CENTR Brands Corp. — Management Reports 2022

Sep 23, 2022

September 23, 2022

MANAGEMENT DISCUSSION & ANALYSIS

This Management's Discussion & Analysis ("MD&A") should be read in conjunction with the consolidated financial statements of CENTR Brands Corp. (the "Company") for the year ended May 31, 2022 and related notes, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") applicable to the preparation of financial statements. All amounts in the financial statements and this MD&A are expressed in United States dollars, unless otherwise indicated.

Further information about the Company, its operations and other continuous disclosure is available through filings with the securities regulatory authorities in Canada under the Company's profile at www.sedar.com.

FORWARD LOOKING INFORMATION

This MD&A contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management of the Company as well as assumptions made by and information currently available to the Company. When used in this document, the words "anticipate", "believe", "estimate", "expect" and similar expressions, as they relate to the Company or management of the Company, are intended to identify forwardlooking statements. This MD&A contains forward-looking statements relating to, among other things, regulatory compliance, the sufficiency of current working capital, and the estimated cost and availability of funding for the continued development of the Company's beverages. These statements speak only as at the date they are made and are based on information currently available and on the then-current expectations of the party making the statement and assumptions concerning future events, which are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from that which was expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties related to: the performance of the Company's business and operations; the intention to grow the business and operations of the Company; applicable laws, regulations and any amendments thereof; the competitive and business strategies of the Company; the general economic, financial market, regulatory and political conditions in which the Company operates; risks associated with economic conditions, dependence on management; and other risks described in this MD&A and described from time to time in documents filed by the Company with Canadian securities regulatory authorities. Many factors could cause the actual results, performance or the Company's achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.

The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, expectations and assumptions concerning the success of the operations of the Company. Although the Company believes that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements, because no assurance can be given that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to the risks described above and other factors beyond the Company's control. Consequently, all forward-looking statements made in this MD&A are qualified by such cautionary statements and there can be no assurance that the anticipated results or developments will actually be realized or, even if realized, that they will have the expected consequences to or effects on the Company. The cautionary statements contained or referred to in this MD&A should be considered in connection with any subsequent written or oral forward-looking statements that the Company and/or persons acting on its behalf may issue. The Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law.

Overview

The Company was formed under the British Columbia Business Corporations Act ("BCBCA") on September 26, 2012.

The Company's first products, called "CENTR" and "CENTR Sugar Free" (collectively, "CENTR"), are sparkling, low-calorie, CBD beverages that the Company manufactures and sells in the United States. On March 10, 2021, the Company announced the launch of CENTR Instant, a family of convenient, single serve, ready-tomix CBD powders. Shortly after the end of the Company's fiscal 2022, CENTR announced the upcoming launch of CENTR Enhanced, a refreshing, zero calorie, nootropic and adaptogen-enriched functional beverage incorporating a variety of good-for-you-elements. The launch of CENTR Enhanced solidifies the Company's transition into the broader, multi-billion-dollar, health and wellness category.

Overall Performance

As of the date of this MD&A, the Company continues its marketing of CENTR in the U.S. The Company's sales activities are supported by CENTR's sales professionals throughout key markets in the U.S. in conjunction with the expansive sales staff and support of CENTR's national distribution partner, Southern Glazer's Wine & Spirits. The Company expects to continue in the growth of both existing products and new innovations coming through its pipeline in future periods. In addition, the Company anticipates continuing to activate new markets and continuing to grow its footprint throughout North America.

As of April 23, 2021, the Company's U.S. operating subsidiary, CENTR Brands USA LLC, entered into a U.S. distribution agreement with Southern Glazer's Wine & Spirits ("SGWS"), the world's preeminent distributor of beverage alcohol. The Company expects overall sales performance, with respect to its CBD functional beverages and Instant ready-to-drink powders, in the next year to continue to be strongly correlated to growth in U.S. distribution and clarification of a national regulatory structure for CBD-infused beverages in the U.S. As of today's date, the U.S. Food & Drug Administration (the "FDA") continues to evaluate the regulatory frameworks that apply to CBD-related products, including those that are intended for non-drug uses. The FDA has been clear in its public guidance that there is a need for further study and high quality, scientific information about the safety and potential uses of CBD.

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and many related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, and continues to generate concerns of a potential further economic downturn.

Management has closely monitored the impact of COVID-19, with a focus on the health and safety of our employees, business continuity and communities where we sell and produce CENTR. Senior management implemented various measures to reduce the spread of the virus, including allowing our non-sales employees to frequently work from home, mandating COVID-19 vaccinations for all staff, implementing social distancing measures whenever possible, and recommending employees to adhere to preventative measures recommended by

the WHO. As our non-sales workforce can effectively work remotely using various technology tools, we continue to maintain our full production and sales program, as well as internal controls over financial reporting and disclosures.

While we are beginning to see restrictions relating to COVID-19 ease up across many markets, we are still unable to fully estimate the long-term impact of COVID-19 on our business, financial condition, results of operations, and/or cash flows. We expect COVID-19 to negatively affect our results of operations, as we expect the effects of the COVID-19 outbreak to continue past calendar year 2022, even if restrictive COVID policies continue to ease across certain markets. We believe we have sufficient liquidity available from cash on hand and our ability to raise cash as required to continue operations.

Discussion of Operations

The Company's initial beverage product, CENTR, commenced sales in fiscal Q1 2020 (August 2019). The Company released CENTR Sugar Free in January 2021. The Company has both focused on and used the proceeds of the financings that it has completed to date for (i) the continued development and marketing of the CENTR brand, (ii) innovating new products under the CENTR brand, (iii) support of its sales team in the U.S., (iv) continued introduction of the CENTR brand to potential retail sales partners in the U.S., and (v) further production of CENTR products.

Overall success and future sales of CENTR's CBD products, both regionally and nationally in the U.S., strongly depends on several factors, including (i) timely dissemination of a positive national regulatory framework for CBD beverages by the FDA (see "Overall Performance" above), and (ii) continued development of a sizeable and effective distribution channel for CENTR, both currently and thereafter.

Summary of Quarterly Results (expressed in US dollars)

Description	Q42022	Q32022	Q22022	Q12022
Net sales	428,404	206,583	298,799	920,116
Net income (loss) and comprehensiveincome (loss) for the period (1)	404,365	(1,057,528)	834,512	303,590
Basic and dilutedincome (loss)per share	0.01	(0.01)	0.01	0.00

(1) Net income (loss) and comprehensive income (loss) for the period includes the following non-cash gains:

a. Q4 2022 – gain of $1,785,573 for the revaluation of warrants as a liability for accounting purposes.

b. Q3 2022 – gain of $447,505 for the revaluation of warrants as a liability for accounting purposes.

c. Q2 2022 – gain of $2,320,419 for the revaluation of warrants as a liability for accounting purposes.

d. Q1 2022 – gain of $1,325,781 for the revaluation of warrants as a liability for accounting purposes.

Description	Q42021	Q32021	Q22021	Q12021
Net sales	33,965	277,323	317,845	133,414
Net loss and comprehensive lossfor the period (2)	(11,946,914)	(787,736)	(752,354)	(770,035)
Basic and diluted loss per share	(0.19)	(0.01)	(0.01)	(0.01)

(2) Net loss and comprehensive loss for Q4 2021 includes non-cash losses of $8,014,811 for the revaluation of warrants as a liability for accounting purposes and $1,917,361 for the vesting of restricted share units.

For the three-month period ended May 31, 2022 (Q4 2022)

The Company produced a net income and comprehensive income in Q4 2022 of $404,365, versus a loss of $11,946,914 in Q4 2021.

Net loss and comprehensive loss in Q4 2021 was significantly higher as a result of the following:

• 1. Non-cash losses relating to the issuance of warrants to private placement investors were revalued as a liability for accounting purposes which resulted in a loss of $8,014,811.
• 1. The vesting of restricted share units resulted in the Company incurring a share-based compensation expense of $1,917,361.
• 1. As the Company achieved a transformative national distribution partnership in April 2021 with SGWS (the largest distributor to licensed locations in America), the Company was required to do an inventory buyback from local and regional distributors that previously distributed the Company's products. As a result of these buybacks, net sales for the period were reduced to $33,965.

Revenue

Net sales in Q4 2022 were $428,404, versus $33,965 in Q4 2021. The addition of the new product, CENTR Instant, along with continued overall growth in the Company's geographic footprint and total number of active accounts contributed to this growth. Importantly, this large increase in sales was also driven by the timing of inventory load-ins by the Company's distributors; when they purchase inventory to sell into the thousands of endmarket locations CENTR accrues revenue. The timing of distributor load-ins are inherently lumpy, and this variability is even more pronounced with new categories. We expect that variability in sales between quarters, both positive and negative variances, will be significantly influenced by these timing-based distributor activities going forward. As such, we continue to believe that comparisons of growth are more meaningful over longer periods of time, which have consistently been positive for CENTR.

Expenses

General and administrative

General and administrative expenses for Q4 2022 were $1,033,413, versus $1,631,234 in Q4 2021 and significant amounts included the following:

Salaries and payroll of $514,640, versus $1,036,377 in Q4 2021. This decrease in salaries was as a result of bonuses previously approved and accrued which were subsequently removed in Q4 2022.

Other SG&A expenses of $330,904, versus $488,880 in Q4 2021. The decrease in other SG&A was primarily due to a reduction in bad debt expenses.

Professional Fees of $156,740, versus $91,355 in Q4 2021.

Marketing and promotion

Marketing expenses for Q4 2022 were $200,217, versus $219,583 in Q4 2021. These expenses corresponded to the Company's national sales coverage, new product launches including the launch of CENTR Instant, and related samples and point of sale promotional investments.

Share-based compensation

Share-based compensation recognized in Q4 2022 was $69,056, versus $1,944,955 in Q4 2021. The majority of these costs incurred in Q4 2021 were non-cash and related to the vesting of restricted share units.

Other income and expenses

In Q4 2022, warrants issued to private placement investors were revalued for accounting purposes which resulted in a non-cash gain of $1,785,574, versus a loss of $8,014,811 in Q4 2021.

For the fiscal year ended May 31, 2022

For the year ended May 31, 2022, the Company produced a net income and comprehensive income of $484,939, versus a loss of $14,257,039 in 2021.

Revenue

Net sales for the year ended May 31, 2022 were $1,853,902, versus $762,547 in 2021. CENTR's growth was largely driven by an increase in new accounts across the Company's expanding geographic footprint and the launch of CENTR Instant.

Expenses

General and Administrative

General and administrative expenses for the year ended May 31, 2022 were $5,019,048, versus $3,735,556 in 2021 and significant amounts included the following:

Salaries and payroll of $3,414,618, versus $2,384,524 in 2021. This increase was driven primarily by the increase of in-house sales professionals. The Company's sales staff has grown, in part, to provide coverage to its expanding geographic footprint and, in part, to add selling resources in existing markets where growth trends are most significant. These in-house sale professionals continue to support the activities of the thousands of outside sales professionals that work for the national distribution partner.

Other SG&A expenses of $900,411, versus $876,855 in 2021.

Professional Fees of $606,038, versus $443,782 in 2021. The increase in professional fees for the period was largely driven by legal and accounting expenses relating to private placement offerings and associated capital markets activities.

Marketing and promotion

Marketing expenses for the year ended May 31, 2022 were $439,499, versus $412,763 in 2021. Increases in these expenses corresponded to the Company's increased national sales coverage, new market activations with its national distribution partner SGWS, new product launches including the launch of CENTR Instant, and related samples and point of sale promotional investments.

Share-based compensation

Share-based compensation recognized in the year ended May 31, 2022 was $454,298, versus $2,269,343 in 2021. The majority of these costs incurred in 2021 were non-cash and related to the vesting of restricted share units.

Other income and expenses

During the year ended May 31, 2022, non-cash gains relating to the issuance of warrants to private placement investors were revalued as a liability for accounting purposes which resulted in a gain of $5,879,278, versus a loss of $8,014,811 in 2021.

During the year ended May 31, 2021, the Company's PPP loan of $152,583 was forgiven.

During the year ended May 31, 2021, the Company incurred contract cancellation fees of $129,457 owed to various prior regional distributors; these distribution agreements were cancelled in conjunction with the Company successfully entering into a national distribution partnership with SGWS.

Liquidity and Capital Resources (expressed in US dollars)

As of May 31, 2022, the Company had a cash position of $3,855,544.

Working capital as of May 31, 2022 was $4,648,787. The Company's future growth expectations will require further investments in working capital (e.g., production runs), marketing and promotional activities, and investments in sales professionals to support high-growth regions as well as the activation of new markets. The Company has limited capital resources and may also rely upon the funds generated through the issuance of equity and/or debt securities to fund its operating expenses, working capital requirements, investments in new products and distribution channels, and any other strategic growth investments the Company may consider. To ensure the Company has the necessary capital to fund operations, growth and new product development activities, the Company has to-date raised money in the private placement market. The Company previously closed private placements in Q4 2022 and raised $4,237,147 in units consisting of common shares and share purchase warrants. In Q2 2022, an additional private placement raised $947,982 and in Q1 2022, additional private placements raised $3,750,035 both in units consisting of common shares and share purchase warrants.

Transactions with Related Parties (expressed in US dollars)

The Company transacts with key individuals from management who have authority and responsibility to plan, direct, and control the activities of the Company. Key management personnel are defined as the executive officers of the Company and the Board, including the Chairman, Chief Executive Officer, President and Chief Financial Officer.

The Company entered into certain transactions with key management personnel and their related entities during the periods ended May 31, 2022 as follows:

	Year endedMay 31, 2022	Three monthsendedMay 31, 2022
Salaries and benefitsShare-based paymentsConsulting fees	$450,000353,842337,346	$112,50065,77078,285
	$ 1,141,188	$256,555

The Company incurred the following transactions with companies having a former director, directors, and officers in common:

	Three months
	Year ended		ended
	May 31, 2022		May 31, 2022
Consulting fees
Meehan Ideas (2020) Inc. (1)	$71,440	$	17,769
Other fees
Meehan Family Investments Inc. (2)	83,632		27,807
Meehan Ideas (2020) Inc. (1)	46,813		1,292
MPM&L Joint Venture (3)	4,614		-
	$206,499	$	46,868

(1) Meehan Ideas (2020) Inc. is a company controlled by Paul F. Meehan, a former director of the Company

(2) Meehan Family Investments Inc. is a company controlled by Paul F. Meehan, a former director of the Company

(3) MPM&L Joint Venture is a company controlled by Paul F. Meehan, a former director of the Company

Other fees and lease payments paid to companies controlled by a former director of the Company include the Company's head-office lease which was effective on September 1, 2021 with a monthly payment of CAD $11,737. As at May 31, 2022, the Company owes $444,495 as total lease liabilities of the head-office lease.

As at May 31, 2022, $121,299 was included in due to related parties for consulting services and other overhead costs and in the ordinary course of business. These amounts bear no interest and are due on demand.

Financial Instruments

Fair Value of Financial Instruments

The fair value of cash, accounts receivable, accounts payable and accrued liabilities, due to related parties and loans payable approximate their carrying value due to their immediate or short-term nature, unless otherwise noted.

Fair Value Hierarchy

Financial instruments recorded at fair value on the Statement of Financial Position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 – valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – valuation techniques based on inputs other than quoted prices included in 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 – valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value. The fair value of cash, accounts receivable, warrants liability, accounts payable and accrued liabilities, due to related parties and loans payable are measured using a level 2 technique.

The Company's risk exposures and the impact on the Company's financial instruments are summarized below:

Credit Risk

Credit risk arises from the potential that a counterparty will fail to perform its obligations. The Company does not have financial instruments that results in material exposure.

Currency Risk

Currency risk is the risk to the Company's earnings that arises from fluctuations in foreign exchange rates and the degree of volatility of those rates. The Company believes it is exposed to significant currency risk, as to date the Company has raised money primarily in Canada and in Canadian dollars to fund operations and development, along with a significant proportion of the Company's general and administrative expenses incurred in Canadian dollars.

Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company does not have financial instruments that results in material exposure.

Liquidity Risk

Liquidity risk is the risk that the Company may encounter difficulty in raising funds to meet its financial commitments or can only do so at excessive cost. The Company ensures there is sufficient liquidity to meet its short-term business requirements, taking into account its anticipated cash flows from operations, its holdings of cash and its ability to draw on committed funds from its existing shareholders or to raise funds from external shareholders.

Directors and Officers

The Company's Board of Directors are as follows:

Joseph E. Meehan Arjan J. Chima Anton J. Drescher David T. Young Robert W. C. Becher Joseph P. Elmlinger

The Company's officers are as follows:

Arjan J. Chima	Chief Executive Officer
David T. Young	President & Chief Financial Officer

Share Capital

The authorized share capital of the Company consists of an unlimited number of common shares without par value. As of September 23, 2022, 95,653,965 common shares were issued and outstanding.

Shares Issued from Private Placements

On July 22, 2021, the Company issued 2,054,168 units of the Company, which consisted of one common share and one common share purchase warrant, in a private placement for gross proceeds of $2,451,429. Each warrant entitles the holder thereof to acquire one common share at the price of $1.75 CAD for a period of three years from closing. Finders' fees totalling $147,086 were paid in cash and 123,250 broker warrants were issued in connection with the financing. Each broker warrant entitles the holder thereof to acquire one common share at the price of $1.75 CAD over a period of 12 months from the closing date.

On August 6, 2021, the Company issued 1,086,684 units of the Company, which consisted of one common share and one common share purchase warrant, in a private placement for gross proceeds of $1,298,606. Each warrant entitles the holder thereof to acquire one common share at the price of $1.75 CAD for a period of three years from closing. Finders' fees totalling $21,347 were paid in cash and 15,200 broker warrants were issued in connection with the financing. Each broker warrant entitles the holder thereof to acquire one common share at the price of $1.75 CAD over a period of 12 months from the closing date.

On September 10, 2021, the Company issued 794,668 units of the Company, which consisted of one common share and one common share purchase warrant, in a private placement for gross proceeds of $947,982. Each warrant entitles the holder thereof to acquire one common share at the price of $1.75 CAD for a period of three years from closing. Finders' fees totalling $29,184 were paid in cash and 24,348 broker warrants were issued in connection with the financing. Each broker warrant entitles the holder thereof to acquire one common share at the price of $1.75 CAD over a period of 12 months from the closing date.

On April 13 & 14, 2022, the Company issued 7,007,144 units of the Company, which consisted of one common share and one common share purchase warrant, in a private placement for gross proceeds of $3,629,825. Each warrant entitles the holder thereof to acquire one common share at the price of $1.00 CAD for a period of three years from closing. Finders' fees totalling $134,166 were paid in cash and 259,038 broker warrants were issued in connection with the financing. Each broker warrant entitles the holder thereof to acquire one common share at the price of $1.00 CAD over a period of 12 months from the closing date.

On May 6, 2022, the Company issued 1,228,371 units of the Company, which consisted of one common share and one common share purchase warrant, in a private placement for gross proceeds of $607,322. Each warrant entitles the holder thereof to acquire one common share at the price of $1.00 CAD for a period of three years from closing. Finders' fees totalling $29,325 were paid in cash and 58,098 broker warrants were issued in connection with the financing. Each broker warrant entitles the holder thereof to acquire one common share at the price of $1.00 CAD over a period of 12 months from the closing date.

Shares Issued on Vesting of Restricted Share Units

During the year ended May 31, 2022, the Company issued 5,550,000 common shares on vesting of restricted share units. 5,050,000 common shares were issued to executive officers of the Company.

Shares Issued on Exercise of Warrants

During the year ended May 31, 2022, the Company issued 603,347 common shares pursuant to the exercise of warrants for gross proceeds of $296,677.

Outstanding Balances

As of September 23, 2022, 1,190,000 restricted share units were outstanding with expiry dates of February 2025 to January 2027.

As of September 23, 2022, 200,000 options were outstanding at an exercise price of $0.41 CAD with an expiry date of November 2023.

As of September 23, 2022, 17,049,681 share purchase warrants were outstanding at exercise prices of $0.60 CAD to $1.75 CAD with expiry dates of July 2022 to May 2025.

Changes in Accounting Policies

New Accounting Standards Adopted

The IASB issued amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. That distinction is important because changes in accounting estimates are applied prospectively only to future transactions and other future events, but changes in accounting policies are generally applied retrospectively to past transactions. The amendments to IAS 8 will be effective for annual reporting periods beginning on or after January 1, 2023. Early adoption is permitted. The Company has adopted this standard effective June 1, 2022. The Company does not expect this amendment to have any impacts on its consolidated financial statements.

The IASB issued amendments to IAS 1 Presentation of Financial Statements to clarify its requirements for the presentation of liabilities in the statement of financial position. The amendment clarifies the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period and that classification is unaffected by expectations about whether an entity will exercise its right to defer settlements of a liability. The IASB also made amendments that require entities to disclose their material accounting policies rather than their significant ones and explain how an entity can identify material accounting policy information. The amendments to IAS 1 will be effective for annual reporting periods beginning on or after January 1, 2023. Early adoption is permitted. The Company has adopted this standard effective June 1, 2022. The Company does not expect this amendment to have any impacts on its consolidated financial statements.