Freshlocal Solutions Inc. — Management Reports 2020

Feb 4, 2020

RAINY HOLLOW VENTURES INC.

MANAGEMENT DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED NOVEMBER 30, 2019

Background

This management discussion and analysis (“MD&A”) for Rainy Hollow Ventures Inc. (“Rainy Hollow” or the “Company”) is prepared as at February 4, 2020 and should be read in conjunction with the Company’s audited financial statements as at and for the year ended November 30, 2019, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”).

All dollar figures included therein and in the following MD&A are quoted in Canadian dollars. Additional information relevant to the Company’s activities can be found on SEDAR at www.sedar.com.

Company overview

The Company was incorporated on January 17, 2018 under the Business Corporations Act (British Columbia) and is a Capital Pool Company (“CPC”) as defined in the TSX Venture Exchange (“TSX-V”) Policy 2.4 (“Policy 2.4”). As a CPC, the Company’s immediate objective is to identify and acquire either operating assets or a business, subject to shareholders’ approval, that meet the criteria of a Qualifying Transaction as defined by the TSX-V (“Qualifying Transaction”). Until such time that a Qualifying Transaction is completed, the Company will have no significant revenue and will incur expenses primarily for Qualifying Transaction investigation, TSX-V listing and filing requirements, professional services and office facilities and administration, subject to certain restrictions under Policy 2.4.

The Company was incorporated with 1,700,000 shares being issued at a price of $0.10 per share for total proceeds of $170,000 (the “Seed Shares”). The Seed Shares are held in escrow and will be released ratably over a period following the completion of a Qualifying Transaction. Should a Qualifying Transaction not be completed within two years, then one-half of the Seed Shares may be cancelled in accordance with policies of the TSX-V.

On January 29, 2018, the Company issued 1,200,000 common shares at a price of $0.20 per share for total proceeds of $240,000 and on May 29, 2018, the Company completed its initial public offering and issued 1,350,000 common shares at a price of $0.20 per share for total gross proceeds of $270,000. In connection with this offering, the Company incurred cash costs of $97,307 for legal, TSX-V, agency and other services. Additionally, the Company granted 100,000 warrants with a total fair value of $12,602 to agent for the IPO (the “Agent’s Warrants”). Each Agent’s Warrant will entitle the holder to acquire an additional common share in the Company at a price of $0.20 for a two-year period. To date, 44,130 Agent’s Warrants have been exercised into common shares for proceeds of $8,826.

As of the date of this MD&A, the Company is not investigating a specific potential Qualifying Transaction.

Forward-Looking Statements

Certain statements contained in this MD&A constitute forward-looking statements. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks include, but are not limited to, the Company completing a Qualifying Transaction, and its ability to raise sufficient capital for shortterm operations and to fund a Qualifying Transaction. Readers are cautioned not to place undue reliance on these forward-looking statements.

Selected Financial Information

	November 30, 2019 November 30, 2018
	$ $
Total assets Total long-term liabilities Total shareholders’ equity	537,301 573,100 - - 527,961 563,762
	Year Ended November 30, 2019 Period from Incorporation on January 17, 2018 to November 30, 2018
	$ $
Net loss for the period Basic and diluted lossper share(1)	(35,801) (61,589) (0.01) (0.03)

(1) Basic and diluted loss per share is calculated using a weighted average number of common shares that excludes 1,700,000 of the Company’s common shares that are held in escrow.

Results of Operations

The Company currently has no business operations and until such time as the Company completes a Qualifying Transaction as defined by the TSX-V, corporate expenditures will be restricted to costs of raising equity financing, administrative costs to maintain the Company in good standing and costs to identify and evaluate potential Qualifying Transactions.

The Company incurred a loss of $35,801 in the year ended November 30, 2019 compared to a $61,589 net loss in the period from incorporation on January 17, 2018 to November 30, 2018. The decrease in net loss is primarily the result of a $33,832 expense for share-based compensation expense for the fair value of 200,000 stock options granted in the period ended November 30, 2018. These options were fully-vested when granted and no equivalent expense was incurred in the year ended November 30, 2019.

The net loss for the year ended November 30, 2019 is the result of expenses including $14,921 for transfer agent, listing, filing and shareholder communications services, $12,600 in corporate and administrative services and $8,149 in professional fees for legal and accounting services. With the exception of the expenses for professional fees, these expenses were higher than those incurred for the period ended November 30, 2018 because the Company was publicly-listed for the entire year. In the period ended November 30, 2018, professional fees were higher than the year ended November 30, 2019 as a result of legal fees for incorporation.

In addition to expenses recognized during the period from incorporation on January 17, 2018 to November 30, 2018, the Company also recorded a total of $109,909 in legal, agency and other costs incurred for the issuance of shares which has been recorded as a reduction in share capital.

Results for Most Recent Fiscal Quarter:

The Company recorded a loss of $14,990 for the three months ended November 30, 2019 (2018 - $17,414). Significant expenses in the period included an $8,000 accrual for professional fees related to the audit of the Company’s financial statements, $3,555 in expenses incurred for transfer agent services and TSX-V listing fees, and $3,150 in corporate and administrative services. These expenses are consistent with those incurred for the three months ended November 30, 2018.

Quarterly Information

Results for recent fiscal quarters are as follows:

Three Months Ended General and Administrative Expenses, Excluding Share- based Compensation Stock-based Compensation Net Loss	Basic & Diluted Loss per Share
$ $ $	$
November 30, 2019 14,990 - 14,990 August 31, 2019 4,730 - 4,730 May 31, 2019 4,383 - 4,383 February 28, 2019 11,698 - 11,698 November 30, 2018 17,414 - 17,414 August 31, 2018 3,691 - 3,691 May 31, 2018 1,395 33,832 35,227 February28,20181 5,257 - 5,257	0.01 0.00 0.00 0.00 0.01 0.00 0.03 0.00

1 Period reported is from incorporation on January 17, 2018 to February 28, 2018.

Financial Condition including Cash Flows, Liquidity and Capital Resources

At November 30, 2019, the Company’s working capital was $527,961, comprising cash of $537,301 less accounts payable and accrued liabilities of $9,340. As a CPC, the Company’s routine expenses are limited to general administrative costs such as TSX-V listing and filing fees, audit fees and accounting fees. When the Company has identified a potential Qualifying

Transaction, additional legal or other transaction-related costs may be incurred, regardless of whether or not the transaction is ultimately completed.

It is uncertain as to when a Qualifying Transaction can be completed, but the Company’s current cash balance is sufficient to pay its existing accounts payable and accrued liabilities, to maintain routine on-going operations and to investigate potential Qualifying Transactions for the next 12 months.

Related Party Transactions

The Company is party to a corporate services agreement with Earlston Management Corp. (“Earlston”), whereby Earlston provides various corporate and administrative services to the Company for a fee of $1,050 per month plus sundry office costs, beginning June 1, 2018. Earlston is related to the Company by virtue of providing key management personnel services and by way of certain officers and directors of Earlston exerting significant influence over the Company. The Company’s expense for corporate and administrative services for the year ended November 30, 2019 includes $12,600 (January 17, 2018 to November 30, 2018 - $6,300) in such costs incurred with Earlston of which $1,051 is included in accounts payable and accrued liabilities as at November 30, 2019 (November 30, 2018 - $1,050).

During the period from incorporation on January 17, 2018 to November 30, 2018, the Company granted 200,000 stock options with a total fair value of $33,832, determined using the BlackScholes option-pricing model to directors of the Company. No other compensation was paid to directors or officers during this period or the year ended November 30, 2019.

Capital Management

Capital is composed of the Company’s shareholders’ equity and any debt that it may issue. As at November 30, 2019, the Company’s shareholders’ equity was $527,961 and it had current liabilities of $9,340. The Company’s objectives when managing capital are to maintain financial viability and to protect its ability to meet its on-going liabilities, to continue as a going concern, to maintain creditworthiness and to maximize returns for shareholders over the long term. Protecting the ability to pay current and future liabilities includes maintaining capital above minimum regulatory levels, current financial strength rating requirements and internally determined capital guidelines and calculated risk management levels.

Excluding the current liabilities, which relate to standard operating accounts payable, the Company’s current capital is the result of the sale of common shares. The net proceeds raised to date are sufficient to identify and evaluate a limited number of assets and businesses for the purpose of identifying and completing a Qualifying Transaction. However, additional funds may be required in the longer-term should the Company be unable to complete a Qualifying Transaction.

The Company is not subject to any externally imposed capital requirements.

Financial Instruments and Risk Management

As at November 30, 2019, the Company’s financial instruments comprise cash and accounts payable and accrued liabilities. The fair values of accounts payable and accrued liabilities approximate their carrying values due to their short-term maturity. Fair values of financial instruments are classified in a fair value hierarchy based on the inputs used to determine fair values. The levels of the fair value hierarchy are as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 – Inputs that are not based on observable market data (unobservable inputs).

As at November 30, 2019, the fair value of cash held by the Company was based on level 1 of the fair value hierarchy.

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

Credit risk

Credit risk is the risk of loss arising from a customer or third party to a financial instrument failing to meet its contractual obligations. The Company’s credit risk is primarily attributable to its cash. The Company limits exposure to credit risk by maintaining its cash with large financial institutions.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company ensures there is sufficient capital to meet short-term business requirements, after taking into account cash flows from operations and the Company’s holdings of cash. The Company believes that these sources are sufficient to cover its short-term cash requirements, but that further funding may be required to meet long-term requirements. As at November 30, 2019, the Company had a cash balance of $537,301 to settle current liabilities of $9,340. All the Company’s financial liabilities have contractual maturities of 30 days or are due on demand and are subject to normal trade terms.

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. As the Company does not currently hold and does not expect to hold interest-bearing financial instruments other than cash, assets or liabilities denominated in a foreign currency, and marketable securities or other financial instruments subject to fluctuations in equity prices, it currently does not have and is not expected to have exposure to these market risks.

Outstanding Share Data

As of the date of this MD&A, the Company has 4,294,130 common shares outstanding of which 1,700,000 are in escrow. Additionally, the Company has 200,000 stock options and 55,870 warrants outstanding.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Critical Accounting Estimates and Judgments

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the measurements of assets, liabilities, revenues, expenses and certain disclosures reported in these financial statements. Significant estimates made by management include the following:

i. Valuation of share-based compensation and Agent’s Warrants

Management uses the Black-Scholes option pricing model to determine the fair value of compensatory stock options and warrants. This model requires assumptions of the expected future price volatility of the Company’s common shares, expected life of options and warrants, future risk-free interest rates and the dividend yield of the Company’s common shares.

ii. Income taxes

Provisions for income and other taxes are based on management’s interpretation of taxation laws, which may differ from the interpretation by taxation authorities. Such differences may result in eventual tax payments differing from amounts accrued. Reported amounts for deferred tax assets and liabilities are based on management’s expectation for the timing and amounts of future taxable income or loss, as well as future taxation rates. Changes to these underlying estimates may result in changes to the carrying value, if any, of deferred income tax assets and liabilities.

The Company’s significant accounting policies and estimates are included in Note 3 of its audited financial statements for the period ended November 30, 2019.

Future Changes in Accounting Policies

Certain new accounting standards and interpretations have been published that are not mandatory for the November 30, 2019 reporting period. The following standard has been assessed by the Company’s management, but is not expected to have a significant impact on the Company’s existing accounting policies or financial statement presentation:

• i. IFRS 16, Leases

In January 2016, the IASB issued IFRS 16 Leases which replaces the previous leases standard, IAS 17 Leases. IFRS 16 eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee accounting model. Lessors continue to classify leases as operating leases or finance leases, and account for those two types of leases differently. IFRS 16 is effective for periods beginning on or after January 1, 2019.

Risks and Uncertainties

The Company’s objective is to identify and complete a Qualifying Transaction and until such time as it does so, the Company will not have a source of recurring income, commercial operations, significant assets other that cash and shall not generate earnings or pay dividends. Until the completion of a Qualifying Transaction, the Company is not permitted to carry on any other business other than the identification and evaluation of potential Qualifying Transactions.

Should the Company be unable to complete a Qualifying Transaction before its existing cash has been spent, it will require additional capital financing and there is no assurance that it will be able to obtain adequate financing in the future or that the terms of such financing will be favourable.

The Company’s success depends to a certain degree upon key members of its management to identify a potential Qualifying Transaction. The loss of the service of members of the management team or certain key employees could have a material adverse effect on the Company.

Corporate Governance

The Company’s Board of Directors and its committees substantially follow the recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders. The current Board comprises four individuals, one of whom is an executive officer of the Company. The three non-executive members of the Board comprise the Audit Committee.