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FOBI AI Inc. Management Reports 2026
47806_rns_2026-03-30_42001bd1-a1c6-4e61-a3a3-51a4430b7ab2.pdf
Management Reports
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FOBI AI INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED DECEMBER 31, 2025
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Period Ended December 31, 2025
INTRODUCTION
The following Management's Discussion and Analysis ("MD&A") of Fobi AI Inc. ("Fobi", "We" or "the Company") is dated March 27, 2026, and has been prepared by Management in accordance with the requirements of National Instrument 51-102 - Continuous Disclosure Obligations ("NI 51-102"). The information contained in this MD&A is not a substitute for detailed investigation or analysis on any particular issue. The information provided in this MD&A is not intended to be a comprehensive review of all matters and developments concerning the Company.
This MD&A should be read in conjunction with the Company's unaudited condensed consolidated interim financial statements for the three and six months ended December 31, 2025 (the "Interim Financial Statements") and the comparative periods ended December 31, 2024, the related notes therein, as well as the Company's audited consolidated financial statements for the fiscal year ended June 30, 2025 (the "Annual Financial Statements"), all of which have been prepared under International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). All references to dollar amounts are in Canadian dollars unless otherwise noted.
The Interim Financial Statements have been prepared without an auditor review. In accordance with NI 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed consolidated interim financial statements, they must be accompanied by a notice indicating that an auditor has not reviewed the financial statements.
FORWARD LOOKING STATEMENTS
This MD&A contains certain forward-looking statements and information relating to the Company that are based on the beliefs of management as well as assumptions made by, and information currently available to, management. When used in this document the words "anticipate", "believe", "estimate", "expect" and similar expressions, as they relate to the Company or management, are intended to identify forward-looking statements. This MD&A contains forward-looking statements relating to, among other matters, regulatory compliance, the sufficiency of current and future working capital and the estimated cost and availability of funding for the continued development of the Company's technological property, as well as its overall business development. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements, including but not limited to: the Company's ability to raise additional financing, market and competitive conditions, general economic conditions, ability to retain key personnel, and changes in applicable regulations.
COMPANY OVERVIEW
Fobi AI (TSXV: FOBI) is a Company involved in Artificial Intelligence ("AI"), Web3 technology platforms, and digital wallet products and technology. We are a provider of product and capability which can deliver end-to-end execution from strategic advisory through proprietary technology deployment and can do so with live, production-scale systems. With over 100 million wallet passes issued across 150+ countries, the Company operates commercially-licensed AI systems on Canadian-hosted infrastructure. This provides our client and customer enterprises with private AI capabilities where public platforms cannot be used due to data privacy restrictions and concern, as well addressing regulatory requirements. Unlike legacy consulting firms that deliver strategy without implementation capability, Fobi's consultancy-plus-technology model integrates strategic vision with owned technology stack and production-proven systems at scale.
The Company operating portfolio includes Qples, our U.S. retail and CPG coupon subsidiary built on the 8110 industry standard; PulseIR, our investor engagement and digital wallet platform; and Passwords S.A., our European wallet pass subsidiary.
On June 11, 2025, the Company completed the strategic divestiture of Fobi AI Germany GmbH (formerly operating under the Passcreator brand), a European wallet pass subsidiary, to create further focus on scaling Qples, PulseIR, and Passwords, and the core FOBI business assets, across key global markets and target industries. The Company retains a 48-month, non-exclusive worldwide license to continue use of the platform technology. As a result of this divestiture, the results of Fobi AI Germany GmbH are presented as discontinued operations for all periods presented.
Fobi's products and solutions are applied in industries including sports and entertainment, telecommunications, financial services, insurance, hospitality and retail. Fobi's capabilities enable client and partner enterprises to deliver personalized, real-time customer experiences at scale. The Company's strategy is to simplify adoption, embed and deliver its products seamlessly into existing client information technology infrastructure and then ultimately capture, collect, analyze and transform data into enterprise value.
The Company expects to generate revenues across three primary areas: through consulting engagements supporting customers as they deploy and expand technology initiatives aligned with Fobi products and services; through the sale of software as a service offerings and associated analytics; and, through licensing and deployment of our proprietary technology which incorporate artificial intelligence and multi-platform data layering.
FOBI AI BRANDS AND ASSETS
(Listed chronologically by year of original development or acquisition)
2021 - PulseIR - Investor relations and digital wallet platform delivering real-time two-way communication and lock-screen notifications to shareholders, with segmentation and analytics tools. This business line is currently paused pending future growth capital.
2021 - Qples - U.S.-based coupon management subsidiary for consumer-packaged goods brands enabling the creation, distribution, and tracking of print-at-home and digital coupons integrated with the 8110 industry standard. The Company intends to continue maintaining and updating Qples in line with evolving industry standards including fraud detection and validation processes.
2021 - PassWallet - An intellectual property acquisition of a proprietary mobile wallet application enabling users to store, organize, update, and use digital passes, currencies, and identifications such as boarding passes, loyalty cards, tickets, vouchers, and coupons delivered via email, SMS, barcode, or QR code.
2022 - Passwords S.A. - European wallet pass subsidiary enabling brands to issue mobile coupons, loyalty cards, and event tickets directly to Apple Wallet and Google Pay, with a focus on retail and ticketing.
2025 - Fobi AI Germany GmbH (Divestiture) - Former German wallet pass subsidiary, divested on June 11, 2025. Fobi retains a 48-month, non-exclusive worldwide license to continue use of the platform technology.
ALIGNMENT WITH ARTIFICIAL INTELLIGENCE AND WEB3
Fobi has been developing AI automation and Blockchain infrastructure for its entire existence, positioning the Company at the convergence of three technology trends before they became mainstream enterprise priorities. The Company operates proprietary AI systems built on commercially-licensed models, and deployed on Canadian-hosted infrastructure, providing enterprises with private AI capabilities where public platforms cannot be used due to data privacy and regulatory requirements. This production-grade AI architecture has been validated through live deployments and can process and manage thousands of automated operations across the Company's digital wallet infrastructure.
Fobi's digital wallet platform has over 100 million passes issued and exists in 150+ countries. The platform was built natively for Web3 integration rather than retrofitted from legacy systems. The architecture supports tokenization, credentials verification, and customer-owned data models, and positions the platform as infrastructure for the ownership economy.
A Chief Technology Officer with relevant AI and Web3 expertise was appointed in July 2025 to oversee a continuation and enhancement of the technology platform development, expansion and migration to next-generation architecture. This positions Fobi to capture market share as client and customer enterprises shift from strategy consultation to execution-focused deployment. The Company is focused toward an estimated $500 billion addressable market at the convergence of AI automation, mobile engagement, and Web3 infrastructure.
CAPITAL MARKETS EQUITY STATUS - AUDIT / FINANCIAL STATEMENTS
Due to certain audit and financial statement filing matters and delays, the Company's common stock was temporarily suspended from public trading during the fiscal year end 2025 by the
relevant Canadian oversight exchange regulators. The Company has since filed updated audits and financial statements for the fiscal years ended June 30, 2024 and June 30, 2025.
On December 12, 2025, the British Columbia Securities Commission ("BCSC") issued a Partial Revocation Order permitting the Company to conduct a private placement offering of up to 30,000,000 units at $0.05 per unit. Subsequent to the quarter end, the Company completed two tranches of this private placement raising aggregate gross proceeds of $1,004,200. Management continues to work toward full revocation of the cease trade order and the resumption of normal public trading of the Company's common shares.
OVERALL PERFORMANCE
Announcements and Highlights during the three and six months ended December 31, 2025:
Revenue from continuing operations for the three months ended December 31, 2025 was $295,394, an increase of $183,603, or approximately 164%, compared to $111,791 for the three months ended December 31, 2024. For the six months ended December 31, 2025, revenue was $468,071, an increase of $215,850, or approximately 86%, compared to $252,221 for the six months ended December 31, 2024. The Company's revenue growth reflects improved commercial activity through the Passwords and Qples business lines.
The Company recorded net income from continuing operations of $523,008 for the three months ended December 31, 2025, compared to a net loss of $800,406 for the three months ended December 31, 2024. This improvement is primarily driven by a significant reversal of previously accrued professional fees of $447,138, combined with substantially reduced wages and benefits expenses during the quarter. For the six months ended December 31, 2025, the net loss from continuing operations was $311,590, compared to a net loss of $2,504,056 for the six months ended December 31, 2024, representing an improvement of approximately 88%.
Total operating expenses from continuing operations were a net credit of $227,620 for the three months ended December 31, 2025, compared to net expenses of $904,536 for the three months ended December 31, 2024. For the six months ended December 31, 2025, net operating expenses were $769,920, compared to $2,738,353 for the six months ended December 31, 2024.
The Company had a cash balance of $5,199 at December 31, 2025 (June 30, 2025 - $1,344,431), with a working capital deficiency of $3,466,357 (June 30, 2025 - deficiency of $3,050,852). Subsequent to the period end, the Company completed two tranches of a non-brokered private placement raising aggregate gross proceeds of $1,004,200, which provided additional liquidity to fund ongoing operations and regulatory compliance activities.
During the period, the Company received $100,000 in private placement subscription proceeds which are recorded as a subscription liability pending formal completion of the placement.
SUBSEQUENT EVENTS
On December 12, 2025, Fobi AI Inc. received partial revocation of its cease trade order from the British Columbia Securities Commission to conduct a private placement offering of up to 30 million units at $0.05 per unit, aiming to raise up to $1.5 million. Each unit will consist of one common share and one warrant exercisable at $0.10 for 36 months. The proceeds are planned to be used primarily to cover accounting, audit, and legal fees needed to file outstanding disclosure documents and obtain full revocation of the cease trade order.
Subsequent to period end, the Company completed two tranches of the above non-brokered private placement of units at a price of $0.05 per unit. On January 23, 2026, the Company closed the first tranche and issued 10,084,000 units for gross proceeds of $504,200. In connection with the first tranche, the Company would pay finder's fees consisting of $3,500 in cash and issued 70,000 finder's warrants.
On February 3, 2026, the Company closed the second tranche and issued 10,000,000 units for gross proceeds of $500,000. No finder's fees were disclosed in connection with the second tranche. The total issuance across both tranches amounted to 20,084,000 units for aggregate gross proceeds of $1,004,200.
Between November 2024 and early 2025, the Company received complaints from certain former employees alleging non-payment of wages and related employee entitlements under the British Columbia Employment Standards Act. The British Columbia Employment Standards Branch conducted an investigation and, based on findings, a demand notice in the amount of $465,838.07 was issued. On August 18, 2025, the Employment Standards Branch issued a formal notice cancelling the demand notice upon the Company's payment of the owed wages. As at the date of authorization of the Interim Financial Statements, the investigation has concluded and there is no outstanding enforcement order related to this matter.
RESULTS OF OPERATIONS
As at December 31, 2025, the Company had a working capital deficiency of $3,466,357 (June 30, 2025 - deficiency of $3,050,852). The increase in working capital deficiency reflects the utilization of available cash resources over the first half of FY2026 to fund ongoing operating activities, partially offset by a decrease in accounts payable and accrued liabilities of $958,216 during the period.
Comparison of the Three and Six Months Ended December 31, 2025, and December 31, 2024
| Three Months Ended December 31, 2025 $ | Three Months Ended December 31, 2024 $ | Six Months Ended December 31, 2025 $ | Six Months Ended December 31, 2024 $ | |
|---|---|---|---|---|
| REVENUE | ||||
| Revenue from continuing operations | 295,394 | 111,791 | 468,071 | 252,221 |
| OPERATING EXPENSES | ||||
| Advertising and marketing | 58 | 52,002 | 229 | 171,353 |
| Amortization and depreciation | - | 81,500 | - | 476,306 |
| Consulting fees | 183,443 | 73,272 | 258,801 | 176,798 |
| Insurance | - | 22,632 | - | 47,119 |
| Investor relations | -- | 12,256 | 10,635 | 17,239 |
| Office and general | 31,064 | 29,399 | 47,806 | 44,238 |
| Professional fees | (447,138) | 69,499 | (173,378) | 349,616 |
| Rent | - | 14,981 | 20,304 | 29,696 |
| Research and development | - | 23,746 | - | 121,928 |
| Share-based compensation | - | 8,706 | - | 19,734 |
| Technology costs | 839 | 67,431 | 5,693 | 142,249 |
| Transfer agent and filing fees | - | 5,031 | - | 28,688 |
| Travel | - | 29 | - | 8,296 |
| Wages and benefits | 4,114 | 444,032 | 599,830 | 1,105,093 |
| Total operating expenses (income) | (227,620) | (904,536) | (769,920) | (2,738,353) |
| OTHER INCOME (EXPENSE) | ||||
| Other income (expense) | (5) | 15,620 | (5) | 14,168 |
| Interest and accretion expense | (1) | (20,577) | (12,160) | (20,577) |
| Foreign exchange gain (loss) | - | (15,507) | 2,424 | (15,759) |
| Unrealized gain on warrants | - | 4,244 | - | 4,244 |
| Net income (loss) before taxes (continuing) | 523,008 | (808,965) | (311,590) | (2,504,056) |
| Net income (loss) from discontinued operations | - | 41,807 | - | 38,860 |
| Net income (loss) | 523,008 | (758,599) | (311,590) | (2,465,196) |
| Comprehensive income (loss) | 523,008 | (759,757) | (354,836) | (2,466,354) |
Revenue
Revenue from continuing operations for the three months ended December 31, 2025 was $295,394, an increase of $183,603, or approximately 164%, compared to $111,791 for the three months ended December 31, 2024. For the six months ended December 31, 2025, revenue was $468,071 compared to $252,221 for the six months ended December 31, 2024, an increase of $215,850, or approximately 86%. The increase in revenue in both periods reflects improved commercial activity through the Passwords and Qples business lines, as the Company continues to build and expand its client base.
Net Income (Loss)
The Company recorded net income from continuing operations of $523,008 for the three months ended December 31, 2025, compared to a net loss of $800,406 for the three months ended December 31, 2024, an improvement of $1,323,414. The net income in the current quarter is primarily attributable to the significant reversal of previously accrued professional fees of $447,138, together with substantially reduced wages and benefits expenses, partially offset by increased consulting fees. For the six months ended December 31, 2025, the net loss from continuing operations was $311,590, compared to a net loss of $2,504,056 for the six months ended December 31, 2024, representing an improvement of $2,192,466, or approximately 88%.
Operating Expenses
Advertising and Marketing
Advertising and marketing expenses from continuing operations were $58 for the three months ended December 31, 2025, compared to $52,002 for the three months ended December 31, 2024, a decrease of $51,944. For the six months ended December 31, 2025, advertising and marketing was $229 compared to $171,353 for the comparative six-month period. The significant reduction reflects the Company's continued strategy of developing in-house sales and marketing capabilities rather than engaging external marketing services.
Amortization and Depreciation
Amortization and depreciation from continuing operations was $nil for both the three and six months ended December 31, 2025, compared to $81,500 and $476,306 for the three and six months ended December 31, 2024, respectively. The reduction to nil reflects that all depreciable intangible assets and equipment from continuing operations were either fully amortized or written down as at or prior to June 30, 2025, and no new capital asset additions were made during either period.
Consulting Fees
Consulting fees from continuing operations were $183,443 for the three months ended December 31, 2025, compared to $73,272 for the three months ended December 31, 2024, an increase of $110,171. For the six months ended December 31, 2025, consulting fees were $258,801 compared to $176,798 for the comparative six-month period. The increase in consulting fees reflects the expanded use of specialized consultants to support the Company's business development initiatives during the current period.
Professional Fees
Professional fees from continuing operations recorded a credit of $447,138 for the three months ended December 31, 2025, compared to an expense of $69,499 for the three months ended December 31, 2024. For the six months ended December 31, 2025, professional fees recorded a net credit of $173,378 compared to an expense of $349,616 for the comparative six-month period. The credit in Q2 FY2026 reflects the reversal of previously accrued professional fees. The Company continues to manage its professional services cost base as part of its ongoing cost-reduction strategy.
Technology Costs
Technology costs from continuing operations were $839 for the three months ended December 31, 2025, compared to $67,431 for the three months ended December 31, 2024, a decrease of $66,592. For the six months ended December 31, 2025, technology costs were $5,693 compared to $142,249 for the comparative six-month period. The decrease reflects the elimination of technology costs associated with the divested Fobi AI Germany GmbH subsidiary, as well as reduced hosting and infrastructure costs as the Company streamlines its technology operations.
Wages and Benefits
Wages and benefits from continuing operations were $4,114 for the three months ended December 31, 2025, compared to $444,032 for the three months ended December 31, 2024, a decrease of $439,918. For the six months ended December 31, 2025, wages and benefits were $599,830 compared to $1,105,093 for the comparative six-month period, a decrease of $505,263, or approximately 46%. The significant reduction in Q2 FY2026 wages reflects the impact of staff reductions undertaken during and subsequent to fiscal year ended June 30, 2025, as well as the timing of accruals and payments in the current period.
SUMMARY OF QUARTERLY RESULTS
The following is selected financial information as prepared in Canadian dollars under International Financial Reporting Standards derived from the Company's most recently completed eight fiscal quarters. Revenue and net income (loss) figures reflect the reclassification of Fobi AI Germany GmbH results as discontinued operations for all comparative periods.
| December 31, 2025 $ | September 30, 2025 $ | June 30, 2025 $ | March 31, 2025 $ | |
|---|---|---|---|---|
| Total Assets | 262,333 | 263,369 | 1,568,973 | 815,695 |
| Working Capital (Deficiency) | (3,466,357) | (4,087,193) | (3,050,852) | (4,893,719) |
| Revenue | 295,394 | 172,677 | 507,625 | 632,045 |
| Net Income (Loss) | 523,008 | (904,315) | 1,733,086 | (377,222) |
| Earnings (Loss) per Share | 0.00 | (0.00) | (0.01) | (0.00) |
| December 31, 2024 $ | September 30, 2024 $ | June 30, 2024 $ | March 31, 2024 $ | |
| --- | --- | --- | --- | --- |
| Total Assets | 879,314 | 879,314 | 1,574,233 | 5,231,939 |
| Working Capital (Deficiency) | (3,921,560) | (3,796,196) | (2,515,035) | (7,152) |
| Revenue | 111,791 | 140,430 | 718,994 | 688,093 |
| Net Income (Loss) | (758,599) | (1,681,230) | (6,083,298) | (1,427,656) |
| Loss per Share | (0.01) | (0.01) | (0.03) | (0.01) |
The June 30, 2025 revenue shown is annual total from continuing operations. June 30, 2025 net income reflects the gain on divestiture of Fobi AI Germany GmbH. The December 31, 2024 figures are as presented in the Q2 FY2025 comparative period.
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
Since our inception, we have incurred operating losses. We will need capital to fund our operations, which we may obtain from additional financings, debt and operations revenue or other sources. To date, we have financed our operations primarily through the issuance of our common shares.
As at December 31, 2025, the Company had total assets of $262,333 (June 30, 2025 -$ 1,568,973). The Company had a cash balance of $5,199 and a working capital deficiency of $3,466,357 at December 31, 2025, as compared with a cash balance of $1,344,431 and a working capital deficiency of $3,050,852 at June 30, 2025. The decrease in cash reflects the utilization of available cash resources to fund ongoing operating activities. The Company received $100,000 in private placement subscription proceeds during the period which are reflected as a subscription liability pending formal completion of the placement.
The consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at December 31, 2025, the Company had not yet generated significant positive cash flow from operations and had an accumulated deficit of $83,502,086. These factors, among others, create significant doubt as to the ability of the Company to continue as a going concern. Management believes that the proceeds from the private placement financings completed subsequent to the period end (raising aggregate gross proceeds of$ 1,004,200), combined with revenue that the Company expects to generate, will provide the
Company with sufficient working capital to satisfy its liabilities and commitments as they become due for the foreseeable future. There can be no assurances that sufficient equity can be raised on acceptable terms on a timely basis. The Company's strategy is to mitigate risks and uncertainties and to execute a business plan aimed at revenue growth and managing operating expenses and working capital requirements.
Cash Flows
The following table summarizes the results of our cash flows for the six months ended December 31, 2025 and 2024:
| Six Months Ended December 31, 2025 $ | Six Months Ended December 31, 2024 $ | |
|---|---|---|
| Opening balance | 402,381 | 222,700 |
| Net cash outflow from operating activities | (449,958) | 197,215 |
| Net cash used in investing activities | (15,980) | - |
| Net cash used in financing activities | (95,754) | (16,376) |
| Effect of exchange rate changes on cash | (88,518) | (1,158) |
| Change in cash | (397,182) | 179,681 |
| Closing balance | 5,199 | 402,381 |
Operating Activities
Net cash used in operating activities was $449,958 for the six months ended December 31, 2025, compared to net cash provided by operating activities of $197,215 for the six months ended December 31, 2024. The shift to a net outflow in the current period reflects the utilization of cash to fund ongoing operating activities including wages and professional fees, partially offset by a decrease in accounts payable and accrued liabilities of $772,133 and an increase in deferred revenue of $364,628. Non-cash items included in operating activities for the current period comprise: interest and accretion of $7,298.
Investing Activities
Net cash used in investing activities was $15,980 for the six months ended December 31, 2025 (December 31, 2024 - $nil). Investing cash outflows relate to the purchase of an investment of $28,751, partially offset by a right-of-use asset recovery of $12,771.
Financing Activities
Net cash used in financing activities was $95,754 for the six months ended December 31, 2025, compared to $16,376 for the six months ended December 31, 2024. Financing activities in the current period include $100,000 in subscription liability proceeds received in connection with the private placement (received but shares not yet formally issued), partially offset by the repayment
of the principal portion of the lease liability of $4,246. The prior period outflow related entirely to lease liability repayments.
CAPITAL MANAGEMENT
The Company considers cash and share capital to be the elements of shareholders' equity. The Company's primary objectives in capital management are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and to maintain sufficient funds to finance the sale and distribution of its technology products. The Company manages its capital structure to maximize its financial flexibility making adjustments to it in response to changes in economic conditions and the risk characteristics of the underlying assets and business opportunities. The Company does not presently utilize any quantitative measures to monitor its capital and is not subject to externally imposed capital requirements. There were no changes in the Company's approach to capital management during the six months ended December 31, 2025.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes our contractual commitments and obligations as of December 31, 2025:
| Payments Due by Period | |||||
|---|---|---|---|---|---|
| Total $ | Less Than 1 Year $ | Between 1 and 3 Years $ | Between 3 and 5 Years $ | More Than 5 Years $ | |
| Lease liabilities | 29,112 | 15,379 | 13,733 | - | - |
| Total contractual obligations | 29,112 | 15,379 | 13,733 | - | - |
The Company has also entered into employment agreements with its COO and CEO wherein, should employment be terminated for any reason other than for-cause termination or resignation, these individuals will be eligible for compensation equivalent to an aggregate of one year's salary and any performance bonus equivalent to one-half of the average of the two highest performance bonuses paid in the previous five fiscal years.
CONTINGENCIES
From time to time, the Company is engaged in various legal proceedings and claims that have arisen in the normal course of business. As at December 31, 2025, the Employment Standards Branch demand notice previously in the amount of $465,838.07 was cancelled on August 18, 2025, upon the Company's payment of the owed wages. There are no other material contingent liabilities outstanding as at December 31, 2025.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
TRANSACTIONS WITH RELATED PARTIES
The Company has identified its directors and senior officers as its key management personnel. No post-employment benefits, other long-term benefits and termination benefits were made during the six months ended December 31, 2025, beyond what is disclosed herein. Short-term key management compensation consists of the following:
| Six Months Ended December 31, 2025 $ | Six Months Ended December 31, 2024 $ | |
|---|---|---|
| Salaries, wages and professional fees | - | 455,847 |
| Share-based payments | - | 8,566 |
| Total | - | 464,413 |
As at December 31, 2025, the Company has amounts payable to its directors and officers totalling $162,485 (December 31, 2024 - $191,081), which is included in accounts payable and accrued liabilities. These amounts are unsecured, non-interest bearing and due on demand.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
The Company's significant accounting policies are consistent with those applied in the Annual Financial Statements for the year ended June 30, 2025. No new or amended accounting standards that would have a material impact on the Interim Financial Statements became effective during the six months ended December 31, 2025.
Critical accounting estimates
We make estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Assumptions used in the calculation of the fair value assigned to share-based payments
No stock options were granted during the six months ended December 31, 2025. As at December 31, 2025, the Company had 14,872,994 stock options outstanding (December 31, 2024 - 21,965,494), all exercisable, at a weighted average exercise price of $0.44. No share-based compensation expense was recognized during the six months ended December 31, 2025 (December 31, 2024 - $19,734).
Impairment of non-financial assets
The carrying amounts of non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. No impairment charges were recorded during the six months ended December 31, 2025. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell.
Going concern
The assumption that the Company will be able to continue as a going concern is subject to critical judgments by management with respect to assumptions surrounding the short and long-term operating budget, expected profitability, investing and financing activities and management's strategic planning. Should those judgments prove to be inaccurate, management's continued use of the going concern assumption could be inappropriate.
RISK FACTORS
The Company has diversified technologies and is focused on many verticals and distribution strategies. The Company continues to focus on multiple verticals to generate future sales in the Company's main products but there is no assurance of success.
The Company has an accumulated deficit of $83,502,086 as at December 31, 2025 and a net loss of $311,590 for the six months ended December 31, 2025. Management is continuing efforts to attract additional equity and capital investors and implement cost control measures to maintain adequate levels of working capital. Nevertheless, there can be no assurance provided with respect to the successful outcome of these ongoing actions. Key risk factors include: going concern risk; regulatory and capital markets risk arising from the ongoing cease trade order; financing risk; revenue and commercial risk; technology and market competition risk; and key personnel risk.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISK
Cash and cash equivalents are carried at fair value using a level 1 fair value measurement. The carrying value of amounts receivable, accounts payable, lease liabilities, and other financial instruments approximate their fair value because of the short-term nature of these instruments.
The Company's risk exposures and the impact on the Company's financial instruments are summarized below:
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. As at December 31, 2025, the Company had a cash balance of $5,199, which is materially insufficient to settle current liabilities of $3,702,430. These conditions indicate a material uncertainty that may cast significant doubt on the Company's ability to continue as a going concern. Accounts payable and accrued liabilities of $3,574,624 and current lease liabilities of $15,379 are due within 90 days. Subsequent to period end, the Company completed two tranches of a private placement raising $1,004,200, providing additional liquidity. Management is actively pursuing further financing activities.
Credit risk
Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company's credit risk is primarily attributable to its liquid financial assets including cash. The Company limits exposure to credit risk on liquid financial assets through maintaining its cash with high-credit quality financial institutions. Receivables consist of trade accounts receivable ($140,252), GST/VAT recoverable ($60,497), and a shareholder loan ($1,374). The Company recorded an allowance on bad debts of $nil for the six months ended December 31, 2025 (December 31, 2024 – $885).
Market risk
Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and equity prices. The Company does not have a practice of trading derivatives.
a) Interest rate risk
The Company does not hold variable interest-bearing securities and is not materially subject to interest rate risk as at December 31, 2025.
b) Foreign currency risk
Foreign currency risk refers to the risk that the value of a financial commitment or recognized asset or liability will fluctuate due to changes in foreign currency rates. As at December 31, 2025, the Company's net US dollar exposure was approximately ($432,193) (CAD equivalent: ($601,656)) and its net Euro exposure was $68,523 (CAD equivalent: $110,247). A 10% change in the foreign exchange rate of Euros or US dollars is not expected to have a material impact on the Company's consolidated financial statements.
c) Price risk
The Company holds an investment of $28,751 as at December 31, 2025 (June 30, 2025 - $nil), representing common shares held in a publicly traded company. The market value of this investment is subject to fluctuations in equity prices.
OUTSTANDING SHARE DATA
Common shares
As of the date of this MD&A (March 27, 2026), the Company has 244,681,977 issued and outstanding common shares, which includes 20,084,000 shares issued subsequent to December 31, 2025 in connection with the two tranches of the non-brokered private placement. As at December 31, 2025, the Company had 224,597,977 common shares issued and outstanding. No new shares were issued during the six months ended December 31, 2025.
Stock options
As of the date of this MD&A, the Company has 14,872,994 stock options outstanding at a weighted average exercise price of $0.44 per share, all of which are exercisable, with a weighted average remaining life of 2.30 years. During the six months ended December 31, 2025, 320,000 options expired and 7,156,500 options were cancelled. No options were granted or exercised during the period.
Share purchase warrants
As of the date of this MD&A, the Company has 48,439,632 share purchase warrants outstanding at a weighted average exercise price of $0.15 per share, with a weighted average remaining contracted life of 1.62 years. During the six months ended December 31, 2025, 3,249,880 warrants expired. No warrants were issued or exercised during the period.
OTHER MD&A REQUIREMENTS
Additional information relating to the Company is on SEDAR+ at www.sedarplus.ca.