Eddy Smart Home Solutions Ltd. — Management Reports 2023

Jul 12, 2023

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Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Years ended December 31, 2022 and 2021

Management’s Discussion & Analysis

Eddy Smart Home Solutions Ltd. (“Eddy” or the “Company”) formerly Aumento Capital VIII Corp. (“Aumento”) is a North American provider and developer of residential and commercial smart water metering products and monitoring services, helping property owners protect, control, and conserve water usage through water metering and sensing devises and behavioural learning software in some products.

This Management’s Discussion and Analysis (“MD&A”) is dated as of July 11, 2023, and should be read in conjunction with the audited consolidated financial statements of the Company and the notes thereto as at, and for the years ended December 31, 2022 and 2021. Unless otherwise specified, dollar amounts are expressed in Canadian dollars. Additional information in respect of the Company can be found on SEDAR at www.sedar.com.

FORWARD-LOOKING INFORMATION

This MD&A contains certain forward-looking statements within the meaning of applicable Canadian securities laws (“ forward-looking statements ” or “ forward-looking information ”) that involve various risks and uncertainties and should be read in conjunction with the accompanying audited consolidated financial statements and the notes thereto for the years ended December 31, 2022, and 2021.

Statements other than statements of historical fact contained in this MD&A may be forward-looking statements, including, without limitation, management’s expectations, intentions and beliefs concerning anticipated future events, results, circumstances, economic performance or expectations with respect to Company, including Company business operations, business strategy and financial condition. When used herein, the words “anticipates”, “believes”, “budgets”, “could”, “estimates”, “expects”, “forecasts”, “goal”, “intends”, “may”, “might”, “outlook”, “plans”, “projects”, “schedule”, “should”, “strive”, “target”, “will”, “would,” and similar expressions may be used to identify forward-looking information, although not all forward-looking information contains these identifying words. In particular, statements regarding the Company’s plans for 2023, the Company’s liquidity risks and foreign currency risks, the estimated new MFR (as hereinafter defined) sales, and the expected revenue recognition of current units are forwardlooking statements.

These forward-looking statements reflect the internal projections, expectations, future growth, results of operations, performance, business prospects and opportunities of the Company and are based on information currently available to the Company and/or assumptions that the Company believes are reasonable. Many factors may cause actual results to differ materially from the results and developments discussed in the forward-looking information. There can be no assurance that actual results will be consistent with these forward-looking statements.

In developing these forward-looking statements, certain material assumptions were made. These forward-looking statements are also subject to certain risks. These risks include, but are not limited to:

• actual future market conditions being different than anticipated by management;

• general economic and business conditions;

• the risk that the deployment of the monitoring of residential and commercial smart water metering products and related technologies does not meet anticipated results;

• the risks and uncertainties described under the “Risks and Uncertainties” section in this MD&A.

Such forward looking statements or information are based on a number of assumptions, all or any of which may prove to be incorrect. In addition to any other assumptions identified in this document, assumptions have been made regarding, among other things:

• management’s views regarding current and anticipated market conditions;

• industry trends remaining unchanged;

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter

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Management’s Discussion & Analysis

• the Company’s financial and operating attributes as at the date hereof and its anticipated future performance;

• assumptions regarding the volume and mix of business activities remaining consistent with current trends;

• the Company’s ability to obtain financing on acceptable terms;

• the Company’s ability to enter into long-term revenue agreements with established developers and insurance companies;

• the concentration risk of suppliers and their ability to provide timely supplies;

• assumptions regarding foreign exchange rates; and

Readers are cautioned that the preceding list of factors or assumptions is not exhaustive. Although forward-looking statements contained in this MD&A are based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Accordingly, readers should not place undue reliance on such forwardlooking statements and assumptions as management cannot provide assurance that actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company.

All forward-looking information in this MD&A is made as of the date of this MD&A. These forward-looking statements are subject to change as a result of new information, future events or other circumstances, and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events, or otherwise, unless required by applicable securities law.

Please see the Risks and Uncertainties section in this MD&A for a discussion in respect of the material risks relating to the business of the Company.

This MD&A includes references to financial measures such as Adjusted EBITDA. The Company feels that these financial measures are important to the understanding of its business activities. These financial measures are not defined by IFRS and are therefore referred to as non-IFRS measures. The non-IFRS measures may not be comparable to similar measures presented by other companies. The Company uses these measures to evaluate its performance. The non-IFRS measures should not be considered an alternative to, or more meaningful than, measures determined in accordance with IFRS, as an indication of the Company’s performance. The non-IFRS measures are reconciled to their closest IFRS measures.

SENIOR MANAGEMENT CHANGES

On August 21, 2022, Mark Silver (Executive Chairman and Director), took on the role of Chief Executive Officer, as a result of the resignation by Travis Allan (former CEO and Director). Mr. Silver has over 36 years of experience in business, real estate and building services. As a focused and successful entrepreneur, he previously co-founded Direct Energy and grew revenues to more than $1.3 billion before selling in 2000. He subsequently launched Universal Energy (purchased by Just Energy for $425 million) and National Home Services (purchased by Reliance Comfort for $505 million). Mr. Silver launched Eddy in 2014 with a goal to extend smart home service offerings to water protection and expand into other markets – such as building and commercial verticals.

On August 21, 2022, Sajid Khan was appointed as President & Chief Operating Officer. Mr. Khan has served in the role of Chief Operating Officer of Eddy since inception. His experience includes more than 20 years of leadership and operational experience in the home services sector. Mr. Khan has held various roles including Chief Operating Officer of Eco Energy Service, Vice President of Operations at

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Management’s Discussion & Analysis

both National Home Services and Universal Energy, as well as management positions in Direct Energy. He has extensive experience building and leading installation networks and teams and other operational departments such as call centres, billing, processing, and change management.

The change in roles strengthens the overall senior management team and will position the Company for continued growth and maximize value creation from its rapidly expanding backlog of contracted revenue.

RECENT DEVELOPMENTS AND OUTLOOK

Contracted revenue is the primarily measure of traction we are gaining in the market for our leak protection services. As a result of the new construction development cycle, in most cases, business garnered during the quarter will translate into revenue generation once building construction commences (ranging from a few quarters to approximately two years). A key operating metric of our success and the value of the business can be measured by both the existing contracted revenue and the growth of this figure. With a mission to protect property and empower people with data and control, the Company’s contracted sales backlog continues to grow. The future contracted revenue will be recognized over the contract term which is typically 84 months.

These product enhancements provide greater applications of Eddy’s protection, while addressing connectivity challenges of the IQ in building deployments. Some supply chain challenges persist as a result of COVID-19, with delayed shipments of materials from China, but this has not affected Eddy’s inventory negatively, as Eddy is managing with current inventory reserves and diversifying product supply.

STRATEGIC ACQUISITION

On May 4, 2022, the Company acquired a 100% ownership interest in Reed Controls Inc. ("Reed"). Reed develops a robust water management technology platform of hardware and cloud software to manage water related risk, converge water and accelerate Internet of Things ("IoT") adoption among global plumbing manufacturers. The primary reason for the acquisition is to allow the Company to expand the product offering with a greater focus on commercial solutions for smart water metering products and monitoring services. The total purchase price for the transaction was $4,293,100 which was paid through the issuance of 12,266,000 common shares ("Share Consideration"). The Share Consideration is subject to a twenty-four (24) month lock-up period, provided that the Share Consideration will be released from the lock-up requirements on the first business day following each of the four, six, nine, twelve, fifteen, eighteen and twenty-one month anniversaries of the closing date. The Share Consideration was subject to a statutory four month hold period. Upon the closing of the transaction, Reed’s founders joined the Company’s leadership team. Reed has also been granted a right to nominate a director to serve on the Company’s board of directors (the “Board”), and a Board observer. See the consolidated financial statements for the years ended December 31, 2022 and 2021.

Reed has grown to become a leading water management technology company with applications for water conservations, water risk mitigation and data insights. Since 2016, Reed technology has been connecting plumbing fixtures (valves, meters & sensors) to the cloud, servicing clients, including plumbing manufacturers, plumbing engineers, property and facility managers, real estate developers, builders and asset management firms.

Reed has deployed its technology across North America and its technology has been accepted and specified by some engineering firms as the basis of design for risk mitigation engineered system in tendered new construction projects.

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Management’s Discussion & Analysis

REVERSE TAKEOVER TRANSACTION

On January 12, 2022, the Company (Aumento at the time) acquired all of the issued and outstanding securities of ESHSI in exchange for the issuance of securities of Aumento, which resulted in ESHSI becoming a wholly owned subsidiary of Aumento.

As consideration for the acquisition, each issued and outstanding common share and class B preferred share of ESHSI was cancelled and replaced by 0.504867 Common Shares of Aumento (the “Exchange Ratio”). Further, each option or warrant issued by ESHSI was exchanged for a corresponding option or warrant of Aumento on substantially the same economic terms and conditions as the original option or warrant based on the Exchange Ratio.

Following completion of the RTO Transaction, the Company had 67,262,619 Common Shares issued and outstanding on a non-diluted basis with existing shareholders of Aumento holding approximately 2.97% and ESHSI shareholders holding approximately 97.03% of the outstanding Common Shares of the Company. As a result, the transaction is considered a reverse takeover of Aumento by ESHSI. For accounting purposes ESHSI is considered the acquirer and Aumento the acquiree.

Aumento's activities prior to the acquisition were limited to management of cash resources and the maintenance of its listing, and accordingly, did not constitute a business. As a result, the RTO Transaction is considered to be outside the scope of IFRS 3 Business Combinations, and has been accounted for as an asset acquisition. Since ESHSI granted equity instruments as consideration for the acquisition, the arrangement has been accounted for under IFRS 2, Share-based Payments. Accordingly, the transaction has been accounted for at the fair value of the equity instruments granted by ESHSI to Aumento. The share capital, reserves, and deficit of Aumento at the time of the RTO Transaction have been eliminated against the fair value of the consideration and the difference has been recognized as a listing expense in the statement of loss and comprehensive loss. The capital structure recognized in the consolidated statements of financial position is that of the Company, but the dollar amount of the issued share capital prior to the RTO transaction is that of ESHSI, including the value of the Common Shares issued prior to the RTO Transaction.

In the accounting for the reverse takeover, the RTO Transaction, consideration was determined by reference to the fair value of equity the legal subsidiary, being ESHSI, would have issued to the legal parent entity, being Aumento, for the shareholders of Aumento to obtain the same percentage ownership interest of approximately 2.97% in the combined entity. The fair value of the issued equity was determined based on the most reliable and observable fair value measure being the market price per subscription receipt from a recent ESHSI private placement to third party market participants ($0.60 per subscription receipt). Each subscription receipt equals to two ESHSI common shares.

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Management’s Discussion & Analysis

FAIR VALUE OF CONSIDERATION ISSUED

The fair value of the consideration issued by ESHSI exceeds the fair value of the assets and liabilities acquired from Aumento on January 12, 2022 as follows:

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Fair value of consideration issued:
2,000,000 common shares at $0.60 $ 1,200,000
Aumento options assumed 73,748
Aumento agent warrants assumed 47,727
$ 1,321,475
Fair value of net assets acquired:
Cash in trust 418,802
Reverse takeover listing expense $ 902,673
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GOING CONCERN BASIS OF ACCOUNTING

These consolidated financial statements have been prepared on a going concern basis which contemplates that the Company will continue in operation and be able to realize its assets and discharge its liabilities and commitments in the normal course of business for the foreseeable future. In assessing whether this going concern assumption is appropriate and whether there are material uncertainties that may cast significant doubt on the Company’s ability to continue as a going concern, management considers all available information and actions within its control with respect to the future which is at least, but not limited to, twelve months from the end of the reporting period.

During the year ended December 31, 2022, the Company generated a net loss of $11,800,950 and negative cash flows from operating activities of $10,335,335. As at December 31, 2022, the Company has an accumulated deficit of $51,829,703. In addition, the Company failed to meet its contractual obligations for debt payments on the working capital credit facility, resulting in it becoming due on demand. As a result, these events and conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company is dependent on its ability to achieve positive cash flow from operations, to obtain the necessary equity or debt financing to continue with expansion in the water monitoring services market, including continued support from its lenders, to ultimately attain and maintain profitable operations.

These consolidated financial statements do not give effect to any adjustments to the carrying value of recorded assets and liabilities, revenue and expenses, the statement of financial position classifications used and disclosures that might be necessary should the Company be unable to continue its operations. Such adjustments could be material and there is no assurance that the Company will be successful in closing additional financings in the future or that the Company will achieve profitable operations.

OVERVIEW

The Company was incorporated under the Business Corporations Act (Ontario) on November 20, 2020, and was a Capital Pool Company as defined in the Policy 2.4 of the TSX Venture Exchange (the “Exchange”). Upon the closing of the RTO Transaction, the Company changed its name to Eddy Smart Home Solutions Ltd.

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Management’s Discussion & Analysis

ESHSI was incorporated under the Business Corporations Act (Ontario) on January 27, 2015. ESHSI is a North American provider and developer of residential and commercial smart water metering products and monitoring services, helping property owners protect, control and conserve water usage by combining water sensing devices with behavioural learning software.

Utilizing a direct sales approach, ESHSI’s initial go-to-market strategy focused on the retail single-family residential (“SFR”) market in California. Deploying a SaaS based model that included 24/7 monitoring and data, ESHSI offered customers the technology and tools to control their water usage. The earliest product included both a remote and automatic shutoff that utilized behavioural learning to understand the unique water usage patterns of homeowners.

ESHSI operates in three segments: Single-Family Residential (“SFR”), Multi-Family Residential (“MFR”) and Commercial & Institutional (“C&I”) buildings, utilizing a value proposition based on mitigating the threat of water damage that includes business interruption and the displacement of residents. As such, a significant pivot opportunity emerged that represented a total addressable market encompassing not only single-family homes, but also MFRs, and C&I properties, both for retrofit and new construction.

To enable this expanded market strategy long term, and to further enhance its integrated leak protection and water management approach, the Company invested significant resources into both hardware and software, to accommodate sub-metering, commercial-scale behavioral learning, large pipe sizes, humidity and temperature, and a commercial property management application, as well as a new form of connectivity specific to high interference environments. The acquisition of Reed enabled the Company to expand its product delivery to include cost-effective solution ideally suited for both the retrofit market and mid-rise buildings.

The Company has invested and now has resources, knowledge base, and a fully developed product suite to meet the demands of the MFR, SFR, and C&I market at scale through its already established sales team and channel partners in insurance, telecommunications, constructors, and developers.

The wholly owned operating subsidiaries of the Company are Eddy Home Inc., Eddy Home Distribution Inc. (formerly Municipal Water Savings Corp.), Municipal Water Savings California Corp., and Reed Controls Inc.

The Company’s sales strategy encompasses direct sales and channel partners.

• For the year ended December 31, 2022, Total revenue was comprised of SFR at 22.2%, MFR at 75.9% and C&I at 1.9%.

• For the year ended December 31, 2021, Total revenue was comprised of SFR at 56.0%, MFR at 43.5% and C&I at 0.5%.

The growth of the MFR segment is consistent with the Company’s focus on diversifying revenue across segments outside of SFR.

The Company’s cloud-based leak detection platform for the Eddy brand currently manages more than 42,457 in-building devices as of December 31, 2022 (December 31, 2021 – 29,778). The Company provides its customers of the Eddy brand product with a fully integrated solution including device installation and 24/7 monitoring.

PRODUCTS AND SERVICES

The Company offers its products and services under the Eddy Solutions and Reed brands. The Eddy brand is an award-winning brand in North America synonymous with excellence and superior customer care in the water leak detection industry. The Company’s main revenue stream is water leak detection

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Management’s Discussion & Analysis

monitoring services designed to detect and prevent water leaks. Upon the occurrence of certain initiating events such as a detected water leak, the Eddy Solutions leak detection system sends event-specific signals to the Company’s monitoring center. The Company’s monitoring center has 24/7 availability to respond to alerts by contacting the subscriber or subscriber’s building manager and remotely activating shutoff valves to stop further leaks and water damage.

The Reed brand developed a robust water management technology platform of hardware and cloud software to manage water related risk, conserve water and accelerate IoT adoption with certain global plumbing manufacturing customers.

The Company’s product and service offering consists of a hardware and software component that work together to provide comprehensive water protection. The primary hardware components include equipment such as water meters that measure the flow of water through pipes, wireless sensors that detect the presence of water shutoff valves that can turn off water flow in the building and gateways which allow the devices to communicate with each other and with the Company’s monitoring center. The Company’s software component is its monitoring service which is based on its cloud-based water leak detection platform that tracks and stores data from the subscriber’s in-building devices. The Company’s behavioural learning algorithm builds a water usage profile for each subscriber based on historical water usage and flags irregular water flows as potential leaks or flood events, which the monitoring center can respond to.

SEGMENTS

The Company reports results on three operating and reportable segments: SFR, MFR, and C&I. The SFR segment consists of single-family homes, with each single-family home constituting one subscriber. The MFR segment consists of multi-residential buildings such as condominiums and apartments, with each unit within the multi-residential building constituting one subscriber. The C&I segment consists of buildings used for commercial and industrial activities such as office buildings and hospitals. The Company tracks performance in the C&I segment based on square footage managed as opposed to a subscriber count.

	Three months ended	Three months ended		Year ended	Year ended
	December 31,	December 31,		December 31,	December 31,
	2022		2021	2022	2021
Canada	92%		71%	89%	72%
USA	8%		29%	11%	28%

SALES AND DISTRIBUTION CHANNELS

The Company utilizes a mix of direct and indirect sales and distribution channels. The Company’s direct channel customers are generated by its sales outreach, marketing efforts, brands awareness, and subscriber referrals, and are supported by the Company’s internal salesforce. Direct channel customers include property owners (developers, asset managers, condominium corporations, plumbing manufacturers, plumbing engineering, and homeowner’s associations), insurance carriers, and submetering companies. The Company’s indirect channel customers are generated by commission-based agreements with independent third-party companies which include general contractors, developers, insurance carriers and brokers, sub-metering companies, property managers, telecom companies, restoration firms, architectural and engineering firms, and HVAC installers.

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Management’s Discussion & Analysis

FIELD OPERATIONS

The Company serves its North American subscriber base from its head office in Toronto as well as its facilities in Toronto and California. The Company utilizes third-party subcontractor labor when appropriate to assist with installation and servicing. The Company maintains the relevant and necessary licenses related to the provision of installation, plumbing, and related services in the jurisdictions in which it operates. The Company’s objective is to provide a white glove service experience, including providing same-day or next-day service to the majority of its customers.

MONITORING CENTRE AND SUPPORT SERVICES

The Company’s monitoring center and customer support personnel are located in the Company’s head office and a secondary location, both in Toronto. The Company’s monitoring center provides 24/7 aroundthe-clock protection to provide peace of mind to customers of the Eddy product. The Company’s monitoring center is staffed with highly trained and skilled experts that provide immediate remediation coordination for water leak events. The Company’s monitoring center operates from high security facilities which implement defense-in-depth security architecture based on controls designed to protect the data, physical, technical, and administrative aspects of the company networks.

NET CHANGES IN CUSTOMERS AND SQUARE FOOTAGE

The following tables summarize the Company’s net change in SFR and MFR customers and C&I square footage:

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December 31, 2022
Opening Additions Additions Additions Additions Total Closing
December 31, 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Additions Attritions December 31, 2022
SFR Subscribers 1,794 46 88 101 50 285 (318) 1,761
MFR Subscribers 8,561 381 744 894 1,543 3,562 (481) 11,642
- -
C&I Square Foot 38,343 310,858 354,205 665,063 (121,000) 582,406
December 31, 2021
Opening Additions Additions Additions Additions Total Closing
December 31, 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Additions Attritions December 31, 2021
SFR Subscribers 1,922 49 24 42 60 175 (303) 1,794
MFR Subscribers 3,972 1,581 198 2,117 693 4,589 - 8,561
C&I Square Foot 38,343 - - - - - - 38,343
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As at December 31, 2022, the Company had 1,761 customers in the SFR segment (December 31, 2021 – 1,794), the additions for the three months ended December 31, 2022 was 50 (2021 – 60). The additions for the year ended December 31, 2022, was 285 (2021 – 175). The attrition for the year ended December 31, 2022, was 318 (2021 – 303).

As at December 31, 2022, the Company had 11,642 customers in the MFR segment (December 31, 2021 – 8,561), the additions for the three months ended December 31, was 1,543 (2021 – 693). The additions for the year ended December 31, 2022, was 3,562 (2021 – 4,589). With the acquisition of Reed 57 MFR customers were added (see Strategic Acquisition section of the MD&A). The attrition for the year ended December 31, 2022, was 481 (2021 – nil).

The number of MFR customers reflect the current units installed plus the units in the process of being deployed during the period (the suite is counted as installed based on the time that the first sensor was installed in the suite). During 2022, MFR attrition reflects some shorter-term contracted installs done on a test basis, which was very successful and established a relationship with an insurance company. This has yielded a future pipeline of approximately 1,000 MFR units to come online over the next few years.

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Management’s Discussion & Analysis

As at December 31, 2022, the Company has 582,406 square footage managed (reflects only billing customers) in the C&I segment (December 31, 2021 – 38,343). The additions for the year ended December 31, 2022, was 665,063 (2021 – nil). The attrition for the year ended December 31, 2022, was 121,000 (2021 – nil).

The majority of the SFR customers are based in California and Ontario. The Company initially focused on growing the SFR segment through direct sales. SFR subscriber count has experienced decline primarily due to the discontinuation of new subscriber acquisition efforts as the Company decided to diversify revenue across the MFR and C&I segments. The Company has also shifted the distribution strategy in the SFR segment away from direct sales and towards indirect sales through channel partners such as insurance carriers and home security firms. The growth in subscriber count for MFR and square footage managed for C&I reflects the Company’s efforts to grow these segments. The Company is focusing on generating a robust pipeline of potential contracts in these two segments.

SEASONALITY

The Company has exposure to the construction industry, particularly condominium construction, which in Canada is seasonal in nature. As a result, less work is performed in the winter and early spring months than in the summer and fall months. Accordingly, the Company will experience a seasonal pattern in its operating results, with the first half of the year, and particularly the first quarter, typically generating lower revenue and profits than the second half of the year. Therefore, results in any one quarter are not necessarily indicative of results in any other quarter, or for the year as a whole.

NON-IFRS FINANCIAL AND PERFORMANCE MEASURES

The Company’s audited consolidated financial statements for the year ended December 31, 2022 and 2021 are prepared in accordance with IFRS. The Company reports on certain non-IFRS measures that are used by management to evaluate the performance of the Company. Since non-IFRS measures do not have standardized meanings prescribed by IFRS, securities regulations require that non-IFRS measures be clearly defined, qualified, and reconciled with their nearest IFRS measure. These measures do not have standardized meanings or interpretations and may not be comparable to similar terms and measures provided by other issuers.

REPORTED EBITDA AND ADJUSTED EBITDA

Reported EBITDA and Adjusted EBITDA are non-IFRS measures that are used by management to evaluate the performance of the Company.

Reported EBITDA is defined as net income or loss adjusted for (a) finance costs / interest income, (b) income taxes, and (c) depreciation and amortization.

Adjusted EBITDA is defined as Reported EBITDA adjusted for (a) gains / losses on disposal of assets, (b) foreign exchange, (c) share-based compensation expense, and (d) non-recurring items.

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Management’s Discussion & Analysis

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Three months ended Year ended
December 31, December 31, December 31, December 31,
2022 2021 2022 2021
$ $ $ $
Net Loss (3,770,340) (1,860,472) (11,800,950) (8,010,503)
(+) Finance Costs (5,713) (416,915) 141,992 1,004,208
(+) Depreciation, Property and Equipment 25,548 5,835 83,656 71,201
(+) Depreciation, Fulfillment Assets 58,466 91,734 247,940 142,670
--
(+) Amortization, intangible assets 96,637 157,002 253,639
-- --
(+) Impairment of intangible assets 224,075 224,075
(+) Amortization, Right-of-Use Assets 26,869 -- 107,478 107,479
Reported EBITDA (3,344,458) (2,022,816) (10,742,170) (6,684,945)
(+/-) Foreign exchange 4,423 (192) 107,010 22,023
(+) Share-based Compensation Expense 221,212 73,763 773,240 283,553
-- --
(-) Lease modification gain (56,080) (56,080)
-- -- --
(+) Listing Expense 902,673
- -- -- --
( ) Canadian Emergency Wage Subsidy (36,152)
Adjusted EBITDA (3,174,903) (1,949,245) (9,015,327) (6,415,521)
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Reported EBITDA for the three months ended December 31, 2022, deceased by $1,321,642 to ($3,344,458) as compared to ($2,022,816) reported in the comparable period for 2021. For the year ended December 31, 2022, the Reported EBITDA decreased by $4,057,225 to ($10,742,170) as compared to ($6,684,945) reported in the comparable period for 2021.

Adjusted EBITDA for the three months ended December 31, 2022, decreased by $1,225,658 to ($3,174,903) as compared to ($1,949,245) reported in the comparable period for 2021. For the year ended December 31, 2022, the Adjusted EBITDA decreased by $2,599,806 to ($9,015,327) as compared to ($6,415,521) reported in the comparable period for 2021.

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Management’s Discussion & Analysis

FINANCIAL HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

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Three months ended Year ended
December 31, December 31, December 31, December 31,
2022 2021 2022 2021
Consolidated statement of operations highlights
$ $ $ $
Revenue - SFR 133,163 119,886 569,841 684,494
Revenue - MFR 772,653 132,750 1,945,317 532,707
Revenue - C&I (20,168) 1,555 48,694 5,635
Total revenue 885,648 254,191 2,563,852 1,222,836
Net loss (3,770,340) (1,860,472) (11,800,950) (8,010,503)
Net loss per share - basic
($0.05) ($0.16) ($0.16) ($0.26)
and diluted
Non-IFRS measures
Reported EBITDA () (3,517,285) (2,022,816) (10,914,997) (6,684,945)
Adjusted EBITDA () (3,347,730) (1,949,245) (9,188,154) (6,415,521)
December 31, December 31,
2022 2021
Consolidated statement of financial position highlights
$ $
Total assets 15,191,205 6,307,711
Total liabilities 11,251,347 11,735,074
Total shareholders equity/(deficiency) 3,939,858 (5,427,363)
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______ (*) Refer to the “Non-IFRS Financial and Performance Measures” section of this MD&A.

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Management’s Discussion & Analysis

CONSOLIDATED RESULTS OF OPERATIONS

For the years ended December 31, 2022 and 2021

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Three months ended Year ended
December 31, December 31, December 31, December 31,
2022 2021 2022 2021
$ $ $ $
Revenue 885,648 254,191 2,563,852 1,222,836
Expenses
Cost of Sales 336,265 88,034 1,123,303 700,263
Selling 634,865 224,930 1,888,969 806,504
General and administrative 3,239,609 1,365,513 10,907,281 6,704,490
4,210,739 1,678,477 13,919,553 8,211,257
Operating loss (3,325,091) (1,424,286) (11,355,701) (6,988,421)
Interest income 6,596 3,210 27,828 4,149
Gain/(Loss) on foreign exchange (4,423) 192 (107,010) (22,023)
- -
Impairment of intangible assets (224,075) (224,075)
Finance cost 5,713 (439,588) (141,992) (1,004,208)
Net loss before income taxes (3,541,280) (1,860,472) (11,800,950) (8,010,503)
Income taxes - - - -
Net loss (3,541,280) (1,860,472) (11,800,950) (8,010,503)
----- End of picture text -----

REVENUE AND COST OF SALES

Revenue

The Company accounts for revenue from contracts with customers using the following process: (1) identify the contract with customers (2) identify the performance obligations in the contract (3) determine the transaction price (4) allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices (“SSP”) of each distinct good or service promised in the contract (5) recognize revenue when the relevant criteria are met for each performance obligation.

During 2022, valve installations on a number of projects were performed by third party contractors, this resulted in the identification of a new distinct performance obligation per IFRS 15. See note 20 of the accompanying audited consolidated financial statements which summarized the various performance obligations for the years ended December 31, 2022, and 2021.

For its SFR segment, the Company has made significant judgements in determining that the sale of hardware is not a distinct performance obligation for separate revenue recognition as the hardware, installation, commissioning, and monitoring services are integrated together to fulfill the performance obligation to customers which is satisfied over time. Some SFR contracts require a non-refundable upfront fee in addition to a monthly fee and month-to-month term. These contracts contain a material right for a period that is equal to the average customer life. The material right provides for the continuation of the Company’s integrated smart water monitoring service and as such forms part of the integrated smart water monitoring service performance obligation. Revenue is recognized as the Company provides its integrated smart water monitoring services to its customers on a straight-line basis over the contract term/average customer life, as the Company satisfies a portion of its performance obligation each day it provides the smart monitoring service.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter

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Management’s Discussion & Analysis

For its MFR and C&I segments, a portion of the Company’s integrated smart water monitoring contracts require installation for some parts of the hardware. These installation services can be performed by third parties and therefore are recognized as a separate performance obligation. Installation revenue is recognized as revenue over time based on the proportion of installation services performed. Consistent with the SFR segment, the Company has made significant judgements in determining that sale of hardware is not a distinct performance obligation for separate revenue recognition as the hardware, technical installation, commissioning, and monitoring services are integrated together to fulfill the integrated smart water monitoring performance obligation to customers which is satisfied over the contract term as the Company satisfies a portion of its performance obligation each day it provides the smart water monitoring service.

The acquisition of Reed introduced a new product line with different water monitoring contracts. The promises within the contract are less integrated than the Eddy branded solution and the following performance obligations relevant during the period have been identified:

⦁ General hardware: revenue is recognized when control of the non-propriety hardware has transferred. ⦁ Installation of general hardware: recognized as revenue over time based on the proportion of services performed.

⦁ Deployment of smart water products: Involves the commissioning and installations of the proprietary Reed hardware and software recognized as revenue over time based on the proportion of services performed. ⦁ Cloud hosting: allows customers to access data collected by the solution and is provided on a subscription basis. Revenue from the cloud hosting subscriptions is recognized on a straight-line basis over the term of the subscription.

Under all contracts, the timing of revenue recognition often differs from contract payment schedules, resulting in revenue that has been recognized but not billed. These amounts are included in other receivables. Amounts billed in accordance with customer contracts, but not yet recognized, are recorded and presented as part of deferred revenue.

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Three months ended Year ended
December 31, December 31, December 31, December 31,
2022 2021 2022 2021
$ $ $ $
SFR - Revenue 133,163 119,886 569,841 684,494
MFR - Revenue 772,653 132,750 1,945,317 532,707
C&I - Revenue (20,168) 1,555 48,694 5,635
Revenue 885,648 254,191 2,563,852 1,222,836
----- End of picture text -----

Revenue for the three months ended December 31, 2022, increased by $631,457. MFR revenue increased due to a higher customer subscription count, SFR revenue increases due to the timing difference with respect to new customers in the quarter.

Revenue for the year ended December 31, 2022, increased by $1,341,016. MFR revenue increased due to a higher subscription count, SFR revenue decreased due to attrition in California exceeding new customer deployments mostly in Ontario, and C&I revenue increased due to seven new deployments for 2022.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter

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Management’s Discussion & Analysis

Cost of sales

Cost of sales
	Three months ended		Year ended
	December 31,	December 31,	December 31,	December 31,
	2022	2021	2022	2021
	$	$	$	$
SFR - COS	40,210	125,801	249,665	482,660
MFR - COS	307,750	(39,187)	852,304	213,605
C&I - COS	(11,696)	1,420	21,334	3,999
Cost of sales	336,265	88,034	1,123,303	700,263

For the three months ended December 31, 2022, the cost of sales increased by $247,571 over the comparable period, as a result of increases in stock-based compensation, materials and labour, monitoring service, depreciation on costs to obtain and fulfill a contract and licensing and network fees. This was offset by a provision for inventory reversals related to the reversal of provisions for slow moving inventory previously recognized which were utilized in the current year.

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Three months ended
December 31, December 31,
2022 2021 Change
$ $ $
Stock-based compensation 130,035 21,278 108,757
Materials and labour 197,049 (14,429) 211,478
Provision for inventory (204,391) (52,375) (152,016)
Warehouse rent 16,500 16,500 -
Monitoring service 62,635 26,378 36,257
Depreciation on costs to obtain and fulfill a contract 58,466 44,930 13,536
Licensing and network fees 75,971 46,412 29,559
Cost of Sales 336,265 88,694 247,571
----- End of picture text -----

For the year ended December 31, 2022, the cost of sales increased by $423,040 over the comparable year, as a result of increases in stock-based compensation, materials and labour, monitoring services, depreciation on costs to obtain and fulfill a contract and licensing and network fees. This was offset by a decrease in the provision for inventory reversals related to the reversal of provisions for slow moving inventory items previously recognized which were utilized in the current year.

	Year ended	Year ended
	December 31,	December 31,
	2022	2021	Change
	$	$
Stock-based compensation	130,035	76,278	53,757
Materials and labour	482,629	49,659	432,970
Provision for inventory	(193,355)	99,210	(292,565)
Warehouse rent	66,000	66,000	-
Monitoring service	147,701	82,786	64,915
Depreciation on costs to obtain and fulfill a contract	247,940	142,670	105,270
Licensing and network fees	242,353	183,660	58,693
Cost of Sales	1,123,303	700,263	423,040

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Management’s Discussion & Analysis

Gross margin

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----- Start of picture text -----

Three months ended Year ended
December 31, December 31, December 31, December 31,
2022 2021 2022 2021
$ $ $ $
SFR - GM 92,953 (5,915) 320,176 201,834
MFR - GM 464,903 171,937 1,093,013 319,102
C&I - GM (8,472) 135 27,360 1,636
Gross margin 549,383 166,157 1,440,549 522,573
----- End of picture text -----

For the three months ended December 31, 2022, the gross margin increased by $383,226 over the comparable period. SFR gross margin increased by $98,868, MFR gross margin increased by $292,966 and C&I gross margin decreased by $8,607.

For the year ended December 31, 2022, the gross margin increased by $917,346 over the comparable year. SFR gross margin increased by $118,342, MFR gross margin increased by $773,911 and C&I gross margin increased by $25,724.

GENERAL & ADMINISTRATIVE EXPENSES

General & administrative expense primarily includes wages and benefits for office staff, consulting expense, professional fees, provision for expected credit losses, stock-based compensation for administrative staff, depreciation on property and equipment, amortization of right-of-use and intangible assets and administrative spend.

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----- Start of picture text -----

Three months ended
December 31, December 31,
2022 2021 Change
$ $ $
Wages and benefits 1,409,801 930,878 478,923
Consulting expense 199,242 271,180 (71,938)
Professional fees 808,678 52,182 756,496
IT maintenance 10,245 36,251 (26,006)
Dues and subscriptions 199,473 54,519 144,954
Provision for expected credit losses (41,214) (17,122) (24,092)
Stock based compensation (29,721) (45,413) 15,692
Depreciation on property and equipment 25,548 18,928 6,620
-
Amortization of intangible assets 96,637 96,637
-
Amortization on right-of-use assets 26,869 26,869
-
Listing expense 44,555 44,555
Administrative 489,496 37,240 452,256
3,239,609 1,365,512 1,874,097
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For the three months ended December 31, 2022, general and administrative expenses increased by $1,874,097 as compared to 2021. Increases in wages and benefits (due to increased hiring to ramp up deployment), professional fees (includes the 2022 audit accrual and legal costs), dues and subscriptions

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Management’s Discussion & Analysis

(the increase is proportional to revenue growth), stock-based compensation (a non cash expense which had an adjustment due largely to a change in assumptions related primarily to the volatility input of $75,712), depreciation on property and equipment, amortization of intangible assets (related to the Reed acquisition, which closed on May 4, 2022), listing expense which is a non-cash expense related to the RTO Transaction was adjusted and administrative spend (reflects a provision for deployment completion and legal settlements), these were offset by decreases in consulting expense, IT maintenance, and provision adjustment expected credit losses.

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Year ended
December 31, December 31,
2022 2021 Change
$ $
Wages and benefits 4,364,823 3,276,301 1,088,522
Consulting expense 1,308,165 969,696 338,469
Professional fees 1,518,356 1,696,836 (178,480)
IT maintenance 208,563 133,726 74,837
Dues and subscriptions 377,354 195,502 181,852
Provision for expected credit losses 78,626 57,766 20,860
Stock based compensation 522,307 65,377 456,930
Depreciation on property and equipment 83,656 71,201 12,455
-
Amortization of intangible assets 253,639 253,639
-
Amortization on right-of-use assets (note 18) 107,478 107,478
-
Listing expenses 902,673 902,673
Administrative 1,181,642 130,606 1,051,036
10,907,282 6,704,490 4,202,793
----- End of picture text -----

General & administrative expense for the year ended December 31, 2022, increased by $4,202,793, as compared to 2021. Excluding the listing expense of $902,673, which is a non-recurring, non-cash item related to the RTO Transaction (which took place in January 2022), the adjusted general & administrative expense for the year ended December 31, 2022, was $10,004,609 as compared to $6,704,490 reported for the comparable period in 2021 (for an adjusted increase of $3,300,119 over the comparable period).

For the year ended December 31, 2022, higher general and administrative expenses resulted from wages and benefits, consulting, IT maintenance, dues and subscriptions, provision for expected credit losses, stock-based compensation (was awarded to directors, officers and employees during 2022), depreciation on property and equipment, amortization of intangible assets (related to the acquisition of Reed, which closed on May 4, 2022), listing expense (related to the RTO Transaction) and administrative spend, which was offset by a decrease in professional fees (during 2021, there were additional fess of approximately $1,300,000 related to the listing process).

The overall increase in corporate expenditures is largely due to increased wages and benefits, professional fees, including accounting and legal expenses, associated with the Company’s public listing and the acquisition of Reed. However, as the Company grows, it is expected that general and administrative expenses will decrease as a percentage of revenue.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter

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Management’s Discussion & Analysis

SELLING EXPENSES

Selling expense primarily includes salaries, marketing spends, stock-based compensation for sales staff, commission expense and general.

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----- Start of picture text -----

Three months ended
December December
31, 2022 31, 2021 Change
$ $
Salaries 228,491 72,721 155,770
Marketing promotions 50,947 62,655 (11,708)
Stock-based compensation 120,898 97,898 23,000
Commission expense to developer and
customer 38,272 23,515 14,757
Sales commission 122,265 (53,145) 175,410
Warranty reserve 27,732 18,632 9,100
General 46,260 2,654 43,606
634,865 224,930 409,935
----- End of picture text -----

Selling expense for the three months ended December 31, 2022, increased by $409,935, over the comparable period. Increases in salaries and commission (commencing with the fourth quarter of 2021 commission paid on sales were capitalized as part of costs to obtain and fulfill a contract), stock-based compensation, expense to a developer and customer (there is a commission of 12% related to the specific installations of a developer and customer), warranty reserve and general, which were offset by decreases in marketing promotions spend.

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----- Start of picture text -----

Year ended
December December
31, 2022 31, 2021 Change
$ $
Salaries 1,143,170 393,391 749,779
Marketing promotions 100,014 91,512 8,502
Stock-based compensation 120,898 141,898 (21,000)
Commission expense to developer and
customer 94,972 59,880 35,092
Sales commission 156,563 6,305 150,258
Warranty reserve 165,477 107,324 58,153
General 107,875 6,194 101,681
1,888,969 806,504 1,082,465
----- End of picture text -----

Selling expense for the year ended December 31, 2022, increased by $1,082,465 compared to 2021. During the year ended December 31, 2022, Increases in salaries (hiring of sales staff ramped up to support the buildout of the future contractual water monitoring services, which increased by approximately $17.2 million, to $33.7 million from $16.5 million during 2022), marketing and promotions (due to increased advertising and promotion spend to support the sales initiatives), commission expense to developer and customer (there is a commission of 12% related to the specific installations of a developer and customer, the increase is a result of higher unit installs and billings during the year), warranty reserve

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter Page | 17

Management’s Discussion & Analysis

(due to higher deployment activity) and general expense increased (relates largely to more corporate travel), which was offset by stock-based compensation (a non cash item).

PROVISION FOR CREDIT LOSSES ON ACCOUNTS RECEIVABLE

See Note 19 of the Company’s audited consolidated financial statement for the years ended December 31, 2022 and 2021 for additional details of the provision for credit losses on accounts receivable by the Company’s operating segments (SFR, MFR and C&I).

DEPRECIATION ON COSTS TO OBTAIN AND FULFILL A CONTRACT

The Company capitalizes costs incurred to fulfill its contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract and (iii) are expected to be recovered through revenue generated under the contract. These costs primarily pertain to hardware and sales commission costs that relate to the satisfaction of a future performance obligation in the Company’s contracts. Contract fulfillment costs are amortized on a straightline basis over the expected contract term to cost of sales, which is consistent with the performance obligation of providing the water monitoring services to which the contract fulfillment asset relates.

Depreciation on costs to obtain and fulfill a contract for the three months ended December 31, 2022, was $58,466 as compared to $44,930 reported in the comparable period for 2021. Depreciation on costs to obtain and fulfill a contract for the year ended December 31, 2022, was $247,940 as compared to $142,670 for 2021.

As at December 31, 2022 the carrying amount of the cost to obtain and fulfill a contract as was $2,450,243 (December 31, 2021 – $958,011). The carrying amount of the cost to obtain and fulfill a contract as at December 31, 2022, increased as more MFR projects were completed during the period.

DEPRECIATION ON PROPERTY AND EQUIPMENT

Depreciation on property and equipment primarily consists of the depreciation of office equipment, furniture and fixtures, computer equipment and leasehold improvements.

Depreciation on property and equipment for the three months ended December 31, 2022, increased by $6,620 to $25,548 as compared to $18,928 as reported for the comparable period in 2021.

Depreciation on property and equipment for the year ended December 31, 2022, increased by $12,455 to $83,656 as compared to $71,201 as reported for the comparable period in 2021. The acquisition of Reed resulted in an addition of computer hardware in the amount of $2,745.

DEPRECIATION ON RIGHT-OF-USE ASSETS

Depreciation on right-of-use assets consists of depreciation related to the Toronto head office and office equipment leases.

Depreciation on right-of-use assets for the three months ended December 31, 2022, was $26,869, inline with the comparable period.

Depreciation on right-of-use assets for the year ended December 31, 2022, was $107,478, inline with the comparable period.

On December 14, 2022, the Company's office lease was amended to provide rent relief with respect to the Company's rental arears which amounted to $296,357 excluding HST (“arrears”) at the time of amendment. The amendment provided that if the Company pays all remaining rents as due, and is not

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter

Page | 18

Management’s Discussion & Analysis

in default, then upon the last of the following (i) end of lease term on May 31, 2026, and (ii) repayment of 50% of the arrears, the landlord shall forgive the Company with the remaining 50% of the arrears. This amendment was treated as a modification to the original lease. The Company remeasured the lease liability by discounting revised cashflows (which includes remaining leases payments on date of modification as per original lease agreement and 50% of arears that management expect to pay on expiry of lease term) using a revised IBR of 14% on date of modification, with a corresponding adjustment of $96,501 to right-of-use asset.

AMORTIZATION OF INTANGIBLE ASSETS

The intangible assets relate to the acquisition of Reed (which includes the fair value of customer relationships $215,000, order backlog $401,000, technology $301,000 and brand $165,000) amounted to $1,082,000.

Amortization of intangible assets for the three months ended December 31, 2022, was $96,637 (2021 - $nil).

Amortization of intangible assets for the year ended December 31, 2022, was $253,639 (2021 - $nil).

IMPAIRMENT OF INTANGIBLE ASSETS

At the time of acquisition, Reed’s forecasted cash’s flows included several contracts considered to have a high probability of being won. As at year end, most of these contracts were lost, representing an impairment indicator.

The Company has two CGUs, Reed and Eddy. Reed is its own CGU as it represents a separate business operation within the Eddy group with distinct cash flows. The loss of forecasted contracts during the year had a direct impact on the valuation of the Brand and Technology intangible assets included in the Reed CGU as well as the Reed CGU as a whole. Goodwill from the acquisition of Reed, which has a carrying value of $3,054,335, has been allocated entirely to the Eddy CGU and therefore the Eddy CGU is required to be tested for impairment annually.

The recoverable amount of the Brand and Technology intangible assets was determined using a relief from royalty method (FVLCD). Key assumptions used were forecasted revenue, royalty rate, and discount rate. The assumptions used reflect past experience, internal data, and external sources of information, including construction timeline and executed contracts. The carrying value of the Brand and Technology intangible assets exceeded their recoverable value resulting in an impairment charge of $224,075.

The recoverable amount for the Reed and Eddy CGUs were estimated based on a five-year discounted cash flow model (value in use). Key assumptions include projected gross profit, discount rate and terminal growth rate. The gross margins applied over the five-year period range from 63% to 80% and have been determined based on past experience, internal data, and external sources of information. The applied discount rates of 16.4% and 22.8% for the Reed and Eddy CGUs, respectively, were determined based on a weighted average cost of capital calculation that made use of a capital asset pricing model to estimate the required return on equity and a 95% equity to 5% debt capital structure due to limited amount of tangible capital assets and ratios for guidelines companies. A terminal growth rate of -2% was used for the Reed CGU consistent with the attrition assumption used in the original purchase price allocation limited new project installation. For the Eddy CGU a 2.5% terminal growth rate was applied and determined based on a Gordon growth model. The recoverable amounts for the Reed and Eddy CGUs were estimated to be $1.7M and $12.4M respectively.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter

Page | 19

Management’s Discussion & Analysis

The Company considered its market capitalization and a range of revenue multiples in assessing and concluding on the recoverable amount of the Eddy and Reed CGUs. The Company has concluded that a reasonable possible change in key assumptions for both the Reed and Eddy CGU would not cause the carrying amount to exceed the recoverable amount.

As at December 31, 2022, the carrying value of Brand and Technology exceed their recoverable value resulting in impairment charges of $88,910 and $135,165, respectively (amounting to $224,075).

INCOME TAXES

Note 25 of the Company’s audited consolidated financial statements for the years ended December 31, 2022, and 2021 presents the reconciliation of income tax for the years ended December 31, 2022, and 2021.

BASIC AND DILUTED LOSS PER SHARE

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----- Start of picture text -----

2022 2021
$ $
Net loss for the year (11,800,950) (8,010,503)
Weighted average number of common shares outstanding 74,170,458 30,909,398
Basic and diluted loss per share ($0.16) ($0.26)
----- End of picture text -----

On January 12, 2022, the Company completed the RTO Transaction and a share exchange from ESHSI common shares and class B preferred shares to Common Shares. On May 4, 2022, the Company acquired 100% of Reed. As at December 31, 2022, 79,528,619 Common Shares were outstanding.

Following the closing of the RTO Transaction each ESHSI common share outstanding immediately before the effective date was exchanged for a number of Common Shares equal to the number of ESHSI common shares multiplied by 0.504867.

Diluted income per share is calculated by adjusting the weighted average number of Common Shares outstanding to assume conversion of all dilutive potential Common Shares. For the year ended December 31, 2022 and 2021, the Company’s source of potential dilution to the Common Shares are stock options, warrants and convertible debentures. For the year ended December 30, 2022, an adjustment related to 469,526 (2021 - 511,177) in-the-money stock options have been excluded from the calculation of diluted earnings per share as they were anti-dilutive. As a result, diluted earnings per share is equal to basic earnings per share for the year ended December 31, 2022 and 2021.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter

Page | 20

Management’s Discussion & Analysis

CONSOLIDATED FINANCIAL POSITION

TOTAL ASSETS

Total assets as at December 31, 2022 increased by $8,883,494 to $15,191,205 as compared to $6,307,711 reported as at December 31, 2021. The increase is a result of higher carrying values for cash in the amount of $339,085, accounts receivable in the amount of $898,265 (increase due to higher sales for the year), prepaid expenses in the amount of $1,231,999 (mostly due to higher upfront inventory purchases to support future deployments, there is a long lead time required to fulfill inventory purchases), inventory in the amount of $1,407,176 (inventory orders were received to support deployments), costs to obtain and fulfill a contract in the amount of $1,492,232 (increase as a result of more deployment during 2022), property and equipment in the amount of $59,635, intangible assets and goodwill in the amount of $3,658,621 (related to the Reed acquisition, goodwill amounts to approximately $3.1 million and intangible assets carrying value of approximately $0.604 million), which is offset by a decrease in the carrying values of right-of-use assets in the amount of $203,979 (this relates primarily to the Company’s head office lease).

TOTAL LIABILITIES

Total liabilities as at December 31, 2022, decreased by $483,727 to $11,251,347 as compared to $11,735,074 reported as at December 31, 2021. Upon the completion of the RTO there was a conversation of the term loan, which had a carrying value of $2,556,125 with a corresponding conversion derivative of $778,680, into ESHSI common shares, and also a repayment of the demand loans which had a carrying value of $3,102,666. There were increases in the carrying value of the accounts payable and accrued liabilities of $1,803,557 (the increase is to support growth of the Company’s deployments and buildup in the contracted revenue pipeline, which stands at approximately $33.7 million at the end of 2022), deferred revenue of $1,906,961 (largely due to more MFR and C&I customers being signed up), credit facility of $2,285,589 (financing to support working capital requirements) and loans payable of $40,000 (this is a Canada Emergency Business Account (“CEBA”) loan which increased as part of the Reed acquisition).

TOTAL SHAREHOLDERS’ EQUITY

Total shareholders’ equity as at December 31, 2022, increased by $9,367,221 to $3,939,858 as compared to the total shareholders’ deficiency of $5,427,363 as at December 31, 2021. Share capital increased by $20,233,582 (see Strategic Acquisition and Reverse Takeover Transaction sections of the MD&A). The increase in Share Capital includes the following approximate amounts (the RTO Transaction of $12.31 million, net of share issue costs of $0.981 million, agent warrants of $0.478 million, Term Loan conversion of $3.42 million, issuance of shares to a developer and customer of $0.471 million, Reed acquisition of $4.29 million and common shares issued in a reverse takeover of $1.20 million) and contributed surplus increased by $909,217 (see Share Capital section of this MD&A). The increase in contributed surplus includes largely these approximate amounts (stock-based compensation of $0.773 million, agent warrants of $0.478 million, assumptions of warrants and options as part of the RTO Transaction, offset by the issuance of Common Shares to a developer and customer in the amount of $0.471 million) and the deficit increased by $11,800,950 and accumulated other comprehensive income increased by $25,372.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2022 • Fourth Quarter

Page | 21

Management’s Discussion & Analysis

SHARE CAPITAL

The Company's authorized share capital included an unlimited number of common shares with no par value. The following Common Shares were issued and outstanding as at December 31, 2022.

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----- Start of picture text -----

ESHSI common and class B preferred shares Common Shares
Number of ESHSI
Number of ESHSI ESHSI common class B preferred ESHSI class B Number of Common
common shares shares shares preferred shares Shares Common Shares
Balance, January 1, 2022 61,469,428 $ 29,401,826 12,594,566 $ 3,904,316 - $ -
Conversion of ESHSI common shares to
Common Shares (61,469,428) (29,401,826) - - 31,033,886 29,401,826
Conversion of ESHSI class B pref shares
to Common Shares - - (12,594,566) (3,904,316) 6,358,581 3,904,316
Private placement - - - - 20,713,449 12,308,260
Share issue costs - - - - - (981,203)
Agent warrants - - - - - (478,832)
Conversion of Term Loan to Common
Shares - - - - 5,702,936 3,421,759
Issuance of Common Shares to a
developer and customer - - - - 1,453,767 470,497
Common shares issued in reverse
takeover - - - - 2,000,000 1,200,000
Acquisition of Reed 12,266,000 4,293,100
Balance, December 31, 2022 - - - - 79,528,619 $ 53,539,723
----- End of picture text -----

On May 4, 2022, the Company acquired 100% of Reed Controls Inc. ("Reed"). The total purchase price for the transaction was $4,293,100. The purchase price was paid through the issuance of 12,266,000 common shares on May 4, 2022.

On October 12, 2021, ESHSI completed the second tranche of a private placement (these funds were held in escrow until the closing of the Qualifying Transaction on January 12, 2022), issuing an additional 2,898,499 subscription receipts for aggregate gross proceeds of $1,739,099. Including the subscription receipts sold under the First Tranche, the Company issued an aggregate of 20,513,768 subscription receipts for aggregate gross proceeds of $12,308,260 under the private placement, which resulted in the issuance of 20,713,449 Common Shares in connection with the RTO Transaction, based on the exchange ratio of 0.504867 per ESHSI common share.

On September 14, 2021, ESHSI completed the first tranche of a private placement for an aggregate of 17,615,269 subscription receipts amounting to gross proceeds of $10,569,161 (the “First Tranche”). Each subscription receipts entitles the holder to two ESHSI common shares. These funds were held in escrow until the completion of the Qualifying transaction on January 12, 2022.

Prior to the completion of the RTO Transaction, 61,469,428 ESHSI common shares were issued and outstanding and 12,594,566 ESHSI class B preferred shares were issued and outstanding. Upon closing of the RTO Transaction, on January 12, 2022, the issued and outstanding ESHSI common shares and class B preferred shares were exchanged for 0.504867 Common Shares.

The term loan principal of $2,500,000 and accrued interest of $211,018 was converted into 11,295,908 ESHSI common shares, which were subsequently exchanged into 5,702,936 Common Shares (on the exchange basis of 0.504867 Common Shares for every one ESHSI common share held).

On December 15, 2021, the Company entered into an addendum (the “Addendum”) to amend an exclusive supplier agreement. Pursuant to the Addendum, the Company agreed to issue, or cause to be issued, 1,453,767 Common Shares upon the consummation of the RTO Transaction to a developer and customer of the Company. The Addendum is accounted for as a modification to a customer contract and based on the terms of the Addendum, is required to be accounted for as a termination of the existing contract and creation of a new contract. IFRS 15 requires the increase in consideration promised by the

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Management’s Discussion & Analysis

contract modification to be applied prospectively over the remaining performance obligation. To determine the incremental value of the share consideration provided by the Addendum, the fair value of the new shares to be issued was first determined to be $872,260 based on a fair value per share of $0.60 as at December 15, 2021. The fair value of the original share consideration, which was contingent on achieving 5,000 unit installs), was determined to be $401,763 as at December 15, 2021 based on a fair value per share of $0.60. The difference between the amended share consideration and the original share consideration earned of $470,497 represents the incremental value provided by the Addendum and was reflected in prepaid expenses at the date of amendment.

Aumento had 2,000,000 common shares issued and outstanding prior to the completion of the RTO Transaction.

Upon completion of the RTO transaction, approximately 71% of the Common Shares calculated on a non-dilutive basis, are subject to a contractual restriction on transfer pursuant to the terms of a lock-up agreement entered into by certain holders of ESHSI securities and ESHSI. The Common Shares subject to such a lock-up agreement may not be transferred until the day that is 24-months following the effective date of the RTO Transaction, provided that 12.5% of the Common Shares will be released on transfer on the first business day following each of the three, six, nine, twelve, fifteen, eighteen, twenty-first and twenty-four month anniversaries of the effective date of the RTO Transaction. As at December 31, 2022, approximately 45% of these shares are subject to lock-up.

Upon the completion of the acquisition of Reed, the Share Consideration was subject to a twenty-four (24) month lock-up period, provided that the Share Consideration will be released from the lock-up requirements on the first business day following each of the four, six, nine, twelve, fifteen, eighteen and twenty-one month anniversaries of the closing date. As at December 31, 2022, approximately 75% of the Share Consideration is subject to lock-up (see Strategic Acquisition section of the MD&A).

SEGMENTED RESULTS OF OPERATIONS

The Company operates in three operating segments, which are based on the Company’s organizational structure and how the information is reported internally on a regular basis. The Company’s revenue is generated from its customers in the following market sectors: SFR, MFR and C&I. The Company’s revenue is generated from customers in Canada and the USA.

The Company’s results by operating segments are as follows:

Year ended December 31, 2022	SFR	MFR	C&I	Corporate	Total
	$	$	$	$	$
Revenue	569,841	1,945,317	48,694	-	2,563,852
Cost of sales	249,665	852,304	21,334	-	1,123,303
Selling	419,842	1,433,251	35,876	-	1,888,969
General and administrative	-	-	-	10,907,281	10,907,281
Interest income	-	-	-	(27,828)	(27,828)
Loss on foreign exchange	-	-	-	107,010	107,010
Impairment				224,075	224,075
Finance costs	-	-	-	141,992	141,992
Income taxes	-	-	-	-	-
Net loss	(99,666)	(340,238)	(8,517)	(11,352,530)	(11,800,950)

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Management’s Discussion & Analysis

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----- Start of picture text -----

Year ended December 31, 2021 SFR MFR C&I Corporate Total
$ $ $ $ $
Revenue 684,494 532,707 5,635 - 1,222,836
Cost of sales 391,979 305,057 3,227 - 700,263
Selling 451,448 351,339 3,716 - 806,504
General and administrative - - - 6,704,490 6,704,490
Interest income - - - (4,149) (4,149)
Loss on foreign exchange - - - 22,023 22,023
Finance costs - - - 1,004,208 1,004,208
Income taxes - - - - -
Net loss (158,933) (123,690) (1,308) (7,726,572) (8,010,503)
----- End of picture text -----

See the Revenue, Cost of Sales, General & Administrative Expense and Selling Expenses sections of the MD&A.

QUARTERLY FINANCIAL INFORMATION

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----- Start of picture text -----

Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
2022 2022 2022 2022 2021 2021 2021 2021
$ $ $ $ $ $ $ $
Revenue 885,647 707,990 551,784 418,431 254,191 280,315 328,908 359,422
Expenses
Cost of sales 336,264 333,801 210,950 242,288 88,034 73,960 304,193 234,076
Selling 634,865 426,896 505,857 321,351 224,930 242,668 160,893 178,014
General and administrative 3,239,609 2,425,370 2,399,694 2,842,608 1,365,513 3,028,375 1,390,847 919,755
Operating loss (3,325,091) (2,478,077) (2,564,717) (2,987,816) (1,424,286) (3,064,688) (1,527,025) (972,423)
Interest income 6,596 1,785 9,821 9,625 3,210 92 140 707
(Loss)/gain on foreign exchange (4,423) (68,056) (18,625) (15,906) 192 (30,198) 4,422 3,561
- - - - - - -
Impairment of intangible assets (224,075)
Finance costs 5,713 (15,616) (16,450) (115,638) (439,588) (120,828) (141,094) (302,698)
Income taxes - - - - - - - -
Net loss (3,541,280) (2,559,964) (2,589,971) (3,109,735) (1,860,472) (3,215,622) (1,663,557) (1,270,853)
Loss per share - basic and diluted ($0.04) ($0.04) ($0.04) ($0.05) ($0.06) ($0.10) ($0.05) ($0.04)
----- End of picture text -----

OFF-BALANCE SHEET ITEMS

The Company has no material off-balance sheet arrangements in place.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Note 19 of the accompanying audited consolidated financial statements presents the fair value hierarchy of the Company’s financial instruments as at December 31, 2022 and 2021.

During 2022, there were no financial instruments recorded at fair market value.

RELATED PARTY TRANSACTIONS

See notes 17 and 28 of the accompanying audited consolidated financial statements regarding related party transactions and balances as at December 31, 2022 and 2021.

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Management’s Discussion & Analysis

KEY MANAGEMENT PERSONNEL COMPENSATION

For the years ended December 31, 2022 and 2021, the compensation awarded to key management personnel is as follows:

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----- Start of picture text -----

September 30, September 30, December 30, December 30,
2022 2021 2022 2021
$ $ $ $
Salaries, fees and other short-term benefits 305,208 197,365 1,471,397 1,070,125
Stock-based compensation 99,103 0 637,576 218,948
404,311 197,365 2,108,973 1,289,073
----- End of picture text -----

Key management personnel include those persons having authority and responsibility for planning, directing, and controlling the activities of the Company as a whole. The Company defines key management personnel as being the directors and key employees.

CONTRACTUAL OBLIGATIONS

Contractual obligations as at December 31, 2022, are due as follows:

		Less than 6
	Total	months	6 - 12 months	1 - 3years	4 - 5years
Accounts payable and accrued liabilities	5,147,941	3,439,907	1,526,816	89,120	92,098
Credit facility	2,285,589	2,285,589	-	-
Lease obligation, office	830,029	98,863	102,880	628,286	-
Lease obligation, equipment	1,476	1,105	371	-	-
Loan payable	80,000	-	80,000	-	-
Total	8,345,035	5,825,464	1,710,067	717,406	92,098

Accounts payable and accrued liabilities includes a warranty provision of $89,120 (December 31, 2021 - $27,887), related to water monitoring equipment.

During 2021, the Company received the CEBA loan in the amount of $20,000 (2020 - $40,000), which was provided interest free with 33% of the amount forgivable if repaid on or before December 31, 2023. With the completion of the Reed acquisition, the CEBA loan amount increased by $40,000. The Company will fully repay the outstanding balance of $80,000 on or before December 31, 2023, and $40,000 will be forgiven.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s objective and polices for managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Company manages its capital structure and makes changes based on economic conditions, risks that impact the consolidated operations and future significant capital investment opportunities. In order to maintain or adjust its capital structure, the Company may issue new equity instruments or considers other financing opportunities.

The Company is exposed to a variety of financial risks by virtue of its activities: market risk, credit risk, interest rate risk, liquidity risk and foreign currency risk. The Board of Directors has overall responsibility for the determination of the Company’s capital and risk management objectives and policies while retaining ultimate responsibility for them. The Company’s overall capital and risk management program has not changed throughout the year. It focuses on the unpredictability of financial markets and seeks to

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Management’s Discussion & Analysis

minimize potential adverse effects on financial performance. Risk management is carried out by the finance department under policies approved by the Board of Directors. The finance department identifies and evaluates financial risks in close cooperation with management.

The Company’s cash flows provided by operating activities include cash received from monthly recurring revenue and upfront fees received from customers, less cash costs to provide services to customers, including general and administrative costs, and certain costs associated with acquiring new customers. The water monitoring equipment is purchased by the Company at the start of the contract. The Company recoups the cost for the Eddy brand through payment for upfront equipment sales and monthly payments from the customers over the life of the term and for the Reed brand costs are recouped over the deployment period. The contract periods are usually seven years for MFR, five years for SFR and seven years for C&I.

The Company is developing a pipeline of long term revenue agreements with established developers and insurance companies. To date, the Company has generated losses from operations, and we anticipate that the Company may continue to generate losses for the medium term as the Company continues to focus on building the pipeline of future business and deploying equipment on the contracts that come due. The Company incurred additional costs associated with operating as a public company.

The Company may require additional working capital to fund growth. We believe the ability to obtain financing will continue and will be sufficient to fund our anticipated operating expenses for more than the next twelve months from December 31, 2022. Please see the Recent Development and Outlook section of the MD&A.

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Three months ended Year ended
December 31, December 31, December 31, December 31,
2022 2021 2022 2021
Cash Flow From Operating Activities ($2,248,708) ($1,771,306) ($10,335,335) ($5,769,301)
Cash Flow From Investing Activities ($98,397) $1,098 $384,194 ($33,155)
Cash Flow From Financing Activities $2,396,157 $1,415,035 $10,264,854 $5,721,163
Foreign exchange $25,372 -- $25,372 --
Change in Cash During the Period $74,424 ($355,173) $339,085 ($81,293)
Opening Cash Balance $375,886 $466,398 $111,225 $192,518
Ending Cash Balance $450,310 $111,225 $450,310 $111,225
----- End of picture text -----

Cash flow (used in) operating activities

The cash flows used in operations for the three months ended December 31, 2022, decreased by $477,402 to ($2,248,708) from ($1,771,306) over the comparable period.

The cash flows used in operations for the year ended December 31, 2022, decreased by $4,566,034 to ($10,335,335) from ($5,769,301) over the comparable period. The increase in the operating cash outflows is primarily due to larger net losses for the period, and changes in the non-cash and working capital items.

Cash flow from (used in) investing activities

The cash flows used in investing activities for the three months ended December 31, 2022, decreased by $99,495 to ($98,397) from $1,098 over the comparable period.

The cash flows used in investing activities for the year ended December 31, 2022, increased by $417,349 to $384,194 from ($33,155) over the comparable period which largely related to cash acquired through a

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Management’s Discussion & Analysis

Reverse Takeover in the amount of $418,802, and cash acquired through the acquisition of Reed in the amount of $105,938 offset by the purchases of property and equipment of $140,546. Cash flow from financing activities

The cash flows from financing activities for the three months ended December 31, 2022, increased by $981,122 to ($2,396,157) from $1,415,035 over the comparable period.

The cash flows from financing activities for the year ended December 31, 2022, increased by $4,543,691 to $10,264,854 from $5,721,163 in the comparable period. The financing activities for the current period primarily reflects proceeds from an equity offering which amounted to $12,308,260 (which had issuance costs of $981,203), repayment of demand loans of $3,000,000 with the corresponding interest of $114,088, draw on a credit facility in the amount of $2,250,000 and lease payments of $198,115.

CREDIT RISK

The Company’s main credit risks relate to its trade accounts receivable. The Company installs residential and commercial water leak mitigation technology at its customers locations in the normal course of its operations.

Credit risk is the risk of a financial loss to the Company if a customer fails to meet its contractual obligation of the monthly water monitoring services payments. Management of the Company monitors the creditworthiness of its customers by performing background checks on all new customers focusing on publicity, reputation in the market, and relationships with customers and other vendors. Further, management monitors the frequency of payments from ongoing customers and performs frequent reviews of outstanding balances.

Provisions for outstanding balances are established based on forward-looking information and revised when there are changes in circumstances that would create doubt over the receipt of funds. Such reviews are conducted on a continued basis through the monitoring of outstanding balances as well as the frequency of payments received. Accounts receivables are completely written off once management determines the probability of collection to be remote. For the year ended December 31, 2022, $95,696 in receivables were written off (2021 - $55,459). The amounts that were written off are still subject to collection enforcement activity. Payment terms are usually 30 days after the invoice is issued.

Note 19 of the accompanying audited consolidated financial statements presents the provision for credit loses on accounts receivable as at December 31, 2022 and 2021.

CURRENCY RISK

The Company generates sales of product in Canadian and U.S. dollars and incurs its expenses in both U.S. and Canadian dollars and is therefore exposed to risk from changes in foreign currency rates. In addition, the Company holds financial assets and liabilities in U.S. dollars that expose the Company to foreign exchange risks. The Company does not utilize any financial instruments or cash management policies to mitigate the risks arising from changes in foreign currency rates.

Currency risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. A portion of the Company’s income is generated in US dollars and is subject to currency fluctuations. The performance of the Canadian dollar relative to the US dollar could positively or negatively affect the Company’s income. Thus, the Company may from time to time, experience losses resulting from fluctuations in the value of its foreign currency translations, which could adversely affect its operating results. Currency risk is not hedged.

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Management’s Discussion & Analysis

Regarding currency exposure, if the Canadian dollar had been 5% stronger/weaker versus the US dollar for the year ended December 31, 2022, with all other variables held constant, income for the period would have been $1,230 higher/lower (2021 – $612).

For the year ended December 31, 2022, approximately 11% (2021 – 27%) of the Company’s total sales were in US dollars. Consequently, some assets are exposed to foreign exchange fluctuations.

As at December 31, 2022, operating cash was $94,038 (US $69,432) and accounts receivable of $17,918 (US $13,229). As at December 31, 2021, operating cash was $80,282 (US $63,324) and accounts receivable of $20,091 (US $15,847).

RISKS AND UNCERTAINTIES

The Company is faced with a number of risks, among others, including the risk factors set out below.

Attrition and Competition

The Company operates in a competitive environment and hence its financial condition and result of operations, growth, sustainability and defensive tactics may be negatively impacted by loss of market share to its competitors or due to changes in subscriber behaviors, which could result in a loss of customers and attrition to the number of customers.

Concentration of Suppliers

The Company relies principally on a few suppliers for its supply of equipment. Should any of these suppliers fail to deliver in a timely manner, there could be delays or disruptions in the supply and installation of equipment.

Credit Risk

The Company has financial instruments that are subject to risk of a counterparty failing to meet its contractual obligations. The Company has accounts receivables due from customers that it may fail to collect. The non-performance of these customers can be directly impacted by a decline in economic conditions, which could impair the customers’ ability to satisfy their obligations to the Company.

Cybersecurity

The Company collects, processes, transmits and retains confidential, sensitive and personal information including personal financial information (“Confidential Information”) regarding its customers, employees, and contractors. Some of this Confidential Information is held and managed by third party service providers. The Company has implemented processes, procedures, and controls to prevent unauthorized access to Confidential Information and to build and sustain a reliable information technology infrastructure. Despite these measures, all of the Company’ information systems and any third-party service provider systems that it employs are vulnerable to damage, interruption, disability or failures due to a variety of reasons. The Company or its third-party service providers may be unable to anticipate, timely identify or appropriately respond to one or more of the rapidly evolving and increasingly sophisticated means by which computer hackers, cyber terrorists and others may attempt to breach the Company’s or its third-party service providers’ security measures. Any system vulnerability or failure of security measures of the Company or its third-party service providers could result in, among others, operational interruption, harm to the Company’s reputation or competitive position, the loss of or unauthorized access to Confidential Information or other assets, remediation costs, litigation, regulatory enforcement proceedings, violation of privacy or other laws and damage to the Company’s customer relationships.

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Management’s Discussion & Analysis

Geographic Concentration and New Building Construction

The income generated by the Company is sensitive to changes in economic conditions in Ontario and California. Adverse changes in Ontario and California economic conditions may have a material adverse effect on the Company’s business, cash flows, financial condition and results of operations. Furthermore, most of the growth in the number of installed equipment in recent years has been principally as a result of new building construction, both residential and commercial. A slowdown in such new building construction may lead to an adverse effect on demand for the Company’s products and services.

Labour Relations

The Company’s success will depend in part upon the continued services of talented personnel, including, the management team, sales representatives, installation and service technicians and call center talent. The Company’s ability to recruit and retain key personnel could be adversely impacted by a competitive labour market. The loss, incapacity, or unavailability for any reason of key members of the Company’s management team, higher than expected payroll and other costs associated with the hiring and retention of key personnel and the inability or delay in hiring new key employees could materially adversely affect the Company’s ability to manage its business and its future operational and financial results.

Leverage Risk and Restrictive Covenants

The Company has debt service obligations. The degree to which the Company is leveraged could have material adverse consequences for the Company, including but not limited to: (i) having to dedicate a portion of its cash flows from operations to the payment of interest on its indebtedness and not having such cash flows available for other purposes, including operations, capital expenditures and future business opportunities; and (ii) restricting its flexibility and discretion to operate its business.

Litigation Risk

In the normal course of the Company’s operations, it may, directly or indirectly, become involved in, named as a party, or become the subject of various legal proceedings, including regulatory proceedings, tax proceedings and legal actions relating to, among others, personal injuries, property damage, and contract disputes. The outcome with respect to outstanding, pending, or future proceedings cannot be predicted and may have a material adverse effect on the Company’s financial condition and results of operations and on its ability to satisfy its debt service obligations. Even if the Company prevails in any such legal proceedings, the proceedings could be costly and time consuming and may divert the attention of management and key personnel away from operations.

Regulatory Matters

The Company is subject to consumer protection laws (including the Consumer Protection Act, 2002 (Ontario)). Although the Company believes that it is in compliance with such consumer protection laws in all material respects, given the likelihood that regulatory determinations are likely to favour consumers in the event of any ambiguity in such laws, no assurance can be given that the Company will be able to comply with such laws. Furthermore, there can be no assurance that the Company will be able to comply with any future laws, regulations and policies or, if it does so comply, what the impact may be on its costs or ability to originate or retain customers. Failure by the Company to so comply may subject it to civil or regulatory proceedings, including fines, injunctions, recalls or seizures, which may have a material adverse effect on the Company’s financial condition and results of operations and on its ability to satisfy its debt service obligations.

Reliance on Third Party Contractors

The Company at certain times utilizes third-party service providers for the installation of equipment at the customers’ premises. As a result, the Company is reliant on the personnel, good faith, expertise, technical resources and information systems, and judgment of those service providers in providing such services.

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Management’s Discussion & Analysis

Accordingly, the Company may be exposed to adverse developments in the business and affairs of such service providers.

Uninsured or Underinsured Risks

The Company’s current insurance coverage in respect of potential liabilities and the accidental loss of value of the assets of the Company from risks is in the form of comprehensive property and casualty insurance in respect of claims for bodily injury or property damage arising out of assets or operations (subject to deductible amounts). However, not all risks are covered by insurance and insurance may not be consistently available on an economically feasible basis or at all. The amounts of insurance may not at all times be sufficient to cover all losses and/or claims.

Useful Life of Equipment

Experience indicates that the average useful life of the batteries within the wireless sensors is approximately 7 years. However, there can be no assurance that the batteries within the wireless sensors will continue to have an average useful life of that length. The Company will be responsible for the capital cost and installation fees related to replacing the wireless sensors. In the event that the Company does not have sufficient cash flow or financing capabilities to fund the purchase and installation of replacement wireless sensors, the Company may not have the ability to maintain the leak detection portfolio, which could have a material adverse effect on its financial condition and results of operations.

RESPONSIBILITY OF MANAGEMENT AND THE BOARD OF DIRECTORS

Management is responsible for the information disclosed in this MD&A, and has in place the appropriate information systems, procedures, and controls to ensure that the information used internally by management and disclosed externally is complete, reliable, and timely. In addition, the Company’s Board of Directors provide an oversight role with respect to all public financial disclosures by the Company and have reviewed and approved this MD&A as well as the audited consolidated financial statements for the years ended December 31, 2022 and 2021.

SUBSEQUENT EVENT

On February 8, 2023, a claim which was filed on May 10, 2022, in the amount of $250,000 against the Company, by an employee relating to wrongful dismissal was settled for an amount of $24,000.

On March 10, 2023, the Company increased its credit facility (see note 14) of $3,000,000 to $5,000,000. The Company is in the process of entering into a security pledge subject to TSX Venture Exchange approval. There were no fees paid in connection with the Facility. The Company intends to use the net proceeds from the financing largely for working capital purposes, to deploy its contracted revenue backlog and general corporate expenses. As of the date of these financial statements the draw on the facility amounted to $4,643,554.

On March 31, 2023, The Company entered into a loan agreement with a non arm’s length lender (the “Lender”) for a $1,500,000 revolving credit facility (the “Facility”). This Facility bears interest at a rate of 8% (increasing to 14% upon any default) per annum and will mature in two years. This Facility has no security pledges and there were no fees paid in connection with the Facility. As of the date of this MD&A the draw on this Facility amounts to $1,000,000.

On June 14, 2023, a claim was filed in the amount of $184,000 against the Company, relating to wrongful dismissal of an employee. The Company believes that there is no merit to this claim and will defend its position and has not included an accrual in its provision for this claim.

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Management’s Discussion & Analysis

On June 14, 2023, a claim was filed in the amount of $710,000 against the Company, relating to wrongful dismissal of an employee. The Company believes that there is no merit to this claim and will defend its position and has not included an accrual in its provision for this claim.

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