Axion Ventures Inc.

Axion Ventures Inc. Management's Discussion and Analysis For the period ended June 30, 2020

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MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE PERIOD ENDED JUNE 30, 2020

Dated December 15, 2021

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 period ended June 30, 2020. 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 unaudited condensed consolidated interim financial statements of the Company as at and for the period ended June 30, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), applicable to preparation of interim financial statements including International Accounting Standard 34 - Interim Financial Reporting and with the audited consolidated financial statements for the year ended December 31, 2019, along with related notes thereto, which have been prepared in accordance with IFRS as issued by the IASB. All figures are in United States Dollars unless otherwise noted. References to C$ are to Canadian Dollars. The effective date of this MD&A is December 15, 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 business of Axion Ventures, Axion Games (as defined herein), TAI (as defined herein) and the Company's other portfolio companies; the impacts or potential impacts of COVID-19, its variants and any other pandemics; the video game market; management's outlook regarding future trends; sensitivity analysis on financial instruments, which may vary from amounts disclosed; any revenue projections from our operations; adopting 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 since been an Investment Issuer under the policies of the TSXV, focused primarily on investments in online video gaming and other information technology sectors. The Company’s common shares trade on the TSXV in Canada under the symbol “AXV” and on the OTCQX® Best Market, a public market in the United States, under the symbol "AXNVF".

The address of the Company's corporate office and principal place of business is Suite 700 – 595 Burrard Street, Vancouver, British Columbia, V7X 1S8, Canada. The Company also has offices in Bangkok, Thailand, and Shanghai, People's Republic of China ("PRC"), which is where most Company personnel are located.

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 filed its financial statements and management's discussion and analysis for the fiscal year ended December 31, 2019 on November 9, 2021. 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”

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. The investment in Axion Games was completed through the acquisition of shares of Axion Games, Axion Entertainment Holdings Ltd. ("AEH") and Axion Entertainment International Holdings Limited ("AEIH"), both formed for the sole purpose of holding Axion Games' shares, pursuant to which the Company acquired the beneficial interest of 29.29% of Axion Games. In exchange for the foregoing interest in Axion Games, the Company issued a total of 150,168,692 Company common shares to the respective selling shareholders.

In August 2016, the Company closed eight additional share exchange agreements that were entered into between May 18, 2016 and August 4, 2016, whereby the Company acquired additional interests in AEIH, AEH, and Axion Games directly. As a result, the Company acquired an aggregate additional 16.79% beneficial interest in Axion Games, resulting in a total beneficial interest of 46.08% of Axion Games. In exchange for the foregoing interest in Axion Games, the Company issued a total of 33,581,358 Company common shares to the selling shareholders.

In September 2016, the Company further increased its beneficial ownership of Axion Games from 46.08% to 51.01% through its cash participation in a rights offering by Axion Games to its existing shareholders. Axion Games raised $4,000,000 by way of the rights offering, issuing 44,147,670 preference shares in the process, of which the Company acquired 30,686,275 preference shares for a purchase price of $2,780,330.

In May 2018, the Company further increased its beneficial ownership of Axion Games from 51.01% to 54.22% by acquiring an additional interest of 6,734 shares of AEH, representing a beneficial interest of 6,734,000 shares of Axion Games, in exchange for assuming a $392,000 shareholder loan owed to Axion Games by an ex-officer of Axion Games.

The Company's beneficial ownership of Axion Games remains at 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.

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”

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 quarter ended September 30, 2020 and the related MD&As as soon 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 June 30, 2020

Axion Games

Axion Games owns two studios in PRC, one in Shanghai and a smaller one in Suzhou, with a combined total of approximately 107 employees as of June 30, 2020. Axion Games commenced operations in 2006 and for several years focused primarily on providing premium outsourcing services and licensing game development technology to third-party customers. Axion Games was originally formed as a joint venture between Epic Games International Ltd. (USA) ("Epic Games") and 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 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. Axion Games subsequently expanded its reach and became an outsourcing developer to numerous other highprofile 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 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 (see "INVESTMENTS/ACQUISITIONS – True Axion Interactive"), in December 2016, the Company and True Corporation (through their respective subsidiaries/affiliates) agreed to form a joint venture.

True Axion Interactive (“TAI”) commenced operations in March 2017 and had grown to approximately 86 employees as of June 30, 2020, 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.

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 $1,356 thousand in the six-months ended June 30, 2020 (6-months 2019 - $1,020 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. In the sixmonths ended June 30, 2020, the Company expensed $294 thousand to research and development costs as it wound down the game development.

For the six-months ended June 30, 2020 compared to the six-months ended June 30, 2019, outsourcing revenue decreased from $996 thousand to $453 thousand as the Company’s main focus had been focussed on developing its own internally generated online multiplayer games, such as Rising Fire and it will take time to re-build our outsourcing business.

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.

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

Three months ended June 30, 2020 2019 $’000 $’000	Three months ended June 30, 2020 2019 $’000 $’000	Six months ended June 30, 2020 2019 $’000 $’000	Six months ended June 30, 2020 2019 $’000 $’000
758 294 1,052	1,066 130 1,196	1,521 368 1,889 June 30, 2020 $’000	1,840 535
			2,375
			December 31, 2019 $’000 8 852 685 1,545
		83 396 361 840

As at June 30, 2020, the Company had $444 thousand (December 31, 2019 – $131 thousand) of cash and cash equivalents and total current assets of $1,084 thousand (December 31, 2019 – $1,096 thousand). The increase in cash and cash equivalents was primarily due to the $818 thousand of share subscriptions received on the private placement that closed on April 2, 2020 (issued December 8, 2020) net of cash outflows from operating activities due to the loss in the period.

Current liabilities as at June 30, 2020 totalled $24.1 million (December 31, 2019 - $23.2 million). The increase in current liabilities was a result of the loss incurred in the period.

As at June 30, 2020, shareholders' equity was comprised of share capital of $32.4 million (December 31, 2019 - $32.3 million), share subscriptions of $0.8 million (December 31, 2019 - nil), foreign currency translation reserve of $0.3 million (December 31, 2019 - $0.3 million), share-based payment reserve of $2.8 million (December 31, 2019 - $2.6 million) and accumulated losses of $54.0 million (December 31, 2019 - $51.1 million). Total equity attributable to the owners of Axion Ventures was negative $17.5 million (December 31, 2019 – negative $15.9 million).

Working capital, which is comprised of current assets less current liabilities, was a deficiency of $23.0 million as at June 30, 2020, compared to a working capital deficiency of $22.1 million as at December 31, 2019. The working capital deficiency increased as a result of cash used in operating activities during the six months ended June 30, 2020 offset by cash received from the share subscriptions.

During the six months ended June 30, 2020, net loss decreased to $2.5 million ($0.0133 basic and diluted loss per share) from $5.8 million for the six months ended June 30, 2019 ($0.0264 basic and diluted loss per share). The main factors for the reduced loss were that we incurred substantial costs in the first half of 2019 on professional fees, consultants, marketing efforts and roadshows focused on attempts to raise funds. In 2020, the Company has been in cost-cutting mode due to the shortage of working capital.

The Company's revenue decreased by $486 thousand for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. The decrease was mainly due to the decreases in outsourcing revenue of $543 thousand and licensing of $251 thousand offset by an increase in game operation revenue of $336 thousand. The decrease in outsourcing revenue was due to the focus of the Company on developing its own games through 2019 rather than marketing and obtaining new or extended outsourcing contracts. The knock-on effect of this change in focus continued to impact 2020 outsourcing. Licensing revenue in the first half of 2019 included a $300 thousand upfront fee related to the launch of Invictus. Subsequent royalty revenues on Invictus were not significant and ultimately the game was fully impaired at December 31, 2019. The increase in game operation revenue relates to an uptick in usage, which is related to the work-from-home effect of Covid-19 and promotional activities in China.

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" below.

DISCUSSION OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020

The following table sets out revenue, expenses, and profit of the Company and includes variances for the three and six months ended June 30, 2020 and 2019:

Revenue Cost of sales Gross profit Research and development expenses Selling and distribution expenses General and administrative expenses Loss from operations Other income Finance expense Fair value loss on derivative financial instruments Foreign currency exchange (loss) gain Impairment of intangibles Loss before income tax Income tax expense Loss for the period	Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 $’000 $’000 $’000 $’000
	1,052 1,196 1,889 2,375 (586) (838) (1,090) (1,703)
	466 358 799 672 (258) (684) (653) (1,369) (93) (167) (178) (346) (937) (2,176) (1,872) (4,124)
	(822) (2,669) (1,904) (5,167) 5 97 42 99 (328) (246) (673) (481) - 242 11 (37) (313) (59) 52 (116) - - (38) -
	(1,458) (2,635) (2,510) (5,702) (4) (24) (4) (55)
	(1,462) (2,659) (2,514) (5,757)

The table below provides the detail of revenue for the three and six months ended June 30, 2020 and the comparative periods.

Outsourcing Licensing Game operation Training	Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 $’000 $’000 $’000 $’000
	329 303 453 996 47 311 80 331 676 555 1,356 1,020 - 27 - 28
	1,052 1,196 1,889 2,375

Revenue

The Company’s revenue for the three and six months ended June 30, 2020 as compared to the comparative period has decreased as a result of a decrease in revenue received from outsourcing and licensing. The Company was focusing more of its attention on developing its own multiplayer games.

Outsourcing Revenue . Outsourcing revenue was fairly consistent quarter on quarter but decreased significantly by $543 thousand in the six months ended June 30, 2020 to $453 thousand (six months ended June 30, 2019 - $996 thousand) as a result of the noted shift in focus on the Company’s own games, such as Rising Fire and Invictus: Lost Soul. In addition, this revenue source varies from period to period when customer needs and demands changed.

Licensing Revenue . Licensing revenue from game publishers was $80 thousand for the six months ended June 30, 2020 (for the six months ended June 30, 2019 - $331 thousand). The decrease in licensing revenue was primarily attributable to licensing of the Company’s Invictus game in Thailand during 2019 but much of this revenue was not recurring as the games did not perform as well as anticipated and ultimately the game was fully impaired at December 31, 2019.

Game Operation Revenue . Game operation revenue (or “self-publishing” - primarily MARS revenue generated in China) remained increased to $1,356 thousand for the six months ended June 30, 2020 (for the six months ended June 30, 2019 - $1,020 thousand). For the three months ended June 30, 2020 the game operation revenue was $676 thousand an increase of $121 thousand from the $555 thousand in the three months ended June 30, 2019. MARS continues to provide a steady cash flow to the Company. The increase in game operation revenue relates to an uptick in usage, which is related to the work-from-home effect of Covid-19 and promotional activities in China.

Training Revenue . Training revenue will not recur as the Company closed its training studio in 2019.

Cost of Sales / Gross Margin

Cost of sales for the three and six months ended June 30, 2020 decreased as compared to the comparative period in 2019. The decreases of approximately $252 and $613 thousand for the three and six-month periods was due to a significant reduction in outsourcing staff in China, which started in the second half of 2019.

Expenses, other income, and fair value changes

For the Three Months Ended

Research and development expenses Selling and distribution expenses General and administrative expenses Other income Finance expense Fair value gain on derivative financial instruments Foreign currency exchange loss Impairment of intangibles	June 30,
	2020 $’000 2019 $’000 Variance $’000
	(258) (684) 426 (93) (167) 74 (937) (2,176) 1,239 5 97 (92) (328) (246) (82) - 242 (242) (313) (59) (254) - - -
	(1,924) (2,993) 1,069

For the Six Months Ended

Research and development expenses Selling and distribution expenses General and administrative expenses Other income Finance expense Fair value gain (loss) on derivative financial instruments Foreign currency exchange gain (loss) Impairment of intangibles	June 30,
	2020 $’000 2019 $’000 Variance $’000
	(653) (1,369) 716 (178) (346) 168 (1,872) (4,124) 2,252 42 99 (57) (673) (481) (192) 11 (37) 48 52 (116) 168 (38) - (38)
	(3,309) (6,374) 3,065

Expenses, other income, and fair value changes were $1.9 and $3.3 million for the three months and six months ended June 30, 2020 compared to $3.0 and $6.4 million for the three and six months ended June 30, 2019. Details of significant items are as follows:

Research and development expenses were $426 thousand and $716 thousand lower, respectively, for the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019. The decrease was because the Company was investing heavily in 2019 to explore new games during the period. In 2020, due to the shortage of available funds, such activities were significantly curtailed.
Selling and distribution expenses decreased by $74 thousand and $168 thousand, respectively, for the three and six months ended June 30, 2020. The decrease was due to a decrease in the marketing staff in China.
General and administrative expenses decreased by $1,239 thousand and $2,252 thousand, respectively, for the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019. The decrease was attributable to the decrease in the operating expenses due to cost-cutting measures at the head office level and in China due to the working capital deficiency, the decline in the staffing complement in China and from the restructuring of Axia.
Finance expense mainly comprised of interest expenses paid to convertible debentures and interest-bearing loans from related parties.
A foreign currency exchange loss of $313 thousand was recognized during the quarter ended June 30, 2020 as a result of the impact of the significant decrease in the C$-US$ exchange rate in the quarter on the net U.S. denominated assets of the parent company.

SUMMARY OF QUARTERLY RESULTS

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

				Loss	Earnings per
	Total revenue	Gross profit	Net	attributable to	share
Quarter ended	$’000	$’000	income/(loss)	shareholders	$
			$’000	$’000
June 30, 2020	1,052	466	(1,462)	(2,011)	(0.0095)
March 31, 2020	837	333	(1,052)	(812)	(0.0038)
December 31, 2019	1,339	1,183	(17,029)	(10,118)	(0.0464)
September 31, 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)

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 the 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.

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 $23.0 million, and negative cash flows from operations, is in default on certain debts of $1.1 million and $0.9 million of debentures payable plus accrued interest, subsequent to June 30, 2020 is in default on another of its debentures payable in the amount of $3.0 million plus accrued interest, 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 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 Current Liabilities Trade and other payables Loans and advances Deferred revenue Debentures payable Lease liabilities Derivative financial instruments Working Capital Deficiency	June 30, 2020 US$’000 December 31, 2019 US$’000 Variance US$’000
	444 131 313 640 965 (325)
	1,084 1,096 (12) 5,226 5,041 (185) 9,795 9,553 (242) 4,392 4,042 (350) 4,340 3,954 (386) 334 591 257 - 10 10
	24,087 23,191 (896)
	(23,003) (22,095) (908)

As of June 30, 2020, the Company had $444 thousand in cash and cash equivalents (December 31, 2019 - $131 thousand) and a working capital deficiency of $23.0 million (December 31, 2019 - deficiency of $22.1 million). The working capital deficiency increased primarily as a result of the Company having a loss of $2.5 million in the six months ended June 30, 2020 partially offset by $818 thousand in share subscription receipts in the period and non-cash items included in the loss for the period.

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

The Company entered into the following related party transactions during the period.

Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 $’000 $’000 $’000 $’000 Revenues (expenses): Outsourcing revenue – Red Anchor Trading Corp. (i), 102 - 102 - Royalty and licensing fees revenue – a company related to a key management person - 313 1 314 Sub-contract wages - HotNow (Thailand) Co., Ltd. (i) - (38) - (63) Interest expense – N. Boonyawattanapisut (1) - (1) - Interest expense - a shareholder of Axion Games Limited (22) (22) (43) (43) 79 253 59 206 Aggregate remuneration of key management personnel Wages and salaries 159 193 322 405 Share-based payment expense 32 74 106 180 191 267 428 585 Key management personnel comprises the directors and the officers of the Company. Receivables: June 30, 2020 December 31, 2019 US$’000 US$’000 Loan to related parties Red Anchor (Thailand) Co., Ltd. 279 293 HotNow (Thailand) Co., Ltd. (i) 3 2 282 295 Provision for doubtful accounts (ii) (282) (295) - -	Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 $’000 $’000 $’000 $’000 Revenues (expenses): Outsourcing revenue – Red Anchor Trading Corp. (i), 102 - 102 - Royalty and licensing fees revenue – a company related to a key management person - 313 1 314 Sub-contract wages - HotNow (Thailand) Co., Ltd. (i) - (38) - (63) Interest expense – N. Boonyawattanapisut (1) - (1) - Interest expense - a shareholder of Axion Games Limited (22) (22) (43) (43) 79 253 59 206 Aggregate remuneration of key management personnel Wages and salaries 159 193 322 405 Share-based payment expense 32 74 106 180 191 267 428 585 Key management personnel comprises the directors and the officers of the Company. Receivables: June 30, 2020 December 31, 2019 US$’000 US$’000 Loan to related parties Red Anchor (Thailand) Co., Ltd. 279 293 HotNow (Thailand) Co., Ltd. (i) 3 2 282 295 Provision for doubtful accounts (ii) (282) (295) - -	Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 $’000 $’000 $’000 $’000 Revenues (expenses): Outsourcing revenue – Red Anchor Trading Corp. (i), 102 - 102 - Royalty and licensing fees revenue – a company related to a key management person - 313 1 314 Sub-contract wages - HotNow (Thailand) Co., Ltd. (i) - (38) - (63) Interest expense – N. Boonyawattanapisut (1) - (1) - Interest expense - a shareholder of Axion Games Limited (22) (22) (43) (43) 79 253 59 206 Aggregate remuneration of key management personnel Wages and salaries 159 193 322 405 Share-based payment expense 32 74 106 180 191 267 428 585 Key management personnel comprises the directors and the officers of the Company. Receivables: June 30, 2020 December 31, 2019 US$’000 US$’000 Loan to related parties Red Anchor (Thailand) Co., Ltd. 279 293 HotNow (Thailand) Co., Ltd. (i) 3 2 282 295 Provision for doubtful accounts (ii) (282) (295) - -	Three months ended June 30, Six months ended June 30, 2020 2019 2020 2019 $’000 $’000 $’000 $’000 Revenues (expenses): Outsourcing revenue – Red Anchor Trading Corp. (i), 102 - 102 - Royalty and licensing fees revenue – a company related to a key management person - 313 1 314 Sub-contract wages - HotNow (Thailand) Co., Ltd. (i) - (38) - (63) Interest expense – N. Boonyawattanapisut (1) - (1) - Interest expense - a shareholder of Axion Games Limited (22) (22) (43) (43) 79 253 59 206 Aggregate remuneration of key management personnel Wages and salaries 159 193 322 405 Share-based payment expense 32 74 106 180 191 267 428 585 Key management personnel comprises the directors and the officers of the Company. Receivables: June 30, 2020 December 31, 2019 US$’000 US$’000 Loan to related parties Red Anchor (Thailand) Co., Ltd. 279 293 HotNow (Thailand) Co., Ltd. (i) 3 2 282 295 Provision for doubtful accounts (ii) (282) (295) - -
	428

			295 (295)
			-

Payables: Loans and advances Red Anchor Trading Corp. (i) Cern One Limited (i) Disputed loans and advances Nithinan Boonyawattanapisut (iii) True Incube Co., Ltd. (iv) 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. Fighter Base Publishing Inc. HotNow (Thailand) Co., Ltd.(i) Coherent Asia, Limited True Internet Corporation	June 30, 2020 US$’000 5,051 2,013 7,064 186 65 1,070 8,385 777 193 322 163 96 - 19 1,570	December 31, 2019 US$’000 5,164 1,884
		7,048 - - 1,070
		8,118
		463 151 282 131 100 83 4
		1,083

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

(ii) The Company has provided a full provision against these amounts as a result of the ongoing litigation (see “CONTINGENCIES” and “SUBSEQUENT EVENTS”). The Company intends to continue to pursue full collection of these amounts.

(iii) Unsecured promissory notes payable, due on demand, bearing interest at 6.095% per annum.

(iv) Unsecured promissory note payable, due on demand, bearing interest at 6.095% per annum.

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.

FINANCIAL INSTRUMENTS, OTHER INSTRUMENTS AND RISK EXPOSURE

Fair value information

As at June 30, 2020, the Company's financial instruments were comprised of cash and cash equivalents, trade and other receivables, trade and other payables and lease liabilities.

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 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 June 30, 2020 Trade payables Accrued salaries and benefits Accrued expenses and other payables Loans and advances payable Debentures payable Lease liabilities	Within one year or on demand US$'000
	712 2,792 1,721 9,795 4,340 393
	19,723

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 parent company operates in Canada and has a C$ functional currency but has significant loans and advances receivable and payable, which are denominated in US$. A 5% strengthening in the U.S. dollar as compared to the Canadian dollar would result in a gain of $365 thousand based on the net monetary assets denominated in U.S. dollars at June 30, 2020. A 5% weakening would have the opposite impact.

The Company’s subsidiary, Axion Games mainly operates in the PRC, and the majority of the transactions are settled in RMB (Chinese Yuan Renminbi). As at June 30, 2020, the Company did not have significant foreign currency risk from its operations. As at June 30, 2020, the Company's beneficial ownership of Axion Games was 54.22%.

The Company’s subsidiary, TAI mainly operates in Bangkok, Thailand and the majority of the transactions are settled in THB (Thai Baht). As at June 30, 2020, the Company did not have significant foreign currency risk from its operations. As at June 30, 2020, 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 investments, cash, and cash equivalents and trade receivables, 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, cash equivalents and short-term investments with high credit quality financial institutions. The Company assesses the credit quality of the customer, considering its financial position, 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.

CONTINGENCIES

(a) Bonner claims and petitions

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 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 denied 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 demonstrated the absence of any merit to the Petition. On the same day, the Company filed its Response to the Debt Claim denying 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 Technologies, Inc., then known as Monaker Group, Inc. (“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, 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, The hearing of the Petition was not completed, however, at the conclusion of the proceedings 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 a substantial majority.

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 Company has accounted for certain amounts claimed by the plaintiffs as liabilities of the Company as at March 31, 2020, but as a result of the Breach of Fiduciary Duty Claim (See “SUBSEQUENT EVENTS”), the Company believes that the amount owing to the parties to the Petition will be less than the amounts recorded.

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.

(b) Michael Bonner claim

On December 2, 2021, the parties agreed to settle all amounts in dispute with Michael Bonner. The Company has provided for the settled amount as a liability of the Company as at June 30, 2020.

(c) NextPlay 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 NextPlay Debt Claim is largely a duplication of the Bonner Debt Claim (See “CONTINGENCIES”), 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.

(d) Bagguley and Saft 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 Claim (See “SUBSEQUENT EVENTS”). The Company views the Bagguley Claim to be without merit.

SUBSEQUENT EVENTS

(a) On April 2, 2020, the Company closed a non-brokered private placement of 3,251,428 common shares (issued December 8, 2020) at a price of C$0.35 per common share for gross proceeds of C$1,138,000.
(b) On January 15, 2021, the Company filed a 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.

The Supreme Court of British Columbia hearing of the Fiduciary Duty Claim is set for 19 days commencing June 27, 2022.

(c) On March 30, 2021, the Company was issued a partial revocation order by the BCSC which allows the Company to enter into a C$20 million convertible debenture investment agreement (the "Investment Agreement") and to permit John Todd Bonner and others affiliated with Mr. Bonner to transfer Company shares controlled by Mr. Bonner or shareholders affiliated with Mr. 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 Mr. Bonner will effect such transfers.
(d) 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 completed an initial tranche of C$8,000,000 (the "Initial Tranche") thereunder by 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 C$0.20 per share and the Discounted Market 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.

(e) On July 7, 2021, KUAM exercised its right of conversion and the C$8,000,000 Debenture for the Initial Tranche was cancelled in exchange for the issuance to KUAM of 40 million common shares of the Company.
(f) 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. for nominal consideration and a trailing earnout as defined in the agreement.

OTHER MD&A REQUIREMENTS - DISCLOSURE OF OUTSTANDING SHARE DATA

Common Shares

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:

he Company’s common shares transactions during the period were as follows:
As at January 1, 2020 Shares issued for settlement of convertible debt interest As at June 30, 2020 Shares issued in connection with private placement As at December 31, 2020 Escrow shares cancelled Shares issued on conversion of convertible debt As at December 15, 2021	Issued Common Shares 245,239,489 402,587
	245,642,076 3,251,428
	248,893,504 (33,000,000) 40,000,000
	255,893,504

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 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 January 1, 2020 there were a total of 11,375,000 stock options outstanding, of which 9,291,664 had vested . On February 17, 2020, the Company granted an employee 1,500,000 stock options with an exercise price of C$0.35, a three-year vesting period and a February 17, 2025 expiry date and during the quarter ended March 31, 2020 there were 75,000 options forfeited (25,000 vested). As a result, there are 12,800,000 stock options outstanding at June 30, 2020, of which 10,366,664 are vested.

Warrants

There are currently no issued and outstanding warrants.

RISK FACTORS

A detailed discussion of the Company's risks can be found on pages 31-58 of the Company’s Management Discussion and Analysis for the year ended December 31, 2019, dated November 8, 2021 and filed on SEDAR on November 9, 2021.

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 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 December 15, 2021.

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Axion Ventures Inc. — Management Reports 2021

46914_rns_2021-12-20_d0ad00c9-63b8-473d-8de3-82e32cd05977.pdf