EastWest Bioscience Inc. — Management Reports 2020

Dec 29, 2020

EASTWEST BIOSCIENCE INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED JULY 31, 2020 FORM 51-102F1

The following Management Discussion & Analysis ("MD&A") is intended to assist in understanding the trends and significant changes in the financial condition and results of operations of Eastwest Bioscience Inc. ("Eastwest", "EAST" or the "Company"), formerly Harbour Star Capital Ltd., for the year ended July 31, 2020. The MD&A should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended July 31, 2020 which are prepared in accordance with International Financial Reporting Standards ("IFRS"). The MD&A has been prepared effective December 28, 2020.

Eastwest was incorporated pursuant to the provisions of the Business Corporations Act (Alberta) on October 24, 2014. Prior to its Qualifying Transaction, detailed below, the Corporation was a Capital Pool Company ("CPC") as defined pursuant to Policy 2.4 of The TSX Venture Exchange ("TSXV"). The common shares of the Company commenced trading on March 6, 2017 under the trading symbol HSC.P.

The head office and principal office of the Company is located at 260 Okanagan Avenue East, Penticton BC, V2A 3J7.

The recent outbreak of the coronavirus, also known as "COVID-19", continues to impact worldwide economic activity. The extent to which the coronavirus may impact the Company's business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time.

FORWARD LOOKING STATEMENTS

Certain statements contained in this document constitute "forward-looking statements". Such forward-looking information constitutes disclosure regarding possible events, conditions or results of operations that is based on assumptions about future economic conditions and courses of action and includes future oriented financial information with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection. When used in this document, the words "may", "would", "could", "will", "intend", "plan", "propose", "anticipate", "believe", and similar expressions used by the Company's management are intended to identify forward-looking statements. Such statements reflect the Company's forecasts, estimates and expectations as they relate to the Company's current views with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

DISCUSSION OF OPERATIONS

Eastwest Business Model

Eastwest Bioscience Inc. is a vertically integrated wellness company that provides value and high-quality products and services to its customers in Canada and beyond.

To support this vision, Eastwest aims to fully control its supply chain, leverage its assets and currently has several wholly owned operating subsidiaries, from health supplement manufacturing operation to retail presence across Canada.

Manufacturing - Orchard Vale Naturals ("OVN")

OVN is a Health Canada licensed manufacturing facility with capabilities to encapsulate, package and label. OVN manufactures health supplements for its B2B clients. OVN's unique preposition is that it offers a turnkey solution for small brands and accommodates small quantities.

Retail - Sangsters Group of Companies ("Sangsters")

Eastwest acquired Sangsters on November 30, 2018. The Company established 3 separate companies to reflect and accommodate the different operational structures and revenue models.

1. Sangster's Health Centres Head Office - 102064495 SK Inc. O/A Sangster's

Head franchisor with 20 franchisees (as of July 31, 2020). As the Head Franchisor, Sangster's owns the brand rights and manages the franchisor-franchisee distribution relationships. Sangster's sells supplements and wellness products through its franchise locations and its online eCommerce platform.

1. Sangsters Corporate Stores - 102064509 SK Inc. O/A Sangsters Corp Stores

Sangsters Corp Stores own and manage Sangster's corporate owned stores across Canada. As of July 31, 2020, Sangster's ceased all operations of its corporate stores due to COVID-19.

1. Sangsters Leases - 102064512 SK Inc. O/A Sangster's Head Office Leasing

This holds head lease for certain franchise and corporate store locations with landlord and subleases to franchisees and corporate stores. Allows Sangster's to ensure franchise not sold to competition and to take on corporate stores in case of franchisee retirement, exit or bankruptcy.

Intellectual Property: 1123573 BC Ltd ("573")

This subsidiary holds the Health Canada licenses to 187 Natural Product Numbers (NPN) certified by Health Canada. These NPNs are mandatory for supplement products to be marketed in Canada and are valuable assets for any companies that are manufacturing, distributing and marketing supplements in Canada.

Real Estate: 1123568 BC LTD ("568")

This subsidiary owns and manages the land and building at 260 Okanagan Avenue, Penticton BC. The facility is a 34,000 sq facility located off the main street at Penticton. It is equipped with 2 loading docks, ample parking space and fully secured. Currently it is renting out space to related parties and third-party renters. Current tenants include EWS, OVN and Sangster's.

Consumer Goods: Eastwest Science LTD ("EWS CG")

EWS CG distributes hemp-based consumer goods to B2B clients, wholesalers, distributors and end consumers. As of July 31, 2020, there has been very little sales volume and the Company intends to exit this business model in the near future.

US Operation: Eastwest Science USA ("EWS USA")

EWS USA is a Kentucky, US based company that was established to allow the Company to pursue US based opportunities, in particular for CBD infused products.

2020 Highlights – For the Year Ended July 31, 2020

More than $1,600,000 reduction in G&A expenses

The Company's loss for the year ended July 31, 2020 was $1,132,159, a 69% improvement from the loss of $3,649,066 reported for the year ended July 31, 2019. The improvement in the Company's net loss was primarily driven by the Company's continued focus on cost reduction initiatives. The general and administrative expenses also dropped by $1,674,578 in the year ended July 31, 2020, a 45% decrease from the previous year.

Co-founders and Management shares ownership increase

During the year ended July 31, 2020, Ciska Asriel, Chief Operating Officer and Co-founder of the Company, has acquired 3,559,253 shares of Eastwest Bioscience on the open market with an additional 1,174,000 shares purchased subsequent to July 31, 2020.

The Company's Co-founders and key management personnel have significantly increased their ownerships of the Company through open market purchases, stock option exercises and debt conversions. This demonstrated that the Company's management possess the goals that are aligned with shareholder interests and their confidence in the current growth path towards success of the Company for both short-term and long-term.

Strategic partnerships – hand sanitizer and natural ingredients

On May 20, 2020, Eastwest entered into a cooperation agreement with Thera-Plantes Inc. ("the Partner"), a Canadian based distributor of natural and botanical ingredients to combine efforts and resources in sourcing, manufacturing, packaging and selling hand sanitizers in Canada and the USA. The partnership was a vehicle for sharing costs and reducing capital needed to fulfill the demand for hand sanitizers during the COVID-19 pandemic. Furthermore, this initial partnership allows Eastwest to strengthen its relationship with a key player in the natural ingredients supply chain to support its supplement manufacturing subsidiary, Orchard Vale Naturals.

Debt settlement

During the year ended July 31, 2020, the Company issued 6,282,277 common shares to settle debt of $314,114 in total. This represents settlement of a significant portion of amounts owing by the Company in respect of various services rendered, including but not limited to consulting, accounting and legal, and for settlement of loans and/or advances provided to the Company. The Company recognized a gain of $95,610 on the settlement of debt related to the issuance of these shares.

The Company also negotiated forgiveness of debt totaling $460,682, including $371,829 debt forgiven related to the acquisition of Sangster's and $88,853 related to various accounts payable forgiven by vendors and service providers.

Private placement

On June 25, 2020, the Company closed a private placement financing with the issuance of 1,992,727 common shares at a price of $0.05 per common share for proceeds of $99,636. The private placement was subscribed by one investee 2598687 Ontario Inc.

Stock options

On June 14, 2020, the Company granted 312,500 stock options with an exercise price of $0.15 and expiry date of June 14, 2025. The options vest by one third each on June 14, 2021, June 14, 2022, and June 14, 2023. The $9,031 fair value of stock options is to be recognized over the vesting period.

On June 15, 2020, the Company granted 4,707,500 stock options with an exercise price of $0.05 and expiry date of June 15, 2023. The options vest by one third each on September 15, 2020, September 15, 2021, and September 15, 2022. The stock options have a fair value of $130,869 to be recognized over the vesting period. The Company's staff and contractors have or will be taking option compensation in lieu of cash compensation, which is expected to reduce the Company's related costs.

2020 Highlights – Subsequent to July 31, 2020

New President of Sangsters Health Centre

On October 15, 2020, the Company announced the appointment of Carlo Bevilacqua as President of Sangsters Health Centre's, its National Chain of 17 Wellness Stores. Mr. Bevilacqua held senior-level management positions and has led national growth & expansion with companies such as Cara Operations (Recipe Ltd), Sodexo, Target, LiveWell Canada, Canopy Growth Retail Brands and Apollogreen. Mr. Bevilacqua's appointment is part of the ongoing strengthening process of the Company's leadership team focused on supporting the execution of the Company's new strategic direction.

Outlook

The Company commenced trading on the TSX Venture Exchange on July 25, 2018 and over two years have passed since then. It is important to refer to these selected key numbers for reference in our discussion of path moving forward:

	July 31,2020	July 31,2019	July 31,2018
	$	$	$
Sales	922,832	1,390,164	129,437
	$	$	$
COGS	694,754	930,571	105,238
	$	$	$
Other operating revenue	383,418	361,861	79,061
	$	$	$
General & Admin expense	2,068,501	3,743,079	2,066,041
	$	$	$
Assets	3,183,757	3,767,008	4,363,395
	$	$	$
Liabilities	3,229,434	3,167,599	1,710,828
Head Count	26	46	22
	$	$	$
Net Loss	1,132,159	3,649,066	3,286,383
Number of shares outstanding	92,605,775	81,561,777	75,218,207

Keep the things that are working for us

Maintain Management Discipline to Constrain Costs

Our initial growth phase required us to incur several significant expenditures and investments but along the way, we were also building framework and infrastructure that allowed for automatization and streamlined processes whenever possible.

It is important to emphasize the cost constraint discipline that management has imposed on itself in order to get to where it is today. General and administrative expenses have decreased by $1,674,578. This is a 45% drop compared to the same period last year.

We negotiated discounts and payment terms with every vendor, reduced redundant overhead, focused on our core competencies and most importantly, we continued to focus on the automation and optimization of all our processes.

The Company strives to limit all costs that do not foster a clear path to revenue growth, in order to have the cash to invest intelligently in the things that do help grow and accelerate sales.

Shared Services Model (SSM)

One of the key drivers that enabled the Company to dramatically decrease its overhead is the implementation of Shared Services Model ("SSM") for several key functions across the organization. Instead of having the same function existing within each of the subsidiaries, SSM offer a centralized approach to manage business resources.

Management realizes that SSM decreases the control each subsidiary has which may impact accountability and ownership. We mitigate this by continuously working and improving reporting and inter-company workflows.

At the current stage of the organization, we found that the Shared Services Model suits the Company's organizational structure and the varied strengths of the multiple business units. By implementing this model, we were able to decrease headcount by almost 50% while decreasing our overhead by more than $1.6M from the same period last year.

Changes needed to move forward

Increasing the breadth and skills sets of our management team

Since our inception in late 2015, Eastwest has maintained a lean, profit- and product-focused management team led by our Co-founder and Chief Executive Officer, Rodney Gelineau, and by our Co-founder and Chief Operation Officer, Ciska Asriel.

However, in order to achieve our growth goals, we recognized this past year that we need to add new team members to our senior executive team who can leverage the assets that we have, and more importantly: take the helm on sales and fix the gaps in our sales personnel and sales processes for each subsidiary.

We are systematically making the necessary personnel changes beginning with the hiring of a new President for Sangster's, Carlo Bevilacqua, whose focus is to revitalize the brand and elevate it to the phase of growth while leveraging the surging demand for health products in the post COVID-19 world.

Mr. Bevilacqua comes from an entrepreneurial family background coupled with an extensive professional career of over 20 years of leading national retail, C.P.G. and franchise brands in Canada. Mr. Bevilacqua has an impressive track record working in senior-level management positions and has led national growth & expansion with companies such as Cara Operations (Recipe Ltd), Sodexo, Target, LiveWell Canada, Canopy Growth Retail Brands and Apollogreen. He has successfully opened over 90+ stores across every province in Canada and has extensive experiences and a passion for natural health, science and wellness.

We are actively making personnel changes and have engaged an external talent recruitment agent to assist in finding the right candidates that will increase the breadth and depth of our management team.

Cut our losses, reallocate resources, and cross-selling synergies

We have not been successful in gaining traction with our hemp-based consumer goods products. Our sales numbers have been unsatisfactory and we lacked the resources and the sales leadership to help navigate the long sales cycles to gain shelf space.

After careful consideration, the Management decides to exit the hemp-based consumer goods sphere and reallocate efforts on high-performing and growth areas of the business and maximize our cross-selling synergies:

x Sangster's Health Centres ("Sangster's") which sells supplements and wellness products through its franchise locations and its online ecommerce platform.

Sangster's short-term and medium-term strategic plan focuses on both customer experience and delivering business values to our franchise partners. Drivers for sales growth, especially in a post COVID-19 world, will change. We need to invest in Sangster's e-Commerce platform and omnichannel fulfillment capabilities in order to remain competitive in the new environment. Specifically, they will need to drive traffic to their stores through services such as buy online and pickup in store.

x 1123568 BC LTD ("568") which owns and manages the land and building at 260 Okanagan Avenue, Penticton BC.

Currently, 568 is only utilizing approximately 15% of the 34,000 sq facility. The management of 568 is actively pursuing strategic partnerships that enable the Company to generate additional revenues with minimum to no capital expenditures. The Company is also working on cross selling synergies with other subsidiaries, such as OVN and Sangster's with the goal of taking existing products and services to new customers and the potential of taking new products and services to existing customers such as offering storage add-on service to OVN customers.

x Orchard Vale Naturals ("OVN") which manufactures supplements for Sangster's and third-party clients.

In the short term, OVN focuses on expanding its client base and generating recurring revenues from its existing clients. OVN is also leveraging other Eastwest assets and maximizing synergies with other subsidiaries in providing turnkey product & service offerings to its clients. For example, OVN clients would have access to Sangster's retail shelves and online platform to distribute their products. OVN clients would also have access to 568 warehousing and logistic capabilities. These synergies increase the client's lifetime value; the measurement of how much revenue a client will bring to your brand throughout their entire time as a paying customer.

OVERALL PERFORMANCE AND GOING CONCERN ASSUMPTION

Due to the unprecedented COVID-19 pandemic, the Company undertook a number of measures to mitigate the negative impacts of the changing economy. Overall, lower sales volumes experienced in this period led to decreases in revenue levels, and layoffs and cost cuts during the downtime led to decreases in expenditure levels.

For the year ending July 31, 2020, the Company reported total revenue of $1,306,250, as compared to $1,752,025 in the prior year, a decrease of $445,775. Distribution and manufacturing revenues decreased to $922,832, as compared to $1,390,164 in the prior year. The Company realized lower gross margins of $228,077 or 25% on distribution and manufacturing sales, as compared to $459,593 or 33% in the prior year. Other operating revenues (including franchise sales royalties and advertising royalties, and rental income) increased to $383,418 for the year ended July 31, 2020, as compared to $361,861 in the prior year.

The Company has not yet realized profitable operations and has mainly relied on non-operational sources of financing to fund operations. Management has been able to raise sufficient funds to finance its operations in the past through private placements of equity and debt and will need to continue to do so to fund operations in the future. In the current period, the Company secured $160,000 in proceeds from mortgage renewal and $160,000 in proceeds from loans, received government wage subsidies of $198,010, and negotiated debt reductions of $460,682 with creditors. The Company also benefited by cost sharing and business-to-business arrangements which allowed the Company to reduce its investment in working capital to generate sales and share sales development and administrative costs. The Company will continue to pursue debt and equity financings, government subsidies, negotiation of reduction of accounts payable obligations, and cost sharing and business-tobusiness arrangements in order to continue to finance and manage costs related to operations. The consolidated financial statements and this MD&A do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

The Company's consolidated financial statements have been prepared in accordance with IFRS on a going concern basis that presumes the realization of assets and discharge of liabilities in the normal course of business, there are material uncertainties related to adverse conditions and events that cast significant doubt on the Company's ability to continue as a going concern.

SELECTED ANNUAL INFORMATION

	Year ended
	July 31, 2020	July 31, 2019	July 31, 2018
	$	$	$
Total revenue	1,306,250	1,752,025	208,498
General and administrative expenses	2,068,501	3,743,079	2,066,041
Net loss	1,132,159	3,649,066	3,286,383
Total assets	3,183,757	3,767,008	4,363,395
Total liabilities	3,229,434	3,167,599	1,710,828
Total non-current financial liabilities	219,740	170,087	1,266,287
Net loss per share (basic and diluted)	0.01	0.05	0.06

The following financial data is derived from the Company's consolidated financial statements. These sums are being reported in Canadian dollars.

SUMMARY OF QUARTERLY INFORMATION

The following table summarizes the results of operations for the last eight quarters.

	Three months ended
	July 31,April 30,January 31,			October 31,
	2020	2020	2020	2019
	$	$	$	$
Revenue	198,774	231,248	370,017	506,211
General and administrative expenses	491,503	442,283	516,013	618,702
Net loss	(291,097)	(374,690)	(42,147)	(424,225)
Net loss per share (basic and diluted)	0.00	0.00	0.00	0.01

	Three months ended
	July 31,April 30,January 31,			October 31,
	2019	2019	2019	2018
	$	$	$	$
Revenue	436,181	699,991	528,199	87,654
General and administrative expenses	893,438	1,127,134	1,064,694	668,260
Net loss	(1,218,862)	(828,045)	(897,521)	(704,637)
Net loss per share (basic and diluted)	0.01	0.01	0.01	0.01

CURRENT FISCAL YEAR

During the quarter ended July 31, 2020, the Company recognized a net loss of $291,097 as compared to the previous quarter's net loss of $374,690, a decrease of approximately $83,593. The decrease can be attributed to the reduction in overhead expenses and implementation of the shared-services model. Also, the Company had a gain totaling $90,110 on the settlement of debt for the issuance of shares on June 25, 2020.

During the quarter ended April 30, 2020, the Company recognized a net loss of $374,690 as compared to the previous quarter's net loss of $42,147, an increase of $332,543. This was driven by a prior quarter reduction in the net loss due to a gain on the settlement of debt. Also, the Company had some costs attributed to the Sangster's acquisition and integration and increased the net loss.

During the quarter ended January 31, 2020, the Company recognized a net loss of $42,147 as compared to the previous quarter's net loss of $424,225, a decrease of $382,078. The decrease in net loss is due to a gain on the settlement of debt of $293,219 which significantly reduced the net loss for the three months ended January 31, 2020.

During the quarter ended October 31, 2019, the Company recognized a net loss of $424,225 as compared to the previous quarter's net loss of $1,218,862, a decrease of $794,637. The decrease in net loss is due primarily to a return to normal expenditure levels as the previous quarter had the year end charge recorded for the impairment of goodwill of $420,153 related to Sangster's, and the realization of cost savings due to cost cutting measures.

PRIOR FISCAL YEAR

During the quarter ended July 31, 2019, the Company recognized a net loss of $1,218,862 as compared to the previous quarter's net loss of $828,045, an increase of $390,817. This increase in net loss is primarily due to the charge recorded to profit and loss for the impairment of goodwill of $420,153 related to Sangster's.

During the quarter ended April 30, 2019, the Company recognized a net loss of $828,045 as compared to the previous quarter's net loss of $897,521, a decrease of $69,476. The decrease in the net loss was due to an increase of $75,211 in the gross profit and other operating revenue of the Company.

During the quarter ended January 31, 2019, the Company recognized a net loss of $897,521 as compared to the previous quarter's net loss of $704,637, an increase of $192,884. The increase was mainly due to costs attributed to the Sangster's acquisition and integration.

During the quarter ended October 31, 2018, the Company recognized a net loss of $704,637 as compared to the previous quarter's net loss of $1,919,731 a decrease of $1,215,094. The decrease can be attributed to the listing cost that was recognized in the previous quarter as the Company completed the RTO with Harbour Star Capital.

RESULTS OF OPERATIONS FOR THE YEAR ENDED JULY 31, 2020

During the year ended July 31, 2020, the Company incurred a net loss of $1,132,159 as compared to a net loss of $3,649,066 for the year ended July 31, 2019.

Revenues:

The Company reported total revenues of $1,306,250, including other operating revenue, for the year ended July 31, 2020 as compared to $1,752,025 for the year ended July 31, 2019, a decrease of $445,775.

Revenues from distribution were $760,259 for the year ended July 31, 2020, as compared to $1,230,724 for the year ended July 31, 2019. Eastwest's product distribution remained lower than projected due to discontinuation of food products by Eastwest Science Ltd and decreases in sales of its other product lines., the closure of two Sangster's corporate stores at the end of last fiscal year, and decreased Sangster's sales due to closure or reduced operating hours of franchised and corporate stores during COVID-19 pandemic. In addition, the Company had initially anticipated increases in sales of pet products and cosmetics, which have not yet been achieved.

Manufacturing revenues were $162,573 for the year ended July 31, 2020 as compared to $159,440 for the year ended July 31, 2019. These revenues reflect manufacturing sales to third parties and are consistent year over year.

Other operating revenue increased to $383,418 for the year ended July 31, 2020 as compared to $361,861 in the year ended July 31, 2019. The $21,557 increase was driven by a full year of royalty income from the Sangster's franchisees compared to only eight months in the prior year.

Expenses:

Total general and administrative expenses for the year ended July 31, 2020 amounted to $2,068,501 as compared to $3,743,079 for the comparable year ended July 31, 2019. The decrease in expenses of $1,674,578 can be attributed to the following significant changes:

• x Decrease in advertising and promotion to $50,351 in the current year as compared to $109,900 for the comparable period related to reallocation of advertising and promotional budget from traditional regional print flyers to store specific print and online promotions. Closures of several stores and overall economic downturn due to COVID-19 also affected the Company's advertising and promotional activities.
• x Decrease in business development and marketing to $54,581 in the current year as compared to $239,280 for the comparable period related to cost cutting measures to limit cash outflows and reduce stock promotion activities.
• x Decrease in consulting fees to $399,098 in the current year as compared to $926,343 for the comparable period can be attributable to a series of cost cutting measures. The Company terminated contracts to coincide with decreasing revenues and operational requirements during COVID-19 pandemic. In the prior year, the Company had engaged more consultants to assist in the development of the business and its operations, improve procedures, and to assist in the Sangster's acquisition.
• x Decrease in professional fees to $225,185 in the current year as compared to $287,816 for the comparable period was due to a reduction in legal activities. The Company incurred significant legal fees for the Sangster's acquisition in the prior year.
• x Decrease in rent and utilities to $347,001 in the current year as compared to $417,328 for the comparable period due to the move of Eastwest's head office location from Vancouver, BC, and Sangster's head office location from Saskatoon, SK to the Company's facility in Penticton, BC. These changes significantly

reduced rent paid to third parties.

• x Decrease in repairs and maintenance to $15,427 in the current year as compared to $42,976 for the comparable period due to the Company's relocation of head office and Sangster's head office to Penticton, BC. As a result, there was less facilities that required maintenance.
• x Decrease in share-based payments to $73,762 in the current year as compared to $334,959 for the comparable period. The decrease in share-based payments is primarily due to a change in the terms of the options granted. In the prior year, options granted expired after 5 years while the current year options expire after 3 years. Also, the number of options vesting in the year ended July 31, 2020 has decreased compared to the prior year. Share-based payments are non-cash transactions.
• x Decrease in transfer agent and filing fees to $23,740 in the current year as compared to $134,817 for the comparable period due to a reduction in share capital transactions and filings.
• x Decrease in wages and benefits to $546,973 in the current year as compared to $849,686 for the comparable period. The reduction in wages is primarily due to lower levels of staffing from 46 employees in the prior year to 26 employees in the current year. Furthermore, the reduction of the overall payroll costs is also a result of the Canada Emergency Wage Subsidy and grants received from the BC Provincial Government.

Other Income (Loss)

For the year ended July 31, 2020, the Company had other income of $324,846 compared to a loss from other items of $727,441. The change of $1,052,287 was a result of the following significant changes:

• x Interest and finance fees decreased to $172,434 in the current year as compared to $229,112 in the prior year. This decrease is related to lower financing cost from refinancing the mortgage payable compared to the prior year.
• x The Company recorded a gain on the settlement of debt of $477,213 in the current period related primarily to a negotiated reduction in the consideration payable for the acquisition of Sangster's and debt forgiveness by trade vendors and service providers. The Company also realized gains on settlement of debt where debt was settled with shares issued with market prices that were lower than the deemed price agreed in the settlement.
• x The Company recorded a loss of $23,067 on investment in joint ventures in the year ended July 31, 2020 as compared to $9,595 in the year ended July 31, 2019. The Company's share of loss is based on the loss incurred by the investee entities. The increase in share of loss was primarily due to a larger write-down of inactive or discontinued NPNs in the current year compared to prior year.
• x The Company recorded a gain of $21,373 as a result the remeasurement of the fair value of previously held investment in joint ventures upon the change in control resulted from the acquisition of remaining interests during the year. The gain is substantially a reversal on the impairment previously recorded on the investment in Valley.
• x The Company received government grants of $29,459 related to the CEBA loans funded by Government of Canada for COVID-19 relief. The amount was recognized for the premium portions from discounting the interest-free loans using the Company's effective interest rate.
• x During the prior year, the Company recorded a goodwill impairment of $420,153. No similar impairment was recognized in the current year.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 2020

During the three months ended July 31, 2020, the Company incurred a net loss of $291,097 as compared to a net loss of $1,218,862 for the three months ended July 31, 2019.

Revenues:

During the three months ended July 31, 2020, the Company had total revenues of $198,774, including other operating revenue, as compared to $436,181 for the three months ended July 31, 2019, a decrease of $237,407. The overall decrease in revenue was driven by discontinuation of food products by Eastwest Science Ltd and decreases in sales of its other product lines, the closure of two Sangster's corporate stores at the end of the last fiscal year, and decreased Sangster's sales during COVID-19 due to closure or reduced operating hours of franchised and corporate stores. The Company had also anticipated increases in sales of pet products and cosmetics, which have not yet been achieved.

Expenses:

During the three months ended July 31, 2020, the Company experience a decrease in general and administrative expenses of $401,935. This decrease was mainly due to a decrease in wages and benefits of $363,776. The decrease was from the receipt of government grants and the reduction of staff as compared to the prior year.

Other Income (Loss)

For the three months ended July 31, 2020, the Company had other income of $199,838 compared to a loss from other items of $525,715. The change of $725,553 was caused by the following significant changes:

• x The Company recorded a gain on the settlement of debt of $147,832 in the three months ended July 31, 2020, with no similar gain on the settlement of debt in comparable prior period.
• x The Company had a reversal of impairment of a joint venture of $21,373, while there was no such reversal in the prior year.
• x The Company recorded government grants of $29,459 due to the COVID-19 related programs in the three months ended July 31, 2020.
• x During the three months ended July 31, 2019, the Company recorded an impairment of $420,153 on goodwill with no comparable charge in the current period.
• x During the three months ended July, 31, 2019, the Company recorded an impairment of $63,952 on intangible asset with no comparable charge in the current period.

	July 31, 2020	July 31, 2019	Change
	$	$	$
Cash used in operating activities	(324,433)	(2,297,407)	1,972,974
Cash provided by financing activities	309,548	1,309,541	(999,993)
Cash provided by (used in) investing activities	67,161	(249,825)	316,986
Net (decrease) increase in cash	52,276	(1,237,691)	1,289,967
Cash, beginning of year	54,808	1,292,499	(1,237,691)
Cash, end of year	107,084	54,808	52,276

LIQUIDITY

Cash used in operating activities is comprised of net loss, add-back of amounts not affecting cash, and net change in non-cash working capital items. Cash used in operating activities decreased to $324,433 for the year ended July 31, 2020 (2019 - $2,297,407). This decrease of $1,972,974 is primarily due to a reduction in the net loss. Also, the timing difference related to the non-cash working capital changes in the accounts receivable, accounts payable and accrued liabilities, and inventory between the periods contributed in the decrease in the cash used in operating activities.

Cash provided by financing activities decreased to $309,548 (2019 - $1,309,541). During the year ended July 31, 2020, the Company received net proceeds of $86,984 related to the issuance of shares (2019 – $954,949). Also, the Company received $160,000 from the mortgage renewal and $169,894 from the loan borrowings.

Cash provided by investing activities increased to $67,161 (2019 – cash used of $249,825). In the current year, the Company sold property, plant and equipment which was offset by a decrease in investment in joint ventures. In the prior year, the Company paid $375,000 in cash related to the acquisition of Sangster's.

As at July 31, 2020, the Company had working capital deficit of $2,319,134 (2019 - $1,766,994), consisting of current assets of $107,084 in cash, accounts receivable of $89,000, inventory of $211,112, due from related parties of $222,922 and prepaid expenses of $60,442, offset with current liabilities of $3,009,694, primarily including $769,780 in accounts payable and accrued liabilities and $1,795,200 mortgage payable.

The Company believes that the current capital resources are not sufficient to satisfy its current liabilities and pay overhead expenses for the next twelve months and will need to seek additional funding to fund any future expansion of its operations. The Company will continue to monitor the current economic and financial market conditions, and evaluate their impact on the Company's liquidity and future prospects.

As currently the Company is not able to generate sufficient cash from its operations to fund its operations, the Company will have to rely on issuing shares for cash or to settle debt, loans and related party loans to fund ongoing operations and investments. The ability of the Company to raise capital will depend on market conditions and it may not be possible for the Company to issue shares on acceptable terms or at all.

CAPITAL RESOURCES

There are no known trends or expected fluctuations in the Company's capital resources, including expected changes in the mix and relative cost of such resources.

OFF-BALANCE SHEET ARANGEMENTS

There are no off-balance sheet arrangements noted by management as at the date of this MD&A.

TRANSACTIONS WITH RELATED PARTIES

Included in amounts due from/to related parties are as follows and are non-interest bearing unsecured and are due on demand:

Name	Relationship	July 31, 2020	July 31, 2019
		$	$
Due from related parties
0999650 BC Ltd.	Controlled by CEO	-	7,085
Azema Sciences Inc. ("Azema")	Controlled by common officers anddirectors	175,088	1,722
Continental Agro Trade Corporation	Controlled by common former director	23,995	24,450
Haltain Developments Inc.	Controlled by former director	23,839	23,749
Orchard Valley Naturals Inc.	Formerly investee with significantinfluence and currently a subsidiary	-	45,021
		222,922	102,027

Amounts due from related parties are non-interest bearing, unsecured and are due on demand.

Name	Relationship	July 31, 2020	July 31, 2019
		$	$
Due to related parties
Geoff Balderson	Former CFO	-	3,810
Point Nexus	Controlled by former director	-	117
Vigroup Data Consulting	Controlled by former IR Manager	-	15,750
Rodney Gelineau	CEO of the Company	6,923	8,626
0999650 B.C. Ltd.	Controlled by CEO	28,601	-
10620771 BC Ltd.	Controlled by CEO	6,824	6,824
1175218 BC Ltd.	Controlled by COO	12,875	19,250
Marjerrison Financial Management	Controlled by CFO	19,302	83,553
Ira Sudargo	Related to COO	1,201	25,288
Sigma Penta International	Controlled by COO	52	7,272
DeepRock Minerals Inc	Controlled by common former director	-	350
		75,778	170,840

Amounts due to related parties are non-interest bearing, unsecured, and are due on demand, except for the amount due to Ira Sudargo which is subject to the same conditions but bear interest at 15% per annum.

Name	Relationship	July 31, 2020	July 31, 2019
		$	$
Consulting fees (recoveries)
0999650 B.C. Ltd.	Controlled by CEO	103,500	76,500
1175218 BC Ltd.	COO of the Company	71,552	67,500
Azema	Controlled by common officers and	43.333	-
	directors
Geoff Balderson	Former CFO	-	4,581
Marjerrison Financial Management	Controlled by CFO	(3,333)	131,667
Nathan Lidder	Director of the Company	9,524	-
Point Nexus	Controlled by director	-	26,000
Vigroup Data Consulting	Controlled by former IR Manager	(1,050)	29,722
		223,526	335,970

The Company incurred the following expenses and expense recoveries with related parties during the year ended July 31, 2020 and 2019:

During the year ended July 31, 2020, the Company charged Azema $156,125 (2019 – nil) for consulting fees and travel expense recoveries and Azema charged the Company $43,333 (2019 – nil) for accounting services occurred in anticipation of undertaking a joint venture as contemplated in a letter of agreement dated July 19, 2019. The amounts recoverable from Azema have been recorded as a reduction against the related expenditures.

During the year ended July 31, 2020, the Company purchased $27,820 (2019 – nil) inventory from Azema, of which $1,070 (2019 – $nil) was used for research and development on a new product line. As at July 31, 2020, the Company has $14,980 (2019 – nil) on deposit with Azema for inventory purchase which is recorded in prepaid expenses and deposits.

The above transactions are in the normal course of operations and are measured at the amounts of considerations established and agreed to by the related parties.

OUTSTANDING SHARE DATA

Authorized: unlimited common shares without par value

Issued and Outstanding:

	Number Outstanding as of	Number Outstanding as of
	the Date of this MD&A	July 31, 2020
Common shares issued and outstanding	93,791,712	92,605,775
Options	9,117,696	9,117,696
Share Purchase Warrants	1,141,586	1,141,586
Agent's Warrants	49,991	49,991

Subsequent share capital transactions:

• (i) On September 30, 2020, the Company entered into commitment to issue 572,470 common shares at a deemed price of $0.05 per share to settle an indebtedness valued at $28,623.
• (ii) On October 31, 2020, the Company entered commitments to issue 613,467 common shares at a deemed price of $0.05 per share to settle another indebtedness valued at $30,673.

Proposed Transactions

The Company has no planned acquisitions or divestitures planned as at the date of this MD&A.

Financial Instruments and Risk Management

As at July 31, 2020, the Company's financial instruments include cash, accounts receivable, accounts payable and accrued liabilities, promissory notes payable, mortgage payables and loan payables. The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, amounts due to or from related parties and mortgage payables, which approximate their carrying values due to their short-term nature. The promissory note payable and loans payable are non-interest bearing and are accounted for at amortized cost using the effective interest method.

IFRS 13 Fair Value Measurement establishes a fair value hierarchy for financial instruments measured at fair value that reflects the significance of inputs used in making fair value measurements as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – inputs other than quoted prices included in Level 1 that observable for the asset or liabilities, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and

Level 3 – inputs for the asset or liability that are not based upon observable market data.

The fair value of cash is based on Level 1 inputs and the fair value of the liabilities of promissory notes payable, mortgage payable and loans payable are based on Level 2 inputs.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

For a detailed summary of the Company's significant accounting policies, the reader is directed to the Notes of the audited annual consolidated financial statements for the year ended July 31, 2020 available on SEDAR at www.sedar.com.

The following standards were adopted effective August 1, 2019:

IFRS 16 Leases

Effective August 1, 2019, the Company adopted IFRS 16 Leases ("IFRS 16") which replaced IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract based on whether the customer controls the asset being leased. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to the accounting for finance leases under IAS 17, with limited exceptions for short-term leases (i.e. leases of 12 months or less) or leases of low-value assets.

At inception of a new contract, the Company assesses whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'. To apply this definition the Company assesses whether the contract meets three key evaluations which are whether:

• i. the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Company.
• ii. the Company has the right to obtain substantially all the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract.
• iii. the Company has the right to direct the use of the identified asset throughout the period of use. The Company assess whether it has the right to direct 'how and for what purpose' the asset is used throughout the period of use.

At lease commencement date, the Company recognizes a right-of-use ("ROU") asset and a lease liability on the consolidated statements of financial position. The ROU asset is initially recorded at cost, which comprises the initial amount of the lease liability and any initial direct costs incurred less any lease payments made at or before the initial adoption date. The ROU asset is depreciated on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. The ROU asset is periodically reduced by impairment losses, if any, and adjusted for remeasurements of the lease liability. The lease liability is measured at the present value of the expected lease payments over the lease term, discounted at the interest rate implicit in the lease; if the rate cannot be determined, the incremental borrowing rate is used. The liability is increased for the passage of time and payments on the lease are offset against the lease liability.

For the year ended July 31, 2020, the Company has applied the short-term lease exemption on its leases which are on month-to-month terms.

Recently Adopted Accounting Standards

Accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company's consolidated financial statements.

Comparative Information

Certain comparative figures in the consolidated statements of loss and comprehensive loss have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The consolidated financial statements that this MD&A relates to are prepared in accordance and in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC").

These consolidated financial statements are prepared on a historical cost basis except for financial instruments classified as fair value through profit or loss ("FVTPL"), which are stated at their fair value. These consolidated financial statements are presented in Canadian dollars, which is the Company's functional and reporting currency.

RISKS AND UNCERTAINTIES

The following information is only a summary of certain risk factors and is qualified in its entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this MD&A. These risks and uncertainties are not the only ones the Company is facing. Additional risks and uncertainties not presently known to the Company, or that it currently deems immaterial, may also impair its operations. If any such risks actually occur, the business, financial condition, liquidity and results of the Company's operations could be materially adversely affected.

Government Regulation

The business could be subject to various federal and provincial laws and regulations on standards, claims, safety, efficacy and other matters. Regulatory approvals by government agencies on the Company's products or services may be withheld or not granted at all and if granted may be subject to limitations which would materially affect the Company.

Although the Company's activities are currently carried out in accordance with all applicable rules and regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rules and regulations will not be applied in a manner which could limit or curtail development, marketing or commercialization. Amendments to current laws and regulations governing operations and activities of the industry or more stringent implementation thereof could have a substantial adverse impact on the Company.

Uninsured Risks

The Company may carry insurance to protect against certain risks in such amounts as it considers adequate. The Company may become subject to liability for hazards that cannot be insured against or against which it may elect not to be so insured because of high premium costs. Furthermore, the Company may incur liabilities to third parties (in excess of any insurance coverage) arising from any damage or injury caused by the Company's operations.

The Company is subject to the risk of potential liability claims with respect to its product manufacturing and sales of retail products. Should such claims be successful, plaintiffs could be awarded significant amounts of damages, which could exceed the limits of any liability insurance policies that may be held by the Company. There is no guarantee that the Company will be able to obtain, maintain in effect or increase any such insurance coverage on acceptable terms or at reasonable costs, or that such insurance will provide the Company with adequate protection against potential liability.

Conflicts of Interest

Certain directors and officers of the Company may serve as directors or officers of other companies or have significant shareholdings in other business ventures. Consequently, there exists the possibility for such directors or officers to be in a position of conflict. Any decision made by such directors involving the Company will be made in accordance with their duties and obligations to deal fairly and in good faith with the Company and such for other companies. In addition, such directors will declare, and refrain from voting on, any matter in which such directors may have a conflict of interest.

Negative Operating Cash Flows

As the Company is at the early start-up stage, it may continue to have negative operating cash flows. Without the injection of further capital and the development of revenue streams from its business, the Company may continue to have negative operating cash flows until it can be sufficiently developed to commercialize. There is no assurance that the Company will be successful in raising sufficient funds to meet its obligations or to execute its business strategy.

Risks Related as a Going Concern

The ability of the Company to continue as a going concern is uncertain and dependent upon its ability to achieve profitable operations, obtain additional capital and receive continued support from its shareholders. Management of the Company will have to raise capital through private placements or debt financing and proposes to continue to do so through future private placements and offerings. The outcome of these matters cannot be predicted at this time.

Reliance on Key Personnel and Advisors

The success of the Company will be largely dependent upon the performance of its key officers, consultants and employees. The loss of their services may have a material adverse effect on the business of the Company. There can be no assurance that one or all of the employees of, and contractors engaged by, the Company will continue in the employ of, or in a consulting capacity to, the Company or that they will not set up competing businesses or accept positions with competitors. There is no guarantee that certain employees of, and contractors to, the Company who have access to confidential information will not disclose the confidential information.

Licenses, Patents and Proprietary Rights

The Company's success could depend on its ability to protect its intellectual property, including trade secrets, and continue its operations without infringing the proprietary rights of third parties and without having its own rights infringed.

Uncertainty Regarding Penetration of the Target Market

The commercial success of the Company's business as compared with those of its competitors depends on its acceptance by potential customers. Market acceptance will largely depend on the reputation of the Company, its marketing strategy, customer retention and other business partner's sales and performance. The Company's success will depend on its ability to commercialize and expand its network users. The Company will need to expand its marketing and sales operations and establish business relations with distributors and customers in a timely manner.

In order to meet its business objectives, the Company will have to ensure that its facilities and services are safe, reliable and cost-effective, and bring the expected return. There can be no assurance that the Company's products will be accepted and recommended.

Operating History and Expected Losses

The Company expects to make significant investments in order to develop its products, increase marketing efforts, improve its operations, conduct research and development and update its equipment. As a result, start-up operating losses are expected and such losses may be greater than anticipated, which could have a significant effect on the long-term viability of the Company.

Reliance on Joint Ventures, License Assignors and Other Parties

The nature of the Company's operations requires it to enter into various agreements with partners, joint venture partners, existing network of business partners, government agencies, licensors, licensees, and other parties for the successful operation of its businesses and the successful marketing of its products. There is no guarantee that those with whom the Company needs to deal will not develop alternative business strategies, acting either alone or in conjunction with other parties, including the Company's competitors, in preference to those of the Company.

Growth Management

In executing the Company's business plan for the future, there will be significant pressure on management, operations and technical resources. The Company anticipates that its operating and personnel costs will increase in the future. In order to manage its growth, the Company will have to increase the number of its technical and operational employees and efficiently manage its employees, while at the same time efficiently maintaining a large number of relationships with third parties.

COVID-19

The current outbreak of COVID-19 and any future emergence and spread of similar pathogens could have an adverse impact on global economic conditions, which may adversely impact the Company's operations, and the operations of its suppliers, contractors and service providers, the ability to obtain financing and maintain necessary liquidity, and the ability to market the Company's product menu. The outbreak of COVID-19 and political upheavals in various countries have caused changes to traditional methods of conducting business. While these effects are expected to be temporary, the duration of the business disruptions internationally and related financial impact cannot be reasonably estimated at this time.

Similarly, the Company cannot estimate to what extent this outbreak and the potential financial impact may extend to countries outside of those currently impacted. Travel bans and other government restrictions may also adversely impact the Company's operations and the ability of the Company to grow its business. In particular, if any employees or consultants of the Company become infected with Coronavirus or similar pathogens and/or the Company is unable to source necessary consumables or supplies, due to government restrictions or otherwise, it could have a material negative impact on the Company's operations and prospects, including the complete shutdown of its marketing activities. The situation is dynamic and changing day-to-day. The Company is exploring several options to deal with any repercussions that may occur as a result of the COVID-19 outbreak.

FINANCIAL AND DISCLOSURE CONTROLS AND PROCEDURES

During the year ended July 31, 2020, there has been no significant change in the Company's internal control over financial reporting since last year.

The management of the Company is responsible for establishing and maintaining appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete, reliable and timely. Management is also responsible for establishing adequate internal controls over financial reporting to provide sufficient knowledge to support the representations made in this MD&A and the Company's audited consolidated financial statements for the year ended July 31, 2020 (together the "Filings").

The management of the Company has filed the Venture Issuer Basic Certificate with the respective Filings on SEDAR at www.sedar.com.

In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings ("NI 52-109"), the venture issuer basic certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR"), as defined in NI 52-109. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a costeffective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency, and timeliness of interim and annual filings and other reports provided under securities legislation.

Officers and Directors:

Rodney Gelineau, Director, CEO Ciska Asriel, COO Paul Marjerrison, CFO Paul Mandl, Director Nathan Lidder, Director Jeff Bierman, Director

Contact Address:

Eastwest Bioscience Inc. 260 Okanagan Ave. East Penticton, British Columbia V2A 3J7