Eddy Smart Home Solutions Ltd. — Management Reports 2024

Apr 26, 2024

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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, 2023, and 2022

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 April 26, 2024, and should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto as at and for the years ended December 31, 2023, and 2022. 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 and notes thereto for the years ended December 31, 2023, and 2022.

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 2024, the Company’s liquidity risks and foreign currency risks, the estimated new MFR (as hereinafter defined) sales, and the expected revenue recognition of current devices 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.) • 2023 • Forth 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.

APPOINTMENT OF PRESIDENT

Cory Silver was appointed as President effective March 1, 2024. The transition to this leadership position comes after a succession process during which previous management gradually handed over leadership responsibilities. In his role as a consultant for Eddy, Mr. Silver has spearheaded notable enhancements in the Company’s operational and sales processes, contributing significantly to improved cash flow from operating activities.

GROWTH IN INSTALLED DEVICES

The Company’s cloud-based leak detection platform for the Eddy brand managed 75,229 in-building devices as at December 31, 2023 (December 31, 2022 – 42,457), this represents growth of approximately 77%. These devices are comprised of Eddy IQs, Eddy H20s and Eddy Links. Installed devices is an important measure of traction that we are gaining in the market with the deployment of our leak protection services.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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Management’s Discussion & Analysis

The following table summarizes the installed devices:

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December 31 2023
Additions Additions Additions Additions Total Installed
December 31, 2023 Q1 Q2 Q3 Q4 Additions Devices
42,457 8,495 9,755 6,876 7,646 32,772 75,229
December 31 2022
Additions Additions Additions Additions Total Installed
December 31, 2022 Q1 Q2 Q3 Q4 Additions Devices
29,778 2,086 2,588 1,378 6,627 12,679 42,457
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RECENT DEVELOPMENTS AND OUTLOOK

The Company is continuing to grow in the Multi-Family Residential and Commercial space through partnerships with real estate developers, general contractors, submetering companies and asset managers. In most cases the sales cycle can be upwards of two years as projects transition from working drawings to implementation and equipment installation. The Eddy pipeline is extremely strong in the Canadian market and notable insurance companies are endorsing the Eddy system and recommending deployment across their customer base. Although the Company has a robust sales pipeline there may be delays to project commencement due to the rising interest rate environment within North America and the lower demand across the real estate market for new housing starts. In FY2023 there were 32,772 new Eddy devices installed across various Multi-Family Residential, Commercial and Single-Family properties versus 12,679 installed the previous year.

The industry continues to recognize the benefits of leak mitigation in high-rise and commercial applications. The product is moving away from a “nice to have” insurance product into a necessary building solution. The Company continues to work with leaders in the insurance industry to allow for premium discounts and lower deductibles for use of Eddy Products.

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 founder joined the Company’s leadership team.

The acquisition constituted a business combination and was accounted for under the acquisition method and Reed's operating results have been included in these consolidated financial statements since the acquisition date. For the year ended December 31, 2023, revenue was $776,133 (2022 - $597,928) and loss of $544,225 (2022 - loss of $381,199) was included in the consolidated statement of loss and

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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Management’s Discussion & Analysis

comprehensive loss. The 2023, loss of $544,255 (2022 - $381,199), includes amortization of intangible assets of $291,214 (2022 - $253,639) and impairment of intangible assets of $313,072 (2022 - $224,075).

REVERSE TAKEOVER TRANSACTION

On January 12, 2022, the Company (Aumento at the time) acquired all 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”), which was done retrospectively to all the shares and per share disclosure of ESHSI. 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.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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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, 2023, the Company generated a net loss of $10,568,211 (2022 - $11,800,950) and negative cash flows from operating activities of $2,429,341 (2022 - $10,334,875). As at December 31, 2023, the Company had a negative working capital position of $6,642,566 (2022 - positive working capital of $440,892) and an accumulated deficit of $62,397,914 (2022 - $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.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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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.

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: Multi-Family Residential (“MFR”), Single-Family Residential (“SFR”), and Commercial & Institutional (“C&I”) buildings.

The Company has invested and now has significant 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 including Insurance Companies, Telecommunications Companies, Mechanical and Engineering Groups and Real Estate Developers.

The wholly owned operating subsidiaries of the Company are Eddy Smart Home Solutions Inc., Eddy Home Inc., Eddy Home Distribution Inc., Municipal Water Savings California Corp., and Reed Controls Inc. Effective January 1, 2023, the Company completed an amalgamation, the wholly owned operating subsidiaries post amalgamation are Eddy Smart Home Solutions Inc., 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, 2023, Total revenue was comprised of MFR at 80%, SFR at 16% and C&I at 4%.

• For the year ended December 31, 2022, Total revenue was comprised of MFR at 76%, SFR at 22% and C&I at 2%.

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

PRODUCTS AND SERVICES

The Company offers its products and services under the Eddy Solutions brand. 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 monitoring services designed to detect and prevent water leaks. 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 mitigate water damage.

The Company’s product and service offering consists of a hardware and software component that work together to provide comprehensive leak protection. The primary hardware components include equipment such as water meters that measure the flow of water through pipes (Eddy IQ), wireless sensors that detect the presence of water shutoff valves that can turn off water flow in the building (Eddy H20) and gateways which allow the devices to communicate with each other and with the Company’s

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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Management’s Discussion & Analysis

monitoring center (Eddy IQ). The Company’s software component is its monitoring service which is based on its cloud-based platform that tracks and stores data from the subscriber’s devices.

SEGMENTS

The Company reports results on three operating and reportable segments: MFR, SFR, and C&I. 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 SFR segment consists of singlefamily homes, with each single-family home constituting one subscriber. The C&I segment consists of buildings used for commercial and industrial activities such as office buildings, warehousing, institutions and health care centers.

The Company is concentrated on the Canadian Market with less large-scale deployment in the United States. Subscriber Counts will be delineated based on device type rather than MFR, SFR, and C&I in future reporting.

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Three months ended Year ended
December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022
Canada 95% 93% 93% 89%
USA 5% 7% 7% 11%
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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. The primary sales channels are insurance carriers, submetering companies and developers.

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 is exploring options to outsource product installation across North America to bolster sales in non-Canadian markets.

MONITORING CENTRE AND SUPPORT SERVICES

The Company’s monitoring center and customer support personnel are located in Toronto. The Company’s monitoring center provides 24/7 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 co-ordination for water leak events.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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Management’s Discussion & Analysis

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 years ended December 31, 2023, and 2022 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) foreign exchange, (b) share-based compensation expense, and (c) non-recurring items.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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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,
2023 2022 2023 2022
$ $ $ $
Net Loss (4,404,094) (3,170,998) (10,568,211) (11,800,950)
(-/+) Finance Costs 221,225 (5,713) 777,110 141,992
(+) Depreciation, Property and Equipment 24,472 25,548 102,817 83,656
(+) Depreciation, Fulfillment Assets 92,412 58,466 339,135 247,940
(+) Amortization, intangible assets 1,304 96,637 291,215 253,639
(+) Amortization, Right-of-Use Assets 18,365 26,869 77,067 107,478
Reported EBITDA (4,046,316) (2,969,191) (8,980,867) (10,966,245)
(+/-) Foreign exchange (36,286) 4,423 (10,860) 107,010
(+) Share-based Compensation Expense 27,863 221,212 50,330 773,240
(+) Impairment of intangible assets and goodwill 3,367,407 224,075 3,367,407 224,075
-- --
(-) Gain on lease modification (322,908) (322,908)
-- --
(-) Gain on derecognition of liability (107,483) (107,483)
(-/+) Finance expense/(income) 15,385 (56,080) 15,385 (56,080)
(+) Listing Expense -- -- -- 902,673
Adjusted EBITDA (1,102,338) (2,575,561) (5,988,996) (9,015,327)
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Reported EBITDA for the three months ended December 31, 2023, decreased by $1,077,125 to ($4,046,316) as compared to ($2,969,191) reported in the comparable period for 2022. For the year ended December 31, 2023, the Reported EBITDA increased by $1,985,378 to ($8,980,867) as compared to ($10,966,245) reported in the comparable period for 2022.

Adjusted EBITDA for the three months ended December 31, 2023, increased by $1,473,223 to ($1,102,338) as compared to ($2,575,561) reported in the comparable period for 2022. For the year ended December 31, 2023, the Reported EBITDA increased by $3,026,331 to ($5,988,996) as compared to ($9,015,327) reported in the comparable period for 2022.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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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,
2023 2022 2023 2022
Consolidated statement of operations highlights
$ $ $ $
Revenue - MFR 981,819 792,944 2,726,286 1,945,317
Revenue - SFR 123,369 133,163 545,419 569,841
Revenue - C&I 57,818 (20,168) 137,367 48,694
Total revenue 1,163,006 905,939 3,409,072 2,563,852
Net loss (4,404,094) (3,170,998) (10,568,211) (11,800,950)
Net loss per share - basic and diluted ($0.05) ($0.04) ($0.13) ($0.16)
Non-IFRS measures
Reported EBITDA () (4,046,316) (2,969,191) (8,980,867) (10,966,245)
Adjusted EBITDA () (1,102,338) (2,575,561) (5,988,996) (9,015,327)
As at December As at December
31, 2023 31, 2022
Consolidated statement of financial position highlights
$ $
Total assets 11,336,494 15,611,293
Total liabilities 17,894,947 11,671,435
Total shareholders (deficiency)/equity (6,558,453) 3,939,858
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______ (*) Refer to the “Non-IFRS Financial and Performance Measures” section of this MD&A.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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Management’s Discussion & Analysis

CONSOLIDATED RESULTS OF OPERATIONS

For the years ended December 31, 2023, and 2022.

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Three months ended Year ended
December 31, December 31, December 31, December 31,
2023 2022 2023 2022
$ $ $ $
Revenue 1,163,006 905,939 3,409,072 2,563,852
Expenses
Cost of Sales 592,177 269,020 1,971,515 1,123,303
Selling 222,730 540,671 1,051,317 1,888,969
General and administrative 1,627,231 3,051,057 7,250,983 10,907,281
2,442,138 3,860,748 10,273,815 13,919,553
Operating loss (1,279,132) (2,954,809) (6,864,743) (11,355,701)
Interest income 18,561 6,596 21,366 27,828
Gain/(Loss) on foreign exchange 14,718 (4,423) (10,708) (107,010)
Impairment of intangible assets and goodwill (3,367,407) (224,075) (3,367,407) (224,075)
Gain on lease modification 322,908 - 322,908 -
-
Gain on derecognition of liability 107,483 107,483
Finance (cost)/income (221,225) 5,713 (777,110) (141,992)
Net loss before income taxes (4,404,094) (3,170,998) (10,568,211) (11,800,950)
Income taxes - - - -
Net loss (4,404,094) (3,170,998) (10,568,211) (11,800,950)
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REVENUE AND COST OF SALES

Revenue

The Company accounts for revenue from contracts with customers in accordance with IFRS 15: (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.

Performance obligations from contracts with customers	Timing of the satisfaction of theperformance obligation
Integrated	Equipment and monitoring revenue recognized when commissioned, over the contract term on a straight-line basis
Third party installations	Installations services that can be performed by third parties, are recognized when commissioned
Equipment and installations	When the equipment is delivered and installed,at apoint in time
Monitoring	As the service isprovided over theperiod

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

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Management’s Discussion & Analysis

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September 30, September 30, December 31, December 31,
2023 2023 2023 2022
Eddy integrated 480,509 413,708 2,335,801 1,675,724
Eddy third party installations 3,874 15,247 297,138 290,199
Reed equipment and installation 51,648 159,677 603,762 463,787
Reed monitoring 105,810 82,825 172,371 134,142
641,841 671,457 3,409,072 2,563,852
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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,
2023 2022 2023 2022
$ $ $ $
MFR - Revenue 981,819 792,944 2,726,286 1,945,317
SFR - Revenue 123,369 133,163 545,419 569,841
C&I - Revenue 57,818 (20,168) 137,367 48,694
1,163,006 905,939 3,409,072 2,563,852
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Revenue for the three months ended December 31, 2023, increased by $257,067. Revenue for the year ended December 31, 2023, increased by $845,220. MFR revenue increased due to more deployments resulting in a higher customer subscription count, SFR revenue marginally decreased due to California attrition offsetting new customer additions in Ontario, and C&I revenue increased due to more projects being completed during 2023.

Cost of sales

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Three months ended Year ended
December 31, December 31, December 31, December 31,
2023 2022 2023 2022
$ $ $ $
MFR - COS 505,349 258,514 1,576,649 852,304
SFR - COS 56,238 24,655 315,424 249,665
C&I - COS 30,589 (14,149) 79,441 21,334
592,176 269,020 1,971,515 1,123,303
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Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 12

Management’s Discussion & Analysis

	Three months ended	Three months ended	Year ended	Year ended
	December 31,	December 31,	December 31,	December 31,
	2023	2022	2023	2022
	$	$	$	$
Share-based compensation	7,695	68,510	49,581	130,035
Materials and labour	110,945	205,649	641,481	482,629
Provision for inventory	173,398	(204,391)	223,048	(193,355)
Warehouse rent	16,500	16,500	66,000	66,000
Monitoring service	125,872	(33,146)	387,205	147,701
Depreciation on costs to obtain and fulfill contracts	92,412	58,466	339,135	247,940
Licensing andnetwork fees	65,355	157,432	265,065	242,353
	592,176	269,020	1,971,515	1,123,303

For the three months ended December 31, 2023, the cost of sales increased by $323,156 over the comparable period, as a result of an increase in a provision related to slow moving inventory and higher monitoring fees and depreciation on costs to obtain and fulfill a contract, this was offset by a decrease in share-based compensation due to staff departures, materials and labour and licensing and network fees.

For the year ended December 31, 2023, the cost of sales increased by $848,212 over the comparable year, as a result of increases in materials and labour, provision for inventory, monitoring services, depreciation on costs to obtain and fulfill a contract and licensing and network fees. This was offset by a decrease in share-based compensation due to staff departures.

Gross margin

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

Three months ended Year ended
December 31, December 31, December 31, December 31,
2023 2022 2023 2022
$ $ $ $
MFR - GM 476,470 534,430 1,149,637 1,093,013
SFR - GM 67,131 108,508 229,995 320,176
C&I - GM 27,229 (6,019) 57,926 27,360
570,830 636,919 1,437,557 1,440,549
----- End of picture text -----

For the three months ended December 31, 2023, the gross margin decreased by $66,089 over the comparable period, which is comprised of MFR gross margin decrease of $57,960, SFR gross margin decrease of $41,377, and C&I gross margin increase of $33,248. The gross margin when adjusted for the provision for slow moving items and share-based compensation, both non-cash items, reflects an operational gross margin of $751,922 which is an improvement over the comparable period of $501,038.

For the year ended December 31, 2023, the gross margin decreased by $2,992 over the comparable year, which is comprised of MFR gross margin increase of $56,624, SFR gross margin decrease of $90,181 and C&I gross margin increased by $30,566. The gross margin when adjusted for the provision for slow moving items and share-based compensation, both non-cash items, reflects an operational gross margin of $1,710,186 which is an improvement over the comparable year of $1,377,229.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 13

Management’s Discussion & Analysis

GENERAL & ADMINISTRATIVE EXPENSES

General & administrative expense primarily includes wages and benefits for office staff, consulting expense, professional fees, IT maintenance, dues and subscriptions, provision for expected credit losses, share-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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Three months ended Year ended
December 31, December 31, December 31, December 31,
2023 2022 2023 2022
$ $ $ $
Wages and benefits 913,806 1,297,751 3,702,197 4,364,823
Consulting expense 231,927 311,575 735,008 1,308,165
Professional fees 12,467 508,678 767,504 1,518,356
IT maintenance 36,982 10,245 172,258 208,563
Dues and subscriptions 37,327 199,473 179,219 377,354
Provision for expected credit losses 50,548 (41,214) 26,571 78,626
Share-based compensation 21,199 125,998 121,204 522,307
Depreciation on property and equipment 24,472 25,548 102,817 83,656
Amortization of intangible assets 1,304 96,637 291,215 253,639
Amortization on right-of-use assets 18,365 26,869 77,067 107,478
- - -
Listing expenses 902,673
Inventory write-down 55,842 124,252 430,509 48,436
Administrative 222,992 365,246 645,414 1,133,205
1,627,231 3,051,058 7,250,983 10,907,281
----- End of picture text -----

For the three months ended December 31, 2023, general and administrative expenses decreased by $1,423,826 as compared to 2022. For the year ended December 31, 2023, general & administrative expense decreased by $3,656,297, as compared to 2022. For 2022, excluding the listing expense of $902,673, a non-recurring, non-cash item related to the RTO Transaction (which took place in January 2022), the adjusted general & administrative expense was $10,004,608, for an adjusted decrease of $2,753,625 over the comparable year). Starting in Q2/2023, the Company performed an operational review and implemented improvements in operational processes which included spend and staffing rationalizations resulting in a significant reduction in general and administrative expenses.

SELLING EXPENSES

Selling expense primarily includes salaries, marketing promotions, share-based compensation for sales staff, commission expense to developer and customer, sales commission, warranty reserve and general.

	Three months ended	Three months ended	Year ended	Year ended
	December 31,	December 31,	December 31,	December 31,
	2023	2022	2023	2022
Salaries and commissions	102,351	228,491	756,555	1,143,170
Marketing promotions	4,378	50,947	34,990	100,014
Stock-based compensation	(1,031)	26,704	(120,455)	120,898
Commission expense to developer and
customer	34,566	38,272	114,296	94,972
Sales commission	(1,088)	122,265	39,484	156,563
Warranty reserve	83,568	27,732	215,900	165,477
General	(14)	46,260	10,547	107,875
	222,730	540,671	1,051,317	1,888,969

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 14

Management’s Discussion & Analysis

For the three months ended December 31, 2023, selling expenses decreased by $317,941 over the comparable period. For the year ended December 31, 2023, selling expenses decreased by $837,652 compared to 2022. Starting in Q2/2023, the Company performed an operational review which included spend and staffing rationalization resulting in a significant reduction in selling expenses.

PROVISION FOR CREDIT LOSSES ON ACCOUNTS RECEIVABLE

See Note 19 of the Company’s audited consolidated financial statements for the years ended December 31, 2023, and 2022 for additional details of the provision for credit losses on accounts receivable by the Company’s operating segments (MFR, SFR and C&I).

DEPRECIATION ON COSTS TO OBTAIN AND FULFILL CONTRACTS

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.

For the three months ended December 31, 2023, depreciation on cost to obtain and fulfill contacts was $92,412 (2022 – $58,466). For the year ended December 31, 2023, depreciation on cost to obtain and fulfill contacts was $339,135 as compared to $247,940 reported in 2022.

As at December 31, 2023 the carrying amount of the cost to obtain and fulfill contracts as was $4,493,212 (December 31, 2022 – $2,450,243). The carrying amount of the cost to obtain and fulfill contracts as at December 31, 2023, increased as more MFR projects were completed during the year.

DEPRECIATION ON PROPERTY AND EQUIPMENT

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

Depreciation on property and equipment for the three months ended December 31, 2023, decreased by $1,076 to $24,472 as compared to $25,548 reported for the comparable period in 2022.

Depreciation on property and equipment for the year ended December 31, 2023, increased by $19,161 to $102,817 as compared to $83,656 reported for the comparable period in 2022. The acquisition of Reed during 2022 resulted in an addition of computer hardware in the amount of $2,745.

On December 27, 2023, the Company exited its head office lease, as a result the Company recorded disposals related to furniture and fixtures, office equipment and leasehold improvements. See notes 9 and 10 of the accompanying audited consolidated financial statements regarding the exit of the head office lease and the disposal of property and equipment.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 15

Management’s Discussion & Analysis

AMORTIZATION ON RIGHT-OF-USE ASSETS

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

For the three months ended December 31, 2023, deprecation on right-of-use assets was $18,365 (2022 – $26,869). For the year ended December 31, 2023, deprecation on right-of-use assets was $77,067 (2022 – $107,478).

On December 27, 2023, the Company and the Landlord agreed to settle for an inclusive sum of $70,625 (including HST) in connection to the head office lease, as a result of the exit from the lease, the Company recorded a lease modification related the right-of-use assets. See note 9 of the accompanying audited consolidated financial statements regarding right-of-use assets.

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 (see Strategic Acquisition section of the MD&A).

For the three months ended December 31, 2023, amortization of intangible assets was $1,304 (2022 - $96,637). For the year ended December 31, 2023, amortization of intangible assets was $291,214 (2022 - $253,639).

IMPAIRMENT OF INTANGIBLE ASSETS AND GOODWILL

As at December 31, 2023, the carrying value of the intangible assets (comprised of customer relationships, order backlog, technology and brand) was $nil (2022 - $604,286). The carrying value was determined to exceed the recoverable amount of the intangible assets resulting in an impairment charge of $313,072 (2022 - $224,075).

As at December 31, 2023, the recoverable amount for the Eddy CGU was assessed to not be sufficient to support the goodwill carrying amount resulting in an impairment charge of $3,054,335 (2022 - $nil).

INCOME TAXES

As at December 31, 2023, the Company’s operating losses carried forward amounted to $61,406,339 (2022 - $53,434,605), which includes US $2,280,768 (2022 - US $2,182,075) related to the US operations, available to reduce future years' income for tax purposes which expire between 2034 and 2043. The potential tax benefit of these loses has not been recognized.

Note 25 of the Company’s audited consolidated financial statements for the years ended December 31, 2023, and 2022 presents the reconciliation of income tax, deferred tax and operating losses carried forward for the years ended December 31, 2023, and 2022.

BASIC AND DILUTED LOSS PER SHARE

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

2023 2022
$ $
Net loss for the year (10,568,211) (11,800,950)
Weighted average number of common shares outstanding 79,528,619 74,170,458
Basic and diluted loss per share ($0.13) ($0.16)
----- End of picture text -----

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 16

Management’s Discussion & Analysis

As at December 31, 2023, 79,528,619 (December 31, 2022 - 79,528,619) Common Shares were issued and outstanding.

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 year ended December 31, 2023, and 2022, the Company’s source of potential dilution to the Common Shares are stock options and warrants. For the year ended December 30, 2023, an adjustment was not required as there were no in-the-money stock options or warrants. As a result, diluted earnings per share is equal to basic earnings per share for the year ended December 31, 2023, and 2022.

CONSOLIDATED FINANCIAL POSITION

TOTAL ASSETS

Total assets as at December 31, 2023, decreased by $4,274,799 to $11,336,494 as compared to $15,611,293 reported as at December 31, 2022. The decease is a result of lower carrying values for accounts receivable and contract assets by $831,530 (largely as a result of improved collections during the year), prepaid expenses of $868,472 (due less upfront inventory purchases), inventory of $1,167,939 (due to more deployments during the year), right-of-use assets of $266,057 (due to exiting the head office lease), property and equipment of $217,824 (the reduction is largely related to the head office lease exist) and intangible assets and goodwill of $3,658,621 (which comprised of amortization of intangible assets of $291,214, impairment of intangible assets of $313,072 and goodwill impairment of $3,054,335). Which was offset by an increase in the carrying value of costs to obtain and fulfill contracts of $2,042,969 (due to more deployments of water monitoring equipment during the year) and an increase in the cash balance of $691,359.

TOTAL LIABILITIES

Total liabilities as at December 31, 2023, increased by $6,223,512 to $17,894,947 as compared to $11,671,435 reported as at December 31, 2022. The increase is a result of higher carrying value of deferred revenue of $2,992,537 (largely due to more MFR and C&I projects deployments during the year), and the debt facilities in the amount of $4,075,910 (financing to support working capital requirements). This was offset by decreases in the carrying values of accounts payable and accrued liabilities of $169,530, lease liabilities in the amount of $635,405 (related to the exit of the head office lease) and loans payable of $40,000 (due to repayment of the CEBA loan).

TOTAL SHAREHOLDERS’ (DEFICIENCY)/EQUITY

Total shareholders’ (deficiency)/equity as at December 31, 2023, decreased by $10,498,311 ($6,558,453) as compared to $3,939,858 as at December 31, 2022. The deficit increased by $10,568,211, which was offset by an increase to contributed surplus of $68,829 (largely due to sharebased compensation) and accumulated other comprehensive income of $1,071.

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, 2023.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 17

Management’s Discussion & Analysis

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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, December 31, 2022 - $ - - $ - 79,528,619 $ 53,539,723
Balance, December 31, 2023 - $ - - $ - 79,528,619 $ 53,539,723
----- End of picture text -----

The following Common Shares were issued and outstanding as at December 31, 2022.

	ESHSI	ESHSI	common and class Bpreferred shares	common and class Bpreferred shares	common and class Bpreferred shares		Common Shares	Common 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, December 31, 2021	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

On May 4, 2022, the Company acquired 100% of 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 (see Strategic Acquisition section of the MD&A).

On January 12, 2022, upon the closing of the Qualifying Transaction, 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 ESHI common share (see Reverse Takeover Transaction section of the MD&A).

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.

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 fair value of the shares 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 unit installs targets which 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, were subject to a contractual restriction on transfer pursuant to the terms of a lock-up

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 18

Management’s Discussion & Analysis

agreement entered into by certain holders of ESHSI securities and ESHSI. As at December 31, 2023, approximately 9% of these shares were subject to lock-up (which will come out of lockup during January 2024).

Upon the completion of the acquisition of Reed, the Share Consideration was subject to a twenty-four (24) month lock-up period. As at December 31, 2023, approximately 25% of the Share Consideration is subject to lock-up (approximately 12.5% will come out of lock-up during each of February 2024 and May 2024).

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: MFR, SFR 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:

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Year ended December 31, 2023 MFR SFR C&I Corporate Total
$ $ $ $ $
Revenue 2,726,286 545,419 137,367 - 3,409,072
-
Cost of sales (note 21) 1,576,649 315,424 79,441 1,971,515
-
Selling (note 22) 840,755 168,201 42,362 1,051,317
- - -
General and administrative (note 23) 7,250,983 7,250,983
Interest income - - - (21,366) (21,366)
- - -
Loss on foreign exchange 10,708 10,708
- - -
Impairment (note 11) 3,367,407 3,367,407
- - -
Gain on lease modification (note 9) (322,908) (322,908)
- - -
Gain on derecognition of liability (107,483) (107,483)
- - -
Finance costs (note 24) 777,110 777,110
Income taxes (note 25) - - - - -
Net loss 308,882 61,795 15,563 (10,954,451) (10,568,211)
Year ended December 31, 2022 MFR SFR C&I Corporate Total
$ $ $ $ $
Revenue 1,945,317 569,841 48,694 - 2,563,852
-
Cost of sales (note 21) 852,304 249,665 21,334 1,123,303
-
Selling (note 22) 1,433,251 419,842 35,876 1,888,969
- - -
General and administrative (note 23) 10,907,281 10,907,281
Interest income - - - (27,828) (27,828)
- - -
Loss on foreign exchange 107,010 107,010
- - -
Loss on foreign exchange 224,075 224,075
- - -
Finance costs (note 24) 141,992 141,992
Income taxes (note 25) - - - - -
Net loss (340,238) (99,666) (8,517) (11,352,530) (11,800,950)
----- End of picture text -----

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

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 19

Management’s Discussion & Analysis

QUARTERLY FINANCIAL INFORMATION

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

December 31, September 30, June 30, March 31, December 31, September 30, June 30, March 31,
2023 2023 2023 2023 2022 2022 2022 2022
$ $ $ $ $ $
Revenue 1,163,006 763,443 540,260 942,363 905,939 693,681 545,811 418,421
Expenses
Cost of sales 592,177 460,804 371,260 547,274 269,020 353,143 258,853 242,287
Selling 222,730 274,999 193,821 359,767 540,671 448,187 542,798 357,313
General and administrative 1,627,231 1,773,141 1,904,324 1,946,287 3,051,057 2,388,644 2,316,380 3,151,200
2,442,138 2,508,944 2,469,405 2,853,328 3,860,748 3,189,974 3,118,031 3,750,800
(1,279,132) (1,745,501) (1,929,145) (1,910,965) (2,954,809) (2,496,293) (2,572,220) (3,332,379)
Interest income 18,561 1,480 1,003 322 6,596 1,786 9,821 9,625
(Loss)/gain on foreign exchange 14,718 (15,851) 4,706 (14,281) (4,423) (68,055) (18,625) (15,907)
Impairment of intangible assets (3,367,407) - - - (224,075) - - -
Gain on lease modification 322,908 - - - - - - -
Gain on derecognition of liability 107,483 - - - - - - -
Finance costs (221,225) (222,420) (206,096) (127,369) 5,713 (15,617) (16,450) (115,638)
Income taxes - - - - - - - -
Net loss (4,404,094) (1,982,292) (2,129,532) (2,052,293) (3,170,998) (2,578,179) (2,597,474) (3,454,299)
Loss per share - basic and diluted ($0.05) ($0.02) ($0.03) ($0.03) ($0.04) ($0.03) ($0.03) ($0.06)
----- 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, 2023 and 2022.

During the year ended December 31, 2023, and 2022, there were no transfers between Level 1, Level 2 or Level 3 fair value measurements.

RELATED PARTY TRANSACTIONS

See note 17 of the accompanying audited consolidated financial statements regarding related party transactions and balances as at December 31, 2023 and 2022.

KEY MANAGEMENT PERSONNEL COMPENSATION

For the years ended December 31, 2023, and 2022, the compensation awarded to key management personnel is as follows:

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September 30, September 30, December 31, December 31,
2023 2022 2023 2022
$ $ $ $
Salaries, fees and other short-term benefits 123,384 305,208 903,010 1,471,397
Share-based compensation 25,396 99,103 144,856 637,576
148,780 404,311 1,047,866 2,108,973
----- 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. Management changes during the period results in the forfeiture and expiry of prior granted stock options.

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 20

Management’s Discussion & Analysis

CONTINGENCIES

See note 18 of the accompanying audited consolidated financial statements regarding contingencies as at December 31, 2023 and 2022.

CONTRACTUAL OBLIGATIONS

Contractual obligations as at December 31, 2023 are due as follows:

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Less than 6
Total months 6 - 12 months 1 - 3 years 4 - 5 years
Accounts payable and accrued liabilities
(note 13) 4,978,411 2,969,152 2,009,259 - -
Debt facilities 6,361,499 6,361,499 - -
Loan payable (note 14) 40,000 40,000 - - -
11,379,910 9,370,651 2,009,259 - -
----- End of picture text -----

Accounts payable and accrued liabilities includes a warranty provision of $199,370 (December 31, 2022 - $89,120), related to water monitoring equipment.

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 period. It focuses on the unpredictability of financial markets and seeks to 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

Eddy Smart Home Solutions Ltd. (formerly Aumento Capital VIII Corp.) • 2023 • Forth Quarter

Page | 21

Management’s Discussion & Analysis

due. The Company incurred additional costs associated with operating as a public company. The Company may require additional working capital to fund growth.

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Three months ended Year ended
December 31, December 31, December 31, December 31,
2023 2022 2023 2022
Cash Flow From Operating Activities $468,077 ($2,020,456) ($2,429,341) ($10,334,875)
Cash Flow From Investing Activities ($4,316) ($101,545) ($13,197) $383,734
Cash Flow From Financing Activities ($95,882) $2,200,472 $3,132,825 $10,264,854
Foreign exchange ($1,277) ($4,047) $1,071 $25,372
Change in Cash During the Period $366,602 $74,424 $691,358 $339,085
Opening Cash Balance $775,065 $375,887 $450,310 $111,225
Ending Cash Balance $1,141,668 $450,310 $1,141,669 $450,310
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Cash flow (used in) operating activities

The cash flows used in operations for the three months ended December 31, 2023, increased by $2,488,533 to $468,077 from ($2,020,456) over the comparable period.

The cash flows used in operations for year ended December 31, 2023, increased by $7,905,534 to ($2,429,341) from ($10,334,875) over the comparable period. The increase in the operating cash outflows is primarily due to a lesser net loss for the year, changes in the non-cash items and improvements in working capital management.

Cash flow from (used in) investing activities

The cash flows used in investing activities for the three months ended December 31, 2023, increased by $97,229 to ($4,316) from ($101,545) over the comparable period.

The cash flows used in investing activities for the year ended December 31, 2023, decreased by $396,931 to ($13,197) from $383,734 over the comparable period. The investing activity during the comparable period include cash acquired through a Reverse Takeover in the amount of $418,802 during Q1/2022 and cash acquired through the acquisition of Reed controls in the amount of $105,939 during Q2/2022, which is offset by the purchase of property and equipment.

Cash flow from financing activities

The cash flows from financing activities for the three months ended December 31, 2023, decreased by $2,296,354 to ($95,882) from $2,220,472 over the comparable period.

The cash flows from financing activities for the year ended December 31, 2023, decreased by $7,132,029 to $3,132,825 from $10,264,854 over the comparable period. The financing activity during the current year consists primarily of draws on the credit facilities in the amount of $3,393,554 and repayment of the CEBA loan of $40,000. The financing activities for the comparable year consists primarily of proceeds from an equity offering which amounted to $12,308,260 (which had issuance costs of $981,203) and the repayment of demand loans amounted to $3,000,000 with the corresponding interest of $114,088 during Q1/2022 and a draw on the credit facility in the amount of $2,250,000 during Q4/2022.

CREDIT RISK

The Company’s main credit risks relate to its trade accounts receivable. 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

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Management’s Discussion & Analysis

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. Such reviews are conducted on a forward-looking basis and reviewed when changes in client or economic circumstances exist that would create doubt over the receipt of funds within the next twelve months. For the year ended December 31, 2023, the accounts receivable written off amounted to $19,516 (2022 - $95,696). 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 present the provision for credit loses on accounts receivable as at December 31, 2023 and 2022.

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.

Regarding currency exposure, if the Canadian dollar had been 5% stronger/weaker versus the US dollar for the year ended December 31, 2023, with all other variables held constant, income for the period would have been $53 higher/lower (2022 – $1,230).

For the year ended December 31, 2023, approximately 7% (2022 – 11%) of the Company’s total sales were in US dollars. Consequently, some assets are exposed to foreign exchange fluctuations.

US dollar denominated balances include operating cash and accounts receivable and contracted assets. As at December 31, 2023, operating cash was $93,923 (US $71,014) and accounts receivable and contract assets of $22,238 (US $16,814). As at December 31, 2022, operating cash was $94,038 (US $69,432) and accounts receivable and contract assets of $17,918 (US $13,229).

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Management’s Discussion & Analysis

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.

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

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Management’s Discussion & Analysis

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. 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.

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Management’s Discussion & Analysis

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. For SFR customers the Company will be responsible for the capital cost and installation fees related to replacing the wireless sensors during the contract term. 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 SFR 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, 2023, and 2022.

SUBSEQUENT EVENT

On February 7, 2024, a claim was filed by a vendor in the amount of US $187,105 against the Company relating to liquidated damages. The Company will defend its position in relation to this claim.

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