Axion Ventures Inc.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2019

Dated November 8, 2021

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

INTRODUCTION

The following management discussion and analysis (“MD&A”) of the financial condition and results of the operations of Axion Ventures Inc. (“Axion Ventures” or the “Company”) constitutes management’s review of the factors that affected the Company’s financial and operating performance for the year ended December 31, 2019. This MD&A was written to comply with the requirements of National Instrument 51-102 Continuous Disclosure Obligations and Form 51-102F1 Management Discussion and Analysis.

This MD&A should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 31, 2019, along with related notes thereto, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). All figures are in United States Dollars (“US$”) unless otherwise noted. References to C$ are to Canadian Dollars. The effective date of this MD&A is November 8, 2021.

The results for the periods presented are not necessarily indicative of the results that may be expected for any future period. Information contained herein is presented as at this date, unless otherwise indicated. For the purposes of preparing this MD&A, management, in conjunction with the board of directors (the "Board”), considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the Company’s common shares; (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) if it would significantly alter the total mix of information available to investors.

Additional information about Axion Ventures is available at www.sedar.com (“SEDAR”).

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This MD&A contains certain forward-looking information and forward-looking statements, as defined in applicable securities laws (collectively referred to herein as “forward-looking statements”). These statements relate to future events or the Company’s future performance. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “continues”, “forecasts”, “projects”, “predicts”, “intends”, “anticipates” or “believes”, or variations of, or the negatives of, such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved. Inherent in forward-looking statements are risks, uncertainties and other factors beyond the Company’s ability to predict or control. Please also make reference to those risk factors referenced in the “Risk Factors” section below.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in such forward-looking statements. The forwardlooking statements in this MD&A speak only as of the date of this MD&A or as of the date specified in such statement. Specifically, this MD&A includes, but is not limited to, forward-looking statements regarding: the outcomes and impacts of the various legal issues ( See “CONTINGENCIES” and “SUBSEQUENT EVENTS), the impacts of COVID-19, the business of Axion Ventures, Axion Games (as defined herein), TAI (as defined herein) and the Company’s other portfolio companies; the video game market; TAI and Rising Fire game monetization plans; licencing and go-to-market strategies for Axia (as defined herein); portfolio company updates; Axion

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Games’ ability to leverage skill base and control production costs; success of the portfolio of games; anticipated costs and timing of portfolio games noted herein; ability to generate funds from operations/equity from capital markets and other loans and advances; ability to meet working capital requirements; financing in the coming months; management’s general outlook regarding future trends; sensitivity analysis on financial instruments, which may vary from amounts disclosed; adopoting accounting pronouncements; and general business and economic conditions. Readers are cautioned that the forward-looking statements above do not contain an exhaustive list of the factors or assumptions that may affect the forward-looking statements, and that the assumptions underlying such statements may prove to be incorrect. 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.

All forward-looking statements herein are qualified by this cautionary statement. Accordingly, readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as may be required by law. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements, unless required by law.

NATURE OF BUSINESS AND CORPORATE DEVELOPMENTS

The Company was incorporated under the British Columbia Business Corporations Act on June 21, 2011 and was classified as a Capital Pool Company (“CPC”) as defined in Policy 2.4 of the TSX Venture Exchange (“TSXV” or “Exchange”). The principal business of the Company was the identification and evaluation of assets or businesses with a view to completing a Qualifying Transaction (“QT”) as defined in Policy 2.4 of the TSXV. In May 2016, the Company completed its QT and has focused its efforts primarily on online video game development and other information technology sectors since 2016. The Company’s common shares trade on the TSXV in Canada under the symbol “AXV” and on the OTC Pink, a public market in the United States, under the symbol “AXNVF”.

The address of the Company’s corporate head office and its registered and records office is at Suite 700 – 595 Burrard Street, Vancouver, British Columbia, V7X 1S8. The Company also has offices in Bangkok, Thailand, and Shanghai, People’s Republic of China (“PRC”), which is where most Company personnel are located.

During the first quarter 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. As at the date of this MD&A, as our operations and game development activities had been significantly scaled back before the onset of the pandemic, the Company has not been significantly impacted. The ultimate duration and magnitude of the impact on the economy and our ability to reinitiate our core activities are not known at this time. To the extent that the business of Axion is negatively affected by COVID-19, potential impacts on Axion include: a reduction of outsourcing revenue, delays in the timeline of restarting game development, an impact on the Company’s ability to repay its loans and advances and the convertible debentures, and decreases in the revenue, net income and cash flows of the Company.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

SIGNIFICANT EVENTS

On August 5, 2020, the British Columbia Securities Commission (“BCSC”) issued a cease trade order against the Company due to lack of timely filing of the audited annual financial statements, management's discussion and analysis and related certifications for the fiscal year ended December 31, 2019 and the interim financial statements, management's discussion and analysis and related certifications for the three-month period ended March 31, 2020, by the respective deadlines. The Company’s securities have been halted from trading on the TSX Venture Exchange and remain so to date.

On March 30, 2021, the Company entered into the Investment Agreement with KUAM (Hong Kong) Investment 01 Ltd. ("KUAM") for up to C$20 million by way of unsecured convertible debentures (the "Debentures") and to complete an initial tranche of C$8,000,000 (the "Initial Tranche") thereunder (received June 11, 2021). The maturity date of each tranche will be twelve months from the closing date of each tranche. See “SUBSEQUENT EVENTS”)

Beginning in early September 2020, the Company became the subject of a Petition filed by the former CEO and his spouse as well as a debt claim brought by the former CEO, his spouse, their companies, and his brother (the “Bonner parties”). The former CEO and his spouse also made an application for the appointment of an independent chair of the Annual General Meeting held on April 15, 2021. When the Petition and the application came on for hearing in April 2021, the former CEO and his wife abandoned much of the relief they were seeking. At the conclusion of the April 2021 hearing the court dismissed the application for the appointment of an independent chair.

The hearing of the Petition was completed on August 4 and 5, 2021. The judgment on the Petition was received on October 1, 2021 dismissing the Petition in its entirety in favour of the Company and the Respondent Directors. The Company and the Respondent Directors were granted leave to make submissions on costs to be borne by the Petitioners and the court indicated that it would hear those submissions if the parties could not agree.

In January, 2021, the Company brought an action against the Bonner parties, Monaker Group, Inc., now called NextPlay Technologies, Inc. (“NextPlay”), as well as their associates, for the theft of significant assets of the Company. The Company has filed an application for summary trial in respect of that part if its action which seeks relief in respect of the transfer of In-Game Advertising technology to a company owned by the former CEO and his spouse, the shares of which company have been transferred to NextPlay. See “CONTINGENCIES” and “SUBSEQUENT EVENTS”)

Effective May 5, 2021, the Company cancelled all 33,000,000 performance escrow shares outstanding, as the Company did not attain the performance requirements required to be achieved by December 31, 2020. See “OTHER MD&A REQUIREMENTS - DISCLOSURE OF OUTSTANDING SHARE DATA”

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

INVESTMENTS/ACQUISITIONS

Axion Games

As part of the QT completed in May 2016, the Company acquired a beneficial interest of 29.29% of Axion Games Limited (“Axion Games”). Axion Games, a private Cayman Islands corporation with primary operations in Shanghai, PRC, is an online video game development and publishing company.

Through a series of share exchanges occuring between May of 2016 through May of 2018, the Company’s beneficial ownership of Axion Games increased to 54.22%.

True Axion Interactive

On December 27, 2016, the Company and True Incube Co., Ltd. (“True Incube”), a subsidiary of True Corporation Public Company Limited (“True Corporation”), one of Southeast Asia’s leading telecommunications, media enterprises and game publishers, agreed to form a joint venture to establish a video game academy and development studio in Thailand. Under the terms of a joint venture and shareholders’ agreement (the “JVA”), the joint venture operates as a Thai company named “True Axion Interactive Ltd.” (“TAI”) with a wholly-owned subsidiary of the Company (“Axion Interactive”) holding a 49% equity interest in TAI, True Incube holding a 40% equity interest in TAI and Red Anchor (Thailand) Co., Ltd. (“Red Anchor Thailand”), a limited and affiliated company organised and existing under Thai law, holding an 11% equity interest in TAI in trust for the Company.

Axia Corporation Limited

In May 2017, the Company originally formed a joint venture with a third-party partner to research and develop a fintech risk allocation platform business intended to initially service Southeast Asian countries. Under the terms of a joint venture agreement (the “Axia JVA”), the joint venture is initially operating as a company incorporated under the laws of Hong Kong named “Axia Corporation Limited” (“Axia”), with Axion Interactive holding 70% interest and the third-party partner holding a 30% interest in Axia. Through Axion Interactive and pursuant to the Axia JVA, the Company funded $2 million between May 2017 and March 2018. Effective April 29, 2019, the joint venture was terminated and the third-party partner transferred its remaining 30% to Axion Interactive for nominal consideration. Axia has been inactive since mid-2019.

Longroot

Longroot Limited (“Longroot”) was incorporated in 2018 with the primary objective of operating a regulated digital assets business with initial operations in Thailand. Through Axion Interactive, the Company indirectly held a 60% interest in Longroot with the remaining 40% held by the other founding third party partner.

In November 2020, the former CEO, his spouse and their associates, conspired to cause the Company’s controlling interest in Longroot and its subsidiaries, to be unlawfully transferred to NextPlay. The Company believes it may still have voting control of these entities and is seeking remedy for the loss of its interests in these entities in the Company’s Action. See “CONTINGENCIES” and “SUBSEQUENT EVENTS”

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Trajectory

In the second half of 2018, the Company incorporated a joint venture company called Trajectory Games Ltd. (“Trajectory”) with one other founding third party partner. Trajectory was in the Company’s core video game development businesses with the founding partners coordinating structuring and post-incorporation matters. The game development team was located in Russia and was focussed on developing its first game, “Fighter Royale”. Development activities on the game ceased in mid-2019 and since then the entity has been inactive.

OUTLOOK

The current focus of the Company is to:

Aggressively pursue the Company’s action and to defend itself against the claims made in the debt claim;
Seek to complete the filing of the audited December 31, 2020 financial statements and the related MD&A as soon as practicable;
Seek to complete the filing of the condensed consolidated interim financial statements for the quarters ended March 31, June 30 and September 30, 2020 and the related MD&As as quickly after the filing of the December 31, 2019 audited financial statements as practicable;
Seek to complete the filing of the condensed consolidated interim financial statements for the quarters ended March 31 and June 30, 2021 and the related MD&As by as quickly as possible following the completion of the audit and filing of the December 31, 2020 financial statements, with the aim of having the BCSC cease trade order lifted when all filings are current;
Management is investigating the possibility of re-assembling a development team and completing the “Rising Fire” game, subject to a technical review of the merits of the game and when sufficient resources are available for this project. No firm timing has been established and a thorough review of all the pertinent data will be required before such a decision can be made;
Continue to re-build the outsourcing business with the goal of re-establishing this key business operation in the near term;
Management will continue to consider potential strategic or other opportunities; and
Seek additional financing as required, if such financing is available on terms acceptable to the Company.

Overview – Summary of Businesses at December 31, 2019

Axion Games

Axion Games owns a studio in PRC, with a total of approximately 125 employees as of December 31, 2019 and approximately 82 employees at April 30, 2021. Axion Games was originally formed as a joint venture between Epic Games International Ltd. (USA) (“Epic Games”) and Axion Entertainment Holding (“AEH”), a holding company established by Axion Games’ founders. Initially, Axion Games provided outsourcing services to Epic Games and worked on several of Epic Games’ major hits. Axion Games was also initially granted certain nontransferable, royalty-bearing and terminable license rights to distribute, market, use and sublicense Unreal Engine and other game engines developed by or for Epic. Axion Games subsequently expanded its reach and

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

became an outsourcing developer to numerous other high-profile game developers and publishers. Axion Games and its team have delivered tens of thousands of premium game assets (including small assets such as virtual weapons or characters; larger assets such as game levels, maps or prototypes to show game dynamics; and even complete games) to dozens of clients, and its assets have contributed to several major global titles.

Historically, outsourcing has been critical in training and conditioning Axion Games’ developers. Axion Games’ outsourcing clients are mostly premium international publishers and have stringent requirements with respect to quality, cost, and prompt delivery. In order to meet these requirements, Axion Games’ developers use the latest techniques and technologies, and by continually challenging Axion Games’ developers to meet rigorous requirements of its outsourcing clients, Axion Games believes its outsourcing business has served as an excellent training platform for its developers and also created a culture of excellence, efficiency, and accountability. In addition, Axion Games’ engineering capabilities have benefitted from its partnership with Epic Games and the distribution arrangement of Epic Games’ Unreal Engine, a leading global software platform for game developers that includes advanced physics and graphics engines. As a result of this prior licensing distribution relationship, Axion Games’ engineers have a high degree of competency in advanced game engine design, which has allowed Axion Games to develop proprietary technology, called Atlas, that enables multiplayer online games, including server management tools and game asset generators, to populate large virtual worlds with game objects. Commencing in 2017 and continuing during 2019, the Company’s focus on the outsourcing operations was diverted to internal game development. The outsourcing business is currently being re-built with the goal of reestablishing this key business operation in the near term.

In addition to outsourcing, Axion Games continues to generate revenues from “MARS” and was also seeking to develop a new game, “Rising Fire”, which has been the Company’s focus in recent years. During 2019, Axion Games invested a further $1.86 million in the development of “Rising Fire” for a cumulative of $11.8 million. As at December 31, 2019, the Company determined that it did not have sufficient available resources to complete the development of the game and recorded an $11.8 million impairment. Management is investigating the possibility of re-assembling a development team and completing the game, subject to a technical review of the merits of the game and when sufficient resources are available for this project. No firm timing has been established and a thorough review of all the pertinent data will be required before such a decision can be made.

Products

To date, Axion Games has made three commercially viable games, Fat Princess (Sony PS3, action strategy), MARS (PC online shooting), and Kingdom (mobile action role playing), all of which have generated revenues of more than 200% of their development costs. Axion Games derives profits from its proprietary games in three ways:

publishing (operating) the game itself;
pre-selling the rights to its games (licensing); and
royalties from publishers around the world who have purchased the rights to Axion Games’ games.

Since 2015, Axion Games has primarily focused on its current large-scale online game, “Rising Fire”, a multiplayer online, third-person shooting and a role-playing game which has been selected by Tencent Holdings Limited (“Tencent”) for publishing on the PC platform for the Chinese market. Large-scale online games published by Tencent are extensively tested during the commercialisation process. As a result, in May 2016 and September 2016, Alpha 1 and Alpha 2 testing on Rising Fire was completed, whereby technical and commercial viability

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

were tested on 2,000 and 4,000 users, respectively. From late May 2017 until mid-July 2017, Closed Beta 1 testing of Rising Fire was completed, whereby over 61,000 users participated, and user behaviour was analysed. From late December 2017 until March 10, 2018, Closed Beta 2 testing of Rising Fire was completed, whereby over 100,000 users participated. Rising Fire was made commercially available (aka “open beta”) on June 28, 2018 on selected Tencent platform and continues to progress through the early stages of its strategic launch cycle through Tencent’s “WeGame” network. Axion Games delivered Rising Fire content payloads to Tencent approximately every five weeks from the initial open beta launch of the game on June 28, 2018. These updates included content ranging from player skins, weapons, and maps to more technical augmentations to satisfy the market. Subsequent to June 2018, Axion Games and Tencent increased the amount of time between content payloads in order to provide mass content updates, with the last delivery in June 2019, whereby the Company delivered ‘Season 1’ of Rising Fire to Tencent and Tencent began testing the release and evaluating player statistics.

In mid-2019, the work on the game by Axion Games came to a standstill due to the lack of available funding and the development team left the Company between then and the end of 2019. The producer left the Company in early 2020. As a result, the development of the game has been suspended and the costs accumulated on the project have been impaired.

True Axion Interactive

As discussed earlier, in December 2016, the Company and True Corporation (through their respective subsidiaries/affiliates) agreed to form a joint venture to establish a video game academy and development studio in Thailand. See “INVESTMENTS/ACQUISITIONS – True Axion Interactive”

True Axion Interactive (“TAI”) commenced operations in March 2017 and had grown to approximately 87 employees as of December 31, 2019, comprised of experienced game designers, 2D & 3D artists, animators, and software engineers. Like Axion Games, TAI has focused its resources on the development of innovative online PC and mobile games, with a current specific focus on mobile games.

In May 2019, TAI commercially launched its first game, called “Invictus: Lost Soul”, which is the first AAA quality, eSports focused mobile game made in Thailand and developed by TAI. Invictus: Lost Soul is a real-time, cardcontrolled PvP fighting game geared for the bulk, 18-35 year-old player market. The Company announced that it had commercially launched Invictus in May 2019 but the results have been below-par and, as a result, the Company has suspended the development of the game pending further review. The Company provided an impairment charge of approximately $1.5 million related to Invictus: Lost Soul and other games that had been under development in this entity.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

OVERALL PERFORMANCE

As the Company’s most significant asset is Axion Games with TAI considered the Company’s second most significant asset, the Company’s operating activities are attributable to a single reportable and operating segment focusing primarily on the development and operation of PC and mobile games. The video game operating segment has been identified on the basis of internal management reports viewed by the chief operating decision maker, being the senior executive officers of the Company. The chief operating decision maker reviews the revenue analysis by outsourcing, licensing, game operation and training, and the profit from operation of the Company as a whole when making decisions about allocating resources and assessing performance of the Company.

MARS, a PC online shooting game of Axion Games, was commercially launched in China in November 2011 and was ranked as one of the top 10 PC online games in China in 2014, according to the China Game Weight Rank. Revenue from MARS was $2,264 thousand in the year ended December 31, 2019 (2018 - $2,122 thousand).

As a result of the success of MARS and as the product coming to a more mature stage of its life cycle, Axion Games entered into a licensing agreement with Tencent in 2015 to develop Rising Fire. During the year ended December 31, 2019, the Company invested $1.9 million (2018 - $2.7 million) in development costs on Rising Fire for a cumulative investment of $11.8 million up to the suspension and impairment of the project.

For the year ended December 31, 2019 compared the year ended December 31, 2018, outsourcing revenue decreased from $6.5 million to $2.1 million as the Company’s main focus was on developing its own internally generated online multiplayer games, such as Rising Fire. The 2018 outsourcing revenue was also significantly higher than normal as a result of $3.9 million of outsourcing revenue earned on a non-recurring project with Wanda.

In general, and as discussed in more detail below, the changes that have occurred or expected changes that have not occurred in the Company’s financial condition and financial performance are a result of resources allocated to the development of Rising Fire, the delayed launch of Rising Fire and ultimately to the suspension of Rising Fire and the other games in development, due to a lack of resources, and the resulting $14.5 million impairment charge recorded in the year ended December 31, 2019.

The following is a more detailed analysis of the Company’s financial condition, financial performance, and cash flows.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Revenue from external customers and non-current assets are divided into the following geographical areas:

Three months ended December 31, 2019 2018 $’000 (Unaudited) $’000 (Unaudited) By country/region China 679 4,483 Rest of the world 660 161 Total revenue 1,339 4,644 Total non-current assets by geographic location: By country/region Canada (Place of domicile) China Rest of the world Non-current assets	Three months ended December 31, 2019 2018 $’000 (Unaudited) $’000 (Unaudited)	Year ended December 31, 2019 2018 $’000 $’000
	679 4,483 660 161	3,369 8,083 1,426 832
	1,339 4,644	4,795 8,915
		December 31, 2019 December 31, 2018 $’000 $’000
		8 345 852 10,015 685 3,224
		1,545 13,584

As at December 31, 2019, the Company had $0.1 million (December 31, 2018 – $2.7 million) of cash and cash equivalents and total current assets of $1.1 million (December 31, 2018 – $5.0 million). The decrease in cash and cash equivalents and total current assets was primarily due to the net cash outflows of $5.6 million cash used in operating activities and $2.3 million cash used in investing activities offset by $5.3 million provided by financing activities. The cash from financing activities was primarily generated from the issuance of 5,750,000 shares with net funds raised of approximately $4.0 million and proceeds from certain loans and advances of $1.6 million less approximately $0.3 million in lease liability payments.

Current liabilities as at December 31, 2019 totalled $23.2 million (December 31, 2018 - $16.5 million). The increase in current liabilities was mainly a result of $4.0 million of the Company’s convertible debentures being payable in the next twelve months from December 31, 2019 and the $1.6 million increase in loans and advances payable (see “CONTINGENCIES” and “SUBSEQUENT EVENTS”).

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

As at December 31, 2019, shareholders’ equity (deficiency) was comprised of share capital of $32.3 million (December 31, 2018 - $28.2 million), foreign currency translation reserve of $0.3 million (December 31, 2018 - $0.4 million), share-based payment reserve of $2.6 million (December 31, 2018 - $2.1 million) and accumulated deficit of $51.1 million (December 31, 2018 - $33.3 million). Total equity attributable to the owners of Axion Ventures was a deficiency of $15.9 million (December 31, 2018 – deficiency $2.7 million). The shareholder deficiency increased in the current year as a result of the $16.8 million (2018 - $9.1 million) loss attributable to the shareholders of the Company, partially offset by the net $4.0 million in proceeds from shares issued in 2019.

Working capital, which is comprised of current assets less current liabilities, was a deficiency of $22.1 million as at December 31, 2019, compared to a working capital deficiency of $11.4 million as at December 31, 2018. The working capital deficiency increased as a result of cash used in operating and investing activities during the year ended December 30, 2019 offset by cash received from the financing activities.

During the year ended December 31, 2019, net loss was $24.7 million and the net loss attributable to the shareholders was $16.8 million (US$0.0776 basic and diluted loss per share) compared to a net loss of $9.3 million and a net loss attributable to the shareholders of $9.1 million for the year ended December 31, 2018 ($0.0447 basic and diluted loss per share). The increase in the loss was primarily driven by the $14.5 million impairment of the Company’s game development intangible assets, of which $11.8 million related to Rising Fire.

The Company’s revenue decreased by $4.1 million for the year ended December 31, 2019, compared to the year ended December 31, 2018. The decrease was mainly due to the decrease in outsourcing revenue of $4.4 million offset by an increase in licensing of $0.2 million. The decrease in revenues reflects approximately $3.9 million of revenues on the Wanda project that was completed in 2018 and the impact of the Company’s limited resources and the focus of those resources on the development of its own games in 2019 as opposed to pursuing outsourcing opportunities.

For further discussion and analysis of the Company’s financial condition, financial performance, and cash flows, please see - “DISCUSSION OF OPERATIONS” and “CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES”.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

SELECTED ANNUAL INFORMATION

The following table sets out selected annual information for the years ended December 31, 2019, 2018, and 2017:

	December 31, 2019 (US$’000s)	December 31, 2018 (US$’000s)	December 31, 2017 (US$’000s)
Revenue	4,795	8,915	6,663
Grossprofit	2,157	4,157	3,011
Operatingexpenses	(10,978)	(11,990)	(11,774)
Impairment of intangibles	(14,456)	-	-
Bad debts	(875)	-	-
Other(expenses)/income	(479)	(1,463)	515
Income tax	(41)	(24)	-
Net loss	(24,672)	(9,320)	(8,248)
Total assets	2,641	18,618	15,212
Non-current financial liabilities	338	3,083	-
Total liabilities	23,529	19,545	8,050
Basic and diluted lossper share	(7.76)cents	(4.47)cents	(3.40)cents

The Company did not pay any dividends in respect of the years ended December 31, 2019, 2018, and 2017 and does not expect the payment of dividends in the foreseeable future.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

DISCUSSION OF OPERATIONS

The following table sets out revenue, expenses, and profit of the Company and includes variances for the three months and year ended December 31, 2019 and 2018:

Revenue Cost of sales Gross profit Research and development expenses Selling and distribution expenses General and administrative expenses Income (Loss) from operations Other income (expense) Finance income Finance expense Bad debts Fair value gain on FVTPL investments Fair value gain (loss) on derivative financial instruments Foreign currency exchange (loss)/gain Impairment of intangibles Income (loss) before income tax Income tax recovery (expense) Income (loss) for the period	Three months ended December 31, (Unaudited) Year ended December 31, 2019 2018 2019 2018 $’000 $’000 $’000 $’000
	1,339 4,644 4,795 8,915 (156) (1,607) (2,638) (4,758)
	1,183 3,037 2,157 4,157 (865) (166) (2,981) (1,451) (94) (159) (638) (701) (1,819) (1,355) (7,359) (9,838)
	(1,595) 1,357 (8,821) (7,833) (26) (37) 99 39 6 19 6 19 (340) (296) (1,181) (450) (875) - (875) - - (1,581) - (1,465) (10) 1,470 499 460 245 22 98 (66) (14,456) - (14,456) -
	(17,051) 954 (24,631) (9,296) 22 (24) (41) (24)
	(17,029) 930 (24,672) (9,320)

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

The table below provides the detail of revenue for the three months and year ended December 31, 2019 and the comparative periods.

mparative periods.
Outsourcing Licensing Game operation Training	Three months ended December 31, (Unaudited) Year ended December 31, 2019 2018 2019 2018 $’000 $’000 $’000 $’000
	647 4,066 2,129 6,547 19 19 374 101 673 535 2,260 2,095 - 24 32 172
	1,339 4,644 4,795 8,915

Revenue

The Company’s revenue for the three months and year ended December 31, 2019 as compared to the comparative period has decreased as a result of a decrease in revenue received from outsourcing to third parties, offset by an increase in revenue received from game operation. The Company was focusing more of its attention on developing its own multiplayer games.

Outsourcing Revenue . Outsourcing revenue decreased to $2.1 million in the year ended December 31, 2019 (year ended December 31, 2018 - $6.5 million) as a result of the non-recurring $3.9 million of Wanda project revenue in 2018 and the noted shift in focus on the development of the Company’s own games, such as Rising Fire and Invictus: Lost Soul. In addition, this revenue source has varied from period to period when customer needs and demands changed.

Licensing Revenue . Licensing revenue from game publishers was $0.4 million for the year ended December 31, 2019 (for the year ended December 31, 2018 - $0.1 million). The increase in licensing revenue was primarily attributable to licensing of the Company’s games in Thailand. Total licensing revenue earned in the TAI group was $0.3 million. 2018 licensing revenues were attributable to royalties received from the game publishers of MARS as the product cycle reached the decline stage.

Game Operation Revenue . Game operation revenue (or “self-publishing” - primarily MARS revenue generated in China) was relatively consistent at $2.3 million for the year ended December 31, 2019 (for the year ended December 31, 2018 - $2.1 million).

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Cost of Sales

Cost of sales for the year ended December 31, 2019 decreased as compared to the comparative period in 2018. The decrease of approximately $2.1 million for the year was in line with the decrease in outsourcing revenue. Cost of sales for the quarter ended December 31, 2019 decreased as compared to the comparative period in 2018. The decrease of approximately $2.4 million for the year was in line with the decrease in outsourcing revenue.

Operation expenses, other income, and fair value changes

Total operational expenses were $2.8 and $11.0 million for the three months and year ended December 31, 2019 compared to $1.7 and $12.0 million for the three months and year ended December 31, 2018. Details of significant items are as follows:

Research and development expenses were $0.9 and $0.2 million for the three months ended December 31, 2019 and 2018 and $3.0 million for the year ended December 31, 2019 (for the year ended December 31, 2018 - $1.5 million), respectively. The increase of $0.7 million for the quarter ended December 31, 2019 and $1.5 million for the full fiscal year was because the Company incurred significantly more research and development expenses to explore new games during the year. Such activities did not qualify for capitalization under the Company’s accounting policies and did not lead to any new games, which would qualify for capitalization.
Selling and distribution expenses of $94 and $638 thousand for the three months and year ended December 31, 2019 were in line with those incurred during the three months and year ended December 31, 2018 of $159 and $701 thousand, respectively.
General and administrative expenses were $1.8 and $7.4 million for the three months and year ended December 31, 2019 (for the three months and year ended December 31, 2018 - $1.4 and $9.8 million). The full year decrease was mostly attributable to the decrease in the operating expenses arising from the shutdown of the Axia operations.
Finance expense mainly comprised the accretion of interest on convertible debentures.
The Company recorded an impairment during the quarter and year ended December 31, 2019 of $14.5 million representing a charge for games under development which have been suspended due to the lack of resources or terminated, as discussed earlier, or suspended due to a lack of funds to complete the project at December 31, 2019.
The fair value loss on derivative financial instruments was $110 thousand in the three months ended December 31, 2019 and a $499 thousand gain for the year ended December 31, 2019 (comparative periods in 2018 were a gain of $1.5 and $0.5 million). The gains and losses were attributable to the fair value changes related to the conversion and call options of the convertible debentures at the reporting dates.

Commitments, events, risks or uncertainties that the Company reasonably believes will materially affect its future performance are set out in various sections of this MD&A. See “RISK FACTORS”

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

During the year ended December 31, 2019, the Company completed a financing, whereby the Company issued 5,750,000 common shares at a price of C$1.00 per share for net proceeds of $4.0 million. The net proceeds from the financing were primarily to be used for the development of Rising Fire, other project development and general working capital purposes. The Company recorded an additional $1.6 million in loans and advances which are the subject of the Company’s ongoing dispute with the former CEO and his associates (see “CONTINGENCIES” and “SUBSEQUENT EVENTS”) and to December 31, 2019 advanced $0.3 million to entities associated with the former CEO. Such advances have been fully provided by the Company due to the ongoing legal matters. The Company intends to seek full collection of these amounts or an offset against any amounts determined to be owing to the former CEO and his associates. See “CONTINGENCIES” and “SUBSEQUENT EVENTS”)

SUMMARY OF QUARTERLY RESULTS

Selected unaudited condensed consolidated interim financial statements published of operations for the Company during the last eight quarters are as follows:

				Loss	Loss per share
	Total revenue	Gross profit	Net	attributable to	(i)
Quarter ended	$’000	$’000	income/(loss)	shareholders	$
			$’000	$’000
December 31, 2019	1,339	1,183	(17,029)	(10,118)	(0.0464)
September 30, 2019	1,081	302	(1,886)	(1,170)	(0.0054)
June 30, 2019	1,196	358	(2,659)	(2,613)	(0.0120)
March 31, 2019	1,179	314	(3,098)	(2,922)	(0.0137)
December 31, 2018	4,644	3,037	930	(371)	(0.0018)
September 31, 2018	1,203	344	(4,440)	(3,733)	(0.0182)
June 30, 2018	1,850	716	(2,535)	(2,483)	(0.0121)
March 31, 2018	1,218	60	(3,275)	(2,549)	(0.0127)

(i) Based on loss attributable to shareholders.

During the fourth quarter of 2019, the Company has written down the value of its intangible assets by $14.5 million as a result of not having sufficient resources at December 31, 2019 to complete the development of the projects and for terminated projects. The loss in the third quarter of 2019 was reduced as a result of reduction of general and administrative expenses as well as a gain related to the decrease in value of the convertible feature of the outstanding convertible debentures. Revenue in the fourth quarter of 2018 increased due to the completion of the Wanda project and related revenue recognition accounting.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES

The Company’s consolidated financial statements have been prepared on a going concern basis. The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

The Company has experienced significant losses, has a working capital deficiency (current assets less current liabilities) of approximately $22.0 million, and negative cash flows from operations, is in default on certain debts of $1.1 million at December 31, 2019 and subsequent to December 31, 2019 on its convertible debenture debt in the amount of $4.0 million, is a party to certain legal disputes (see “CONTINGENCIES” and “SUBSEQUENT EVENTS”), is subject to uncertainties related to COVID-19 and the securities of the Company have been cease traded. These circumstances indicate the existence of a material uncertainty that may cast significant doubt about the ability of the Company to continue as a going concern, and therefore, the Company may not be able to realise its assets and discharge its liabilities in the normal course of business.

The Company’s ability to continue as a going concern is dependent upon its ability to generate profits and positive cash flows from operations, obtaining additional funding from financing arrangements (see “SUBSEQUENT EVENTS”) and successfully resolving certain legal issues (see “CONTINGENCIES” and “SUBSEQUENT EVENTS”). However, there can be no assurance that these activities will be successful or that financing will be available on terms acceptable to the Company. The consolidated financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern basis was not appropriate for these consolidated financial statements, then adjustments would be necessary to the carrying values and classification of assets and liabilities, and such adjustments could be material.

In mid-March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and the operations of the Company are not known at this time. To the extent that operations of the Company are negatively impacted by the COVID-19 outbreak or subsequent waves of the pandemic, this will have a direct negative impact on the current and future revenue earned by the Company. The situation with COVID-19 is evolving and

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

consequently, management cannot predict the effect of unknown adverse changes to its future business plans, including its financial position, cash flows, and results of operations.

The Company’s primary sources of capital available for financing its acquisitions and day-to-day operations are existing working capital, funds generated from the operations of its subsidiaries, equity from the capital markets, and loans and advances from various parties.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach to managing liquidity risk is to prudently manage its financial position, cash generated from operations, funds from capital market financings, and loans and advances in such a manner so as to ensure it will have sufficient liquidity to pay its obligations when due.

Current Assets Cash and cash equivalents Trade and other receivables Derivative financial instruments Current Liabilities Trade and other payables Loans and advances payable Deferred revenue Convertible debentures Lease liabilities - current Derivative financial instruments Working Capital Deficiency	December 31, 2019 $’000 December 31, 2018 $’000 Variance $’000
	131 2,689 (2,558) 965 2,216 (1,251) - 129 (129)
	1,096 5,034 (3,938)
	5,041 3,594 1,447 9,553 8,195 1,358 4,042 4,035 7 3,954 - 3,954 591 - 591 10 638 (628)
	23,191 16,462 6.729
	(22,095) (11,428) (10,667)

As of December 30, 2019, the Company had $0.1 million in cash and cash equivalents (December 31, 2018 - $2.7 million) and a working capital deficiency of $22.1 million (December 31, 2018 - $11.4 million). The working capital deficiency increased primarily as a result of the $8.1 million cash outflow from operating activities before changes in working capital items, the reclassification of $4.0 million of convertible debentures to current liabilities and a $2.3 million outflow related to investing activities, mainly for game development; partially offset

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

by the $4.0 million of net cash flows generated from the issuance of 5,750,000 shares during the year ended December 31, 2019.

The Company’s ability to continue as a going concern is dependent upon its ability to generate profits and positive cash flows from operations from the launch of its PC and mobile games, to obtain additional funding from financing arrangements, if available on terms acceptable to the Company.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements.

TRANSACTIONS BETWEEN RELATED PARTIES

TRANSACTIONS BETWEEN RELATED PARTIES
Revenues (expenses): Outsourcing revenue – Red Anchor Trading Corp. (i), Royalty and licensing fees revenue – a company related to a key management person Sub-contract wages - HotNow (Thailand) Co., Ltd. (i) Interest expense - a shareholder of Axion Games Limited Licensing fee – Epic Games International Ltd., a shareholder of the Axion Games	2019 2018 $’000 $’000
	319 - 316 - (121) - (86) (86) (22) (45)

Key management personnel comprise the directors and the officer of the Company. Their aggregate remuneration comprised:

Wages and salaries Social welfare costs Share-based payments expenses Advances receivable Red Anchor (Thailand) Co., Ltd. (i) HotNow (Thailand) Co., Ltd. (i) Provision for doubtful accounts (iii) Other receivables Red Anchor Trading Corp. (i) A company related to a key management person Epic Games, Inc.., a shareholder of the Axion Games Coherent Asia, Limited		784 755 - 2 297 622 1,081 1,379 293 279 2 -
		295 279 (295) -
		- 279
		163 - 2 - 4 - - 15
		169 294

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Loans and advances payable Red Anchor Trading Corp. (i) Cern One Limited (i) Disputed loans and advances (see “Contingencies” and “Subsequent Events”) A shareholder of Axion Games Limited Other payables Salaries and wages owing to related parties Accrued interest owing to a shareholder of Axion Games Limited Epic Games, Inc. HotNow (Thailand) Co., Ltd. (i) Coherent Asia, Limited True Internet Corporation	December 31, 2019 December 31, 2018 $’000 $’000
	5,164 6,037 1,884 800
	7,048 6,837 1,070 1,058
	8,118 7,895
	463 - 151 65 282 260 100 - 83 83 4 2
	1,083 410

(i) Entities controlled by the former CEO and/or his spouse.

(ii) A wholly-owned subsidiary of Red Anchor Trading Corp.

(iii) The Company has made full provision against these amounts as a result of its ongoing litigation with the former CEO and NextPlay although the Company intends to continue to pursue full collection of these amounts. See “CONTINGENCIES” and “SUBSEQUENT EVENTS”

PROPOSED TRANSACTIONS

The Company has no pending transactions expected to affect financial condition, financial performance, and cash flows not otherwise discussed in this MD&A.

CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION

Adoption of new or revised accounting policies - effective January 1, 2019

In the current period, the Company has applied for the first time the following new or revised standards issued by the IASB, which are relevant to and effective for the Company’s financial statements for the annual period beginning on January 1, 2019:

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

IFRS 16 – Leases

IFRS 16 Leases sets out the principles for recognition, measurement, presentation, and disclosure of leases. It eliminates the classification of leases as either operating or finance leases required by IAS 17 and introduces a single lessee accounting model.

The Company leases various office spaces. Up until December 31, 2018, all leases of the Company were classified as operating leases and payments made were charged directly to profit or loss.

From January 1, 2019, leases are recognized as a right-to-use asset with a corresponding liability at the date at which the leased asset is available for use. Each lease payment is allocated between the liability and the finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

On January 1, 2019, the Company recognized total lease liabilities and right-of-use assets of $233 thousand and an additional $973 thousand during the year ended December 31, 2019. During the year ended December 31, 2019, the Company’s finance costs and depreciation expense in relation to its lease liabilities and the right-of-use assets combined to $336 thousand. Readers are directed to the Company’s consolidated financial statements as at December 31, 2019 for further details relating to the adoption of IFRS 16.

At the date of authorization of these financial statements, the following new/revised IFRSs, potentially relevant to the Company’s consolidated financial statements, have been issued but are not yet effective and have not been early adopted by the Company. The Company’s current intention is to apply these changes on the date they become effective.

IFRS 17	Insurance Contract2
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and
	its Associate or Joint Venture3
Amendments to IAS 1 and IAS 8	Definition of Material1
Amendments to IFRS 3	Definition of a Business1

1 Effective for annual periods beginning on or after January 1, 2020

2 Effective for annual periods beginning on or after January 1, 2021

3 Effective date not yet determined

The Company anticipates that all of the pronouncements will be adopted in the Company’s accounting policy for the first period beginning on or after the effective date of the pronouncement. The above new and amended IFRSs are not expected to have a material impact on the Company’s consolidated financial statements.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

FINANCIAL INSTRUMENTS, OTHER INSTRUMENTS AND RISK EXPOSURE

Classification and initial measurement of financial assets

All financial assets are initially measured at fair value, and in the case of a financial asset not at fair value through profit or loss (“FVTPL”), plus transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in the consolidated statement of profit or loss and other comprehensive income.

Financial assets are classified into the following categories:

amortised cost;
FVTPL; or
fair value through other comprehensive income (“FVOCI”).

The classification is determined by both:

the entity’s business model for managing the financial asset; and
the contractual cash flow characteristics of the financial asset.

All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs or other income, except for expected credit losses (“ECL”) of trade receivables which is presented within administrative expenses.

Subsequent measurement of financial assets

Debt investments

Financial assets at amortized cost

Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL):

they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows; and
the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding.

After initial recognition, these are measured at amortised cost using the effective interest method. Interest income from these financial assets is included in other income in profit or loss. Discounting is omitted where the effect of discounting is immaterial. The Company’s trade and other receivables, excluding prepaid expenses, loans to related companies, short term bank deposits and cash and cash equivalents fall into this category of financial instruments.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Financial assets at FVTPL

Financial assets that are held within a different business model other than “hold to collect” or “hold to collect and sell’ are categorised at FVTPL. Further, irrespective of business model, financial assets whose contractual cash flows are not solely payments of principal and interest are accounted for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements under IFRS 9 apply. The Company’s derivative financial instruments and FVTPL investments fall into this category of financial instrument.

Fair value information

As at December 31, 2019, the Company’s financial instruments were comprised of cash and cash equivalents, trade and other receivables, trade and other payables, loans and advances, convertible debentures and derivative financial instruments.

The carrying values of these financial instruments approximate their fair values because of their current nature unless otherwise noted.

Financial instruments and related risks

The Board has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s exposures to financial risks and how the Company manages those risks are set out below.

Liquidity risk

Liquidity risk relates to the risk that the Company will not be able to meet its obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company is exposed to liquidity risk in respect of settlement of trade and other payables, and in respect of its cash flow management. The Company’s objective is to maintain an appropriate level of liquid assets and committed lines of funding to meet its liquidity requirements in the short and longer term.

The Company manages its liquidity needs by carefully monitoring forecast cash inflows and outflows due in the day to day business. Liquidity needs are monitored in various time bands, on a day to day and week to week basis, as well as on the basis of a rolling 30-day projection. Long-term liquidity needs for a 180-day and 360-day lookout period are identified monthly. Net cash requirements are compared to available borrowing facilities in

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

order to determine headroom or any shortfalls. This analysis shows if available borrowing facilities are expected to be sufficient over the lookout period.

The Company maintains cash and short-term bank deposits to meet its liquidity requirements for 30-day periods at a minimum. Funding for longer-term liquidity needs is additionally secured by an adequate amount of committed credit facilities and the ability to sell longer-term financial assets.

The liquidity policies have been followed by the Company since prior years and are considered to have been effective in managing liquidity risks.

Analysed below is the Company’s remaining contractual maturities for its non-derivative financial liabilities at each of the reporting dates. When the creditor has a choice of when the liability is settled, the liability is included on the basis of the earliest date on when the Company can be required to pay.

At December 30, 2019 Trade and other payables Loans and advances payable Convertible debentures Lease liabilities At December 31, 2018 Trade payables Accrued salaries and benefits Accrued expenses Other payables Loans and advances payable	Within one year or on demand $’000
	5,028 9,553 3,954 591
	19,126
	Within one year or on demand $’000
	292 1,788 617 588 8,195
	11,480

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

The Company considers expected cash flows from financial assets in assessing and managing liquidity risk, in particular, its cash resources and other liquid assets that readily generate cash.

Currency risk

Currency risk is the risk that the fair values or future cash flows of the Company’s financial instruments will fluctuate because of changes in foreign exchange rates. Exchange rate fluctuations may affect the costs that the Company incurs in its operations. Foreign currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency.

The operating subsidiary, Axion Games mainly operates in the PRC, and the majority of the transactions are settled in RMB (Chinese Yuan Renminbi). As at December 31, 2019, the Company did not have significant foreign currency risk from its operations. As at December 31, 2019, the Company’s beneficial ownership of Axion Games was 54.22%.

Another operating subsidiary, TAI mainly operates in Bangkok, Thailand and the majority of the transactions are settled in THB (Thai Baht). As at December 31, 2019, the Company did not have significant foreign currency risk from its operations. As at December 31, 2019, the Company and its affiliates beneficially owned 60% of TAI.

Credit risk

Credit risk refers to the risk that the counterparty to a financial instrument would fail to discharge its obligation under the terms of the financial instrument and cause a financial loss to the Company.

The financial instruments that potentially subject the Company to credit risk comprise cash and cash equivalents, trade receivables and advances receivable, the carrying value of which represents the Company’s maximum exposure to credit risk.

The Company limits its exposure to credit loss by placing its cash and cash equivalents with high credit quality financial institutions. The Company assesses the credit quality of the customer, taking into account its financial position, past experience, and other factors. The Company has receivables from customers, and the general credit terms are from 60 days, and these amounts are generally not collateralised. The Company’s trade and other receivables are actively monitored to avoid significant concentrations of credit risk. The Company has provided a full allowance of $0.3 million against advances owing from entities associated with the former CEO and his affiliates (see “CONTINGENCIES” and “SUBSEQUENT EVENTS”).

CONTINGENCIES

On September 8, 2020, the former CEO and Nithinan Boonyawattanapisut, the spouse of the former CEO (the “Petitioners”) filed a petition in the Supreme Court of British Columbia (the “Petition”) against the Company and certain of its directors alleging they were entitled to seek relief for oppressive conduct. The Petition sought, among other relief, a declaration that the termination of the former CEO and that of his spouse was a nullity, reinstatement of the former CEO, a declaration that a resolution for a $7,000,000 private placement made on

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

July 27, 2020 was a nullity, and a declaration that the named directors had breached their fiduciary duties to the Company.

On September 14, 2020, the former CEO, the spouse of the former CEO, Cern One Limited, Red Anchor Trading Corp. and Michael Bonner filed a notice of civil claim (the “Debt Claim”) in the Supreme Court of British Columbia against the Company and certain of its subsidiaries for the payment of certain specified outstanding loans in the amount of $9,132,000, plus interest and costs. The Petitioners have alleged that certain of these loans and advances are interest bearing and have determined approximately $151,000 of accrued interest to December 31, 2019. The Company has not recognized the interest accrual as the Company has denied any liability for these loans and advances in its November 27, 2020 Response to the Debt Claim.

On November 27, 2020, the named directors filed their response to the Petition which thoroughly demonstrated the absence of any merit to the Petition. On the same day, the Company filed its Response to the Debt Claim denying any liability for the alleged loans.

As described below, on January 15, 2021, the Company filed a notice of civil claim in the Supreme Court of British Columbia (the “Breach of Fiduciary Duty Claim”), against the former CEO, his spouse, NextPlay and their associates, alleging fiduciary breaches and an evolving conspiracy to unlawfully take ownership of the Company’s subsidiaries and assets, including intellectual property and corporate opportunities.

On February 1, 2021, the Petitioners filed a Notice of Application in the Petition, seeking, among other orders, an order that the Company call an Annual General Meeting (“AGM”), for the appointment of an independent chair for the meeting, for the publication of certain financial information, and restraining the issuance of securities and the sale of assets without approval of the Board of Directors. On February 11, 2021, the Company gave notice that it would hold its AGM on April 15, 2021.

On February 22, 2021, the Company filed its response to the Petition and the Notice of Application in which the Company also disputed all of the claims made in the Petition and the Notice of Application. On March 31, 2021, the named directors filed their response to the Notice of Application, also disputing the claims made therein.

The Petition and the Notice of Application were heard on April 6, 7, 8 and 13, 2021. At the start of the hearing, the Petitioners confirmed that they had abandoned much of the relief they were seeking, including the claim that the named directors had breached their fiduciary duties and the claim for the reinstatement of the former CEO., Although the hearing of the Petition was not completed, on April 13, 2021, the court dismissed the application for an independent chair with reasons to be issued at a later date. At the AGM held on April 15, 2021, management’s slate was elected by an overwhelming majority of casted votes.

On May 20, 2021, the court issued its reasons for judgment for the dismissal of the application for an independent chair. The reasons held that there was no basis for a finding that Mr. Yasuyo Yamazaki should not be the chair of the AGM and that Mr. Yamazaki had a justifiable concern about the conduct of the former CEO.

The conclusion of the hearing of the Petition was completed on August 4 and 5, 2021. The judgment on the Petition was received on October 1, 2021 dismissing the Petition in its entirety in favour of the Company and the Respondent Directors. The Company and the Respondent Directors were granted leave to make submissions on costs to be borne by the Petitioners and the court indicated that it would hear those submissions if the parties could not agree.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

The Company has accounted for certain amounts claimed by the plaintiffs as liabilities of the Company as at December 31, 2019, which are the subject of the Debt Claim, but as a result of the Breach of Fiduciary Duty Claim, issues concerning the source of the funds which are the basis of the Debt Claim and the use made of these funds, the Company believes that the liability for these amounts will be eliminated entirely, or in substantial part. The Company cannot reasonably make an estimate at this time of the amounts ultimately determined to be payable through the judicial process or investigations by the Company including whether the full amount of the alleged loans were advanced to the Company or to a subsidiary of the Company and, if advanced, whether the loans were used improperly by the former CEO of the Company.

All claims made for loans to the Company or its subsidiaries are the subject of the Debt Claim and the Breach of Fiduciary Duty Claim.

On July 9, 2021, Michael Bonner filed a notice of civil claim (the “Michael Bonner Debt Claim”) in the Supreme Court of British Columbia against the Company and certain of its subsidiaries for the payment of certain specified outstanding loans in the amount of $1,375,000, plus interest and costs purportedly owed under an unsecured convertible debenture. The Company has accounted for certain amounts claimed by the plaintiff as a liability of the Company as at December 31, 2019. The Michael Bonner Debt Claim is largely a duplication of the Bonner Debt Claim (above), which, to the Company’s knowledge, remains active and has not been withdrawn. The Company has been advised that such duplication constitutes an abuse of process. As such, the Company has not undertaken any accounting treatment beyond what has already been performed with respect to the Bonner Debt Claim.

On September 21, 2021, NextPlay filed a notice of civil claim (the “NextPlay Debt Claim”) in the Supreme Court of British Columbia against the Company and certain of its subsidiaries for the payment of certain specified outstanding loans in the amount of $7,657,023, plus interest and costs. NextPlay claims to have acquired these purported loans from the Company’s former CEO, his spouse, Cern One Ltd., and Red Anchor Trading Corp. The Company has accounted for certain amounts claimed by the plaintiffs as liabilities of the Company as at December 31, 2019, but as a result of the Breach of Fiduciary Duty Claim (see below – “SUBSEQUENT EVENTS”), the Company believes that the amount owing to the parties to the Petition (above) will be less than the amounts recorded. The NextPlay Debt Claim is largely a duplication of the Bonner Debt Claim (above), which, to the Company’s knowledge, remains active and has not been withdrawn. The Company has been advised that such duplication constitutes an abuse of process. As such, the Company has not undertaken any accounting treatment beyond what has already been performed with respect to the Bonner Debt Claim.

On October 7, 2021, Christopher Bagguley and Mark Henry Saft filed a notice of civil claim (the “Bagguley Claim”) in the Supreme Court of British Columbia against the Company for damages for wrongful dismissal. Both Christopher Bagguley and Mark Henry Saft are defendants in the Breach of Fiduciary Duty Claim initiated by the Company on January 15, 2021, which has been discussed above. The Company believes that any liabilities from the Bagguley Claim shall be eliminated entirely, or in substantial part, as a result of the Breach of Fiduciary Duty Claim (see below – “SUBSEQUENT EVENTS”). The Company views the Bagguley Claim to be without merit.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

OTHER MD&A REQUIREMENTS - DISCLOSURE OF OUTSTANDING SHARE DATA

Axion Ventures’ authorized share capital consists of an unlimited number of common shares without par value and an unlimited number of preferred shares without par value. There are no preferred shares issued and outstanding. The Company’s common shares transactions during the period were as follows:

nd an unlimited number of preferred shares without par value. There are no utstanding. The Company’s common shares transactions during the period were	preferred shares issued an as follows:
As at January 1, 2019 Shares issued in connection with March 21, 2019 private placement Shares issued in connection with semi-annual payment of interest on a convertible debt obligation by way of a share issuance (July 3, 2019) As at December 31, 2019	Issued Common Shares 239,392,241 5,750,000 97,248
	245,239,489

Escrow

As of December 31, 2019, 33,000,000 common shares were issued but subject to future release under escrow agreements, as described below. Pursuant to the QT and as amended in April 2019, 33,000,000 of the 150,168,692 common shares of the Company issued to shareholders of the Company were held pursuant to a performance escrow agreement subject to the following performance targets being attained by Axion Games:

a) Axion Games generating EBITDA (earnings before interest, taxes, depreciation and amortization) in excess of US$6,000,000 in either audited fiscal year ending December 31, 2019 (not met) or 2020 (not met); or
b) Axion Games generating game pre-sales in excess of US$10,000,000 in either audited fiscal year ending December 31, 2019 (not met) or 2020 (not met).

The performance escrow shares do not carry voting rights until released from escrow and none of the performance escrowed shares have been released from escrow as of the date hereof. In addition, 29,909,520 of 33,000,000 shares are also held pursuant to either TSXV Surplus or TSXV Value escrow. Therefore, if the performance targets are met and the shares released, 29,909,520 shall be deposited into the applicable TSXV escrow with the Company’s transfer agent and released accordingly. In the event the financial performance

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

targets are not met by Axion Games, the Escrowed Shares shall be cancelled and returned to the treasury of the Company.

As the Company did not attain the performance requirements, an application was made to cancel all 33,000,000 performance escrow shares and such cancellation was completed effective May 5, 2021.

Stock Options

As at December 31, 2019, there were 11,375,000 stock options outstanding of which 9,291,664 had vested.

SUBSEQUENT EVENTS

On February 17, 2020, the Company granted an employee 1,500,000 stock options with an exercise price of CAD0.35, a three-year vesting period and a February 17, 2025 expiry date

On April 2, 2020, the Company closed a non-brokered private placement of 3,251,428 common shares at a price of CAD0.35 per common share for gross proceeds of CAD1,138,000.

On January 15, 2021, the Company filed the Breach of Fiduciary Duty Claim against its former CEO and his spouse, NextPlay, that company’s CEO William Kerby, and their associates for an evolving conspiracy to deprive the Company of its assets and subsidiaries

The Breach of Fiduciary Duty Claim asserts, among other things, that the former CEO and his spouse with the assistance of their associates, caused the unlawful transfer of the Company’s assets, including its digital marketing and in-game advertising software and intellectual property to HotPlay (Thailand) Ltd., a company ultimately controlled by the former CEO and his spouse. In 2020, the former CEO and his spouse entered into a further agreement to transfer the Company’s assets to NextPlay, including the in-game advertising software, in return for shares of NextPlay. In furtherance of their evolving conspiracy, the former CEO, his spouse and their associates, also conspired to cause the Company’s controlling interest in Longroot Limited and its subsidiaries, to be unlawfully transferred to NextPlay.

On March 30, 2021, the Company was issued a partial revocation order by the BCSC which allows the Company to enter into a CAD20 million convertible debenture investment agreement (the "Investment Agreement") and to permit the former CEO and others affiliated with Bonner to transfer Company shares controlled by Bonner or shareholders affiliated with Bonner to shareholders who have asserted that they are the true beneficial owners of over 44 million of those shares in the Company. There can be no assurance that Bonner will effect such transfers.

On March 30, 2021, the Company entered into the Investment Agreement with KUAM for up to CAD20 million by way of unsecured convertible debentures (the "Debentures") and completed an initial tranche of CAD8,000,000 (the "Initial Tranche") thereunder on June 11, 2021. The maturity date of each tranche will be twelve months from the closing date of each tranche.

The Investment Agreement provides that principal amount of the Debenture will accrue interest at the rate of 4% per annum and the Debenture will be convertible to common shares in Axion at KUAM's discretion until maturity at the conversion price that is equal to the higher of CAD0.20 per share and the Discounted Market

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Price (as such term is defined in the policies of the TSX Venture Exchange (the "Exchange") at the time when the Debenture is issued for each tranche. KUAM has agreed separately that it will not seek any discount to the Market Price in the determination of conversion price of the Debenture.

The Debenture and all securities of the Company issued pursuant to closing of the Initial Tranche will be subject to a four month hold period from the closing. Subject to Exchange approval, KUAM agrees to subscribe for two additional tranches of Debentures in mutually agreeable principal amounts per tranche when requested by the Company over a twelve-month period to March 30, 2022.

On July 7, 2021, KUAM exercised its right of conversion and the Debenture for the Initial Tranche was cancelled in exchange for the issuance to KUAM of 40 million common shares of the Company.

On October 27, 2021, the Company entered into an agreement with KUAM (Hong Kong) Investment 02 Ltd., a related party, to acquire a 50% interest in H2CI KuniUmi Asia, Inc. (“H2CI”) for nominal consideration and a trailing earnout as defined in the agreement. H2C1 retains the exclusive perpetual commercialization rights of a proven and patented Canadian technology which refines green hydrogen economically and at scale, with commercial extraction operations expected to commence in the first quarter of 2022 in Quebec, Canada.

DISCLOSURE CONTROLS AND PROCEDURES

In connection with National Instrument 52-109 (Certificate of Disclosure in Issuer’s Annual and Interim Filings) (“NI 52-109”), the Chief Executive Officer and Chief Financial Officer of the Company have filed a Venture Issuer Basic Certificate with respect to the financial information contained in the consolidated financial statements for the year ended December 31, 2019 and this accompanying MD&A (together, the “Annual Filings”).

In contrast to the full certificate under NI 52-109, the Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures and internal control over financial reporting, as defined in NI 52-109. For further information, the reader should refer to the Venture Issuer Basic Certificates filed by the Company with the Annual Filings on SEDAR at www.sedar.com.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

RISK FACTORS

In addition to the normal risks of business, Axion Games and TAI are subject to significant risks and uncertainties, including those listed below and others described elsewhere in this MD&A. Any of the risks described herein could result in significant adverse effects of Axion Games' results of operations and financial condition. As Axion Games and TAI are both in the video game development industry, with the exception of jurisdictional risks, most risk factors are applicable to both companies.

Risks related to the Business

.a COVID-19

The Company cannot accurately predict the impact COVID-19 or its variants or similar pathogens in the future may have on the Company’s business, including its ability to meet its obligations, as a result of uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In the event that the prevalence of COVID-19 or its variants continues to increase (or fears in respect of COVID19 continue to increase), governments may increase regulations and restrictions regarding the flow of labour or products, and travel bans, and the operations of the Company’s investments as well as the Company’s suppliers, customers and distribution channels, as well as their ability to grow their businesses could be significantly adversely affected. In particular, should any employees or consultants of the Company’s investments become infected with COVID-19 or similar pathogens, it could have a material negative impact on those businesses’ operations and prospects. As the income earned by Axion could be negatively impacted by COVID-19 outbreak, which may impact the Company’s to repay the convertible debentures and loans, and decreases in the revenue, net income and cash flows of the Company. The risks listed below as well as the risks posed to the Company as a result of the COVID-19 pandemic could materially affect the Company’s business, prospects and share price and could cause actual events to differ materially from those described in forward-looking statements relating to the Company.

.b Petitions and Debt Claim against the Company

The relief sought in the Petition was abandoned except for a request for a declaration that the decision of the Company made on July 14, 2020 to terminate the former CEO and the decision made on July 27, 2020 to do a private placement of $7,000,000 with KUAM are nullities. The former CEO did not seek any relief other than the declaration, as, for example, that he be reinstated, or that he be compensated for lost salary. As for the private placement decision, that private placement was replaced by the Investment Agreement made with KUAM in March, 2021 for which the approval of the TSXV was obtained, the Initial Tranche of which has been completed. The Company and the Respondent Directors made the submission that Bonner and his wife should not be held to be persons entitled to seek relief, if they did qualify, they lost their status when their company Cern One transferred all of its shares to NextPlay, if they nonetheless continue to be entitled to claim relief, the court lacked authority to merely grant declaratory relief and, in any event, no relief should be granted due to the misconduct of Bonner and his wife. If the court does not dismiss the Petition, the relief it grants will have no effect on the Company’s assets or operations. With respect to the Debt Claim, as noted above, the Company denies the amount of the Debt Claim and anticipates that the final result will be the elimination of the amount for which judgment is sought, or a substantial portion thereof.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.c Axion Games and TAI have limited history of operating under the current business model

Axion Games commenced its business model of focusing on developing its own online multiplayer games and technologies around 2008, and such activities only became a significant portion of annual revenue in 2011. TAI was only incorporated in February 2017. As of the date of this MD&A, Axion Games only has four completed titles that proceeded to commercial or soft launch and TAI has one completed title that very recently proceeded to commercial launch. Previously, Axion Games was principally focused on premium outsourcing services and sales of game development technology to third party customers. As such, Axion Games still has limited relevant experience operating under the current business model.

.d Failure to extend game life cycles may adversely affect results of operation

Axion Games currently has only two online games in operation, MARS which was first commercially launched in China in November 2011, and Rising Fire which was open beta launched in China in late June 2018 and has yet to generate significant revenue as the game is tuned. These two games may have a finite life span and may fall out of favor with players. In particular, MARS has come to a late stage of its life cycle and it has become more difficult to incentivize users to increase in-game purchases. Axion Games must maximize the life cycle of our existing games by developing, releasing and marketing new expansion packs or updates that will continue to engage players. This concentration exposes Axion Games to significant risks. Any of the following could materially and adversely affect the business, financial condition and results of operations:

reduction in or failure to grow the player base for the Company's games, a decrease in their popularity in the market due to intensifying competition or other factors;
any decrease in or failure to grow the amount of revenue generated from these two games;
failure by Axion Games to make quality upgrades, enhancements or improvements to these two games in a timely manner; or
any breach of game-related software security, prolonged server interruption due to network failures, hacking activities or other factors or any other adverse developments relating to the games.
.e Axion Games and TAI must continue to launch, acquire and/or operate games

In order for Axion Games and TAI's business to succeed over time, each company will need to continually develop, launch and operate new games or license or acquire new games that achieve significant popularity and are commercially successful. The companies will need to do this in order to both replace existing games as they reach the end of their useful economic lives (in the case of Axion Games' existing games) and also in order to meet the strategy of operating a larger number of online PC games and mobile games that grow each company's overall player base and increase revenue. For Axion Games, the success of Rising Fire and other new games will largely depend on the Company's ability to anticipate and effectively respond to changing consumer tastes and preferences and technological advances in a timely manner. Neither company can assure that the games it develops will be launched as scheduled, viewed by the regulatory authorities as complying with content restrictions, attractive to players, or able to compete with games operated by competitors.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.f Axion Games and TAI must maintain and grow its respective player base

In order to achieve sustainable growth, both companies must retain existing players, attract new players, and improve monetization. This requires that each company consistently launch popular games and release updates for existing games to keep players engaged. In order to deliver a better game-playing experience and deepen our understanding of players, the companies need to invest in technology and research and development. If Axion Games or TAI are unable to consistently deliver a satisfying player experience, they may lose players. If the companies are unable to anticipate player preferences or behaviors or industry changes in order to market and promote new games, or if the companies are unable to extend the life cycle of the games that it currently operates, player bases may not increase at the rate anticipated, or at all, and it may even decrease.

Despite efforts to develop and source ideas for high-quality games and a rigorous game selection process, the companies cannot assure that the games it launches will gain popularity within a short period of time, if at all. Nor can the companies assure that popular games that it operates will continue to sustain current levels of popularity and profitability. Players may lose interest in each company's games over time despite efforts in offering a diversified portfolio of games and improving or upgrading existing games. Players may not choose the games or services if the technology becomes unreliable. Players may choose to play games offered by other platforms if those platforms offer better game services or social networking opportunities. Furthermore, new games require a build-up period when players are first introduced to the games, and the rise in popularity of some games can be slow, if it happens at all. If a build-up period coincides with the inevitable phasing-out period of older games, the result could be a decrease in the number of total active and paying players as well as gross billings and revenue during that period. If a game fails to gain anticipated player acceptance and Axion Games and TAI do not introduce additional games to maintain player base, the phasing out of previous games could result in a prolonged period of or permanent decrease in total active and paying players. If Axion Games or TAI fail to effectively schedule the initial launches of games, results of operation may be materially and adversely affected.

.g Axion Games and TAI must be able to access appropriate game engines

Axion Games entered into a software license and distribution agreement with Epic in December 2006, pursuant to which Epic granted to Axion Games certain non-transferable, royalty-bearing and terminable license rights to distribute, market, use and sublicense Unreal Engine and other game engines developed by or for Epic. In June 2014, Axion Games entered into a master separation agreement with Epic and certain other parties, under which most licenses Epic provided to Axion Games were terminated. Axion Games has primarily used Unreal Engine to develop its games.

After termination of the license from Epic in June 2014, Axion Games may continue to use Unreal Engine as an embedded component of any games that had launched, including MARS. Axion Games is also entitled to use Unreal Engine for five additional games that had not launched, for which, after the first game, Axion Games will need to pay to Epic royalties ranging from 2.5% to 7.5% of any and all revenue generated in connection with such games. For any games outside the above five games, if Axion Games wishes to use Unreal Engine, the Company will need to obtain additional licenses from Epic, which will require standard market-rate royalty rates. Axion Games expects to continue to license Epic's Unreal Engine in the future, in which case its cost of sales may increase. In addition, Axion Games is exploring the use of alternative game engines on a case-by-case basis or development of its own proprietary engine, particularly in regard to mobile online and other games that do not require such heavy software infrastructure. However, the company's engineers have less experience working

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

with game engines other than Unreal Engine, and they may need more time to become proficient at programming in other game engines.

TAI will also be required to access game engines that are appropriate for the games it is developing and will require sufficient expertise amongst its engineers with respect to these game engines to efficiently develop games.

.h Axion Games and TAI have limited self publishing experience

Axion Games and TAI may choose to self-publish and operate its games, especially mobile games, in select markets. However, the companies have limited experience in publishing and promoting their own games. Though self-publishing and operating games will allow each company to retain a significantly higher percentage of the revenue generated by the game, self publishing and operation are more expensive and require greater initial investment than publishing through third parties, particularly in relation to selling and distribution expenses and commission fees payable to mobile carriers and distribution channels, and the revenue generated by the self-publishing games may be significantly affected by each company's ability to anticipate and adapt to changes in the tastes and preferences of existing and new players. Moreover, self-publishing and operation of mobile games may present more challenges than PC games, which is where Axion Games has particular experience. For instance, the smooth operation of mobile games requires high-speed data transmission on the mobile networks or over the Internet, which requires different technological capabilities from online PC games. Axion Games and TAI will also need to provide technical support, and to develop updates and expansion packs to sustain user interest and attract new users to mobile games to be operated inhouse. Axion Games' and TAI's successful operation of mobile games will also depend, among other things, on each company's ability to respond to market developments, including the development of new platforms and technologies, and changes in pricing and distribution models and maintain and diversify its distribution channels, including through major app stores and mobile browsers, such as Tencent App Store, Qihoo 360 Mobile, 91 Wireless and UCWeb, mobile device makers and retailers, such as Lenovo, Huawei, ZTE and Suning, mobile carriers and mobile advertising agents.

.i Ongoing relationship with Tencent pursuant to the licencing agreement

In 2015, Tencent agreed to an exclusive licence agreement. See " Description of the Business – Axion Games & True Axion Interactive – Economic Dependence ". As a result, if Axion Games is unable to maintain a stable relationship with Tencent, or if Tencent pursues more favorable relationships with its competitors, Axion Games may not be able to ensure the smooth operation of Rising Fire, which could harm the Company's operating results and business.

.j Axion Games and TAI must monetize players effectively

Axion Games has adopted free-to-play item-based revenue model for its online PC games and mobile games. Under the item-based revenue model, players are able to play the games free of charge for an unlimited amount of time but are charged for purchases of in-game items, such as weapons, performance-enhancing items and accessories. The item-based model requires the company to design games that not only attract players to spend more time playing, but also encourage them to purchase in-game items. The sale of in-game items requires Axion Games to track even more closely consumer tastes and preferences, especially in-game spending trends. In order to sustain revenue levels, the company must attract new paying players and increase purchases by

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

existing paying players. In addition, spending in the games is discretionary and players can be sensitive to the price, undermining the company's ability to convert active players to paying players. It is crucial to balance, on the one hand, creating sufficient in-game monetization opportunities, which enhances the profitability of the company's games, and, on the other hand, ensuring that players can enjoy the games even without paying for extra functions or items. To stimulate in-game spending, Axion Games needs to continue to launch marketing and promotional activities to drive player interest. While free-to-play games help to maintain a sizable player base and the associated network effect, it may not be optimal in terms of player monetization.

Furthermore, the values of virtual items are highly dependent on how Axion Games manages the virtual economies in its games. Paying players purchase virtual items in the Company's games because of the perceived value of these goods, which is dependent on the relative ease of obtaining goods via non-paid means within the games. The perceived value of these virtual items can be impacted by an increase in the availability of free or discounted virtual currency or by various actions that the company takes in the games, including offering discounts for virtual items, giving away virtual items in promotions or providing easier non-paid means to obtain these goods. If Axion Games fails to manage its virtual economies properly, players may be less likely to purchase virtual items.

TAI will also be subject to the same risk with respect to the monetization of players.

.k Player monetization is subject to third-party payment processing-related risks

Axion Games offers its players a variety of payment options, including direct payment through online banks and mobile carriers, purchasing pre-paid cards, and other third-party online payment platforms. Therefore, the company relies on them to provide payment processing services to its players, which subjects us to fraud and other illegal activities in connection with these various payment methods.

Axion Games generally receives game gross billings through third-party payment channels. The concentration of these payment channels could lead to a short-term disruption in collection of the gross billings if one or more of them were to narrow or terminate its business cooperation with the company or demand commercial terms that are less favorable to the company. Such concentration also makes Axion Games more vulnerable to collection risks should one or more of these providers become unable or unwilling to share the proceeds it receives. The company's operations and business could be harmed if relationships with one or more of these payment platforms deteriorate, or if one or more of the key payment platforms experience a decrease in their business generally or an increase in non-payment from players.

TAI will also be subject to the same risk with respect to the payment platforms used in connection with the monetization of players.

.l Outsourcing projects do not necessarily provide for subsequent engagements

Under the Company's outsourcing arrangements, clients generally retain Axion Games on an engagement-byengagement basis in connection with specific projects rather than on a recurring basis under long-term contracts. Although a substantial majority of the Company's revenue relating to outsourcing business is generated from repeat business, engagements with clients are typically for projects that are singular and often short-term in nature. Therefore, Axion Games must seek out new engagements when current engagements are successfully completed or are terminated. In addition, as Axion Games has gradually began changing its primary focus to the

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

development of proprietary online games and in potential partnership arrangements, resources devoted to outsourcing business have been reduced compared to before.

TAI's outsourcing is anticipated to be more limited than Axion Games' during its early operations; however, TAI will be subject to the same risks for future outsourcing.

.m Axion Games and TAI operate in a highly competitive industry

Axion Games and TAI compete with other developers, publishers and operators of games globally. The online game industry is highly competitive. The industry is characterized by the frequent introduction of new products and services, short product life cycles, evolving industry standards, rapid adoption of technological and product advancements, as well as price sensitivity on the part of players. There is significant competition for professionals who possess the technical skills and experience necessary for the online game industry. If the companies are unable to retain or motivate them or hire additional qualified personnel, the companies may not be able to grow effectively. Axion Ventures believes there are numerous different types of market players using various strategies to compete for a share of the online game market. These include extremely large game developers who focus on individual massive projects, to more traditional retailers and online publishers to large volume publishers who develop or purchase a large number of games with lower production value with the aim of finding one or two hits among them. Many of Axion Games and TAI's major competitors will have substantially larger financial and technical resources, larger user bases and better-known platforms. In addition, the number of new entrants in the market is increasing as more capital is injected into the online game market. If there are new entrants in the market or intensified competition among existing competitors, Axion Games and TAI may have to provide more incentives to industry participants, such as game publishers and distributing agents, which could adversely affect profitability.

In addition, Axion Games and TAI face competition from other entertainment formats, such as movies, televisions, and social network services. There is no assurance that online PC games and mobile games will continue to be popular or that it will not be replaced by other forms of entertainment in the future.

.n Focus on proprietary games may reduce outsourcing revenue

Axion Games and TAI expect to engage in the outsourcing business and earn revenue from outsourcing services. However, the focus on building proprietary games might make outsourcing clients less willing to work with Axion Games and TAI, as such proprietary games may compete with their own games.

.o Online game industry risks

The online game industry, from which Axion Games and TAI derive substantially all of their revenue, is rapidly evolving. The growth of the online game industry and the level of demand and market acceptance of each company's games are subject to a high degree of uncertainty. Axion Games' and TAI's future operating results depend on numerous factors affecting the online game industry, many of which are beyond each company's control, including:

the growth of PC, Internet, broadband and mobile device users and penetration in Asia and other markets and the rate of any such growth;
whether the online game industry, particularly in Asia and other key markets, continues to grow and the rate of any such growth;

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

the growth of the telecommunications infrastructure, mobile network and payment system in Asia and other key markets;
changes in consumer demographics and public tastes and preferences;
changes in technologies;
the availability and popularity of other forms of entertainment;
general economic conditions, particularly economic conditions adversely affecting discretionary consumer spending; and
the popularity and price of new games and in-game items that competitors launch and distribute.

In particular, Axion Games' intended focus on high production value games will be affected by the availability of and changes in technologies generally available to potential game operators in the PRC. The Company's ability to plan for product development and distribution and promotional activities will be significantly affected by its ability to anticipate and adapt to relatively rapid changes in consumer tastes and preferences. New and different types of entertainment may increase in popularity at the expense of online games. A decline in the popularity of online games in general will likely adversely affect the Company's business and prospects.

As China's and other Asian online game markets have evolved rapidly in recent years with developments such as the introduction of new business models and new technology, the development of player preferences, market entry by new competitors and the adoption of new strategies by existing competitors, Axion Games and TAI expect each of these trends to continue, and the companies must continue to adapt their strategies to successfully compete in the online game market. There are numerous other technologies and business models in varying stages of development, such as microtransactions, cloud gaming, VR/AR involving fifth generation mobile technologies, which could render certain current technologies obsolete. If Axion Games and TAI fail to anticipate or successfully implement new technologies, their respective games may become obsolete or uncompetitive.

Accordingly, it is difficult to accurately predict player acceptance and demand for existing and potential new games, and the future size, composition and growth of this market. Given the limited history and rapidly evolving nature of our market, the companies cannot predict how much players will be willing to pay for the virtual items in games or whether players will have concerns over security, reliability, cost and quality of service associated with online games.

.p Axion Games and TAI are reliant on key management

Axion Games and TAI's future success depends heavily upon the continuing services of its key management team. If one or more of its executives or other key personnel are unable or unwilling to continue in their present positions, the companies may not be able to replace them easily, timely, or at all, and business may be severely disrupted, and each Company's financial condition and results of operations may be materially and adversely affected. Competition for management and key personnel is intense, the pool of qualified candidates is limited, and Axion Games and TAI may not be able to retain the services of executives or key personnel or attract and retain experienced executives or key personnel in the future. If any of either company's executives or other key personnel joins a competitor or forms a competing company, that Company may lose customers, distributors, knowhow and other key personnel.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.q Axion Games' brand

Axion Games focused on premium outsourcing services and sales of game development technology for the initial several years of its operation history, therefore the company's brand may not be as well-known as that of the other game developers and independent game publishers with whom the Company is now competing. Axion Games believes that maintaining and enhancing its brand is of significant importance to the success of the business. A well-recognized brand can help to increase the number and the level of engagement of the company's players. In the long term, low brand recognition may also hinder the company's recruitment efforts and ability to attract new talent.

Brand recognition is also important to TAI, which has enjoyed the notoriety of both Axion Games and True Corporation because of the use of "True", which is a household name in Thailand, and "Axion" in the Company's name. However, any reduction in brand recognition could also hinder TAI's recruitment efforts and ability to attract new talent.

.r Licensing risks

Axion Games and TAI plan to license their games to the game operators in the PRC, Thailand, and abroad. The licensing of games to game operators outside of China and Thailand expose the companies to a number of risks, including:

difficulties and costs in protecting intellectual property rights outside of China and Thailand;
difficulties and costs relating to compliance with the different commercial and legal requirements of the international markets in which the companies offer games, such as game import regulatory procedures, taxes and other restrictions and expenses;
fluctuations in currency exchange rates;
interruptions in cross-border Internet connections or other system failures;
difficulties in identifying and maintaining good relationships with licensees who are knowledgeable about, and can effectively distribute and operate the games in, international markets;
difficulties in negotiating license agreements with game operators on terms that are commercially acceptable and enforcing the provisions of those agreements;
difficulties in developing games and expansion packs catering to international markets and in renewing license agreements with licensees upon their expiration; and
difficulties in maintaining the reputation of the companies and their games, given that the games are operated by licensees in the international markets pursuant to their own standards.

In addition, with respect to the games licensed outside of the PRC and Thailand, the countries and regions where the games are licensed may impose restrictions on online games. The licensing of the games to PRC and or Thailand based game operators also expose the companies to a number of risks, including:

difficulties in identifying and maintaining good relationships with licensees who are knowledgeable about, and can effectively distribute and operate the games;
difficulties in renewing license agreements with licensees upon their expiration; and
difficulties in maintaining the reputation of the companies and their games, given that the games are operated by the PRC licensees pursuant to their own standards.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.s Technology failure or interruption risks

Axion Games' technology infrastructure is critical to the performance of its games and to player satisfaction. The games the Company operates itself run on a hardware and software infrastructure consisting primarily of selfowned servers. Some elements of the technology infrastructure, such as the company's servers, are maintained by third parties that the company does not control. Axion Games has experienced, and may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. If a particular game is unavailable when players attempt to access it, players may stop playing the game and may be less likely to return to the game as often, if at all. A failure or significant interruption in game service would harm the company's reputation and operations.

TAI will be subject to the same risks of technology failure or interruption.

.t Technology update risks

Strong technological capabilities are critical to the company's success. The online PC game and mobile game industry is subject to rapid technological change. Axion Games must anticipate the emergence of new technologies and assess their market acceptance. The company also needs to invest significant financial resources in research and development to keep pace with technological advances in order to make development capabilities and games competitive in the market. However, development activities are inherently uncertain, and the company might encounter practical difficulties in commercializing development results. Significant expenditures on research and development may not generate corresponding benefits. Given the fast pace with which online PC game and mobile game technology has been and will continue to be developed, the Company may not be able to timely upgrade its technologies in an efficient and cost-effective manner, or at all.

TAI will be subject to the same risks of technology update.

.u Technology security breach risks

As Axion Games conducts its business, it processes, stores and analyzes personal information and other data. Axion Games relies on encryption and authentication technology to provide the security and authentication necessary to enable secure transmission of confidential player information, including player name and passwords. Although the Company has not experienced any security breaches that materially adversely affected the Company, the Company's security controls over players and game data may not prevent the improper disclosure of personally identifiable information. A party who is able to circumvent these security measures could misappropriate proprietary information or cause interruptions in operations. A security breach that leads to disclosure of player account information, including certain personally identifiable information, could harm the company's reputation.

In addition, secure transmission of confidential information, such as players' debit and credit card numbers and expiration dates, personal information and billing addresses, over public networks, including the Company's website, is essential for maintaining player confidence. Axion Games does not have control over the security measures of third-party payment platform partners, and their security measures may not be adequate at present or may not be adequate with the expected increased usage of online payment systems. The Company could be exposed to litigation and possible liability if it fails to safeguard confidential player information.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

TAI will be subject to the same risks of technology security breach.

.v Undetected programming flaws or customer service risks

The engines and technologies Axion Games uses to develop games, such as Unreal Engine and Atlas, may contain errors or defects. The Company's games developed with such engines may thus contain errors or flaws, which may only become apparent after their release, particularly as Axion Games launches new games or introduces new features to existing games under tight time constraints. From time to time, players inform the Company of programming flaws affecting gaming experience, which to date the Company has generally been able to resolve promptly. Furthermore, customer service is critical for retaining players, but the company may not be able to maintain and continuously improve the quality of services to meet players' expectations. If games contain programming errors or other flaws otherwise fails to provide effective customer service, players may be less inclined to continue or resume playing the Company's games or to recommend games to potential new players and may switch to competitors' games.

TAI will be subject to the same risks of technology failure or interruption.

.w Inappropriate online communications or content

The Company's game users are able to engage in highly personalized conversations when they use in-game chatting function. It is possible that certain users may engage in illegal, obscene or incendiary conversations that may result in a negative impact on other users. In serious cases, certain such information or content may be deemed unlawful under relevant laws and regulations, and government authorities may require the Company to discontinue or restrict certain features or services that have led, or may lead, to such events. Axion Games may incur significant costs in investigating and defending ourselves if the Company is subject to penalties or claims based on the nature or content of information improperly displayed, which may materially and adversely affect our reputation, operations and business.

TAI will be subject to the same risks of inappropriate online communications or content.

.x Hacking or cheating activities risks

With the increase in the number of game players in China, game operators have increasingly encountered problems arising from the use of unauthorized character enhancements, theft of player account information and other hacking or cheating activities. Axion Games has from time to time detected a number of players who have gained an unfair in-game advantage by installing hacking or cheating tools to facilitate character progression. In response to these activities, the Company has installed built-in detection mechanisms in its games to identify various hacking and cheating activities. However, these measures may not be effective against hacking. Continued occurrences of unauthorized character enhancements and other manipulations will harm player experience, which may negatively impact the image of the Company's games and players' perception of their reliability, decrease the number of players, reduce the players' interest in purchasing in-game items, shorten the life span of the games and adversely affect results of operations.

TAI will be subject to the same risks of hacking or cheating activities.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.y Data collection risks

Axion Games assesses operating performance using a set of key performance indicators, including average monthly ARPPU. Capturing accurate data is subject to various limitations, as is true with many Internet companies. For example, Axion Games may need to collect certain data from mobile carriers or other third parties, which limits the company's ability to verify the reliability of such data, or the Company may not be able to collect any data from third parties at all. After games are launched officially, the Company's in-house team tracks data for self-published games on a real-time basis and analyzes information relating to players' behaviors along various metrics at regular intervals. The Company has also made efforts to obtain relevant paying player information, including obtaining regular paying player information from third-party publishers. However, Axion Games cannot assure that it can always have the technologies to capture accurate paying player information. The key operating performance indicators Axion Games uses may not always reflect actual operating performance. Similarly, the Company may incorrectly assess key operating performance indicators and in turn make incorrect operational and strategic decisions. Failure to capture accurate data or an incorrect assessment of this data may materially harm business and operating results.

TAI will be subject to the same risks of data collection.

.z Risk related to data privacy

Axion Games, its PRC Subsidiaries and VIEs process, store and use personal information and other user data and therefore are subject to laws regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other user data on the Internet and mobile platforms, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules.

The Company strives to comply with all applicable laws and regulations relating to privacy and data protection. Any failure or perceived failure by the Company to comply with privacy policies, including privacy-related obligations to users or other third parties, or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation or public statements against the Company and could cause its users to lose trust in the Company, which could have a material adverse effect on its business. In addition, if third parties the Company works with, such as users, vendors or developers, violate applicable laws or the company's policies, such violations may also put the users' information at risk and could in turn have a material adverse effect on Company's business.

.aa China Internet infrastructure and telecommunications risks

Axion Games' game operation and distribution depend on the performance and reliability of the Internet infrastructure in China. Almost all access to the Internet is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology, or the MIIT. In addition, the national networks in China are connected to the Internet through international gateways controlled by the PRC government. These international gateways are the only channels through which a PRC user can connect to the Internet. Although the Internet infrastructure in China has improved, a more sophisticated Internet infrastructure may not be developed in China. The Company will have no access to alternative networks and services, on a timely basis if at all, in the event of any infrastructure

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

disruption or failure. The Internet infrastructure in China may not support the demands necessary for the continued growth in Internet usage.

The mobile network in China is operated primarily by three mobile carriers, including China Mobile, China Unicom and China Telecom, all of which are controlled by the PRC government. Mobile coverage may not be reliable, and any disruption in the operation of the mobile carriers may have a negative impact on players' ability to download and activate mobile games, as well as their gameplay and payment experience. There is no assurance that China's mobile network infrastructure will continue to improve and further support the operation and expansion of our business.

Any failure to maintain the satisfactory performance, reliability, security and availability of network and computer infrastructure may cause significant harm to the Company's business operations and the distribution of its games. From time to time, users in certain locations may not gain access to online game services for a period of time lasting from several minutes to several hours due to server interruptions, power shutdowns, Internet connection problems or other reasons. Any server interruptions, break-downs or system failures, including failures which may be attributable to events within or outside the company's control that could result in a sustained shutdown of all or a material portion of the company's services or loss of critical customer data, could adversely impact the ability to operate games and service players and lead to player attrition and revenue reduction.

.bb Limited business insurance coverage in China.

Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies do in countries with more developed economies. In line with general industry practice in China, Axion Games does not have any business liability or disruption insurance to cover operations. Any uninsured occurrence of business disruption, litigation or natural disaster, or significant damage to our uninsured equipment or technology infrastructure may result in substantial costs and the diversion of resources, which could have a material adverse effect on results of operations and financial condition.

.cc Additional capital for Axion Games and TAI

Axion Games requires a significant amount of cash to fund operations, and the same is expected for TAI. To grow the business and remain competitive, each company may require additional capital and the ability to obtain additional capital is subject to a variety of uncertainties, including:

future financial conditions, results of operations and cash flows;
general market conditions for capital raising activities by companies offering online and mobile products and services; and
economic, political and other conditions in China and internationally.

Axion Games and TAI may be unable to obtain additional capital in a timely manner or on acceptable terms or at all.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Risks Related to Intellectual Property

.dd Intellectual property rights infringement

Axion Games regards the intellectual property rights granted to it by its business partners as well as the company's own software, domain names, trade names, copyrights, trademarks, trade secrets and similar intellectual properties as critical to the company's success. In particular, Axion Games has spent significant amount of time and resources in developing technological capabilities and must continue to protect the technology. Axion Games does not hold any patents in China or elsewhere and intellectual property rights and confidentiality protection in China may not be as effective as in Canada, the United States or other countries.

Policing unauthorized use of proprietary technology is difficult and expensive. Axion Games has historically relied on a combination of trademark and copyright law, trade secret protection, restrictions on disclosure and other agreements that restrict the use of its intellectual properties to protect the Company's intellectual property rights. Although contracts with business partners prohibit the unauthorized use of the Company's franchises, brands and other intellectual property rights, Axion Games cannot assure that such partners will always comply with these terms. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, third parties may independently discover the company's trade secrets and proprietary information, limiting the company's ability to assert any trade secret rights against such parties.

Although Axion Games presently enters into confidentiality agreements with substantially all of its employees and impose stringent obligations on the company's core research and development employees with respect to confidentiality, the Company cannot assure that these confidentiality agreements will not be breached, that Axion Games will have adequate remedies for any breach, or that the proprietary technology, know-how or other intellectual property will not otherwise become known to, or be independently developed by, third parties. Any failure to protect the company's game developer partners' intellectual properties will also subject us to severe consequences, including loss of game distributorships and payment of damages.

While Axion Games actively takes steps to protect its proprietary rights and those of its business partners, such steps may be inadequate. Any misappropriation by Company employees, licensees or other third parties of intellectual property used in its business, whether licensed to us or owned by us, could have an adverse effect on Axion Games' business and operating results. The validity, enforceability and scope of protection of intellectual property in Internet-related industries are uncertain and still evolving. In particular, the laws and enforcement procedures of the PRC and certain other countries are uncertain or do not protect intellectual property rights in this area to the same extent as do the laws and enforcement procedures of Canada or the United States. Axion Games mainly relies on its licensees for copyright, domain names and trademark protection outside China, although very limited protection has been secured to date. The Company may need to resort to court proceedings to enforce our intellectual property rights in the future. Litigation relating to intellectual property might result in substantial costs and diversion of resources and management attention away from our business.

TAI will also be subject to similar intellectual property risks.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.ee Third party intellectual property rights infringement claims

Axion Games cannot assure that its online PC games, mobile games or other content posted on its websites do not or will not infringe upon patents, valid copyrights or other intellectual property rights held by third parties. In addition, Axion Games may use the copyrights, patents or other intellectual property rights held by third parties when we process outsourcing work for the company's clients. As a result, the Company may be subject to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of business. Any such claim or litigation, with or without merit, could be costly and distract our management from day-to-day operations. If the Company fails to successfully defend against such claims or do not prevail in such litigation, Axion Games could be required to modify, redesign or cease operating the games, pay monetary amounts as damages, enter into royalty or licensing arrangements, or satisfy indemnification obligations that it has with some of our players. Any royalty or licensing arrangements that Axion Games may seek in such circumstances may not be available on commercially reasonable terms or at all. Furthermore, the agreements with outsourcing clients generally obligate the company to indemnify our outsourcing clients for any losses that they may incur arising from outsourcing products' infringement upon any third party's intellectual property rights.

Also, if Axion Games acquires technology to include in its products from third parties, the Company's exposure to infringement actions may increase because Axion Games must rely upon these third parties to verify the origin and ownership of such technology. This exposure to liability could result in disruptions in business that could materially and adversely affect operating results.

Some of the Company's employees were previously employed at other companies, including current and potential competitors. To the extent these employees are involved in the development of content or technology similar to Axion Games at their former employers, the Company may become subject to claims that these employees that these employees or the Company have appropriated proprietary information or intellectual properties of the former employers of our employees. If Axion Games fails to successfully defend such claims against us, the Company may be exposed to liabilities which could have a material adverse effect on business.

TAI will be subject to the same intellectual property risks.

Risks Related to Corporate Structure and China

.a Organizational structure and compliance with PRC laws and regulations

Axion Games is a Cayman Islands company and, as such, is classified as a foreign enterprise under PRC laws, and the company's wholly-owned PRC subsidiary, Yingpei Digital Technology (Shanghai) Co., Ltd. (“Yingpei Shanghai”) , is a foreign-invested enterprise under PRC laws. Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunications services and other related businesses, including the provision of internet information and cultural services. In particular, under the Catalog and the 2018 Negative List, the operation of online and mobile games falls into the value-added telecommunications services and are considered restricted, and our operation of online and mobile games also falls into internet cultural services business and are considered "prohibited." To comply with PRC laws and regulations, the Company conducts business in China through its VIEs incorporated in China. These VIEs are owned by PRC citizens who are employees or former employees of

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Axion Games, with whom the Company has contractual arrangements. The contractual arrangements give Axion Games effective control over each of the VIEs and enable the Company to obtain substantially all of the economic benefits arising from the VIEs as well as consolidate the financial results of the VIEs in results of operations. The PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. These VIEs hold the licenses, approvals and key assets that are essential for the operations the Company's business in China.

There are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. The relevant regulatory authorities in China have broad discretion in determining whether a particular contractual structure violates PRC laws and regulations. If the Company is found in violation of any PRC laws or regulations or if the contractual arrangements are determined as illegal or invalid by any PRC court, arbitral tribunal or regulatory authorities, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation:

revoke the agreements constituting the contractual arrangements;
revoke business and operating licenses;
require the Company to discontinue or restrict operations;
restrict the Company's right to collect revenue;
shut down all or part of the Company's websites or services;
levy fines on the Company and/or confiscate the proceeds that they deem to have been obtained through non-compliant operations;
require the Company to restructure the operations in such a way as to compel it to establish a new enterprise, re-apply for the necessary licenses or relocate business, staff and assets; and
impose additional conditions or requirements with which the company may not be able to comply; or take other regulatory or enforcement actions that could be harmful to business.

In addition, new PRC laws, rules and regulations may be introduced to impose additional requirements that may impose additional challenges to the Company's corporate structure and contractual arrangements. The occurrence of any of these events or the imposition of any of these penalties may result in a material and adverse effect on the company's ability to conduct business in China.

.b Uncertainty regarding the Foreign Investment Law

On March 15, 2019, the National People's Congress promulgated the FIL, which became effective on January 1, 2020 and replaced the Existing FIE Laws, together with their implementation rules and ancillary regulations. The FIL embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.

The FIL removes all references to the terms of "de facto control" or "contractual control" as defined in the draft published in 2015 by the Ministry of Commerce, or MOFCOM. However, the Foreign Investment Law has a catchall provision under the definition of "foreign investment" which includes investments made by foreign investors in China through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, the State Council may in the future promulgate laws and regulations that deem investments made by foreign investors through contractual arrangements as "foreign investment," and our

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

contractual arrangements may be subject to and be deemed to violate the market entry requirements in China. The "variable interest entity" structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China.

It will be uncertain whether our contractual arrangements may be deemed as invalid and illegal, and the Company may be required to unwind the variable interest entity contractual arrangements and/or dispose of any affected business. Furthermore, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements, the Company may face substantial uncertainties as to whether the company can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect the Company's current corporate structure, corporate governance and business operation.

In addition, the Foreign Investment Law further specifies that foreign investments shall be conducted in line with the "negative list" to be issued or approved to be issued by the State Council. The internet content service, internet audio-visual program services and internet culture activities that the Company conduct through our consolidated affiliated entities are subject to foreign investment restrictions set forth in the 2018 Negative List. It is uncertain whether the industry of internet content service, internet audio-visual program services and internet culture activities, in which the VIEs operate, will be subject to the foreign investment restrictions or prohibitions under the then updated "negative list" to be issued. If the then updated "negative list" requires companies with existing VIE structure like us to take further actions, such as MOC market entry clearance, the company will face uncertainties as to whether such clearance can be timely obtained, or at all.

.c Control and operations of Viable Interest Entities

Since PRC laws limit foreign equity ownership in certain businesses in China, the Company operates in China through its VIEs, in which the Company relies on a series of contractual arrangements and their respective equity holders to control and operate these businesses. The contractual arrangements may not be as effective as direct ownership in providing the Company with control over its VIEs. Direct ownership would allow the Company, for example, to directly or indirectly exercise rights as a shareholder to effect changes in the boards of directors, which, in turn, could effect changes, subject to any applicable fiduciary obligations at the management level. However, under the contractual arrangements, as a legal matter, if VIEs or their respective equity holders fail to perform their respective obligations under the contractual arrangements, the Company may have to incur substantial costs and expend significant resources to enforce those arrangements and resort to litigation or arbitration and rely on legal remedies under PRC laws. These remedies may include seeking specific performance or injunctive relief and claiming damages, any of which may not be effective. In the event the Company is unable to enforce these contractual arrangements or the Company experience significant delays or other obstacles in the process of enforcing these contractual arrangements, the Company may not be able to exert effective control over its affiliated entities and may lose control over the assets owned by its VIEs. As a result, the Company may be unable to combine VIEs in its consolidated financial statements, the Company's ability to conduct business may be negatively affected.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.d Risks regarding use and benefits of licenses

The Company's VIEs hold licenses and approvals and assets that are necessary for operations to which foreign investments are typically restricted or prohibited under applicable PRC law. In the event the VIE equity holders breach the terms of these contractual arrangements and voluntarily liquidate the VIEs, or any of the VIEs declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without company consent, the company may be unable to conduct some or all of its operations or otherwise benefit from the assets held by the VIEs, which could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, if any of the VIEs undergo a voluntary or involuntary liquidation proceeding, its equity holders or unrelated third-party creditors may claim rights to some or all of the assets of such VIEs, thereby hindering the Company's ability to operate business as well as constrain growth.

.e Corporate structure scrutiny by the tax authorities in China

The PRC tax regime is rapidly evolving and there is significant uncertainty for taxpayers in China as the tax laws may be interpreted in significantly different ways. The PRC tax authorities may assert that the Company's PRC Subsidiaries or VIEs or their equity holders owe and/or are required to pay additional taxes on previous or future revenue or income. In particular, under applicable PRC laws, rules and regulations, arrangements and transactions among related parties, such as the contractual arrangements with the VIEs, may be subject to audit or challenge by the tax authorities. If the PRC tax authorities determine that any contractual arrangements were not entered into on an arm's length basis and therefore constitute a favorable transfer pricing, which could adversely affect the Company by (i) increasing the tax liability of VIEs without reducing the PRC Subsidiaries' tax liability, which could further result in late payment fees and other penalties to the VIEs for underpaid taxes; or (ii) limiting the abilities of the VIEs to maintain preferential tax treatments and other financial incentive.

.f Conflicts of interest with the company's corporate structure

The registered shareholders of Zhenyou Network are Ms. Xiqin Yu, Ms. Sennan Chen, and Ms. Meixiu Chen. Neither of them is a shareholder of Axion Games, but each of them has executed an irrevocable power of attorney to appoint Yingpei Shanghai to vote on her behalf and exercise all of her other shareholder rights. Although these individuals are thus contractually obligated to act in good faith and in the company's best interest, they still have potential conflicts of interest with the Company.

The sole registered shareholder of Yingpei Software is Ms. Xiqin Yu, the Financial Controller of Axion Games. Thus, conflicts of interest between her duties to Axion Games and her interests as the sole shareholder of Yingpei Software may arise. Although Ms. Xiqin Yu is obligated to act in good faith and in the Company's best interest as a result of her duties as an executive officer of the Company, occasions may arise when the duties Ms. Xiqin Yu owes to Axion Games under Cayman Islands law conflict with the duties she owes to Yingpei Software under PRC laws.

The Company cannot provide assurance that when conflicts of interest arise, any or all of these individuals will act in the best interests of Axion Games or such conflicts will be resolved in the Company's favor. In addition, these individuals may breach, cause Zhenyou Network or Yingpei Software to breach or refuse to renew, the existing contractual arrangements with the Company. In addition, these individuals could violate their noncompete or employment agreements with the Company or their legal duties by diverting business opportunities

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

from Axion Games. If the parties are unable to resolve any such conflicts, or if Axion Games suffers significant delays or other obstacles as a result of such conflicts, business and operations could be severely disrupted, which could materially and adversely affect results of operations and reputation.

In addition, the shareholders of Axion Games' structured entities may be involved in personal disputes with third parties or other incidents that may have an adverse effect on their respective equity interests in the structured entities and the validity or enforceability of the contractual arrangements.

.g Risk regarding enforceability of contractual arrangements

The Company is party to contractual arrangements governed by PRC laws and which provide for the resolution of disputes through arbitration in China. Accordingly, these agreements would be interpreted in accordance with PRC laws and disputes would be resolved in accordance with PRC legal procedures. The legal environment in China is not as developed as in other jurisdictions and uncertainties in the PRC legal system could limit the company's ability to enforce such contractual arrangements. In the event that the Company is unable to enforce such contractual arrangements, or if the Company suffers significant time delays or other obstacles in the process of enforcing them, it would be very difficult to exert effective control over the VIEs, and the Company's ability to conduct business and financial condition and results operations may be materially and adversely affected.

Risks Related to Doing Business in China

.a Axion Games is subject to regulatory and compliance risks

The Internet and mobile industries in China are highly regulated. Axion Games' PRC Subsidiaries and VIEs are required to obtain and maintain applicable licenses and approvals from different regulatory authorities in order to provide their current services. Currently, the Company has obtained the following valid licenses through its VIEs. The Company has obtained the ICP licenses for provision of internet information services, Value-added Telecommunications Business License for information services, and Internet Culture Operating Licenses for the operation of online games, which are generally subject to regular government review or renewal. Axion Games cannot assure that it can successfully update or renew the licenses required for its business in a timely manner or that these licenses are sufficient to conduct all present or future business.

Moreover, as the provision of online games is deemed to be an online publication activity, an online game operator must obtain an Online Publishing Service License in order to directly make those games publicly available in China. Although it is not specifically authorized by the NAPP, an online game operator is generally able to publish its games through third-party licensed electronic publishing entities and register the games with the NAPP as electronic publications. In addition, the NAPP at the national level had suspended the approval of game registration and issuance of publication numbers for online games starting from March 2018, and the MCT at the national level had closed the online filing system for online games starting from July 2018. While these approval processes have since resumed, there can be no assurances that such suspensions would not be repeated. Therefore, Axion Games may not be able to obtain the NAPP's approvals or complete the filing with the MOC for all games on its platform in a timely manner or at all, which could adversely and materially impact on the company's ability to introduce new games, the timetable to launch new games and the company's business growth. Furthermore, if more stringent regulations were adopted or the government authority takes more strict regulation or action against online games industry in the future, it might be increasingly difficult to

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

introduce or operate new online games streamed or operated on the company's platform, which will adversely affect the Company's business.

As the Internet industry in China is still at a relatively early stage of development, new laws and regulations may be adopted from time to time to address new issues that come to the authorities' attention. Considerable uncertainties exist regarding the interpretation and implementation of existing and future laws and regulations governing the Company's business activities. Axion Games cannot assure that it will not be found in violation of any future laws and regulations or any of the laws and regulations currently in effect due to changes in the relevant authorities' interpretation of these laws and regulations. As the Company develops and expands its business scope, the Company may need to obtain additional qualifications, permits, approvals or licenses. If the Company fails to complete, obtain or maintain any of the required licenses or approvals or make the necessary filings, it may be subject to various penalties, such as confiscation of the revenue that were generated through the unlicensed internet or mobile activities, the imposition of fines and the discontinuation or restriction of operations. Any such penalties may disrupt business operations and materially and adversely affect business, financial condition, and results of operations.

.b Axion Games is subject to adverse changes in economic and political policies

Since the majority of Axion Games' operations are conducted in PRC and the majority of the Company's revenue are sourced from PRC, results of operations, financial condition, and prospects are influenced by economic, political, and legal developments in PRC. Economic reforms have resulted in significant economic growth in PRC in the past few decades. However, any economic reform policies or measures in China may from time to time be modified or revised. PRC economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources.

The PRC government exercises significant control over PRC economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any growth in PRC economy may not continue and any slowdown may have a negative effect on the Company's business. Any adverse changes in economic conditions in PRC, in the policies of PRC government, or in the laws and regulations in PRC, could have a material adverse effect on the overall economic growth of PRC. Such developments could adversely affect the Company's businesses, lead to reduction in demand for its products and adversely affect the Company's competitive position.

.c Axion Games is subject to legal system uncertainties

The legal system in China is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. The legal system in China evolves rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies. The Company's WFOEs are incorporated in China and are wholly-owned. The Company's WFOEs are subject to laws and regulations applicable to foreign investment in China in general, as well as specific laws and regulations applicable to wholly foreign-owned enterprises. The Company's VIEs are generally subject to laws applicable to domestic companies in China. However, these laws, regulations and legal requirements are constantly changing and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to the Company. In addition, the Company cannot predict the effect of future developments in the PRC

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

legal system, particularly with regard to internet-related industries, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the pre-emption of local regulations by national laws. Such unpredictability towards the Company's contractual, property (including intellectual property) and procedural rights could adversely affect the Company's business and impede its ability to continue operations. Furthermore, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

.d Axion Games is subject to internet regulation and censorship

Internet companies in China are subject to a variety of existing and new rules, regulations, policies, and license and permit requirements. In connection with enforcing these rules, regulations, policies and requirements, relevant government authorities may suspend services by, or revoke licenses of, any internet or mobile content service provider that is deemed to provide illicit content online or on mobile devices, and such activities may be intensified in connection with any ongoing government campaigns to eliminate prohibited content online.

The Company seeks to continue to restrict and eliminate any illicit content from its websites. However, government standards and interpretations may change in a manner that could render the Company's current monitoring efforts insufficient. The Company cannot assure you that our business and operations will be immune from government actions or sanctions in the future. If government actions or sanctions are brought against the Company, or if there are widespread rumors that government actions or sanctions have been brought against the Company, Axion Games' reputation and brand image could be harmed, the Company may lose users and business partners, and revenue and results of operation may be materially and adversely affected.

.e Risk regarding future law or regulation specifically governing virtual asset property rights

While playing online games or participating on platform activities, game users acquire and accumulate some virtual assets, such as special equipment and other accessories. Such virtual assets can be important to online game players and have monetary value and, in some cases, are sold for actual money. In practice, virtual assets can be lost for various reasons, often through unauthorized use of the game account of one user by other users and occasionally through data loss caused by a delay of network service, a network crash or hacking activities. Under the General Provisions of Civil Law effective in October 2017, ownership of data and virtual assets are civil rights protected by laws. However, there is currently no further PRC law or regulation specifically governing virtual asset property rights. As a result, there is uncertainty as to who the legal owner of virtual assets is, whether and how the ownership of virtual assets is protected by law, and whether an operator of online games such as the company would have any liability to game players or other interested parties (whether in contract, tort or otherwise) for loss of such virtual assets. Based on several PRC court judgments, courts generally required the online game operators to provide well-developed security systems to protect virtual assets owned by players and some courts required game operators to return the virtual items or found game operators liable for the loss and damage incurred therefrom if the online game operators are found to be in default or violate players' rights. In case of a loss of virtual assets, the Company may be sued by game players or users and held liable for damages, which may negatively affect Company's reputation and business, financial condition and results of operations.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.f Restrictions on virtual currency may adversely affect the Company's online game revenues

Axion Games' revenues from online games are collected through the online sale of in-game currencies, which are considered to be the "virtual currency" as such term is defined in the Virtual Currency Notice. PRC laws and regulations, including this notice, have provided various restrictions on virtual currency and imposed various requirements and obligations on online game operators with respect to the virtual currency used in their games. The Company must tailor its business model carefully, including designing and operating databases to maintain user information for the minimum required period, in order to comply with the current PRC laws and regulations, including the foregoing notices, in a manner that in many cases can be expected to result in an adverse impact on the Company online game revenues.

.g Risk regarding being a PRC resident enterprise for tax purposes

Under the People's Republic of China Enterprise Income Tax Law (the "EIT Law"), which became effective on January 1, 2008, an enterprise established outside China whose "de facto management body" within PRC is considered a "PRC resident enterprise" and will generally be subject to the uniform 25% enterprise income tax rate (the "EIT rate"), on its global income. Under the implementation rules of the EIT Law, "de facto management body" is defined as the organization body that effectively exercises management and control over the business operations, personnel, accounting and properties of the enterprise.

On April 22, 2009, the China State Administration of Taxation ("SAT") released the Notice Regarding the Determination of Chinese- Controlled Offshore Incorporated Enterprises as People's Republic of China Tax Resident Enterprises on the Basis of De Facto Management Bodies ("Circular 82") that sets out the standards and procedures for determining whether the "de facto management body" of an enterprise registered outside of China and controlled by Chinese enterprises or Chinese enterprise groups is located in China. Further to SAT Circular 82, on July 27, 2011, the SAT issued the Administrative Measures for Enterprise Income Tax of ChineseControlled Offshore Incorporated Resident Enterprises (Trial) ("SAT Bulletin 45"), to provide more guidance on the implementation of SAT Circular 82; the bulletin became effective on September 1, 2011 and revised on April 17, 2015. SAT Bulletin 45 clarified certain issues in the areas of resident status determination, postdetermination administration and competent tax authorities' procedures.

Under Circular 82, a foreign enterprise controlled by a Chinese enterprise or Chinese enterprise group is considered a Chinese resident enterprise if all of the following apply: (i) the senior management and core management departments in charge of daily operations are located mainly within China; (ii) financial and human resources decisions are subject to determination or approval by persons or bodies in China; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders' meetings are located or kept within China; and (iv) at least half of the enterprise's directors with voting rights or senior management reside within China. SAT Bulletin 45 specifies that when provided with a copy of Chinese tax resident determination certificate from a Chinese resident controlled offshore incorporated enterprise, the payer should not withhold 10% income tax when paying the Chinese-sourced dividends, interest, royalties, etc. to the Chinese resident controlled offshore incorporated enterprise.

Although Circular 82 and SAT Bulletin 45 explicitly provide that the above standards apply to enterprises which are registered outside of China and controlled by Chinese enterprises or Chinese enterprise groups, Circular 82 may reflect SAT's criteria for determining the tax residence of foreign enterprises in general. If Chinese tax authorities determine that Axion Games is treated as a resident enterprise in China for Chinese enterprise

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

income tax purposes, the 25% Chinese enterprise income tax on global taxable income could materially and adversely affect the Company's ability to satisfy any cash requirements it may have.

.h Axion Games is subject to tax treatment changes

Operating in the high-technology and software industry, a number of the Company's China operating entities enjoy various types of preferential tax treatment according to the prevailing PRC tax laws. The Company's operating entities in PRC may, if they meet the relevant requirements, qualify for three main types of preferential treatment, which are high and new technology enterprises specially supported by China, software enterprises and key software enterprises within the scope of the Chinese national plan.

For a qualified high and new technology enterprise, the applicable enterprise income tax rate is 15%. The high and new technology enterprise qualification is re-assessed by the relevant authorities every three years. Moreover, a qualified software enterprise is entitled to a tax holiday consisting of a two-year tax exemption beginning with the first profit-making calendar year and a 50% tax reduction for the subsequent three years. The software enterprise qualification is subject to an annual assessment.

For a qualified key software enterprise within the scope of the Chinese national plan, the applicable enterprise income tax rate for a calendar year is 10%. The key software enterprise qualification is subject to assessment every two years. There is no assurance that we will be able to continue to enjoy the income tax incentive described above at the historical level, or at all. Any change, suspension or discontinuation of any of the various types of preferential tax treatment we enjoy could materially and adversely affect results of operations.

.i Risks related to PRC income tax on dividends

Under the EIT Law and its implementation rules, subject to any applicable tax treaty, Chinese withholding tax at the rate of 10% is normally applicable to dividends from Chinese sources payable to investors that are resident enterprises outside of Chinese, which do not have an establishment or place of business in China, or which have such establishment or place of business if the relevant income is not effectively connected with the establishment or place of business. Any gain realized on the transfer of shares by such non-PRC resident enterprise investor is subject to 10% (or a lower rate) Chinese income tax if such gain is regarded as income derived from sources within China unless a treaty or similar arrangement otherwise provides. Under the Individual Income Tax Law of the People's Republic of China and its implementation rules, dividends from sources within the PRC paid to foreign individual investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized by such investors on the transfer of shares are generally subject to a 20% PRC income tax, in each case, subject to any reduction or exemption set forth in applicable tax treaties and PRC laws.

Although substantially all of Axion Games' business operations are in China, it is unclear whether dividends its pays with respect its shares, or the gain realized from the transfer of shares, would be treated as income derived from sources within China and as a result be subject to PRC income tax if the Company is considered a PRC resident enterprise as described above. If PRC income tax is imposed on gains realized through the transfer of Company's shares or on dividends paid to non-residents, the value of investments in the Company's shares may be materially and adversely affected.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.j Value added tax risk

Pursuant to the People's Republic of China Provisional Regulations on Business Tax promulgated by the State Council on December 13, 1993, taxpayers providing taxable services falling under the category of service industry in China are required to pay a business tax at a normal tax rate of 5% of their revenues. On November 16, 2011, the Ministry of Finance and the SAT promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. Pursuant to this plan and relevant notices, from January 1, 2012, a VAT was imposed to replace the business tax in the transport and shipping industry and some of the modern service industries in certain pilot regions. Under the pilot plan, a VAT rate of 6% applies to some modern service industries. On March 23, 2016, the Notice of the Ministry of Finance and the State Administration of Taxation on Implementing the Pilot Program of Replacing Business Tax with Value-Added Tax in an All-round Manner was issued, pursuant to which the pilot plan for the replacement of business tax with VAT was expanded to all regions and industries as of May 1, 2016. The PRC Ministry of Finance, the SAT and the General Administration of Customs promulgated the Announcement on Policies to Deepen Value-Added Tax Reform on March 20, 2019, which provides that the current value-added tax rate of 16% in manufacturing and other industries will be reduced to 13%, the current value-added tax rate of 10% in transportation and other industries will be reduced to 9%, and the value-added tax rate in value-added telecommunication service and other industries will stay at 6% from April 1, 2019. It is uncertain whether the value-added tax rate will be raised in the future, which could have a material adverse effect on the Company's financial condition and results of operations. If the Company fail to comply with these regulations, it may be subject to sanctions including corrective orders, imposition of fines and confiscation of illegal gains.

.k Axion Games is subject to regulations of loans and investment may delay or prevent investment

Axion Games may transfer funds to its PRC Subsidiaries or finance its PRC Subsidiaries by means of shareholders' loans or capital contributions. Any loans to the Company's PRC Subsidiaries, which are foreign-invested enterprises ("FIEs"), cannot exceed statutory limits based on the difference between the registered capital and the investment amount of such subsidiaries, and shall be registered with PRC State Administration of Foreign Exchange ("SAFE") or its local counterparts.

Furthermore, any capital contributions Axion Games makes to its PRC Subsidiaries shall be approved by the MOFCOM or its local counterparts. The Company may not be able to obtain these government registrations or approvals on a timely basis, if at all. If the Company fails to receive such registrations or approvals, its ability to provide loans or capital contributions to PRC Subsidiaries in a timely manner may be negatively affected, which could materially and adversely affect liquidity and ability to fund and expand business.

On March 30, 2015, the SAFE promulgated the Circular on Reforming the Administration Measures on Conversion of Foreign Exchange Registered Capital of Foreign-invested Enterprises ("Circular 19"), which will replace Circular 142 from June 1, 2015. SAFE further promulgated Circular 16, effective on June 9, 2016, which, among other things, amend certain provisions of Circular 19. SAFE Circulars 19 and 16 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of FIEs and allows FIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange capitals for expenditure beyond their business scopes, and also prohibit FIEs from using such Renminbi fund to provide loans to persons other than affiliates unless otherwise permitted under its business scope. SAFE Circular 19 and 16 may significantly limit Axion Game's ability to transfer funds

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

to and use in China, which may adversely affect the Company business, financial condition and results of operations.

.l Risks related to PRC foreign exchange regulations

The SAFE issued the Notice on Relevant Issues Relating to Domestic Residents' Investment and Financing and Round-Trip Investment through Special Purpose Vehicles ("Circular 37"), effective on July 4, 2014, which replaced the previous Notice on Relevant Issues Concerning Foreign Exchange Administration for the People's Republic of China Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles ("Circular 75"). Circular 37 requires PRC residents, including PRC individuals and institutions, to register with the SAFE or its local branches in connection with their direct establishment or indirect control of an offshore special purpose vehicle, for the purpose of overseas investment and financing, with such PRC residents' legally owned assets or equity interests in domestic enterprises or offshore assets or interests. In addition, such PRC residents must update their foreign exchange registrations with the SAFE or its local branches when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC individual shareholder, name and operation term), increases or decreases in investment amount, share transfers or exchanges, or mergers or divisions. Additionally, pursuant to the Circular 13, which was promulgated on February 13, 2015 and became effective on June 1, 2015, the aforesaid registration shall be directly reviewed and handled by qualified banks in accordance with the Circular 13, and SAFE and its branches shall perform indirect regulation over the foreign exchange registration via qualified banks.

If any shareholder holding interest in an offshore special purpose vehicle, who is a PRC resident as determined by Circular 37, fails to fulfill the required foreign exchange registration with the local SAFE branches, the PRC subsidiaries of that offshore special purpose vehicle may be prohibited from distributing their profits and dividends to their offshore parent company or from carrying out other subsequent cross-border foreign exchange activities, and the offshore special purpose vehicle may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply with the SAFE registration described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

Axion Games may not be able to identify all its shareholders or beneficial owners who are PRC residents to ensure their compliance with Circular 37 or other related rules. In addition, the Company cannot provide any assurance that all of its shareholders and beneficial owners who are PRC residents will comply with requests to make, obtain or update any applicable registrations or comply with other requirements required by the Circular 37 and Circular 13 or other related rules in a timely manner. Even if such shareholders and beneficial owners who are PRC residents comply with such request, the Company cannot provide any assurance that they will successfully obtain or update any registration required by the Circular 37 and Circular 13 or other related rules in a timely manner due to many factors, including those beyond the Company and their control. If any of the Company's shareholders who is a PRC resident fails to fulfill the required foreign exchange registration with the local SAFE branches pursuant to Circular 37 and Circular 13, the Company's PRC Subsidiaries may be prohibited from distributing their profits and dividends to Axion Games or from carrying out other subsequent cross-border foreign exchange activities, and the company may be restricted in its ability to contribute additional capital to its subsidiaries in China, which may adversely affect business.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.m Risks regarding any future dividends and other distributions on equity paid by subsidiaries in China required to fund any cash and financing requirements of Axion Games

Axion Games is a holding company, and if revenues increase, Axion Games may principally rely on dividends and other distributions on equity that may be paid by its PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the holders of Axion Games' ordinary shares and service any debt the Company may incur. If Axion Games' PRC Subsidiaries or other entities incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to Axion Games.

Under PRC laws and regulations, wholly foreign-owned enterprises may pay dividends only out of their retained earnings as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, after making up previous years' accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. At the discretion of the board of directors of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. Any limitation on the ability of Company subsidiaries to make remittance to the Company's wholly-owned PRC subsidiaries to pay dividends or make other distributions to Axion Games could materially and adversely limit Axion Games' ability to grow, pay dividends, or otherwise fund and conduct business.

.n Risks related to restrictions on the remittance of RMB into and out of China and governmental control of currency conversion

PRC government imposes controls on the convertibility of RMB into foreign currencies and the remittance of currency out of China. Axion Games receives a considerable portion of its revenue in RMB. Axion Games may convert a portion of its revenue into other currencies to meet foreign currency obligations, such as payments to certain suppliers. Shortages in the availability of foreign currency may restrict the ability of the Company's subsidiaries in China to remit sufficient foreign currency to pay dividends or other payments to Axion Games, or otherwise satisfy their foreign currency denominated obligations.

Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval by complying with certain procedural requirements. However, approval from or registration with competent government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents the Company from obtaining sufficient foreign currencies to satisfy its foreign currency demands, the Company may not be able to pay dividends, if any, in foreign currencies its shareholders. Further, there is no assurance that new regulations will not be promulgated in the future that would have the effect of further restricting the remittance of RMB into or out of China.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

.o Fluctuations in exchange rates could result in foreign currency exchange losses

The value of RMB against the Canadian dollar, the U.S. dollar and other currencies fluctuates, is subject to changes resulting from the PRC government's policies and depends to a large extent on domestic and international economic and political developments as well as supply and demand in the local market.

The proceeds from recent group financings have been received in U.S. or Canadian dollars. As a result, any appreciation of the Renminbi against the U.S. dollar, the Canadian dollar or any other foreign currencies may result in the decrease in the value of our proceeds from financings. Conversely, any depreciation of the Renminbi may adversely affect the value of, and any dividends payable on, shares in foreign currency. In addition, there are limited instruments available for the company to reduce foreign currency risk exposure at reasonable costs. All of these factors could materially and adversely affect business, financial condition, results of operations and prospects, and could reduce the value of, and dividends payable on, shares in foreign currency terms.

.p Risk related to PRC labor contract law and other labor-related regulations

Pursuant to the Labor Contract Law that took effect in January 2008, its implementation rules that took effect in September 2008 and its amendment that took effect in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees' probation and unilaterally terminating labor contracts. For example, pursuant to the Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance to national regulations. In addition, employee wages shall be no lower than local standards on minimum wages and shall be paid to employees timely.

As required under the Regulation of Insurance for Labor Injury implemented on January 1, 2004 and amended in 2010, the Provisional Measures for Maternity Insurance of Employees of Corporations implemented on January 1, 1995, the Decisions on the Establishment of a Unified Program for Old-Aged Pension Insurance of the State Council issued on July 16, 1997, the Decisions on the Establishment of the Medical Insurance Program for Urban Workers of the State Council promulgated on December 14, 1998, the Unemployment Insurance Measures promulgated on January 22, 1999 and the Social Insurance Law of the PRC implemented on July 1, 2011, employers are required to provide their employees in the PRC with welfare benefits covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance and medical insurance. In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and amended in 2002, employers must register at the designated administrative centers and open bank accounts for depositing employees' housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time. If Axion Games fails to make adequate social insurance and housing fund contributions, it may be subject to fines and legal sanctions, and the company's business, financial conditions and results of operations may be adversely affected.

These laws designed to enhance labor protection tend to increase the Company's labor costs. In addition, as the interpretation and implementation of these regulations are still evolving, the Company's employment practices

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

may not be at all times be deemed in compliance with the regulations. As a result, the Company could be subject to penalties or incur significant liabilities in connection with labor disputes or investigations.

Risks Related to Doing Business in Thailand (TAI)

.a Thailand foreign ownership risks

Pursuant to the Thai Foreign Business Act B.E. 2542 (1999), or FBA, a "foreign entity" (as defined in the FBA) cannot conduct business in certain sectors in Thailand unless an appropriate license is obtained. As TAI does not hold such license, they are subject to restrictions on foreign ownership of their shares in order to ensure that none of them are "foreign entities" under the FBA.

Under the FBA, it is also unlawful for a Thai national or entity to hold shares in a Thai company as a nominee for or on behalf of a foreigner in order to circumvent the foreign ownership restrictions. While there are no clear official guidelines or criteria stipulated under the FBA or by the Ministry of Commerce of Thailand in determining whether a Thai national or entity is holding shares in a Thai company as a nominee for or on behalf of a foreigner, certain factors are generally considered, including: (i) the intention of the parties, (ii) the source of funds used for the investment by the Thai shareholder, (iii) the direct voting rights of the Thai and foreign shareholders in the Thai company and (iv) the distribution of dividends by the Thai company to the Thai and foreign shareholders.

The Company believes that TAI's ownership structure is and will be in compliance with applicable Thai law based on, among others, the fact that a majority of the share capital of our Thai subsidiaries is held by Thai nationals or entities for their own benefit. The Company therefore, believes that TAI is not "foreign entity" under the FBA, and that the share ownership structure does not violate the legal prohibitions against nominee arrangements. However, there is a risk that the Ministry of Commerce of Thailand may reach a different conclusion, which could lead to an action being brought in the Thai court. If the court determines that a nominee arrangement exists in Thailand, the court may order sanctions, which may include criminal sanctions and TAI may be ordered to cease operations in Thailand, which would have a material adverse effect on business, financial condition and results of operations.

.b Political unrest risk

Political, social, business and economic conditions in Thailand have a significant effect on the business of TAI. Thailand has a history of political risk and therefore any changes to tax regimes, laws, exchange controls or political action in Thailand may harm our business, financial condition and operating results.

In the past 15 years Thailand has experienced two military coups that overturned the existing government, and political unrest and demonstrations in Bangkok that sparked a series of violent incidents that resulted in several deaths and numerous injuries. Most of the casualties occurred around the Government House compound and the two Bangkok airports, Suvarnabhumi International Airport and Don Muang Airport, which were temporarily closed after being occupied by anti-government protestors. Demonstrations in Bangkok have also caused severe traffic congestion and numerous injuries. In addition to injuries and deaths, these demonstrations in Bangkok and other parts of Thailand have also resulted destruction of property. Certain hotels and businesses in Bangkok have closed for weeks as the protestors occupied Bangkok's commercial center, and governments around the world have issued travel advisories urging their citizens to avoid non-essential travel to Bangkok.

Axion Ventures Inc. Management’s Discussion and Analysis For the period ended December 31, 2019

Any succession crisis in the Kingdom of Thailand could cause new or increased instability and unrest. In the event that a violent coup was to occur, or the current political unrest were to worsen, such activity could disrupt TAI's ability to operate efficiently in Thailand. Further, a new Thai government might repeal certain promotional certificates that we have received or tax holidays.

Investors should carefully consider when making an investment decision concerning the common shares of the Company. These risks and uncertainties are not the only ones facing the Company. Additional risks and uncertainties not presently known to the Company, or that the Company currently deems immaterial may also impair the operations of the Company. If any such risks actually occur, the financial condition, liquidity, and results of operations of the Company could be materially adversely affected, and the ability of the Company to implement its growth plans could be adversely affected. An investment in the Company is speculative.

An investment in the Company will be subject to certain material risks and investors should not invest in securities of the Company unless they can afford to lose their entire investment.

Additional risks and uncertainties not presently known to the Company or that the Company currently considers immaterial may also impair the business, prospects and share price of the Company. If any of the risks actually occur, the business of the Company may be harmed, and its financial condition and results of operations may suffer significantly.

ADDITIONAL INFORMATION & APPROVAL

Additional information relating to the Company, is on SEDAR at www.sedar.com.

The Board has approved the disclosure contained in this MD&A as of November 8, 2021.

AI assistant

Axion Ventures Inc. — Management Reports 2021

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