A-Labs Capital II Corp. — Management Reports 2021

Feb 9, 2021

A-LABS CAPITAL II CORP. (A CAPITAL POOL COMPANY)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2020

INTRODUCTION

This Management's Discussion & Analysis ("MD&A") provides a review of A-Labs Capital II Corp.'s (the "Company") performance for the year ended December 31, 2020. It should be read in conjunction with the Company's audited annual financial statements and accompanying notes for the years ended December 31, 2020 and December 31, 2019. The financial information contain in this MD&A has been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board. This MD&A has also been prepared in compliance with the requirements of National Instrument 51-102 – Continuous Disclosure Obligations. All monetary amounts in this MD&A and in the financial statements are expressed in Canadian dollars unless otherwise stated. Information referenced in this MD&A as well as additional information about the Company and its operations can be obtained from the offices of the Company or from www.sedar.com.

The effective date of this MD&A is February 8, 2021.

Except for statements of historical fact, certain information contained in this MD&A constitutes forwardlooking statements. Forward-looking statements are usually identified by the use of certain terminology, including "will", "may", "expects", "estimates", "continues", "believes", "intends", or variations thereof, or by discussions of strategy or intentions, or the negatives of such words and phrases. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results or achievements to be materially different from any future results or achievements express or implied by such forward-looking statements. See additional discussion under the "Caution Regarding Forward-Looking Statements" section.

CORPORATE PROFILE AND OVERVIEW

The Company was incorporated on September 5, 2018, pursuant to the provisions of the Business Corporations Act (British Columbia) and is classified as a Capital Pool Company as defined in Policy 2.4 – Capital Pool Companies ("Policy 2.4") of the TSX Venture Exchange Inc. (the "TSX-V").

On March 13, 2019, the Company completed an initial public offering to which it issued an aggregate of 2,000,000 common shares at a price of $0.10 per common share (the "Offering") for aggregate gross proceeds of $200,000. On March 13, 2019, the common shares of the Company were listed on the TSX-V under the trading symbol "ALAB.P".

The Company's principal purpose is the identification and evaluation of assets or a business with a view to the negotiation of an acquisition or the participation in a business in order to satisfy the conditions of a Qualifying Transaction, as defined under the policies of the TSX-V (the "QT"). As the Company has no active operations to date, its long-term future is dependent upon the completion of a QT and, if required, its ability to secure the necessary financing in connection with such QT.

The registered head office address of the Company is currently located at 595 Howe Street, 10th Floor, Vancouver, British Columbia, Canada V6C 2T5.

Completion of Initial Public Offering

The Company completes its Offering of 2,000,000 common shares at $0.10 per share for gross proceeds of $200,0000 pursuant to a final prospectus dated December 17, 2018 filed with the British Columbia and Alberta Securities Commissions. Following the completion of the Offering, there were 5,700,000 common shares issued and outstanding, 570,000 incentive stock options granted to the Company's directors and officers and 200,000 options granted to Haywood Securities Inc. and Canaccord Genuity Corp. (together, the "Agents") in connection with their respective role as agent and sub-agent for the Offering.

Overall Performance and Qualifying Transaction

The Company will not have any operations or business until the completion of a QT, other than the identification and evaluation of businesses and assets for potential acquisition. Accordingly, the Company does not generate revenue or pay any dividends.

As at December 31, 2020, the Company had a deficit of $152,921. The Company's potential acquisition of a QT and recurring operating losses and working capital needs may require that it obtain additional capital to continue its operations. Such outside capital may include the sale of additional common shares.

On October 16, 2019, the Company entered into a letter of intent ("LOI") with S.R.P. Plus Holdings Ltd. ("VLife"), an Israeli private company. Pursuant to the LOI, the Company and VLife agreed to a proposed acquisition by the Company of 100% of the outstanding securities of VLife in exchange for common shares of the Company. The transaction was intended to constitute the Company's QT under the policies of the TSX-V. On September 1, 2020, the Company announced the termination of the proposed QT between VLife and the Company.

On October 1, 2020, the Company entered into a letter agreement ("Letter Agreement") with RDARS Inc. ("RDARS") for the purpose of completing a QT (the "Proposed Transaction"). RDARS is a private company existing under the laws of Ontario. Pursuant to the Letter Agreement, the Company and RDARS have agreed to a Proposed Transaction by the Company of 100% of the issued and outstanding securities of RDARS in exchange for the issuance of securities of the Company, resulting in a reverse takeover of the Company by RDARS.

As previously disclosed in the Company's press release dated October 2, 2020, RDARS' primary business is the development and sale of its proprietary autonomous drone technology solution for the residential and small commercial security space. RDARS has created a fully autonomous "drone-in-a-box" and drone solution for real time alarm response, verification, and both autonomous and manual flight intervention.

On November 12, 2020, the Company and RDARS entered into an amendment to the Letter Agreement to extend the date by which the definitive agreement in respect of the Proposed Transaction (the "Definitive Agreement") is to be entered into by the parties from November 16, 2020 to December 15, 2020. The Company entered into a second amendment to the Letter Agreement on December 15, 2020 to further extend the deadline to enter into the Definitive Agreement from December 15, 2020 to January 15, 2021.

At the date of this MD&A, the parties continue to work towards entering into the Definitive Agreement.

In accordance with the policies of the TSX-V, the Company's common shares were halted for trading on October 2, 2020 until certain documentation required by the TSX-V for the Proposed Transaction can be provided to the TSX-V. The Company's common shares may resume trading following the TSX-V's review of the required documentation or the Company's common shares may remain halted until completion of the Proposed Transaction. As of the date of this MD&A, the Company's common shares remain halted.

The Company intends to hold an annual general and special meeting of shareholders (the "Meeting") at the offices of Oziel Law, located on 5255 Yonge Street, Suite 1110, Toronto, Ontario, M2N 6P4 on Thursday, March 11, 2021 at 9:00 am (Eastern Time). In addition to general annual matters, the Meeting will request shareholder approval in connection with certain changes to Policy 2.4 of the TSX-V, which became effective on January 1, 2021 (referred to hereunder as the "New Policy"). Further information about the Meeting and the matters to be approved at the Meeting will be described in the Company's management information circular which will be accessible on SEDAR at www.sedar.com once filed.

RESULTS OF OPERATIONS

As of the date of this MD&A, the Company is a Capital Pool Company. Accordingly, the Company has not recorded any revenues, and depends upon share issuances and its cash on hand to fund its administrative expenses.

For the immediate future, the Company intends to continue working towards completing the Proposed Transaction. Management regularly monitors economic conditions and estimates their impact on the Company's operations and incorporates these estimates in both short-term operating and longer-term strategic decisions. Other than the termination of the letter of intent with VLife and the pursuit of the completion of the Proposed Transaction with RDARS as further described in the "Overall Performance and Qualifying Transaction" section above, there were no significant activities to report during the twelve-months ended December 31, 2020.

Selected Financial Information

The table below provides a summary of selected financial information derived from the audited financial statements for the periods ended December 31, 2020 and 2019.

	Three months endedDecember 31, 2020	Three months endedDecember 31, 2019	For the year endedDecember 31, 2020	For the year endedDecember 31, 2019
Total expenses(1)	$21,320	$24,018	$40,035	$133,940
Net loss
- Total	$(21,320)	$(24,018)	$(40,035)	$(133,940)
- Per share	$(0.01)	$(0.01)	$(0.02)	$(0.08)
Total assets	$195,099	$231,779	$195,099	$231,779
Cash used in operations	$14,370	$(1,100)	$36,680	$65,440
Long-termfinancialliabilities	$nil	$nil	$nil	$nil
Basic and diluted loss pershare	$0.01	$0.01	$0.02	$0.08
Weighted average number ofcommon shares outstanding	$1,605,479	$1,605,479	$1,605,479	$1,605,479

Notes:

(1) Total expenses include professional fees.

Net and Comprehensive Loss

The Company recorded a net loss of $21,320 for the three-months ended December 31, 2020, with basic and diluted loss per share of $0.01. This compares with a net loss of $24,018 with basic and diluted loss per share of $0.01 for the three-months ended December 31, 2019.

The decrease in the net loss of $2,698 during this fiscal quarter, compared to the three-month period ended December 31, 2019, was principally because of decreased professional costs related to the pursuit of a QT, which included accounting fees, legal fees, and transfer agent fees.

Regulatory fees of $6,039 were incurred for the twelve-months ended December 31, 2020, in connection with the annual continuous disclosure filing fees and TSX-V fees. Additionally, accounting fees of $9,017.10 were incurred for the twelve-months ended December 31, 2020, in connection with the preparation of annual audited and interim unaudited financial statements for the year ended December 31, 2019 and the first, second and third quarters of 2020, respectively.

Summary of Quarterly Results

The following table sets out financial information for each of the eight most recently completed quarters, commencing from the 2019 fiscal first quarter of the Company to the 2020 fourth fiscal quarter. This summary of quarterly results should be read in conjunction with the Company's audited annual financial statements and accompanying notes for the years ended December 31, 2019 and December 31, 2020.

	Q4-2019	Q3-2019	Q2-2019	Q1-2019
Stock-based compensation	$nil	$nil	$nil	$42,579
General and Administration Costs:
Operating expenses	$17,379	$1,808	$104	$12,199
Professional fees	$6,639	$17,132	$23,545	$12,555
Provision for bad debt	-	-	-	-
Net loss for the period	$24,018	$18,940	$23,649	$67,333
Basic and diluted Loss per share	$0.02	$0.01	$0.01	$1.68

Q4-2020	Q3-2020	Q2-2020	Q1-2020
$nil			$nil
$5,337			$7,864
$15,983			$6,228
-	-	-	-
$21,320			$14,092
$0.01	$0.00	$0.00	$0.01
		$nil$nil$4,433$4,433	$nil$4,429$(4,239)$190

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash of $231,779 at December 31, 2019 compared to $195,099 at December 31, 2020, a decrease of $36,680, due to ongoing professional fees and regulatory costs.

As at December 31, 2020, the Company has accounts payable and accrued liabilities of $28,398 (December 31, 2019 - $25,043) due within 12 months, and cash of $195,099 (December 31, 2019 – $231,779).

As at December 31, 2020, the Company had a working capital of $166,701, which is defined as current assets less current liabilities. This is expected to be adequate to maintain the Company's current levels of activity for the foreseeable future, pending completion of the Proposed Transaction.

The Company manages its capital structure and makes adjustments to it, based on available funds to the Company.

The Company is a Capital Pool Company which was listed on the TSX-V in accordance with the then current policies under Policy 2.4 (the former Policy 2.4, as at June 14, 2010, is referred to hereunder as the "Former Policy").

Pursuant to the Former Policy, the proceeds raised from the issuance of common shares may only be used to identify and evaluate assets or businesses for future investment, with the exception that not more than the lesser of 30% of the gross proceeds from the issuance of shares or $210,000 may be used to cover prescribed costs of its initial public offering as well as certain on-going administrative and general expenses of the Company. To the extent permitted, the Company intends on removing these restrictions in the near future by a resolution of the board of directors (the "Board") in accordance with the New Policy.

SHARE CAPITAL

The Company's authorized share capital is an unlimited number of common shares without nominal or par value.

The following table sets forth the Company's issued and outstanding common shares and amount of gross proceeds raised:

Balance as at	Number of Common Shares	Amount ($)
December 31, 2018	3,700,000	185,000
December 31, 2019	5,700,000	306,518
December 31, 2020	5,700,000	306,518

(i) Common Shares

As of the date of this MD&A, the Company has issued an aggregate of 3,700,000 common shares in connection with the Company's seed financing at a price of $0.05 per share for gross cash proceeds of $185,000.

The Company completed the Offering on March 13, 2019, pursuant to which it issued 2,000,000 common shares at $0.10 per share, for aggregate gross proceeds of $200,000.

(ii) Escrowed Common Shares

3,700,000 of the Company's common shares, issued during the seed financing, are subject to escrow restrictions pursuant to the Former Policy of the TSX-V and as described in the Company's prospectus dated December 17, 2018.

The Company is seeking to approve certain amendments to the Company's escrow agreement dated December 17, 2018, by and between the Company, TSX Trust Company and certain registered shareholders, pursuant to the changes under the New Policy. Subject to disinterested shareholders approval at the Meeting and TSX-V's approval, the Company will reduce the length of the term of the applicable escrow provisions from the 36 months provided under the Former Policy to not less than 18 months, as provided under the New Policy.

(iii) Stock Options

As of the date of this MD&A, there are 570,000 incentive stock options granted to the Company's directors and officers which are each entitled to be exercised into a common share until March 13, 2024 at an exercise price of $0.10 per incentive stock option. The incentive stock options are subject to the terms and conditions of the Company's current stock option plan which was adopted by the Board on October 19, 2018.

(iv) Agents' Options

As of the date of this MD&A, the Company issued 200,000 options to the Agents in connection with acting as agent and sub-agent in the Company's Offering, each such option entitles each Agent to acquire one common share at an exercise price of $0.10. Such Agents' options currently expire on March 13, 2021. Subject to approval from the TSX-V and disinterested shareholders at the Meeting, the Company is seeking to increase the length of the term of the Agents' options from March 13, 2021 to March 13, 2024, in

accordance with the requirements under the New Policy.

Off Balance Sheet Arrangements

The Company has no off-balance sheet arrangements as of December 31, 2020.

Transactions with Related Parties

As of the date of this MD&A, the Company has not entered into any related party transactions.

Proposed Transactions

Please refer to "Overall Performance and Qualifying Transaction" above for details relating to the Proposed Transaction with RDARS.

Investor Relations

Until completion of a QT, neither the Company nor any party on behalf of the Company will engage the services of any person to provide investor relation activities or market making services.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those estimates that have a high degree of uncertainty and for which changes in those estimates could materially impact the Company's results. There have been no critical accounting estimates made in the preparation of the financial statements for the year ended December 31, 2020.

Financial Instruments

The Company's financial instruments, consisting of cash, accounts payable, and accrued liabilities, approximate fair values due to the relatively short-term maturities of the instruments. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

Disclosure Controls and Procedures

Disclosure controls and procedures are intended to provide reasonable assurance that information required to be disclosed is recorded, processed, summarized, and reported within the time periods specified by securities regulations and that the information required to be disclosed is accumulated and communicated to management. Internal controls over financial reporting are intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. As the Company is a venture issuer, management does not make any representations in this regard, and the Company has inherent limitations in this regard that may result in additional risks relating to its filings and reporting.

RISK FACTORS

The Company does not have a history of operations. There is no assurance that it will produce revenue, operate profitably or provide a return on investment in the future.

The Company is focused on completing a QT in accordance with the policies of the TSX-V. There are restrictions on the Company's activities prior to the completion of a QT and general and specific parameters regarding the characteristics and timing of a QT. Until completion of a QT, the Company is not permitted to carry on any business other than the identification and evaluation of potential QTs.

An investment in the securities of the Company is highly speculative and involves numerous and significant risks. Such investment should be undertaken only by investors whose financial resources are sufficient to enable them to assume these risks and who have no need for immediate liquidity in their investment. Prospective investors should carefully consider the risk factors that have affected, and which in the future are reasonably expected to affect, the Company and its financial position.

Following the global spread of COVID-19, management cannot estimate whether or to what extent this outbreak and potential financial impact may extend to countries outside of those currently impacted. The future impact of the outbreak is highly uncertain and cannot be predicted, and there is no assurance that the outbreak will not have a material adverse impact on the Company's ability to complete a QT. The extent of the impact, if any, will depend on future developments, including actions taken to contain COVID-19.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Except for statements of historical fact, certain information contained in this MD&A constitutes forwardlooking statements. Forward-looking statements are usually identified by the use of certain terminology, including "will", "may", "expects", "estimates", "continues", "believes", "intends", or variations thereof, or by discussions of strategy or intentions, or the negatives of such words and phrases. Forward-looking statements in this MD&A include, but are not limited to, the date and matters tabled for the Meeting, the expected approvals from the shareholders of the Company, the TSXV and the Board, the closing of the potential QT and the anticipated benefits of the potential QT, including the potential business of the Company after completion of the potential QT and the ability of the Company to complete a QT. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results or achievements to be materially different from any future results or achievements express or implied by such forward-looking statements.

Inherent in forward-looking statements are risks, uncertainties and other factors beyond the Company's ability to predict or control, including with respect to the closing of the potential QT, the timing and receipt of all applicable regulatory and corporate approvals, the satisfaction of other conditions to the closing of the potential QT, the ability of the Company and RDARS of entering into a Definitive Agreement and the Company's ability to satisfy the requirements under the New Policy in connection with the proposed changes disclosed in this MD&A. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this MD&A.

If risks or uncertainties materialize, or if underlying assumptions prove incorrect, the actual results may vary materially from those expected, estimated or projected. The Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by applicable securities laws. There can be no assurance that such statements will prove to be accurate, and future events and actual results could differ materially from those anticipated in such statements. Given these uncertainties, the reader of the information included herein is cautioned not to place undue reliance on such forward-looking statements.