Deepspatial Inc. — Management Reports 2021

Mar 1, 2021

DEEPSPATIAL INC.

(formerly, Aylen Capital Inc.)

MANAGEMENT DISCUSSION AND

ANALYSIS

For the Three and Six Months Ended December 31, 2020 and 2019

DEEPSPATIAL INC.

(formerly, Aylen Capital Inc.)

MANAGEMENT DISCUSSION AND ANALYSIS

For the Three and Six Months Ended December 31, 2020 and 2019

(Information as at March 1, 2021 unless otherwise noted)

Introduction

Management's Discussion and Analysis ("MD&A") is intended to help the reader understand DeepSpatial Inc. (the “Company”) unaudited financial statements for the three and six months ended December 31, 2020. This MD&A should be read in conjunction with the financial statements of the Company and the notes thereto for the period ended June 30, 2020 and the interim condensed consolidated financial statements for the three and six months ended December 31, 2020. The effective date of this report is March 1, 2021. The financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). Unless expressly stated otherwise, all financial information is presented in Canadian dollars. This MD&A contains certain forward-looking information and involves risks and uncertainties, including but not limited to, those described in the “Risk Factors” section.

Forward-Looking Statements

Certain statements contained in the following MD&A constitute forward-looking statements (within the meaning of the Canadian securities legislation and the U.S. Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties. Forward-looking statements are frequently, but not always, identified by words such as "expects", "anticipates", "believes", "intends", "estimates", "potential", "possible" and similar expressions, or statements that events, conditions or results "will", "may", "could" or "should" occur or be achieved. The forward-looking statements may include statements regarding work programs, capital expenditures, timelines, strategic plans, market price of commodities or other statements that are not statement of fact. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company may differ materially from those reflected in forwardlooking statements due to a variety of risks, uncertainties and other factors. For the reasons set forth above, investors should not place undue reliance on forward-looking statements. Important factors that could cause actual results to differ materially from the Company’s expectations include uncertainties involved in disputes and litigation, fluctuations in commodity prices and currency exchange rates; uncertainty of estimates of capital and operating costs, recovery rates, production estimates and economic return; the need for cooperation of government agencies; the need to obtain additional financing and uncertainty as to the availability and terms of future financing; uncertainty related to the completion of the amalgamation.

It is the Company’s policies that all forward-looking statements are based on the Company’s beliefs and assumptions which are based on information available at the time these assumptions are made. The forward- looking statements contained herein are as of December 31, 2020 and are subject to change after this date, and the Company assumes no obligation to publicly update or revise the statements to reflect new events or circumstances, except as may be required pursuant to applicable laws.

Although management believes that the expectations represented by such forward-looking information or statements are reasonable, there is significant risk that the forward-looking information or statements may not be achieved, and the underlying assumptions thereto will not prove to be accurate. Forward-looking information or statements in this MD&A include, but are not limited to, information or statements concerning our expectations regarding the ability to raise additional funds, results of the research and development performed in relation to the products and services of the Company, positive result due to the change in business model, possibility of entering into strategic alliance, distribution agreements and other arrangements to market their products and services and possibility of producing viable products through the use of the new technologies purchased and developed.

Actual results or events could differ materially from the plans, intentions and expectations expressed or implied in any forward-looking information or statements, including the underlying assumptions thereto, as a result of numerous risks, uncertainties and factors including: the possibility that opportunities will arise that require more cash than the Company has or can reasonably obtain; dependence on key personnel; dependence on corporate collaborations; potential delays; uncertainties related to early stage of technology and product development; uncertainties as to fluctuation of the stock market; uncertainties as to future expense levels and the possibility of unanticipated costs or expenses or cost overruns; and other risks and uncertainties which may not be described herein. The Company has no policy for updating forward looking information beyond the procedures required under applicable securities laws.

CORPORATE OVERVIEW

The Company’s corporate head office is located at 77 King Street W, Suite 3000, Toronto, Ontario, Canada, M5K 1G8.

On September 9, 2019 the Company issued 63,450,000 common shares to Algo8 AI Private Limited, a company incorporated in India and its associates including their designates, being the fair value consideration for the assignment of Intellectual Property relating to development and creation of the work product related to geospatial artificial intelligence for enterprises. The Company leverages Artificial Intelligence to create robust location intelligence solutions for transforming existing location data into business outcomes. Location data can be anything from addresses and latitude/longitude coordinates, buildings, monuments or alike and when this data is correlated with internal business data, it creates business context to improve decision making backed by data driven analytics.

Extensive User Research has gone into its development. The Company comes from actual validation of client pain points and the value proposition would substantially improvise planning, resource allocation, and decision-making – predicting the surge in demand and supply, identifying the prospects of high and low margin, multiplying supply chain efficiency, and optimizing service delivery. The scope of solutions that can be improved with the integration of geolocation intelligence is simply endless. We bring to the customers the power of AI and GIS with an affordable SaaS product pricing.

DeepSpatial is an artificial intelligence technology company that provides business insight to enterprises using geospatial information. The unique insights that location intelligence can provide is one of the many reasons that this type of analytics is considered essential for many businesses, including those selling a particular products or service. Accordingly, businesses have come to rely on accurate location data and mobility information to help it optimize its distribution, plan site selection and extract market insights. The challenge frequently faced, is how to apply this in a meaningful way.

The Company’s unique technology unites business data with business operations to help it understand: (1) customer personas (to distinguish and classify personalized product preferences and SKU relativity); (2) predict inventory consumption and link it to effective supply chains and warehouse planning; (3) expand existing markets by locating potential customers analogous to already existing clientele; and (4) to promote targeted pricing and discount strategies on a geospatial basis. Its technology helps businesses better understand important questions including who a company's ideal customers are, how it can more effectively manage inventory, and where to open new locations or expand.

The following chart highlights the four steps involved in The Company’s business solution:

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1. Collect business data: including SKU (Stock Keeping Unit) level, inventory levels and other business key performance indicators (KPIs).

2. Collect public and private data: The Company’s artificial algorithms use location context data (through various map engines) as well as public, proprietary and dynamic data in order to arrive at relevant insights. The company's pre-built algorithms customize this data in order to generate a unique geospatial algorithm for its clients that is used to optimize their business.

3. Utilize artificial intelligence and machine learning engine to: arrive at future data sets (which are used as pre usage data sets); geospatially stitch information together to allow the automatic geocoding and display of such data; and apply its machine learning algorithms to arrive at relevant features important to a particular business processes and outcomes.

4. Generated insights will allow businesses to understand:

5. WHO:

   • are the customers that a particular business should target?

   • are the “super fans” that can improve a company’s NPS (net promoter score)

   • o are the most active on social media?

   • should we be focusing our business efforts towards?

6. WHEN:

   • is the best time to launch a product or service?

   • is the best time to expand?

   • is the best time to scale back?

   • should a business allocate resources to a specific, time-sensitive initiative?

7. WHERE:

   • are the most profitable places for expansion?

   • should a business open a new location?

8. should a business keep its warehouse/office?

9. should a business target its marketing (traditional & digital) and spending?

10. should a company strategically increase/decrease its presence?

11. are the bottlenecks in the end of end process of the business as a whole?

12. HOW:

13. can a business/brand better connect with people?

14. can a business optimize its inventory and/or service management?

15. can a business build better supply chains?

16. can a business use social media and location data to discover unique factors of consumer behavior including regarding a consumer's hobbies and interests, lifestyle preferences, relationships, diet choices, entertainment preferences and his or her culture and beliefs?

17. can a business predict the probability that a service or product will succeed in a particular market?

18. WHY:

19. is a business not obtaining the intended results?

20. is a business or segment growing?

21. isn't a business or segment growing?

The result? Smart, data driven decisions for business growth across multiple industries including retail, food and beverage, government as well as agriculture and engineering construction.

One of the most common challenges faced by companies is how to how to apply data (that is largely unstructured) in a meaningful way to their business. Our Company helps bridge that gap by synthesizing the collected data into a format that can easily understood by companies to provide data-driven answers. The data fusion platform together with the machine learning platform allows business to stitch data which is multi variable and analyze the same.

DeepSpatial will charge customers an upfront implementation cost, as well as an annual license fee for an enterprise license. The license fee will be determined upon the completion and deployment of its products to customers and is expected to provide DeepSpatial with reliable, recurring revenue. Currently, the AI platform is 60 % replicable with a need for 40 % customization. To ensure a high fidelity, delightful user experience, we have carried out several successful proof of concept studies validating our technology and various prototypes pertaining to industry specific applications.

This means that prototypes of the software exist and that the key functions have been demonstrated and tested. The SaaS product will be integrated with operational hardware and software systems upon deployment to support operational feasibility. Also included at this stage is that most software "bugs" are removed and that tests have been performed to demonstrate that it will be successful for business predictions. As we move forward, we are targeting a replicability of 80 % and a customization of 20 % which will increase our margins and reduce the time needed for technology deployment due to low customization cost while also allowing for scaling up.

Product Pipeline

We are now in the final stages of commercializing our product pipeline. Presently, we have two specific use cases that span industry verticals ranging from transportation to ecommerce. These are a) sentiment monitoring with geosocial customer profiling, and b) supply chain optimization. As we bring these

technologies to market, our goal remains to cross sell our product offerings to potential clients that can benefit from both services for a more comprehensive improvement of their business.

As our technology matures, we plan to enter the engineering, construction and urban planning verticals in the future. Our goal in these segments would be to cater to goal-specific site selection processes that improve the construction process and cost management processes end-to-end.

Verticals Targeted

Our current efforts to commercialize our technology are targeted towards players in the manufacturing, retail, food and beverage, and transportation verticals. As we mature, we hope to penetrate other industry verticals with our AI and alternative data offering that provides robust geo-intelligence insights for businesses.

Reverse merger

During the six months ended December 31, 2020, the Company completed the following acquisition:

Effective December 22, 2020, Aylen was part of a three-cornered amalgamation among Aylen, 2774951 Ontario Limited. (a wholly owned subsidiary) and Loc8 (the “Transaction”). The result of the transaction was that Aylen acquired all the issued and outstanding securities of Loc8 on the basis of one share of Aylen for each share of Loc8. At completion of the transaction, Aylen changed its name to DeepSpatial Inc. and Loc8 was amalgamated into 2774951 Ontario Limited.

Under IFRS, this was considered a Reverse Merger and Recapitalization (commonly referred to as a Reverse Take Over or “RTO”). The Company issued 4,660,509 shares to the shareholders of former Corporation valued at $0.30 per share, with a total value of $1,398,153 and 700,000 common shares (finder shares) valued at $210,000 for the acquisition.

The fair value of the acquired assets and liabilities assumed is as follows:

Assets acquired by the Company:		-
Liabilities assumed by the Company:		-
Net assets (liabilities) assumed		-
Consideration:
4,660,509 common shares issued at a fair value of $0.30 per
share		(1,398,153)
700,000 common shares being finders’ shares at a fair value of
$0.30 per share		(210,000)
Listing expense (Loss on acquisition of subsidiary)	$	(1,608,153)

Directors and Management

The Company’s current leadership team includes:

Sheldon Kales, Chairman of the Board of Directors

Rahul Kushwah, Director and Chief Executive Officer

Nandan Mishra, Director and Chief Technology Officer

Rakesh Malhotra, Chief Financial Officer and Secretary

Tomos Sipos, Director

SELECTED FINANCIAL INFORMATION

The following table contains selected financial information of the Company for the three and six months ended December 31, 2020 and 2019.

	3 months ended December 31, 2020 $	3 months ended December31, 2019 $	6 months ended December 31, 2020 $	6 months ended December 31, 2019 $
Total operating expenses	(285,574)	(101,257)	(457,000)	(119,258)
Loss from acquisition of subsidiary	(1,608,153)	-	(1,608,153)	-
Net loss and comprehensive loss	(1,893,727)	(101,257)	(2,065,153)	(119,258)
Income (Loss) per common share – basic and diluted	(0.022)	(0.001)	(0.025)	(0.002)
Weighted average number of common shares outstanding-	84,540,164	75,056,250	84,057,582	72,893,008

The chart below presents the summary financial information of the Company:

	As at December 31, 2020 ($)	As at June 30, 2020 ($)
Current assets	1,507,885	1,202,900
Non-current assets	1,743,126	1,897,178
Total assets	3,251,011	3,100,078
Current liabilities	31,937	40,354
Shareholders’ equity	3,251,011	3,059,724
Cash dividends per common share	-	-

OVERALL PERFORMANCE AND RESULTS OF OPERATIONS

Expenses and Net Loss

Total operating expenses for the three months ended December 31, 2020, were $285,74 (December 31, 2019 – $101,257) and for the six months ended December 31, 2020 were $457,000 (December 31, 2019 – $119,258). In addition, the Company recorded loss on acquisition of subsidiary (listing expense) for $1,608,153 for the three and six months ended December 31, 2020 (prior periods: $nil)

Significant variances for the 3 months ended December 31, 2020 and 2019

Management fees for the three months ended December 31, 2020 consist of fees paid to senior management or to Companies owned by senior management (1) $19,500 (prior period $6,500) paid to the CEO for services, (2) $15,000 (prior period $5,000) paid to the Executive Chairman for services and (3) $9,130 (prior period $nil) paid to the CFO for services. The cost increase is a result of more management involvement with the Company.

Transfer agent and regulatory costs for $10,387 for the three months ended December 31, 2020 (prior period $nil) are primarily the costs of compliance for the Company’s listing.

Amortization of intangible assets for $77,026 for the three months ended December 31, 2020 (prior period $76,607). This non-cash expense is the amortization relating to the acquisition of intangible asset on September 9, 2019 being amortized straight line over the useful life of seven years.

Consulting fees costs for $19,500 for the three months ended December 31, 2020 (prior period $5,650) consists primarily of fees paid to consultants to assist with business development.

Legal fees for $112,799 for the three months ended December 31, 2020 (prior period $nil) consists primarily of legal fees paid to assist with reverse merger and taking the Company public.

Significant variances for the 6 months ended December 31, 2020 and 2019

Management fees for the six months ended December 31, 2020 consist of fees paid to senior management or to Companies owned by senior management (1) $39,000 (prior period $6,500) paid to the CEO for services, (2) $30,000 (prior period $5,000) paid to the Executive Chairman for services and (3) $19,130 (prior period $nil) paid to the CFO for services. The cost increase is a result of more management involvement with the Company.

Transfer agent and regulatory costs for $10,387 for the six months ended December 31, 2020 (prior period $nil) are primarily the costs of compliance for the Company’s listing.

Amortization of intangible assets for $154,052 for the six months ended December 31, 2020 (prior period $94,608). This non-cash expense is the amortization relating to the acquisition of intangible asset on September 9, 2019 being amortized straight line over the useful life of seven years.

Research and development costs for $5,500 for the six months ended December 31, 2020 (prior period $nil) include costs for $4,000 to a company in which the CTO and director of the Company is also a director. This expense was for the development and creation of the work product related to geospatial artificial intelligence for enterprises.

Consulting fees costs for $39,000 for the six months ended December 31, 2020 (prior period $5,650) consists primarily of fees paid to consultants to assist with business development.

Legal fees for $122,157 for the six months ended December 31, 2020 (prior period $nil) consists primarily of legal fees paid to assist with reverse merger and taking the Company public.

No cash dividends have been paid by the Company. The Company has no present intention of paying cash dividends on its common shares as it anticipates that all available funds will be invested to finance existing activities.

CRITICAL ACCOUNTING ESTIMATES

Preparing financial statements in conformity with IFRS requires the Company to select from possible alternative accounting principles. Estimates also affect classification and reported amounts for various assets, liabilities, equity balances, revenues and expenses. Prior estimates are revised as new information is obtained and are subject to change in future periods. Management believes the accounting policies and estimates used in preparing the financial statements are considered appropriate in the circumstances but are subject to numerous judgments and uncertainties inherent in the financial reporting process.

The preparation of these financial statements requires management to make judgements regarding the going concern of the Company, as well as the determination of functional currency. The functional currency is the currency of the primary economic environment in which an entity operates and has been determined for the Company. The functional currency for the Company has been determined to be the Canadian dollar.

Significant estimates made by management affecting the financial statements include:

Deferred tax assets & liabilities

The estimation of income taxes includes evaluating the recoverability of deferred tax assets and liabilities based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income prior to expiry of those deductions. Management assesses whether it is probable that some or all of the deferred income tax assets and liabilities will not be realized. The ultimate realization of deferred tax assets and liabilities is dependent upon the generation of future taxable income. To the extent that management’s assessment of the Company’s ability to utilize future tax deductions changes, the Company would be required to recognize more or fewer deferred tax assets or liabilities, and deferred income tax provisions or recoveries could be affected.

Useful life of intangible assets

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

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2020, the Company had cash of $211,969, restricted cash for $1,258,350 and working capital of $1,475,948. During the six- month period ended December 31, 2020, the Company received $616,350 from financing activities (subscription to common shares), and used $348,931 in operating activities.

The Company has financed its operations from inception to date through the issuance of equity shares.

The Company currently has no source of revenues; as such, administrative and other expenses may exceed available cash resources and additional funding may be required to further its projects and to meet ongoing requirements for general operations. The ability of the Company to continue as a going concern is dependent

on raising additional financing, development of its projects and generation of profitable operations in the future.

The Company believes it has enough cash to maintain itself for the next 12 months.

The Company's objectives when managing its capital structure are to preserve the Company's access to capital markets and its ability to meet its financial obligations.

Based on available funds, the Company manages its capital structure and makes adjustments to it to maintain flexibility while achieving the objectives stated above as well as support future business opportunities.

To manage the capital structure, the Company may adjust its project plans, operating expenditure plans, or issue new common shares. The Company monitors its capital structure using annual forecasted cash flows, expenditure budgets and targets for the year as well as corporate capitalization schedules. This is achieved by the Board of Directors’ review and acceptance of expenditure budgets that are achievable within existing resources and the timely matching and release of the next stage of expenditures with the resources made available from private placements or other funding.

The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company is not subject to externally imposed capital requirements or covenants.

OUTSTANDING SHARE DATA

At December 31, 2020, the Company had 92,454,509 common shares outstanding. As of date of the MD&A, the Company has 93,154,509 common shares outstanding.

Information with respect to outstanding common shares as at December 31, 2020 and the date of the MD&A are as follows:

Date of MD&A December 31, 2020 Common shares 93,154,509 92,454,509 Stock options - Warrants - - Fully diluted shares outstanding 93,154,509 92,454,509

Share issuances

- During the six month period ended December 31, 2020

• On December 22, 2020, the Company issued 4,219,000 common shares at $0.30 per share in private placements which included subscription funds for $642,000 received during the prior year. The Company incurred share issuance costs for $7,350.

• The Company issued 4,660,509 shares in connection with the acquisition.

During the period from incorporation to June 30, 2020

• On September 4, 2019, the Company issued 11,550,000 common shares, as founders’ shares, for $1.

• On September 9, 2019, the Company issued 63,450,000 common shares for the purchase of intellectual property valued at $2,145,000.

• On January 30, 2020, the Company issued 8,325,000 common shares at $0.10 per share in private placements and raised $832,500.

• On April 21, 2020, the Company issued 250,000 common shares at $0.10 per share in private placements and raised $25,000.

In conjunction with the above private placements, the Company incurred cash share issuance costs of $61,900.

FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognized on the statements of financial position when the Company becomes a party to the contractual provisions of the financial instrument.

The following is the Company’s accounting policy for financial instruments under IFRS 9:

Classification

The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or if the Company has opted to measure them at FVTPL.

Measurement

Financial assets and liabilities at amortized cost

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

Financial assets and liabilities at FVTPL

Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of loss and comprehensive loss. Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of loss and comprehensive loss in the period in which they arise.

Debt investments at FVOCI

These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Equity investments at FVOCI

These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never reclassified to profit or loss.

Impairment of financial assets at amortized cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize in the statements of loss and comprehensive loss, as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

Derecognition

Financial assets

The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity.

Financial liabilities

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expired. The Company also derecognizes a financial liability when the terms of the liability are modified such that the terms and / or cash flows of the modified instrument are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.

Gains and losses on derecognition are generally recognized in profit or loss.

The Company’s financial assets and liabilities are recorded and measured as follows:

Asset or Liability	Category	Measurement
Cash	FVTPL	Fair value
Restricted cash	FVTPL	Fair value
Accounts payable and accrued liabilities	Other liabilities	Amortized cost

The Company determines the fair value of financial instruments according to the following hierarchy based on the amount of observable inputs used to value the instrument.

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.

Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

Cash has been measured at fair value using Level 1 inputs.

Impairment of financial assets

Financial assets are assessed at each reporting date to determine whether there is objective evidence that they are impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in profit or loss and reflected in a separate line item. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Financial risk management and objectives

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk, and market risk (including interest rate risk, foreign currency risk, and commodity price risk).

The Company thoroughly examines the various financial risks to which it is exposed and assesses the impact and likelihood of those risks. Where material, these risks are reviewed and monitored by the Board of Directors.

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 not exposed to significant credit risk.

Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s liquidity and operating results may be adversely affected if its access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or matters specific to the Company. The Company generates cash flows primarily from its financing activities.

The Company manages its liquidity needs by carefully monitoring scheduled costs. Liquidity is measured in various time bands, on day to day and week-to-week basis, as well as on long term liquidity needs over 180 day to 360 day look out periods. Funding for long term liquidity needs is based on the ability of the Company to successfully complete private placements.

As at December 31, 2020, the Company had sufficient non-restricted cash of $211,969 to settle current liabilities of $31,937.

Market Risk

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

(a) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to significant interest rate risk.

(b) Price risk

The Company is not exposed to significant price risk as it does not possess investments in publicly traded securities.

(c) Currency risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument denominated in a foreign currency will fluctuate because of changes in foreign exchange rates. The Company is not exposed to significant currency risk as it is not actively dealing in foreign currency.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has not entered into any material off-balance sheet arrangements such as guarantee contracts, contingent interests in assets transferred to unconsolidated entities, derivative instrument obligations, or with respect to any obligations under a variable interest entity arrangement.

TRANSACTIONS WITH RELATED PARTIES

Related parties include key management personnel, the Board of Directors, close family members and enterprises that are controlled by these individuals as well as certain persons performing similar functions. Key management of the Company are members of the Board of Directors, the Chief Executive Officer (“CEO”), the Chief Financial Officer (“CFO”) and the Chief Technology Officer (“CTO”).

Transactions with key management personnel not disclosed elsewhere in the financial statements include the following:

the following:
		Six months ended December 31, 2020 Six months ended December 31, 2019
Management fees to the Executive Chairman Management fees to the CEO Management fees to the CFO Total Management fees Research and development fees to a company in which the CTO and director of the Company is also a director Marketing fees to a company controlled by a child of the Executive Chairman Consulting fees to a company controlled by a child of the Executive Chairman Vehicle expense to the Executive Chairman and CEO	$	30,000 $ 5,000 39,000 6,500 19,130 -
	$ $	88,130 $ 11,000 4,000 - 21,000 - 15,000 - 4,000 -
		132,130$ 11,000
		Three months ended December 31, 2020 Three months ended December 31, 2019
Management fees to the Executive Chairman Management fees to the CEO Management fees to the CFO Total Management fees Research and development fees to a company in which the CTO and director of the Company is also a director Marketing fees to a company controlled by a child of the Executive Chairman Consulting fees to a company controlled by a child of the Executive Chairman Vehicle expense to the Executive Chairman and CEO	$	15,000 $ 5,000 19,500 6,500 9,130 -
	$ $	43,630 $ 11,500 - - 10,500 - 7,500 - 3,000 -
		64,630$ 11,500

As of December 31, 2020, there was $nil due to any related parties (December 31, 2019 - $nil)

BOARD PURPOSE AND FUNCTION

The directors and management of the company have experience operating in Canada and taking projects through to various stages of development.

The Board’s purpose is to ensure corporate governance, risk, strategy and shareholder interests are priorities at all times. At the end of the quarter, the board consisted of three members.

CONTROL AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer are responsible for designing internal controls over financial reporting in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with IFRS. The design of the Company’s internal control over financial reporting was assessed as of the date of this Management Discussion and Analysis.

Based on this assessment, it was determined that certain weaknesses existed in internal controls over financial reporting. As indicative of many small companies, the lack of segregation of duties and effective risk assessment were identified as areas where weaknesses existed. The existence of these weaknesses is to be compensated for by senior management monitoring, which exists. The officers will continue to monitor very closely all financial activities of the Company and increase the level of supervision in key areas. It is important to note that this issue would also require the Company to hire additional staff in order to provide greater segregation of duties. Since the increased costs of such hiring could burden the Company’s financial resources, management has chosen to disclose the potential risk in its filings and proceed with increased staffing only when the budgets and workload will enable the action. The Company has attempted to mitigate these weaknesses, through a combination of extensive and detailed review by the CFO of the financial accounting and reporting.

RISKS AND UNCERTAINTIES

The Company is subject to a number of risks and uncertainties due to the nature of its business and the present stage of development of its business. Current and potential investors should give special consideration to the risk factors involved.

Management

Dependence on Key Personnel, Contractors and Service Providers, shareholders of our Company rely on the good faith, experience and judgment of the Company’s management and advisors in supervising and providing for the effective management of the business and the operations of the Company and in selecting and developing new investment and expansion opportunities. The Company may need to recruit additional qualified contractors and service providers to supplement existing management. The Company will be dependent on a relatively small number of key persons, the loss of any one of whom could have an adverse effect on the Company.

Value of Our Common Shares

The value of the Company’s common shares could be subject to significant fluctuations in response to variations in and annual operating results, the success of the Company's business strategy, competition or other applicable regulations which may affect the business of the Company and other factors.

Impact of Covid-19

Since December 31, 2019, the outbreak of the novel strain of coronavirus, specially identified as “COVID19” has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Corporation and its operating subsidiaries in future periods.

Additional Funding and Financing Risk

Additional funds will be required for future development. The source of future funds available to the Company is through the sale of additional equity capital or borrowing of funds. There is no assurance that such funding will be available to the Company. Furthermore, even if such financing is successfully completed, there can be no assurance that it will be obtained on terms favorable to the Company or will provide the Company with sufficient funds to meet its objectives, which may adversely affect the Company's business and financial position. In addition, any future equity financings by the Company may result in substantial dilution for existing shareholders.

Uninsured Hazards

The Company currently carries no insurance coverage. The potential costs that could be associated with any liabilities not covered by insurance or compliance with applicable laws and regulations may cause substantial delays and require significant capital outlays, adversely affecting the Company’s financial position.

Conflicts of Interest

Certain Directors and Officers of the Company also serve as Directors and officers of other companies involved in development and production. Consequently, there exists the possibility that such Directors or Officers may be in a position of conflict of interest. Any decision made by such Directors or Officers involving the Company are made in accordance with their duties and obligations to deal fairly and in good faith with the Company and such other companies. In addition, such Directors will declare and refrain from voting on, any matter in which such Directors may have a material conflict of interest.

Permits, Licenses and Approvals

The operations of the Company may require licenses and permits from various governmental authorities. The Company believes it holds or is in the process of obtaining all necessary licenses and permits to carry on the activities which it is currently conducting under applicable laws and regulations. Such licenses and permits are subject to changes in regulations and in various operating circumstances. There can be no guarantee that the Company will be able to obtain all necessary licenses and permits that may be required to maintain its activities.

General Venture Company Risks

The common shares must be considered highly speculative due to the nature of the Company’s business, the early stage of its deployment, its current financial position and ongoing requirements for capital. An investment in the common shares should only be considered by those persons who can afford a total loss of investment and is not suited to those investors who may need to dispose of their investment in a timely fashion. Investors should consult with their own professional advisors to assess the legal, financial and other aspects of an investment in common shares.

Uncertainty of Revenue Growth

There can be no assurance that the Company can generate substantial revenue growth, or that any revenue growth that is achieved can be sustained. Revenue growth that the Company has achieved or may achieve may not be indicative of future operating results. In addition, the Company may increase further its operating expenses in order to fund increase its sales and marketing efforts and increase its administrative resources in anticipation of future growth. To the extent that increases in such expenses precede or are not subsequently followed by increased revenues, the Company’s business, operating results and financial condition will be materially adversely affected.

Marketing and Distribution Capabilities

In order to commercialize its technology, the Company must either acquire or develop an internal marketing and sales force with technical expertise and with supporting distribution capabilities or arrange for third parties to perform these services. In order to market certain of its products, the Company must either acquire or develop a sales and distribution infrastructure. In order to maximize sales of other products, the Company may determine that it needs to either acquire or develop a sales and distribution infrastructure. The acquisition or development of a sales and distribution infrastructure would require substantial resources, which may divert the attention of its management and key personnel and defer its product development and deployment efforts. To the extent that the Company enters into marketing and sales arrangements with other companies, its revenues will depend on the efforts of others. These efforts may not be successful. If the Company fails to develop substantial sales, marketing and distribution channels, or to enter into arrangements with third parties for those purposes, it will experience delays in product sales and incur increased costs.

Rapid Technological Development

The markets for the Company’s products and services are characterized by rapidly changing technology and evolving industry standards, which could result in product obsolescence or short product life cycles. Accordingly, the Company’s success is dependent upon its ability to anticipate technological changes in the industries it serves and to successfully identify, obtain, develop and market new products that satisfy evolving industry requirements. There can be no assurance that the Company will successfully develop new products or enhance and improve its existing products or that any new products and enhanced and improved existing products will achieve market acceptance. Further, there can be no assurance that competitors will not market products that have perceived advantages over the Company’s products or which render the products currently sold by the Company obsolete or less marketable.

The Company must commit significant resources to developing new products before knowing whether its investments will result in products the market will accept. To remain competitive, the Company may be required to invest significantly greater resources then currently anticipated in research and development and product enhancement efforts and result in increased operating expenses.

Competition

The Company’s industry is competitive and composed of many foreign companies. The Company expects to experience competition from competitors whom it expects to continue to improve their products and technologies. Competitors may announce and introduce new products, services or enhancements that better meet the needs of end-users or changing industry standards, or achieve greater market acceptance due to pricing, sales channels or other factors. Competitors may be able to respond more quickly than the Company to changes in end-user requirements and devote greater resources to the enhancement, promotion and sale of their products.

Intellectual Property

The Company’s ability to compete effectively will depend, in part, on its ability to maintain the proprietary nature of its technology and manufacturing processes. Although the Company considers certain of its product designs as well as manufacturing processes involving certain of its products to be proprietary, patents or copyrights do not protect all design and manufacturing processes. The Company has adopted procedures to protect its intellectual property and maintain secrecy of its confidential business information and trade secrets. However, there can be no assurance that such procedures will afford complete protection of such intellectual property, confidential business information and trade secrets. There can be no assurance that the Company’s competitors will not independently develop technologies that are substantially equivalent or superior to the Company’s technology.

To protect the Company’s intellectual property, it may become involved in litigation, which could result in substantial expenses, divert the attention of its management, cause significant delays and materially disrupt the conduct of its business.

STRATEGY AND OUTLOOK

Our objective is to maximize the value of the Company for our shareholders and our strategy to obtain this result is to continually seek opportunities to participate in new ventures in any sector.