CBD Global Sciences Inc. — Management Reports 2022

Oct 6, 2022

CBD Global Sciences Inc. Management Discussion and Analysis For the year ended December 31, 2021 and 2020 (expressed in United States Dollars)

October 5, 2022

The following discussion and analysis of the Company's financial condition and results of operations for the year ended December 31, 2021 should be read in conjunction with the consolidated financial statements and related notes. The requisite financial data presented for the relevant periods has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).

CBD Global Sciences Inc. is classified as a “venture issuer” for the purposes of National Instrument 51‐102.

Forward‐looking statements

Certain statements in this Management Discussion and Analysis (“MD&A”) are forward‐looking statements which reflect management’s expectations regarding future growth, results of operations, performance, business prospects and opportunities, the Company's ability to meet financial commitments and its ability to raise funds when required. Forward‐looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. Such statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements. No assurance can be given that any of the events anticipated by the forward‐looking statements will occur or, if they do occur, what benefits the Company will obtain from them. These forward‐looking statements reflect management’s current views and are based on certain assumptions and speak only as of the date of this report. These assumptions, which include management’s current expectations, the global economic environment, and the Company’s ability to manage its operating costs, may prove to be incorrect.

A number of risks and uncertainties could cause actual results to differ materially from those expressed or implied by the forward‐looking statements, including but not limited to:

• the Company has a limited history of operations and has incurred losses since inception;

• there is no certainty that the Company will continue as a going concern;

• the Company may not be able to service its debt or meet other cash requirements;

• the need for additional financing;

• the acquisition of Resinosa, LLC involves the integration of companies that previously operated independently and the integration of the businesses may result in unanticipated operational challenges and/or interruptions, expenses and liabilities;

• the asset purchase agreement with New Age Beverage Corporation and NABC Properties, LLC may be terminated in certain circumstances prior to closing, and there is no assurance that a material adverse effect will not occur before the closing date where either party could elect to terminate the asset purchase agreement and the transaction would not proceed (refer to “Subsequent Events”);

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• the completion of the asset purchase agreement with New Age Beverage Corporation and NABC Properties, LLC is subject to a number of conditions precedent, certain of which are outside the control of the Company and the sellers, and there is no assurance that these conditions will be satisfied or, if satisfied, when they will be satisfied (refer to “Subsequent Events”);

• Federal laws concerning cannabis currently conflict with state laws in states that have legalized cannabis or possession of cannabis;

• State cannabis laws are not uniform from state to state and can, and do, change constantly;

• there remain several considerations and uncertainties regarding the cultivation, sourcing, production and distribution of Industrial Hemp and products containing hemp derivatives, and applicable laws remain subject to change as there are different interpretations among federal, state and local regulatory agencies;

• significant economic disruptions caused by global health risks (such as COVID‐19);

• changes in product costs and supply channels, including disruption of the Company’s supply chain resulting from COVID‐19;

• heightened competition, whether from current competitors or new entrants, to the marketplace;

• failure to realize anticipated results, including revenue growth, anticipated cost savings or operating efficiencies associated with the Company’s major initiatives;

• claims by others that the Company has infringed upon intellectual property rights that could increase the Company’s expenses and delay the development of the Company’s business;

• the Company’s operations are subject to environmental regulation, including the maintenance of air and water quality standards and land reclamation; and

• the Company relies heavily on key personnel and advisors.

This is not an exhaustive list of the factors that may affect the Company’s forward‐looking statements. Other risks and uncertainties not presently known to the Company or that the Company presently believes are not material could also cause actual results or events to differ materially from those expressed in its forward‐looking statements. Additional risks and uncertainties are discussed in the Company’s materials filed with the Canadian securities regulatory authorities from time to time. The reader should not place undue reliance on any forward‐looking statements included herein. There is a significant risk that such forward‐looking statements will not prove to be accurate. Investors are cautioned not to place undue reliance on these forward‐looking statements. No forward‐looking statement is a guarantee of future results. The Company disclaims any intention or obligation to update or revise any forward‐looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Nature of business

CBD Global Sciences Inc. (the "Company”) is in the business of producing and selling industrial hemp derived cannabidiol (“CBD”) infused consumable and topical products, including but not limited to CBD oil tincture drops, CBD hydration beverages, and CBD topicals.

The Company markets and sells its own brand of CBD oil and byproducts under the Aethics and CannaOil brands (collectively “Products”). More information about the Aethics brand can be found at https://aethics.com/. The Company plans to continue to expand its range of CBD oil and byproducts; refer

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to “Outlook” below. The Company, through its wholly owned subsidiaries, delivers CBD products both in retail and e‐commerce formats nationwide.

All Industrial Hemp produced and sold by the Company constitutes Industrial Hemp under the 2018 and 2014 Farm Bills, as well as the laws of the states in which it produces and sells such Industrial Hemp and its Products.

The Products will be legal as a matter of federal law because they will constitute hemp as defined in the Agriculture Improvement Act of 2018 (“2018 Farm Bill”). As a result, the Products may be legally shipped and transported in interstate commerce as a matter of federal law. The Products will be legal as a matter of the laws of Colorado for the same reason and may be legally offered for retail sale in Colorado.

It is noted, however, that topical and ingestible products containing CBD fall within the regulatory jurisdiction of the U.S. Food and Drug Administration (“FDA”) under the federal Food, Drug, and Cosmetic Act (21 U.S.C. 301 et seq.) (“Food and Drug Act”). Accordingly, because they will contain CBD, certain of the Products, including the Company’s nutraceuticals and food and body care Products, may be subject to enhanced scrutiny or enforcement action by FDA.

Refer to the Company’s Final Prospectus dated October 17, 2019 for a comprehensive discussion of the Company’s regulatory environment in the United States with respect to hemp and CBD.

Outlook

During the year ended December 31, 2021, two of the Company’s subsidiaries, Global NV Corp. (“Global NV”) and Strasburg Pharms, LLC (“Strasburg”), filed for protection under the Bankruptcy Code as a result of claims against Global NV by a former landlord. The subsidiaries initially filed for protection under Chapter 11 of the Bankruptcy Code and subsequently converted the case to Chapter 7 of the Bankruptcy Code . In connection with the bankruptcy, a trustee was appointed to liquidate assets and make distributions on account of the outstanding liabilities of Global NV and Strasburg. This process is ongoing.

Once the bankruptcy proceedings converted to Chapter 7 of the Bankruptcy Code and the court appointed trustee obtained control of Global NV and Strasburg, the Company lost control of the entities. Global NV, Strasburg, SMBT, LLC, CannaOil, Inc., and Global Sciences IP, LLC have been deconsolidated from the accompanying consolidated financial statements for the year ended December 31, 2021. During the year ended December 31, 2021, the Company recorded a gain on deconsolidation of $3,946,960 representing the net liabilities of subsidiaries of which the Company lost control.

The bankruptcy process allowed the Company to implement operational and commercial plans to re‐ position the Company for future growth. These plans included the incorporation of the following wholly‐ owned subsidiaries during fiscal 2021: Global Sciences Holdings Inc., Dog Unleashed CBD, LLC, Legacy Distribution Group LLC, Energy Unleashed LLC, and Bam Bam Productions LLC. Through these new subsidiaries, the Company is expanding its distribution and adding new CBD and non‐CBD products to enhance diversity of product offerings. The Company also added a manufacturing division with the acquisition of Resinosa, LLC, a vertically integrated company located in Silver Cliff, Colorado with expertise in hemp genetics, cloning, farming, harvesting, processing and manufacturing of finished products. Refer to “Acquisition of Resinosa, LLC” for additional details of the acquisition. In addition, subsequent to the year ended December 31, 2021, the Company entered into an asset purchase agreement for a direct store distribution operation, as further discussed below in “Subsequent Events”.

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Acquisition of Resinosa, LLC

On October 15, 2021, the Company, through its wholly‐owned subsidiary, Global Sciences Holdings, Inc., closed an acquisition pursuant to an Asset and Limited Liability Company Interest Purchase Agreement (the “Purchase Agreement”) dated September 29, 2021 (the “Acquisition”). The Acquisition included real property and 100% interest in Resinosa, LLC (“Resinosa”). Resinosa is a vertically integrated company with expertise in hemp genetics, cloning, farming, harvesting, processing and manufacturing of CBD‐based finished goods.

The Purchase Agreement provided for consideration as follows:

• 5,378,657 common shares of the Company with a fair value of $875,860 determined based on the closing price of the Company’s common shares on October 15, 2021 ($0.245 per common share) less a discount for lack of marketability of $441,911 to reflect that the common shares are restricted and not freely tradeable immediately upon issuance. The discount for lack of marketability was calculated based on commonly used option price models for each restriction period applicable to the common shares issued.

• 99,889 preferred shares of the Company with a fair value of $2,447,290 determined based on the closing price of the Company’s common shares on October 15, 2021 ($0.245 per common share) and the conversion ratio of one preferred share to 100 common shares.

• A secured convertible promissory note in the principal amount of $1,500,000 which bears interest at 8% per annum on the outstanding principal amount (the “Resinosa Note”). Accrued interest is payable annually and the principal becomes due at maturity on October 15, 2023. The Resinosa Note is convertible into units of the Company (“Units”), with each Unit consisting of 0.35 common shares and 0.0065 preferred shares, at a conversion price of $0.228 per Unit. The Resinosa Note is secured by the real property purchased in the Acquisition and a general security agreement. The fair value of the Resinosa Note was determined as $2,342,000 and comprised of the debt component of $1,329,300 and the conversion feature of $1,012,700.

• Contingent consideration:

• If greater than $500,000 of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) is achieved by Resinosa in the year ending December 31, 2022, 4,388,906 shares of the Company will be issued no later than April 30, 2023;

• If greater than $1,000,000 of EBITDA is achieved by Resinosa in the year ending December 31, 2023, 4,388,906 shares of the Company will be issued no later than April 30, 2024;

• Both performance incentives above can achieve 50% of the 4,388,906 shares if EBITDA is greater than $250,000 but less than $375,000; and,

• Both performance incentives above can achieve 75% of the 4,388,906 shares if EBITDA is greater than $375,000 but less than $500,000 (collectively the “Contingent Consideration”).

• The fair value of the Contingent Consideration was determined as $10,000 based on probability weighted expected future cash flows and is recorded in the balance of derivative liability on the statement of financial position.

Included in the identifiable assets and liabilities acquired at the date of acquisition of Resinosa are inputs (manufacturing and processing facilities, technology, inventories and customer relationships), production processes and an organized workforce. The Company has determined that together the acquired inputs and processes significantly contribute to the ability to create revenue. The Acquisition was determined

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to be a business combination as substantive processes and assets were acquired as part of the transaction. The Company also retained the services of Resinosa’s former employees and management.

Consideration paid: 99,889 preferred shares of the Company at $24.50 per preferred share 5,378,657 common shares of the Company at $0.245 per common share Less: discount for lack of marketability Fair value of equity consideration Fair value of convertible debt Fair value of contingent consideration Net identifiable assets acquired: Goodwill Intellectual property Land and building Equipment Cash Inventory Amounts receivable Prepaid expenses Amounts payable Notes payable	$ 2,447,290 1,317,772 (441,911)
	3,323,151 2,342,000 10,000
	$ 5,675,151
	$ 3,824,207 347,000 678,000 519,953 143,545 142,549 64,472 14,577 (538) (58,614)
	$ 5,675,151

The unallocated consideration of $3,824,207 was recognized as goodwill. Goodwill is comprised of synergies that are expected to be achieved from integrating Resinosa into the Company, including the Company’s distribution and marketing and achieving new contracts, the elimination of redundant costs, achieving economies of scale and access to financing to grow the operations. These benefits were not recognized separately from goodwill on the basis that they do not meet the recognition criteria for identifiable intangible assets.

Further to the Company’s impairment assessment as at December 31, 2021, the Company recognized an impairment of $3,824,207 on goodwill, resulting in a carrying value of goodwill of $Nil as at December 31, 2021.

The Company determined that all of the assets purchased and liabilities assumed in the Acquisition represent one CGU (the “Resinosa CGU”). The recoverable amount for the Resinosa CGU was determined using the discounted cash flow approach, which discounts the earnings projections derived from the business plans prepared by the Company. The projections reflect management’s expectations of revenue, profit margin, capital expenditures, working capital, and operating cash flows, which are based on past experience and future expectations of performance.

Future cash flows are based on various judgements and estimates including actual performance of the business, management’s estimates of future performance, and indicators of future industry activity levels.

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As at December 31, 2021, the recoverable amount of the Resinosa CGU was less than its carrying value and as a result the Company recorded an impairment loss in the amount of $3,824,207 which was allocated to goodwill resulting in a carrying value of $Nil as at December 31, 2021.

Selected annual information

Year ended December 31,	2021	2020	2019
Sales	$166,947	$289,481	$956,138
Loss from continuing operations	$(5,201,148)	$(5,301,681)	$(8,824,975)
Loss from continuing operations per share – basic and diluted	$(0.15)	($0.17)	$(0.52)
Loss	$(5,252,701)	$(8,927,702)	$(8,956,222)
Loss per share – basic and diluted	$(0.15)	$(0.28)	$(0.53)
Total assets	$2,091,593	$472,477	$6,148,380
Total non‐current financial liabilities	$1,731,754	$5,199,584	$1,531,744
Dividends	$‐	$‐	$‐

Sales

Sales for the years ended December 31, 2021, 2020 and 2019 relate to the sale of CBD Oil products and have generally declined due to economic disruptions in the CBD market caused by the COVID‐19 pandemic and the implications of bankruptcy proceedings. During the year ended December 31, 2021, the Company discontinued its farming and processing operations. Sales presented in the table above do not reflect such discontinued operations.

Loss

Loss for the year ended December 31, 2021 decreased by $3,675,001 which is primarily explained by a gain of $3,946,960 recorded on the deconsolidation of various subsidiaries during the year ended December 31, 2021. Refer to “Discussion of operations” below for further details and comparisons for the years ended December 31, 2021 and 2020.

During the years ended December 31, 2020 and 2019, total losses amounted to $8,927,702 and $8,956,222, respectively, and related to operating expenses for each of the years prior to the commencement of bankruptcy proceedings of Global NV and Strasburg, the discontinuing of farming and processing operations, and the acquisition of Resinosa, LLC.

Total assets

Total assets as at December 31, 2021 increased by $1,619,116 which is explained by the acquisition of Resinosa, LLC which included property and equipment, intangible assets, inventory and amounts receivable. Refer to “Acquisition of Resinosa, LLC” for additional information of the assets acquired and liabilities assumed in connection with the Acquisition.

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As at December 31, 2020, total assets decreased to $472,477 or by $5,675,903 compared to the prior year‐end. The decrease in total assets during the year ended December 31, 2020 is explained by impairment losses recorded related to inventory and property and equipment as a result of impending bankruptcy proceedings and the discontinuing of farming and processing operations.

Total non‐current financial liabilities

The decrease in non‐current financial liabilities of $3,467,830 for the year ended December 31, 2021 is a result of the Company issuing preferred shares upon the conversion of convertible debentures and the deconsolidation of subsidiaries which filed for bankruptcy during the year. These decreases were partially offset by the consideration issued in connection with the Acquisition and new lease contracts entered into and the corresponding liabilities resulting therefrom.

The increase of $3,667,840 in the balance of non‐current financial liabilities as at December 31, 2020 compared to as at December 31, 2019 is explained by additional amounts advanced by related parties to fund operations and the extension of the maturity date of convertible debt resulting in non‐current presentation as of December 31, 2020.

Summary of Quarterly Results

Historical quarterly results of operations and loss per share data do not reflect any recurring expenditure patterns or predictable trends. The Company’s expenditures are driven by availability of financing to fund continued operations.

The table below sets forth selected results of operations for the Company’s eight most recently completed quarters. All figures are in accordance with IFRS.

Three months ended,	Quarter	Revenue – continuing operations	Net income (loss) from continuing operations	Net income (loss)	Basic and diluted income (loss) per share – continuing operations	Basic and diluted income (loss) per share
December 31,2021	Q4	$72,823	$(6,755,650)	$(6,755,650)	$(0.17)	$(0.17)
September 30,2021	Q3	$38,361	$3,403,412	$3,403,412	$0.10	$0.10
June 30,2021	Q2	$40,378	$(659,183)	$(669,200)	$(0.02)	$(0.02)
March 31,2021	Q1	$15,385	$(1,189,727)	$(1,231,263)	$(0.03)	$(0.04)
December 31,2020	Q4	$(173,033)	$(2,089,226)	$(5,157,358)	$(0.06)	$(0.15)
September 30,2020	Q3	$17,870	$(1,375,958)	$(1,775,696)	$(0.04)	$(0.06)
June 30,2020	Q2	$296,550	$(1,191,192)	$(1,292,813)	$(0.04)	$(0.04)
March 31,2020	Q1	$148,094	$(645,305)	$(701,835)	$(0.02)	$(0.02)

Sales

The fluctuations in sales reflect the negative impact of the global pandemic on the US economy, retailers and the Company. Due to the global pandemic and economic shutdown, the Company experienced a cancelation of a $2.4M purchase order for its CBD infused finished products that was set to go into production in the second quarter of fiscal 2020. Its largest and fastest growing retailer in airports saw the

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loss of 96% of its foot traffic due to the travel restrictions enforced at all major US airports. Most stores remained closed and ceased all orders for new product in fiscal 2020. Sales were further negatively impacted during the first three quarters ended in fiscal 2021 while the Company navigated the bankruptcy proceedings. The increase in sales for the fourth quarter of fiscal 2021 is a result of the completion of the Acquisition and the added revenue stream of Resinosa.

Income (loss)

The fluctuations in income (loss) result from non‐cash items, including loss from the settlement of debt (December 31, 2021) unrealized gains and losses on the derivative liability (December 31, 2020 to December 31, 2021), gain from deconsolidation of subsidiaries (September 30, 2021), impairment of property and equipment (December 31, 2020 and 2021), impairment of goodwill (December 31, 2021) and share‐based payments (June 30, 2020 to December 31, 2021).

Discussion of operations

Sales for the year ended December 31, 2021 were $166,947 compared to $289,481 for the year ended December 31, 2020. The decrease in sales of $122,534 is explained by the continued economic disruptions in the CBD market caused by the COVID‐19 pandemic and the implications of the bankruptcy proceedings. These decreases in sales were partially offset by the completion of the Acquisition and the added revenue stream of Resinosa.

The Company incurred cost of sales of $125,948 (2020 ‐ $350,019) which decreased by $224,071 compared to the prior year as a result of changes in the amount and composition of sales, and scaling back farming and extraction operations.

General and administrative costs for the year ended December 31, 2021 and 2020 are summarized below.

	December 31,	December 31,
	2021	2020
For theyear ended	($)	($)	Change ($)	Change (%)
Investor relations	240,827	209,116	31,711	15%
Office expenses	224,976	98,537	126,439	128%
Professional fees	352,210	338,790	13,420	4%
Rent	21,166	28,672	(7,506)	(26%)
Salaries	540,221	522,540	17,681	3%
Small tools and equipment	2,171	4,389	(2,218)	(51%)
Travel	11,454	23,010	(11,556)	(50%)
Vehicle expenses	9,093	‐	9,093	‐‐
Foreign exchange loss	5,162	209	4,953	2,370%
Bad debt expense	31,086	58,179	(27,093)	(47%)
Total general and
administrative	1,438,366	1,283,442	154,924	12%

• Investor relations decreased by $31,711 due to service contracts entered into during the second half of fiscal 2020 with service periods that terminated during fiscal 2021.

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• Office expenses increased by $126,439 due to the acquisition of Resinosa, and increased insurance and software expenses for the new subsidiaries incorporated during fiscal 2021.

• Professional fees increased slightly by $13,420 and fluctuate due to the nature and timing of corporate transactions.

• Salaries increased slightly by $17,681 which is the net impact of the addition of Resinosa’s workforce in the fourth quarter of fiscal 2021 less staff reductions earlier in the year as a result of the bankruptcy proceedings.

• Travel expenses decreased by $11,556 due to management’s focus on the Acquisition and navigating the bankruptcy proceedings during the year.

• Vehicle expenses of $9,093 were incurred in fiscal 2021 in connection with the Company launching its distribution division.

The Company recorded accretion expense of $254,157 for the year ended December 31, 2021 (2020 ‐ $554,705) related to the carrying value of outstanding convertible debt and notes payable. The Company also recorded interest expense of $285,200 (2020 ‐ $586,720) related to these debt instruments and lease liabilities. Accretion and interest expense decreased by $300,548 and $301,520, respectively, compared to the previous year due to the settlement of debentures in exchange for preferred shares issued by the Company.

During the year ended December 31, 2021, the Company recorded an unrealized loss of $287,583 (2020 – unrealized gain of $5,704) related to the change in fair value of derivative liabilities. The derivative liabilities are remeasured at fair value through profit and loss at each reporting year end using the Black‐ Scholes Option Pricing Model.

The Company incurred consulting fees during the year ended December 31, 2021 of $329,881 (2020 ‐ $362,431), representing a decrease of $32,550. The decrease in consulting fees for the year ended December 31, 2021 is explained by service contracts entered into during the prior year which expired in the year.

Depreciation recorded for the year ended December 31, 2021 was $66,094 and related to property and equipment and intangible assets purchased in the Acquisition and leased assets in connection with the Company launching its distribution division in fiscal 2021. Depreciation of $34,917 for the year ended December 31, 2020 related to leased assets which were abandoned in the year.

The Company recorded finance fees for the year ended December 31, 2021 totaling $56,267 (2020 ‐ $73,170) which relate to costs incurred for amending financing terms. The amount and timing of finance fees fluctuates based on the fair value of equity instruments issued and the underlying vesting and maturity terms of the instruments.

Marketing, sales and distribution expenses for the year ended December 31, 2021 amounted to $741,702 (2020 ‐ $377,153). The increase of $364,549 is a result of service agreements in connection with the Company’s plans to re‐position itself with the launch of distribution and manufacturing divisions during the year ended December 31, 2021.

Research and development costs decreased by $28,780 to $7,137 for the year ended December 31, 2021 which is explained by the discontinuation of farming and processing.

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Share‐based payments expense for the year ended December 31, 2021 of $178,748 (2020 ‐ $423,755) related to the fair value of stock options vesting in the period.

During the year ended December 31, 2021, the Company recorded a gain on deconsolidation of subsidiaries of $3,946,960 (2020 ‐ $Nil) related to the bankruptcy proceedings. Refer to “Outlook” above.

During the year ended December 31, 2021, the Company incurred farming and processing related expenses of $51,553 (2020 ‐ $214,232) and recorded an impairment of inventory of $Nil (2020 ‐ $3,400,862) and adjustment to the fair value of inventory of $Nil (2020 ‐ $10,927) which have been presented as discontinued operations.

During the year ended December 31, 2021, the Company recorded a loss on debt settlement of $1,444,408 (2020 – gain of $16,146) related to the settlement of convertible debt, trade payables, and amounts due to related parties with the issuance of common and preferred shares of the Company. The common and preferred shares had an aggregate fair value of $6,634,553 (2020 ‐ $70,692) which settled liabilities with aggregate carrying values of $5,190,145 (2020 ‐ $86,838).

Inventory totaling $37,387 was impaired during the year ended December 31, 2021 related to certain labelled inventory which could not be sold as a result of litigation. During the year ended December 31, 2020, the Company recorded an impairment of inventory of $3,400,862 in connection with insufficient yields and spoilage ($518,578) and concerns and uncertainty with respect to pending bankruptcy proceedings ($2,882,284). The impairment loss for the year ended December 31, 2022 is presented within discontinued operations.

During the year ended December 31, 2021, the Company recorded an impairment loss in the amount of $238,974 related to leased assets on the basis that the carrying amount exceeded the recoverable amount upon initial recognition. During the year ended December 31, 2020, the Company recorded an impairment of property and equipment of $1,231,322 related to abandoned assets ($707,766) and concerns and uncertainty with respect to pending bankruptcy proceedings ($523,556). The Company also recorded a loss on disposal of property and equipment of $88,265.

During the year ended December 31, 2021, the Company recorded an impairment of goodwill of $3,824,207 as previously discussed in “Acquisition of Resinosa, LLC”.

The Company recorded a loss on debt extinguishment for the year ended December 31, 2020 of $216,841 as a result of amendments to convertible debt agreements which were accounted for as debt extinguishments of the original debt agreements. The Company also recorded a loss on lease modification of $159,973 for a lease which was terminated and the resulting revision to amounts which remain due under the contract. No such losses were recorded for the year ended December 31, 2021.

Government assistance income of $165,034 was realized in the year ended December 31, 2020 and related to loans and advances received from government organizations.

Fourth quarter

For the three months ended December 31, 2021, the Company recorded a loss from continuing operations and total loss of $6,755,650 of which 57% related to the impairment of goodwill of $3,824,207 and 21% related to a loss on debt settlement recorded of $1,444,408 previously discussed above. The remaining loss from continuing operations and total loss is primarily attributable to general and administrative

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expenses and marketing, sales and distribution expenses while the Company focused on the Acquisition and the launch of its distribution and manufacturing divisions.

For the three months ended December 31, 2020, the Company recorded a loss from continuing operations of $2,089,226 and total loss of $5,157,358. The loss from continuing operations primarily comprises non‐ cash losses for impairment losses, losses on settlement, modification and extinguishment of liabilities, and losses on the disposal of assets which aggregate to $1,564,732 or 75% of the total loss from continuing operations. The remaining loss from continuing operations reflects reduced overall corporate activities within general and administrative and marketing, sales and distribution expenses due to the impending bankruptcy proceedings, as well as interest and accretion expenses related to outstanding convertible debt and notes payable. The loss from discontinued operations of $3,057,205 relates to farming and processing activities and consists mainly of the impairment of inventory as previously discussed above.

Liquidity and capital resources

As at December 31, 2021, the Company had a working capital deficit of $1,735,711 as compared to $3,240,196 as at December 31, 2020, an increase in working capital of $1,504,485. Working capital increased primarily due to the deconsolidation of certain subsidiaries and the derecognition of the associated liabilities in connection with the bankruptcy proceedings, as discussed in “Outlook”, as well as the settlement of convertible debt, the underlying derivative liability, and certain trades payable and amounts due to related parties by the issuance of common and preferred shares of the Company. The Company purchased cash, inventory, amounts receivable and prepaid expenses in connection with the Acquisition which further increased working capital as at December 31, 2021 as compared to as at December 31, 2020.

The Company’s ability to continue its operations is dependent upon its ability to raise financing and generate profits and positive cash flows from operations in order to cover its operating costs. From time to time, the Company generates working capital to fund its operations by raising additional capital through equity and/or debt financing. However, there is no assurance it will be able to continue to do so in the future.

These factors, including the Company’s financial position, liquidity and the uncertain outcome of the matters arising from the bankruptcy proceedings, indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern.

Cash flows

The table below provides a summary of cash flows for the year ended December 31, 2021 and 2020.

For theyear ended December 31,	2021 ($)	2020 ($)
Cash used in operatingactivities	(1,138,610)	(1,339,790)
Cashprovided byinvestingactivities	220,545	55,273
Cashprovided byfinancingactivities	1,010,924	1,263,460
Change in cash	92,859	(21,057)
Cash,beginning	541	21,598
Cash,end	93,400	541

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Operating activities

Cash used in operating activities adjusts loss for the period for non‐cash items including, but not limited to accretion of loans and notes payable, change in fair value of derivative liability, depreciation of property and equipment, gain from deconsolidation of subsidiaries, impairment losses, accrued interest, gains and losses from debt settlements and modifications, and share‐based payments. Cash used in operating activities also reflects changes in working capital items, such as amounts receivable, prepaid expenses, inventory and amounts payable, which fluctuate in a manner that does not necessarily reflect predictable patterns for the overall use of cash, the generation of which depends almost entirely on sources of external financing to fund operations.

Investing activities

During the year ended December 31, 2021, cash provided by investing activities consisted of cash from the Acquisition of $143,545 and proceeds received from the sale of assets under construction of $80,000, less the purchase of equipment for $3,000.

During the year ended December 31, 2020, cash provided by investing activities consisted of proceeds received from the sale of land of $55,273.

Financing activities

During the year ended December 31, 2021, the Company received net cash of $1,010,924 (2020 ‐ $1,263,460) from financing activities which included proceeds from the issuance of debt of $1,053,574 (2020 ‐ $1,240,582), proceeds from the issuance of shares or shares to be issued of $55,000 (2020 ‐ $112,500) and government assistance received of $135,095 (2020 ‐ $164,795). Proceeds received were partially offset by the repayment of notes payable of $206,256 (2020 ‐ $226,629) and lease payments of $26,489 (2020 ‐ $27,788).

Related party disclosures

Related parties and related party transactions impacting the accompanying consolidated financial statements are summarized below.

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. Key management personnel comprise officers and directors of the Company.

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Remuneration attributed to key management personnel for the years ended December 31, 2021 and 2020 are summarized as follows:

are summarized as follows:
For theyear ended December 31,	2021 ($)	2020 ($)
Salaries(1)	363,462	300,000
Share‐basedpayments	119,996	278,786
Total remuneration	483,458	578,786

(1) Brad Wyatt, President, CEO and Director ‐ $300,000 (2020 ‐ $300,000); Jeffry Hays, Director ‐ $31,731 (2020 ‐ $Nil); Kath Hays, spouse of a director ‐ $31,731 (2020 ‐ $Nil)

Other related party transactions and balances

• a) Strasburg had a revolving promissory note due to Mac5 Mortgage, a company jointly controlled by the President of the Company, Brad Wyatt, and the Chief Operating Officer of the Company, Glen Dooley (“Mac5”). The note was unsecured and, bears interest at 5% per annum. The interest was due monthly with the principal balance due on demand. On January 1, 2019, the Company entered into a modification agreement to amend the maturity date of the principal balance to December 31, 2024.

The note had a carrying value of $548,588, principal balance of $876,565 and accrued interest balance of $68,649 as at May 7, 2021 on which date these balances were deconsolidated.

As at December 31, 2020, the promissory note had a carrying value of $509,321, principal balance of $873,685 and accrued interest balance of $57,125.

Strasburg recorded the promissory note at amortized cost using an effective interest rate of 20% which caused the carrying amount to be lower than the principal and accrued interest with the difference recognized as a related party contribution in capital reserve. During the year ended December 31, 2021, Strasburg recognized an additional $3,000 (2020 ‐ $41,067) as related party contributions pursuant to proceeds received during the year and recorded accretion expense of $36,387 (2020 ‐ $87,123).

• b) On September 1, 2018, Mac5 advanced $7,500 to Strasburg in exchange for a promissory note. The note was unsecured and bears interest at 6% per annum. Payments of interest only were due monthly on the first day of every calendar month starting January 1, 2018 with payment in full at maturity on December 31, 2019. Should Strasburg default on an interest payment, the interest rate shall increase to 12% per annum. On January 1, 2019, Strasburg entered into an agreement amending the maturity date of the note to December 31, 2021.

The balance due on this note was $8,260 (2020 ‐ $8,177), including principal balance of $7,500 (2020 ‐ $7,500) and accrued interest of $760 (2020 ‐ $677), as at May 7, 2021 on which date these balances were deconsolidated.

• c) On April 1, 2019, Global NV entered into an unsecured promissory note with Mac5, whereby Mac5 loaned a balance up to $500,000 to Global NV. The note was unsecured, bears interest at 8% per annum, had payments of interest only due monthly with the principal balance due on June 30, 2022.

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Global NV recorded the promissory note at amortized cost using an effective interest rate of 20% which caused the carrying amount to be lower than the principal and accrued interest with the difference recognized as a related party contribution in capital reserve. During the year ended December 31, 2021, Global NV recognized an additional $315,000 (2020 ‐ $172,672) as related party contributions pursuant to proceeds received during the year and recorded accretion expense of $46,947 (2020 ‐ $48,150).

During the year ended December 31, 2019, the Company issued 1,250,000 warrants in connection with this promissory note. The fair value of the warrants of $183,270 was recorded as deferred financing fees. As at December 31, 2020, the balance of deferred financing fees was $84,372 and related to the remaining fair value of the warrants to be expensed in future periods. During the years ended December 31, 2021 and 2020, the Company recorded finance fees of $19,625 and $55,558, respectively, in the consolidated statements of loss and comprehensive loss related to these warrants.

As at May 7, 2021, the carrying value, accrued interest, and deferred financing fees balances were deconsolidated.

• d) On December 31, 2018, Global NV entered into an unsecured promissory note with TargetPath, a company controlled by Scott Hix, a director (“TargetPath”), in the amount of $33,736. The note was unsecured and bore interest at 6% per annum. Interest and principal were due and payable on the maturity date of December 31, 2020. The loan was in default; and as a result of the default the outstanding principal balance accrued interest at a rate of 12% per annum effective January 1, 2021.

As at May 7, 2021, the carrying value and accrued interest balance were deconsolidated on the basis that the borrower is Global NV.

• e) As at December 31, 2021, a revolving promissory note due to Mac5 had a carrying value and principal balance of $42,611 (2020 ‐ $Nil) which is included in amounts due to related parties. The balance of accrued interest of $27,940 (2020 ‐ $Nil) is included in accounts payable and accrued liabilities.

During the year ended December 31, 2021, the Company recognized an additional $738,574 (2020 ‐ $Nil) as related party contributions pursuant to proceeds received during the year.

On December 30, 2021, the Company issued 5,767,155 common shares with a fair value of $947,951 to settle $710,963 of this note, resulting in a loss on debt settlement of $236,988.

The note is unsecured and bears interest at 12% per annum. The principal and interest are due on or before June 30, 2023. The Company was charged a loan fee of $10,000 and is obligated to issue 500,000 warrants of the Company. The loan fee of $10,000 and fair value of the warrants of $86,307 were capitalized as deferred financing fees and will be amortized over the life of the promissory note. The Company amortized $32,181 during the year ended December 31, 2021.

The Company recorded the promissory note at an effective interest rate of 20% and as a result recognized additional interest expense of $18,629 (2020 ‐ $nil) as a related party contribution in capital reserve during the year ended December 31, 2021.

• f) During the year ended December 31, 2021, the Company incurred $85,354 (2020 ‐ $100,885) in professional fees to Treewalk Consulting Inc. (formerly ACM Management Inc.), a company controlled

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by Alex McAulay, the former Chief Financial Officer of the Company (“Treewalk”), recorded in general and administrative expenses.

• g) During the year ended December 31, 2021, the Company incurred $36,074 (2020 ‐ $88,026) in professional fees to a Tingle Merrett LLP, a company controlled by Scott Reeves (“Tingle Merrett”), a director of the Company recorded in general and administrative expenses.

• h) As at December 31, 2021, accounts payable and accrued liabilities and amounts due to related parties include $11,790 (2020 ‐ $41,923) and $329 (2020 ‐ $Nil), respectively, due to W2D Holdings, a company jointly controlled by the President of the Company, Brad Wyatt, and the Chief Operating Officer of the Company, Glen Dooley (“W2D”), for expense reimbursement.

• i) As at December 31, 2021, accounts payable and accrued liabilities include $200,170 (2020 ‐ $46,452) due to Brad Wyatt, President, CEO and Director of the Company for salaries and wages and expense reimbursement.

• j) As at December 31, 2021, accounts payable and accrued liabilities and amounts due to related parties include $45,423 (2020 ‐ $Nil) and $225 (2020 ‐ $Nil), respectively, due to Jeffry Hays, a director of the Company, and his spouse, Kath Hays, for salaries and wages and expense reimbursement.

• k) As at December 31, 2021, accounts payable and other liabilities includes $864 (2020 ‐ $126,029) payable to Treewalk for professional fees. During the year ended December 31, 2021, the Company issued 2,086,800 common shares to Treewalk with a fair value of $343,009 to settle accounts payable in the amount of $177,978, resulting in a loss on debt settlement of $165,031.

• l) As at December 31, 2021, accounts payable and other liabilities includes $98,539 (2020 ‐ $170,478) for professional fees to Tingle Merrett. During the year ended December 31, 2021, the Company issued 634,921 common shares to Tingle Merrett with a fair value of $104,362 to settle accounts payable in the amount of $78,272, resulting in a loss on debt settlement of $26,090.

• m) As at December 31, 2021, Global NV owed $Nil (2020 ‐ $412,943) for consulting fees to TargetPath. As at May 7, 2021, the balance was deconsolidated.

• n) During the year ended December 31, 2021, the Company entered into vehicle and equipment leases with W2D. As at December 31, 2021, the balances of lease liabilities and accounts payable and accrued liabilities include $434,507 (2020 ‐ $Nil) and $1,575 (2020 ‐ $Nil), respectively, payable to this related party. The lease liabilities includes $41,581 of unpaid lease payments owing and on demand as at December 31, 2021.

• o) During the year ended December 31, 2021, the Company issued the Resinosa Note to Jeffry Hays, a director of the Company, and his spouse, Kath Hays, in connection with the Acquisition. As at December 31, 2021, the Resinosa Note had a carrying value of $1,371,129 (2020 ‐ $Nil). During the year ended December 31, 2021, the Company accrued interest and recorded accretion expense of $25,315 (2020 ‐ $Nil) and $16,513 (2020 ‐ $Nil), respectively, related to the Resinosa Note.

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All transactions with related parties were intended to be carried on the same basis as they would have occurred if the transaction was with an arm’s length party.

Outstanding share data

The Company is authorized to issue an unlimited number of shares of common stock and preferred shares without par value.

The Company has securities outstanding as follows:

The Company has securities outstanding as follows:
Security Description	December 31, 2021	Date of this MD&A
Common shares	48,813,291	49,456,624
Preferred shares	735,361	735,361
Stock options	5,355,000	4,955,000
Cashless options	250,000	250,000
Warrants	12,448,763	4,050,000
Fully diluted shares	67,602,415	59,446,985

Subsequent events

• a) On March 7, 2022, the Company issued 283,333 common shares for which gross proceeds of $80,000 were previously received and included in this balance of obligation to issue shares as at December 31, 2021.

• b) On March 7, 2022, the Company issued 360,000 common shares for which services with a fair value of $87,737 were previously received and included in this balance of obligation to issue shares as at December 31, 2021.

• c) On September 8, 2022, the Company entered into an asset purchase agreement with New Age Beverage Corporation and NABC Properties, LLC to acquire a direct store distribution (“DSD”) operation, including the acquisition of certain specified tangible and intangible assets used in the DSD operation and the assumption of certain specified liabilities. The Company is required to secure a debt facility to finance the purchase price of $4,500,000.

Completion of the transaction is subject to a number of conditions customary for a transaction of this nature. These conditions include but are not limited to: fulfilling all exchange as well as any other necessary regulatory or shareholder approvals; securing sufficient financing on terms acceptable to the Company; completing due diligence procedures by all parties; and obtaining required court approvals. There can be no assurance that the transaction will be completed as proposed or at all.

Critical accounting policies and estimates

The preparation of financial statements requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The accompanying consolidated financial statements include estimates that, by

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their nature, are uncertain. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the financial position reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, related to, but are not limited to, the following:

Useful life of property and equipment

Property and equipment is depreciated over its estimated useful life. Estimated useful lives are determined based on current facts and past experience and take into consideration the anticipated physical life of the asset, the potential for technological obsolescence and regulations.

Incremental borrowing rate

Under IFRS 16, the Company assesses whether a contract contains a lease and, if so, recognizes a lease liability by discounting the future lease payments over the non‐cancelable term of the lease, using the Company’s estimated incremental borrowing rate. Differences in the estimated incremental borrowing rate could result in materially different lease liabilities and right‐of‐use assets.

Fair value adjustments for business combinations

In accordance with IFRS 3, Business Combinations, the Company remeasures the assets, liabilities and contingent liabilities acquired through a business combination relative to fair value. Similarly, consideration given, including shares issued, is also measured at fair value. Where possible, fair value adjustments are based on external appraisals or valuation models (e.g. where intangible assets were not recognized by an acquiree). These valuation methods rely on various assumptions such as estimated future cash flows, remaining useful economic life, etc.

Intangible assets ‐ impairment

The application of the Company’s accounting policy for intangible assets requires judgement in determining whether it is likely that future economic benefits will flow to the Company, which may be based on assumptions about future events or circumstances. Estimates and assumptions may change if new information becomes available. If, after expenditures are capitalized, information becomes available suggesting that the recovery of expenditures is unlikely, the amount capitalized is written off in profit or loss in the period the new information becomes available.

Goodwill ‐ impairment

Management conducts an annual test for impairment of goodwill in the fourth quarter of each fiscal year and at any other time of the year if an indicator of impairment is identified. Calculating the estimated recoverable amount (fair value less cost to dispose) of CGUs for non‐current asset impairment tests and CGUs or groups of CGUs for goodwill impairment tests requires management to make estimates and assumptions with respect to discount rates, future revenue and gross margin, operating and capital costs, working capital requirements and income taxes. Changes in any of the assumptions or estimates used in determining the fair values could impact the impairment analysis.

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Share‐based payments

Estimating fair value for share‐based payment transactions, including stock options and compensatory warrants, requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility, risk‐free interest rate, expected forfeiture rate and dividend yield of the equity instruments.

Inventory

In calculating final inventory values, management is required to determine an estimate of spoiled or expired inventory and compares the inventory cost to estimated net realizable value. The valuation of cannabidiol oil and products also requires the estimate of conversion costs incurred, which become part of the carrying amount for the inventory. The Company must determine if the cost of any inventory exceeds its net realizable value, such as cases where prices have decreased or inventory has spoiled or has otherwise been damaged.

Carrying value and recoverability of property and equipment

The Company has determined that property and equipment that are capitalized may have future economic benefits and may be economically recoverable. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions and useful lives of the assets.

Judgements made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements are as follows:

Business combinations

From time to time, the Company acquires subsidiaries. At the time of acquisition, the Company considers whether each acquisition represents the acquisition of a business or the acquisition of an asset. The Company accounts for an acquisition as a business combination where an integrated set of activities and assets, is acquired. More specifically, consideration is given to the extent to which significant processes are acquired.

When the acquisition of subsidiaries does not represent a business combination, it is accounted for as an acquisition of a group of assets and liabilities. The cost of the acquisition is allocated to the assets and liabilities acquired based upon their relative fair values, and no goodwill or deferred tax is recognised.

Going concern

The Company’s ability to execute its strategy by funding future working capital requirements requires significant judgement. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, such as expectations of future events that are believed to be reasonable under the circumstances.

Determining non‐cancellable lease term

The non‐cancellable lease term depends on the terms of the lease agreement and management’s plans for the leased asset in question. The management must evaluate whether or not the Company shall

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exercise renewal options, the result of which could extend the non‐cancellable term of the lease. Extending the lease term can have a material impact on the recorded value of lease liabilities and right‐ of‐use assets.

Recoverability of trade account receivables

The Company’s assessment of collectability of its trade receivable requires judgement. In assessing whether an allowance is necessary, the Company uses historical trends to determine the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

Adoption of new standards and interpretations and recent accounting

pronouncements

The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. The Company has not early adopted any new standards and has determined that there are no new standards that are relevant to the Company.

Financial and other instruments

Financial instruments that are measured subsequent to initial recognition at fair value are grouped in levels 1 to 3 based on the degree to which the fair value is observable:

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Company uses judgement to select the methods used to make certain assumptions and in performing the fair value calculations in order to determine (a) the values attributed to each component of a transaction at the time of their issuance; (b) the fair value measurements for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation estimates could be significantly different because of the use of judgement and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.

The Company’s financial instruments consist of cash, trade and other receivables, accounts payable and other liabilities, due to related parties, notes payable, convertible debt, lease liabilities, derivate liabilities and long‐term debt. With the exception of convertible debt, lease liabilities and notes payable, the carrying value of the Company’s financial instruments approximate their fair values due to their short‐ term maturities. The fair value of convertible debt and notes payable approximate their carrying value, excluding discounts, due to minimal changes in interest rates and the Company’s credit risk since issuance

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of the instruments. Cash is measured at fair value on a recurring basis using level 1 inputs. Derivative liabilities are measured at fair value at each reporting period end using level 2 inputs.

The Company is exposed to risks that arise from its use of financial instruments.

Market risk

Market risk is the risk of loss that may arise from changes in market factors such as foreign currency exchange, interest rates and equity price risk.

Foreign currency risk:

The Company’s functional and reporting currency is the United States dollar and major purchases are transacted in United States dollars. As a result, the Company’s exposure to the foreign currency risk is minimal.

Interest rate risk:

Interest rate risk is the risk that future cash flows will fluctuate because of changes in market interest rates. The interest earned on cash is insignificant and the Company does not rely on interest income to fund its operations. The Company has significant debt facilities, including convertible debt and promissory notes payable. As the debt facilities are incurring a fixed rate of interest, the Company is not significantly exposed to interest rate risk.

Other price risk:

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Company does not hold equity investments in other entities and therefore is not exposed to a significant risk.

Credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

The Company is subject to credit risk on its cash and accounts receivable. The Company limits its exposure to credit loss on cash by placing its cash with a high‐quality financial institution. The Company has concentrations of credit risk with respect to accounts receivable as large amounts of its accounts receivable are concentrated amongst a small number of customers. The Company performs credit evaluations of its customers but generally does not require collateral to support accounts receivable.

Liquidity risk

Liquidity risk arises from the Company’s general and capital financing needs. The Company continuously monitors and reviews both actual and forecasted cash flows, and also matches the maturity profile of financial assets and liabilities, when feasible.

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The table below summarizes the maturity profile of the Company’s undiscounted contractual cash flows with respect to financial liabilities.

				Less than 1			Later than 2
As at December 31, 2021		On demand		year		1 ‐2years	years		Total
Trade payables	$	327,083	$	‐	$	‐ $	‐	$	327,083
Loans payable to related parties and
accrued interest		554		‐		70,551	‐		71,105
Lease liabilities		41,581		123,828		108,528	481,067		755,004
Notes payable and accrued interest		250,578		8,772		8,772	232,792		500,914
Convertible debt and accrued interest		‐		115,068		1,624,932	‐		1,740,000
Obligation to issue shares		273,515		‐		‐	‐		273,515
Total liabilities	$	893,311	$	247,668	$	1,812,783 $	713,859	$	3,667,621

Company documents

The Company files annual and interim reports, information circulars and other information with certain Canadian securities regulatory authorities. The documents filed with the Canadian securities regulatory authorities are available at http://www.sedar.com and the Company’s website https://www.cbdglobalsciences.com.

Approval

The Board of Directors of the Company has approved the disclosure contained in this MD&A.

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