. The revenue amounts allocated
to the individual elements are recognized when the revenue recognition criteria have been met for
the respective element. When services are essential to the functionality of the software, the software
does not have standalone value and is combined with the essential services as a single element.
Unbilled revenues
Unbilled revenue is revenue which had been earned and therefore recognized in compliance with
IFRS, but which has not been billed to the client(s) due to contract terms and/or billing cycle. Revenue
can be recognized for projects based on time and materials, for professional services or on a
percentage of completion basis for product implementation and support. Both can result in unbilled
revenue until the customer is invoiced.
Impairment of non-financial assets
Impairment exists when the carrying value of a non-financial asset or cash-generating unit exceeds its
recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The
value in use calculation is based on a discounted cash flow model.
The cash flows are derived from the Corporation’s budget and do not include restructuring activities,
if any, that the Corporation is not yet committed to or significant future investments that will enhance
the non-financial asset’s performance of the cash-generating unit being tested. The recoverable
amount is most sensitive to the discount rate used for the discounted cash flow model as well as the
expected future cash inflows and the growth rate used for extrapolation purposes. The key
assumptions used to determine the recoverable amount for the different cash-generating units may
include a sensitivity analysis.
Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and
timing of future taxable income. Given the range of business relationships and the long term nature of
existing contractual agreements, differences arising between the actual results and the assumptions
made, or future changes to such assumptions, could necessitate future adjustments to tax income
and expense already recorded. The Corporation may establish provisions, based on reasonable
estimates, for possible consequences of audits by the tax authorities.
45
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
5. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES, AND ASSUMPTIONS (cont’d)
Taxes (cont’d)
The amount of such provisions is based on various factors, such as experience of previous tax audits
and differing interpretations of tax regulations by the taxable entity and the responsible tax authority.
Deferred tax assets, if any, are recognized for all unused tax losses to the extent that it is probable
that taxable profit will be available against which the losses can be utilized. Significant management
judgment is required to determine the amount of deferred tax assets to be recognized, based upon
the likely timing and the level of future taxable profits together with future tax planning strategies.
Share-based compensation
The Corporation has a share-based compensation plan. The Corporation accounts for share-based
compensation options granted to employees and consultants using the fair value method determined
using the Black Scholes option valuation model. The estimated compensation expense related to
share-based compensation is recognized over the vesting period of the options granted, with the
related credit being charged to contributed surplus. Consideration paid by employees on the exercise
of share-based compensation is recorded as capital stock and the related share-based compensation
is transferred from capital reserves to capital stock.
Fair value of financial instruments
Where the fair value of financial assets and financial liabilities recorded in the statement of financial
position cannot be derived from active markets, they are determined using valuation techniques
including the discounted cash flows model. The inputs to these models are taken from observable
markets where possible, but where this is not feasible, a degree of judgment is required in
establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit
risk, and volatility. Changes in assumptions about these factors could affect the reported fair value of
financial instruments.
Useful life of an intangible asset
Intangible assets with finite lives are amortized on a straight-line basis over their expected useful life
once the asset is available for use. Many factors are considered in determining the useful life of an
intangible asset, including technical, technological, commercial or other types of obsolescence and
typical product life cycles for the asset. Changes to the expected useful life of an asset is accounted
for prospectively.
Treatment of development costs
Costs to develop products are capitalized to the extent that the criteria are met for recognition as
intangible assets in accordance with IAS 38. Such criteria require that the product is technically and
economically feasible, the Company has the intention and ability to use the asset, and that the asset
will generate future benefits to the Company. Management assessed the capitalization of
development costs based on the attributes of each development project, perceived user needs,
industry trends and expected future economic conditions. Management considers these factors in
aggregate and applies significant judgment to determine whether the product is technically and
economically feasible.
46
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
6.
STANDARDS ISSUED BUT NOT YET EFFECTIVE
As at April 28, 2021, the date of authorization of these financial statements, certain new standards,
amendments, and interpretations to existing IFRS standards have been published but are not yet
effective and have not been adopted by the Corporation.
All other standards were early adopted as explained in the prior year's financial statements.
7. OPERATING SEGMENT INFORMATION
For management purposes, the Corporation is organized into two operating segments.
The Corporation's chief decision makers; the Chief Executive Officer, the President and the Chief
Financial Officer, tracks the Corporation's operations by country.
These country segments represent the Corporation’s reportable operating segments, which are used
to manage the business. The Corporation analyses the performance of its operating segments based
on expenditures and revenue growth.
Statement of profit and loss for the year ending December 31, 2020
Revenue
Cost of sales
Gross margin
Expenses
Depreciation / Amortization
Gain on sale of licenses to Zaha Tech
Other income
Accretion
Exchange gain (loss) arising on translation
Total comprehensive income (loss) for the year
NTG Canada
5,812,568 $
3,978,860
NTG Egypt
2,094,422
1,694,496
$
Consolidated
Total
7,906,989
5,673,356
1,833,708 $
399,926 $
2,233,633
$
$
(3,492,640)
(22,968)
–
34,970
(3,470)
–
$
(1,650,400) $
(515,029)
(18,114)
99,428
51,736
–
533,836
551,783 $
(4,007,669)
(41,082)
99,428
86,706
(3,470)
533,836
(1,098,617)
Statement of profit and loss for the year ending December 31, 2019
Revenue
Cost of sales
Gross margin
NTG Canada
5,797,047 $
3,956,218
NTG Egypt
2,829,382
2,417,245
$
Consolidated
Total
8,626,429
6,373,463
1,840,829 $
412,137 $
2,252,966
$
$
Expenses
Depreciation / Amortization
Foreign taxes
Exchange gain (loss) arising on translation
Total comprehensive income (loss) for the year
(8,863,183)
(1,042,292)
–
–
$
(8,064,646) $
(1,138,106)
(21,365)
245
(372,374)
(1,119,463) $
(10,001,289)
(1,063,657)
245
(372,374)
(9,184,109)
All of the Corporation’s assets are located in Canada and the Middle East.
47
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
7. OPERATING SEGMENT INFORMATION (cont’d)
Long term asset additions for the year ended December 31, 2020
Asset additions for the year ending December 31,
2020
Property and equipment (Note 14)
Intangible assets (Note 15)
NTG Canada
NTG Egypt
Consolidated
Total
$
$
2,423 $
860,636
863,059 $
17,254 $
–
17,254 $
19,677
860,636
880,313
Long term asset additions for the year ended December 31, 2019
Asset additions for the year ending December 31,
2020
Property and equipment
Intangible assets
NTG Canada
NTG Egypt
Consolidated
Total
$
$
961 $
–
961 $
10,477 $
–
10,477 $
11,438
–
11,438
Long term assets for the year ended December 31, 2020
Assets as at December 31, 2020
Property and equipment
Intangible assets
NTG Canada
NTG Egypt
Consolidated
Total
$
$
52,311 $
860,636
105,446 $
–
157,757
860,636
912,947 $
105,446 $
1,018,393
Long term assets for the year ended December 31, 2019
Assets as at December 31, 2020
Property and equipment
Intangible assets
NTG Canada
NTG Egypt
Consolidated
Total
$
$
75,278 $
103,884 $
179,162
–
–
–
75,278 $
103,884 $
179,162
The Corporation determines the geographic location of revenues based on the location of its
customers.
Sales by geographic location for the year ending December 31,
North America
Saudi Arabia
Egypt
Oman
Kuwait
48
2020
94,260 $
2019
99,833
4,833,090
4,162,964
2,094,422 $
2,829,382
854,765 $
30,452 $
812,618
721,632
7,906,989 $
8,626,429
$
$
$
$
$
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
7. OPERATING SEGMENT INFORMATION (cont’d)
In the past, the majority of the Corporation's revenue was derived from the telecommunication
industry. In 2020, the Corporation has been working within the IT field in the banking industry. In
2020, approximately 29% (2019: 14%) of the Corporation's revenue was derived from one customer.
Receivables by segment for the year ending December 31,
Canada
Egypt
2020
1,109,826
772,127
1,881,952
$
$
$
2019
1,417,464
929,360
2,346,824
$
$
$
As at December 31, 2020, approximately 25% (2019: 13%) of the Corporation’s trade accounts
receivable balance was from one customer.
Payables by segment for the year ending December 31,
2020
2019
Canada
Egypt
Bank indebtedness by segment for the year ending December 31,
Canada
Egypt
8.
INCOME TAXES
$
$
6,768,529
$
6,252,065
358,430
255,854
7,126,959
$
6,507,919
2020
–
569,734
$
569,734 $
2019
–
–
–
The following is a reconciliation of the taxable losses for the years ended as indicated.
NTG Clarity Networks Inc.
As at December 31,
2020
2019
Loss before income taxes
$
(1,650,403)
$
(8,064,646)
Income tax (recovery) at the combined Canadian federal
and provincial tax rate of 26.5%
(437,356)
(2,137,131)
Non-deductible share-based payments
Depreciation/amortization of PPE and intangibles
Non-deductible meals & entertainment expenses
Income tax (recovery) not probable to be utilized
Income tax (recovery) recognized on the statement of
comprehensive income
1,245
10,887
14,322
410,902
28,231
1,042,292
159,473
907,135
$
–
$
–
49
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
8.
INCOME TAXES (cont’d)
NTG Egypt Advanced Software
As at December 31,
2020
2019
Income (loss) before income taxes
$
17,947
$
(1,119,463)
Income tax (recovery) at the combined Egyptian federal
and provincial tax rate of 22.5%
Income tax (recovery) not probable to be utilized
Income tax (recovery) recognized on the statement of
comprehensive income
4,038
(4,038)
(251,879)
168,095
$
–
$
(83,784)
The Corporation also has the following unrecognized deferred income tax assets for the years ended
as indicated. However, they were not recognized on the statements of financial position because it
was not probably that they would be utilized:
As at December 31,
Deferred tax asset in relation to:
Property and equipment
Non-capital loss carry-forwards
Deferred tax assets not recognized
Less: Valuation allowance
Deferred tax asset recognized
2020
2019
$
161,708
$
19,949
4,716,990
4,878,698
4,878,698
4,271,126
4,291,075
4,291,075
$
36,34 –
$
36,34 –
The Corporation has available income tax losses in the amounts of $17,799,962 for the Canadian
federal and provincial tax purposes which may be carried forward to reduce future years' taxable
income which expire as follows:
2037
2039
2040
9.
EARNINGS PER SHARE
$
$
9,282,808
6,834,650
1,682,504
17,799,962
Basic earnings per share amounts are calculated by dividing net income for the year attributable to
ordinary equity holders of the parent by the weighted average number of common shares
outstanding during the year.
Diluted earnings per share amounts are calculated by dividing the net income attributable to ordinary
equity holders of the parent by the weighted average number of common shares outstanding during
the year plus the weighted average number of common shares, if any, that would be issued on
conversion of all the dilutive potential effects.
50
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
9. EARNINGS PER SHARE (cont’d)
The outstanding number and type of securities that could potentially dilute basic net income per
share in the future but that were not included in the computation of diluted net income per shares
because to do so would have reduced the earnings per share (anti dilutive) for the year presented are
as noted below. The following outstanding instruments could have a dilutive effect in the future:
As at December 31, 2020
Options – Share-based payments (Note 19(b))
3,412,000
Note a: Of which 3,262,000 had vested as of December 31, 2020.
The following reflects the earnings and unit data used in the basic and diluted earnings per share
computations:
December 31,
Net earnings (loss) attributable to ordinary equity holders of the parent for
basic earnings
Net earnings (loss) attributable to ordinary equity holders of the parent
adjusted for the effect of dilution
2020
2019
$(1,098,617)
$(9,184,109)
$(1,098,617)
$(9,184,109)
December 31,
2020
2019
Weighted average number of common shares outstanding for basic earnings
per share (Note 19)
100,102,355
56,102,355
Weighted average number with the effect of dilution on common shares
103,534,355
59,588,956
Income per share (basic)
Income per share (diluted)
$(0.01)
$(0.01)
$(0.16)
$(0.15)
10. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise of cash at banks and on hand in the amount of $145,224 as at
December 31, 2020 (2019: $31,068).
11. TRADE AND OTHER RECEIVABLES
December 31,
Trade receivables
Less: Impaired
Trade receivables after impairment
Unbilled revenue
Less: Impaired
Unbilled revenue after impairment
$
2020
1,460,810
(15,162)
1,445,648
315,171
–
315,171
$
2019
1,816,814
(15,141)
1,801,673
447,682
–
447,682
51
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
December 31,
2020
2019
Total trade receivables and unbilled revenue
after impairment
Receivables from tax authorities
HST and foreign sales tax receivable (payable)
Other receivables
Total trade and other receivables
$
1,760,819
228,253
(233,120)
126,000
1,881,952
2,249,355
171,354
(82,335)
8,450
$
2,346,824
Trade receivables are non-interest bearing and are generally on 30-180 day terms. The Corporation
had a provision for bad debt in the amount of $339,602 (2019: $2,129,681). The amount relating to
impairment of trade receivables is $339,602 (2019: $1,322,485) and the amount relating to the
impairment of unbilled revenues is $Nil (2019: $807,196).
Neither past due nor impaired
2020
Current
31 – 60 days
61 – 90 days
91 – 180 days
Past due but not impaired
Greater than 180 days
$
1,057,153
$
135,759
88,593
60,655
118,650
2019
437,741
803,890
103,966
379,379
91,838
Unbilled revenue consists of service revenue that has already been rendered as at December 31, 2020
and recognized in accordance with the Corporation's revenue recognition policy from Note 3.
$
1,460,810
$
1,816,814
12. PREPAID EXPENSES AND DEPOSITS
December 31,
Prepaid rent
Prepaid insurance
Other prepaids
13. BID/PERFORMANCE BONDS
2020
63,593
3,861
47
67,501
$
$
$
2019
58,398
58,704
8,307
$
125,409
At December 31, 2020, of the $60,233 in bid/performance bonds (2019: $85,675), $36,270 (2019:
$36,134) was for one bid bond and two performance bonds in Saudi Arabia (KSA), to guarantee
delivery against work on various projects; and $23,962 (2019: $49,541) was for various bonds in
Egypt. Performance bonds typically remain in place for a period of one year from the start of the
project and are released back to the Corporation when the project is completed subsequent to
customer acceptance. Bid bonds are typically in place for a 90-120 day period but can be extended.
On December 31, 2019, NTG’s advance payment guarantee and performance bond supported by EDC
expired, however the customer had until January 31, 2020 to renew or call the bonds. The customer’s
request to renew the performance bond was refused by the Bank. As no renewal was forthcoming,
the bond was called. It was 100% insured by EDC, so the cost was not born by the Corporation.
52
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
13. BID/PERFORMANCE BONDS (cont’d)
The bonds are non-interest bearing. Premiums for these bonds for the year ended December 31, 2020
were $831 (2019: $3,161). Going forward, the Corporation does not currently have an EDC bonding
facility.
Performance Bond - Opening Balance January 1,
Saudi Arabia
Egypt
Opening Balance - January 1,
Additions during the year:
Saudi Arabia
Egypt
Total additions during the year
Refunded during the year:
Saudi Arabia
Egypt
Total refunded during the year
Performance Bond - Ending Balance December 31,
Saudi Arabia
Egypt
Ending Balance – December 31,
14. PROPERTY AND EQUIPMENT
2020
36,134
49,541
85,675
36,270
23,962
60,233
(36,134)
(49,541)
(85,675)
36,270
23,962
60,233
2019
42,991
68,545
111,536
36,134
49,541
85,675
(42,991)
(68,545)
(111,536)
36,134
49,541
85,675
$
$
$
The amount of borrowing costs capitalized during the year ending Dec. 31, 2020 was $Nil (2019: $Nil).
Cost:
At January 1, 2019
Additions
At December 31, 2019
Additions
Disposals
Furniture and
Equipment
Computer
Equipment
Computer
Software
$575,421
961
$576,382
2,423
–
$806,554
10,477
$817,031
17,254
–
$400,996
–
$400,996
–
–
Total
$1,782,971
11,438
$1,794,409
19,677
–
At December 31, 2020
$578,805
$834,285
$400,996
$1,814,086
Accumulated depreciation and impairment:
At January 1, 2019
Depreciation for the year
At December 31, 2019
Depreciation for the year
Impairment
Disposals
At December 31, 2020
Net book value:
At December 31, 2020
At December 31, 2019
$434,631
19,357
$453,988
16,561
–
–
$770,051
34,899
$804,950
24,500
–
–
$356,309
–
$356,309
$1,560,991
54,256
$1,615,247
21
–
–
41,082
–
–
$470,587
$829,150
$356,330
$1,656,067
108,256
122,394
$4,835
$12,081
$44,666
$44,687
$157,757
$179,162
53
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
15.
INTANGIBLE ASSETS
Intangible assets related to the upgrade of the internally developed NTS software product and to the
new software product (Stage EM) in 2016 and the Smart2Go platform capitalized in 2020.
Expenditures on development of the software are recognized as an asset from the time the
Corporation has determined an indefinite future economic benefit exists.
NTS is a retail management software for telecommunication companies. The development costs are
determined to have a useful life of 10 years are amortized on a straight line basis. The amount
capitalized as at December 31, 2020 is $Nil (2019: $Nil) in development costs. During the year, an
amortization expense of $Nil (2019: $364,418) was recognized. During 2019, the Corporation
determined that the asset was impaired and an impairment loss of $644,985 was recognized (2018:
$Nil). The Corporation had indicators of impairment of the NTS development costs for the period
ended December 31, 2019. An impairment test was performed on the non-current assets at year end
and the net book value of the development costs was fully impaired.
StageEM is a goal focused integrated software solution that improves organizational efficiency by
integrating strategic planning, business planning, demand and capacity management, operation
optimizations, portfolio project management and analytics. The development costs are determined to
have a useful life of 10 years are amortized on a straight line basis. During 2020, $Nil was capitalized
(2019: $Nil), and $Nil was amortized (2019: $Nil).
An impairment test was performed on the non-current assets at year end and the net book value of
the development costs was fully impaired in 2018.
Smart2Go will expedite and facilitate the digital transformation journey for enterprises in all business
verticals. It enables enterprises to automate their processes and create applications without need for
development. Smart2Go offers the future of rapid application development with different output
format. It is a powerful development tool without the need for knowledge of development languages.
Smart2Go is built on NTG's proven workflow technology and provides both a portal and mobile apps
for its users. NTG will provide its Smart2Go platform and its associated marketplace of the
applications developed on it, on the cloud, software-as-a-service or on premise for its large enterprise
customers.
The platform allows users to graphically build new screens, define and apply business rules, and
create required workflow. In addition, one of the most powerful features of Smart2Go is the ease of
integration with other systems such as ERPs, CRMs, financial systems, engineering systems etc. With a
mouse click, supporting various popular integration protocols such as SOAP, REST and others. The
development costs are determined to have a useful life of 10 years are amortized on a straight line
basis. During 2020, $860,636 was capitalized (2019: $Nil), $Nil was amortized (2019: $Nil).
54
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
Smart2Go
Development Costs
NTS Development
Costs
Total
$ –
$
3,644,168
$
3,644,168
15. INTANGIBLE ASSETS (cont’d)
Cost:
At January 1, 2019
Additions
Disposals
At December 31, 2019
$
Additions
Disposals
–
–
–
860,636
–
–
–
–
–
$
3,644,168
$
3,644,168
–
–
860,636
–
At December 31, 2020
$ 860,636
$
3,644,168
$
4,504,804
Accumulated amortization and impairment:
At January 1, 2019
Amortization charge for the year
Impairment
Disposals
At December 31, 2019
Amortization charge for the year
Impairment
Disposals
At December 31, 2020
Net book value:
At December 31, 2020
At December 31, 2019
$ –
$
–
–
2,634,767
364,417
644,985
–
$
2,634,767
364,417
644,985
–
$ –
$
3,644,168
$
3,644,168
–
–
–
–
–
$
–
–
–
–
–
–
$
3,644,168
$
3,644,168
$,009,40 860,636
$ 1,009,40 –
$
$
1,009,40 –
1,009,40 –
$,009,40 860,636
$ 1,009,40 –
16. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 31,
Trade payables
Accrued liabilities
Related parties payable
Taxes payable
Other accounts payable
2020
3,724,219
276,361
148,127
60,617
2,917,635
7,126,959
$
$
2019
3,458,701
85,949
446,003
50,457
2,466,809
6,507,919
$
$
Terms and conditions of the above financial liabilities:
• Trade payables are non-interest bearing
• Accrued liabilities are non-interest bearing
•
Related parties payables are non-interest bearing and have no specified terms of repayment.
55
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
17. OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES
(a) Other financial liabilities
Indebtedness
December 31,
Long-term debt (i)
CEBA loan (Note 18)
2020
2019
$ 7,189,285
$ 7,100,712
$ 28,499
$ –
$ 7,217,784
$ 7,100,712
(i) On September 16, 2019, the Corporation received a formal demand for payment of its Bank
facilities, requesting payment in full within ten (10) days. After significant negotiations, the Bank
assigned the Bank Indebtedness and the Security to 2729252 Ontario Inc., a company, controlled
by Ashraf Zaghloul, NTG CEO and Kristine Lewis, NTG President.
Effective December 16, 2019, all the rights, title and interest of the Bank in the Indebtedness and
the Security together the full benefit of all powers and all covenants and provisions contained in
the Security were assigned to the above company. The Indebtedness remains secured by a
General Security Agreement over the assets of the Corporation and has an interest rate of bank
prime plus 2.05%. There are no specific repayment terms. The Corporation recognized interest
expense of $49,822.56, which is included in accounts payable and accrued liabilities.
Bank indebtedness
December 31,
Bank indebtedness
2020
2019
$ 569,734
$ –
As of December 31, 2020, NTG Egypt Advanced Software had an overdraft facility with QNB bank
in Egypt in the amount of 7,027,683 Egyptian pounds (approximately $569,734) with an interest
rate of 18%.
Performance bonds
As of December 31, 2019, the Corporation had one advance payment guarantee, and one
performance bond issued in the amount of approximately $151,672. The bonds were financed by
a Canadian financial institution and supported and insured by EDC, with a renew or expire date of
January 31, 2020. In January 2020, the customer’s request to renew the one performance bond
was refused by the Bank. As no renewal was forthcoming, the performance bond was called. The
bond is insured by EDC, so no significant cost were born by the Corporation. Premiums for these
bonds for the year ended December 31, 2019 were $3,161 (2018: $12,042).
The Corporation does not currently have a bonding facility.
56
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
17. OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (cont’d)
(b) Fair values
Set out below is a comparison by class of the carrying amount and fair value of the Corporation's
financial instruments that are carried in the financial statements.
Carrying Amount
December 31,
2020
December
31, 2019
Fair Value
December 31,
2020
December
31, 2019
Financial assets
Cash and cash equivalents
Trade and accounts receivable
Bid/performance bonds
$ 145,224
1,881,952
60,233
$ 31,068
2,346,824
85,675
$ 145,224
1,881,952
60,233
$ 31,068
2,346,824
85,675
Total Financial Assets
$2,087,409
$2,463,567
$2,087,409
$2,463,567
Financial liabilities
Accounts payable and accrued
liabilities
Bank indebtedness
Due to related parties
Long-term debt
Carrying Amount
Fair Value
December 31,
2020
December
31, 2019
December 31,
2020
December 31,
2019
$7,126,959
$6,507,919
$7,126,959
$6,507,919
569,734
–
7,217,784
–
566,699
7,100,712
569,734
–
7,217,784
–
566,699
7,100,712
Total Financial Liabilities
$14,914,477
$14,175,330
$14,914,477
$14,175,330
The fair value of the financial assets and financial liabilities are included at the amount at which
the instrument could be exchanged in an orderly transaction between market participants in an
arm's length transaction at the measurement date.
The following methods and assumptions were used to estimate the fair values:
•
•
Trade and other accounts receivables, accounts payable and accrued liabilities, other current
liabilities approximate their carrying amounts largely due to the short term maturities of these
instruments.
Fair values of quoted instruments are based on price quotations at the reporting date. The fair
value of unquoted instruments and other financial liabilities (loans payable) are estimated by
discounting future cash flows using rates currently available for debt on similar terms, credit
risk, and remaining maturities.
Fair value hierarchy
As at December 31, 2020, the Corporation held cash measured at fair value.
The Corporation uses the following hierarchy for determining and disclosing the fair value of
financial instruments by valuation technique:
57
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
17. OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (cont’d)
(b) Fair value hierarchy (cont’d)
•
•
•
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: other techniques for which all inputs which have a significant effect on the recorded
fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value
that are not based on observable market data.
Assets measured at fair value
December 31, 2020
Level 1
Level 2
Level 3
Cash and cash equivalents
No liabilities were measured at fair
value
$ 145,224
$ 145,224
$ –
$ –
$ –
$ –
$ –
$ –
During the reporting year ending December 31, 2020, there were no transfers between Level 1 and
Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.
18. GOVERNMENT GRANT
The Corporation has received CAD$60,000 for the Canadian Emergency Business Account (CEBA)
loan. The loan amount is interest-free and CAD$20,000 is forgivable if the CAD$40,000 amount is
paid by December 31, 2022, after which the full amount is subject to a 5% annual interest rate and
due on December 31, 2025. Initial recognition of the CAD$60,000 was at its fair value at a discount
rate of 19.99%, representing the Corporation’s estimated unsecured credit risk.
The Corporation recognized CAD$28,500 as debt and CAD$31,500 was recognized as a government
grant income for the year ended December 31, 2020.
19. EQUITY INSTRUMENTS
(a) Common shares
As at December 31, 2020, the authorized share capital consists of an unlimited number of first
preferred shares, second preferred shares and common shares. To date, no first or second
preferred shares have been issued.
Before any shares of a particular preferred share series are issued the directors of the Corporation,
by resolution shall fix the dividend rates, whether the dividends are cumulative and the redemption
price of the redeemable shares.
Changes in the issued common shares of the Corporation are as follows:
58
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
19. EQUITY INSTRUMENTS (cont’d)
(a) Common shares (cont’d)
Balance, January 1, 2019
Shares issued on exercise of share options (i)
Allocation of contributed surplus (i)
Shares issued on debt for shares transaction (ii)
Balance, December 31, 2019
Shares issued on exercise of share options
Allocation of contributed surplus
Shares issued on debt for shares transaction (iii)
Balance, December 31, 2020
Common Shares
Amount
48,662,355
$
9,752,186
240,000
–
7,200,000
56,102,355
–
–
24,000
12,000
360,000
$
10,148,186
–
–
44,000,000
100,102,355
660,000
$
10,808,186
(i) In 2019, a total of 240,000 options were exercised, with a total value of $24,000. This resulted
in a re-allocation of contributed surplus to capital stock in the amount of $12,000.
(ii) In 2019, the Corporation offered employees and consultants the opportunity to participate in
debt for shares private placement. Subsequent to TSX approval, on February 28, 2019, the
Corporation closed the offering and issued 7,200,000 common shares at $0.05 per share for a
total value $360,000. 5,160,000 of these shares were issued to directors of the Corporation.
(iii) In 2020, the Corporation offered employees and consultants the opportunity to participate in
debt for shares private placement. Subsequent to TSX approval, on May 6, 2020, the
Corporation closed the offering and issued 44,000,000 common shares at $0.015 per share for a
total value $660,000. 18,600,000 of these shares were issued to directors of the Corporation.
(b) Share-based payments
The Corporation has a formal stock option plan allowing the Corporation to issue options to its
directors, officers, employees and consultants in order to attract and retain qualified and
experienced individuals. The Board of Directors determines the exercise price and the number of
options to be granted as well as all the terms of conditions of the options. All options granted by the
Corporation are nonassignable. The options generally expire three to five years subsequent to the
date of grant and vest over two years.
No options were granted to non-employees during 2020 and 2019.
Details of stock options are as follows:
Balance, 1 January 2019
Granted
Exercised
Expired
Options
3,570,000
1,670,000
(240,000)
(1,363,000)
Weighted average
exercise price
$ 0.10
$ 0.10
0.10
0.10
59
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
Balance, December 31, 2019
Granted
Exercised
Expired
Balance, December 31, 2020
Options
3,637,000
500,000
–
(725,000)
3,412,000
Weighted average
exercise price
$ 0.10
$ 0.05
0.00
0.10
$ 0.10
The stock options expire at various dates between January 2021 and December 2025. The weighted
average expected contractual lives of outstanding and exercisable options are as follows:
Options Outstanding
Options Exercisable
Exercise
Price
$ 0.05
$ 0.10
Total
Number of
outstanding
Dec 31/19
500,000
2,912,000
3,412,000
Expected life of
option (years)
4.89
1.02
2.96
Number of
outstanding
Dec 31/19
350,000
2,912,000
3,262,000
Expected life of
option (years)
4.88
1.02
2.95
Activity related to share-based compensation is as follows:
For the year ending December 31, 2020 the Corporation recorded $4,699 (2019: $28,231) as
contributed surplus and compensation expense, which is measured at fair value at the date of grant
and is expensed over the option’s vesting year. The weighted average fair value of options granted
during the year 2020 is $0.01 (2019: $0.01).
In determining the amount of share-based compensation, the Corporation used the Black-Scholes
option pricing model to establish the fair value of options granted by applying the following
assumptions:
Stock price
Risk-free interest rate
Expected life (years)
Expected dividend yield
Expected volatility
2020
$0.03
2019
$0.01
0.09 – 0.15%
1.45 – 1.66%
5 years
0%
3 years
0%
0.0 – 109.4%
0.0 – 135.35%
Fair value of options issued in fiscal year
0.01
0.01
On October 8, 2019, the Investment Industry Regulatory Organization of Canada (IIROC) halted
trading for the Corporation citing the reason as "Pending Company Contract." On February 3, 2020
trading resumed after the required TSX review.
60
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
20. CONTRIBUTED SURPLUS
Contributed surplus for the year ending consisted of $4,699 (2019: $28,231) for share-based
payments and re-allocation of contributed surplus on exercise of share options $Nil (2019: $12,000).
Opening balance January 1, 2020
Share-based payments
Reallocation on exercise of share options
Balance as at December 31, 2020
$ 1,804,824
4,699
–
$ 1,809,523
21. DIVIDENDS PAID AND PROPOSED
Cash dividends
The Corporation’s practice is to not make dividend payments to shareholders.
22. COST OF SALES
The details of the Corporation’s cost of sales are as follows:
Cost of sales
Salaries
Travel
Hardware
Other
Total
2020
2019
$ 5,223,849
$ 5,492,507
123,344
240,393
85,770
323,345
168,752
388,859
$ 5,673,356
$ 6,373,463
23. EXPENSES: DISCLOSURE OF FUNCTION EXPENSES
The details of the Corporation’s function expenses are as follows:
Selling
Salary and wages
Marketing
Mailing and courier
Professional services
Meals and entertainment
Miscellaneous
Total
2020
2019
$ 670,145
$ 1,621,273
186,217
5,534
39,485
54,046
–
316,816
5,787
45,104
318,947
8,906
$
955,428
$ 2,316,833
61
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
23. EXPENSES: DISCLOSURE OF FUNCTION EXPENSES (cont’d)
2020
General and Administrative
2019
Salary and wages
Occupancy
Consulting
Professional fees
Bid/performance bond fees
Insurance
Dues and subscriptions
Penalties and fees
Office and General
Total
24. LOANS PAYABLE
$ 1,364,997
$ 3,046,491
222,847
99,800
120,645
831
242,299
25,690
37,245
238,735
282,678
104,708
119,689
3,161
426,653
23,228
31,264
25,560
$ 2,353,089
$ 4,063,432
During the year, the Corporation had a non-secured loan agreement in the amount of $58,400 at an
interest rate of 2.74% that was payable by February 25, 2021. Subsequent to year end, in Q1 2021, the
full amount plus interest was repaid.
During the year, the Corporation entered into an agreement for funding of a project in the amount of
$266,667. The agreement states that the lender will be paid 37% for one-sixth of the profit from the
project. This transaction does not qualify as a joint arrangement or a principal-agent relationship. The
amount is non-secured, and is payable by August 31, 2021. The Corporation accrued interest in the
amount of $40,000.
The Corporation entered had a loan agreement in the amount of $100,000 at an interest rate of 11%.
The amount is non-secured, and had no specific terms of repayment. The Corporation accrued interest
of $11,000. Subsequent to year end, in Q1 2021, the full amount plus interest was repaid.
25. RELATED PARTY DISCLOSURES
The financial statements include the financial statements of the Corporation and the subsidiaries
listed in the following table:
Name
Country of Incorporation
Equity Interest
NTG Egypt Advanced Software (Subsidiary)
NTG Clarity Networks US Inc. (Subsidiary)
Egypt
USA
95%
100%
a) The following tables provide the balances owing to key management and key management
compensation for the years:
Interest Received
Amounts Owed by
Related Parties
Amounts Owed to
Related Parties
Loans from/to shareholders
December 31, 2020
–
December 31, 2019 (Refer to Note (e) below) –
$
$
–
–
$
$
–
831,717
62
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
25. RELATED PARTY DISCLOSURES (cont’d)
Interest Received
Amounts Owed by
Related Parties
Amounts Owed to
Related Parties
Loans from/to shareholders
December 31, 2020
–
December 31, 2019 (Refer to Note (e) below) –
Key management personnel of the Corporation:
–
–
December 31, 2020 (i)
December 31, 2019
Key management compensation
Short term employee benefits
Share-based payments
Total
$
$
$
$
$
$
–
–
–
–
2020
117,560
–
117,560
$
$
–
831,717
$ 1,581,349
$ 1,256,417
2019
$
$
748,100
2,000
750,100
(i) No salaries were accrued or paid to management in Q2-Q4 2020. Management is owed a total of
$1,581,349 for unpaid salaries, expenses, benefits and compensation, outstanding since 2016.
These amounts are part of Other Accounts Payable in Note 16.
b) The Ultimate Parent
The Corporation is the ultimate parent entity.
Related Party Transactions
Certain inter-company transactions between the Corporation and its subsidiaries, which are related
parties to the Corporation, have been eliminated.
Related parties include key management, the Board of Directors, close family members and entities
which are controlled by these individuals as well as certain persons performing similar functions.
c) During the year ended December 31, 2020 the directors and key management were awarded share
options under the Corporation’s incentive stock option plan with a fair value of $1,000 (2019: $1,650).
On November 29, 2019, the Corporation entered into an Assignment of Debt and Security agreement
with Royal Bank of Canada and 2729252 Ontario Inc. The debt amount of $7,100,712 was assigned to
2729252 Ontario Inc., which is a private company owned by two directors of the Corporation. See
Note 17 (a) for more information. All terms remain the same as with the Bank. The Indebtedness held
by the Company is secured by a General Security Agreement over the assets of the Corporation. As of
December 31, 2020, the loan amount is $7,189,285 (2019: $7,100,712).
d) Entity with significant influence over the Corporation
No single entity or party has significant influence over the Corporation. As at December 31, 2020 the
Corporation has 100,102,355 common shares outstanding.
63
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
25. RELATED PARTY DISCLOSURES (cont’d)
Related parties (direct and indirect) holdings are as follows:
Ashraf Zaghloul, CEO
Kristine Lewis, CFO
Mohamed Adel Zaghloul
Mohammed Saleem Siddiqi
Nick Hamilton-Piercy
18,048,729
15,526,749
9,690,000
150,000
310,714
Terms and conditions of transactions with related parties
The Corporation's credit facilities were with RBC Royal Bank until December 23, 2019, when it was
transferred to a Company, controlled by two directors of the Corporation. The Bank assigned to the
company, the Indebtedness and the Security, and all the rights, title and interest together with the full
benefit of all powers and all covenants and provisions contained in the Security. The Indebtedness is
secured by a General Security Agreement over the assets of the Corporation. See Note 17 (a) for more
information.
There have been no guarantees provided or received for any related party receivables or payables,
other than the Indebtedness described above. All other transactions with the related parties are
carried out in the normal course of operations, and are recorded at fair value.
e) In November 2019, NTG Egypt Advanced Software, a subsidiary of the Corporation, received a non-
interest bearing and unsecured loan from a Director of the Corporation. The loan amount was
7,000,000 Egyptian Pounds, translated to $566,699, bears interest at 18%, and is repayable on
demand. This loan has been converted into a line of credit with QNB Bank in Egypt under the same
terms and conditions. See Note 17 “Bank Indebtedness” for details.
26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Corporation’s primary risk management objective is to protect the Corporation’s balance sheet
and cash flow.
The Corporation’s principal financial liabilities comprise of bank overdraft, long term debt and trade
and other payables. The main purpose of these financial liabilities is to raise finances for the
Corporation’s operations.
The Corporation is exposed to market risk, interest rate risk, foreign exchange risk, credit risk, and
liquidity risk.
The Corporation’s senior management oversees the management of these risks. The Corporation’s
senior management is supported by a Committee that advises on financial risks and the appropriate
financial risk governance framework for the Corporation.
The Committee provides assurance to the Corporation’s senior management that the Corporation’s
financial risk taking activities are governed by appropriate policies and procedures and that financial
risks are identified, measured, and managed in accordance with the Corporation’s policies and group
risk appetite.
64
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)
All derivative activities, if any, for risk management purposes are carried out by a team that has the
appropriate skills, experience, and supervision. It is the Corporation’s policy that no trading in
derivatives for speculative purposes shall be undertaken. The Board of Directors reviews and agrees
policies for managing each of these risks which are summarized below.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in market prices. Market prices comprise several types of risk: interest rate risk,
currency risk, commodity price risk, and other price risk, such as equity risk.
Interest rate risk
The Corporation’s exposure to interest rate fluctuations is primarily interest paid on its bank
indebtedness and long-term loans. The Corporation has performed sensitivity analysis on interest
rates at December 31, 2020 to determine how a change in interest rates would impact equity and net
loss. During the year, the Corporation paid $268,957 (2019: $946,881) on its loans and liabilities. An
increase or decrease of 100 basis points in the average interest rate paid during the period would have
adjusted net earnings by approximately $26,896 (2019: $94,688). This analysis assumes that all other
variables remain constant.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates. The Corporation’s exposure to the risk of
changes in foreign exchange rates relates primarily to the Corporation’s operating activities, when
revenue or expense are denominated in a different currency from the Corporation’s functional currency.
The parent entity’s functional currency is the Canadian dollar.
The Corporation does not hedge the risk related to fluctuations of the exchange rate between USA and
Canadian dollars from the date of the sales transactions to the collection date due to the short term
nature of this exposure.
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates. The Corporation's exposure to the risk of
changes in foreign exchange rates relates primarily to the Corporation's operating activities, when
revenue or expenses are denominated in a different currency from the Corporation's functional
currency. The parent entity's functional currency is the Canadian dollar. A 10% change in exchange rates
on December 31, 2020 would have the following approximate impacts:
10% impact to:
P&L in CAD
Equity in CAD
U.S.
Dollar
USD
79,287
58,276
Omani
Riyal
OMR
7,938
5,834
Kuwait
Dinar
KWD
43,299
Saudi
Riyal
SAR
60,018
31,825
44,113
Qatari
Riyal
QAR
11
8
Egyptian
Pound
LE
25,459
18,712
65
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)
Foreign currency risk (cont’d)
A 10% change in exchange rates on December 31, 2019 would have the following approximate impacts:
U.S.
Dollar
USD
50,385
37,033
Omani
Riyal
OMR
701
515
Kuwait
Dinar
KWD
25,734
18,915
Saudi
Riyal
SAR
11,925
8,765
Qatari
Riyal
QAR
316
233
Egyptian
Pound
LE
54,175
39,819
10% impact to:
P&L in CAD
Equity in CAD
Commodity price risk
The Corporation is not subject to price risk from fluctuations in market prices of commodities.
Equity price risk
The Corporation has no exposure to equity price risk.
Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails
to meet its contractual obligation. The Corporation’s financial instruments that are exposed to credit risk
consist primarily of trade receivable. The Corporation’s exposure to credit risk is impacted by the
economic conditions for the industry which could affect the customers' ability to satisfy their
obligations. In order to reduce risks, the Corporation performs periodic credit evaluations of the
financial conditions of its customers and typically does not require collateral from them.
Management assesses the need for allowance for potential credit losses by considering the credit risk of
specific customers, historical trends and other information. In 2019, the Corporation also mitigated
credit risk through credit insurance coverage with Export Development Canada and Euler Hermes
Canada as explained in Note 26.
The aging of trade accounts receivable are as follows:
Neither past due nor impaired
2020
Current
31 – 60 days
61 – 90 days
91 – 180 days
Past due but not impaired
Greater than 180 days
$
1,057,153
$
135,759
88,593
60,655
118,650
2019
437,741
803,890
103,966
379,379
91,838
$
1,460,810
$
1,816,814
The credit quality of all the accounts receivable of the Corporation that are neither past due nor
impaired and the age of accounts receivable that are past due but not impaired have been assessed
on an individual basis and determined to have a mitigated risk profile. As at December 31, 2020, the
Corporation had no insured receivables or insured unbilled revenue (2019: $Nil).
66
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)
Liquidity risk
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they
fall due. The Corporation’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under normal and stressed conditions.
The Corporation manages liquidity risk by reviewing its capital requirements on an ongoing basis. The
Corporation continuously reviews both actual and forecasted cash flows to ensure that the
Corporation has appropriate capital capacity.
The following table summarizes the amount of contractual undiscounted future cash flow
requirements for financial instruments as at December 31, 2020:
Contractual obligations
2021
2022
2023
2024 and after
Total
Operating line of credit
$
569,734
$
Accounts payable and
accrued liabilities
Operating lease
Long-term debt
Loans payable
7,126,959
184,455
7,217,784
659,547
– $
–
$
–
–
–
–
$
569,734
7,126,959
105,878
5,371
3,000
–
–
–
–
–
–
298,704
7,217,784
659,547
The Corporation accrues expenses when incurred. Accounts are deemed payable once an event occurs
that requires payment by a specific date. The contractual maturity of accounts payable is within one
month.
The aging of trade accounts payable are as follows:
December 31,
Current
31 – 60 days
61 – 90 days
91 – 180 days
More than 180 days
Capital management
2020
800,211
109,175
30,732
98,235
2,685,866
3,724,219
$
$
2019
419,918
103,642
131,302
583,163
2,220,676
3,458,701
$
$
The Corporation manages its capital, which consists of cash provided from operations and long term
debt, with the primary objective being safeguarding sufficient working capital to sustain operations.
The Board of Directors has not established capital benchmarks or other targets. As at December 31,
2020, the Corporation was pursuing additional capital through the issuance of additional equity or
debt financing. There can be no guarantee that they will be successful in raising additional capital.
There have been no changes in the Corporation’s approach to capital management during the year
ending December 31, 2020. Also, no changes were made in the objectives, policies, or processes
during the year ending December 31, 2020. The Corporation will continually assess the adequacy of
its capital structure and capacity and make adjustments within the context of the Corporation’s
strategy, economic conditions, and the risk characteristics of the business. The Corporation’s
objectives when managing capital are to:
67
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
26. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (cont’d)
Capital management (cont’d)
(i)
safeguard the Corporation's ability to continue as a going concern, so that it can provide
adequate returns for shareholders and benefits for other stakeholders;
fund capital projects for facilitation of business expansion provided there is sufficient liquidly of
capital to enable the internal financing; and
(ii)
(iii) maintain a capital base to maintain investor, creditor, and market confidence.
The Corporation considers the items included in the consolidated statements of changes in
shareholders' equity as capital. The Corporation manages the capital structure and makes adjustments
to it in the light of changes in economic conditions and the risk characteristics of the underlying assets.
In order to maintain or adjust the capital structure, the Corporation may issue new shares. The
Corporation is not subject to externally imposed capital requirements.
27. COMMITMENTS, CONTINGENCIES, AND GUARANTEES
Export Development Canada
The Corporation had an agreement with EDC whereby EDC agreed to provide ninety percent (90%)
insurance coverage (Accounts Receivable Insurance “ARI”) for the Corporation's invoiced sales and
75% of pre-shipment costs. The EDC ARI policy was cancelled as of November 1, 2018, however the
pre-shipping insurance continued at the Bank’s request, until the Indebtedness and Security was
assigned to a 2729252 Ontario Inc. (effective December 16, 2019).
At December 31, 2019, the insurance claim submitted to EDC in the amount of US$184,556 for an
overdue accounts receivable with one of the Corporation’s customers was ongoing. Subsequent to
year end, in January 2020, EDC approved payment of the claim, less a C$150,000 deductible. In
February 2020, a payment of $60,911.53 USD was made to RBC Royal Bank.
Euler Hermes Canada
The Corporation had a Credit Insurance agreement with Euler Hermes whereby they agreed to provide
ninety percent (90%) insurance coverage for the Corporation's invoiced sales and work in progress.
Coverage was based on customers approved by Euler Hermes. The policy period was from November
1, 2018 to October 31, 2019. The Corporation did not renew this insurance due to cash flow.
During the year ended December 31, 2019, the Corporation recorded total premiums of $704 and
$141,646 in prepaid and general and administration expenses.
Operating lease commitments – Corporation as lessee
The Corporation is committed under agreements for the rental of office space in Canada at a monthly
rate of $9,232 for the period from June 1, 2016 to May 31, 2021.
On April 6, 2020, the Corporation signed a Forbearance Agreement with its Canadian landlord where
the Corporation agreed to pay $5,200 per month and defer the balance of the rent. The Corporation
will use its best efforts to pay additional amounts against the accruing balance.
68
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
27. COMMITMENTS, CONTINGENCIES, AND GUARANTEES (cont’d)
Operating lease commitments – Corporation as lessee (cont’d)
The Corporation is committed under agreements for the rental of office spaces in Egypt and Oman at
a monthly rate ranging from $1,960 to $3,117 for the periods from October 20, 2018 to January 14,
2023.
The lease commitments for the office premises are as follows:
December 31, 2020
2021
2022
2023
2024 and thereafter
Legal claim contingency
$
$
184,455
105,878
5,371
3,000
298,704
The Corporation is subject to a variety of claims and suits that arise from time to time in the ordinary
course of business. Although management currently believes that resolving claims against the
Corporation, individually or in aggregate, will not have a material adverse impact on the Corporation’s
financial position, results of operations, and cash flows. These matters are subject to inherent
uncertainties and management's view of these matters may change in the future. To date, there are
no claims or suits outstanding.
Guarantees
The Corporation indemnifies its directors and officers against claims reasonably incurred and resulting
from the performance of their services to the Corporation, and maintains liability insurance for its
directors and officers. In March 2020, the Corporation was unable to renew its Directors and Officers
insurance.
28. COLLATERAL
The Corporation has pledged its assets under a General Security Agreement ("GSA") as disclosed in Note
17. The Corporation did not hold collateral at December 31, 2020, and December 31, 2019.
29. SALE OF ENTERPRISE LICENSES
On May 1, 2020, NTG signed an Agreement for licensing a copy of Product IP Rights and Support with an
Egyptian company, owned by a former Director of the Corporation. This Board-approved agreement
allows this Egyptian company to purchase NTG Egypt’s Enterprise business including a copy of the non-
exclusive rights for the IP of two software products (Utility Billing and HMIS) for 1.2 million Egyptian
pounds. The Enterprise revenue is approximately 3-4 million Egyptian pounds per year. The divesting of
these non-core older technology legacy products allows NTG management to focus on core products
and services going forward.
69
NTG CLARITY NETWORKS INC.
Notes to the Audited Consolidated Financial Statements
December 31, 2020 and 2019
29. SALE OF ENTERPRISE LICENSES (cont’d)
Upon execution of the agreement, both the Corporation and the company would own a copy of the
software listed (NTS UBS and HMIS), and both Parties would own the Copyright and Intellectual Property
of their software copy. Either Party is free without any limitations whatsoever, to license their source
code and the right to reproduce work, create derivative works, distribute and sell copies of the software
worldwide without the consent of the other Party. Each Party could sell their interest, in whole or in part
of their owned software to a 3rd Party without the consent of the other Party. The carrying value of
these intangible assets was zero, thus, the full proceeds of EGP 1,200,000 (approximately $99,428) has
been fully recognized as other income in the consolidated statements of profit and loss and
comprehensive income
.
Upon signing of the Agreement, Zaha Tech will be the sole and exclusive provider of all support to all
current customers for a period of 30 months. NTG invoices the customers and retains a 10% fee upon
collection of the dues from these customers, and recognizes revenue on a Net basis. During the year,
the corporation recognized net revenue of $72,485 under these contracts.
30. COMPARATIVE FIGURES
Certain of the 2019 figures have been reclassified to conform with the current year's financial statement
presentation.
70
Corporate Information
Board of Directors
Ashraf Zaghloul
Kristine Lewis
Mohamed Saleem Siddiqi
Syed Zeeshan Hasnain
Officers
Ashraf Zaghloul
Chair & Chief Executive Officer
Kristine Lewis
President & Chief Financial Officer
Registrar and Transfer Agent
Computershare Investor Services
100 University Ave., 8th Floor, North Tower
Toronto, Ontario M5J 2Y1
Telephone: 1-800-564-6253
Fax: 1-888-453-0330
Auditors
NVS Chartered Accountants Professional Corporation
100 Allstate Parkway, Suite 303
Markham ON L3R 6H3
Telephone: (905) 415-2511
Fax: (905) 415-2011
Legal Counsel
Borden Ladner Gervais
Centennial Place, East Tower
1900, 520 - 3rd Avenue S.W.
Calgary, Alberta T2P 0R3
Telephone: (403) 232-9500
Fax: (403) 266-1395
International Work
Stock Exchange Listing
The TSX Venture Exchange
Trading Symbol: NCI
Investor Relations
klewis@ntgclarity.com
Corporate Office
NTG Clarity Networks Inc.
2820 Fourteenth Avenue, Suite 202
Markham, Ontario
Canada L3R 0S9
Telephone: (905) 305 1325
Toll-free (North America):
(800) 838-7894
Fax: (800) 838-7895
E-mail: info-ntg@ntgclarity.com
www.ntgclarity.com
71