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Points International Ltd.: Form 40-F - Filed by newsfilecorp.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

☐   REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒   ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31, 2020

Commission File Number 0-51509


POINTS INTERNATIONAL LTD.
(Exact name of Registrant as specified in its charter)

Not Applicable
(Translation of Registrant's Name into English)

Canada
(Province or other jurisdiction of incorporation or organization)

7389
(Primary Standard Industrial Classification Code Number)

Not Applicable
(I.R.S. Employer Identification Number)

111 Richmond Street West, Suite 700
Toronto, Ontario, Canada M5H 2G4
Tel. (416) 595-0000
(Address and telephone number of Registrant's principal executive offices)

CT Corporation System
28 Liberty Street
New York, NY 10015
Tel. (212) 894-8940
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class

 

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, no par value

 

PCOM

NASDAQ Capital Market



Securities registered or to be registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Securities registered or to be registered pursuant to Section 15(d) of the Act:

None
(Title of Class)

For annual reports, indicate by check mark the information filed with this Form:

Annual information form     Audited annual financial statements

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 13,227,407 as of December 31, 2020.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

Yes  No ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.                            ☐

†  The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.                                   


CERTIFICATIONS

See Exhibits 99.4 and 99.5 to this Annual Report on Form 40-F (this "Form 40-F").

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed with, or submitted to, securities regulatory authorities is recorded, processed, summarized and reported within the time periods specified under Canadian and United States securities laws. As at December 31, 2020, an evaluation was carried out under the supervision of the Registrant's management of the effectiveness of the Registrant's disclosure controls and procedures, as defined in the applicable Canadian and United States securities laws.  The conclusion of the Registrant's Chief Executive Officer and Chief Financial Officer regarding the effectiveness of the Registrant's disclosure controls and procedures is included in Management's Discussion and Analysis under the heading "Disclosure Controls and Procedures" and is filed herewith as Exhibit 99.3 and incorporated herein by reference.

MANAGEMENT'S ANNUAL REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

Management's annual report on internal control over financial reporting is included in Management's Discussion and Analysis under the heading "Management's Report on Internal Control Over Financial Reporting" and is filed herewith as Exhibit 99.3 and incorporated herein by reference.

ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

The attestation report of KPMG LLP with respect to the Registrant's internal control over financial reporting is included with the Audited Consolidated Financial Statements of the Registrant for the fiscal year ended December 31, 2020 filed herewith as Exhibit 99.2 and incorporated herein by reference.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

The Registrant's management regularly reviews its system of internal control over financial reporting and makes changes to the Registrant's processes and systems to improve controls and increase efficiency, while ensuring that the Registrant maintains an effective internal control environment. 

During the fiscal year ended December 31, 2020, there have been no changes in the Registrant's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

NOTICES PURSUANT TO REGULATION BTR

None.

AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors of the Registrant has determined that Ms. Leontine van Leeuwen-Atkins is (i) an audit committee financial expert (as such term is defined in paragraph 8(b) of General Instruction B to Form 40-F) and (ii) independent (as such term is defined in the rules of the NASDAQ Capital Market).


CODE OF ETHICS

The Registrant has adopted a code of ethics (as such term is defined in paragraph 9 of General Instruction B to Form 40-F) that applies to its employees, including its principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions.  The Registrant's Code of Business Conduct & Ethics is available at the Registrant's website at www.points.com and is available in print to any person upon written request to the Secretary of the Registrant at the address listed on the first page of this Form 40-F.

During the fiscal year ended December 31, 2020, the Registrant has not granted a waiver or implicit waiver from a provision of its Code of Business Conduct & Ethics to its Chief Executive Officer, Chief Financial Officer, principal accounting officer, controller, or persons performing similar functions.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG LLP served as the Registrant's independent public accountant for the fiscal years ended December 31, 2019 and 2020. The aggregate audit fees, audit-related fees, tax fees and all other fees (as such terms are defined in paragraph 10 of General Instruction B to Form 40-F) billed by the Registrant's external auditor in each of the last two fiscal years is disclosed in the Registrant's 2020 Annual Information Form under the heading "Audit Committee - External Auditor Service Fees (By Category)" and is filed herewith as Exhibit 99.1 and incorporated herein by reference.

PRE-APPROVAL POLICIES AND PROCEDURES

A description of the audit committee's pre-approval policies and procedures is disclosed in the Registrant's 2020 Annual Information Form under the heading "Audit Committee - Audit Committee Pre-Approval Policies and Procedures" and is filed herewith as Exhibit 99.1 and incorporated herein by reference.

No audit-related fees, tax fees or other non-audit fees were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

OFF-BALANCE SHEET ARRANGEMENTS

The Registrant has no off-balance sheet arrangements (as such term is defined in paragraph 11 of General Instruction B to Form 40-F) required to be disclosed in this Form 40-F.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The Registrant's contractual obligations as of December 31, 2020 are disclosed in the notes to the 2020 Audited Consolidated Financial Statements and in Management's Discussion and Analysis for the fiscal year ended December 31, 2020 under the heading "Liquidity and Capital Resources - Contractual Obligations and Commitments", each of which are filed herewith as Exhibits 99.2 and 99.3 respectively and incorporated herein by reference.

IDENTIFICATION OF AUDIT COMMITTEE

The Registrant has a separately standing audit committee established in accordance with 3(a)(58)(A) of the Securities Exchange Act of 1934 (the "Exchange Act").  The members of the audit committee as of the date of this filing are: Ms. Leontine van Leeuwen-Atkins (Chair), Mr. David Adams, Mr. John Thompson and Ms. Jane Skoblo.

DISCLOSURE PURSUANT TO THE REQUIREMENTS OF THE NASDAQ STOCK MARKET

As a foreign private issuer under the Exchange Act, the Registrant is permitted under NASDAQ Rule 5615(a)(3) to follow its home country practice in lieu of certain NASDAQ corporate governance standards. In order to claim such exemption, the Registrant must disclose the NASDAQ corporate governance standards that it does not follow and describe the home country practice that it follows in lieu of such standards. A description of the significant ways in which the Registrant's governance practices differ from those followed by domestic companies follows:


 Rule 5620(c) of the NASDAQ Rules requires a quorum of no less than 33-1/3% of the outstanding shares of common stock at any meeting of the holders of common stock. Following Canadian practice, a quorum for meetings of the holders of the Registrant's common stock is no less than 15% of the total number of the issued shares of the Registrant entitled to vote at the meeting.

 Rule 5605(d)(1) of the NASDAQ Rules requires that each listed company adopt a formal written compensation committee charter that specifies, among other things, the compensation committee's responsibilities and authority, as set forth in Listing Rule 5605(d)(3). The Registrant has adopted a formal written mandate setting out the duties and responsibilities of its Human Resources and Corporate Governance Committee (the "HRCGC"). Among other things, such mandate includes recommending for approval by the board the compensation of the chief executive officer, but not of all other executive officers. The mandate also does not specify that the chief executive officer may not be present during voting or deliberations on his or her compensation, although, as a matter of practice, the HRCGC does not permit the chief executive officer to be present during such voting or deliberations. In addition, such mandate does not specify the specific compensation committee responsibilities and authority set forth in Rule 5605(d)(3). The Registrant's practices with regard to these requirements are permitted by Canadian law.

 Rule 5635 of the NASDAQ Rules sets forth circumstances under which shareholder approval is required prior to an issuance of securities in connection with: (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) transactions other than public offerings. These circumstances are not identical to the circumstances under which shareholder approval is required under Canadian and TSX requirements. When the shareholder approval requirements under the NASDAQ Rules differ from the Canadian and TSX requirements, the Registrant follows the Canadian and TSX requirements. The Registrant's practices with regard to these requirements are permitted by Canadian law.

UNDERTAKING

Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

DISCLOSURE PURSUANT TO SECTION 13(r) OF THE EXCHANGE ACT

In accordance with Section 13(r) of the Exchange Act, the Registrant is required to include certain disclosures in its periodic reports if it or any of its affiliates knowingly engaged in certain specified activities during the period covered by the report.  Neither the Registrant nor its affiliates have knowingly engaged in any transaction or dealing reportable under Section 13(r) of the Exchange Act during the year ended December 31, 2020.


SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report on Form 40-F to be signed on its behalf by the undersigned, thereto duly authorized.

 

POINTS INTERNATIONAL LTD.

 
 

By:

/s/ Robert MacLean

 

Name:  Robert MacLean

 

Title:    Chief Executive Officer

 

 

Date:    March 3, 2021



EXHIBITS

The following exhibits are filed as part of this Annual Report on Form 40-F:

Number

Document

 

 

99.1

Annual Information Form of the Registrant for the fiscal year ended December 31, 2020

 

 

99.2

Audited Consolidated Financial Statements for the fiscal year ended December 31, 2020

 

 

99.3

Management's Discussion and Analysis for the fourth fiscal quarter and fiscal year ended December 31, 2020

 

 

99.4

Chief Executive Officer and Chief Financial Officer certifications required by Rule 13a-14(a)

 

 

99.5

Chief Executive Officer and Chief Financial Officer certifications required by Rule 13a-14(b)

 

 

99.6

Consent of KPMG LLP

 

 

101.INS

XBRL Instance Document 

 

 

101.SCH

XBRL Taxonomy Extension Schema 

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase 

 

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase 

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase 

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase 


 

Points International Ltd.: Exhibit 99.1 - Filed by newsfilecorp.com

 

POINTS INTERNATIONAL LTD.

 

Annual Information Form

 

March 3, 2021

 

 

 

Information presented herein is current as of March 3, 2021, unless otherwise indicated. All dollar amounts are in United States Dollars unless otherwise indicated.


Table of Contents

FORWARD-LOOKING STATEMENTS - 1 - 
NON-GAAP FINANCIAL MEASURES - 2 - 
CORPORATE STRUCTURE - 2 - 
GENERAL DEVELOPMENT OF THE BUSINESS - 2 - 
GENERAL DESCRIPTION OF THE BUSINESS - 6 - 
Loyalty Currency Retailing - 7 - 
Platform Partners - 7 - 
Points Travel - 8 - 
Method of Providing Services - 8 - 
Specialized Skill and Knowledge - 8 - 
Competitive Conditions - 8 - 
Intangible Property - 9 - 
Seasonality - 9 - 
Economic Dependence - 9 - 
Changes to Contracts - 10 - 
Employees - 10 - 
RISK FACTORS - 10 - 
DIVIDENDS - 10 - 
GENERAL DESCRIPTION OF CAPITAL STRUCTURE - 10 - 
MARKET FOR SECURITIES - 11 - 
Current Directors - 12 - 
Director Biographies - 12 - 
Current Executive Officers - 16 - 
Security Holdings - 17 - 
Cease Trade Orders, Bankruptcies, Penalties or Sanctions - 17 - 
Conflicts of Interest - 17 - 
AUDIT COMMITTEE - 18 - 
Audit Committee Charter - 18 - 
Composition of the Audit Committee - 18 - 
Relevant Education and Experience - 18 - 
Audit Committee Pre-Approval Policies and Procedures - 18 - 
External Auditor Service Fees (By Category) - 19 - 
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS - 19 - 
TRANSFER AGENT - 19 - 
MATERIAL CONTRACTS - 19 - 
INTEREST OF EXPERTS - 20 - 
LEGAL PROCEEDINGS - 20 - 
ADDITIONAL INFORMATION - 20 - 
NON-GAAP FINANCIAL MEASURES - 20 - 
APPENDIX A Audit Committee Mandate - 1 - 


- 1 -

POINTS INTERNATIONAL LTD.

ANNUAL INFORMATION FORM

The following Annual Information Form ("AIF") of Points International Ltd. (which is also referred to herein as "Points", "we", "our" or "us") should be read in conjunction with our audited consolidated financial statements (including the notes thereon) for the year ended December 31, 2020 ("2020 Audited Consolidated Financial Statements"). Further information, including our Management Discussion and Analysis for the year ended December 31, 2020 ("2020 MD&A"), may be accessed at www.sedar.com or www.sec.gov.

FORWARD-LOOKING STATEMENTS

This AIF contains or incorporates forward-looking statements within the meaning of United States securities legislation and forward-looking information within the meaning of Canadian securities legislation (collectively, "forward-looking statements"). These forward-looking statements relate to, among other things, plans we have implemented in response to the COVID-19 pandemic and its expected impact on us (including with respect to: cost saving measures that have been implemented, our liquidity and efforts to strengthen our balance sheet, expected impacts on transaction volumes, revenue, gross profit and profitability, the impact of our annual revenue guarantees, and our ability to deliver on our long-term goals), our financial performance, our growth strategies, our partnerships and the expected benefits from them, our role in the loyalty currency retailing market, future purchases of common shares under the 2020 Repurchase (as defined below), our intent to use retained earnings for general corporate purposes, our vision and strategic goals, our beliefs on the long-term sustainability of the loyalty industry and the ability of our partners to leverage the products and services we offer in advance of an economic recovery, the competitive environment in which we operate, other objectives, strategic plans and business development goals, and may also include other statements that are predictive in nature, or that depend upon or refer to future events or conditions, and can generally be identified by words such as "may," "will," "expects," "anticipates," "continue," "intends," "plans," "believes," "estimates" or similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These statements are not historical facts but instead represent only our expectations, estimates and projections regarding future events.

Although we believe the expectations reflected in such forward-looking statements are reasonable, such statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Undue reliance should not be placed on such statements. Certain material assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Known and unknown factors could cause actual results to differ materially from those expressed or implied in the forward-looking statements. In particular, uncertainty around the duration and scope of the COVID-19 pandemic and the impact of the pandemic and actions taken in response on global and regional economies, economic activity, and all elements of the travel and hospitality industry may have a significant and materially adverse impact on our business. In addition, our financial outlooks herein assume we will be able to maintain our existing contractual relationships and products, that such products continue to perform in a manner consistent with our past experience, that we will be able to generate new business from our pipeline at expected margins, in-market and newly launched products and services will perform in a manner consistent with our past experience and we will be able to contain costs. Similarly, there are a number of risks, uncertainties and other factors that may impact the results expressed or implied in such forward-looking statements which include, but are not limited to, our dependence on a limited number of large clients for a significant portion of our consolidated revenue and our reliance on contractual relationships with loyalty program partners that are subject to termination and renegotiation. Our ability to convert our pipeline of prospective partners and product launches and cross-sell existing partners is subject to significant risk and there can be no assurance that we will launch new partners or new products with existing partners as expected or planned nor can there be any assurance that we will be successful in maintaining our existing contractual relationships or maintaining existing products with existing partners. Other important assumptions, factors, risks and uncertainties are included in our filings with applicable securities regulators, including our 2020 Audited Consolidated Financial Statements and 2020 MD&A. These documents are available at www.sedar.com and www.scc.gov.


- 2 -

The forward-looking statements contained in this AIF are made as at the date of this AIF and, accordingly, are subject to change after such date. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements made or incorporated in this AIF, whether as a result of new information, future events or otherwise.

NON-GAAP FINANCIAL MEASURES

This AIF contains certain non-GAAP financial measures. For additional details, see "Non-GAAP Financial Measures" below, as well as our 2020 MD&A.

CORPORATE STRUCTURE

Points International Ltd. is a corporation continued under the Canada Business Corporations Act. Our articles have been amended on various occasions, including most recently on May 13, 2016 to increase the maximum number of directors from seven to nine and to authorize the board to appoint additional directors by way of resolution between annual general meetings. Our head and registered office is 111 Richmond Street West, Suite 700, Toronto, Ontario, M5H 2G4.

The following organizational chart shows each of Points' subsidiaries, their jurisdiction of incorporation, and the percentage of votes attaching to all voting securities held directly or indirectly by Points.

GENERAL DEVELOPMENT OF THE BUSINESS

In January 2018, we announced that Etihad Guest, the loyalty program of Etihad Airways, expanded its relationship with us to enable Etihad Guest members to earn miles through Travel Rewards when booking hotels and renting cars. In September, we announced that Etihad Guest expanded this relationship to offer its members more travel rewards when booking hotels and renting cars.


- 3 -

In April 2018, Emirates Airline engaged us to provide its Emirates Skywards members with a new way to Buy, Gift, Transfer and Reinstate Skywards miles.

In May 2018, we announced a partnership with Priceline which will permit us to leverage Priceline's hotel inventory providing access to leading hotels worldwide and enhancing the hotel options for our Points Travel services. In addition, Members of Singapore Airlines' KrisFlyer Program can now use KrisFlyer miles to redeem for hotels and car rental locations through the Points Travel platform.

In August 2018, we announced an additional normal course issuer bid pursuant to which we had the ability to repurchase up to 710,893 of our common shares (the "2018 Repurchase"), representing approximately 5% of our issued and outstanding common shares as of July 31, 2018. In connection with the 2018 Repurchase, we also renewed our automatic share purchase plan. The 2018 Repurchase commenced on August 14, 2018 and terminated on August 13, 2019. Pursuant to the 2018 Repurchase, we purchased 684,061 common shares, all for cancellation.

In December 2018, we announced a long-term strategic partnership with Amadeus IT Group, S.A. ("Amadeus"), a world leader in loyalty offerings. Both new and existing airline customers of both companies will benefit from the combined portfolio as the partnership is designed to help airlines unlock greater economics from their loyalty programs by integrating our solutions within existing Amadeus Loyalty Management and Awards solutions at the click of a button. The integrated portfolio of services helps airlines further improve loyalty redemption and member engagement. In addition, we were also successful in expanding our relationship with Alaska Airlines to permit their Mileage Plan members the opportunity to purchase higher elite status.

In February 2019, we announced an expanded partnership with Frontier Airlines, enabling their members to redeem miles when booking hotels online.

In May 2019, we launched a new integration between the Hilton Honors program and Lyft, the popular ride sharing program, to power new functionality that enables their shared customers to earn Hilton Honors points for every Lyft ride taken. In November 2019, we added redemption functionality to this relationship, allowing Hilton Honors members the ability to pay for the Lyft rides using their points. Also in May 2019, we expanded our relationship with the Emirates Skywards program, launching our accelerator service. The service enables Skywards members the ability to boost their miles earned from completing a flight booking with Emirates.

In August 2019, we announced an additional normal course issuer bid pursuant to which we have the ability to repurchase up to 679,034 of our common shares (the "2019 Repurchase"), representing approximately 5% of our issued and outstanding common shares as of July 31, 2019. In connection with the 2019 Repurchase, we also renewed our automatic share purchase plan. The 2019 Repurchase commenced on August 14, 2019 and terminated on August 13, 2020. Pursuant to the 2019 Repurchase, we purchased 379,827 common shares, all for cancellation. In March 2020, as part of several measures in response to the COVID-19 pandemic, we suspended share buyback activity under the 2019 Repurchase which continued under the 2020 Repurchase (as defined below).

In September 2019, we announced an expansion of our Points Travel services with the AIR MILES Reward program. The expanded relationship enables AIR MILES members the ability to redeem their miles for online hotel bookings across the globe.

In November 2019, we launched a new relationship with AIR MILES Middle East and its banking partner, HSBC Middle East. The new partnership will enable exchanges with two of our existing loyalty program partners, the Etihad Guest and Emirates Skywards programs, strengthening our growing footprint in the Middle East region.


- 4 -

In December 2019 we announced the long-term renewal of our contract with Southwest Airlines.  Through a single integration with Points' LCP (as defined below under heading "General Description of the Business") Southwest Airlines leverages our full suite of loyalty solutions designed to drive both increased revenue and member engagement.

In 2019, we opened regional offices in Singapore and Dubai. Resources in these offices bring regional business knowledge that will be beneficial in enabling us to more effectively service existing relationships in these regions, and more importantly, expand our business development presence. Geographic expansion is a key element of our long-term growth strategy and the addition of these regional offices represents an early milestone in support of this long-term growth driver.

In March 2020, we launched our core Buy and Gift services with Air Canada's new Aeroplan program, which was expanded in November 2020 with the launch of our Transfer and Reinstate services. Air Canada was already an existing partner within the loyalty currency retailing segment, leveraging our seasonal tier status product.

In March 2020, we launched an exchange service in the middle east, with Aimia Inc. and its banking partner, HSBC Middle East. The new partnership will enable exchanges with two of our existing loyalty program partners, the Etihad Guest and Emirates Skywards programs, which expands our business in the Middle East region.

In July 2020, we launched a new program between Alaska Airlines' Mileage Plan and GetYourGuide, a leading marketplace for tour guides and excursions. Mileage Plan members can now earn miles when they shop at GetYourGuide. Further, in August 2020, we expanded our relationship with Alaska Airlines launching our new Accelerate Anything service. Mileage Plan members can now boost almost any of their prior earnings, including miles earned on credit card spend, retail and lifestyle earns, and travel related spend.

In August 2020, we launched a new multi-year partnership with Qatar Airways' Privilege Club. Qatar Airways Privilege Club members now have the ability to Buy, Gift and Transfer Qmiles through our loyalty commerce platform.

In September 2020, we announced an additional normal course issuer bid pursuant to which we have the ability to repurchase up to 661,370 of our common shares (the "2020 Repurchase"), representing approximately 5% of our issued and outstanding common shares as of August 31, 2020. In connection with the 2020 Repurchase, we also renewed our automatic share purchase plan. The 2020 Repurchase commenced on September 9, 2020 and will terminate on September 8, 2021. As part of several measures in response to the COVID-19 pandemic, no share buyback activity was initiated in 2020 under the 2020 Repurchase.

In October 2020 we expanded our relationship with United Airlines launching our new subscription service.  Mileage Plus members now have the opportunity to subscribe to a monthly "buy miles" plan.

In October 2020, we expanded our partnership with Delta Airlines with the launch of Delta Choice, a state-of-the-art customer service program that enables customer service agents to better serve their members and improve customer experience and satisfaction. In addition, in November 2020, we launched the Alaska Airlines auction service, hosted by our partner Commerce Dynamics.

In 2020 we also entered into new loyalty program partnerships by leveraging our strategic relationship with Amadeus. In November 2020 and in concert with Amadeus, we entered into a new partnership with Caribbean Miles, the loyalty program for Caribbean Airlines. Through a single integration between our loyalty commerce platform and Amadeus' Loyalty Management solutions, Caribbean Miles members can now buy miles to boost their own balance, transfer miles, or gift miles to family and friends. In addition, in December 2020 we launched a new partnership with Ethiopian Airlines to take over the existing Buy, Gift and Transfer services currently managed by Amadeus.


- 5 -

Impacts of the COVID-19 Pandemic on Business Performance and Operations

In December 2019, a novel strain of coronavirus, COVID-19, was first detected in Wuhan, China. Throughout the first three months of 2020, COVID-19 spread to other regions around the world, with the World Health Organization declaring the outbreak as a global pandemic on March 11, 2020. Many governments around the world responded to the pandemic by implementing a variety of measures to reduce the spread of COVID-19, including travel restrictions and bans, social distancing measures, quarantine advisories, and the closure of non-essential businesses. As a result of these measures, there has been an unprecedented decline in travel, which has had a significant adverse impact on our business.

In mid-March 2020, we mandated all our employees around the world to work from home and banned all employee travel indefinitely. Since that time, we have been operating our business remotely with minimal impact on our operations. In addition, we took several measures starting in the second half of March 2020 to mitigate the impact of the pandemic on our business, preserve cash, and improve our overall liquidity. These measures included pausing most hiring activity and reducing or suspending discretionary spend, suspending share buyback activity under the 2019 Repurchase and the 2020 Repurchase, pausing funding of our restricted share unit plan, and proactively amending our credit facility in the fourth quarter of 2020. The measures we undertook in 2020 were intended to strike a balance between the challenges of the COVID-19 pandemic while establishing as much capacity to accelerate growth when travel restrictions are lifted and the economic environment improves.

Our financial performance in 2020 includes the impact of the initiatives we undertook to mitigate the impact of the COVID-19 pandemic. Revenue for the year ended December 31, 2020 was $217,387, an decrease of $183,790 or 46% over 2019. Gross profit in 2020 was $35,003, a decrease of 41% over 2019 after adjusting the prior year for the impact of a tax rebate related to prior years. The decrease in revenue and gross profit was due to the impact of COVID-19, which had a significant adverse impact on our transaction levels and resulting financial metrics. We generated a net loss for the year ended December 31, 2020 of $5,357 compared to a Net Income of $11,888 generated in 2019. Adjusted EBITDA for the year ended December 31, 2020 was $3,141, a decrease of 85% over 2019, largely due to the decrease in gross profit resulting from the impact of the COVID-19 pandemic.

Since the middle of March 2020, our transaction levels and corresponding revenue and gross profit have been down significantly and are less predictable. Before the COVID-19 pandemic, monthly and quarterly revenue and gross profit could fluctuate significantly period to period depending on the timing, richness, and number of marketing campaigns in our Loyalty Currency Retailing segment. These fluctuations have been exacerbated by the COVID-19 pandemic. From April 2020 to December 2020, monthly gross profit has averaged 47% of our 2019 monthly average gross profit, but reached as high as 70% of these levels in June 2020.

Due to the continued uncertainty surrounding the length, severity, and potential outcomes of the COVID-19 pandemic, it continues to be challenging to reliably estimate the impact of the pandemic on our business. As a result, we suspended our full year 2020 outlook and our long-term goals for 2022.

In past economic downturns, we have seen travel companies leverage their loyalty programs and related assets for additional liquidity. Within the current COVID-19 environment, the value of loyalty programs has remained resilient and we believe they are proving to be a crucial source of liquidity for many travel operators. In the first few months of the COVID-19 pandemic, we saw hospitality and airline operators pre-sell their points and miles to their co-branded credit card partners to generate incremental cash. More recently, four major US airlines pledged their frequent flier programs as collateral to secure long-term debt financing. We believe these financings are indicative of the long-term sustainability and belief in the travel and loyalty industry, as the debt is secured by the current and future value of these loyalty programs. Broadly, we believe the health of the loyalty industry will recover as the global economy recovers from the impacts of COVID-19. While the COVID-19 pandemic has significantly impacted our business, we believe the products and services we offer can be leveraged by our loyalty program partners in advance of an economic recovery to drive additional revenues and cash flow.


- 6 -

GENERAL DESCRIPTION OF THE BUSINESS

We are the global leader in providing loyalty e-commerce and technology solutions to the loyalty industry, connecting loyalty programs, third party brands and end consumers across a global transaction platform. Our head office is in Toronto, Canada and we maintain offices in San Francisco, United States, London, England, Singapore and Dubai.

As a trusted partner to the world's leading loyalty programs, Points builds, powers, and grows new ways for members to get and use their favorite loyalty currency. We do not manage our own loyalty program nor do we offer the core technology that operates a loyalty program. Our business is focused on becoming an important strategic partner to the world's most successful loyalty programs by partnering with them on valuable, white label, ancillary services.

Our unique platform combines insight, technology, and resources to drive loyalty currency transactions through both program and third party channels. We believe that our platform achieves this more efficiently and effectively than programs can on their own, and that we help programs build deeper, more profitable relationships with their members. Our points of difference include:


- 7 -

Most of our contracts enable us to transact directly or indirectly with the loyalty programs' member base to facilitate the sale, redemption or earning of loyalty currency (such as frequent flyer miles or hotel points) online. Our commercial agreements with loyalty program partners are typically for fixed terms of three to five years. Contracts will generally renew with either an annual evergreen clause or a new contract extension for a set term.

Core to our operations is the Loyalty Commerce Platform ("LCP"), an open, Application Program Interface ("API") based transaction processing platform that Points leverages for all aspects of the business. The key functions of the LCP include direct, real time, integrations into partners' loyalty program data bases that allow for customer validation and information sharing as well as debit and/or credit of loyalty program currency. Of growing importance is the marketing automation capability that continues to develop as part of the LCPs functionality. Lastly, security, fraud mitigation, auditing and reporting functions are also centralized via the LCP. Through the LCP, we have direct integrations with approximately 80 loyalty programs and third parties, including merchants and other technology companies in the loyalty and travel space.

Leveraging the LCP, we operate in three segments, each of which contain multiple loyalty products and services: (1) Loyalty Currency Retailing; (2) Platform Partners; and (3) Points Travel.

Loyalty Currency Retailing

The Loyalty Currency Retailing segment provides products and services designed to help loyalty program members unlock the value of their loyalty currency and accelerate the time to a reward. Included in this segment are Points' buy, gift, transfer, reinstate, accelerator and status miles services. These services provide loyalty program members the ability to buy loyalty program currency (such as frequent flyer miles or hotel points) for themselves, as gifts for others, perform a transfer of loyalty currency to another member within the same loyalty program, reinstate previously expired loyalty currency, accelerate earning of loyalty currency in conjunction with other transactions, or to access a higher tier status.

We have direct partnerships with over 30 loyalty programs that leverage the Loyalty Currency Retailing services and functionality offered by the LCP. Loyalty Currency Retailing services provide high margin revenue and profitability to our loyalty programs while increasing the member engagement by unlocking the value of loyalty currency in the members' accounts.

We may take a principal role in the retailing of loyalty currencies, whereby we sell points and miles at retail rates to end consumers while purchasing points and miles at wholesale rates from our loyalty program partners. Alternatively, we may assume an agency role in the retailing and wholesaling of loyalty currencies, where we take a less active role in the relationship and receive a commission on each transaction.

Platform Partners

Our Platform Partners segment comprises a broad range of applications that are connected to and enabled by the functionality of the LCP. Loyalty programs, merchants, and other consumer service applications leverage the LCP to broadly distribute loyalty currency and loyalty commerce transactions through multiple channels, including loyalty program, co-branded and third-party channels.

Included in the Platform Partners segment are multiple third-party managed applications that are enabled by the LCP, many of which are redemption-based services that offer efficient cost management solutions to loyalty programs. Also included in this segment are earn based services, where merchants who partner with Points can purchase loyalty currency to offer to their customers as an award for everyday shopping.


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Points Travel

The Points Travel segment connects the world of online travel bookings with the broader loyalty industry and consists of our Points Travel and PointsHound services.

In 2014, we acquired Accruity Inc., the San Francisco based start-up operator of the PointsHound loyalty- based hotel booking service, which today continues to offer consumers the ability to earn loyalty currency from approximately 18 loyalty programs. Leveraging the PointsHound technology, Points developed its Points Travel services, the first white-label travel hotel booking service specifically designed for loyalty programs. Points partners with loyalty programs to provide a seamless travel booking experience for loyalty program members and enables the members to earn and redeem their loyalty currency while making hotel and car bookings online. Points Travel offers a rewarding value proposition for loyalty program members as they can earn high levels of points/miles for a hotel or car booking or have the ability to fully redeem points/miles, or a combination of points and cash, for hotel stays and car rentals.

The Points Travel segment experienced the largest negative impact of the COVID-19 pandemic, and in the second quarter of 2020 we recorded an impairment charge of $1,798,000 attributable to this operating segment. The primary cause for the impairment was the severe downturn in the travel industry as a result of the COVID-19 pandemic, operating results during the second quarter that were lower than expectations, and updated travel industry forecasts that projected longer recovery period than what was originally expected at the beginning of the pandemic.

Method of Providing Services

Our services are generally delivered through web-enabled e-commerce solutions.

Specialized Skill and Knowledge

We currently employ eight executive officers. The current executive team have on average over 15 years of loyalty industry experience, and have managed large loyalty programs, sales forces, marketing departments and technology systems. Our success is dependent upon the experience of such key personnel and loss of such personnel could adversely affect our business, operations and prospects.

In addition, our services are delivered using proprietary technology. As a result, we are also dependent upon our ability to retain talented and highly skilled information technology professionals to maintain, build and operate the technology infrastructure. The loss of these individuals and the inability to attract and retain highly qualified employees could have a material adverse effect on our business, revenues, operating results and financial condition.

Competitive Conditions

Our Loyalty Currency Retailing services must compete with a wide range of companies that seek to provide business solutions technology, from small companies to large. Many existing and potential competitors do or could have greater technical or financial resources than we do. The financial performance of Points may be adversely affected by such competition. In particular, no assurances can be given that additional direct competitors to Points may not be formed. In addition, no assurances can be given that we may not lose some or all of our arrangements with our loyalty program partners, including our key loyalty program partners, thereby decreasing our ability to compete and operate as a viable business.

With respect to the services included in the Platform Partners segment, direct and indirect competitors could include any organization seeking access to customers through direct marketing channels, as well as any technology solutions company that is capable of providing redemption and accrual options for loyalty programs. Redemption and accrual based products offered directly by Points or indirectly through third-parties that manage their applications on the LCP, face competition from other technology solutions providers that offer similar types of services to loyalty programs. Additional direct and indirect competitors may emerge in the future.


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The PointsHound and Points Travel services face direct and indirect competition from other hotel booking engines and hotel booking solutions. These potential competitors currently offer products similar to the hotel booking features available through the PointsHound and Points Travel services, but do not offer the same value proposition that we can leverage through the Loyalty Currency Retailing segment.

Loyalty partners may have, or may develop, in-house business solutions departments that could take responsibility for work currently being done by Points. Development of in-house solutions could impact us in a negative way and reduce our ability to compete and operate as a viable business.

Any competition or adverse change in the business relationships described above could have a material adverse impact on our business, operations and prospects.

Intangible Property

Points has built a significant brand and reputation within the loyalty industry. Points' operating subsidiary, Points.com Inc., maintains certain trademark registrations for POINTS.COM which provide it with certain exclusive rights. These registrations are renewable in perpetuity. Points also maintains a portfolio covering certain other trademarks. Although management believes the trademark portfolio is valuable, the portfolio is not considered to be critical to the success of Points' business.

As a technology enabled business, we maintain a significant software base that is continually evolving. This software base is critical to the operation of the business.

We have three issued patents: US Patent No. 8,595,055 titled an "Apparatus and method of facilitating the exchange of points between selected entities", US Patent No. 8,433,607 titled a "System and method for exchanging reward currency", and US Patent No. 10,445,759 titled "System and Method for a Loyalty Network". These patents relate to our website at www.points.com and the exchange and trade functions available on that site as well as some underlying functions of our LCP. We also maintain a patent application portfolio covering certain other inventions.

Seasonality

Our operations can be moderately influenced by seasonality. Gross profit is typically highest in the fourth quarter in each year as certain product offerings and promotional activity in our Loyalty Currency Retailing segment peak during this time.

Economic Dependence

Points depends on a limited number of large clients for a significant portion of its consolidated revenue. For the year ended December 31, 2020, there were three loyalty program partners for which sales to their members individually represented more than 10% of Points' total revenue. In aggregate these three partners represented 64% of our total revenue. A decrease in revenue or gross profit from these partner relationships for any reason, including a fundamental change in their loyalty program, a change in contractual pricing, a significant shift in their redemption chart, or a decision to no longer outsource some or all of the products and services we provide, could have a material adverse effect on our consolidated revenue. As it relates to the Loyalty Currency Retailing services we operate for these three partners, we act as principal where revenues are recognized on a gross basis. We believe Gross Profit is a more relevant metric to assess our level of economic dependence, as it represents the amount of revenues that are available to fund expenses and the economics we earn from our commercial arrangements with our loyalty program partners. Gross profit generated through commercial arrangements with our top 10 loyalty program partners represented 74% of our consolidated gross profit for both the years ended December 31, 2020 and 2019.


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Changes to Contracts

There can be no assurance that we will be successful in maintaining our existing contractual relationships with our loyalty program partners. Our loyalty program partners have in the past, and may in the future, negotiate arrangements that are short-term and subject to renewal, non-exclusive and/or terminable at the option of the partner on relatively short notice without penalty. Loyalty program partners that have not provided a long-term commitment or guarantee of exclusivity, or that have the ability to terminate on short notice, may exercise this flexibility to end their relationship with us or to negotiate from time to time more preferential financial and other terms than originally contracted for. We cannot ensure that such negotiations will not have an adverse effect on the financial condition or results of operations of Points.

While we generally enter into multi-year contracts with our loyalty program partners, our contracts also generally include a force majeure clause. If such clauses are invoked by us or our loyalty program partners as a result of the COVID-19 pandemic, and the force majeure event extends for a significant amount of time, the invocation of such clauses may give rise to a termination right under the contract. The exercise of such termination rights by certain loyalty program partners could have a material adverse impact on our business.

Employees

As at December 31, 2020, we had 265 full-time employees.

RISK FACTORS

Investing in technology enabled service companies can have a high degree of business risk. In addition to the other information contained in this AIF, investors should carefully consider the risk factors set out under the heading "Risks and Uncertainties" in the 2020 MD&A (which is incorporated into this AIF by reference) prior to making an investment decision with respect to Points.

DIVIDENDS

We have not declared or paid any dividends to our shareholders. With the exception of any funds used by us to buy back our shares, we will retain earnings for general corporate purposes to promote future growth. At this time, the board of directors of Points does not anticipate paying any dividends. The board of directors may review this policy from time to time, having regard to Points' financial condition, financing requirements and other relevant factors.

GENERAL DESCRIPTION OF CAPITAL STRUCTURE

Our share capital consists of an unlimited number of common shares and an unlimited number of preferred shares, issuable in series, of which five series consisting of one share each have been authorized. As of December 31, 2020, 13,227,407 common shares were outstanding. We have no preferred shares outstanding.

The common shares carry one vote per share, are entitled to dividends if, as and when declared by the board of directors of Points and participate equally on any liquidation, dissolution or winding up of Points.


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MARKET FOR SECURITIES

Our common shares are listed on the Toronto Stock Exchange ("TSX") under the symbol "PTS" and on the NASDAQ Capital Market ("NASDAQ") under the symbol "PCOM". The following table shows the monthly price ranges and volumes for the common shares traded through the TSX in Canadian Dollars and through the NASDAQ in United States Dollars.

TSX(1)

 

NASDAQ(2)

Fiscal 2020

High (C$)

Low (C$)

Close (C$)

Volume

 

Fiscal 2020

High ($)

Low ($)

Close ($)

Volume

January

22.80

18.50

22.32

54,670

 

January

17.42

14.22

16.69

277,553

February

25.20

20.8

21.29

82,673

 

February

19.05

15.24

15.84

415,352

March

21.42

10.5

11.59

416,474

 

March

16.02

7.08

8.23

713,571

April

14.99

10.61

13.71

115,652

 

April

10.21

7.44

9.76

364,415

May

13.58

9.30

10.07

128,911

 

May

9.78

6.91

7.49

397,529

June

15.00

10.48

12.29

198,816

 

June

11.21

7.57

9.11

554,702

July

14.33

11.77

12.46

73,698

 

July

10.65

8.52

9.25

330,012

August

16.26

11.90

13.89

68,914

 

August

12.33

8.77

10.69

239,503

September

14.37

12.45

12.79

39,699

 

September

11

9.25

9.68

178,944

October

13.57

12.25

13.52

24,651

 

October

10.44

9.24

10.05

119,583

November

15.85

12.62

15.6

59,556

 

November

12.09

9.54

12

157,102

December

19.99

15.29

18.63

61,904

 

December

15.36

11.62

14.4

228,881

________

Source:

(1) TMX Datalinx.

(2) Bloomberg.


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DIRECTORS AND EXECUTIVE OFFICERS

Current Directors

The following table provides certain background information with respect to each director of Points. Our directors will hold office for a term expiring at the conclusion of the next annual meeting of shareholders of Points or until their successors are elected or appointed and will be eligible for re-election. Detailed biographies for each director are provided below.

Name
Place of Residence

Director Since

Current Principal Occupation

Committee Membership

David Adams (Chair)
(Quebec)

May, 2016

Corporate Director
Former Chief Financial Officer, Aimia Inc.

Audit
HRCGC(1)

Christopher Barnard
(Ontario)

May, 2007
(and Feb. 2000 to April, 2005)

President, Points International Ltd. and Points.com Inc.

N/A

Michael Beckerman (Ontario)

May, 2010

Chief Client Officer, Torstar

HRCGC(1)

Bruce Croxon
(Ontario)

October, 2008

Managing Partner, Round 13 Capital

HRCGC(1)

Robert MacLean
(Ontario)

February, 2002

Chief Executive Officer, Points International Ltd. and Points.com Inc.

N/A

Jane Skoblo
(Ontario)

May, 2019

Corporate Director

Former Vice President of Digital Operations, Rogers Communications

Audit

John Thompson
(Ontario)

February, 2002

Corporate Director

Audit
HRCGC(1) (Chair)

Leontine van Leeuwen-Atkins (Atkins)
(Alberta)

May, 2019

Corporate Director

Former Partner, KPMG Canada and KPMG Netherlands

Audit (Chair)

________

Notes:

(1) The Human Resources & Corporate Governance Committee.

Director Biographies

David Adams

Mr. Adams was elected as Chair of Points in June of 2018. Mr. Adams served as the Executive Vice President and Chief Financial Officer of Aimia Inc. from 2007 until his retirement in March, 2016. At the time of his retirement, Aimia Inc. was a publicly traded global data driven marketing and loyalty analytics company which had close to 4,000 employees in 20 countries and owned and operated well known coalition loyalty programs such as Aeroplan in Canada and Nectar in the UK. He currently serves on the Board of Directors and is Chair of the Audit Committee and a member of the Nominating and Governance Committee of Cardlytics Inc. (Nasdaq), a transaction based marketing company headquartered in Atlanta. He is a non-executive director, Chair of the Audit Committee and a member of the Remuneration Committee of TCC Global, a private global loyalty company. He is also on the Board of Directors of Plan International Canada where he is Chair of the Human Resources and Compensation Committee and a member of the Audit Committee. He is Chair of the Finance and Audit Committee, and a member of the Board of Governors of the Stratford Festival, North America's largest classical repertory theater company. He is also a member of the Stratford Shakespearean Festival Endowment Foundation of Canada Board.

 


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Until he resigned in December 2018, Mr. Adams served on the Board of Directors and Audit and Human Resource Committees of Club Premier, AeroMexico's frequent flyer program and previously was a board member of Nectar Italia and Prisma in Brazil.

Before joining Aimia Inc., Mr. Adams was Senior Vice President and Chief Financial Officer at Photowatt Technologies Inc. Prior to Photowatt, he acted as Senior Vice President Finance and Chief Financial Officer of SR Telecom Inc. Mr. Adams has also previously held a variety of executive positions at CAE Inc., a global market leader in the production of flight simulators and control systems. Prior to these roles, Mr. Adams held a number of progressively senior roles with the Bank of Nova Scotia and Clarkson Gordon (Ernst & Young).

Mr. Adams is a CPA, CA and holds a Bachelor of Commerce and Finance Degree from the University of Toronto and has completed the Stanford Executive Program.

Christopher Barnard

Mr. Barnard is a founder of Points. As President of Points and its subsidiary Points.com Inc., Mr. Barnard is currently responsible for corporate strategy, corporate development and investor relations. He has also held various interim operating positions at Points including Chief Financial Officer, as well as being responsible for both product development and marketing.

Mr. Barnard has also been instrumental in developing significant commercial relationships and key strategic partnerships with various parties over Points' history and in 2015 he was named as one of the 100 most influential leaders in Fintech globally. In his corporate development capacity, he led Points' three corporate acquisitions of MilePoint, PointsHound and Crew Marketing as well as the strategic partnership with Amadeus. Mr. Barnard has also been instrumental in raising capital for Points, including multiple equity financings and a strategic investment from InterActive Corp/IAC, a New York based, NASDAQ 100 leading internet firm.

In 1998, Mr. Barnard co-founded Canada's first internet business incubator, Exclamation International, from which Points was created. Prior to Exclamation, Mr. Barnard was with HDL Capital, a Toronto boutique merchant bank. While at HDL he assisted a number of companies in entering the public markets, including Bid.com which was, at the time, one of Canada's most notable internet technology stories.

Mr. Barnard holds a Masters of Business Administration degree from the Richard Ivey School of Business in London, Ontario.

Michael Beckerman

Mr. Beckerman's sales and marketing career spans over twenty years, three continents and several industries. His experience has included senior roles in Canada, Europe and Asia.


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At the start of his career, Mr. Beckerman was responsible for marketing of the NIKE brand across Asia-Pacific and later in Europe. He was at the helm when NIKE was named Brand of the Year.

He then served as Vice President, Marketing for Canadian Airlines, where he led a comprehensive rebrand. Subsequently, he headed up Marketing and International expansion for MVP.com, a high- profile e-commerce site.

In 2001, Mr. Beckerman took on the role of Chief Marketing Officer for Bank of Montreal where he was responsible for increasing the marketing orientation and customer focus throughout that organization. In 2006, he joined digital, CRM and content agency, Ariad Communications, as President. During his ten-year tenure at the company, Ariad enjoyed record growth and won numerous awards, including being named as one of the Top Places to Work in Canada.

Mr. Beckerman is currently the Chief Client Officer at Torstar Corporation. Prior to this he was President and CEO of global lifestyle marketing agency, MKTG Canada.

Mr. Beckerman is a sought-after speaker on marketing trends, branding and consumer behaviour. He is a frequent judge for industry events and asked to sit on numerous industry panels. He often lends his marketing experience to help charities and foundations clearly articulate their cause and generate uplift for their fundraising campaigns.

Bruce Croxon

Mr. Croxon was a founder of Lavalife, a category leader and internationally recognized brand in the online dating industry. He was instrumental in growing the company to just under $100 million in revenue and was CEO when the company was sold to Vertrue, Inc. in 2004 and remained CEO until midway through 2006.

Mr. Croxon has since been active as both an investor and advisor in early stage companies in the technology and hospitality sectors. He is currently the Managing Partner of Round13 Capital, a fund that invests in early stage digital businesses in Canada. He is also active in a number of charities, including Food Allergy Canada and Helping Hands Jamaica.

Robert MacLean

Mr. MacLean is a founder of Points and has served as Chief Executive Officer of Points since its beginnings in February 2000. As CEO, Mr. MacLean champions the vision for Points and directs an exceptional team of executives. Mr. MacLean has led his team to deliver a suite of innovative solutions for the global loyalty industry, earning a growing number of partnerships with the world's leading loyalty programs as well as numerous industry technology providers.

Prior to founding Points, Mr. MacLean recorded an impressive list of leadership roles and achievements during 12 years in the airline and loyalty industry. As Vice President, Sales with Canadian Airlines International, Mr. MacLean led a team throughout North America, delivering over $2 billion in annual revenue. Mr. MacLean was also responsible for the airline's award-winning Canadian Plus loyalty program and also served as Canadian Airlines' senior representative on the Oneworld™ Alliance's Customer Loyalty Steering Committee.

Mr. MacLean is an active member of the global loyalty community and has spoken frequently at industry events worldwide.

Mr. MacLean is a member of the board of directors of Prodigy Ventures, a TSXV listed technology company, and is a past member of the board of directors of Hope Air. Hope Air is a national charity that helps Canadians get to medical treatment when they cannot afford the flight costs. Mr. MacLean also sits on multiple advisory boards in the technology industry.


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Mr. MacLean is a graduate of Acadia University.

Jane Skoblo

Ms. Skoblo has extensive financial services, payments, customer loyalty and digital and technology experience. Most currently, she was Vice President, Digital Operations at Rogers Communications, leading digital transformation for the company. Ms. Skoblo was previously CFO of AMEX Bank of Canada and has deep experience in the customer loyalty industry, having acted as CFO, Global Rewards for American Express (USA). Prior to that, she was CFO and COO of two start-ups - myNext Mortgage Company and Mortgage Architects Inc.

Ms. Skoblo currently sits on the board of Allstate Canada Group, a wholly owned Canadian subsidiary of Allstate Corporation (USA), and is a member of both Audit and Governance Committees. In 2020, Ms. Skoblo has been appointed to the inaugural Board of Directors for New Digital Research Infrastructure Organization (NDRIO), a national not-for-profit organization that will support a collaborative and agile digital research infrastructure community across Canada. Ms. Skoblo chairs the Audit, Finance and Risk Committee, as well as the Investment Committee for NDRIO.

Ms. Skoblo was previously a board member of AMEX Bank of Canada between 2011 and 2016. Ms. Skoblo was a member of the Advisory Board at the University of Waterloo School of Accounting and Finance from 2010 to 2020.

Ms. Skoblo holds a Bachelor of Business Administration from the Schulich School of Business, York University. She also holds a CPA, CITP designation (from the AICPA), as well as an ICD.D designation from the Institute of Corporate Directors and has completed the Director's Education Program.

John Thompson

Mr. Thompson has 28 years of executive experience with a range of private and public companies.

From 1999 to 2003, Mr. Thompson was a managing director of Kensington Capital Partners, the investment and advisory firm that did the first fund raise for Points in September 2000. At that time Mr. Thompson made his first investment in Points and has held it since.

Prior to joining Kensington, Mr. Thompson spent more than twenty years with Loblaw Companies Limited, Canada's leading grocery chain, last serving as Executive Vice President and prior to that as Senior Vice President, Finance and Administration. Mr. Thompson's responsibilities at Loblaws included, amongst other things, responsibility for human resources and President's Choice, one of the largest, most recognized and most profitable brands in Canada.

Mr. Thompson is currently a member of the Governing Council of the Sunnybrook Foundation, the fundraising foundation for Sunnybrook Hospital, a premier academic health sciences centre in Canada, that is fully affiliated with the University of Toronto. He is a past member of the Board of Governors and Chair of the Finance Committee of The Corporation of Roy Thomson Hall and Massey Hall, two of Canada's finest concert venues.

Mr. Thompson holds an Honours Business Administration degree from the Richard Ivey School of Business at the University of Western Ontario. Mr. Thompson is also a CPA, CA.


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Leontine van Leeuwen-Atkins

Ms. Atkins is a board member and Audit Committee Chair, of Seven Generations Energy (TSX). She is also on the board of Cameco Corporation (TSX and NYSE) and a board and audit committee member of EPCOR Utilities Inc. (one of Canada's largest municipally-owned utilities).

Ms. Atkins previously served, until the end of 2018, as a board member of KPMG Canada LLP's Board of Directors, and served on the Acquisitions and Admissions and Succession committees. Ms. van Leeuwen-Atkins served as a Partner with KPMG Canada from 2006 until early 2019 and with KPMG Netherlands until she moved to Canada in 2006.

Ms. Atkins has extensive experience in M&A and post-merger integration, as well as transaction and deal advisory. She is a past member of the board, and chair of the Audit Committee, of Calgary Economic Development. Ms. Atkins is a member of the Executive Committee of the Calgary Chapter of the Institute of Corporate Directors (ICD) and is an Alumni of, and guest speaker with, ICD's Director Education programme at the University of Calgary.

In addition to her CPA, CA and ICD.D designations, Ms. Atkins holds a Bachelor of Business Administration in Finance from Acadia University and a Master of Business Administration from Dalhousie University.

Current Executive Officers

The following table sets forth the name, province of residence, and current and five-year historic occupations of the executive officers of Points.

Name
Title

Province of Residence

Principal Occupation within the Preceding Five Years (current and for past five years unless otherwise noted)

Robert MacLean
Chief Executive Officer

Ontario

Chief Executive Officer, Points International Ltd. and Points.com Inc.

Christopher Barnard
President

Ontario

President, Points International Ltd. and Points.com Inc.

Erick Georgiou
Chief Financial Officer

Ontario

Chief Financial Officer, Points International Ltd. and Points.com Inc. (Mar. 2018 to present)

Vice President, Finance and other previous roles, Points International Ltd. and Points.com Inc. (prior to Mar. 2018)

Inez Murdoch
Chief People Officer

Ontario

Chief People Officer, Points International Ltd. and Points.com Inc.

Chris Boyd
Head of Product

Ontario

Head of Product, Points International Ltd. and Points.com Inc. (Sept. 2019 to present)

Vice President, Product Management and other previous roles, Points International Ltd. and Points.com Inc. (prior to Sept. 2019)

Jay Malowney
Chief Commercial Officer

Ontario

Chief Commercial Officer, Points International Ltd. and Points.com Inc. (Jan. 2019 to present)

Senior Vice President, Partner Relationships, Points International Ltd. and Points.com Inc. (prior to Jan. 2019)

Don Dew
Chief Technology Officer

Ontario

Chief Technology Officer, Points International Ltd. and Points.com Inc. (Sept. 2019 to present)

Senior Vice President, Engineering and other previous roles, Intelex Technologies Inc. (prior to Jun. 2019)

Danielle Brown
Chief Marketing Officer

Ontario

Chief Marketing Officer, Points International Ltd. and Points.com Inc. (Dec. 2019 to present)

Chief Marketing Officer, Knixwear (Nov. 2018 to Nov. 2019)

Chief Marketing Officer, Hubba (Mar. 2017 to Nov. 2018)

Vice President, Marketing, Points International Ltd. (prior to Mar. 2017)



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Security Holdings

As of December 31, 2020, as a group, the directors and executive officers of Points beneficially owned, directly or indirectly, or exercised control or direction over, an aggregate of 899,311 common shares representing approximately 6.8% of the issued and outstanding common shares.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

To the knowledge of Points, no director or executive officer of Points is, as at the date of this AIF, or within the last 10 years before the date of this AIF has been, a director, chief executive officer or chief financial officer of any company that: (a) while that person was acting in that capacity, was the subject of a cease trade order or similar order or an order that denied the company access to any exemption under securities legislation for a period of more than 30 consecutive days, or (b) was subject to a cease trade order or similar order or an order that denied the company access to any exemption under securities legislation, for a period of more than 30 consecutive days, that was issued after that person ceased to be a director, chief executive officer or chief financial officer, but which resulted from an event that occurred while that person was acting in that capacity.

To the knowledge of Points, no director or executive officer of Points is, as at the date of this AIF, or within the last ten years before the date of this AIF has been, a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

To the knowledge of Points, no director or executive officer of Points has been subject to: (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

To the knowledge of Points, no director or executive officer of Points has, within the last 10 years before the date of this AIF, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold his or her assets.

Conflicts of Interest

To the knowledge of Points, no director or executive officer of Points has an existing or potential material conflict of interest with Points.


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AUDIT COMMITTEE

The primary functions of the Audit Committee is to oversee the accounting and financial reporting practices of the Points and the audits of the Company's financial statements, including assisting the Board in fulfilling its responsibilities in reviewing: financial disclosures and internal controls over financial reporting; monitoring the system of internal control and overall enterprise risk management (including oversight of Points' computerized information system controls and security and related risks, including cyber security risk and data privacy and security); review and approve all related party transactions in which Points is involved or proposes to enter; monitoring compliance matters; overseeing internal audit functions; selecting the auditors for shareholder approval; overseeing relevant complaint procedures and the administration of the complaints submitted pursuant to the whistleblower policy; and engaging, and annually assessing the independence of, and overseeing the quality and conduct of, the external audit firm.

Audit Committee Charter

A copy of the Audit Committee's mandate is attached hereto as Appendix A.

Composition of the Audit Committee

The Audit Committee is currently comprised of Leontine van Leeuwen-Atkins (Chair), David Adams, John Thompson and Jane Skoblo. Each member of the Audit Committee is independent and has represented to us that they are financially literate within the meaning of National Instrument 52-110-Audit Committees.

Relevant Education and Experience

Ms. Atkins (Chair) holds a Bachelor of Business Administration in Finance from Acadia University, a Masters of Business Administration from Dalhousie University and is also a CPA, CA and ICD.D designation. As described in the section above on "Directors and Executive Officers", she has significant financial experience through her years as a Partner of KPMG Canada and KPMG Netherlands.

Mr. Adams holds a Bachelor of Commerce and Finance degree from the University of Toronto and is also a CPA, CA. As described in the section above on "Directors and Executive Officers", Mr. Adams has held several senior executive positions that are directly relevant to his role on the Audit Committee, including most recently serving as the Executive Vice President and Chief Financial Officer of Aimia Inc. from 2007 until March, 2016.

Mr. Thompson holds an Honours Business Administration degree from the Ivey School of Business at the University of Western Ontario. Mr. Thompson is also a CPA, CA. Mr. Thompson has 28 years of executive experience. As described in the section above on "Directors and Executive Officers", he has significant financial experience through his years as the Managing Director of Kensington Capital Partners and as an executive in the finance department of Loblaw Companies Limited.

Ms. Skoblo holds a Bachelor of Business Administration from the Schulich School of Business, York University. She also holds a CPA, CITP designation (from the AICPA), as well as an ICD.D designation from the Institute of Corporate Directors and has completed the Director's Education Program. As described in the section above on "Directors and Executive Officers", she has significant financial experience relevant to her role on the Audit Committee, including various senior roles at Rogers Communications and acting as CFO and COO of two-start up companies.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee is required to pre-approve all audit and non-audit services performed by our external auditor in order to ensure these services do not impair the external auditor's independence.

In accordance with applicable Canadian and U.S. securities rules and regulations, services provided by our external auditor are categorized as audit services, audit-related services, tax services and all other services.

The Audit Committee reviews and pre-approves the terms and fees of the external auditor's annual audit services engagement, which includes, the external auditor's attestation report on the effectiveness of our internal control over financial reporting.

Certain identified audit services, audit-related services and tax services are pre-approved by the Audit Committee up to a prescribed limit in fees per fiscal year. Management and the external auditor ensure that details of any services performed pursuant to such pre-approval are reported to the Audit Committee on a quarterly basis.


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The Chair of the Audit Committee has authority to pre-approve any non-audit services, including audit-related and tax services, up to a prescribed limit in fees per fiscal year. The details of all such pre-approved services are reported to the Audit Committee on a quarterly basis.

External Auditor Service Fees (By Category)

The following table sets forth the fees we have incurred in using the services of KPMG LLP in respect of the applicable fiscal years noted (all amounts in the table are in Canadian dollars):

Fiscal Year Ended

Audit
Fees

Audit-Related Fees

Tax Fees

All Other Fees

Total

December 31, 2020

$873,899

Nil

Nil

$48,331

$922,230

December 31, 2019

$629,017

Nil

Nil

Nil

$629,017

In the table above, (i) Audit Fees include fees for the annual audit of our consolidated financial statements, interim reviews of our quarterly condensed consolidated financial statements and statutory audits of our wholly-owned subsidiaries by our external auditor; and (ii) All Other Fees include fees for advisory work in connection with financial services.

The above amounts are exclusive of any disbursements and related taxes.

INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

To the knowledge of Points, no director or executive officer of Points or a person or company that beneficially owns or controls or directs, directly or indirectly, more than 10% of any class or series of Points' outstanding voting securities, or an associate or affiliate thereof, had any material interest, direct or indirect, in any transaction within the three most recently completed fiscal years or during the current fiscal year that has materially affected or is reasonably expected to materially affect Points.

TRANSFER AGENT

Computershare Trust Company of Canada
100 University Ave., 9th Floor
Toronto, ON M5J 2Y1
Canada

MATERIAL CONTRACTS

Below is a description of the material contracts of Points filed on SEDAR and EDGAR during 2020 or which were entered into prior to 2020 and are still in effect. Copies are available at www.sedar.com and www.sec.gov.

On December 10, 2019, Points and its subsidiary Points.com Inc. entered into a credit agreement (the "Credit Agreement") with the Royal Bank of Canada, as agent, lead arranger and sole bookrunner and the Bank of Nova Scotia, together with Royal Bank of Canada, as lenders, as amended by the following amendments:


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INTEREST OF EXPERTS

KPMG LLP, our external auditor, reported on the 2020 Audited Consolidated Financial Statements. KPMG LLP have confirmed that they are independent with respect to Points within the meaning of the relevant rules and related interpretations prescribed by the relevant professional bodies in Canada and any applicable legislation or regulations, and also that they are independent accountants with respect to Points under all relevant US professional and regulatory standards.

LEGAL PROCEEDINGS

Points is not, and was not during the most recently completed financial year, engaged in any legal proceedings and none of its property is or was during that period subject of any legal proceedings. Points is not aware of any such legal proceedings being contemplated.

ADDITIONAL INFORMATION

Additional information about us can be found at www.sedar.com or www.sec.gov.

Additional information, including directors' and officers' remuneration and indebtedness, principal holders of our securities, options to purchase securities and interests of insiders in material transactions, if applicable, is contained in our most recent Management Information Circular.

Additional financial information can also be found in our 2020 Audited Consolidated Financial Statements and the 2020 MD&A.

NON-GAAP FINANCIAL MEASURES

Our financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). We use certain non-GAAP measures, which are defined below, to better assess our underlying performance. These measures are reviewed regularly by management and the Board of Directors in assessing our performance and in making decisions about ongoing operations. In addition, we use these measures to determine components of management compensation. We believe that these measures are also used by investors, analysts and other interested parties as an indicator of our operating performance. Readers are cautioned that these terms are not recognized GAAP measures and do not have a standardized GAAP meaning under IFRS and should not be construed as alternatives to IFRS terms, such as net income. The reconciliations for these non-GAAP measures from the closest GAAP measure are contained below.


- 21 -

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")

We believe that Adjusted EBITDA is useful to management and investors as a supplemental measure to evaluate our operating performance.

Adjusted EBITDA is a non-GAAP financial measure, which is defined as earnings before income tax expense, finance costs, depreciation and amortization, equity-settled share-based payment expense, foreign exchange, and other one-time costs or benefits such as a tax rebate related to prior periods. We exclude these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in our business performance. Adjusted EBITDA is a component of our management incentive plan and is used by management to assess our operating performance. The presentation of Adjusted EBITDA is to provide additional useful information to investors and analysts and the measure does not have any standardized meaning under IFRS. Adjusted EBITDA should therefore not be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate Adjusted EBITDA differently.

Reconciliation of Net Income to Adjusted EBITDA

 

For the year ended

(In thousands of US dollars)

Dec 31, 2020

Dec 31, 2019

$ Variance

% Variance

Net (loss)/income

$  (5,357)

$  11,889

$  (17,246)

(145%)

Income tax expense

Finance costs

Depreciation and amortization

Foreign exchange loss (gain)

Equity-settled share-based payment expense

Prior years tax rebate, net of fees

(1,460)

843

4,859

(671) 
3,129
-

5,155

211

4,668

401
5,172
(6,027)

(6,615)

632

191

(1,072)
 (2,043)
6,027

(1280%)

300%

4%

(267%)
 (40%)
100%

Impairment charges

1,798

-

1,798

0%

Adjusted EBITDA

$  3,141

$  21,469

$  (18,328)

(85%)



APPENDIX A
Audit Committee Mandate

1 Establishment of Committee

1.1 Establishment of the Audit Committee Confirmed

The establishment of the audit committee of the board of directors of Points International Ltd., is hereby confirmed with the purpose, constitutions and responsibilities herein set forth.

1.2 Certain Definitions

In this mandate:

"Board" means the board of directors of Points;

"Chair" means the chair of the Committee;

"Committee" means the audit committee of the Board;

"Director" means a member of the Board;

"External Auditor" means the person occupying the office of auditor of the Corporation in accordance with the Canada Business Corporations Act;

"Mandate" means this written mandate of the Committee and any such mandate for the Committee which the Board resolves from time to time shall be the mandate of the Committee;

"NI 52-110" means National Instrument 52-110 - Audit Committees, and any companion policies thereto of the Canadian Securities Administrators, as amended from time to time, or any successor legislation or rule thereto; and

"Points" or the "Corporation" means Points International Ltd.

2 Purpose and Objective

2.1 Purpose

The Committee's purpose is to assist the Board in the discharge of its obligations in connection with:

(a) the integrity of the Corporation's financial statements, and accounting and financial reporting systems (including those used in connection with the preparation of its financial statements, budgets and forecasts);

(b) the Corporation's compliance with legal and regulatory requirements;

(c) the External Auditor's qualifications and independence;


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(d) the performance of the External Auditor and the performance of the Corporation's internal audit function; and

(e) the adequacy and integrity of the Corporation's internal controls over financial reporting and disclosure controls and procedures.

2.2 Discharge of Responsibilities

The Audit Committee will primarily fulfill its responsibilities by carrying out the activities enumerated in Section 8 of this Mandate.

3 Authority and Outside Advisers

3.1 Information from Employees

The Board authorizes the Committee, within the scope of its responsibilities, to seek information it requires from any employee.

3.2 Outside Advisors

The Committee shall also have the authority to retain (and terminate) such outside legal, accounting or other advisors as it may consider appropriate and shall not be required to obtain the approval of the Board in order to retain or compensate such advisors. The Committee shall have sole authority to approve related fees and retention terms.

4 Committee Membership

4.1 Number of Members

The Committee shall consist of not fewer than three Directors.

4.2 Independence of Members

The members of the Committee shall be independent directors as defined in NI 52-110, the NASDAQ Listing Rules and Rule 10A-3(b)(1) under the Securities Exchange Act of 1934.

4.3 Financial Literacy

(a) Requirement - Each member of the Committee shall be financially literate or must become financially literate within a reasonable period of time after his or her appointment to the Committee.

(b) Definition - "Financially literate" shall mean that the Director has the ability to read and understand a set of financial statements that present the breadth and complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation's financial statements.


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4.4 Financial Expert

Unless approved by the Board, the Committee shall have at least one financial expert as defined under Item 407 of Regulation S-K under the Securities Exchange Act of 1934.

4.5 Annual Appointment of Members

The members of the Committee shall be appointed by the Board. The appointment of members of the Committee shall take place annually at the first meeting of the Board after a meeting of the shareholders at which Directors are elected, provided that if the appointment of members of the Committee is not so made, the Directors who are then serving as members of the Committee shall continue as members of the Committee until their successors are appointed.

4.6 Vacancy

The Board may appoint a member to fill a vacancy which occurs in the Committee between annual elections of Directors.

5 Committee Chair

5.1 Board to Appoint Chair

The Board shall appoint the Chair from the members of the Committee (or if it fails to do so, the members of the Committee shall appoint the Chair from among its members). If, at any meeting, the Chair is not in attendance, then the directors present shall be responsible for choosing one of their number to be chair of the meeting and for delivering a casting vote, as necessary.

5.2 Chair to be Appointed Annually

The designation of its Chair shall take place annually at the first meeting of the Board after a meeting of the members at which Directors are elected, provided that if the designation of Chair is not so made, the Director who is then serving as Chair shall continue as Chair until his or her successor is appointed.

5.3 Casting Vote

In case of an equality of votes, the Chair in addition to his original vote shall have a second or casting vote.

6 Committee Meetings

6.1 Quorum

A quorum of the Committee shall be a majority of its members. No business shall be transacted by the Committee except at a meeting at which a quorum of the Committee is present.

6.2 Secretary

The Secretary of the Committee will be the Secretary of the Board, unless otherwise appointed by the Chair. The Secretary may, but need not, be a member of the Committee.


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6.3 Time and Place of Meetings

The time and place of the meetings of the Committee and the calling of meetings and the procedure in all things at such meetings shall be determined by the Committee; provided, however, the Committee shall meet at least quarterly. In addition, meetings may be called by any member of the Committee or by the External Auditor on two days notice (exclusive of the day on which notice is sent but inclusive of the day for which notice is given).

6.4 Right to Vote

Each member of the Committee shall have the right to vote on matters that come before the Committee.

6.5 Invitees

The External Auditor, the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO") of Points shall be entitled to receive notice of and to be heard at each meeting of the Committee, as non-voting observers. The Committee may additionally invite Directors, officers and employees of Points or any other person to attend meetings of the Committee to assist in the discussion and examination of the matters under consideration by the Committee.

6.6 In Camera Sessions with External Auditor

As part of each meeting of the Committee at which the Committee recommends that the Board approve the annual audited financial statements or at which the Committee reviews the interim financial statements, the Committee shall meet separately with each of:

(a) the CFO; and

(b) the External Auditor.

No minutes of the in camera sessions will be taken unless the Chair of the meeting requests in writing that the discussion be added to the meeting minutes.

7 Remuneration of Committee Members

7.1 Director Fees Only

No member of the Committee may earn fees from Points or any of its subsidiaries other than directors' fees (which fees may include cash and/or shares or options or other in-kind consideration ordinarily available to Directors, as well as all of the regular benefits that other Directors receive).

7.2 Other Payments

For greater certainty, no member of the Committee shall accept any consulting, advisory or other compensatory fee from Points and its affiliates.

8 Duties and Responsibilities of the Committee

8.1 Financial and Related Information


- 5 -

(a) Financial Reporting - The Committee shall only review annual and interim financial reports and related financial documents for release to the public after the External Auditor has reviewed such material (if applicable) and the CFO has completed and signed a disclosure checklist regarding key areas affecting Directors' liability. The Committee must be satisfied that adequate procedures are in place for the review of the Corporation's public disclosure of financial information extracted or derived from the Corporation's financial statements and must periodically assess the adequacy of those procedures.

(b) Financial Statements - The Committee shall review and discuss with management and the External Auditor, Points' annual and interim financial statements and related MD&A and report thereon to the Board before the Board approves those statements.

(c) Accounting Treatment - The Committee shall review and discuss with management and the External Auditor on a timely basis:

(i) major issues regarding accounting policies, principles and financial statement presentations, including any significant changes in Points' selection or application of accounting principles and major issues as to the adequacy of Points' internal controls and any special audit steps adopted in light of material control deficiencies;

(ii) analyses prepared by management and the External Auditor setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analysis of the effects of alternative accounting methods on the financial statements;

(iii) the effect on the financial statements of Points of regulatory and accounting initiatives and issues, as well as off-balance sheet transactions, structures, obligations (including contingent obligations) and other relationships of Points with unconsolidated entities or other persons that have a material current or future effect on the financial condition, changes in financial condition, results of operations, liquidity, capital resources, capital reserves or significant components of revenues or expenses of Points;

(iv) the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented;

(v) any financial information or financial statements in prospectuses and other offering documents;

(vi) the management certifications of the financial statements as may be required by applicable securities laws in Canada or otherwise, and all certifications and reports of any disclosure committee established by management from time to time; and

(vii) any other relevant reports or financial information submitted by Points to any governmental body, or the public.


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(d) Discussion of Accounting Treatments - The Committee shall have direct communication channels with the External Auditor to discuss and review specific issues as appropriate.

(e) Disclosure of Other Financial Information - The Committee shall discuss with management and the External Auditor:

(i) financial information to be disclosed in the press releases discussing the annual and interim profits or losses of the Corporation, paying particular attention to any use of "pro forma" or "adjusted" financial information;

(ii) financial information to be disclosed in any other press releases issued by the Corporation; and

(iii) financial information and earnings guidance (if any) provided to analysts and rating agencies.

(f) Review of Communications - The Committee shall review with the External Auditor all material written communication between the External Auditor and management including, but not limited to, the management letter and schedule of unadjusted differences.

8.2 External Auditor

(a) Authority with Respect to External Auditor. The Committee shall be responsible for the selection, compensation, retention and oversight of the work of the External Auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation. In discharging its responsibilities, the Committee shall:

(i) recommend to the Board the accounting firm to be proposed to the shareholders for appointment as the External Auditor;

(ii) recommend to the Board the compensation of the External Auditor;

(iii) determine, at any time, whether the Board should recommend to the shareholders that the incumbent External Auditor be removed from office;

(iv) review the terms of the External Auditor's engagement and discuss the audit fees with the External Auditor, as necessary; and

(v) require the External Auditor report directly to the Committee.

(b) Independence of External Auditor. The Committee shall satisfy itself as to the independence of the External Auditor. As part of this process, the Committee shall:

(i) assure the regular rotation of the lead audit partner as required by applicable laws and consider whether, in order to ensure continuing independence of the External Auditor, the Corporation should periodically rotate the accounting firm that serves as External Auditor;


- 7 -

(ii) require the External Auditor to submit at least annually to the Committee a formal written statement delineating all relationships between the External Auditor and the Corporation, engage in a dialogue with the External Auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the External Auditor, and recommend to the Board the appropriate actions to be taken in response to the External Auditor's report to satisfy itself of the External Auditor's independence;

(iii) unless the Committee adopts pre-approval policies and procedures, it must pre-approve any non-audit services provided by the External Auditor to the Corporation or its subsidiaries; provided, however, that the Committee may delegate such pre-approval authority to one or more of its members, who shall report to the Committee concerning their exercise of such delegated authority at or prior to the next scheduled meeting of the Committee; and

(iv) establish, approve and periodically review the Corporation's hiring policy regarding partners, employees and former partners and employees of the External Auditor and any accounting firm that used to serve as External Auditor.

(c) Issues Between External Auditor and Management. The Committee shall satisfy itself that any disagreement between management and the External Auditor regarding the Corporation's financial reporting is resolved. As part of this process, the Committee shall:

(i) review any problems experienced by the External Auditor in conducting the audit, including any restrictions on the scope of the External Auditor's activities or on its access to requested information;

(ii) act as an intermediary with a view of resolving any significant disagreements that may arise between management of the Corporation and the External Auditor;

(iii) review with the External Auditor:

(A) any accounting adjustments that were noted or proposed by the External Auditor, but were ultimately not made;

(B) any auditing or accounting issues presented by the engagement;

(C) any internal control issues or weaknesses identified by the External Auditor; and

(D) the responsibilities, budget and staffing of the Corporation's internal audit function.

(d) Evaluation of External Auditor. The Committee shall evaluate the External Auditor each year and present its conclusions to the Board. In connection with this evaluation, the Committee shall:

(i) obtain and review a report prepared by the External Auditor describing:


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(A) the External Auditor's quality-control procedures;

(B) any material issues raised by the most recent internal quality-control review, or peer review, of the External Auditor or by any inquiry, review, inspection or investigation involving the External Auditor by governmental or professional authorities, within the preceding five years, in respect of one or more independent audits carried out by the External Auditor, and any steps taken to deal with any such issues; and

(C) all relationships between the External Auditor and the Corporation;

(ii) review and evaluate the performance of the lead partner of the External Auditor; and

(iii) obtain the feedback from the relevant members of management of the Corporation and the Internal Auditor on the performance of the External Auditor.

(e) Improper Influence on Auditors. SOX prohibits improper influence on auditors which results in financial statements that are materially misleading. The Corporation's directors and officers, and persons under their direction, may not directly or indirectly act to fraudulently influence, coerce, manipulate or mislead any auditor engaged in the performance of an audit or review of the Corporation's financial statements that are required to be filed with the SEC if they knew or should have known that such action could, if successful, result in rendering such financial statements materially misleading.

8.3 Management Response

The Committee shall obtain management's response to significant remarks or findings of the External Auditor and shall follow-up as required on the status of the implementation of corrective measures.

8.4 Related Party Transactions

The Committee shall review and approve all related party transactions in which Points is involved or which Points proposes to enter into.

8.5 Risk Assessment, Risk Management and Internal Control

(a) The Committee shall gain an understanding of Points' business and shall discuss Points' major financial risk exposures and the steps management has taken to monitor and control such exposures.

(b) The Committee shall assess and evaluate management's internal control plan.

(c) The Committee shall obtain regular updates from management and legal counsel regarding compliance matters.


- 9 -

(d) The Committee shall assess and evaluate the adequacy of the Company's computerized information system controls and security and related risks, including cybersecurity risk and data privacy and security, and the Committee shall receive and review reports from the Corporation’s management containing its assessment of such controls and security and related risks..

8.6 Other Matters

The Committee shall perform any other activities consistent with this Mandate, Points' by-laws and governing law, as the Committee or the Board deems necessary or appropriate.

9 Whistle Blowing

9.1 Procedure

The Committee shall be responsible for reviewing and evaluating the Corporation's procedures for:

(a) the receipt, retention and treatment of complaints received by the issuer regarding accounting, internal accounting controls or auditing matters; and

(b) the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.

10 Hiring Practices

10.1 Hiring Policies

The Committee shall review and approve the Corporation's hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Corporation.

11 Reporting to the Board

11.1 Regular Reporting

The Committee shall report to the Board following each meeting of the Committee and at such other times as the Chair may determine to be appropriate (provided that the Committee shall report to the Board at least four times per year) and shall ensure that the Board is made aware of matters that may significantly affect the financial condition or affairs of Points.

12 Evaluation of Committee Performance and Mandate Review

12.1 Establish Process

The Board may establish a process for committees of the Board for assessing the performance of such committees on a regular basis and, if established, the Committee shall follow such process in assessing its performance.

12.2 Amendments to Mandate


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The Committee shall review and assess the adequacy of this Mandate annually and recommend to the Board any changes it deems appropriate.


Points International Ltd.: Exhibit 99.2 - Filed by newsfilecorp.com

Consolidated Financial Statements

Points International Ltd.

December 31, 2020

 



 



 



 



 


Contents

Page

Consolidated financial statements  
Consolidated statements of financial position 6
Consolidated statements of comprehensive (loss) income 7
Consolidated statements of changes in shareholders' equity 8
Consolidated statements of cash flows 9
Notes to the consolidated financial statements 10-45

 

 


Points International Ltd.

Consolidated Statements of Financial Position

Expressed in thousands of United States dollars

As at December 31 Note   2020     2019  
ASSETS              
Current assets              
Cash and cash equivalents   $ 73,070   $ 69,965  
Cash held in trust     280     2,534  
Funds receivable from payment processors     5,795     14,302  
Accounts receivable 7   3,559     21,864  
Prepaid taxes     1,760     194  
Prepaid expenses and other assets 8   3,075     2,153  
Total current assets   $ 87,539   $ 111,012  
               
Non-current assets              
Property and equipment 9   1,529     2,371  
Right-of-use assets 10   1,862     3,060  
Intangible assets 11   12,130     12,806  
Goodwill 12   5,681     7,130  
Deferred tax assets 13   3,087     2,105  
Other assets 8   202     216  
Total non-current assets   $ 24,491   $ 27,688  
Total assets   $ 112,030   $ 138,700  
               
LIABILITIES              
Current liabilities              
Accounts payable and accrued liabilities   $ 5,766   $ 13,766  
Income taxes payable          489     2,326  
Payable to loyalty program partners     50,629     78,270  
Current portion of lease liabilities 14   1,156     1,323  
Current portion of other liabilities 15   847     797  
Current portion of long term debt 18   3,500     -  
Total current liabilities   $ 62,387   $ 96,482  
               
Non-current liabilities              
Long term debt 18   11,500     -  
Lease liabilities 14   1,136     2,209  
Other liabilities 15   57     95  
Deferred tax liabilities 13   1,731     722  
Total non-current liabilities   $ 14,424   $ 3,026  
Total liabilities   $ 76,811   $ 99,508  
               
SHAREHOLDERS' EQUITY              
Share capital     49,251     45,799  
Contributed surplus     1,795     -  
Accumulated other comprehensive income     623     184  
Accumulated deficit     (16,450 )   (6,791 )
Total shareholders' equity   $ 35,219   $ 39,192  
Total liabilities and shareholders' equity   $ 112,030   $ 138,700  
Guarantees and Commitments 22            

The accompanying notes are an integral part of these consolidated financial statements.

APPROVED ON BEHALF OF THE BOARD:

 

/s/ David L Adams  Chairman
/s/ Robert MacLean Director and Chief Executive Officer

 


Points International Ltd.

Consolidated Statements of Comprehensive (Loss) Income

Expressed in thousands of United States dollars, except per share amounts

For the year ended December 31 Note    2020     2019  
               
 REVENUE              
    Principal   $ 196,905   $ 374,484  
    Other partner revenue     20,482     26,693  
Total Revenue 5 $ 217,387   $ 401,177  
Direct cost of revenue 5   182,384     335,722  
Gross Profit   $ 35,003   $ 65,455  
               
 OPERATING EXPENSES              
Employment costs 6   24,659     31,860  
Marketing and communications     1,220     1,608  
Technology services     2,767     2,577  
Depreciation and amortization     4,859     4,668  
Foreign exchange (gain) loss     (671 )   401  
Other operating expenses 20   6,724     7,994  
Impairment charges 12   1,798     -  
Total Operating Expenses   $ 41,356   $ 49,108  
               
Finance and other income     (379 )   (908 )
Finance costs     843     211  
               
(LOSS) INCOME BEFORE INCOME TAXES   $ (6,817 ) $ 17,044  
               
Income tax (recovery) expense 13   (1,460 )   5,155  
NET (LOSS) INCOME   $ (5,357 ) $ 11,889  
               
OTHER COMPREHENSIVE INCOME              
Items that will subsequently be reclassified to profit or loss:              
      Unrealized gain on foreign exchange derivatives designated as cash flow hedges     215     556  
Income tax effect     (57 )   (147 )
Reclassification to net income of loss on foreign exchange derivatives designated as cash flow hedges     384     550  
Income tax effect     (102 )   (146 )
Foreign currency translation adjustment     (1 )   17  
Other comprehensive income for the period,
net of income tax
  $ 439   $ 830  
TOTAL COMPREHENSIVE (LOSS) INCOME   $ (4,918 ) $ 12,719  
               
(LOSS) EARNINGS PER SHARE              
Basic (loss) earnings per share 17 $ (0.41 ) $ 0.87  
Diluted (loss) earnings per share 17 $ (0.41 ) $ 0.86  

The accompanying notes are an integral part of these consolidated financial statements.


Points International Ltd.

Consolidated Statements of Changes in Shareholders' Equity

      Attributable to equity holders of the Company
Expressed in thousands of United States dollars except number of shares     Share Capital           Contributed     Accumulated other comprehensive            Total shareholders'  
  Note   Number of Shares     Amount      Surplus     income (loss)     Accumulated deficit     equity  
                                       
Balance at December 31, 2019     13,241,516   $ 45,799   $ -   $ 184   $ (6,791 ) $ 39,192  
Net loss     -     -     -     -     (5,357 )   (5,357 )
Other comprehensive income, net of tax     -     -     -     439     -     439  
Total comprehensive loss     -     -     -     439     (5,357 )   (4,918 )
Effect of share-based payments expense 19   -     -     3,129     -     -     3,129  
Share issuances - options exercised     53,374     483     (416 )   -     -     67  
Settlement of RSUs 19   -     3,207     (4,416 )   -     -     (1,209 )
Shares repurchased and cancelled 16   (67,483 )   (238 )   (804 )   -     -     (1,042 )
Reclassification within equity(1)     -     -     4,302     -     (4,302 )   -  
Balance at December 31, 2020     13,227,407   $ 49,251   $ 1,795   $ 623   $ (16,450 ) $ 35,219  
                                       
Balance at December 31, 2018     14,111,864   $ 53,886   $ 4,446   $ (646 ) $ (16,676 ) $ 41,010  
Net income     -     -     -     -     11,889     11,889  
Other comprehensive income, net of tax     -     -     -     830     -     830  
Total comprehensive income     -     -     -     830     11,889     12,719  
Effect of share-based payments expense 19   -     -     5,172     -     -     5,172  
Share issuances - options exercised     2,338     28     (7 )   -     -     21  
Settlement of RSUs 19   -     1,504     (4,626 )   -     -     (3,122 )
Shares purchased and held in trust 19   -     (6,350 )   -     -     -     (6,350 )
Shares repurchased and cancelled 16   (872,686 )   (3,269 )   (4,985 )   -     (2,004 )   (10,258 )
Balance at December 31, 2019     13,241,516   $ 45,799   $ -   $ 184   $ (6,791 ) $ 39,192  

The accompanying notes are an integral part of these consolidated financial statements.

(1) The Corporation has adopted a policy that when contributed surplus is in debit balance, an equivalent amount is reclassified from contributed surplus to accumulated deficit for financial statement presentation purposes. For the year ended December 31, 2020, $4,302 was reclassified (2019 - nil).


Points International Ltd.

Consolidated Statements of Cash Flows

Expressed in thousands of United States dollars

         
For the year ended December 31 Note   2020     2019  
               
Cash flows from operating activities               
Net (loss) income for the period   $ (5,357 ) $ 11,889  
Adjustments for:              
Depreciation of property and equipment 9   1,292     1,211  
Amortization of right-of-use assets 10   1,081     1,164  
Amortization of intangible assets 11   2,486     2,293  
Unrealized foreign exchange loss     1,122     394  
Equity-settled share-based payment transactions 19   3,129     5,172  
Finance costs     843     211  
Deferred income tax (recovery) expense 13   (130 )   969  
Impairment charges 12   1,798     -  
Derivative contracts designated as cash flow hedges     599     1,106  
Changes in cash held in trust     2,254     (2,034 )
Changes in non-cash balances related to operations                23   (13,331 )   2,200  
Interest paid     (812 )   (211 )
Net cash (used in) provided by operating activities   $ (5,026 ) $ 24,364  
               
Cash flows from investing activities              
Acquisition of property and equipment 9   (450 )   (1,231 )
Additions to intangible assets 11   (1,837 )   (1,147 )
Net cash used in investing activities   $ (2,287 ) $ (2,378 )
               
Cash flows from financing activities              
Proceeds from long term debt 18   40,000     -  
Repayment of long term debt 18   (25,000 )   -  
Payment of lease liabilities 14   (1,293 )   (1,229 )
Proceeds from exercise of share options     67     21  
Shares repurchased and cancelled 16   (1,042 )   (10,258 )
Purchase of share capital held in trust 19   -     (6,350 )
Taxes paid on net settlement of RSUs 19   (1,209 )   (3,122 )
Net cash provided by (used in) financing activities   $ 11,523   $ (20,938 )
               
Effect of exchange rate fluctuations on cash held     (1,105 )   (214 )
Net increase in cash and cash equivalents   $ 3,105   $ 834  
Cash and cash equivalents at beginning of the period   $ 69,965   $ 69,131  
Cash and cash equivalents at end of the period   $ 73,070   $ 69,965  
               
Interest Received   $ 365   $ 930  
Taxes Paid   $ (1,852 ) $ (1,601 )

Amounts received for interest and paid in taxes were reflected as operating cash flows in the consolidated statements of cash flows.

The accompanying notes are an integral part of these consolidated financial statements.                           


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

1. REPORTING ENTITY

Points International Ltd. (the "Corporation") is a company domiciled in Canada. The address of the Corporation's registered office is 111 Richmond Street West, Suite 700, Toronto, ON, Canada M5H 2G4. The consolidated financial statements of the Corporation as at and for the year ended December 31, 2020 comprise the Corporation and its wholly-owned subsidiaries: Points International (US) Ltd., Points International (UK) Ltd., Points.com Inc., Points Travel Inc., Points Development (US) Ltd., Points Holdings Ltd. and its wholly-owned subsidiaries, Points International (Singapore) Private Limited and Points International FZ-LLC. The Corporation's shares are publicly traded on the Toronto Stock Exchange ("TSX") as PTS and on the NASDAQ Capital Market ("NASDAQ") as PCOM.

The Corporation operates in three reportable segments (refer to Note 5 below).

Segment

Principal Activities

Loyalty Currency Retailing

Consists primarily of products and services that facilitate the sale or transfer of loyalty currency direct to loyalty program members.

Platform Partners

A portfolio of technology solutions that enables the broad distribution of loyalty currencies across loyalty programs and third party channels.

Points Travel

White-label travel booking solution for the loyalty industry that allows consumers to earn and redeem their loyalty currency while making hotel bookings and car rentals online.

The Corporation's operations can be moderately influenced by seasonality. Historically, gross profit is highest in the fourth quarter in each year as certain product offerings and promotional activity in the Loyalty Currency Retailing segment peak during this time. In 2020, financial results did not follow this trend due to the adverse impact of the COVID-19 pandemic.

The consolidated financial statements of the Corporation as at and for the year ended December 31, 2020 are available at www.sedar.com or www.sec.gov.

2. BASIS OF PREPARATION

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

The consolidated financial statements were authorized for issue by the Board of Directors on March 3, 2021.

(b) Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis except for certain assets and liabilities initially recognized in connection with business combinations, and certain financial instruments, which are measured at fair value.

(c) Functional and presentation currency

These consolidated financial statements are presented in U.S. dollars ("USD"). The functional currency of the Corporation and each of the Corporation's wholly-owned subsidiaries is also USD, except for Points Travel Inc. which uses the Canadian dollar ("CAD") as its functional currency. Items included in the financial statements of each subsidiary are measured using their respective functional currencies and translated for presentation in the consolidated statements as required. All financial information has been rounded to the nearest thousand, except where otherwise indicated.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

(d) Basis of consolidation

Subsidiaries are entities the Corporation controls. Entities over which the Corporation has control are fully consolidated from the date that control commences until the date that control ceases. All intercompany transactions and balances between subsidiaries are eliminated on consolidation.

(e) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Significant changes in these assumptions, including those related to our future business plans and cash flows, could materially change the amounts we record. Actual results may differ from these estimates.

On an ongoing basis, the Corporation has applied judgment in the following areas:

The Corporation also uses significant estimates in the following areas:

Estimates are based on historical experience adjusted as appropriate for current circumstances and other assumptions that management believes to be reasonable. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.  The application of the estimates and judgment noted above are discussed in Note 3.

3. SIGNIFICANT ACCOUNTING POLICIES

(a) New standards adopted in 2020

The following amendments to IFRS are effective from January 1, 2020, but they did not have a material impact on the Corporation's consolidated financial statements:


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

(b) Revenue recognition

The Corporation's revenue is categorized as principal or other partner revenue, and is primarily generated through the sale of loyalty currencies, through services provided to loyalty partners' program members, and through technology and marketing services provided to loyalty partners.

Contracts with customers

The Corporation records revenue from contracts with customers in accordance with the five steps in IFRS 15, Revenue from Contracts with Customers, as follows:

1. Identify the contract with a customer;

2. Identify the performance obligations in the contract;

3. Determine the transaction price, which is the amount the Corporation expects to be entitled to;

4. Allocate the transaction price among the performance obligations in the contract based on their relative stand-alone selling prices; and

5. Recognize revenue when or as the goods or services are transferred to the customer.

The interpretation of key terms in the Corporation’s revenue contracts requires the exercise of judgement.

Principal Revenue

Principal revenue groups together several streams of revenue that the Corporation realizes in delivering goods or services to various loyalty program partners and their customers.  The following is a list of revenue streams and the related revenue recognition policy.

(i) Reseller revenue is transactional revenue for the sale of loyalty currencies that occurs in contracts for which the Corporation takes a principal role in the retailing or wholesaling of loyalty currencies to loyalty program customers. The customer obtains control of the loyalty currency, and hence the performance obligation is satisfied on completion of the transaction which aligns with the point in time the loyalty currency is transferred and payment is received. The Corporation's role as the principal in the transaction is determined by the contractual arrangements in place with the loyalty program partner and their members. In this instance, the Corporation has determined that it obtains control of the loyalty currency prior to transferring it to the customer, due in part to inventory risk that is assumed by the Corporation. Other factors considered in making the determination include the fact that the Corporation is primarily responsible for fulfilling the promise to provide the specified good, and often has discretion in establishing the prices for the specified goods. 

(ii) Service revenue is transactional revenue for the provision of transfer, reinstate and other services provided to loyalty program partners or their members.  The Corporation is primarily responsible for fulfilling the promise to provide the services. Transfer, reinstate, and other service revenue is recognized at the point in time the transaction is completed, which is also when payment is received.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

(iii) Hosting services are provided to loyalty program partners throughout the term of the loyalty program partner agreement. The hosting services begin, and hence revenue recognition commences when the loyalty program partner website is functional. Revenue is recognized on a straight-line basis over the life of the term of the partner agreement. Costs that relate directly to the contract are capitalized to the extent that they are expected to be recovered and are amortized as the services are transferred.

Other Partner Revenue

Other partner revenue is primarily transactional revenue for facilitating the sale of loyalty currencies or other goods or services to loyalty program members for which the Corporation takes an agency role. It also includes certain redemption based and earn based transactions facilitated by the Corporation on behalf of loyalty program partners.  The Corporation's role as an agent is determined by the contractual arrangement in place with the loyalty program partner and their members.  In this instance, the Corporation has determined that it does not obtain control of the loyalty currency or other goods and services prior to transferring them to the customer, due in part to the absence of inventory risk. Other factors considered in making the determination include the fact that the Corporation is not primarily responsible for fulfilling the promise to provide the specified good and generally has limited discretion in establishing the prices for the specified goods. 

When deciding the most appropriate basis for presenting revenue on either a gross or net basis, both the legal form and substance of the agreements between the Corporation, its partners and their program members are reviewed to determine each party's respective role in the transaction.

Where the Corporation's role in a transaction is that of a principal, revenue is recognized on a gross basis, where the gross value of the transaction billed to the customer is recognized as revenue and the costs incurred to purchase the points or miles sold in the transaction are recognized as direct cost of revenue. When the Corporation's role in a transaction is that of an agent, revenue is recognized on a net basis with revenue approximating the margin earned and is recorded in other partner revenue in the consolidated statements of comprehensive (loss) income. This determination of whether the Corporation is acting as principal or agent requires the exercise of judgment.  In making this assessment, management considers whether the Corporation:

(c) Foreign currency translation

(i) Foreign currency transactions

Transactions in currencies other than the Corporation's or its subsidiaries' respective functional currency are recognized at the exchange rates in effect on the transaction date. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rates prevailing at that date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated to the functional currency at the exchange rates prevailing at the date when the fair value was determined. Non-monetary items that are measured at historical cost in a foreign currency are not translated.

Foreign exchange gains and losses on monetary items are recognized in profit or loss; except for foreign currency derivatives designated as qualifying cash flow hedges, the fair values of which are deferred in accumulated other comprehensive income in shareholders' equity until such time that the hedged transaction affects profit or loss; refer to Notes 3(d)(iv) and 21.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

(ii) Foreign operations

The assets and liabilities of the Corporation's non-USD functional currency subsidiary are translated to USD at exchange rates at the reporting date. The income and expenses of this subsidiary are translated to USD using average exchange rates for the month during which the transactions occurred. Foreign currency differences resulting from translation are recognized in other comprehensive income ("OCI") within the cumulative translation account.

(d) Financial instruments

All financial assets and financial liabilities are recognized on the Corporation's consolidated statements of financial position when the Corporation becomes a party to the contractual provisions of the instrument.

(i)  Classification and measurement of financial instruments

The Corporation's financial instruments as a result of adopting IFRS 9, Financial Instruments, ("IFRS 9") are classified and measured as follows:

Asset/Liability Measurement under IFRS 9
Cash and cash equivalents Amortized cost
Cash held in trust Amortized cost
Funds receivable from payment processors Amortized cost
Accounts receivable Amortized cost
Accounts payable and accrued liabilities Amortized cost
Payable to loyalty program partners Amortized cost
Long term debt Amortized cost
   
Derivatives Measurement
Foreign exchange forward contracts Fair value, with changes in fair value for hedges recorded in OCI and ineffective portion recorded in profit or loss.

Financial assets held at amortized cost require the asset to be measured using the effective interest method. The amortized cost is reduced by impairment losses. Finance income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. 

Derivatives may be in an asset or liability position at a point in time historically or in the future. For derivatives designated as cash flow hedges for accounting purposes, the effective portion of the hedge is recognized in accumulated other comprehensive income and the ineffective portion of the hedge is recognized immediately in profit or loss.

(ii)  Impairment of financial instruments

IFRS 9 requires the expected lifetime credit losses at initial recognition to be considered when assessing impairment of financial assets, which is anticipated to result in earlier recognition of losses. 

(iii) Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issuance of common shares and share options are recognized as a deduction from equity, net of any tax effects.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Authorized with no Par Value

Unlimited common shares

Unlimited preferred shares

Issued

As at December 31, 2020, all issued shares are fully paid. The holders of common shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share. There were no dividends declared in 2020 (2019 - nil).

(iv) Derivative financial instruments, including hedge accounting

The Corporation holds derivative financial instruments to hedge its foreign currency risk exposures. These derivatives are designated in accounting hedge relationships and the Corporation applies cash flow hedge accounting. On initial designation of the hedge, the Corporation formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Corporation makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be "highly effective" in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net income.

Derivatives are recognized initially at fair value; attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

Cash flow hedges

The Corporation enters into foreign exchange forward contracts to reduce the foreign exchange risk with respect to the Canadian dollar denominated expenses. The changes in fair value of derivatives designated as cash flow hedges are recognized in OCI, except for any ineffective portion, which is recognized immediately in profit or loss. Gains and losses in accumulated other comprehensive income are reclassified to profit or loss in the same period the corresponding hedged items affect profit or loss. The carrying amount of hedging derivatives designated as cash flow hedges that mature within one year is included in prepaid expenses and other assets and/or current portion of other liabilities. 

If the hedging instrument no longer meets the criteria for hedge accounting, is expired, sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in OCI and presented in unrealized gains/losses on cash flow hedges in equity remains there until the forecasted transaction affects profit or loss. If the forecasted transaction is no longer expected to occur, then the balance in OCI is recognized immediately in profit or loss.

(e) Cash and cash equivalents

Cash equivalents include highly liquid investments (term deposits) with maturities of three months or less at the date of purchase. They are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Cash equivalents are carried at amortized cost which approximates their fair value because of the short-term nature of the instruments. 


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

(f) Cash held in trust

Cash held in trust represents funds received from customers, primarily Canadian, not yet remitted to service providers for the Points Travel segment in accordance with certain geographic regulatory requirements.

(g) Funds receivable from payment processors

Funds receivable from payment processors represent amounts collected from customers on behalf of the Corporation and are typically deposited directly to the Corporation's bank account within three business days from the date of sale. 

(h) Property and equipment

(i) Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost consists of the purchase price, and any costs directly attributable to bringing the asset to the location and condition for its intended use. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and are recognized in profit or loss.

(ii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset less its estimated residual value.

Depreciation is recognized in profit or loss based on the estimated useful lives of the assets using the following methods and annual rates:

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate. There were no changes in the current year.

(i) Right-of-use assets and Lease liabilities

At inception of a contract, the Corporation assesses whether a contract is or contains a lease based on whether the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

The Corporation recognizes right-of-use assets and lease liabilities at the lease commencement date. After the initial adoption date, the right-of-use asset is initially measured at cost, which comprises:


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Subsequent to initial measurement, right-of-use assets are measured at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The right-of-use asset are depreciated on a straight-line basis over the term of the lease, or the estimated useful life of the right-of-use assets if the Corporation expects to obtain the ownership of the leased asset at the end of the lease. The lease term includes the non-cancellable period of the lease and optional renewable periods that the Corporation is reasonably certain to extend.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Corporation's incremental borrowing rate. Generally, the Corporation uses its incremental borrowing rate as the discount rate.

After initial recognition, the lease liability is measured at amortized cost using the effective interest method. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or if the Corporation changes its assessment of whether it will exercise a purchase option, extension option or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset.

The lease liability is also remeasured when the underlying lease contract is amended. When there is a decrease in contract scope, the lease liability and right-of-use asset will decrease relative to this change with the difference recorded in net income prior to the remeasurement of the lease liability.

(j) Goodwill & Intangible assets

(i) Goodwill

Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value of the identifiable tangible and intangible net assets acquired. Goodwill is not amortized. The Corporation tests goodwill for impairment at least annually, at each year end, or when an impairment indicator is considered to exist, to determine whether the carrying value exceeds the recoverable amount, as discussed in Note 3(k).

Business combinations

Acquisitions of subsidiaries are accounted for using the acquisition method of accounting. Fair value of the consideration paid is calculated as the sum of the fair value at the date of acquisition of:

Goodwill is measured as the fair value of consideration transferred less the net recognized amount of the identifiable assets acquired and liabilities assumed, all of which are measured at fair value as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.

The Corporation uses estimates and judgments to determine the fair value of assets acquired and liabilities assumed at the acquisition date using the best available information, including information from financial markets. The estimates and judgments include key assumptions such as discount rates, attrition rates, and terminal growth rates for performing discounted cash flow analyses. The transaction costs associated with the acquisitions are expensed as incurred.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

(ii) Internally developed software

Certain costs incurred in connection with the development of software to be used internally or for providing services to customers are capitalized once a project has progressed beyond a conceptual, preliminary stage to that of application development. Development costs that are directly attributable to the design and testing of identifiable software products controlled by the Corporation are recognized as intangible assets when the following criteria are met:

Development costs that qualify for capitalization include both internal and external costs, but are limited to those that are directly related to the specific product. The capitalized development costs are measured at cost less accumulated amortization and accumulated impairment losses. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including costs incurred in the planning stage and operating stage and expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

Indefinite useful lives

Certain intangible assets with indefinite lives, being domain names, patents and trademarks, are not amortized because there is no foreseeable limit to the period that these assets are expected to generate net cash inflows. The Corporation uses judgment to designate these assets as indefinite useful life assets, analyzing relevant factors including the expected usage of the asset, the typical life cycle of the asset and anticipated changes in the market demand for the products and services that the asset helps generate. The Corporation tests indefinite life intangible assets for impairment at least annually, at each year end.

Finite useful lives

Intangible assets with finite useful lives are amortized into depreciation and amortization in the consolidated statements of comprehensive (loss) income on a straight-line basis over their estimated useful lives as noted in the table below. Useful lives, residual values and the amortization methods are reviewed at least annually.  Amortization periods and methods are outlined below:

(k) Impairment

Financial Assets

IFRS 9 requires the use of an expected credit loss  ("ECL") model for calculating impairment of financial assets.  A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Non-Financial Assets with Finite Useful Lives

In accordance with IAS 36, Impairment of Assets, the Corporation evaluates the carrying value of non-financial assets with finite lives, being property and equipment, right-of-use assets and certain intangible assets, whenever events or changes in circumstances indicate that a potential impairment has occurred. An impairment loss is considered to have occurred if the carrying value of an asset exceeds its recoverable amount.

Goodwill & Indefinite Life Intangible Assets

Goodwill and intangible assets that are not amortized are subject to an annual impairment assessment, and the recoverable amount is estimated each year at the same time. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For the purposes of assessing impairment, assets that do not generate independent cash inflows are grouped into CGUs at the lowest level for which there are separately identifiable cash inflows. CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to the CGU or group of CGUs that are expected to benefit from the synergies of the combination.

If the recoverable amount of the CGU or group of CGUs to which goodwill and indefinite life intangible assets has been allocated is less than the carrying amount of the CGU or group of CGUs, including goodwill and intangible assets, an impairment loss is recorded in the consolidated statements of comprehensive (loss) income. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amounts of the other assets of the CGU or group of CGUs on a pro-rata basis.

The Corporation evaluates impairment losses for potential reversals, other than goodwill impairment, when events or changes in circumstances warrant such consideration. Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. 

(l) Share-based payment transactions

The Corporation has two share-based compensation plans: a share option plan and a share unit plan. The Corporation accounts for the grants under both plans as equity settled share-based compensation arrangements per IFRS 2, Share-based Payment, and accordingly are not re-measured subsequent to the initial grant date.

Share option plan

The share option plan allows employees to acquire shares of the Corporation through the exercise of share options. Share options have a maximum life of ten years. Under the share option plan, performance options are granted from time to time to certain employees of the Corporation. Vesting of performance options is based on the achievement of specified non-market performance conditions with a life of six years after the date of grant. On grant date, the Corporation estimates the expected vesting date for purpose of estimating the option life. Additionally, options other than performance options can be granted under the share option plan, which generally vest over a period of three years and expire at the end of five years from the grant date.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

For options with graded vesting, each grant in an award is considered a separate grant with a different vesting date, expected life and fair value. The fair value of each grant is recognized in profit or loss as employment costs over its respective expected vesting period with a corresponding increase in contributed surplus. The fair value of each grant is estimated at the date of grant using the Black-Scholes option pricing model incorporating assumptions regarding risk-free interest rates, dividend yield, expected volatility of the Corporation's stock, and a weighted average expected life of the options. Any consideration paid on the exercise of share options is added to share capital along with the related portion previously added to contributed surplus when the compensation costs were charged to profit or loss.

Under the plan, share options can only be settled in equity. The share option expense incorporates an expected forfeiture rate, estimated based on expected employee turnover.

At least annually, the Corporation reassesses the forfeiture rate and the probability of achieving the specified performance metrics for performance options and calculates the cumulative compensation cost of each grant and recognizes an adjustment to the employment cost (recovery) in the current period in the consolidated statements of comprehensive (loss) income.

(i) Significant judgments, estimates and assumptions

Share options are measured at grant date fair value. Estimating fair value requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield. The assumptions and models used for estimating fair value for share options are disclosed in Note 19. In addition, Management is required to exercise judgment in determining the probability of achieving the specified performance metrics for performance options, based on forecast and management's best estimate.

Share unit plan

The Corporation's employee share unit plan (the "Share Unit Plan") includes Restricted Share Units ("RSUs") and performance share units ("PSUs"). Under the share unit plan, the Corporation grants RSUs and/or PSUs to its employees and the Board of Directors. The RSUs vest on grant date, over a period of up to three years after the grant date or in full on the third anniversary of the grant date. The number of PSUs that vest is based on the achievement of specified non-market performance conditions. The fair value of a RSU or PSU is determined at the grant date using the volume weighted average trading price per share on the TSX during the immediately preceding five trading days, and is recognized over the RSU or PSU's vesting period. The expense is charged to profit or loss as employment costs with a corresponding increase in contributed surplus.

In determining the number of awards that are expected to vest, the Corporation takes into account trends of historical forfeitures.

(m) Payable to loyalty program partners

Payable to loyalty program partners includes amounts owing to these partners for loyalty currency purchased by the Corporation as a principal or as an agent collected through e-commerce services for retailing, wholesaling and other loyalty currency services transactions with end users. 


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

(n) Deferred revenue

Deferred revenue includes proceeds received in advance for technology design and development work and is recognized over the expected life of the partner agreement (refer to Note 3(b) (iii)). Deferred revenue is also comprised of bookings made through the Points Travel platform, along with proceeds received by the Corporation for the sale of mileage codes that can be redeemed for multiple loyalty program currencies at a later date. Revenue for bookings through the Points Travel platform is recognized at the completion of the hotel stay or car rental; revenue from the sale of the mileage codes is recognized upon redemption. Deferred revenue is included in current portion of other liabilities and other liabilities in the consolidated statements of financial position.

(o) Long term debt

Long term debt represents the outstanding balance that the Corporation has drawn on its senior secured revolving credit facility. The balance is included as current portion of long term debt and long term debt in the consolidated statements of financial position. Refer to Note 18.

(p) Income taxes

Income tax expenses comprise current and deferred taxes. Current taxes and deferred taxes are recognized in profit or loss except to the extent that they relate to a business combination, or items recognized directly in equity or in OCI.

Current taxes are the expected taxes payable or receivable on the taxable income or loss for the period, using tax rates substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years.

Deferred taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxes are not recognized for:

Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been substantively enacted by the reporting date.

In determining the amount of current and deferred tax, the Corporation takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Corporation believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. When new information becomes available that causes the Corporation to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

(q) Earnings per share ("EPS")

The Corporation presents basic and diluted earnings per share data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Corporation by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by dividing the profit or loss attributable to common shareholders by the weighted average number of common shares outstanding adjusted for the effects of all dilutive potential common shares.

(r) Segment reporting

The Corporation determines its reportable segments based on, among other things, how the Corporation's chief operating decision maker ("CODM"), the Chief Executive Officer, regularly reviews the Corporation's operations and performance. The CODM reviews gross profit, which is defined as total revenue less direct cost of revenue, and segment profit (loss) represented by Contribution, which is defined as gross profit for the relevant operating segment less direct adjusted operating expenses as the key measure of profitability for the purpose of assessing performance for each operating segment and to make decisions about the allocation of resources. Direct adjusted operating expenses are expenses which are directly attributable to each operating segment.

The Corporation makes significant judgments in determining its operating segments. Operating segments are components that engage in business activities from which they may earn revenue and incur expenses, which operating results are regularly reviewed by the Corporation's CODM to make decisions about the allocation of resources and to assess component performance, and for which discrete financial information is available.

(s) New standards and amendments not yet adopted

The IASB has issued amendments to the following standards that will become effective in a future year:

These amendments have not yet been adopted by the Corporation. Although the Corporation is currently assessing the impacts, if any, of these amendments, it does not expect them to have a material impact on the Corporation's consolidated financial statements.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

4. COVID-19

In December 2019, a novel strain of coronavirus, COVID-19, was first detected in Wuhan, China. Throughout the first three months of 2020, COVID-19 spread to other regions around the world, with the World Health Organization declaring the outbreak as a global pandemic on March 11, 2020. Many governments around the world responded to the pandemic by implementing a variety of measures to reduce the spread of COVID-19, including travel restrictions and bans, social distancing measures, quarantine advisories, and the closure of non-essential businesses.  As a result of these measures, there has been an unprecedented decline in travel, which has had a significant impact on the Corporation's business.

As travel restrictions were more broadly implemented by governments around the world in mid-March 2020, the Corporation started to experience a significant decline in transaction volumes and resulting revenue and gross profit. While each of the operating segments experienced significant transaction declines starting in mid-March 2020 and continued throughout the remainder of 2020, the degree of the declines varied by line of business and product.

During the second quarter of 2020, the Corporation determined that the Points Travel CGU was impaired and recorded an impairment charge of $1,798. Based on the facts and circumstances present as at December 31, 2020, it was concluded that there was no impairment for the Loyalty Currency Retailing CGU and Platform Partners CGU. Refer to Note 12. 

The duration and impact of the COVID-19 pandemic on future periods remains unknown.  The COVID-19 pandemic, the measures taken by governments of countries affected and the resulting economic impact may continue to adversely affect the Corporation's financial performance, cash flows and financial position as well as that of its partners in future periods.

In response to the COVID-19 pandemic, starting in the second half of March 2020, the Corporation took the following measures to mitigate the impact of the pandemic on the business, preserve cash, and improve the Corporation's overall liquidity:

5. OPERATING SEGMENTS

The Corporation's reportable segments are Loyalty Currency Retailing, Platform Partners and Points Travel. These operating segments are organized around differences in products and services.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

The Corporation's measure of segment profit or loss is Contribution, which is defined as gross profit (total revenue less direct cost of revenue) for the relevant operating segment less direct adjusted operating expenses. Direct adjusted operating expenses are expenses which are directly attributable to each operating segment.  Assets and liabilities are not provided to the CODM at the operating segment level and are therefore not allocated to the operating segments for reporting purposes.  There have been no changes in the Corporation's reportable segments in 2020 and 2019.

For the year ended December 31, 2020:   Loyalty
Currency
Retailing
    Platform
Partners
    Points
Travel
    Total  
Total revenue $ 211,200   $ 5,030   $ 1,157   $ 217,387  
Direct cost of revenue   181,603     731     50     182,384  
Gross profit   29,597     4,299     1,107     35,003  
Direct adjusted operating expenses   11,243     2,377     4,527     18,147  
Contribution $ 18,354   $ 1,922   $ (3,420 ) $ 16,856  
Indirect adjusted operating expenses1                     14,094  
Finance and other income                     (379 )
Finance costs                     843  
Equity-settled share-based payment expense                     3,129  
Impairment charges                     1,798  
Income tax recovery                     (1,460 )
Depreciation and amortization                     4,859  
Foreign exchange gain                     (671 )
Net loss                   $ (5,357 )

1 Indirect adjusted operating expenses comprise costs that are shared among the Loyalty Currency Retailing, Platform Partners and Points Travel operating segments, including costs associated with various corporate functions, such as Finance, Human Resources, Legal and certain expenses associated with information technology infrastructure.

For the year ended December 31, 2019:   Loyalty
Currency
Retailing
    Platform
Partners
    Points
Travel
    Total  
                         
Total revenue $ 391,045   $ 7,577   $ 2,555   $ 401,177  
Direct cost of revenue   335,032     665     25     335,722  
Gross profit   56,013     6,912     2,530     65,455  
Direct adjusted operating expenses   13,830     3,871     6,838     24,539  
Contribution $ 42,183   $ 3,041   $ (4,308 ) $ 40,916  
Indirect adjusted operating expenses1                     14,328  
Finance and other income                     (908 )
Finance costs                     211  
Equity-settled share-based payment expense                     5,172  
Income tax expense                     5,155  
Depreciation and amortization                     4,668  
Foreign exchange loss                     401  
Net Income                   $ 11,889  

1 Indirect adjusted operating expenses comprise costs that are shared among the Loyalty Currency Retailing, Platform Partners and Points Travel operating segments, including costs associated with various corporate functions, such as Finance, Human Resources, Legal and certain expenses associated with information technology infrastructure.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Enterprise-wide disclosures - Geographic information

For the year ended December 31   2020     2019  
Revenue                        
United States $ 188,531     87%   $ 358,993     90%  
Europe   19,074     9%     21,832     5%  
Other   9,782     4%     20,352     5%  
  $ 217,387     100%   $ 401,177     100%  

Revenue earned by the Corporation is generated from sales to loyalty program partners directly or from sales directly to members of loyalty programs with which the Corporation partners. Revenues by geographic region are shown above and are based on the country of residence of each of the Corporation's loyalty partners. As at December 31, 2020, substantially all of the Corporation's assets were in Canada.

Transaction price allocated to the remaining performance obligations

The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers.

    Total     Year 1     Year 2     Year 3     Year 4     Year 5+  
Hosting and other $ 1,025   $ 558   $ 362   $ 105   $ -   $ -  

The Corporation has elected to apply the practical expedient to not disclose information about remaining performance obligations that have original expected durations of one year or less.

Dependence on loyalty program partners

For the year ended December 31, 2020, there were three (2019 - three) loyalty program partners for which sales to their members individually represented more than 10% of the Corporation's total revenue. In aggregate, sales to the members of these partners represented 64% (2019 - 69%) of the Corporation's total revenue.

6. CANADA EMERGENCY WAGE SUBSIDY

In March 2020, the Government of Canada announced the Canada Emergency Wage Subsidy ("CEWS") program and enacted Bill C-14 in April 2020. The CEWS program provides eligible employers with subsidies on employee remuneration, commencing retroactively from March 15, 2020. As of December 31, 2020, the Government of Canada has extended the CEWS program through to June 2021.

During 2020, the Corporation recorded subsidies of $5,322, of which $5,260 was recognized as a reduction of employment costs and $62 related to eligible costs incurred in connection with the development of software to be used internally or for providing services to customers, was capitalized as intangible assets. As at December 31, 2020, the Corporation had received payment of subsidies of $4,863 and the remaining balance of $459 was recorded in accounts receivable in the consolidated statements of financial position.

7. ACCOUNTS RECEIVABLE

The Corporation's accounts receivable is comprised mainly of amounts owing to the Corporation by loyalty program partners for redemption and other services, and other amounts related to taxes and government subsidies.  Accounts receivable in 2019 also included tax rebate receivables. Accounts receivable is presented net of an allowance for doubtful accounts.  Accounts receivable are comprised of:


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted


    2020     2019  
Accounts receivable before allowance for doubtful accounts $ 3,728   $ 22,052  
Allowance for doubtful accounts   (169 )   (188 )
Accounts receivable $ 3,559   $ 21,864  

The Corporation's exposure to credit and currency risks related to accounts receivable is disclosed in Note 21.

8. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other assets are comprised of:

    2020     2019  
Prepaid expenses $ 2,229   $ 1,735  
Foreign exchange forward contracts designated as cash flow hedges   827     229  
Loyalty reward currency inventory   19     189  
Prepaid expenses and current portion of other assets $ 3,075   $ 2,153  
             
Non-current portion of loyalty reward currency inventory $ 202   $ 216  
Other assets $ 202   $ 216  

9. PROPERTY AND EQUIPMENT

The following is a continuity of the cost and accumulated depreciation and impairment losses of property and equipment for the year ended December 31, 2020:

    Computer
Hardware
    Computer
Software
    Furniture 
& Fixtures
    Leasehold
Improvements
    Total  
Cost, beginning of year $ 4,504   $ 3,051   $ 1,207   $ 1,309   $ 10,071  
Additions   204     231     9     6     450  
Cost, end of year $ 4,708   $ 3,282   $ 1,216   $ 1,315   $ 10,521  
Accumulated depreciation and impairment losses, beginning of year $ 3,453   $ 2,556   $ 961   $ 730   $ 7,700  
Depreciation for the year   592     359     102     239     1,292  
Accumulated depreciation and impairment losses, end of year $ 4,045   $ 2,915   $ 1,063   $ 969   $ 8,992  
Carrying amounts as at December 31, 2020 $ 663   $ 367   $ 153   $ 346   $ 1,529  


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

The following is a continuity of the cost and accumulated depreciation and impairment losses of property and equipment for the year ended December 31, 2019:

    Computer
Hardware
    Computer
Software
    Furniture 
& Fixtures
    Leasehold
Improvements
    Total  
Cost, beginning of year $ 3,799   $ 2,642   $ 1,104   $ 1,295   $ 8,840  
Additions   705     409     103     14     1,231  
Cost, end of year $ 4,504   $ 3,051   $ 1,207   $ 1,309   $ 10,071  
Accumulated depreciation and impairment losses, beginning of year $ 2,916   $ 2,230   $ 853   $ 490   $ 6,489  
Depreciation for the year   537     326     108     240     1,211  
Accumulated depreciation and impairment losses, end of year $ 3,453   $ 2,556   $ 961   $ 730   $ 7,700  
Carrying amounts as at December 31, 2019 $ 1,051   $ 495   $ 246   $ 579   $ 2,371  

10. RIGHT-OF-USE ASSETS

The following is a continuity of the cost and accumulated amortization and impairment losses of right-of-use assets for the year ended December 31, 2020:

    Office     Office Equipment     Total  
Cost, beginning of year $ 4,138   $ 86   $ 4,224  
Additions   33     -     33  
Cost, end of year $ 4,171   $ 86   $ 4,257  
Accumulated amortization and impairment losses, beginning of year $ 1,151   $ 13   $ 1,164  
Amortization for the year   1,065     16     1,081  
Impairment loss   150     -     150  
Accumulated amortization and impairment losses, end of year $ 2,366   $ 29   $ 2,395  
Carrying amounts as at December 31, 2020 $ 1,805   $ 57   $ 1,862  


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

The following is a continuity of the cost and accumulated amortization of right of use assets and impairment losses for the year ended December 31, 2019:

    Office     Office Equipment     Total  
Cost, beginning of year $ 4,102   $ -   $ 4,102  
Additions   36     86     122  
Cost, end of year $ 4,138   $ 86   $ 4,224  
Accumulated amortization and impairment losses, beginning of year $ -   $ -   $ -  
Amortization for the year   1,151     13     1,164  
Accumulated amortization and impairment losses, end of year $ 1,151   $ 13   $ 1,164  
Carrying amounts as at December 31, 2019 $ 2,987   $ 73   $ 3,060  

11. INTANGIBLE ASSETS

The following is a continuity of the cost and accumulated amortization and impairment losses of intangible assets for the year ended December 31, 2020:

    Customer
Relationships
    Domain
Names
(1)
    Technology(2)     Other (1)     Total  
Cost, beginning of year $ 8,500   $ 4,300   $ 22,164   $ 205   $ 35,169  
Additions   -     -     1,837     -     1,837  
Cost, end of year $ 8,500   $ 4,300   $ 24,001   $ 205   $ 37,006  
Accumulated amortization and impairment losses, beginning of year $ 4,321   $ -   $ 18,042   $ -   $ 22,363  
Amortization for the year   850     -     1,636     -     2,486  
Impairment loss   -     -     27     -     27  
Accumulated amortization and impairment losses, end of year $ 5,171   $ -   $ 19,705   $ -   $ 24,876  
Carrying amounts as at December 31, 2020 $ 3,329   $ 4,300   $ 4,296   $ 205   $ 12,130  

(1) Domain names and Other which includes patents and trademarks are deemed to have indefinite useful lives and are therefore not amortized. The Corporation's classification of certain intangible assets with indefinite useful lives is based on the expectation that these assets will continue to contribute to the Corporation's net cash inflows on an indefinite basis.  The determination of these assets as having indefinite useful lives is based on judgment that includes an analysis of relevant factors, including the expected usage of the asset, anticipated renewal of the licenses, the typical life cycle of the asset and anticipated changes in the market demand for the products and services that the asset helps generate.             

(2) Technology includes technological assets acquired through acquisitions and internally developed software.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

The following is a continuity of the cost and accumulated amortization and impairment losses of intangible assets for the year ended December 31, 2019:

    Customer
Relationships
    Domain
Names(1)
    Technology(2)     Other (1)     Total  
Cost, beginning of year $ 8,500   $ 4,300   $ 21,017   $ 205   $ 34,022  
Additions   -     -     1,147     -     1,147  
Cost, end of year $ 8,500   $ 4,300   $ 22,164   $ 205   $ 35,169  
Accumulated amortization and impairment losses, beginning of year $ 3,471   $ -   $ 16,599   $ -   $ 20,070  
Amortization for the year   850     -     1,443     -     2,293  
Accumulated amortization and impairment losses, end of year $ 4,321   $ -   $ 18,042   $ -   $ 22,363  
Carrying amounts as at December 31, 2019 $ 4,179   $ 4,300   $ 4,122   $ 205   $ 12,806  

(1) Domain names and Other which includes patents and trademarks are deemed to have indefinite useful lives and are therefore not amortized. The Corporation's classification of certain intangible assets with indefinite useful lives is based on the expectation that these assets will continue to contribute to the Corporation's net cash inflows on an indefinite basis.  The determination of these assets as having indefinite useful lives is based on judgment that includes an analysis of relevant factors, including the expected usage of the asset, anticipated renewal of the licenses, the typical life cycle of the asset and anticipated changes in the market demand for the products and services that the asset helps generate.             

(2) Technology includes technological assets acquired through acquisitions and internally developed software.

During the year ended December 31, 2020, an amount of $6,203 was recognized as research and development expenses in employment costs in the consolidated statements of comprehensive (loss) income (2019 - $8,262).

12. GOODWILL 

Cost      
Balance at January 1, 2019 $ 7,130  
Additions   -  
Impairments   -  
Balance at December 31, 2019 $ 7,130  
Additions   -  
Impairments   (1,449 )
Balance at December 31, 2020 $ 5,681  

Impairment testing for cash-generating units

In accordance with its accounting policy, the Corporation tests CGUs or groups of CGUs with indefinite life intangible assets and/or allocated goodwill for impairment as at December 31 of each calendar year or when an indicator of impairment is considered to exist. Management has determined that the Corporation has three CGUs, being Loyalty Currency Retailing, Platform Partners and Points Travel.  The goodwill value has been allocated to the CGUs that are expected to benefit from the synergies of the business combinations in which goodwill arose.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Key Assumptions

When assessing whether or not there is impairment, the Corporation determines the recoverable amount of a CGU based on value in use ("VIU"), the model which Management believes to result in a higher recoverable amount. VIU is estimated by discounting estimated future cash flows to their present value. Management estimates the discounted future cash flows and a terminal value. The future cash flows are based on estimates of expected future operating results of the CGUs after considering economic conditions and a general outlook for the CGU's industry, including assumptions of when the travel industry will recover to pre-COVID levels. Discount rates consider market rates of return, debt to equity ratios and certain risk premiums, among other things. The terminal value is the value attributed to the CGU's operations beyond the projected time period of the cash flows using a perpetuity rate based on expected economic conditions and a general outlook for the industry.

Management has made certain assumptions for the discount rates and terminal growth rates to reflect variations in expected future cash flows. These assumptions may differ or change quickly depending on economic conditions or other events. It is therefore possible that future changes in assumptions may negatively affect future valuations of CGUs, which could result in impairment losses.

Points Travel CGU

The outbreak of COVID-19, which was declared a pandemic on March 11, 2020 by the World Health Organization, continued to have a significant negative impact on the Corporation's transactional volumes and revenue during 2020. In particular, the Points Travel segment experienced the largest negative impact. The Corporation considered whether the declines in revenue and gross profit, and reduced cash flow projections as a result of COVID-19 were indicators that the goodwill and indefinite life intangible assets may be impaired.

As a result, the Corporation performed a quantitative assessment for the Points Travel CGU as at June 30, 2020. The Corporation determined the recoverable amount of the Points Travel CGU using the VIU model, which was calculated by discounting the future cash flows generated from continuing use.

The Corporation included five years of cash flows in the model. Future cash flows were based on estimates of expected future operating results of the Points Travel CGU after considering the current economic conditions and a general outlook for the travel industry. The cash flow forecasts were extrapolated beyond the five-year period using a terminal growth rate.

The discount rate considered market rates of return, debt to equity ratios and certain risk premiums, among other things. The pre-tax discount rate used in the recoverable amount calculation was 23.4%.

The duration and impact of the COVID-19 pandemic on future periods remains unknown.  Some of the key assumptions used in the impairment assessment, including cash flow projections, discount rates, and terminal growth rates may change in future periods.  Given the high degree of uncertainty with the impact of COVID-19, management used multiple, probability weighted cash flow projections in determining the recoverable amount.

Based on the results of the assessment, the recoverable amount for the Points Travel CGU was lower than the carrying amount. As a result, the Corporation recorded an impairment charge of $1,798 in the second quarter of 2020, including the write-down of goodwill of $1,449, right-of-use assets of $150, prepaid expenses and other assets of $172 and intangible assets of $27.

The primary cause for the impairment was the severe downturn in the travel industry as a result of the COVID-19 pandemic, operating results during the second quarter that were lower than expectations, and updated travel industry forecasts that projected a longer recovery period than what was originally expected at the beginning of the pandemic.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Impairment testing for cash-generating units containing goodwill as at December 31, 2020

The table below provides an overview of the methods and assumptions that Management has used to determine recoverable amounts for the CGUs with indefinite life intangible assets and goodwill.

(In thousands of dollars, except years and percentages)   Carrying value of goodwill     Carrying value of indefinite-life intangible assets     Recoverable amount method     Period used (years)     Terminal growth rate %     Pre-tax discount rate %  
Loyalty Currency Retailing $ 5,681   $ 4,505     Value in Use     5     2.0%     17.3%  

The Corporation concluded that other than the impairment charges recorded for the Points Travel CGU in the second quarter of 2020, there was no additional impairment as at December 31, 2020.

13. INCOME TAXES

    2020     2019  
Current tax (recovery) expense            
Current year $ (1,376 ) $ 3,999  
Prior years   46     187  
Total current tax (recovery) expense $ (1,330 ) $ 4,186  
             
Deferred tax (recovery) expense            
Current year movement in recognized temporary differences and losses   (97 )   841  
Prior years   (33 )   128  
Total deferred tax (recovery) expense $ (130 ) $ 969  
             
Total income tax (recovery) expense $ (1,460 ) $ 5,155  

Reconciliation of effective tax rate

The total provision for income taxes differs from that amount which would be computed by applying the Canadian statutory income tax rate to income before income taxes.  The reasons for these differences are as follows:

    2020     2019  
Income tax (recovery) expense at statutory rate of 26.5% (2019 - 26.5%) $ (1,806 ) $ 4,517  
Increase in taxes resulting from:            
Non-deductible items   196     292  
Other differences   150     346  
Income tax (recovery) expense $ (1,460 ) $ 5,155  


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Recognized deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

2020   Deferred Tax Assets     Deferred Tax Liabilities  
             
Forward exchange contracts $ -   $ (219 )
Property and equipment and Intangible assets   2,398     (1,564 )
Accrued liabilities   94     -  
Leases   120     -  
Restricted Share Units   322     -  
Tax losses   205     -  
    3,139     (1,783 )
Reclassification   (52 )   52  
  $ 3,087   $ (1,731 )

2019   Deferred Tax Assets     Deferred Tax Liabilities  
             
Forward exchange contracts $ -   $ (60 )
Property and equipment and Intangible assets   2,170     (1,485 )
Accrued liabilities   112     -  
Investment tax credits   -     (27 )
Leases   135     -  
Restricted Share Units   504     -  
Tax losses   34     -  
    2,955     (1,572 )
Reclassification   (850 )   850  
  $ 2,105   $ (722 )

The Corporation has non-capital loss carry-forward for income tax purposes in the amount of approximately $772 (2019 - $125). Non-capital losses of $772 may be used to reduce future years' taxable income and expire in 2040.

Management has concluded the deferred tax asset meets the relevant recognition criteria under IFRS. This conclusion is supported by Management's forecasts and the future reversal of existing taxable temporary differences, which are expected to produce sufficient taxable income to realize the deferred tax assets.

Unrecognized deferred tax assets

Deferred tax assets have not been recognized in respect of the following items:

    2020     2019  
Capital losses $ 1,385   $ 1,385  

The capital losses of $10,456 (2019 - $10,456) can be carried forward indefinitely.

Temporary differences associated with Points International Ltd. investments

The temporary difference associated with the investments in the Corporation's subsidiaries is $2,688 (2019 - $2,384). A deferred tax liability associated with these investments has not been recognized as the Corporation controls the timing of the reversal and it is probable that the temporary difference will not reverse in the foreseeable future.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

As at December 31, 2020 and 2019, no deferred tax liability was recognized for taxes that would be payable on the unremitted earnings of certain subsidiaries of Points International Ltd. as the Corporation has determined that the undistributed profits of its subsidiaries will not be distributed in the foreseeable future.

14. LEASE LIABILITIES

Reconciliation of movements of lease liabilities to cash flows arising from financing activities:

    2020     2019  
Balance, beginning of year $ 3,532   $ 4,475  
New leases   33     122  
Interest expense   144     211  
Interest paid   (144 )   (211 )
Payment of lease liabilities   (1,293 )   (1,229 )
Effect of changes in foreign exchange rates   20     164  
Balance, end of year $ 2,292   $ 3,532  

During 2020, the expense related to variable lease payments not included in the measurement of lease obligations was $835 (2019 - $845).

The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments to be made as at December 31, 2020 and 2019:

    2020     2019  
Year 1 $ 1,243   $ 1,472  
Year 2   1,138     1,182  
Year 3   19     1,112  
Year 4   9     18  
Year 5+   -     9  
Total undiscounted lease payments $ 2,409   $ 3,793  
             
Carrying value of lease liabilities $ 2,292   $ 3,532  

15. OTHER LIABILITIES

    2020     2019  
Foreign exchange forward contracts designated as cash flow hedges $ -   $ 1  
Current portion of deferred revenue   546     796  
Other liabilities   301     -  
Current portion of other liabilities $ 847   $ 797  
             
Non-current portion of deferred revenue   57     95  
Other liabilities $ 57   $ 95  


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Deferred Revenue

The following table presents changes in the deferred revenue balances during 2020 and 2019:

    2020     2019  
Balance, beginning of year $ 891   $ 815  
Amounts invoiced and revenue deferred   3,209     5,401  
Recognition of deferred revenue   (3,497 )   (5,325 )
Balance, end of year $ 603   $ 891  

16. CAPITAL AND OTHER COMPONENTS OF EQUITY

Accumulated other comprehensive income

Accumulated other comprehensive income is comprised of the unrealized gains/losses on cash flow hedges and the cumulative translation adjustment for the translation of subsidiary accounts where non-USD functional currency balances are translated to the functional currency of the Corporation. The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedging transactions that have not yet settled.

Normal Course Issuer Bid ("NCIB")

On March 8, 2017, the Board of Directors of the Corporation approved a plan to repurchase the Corporation's common shares. On August 14, 2018, the NCIB program was renewed with a total of 710,893 shares to be repurchased under this 2018 plan (the "2018 Repurchase"), representing 5% of the Corporation's 14,217,860 shares issued and outstanding as of July 31, 2018. The Corporation entered into an automatic share purchase plan with a broker in order to facilitate the 2018 Repurchase.

On August 14, 2019, the NCIB program was renewed with a total of 679,034 shares to be repurchased under this 2019 plan (the "2019 Repurchase"), representing 5% of the Corporation's 13,580,692 shares issued and outstanding as of July 31, 2019. The Corporation entered into an automatic share purchase plan with a broker in order to facilitate the 2019 Repurchase.

On September 9, 2020, the NCIB program was renewed with a total of 661,370 shares to be repurchased under this 2020 plan, representing 5% of the Corporation's 13,227,407 shares issued and outstanding as of August 31, 2020. The Corporation has entered into an automatic share purchase plan with a broker to facilitate potential repurchases. As at December 31, 2020, the Corporation has not made any repurchases under the 2020 plan.

The primary purpose of the NCIB repurchases is for cancellation. Under the automatic share purchase plan, the Corporation may repurchase shares at times when the Corporation would ordinarily not be permitted to due to regulatory restrictions or self-imposed blackout periods.  Repurchases will be made from time to time at the brokers' discretion, based upon parameters prescribed by the Corporation's written agreement. Repurchases may be effected through the facilities of the TSX, the NASDAQ or other alternative trading systems in the United States and Canada. The actual number of common shares purchased and the timing of such purchases will be determined by the broker considering market conditions, stock prices, the Corporation's cash position and other factors.

During the year ended December 31, 2020, the Corporation repurchased and cancelled 67,483 common shares (2019 - 872,686) at an aggregate purchase price of $1,042 (2019 - $10,258), resulting in a reduction of share capital and contributed surplus of $238 and $804, respectively (2019 - $3,269 and $4,985), and an increase in accumulated deficit of nil (2019 - $2,004).


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

17. (LOSS) EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted (loss) earnings per share:

    2020     2019  
Net (loss) income available to common shareholders for basic and diluted (loss) earnings per share $ (5,357 ) $ 11,889  
Weighted average number of common shares outstanding - basic   13,222,707     13,665,593  
Effect of dilutive securities   -     146,473  
Weighted average number of common shares outstanding - diluted   13,222,707     13,812,066  
(Loss) Earnings per share - reported            
     Basic $ (0.41 ) $ 0.87  
     Diluted $ (0.41 ) $ 0.86  

Diluted earnings per share represents the net income per share if instruments convertible into common shares had been converted at the beginning of the period, or at the time of issuance, if later. In determining diluted earnings per share, the weighted average number of common shares outstanding is increased by the number of shares that would have been issued if all share options with an issue price below the average share price for the period had been exercised at the beginning of the period, or at the time of issuance, if later. The weighted average number of common shares outstanding is also decreased by the number of common shares that could have been repurchased on the open market at the average share price for the period by using the proceeds from the exercise of share options. Share options with a strike price above the average share price for the period are not adjusted because including them would be anti-dilutive.

As at December 31, 2020, 1,021,156 options (2019 - 158,000) were excluded from the diluted weighted average number of common shares outstanding calculation as their effect would have been anti-dilutive. The average market value of the Corporation's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

18. LONG TERM DEBT

On December 10, 2019, the Corporation entered into a $50.0 million senior secured revolving credit facility with the Royal Bank of Canada and the Bank of Nova Scotia. The credit facility is available for general corporate purposes, including the financing of working capital, capital expenditures and acquisitions. This credit facility has a three-year maturity with no fixed repayment dates prior to the end of the three-year term ending December 10, 2022. Depending on the type of advance, interest rates under the credit facility are based on Canada prime rate, US base rate, Bankers' Acceptance (BA), London Interbank Offered Rate (LIBOR) or Euro Interbank Offered Rate (EURIBOR) plus an additional 0.75% to 2.00%. 

On November 23, 2020 the Corporation entered into an agreement with the lenders to amend the existing senior secured credit facility (the "Amendment") to provide covenant relief through June 30, 2021. The Amendment suspends the testing of financial covenants for three quarters, beginning with the quarter ended December 31, 2020 through to the end of June 2021. Under the terms of the amendment, the net senior leverage ratio, the interest coverage ratio, and the fixed charge coverage ratio are replaced through to June 30, 2021 with a minimum Adjusted EBITDA and a minimum liquidity test, with the Corporation agreeing to extend the Minimum Adjusted EBITDA test two additional quarters. In addition, the Corporation agreed to reduce the facility size from $50.0 million to $40.0 million. The Corporation also agreed to not initiate any purchases under the NCIB program and to restrict payments related to the RSU plan up to June 30, 2021. The amended credit facility also includes an anti-cash hoarding clause, which requires a repayment of excess cash borrowings when the Corporation's unrestricted cash and cash equivalents, plus amounts receivable from payment processors less amounts owing to loyalty partners, exceeds $25,000. Beginning in the third quarter of 2021, this amount will be increased to $30,000. Drawdowns and advances under the amended credit facility are based on Canada prime rate, US base rate, Bankers' Acceptance (BA), London Interbank Offered Rate (LIBOR) or Euro Interbank Offered Rate (EURIBOR) plus an additional 1.75% to 2.75%. The LIBOR is set to be phased out by the end of 2021. Under the Amendment, the Corporation has negotiated with the lenders to replace LIBOR with the Secured Overnight Financing Rate (SOFR) as the expected benchmark replacement. The benchmark replacement will be effective at the public statement release by the Benchmark Administrator, with the option for the Corporation to early adopt with the approval of the lenders.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

During the first quarter of 2020, the Corporation drew down $40,000 from the senior secured credit facility, and subsequently repaid $25,000 over the course of the second, third and fourth quarters of 2020.  As at December 31, 2020, the Corporation had drawn a $15,000 one month LIBOR Advance at an interest rate of 2.94%. At the end of the fourth quarter of 2020, the Corporation's cash levels increased to an amount which triggered a repayment of $3,500 under the anti-cash hoarding clause of the amended credit facility. This repayment was made subsequent to year end and was presented as current portion of long term debt on the consolidated statements of financial position as at December 31, 2020 (2019 - nil).  The remaining balance of $11,500 was recorded as long term debt on the consolidated statements of financial position (2019 - nil).

The amended credit facility contains certain financial and other covenants that the Corporation is required to maintain. The Corporation was in compliance with all applicable covenants under the amended credit facility agreement as at December 31, 2020. However, the duration and the impact of the COVID-19 pandemic on the Corporation's future financial performance remains uncertain. If the Corporation expects to be unable to maintain compliance with such covenants in future periods, the Corporation would seek to further amend or obtain additional waiver from its lenders, refinance the credit facility, or repay all or some of the outstanding balance of the credit facility within the next 12 months to avoid a potential breach.

On May 31, 2019, the Corporation's previous credit facilities with Royal Bank of Canada expired. The two facilities available to the Corporation prior to the expiration were as follows:

The Corporation had no borrowings in 2019.

Capital management

The Corporation's financial strategy is designed and formulated to maintain a flexible capital structure to allow the Corporation the ability to respond to changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust its capital structure, the Corporation could issue new shares, repurchase shares, approve regular or special dividends or issue debt. The above noted credit facility provides the Corporation with additional financial flexibility. The Corporation's senior management is responsible for managing capital through regular reviews of financial information to ensure sufficient resources are available to meet operating requirements and investments to support its long term growth strategy. The Board of directors is responsible for overseeing this process. The Corporation's financing and refinancing decisions are made on a specific transaction basis and depend on such things as the Corporation's needs, and market and economic conditions at the time of the transaction. The Corporation may invest in longer or shorter term investments depending on eventual liquidity requirements. The Corporation does not have any externally imposed capital compliance requirements other than those required to maintain its credit facility. There were no changes in the Corporation's approach to capital management during the year.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

19. SHARE-BASED PAYMENTS

As at December 31, 2020, the Corporation had two share-based compensation plans for its employees: a share option plan and a share unit plan.

Share option plan

Under the share option plan, employees are periodically granted options to purchase common shares at prices not less than the market price of the common shares on the day prior to the date of grant. During the year ended 2020, the Corporation did not grant any options under this plan (2019 - 288,000 performance options granted). 

The adverse impact of COVID-19 pandemic on the business has affected the probability of achieving certain performance thresholds of the performance options previously granted. During the first and the fourth quarters of 2020, the Corporation used the modified grant-date method and reassessed the probability of achieving the specified performance metrics for the performance options based on the most likely outcome, which resulted in a recovery of share option expense for 2020. During 2020, the Corporation recognized a recovery of employment costs of $464 (2019 - expense of $782) related to its share option plan.

The share option plan authorized the number of options for grant to be determined based on 10% of the larger of the outstanding shares as at March 2, 2016 or any time thereafter. The options available for grant as at December 31, 2020 and 2019 are shown in the table below:

    December 31, 2020     December 31, 2019  
Shares outstanding as at March 2, 2016   15,298,602     15,298,602  
    Percentage of shares outstanding   10%     10%  
Number of options authorized   1,529,860     1,529,860  
    Less: options issued & outstanding   (1,021,156 )   (1,321,288 )
Options available for grant   508,704     208,572  

The fair value of each option grant is estimated at the date of grant using the Black-Scholes option pricing model. Expected volatility is determined by the amount the Corporation's daily share price fluctuated over the expected life of the options. The fair value of options granted in 2019 were calculated using the following assumptions. 

 

2019

Dividend yield

NIL

Risk free rate

1.39% - 1.67%

Expected volatility

40.79% - 44.75%

Expected life of options in years

2.46 - 6.00

Weighted average fair value of options granted (CAD)

$4.37 - $8.95

A summary of the status of the Corporation's share option plan as of December 31, 2020 and 2019, and changes during the years ended on those dates is presented below.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted


    2020     2019  
    Number
of
Options

 

 

 

 

Weighted Average
Exercise Price

(in CAD$)

 

 

 

 

Number of
Options

 

 

 

 

Weighted Average
Exercise Price
(in CAD$)

 

 

Beginning of year   1,321,288   $ 14.26     1,229,040   $ 15.00  
Granted   -     -     288,000   $ 16.76  
Exercised   (150,511 ) $ 12.19     (2,338 ) $ 12.34  
Expired and forfeited   (149,621 ) $ 14.46     (193,414 ) $ 22.69  
End of year   1,021,156   $ 14.54     1,321,288   $ 14.26  
Exercisable at end of year   23,956   $ 10.50     195,688   $ 12.00  

For the year ended December 31, 2020:

    Options outstanding     Options exercisable  
Range of Exercise Prices (in CAD$)   Number of
options

 

 

 

 

Weighted average
remaining
contractual life (years)

 

 

 

 

Weighted average
exercise price
(in CAD$)

 

 

 

 

Number
of
options

 

 

 

 

Weighted
average
exercise price
(in CAD$)

 

 

$5.00  to $9.99   14,570     0.19   $ 9.89     14,570   $ 9.89  
$10.00 to $14.99   754,586     3.91   $ 13.90     9,386   $ 11.45  
$15.00 to $19.99   252,000     4.63   $ 16.72     -     -  
    1,021,156                 23,956        

For the year ended December 31, 2019:

    Options outstanding     Options exercisable  
Range of Exercise Prices (in CAD$)   Number of
options

 

 

 

 

Weighted average
remaining contractual
life (years)

 

 

 

 

Weighted
average
exercise price
(in CAD$)

 

 

 

 

Number
of
options

 

 

 

 

Weighted
average
exercise price
(in CAD$)

 

 

$5.00  to $9.99   22,280     1.19   $ 9.89     22,280   $ 9.89  
$10.00 to $14.99   1,011,008     4.15   $ 13.65     173,408   $ 12.27  
$15.00 to $19.99   288,000     5.58   $ 16.76     -     -  
    1,321,288                 195,688        

Share unit plan

During 2020, 522,231 share units were granted (2019 - 392,898). As at December 31, 2020, 570,126 RSUs were outstanding (2019 - 496,942 RSUs). As at December 31, 2020 and 2019, there were no PSUs outstanding.

During 2020, the Corporation recognized employment costs of $3,593 (2019 - $4,390) related to its share unit plan.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted


    Number of Share Units     Weighted Average Fair Value (in CAD$)  
Balance at January 1, 2020   496,942   $ 14.63  
Granted   522,231   $ 15.36  
Vested   (400,490 ) $ 14.99  
Forfeited   (48,557 ) $ 14.53  
Balance at December 31, 2020   570,126   $ 15.06  

     
Number of Share Units
    Weighted Average Fair Value (in CAD$)  
Balance at January 1, 2019   657,727   $ 11.50  
Granted   392,898   $ 17.01  
Vested   (497,284 ) $ 12.42  
Forfeited   (56,399 ) $ 14.14  
Balance at December 31, 2019 496,942   $ 14.63  

Under the Share Unit Plan, share units can be settled in cash or shares at the Corporation's discretion. The Corporation intends to settle all share units in equity at the end of the vesting period. To fulfill this obligation, the Corporation has appointed a trustee to administer the program and purchase shares from the open market through a share purchase trust on a periodic basis. During 2020, the Corporation did not purchase any shares for the trust (2019 - purchased 540,000 shares at a cost of $6,350). The Corporation paid certain withholding taxes in cash rather than reselling shares held in trust into the market. During 2020, 400,490 RSUs (2019 - 497,284) vested, for which the Corporation settled 291,608 RSUs (2019 - 252,394) through the issuance of shares held in trust and paid $1,209 (2019 - $3,122) of withholding taxes. As at December 31, 2020, 195,706 of the Corporation's common shares were held in trust for this purpose (2019 - 487,314).

20. OPERATING EXPENSES

    2020      2019   
Office expenses $ 1,174   $ 1,286  
Travel and entertainment   721     2,345  
Professional fees   3,536     3,105  
Insurance, bank fees and governance   1,293     1,258  
Operating expenses $ 6,724   $ 7,994  

21. FINANCIAL INSTRUMENTS

The Corporation has exposure to the following risks from its use of financial instruments:

This note presents information about the Corporation's exposure to each of the above risks, the Corporation's objectives, policies and processes for measuring and managing risk, and the Corporation's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Corporation's risk management framework. The Corporation's risk management policies are established to identify and analyze the risks faced by the Corporation, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Corporation's activities. The Corporation, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

The Corporation's Audit Committee oversees how management monitors compliance with the Corporation's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Corporation.

Credit risk

Credit risk is the risk of financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Corporation's receivables from customers.

The Corporation's cash and cash equivalents and cash held in trust also subject the Corporation to credit risk. The Corporation has term deposits, consistent with its practice of protecting its capital rather than maximizing investment yield. The Corporation manages credit risk by investing in cash equivalents and term deposits from financial institutions rated at A or R1 or above.


The Corporation, in the normal course of business, is exposed to credit risk from its customers and the accounts receivable are subject to normal industry risks. The Corporation usually provides various loyalty currency services to loyalty program partners which normally results in an amount payable to the loyalty program partner in excess of the amount held in accounts receivable, which mitigates the credit risk. The Corporation also manages and analyzes its accounts receivable on an ongoing basis and hence the Corporation's exposure to bad debts has not been significant.

The aging of accounts receivable as at December 31, 2020 and 2019 are as follows:

    December 31, 2020     December 31, 2019  
Current $ 2,966   $ 8,411  
Past due 31-60 days   328     1,051  
Past due 61-90 days   34     352  
Past due 91-120 days   24     41  
Past due over 120 days(1)   376     12,197  
Trade accounts receivable   3,728     22,052  
Less allowance for doubtful accounts   (169 )   (188 )
  $ 3,559   $ 21,864  

(1) 2019 amount includes receivables for prior year tax rebate, which was received from the tax authorities subsequent to the year ended December 31, 2019. Refer to Note 25.

The following table provides the change in allowance for doubtful accounts for trade accounts receivable:

    2020     2019  
Balance, beginning of year $ 188   $ 154  
(Reversal of) Provision for doubtful accounts   (13 )   69  
Bad debts written off, net of recoveries   (6 )   (35 )
Balance, end of year $ 169   $ 188  

The provision for doubtful accounts has been included in operating expenses in the consolidated statements of comprehensive (loss) income, and is net of any recoveries of amounts that were provided for in a prior period. The carrying amount of the Corporation's current financial assets represent its maximum exposure to credit risk.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

Liquidity risk

Liquidity risk is the risk that the Corporation will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Corporation actively maintains access to adequate funding sources to ensure it has sufficient available funds to meet current and foreseeable financial requirements at a reasonable cost. The following table summarizes the carrying amount and the contractual maturities of both the interest and principal portion of significant financial liabilities as at December 31, 2020 and 2019:

          Contractual Cash Flow Maturities  
As at December 31, 2020   Carrying
Amount
    Total     Within 1
year
    1  year
to 3
years
    3 years
and
beyond
 
Accounts payable and accrued liabilities $ 5,766   $ 5,766   $ 5,766   $ -   $ -  
Income taxes payable   489     489     489     -     -  
Payable to loyalty program partners   50,629     50,629     50,629     -     -  
Long term debt including interest payments(1)   15,000     15,522     3,502     12,020     -  
  $ 71,884   $ 72,406   $ 60,386   $ 12,020   $ -  

1 Interest on long term debt is based on LIBOR and SOFR rate as at year end 2020, which represents Management's best estimate based on information available.

          Contractual Cash Flow Maturities  
As at December 31, 2019   Carrying
Amount
    Total     Within 1
year
    1  year
to 3 years
    3 years
and
beyond
 
Accounts payable and accrued liabilities $ 13,766   $ 13,766   $ 13,766   $ -   $ -  
Foreign exchange forward contracts designated as cash flow hedges   1     1     1     -     -  
Income taxes payable   2,326     2,326     2,326     -     -  
Payable to loyalty program partners   78,270     78,270     78,270     -     -  
  $ 94,363   $ 94,363   $ 94,363   $ -   $ -  

Management believes that cash on hand, future cash flows generated from operations and availability of current and future funding will be adequate to repay these financial liabilities when they become due.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Corporation's cash flows or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

Currency risk

The Corporation has customers and suppliers that transact in currencies other than the USD which gives rise to a risk that earnings and cash flows may be adversely affected by fluctuations in foreign currency exchange rates. The Corporation is primarily exposed to the Canadian dollar, the EURO and the British Pound. The Corporation has entered into foreign exchange forward contracts to reduce the foreign exchange risk with respect to Canadian dollar denominated disbursements. Revenues earned from the Corporation's partners based in Canada are contracted in and paid in Canadian dollars. The Corporation uses these funds to fund the Canadian operating expenses thereby reducing its exposure to foreign currency fluctuations.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

As at December 31, 2020, forward contracts with a notional value of $18,830 (December 31, 2019 - $19,860), and in a net asset position of $827 (2019 - net asset position of $228), with settlement dates extending to November 2021, have been designated as cash flow hedges for hedge accounting treatment under IFRS 9, Financial Instruments. These contracts are intended to reduce the foreign exchange risk with respect to anticipated Canadian dollar denominated expenses.

The change in fair value of derivatives designated as cash flow hedges is recognized in OCI, except for any ineffective portion, which is recognized immediately in the foreign exchange gain or loss. As at December 31, 2020 and 2019, all hedges were considered effective. Realized gains and losses in accumulated other comprehensive income are reclassified to profit or loss in the same period as the corresponding hedged items are recognized in income. In 2020, total realized losses of $384 were reclassified to employment costs and other operating expenses for Canadian dollar currency hedges (2019 - $550 total realized losses). The carrying amount of hedging derivatives designated in cash flow hedges that mature within one year is included in prepaid expenses and other assets and/or current portion of other liabilities. 

The Corporation holds balances in foreign currencies that give rise to exposure to foreign exchange risk. In general and strictly relating to the foreign exchange ("FX") gain or loss of translating certain non-USD balance sheet accounts, a strengthening US dollar will lead to an FX loss on assets and a gain on liabilities and vice versa. Sensitivity to a +/- 10% movement in all currencies held by the Corporation versus the USD would affect the Corporation's income before tax by $985 (2019 - $41) excluding the effect of hedging. Significant balances denominated in foreign currencies that are considered financial instruments are as follows:

As at December 31, 2020   CAD     GBP     EUR     JPY  
FX Rates used to translate to USD   0.7849     1.3663     1.2278     0.009701  
Balances below in source currency (in thousands)                        
Financial assets                        
Cash and cash equivalents   6,692     4,825     5,680     67,097  
Cash held in trust   357     -     -     -  
Funds receivable from payment processors   29     306     1,070     11,482  
Accounts receivable   1,428     188     55     25,497  
    8,506     5,319     6,805     104,076  
Financial liabilities                        
Accounts payable and accrued liabilities   3,697     365     34     725  
Payable to loyalty program partners   476     2,896     5,114     14,058  
    4,173     3,261     5,148     14,783  


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted


As at December 31, 2019   CAD     GBP     EUR     JPY  
FX Rates used to translate to USD   0.76750     1.31710     1.12170     0.009213  
Balances below in source currency (in thousands)                        
Financial assets                        
Cash and cash equivalents   3,814     4,256     2,826     183,018  
Cash held in trust   3,302     -     -     -  
Funds receivable from payment processors   422     862     867     26,241  
Accounts receivable   1,653     3,129     859     62,993  
    9,191     8,247     4,552     272,252  
                         
Financial liabilities                        
Accounts payable and accrued liabilities   5,239     3,221     102     8,773  
Payable to loyalty program partners   4,456     6,111     5,345     89,531  
    9,695     9,332     5,447     98,304  

Interest rate risk

The Corporation is exposed to interest rate risk from fluctuations in interest rates on cash and cash equivalents and its floating rate senior secured revolving credit facility. The Corporation manages interest rate risk by monitoring the floating rate and repaying all or some of the outstanding balance of the credit facility if necessary. The Corporation's cash and cash equivalents earn a floating rate of return, which serves to offset its exposure to interest rate risks. As at December 31, 2020, the Corporation does not believe that a sudden change in market interest rates would result in any significant impact on the results of operations, due to the impact on cash and cash equivalents more than offsetting the impact on the outstanding balance of the credit facility. 

Determination of fair value

For financial assets and liabilities that are valued at other than fair value on the consolidated statement of financial position (funds receivable from payment processors, accounts receivable, accounts payable and accrued liabilities and payable to loyalty program partners), fair value approximates the carrying value as at December 31, 2020 and 2019 due to their short-term maturities. The fair value of long term debt approximates its carrying value as at December 31, 2020.

A number of the Corporation's accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

Derivatives

The fair value of forward exchange contracts is based on valuations received from the derivative counterparty, which management evaluates for reasonability. Fair values reflect the credit risk of the instrument and include adjustments to take into account the credit risk of the Corporation and the derivative counterparty when appropriate.

Fair value hierarchy

The Corporation has determined the estimated fair values of its financial instruments based on appropriate valuation methodologies, as disclosed below. However, considerable judgment is required to develop certain of these estimates. Accordingly, these estimated values are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies. The methods and assumptions used to estimate the fair value of each class of financial instruments are discussed below.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

The table below analyzes financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Quoted market prices for an identical asset or liability represent a Level 1 valuation. When quoted market prices are not available, the Corporation maximizes the use of observable inputs within valuation models. When all significant inputs are observable, the valuation is classified as Level 2. Valuations that require the use of significant unobservable inputs are considered Level 3. The carrying value of financial assets and financial liabilities measured at fair value in the consolidated statement of financial position as at December 31, 2020 and 2019 are as follows:

2020   Carrying Value     Level 2  
Assets:            
Foreign exchange forward contracts designated as cash flow hedges(i) $ 827   $ 827  
  $ 827   $ 827  

2019   Carrying Value     Level 2  
Assets:            
Foreign exchange forward contracts designated as cash flow hedges(i) $ 229   $ 229  
Liabilities:            
Foreign exchange forward contracts designated as cash flow hedges(i)   (1 )   (1 )
  $ 228   $ 228  

(i) The carrying values of the Corporation's foreign exchange forward contracts are included in prepaid expenses and other assets and current portion of other liabilities in the consolidated statements of financial position.

There were no material financial instruments categorized in Level 1 or Level 3 as at December 31, 2020 and December 31, 2019 and there were no transfers of fair value measurement between Levels 2 and 3 of the fair value hierarchy in the respective periods.

22. GUARANTEES AND COMMITMENTS

    Total     Year 1(2)     Year 2     Year 3     Year 4     Year 5+  
Direct cost of revenue(1) $ 448,585   $ 169,868   $ 126,076   $ 117,406   $ 35,235   $ -  

(1) For certain loyalty partners, the Corporation guarantees a minimum level of purchase of points/miles, for each contract year, over the duration of the contract term between the Corporation and loyalty program partner.  Management evaluates each guarantee at each reporting date and at the end of each contract year, to determine if the guarantee was met for that respective contract year. 

(2) The guarantees and commitments schedule is prepared on a rolling 12-month basis. If a revenue guarantee has been met, it is removed from the disclosure above.


POINTS INTERNATIONAL LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
All amounts in thousands of U.S. dollars, except per share figures, unless otherwise noted

23. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in non-cash balances related to operations are as follows:

    2020     2019  
Decrease (Increase) in funds receivable from payment processors $ 8,507   $ (790 )
Decrease (Increase) in accounts receivable   18,305     (12,546 )
(Increase) Decrease in prepaid taxes   (1,566 )   189  
(Increase) Decrease in prepaid expenses and other assets   (1,094 )   1,356  
Decrease (Increase) in other assets   14     (216 )
(Decrease) Increase in accounts payable and accrued liabilities   (8,031 )   4,277  
(Decrease) Increase in income taxes payable   (1,837 )   2,209  
Increase (Decrease) in other liabilities   12     (800 )
(Decrease) Increase in payable to loyalty program partners   (27,641 )   8,521  
  $ (13,331 ) $ 2,200  

24. RELATED PARTIES

Transactions with key management personnel

Compensation

In addition to their salaries, the Corporation also provides non-cash benefits to directors and executive officers. Directors and executive officers participate in the Corporation's share-based compensation plans (Refer to Note 19).

Key management personnel compensation comprised the following:

In thousands of Canadian dollars   2020     2019  
Short-term employee salaries and benefits $ 2,727   $ 2,260  
Share-based compensation   2,572     4,119  
Total compensation $ 5,299   $ 6,379  

25. PRIOR YEAR TAX REBATE

During the second quarter of 2019, the Corporation filed for a tax rebate of $6,027, net of fees, related to prior years and was accepted by the tax authorities. The amount was included as a reduction of direct cost of revenue in the consolidated statements of comprehensive (loss) income. The related receivable and associated fees payable were recorded in accounts receivable and accounts payable and accrued liabilities in the consolidated statements of financial position, respectively. The Corporation received the tax rebate from the tax authorities in the first quarter of 2020.



Points International Ltd.: Exhibit 99.3 - Filed by newsfilecorp.com

POINTS INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS

INTRODUCTION

Our Management's Discussion and Analysis ("MD&A") of financial condition and results of operations contains references to Points International Ltd. and its subsidiaries using words "we," "our," and "us."

This MD&A should be read in conjunction with our audited consolidated financial statements (including the notes thereto) for the years ended December 31, 2020 and 2019. Further information, including the Annual Information Form ("AIF") and Form 40-F for the year ended December 31, 2020, may be accessed at www.sedar.com or www.sec.gov.

We have prepared the MD&A with reference to the Form 51-102F1 MD&A disclosure requirements established under National Instrument 51-102 "Continuous Disclosure Obligations" of the Canadian Securities Administrators.

The financial information presented in this MD&A is derived from our audited consolidated financial statements for the years ended December 31, 2020 and 2019, which has been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and all dollar amounts herein are in thousands of United States dollars unless otherwise specified. This MD&A is dated as of March 3, 2021 and was reviewed by our Audit Committee and approved by our Board of Directors.

FORWARD-LOOKING STATEMENTS

This MD&A contains or incorporates forward-looking statements within the meaning of United States securities legislation and forward-looking information within the meaning of Canadian securities legislation (collectively, "forward-looking statements"). These forward-looking statements include or relate to, among other things, plans we have implemented in response to the COVID-19 pandemic and its expected impact on us (including with respect to: cost saving measures that have been implemented, our liquidity and efforts to strengthen our balance sheet, expected impacts on transaction volumes, revenue, gross profit and profitability, the impact of our annual revenue guarantees, and our ability to deliver on our long-term goals), our growth strategies (including our ability to grow the number of loyalty program partners, cross-selling existing partners, and retain and grow existing loyalty program partner deployments), and our beliefs on the long-term sustainability of the loyalty industry, and may also include other statements that are predictive in nature, or that depend upon or refer to future events or conditions, and can generally be identified by words such as "may," "will," "expects," "anticipates," "continue," "intends," "plans," "believes," "estimates" or similar expressions. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These statements are not historical facts but instead represent only our expectations, estimates and projections regarding future events.


POINTS INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS

Although we believe the expectations reflected in such forward-looking statements are reasonable, such statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Undue reliance should not be placed on such statements. Certain material assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Known and unknown factors could cause actual results to differ materially from those expressed or implied in the forward-looking statements. In particular, uncertainty around the duration and scope of the COVID-19 pandemic and the impact of the pandemic and actions taken in response on global and regional economies, economic activity, and all elements of the travel and hospitality industry may have a significant and materially adverse impact on our business. In addition, the risks, uncertainties and other factors that may impact the results expressed or implied in such forward-looking statements include, but are not limited to: airline or travel industry disruptions, such as an airline insolvency and continued airline consolidation; our dependence on a limited number of large clients for a significant portion of our consolidated revenue; our reliance on contractual relationships with loyalty program partners that are subject to termination and renegotiation; our exposure to significant liquidity risk if we fail to meet contractual performance commitments; the risk of an event of default under our senior secured credit facility; our ability to convert our pipeline of prospective partners or launch new products with new or existing partners as expected or planned; our dependence on various third-parties that provide certain solutions in our Platform Partners segment that we market to loyalty program partners; and the fact that our operations are conducted in multiple jurisdictions and in multiple currencies and as such dramatic fluctuations in exchange rates of the foreign currencies can have a dramatic effect on our financial results. In particular, refer to "Risks and Uncertainties" section below. These and other important assumptions, factors, risks and uncertainties are included in the press release announcing our fourth quarter and 2020 financial results, and those described in our other filings with applicable securities regulators, including our AIF, Form 40-F, annual and interim MD&A, and annual consolidated financial statements and interim condensed consolidated financial statements and the notes thereto. These documents are available at www.sedar.com and www.sec.gov.

The forward-looking statements contained in this MD&A are made as at the date of this MD&A and, accordingly, are subject to change after such date. Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements made or incorporated in this MD&A, whether as a result of new information, future events or otherwise.

BUSINESS OVERVIEW

We are the global leader in providing loyalty e-commerce and technology solutions to the loyalty industry, connecting loyalty programs, third-party brands and end consumers across a global transaction platform. Our head office is in Toronto, Canada and we maintain offices in San Francisco, United States, London, England, Singapore and Dubai.


POINTS INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS

As a trusted partner to the world's leading loyalty programs, Points builds, powers, and grows new ways for members to get and use their favorite loyalty currency.  We do not manage our own loyalty program nor do we offer the core technology that operates a loyalty program.  Our business is focused on becoming an important strategic partner to the world's most successful loyalty programs by partnering with them on valuable, white label, ancillary services.

At its simplest, our products and services are designed to benefit loyalty programs by: (1) increasing loyalty program revenues and profitability through the sale of loyalty program currency (such as frequent flyer miles or hotel points) or related travel and loyalty services direct to end consumers or third parties; (2) driving efficient cost management to loyalty program operators by offering non-core redemption options; and (3) enhancing loyalty program member engagement. We now have approximately 80 commercial agreements or integrations with loyalty programs or third parties globally. Most of our commercial contracts enable us to transact directly or indirectly with the loyalty programs' member base to facilitate the sale, redemption or earning of loyalty currency online. Our commercial agreements with loyalty program partners are typically for fixed terms of three to five years. Contracts will generally renew with either an annual evergreen clause or a new contract extension for a set term.

Our Loyalty Commerce Platform ("LCP") is the backbone of our product and service offerings. The LCP offers a consistent interface for loyalty programs and third parties, providing broad access to loyalty transaction capabilities, program integration, analytics, reporting, enterprise-grade security and compliance, and real-time fraud services. We have direct integrations with approximately 80 loyalty programs and third parties, including merchants and other technology companies in the loyalty and travel space. 

Collectively, our network of loyalty program partners represents over 1 billion loyalty program accounts. Our platform and integrations typically provide us with full debit and credit functionality, enabling us to deposit or withdraw loyalty currency from each of these accounts.  We view these integrations as a strategic asset that uniquely positions us to connect third-party channels with highly engaged loyalty program members and the broader loyalty market. In addition, our platform is positioned to collect transaction related insights that we can leverage to increase online conversion percentages, transactions, and ultimately revenues for us and our partners. 


POINTS INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS

Our loyalty partner network includes the following leading loyalty brands:

·      AF-KLM Flying Blue

·      Southwest Airlines Rapid Rewards

·      Alaska Airlines Mileage Plan

·      United Airlines MileagePlus

·      American Airlines AAdvantage

·      Virgin Atlantic Flying Club

·      ANA Mileage Club

·      Hilton Honors

·      British Airways Executive Club

·      World of Hyatt

·      Delta Air Lines SkyMiles

·      InterContinental Hotels Group

·      JetBlue TrueBlue 

·      Wyndham Rewards         

·      LATAM Pass

·      Emirates Skywards

·      Lufthansa's Miles & More

·      Chase Ultimate Rewards

·      Marriott Bonvoy

·      Citi ThankYou