Navigant Consulting Inc.
Annual Report 2023

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Simplifying Digital Transformation NTG Clarity Networks Inc. Annual Report 2023 30+ Years of Service NTG Clarity Networks Inc. Annual Report 2023 Who We Are NTG Clarity is a digital transformation business. By providing outsourced software development solutions and proprietary software products, we accelerate and simplify the digital journey for our clients in the enterprise telecom, financial, and IT sectors. NTG Clarity helps clients scale and stay connected by serving as a long-term technology partner in a rapidly- changing and increasingly digital world. Our Vision Our Mission Is to make digital transformation accessible worldwide, capitalizing on our deep knowledge and experience in different industries to provide competitive, top-tier products and services. Enabling clients’ Business Excellence and efficiency by architecting and delivering world class portfolios of integrated IT solutions owned by distinguished and highly motivated professionals. 2 NTG Clarity Networks Inc. Annual Report 2023 Industry Context Digital transformation is a booming global market sized at $937 Billion in 2023 and expected to hit $7 trillion by 2032 (Prector Research). 20.9% Compounded Annual Growth Rate Of Global Digital Transformation Market ) D S U n o i l l i B ( e z S i Digital Transformation Market Size, 2022 to 2032 8000 7000 6000 5000 4000 ) n 3000 o i l l i B 2000 1000 0 2022, 2024, 2026, 2028, 2030, 2032 Year Since the pandemic in 2020, business leaders all over the world have recognized the importance of digitizing their organization. (Flexera). 74% Over 74% of organizations consider digital transformation a top priority. Our primary sectors of Financial Services, Telecom, and IT make up half of the digital transformation market (Fortune). With more than 30 years of industry knowledge and a wide network of professionals, NTG Clarity is positioned to be a key player in this growing market. Other 2.0% Transportation 12.0% Healthcare 8.0% Digital Transformation Market by Sector Banking & Financial 26.0% Retail and Consumer 15.0% Manufacturing 4.0% Government 10.0% IT and Telecom 23.0% 3 NTG Clarity Networks Inc. Annual Report 2023 About NTG Clarity Team of Over 700 30+ Years of Service More than 30 years of experience providing enterprise services and software solutions to major tier-one enterprises worldwide. Rapid Cost Reduction and Revenue Growth 50000000 40000000 30000000 20000000 10000000 57% Revenue Growth in 2023 $27.7 Million in 2023 Revenue 2019 2020 Other Expenses 2021 2022 2023 2024 Projection Operating Ex pens es Cost of Revenue Revenue NTG Clarity Revenue by Sector 50+ Enterprise Clients Government 9.1% Telecom & IT 19.2% 4 4 Other 1.9% Financial 69.8% NTG Clarity Networks Inc. Annual Report 2023 Lines of Business Outsourced Software Development A booming trend in Digital Transformation means enterprises around the world are looking to rapidly expand their software development teams. 78% Onsite Services 12% Offshore Services Software Products More than 30 years in Digital Transformation has given us insight into gaps in the market that we’ve sought to fill with proprietary software products and implementations. NTGapps 10% NIS 5 NTG Clarity Networks Inc. Annual Report 2023 Praise From Our Customers I was extremely impressed with the quality of the people NTG Clarity provided to our team. These individuals were made available quickly despite our short timeframe requirements, yet they brought with them a wealth of technical skills and experience. NTG’s team was quick to learn the intricacies of our complex systems and showed great professionalism and attention to detail. I was also impressed by how proactive NTG’s personnel were, providing solutions and alternatives to challenges of any magnitude. I would definitely recommend NTG Clarity to anyone in need of technical services. I wanted to extend a thank you note to the NTG Clarity team as they worked with us in the Mobile site control project for the last 9 months and ongoing. We see NTG as an important and effective partner, and we would not hesitate to recommend their products and services. We look forward to working with NTG team on future projects. NTG Clarity implemented its Network Inventory and Network Projects Workflow (NIS) for Ooredoo Oman. We have been very satisfied with the solution, the implementation and the team. The NIS system meets our needs and has been flexible to accommodate our new requirements. We have been impressed by the NTG Clarity team, their knowledge, dedication and professionalism in the inventory domain and we liked their flexibility and commitment. We would recommend NTG Clarity Network solution for other operators. 6 NTG Clarity Networks Inc. Annual Report 2023 Letter to shareholders Dear NTG Clarity Investor, 2023 has been a historic year for NTG Clarity. With every quarter breaking all-time revenue records, we’re experiencing growth never before seen in our more than 30 years in business. Revenues for 2023 were up 57% to $27.7 Million compared to $17.65 Million in 2022 with a profit of $2.3 Million in 2023, up 190% from $788,433 in 2022, making three consecutive profitable years. With a global trend of enterprises undergoing rapid digital transformation, both our offerings of outsourced software development resources and proprietary software products have seen rapidly growing demand that shows no signs of slowing down. Since embracing our new offshore model in 2021, we’ve been able to connect more clients with talented candidates faster, accelerating their digital transformation journeys. All while at a lower cost to clients and a higher margin for us. This is the primary driver behind our profitability in the last three years. To accommodate the increase in demand, we expanded our Egypt Offshore Center by opening a new office in Cairo, Egypt in 2023. This office in the Al-Aghouza district along the Nile River, our third in Cairo, has since become our flagship offshore resource campus, with space for more than one hundred new staff and room to expand further when needed in the future. In 2023, we solidified our commitment to education, training, and personal development by opening the NTG School in cooperation with the Egyptian Ministry of Education. This partnership aims to equip Egyptian secondary school students with a dual curriculum, integrating NTG’s specialized technology training alongside the ministry’s curriculum. NTG proudly dedicates a team of educational engineers ensuring comprehensive training for the next generation in the exciting field of digital transformation. Although most of our growth was due to increased demand for our outsourcing services, our software product line is picking up. Many of our existing customers in the Finance, Telecom, and IT sectors are embracing the NTGapps platform as a way to rapidly develop business apps to simplify day-to-day operations with no developer resources required. New customers in sectors like Food & Beverage and Logistics & Distribution are also signing on to have end-to-end ERP systems developed on our NTGapps platform. With every quarter breaking all-time revenue records, we’re experiencing growth never before seen in our more than 30 years in business. We continue to improve our working capital, with our deficit down 41% to $2,092,663 from 2022 to 2023. Our growth in 2023 has enabled us to prioritize getting legacy debts repaid. Going into 2024, we also look forward to paying down our long-term debts incurred when refocusing the business in 2019. Our non-current liabilities are majority management-owned and relatively low- cost with flexible repayment terms. We kick-started this growth and repayment process in December 2023 with the closing of a private placement with the proceeds of $1,110,000, to be used for accounts payable and other corporate initiatives. As our revenues continue to grow and we remain comfortably self-funded, we’re constantly looking for ways to invest and grow even faster. In July 2023, we received approval from shareholders to perform a five-to-one share consolidation. Although the consolidation has not been executed by the end of 2023, we’re looking forward to cleaning up our count of shares outstanding and bringing a little more stability to the stock with a higher price per share. Shareholders can also enjoy higher earnings per share due to the lower share count, but also due to our strong growth trajectory. 7 NTG Clarity Networks Inc. Annual Report 2023 Entering 2024, we’d like to share our four-part commitment to: 1. Customers by providing flexible, quality 3. Shareholders by continuing our growth services at a competitive price. We accelerate and simplify the digital transformation journey for our clients by providing the right solution delivered by passionate professionals both on their sites and offshore. 2. People by helping our staff grow and develop personally and professionally. We empower our staff to build and deliver challenging projects while providing opportunities for training and career advancement both internally and outside NTG. trajectory and profitability. With purchase orders on-hand and contracts we expect to close, we project our 2024 revenue to approximately double to $50 Million. With three years of consistent profitability under our belt, we’re actively identifying opportunities to make sure as much of this new revenue as possible flows on to the bottom line. 4. Community by passing our experience down to the next generation. We provide youth education and employment opportunities tailored to the modern job market through the NTG School. We’re very excited to continue our successful growth into 2024 and use our growing funds to create value for our shareholders by reinvesting into further growth, and also paying down our longer-standing debts. I’d like to thank you, our valued investor, for your continued confidence. Looking forward to another successful year in 2024. Sincerely, Ashraf Zaghloul Chairman and Chief Executive Officer NTG Clarity Networks Inc. 1. Customers 2. People We accelerate and simplify the digital transformation journey for our clients by providing the right solution delivered by passionate professionals both on their sites and offshore. We empower our staff to build and deliver challenging projects while providing opportunities for training and career advancement both internally and outside NTG. 3. Shareholders 4. Community With three years of consistent profitability under our belt, we’re actively identifying opportunities to make sure our revenue growth continues and as much of this new revenue as possible flows on to the bottom line. 8 We provide youth education and employment opportunities tailored to the modern job market through the NTG School. NTG Clarity Networks Inc. Annual Report 2023 Table of Contents 10 Management’s Discussion & Analysis of Financial Conditions and Results of Operations 31 Audited Financial Statements 31 Consolidated Statements of Financial Position 32 Consolidated Statements of Changes in Equity 33 Consolidated Statements of Profit and Loss and Comprehensive Income 10 Business Overview 34 Consolidated Statements of Cash Flows 35 Notes to the Audited Financial Statements 74 Corporate Information 13 Summary of Quarterly Results 14 Quarterly and Annual Results of Operations 19 Assets and non-current liabilities 19 Liquidity and Capital Resources 21 Proposed Transactions 22 Business Risk and Management 27 Management’s Statement of Responsibility 28 Independent Auditor’s Report 9 NTG Clarity Networks Inc. Annual Report 2023 Management’s Discussion & Analysis of Financial Conditions and Results of Operations This management discussion and analysis (MD&A) focuses on key statistics from the consolidated financial statements and pertains to known risks and uncertainties relating to the digital transformation, telecom and consulting industries. 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 27, 2024, for the year ending December 31, 2023 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 Business Overview 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. NTG Clarity is a Canadian publicly traded Corporation (TSXV: NCI; OTC: NYWKD) that provides digital transformation solutions: software development outsourcing and software products. We have been providing engineering, Information Technology, and networking services and developing niche software products for telecommunications and utilities providers since our start in 1992. We have also expanded into the financial and government sectors, providing technical resources and products to assist customers with projects that include digital transformation. We are headquartered in Toronto, Canada and have subsidiaries/branch offices in Cairo, Egypt; the USA; Riyadh, Saudi Arabia and Muscat, Oman. 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 and Oman; and the Egypt segment, which is our primary delivery centre for software development and professional services, offshoring services and network services to customers worldwide. 10 Summary of Major NTG Events in 2023 This year’s announcements highlighted $41.788 Million in contracts and POs signed with customers including 14 new customers in 2023. We have been increasing our customer base across multiple verticals and regions as announced throughout the year. NTG Clarity Networks Inc. Annual Report 2023 41.788M in contracts In Q1 2023, we announced the following: • The receipt of multiple POs valued at $12.22 Million. Of this amount, $6.852 Million was recurring revenue and $5.368 Million was for new work including work from new customers. • In February, we attended Mobile World Congress (MWC) in Barcelona. This is one of the biggest events for IT and telecommunications in the world. We presented to prospective customers and increased the awareness of NTG’s products and services. We look forward to marketing our NTGapps product in other such events throughout the year. In Q2 2023, we announced the following: • In April we received multiple POs for professional services work valued at approximately $1.069 Million for new work and renewals of ongoing contracts. • We signed a 3-year Professional Services Supply Agreement with a leading IT services company in the Gulf Region that provides services to both the public and private sectors. This is one of the largest offshoring agreements for us to-date with a maximum value ceiling amount of approximately $10.7 Million and estimated expenses of $8M. In Q3 2023, we announced the following: • The receipt of 49 POs received were valued at $9 Million including approximately $3.6 Million from new customers. • We also announced a new office space in Cairo dedicated to projects stemming from the $10.7 Million Frame Agreement announced in April 2023 as well as other new customers. In Q4 2023, we announced the following: • The receipt of 11 POs that were valued at $8.8 Million. Of this amount, half was recurring revenue and half was for new customers. • In December, we closed a private placement of 37,000,000 common shares at a price of $0.03 per Common Share for gross proceeds of $1,110,000. The Common Shares issued pursuant to the Private Placement will be subject to a four-month hold period. 11 NTG Clarity Networks Inc. Annual Report 2023 Canada Our Canadian office serves as our corporate headquarters and accounts for 7% of NTG’s revenue (2022: 12%). We continued to work on two projects through our Canadian office and brought on 2 new customers for products. Egypt Our Egypt offices serve as our primary delivery centre for offshore professional services and software development. Egypt continues to be a challenging place to do business with restrictions on using foreign currency for business operations and on moving funds out of the country. The Egyptian pound (EGP) has continued to drop in value, dropping from around 18.2 EGP to the Canadian dollar in January to about 23.3 EGP in December 2023, a 28% drop in value (https://www.exchange-rates.org/exchange- rate- history/cad-egp-2023). Other effects in the economy include an interest rates of 19.25% and official inflation rate of 33.6 percent in December. This has resulted in NTG Egypt having to increase salaries to help personnel cope with the changing economy. The continuing devaluation of the Egyptian Pound and the resulting economic slowdown has resulted in reduced revenue on translation. Egypt’s contribution in 2023 was 9% of the Corporation’s revenue (2022: 24%). This drop in revenue was expected and planned, as since 2021, as well as supporting Egypt’s legacy customers, management has transformed NTG Egypt into primarily a delivery centre for offshore services for international customers through our Egypt Offshore Centre. Since embracing our new model, we have connected clients with talented candidates faster, and accelerated their digital transformation journeys, all the while at a lower cost to them and consistent margins for us. This is the primary driver behind our profitability in the last three years. In 2023, we solidified our commitment to education, training, and personal development by opening the NTG School in cooperation with the Egyptian Ministry of Education. This partnership aims to equip Egyptian secondary technology school students with a dual curriculum, integrating NTG’s specialized technology training alongside the ministry’s standard curriculum. NTG donates the time of a team of educational engineers to ensure comprehensive training for the next generation in the exciting field of digital transformation. Despite difficult economic times in Egypt, NTG has been able to thrive by providing employment and professional development opportunities for the local population and providing offshore services to customers worldwide. Kingdom of Saudi Arabia (KSA) KSA has shown an unprecedented increase in demand for our products and services and for our offshore services, with a 109% increase in revenue contribution for the country this year with 91% of our professional service work and 81% of our revenue being from KSA (2022: 76% and 62% respectively). NTG has developed excellent brand recognition and a solid track record over the years, which is an asset to our work in the region. As a result of the onboarding of new customers over the past few years, 70% of our revenue in 2023 was from customers in the Banking & Finance sectors, whereas historically most of NTG’s revenue has come from the Telecom sector. Oman In 2023, we continued work for our customer in Oman, who is using our NTS Network Inventory and Project Management software products. This customer has been with NTG for over 10 years and while recurring revenues have decreased as the development and implementation was completed, annual support fees and change requests contributed 2% to NTG’s revenue in 2023 (2022: 5%) 12 NTG Clarity Networks Inc. Annual Report 2023 Outlook NTG has had incredible growth this year with each quarter breaking revenue records, and with Q4 having our highest single-quarter revenue ever. As KSA continues to focus on diversifying its economy away from Oil & Gas, we expect the strong demand for our services in other sectors like Banking & Finance and other large enterprises to continue as these sectors rapidly build out technical infrastructure and software. Consolidated revenue for Q4 2023 was $8,224,124, up 43% from $5,742,867 for the same period in 2022. Year-to-date revenues are up by 57% from 2022 ($27,728,117 compared to $17,652,313). With the existing backlog of $22.7 Million in POs and contracts, we anticipate that 2024 will be another record-breaking year with revenue projections of over $50 Million. Since 2021, as well as supporting NTG Egypt’s legacy customers, management has transformed NTG Egypt into a supplier of offshore services for international customers through our Egypt Offshore Centre. Since embracing our new offshore model, we have been able to connect more clients with talented candidates faster, accelerating their digital transformation journeys, all the while at a lower cost to them and consistent margins for us. This is the primary driver behind our profitability in the last three years. Entering 2024, our two main focuses are: 1. Continuing our growth trajectory. With POs on-hand and contracts we expect to close, we project our 2024 revenue to almost double to $50 Million. 2. Driving further profitability. With three years of consistent profitability under our belt, we are actively identifying opportunities to make sure as much of this new revenue as possible flows on to the bottom line. Summary of Quarterly Results In Q4 2023, NTG recorded its highest quarter revenue in its history, and each quarter in 2023 has had increasing record-setting revenues. Historically, NTG’s operating results have fluctuated due to the timing of new contracts and their corresponding billing, and we expect this trend to continue. The following table shows a summary of our eight most recent quarters (in Canadian dollars). 2023 Revenue Net Income (Loss) Profit (Loss) per Share Diluted Profit per Share Total Assets Quarter One $ 6,127,177 $ 637,745 Quarter Two $ 6,373,261 $ 698,261 Quarter Three $ 7,003,553 $ 509,880 Quarter Four $ 8,224,124 $ 469,848 $ 0.004 $ 0.005 $ 0.003 $ 0.000 $ 0.004 $ 9,826,280 $ 0.004 $ 10,014,812 $ 0.003 $ 11,332,113 $ 0.000 $ 12,392,158 TOTAL $ 27,728,117 $ 2,315,735 $ 0.01 $ 0.01 $ 12,392,158 13 NTG Clarity Networks Inc. Annual Report 2023 2022 Revenue Net Income Profit per Share Quarter One Quarter Two $ 4,320,604 $ 554,342 $ 3,403,633 $ 191,362 Quarter Three $ 4,185,208 $ 434,489 Quarter Four $ 5,742,867 $ (391,759) TOTAL $ 17,652,313 $ 788,434 $ 0.00 $ 0.00 $ 0.01 $ 0.00 $ 0.01 Diluted Profit per Share Total Assets $ 0.00 $ 0.00 $ 0.01 $ 0.00 $ 0.01 $ 6,524,801 $ 6,398,118 $ 7,260,075 $ 8,167,611 $ 8,167,611 Quarterly and Annual Results of Operations Our team’s hard work and dedication has resulted in 2023 having the highest revenue in NTG’s history, with Q4 2023 being the highest-ever single quarter revenue. NTG’s business continues to operate and support customers’ operations, with significant increasing revenues in Saudi Arabia. We continue to rely on collections and short-term loans to finance operations. Generally, in 2023, collections have been within acceptable limits and with our increase in revenues we anticipate eliminating the majority of legacy accounts payable by the end of 2024. Financial highlights for the three months and year ending December 31, 2023: Revenue Consolidated revenues for the three months ending December 31, 2023 was $8,224,124 compared to $5,742,867 for the same period in 2022. Revenue for the year increased 57% to $27,728,117 compared to $17,652,313 reported in the prior year. Outsourced professional services revenue continues to be the primary source of revenue for us. Offshore work has been a significant contributor to this year’s record revenue amount ($12%). In total, professional services contributed $24,875,456 or 90% to revenue, as compared to 81% in 2022. Product-related revenue was $2,852,662. Consolidated revenues for Q4 2023 for the Egypt operating segment were down 49% to $573,474 compared to $1,114,021 in 2022. Though we support Egypt’s legacy customers, NTG Egypt is now primarily the delivery centre for offshore services for our international customers. For the Canadian operating segment, revenues increased 65% to $7,650,650 compared to $4,628,846 in Q4 2022. For the year ending December 31, 2023 revenues increased 88% to $25,123,148 compared to $13,359,140 in 2022. The increase in revenue in Canada is driven primarily by expansion in the KSA market, which has recently become a rapidly growing emerging market in need of technology and software to help meet their growth goals. 57% Consolidated revenues are 57% higher this year primarily due to: a 50% and 73% increase in work for our two largest customers respectively in the financial sector in KSA. the addition of 14 new customers bringing in 20.4% ($5,670,146) of our 2023 revenue 14 NTG Clarity Networks Inc. Annual Report 2023 Though we currently have 3 Canadian customers, the Middle East continues to be where the majority of NTG’s revenue comes from and as of December 31, 2023, represents 99% of total revenue. Historically, the majority of our revenue has come from the telecommunications industry; however, since 2021 we have been increasing work with customers in Banking & Finance and Government sectors. Banking is rapidly growing and undergoing a digital transformation, so by offering customers IT and software development services, 70% of NTG’s 2023 revenue now comes from the Banking & Finance sector. Unbilled Revenue Unbilled revenue (now called Contract Assets) is revenue which has 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. 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. As of December 31, 2023, unbilled revenue was $198,729 compared to $354,485 at December 31, 2022. 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. NTG derives revenue from fees charged to customers for licenses for software products and professional services: support, consulting, development, training, and other services. Cost of sales for the three months and year ending December 31, 2023 were $6,766,407 and $18,504,982 (2022: $4,143,609 and $10,929,917). Cost of sales Salaries and wages Consulting Travel Hardware Other expenses TOTAL December 31, 2023 December 31, 2022 $ 13,794,531 3,533,530 518,168 57,522 601,231 $ 9,695,623 – 742,196 79,907 412,191 $ 18,504,982 $ 10,929,917 For the Egypt operating segment, the cost of sales for the three months and year ending December 31, 2023 were $2,928,137 and $3,366,344 respectively compared to $1,532,508 and $3,584,913 in 2022. For the Canadian operating segment, the cost of sales for the three months and year ending December 31, 2023 were $3,838,270 and $15,138,638 respectively compared to $2,611,102 and $7,345,003 in 2022. The gross margin for the year ending December 31, 2023 was 33% compared to 38% in 2022. Realistic margins are anticipated to be between 30-40%, based on the product and service mix of the clients served. Operating Expenses For the three months and year ending 2023, expenses were $2,127,157 and $6,619,501 respectively compared to $1,219,102 and $4,468,092 in 2022. 15 NTG Clarity Networks Inc. Annual Report 2023 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 ending December 31, 2023 were $817,485 and $2,172,925 respectively compared to $451,922 and $1,717,956 in 2022. For the twelve months ended December 31, 2023 December 31, 2022 Selling Salary and wages Marketing and advertising Mailing and courier Professional services Meals and entertainment Travel Total Sales and marketing expenses increased in 2023 by 26% as we actively visited potential customers. We also required more sales personnel to service multiple departments in our existing KSA customers. Major drivers for the increase in sales and marketing expenses were: • Participation in several trade shows: • Mobile World Congress (MWC) in Barcelona (February 27 to March 2, 2023): we met existing and potential customers and showcased our NTGapps software product. • MWC in Las Vegas (September 26-28, 2023): we presented our network inventory and telecom in a box use cases that solve the urgent need for fast and reliable digital enablement; all of them built using our 100% configurable NTGapps platform. • GITEX in Dubai (October 16-20, 2023), the world’s largest tech show • AfricaCom in South Africa (November 14-16, 2023): we engaged in several opportunities with companies in South Africa, Tanzania, Sudan, and introduced companies to our key products including NTS OSS/BSS and our NTGapps digital toolbox. 16 $ 1,636,417 391,821 6,903 19,538 19,756 98,490 $ 1,416,599 248,356 7,481 29,617 15,904 – $ 2,172,925 $ 1,717,956 • Increase in the number of sales staff in KSA and Egypt, supported by the increasing number of customers and revenue. 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 ending December 31, 2023 were $963,855 and $3,863,576 respectively compared to $619,872 and $2,455,510 in 2022. Though salaries are lower as we capitalize our development of our software product NTGapps, there have been significant increases in: • Occupancy and rent, as well as Office and general as we opened new offices in Egypt, expanded our office in KSA, and purchased two floors of our main Egypt location in El- Haram. • Insurance due to the increased number of outsourced personnel in KSA. The remainder of lines contained within G&A saw increases commensurate with our 57% increase in revenue. NTG Clarity Networks Inc. Annual Report 2023 General and Administrative December 31, 2023 December 31, 2022 Salary and wages Occupancy Consulting Professional fees Insurance Dues and subscriptions Penalties and fees Office and general Total $ 2,147,792 $ 1,648,646 151,522 47,016 155,675 954,900 40,853 24,215 341,603 114,484 52,878 113,650 480,172 27,941 (50,020) 67,759 $ 3,863,576 $ 2,455,510 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, 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. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate. 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, 2023, the Corporation recognized a foreign currency exchange loss of $345,818 compared to a loss of $147,308 for the same period in 2022. For the year ending December 31, 2023, the Corporation recognized a foreign currency exchange loss of $583,000 compared to a loss of $294,625 for the year ending 2022. For more information on foreign exchange, see Note 4(b): Foreign currency translation. 17 NTG Clarity Networks Inc. Annual Report 2023 Other Expenses Research and Development With the exception of NTGapps, 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 made a provision for bad debt in 2023 of $66,606 (2022: $ Nil). Amortization of Intangible Assets Intangible assets are related to the NTGapps low-code digital transformation platform being capitalized since late 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. The amortization costs for the three months and year ending December 31, 2023 were $122,033 and $421,218 respectively compared to $78,756 and $277,416 in 2022. Interest Expense As of December 31, 2023, the interest expense for the three months and year was $128,236 and $378,985 compared to $4,401 and $315,656 for the same periods in 2022. In Q4 2022, an interest accrual was reversed, resulting in an abnormally low interest expense for that quarter. YTD interest expenses were 20% lower as we repaid some of our long-term investment in KSA and some of our loan/line of credit in Egypt. 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 five years after the grant date, and usually vest over one year but can have varying vesting periods. 18 No options were granted to non-employees during 2023. Stock options granted during the three months and year ending December 31, 2023 totalled 300,000 and 3,230,000 compared to Nil and 7,045,000 in 2022. The weighted average expected contractual lives of outstanding and exercisable options are shown in Note 18(b). 19,706,000 options have vested and there are 19,806,000 issued. The difference of 100,000 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, 2023 as NTG has income tax losses in the amount of $12,657,781 that are available for Canadian federal and provincial tax purposes which may be carried forward to reduce future years’ taxable income (2022: $16,512,842). Total Comprehensive Income after Taxes (Net Income) For Q4 2023, the Corporation recorded a net income of $469,848 compared to a net loss of $391,759 for the same period in 2022. For the year ending December 31, 2023, the Corporation recorded a net income of $2,315,735 compared to $788,434 in 2022. The Egypt operating segment, for the three months ending December 31, 2023 recorded a net loss of $1,051,006 compared to a net loss of $846,779 in 2022. For the year ending December 31, 2023 there was a net loss of $563,883 compared to a net loss of $43,356 in 2022. For the Canadian operating segment, for the three months ending December 31, 2023 recorded a net income of $1,520,854 compared to $455,021 in 2022. For the year ending December 31, 2023 there was a net income of $2,879,618 compared to $831,790 in 2022. NTG Clarity Networks Inc. Annual Report 2023 Assets and non-current liabilities Non-current liabilities As of December 31, 2023, the Corporation closed the year with $358,088 cash on hand (2022: $725,020), bid/performance bonds of $293 (2022: $17,431) and prepaid amounts of $129,842 (2022: $86,751). Differences in prepaid amounts are due to the timing of insurance and rental renewals. The decrease in bond values compared to year-to-date 2022 occurred because of bonds that expired in Egypt. There were no bonds in KSA. Property and equipment Property and equipment of $814,911 as of December 31, 2023 (2022: $221,732) consists mainly of computer equipment and office furniture with a useful life of 4-10 years. In 2023, we also purchased real estate in Egypt for $418,772 (2022: Nil) to accommodate the growth in staff working out of our Egypt Offshore Centre offices. NTG had additions of $689,149 in 2023 (2022: $128,299) and depreciation of $86,580 (2022: $89,861). Furniture and computer equipment additions were in Egypt and KSA for our new and expanded offices, and laptops for our expanding workforce. Note the depreciation includes depreciation of our right-of-use asset of $79,202 (see Note 17 for more information). Intangible assets In 2022 and 2023, intangible assets relate to the upgrade of our internally developed NTGapps platform capitalized from 2020 to 2023. NTGapps facilitates the digital transformation journey for enterprises in all business verticals and allows them to automate their processes and create applications without the need for development. In 2023, NTGapps development was capitalized for $1,673,091 (2022: $1,302,221). The amortization cost for 2023 was $421,218 (2022: $277,416). An impairment test is performed on the non- current assets at year end, or when indicators warrant it. A test was performed at year end 2023 and there was no impairment. We will continue to assess on a quarterly basis for indicators of impairment. As of December 31, 2023, NTG had the following non-current liabilities: • The outstanding indebtedness of $6,512,880 held by a numbered Company is disclosed as a long-term debt on the Statements of Financial Position. See Note 19(a) and Note 26 for more information. • An amount due from and owed to related parties includes balances owing to key management and key management compensation. See Note 27 for more information. • Several loans payable of $493,767, provided by international investors. See Note 26 for more information. 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 2023, we funded operations, changes in non- cash working capital and capital expenditures using internally generated cash flows, cash on hand and short-term loans. As of December 31, 2023, we had a declining working capital deficit of $2,092,663 compared to a deficit of $3,557,883 at December 31, 2022, which is a 42% improvement. Cash Flow Provided by Operations The cash in-flow from operating activities for the year ending December 31, 2023 was $1,862,380 compared to $2,213,655 for the same period in 2022. The differences included: • • • a significantly larger net income ($2,315,735) compared to $788,434 in 2022) increased amortization amount ($421,218) compared to $277,416 in 2022) a $2.5 Million increase in receivables and a $962 Thousand decrease in payables compared to 2022 19 NTG Clarity Networks Inc. Annual Report 2023 Cash Flow from Financing Activities The cash in-flow from financing activities for the year ending December 31, 2023 was $275,064 compared to an out-flow of $216,985 for the same period in 2022. This was mainly because of: • • • a paydown of our loans payable of $207,993 compared to an increase of $279,667 in 2022 a decrease ($207,993) in interest paid compared to an increase ($279,667) in 2022 the Private Placement in the amount of $1,110,000 that took place in 2023 Cash Flow from Investing Activities Cash out-flow from investing activities for the year ending December 31, 2023, was $2,504,376 compared to $1,430,520 for the same period in 2022. This was mainly because of: • purchased real estate in Egypt to accommodate the growth in staff working out of our Egypt Offshore Centre offices. • purchased computers and furniture associated with our new office in Egypt and our expanded office in KSA. • Capitalization of our intangible asset Commitments and Contractual Obligations NTG was committed under agreements for the rental of office space in Canada at a monthly rate of $6,639 monthly for the period from June 1, 2021 to May 31, 2022 and $8,195 monthly for the period from June 1, 2022 to May 31, 2023. In February 2023, we renewed the agreement and committed to pay $8,195 monthly for the period from June 1, 2023 to May 31, 2024 and $9,232 monthly for the period from June 1, 2024 to May 31, 2025. Additionally, we are committed under agreements for the rental of office spaces in Egypt and Oman at a monthly rate ranging from $1,200 to $3,000 for the periods from 2022 to 2028. The total lease commitments for 2024 are $539,393. See Note 17 and Note 29 for further explanation. 20 Debt and Credit Facilities As of December 31, 2023, NTG’s indebtedness continues to be 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 until December 2024. This has helped NTG 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. Additionally, as of December 31, 2023, NTG Egypt Advanced Software, a subsidiary of NTG, had the following: • • an overdraft facility with QNB bank in Egypt in the amount of 7 Million Egyptian pounds (EGP) with an interest rate of 18%. The amount drawn on the facility as of December 31, 2023 is $298,743 (2022: $389,321). a loan with CIB bank in Egypt for 5,583,000 EGP, repayable in monthly principal payments of 232,625 Egyptian pounds plus interest (10% plus bank corridor rate ) and with a maturity date of February 1, 2025. In December 2023, the loan was renegotiated to increase the amount to 5,750,000 EGP and charge principal repayments to 239,583 EGP plus interest and extend the maturity date to December 1, 2025. As of December 31, 2023, the amount due was 5,750,000 EGP (approximately $245,496) (2022: $306,507). In 2020, NTG received $60,000 interest-free for the Canadian Emergency Business Account (CEBA) revolving line of credit. As of December 31, 2023, the Corporation has repaid the full $40,000 against the loan. According to the Bank and the CRA, the balance owed of $20,000 has been forgiven. 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. NTG Clarity Networks Inc. Annual Report 2023 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 27. 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 ending December 31, 2023. These are available on SEDAR (www.sedar.com). The policies applied in these statements are based on IFRS issued and outstanding as of April 27, 2023, the date the Board of Directors approved the consolidated financial statements. Proposed Transactions At the Annual and Special meeting of shareholders held on July 7, 2023, shareholders voted to consolidate the common shares of the Corporation on the basis of up to five (5) pre-consolidation common shares for each post-consolidation common share. Subsequent to year end, on board approval, in February 2024, management made an application to the TSX to proceed with the share consolidation at 5:1 ratio. As a result of the Consolidation, the number of issued and outstanding Shares will be reduced from 187,672,355 Shares to 37,534,471 Shares, subject to treatment of fractional shares. 21 NTG Clarity Networks Inc. Annual Report 2023 Any fractional interest in shares that is less than 0.5 of a share resulting from the Consolidation will be rounded down to the nearest whole share and any fractional interest in shares that is 0.5 or greater of a share will be rounded up to the nearest whole share. The new CUSIP number for the post- consolidation shares is 62940V203 and the new ISIN number is CA62940V2030. The Shares began trading on a consolidated basis on the TSX Venture Exchange on March 20, 2024. 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 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. As of December 31, 2023, approximately 54% of NTG’s revenue was from three customers (2022: 35% from two customers). Management continues to work to diversify the customer base and country concentration. In 2023, 53% (2022: 37%) of our trade accounts receivable balance was from three customers. 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, our company’s business, financial condition or results of operations could be harmed and the trading price of NTG’s common shares could be materially affected. 22 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. 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 digital transformation, IT, and telecom industries and is little 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 consider any changes in the Corporation and its market place. In 2023, approximately 81% of our revenue came from work done in KSA (2022: 62%). The majority of NTG’s KSA customers are consistently within our payment terms. Historically 7-11% of our revenue comes from work done through our subsidiary, NTG Egypt, based in Cairo, Egypt. Egypt’s revenue contribution in 2023 was 9% (2022: 20%). This drop in revenue was planned as NTG Egypt is now primarily a delivery centre for offshore services. Egypt continues to support our legacy customers in Egypt. Oman’s major customer contributed 2% of the revenue in 2023 (2022: 5%). NTG Clarity Networks Inc. Annual Report 2023 Other effects in the economy include interest rates and inflation with the official inflation hitting 34.2% at year end. (https://www.egypttoday.com/ Article/3/129707/Egypt-s-annual-core-inflation- records-34-2 -in-December). This has resulted in NTG Egypt having to increase salaries to help personnel cope with the changing economy. We continue to mitigate much of the risk of doing business in the country as our expenses and our contracts with legacy customers in Egypt are both in the local currency. Additionally, we have transformed NTG Egypt into a supplier of offshore services for international customers. As a result, contracts for offshoring services are billed in more stable currencies such as USD or Saudi Riyals (SAR). 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. Interest rate risk NTG’s exposure to interest rate fluctuations is primarily interest paid on its indebtedness and long- term loans. The Corporation performed sensitivity analysis on interest rates on December 31, 2023 to determine how a change in interest rates would impact equity and net loss. During the year, NTG paid $378,985 (2022: $315,656) 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 $37,899 (2022: $31,566). 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 receivables. 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 do 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. Devaluation of Egyptian pound The Egyptian Central Bank continues to devalue the currency. By the end of 2023 the EGP’s value dropped from around 18 EGP to the Canadian dollar in January to about 22 EGP in December 2023, and the trend appears to be continuing. 23 NTG Clarity Networks Inc. Annual Report 2023 A 10% change in exchange rates on December 31, 2023 would have the following approximate impacts: 10% impact to: P&L in CAD Equity in CAD Liquidity risk U.S. Dollar USD $63,360 $46,569 Omani Riyal OMR Kuwait Dinar KWD Saudi Riyal SAR Turkish Lira TRY Iraqi Dinar IQD Egyptian Pound LE $1,999 $19,027 $213,937 $1,238 $2,245 $31,501 $1,469 $13,985 $157,244 $910 $1,650 $23,154 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 of December 31, 2023: Contractual obligations 2024 2025 2026 2027 and after Total Operating line of credit Accounts payable and accrued liabilities Operating leases Long-term debt Loans payable $ 298,743 6,999,324 $ – – $ – – $ – $ 298,743 – 6,999,324 242,820 167,813 110,260 18,500 539,393 122,748 6,635,628 493,767 – – – – 6,758,376 – 493,767 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 2023 $ 3,185,918 39,432 2,729 151,434 212,760 2022 $ 696,460 74,446 40,653 137,668 539,614 $ 3,991,557 $ 1,488,841 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. 24 NTG Clarity Networks Inc. Annual Report 2023 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. There have been no changes in NTG’s approach to capital management during the year ending December 31, 2023. Also, no changes were made in the objectives, policies, or processes during the year ending December 31, 2023. 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) 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; (ii) fund capital projects for facilitation of business expansion provided there is sufficient liquidity 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 and adjust the capital structure in 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. Subsequent to year end, in April 2024, the Corporation submitted an application for Directors and Officers insurance. 25 NTG Clarity Networks Inc. Annual Report 2023 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, 2023 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. 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 of April 27, 2024, 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. 26 NTG Clarity Networks Inc. Annual Report 2023 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 is comprised of 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. The Corporation’s independent auditors, NVS Professional Corporation, have examined the consolidated financial statements and their report follows. “Ashraf Zaghloul” “Kristine Lewis” Ashraf Zaghloul Kristine Lewis Chief Executive Officer President April 27, 2024 April 27, 2024 27 NTG Clarity Networks Inc. Annual Report 2023 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, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, 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. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined that there are no key audit matters to communicate in our report. Material Uncertainty Related to Going Concern We draw attention to Note 2 in the consolidated financial statements, which indicates that the Corporation has attained income from operations of $2,315,735 {2022: $788,434) during the year ended December 31, 2023 and, as of that date, the Corporation has an accumulated deficit of $20,468,919 and current assets are less than current liabilities by a ratio of 1:1.35. 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. 28 NTG Clarity Networks Inc. Annual Report 2023 We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor's report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibilities of Management and Those Charged with Governance for the 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 involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 Corporation’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. 29 NTG Clarity Networks Inc. Annual Report 2023 • 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 Chartered Professional Accountants Authorized to practise public accounting by The Chartered Professional Accountants Markham, Ontario April 27, 2024 30 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) Prepaid expenses and deposits (Note 12) Bid/performance bonds (Note 13) Total current assets Non-current assets Property, plant and equipment (Note 14) Intangible assets (Note 15) Investment in joint venture (Note 16) Right-of-use of assets (Note 17) Total non-current assets Total Assets LIABILITIES Current liabilities Current portion of leasehold liability (Note 17) Accounts payable and accrued liabilities (Note 18) Bank indebtedness (Note 19) Current portion of long-term debt (Note 19) Loans payable (Note 26) Total current liabilities Non-current liabilities Leasehold liability (Note 17) Long-term debt (Note 19) (Note 27) Total non-current liabilities Total liabilities SHAREHOLDER’S EQUITY Capital stock (Note 21) Contributed surplus (Note 22) Foreign exchange account Deficit Total shareholders’ equity NTG Clarity Networks Inc. Annual Report 2023 2023 2022 $ 358,088 $ 725,020 $ $ 6,368,846 129,842 293 3,881,520 86,751 17,431 6,857,069 $ 4,710,722 814,911 $ 221,732 4,457,474 142,136 120,568 5,535,089 3,205,601 – 29,556 3,456,889 $ 12,392,158 $ 8,167,611 $ 86,829 7,947,645 298,743 $ 122,748 493,767 39,004 6,985,267 389,321 153,253 701,760 $ 8,949,732 $ 8,268,605 43,941 6,635,628 – 6,676,134 $ $ 6,679,569 $ 6,676,134 15,629,301 $ 14,944,739 14,736,986 2,711,523 (216,733) (20,468,919) (3,237,143) 13,606,986 2,617,273 (822,757) (22,178,630) (6,777,128) Total liabilities and shareholders’ equity $ 12,392,158 $ 8,167,611 Approved on behalf of the Board: “Ashraf Zaghloul” Director “Kristine Lewis” Director See accompanying notes to consolidated financial statements. 31 NTG Clarity Networks Inc. Annual Report 2023 NTG CLARITY NETWORKS INC. Consolidated Statements of Changes in Equity For the years ended December 31, 2023 and December 31, 2022 (In Canadian Dollars) Share Capital Contributed Surplus Deficit Foreign Exchange Reserve Total Shareholders’ Equity $ 13,561,986 $ 2,309,023 $ (23,426,487) $ (363,334) $ (7,918,812) – – 25,000 – – – – 328,250 20,000 (20,000) 1,247,857 – 1,247,857 – – – – (459,423) (459,423) – – – 25,000 328,250 – $ 13,606,986 $ 2,617,273 $ (22,178,630) $ (822,757) $ (6,777,128) – – 1,120,000 – – – – 104,250 10,000 (10,000) 1,709,711 – 1,709,711 – – – – 606,024 606,024 – – – 1,120,000 104,250 – $ 14,736,986 $ 2,711,523 $ (20,468,919) $ (216,733) $ (3,237,143) Balance, January 1, 2022 Income from continuing operations Other comprehensive income Issuance of share capital (Note 21) Share-based compensation Reallocation of contributed surplus (Note 21) Balance, December 31, 2022 Income from continuing operations Other comprehensive income Issuance of share capital (Note 21) Share-based compensation (Note 22) Reallocation of contributed surplus (Note 21) (Note 22) Balance, December 31, 2023 32 NTG Clarity Networks Inc. Annual Report 2023 NTG CLARITY NETWORKS INC. Consolidated Statements of Profit and Loss and Comprehensive Income (In Canadian Dollars) For the years ended December 31, REVENUE (Note 7) COST OF SALES (Note 24) GROSS MARGIN OPERATING EXPENSES Selling (Note 25) General and administration (Note 25) Loss on foreign exchange Total operating expenses $ 2023 27,728,117 $ 18,504,982 9,223,135 2022 17,652,313 10,929,917 6,722,396 2,172,925 3,863,576 583,000 6,619,501 1,717,956 2,455,510 294,625 4,468,091 INCOME (LOSS) FROM OPERATIONS $ 2,603,634 $ 2,254,305 OTHER (INCOME) EXPENSES Provision for bad debts (Note 11) Depreciation (Note 14) (Note 17) Amortization (Note 15) Accretion (Note 20) Interest Share-based payments (Note 22) Other income Loss on disposal of assets Total other expenses 66,606 165,782 421,218 – 378,985 104,250 (252,308) 9,390 893,923 – 160,795 277,416 5,804 315,656 328,250 (81,473) – 1,006,448 INCOME (LOSS) FROM CONTINUING OPERATIONS $ 1,709,711 $ 1,247,857 Other comprehensive income: Exchange gain (loss) arising on translation of foreign operations 606,024 (459,423) TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR $ 2,315,735 $ 788,434 Earnings (loss) per share (Note 9) Basic Diluted Weighted average number of shares outstanding Basic Diluted See accompanying notes to consolidated financial statements. $ $ 0.01 $ 0.01 $ 0.01 0.00 185,172,355 204,978,355 147,972,355 165,687,355 33 NTG Clarity Networks Inc. Annual Report 2023 NTG CLARITY NETWORKS INC. Consolidated Statements of Cash Flows (In Canadian Dollars) For the years ended December 31, Cash provided by (used in) OPERATING ACTIVITIES Net income (loss) for the year Add-Items not affecting cash: Provision for bad debts (Note 11) Depreciation (Note 14) (Note 17) Amortization (Note 15) Interest expense Share-based payment (Note 21) Loss on disposal of asset Net change in non-cash working capital items, Increase in trades and other receivable Decrease in bid/performance bond (Increase) decrease in prepaid expenses and deposits Increase in accounts payable and accrued liabilities Increase in leasehold liability 2023 2022 $ 2,315,735 $ 788,434 66,606 165,782 421,218 378,985 104,250 9,390 – 160,795 277,416 315,656 328,250 – $ $ 3,461,966 $ 1,870,551 (2,553,932) $ 17,138 (43,091) 962,378 17,921 (134,474) 38,333 (22,305) 445,040 16,510 TOTAL CASH IN-FLOW FROM OPERATING ACTIVITIES $ 1,862,380 $ 2,213,655 FINANCING ACTIVITIES Principle payment of lease (Note 17) Drawdown (repayment) in long-term debt (Note 19) Increase (decrease) of bank indebtedness (Note 19) Increase (decrease) of loans payable Interest paid Issuance of common shares (Note 21) TOTAL CASH IN-FLOW (OUT-FLOW) FROM FINANCING ACTIVITIES INVESTING ACTIVITIES Purchase of property, plant and equipment (Note 14) (Additions) intangible assets (Note 15) Investments in joint venture (Note 16) (96,369) (71,011) (90,578) (207,993) (378,985) 1,120,000 (90,560) 121,311 (236,747) 279,667 (315,656) 25,000 $ 275,064 $ (216,985) (689,149) (1,673,091) (142,136) (128,299) (1,302,221) – TOTAL CASH (OUT-FLOW) FROM INVESTING ACTIVITIES $ (2,504,376) $ (1,430,520) NET INCREASE (DECREASE) IN CASH Cash balance, beginning of period Cash balance, end of period (366,932) 725,020 358,088 $ $ 566,150 158,870 725,020 See accompanying notes to consolidated financial statements. 34 NTG Clarity Networks Inc. Annual Report 2023 NOTES TO THE AUDITED FINANCIAL STATEMENTS 1. CORPORATE INFORMATION 3. BASIS OF PRESENTATION 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. In the current year the registration of the Corporation was moved from Alberta to Ontario. 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. 2. GOING CONCERN The Corporation prepares 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, 2023, the Corporation had a working capital deficit of $2,092,663 (2022: deficit of $3,557,883), income from operations of $2,603,634 (2022: $2,254,305), and accumulated losses since inception of $20,468,919 (2022: $22,178,630). 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. 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. 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 27, 2024. Management of the Corporation prepared the consolidated financial statements of the Corporation during January and February 2024, and the Board of Directors approved them. The Audit Committee of the Corporation discussed the audited consolidated financial statements at its meeting on April 27, 2024, and the Board of Directors approved them at its meeting on April 27, 2024. The audited consolidated financial statements of the Corporation are presented in Canadian dollars. Amounts are stated in Canadian dollars except where otherwise indicated. The financial statements of the individual companies are 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. 35 NTG Clarity Networks Inc. Annual Report 2023 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 non-current items. Provisions (if any), debt and other liabilities are shown between current and non- current. 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, 2023. 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 are 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. The subsidiary of the Corporation as of December 31, 2023 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. 36 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 Software 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: • 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; • 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 NTG Clarity Networks Inc. Annual Report 2023 • 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. 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. • 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. 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: • Translating income and expenses at the exchange rates at the dates of the transactions and assets and liabilities at the closing rate. • 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: • 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 37 NTG Clarity Networks Inc. Annual Report 2023 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 recognized in profit or loss or, if it arises from the circumstances described in IAS 21, it is recognized 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. 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. In addition to the disposal of an entity’s entire interest in a foreign operation, the following partial disposals are accounted for as disposals: 38 • 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 • 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 unrecognized, 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. 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). 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 NTG Clarity Networks Inc. Annual Report 2023 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. 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. 39 NTG Clarity Networks Inc. Annual Report 2023 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 30) 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 40 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. 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. 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. NTG Clarity Networks Inc. Annual Report 2023 • 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 measure 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. 41 NTG Clarity Networks Inc. Annual Report 2023 (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. Cash, trade and account receivables, bid/ performance bonds, prepaid expenses and deposits are classified as amortized cost. The investment in joint venture is classified as FVTPL. Similarly, accounts payable and accrued liabilities, long term debt, loans payable are classified as amortized cost. Carrying value of cash, trade and account receivables, bid/ performance bonds, prepaid expenses and deposits, accounts payable and accrued liabilities, long term debt and loans payable approximate fair value. The Company’s financial instruments are classified as follows: Investments in Joint venture Trade and other receivables FVTPL Amortized Cost Accounts payable and accrued liabilities Amortized Cost Cash Amortized Cost Long-term debt Amortized Cost 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. Loan payable Amortized Cost (i) Financial assets Financial assets at fair value through profit or loss (FVTPL) Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. 42 (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. (iii) Expected credit loss 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 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. NTG Clarity Networks Inc. Annual Report 2023 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. (iv) 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. 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. 43 NTG Clarity Networks Inc. Annual Report 2023 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, 2023 and December 31, 2022. (i) Treasury shares Equity instruments of the entity 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, plant 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. 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 44 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 The Corporation recognizes a right-of-use asset and lease liability as the present value of future lease payments when the lessor makes the leased asset available for use by the Company. Lease liabilities include the net present value of fixed payments, variable lease payments that are based on an index or a rate amounts expected to be payable by the Corporation under residual value guarantees, and the exercise price of a purchase option or penalties for terminating the lease, if the Corporation is reasonably certain to exercise those purchase or termination options. The lease payments are discounted using the interest rate implicit in the lease, or, if that rate cannot be readily determined, the Corporation’s incremental borrowing rate. Lease terms applied are the contractual non-cancellable periods of the lease, plus periods covered by renewal options or termination options, if the Corporation is reasonably certain to exercise those options. Lease liabilities are remeasured when there is a change in lease term, a change in the assessment of an option to purchase the leased asset, a change in expected residual value guarantee, or a change in future lease payments resulting from a change in an index or a rate used to determine those payments. NTG Clarity Networks Inc. Annual Report 2023 initial direct costs and future restoration costs, less any lease incentives received. Right-of-use assets are depreciated on a straight- line basis from the date that the underlying asset is available for use. Depreciation is recorded over the shorter of the lease term and the useful life of the underlying asset, unless the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, in which case depreciation is recorded over the useful life of the underlying asset. Lease payments for assets that are exempt through the short-term exemption and variable payments not based on an index or rate continue to be recognized in office and general expenses 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. 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, 2023 and December 31, 2022, the Corporation did not capitalize any borrowing cost. (m) 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. 45 NTG Clarity Networks Inc. Annual Report 2023 (n) 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. (o) 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. 46 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. 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 cash-generating units which impairment could be tested against. The Corporation had no goodwill or indefinite life intangible assets for the years ending December 31, 2023 and December 31, 2022. 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. NTG Clarity Networks Inc. Annual Report 2023 (p) 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. Before a provision is established, the Corporation recognizes any impairment loss on the asset associated with the contract. (r) Basic and diluted earnings per share (q) 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. 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. 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. (s) 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. 47 NTG Clarity Networks Inc. Annual Report 2023 (t) Investment in associates and joint ventures An associate is an entity over which the corporation has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The Corporation investment in its associate and joint venture are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. The aggregate of the share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and noncontrolling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the corporation. 48 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. 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. NTG Clarity Networks Inc. Annual Report 2023 Contract assets Contract assets 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. 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 that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Impairment of non-financial assets Share-based compensation 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. 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. 49 NTG Clarity Networks Inc. Annual Report 2023 Useful life of an intangible asset 6. STANDARDS ISSUED BUT NOT 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 Corporation has the intention and ability to use the asset, and that the asset will generate future benefits to the Corporation. 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. YET EFFECTIVE As at April 27, 2024, the date of authorization of these financial statements, the Corporation performed and assessment of new and revised standards, issued by the IASB that are not yet effective. The Corporation has assessed that the impact of adopting these accounting standards on its consolidated financial statements would not be material. 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, 2023 Revenue Cost of sales Gross margin Expenses Depreciation / Amortization Other income Exchange gain arising on translation NTG Canada NTG Egypt Consolidated Total $ 25,123,148 $ 2,604,969 $ 27,728,117 15,138,638 3,366,345 18,504,982 $ 9,984,510 $ (761,376) $ 9,223,135 (6,587,510) (590,790) (7,178,730) (516,952) – – (70,049) 252,308 606,024 (587,001) 252,308 606,024 Total comprehensive income for the year $ 2,879,618 $ (563,883) $ 2,315,735 50 NTG Clarity Networks Inc. Annual Report 2023 Statement of profit and loss for the year ending December 31, 2022 Revenue Cost of sales Gross margin Expenses Depreciation / Amortization Other income Accretion NTG Canada NTG Egypt Consolidated Total $ 13,359,140 $ 4,293,173 $ 17,652,313 7,345,003 3,584,913 10,929,917 $ 6,014,137 $ 708,260 $ 6,722,396 (4,813,873) (298,125) (5,111,998) (362,670) – (5,804) (75,541) 81,473 – (438,211) 81,473 (5,804) Exchange loss arising on translation – (459,423) (459,423) Total comprehensive income for the year $ 831,790 $ (43,356) $ 788,434 All of the Corporation’s assets are located in Canada and the Middle East. Long term asset additions for the year ended December 31, 2023 NTG Canada NTG Egypt Consolidated Total Asset additions/dispositions for the year ending December 31, 2023 Property and equipment (Note 14) Additions Dispositions $ 30,315 $ 658,834 $ – (22,146) Intangible assets (Note 15) 1,673,091 – $ 1,703,406 $ 636,688 $ 689,149 (22,146) 1,673,091 2,340,094 Long term asset additions for the year ended December 31, 2022 NTG Canada NTG Egypt Consolidated Total Asset additions for the year ending December 31, 2023 Property and equipment (Note 14) Intangible assets (Note 15) $ $ 2,555 $ 125,744 $ 1,302,221 – 1,304,776 $ 125,744 $ 128,299 1,302,221 1,430,520 51 NTG Clarity Networks Inc. Annual Report 2023 Long term assets for the year ended December 31, 2023 Assets as at December 31, 2023 Property and equipment Intangible assets NTG Canada NTG Egypt Consolidated Total $ $ 40,769 $ 774,142 $ 814,911 4,457,474 – 4,457,474 4,498,243 $ 774,142 $ 5,272,385 Long term assets for the year ended December 31, 2022 Assets as at December 31, 2023 Property and equipment Intangible assets NTG Canada NTG Egypt Consolidated Total $ $ 26,986 $ 194,746 $ 221,732 3,205,601 – 3,205,601 3,232,587 $ 194,746 $ 3,427,333 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 Iraq Saudi Arabia Egypt Oman Kuwait 2023 2022 235,245 $ 1,788,890 22,479,963 428,665 1,608,208 10,281,966 2,604,969 $ 4,293,173 619,802 $ (752) $ 953,883 86,418 27,728,117 $ 17,652,313 $ $ $ $ $ In the past, the majority of the Corporation’s revenue is derived from the telecommunication industry. From 2021, the Corporation has been working within the IT field in the banking industry. In 2023, approximately 54% (2022: 35%) of the Corporation’s revenue was derived from three customers (2022: two customers). Receivables by segment for the year ending December 31, Canada Egypt 2023 2022 $ 5,725,885 $ 2,856,315 642,961 1,025,205 $ 6,368,846 $ 3,881,520 As at December 31, 2023, approximately 53% (2022: 37%) of the Corporation’s trade accounts receivable balance was from three (2022: three) customers. Payables by segment for the year ending December 31, Canada Egypt 52 2023 2022 $ 7,118,876 $ 6,270,838 828,769 714,429 $ 7,947,645 $ 6,985,267 Bank indebtedness by segment for the year ending December 31, Egypt NTG Clarity Networks Inc. Annual Report 2023 2023 2022 298,743 389,321 $ 298,743 $ 389,321 8. INCOME TAXES The following is a reconciliation of the taxable losses for the years ended as indicated. NTG Clarity Networks Inc. As at December 31, Income before income taxes Income tax at the combined Canadian federal and provincial tax rate of 26.5% Non-deductible share-based payments Intercompany expenses Depreciation/amortization of PPE and intangibles Non-deductible meals & entertainment expenses 2023 2022 $ 2,879,618 $ 831,970 763,099 27,626 (70,022) 136,992 2,618 220,424 86,986 (273,288) 96,108 2,675 Tax effect of utilization of tax losses not previously recognized (860,313) (132,905) Income tax recognized on the statement of comprehensive income $ – $ – NTG Egypt Advanced Software As at December 31, Income before income taxes 2023 2022 $ (1,169,907) $ 416,067 Income tax at the combined Egyptian federal and provincial tax rate of 22.5% Tax effect of utilization of tax losses not previously recognized Income tax recognized on the statement of comprehensive income $ – – – $ 93,615 (93,615) – The Corporation has the following unrecognized deferred income tax assets for the years ended as indicated. They were not recognized on the statements of financial position because it was not probable 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 2023 2022 $ 38,438 $ 29,747 3,354,312 3,392,750 3,392,750 4,363,987 4,393,734 4,393,734 $ – $ – The Corporation has available income tax losses in the amounts of $12,657,781 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 $ 4,200,396 6,834,650 1,622,735 $ 12,657,781 53 NTG Clarity Networks Inc. Annual Report 2023 9. EARNINGS PER SHARE 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. 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, 2023 Options – Share-based payments (Note 21(b)) 19,806,000 19,706,000 Note a: of which 19,706,000 had vested as of December 31, 2023. The following reflects the earnings and unit data used in the basic and diluted earnings per share computations: December 31, Net earnings attributable to ordinary equity holders of the parent for basic earnings Net earnings attributable to ordinary equity holders of the parent adjusted for the effect of dilution 2023 2022 2,315,735 $ 788,434 2,315,735 $ 788,434 $ $ December 31, Weighted average number of common shares outstanding for basic earnings per share (Note 21) 2023 2022 185,172,355 147,972,355 Weighted average number with the effect of dilution on common shares 204,978,355 165,687,355 Income per share (basic) Income per share (diluted) $0.01 $0.01 $0.01 $0.00 54 NTG Clarity Networks Inc. Annual Report 2023 10. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise of cash at banks and on hand in the amount of $358,088 as at December 31, 2023 (2022: $725,020). 11. TRADE AND OTHER RECEIVABLES December 31, Trade receivables Less: allowance for expected credit losses Net Trade receivables Contract assets Total trade receivables and contract assets Receivables from tax authorities Other receivables 2023 2022 $ 5,847,655 $ 3,188,290 – 5,847,655 198,729 6,046,384 275,066 47,396 (25,057) 3,163,233 354,485 3,517,718 296,173 67,629 $ 6,368,846 $ 6,376,870 Trade receivables are non-interest bearing and are generally on 30-180 day terms. The Corporation had a provision for expected credit losses in the amount of $Nil (2022: $25,057). The amount relating to impairment of trades receivables is $66,606 (2022: $Nil). Neither past due nor impaired Current 31 – 60 days 61 – 90 days 91 – 180 days Past due but not impaired Greater than 180 days $ 2023 2,983,147 $ 2,111,346 203,030 337,372 2022 2,230,177 311,791 326,625 199,960 212,760 119,737 $ 5,847,655 $ 3,188,290 Contract assets consists of service revenue that has already been rendered as at December 31, 2023 and recognized in accordance with the Corporation’s revenue recognition policy from Note 3. 12. PREPAID EXPENSES AND DEPOSITS December 31, Prepaid rent Prepaid insurance Other prepaids 2023 2022 $ 87,090 $ 47,660 35,773 6,979 32,372 6,719 $ 86,751 $ 86,751 55 NTG Clarity Networks Inc. Annual Report 2023 13. BID/PERFORMANCE BONDS At December 31, 2023, $293 in performance bonds (2022: $17,431) was for a bond 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. The bonds are non-interest bearing. Performance Bond - Opening Balance January 1, Saudi Arabia Egypt Opening Balance - January 1, Refunded during the year: Egypt Total refunded 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, $ 2023 – 17,431 $ 17,431 $ – – – (17,138) (17,138) – 293 293 $ 2022 28,907 26,857 55,764 – – (28,907) (9,426) (38,333) – 17,431 17,431 14. PROPERTY, PLANT AND EQUIPMENT The amount of borrowing costs capitalized during the year ending December 31, 2023 was $Nil (2022: $Nil). Furniture & Equipment Computer Equipment Computer Software Land & Buildings Total Cost: At January 1, 2022 $580,849 $929,273 $400,996 Additions 36,661 91,638 – At December 31, 2022 $617,510 $1,020,911 $400,996 $– – $– $1,911,118 128,299 $2,039,417 Additions Disposals 77,417 (22,146) 192,960 – – – 418,772 – 689,149 (22,146) At December 31, 2023 $672,781 $213,871 $400,996 $418,772 $2,706,420 56 NTG Clarity Networks Inc. Annual Report 2023 Furniture & Equipment Computer Equipment Computer Software Land & Buildings Total Accumulated depreciation and impairment: At January 1, 2022 $485,753 $885,741 $356,330 Depreciation for the year 18,808 71,053 – At December 31, 2022 $504,561 $956,794 $356,330 $– – $– $1,727,824 89,861 $1,817,685 Depreciation for the year Disposals 22,327 (12,756) 53,340 – – – 10,913 86,580 – (12,756) At December 31, 2023 $514,132 $1,010,134 $356,330 $10,913 $1,891,509 Net book value: At December 31, 2023 At December 31, 2022 $158,649 $112,949 $203,737 $64,117 $44,666 $44,666 $407,859 $814,911 – $221,732 Addition to land and buildings as at the end of the reporting period is as follows: Land Building 15. INTANGIBLE ASSETS Intangible assets related to the upgrade of the internally developed the NTGapps (formerly Smart2Go) platform capitalized from 2020 to 2023. Expenditures on development of the software are recognized as an asset from the time the Corporation has determined an indefinite future economic benefit exists. NTGapps 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. NTGapps 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. 2023 2022 $ 83,755 $ 335,017 $ 418,772 $ – – – NTGapps is built on NTG’s proven workflow technology and provides both a portal and mobile apps for its users. NTG will provide its NTGapps 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 NTGapps 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. 57 NTG Clarity Networks Inc. Annual Report 2023 During 2023, $1,673,091 was capitalized (2022: $1,302,221) and $421,218 was amortized (2022: $277,416). Cost: At January 1, 2022 Additions At December 31, 2022 Additions At December 31, 2023 Accumulated amortization and impairment: At January 1, 2022 Amortization for the year At December 31, 2022 Amortization for the year At December 31, 2023 Net book value: At December 31, 2023 At December 31, 2022 NTGapps Development Costs 2,312,018 1,302,221 3,614,239 1,673,091 5,287,330 131,222 277,416 408,638 421,218 829,856 NTGapps Development Costs 4,457,474 3,205,601 $ $ $ $ $ $ $ $ 16. INVESTMENT IN JOINT VENTURE The corporation has a 50% interest in Alamat E-Commerce Systems Company, a joint venture originally valued at 500,000 EGP. The corporation interest in joint venture is accounted for using the equity method in the consolidated financial statements at $142,136. The aggregate of the share of profit or loss of an associate and a joint venture of $217,204 is included in other income on the face of the statement of profit or loss. 58 NTG Clarity Networks Inc. Annual Report 2023 17. RIGHT OF USE ASSET Right-of-use of Asset as at January 1, 2022 $ 100,490 Present value of lease commitments at a borrowing rate of 19% Depreciation Right-of-use of Asset as at January 1, 2023 Present value of lease commitments at a borrowing rate of 19% Depreciation – (70,934) 29,556 170,214 (79,202) Right-of-use Asset as at December 31, 2023 $ 120,568 On June 1, 2021, the Corporation leased office space for a period of 2 years, expiring May 31, 2023. The lease was renewed for an additional 2 years, expiring May 31, 2025. The Corporation recognized right-of-use assets and lease liability of $170,214. The lease liabilities were measured at the present value of the remaining lease payments, discounted at the Corporation’s incremental borrowing rate of 19%, which represents a significant accounting judgment. Lease liability The lease liability as at December 31, 2023 is as follows: Lease Liability as at January 1, 2022 $ 113,054 Add: present value of new lease commitments at a borrowing rate of 19% Add: interest accretion during the reporting period Subtract: lease payments during the reporting period Lease Liability as at January 1, 2023 Add: present value of new lease commitments at a borrowing rate of 19% Add: interest accretion during the reporting period Subtract: lease payments during the reporting period Lease Liability as at December 31, 2023 Current portion Long-term portion The undiscounted future lease payments are as follows: 2024 2025 – 16,510 (90,560) 39,004 170,214 17,921 (96,369) $ 130,770 86,829 43,941 105,600 46,161 $ 151,761 59 NTG Clarity Networks Inc. Annual Report 2023 18. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES December 31, Trade payables (i) Accrued liabilities (i) Related parties payable (ii) Payroll liability (iii) Payroll taxes payable Sales taxes payable Other accounts payable 2023 2022 $ 3,991,557 $ 1,488,841 196,845 1,122,290 1,197,000 18,184 930,137 491,632 174,237 1,608,735 2,231,833 17,069 817,241 647,311 $ 7,947,645 $ 6,985,267 • Trade payables and accrued liabilities are non-interest bearing. • Related parties payables are interest bearing at 5-8% interest p.a, $87,439 (2022: $103,363) was recognized as an interest accrued for the year ended December 31, 2023 and have no specified terms of repayment. • As of December 31, 2023, Key management (Ashraf Zaghloul and Kristine Lewis) is owed a total of $1,088,438 end of service payroll liability. Included in payroll liability is an amount owed to related parties for $22,971. 19. OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (a) Other financial liabilities Long-term debt December 31, Long-term debt (i) CEBA loan Long-term portion of CIB loan (iii) (i) The loan is due to 2729252 Ontario Inc., a company controlled by Ashraf Zaghloul, NTG CEO and Kristine Lewis, NTG President. 2023 2022 $ 6,512,880 $ 6,512,880 – 123,881 10,000 153,254 $ 6,636,761 $ 6,676,134 The loan remains secured by a General Security Agreement over the assets of the Corporation and charge interest as per company ability to pay subject to maximum of bank prime plus 2.05%. There are no specific repayment terms and will not be repaid in the next 12 months. The Corporation recognized interest expense of $68,875 (2022: $74,312) which is included in above loan balance. 60 December 31, Bank indebtedness (ii) Bank indebtedness Long-term debt (iii) Long-term debt payable (CIB Loan) - Current portion - Long term NTG Clarity Networks Inc. Annual Report 2023 2023 2022 $ $ $ $ 298,743 $ 389,321 245,496 $ 306,507 122,748 $ 153,253 122,748 $ 153,254 As of December 31, 2023, NTG Egypt Advanced Software has the following credit facilities: (i) Overdraft facility with QNB bank in Egypt in the amount of 7,000,000 Egyptian pounds with an interest rate of 18%. The amount drawn on the facility as at December 31, 2023 is $298,743 (2022:$389,321). (ii) In 2022, the Corporation had a loan with CIB bank in Egypt in the amount of 5,583,000 Egyptian pounds at interest rate of 10% per annum plus bank corridor rate, repayable over 2 years in monthly principal payments of (b) Fair values 232,625 Egyptian pounds plus interest. In 2023, the Corporation further increased the credit facility to 5,750,000 Egyptian pounds, repayable over 2 years in monthly principal payments of 239,584 Egyptian pounds plus interest. The loan outstanding as on year end is 5,750,000 Egyptian pounds (approximately $245,496, (2022: $306,507). 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 Fair Value December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Financial assets Cash and cash equivalents $ 358,088 $ 725,020 $ 358,088 $ 725,020 Trade and accounts receivable 6,093,780 3,585,347 6,093,780 3,585,347 Performance bonds 293 17,431 293 17,431 Total Financial Assets $ 6,452,161 $ 4,327,798 $ 6,452,161 $ 4,327,798 61 NTG Clarity Networks Inc. Annual Report 2023 Carrying Amount Fair Value December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Financial liabilities Accounts payable and accrued liabilities Bank indebtedness Current portion of long-term debt Long-term debt Loan payable $ 6,999,324 $ 6,150,957 $ 6,999,324 $ 6,150,957 298,743 122,748 6,635,628 493,767 389,321 153,254 6,676,134 701,760 298,743 122,748 6,635,628 493,767 389,321 153,254 6,676,134 701,760 Total Financial Liabilities $ 14,550,210 $ 14,071,425 $ 14,550,210 $ 14,071,425 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, 2023, 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: Level 1 Level 2 Level 3 Quoted (unadjusted) prices in active markets for identical assets or liabilities. 62 Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. NTG Clarity Networks Inc. Annual Report 2023 Assets measured at fair value December 31, 2023 Level 1 Level 2 Level 3 Cash and cash equivalents Investment in joint venture $ 358,088 $ 358,088 $ – $ – – – – 142,136 Assets measured at fair value $ 358,088 $ 358,088 $ – $ 142,136 No liabilities were measured at fair value $ – $ – $ – $ – During the reporting year ending December 31, 2023, 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. 20. GOVERNMENT GRANT In 2020, the Corporation has received $60,000 for the Canadian Emergency Business Account (CEBA) loan. The loan amount is interest-free and $20,000 forgivable if the $40,000 amount is paid by March 28, 2024, after which the full amount is subject to a 5% annual interest rate and due on December 31, 2025. 21. EQUITY INSTRUMENTS (a) Common shares 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 had repaid $10,000 against the loan in 2023 and $30,000 in 2022 and outstanding amount of NIL (2022: $10,000) and NIL (2022: $5,804)) was recognized as an interest accrued for the year ended December 31, 2023. As at December 31, 2023, 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: Balance, January 1, 2022 Shares issued on exercise of share options (i) Allocation of contributed surplus (i) As at, December 31, 2022 Shares issued on exercise of share options (i) Shares issued for private placement (ii) Allocation of contributed surplus (i) Balance, December 31, 2023 Common Shares Amount 147,472,355 $ 13,561,986 500,000 – 25,000 20,000 147,972,355 $ 13,606,986 200,000 10,000 37,000,000 1,110,000 – 10,000 185,172,355 $ 14,736,986 63 NTG Clarity Networks Inc. Annual Report 2023 (i) In 2023, a total of 200,000 (2022: 500,000) options were exercised, with a total value of $10,000 (2022: $25,000). This resulted in a re- allocation of contributed surplus to capital stock in the amount of $10,000 (2022: $20,000). In 2022, a total of 500,000 options were exercised, with a total value of $25,000. This resulted in a re-allocation of contributed surplus to capital stock in the amount of $20,000. (ii) On December 12, 2023, the Corporation completed a non-brokered private placement of 37,000,000 shares issued at a price of $0.03 per share for aggregate gross proceeds of $1,110,000. The common shared issued are subject to four-month hold period. 9,000,000 of these shares were issued to directors of the corporation and 28,000,000 of these shares were issued to 2729252 Ontario Inc., a company controlled by directors. (b) Share-based payments The Corporation has a formal stock option plan allowing the Company 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 non-assignable. 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 2023 and 2022. Details of stock options are as follows: As at, January 1, 2022 Granted Exercised Expired As at, December 31, 2022 Granted Exercised Expired As at, December 31, 2023 Options Weighted average exercise price 12,475,000 $ 7,045,000 $ (500,000) (1,305,000) 17,715,000 $ 3,230,000 $ (200,000) (939,000) 19,806,000 $ 0.05 0.05 0.05 0.08 0.05 0.05 0.05 0.05 0.05 The stock options expire at various dates between December 2025 and December 2028. The weighted average expected contractual lives of outstanding and exercisable options are as follows: Exercise Price Options Outstanding Options Exercisable Number outstanding Dec 31/23 Remaining life of option Number outstanding Dec 31/23 Remaining life of option $ 0.05 19,806,000 $ 2.97 19,706,000 $ 2.97 64 NTG Clarity Networks Inc. Annual Report 2023 Activity related to share-based compensation is as follows: For the year ending December 31, 2023 the Corporation recorded $104,250 (2022: $328,250) 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 2023 is $0.05 (2022: $0.05). 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 Fair value of options issued in fiscal year 22. CONTRIBUTED SURPLUS 2023 $0.04 2022 $0.03 3.72 – 4.93% 1.04 – 3.28% 5 years 0% 5 years 0% 0.0 – 219.05% 0.0 – 225.27% $ 0.03 $ 0.05 Contributed surplus for the year ending consisted of $104,250 (2022: $328,250) for share-based payments and re-allocation of contributed surplus on exercise of share options $10,000 (2022: $20,000). $ 2,617,273 104,250 (10,000) $ 2,711,523 Opening balance December 31, 2022 Share-based payments Reallocation on exercise of share options Balance as at December 31, 2023 23. DIVIDENDS PAID AND PROPOSED Cash dividends The Corporation’s practice is to not make dividend payments to shareholders. 24. COST OF SALES The details of the Corporation’s cost of sales are as follows: Cost of sales Salaries Travel Hardware Consulting Other Total 2023 2022 $ 13,794,531 $ 9,695,623 518,168 57,522 3,533,530 742,196 79,907 – 601,231 412,191 $ 18,504,982 $ 18,173,278 65 NTG Clarity Networks Inc. Annual Report 2023 25. EXPENSES: DISCLOSURE OF FUNCTION EXPENSES The details of the Corporation’s function expenses are as follows: 2023 2022 $ 1,636,417 $ 1,416,599 391,821 248,356 6,903 19,538 19,756 98,490 7,481 29,617 15,904 – $ 2,172,925 $ 1,717,956 2023 2022 $ 2,147,792 $ 1,648,646 151,522 47,016 155,675 954,900 40,853 24,215 341,603 114,484 52,878 113,650 480,172 27,941 (50,020) 67,759 $ 3,863,576 $ 2,455,510 Selling Salary and wages Marketing Mailing and courier Professional services Meals and entertainment Travel Total General and Administrative Salary and wages Occupancy Consulting Professional fees Insurance Dues and subscriptions Penalties and fees Office and General Total 66 NTG Clarity Networks Inc. Annual Report 2023 This transaction does not qualify as a joint arrangement or a principal-agent relationship. The amount is non-secured. In 2022, the Corporation entered into a non- secured loan agreement in the amount of $15,530 (USD $11,467) with no interest rate payable within 1 year. The amount is non-secured, and was paid by January 2023. During the year, the Corporation entered into a non- secured loan agreement in the amount of $141,077 (USD 106,667) with no interest rate payable by January 2024. As of December 31, 2023, the Loans Payable amount owed is $493,767 (2022: $701,760). 26. LOANS PAYABLE In 2020, the Corporation entered into an agreement for funding on a sales project in the amount of $338,080 (USD $ 266,667). The agreement states that the lender will be paid 67% interest on the funding for one-sixth of the profit from the project. The Corporation renewed the agreement in July 2021 and as per the revised term the investor will be paid 63% interest on the funding for one-eleventh of the profit from the project, and the capital investment is payable on demand with 90 days notice. All other terms remain same. In 2022, the Corporation entered into an agreement for funding on a sales project in the amount of $325,000 (USD $ 240,000). The agreement states that the lender will be paid 63% of funding for one-eleventh of the profit from the project. The Capital investment was paid in July 2023. 27. 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) All related party transactions are carried out in the normal course of operation and are recorded at fair value. 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 Key management personnel of the Corporation: December 31, 2023 (i) December 31, 2022 $ – $ – $ – $ – $ 2,210,728 $ 1,657,562 Key management compensation 2023 2022 Short term employee benefits Post-retirement employee benefits Share-based payments Total $ 557,457 56,667 18,000 $ 861,045 37,083 136,300 $ 634,124 $ 1,034,428 67 28. 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. 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. NTG Clarity Networks Inc. Annual Report 2023 (i) As of December 31, 2023, Key management (Ashraf Zaghloul and Kristine Lewis) is owed a total of $2,210,728 for unpaid salaries, expenses, benefits and compensation, outstanding since 2016. These amounts are part of Accounts Payable in Note 18. (ii) Included in other receivables is an amount receivable from related parties for $26,303 (2022: $2,744). The balance is unsecured, non- interest bearing and has no specific terms of repayment. Included in payroll liability is an amount owed to related parties for $22,971. 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 2023, directors and officers of the Corporation were granted a total number of 900,000 options (2022: 4,300,000), as described in Note 20(b), that were valued at $27,000 (2022: $215,000). In the year 2023, the directors and officer had not exercised any options (2022: None). The loan is due to 2729252 Ontario Inc, which is a private company owned by two directors of the Corporation. See Note 19 (a) for more information. The Indebtedness held by the Corporation is secured by a General Security Agreement over the assets of the Corporation. As of December 31, 2023, the loan amount is $6,512,880 (2022: $6,512,880). The Corporation recognized interest expense of $68,875 (2022: $74,312) in the statement of profit and loss. 68 NTG Clarity Networks Inc. Annual Report 2023 Market risk Foreign currency 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, 2023 to determine how a change in interest rates would impact equity and net loss. During the year the Corporation paid $378,985 (2022: $315,656) 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 $37,899 (2022: $31,566). This analysis assumes that all other variables remain constant. 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. 69 NTG Clarity Networks Inc. Annual Report 2023 Foreign currency risk A 10% change in exchange rates on December 31, 2023 would have the following approximate impacts: 10% impact to: U.S. Dollar USD Omani Riyal OMR Kuwait Dinar KWD Saudi Riyal SAR Turkish Lira TRY Iraqui Dinar IQD Egyptian Pound LE P&L in CAD $63,360 $1,999 $19,027 $213,937 $1,238 $2,245 $31,501 Equity in CAD $46,569 $1,469 $13,985 $157,244 $910 $1,650 $23,154 A 10% change in exchange rates on December 31, 2022 would have the following approximate impacts: 10% impact to: U.S. Dollar USD Omani Riyal OMR Kuwait Dinar KWD Saudi Riyal SAR Turkish Lira TRY Iraqui Dinar IQD Egyptian Pound LE P&L in CAD $36,150 $17,662 $25,258 $56,577 Equity in CAD $26,570 $12,981 $18,564 $41,584 $22 $16 $Nil $141,840 $Nil $104,252 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. The aging of trade accounts receivable are as follows: December 31, Neither past due nor impaired Current 30 – 60 days 61 – 90 days 90 – 180 days Past due but not impaired Greater than 180 days 2023 2022 $ 2,983,147 $ 2,230,177 2,113,346 203,030 337,372 311,791 326,625 199,960 212,760 119,737 $ 5,847,655 $ 3,188,290 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. 70 NTG Clarity Networks Inc. Annual Report 2023 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 continuously reviews both actual and forecasted cash flows to ensure that the Corporation has appropriate capital capacity. 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 following table summarizes the amount of contractual undiscounted future cash flow requirements for financial instruments as at December 31, 2023: Contractual obligations 2023 2022 2026 2027 and after Total Operating line of credit $ 298,743 $ Accounts payable and accrued liabilities 6,999,324 – $ – – $ – – $ 298,743 – 6,999,324 Operating lease Long-term debt Loans payable 242,820 122,748 493,767 167,813 6,635,628 – 110,260 18,500 539,393 – – – – 6,758,376 493,767 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, Neither past due nor impaired Current 30 – 60 days 61 – 90 days 90 – 180 days Greater than 180 days 2023 2022 $ 3,185,918 $ 696,460 39,432 2,729 151,434 612,044 74,446 40,653 137,668 539,614 $ 3,991,557 $ 1,488,841 71 NTG Clarity Networks Inc. Annual Report 2023 Capital management 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, 2023, the Corporation was considering 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, 2023. Also, no changes were made in the objectives, policies, or processes during the year ending December 31, 2023. The Corporation will continually assess the adequacy of its capital structure and capacity and will 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: (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; December 31, 2024 2025 2026 2027 and thereafter Legal claim contingency (ii) 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. 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. 29. COMMITMENTS, CONTINGENCIES, AND GUARANTEES Operating lease commitments – Corporation as lessee The Corporation is committed under agreements for the rental of office spaces in Egypt and Oman at a monthly rate ranging from $1,200 to $3,000 for the periods from 2022 to 2028. 2023 $ 242,820 167,813 110,260 18,500 $ 539,393 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. The Corporation was unable to renew its Directors and Officers insurance. In March 2022, the corporation was unable to renew its Directors and officers insurance. Subsequent to year end, in April 2024, the corporation submitted an application for Directors and officers insurance. 72 NTG Clarity Networks Inc. Annual Report 2023 30. 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 Boardapproved 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 (approximately $99,428). 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. 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 $25,147 (2022: $NIL) under these contracts. 31. EVENTS AFTER THE REPORTING YEAR a) On March 18, 2023, the Corporation closed a consolidation of its outstanding common shares on the basis of one (1) post-consolidation Share for every five (5) pre-consolidation Shares. The Consolidation was approved by shareholders at the annual and special meeting of shareholders held on July 7, 2023. Shares began trading on a consolidated basis on the TSX Venture Exchange on March 20, 2024. 73 NTG Clarity Networks Inc. Annual Report 2023 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 Odyssey Trust Company 702 - 67 Yonge Street Toronto, Ontario M5E 1J8 Telephone: 1-888-290-1175 https://odysseytrust.com 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 74 International Work Stock Exchange Listing The TSX Venture Exchange Trading Symbol: NCI Investor Relations Adam Zaghloul Vice President - Strategy & Planning adam@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 

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