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GABY INC. ("GABY")

CSE FORM 2A LISTING STATEMENT

REQUALIFYING FOLLOWING A FUNDAMENTAL CHANGE PURSUANT TO POLICY 8 OF THE CSE

April 21, 2021

Note regarding U.S. Cannabis involvement.

This Listing Statement relates to the securities of an entity that is expected to directly derive a portion of its revenues from the Cannabis Industry in certain states of the United States, which industry is illegal under United States federal law. The Resulting Issuer (as defined herein) will be directly involved (through its wholly- owned subsidiaries or Affiliates) in both the medical-use and adult-use cannabis marketplace in the State of California, which has regulated such activity. Upon completion of the Transaction (as defined herein), the Resulting Issuer, through its wholly-owned subsidiary, Miramar (as defined herein), is a company providing fully-licensed cannabis distribution, delivery and dispensary operations in the State of California. See Section 4 – Narrative Description of the Business hereof.

Although certain states and territories of the United States authorize medical or recreational cannabis production and distribution by licensed or registered entities, including the State of California, under United States federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal and any such acts are criminal acts under federal law under any and all circumstances under the Controlled Substances Act of 1970 (the "Controlled Substances Act"). An investor's contribution to and involvement in such activities may result in federal civil and/or criminal prosecution, including forfeiture of his, her or its entire investment.

Well over half of the states of the United States have enacted legislation to legalize and regulate the sale and use of medical cannabis without limits on THC or CBD, while other states have legalized and regulated the sale and use of medical cannabis with strict limits on the levels of THC and CBD. Notwithstanding the permissive regulatory environment of adult-use recreational and medical cannabis at the state level, cannabis continues to be categorized as a controlled substance under the Controlled Substances Act in the United States and as such, cannabis-related practices or activities, including without limitation, the manufacture, importation, possession, use or distribution of cannabis are illegal under United States federal law. Strict compliance with state laws with respect to cannabis will neither absolve the Resulting Issuer of liability under the United States federal law, nor provide a defense to any federal proceeding which may be brought against the Resulting Issuer. Any such proceedings brought against the Resulting Issuer may adversely affect the Resulting Issuer’s operations and financial performance.

As a result of the conflicting views between states and the federal government of the United States regarding cannabis, investments in cannabis businesses in the United States are subject to inconsistent legislation and regulation. Unless and until the United States Congress amends the Controlled Substance Act with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current federal law, which may adversely affect the current and future business and investments of the Resulting Issuer in the United States. As such, there are a number of risks associated with the Resulting Issuer’s existing and future business and investments in the United States.

For the reasons set forth above, the Resulting Issuer’s interests in the United States cannabis market may become the subject of heightened scrutiny by regulators, stock exchanges, clearing agencies and other authorities in Canada. There are a number of risks associated with the business of the Resulting Issuer. See Section 17 – Risk Factors hereof.

INTRODUCTION

This listing statement (the “ Listing Statement ”) is furnished on behalf of the management of GABY Inc. (" GABY "). This Listing Statement is being filed in connection with a fundamental change by which GABY will acquire the issued and outstanding securities of Miramar. The issuer that results from the combination between the businesses of GABY and Miramar will be referred to in this Listing Statement as the "Resulting Issuer". Information contained in this Listing Statement is given as of April 21, 2021, unless otherwise specifically stated.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information provided in this listing statement including information incorporated by reference, may contain "forward-looking statements" about GABY, its subsidiaries and controlled entities, Miramar and the Resulting Issuer. In addition, GABY, Miramar and the Resulting Issuer may make or approve certain statements in future filings with Canadian securities regulatory authorities, in press releases, or in oral or written presentations by representatives of GABY, Miramar and the Resulting Issuer that are not statements of historical fact and may also constitute forward-looking statements. All statements, other than statements of historical fact, made by GABY, Miramar and the Resulting Issuer that address activities, events or developments that GABY, Miramar and the Resulting Issuer expects or anticipates will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as "may", "will", "would", "could", "should", "believes", "estimates", "projects", "potential", "expects", "plans", "intends", "anticipates", "targeted", "continues", "forecasts", "designed", "goal", or the negative of those words or other similar or comparable words. These statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, milestones, strategies and outlook of the Resulting Issuer, including but not limited to those statements under the headings "General Development of the Business", "Narrative Description of the Business", and "Risk Factors", and statements relating to the Resulting Issuer's:

expectations regarding revenue, expenses and operations;
anticipated cash needs;
intention to grow its business and operations;
expectations with respect to future production costs and capacity;
expectations with respect to the approval of licenses;
expectations with respect to the future growth of cannabis distribution, delivery, and dispensary operations;
competitive position and the regulatory environment in which it operates;
intention to exploit opportunities for cannabis distribution, delivery and dispensary operations in the United States;
expected business objectives for the next twelve months; and
• ability to obtain additional funds through the sale of equity or debt commitments.

The forward-looking statements contained herein are based on certain key expectations and assumptions, including, but not limited to, with respect to expectations and assumptions concerning:

the realization of anticipated benefits of acquisitions, including the acquisition of Miramar;
the success of the operations of the Resulting Issuer;
the timing and amount of capital expenditures;
future exchange rates;
the impact of increasing competition;
conditions in general economic and financial markets;
access to capital;
future operating costs;
• the Resulting Issuer's ability to successfully execute plans and intentions;
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the Resulting Issuer's ability to attract and retain skilled staff;
market competition;
the products and technology offered by competitors;
that current good relationships with suppliers, service providers and other third parties will be maintained;
government regulations, including future legislative and regulatory developments involving medical and recreational marijuana and the timing thereto;
obtaining the necessary regulatory approvals in a timely manner or at all;
receipt and/or maintenance of required licenses and third party consents in a timely manner or at all;
the effects of regulation by governmental agencies;
the anticipated changes to laws regarding the recreational use of cannabis;
the demand for cannabis products and corresponding forecasted increase in revenues; and
• the size of the medical marijuana market and the recreational marijuana market.

Although GABY, Miramar and the Resulting Issuer believe that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements, because no assurance can be given that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to:

global or national health concerns, including the outbreak of pandemic or contagious diseases, such as COVID-19 and including the evolution of new variants of COVID-19 and delays relating to vaccine development, procurement and distribution;
the availability of sources of income to generate cash flow and revenue;
the dependence on management and directors;
risks relating to the receipt of the required licenses, risks relating to additional funding requirements;
due diligence risks;
exchange rate risks;
potential transaction and legal risks;
risks relating to laws and regulations applicable to the production and sale of marijuana;
reliance on management;
additional financing;
profitability of the Resulting Issuer;
ongoing costs and obligations;
competition;
future acquisitions or dispositions;
product liability;
product recalls;
product approvals;
promotion and maintenance of brands;
dependence on suppliers and skilled labour;
management of growth;
intellectual property risks;
security breaches;
client acquisitions;
changes in laws, regulations and guidelines;
constraints on marketing products;
uncertainty surrounding existing protection from U.S. federal prosecution;
cannabis continues to be illegal under U.S. federal law;
volatility in the market price of the GABY Shares;
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management's success in anticipating and managing the foregoing factors the regulation of the cannabis industry;
the availability of financing opportunities;
risks associated with economic conditions;
conflicts of interest; and
other factors beyond each of GABY, Miramar and the Resulting Issuer's control, as more particularly described under the heading "Risk Factors" in this Listing Statement and described from time to time in documents filed by the Resulting Issuer with Canadian securities regulatory authorities.

Consequently, all forward-looking statements made in this Listing Statement and other documents of GABY, Miramar and the Resulting Issuer are qualified by such cautionary statements and there can be no assurance that the anticipated results or developments will actually be realized or, even if realized, that they will have the expected consequences to or effects on GABY, Miramar and the Resulting Issuer. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that GABY and/or persons acting on its behalf may issue. GABY, Miramar and the Resulting Issuer do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required under securities legislation.

CURRENCY

Unless otherwise indicated, all references to "$" or "C$" in this Listing Statement refer to Canadian dollars and all references to "US$" in this Listing Statement refer to United States dollars.

GLOSSARY

The following is a glossary of certain terms used in this Listing Statement. Terms and abbreviations used in the Appendices to this Circular are defined separately and the terms and abbreviations defined below are not used therein, except where otherwise indicated.

" ABCA " means the Business Corporations Act (Alberta);

" Acquisition " means the acquisition by GABY of Miramar pursuant to the Definitive Agreement which closed on April 5, 2021;

“ Agency Agreement ” means the agreement in respect of the Brokered Private Placement entered into on February 4, 2021 by GABY and the Agents;

" Agents " means, the syndicate of agents engaged in connection with the Brokered Private Placement, being collectively, Mackie Research Capital Corporation and Haywood Securities Inc.;

" BCC " means California Bureau of Cannabis Control;

" Brokered Private Placement " means the brokered private placement of 172,929,123 Subscription Receipts at a price of $0.05 per Subscription Receipt for aggregate gross proceeds of $8,996,456.15 which closed on February 4, 2021;

" CBD " means cannabidiol;

" CPG " means consumer packaged goods;

" Consideration Shares " means the 157,894,737 GABY Shares to be issued to the Miramar Vendors pursuant to the Acquisition in consideration for the acquisition of Miramar at a deemed price of $0.05 per GABY Share;

“ Commission ” means the cash commission payable to the Agents in connection with the Brokered Private Placement;

“ Compensation Warrants ” means the compensation warrants granted to the Agents in connection with the Brokered Private Placement, the terms of which are set out in 10. Description of the Securities – Unit Warrants;

" CSE " means the Canadian Securities Exchange;

“ Deadline ” means, with respect to the Brokered Private Placement, May 5, 2021;

" Definitive Agreement " means the definitive agreement entered into on February 15, 2021 by GABY, Miramar and the Miramar Vendors;

" Escrow Release Conditions " means (i) the Definitive Agreement shall have been entered into; (ii) all conditions precedent, undertakings, and other matters to be satisfied, completed and otherwise met at or prior to the completion of the Acquisition (other than delivery of standard closing documentation) have been satisfied or waived in accordance with the terms of the Definitive Agreement (any such waiver to be consented to by the Lead Agent in writing, acting reasonably); (iii) there have been no material amendments or material waivers of the terms and conditions of the Definitive Agreement which have not been approved by the Agents; and (iv) receipt by GABY of all necessary regulatory and other approvals regarding the Brokered Private Placement and the Acquisition;

“ Escrow Release Date ” has the meaning ascribed thereto in “3.2 Significant Acquisitions and Dispositions – The Financing”

“ Escrowed Proceeds ” means the aggregate gross proceeds of the aggregate gross proceeds of the Brokered Private Placement, less counsel fees of the Agents and one half (50%) of the Commission, and any retail selling concession forming part of the Commission, delivered to the Subscription Receipt Agent to be held in escrow on the terms and subject to the conditions of the Subscription Receipt Agreement as confirmed in writing by GABY and includes any additional cash amounts to be delivered to the Subscription Receipt Agent upon the exercise by the Agents of any Compensation Warrants;

" Financing " means, together, the Brokered Private Placement and the Non-Brokered Private Placement;

" GABY " means GABY Inc. GABY was first incorporated as “Hollywood Foods Inc.” on December 3, 2003 under the ABCA. Hollywood Foods Inc. was dissolved on June 2, 2006, and was subsequently revived under the ABCA on November 1, 2006. On December 4, 2014, GABY changed its name to Gabriella's Kitchen Inc. and subsequently changed its name to GABY Inc. on September 5, 2019;;

" GABY Annual MD&A " means the Management Discussion & Analysis for the year ended December 31, 2019 as attached to this Listing Statement as Schedule "D" and available on GABY's SEDAR profile at www.sedar.com;

" GABY Board " means GABY board of directors;

" GABY Interim MD&A " means Management Discussion & Analysis for the nine month period ended September 30, 2020 as attached to this Listing Statement as Schedule "B" and available on GABY's SEDAR profile at www.sedar.com;

" GABY Options " means all options to purchase GABY Shares granted under the GABY Option Plan being outstanding and unexercised as at the date of this Listing Statement;

" GABY Shareholders " means, at any time, the holders of GABY Shares;

“ GK Brands Inc. ” means GK Brands Inc., which was incorporated under the laws of the state of California on October 9, 2019 under the California Corporations Laws. Prior to the Transaction, GK Brands Inc. is a wholly-owned subsidiary of GABY. Following the Transaction, GK Brands Inc. will remain a wholly-owned subsidiary of GABY;

" KJM " means KJM Data and Research, LLC;

" KJM Licenses " means the four use permits issued by Sonoma County to KJM, being manufacturing; cultivation; nursery and distribution. The KJM Licenses were abandoned, see 3. General Development of the Business – 3.1. General Development of GABY – Three Year History – Fiscal Year Ended 2020 ;

" Lead Agent " means Mackie Research Capital Corporation;

“ Listing Statement ” means this listing statement submitted to the CSE in connection with the fundamental change (as that term is defined by the CSE) of GABY;

“ Lulu’s ” means Raw Chocolate Alchemy Inc. Lulu’s was incorporated under the laws of the state of Arizona on January 16, 2020 under the Arizona Corporations Laws. Previously, Lulu’s was an LLC named Raw Chocolate Alchemy LLC, which was organized on April 16, 2015, and was converted to a corporation o January 16, 2020. Prior to the Transaction, Lulu’s is a wholly-owned subsidiary of GABY. Following the Transaction, Lulu’s will remain a wholly-owned subsidiary of GABY;

“ MAUCRSA ” means the Medicinal and Adult-Use of Cannabis Regulation and Safety Act;

" MHSC " means Miramar Health Supply Cooperative, Inc.;

" Miramar " means Miramar Professional Services. Miramar was incorporated under the laws of the state of California on September 4, 2015 under the California Corporations Laws. Prior to the Transaction, Miramar is owned by the Miramar Vendors. Following the Acquisition, Miramar is a wholly-owned subsidiary of GABY;

“ Miramar Annual MD&A ” means the Management Discussion & Analysis for the year ended September 30, 2020 as attached to this Listing Statement as Schedule "H";

“ Miramar Interim MD&A ” means the Management Discussion & Analysis for the quarter ended December 31, 2020 as attached to this Listing Statement as Schedule "J";

" Miramar Shares " means the issued and outstanding securities of Miramar;

" Miramar Vendors " means the shareholders of Miramar at the time of the Definitive Agreement;

" NEOs " means Named Executive Officers;

" Non-Brokered Private Placement " means the non-brokered private placement of 80,140,444 NonBrokered Units at a price of $0.05 per Non-Brokered Unit for aggregate gross proceeds of $4,007,022.20 which closed on February 4, 2021;

" Non-Brokered Unit " means the units sold pursuant to the Non-Brokered Private Placement;

" Non-Brokered Warrant " means the warrants underlying the Non-Brokered Units;

“ Odyssey ” means Odyssey Trust Company;

" PMW Loan " means the loan agreement between Miramar and PMW LLC;

“ President’s List ” means, with respect to the Brokered Private Placement, purchasers as identified by GABY included in the Brokered Private Placement;

" Qualification Date " means, after the Escrow Release Date, the date that is the earlier of: (A) June 5, 2021; and (B) the second business day following the satisfaction of certain conditions in accordance with the terms of the Subscription Receipt Agreement.

" Resulting Issuer " means the resulting issuer that results from the combination between the businesses of GABY and Miramar, which will be GABY, incorporated per its definition above, with Miramar as its whollyowned subsidiary;

" RSUs " means all restricted share units granted under the RSU Plan being outstanding as at the date of this Listing Statement;

" RSU Plan " means the restricted share unit plan of GABY;

" Sarnow Promissory Note " means the promissory note made by Miramar and the Miramar Vendors in favour of Marcia Sarnow and Gerald Sarnow, in original principal amount of $1,000,000;

" Sonoma Facility " means a distribution facility and related assets located in Santa Rosa, California;

“ Sonoma Pac ” means Sonoma Pacific Distribution Inc. Sonoma Pac was incorporated on September 7, 2016 under the laws of the state of California under the California Company Law. Prior to the Transaction,

Sonoma Pac is a wholly-owned subsidiary of GABY. Following the Transaction, Sonoma Pac will remain a wholly-owned subsidiary of GABY;

" Staff Notice 51-352 " means the Canadian Securities Administrators Staff Notice 51-352 (Revised) – Issuers with USA, Marijuana Related Activities;

" Subscription Receipts " means the subscription receipts of GABY sold pursuant to the Brokered Private Placement, each Subscription Receipt convertible, on the Qualification Date, into one Unit;

“ Subscription Receipt Agent ” means Odyssey;

“ Subscription Receipt Agreement ” means the agreement entered into in respect of the Subscription Receipts issued pursuant to the Brokered Private Placement on February 4, 2021 by GABY, the Lead Agent and Odyssey;

" THC " means tetrahydrocannabinol;

“ TOP ” means The Oil Plant, Inc., a California corporation;

" TOP Transaction " means the transaction to acquire TOP by GABY;

" Transaction" means, together, the Acquisition and the Financing;

" Type 11 License " means Type 11 distribution license;

" Underlying Warrant " means the GABY Share purchase warrant underlying the Units;

" Unit " means the Units of GABY issuable upon conversion of the Subscription Receipts, each Unit comprised of (i) one GABY Share and (ii) one Underlying Warrant;

" Unit Warrants " has the meaning ascribed thereto in 10. Description of the Securities – Unit Warrants;

" Vendors' Representative " means James Schmachtenberger;

" Warrants " has the meaning ascribed thereto in 10. Description of the Securities – Warrants;

“ Warrant Indenture ” means the warrant indenture in respect of the Underlying Warrants and the warrants underlying the Compensation Warrants to be entered into on the Qualification Date between GABY and Odyssey, as warrant agent;

" Wild West " means Wild West Industries, Inc. Wild West was incorporated on November 6, 2017 under the laws of the state of California under the California Company Law. Prior to the Transaction, Wild West is a subsidiary of Miramar. Following the Transaction, Wild West will remain a subsidiary of Miramar. Miramar will be a wholly-owned subsidiary of GABY;

" WW Promissory Note " means the promissory note issued by Miramar in favor of the former Wild West shareholders;

“ 2Rise ” means 2Rise Naturals Inc. 2Rise was incorporated under the laws of the state of Arizona on October 19, 2019 under the Arizona Corporations Laws. Previously, 2Rise was a LLC named 2Rise Naturals LLC, which was organized on February 14, 2016 and was converted to a corporation on October 29, 2019. Prior to the Transaction, 2Rise is a wholly-owned subsidiary of GABY. Following the Transaction, 2Rise will remain a wholly-owned subsidiary of GABY;

“ 2019 Warrants ” has the meaning ascribed thereto in “3. General Development of the Business – 3.1. General Development of GABY – Three Year History – Fiscal Year Ended 2019”; and

“ 2Rise Warrants ” has the meaning ascribed thereto in “3. General Development of the Business – 3.1. General Development of GABY – Three Year History – Fiscal Year Ended 2019”.

1. Table of Contents

1. Table of Contents	1. Table of Contents	1. Table of Contents
INTRODUCTION ........................................................................................................................................... 1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS .............................................. 1
CURRENCY .................................................................................................................................................. 3
1.	Table of Contents .................................................................................................................................... i
2.	Corporate Structure ............................................................................................................................... 1
	2.1	Corporate Structure ........................................................................................................................ 1
	2.2	Jurisdiction of Incorporation ............................................................................................................ 1
	2.3	Intercorporate Relationships ........................................................................................................... 1
	2.4	Fundamental Change ..................................................................................................................... 2
	2.5	Non-corporate Issuers and Issuers incorporated outside of Canada ............................................. 3
3.	General Development of the Business .................................................................................................. 3
	3.1	General Development of GABY ...................................................................................................... 3
	3.1	General Development of Miramar .................................................................................................. 7
	3.2	Significant Acquisitions and Dispositions ....................................................................................... 9
	3.3	Trends, Commitments, Events or Uncertainties ........................................................................... 13
4.	Narrative Description of the Business .................................................................................................. 24
	4.2	General ......................................................................................................................................... 24
	4.3	Asset-backed Securities Outstanding........................................................................................... 33
	4.4	Mineral Projects ............................................................................................................................ 33
	4.5	Oil and Gas Operations ................................................................................................................ 33
5.	Selected Consolidated Financial Information ...................................................................................... 34
	5.2	Annual Information ........................................................................................................................ 34
	The	Resulting Issuer ................................................................................................................................ 34
	5.3	Quarterly Information .................................................................................................................... 35
	5.4	Dividends ...................................................................................................................................... 35
	5.5	Foreign GAAP ............................................................................................................................... 36
6.	Management's Discussion and Analysis .............................................................................................. 36
7.	Market for Securities ............................................................................................................................ 36
8.	Consolidated Capitalization ................................................................................................................. 37
9.	Options to Purchase Securities ............................................................................................................ 38
10.		Description of the Securities ............................................................................................................. 40
	10.2	Debt securities .......................................................................................................................... 42
	10.3	Other securities ......................................................................................................................... 42
	10.4	Modification of terms ................................................................................................................. 42
	10.5	Other attributes ......................................................................................................................... 42
	10.6	Prior Sales ................................................................................................................................. 42
	10.7	Stock Exchange Price ............................................................................................................... 43
11.		Escrowed Securities ......................................................................................................................... 44

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12.	Principal Shareholders ..................................................................................................................... 44
13.	Directors and Officers....................................................................................................................... 44
13.1	13.1-13.4 Directors and Officers ............................................................................................... 44
13.5	Other Principal Occupations ..................................................................................................... 47
13.6	(13.6-13.9) Corporate Cease Trade Orders or Bankruptcies; Penalties or Sanctions; Personal
Bankruptcies ............................................................................................................................................ 47
13.7	Penalties or Sanctions .............................................................................................................. 49
13.8	Conflicts of Interest ................................................................................................................... 49
13.9	Management of the Corporation ............................................................................................... 49
14.	Capitalization .................................................................................................................................... 52
14.1	Issued Capital ........................................................................................................................... 52
14.2	Provide the following details for any securities convertible or exchangeable into any class of
listed securities ........................................................................................................................................ 54
14.3	Listed Securities Reserved for Issuance ................................................................................... 54
15.	Executive Compensation .................................................................................................................. 55
16.	Indebtedness of Directors and Executive Officers ........................................................................... 64
17.	Risk Factors ..................................................................................................................................... 64
18.	Promoters ......................................................................................................................................... 72
18.2	Promoters .................................................................................................................................. 72
18.3	Cease Trade Orders or Bankruptcies, Penalties or Sanctions, Personal Bankruptcies ........... 72
19.	Legal Proceedings ............................................................................................................................ 72
19.2	Legal Proceedings .................................................................................................................... 72
19.3	Regulatory Actions .................................................................................................................... 72
20.	Interest of Management and Others in Material Transactions ......................................................... 72
21.	Auditors, Transfer Agents and Registrars ........................................................................................ 73
21.2	Auditors ..................................................................................................................................... 73
21.3	Registrar and Transfer Agent .................................................................................................... 73
22.	Material Contracts ............................................................................................................................ 73
23.	Interest of Experts ............................................................................................................................ 74
24.	Other Material Facts ......................................................................................................................... 74
25.	Financial Statements ........................................................................................................................ 74
GABY	CERTIFICATE ................................................................................................................................ C-1
MIRAMAR CERTIFICATE ......................................................................................................................... C-2
SCHEDULE “A” – GABY Interim Financial Statements ............................................................................ A-1
SCHEDULE “B” – GABY Interim MD&A ................................................................................................... B-1
SCHEDULE “C” – GABY Annual Financials for the FY 2019 ................................................................... C-1
SCHEDULE “D” – GABY Annual MD&A ................................................................................................... D-1
SCHEDULE “E” – GABY Annual Financials for the FY 2018 ................................................................... E-1

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SCHEDULE “F” – GABY Annual Financials for the FY 2017 .................................................................... F-1 SCHEDULE “G” – Miramar Audited Financials......................................................................................... G-1 SCHEDULE “H” – Miramar Annual MD&A ................................................................................................ H-1 SCHEDULE “I” – Miramar Interim Financial Statements ............................................................................ I-1 SCHEDULE “J” – Miramar Interim MD&A .................................................................................................. J-1 SCHEDULE “K” – Pro Forma Financials .................................................................................................. K-1

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2. Corporate Structure

2.1 Corporate Structure

GABY

GABY exists and carries on business under the name "GABY Inc." The head office of GABY is located at 3414 Standish Avenue, Santa Rosa, California 95407, and the registered office of GABY is located at 1600, 421 – 7th Avenue SW, Calgary, Alberta, T2P 4K9.

Miramar

Miramar was incorporated under the laws of the State of California on September 4, 2015. The registered and records office of Miramar is located at 7128 Miramar Road, Suite 14B, San Diego, California 92121.

Resulting Issuer

Following completion of the Acquisition (as defined herein), the registered and records office of the Resulting Issuer will remain at the registered and records offices of GABY as described above.

2.2 Jurisdiction of Incorporation

GABY

GABY was incorporated as "Hollywood Foods Inc." on December 3, 2003 by Certificate of Incorporation issued pursuant to the provisions of the ABCA. Hollywood Foods Inc. was dissolved on June 2, 2006, and was subsequently revived under the ABCA on November 1, 2006. On August 6, 2014, Hollywood Foods Inc. amended its articles to effect a split of the outstanding common shares on the basis of 10,000 common shares for each one common share then outstanding. On December 4, 2014, GABY changed its name to Gabriella's Kitchen Inc. and subsequently changed its name under the ABCA to GABY Inc. on September 5, 2019.

On April 18, 2018, GABY: (i) repealed and replaced GABY’s articles of incorporation; and (ii) split GABY's common shares, whereby each outstanding share in the capital of GABY was split on the basis of 7 common shares for each one class "A" common share then outstanding.

On August 28, 2018, GABY became a reporting issuer in the Provinces of British Columbia, Alberta and Ontario and on September 5, 2018, its common shares began trading on the CSE under the symbol "GABY".

Miramar

Miramar Professional Services was incorporated on September 14, 2015 by Articles of Incorporation issued pursuant to the laws of the State of California. Miramar operates under the trade name "Mankind" and "Mankind Dispensary."

2.3 Intercorporate Relationships

GABY

The following chart illustrates GABY’s corporate structure, together with the place of incorporation/ governing law of each principal subsidiary and the percentage of voting securities beneficially owned by GABY as of December 31, 2020.

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GABY Inc.
(Alberta)
100% 100% 100% 100% 100%
Raw Chocolate Sonoma Pacific Gabriella’s Kitchen,
GK Brands Inc. 2Rise Naturals, Inc.
Alchemy, Inc. Distribution Inc. LLC
(California) (Arizona)
(Arizona) (California) (Delaware)
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	Registered	Holding
GABY Inc. (formerly Gabriella's Kitchen Inc.)	Alberta, Canada	Public Company
Gabriella's Kitchen LLC	Delaware, USA	100%
Sonoma Pacific Distribution, Inc. ("Sonoma Pac")	California, USA	100%
GK Brands Inc.	California, USA	100%
2Rise Naturals Inc. ("2Rise")	Arizona, USA	100%
RawChocolateAlchemyInc.("Lulu's")	Arizona, USA	100%

Miramar

Miramar has one subsidiary, Wild West Industries, Inc. a corporation existing under the laws of the State of California. Miramar currently owns 80% of the outstanding shares of Wild West, and has the right to acquire the remaining 20% of the outstanding shares of Wild West for US$1.00 upon repayment of the remaining balance under the promissory note issued in connection with the acquisition of Wild West.

2.4 Fundamental Change

The Transaction (as defined herein) will constitute a "fundamental change" of GABY, as defined by the CSE.

As part of the purchase price for the Acquisition (as defined herein), GABY issued 157,894,737 GABY Shares to the Miramar Vendors and, upon the occurrence of the Qualification Date (as defined herein), the 172,929,123 subscription receipts of GABY (" Subscription Receipts ") issued pursuant to the Brokered Private Placement (as defined herein) will convert into 172,929,123 GABY Shares and 172,929,123 Underlying Warrants.

If the Transaction is completed as contemplated, pre-Transaction GABY Shareholders will hold 36.7% of the Resulting Issuer, the Miramar Vendors will hold 24.3% of the Resulting Issuer, and subscribers to the Brokered Private Placement and the Non-Brokered Private Placement (as defined herein) will hold 26.7% and 12.3%, respectively, of the GABY Shares (on a non-diluted basis).

The Resulting Issuer

Following the completion of the Acquisition (as defined herein) on April 5, 2021, the corporate structure of the Resulting Issuer is as follows:

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GABY Inc. 100%
(Alberta)
100% 100% 100% 100% 100%
GK Brands Inc. Raw ChocolateAlchemy, Inc. Sonoma PacificDistribution Inc. Gabriella’s Kitchen, LLC 2Rise Naturals, Inc. Miramar Professional Services
(California) (Arizona)
(Arizona) (California) (Delaware) (California)
80%
Wild West Industries,
Inc.
(California)
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2.5 Non-corporate Issuers and Issuers incorporated outside of Canada

Not applicable.

3. General Development of the Business

3.1 General Development of GABY

GABY is a California-focused, CPG company operating in the cannabis industry. GABY, through its whollyowned subsidiary Sonoma Pac holds a Type 11 distribution license (" Type 11 License ") issued by the BCC and the county of Santa Rosa. The Type 11 License was granted to Sonoma Pac on January 22, 2018. GABY leverages its distribution network in the California cannabis market, relationships with appellation farms and craft cannabis growers and experience in CPG to develop high quality cannabis products and bring them to market. Sonoma Pac sells proprietary and third-party licensed products into the licensed dispensary channels in California, including CBD/THC infused chocolates branded as Lulu's Edibles™ as well as a spectrum of cannabis flower and derivative products branded under Sonoma Pacific™. The licensed cannabis retail channel in California consists of physical brick and mortar locations and mobile delivery services licensed by the BCC. As the distributor, Sonoma Pac acts as an intermediary selling third party cannabis products (as well as its own proprietary cannabis products) to these retailers and delivery services. Examples of third party products distributed by Sonoma Pac include Deep End Farms, Trade Craft and Sticke Vape.

Through a separate unlicensed division GABY sells additional proprietary brands including organic CBD supplement products branded as 2Rise™; a line of CBD infused lotions and topicals branded as Sonoma Specific™ and a line of CBD infused chocolates branded as Lulu's Chocolates™.

As of the date hereof, GABY's brands are held by it and through its wholly-owned subsidiaries: Sonoma Pac, 2Rise; and Lulu's.

Upon the closing of the Acquisition (as defined herein) on April 5, 2021, GABY has added retail capacity to its operations.

Three Year History

Fiscal Year Ended 2018

On October 1, 2018, GABY acquired TOP. Through the acquisition of TOP, GABY secured a Type 6 nonvolatile manufacturing license for extraction using a mechanical method or non-volatile solvent from the Manufactured Cannabis Safety Branch (California Department of Public Health) (the " TOP Transaction "). Subsequent to the fiscal year ended 2018, the TOP Transaction was unwound and the Type 6 license is no longer held by GABY. See Fiscal Year Ended 2019 .

Fiscal Year Ended 2019

On April 1, 2019, GABY acquired 100% of the issued and outstanding equity of Sonoma Pac, a cannabis manufacturing, distribution and marketing company. Through the acquisition, GABY obtained a Type 11 License issued by the BCC. Sonoma Pac obtained its Type 11 License on January 22, 2018. Through the acquisition, GABY also acquired the distribution facility and related assets located in Santa Rosa, California; and the Sonoma Pacific brand under which a number of products are sold.

The total consideration was payable through the issuance of 31,250,000 GABY Shares (the " Sonoma Shares "). Pursuant to the closing, a total of 26,875,000 of the Sonoma Shares issued pursuant to this transaction were issued in escrow, subject to an escrow condition as follows:

6,250,000 to be released on the earlier of the receipt of final approval of the Bureau of Cannabis Control to the transfer of control of Sonoma Pac to GABY and the date certain performance conditions are achieved in connection with the GABY Shares;
6,875,000 to be released the earlier of one year from date of issue and the date certain performance conditions are achieved in connection with the GABY Shares;
6,875,000 to be released the earlier of two years from date of issue the date certain performance conditions are achieved in connection with the GABY Shares; and
6,875,000 to be released the earlier of three years from date of issue the date certain performance conditions are achieved in connection with the GABY Shares.

Although the Sonoma Shares are held in escrow, the beneficial holders are entitled to dividends and votes thereon and the release from escrow is perfunctory. Of the total Sonoma Shares issued for consideration under this transaction, 17,250,000 were issued on April 1, 2019 at a price of $0.28 per GABY Share and 14,000,000 GABY Shares were issued on November 8, 2019 at a price of $0.13 per GABY Share.

On June 12, 2019, GABY closed an upsized brokered private placement of 66,583,400 units at a price of $0.30 per unit, for aggregate gross proceeds of $19,975,020. Each unit consisted of one GABY Share and one-half of one GABY Share purchase warrant. Each warrant is exercisable to acquire one GABY Share at an exercise price of $0.38 per GABY Share, subject to adjustment in certain events, until June 12, 2021 (the " 2019 Warrants ").

On July 25, 2019, GABY acquired 80% of the issued and outstanding member shares of KJM Data and Research, LLC (" KJM ") for USD$400,000 ($591,120), and had the right to purchase the remaining 20% of KJM member shares subject to certain licensing milestones and other conditions, in exchange for the grant of a two-year warrant for USD$200,000 worth of GABY Shares at an exercise price to be established at the closing price of GABY Shares one trading day prior to the closing of the remaining 20% purchase. The KJM assets included four use permits issued by Sonoma County: manufacturing; cultivation; nursery and distribution (" KJM Licenses "). Subsequent thereto, GABY abandoned the KJM Licenses. See Fiscal Year Ended 2020 .

On August 26, 2019 prior to the TOP licenses being transferred to GABY, GABY unwound the TOP Transaction and all consideration was returned by the selling shareholders to GABY.

On December 31, 2019, GABY acquired all the issued and outstanding shares of 2Rise. 2Rise owns a portfolio of organic CBD supplements and tinctures. Total consideration paid by GABY is comprised of the following:

	USD$	CAD$
5,780,000 GABY Shares issued on acquisition	423,558	549,100
500,000 warrants (each, a "2Rise Warrant")	3,857	5,000
Additional payments (inventory)	5,652	7,327
	433,067	561,427

(a) The GABY Shares are subject to an escrow agreement.

(b) The 500,000 2Rise Warrants provide the right to purchase 500,000 GABY Shares at a price of $0.45 for a period of two years ending December 31, 2021.

On December 31, 2019, GABY acquired 100% of the member shares of Raw Chocolate Alchemy LLC (d.b.a. Lulu's Chocolate). Lulu's CBD-infused chocolates are sold in mainstream brick and mortar locations and online across the United States. Total consideration paid by GABY is comprised of the following:

	USD$	CAD$
6,116,193 GABY Shares issued on acquisition	448,193	581,038
Promissory notes issued to former members	105,000	136,122
	553,193	717,160

The GABY Shares issued are subject to an escrow agreement which provide for release of the GABY Shares from escrow as follows: 15% being released at each of the first five six-month anniversary dates following December 31, 2019, with the final 25% being released on December 31, 2022.

Fiscal Year Ended 2020

GABY's focus in 2020 was to cut costs, implement operating efficiencies, further scale the business and grow California market share in both the THC and CBD channels while maintaining margins. In addition, GABY focused on accretive acquisitions and providing its infrastructure services to third party brands that complement its portfolio and help subsidize GABY's infrastructure costs. The infrastructure strategy GABY invested in in 2019 helped position it in 2020 with self-sufficiency and the ability to scale the business and grow market share and revenue while maintaining margin.

On January 15, 2020, GABY issued 16,666,666 GABY Shares at a deemed price per GABY Share of $0.065 to settle $1,083,333 in indebtedness owed to a company controlled by the Chair and CEO, comprised of loan capital of $1,049,435 and consulting fees payable to that company of $33,898.

On January 20, 2020, GABY issued 262,500 GABY Shares at a deemed price per GABY Share of $0.06 to consultants to settle aggregate consulting fees of $15,750.

On January 31, 2020, GABY issued 462,497 GABY Shares at a deemed price per GABY Share of $0.10 at fair value of $46,250 to settle USD$90,000 of short-term notes payable.

On February 1, 2020, GABY issued 3,003,003 GABY Shares at a deemed price per GABY Share of $0.08325 to settle fees payable in the aggregate amount of $250,000 to a director of GABY.

On February 20, 2020, GABY issued 157,500 GABY Shares at a deemed price per GABY Share of $0.10 to consultants to settle aggregate consulting fees of $15,750.

On February 26, 2020, GABY issued 75,000 GABY Shares at a deemed price per GABY Share of $0.09 to consultants to settle aggregate consulting fees of $67,500.

In March 2020, GABY confirmed its commitment to focus its capital spending and investment on organic growth and acquisitions exclusively in California. GABY relocated all operating and finance roles to California, after the positions of COO, CFO and all operating and supporting staff in Canada were terminated.

On March 16, 23, and April 14, 2020, GABY issued 5,205,000 RSUs to eligible individuals in accordance with GABY’s RSU Plan. See 15. Executive Compensation – RSU Plan .

Further, in early 2020, management concluded that it was not economical for GABY to continue to operate the traditional food business operating as Gabriella's Kitchen (" GK ") in Canada, nor was it congruent with GABY's focus of leveraging its cannabis infrastructure in California. GK was therefore discontinued in March 2020. It also determined that due to the decline in value of the KJM Licenses and the financial burden of a lease acquired in conjunction with the KJM Licenses, that it was not economically viable to execute the manufacturing and cultivation operations as originally planned. In April 2020, GABY abandoned the KJM Licenses and vacated the leased premises as based on actions of the landlord, the lease was invalid and voidable.

In further support of ongoing efficiencies and margin expansion, GABY consolidated its office and operations in Santa Rosa, California which eliminated five out of six office and warehouse leases. GABY also simplified its operating structure with continued rationalization of staff and lowered costs. GABY’s remaining lease is in respect of a facility containing office and warehouse space in Santa Rosa, California. The lease term expires in September 2022, with one option to renew for an additional 5-year period.

In addition, GABY focused increasingly on the sale and self-distribution of GABY's proprietary brands in mainstream and regulated channels, more strategic procurement and synergistic third-party brand expansion. To facilitate its distribution business in Southern California, in March 2020, GABY entered into an arrangement with PRC Distribution, Inc. (d.b.a. Showtime Distribution), a Los Angeles based licensed cannabis distribution company, to use PRC Distribution’s premises as a hub to store products being distributed by Sonoma Pac prior to ultimate delivery to retailers in Southern California.

On April 20, 2020, GABY issued 1,000,786 GABY Shares at a deemed price per GABY Share of $0.061 to a consultant to settle aggregate consulting fees of $61,047.95.

On May 19, 2020, GABY issued 686,538 GABY Shares at a deemed price per GABY Share of $0.052 to consultants to settle aggregate consulting fees of $35,699.98.

On June 22, 2020, GABY issued 2,335,000 RSUs to eligible individuals in accordance with GABY’s RSU Plan. See 15. Executive Compensation – RSU Plan .

On June 23, 2020, GABY issued 623,581 GABY Shares at a deemed price per GABY Share of $0.044 to consultants to settle aggregate consulting fees of $27,437.56.

On July 17, 2020, GABY issued 701,019 GABY Shares at a deemed price per GABY Share of $0.055 to consultants to settle aggregate consulting fees of $38,556.05.

On September 2 and October 8, 2020, GABY issued 8,835,000 RSUs to eligible individuals in accordance with GABY’s RSU Plan. See 15. Executive Compensation – RSU Plan .

On September 24, 2020, GABY issued 1,909,500 GABY Shares at a deemed price per GABY Share of $0.055 to consultants to settle aggregate consulting fees of $105,022.50.

On October 15, 2020, GABY issued 1,295,200 GABY Shares at a deemed price per GABY Share of $0.05 to consultants to settle aggregate consulting fees of $64,760.

On November 23, 2020, GABY issued 1,007,692 GABY Shares at a deemed price per GABY Share of $0.065 to consultants to settle aggregate consulting fees of $65,499.98.

In December 2020, GABY also announced its intent to complete a transaction (as further described in Section 3.2 – The Transaction ) to acquire 100% of the shares of Miramar which operates the Mankind Dispensary in California, as well as a brokered private placement of 179,919,123 Subscription Receipts at a price of $0.05 per Subscription Receipt for aggregate gross proceeds of $8,996,456.15 (the " Brokered Private Placement ") led by Mackie Research Capital Corporation (the " Lead Agent ") on behalf of a syndicate of agents (the " Agents ").

On December 30, 2020, GABY issued 3,491,101 GABY Shares at a deemed price per GABY Share of $0.05 to a law firm and consultant to settle aggregate consulting fees of $174,555.05.

Recent Developments

On January 2, 2021, all obligations owing to the KJM vendors from GABY were deemed fulfilled resulting in the voiding of the KJM Warrants and the dissolution of KJM.

On February 15, 2021, GABY, Miramar and the Miramar Vendors entered into the Definitive Agreement (as further described below). The Transaction is accretive to GABY and will establish a foundation and strong base of cash flow to continue to fund and grow GABY's California operations.

On February 4, 2021, GABY announced the closing of the Brokered Private Placement together with a nonbrokered private placement of 80,140,444 Non-Brokered Units of GABY at a price of $0.05 per NonBrokered Unit for aggregate gross proceeds of $4,007,022.20 (the " Non-Brokered Private Placement "), which, together with the Brokered Private Placement, had total aggregate gross proceeds of C$12.65 million. Proceeds from the Brokered Private Placement and the Non-Brokered Private Placement (together, the " Financing ") will be used to fund the closing of the Acquisition, as well as the pro forma business plan of the Resulting Issuer and for general corporate purposes.

Effective April 1, 2021, GABY appointed Brad Isfeld as an interim Chief Financial Officer (“ CFO ”).

On April 5, 2021, GABY closed the Acquisition (as defined herein) and issued 157,894,737 GABY Shares in connection therewith at a price of $0.05 per GABY Share for an aggregate value of $7,894,736.85.

3.1 General Development of Miramar

Miramar is a retail cannabis business based in San Diego, California that offers cannabis goods to medical and recreational consumers through its storefront, curbside pickup, and delivery under the trade name "Mankind" and "Mankind Dispensary." Miramar began operating as a medical retailer of cannabis products in December 2015 and, in January 2018, expanded its offering of cannabis products to recreational customers. Miramar offers a "self-serve" retail model that distinguishes it from most of the retail cannabis market in San Diego County. Miramar is predominately a reseller of goods produced by other companies. In December 2019, Miramar acquired Wild West Industries, Inc., a licensed distributor and manufacturer of cannabis products in California. The Wild West acquisition provided Miramar with additional offsite storage and processing capacities, including the opportunity to manufacture products in house with higher overall margins. Miramar is currently in the process of launching its first in house cannabis brand under the name "Kind Republic."

use cannabis as soon as was permissible under California law. The City also allowed local permittees to begin operating for-profit. On January 1, 2018, Miramar began adult-use cannabis sales alongside offering medical cannabis to its customers. Miramar received its annual provisional license for its Type 10 cannabis retail outlet operations in July 2019. In December 2020, Miramar renewed its conditional use permit for an additional five years.

Three Year History

Fiscal Year Ended 2018

From its formation until the second calendar quarter of 2018, Miramar provided management services to Miramar Health Supply Cooperative, Inc. (" MHSC "), which held a license to dispense cannabis products for medical use. Miramar also funded a significant portion of MHSC's startup costs in exchange for a convertible note. On or around May 1, 2018, following initial implementation of the Medicinal and Adult-Use of Cannabis Regulation and Safety Act (" MAUCRSA ") in California, MHSC assigned substantially all of its assets and operations to Miramar in connection with the conversion of the convertible note. Since this time, Miramar has owned and operated the Mankind Dispensary in San Diego, California.

Fiscal Year Ended 2019

Miramar was focused on increasing revenue and sales in the San Diego, California retail cannabis market throughout 2019. Miramar increased revenue by over 20% for fiscal year 2019, compared to fiscal year 2018, and also increased its sales in the San Diego market.

Fiscal Year Ended 2020

In the first quarter of fiscal year 2020 (December 2019), Miramar acquired the outstanding shares of Wild West, a California licensed cannabis distributor and manufacturer. Miramar acquired the Wild West shares for total consideration of US$1,500,000, $500,000 of which was paid in cash at closing and US$1,000,000 of which was represented by a promissory note issued in favor of the former Wild West shareholders (the " Sarnow Promissory Note "). The transaction closed on December 17, 2019. In addition, shareholders of Miramar pledged a portion of their Miramar Shares as collateral to secure Miramar's obligations under the Sarnow Promissory Note. One of the former Wild West shareholders retains title to 20% of the outstanding shares of Wild West, subject to Miramar's option to acquire such retained shares for US$1.00 upon payment in full of the Sarnow Promissory Note. Miramar has control over 100% of the operations of Wild West.

Miramar's plans to increase revenue growth and introduce new revenue channels in fiscal year 2020 were impacted by the COVID-19 pandemic, which caused Miramar to postpone the expansion of its product offerings and focus on its core business.

Recent Developments

In December 2020, Miramar changed its fiscal year end from December 31 to September 30. In connection with this change, Miramar completed the first audit of its financial statements for the years ended September 30, 2019 and 2020.

Also in December 2020, Miramar entered into a loan agreement with PMW LLC pursuant to which it borrowed US$500,000 (the " PMW Loan "). The PMW Loan is secured by substantially all the assets of Miramar. The PMW Loan accrues interest at a rate of 18.5% per annum and has a loan origination fee equal to 2% of the amount advanced under the loan. Interest-only payments are required for the first three months after the first advance (which occurred in December 2020), after which principal and interest payments are required monthly. All amounts advanced bear interest for at least 12 months such that if any principal is repaid before that time, the interest for the remainder of the 12-month period will be payable at that time. The PMW Loan matures in December 2022, being the 2-year anniversary of the date of the first required interest payment.

On February 15, 2021, Miramar entered into the Definitive Agreement.

3.2 Significant Acquisitions and Dispositions

The Acquisition (as defined herein) is a significant acquisition under securities laws. See Section 2.4 – Fundamental Change, above. The Acquisition and Financing together are the "Transaction".

The Transaction

On February 15, 2021, GABY, Miramar and the Miramar Vendors entered into a definitive agreement (the " Definitive Agreement ") in respect of the acquisition (the " Acquisition ") by GABY of all of the issued and outstanding securities of Miramar (the " Miramar Shares "), which operates the Mankind Dispensary in California, and its wholly owned subsidiary, Wild West, from the Miramar Vendors.

On April 5, 2021, the Acquisition closed and the purchase price for the Acquisition was satisfied by GABY as follows: (i) the payment of US$5.0 million in cash; (ii) the issuance of an aggregate of 157,894,737 GABY Shares at a deemed price of $0.05 per GABY Share (the " Consideration Shares "); and (iii) the issuance of a secured, non-convertible promissory note in the aggregate amount of US$25.5 million with interest payable at the rate of 10.0% per annum and with principal repayments of US$5.0 million due 24 months, 48 months and 72 months after the closing date of the Acquisition, with a final payment of US$10.5 million due 84 months after the closing date, subject to adjustment in accordance with the terms of the Definitive Agreement.

The Definitive Agreement

The Definitive Agreement provides for the implementation of the Acquisition. The Definitive Agreement contains covenants, representations and warranties of and from each GABY, Miramar and the Miramar Vendors and various conditions precedent, both mutual and with respect to each Party. The following is a summary of certain material provisions of the Definitive Agreement and is not comprehensive but is qualified in its entirety by reference to the full text of the Definitive Agreement which is available at www.sedar.com.

As further described below, completion of the of the Transaction required the approval of the CSE to list the GABY Shares that will be issued pursuant to the Transaction and the approval of shareholders of GABY.

On March 3, 2021, shareholders holding not less than 50% plus one of the issued and outstanding GABY Shares approved the Transaction by way of written resolution.

Representations and Warranties

Under the Definitive Agreement, each of the Miramar Vendors and Miramar make certain customary representations and warranties related to, among other things, the following: right and authority relative to the Definitive Agreement; contractual and regulatory approval; execution and binding obligation; title to Miramar Shares; no other agreement to purchase; minute books; shareholder agreement; authorized and issued capital; disclosure document; financial statements; subsidiaries and other interests; organizational standing and power; licenses; compliance with governing documents agreements and laws; liability; title to assets; indebtedness; sufficiency of assets; absence of certain changes or events; commitments for capital expenditure; tax matters; litigation; environmental matters; deposit accounts and safety deposit boxes; account receivable; inventory; products liability; owned properties; leased premises; condition of properties and equipment; intellectual property; material contracts; good standing of agreements; labor matters and employment standards; employee benefits and pension plans; insurance; government assistance; nonarm's length matters; compliance with laws: voluntary insolvency; involuntary insolvency; and public record.

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Conditions for the Benefit of GABY

The completion of the Acquisition were subject to the following conditions, which were for the exclusive benefit of GABY and which were to be performed or complied with at or prior to the Closing Time:

(a) the representations and warranties of the Miramar Vendors set forth in the Definitive Agreement will be true and correct in all material respects at the closing time; provided, that, any representation or warranty that is qualified by materiality must be true and correct in all respects after giving effect to such qualification.
(b) the representations and warranties of Miramar and the Miramar Vendors set forth in the Definitive Agreement will be true and correct in all material respects at the closing time; provided, that, any representation or warranty that is qualified by materiality must be true and correct in all respects after giving effect to such qualification.
(c) Miramar and the Miramar Vendors will have performed or complied in all material respects with all of the covenants of the Definitive Agreement to be performed or complied with by Miramar and the Miramar Vendors at or prior to the closing time;
(d) no action or proceeding will be pending or threatened by any Person to enjoin, restrict or prohibit:
(i) the completion of the Acquisition; or
(ii) the right of Miramar to conduct the business (as defined in the Definitive Agreement);
(e) no material adverse effect (as defined in the Definitive Agreement) in respect of Miramar and its Subsidiaries (as defined in the Definitive Agreement), taken as a whole, shall have occurred;
(f) all necessary steps and proceedings will have been taken to permit the Miramar Shares to be duly transferred to and registered in the name of GABY;
(g)
Miramar's transaction expenses shall have been paid in full;
(h) each of the Miramar Vendors shall have executed and delivered the applicable escrow agreement;
(i) all necessary approvals and consents necessary to complete the Acquisition and its related transactions, including the GABY shareholder approval executed by the requisite number of shareholders of GABY and the CSE Approval will have been obtained; and
(j) the Escrow Release Conditions shall have been satisfied on or before the Closing Date.

Conditions for the Benefit of Miramar and the Miramar Vendors

The completion of the Acquisition was subject to the following conditions, which were for the exclusive benefit of Miramar and the Miramar Vendors and which were to be performed or complied with at or prior to the Closing Time:

(a) the representations and warranties of GABY set forth in the Definitive Agreement will be true and correct in all material respects at the closing time; provided, that, any representation or warranty that is qualified by materiality must be true and correct in all respects after giving effect to such qualification;
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(b) GABY will have performed or complied in all material respects with all of the covenants of the Definitive Agreement to be performed or complied with by GABY at or prior to the closing time;
(c) no action or proceeding will be pending or threatened by any person to enjoin, restrict or prohibit the completion of the Acquisition;
(d) no material adverse effect (as defined in the Definitive Agreement) in respect of GABY shall have occurred;
(e) a copy of the authorizing resolutions of GABY's Board, authorizing the execution and delivery of this Agreement and the ancillary documents contemplated hereby to which GABY is a party, and the consummation of the transactions contemplated hereby and thereby;
(f) all required authorization, consents, approvals or waivers are obtained, including the approval of the CSE;
(g) GABY and the escrow agent shall have executed and delivered the escrow agreements;
(h) James Schmachtenberger shall have been nominated for appointment as a member of the GABY Board as the initial nominee;
(i) the Miramar Vendors shall have received the closing payment;
(j) the Consideration Shares shall have been issued;
(k) GABY shall have executed and delivered the transition services agreement, the promissory note and the stock pledge agreement;
(l) the Sarnow Release, PMW Release and each of the Lease Releases shall have been executed and delivered by all parties to each of the foregoing; and
(m) the Escrow Release Conditions shall have been satisfied on or before the Closing Date.

The "Sarnow Release" requires GABY to guarantee outstanding indebtedness in the principal amount of US$400,000 under a promissory note dated January 1, 2020, made by Miramar and the Miramar Vendors in favor of Marcia Sarnow and Gerald Sarnow, in original principal amount of $1,000,000, as the same has been amended (the " Sarnow Promissory Note "), and relieving Miramar's current officers and directors, as applicable, and all the Vendors from all obligations thereunder including, without limitation, any guarantees or pledges, utilizing assumption agreements in forms reasonably acceptable to the Vendors' Representative.

The "PMW Release" requires GABY to guarantee outstanding indebtedness in the principal amount of US$500,000 under the PMW Loan, and relieving Miramar's current officers and directors, as applicable, and all the Vendors from all obligations thereunder including, without limitation, any guarantees or pledges, utilizing assumption agreements in forms reasonably acceptable to the Vendors' Representative.

The "Lease Releases" require GABY to relieve any and all Miramar Vendors and their affiliates from all personal guarantees of certain leases as set out in the Definitive Agreement and all obligations thereunder, utilizing assumption agreements in forms reasonably acceptable to the Vendors' Representative.

The Acquisition is not a related party transaction, and the Acquisition is therefore at an arm's length.

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The Financing

Pursuant to the Brokered Private Placement which closed on February 4, 2021, GABY has issued 172,929,123 Subscription Receipts at a price of C$0.05 per Subscription Receipt. Each Subscription Receipt represents the right to receive, without payment of additional consideration or further action on the part of the holder thereof, on the Qualification Date, one unit of GABY (each, a " Unit "). Each Unit is comprised of (i) one GABY Share; and (ii) and one GABY Share purchase warrant (each, an " Underlying Warrant "). Each Underlying Warrant will entitle the holder to purchase a GABY Share at an exercise price of C$0.09, at any time up to 24 months following the date of issuance; provided that if, at any time prior to the expiry date of the Underlying Warrants, certain performance thresholds are met, GABY may, within 10 business days of the occurrence of such event, deliver a notice to the holders of Underlying Warrants (the " Acceleration Right ") accelerating the expiry date of the Underlying Warrants to the date that is 30 days following the date of such notice (the " Accelerated Exercise Period "). Any unexercised Underlying Warrants will automatically expire at the end of the Accelerated Exercise Period. The Underlying Warrants will be created and issued on the Qualification Date pursuant to a warrant indenture between GABY and Odyssey, as warrant agent (the “ Warrant Indenture ”).

The gross proceeds from the Brokered Private Placement being $8,996,456.15, less the expenses of the Agents and 50% of the Commission payable pursuant to the Brokered Private Placement, are currently held in escrow with the Subscription Receipt Agent pending the satisfaction of certain Escrow Release Conditions (the “ Escrowed Proceeds ”). If the Escrow Release Conditions are satisfied on or before May 5, 2021, the net proceeds from the sale of the Subscription Receipts, less the outstanding Commission to be released to the Agents out of the Escrowed Proceeds, will be released from escrow to GABY (the “ Escrow Release Date ”). If the Acquisition is not completed on or before the Deadline, being May 5, 2021 (or such later date as the Lead Agent may consent in writing), or is terminated at an earlier time, then the purchase price for the Subscription Receipts will be returned to subscribers, together with a pro rata portion of interest earned on the escrowed funds, if any.

The "Escrow Release Conditions" are set forth in the subscription receipt agreement among GABY, Odyssey and the Lead Agent, on behalf of the Agents, and include: (i) the Definitive Agreement shall have been entered into; (ii) all conditions precedent, undertakings, and other matters to be satisfied, completed and otherwise met at or prior to the completion of the Acquisition (other than delivery of standard closing documentation) have been satisfied or waived in accordance with the terms of the Definitive Agreement (any such waiver to be consented to by the Lead Agent in writing, acting reasonably); (iii) there have been no material amendments or material waivers of the terms and conditions of the Definitive Agreement which have not been approved by the Agents; and (iv) receipt by GABY of all necessary regulatory and other approvals regarding the Brokered Private Placement and the Acquisition.

The Escrow Release Conditions occurred, and the Escrowed Proceeds were released, on April 1, 2021.

On the qualification date (the " Qualification Date "), being, after the Escrow Release Date, the earlier of: (A) June 5, 2021; and (B) the second business day following the satisfaction of certain conditions in accordance with the terms of the Subscription Receipt Agreement, each Subscription Receipt will convert, without payment of additional consideration or further action on the part of the holder thereof, into one Unit.

The Brokered Private Placement was conducted pursuant to an agency agreement dated February 4, 2021 between GABY and the Agents (the “ Agency Agreement ”). The Subscription Receipts were issued pursuant to a subscription receipt agreement dated February 4, 2021 between GABY, the Lead Agent on behalf of the Agents and Odyssey (the “ Subscription Receipt Agent ”, and the agreement, the “ Subscription Receipt Agreement ”).

Pursuant to the Agency Agreement, GABY granted the Agents the number of Compensation Warrants that is equal to 7% of the aggregate number of Subscription Receipts sold pursuant to the Brokered Private Placement (excluding the Subscription Receipts sold to purchasers on the President’s List) and 3.5% of the aggregate number of Subscription Receipts sold to purchasers on the President’s List, and will pay to the

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Agents a cash commission equal to 7.0% of the aggregate gross proceeds from the sale of the Subscription Receipts to purchasers pursuant to the Brokered Private Placement (excluding gross proceeds raised from Purchasers on the President’s List) and 3.5% of the aggregate gross proceeds from the sale of the Subscription Receipts to Purchasers on the President’s List (the “ Commission ”).

Pursuant to the Non-Brokered Private Placement, GABY issued 80,140,444 units (each, a " Non-Brokered Unit ") at a price of $0.05 per Non-Brokered Unit for aggregate gross proceeds of $4,007,022.20. Each NonBrokered Unit consisted of: (i) one GABY Share; and (ii) and one warrant, which has the same terms as the Underlying Warrants (as described herein) (each, a " Non-Brokered Warrant ").

3.3 Trends, Commitments, Events or Uncertainties

There are a number of risk factors that could cause future results to differ materially from those described herein. The risks and uncertainties described herein, and in the documents incorporated by reference herein are not the only ones GABY faces. Additional risks and uncertainties, including those that GABY does not know about now or that it currently deems immaterial, may also adversely affect the GABY's business. If any of the following risks actually occur, GABY’s business may be harmed and its financial condition and results of operations may suffer significantly.

In accordance with the Canadian Securities Administrators Staff Notice 51-352, please see the table of concordance below that is intended to assist readers in identifying those parts of this Listing Statement that address the disclosure expectations outlined in Staff Notice 51-352.

Industry Involvement	Specific Disclosure Necessary to Fairly Present all Material Facts, Risks and Uncertainties	Listing Statement Cross Reference
All Issuers with U.S. Marijuana- Related Activities	Describe the nature of the issuer's involvement in the U.S. marijuana industry and include the disclosures indicated for at least one of the direct, indirect and ancillary industry involvement types noted in this table.	"General Development of Business – Trends, Commitments, Events or Uncertainties – Nature of involvement and exposure to USA Cannabis-Related _Activities"_onpage 15.
	Prominently state that marijuana is illegal under U.S. federal law and that enforcement of relevant laws is a significant risk.	"General Development of Business – Trends, Commitments, Events or Uncertainties – Regulatory Overview – USA Federal _Law and Enforcement"_on page 15.
	Discuss any statements and other available guidance made by federal authorities or prosecutors regarding the risk of enforcement action in any jurisdiction where the issuer conducts U.S. marijuana-related activities.	"General Development of Business – Trends, Commitments, Events or Uncertainties – Regulatory Overview – USA Federal _Law and Enforcement"_on page 15.
	Outline related risks including, among others, the risk that third party service providers could suspend or withdraw services and the risk that regulatory bodies could impose certain restrictions	"General Development of Business – Trends, Commitments, Events or Uncertainties – Service _Providers"_onpage 20.

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Industry Involvement	Specific Disclosure Necessary to Fairly Present all Material Facts, Risks and Uncertainties	Listing Statement Cross Reference
	on the issuer's ability to operate in the U.S.
	Given the illegality of marijuana under U.S. federal law, discuss the issuer's ability to access both public and private capital and indicate what financing options are / are not available in order to support continuing operations.	"General Development of Business – Trends, Commitments, Events or Uncertainties – Ability to _Access Capital"_on page 20.
		"General Development of Business – Trends, Commitments, Events or Uncertainties – Restricted _Access to Banking"_on page 21.
	Quantify the issuer's balance sheet and operating statement exposure to U.S. marijuana-related activities.	"General Development of Business – Trends, Commitments, Events or Uncertainties – Balance Sheet and Operating Statement Exposure to USA Cannabis- Related _Activities"_onpage 22.
	Disclose if legal advice has not been obtained, either in the form of a legal opinion or otherwise, regarding (a) compliance with applicable state regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law.	"General Development of Business – Trends, Commitments, Events or Uncertainties – Regulatory Overview - Compliance with State Licensing and Regulatory Frameworks" onpage 17.
U.S. Marijuana Issuers with direct involvement in cultivation or distribution	Outline the regulations for U.S. states in which the issuer operates and confirm how the issuer complies with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state.	"General Development of Business – Trends, Commitments, Events or Uncertainties –The Regulatory Landscape on a US State Level - _California"_onpage 17.
	Discuss the issuer's program for monitoring compliance with U.S. state law on an ongoing basis, outline internal compliance procedures and provide a positive statement indicating that the issuer is in compliance with U.S. state law and the related licensing framework. Promptly disclose any non- compliance, citations or notices of violation which may have an impact on	"General Development of Business – Trends, Commitments, Events or Uncertainties – GABY and the Resulting Issuer's Compliance Procedures" on page 20.

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Industry Involvement	Specific Disclosure Necessary to Fairly Present all Material Facts, Risks and Uncertainties	Listing Statement Cross Reference
	the issuer's license, business activities or operations.
U.S. Marijuana Issuers with indirect involvement in cultivation or distribution	Outline the regulations for U.S. states in which the issuer's investee(s) operate.	N/A
	Provide reasonable assurance, through either positive or negative statements, that the investee's business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. Promptly disclose any noncompliance, citations or notices of violation, of which the issuer is aware, that may have an impact on the investee's license, business activities or operations.	N/A
U.S. Marijuana Issuers with material ancillary involvement	Provide reasonable assurance, through either positive or negative statements, that the applicable customer's or investee's business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state.	N/A

GABY will evaluate, monitor, and reassess the disclosure contained herein, and any related risks, on an ongoing basis and will be supplemented, amended and communicated forthwith to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding marijuana regulations.

As a result of GABY's direct involvement in distribution of cannabis edibles, GABY is subject to Staff Notice 51-352 and accordingly provides the following disclosure.

Nature of Involvement and Exposure to USA Cannabis-Related Activities

GABY currently has direct involvement in USA cannabis-related activities through its 100% owned subsidiary, Sonoma Pac, which holds a Type 11 cannabis distribution license for the State of California issued by the BCC.

In June 2015, the founders of Miramar received a conditional use permit from the City of San Diego to operate a medical marijuana consumer cooperative. Following the passage of the Adult Use of Marijuana Act in 2016, the City of San Diego announced that its licensed dispensaries would be allowed to sell adultuse cannabis as soon as was permissible under California law. The City also allowed local permittees to begin operating for-profit. On January 1, 2018, Miramar began adult-use cannabis sales alongside offering medical cannabis to its customers. Miramar received its annual provisional license for its Type 10 cannabis retail outlet operations in July 2019. In December 2020, Miramar renewed its conditional use permit for an additional five years.

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In 2019, Miramar acquired Wild West Industries, Inc., a licensed distributor and manufacturer of cannabis ‐ products in California. Wild West Industries, Inc. holds a provisional annual license for Type 6 (non volatile) manufacturing issued by the Department of Public Health of the State of California, and a provisional annual license for distribution of adult ‐ use and medicinal cannabis issued by the BCC.

Regulatory Overview

USA Federal Law and Enforcement

Pursuant to the above-mentioned involvement in USA cannabis-related activities, GABY derives a substantial portion of its revenue from the cannabis industry in certain states of the USA. The cannabis industry is illegal under USA federal law. While some states in the USA have authorized the use and sale of cannabis, it remains illegal under federal law and the approach to enforcement of USA federal laws against cannabis is subject to change. Because GABY engages in cannabis-related activities in the USA, it assumes certain risks due to conflicting state and federal laws. The federal law relating to cannabis could be enforced at any time and this would put GABY at risk of being prosecuted and, among other consequences, having its assets in the USA seized.

At present, 35 states, four out of five permanently inhabited USA territories, as well as the District of Columbia, have legalized medical cannabis. Thirteen other states have laws that limit THC content, for the purpose of allowing access to products that are rich in CBD, a non-psychoactive component of cannabis. The recreational use of cannabis is legal in 14 states, the District of Columbia, the Northern Mariana Islands, and Guam. Another 16 states and the U.S. Virgin Islands have decriminalized its use. Notwithstanding the foregoing, marijuana remains illegal under U.S. federal law with marijuana listed as a Schedule 1 drug under the United States Controlled Substances Act of 1970, as amended (the " Controlled Substances Act ").

The USA federal government regulates drugs through the Controlled Substances Act, which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug. Under USA federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the USA, and a lack of accepted safety for the use of the drug under medical supervision. The U.S. Food and Drug Administration has not approved marijuana as a safe and effective drug for any indication.

In August 2013, the US administration attempted to address the inconsistencies between federal and state regulation of cannabis and issued the Cole Memorandum (" Cole Memorandum "), which outlined certain priorities for the Department of Justice (" DOJ ") relating to the prosecution of cannabis offences. The Cole Memorandum instructed the DOJ to not prosecute violations of federal drugs laws related to cannabis activity in states where laws had been enacted legalizing cannabis in some form and where strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale and possession of cannabis had been implemented. The DOJ did not provide (and has not provided since) specific guidelines for what regulatory and enforcement systems would be deemed sufficient under the Cole Memorandum. In light of limited investigative and prosecutorial resources, the Cole Memorandum concluded that the DOJ should be focused on addressing only the most significant threats related to cannabis, a non-exhaustive list of which was enumerated therein.

In January 2018, former Attorney General Sessions rescinded the aforementioned Cole Memorandum and directed all US Attorneys to enforce the laws enacted by Congress by following well-established principles when pursuing prosecutions related to cannabis activities (the " Sessions Memorandum "). There can be no assurance that the federal government will not enforce federal laws relating to cannabis in the future. As a result of the Sessions Memorandum, federal prosecutors are now free to utilize their prosecutorial discretion to decide whether to prosecute cannabis activities despite the existence of state-level laws that may be inconsistent with federal prohibitions. No discretion was given to federal prosecutors in the Sessions Memorandum as to the priority they should ascribe to such cannabis activities and it is uncertain how active U.S. federal prosecutors will be in relation to such activities.

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In 2014, following the Cole Memorandum, the Financial Crimes Enforcement Network under the U.S. Treasury Department notified banks that it would not seek enforcement of money laundering laws against banks that service cannabis companies operating under state law, provided strict due diligence and reporting standards are met. While most banks continue to decline to operate under such strict requirements, a number of local banks have undertaken to service the cannabis industry with basic financial services. Since 2014, the U.S. Congress has annually passed appropriations bills that include a provision, known as the Rohrabacher Farr Amendment, now known as the Leahy Amendment (the " Leahy Amendment "), which prohibits expenditure of federal budget resources on the enforcement of federal controlled substances laws that interfere with state medical cannabis programs.

While there is a risk that these US Attorneys and the current administration at large may seek to enforce federal drug laws against use that is now permitted under state law, as described below, the Leahy Amendment remains in force, preventing the expenditure of Department of Justice budgetary resources on such enforcement against medical cannabis companies. Additionally, Senators Gardner (R-CO) and Warren (D-MA) introduced legislation that would amend the federal Controlled Substances Act to exempt state-legal marijuana activity from its provisions. Public support in the USA for legalization of medical and adult-use cannabis continues to grow, with a majority of the public supporting legalization, which continues to spread under state law.

In July 2020, a House subcommittee introduced a base appropriations bill with the Leahy Amendment included. The Leahy Amendment was then renewed through a series of stopgap spending bills throughout 2020 and on December 27,2020 it was renewed effective through September 30, 2021. The Cole Memorandum and the Leahy Amendment gave medical cannabis operators and investors in states with legal regimes greater certainty regarding federal enforcement as to establish cannabis businesses in those states; however, should the Leahy Amendment not be renewed in subsequent spending bills, there can be no assurance that the federal government will not seek to prosecute cases involving cannabis businesses that are otherwise compliant with state law. Such potential proceedings could involve significant restrictions being imposed upon GABY or third parties, while diverting the attention of key executives. Such proceedings could have a material adverse effect on GABY's business, revenues, operating results and financial condition as well as GABY's reputation, even if such proceedings were concluded successfully in favor of GABY.

While the Sessions Memorandum has introduced some uncertainty regarding federal enforcement, the cannabis industry continues to experience growth in legal medical and adult- use markets across the USA. USA Attorney General Jeff Sessions resigned on November 7, 2018. As of his resignation, Matthew Whitaker was the acting USA Attorney General until William Barr was appointed as the USA Attorney General on February 14, 2019. In an April 10, 2019 Senate Appropriations Subcommittee meeting to discuss the Justice Department's budget 2020, in response to a question about his position on the proposed Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, Attorney General Barr stated: "Personally, I would still favor one uniform federal rule against marijuana," "But if there is not sufficient consensus to obtain that then I think the way to go is to permit a more federal approach so states can, you know, make their own decisions within the framework of the federal law. So we're not just ignoring the enforcement of federal law." The STATES Act, if it were to pass, would allow states to determine their own approaches to marijuana. Attorney General Barr said the legislation is still being reviewed by his office but that he would "much rather... the approach taken by the STATES Act than where we currently are."

On January 7, 2021, President Joe Biden announced Judge Merrick Garland as his nominee for the next U.S. Attorney General. On January 20, 2021, Robert M. Wilkinson replaced Jeffrey A. Rosen as the Acting Attorney General while Judge Garland seeks confirmation from the U.S. Senate. Neither interim Attorney General Jeffrey A. Rosen nor Robert M/ Wilkinson, have provided a clear policy directive for the United States as it pertains to state-legal marijuana-related activities. On March 11, 2021, Judge Garland was sworn in as Attorney General of the United States. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland will re-adopt the Cole Memorandum or announce a substantive marijuana enforcement policy. It is unclear what impact this development will have on USA federal government enforcement policy. Despite the expanding market for legal cannabis, traditional

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sources of financing, including bank lending or private equity capital, is lacking which is can be attributable to the fact that cannabis remains a Schedule I substance under the Controlled Substances Act. These traditional sources of financing are expected to remain scarce until the federal government legalizes cannabis cultivation and sales.

Compliance with California State Licensing and Regulatory Frameworks

The Resulting Issuer will continue to obtain legal advice from its counsel regarding the compliance with applicable state regulatory frameworks and potential exposure and implications arising from federal law of the USA.

- Program for Monitoring Compliance and Disclosure of Material Non Compliance

The following sections present an overview of market and regulatory conditions for the cannabis industry in USA states which GABY is directly involved. Although GABY's activities are compliant with applicable state and local law in the USA, strict compliance with such state and local laws with respect to cannabis may neither absolve GABY of liability under USA federal law, nor may it provide a defense to any federal proceeding which may be brought against GABY.

The Regulatory Landscape on a US State Level

California

In 1996, California voters approved Proposition 215 (the " Compassionate Use Act "), allowing physicians to recommend cannabis for an inclusive set of qualifying conditions including chronic pain. The law established a not-for-profit patient/caregiver system, but there was no state licensing authority to oversee the businesses that emerged as a result of the system. In September of 2015, the California legislature passed three bills, collectively known as the "Medical Marijuana Regulation and Safety Act". In 2016, California voters passed "The Adult Use of Marijuana Act", which legalized adult-use cannabis for adults 21 years of age and older and created a licensing system for commercial cannabis businesses. On June 27, 2017, Governor Brown signed SB-94 into law. SB-94 combined California's medicinal and adult-use cannabis regulatory frameworks into one licensing structure, MAUCRSA.

Pursuant to MAUCRSA, the three agencies that regulate cannabis at the state level are: (1) CalCannabis, a division of the California Department of Food and Agriculture, which issues licenses to cannabis cultivators; (2) the California Department of Public Health, via the Manufactured Cannabis Safety Branch, which issues licenses to cannabis manufacturers; and (3) the California Department of Consumer Affairs, via its agency the BCC, which issues licenses to cannabis distributors, testing laboratories, retailers and micro-businesses. These agencies also oversee the various aspects of implementing and maintaining California's cannabis landscape, including the statewide track and trace system.

In May 2018, the California Department of Consumer Affairs, the California Department of Public Health and the California Department of Food and Agriculture proposed to re-adopt their emergency cannabis regulations. The three licensing authorities proposed changes to the regulatory provisions to provide greater clarity to licensees and to address issues that had arisen since the emergency regulations went into effect in December 2017. One of the included changes was that applicants may now complete one license application which allow for both medical and adult-use cannabis activity. These emergency cannabis regulations were officially readopted and came into effect in June 2018. In January 2019, California's three state cannabis licensing authorities announced that the Office of Administrative Law officially approved state regulations for cannabis businesses. The final cannabis regulations took effect immediately and superseded the previous emergency regulations.

To operate legally under state law, cannabis operators must obtain a state license and local approval. Local authorization is a prerequisite to obtaining state licensure from all three state licensing agencies, and local governments are permitted to prohibit or otherwise regulate the types and number of cannabis businesses

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allowed in their locality. California has not set a limit on the number of state licenses an entity may hold, unlike other states that have restricted how many cannabis licenses an entity may hold in total or for various types of cannabis activity. Although vertical integration across multiple license types is allowed under MAUCRSA, testing laboratory licensees may not hold any other licenses aside from a laboratory license. There are also no residency requirements for ownership under MAUCRSA.

Presently, GABY is directly involved in the manufacturing and distribution of cannabis in California through Sonoma Pac. Sonoma Pac's business has been conducted in substantial compliance with the regulatory framework enacted by the State of California. Sonoma Pac has been subject to site visits by the BCC during 2020 and all minor non-conformances noted have been rectified as of the date of this document.

Miramar is directly involved in operating a cannabis dispensary, through its Type 10 cannabis retail outlet operations, and through its subsidiary, Wild West Industries, Inc., which holds a provisional annual license ‐ for Type 6 (non volatile) manufacturing issued by the Department of Public Health of the State of California, ‐ and a provisional annual license for distribution of adult use and medicinal cannabis issued by the BCC. Miramar has represented to GABY that its business, including Wild West Industries, Inc., were conducted in substantial compliance with the regulatory framework enacted by the State of California.

Below is an overview of some of the principal license types issued in California (each of which can be issued with a Medical (M-Class) or Adult-Use (A-Class) designation):

Type 7: authorized to manufacture cannabis products using volatile solvent extractions.
Type 6: authorized to manufacture cannabis products using mechanical or non-volatile solvent extractions.
Type N: authorized to manufacture cannabis products (other than extracts or concentrates) using infusion processes but does not conduct extractions.
Type P: authorized to only package or repackage cannabis products or relabel the cannabis product container.

Each of the above manufacturing license types is inclusive of the types in the list below it. For example, a Type 7 licensee would be able to perform Type 6, N or P tasks. A Type 6 license could perform Type N or P tasks. A Type N licensee would be able to perform Type P tasks. In addition to these four licenses, the Manufactured Cannabis Safety Branch of California is developing a fifth license type, Type S, for shareduse manufacturing facilities. This license type will be for businesses and facility owners that alternate use of a manufacturing premises.

Type 8: authorized to test the chemical composition of cannabis and cannabis products.
Type 9: authorized to conduct retail cannabis sales exclusively by delivery.
Type 10: authorized to sell cannabis goods to customers.
Type 11: authorized to transport and store cannabis goods purchased from other licensed entities and sell them to licensed retailers, and responsible for laboratory testing and quality assurance to ensure packaging and labeling compliance.
Type 13: authorized to transport cannabis goods between licensed cultivators, manufacturers, and distributors.

The below table details the Resulting Issuer’s cannabis licenses:

Licensee	Description	City	Expiration/Renewal Date (if applicable)	License
Wild West Industries, Inc.	Annual Manufacturing License - Adult and	San Diego	April 23, 2021	License no. CDPH-10002704; Type 6: Non

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Licensee	Description	City	Expiration/Renewal Date (if applicable)	License
	Medicinal Cannabis Products - Provisional			Volatile Solvent Extraction
Wild West Industries, Inc.	Adult-Use and Medicinal – Distributor License Provisional	San Diego	June 19, 2021	License no. C11- 0000442-LIC
Miramar Professional Services	Adult-Use and Medicinal – Retailer License Provisional	San Diego	July 23, 2021	License no. C10- 0000494-LIC
Sonoma Pacific Distribution Inc.	Medicinal – Distributor License Provisional	Santa Rosa	June 11, 2021	License no. C11- 0000334-LIC

Local Licensing, Zoning, and Land Use Requirements

To obtain a state license, cannabis operators must first obtain local authorization, which is a prerequisite to obtaining state licensure. All three state regulatory agencies require confirmation from the applicable locality that an applicant is in compliance with local requirements and has either been granted authorization to, upon state licensure, continue previous cannabis activities or commence cannabis operations. One of the basic aspects of obtaining local authorization is compliance with all local zoning and land use requirements. Local governments are permitted to prohibit or otherwise regulate the types and number of cannabis businesses allowed in their locality. Some localities have limited the number of authorizations an entity may hold in total or for various types of cannabis activity. Others have tiered the authorization process, granting the initial rounds of local authorization to applicants that previously conducted cannabis activity pursuant to the Compassionate Use Act or those that meet the locality's definition of social equity. Sonoma Pac was granted full zoning and use permits by Sonoma County on March 14, 2019. Miramar and Wild West have represented to GABY that they each hold full zoning and use permits from the City of San Diego.

Record-Keeping and Continuous Reporting Requirements

California's state license application process additionally requires comprehensive criminal history, regulatory history and personal disclosures for all owners. Any criminal convictions or civil penalties or judgments occurring after licensure must promptly be reported to the regulatory agency from which the licensee holds a license. State licenses must be renewed annually. Disclosure requirements for local authorization may vary, but generally tend to mirror the State of California's requirements. Licensees must also keep detailed records pertaining to various aspects of the business for up to seven years. Such records must be easily accessible by the regulatory agency from which the licensee holds a license. Additionally, licensees must record all business transactions, which must be uploaded to METRC, the state-wide traceability system selected by California to track commercial cannabis activity.

Operating Procedure Requirements

Applicants must submit standard operating procedures describing how the operator will, among other requirements, secure the facility, manage inventory, comply with California's seed-to-sale tracking requirements, dispense cannabis, and handle waste, as applicable to the license sought. Once the standard operating procedures are determined compliant and approved by the applicable state regulatory agency, the licensee is required to abide by the processes described and seek regulatory agency approval before any changes to such procedures may be made. Licensees are additionally required to train their employees on compliant operations and are only permitted to transact with other legal and licensed businesses. Each licensee is required to assign an account manager to oversee the T&T system. The account manager must

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be fully trained on the system and is accountable to record all commercial cannabis activities accurately and completely. The licensee should correct any data that is entered into the T&T system in error within three business days of discovery of the error.

Site Visits and Inspections

As a condition of obtaining a state license, operators must consent to random and unannounced inspections of the commercial cannabis facility, as well as the facility's books and records to monitor and enforce compliance with state law. Many localities have also enacted similar standards for inspections, and the state has already commenced site-visits and compliance inspections for operators who have received state temporary or annual licenses.

Sonoma Pac has been subject to site visits by the BCC during 2020 and all minor non-conformances noted have been rectified as of the date of this document. Miramar and Wild West each receive annual site visits from the BCC. The last annual visit was October 8, 2019.

Retail Compliance

California requires that certain warnings, images, and content information to be printed on all marijuana packaging. BCC regulations also include certain requirements about tamper-evident and child-resistant packaging. Both distributors and retailers are responsible for confirming that products are properly labeled and packaged before they are sold to a customer.

GABY and the Resulting Issuer's Compliance Procedures

Since its inception, Sonoma Pac has retained industry experts in California cannabis law, as local outside counsel to oversee and monitor compliance with USA state law on an ongoing basis. These experts in the field keep Sonoma Pac fully informed of regulatory changes and recommend standard operating procedures to facilitate the implementation and maintenance of compliant operations, required tracking and license reporting. GABY will continue to work closely with the advisors to develop and improve its internal compliance program and will defer to their legal opinions and risk mitigation guidance regarding California's complex regulatory framework. The internal compliance program, including the update of operational procedures and use of checklists, requires continued monitoring by managers and executives of GABY to ensure all operations conform with legally compliant standard operating procedures. In anticipation of future growth, GABY is investigating a number of software solutions developed specifically for the cannabis industry to allow for automation of both internal as well as third-party compliance auditing, covering all state and municipal, facility and operational requirements to maintain licensing criteria. Sonoma Pac is required to report and disclose to GABY all instances of non-compliance, regulatory, administrative, or legal proceedings that may be initiated against them. Sonoma Pac has been in compliance with the regulatory requirements as they have unfolded throughout 2018, 2019 and 2020. Miramar and Wild West have represented to GABY that they are in compliance with regulatory requirements.

Service Providers

As a result of any adverse change to the approach in enforcement of USA cannabis laws, adverse regulatory or political change, additional scrutiny by regulatory authorities, adverse change in public perception in respect of the consumption of marijuana or otherwise, third party service providers to GABY or Miramar could suspend or withdraw their services, which may have a material adverse effect on the Resulting Issuer's business, revenues, operating results, financial condition or prospects.

Ability to Access Capital

The Resulting Issuer will require equity and/or debt financing to support on-going operations, to undertake capital expenditures or to undertake acquisitions or other business combination transactions. There can be no assurance that additional financing will be available to the Resulting Issuer when needed or on terms

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which are acceptable. The Resulting Issuer's inability to raise financing through traditional banking to fund on-going operations, capital expenditures or acquisitions could limit its growth and may have a material adverse effect upon the Resulting Issuer's business, results of operations, financial condition or prospects. If additional funds are raised through further issuances of equity or convertible debt securities, existing GABY shareholders could suffer significant dilution.

Restricted Access to Banking

In February 2014, the Financial Crimes Enforcement Network (" FinCEN ") bureau of the USA Treasury Department issued guidance (which is not law) with respect to financial institutions providing banking services to cannabis businesses, including burdensome due diligence expectations and reporting requirements. This guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the Department of Justice, FinCEN or other federal regulators. Thus, most banks and other financial institutions in the USA do not appear to be comfortable providing banking services to cannabis-related businesses, or relying on this guidance, which can be amended or revoked at any time by the Biden administration. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses. As a result, the Resulting Issuer may have limited or no access to banking or other financial services in the USA. The inability or limitation in the Resulting Issuer’s ability to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments may make it difficult for the Resulting Issuer to operate and conduct its business as planned or to operate efficiently.

Anti-Money Laundering Laws and Regulations

The Resulting Issuer is subject to a variety of laws and regulations domestically and in the USA that involve money laundering, financial recordkeeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), Sections 1956 and 1957 of U.S.C. Title 18 (the Money Laundering Control Act), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, the Criminal Code (Canada) and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the USA and Canada.

In the event that any of the Resulting Issuer’s operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the USA were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of the Resulting Issuer to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while there are no current intentions to declare or pay dividends on the Resulting Issuer's common shares in the foreseeable future, in the event that a determination was made that the Resulting Issuer's proceeds from operations (or any future operations or investments in the USA) could reasonably be shown to constitute proceeds of crime, the Resulting Issuer may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.

Heighted Scrutiny by Regulatory Authorities

For the reasons set forth above, the GABY's existing operations in the USA, and any future operations or investments of the Resulting Issuer, may become the subject of heightened scrutiny by regulators, stock exchanges and other authorities in Canada. As a result, the Resulting Issuer may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on the Resulting Issuer's ability to operate or invest in the USA or any other jurisdiction, in addition to those described herein.

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Balance Sheet and Operating Statement Exposure to USA Cannabis-Related Activities

Dollar value and proportion of Applicable Financial Statement line items which relates to USA cannabisrelated activities for the period ended December 31, 2019.

GABY

GABY
*In Canadian dollars*	December 31, 2019
ASSETS Current Cash Accounts receivable Inventories Prepaid expenses and deferred costs	$ %

	500,508 72%
	1,883,345 90%
	847,716 58%
	102,552 14%
Property and equipment Intangible assets and goodwill Securitydeposits	6,961,193 94%
	5,821,789 81%
	20,509 8%
Total assets	16,137,612 81%
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities Income taxes payable Lease liabilities Long-term debt Deferred tax liability


	2,422,725 58%
	45,093 93%
	6,335,299 100%
	257,709 100%
	347,194 100%
Total liabilities	9,408,020 68%

Miramar

Miramar
*In U.S. dollars*	September 30, 2020
ASSETS Current Cash Accounts receivable Inventories Prepaid expenses and deferred costs Notes receivable from shareholders	$ %

	2,542,026 100%
	2,000 100%
	1,141,647 100%
	212,054 100%
	395,586 100%
Non-current Property and equipment Intangible assets and goodwill Security deposits Deferred tax assets	4,293,313 100%

	7,121,489 100%
	1,515,076 100%
	68,273 100%
	98,285 100%
Total assets	13,096,436 100%
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities Income taxes payable Deferred revenue


	2,035,199 100%
	1,725,872 100%
	220,040 100%

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*In U.S. dollars*	September 30, 2020
Short-term notes payable Currentportion of lease liabilities	775,000 100%
	259,700 100%
Non-current liabilities Lease liabilities Other long-term liabilities	5,015,811 100%

	6,908,302 100%
	4,095,971 100%
Total liabilities	16,020,084 100%
SHAREHOLDERS' EQUITY Share capital Deficit
	2,139,610 100%
	(5,063,258) 100%
	(2,923,648) 100%
Total liabilities and shareholders' equity	13,096,436 100%

4. Narrative Description of the Business

4.2 General

GABY

General and Segment Information

The business of GABY consists of two operating segments, licensed and unlicensed. The licensed channel operates under a Type 11 distribution license with limited manufacturing capabilities and includes the sale of cannabis flower and derivative products which are subject to regulation. The unlicensed channel includes all other wellness products not subject to the licensing requirements in respect of cannabis.

Licensed

The licensed segment is comprised of the operations of Sonoma Pac. Sonoma Pac provides GABY with a distribution network across the state of California operated under a Type 11 license. GABY leverages Sonoma Pac's distribution network to bring GABY's proprietary cannabis brands to market, as well as provide manufacturing and distribution services to third parties.

Licensed Product Portfolio

GABY's product line consists of Sonoma Pac branded packaged cannabis flower, standard and infused pre-rolls, concentrates, edibles and tinctures. GABY is always in the process of developing new products for the California cannabis marketplace including variations on its existing pre-rolls, concentrates and edibles.

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Sonoma Pac branded products, right to left, showing glass jars, mylar pouches, artisanal pre-rolls and honey sticks.

Cannabis Distribution and Related Assets

Through its subsidiary Sonoma Pac, GABY operates a distribution facility and related assets located in Santa Rosa, California (the " Sonoma Facility "). Sonoma Pac is a licensed distributor of proprietary, wholesale and third-party branded products operating under a Type 11 license. Sonoma Pac's cannabis products are produced and packaged at the Sonoma Facility or manufactured by third party manufacturers under their own licenses. GABY acquired the Sonoma Facility along with the busines of Sonoma Pac. The total consideration for the entire business of Sonoma Pac including the Sonoma Facility, which originally included contingent consideration upon Sonoma Pac reaching certain revenue targets, was estimated to be $8,750,000 at April 1, 2019. Final consideration amounted to $6,650,000,as determined on November 8, 2019 and resulted in a gain on contingent consideration liability of $2,100,000 in fiscal 2019. The final consideration was paid through the issuance of the Sonoma Shares as specified in 3. General Development of the Business – General Development of GABY – Three Year History – Fiscal Year Ended 2019 , above.

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The Sonoma Facility is a 3,000-square foot manufacturing facility and distribution center. The Sonoma Facility has the capacity to package 15,000 pounds of bulk cannabis flower into retail ready denominations of packaged flower and can produce up to 500,000 pre-rolls annually. The Sonoma Facility is optimized to efficiently execute product development, quality control, product packaging and product delivery and currently operates two full manufacturing shifts from 6 a.m. to midnight daily.

GABY also uses the Sonoma Pac distribution network to offer manufacturing and distribution services to third parties. Sonoma Pac sources bulk inputs through its vast network of growers. This bulk cannabis is then either brokered as a bulk product to other manufacturers or distributors for their purposes or retained by Sonoma Pac and (i) re-packaged at the Sonoma Facility into smaller denominations of retail ready packaged flower or made into pre-rolls as a Sonoma Pac proprietary brand or as a third-party client brand; or (ii) transferred to a third-party manufacturer to be made into edibles, concentrates, or tinctures and packaged as a Sonoma Pac branded product.

Sonoma Pac also provides third-party distribution services and using an in house logistics and transportation platform sells and distributes its proprietary and third-party products to brick and mortar retail locations and to delivery platforms throughout California.

Unlicensed

The unlicensed segment includes all wellness products not subject to the licensing requirements in respect of cannabis, including CBD infused products. The operation of Lulu's and 2Rise are included in this segment.

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Unlicensed Product Portfolio

Lulu's produces a line of 100% organic, vegan, fair trade, paleo-friendly, soy and gluten free, raw and sweetened chocolate products with low-glycemic coconut sugar and CBD. Lulu’s products include CBD truffles, CBD coins, CBD bars:

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

CBD Coins – 20mg CBD CBD Bars – 80mg CBD
(THC Free)
CBD Truffles - 60mg CBD Full Spectrum Bars –
(THC Free) 80mg CBD
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2Rise produces full spectrum CBD wellness products including full spectrum CBD tinctures and softgels:

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DROP 01 – Full Spectrum Tincture DROP 02 – THC Free Tincture with with Turmeric 500 mg CBD Vanilla 500mg CBD DROP 04 / SLEEP – Full spectrum POP – Full Spectrum Extra tincture with 900mg CBD and 210mg Strength Softgels cannabinol (“ CBN ”)

GABY's unlicensed segment also sells a line of lotions and topicals branded as Sonoma Specific, which includes CBD Hydrating Botanical Location, CBD Exfoliating Botanical Cleanser, CBD Botanical Toning

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Mist, CBD Stimulating Botanical Moisturizers, and a line of personal care products branded as Serpent Spiral, which includes products such as Icy Hot Pain Relief Stick, Bath/Body Massage Oils and Bath Bombs.

Disclosure Relevant to Licensed and Unlicensed Business Segments

Production Methods

In both the licensed and unlicensed segments GABY has formulations and standard operating procedures to ensure consistent commercial production. This includes the development and sourcing of raw materials, compliant packaging, labeling, and testing to meet all state regulations.

Sales and Distribution Strategy

GABY's licensed products are currently sold in approximately 200 brick and mortar licensed retail dispensaries, including the Mankind Dispensary, as well as throughout California, including in the markets of Los Angeles and San Francisco.

GABY distributes its licensed products exclusively within California. The retail strategy focuses on gaining distribution in retail stores that align with GABY's business values, as well as with the target consumer. GABY's has an internal sales team of seven that focus on placing GABY proprietary brands onto retail shelves in California dispensaries (the licensed sales channels).

GABY's unlicensed products are currently sold direct to consumer, online, and in brick and mortar retailers. As of December 31, 2020, the Company's unlicensed products were sold in over 200 points of distribution, including national grocery, drug, natural/specialty, and boutique retailers, such as Whole Foods across California and Erewhon in Los Angeles.

GABY distributes its unlicensed products through an on-line portal which through a bifurcated platform allows both wholesale and retail buying with 50% of all tinctures and supplement sales and 90% of chocolate sales selling through this channel going to retail customers throughout the United States and the balance sold to wholesale customers.

Marketing and Promotion

With limitations on mainstream ad placements due to regulatory and economic constraints, social media, digital advertising and public relations activities are a vital part of GABY's marketing activities. GABY has retained external consultants to facilitate public relations activities, social media activities and placements of digital advertising for marketing and promotion of its products.

Information Systems

GABY has appropriate software and information technology in place for its manufacturing, shipping and receiving, inventory control, supply chain management, sales, accounting and finance activities.

Revenues

During the financial year ended December 31, 2019, revenue derived from GABY's licensed segment accounted for 90% of its total consolidated revenue (8% during the year ended December 31, 2018), and revenue from GABY's unlicensed segment accounted for 10% of its total consolidated revenue (92% during the year ended December 31, 2018).

Seasonality

GABY’s business is not seasonal.

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Employees

As of December 31, 2020, GABY had 26 employees.

Market Trends and Competition

The California cannabis market grew in 2020 after having lower sales in 2019 as the market has now adjusted to the legalized cannabis environment. California is one of the largest cannabis markets in the world, making it a very competitive highly regulated market and potentially lucrative market. Within this highly regulated industry, GABY competes primarily in the distribution space and has a number of proprietary brands that it sells.

There is potential that GABY will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and production and marketing experience than GABY. Financing for companies in the cannabis sector is generally more difficult than other sectors, given the future uncertainties for the regulatory framework.

Further, because of the early stage of the industry in which GABY operates, GABY expects to face additional competition from new entrants. If the number of users of medical and recreational marijuana in California increases, the demand for products will increase and GABY expects that competition will become more intense, as current and future competitors begin to offer an increasing number of diversified products and pricing strategies. The fast-growing market for legalized cannabis in California has created a competitive environment for the cannabis industry generally.

Based on management’s knowledge of the active companies in the California cannabis industry, GABY is of the view that the following businesses could potentially compete with GABY in its market.

Licensed
Competitor	Description of Business	Operations Location
Lowell Farms	Lowell Farms, formerly Indus Holdings Inc. is a vertically- integrated that owns core brands and has distribution capabilities	Santa Barbara, California
Caliva	Caliva is a vertically integrated company and has retail operations across California selling a wide variety of brands across a large number of retail stores.	San Jose, California
Nabis Labs	Nabis is a distributor of cannabis products servicing licensed business in California with a wholesale distribution network.	Oakland, California
3Leaf Edibles	2Leaf is an edibles brand that also targets natural foods.	Oakland, California
Kiva	Kiva confections is a cannabis edibles brand that also targets premium markets dosed with THC and CBD	San Leonardo, California

Unlicensed
Competitor	Description of Business	Operations Location
Hu Kitchens	Hu Kitchens produces health and wellness foods	New York, New York (with availability in California)
Plus CBD Oil	Plus CBD Oil produces hemp extracts, including gummies, capsules and roll-ons for human and animal use.	San Diego, California

Business Position and Objectives

GABY believes it is well poised to compete in the California market. GABY has been focused on realigning its management team by reducing layers, aligning skills with requirements, upgrading the quality of its staff, and rebuilding work flow processes to maximize performance and efficiencies. To sell GABY's proprietary

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brands in the licensed channel it utilizes Sonoma Pac's Type 11 distribution license, and its distribution and manufacturing infrastructure. To augment its revenue it sells its available manufacturing and distribution capacity, after fulfilling its proprietary needs, to third parties.

Foreign Operations

All of GABY's business operations are in the United States with the exception of certain corporate functions which reside in Canada and its reporting currency is the Canadian dollar. Through GABY's foreign operations, GABY has exposure to foreign currency risk. Moreover, there is regulatory risk associated with the cannabis market in the United States, as further described elsewhere in this Listing Statement.

Intellectual Property

GABY's intellectual property and proprietary rights are important to its business. GABY relies on common law protection of trademarks as federal trademark regulation prohibits registration in respect of the cannabis industry. GABY also has confidentiality and/or license agreements with certain employees, contractors and other third parties, which limit access to and use of GABY's proprietary intellectual property.

Brand names and trademarks are important to GABY's business, and, as detailed in the previous sections, are GABY, Sonoma Pacific, Lulu’s and 2Rise.

Material Restructurings

On March 12, 2020, GABY announced that it was concentrating its capital spending on organic and acquisitive growth in both the licensed cannabis and unlicensed CBD businesses exclusively focusing on California and as such, it had initiated a process to sell or shut down its frozen food business, marketed under the Gabriella's Kitchen™ (" GK ") trademark. Effective March 31, 2020, the employment of all employees operating the GK business was terminated and the operations of GK were discontinued.

Miramar

When integrated into GABY, Miramar will be a new vertical of GABY, adding a retail division to GABY's cannabis distribution network.

During the 2019-20 period, Miramar was focused on increasing revenue and market share in San Diego, California. Miramar increased revenue by over 20% for fiscal year 2019, compared to fiscal year 2018 and increased its sales in the San Diego market. Miramar's objectives for 2020 were to continue to accelerate its revenue growth through expansion of its delivery service and offering additional products to its core offerings. As a result of the COVID-19 pandemic and its impact, Miramar postponed its product expansion plans and focused on its core business. Throughout 2020, Miramar instituted a number of significant operational changes to reduce the number of in store customers and maintain social distancing and shifted more of its business to delivery and customer and curbside pickup of previously-placed orders. Prior to the implementation of these operational changes, delivery and pickup made up only a small fraction of Miramar's total revenue with most months being less than 10% of total revenue. By contrast, in the latter half of fiscal year 2020 and early fiscal 2021, delivery and pickup accounted for approximately 40% to 50% of Miramar's total revenue.

Miramar's principal source of revenue is generated from the resale of products produced by third party vendors, typically accounting for more than 95% of Miramar's total revenue. These third party vendors are wholesalers of products. Miramar sells a diverse selection of cannabis products in its retail location. Nearly half of all products sold are cannabis flower products including Cookies™, Honey Dew™, and Old Pal™

Miramar has three primary sales channels: in-store sales at its retail dispensary, delivery and customer pickup. In additional to reselling product, Miramar makes a small percentage of its revenue through

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advertising income from its vendors. This advertising income includes co-branding of products with popular cannabis brands, placement on Miramar's advertisements, and special sales events for featured brands.

In the third quarter of fiscal 2020, Miramar began development of its first in-house cannabis brand, "Kind Republic." Producing product in-house is expected to result in higher per unit margins than those generated through resale of third-party products. Sales of "Kind Republic" branded products began recently and Miramar is in the process of determining the viability and profitability of these new product lines. Miramar is one of only a few retailers in the San Diego County region with an operating distribution arm.

Mankind's business is not seasonal.

As of the end of the most recent fiscal year, Miramar had 103 employees.

Within this highly regulated industry, Miramar competes in the retail portion of the market. Mankind's direct competitors are other cannabis retailers within approximately 50 miles of its facility in San Diego, California. Examples of these competitors are Urbn Leaf, MedMen, and March and Ash.

Competitor	Description of Business	Operations Location
Urbn Leaf	Urbn Leaf is a licensed medical and recreational cannabis dispensary with delivery located in San Diego, San Ysidro, La Mesa, Grover Breach and Seaside.	San Diego, California
MedMen	MedMen has cannabis dispensaries and delivery services.	California (across state)
March and Ash	March and Ash is a cannabis dispensary with delivery.	San Diego, California

Mankind is one of the largest cannabis retailers in California and focuses on differentiating itself from others based on a more efficient and user-friendly sales model, product curation and high-end customer service.

The Resulting Issuer

Concurrent with the completion of the Transaction, GABY will continue the business of itself and of Miramar in all respects with a view towards its redefined business plan and objectives, as described below.

Business Objectives and Strategy

General

The Acquisition will bring a retail component to the Resulting Issuer's manufacturing and distribution operation and will augment the Resulting Issuer's product strategy. The Acquisition will establish a foundation and strong base of cash flow from which the Resulting Issuer will build its California operations.

GABY Brand Leadership : The GABY team has the track record and ability to quickly amass a significant presence in the California retail market, along with the necessary expertise to integrate, rebrand and incorporate efficiencies across a retail platform.
Mankind Brand Leadership : the Resulting Issuer will be positioned with a strong retail cannabis asset along with a management team composed of highly successful and experienced professionals in retail consolidation, California cannabis retail operations and cannabis branding.
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California Focused Strategy : The Resulting Issuer will stay solely focused on California, and believes it to be the market best suited for cannabis investment. California is the largest and most established cannabis market in the world.

Milestones

In the 12 months following the date of this Listing Statement, the Resulting Issuer intends to:

expand cannabis distribution operations out of Wild West Industries, a subsidiary of Mankind;
expand cannabis delivery operations; and
expand the sale of its proprietary products into additional dispensaries as well as into Mankind.

There is no particular significant event or milestone that must occur for the Resulting Issuer's business objectives to be accomplished, however, the Resulting Issuer expects to advance the above milestones by directing funds as follows:

Milestone	Target Date	Estimated Cost($)
Expand cannabis distribution operations out of Wild West Industries,a subsidiaryof Mankind	Ongoing	$112,000
Launch and/or expand cannabis deliveryoperations.	Ongoing	$92,000
Expand the sale of its proprietary products into additional dispensaries as well as into Mankind.	Ongoing	$370,000

While the Resulting Issuer intends to pursue these milestone events, there may be circumstances where, for valid business reasons, a re-allocation of efforts may be necessary or advisable.

Total Funds

As of March 31, 2021, being the most recent month end prior to the date of this Listing Statement, the estimated consolidated working capital of GABY was negative $3,922,000 after giving effect to the closing of the Non-Brokered Private Placement. Upon completion of the Transaction and upon satisfaction of the Escrow Release Conditions, taking into account transaction and financing costs, the Resulting Issuer is expected to have a net cash position of approximately $1.63 million, thereby providing the Resulting Issuer a platform to execute the above-mentioned business objectives and milestones. The Resulting Issuer will rely on the Transaction to satisfy its capital requirements and may require further equity capital to finance its operations. The table below shows the breakdown of the estimated funds available:

Sources	Amount ($)
Estimated GABY working capital as at March 31, 2021 Estimated Miramar working capital as at March 31, 2021	(3,922,000) 739,074
Total pro forma estimated working capital as at March 31, 2021 Funds available out of pro forma working capital Net proceeds received pursuant to Brokered Private Placement.(2) Cash required for acquisition of Miramar	(3,182,926) Nil 8,243,000 (6,605,455)
Estimated funds available to the Resulting Issuer upon the Closing	1,637,545

Notes:

(1) The pro forma financial statements of the Resulting Issuer, which gives effect to the Transaction as if it had been completed on September 2020, are attached hereto as Schedule “K”.

(2) After deducting the cash commission payable to the Agents in the amount of $414,000 of the gross proceeds from the sale of Subscription Receipts.
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The Resulting Issuer intends to spend its available funds as described above, and general corporate purposes. The estimated use of funds following completion of the Transaction is set forth below.

Use of Available Funds	Estimated Expenditures ($)
Funds allocated toward the achievement of milestones	574,000
G&A	500,000
Working Capital	563,545

The breakdown of the funds allocated to G&A is for (i) marketing; (ii) legal fees; (iii) management fees, and (iv) audit fees. The Working Capital in the above table is the remainder of the estimated funds available to the Resulting Issuer on closing after allocating funds towards the achievement of milestones and G&A.

The Resulting Issuer will also use cash flow from operations, particularly the cash flow generated from the business of Miramar and continued management of working capital to achieve the Resulting Issuer's business goals and milestones. With the exception of G&A, the Resulting Issuer's spending on the achievement of milestones is discretionary and the Resulting Issuer is able to scale up and scale down their capital expenditure based on factors which include: (i) the achievement of operational efficiencies from the Acquisition; (ii) the integration of the Miramar vertical and ability to use free cash flow generated from the acquired business to fund the Resulting Issuer's business objectives; and (iii) the ability to raise additional capital as needed through debt and equity financings to fund future capital expenditures. The Resulting Issuer will generate additional cash flow using a number of methods, including, but not limited to: elimination of redundant positions; streamlining shared corporate costs, including professional fees; accessing revenue synergies by promoting Sonoma Pac's brands on Miramar's shelves; standardizing and streamlining processes and the implementation of other associated operational and administrative efficiencies in connection with the integration of Miramar's business with the business of the Resulting Issuer.

The Resulting Issuer expects that it will have no or nominal capital expenditures as its business is not capital intensive and it has the necessary plant, property and equipment in place to execute its business objectives over the next 12 months. Notwithstanding the foregoing, there may be circumstances where, for sound business reasons, a reallocation of funds may be necessary for the Resulting Issuer to achieve its objectives. The Resulting Issuer's subsidiaries and Affiliates may require additional funds in order to fulfill all of its expenditure requirements to meet its business objectives and may either issue additional securities or incur debt. There can be no assurance that additional funding required by the Resulting Issuer will be available, if required. However, it is anticipated that the available funds will be sufficient to satisfy the Resulting Issuer's objectives over the next 12 months.

Specialized Skill and Knowledge and Employees

The Resulting Issuer’s business will require specialized skills and knowledge of the cannabis industry. Management of the Resulting Issuer will be composed of certain individuals who have extensive expertise in this industry and are complemented by the GABY Board (see Section 13 – Directors and Officers ). Resulting Issuer's future success will depend, in part, on its ability to continue to attract, retain and motivate highly qualified technical and management personnel, for whom competition is intense. The Resulting Issuer is expected to have 129 employees.

Competitive Conditions

The Resulting Issuer will face competition from larger companies that are, or may be, in the process of offering similar services. Many of the Issuer's current and potential competitors have longer operating histories, significantly greater financial, marketing and other resources than the Issuer will have or may be expected to have.

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Competitors may include major pharmaceutical, biotechnology and cannabis companies as well as multinational beverage, alcohol and food companies. Management of the Resulting Issuer cannot be certain that the Resulting Issuer will be able to compete against current or future competitors or that competitive pressure will not seriously harm its business prospects. These competitors may be able to react to market changes, respond more rapidly to new regulations or allocate greater resources to the development and promotion of their products than the Issuer can.

The Resulting Issuer has identified certain current and potential competitors, listed in the table below:

Industry Competitors	Exchange Symbol
Harborside Inc.	CSE: HBOR
Ayr Strategies Inc. S.V.	CSE: AYR.A
Columbia Care Inc.	CSE: CCH
Cresco Labs Inc.	CSE: CL
Jushi Holdings Inc.	CSE: JUSH
Planet 13 Holdings Inc.	CSE: PLTH
Verano Holdings Corp.	CSE: VRNO

Furthermore, some of these competitors may make acquisitions or establish collaborative relationships among themselves to increase their ability to rapidly gain market share. Large pharmaceutical companies and multinational beverage, alcohol and food companies may eventually enter the market.

Given the rapid changes affecting the global, national, and regional economies in general and cannabisrelated research and development, the Resulting Issuer may not be able to create and maintain a competitive advantage in the marketplace. Time-to-market is an important factor in the cannabis industry and the Issuer's success will depend on its ability to develop innovative products that will be accepted by customers as efficient and helpful to use.

The Resulting Issuer's success will also depend on its ability to respond quickly to, among other things, changes in the economy, market conditions, and competitive pressures. Any failure to anticipate or respond adequately to such changes could have a material effect on the Issuer's financial condition, operating results, liquidity, cash flow and its operational performance.

There can be given no assurance that any of the Resulting Issuer's cannabis-based products will obtain regulatory approval in the United States or in other markets that the Issuer currently intends to market such products.

4.3 Asset-backed Securities Outstanding

Not applicable.

4.4 Mineral Projects

Not applicable.

4.5 Oil and Gas Operations

Not applicable

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5. Selected Consolidated Financial Information

5.2 Annual Information

GABY

GABY
	As at and for the nine month period ended September 30, 2020(1)	As at and for the year ended December 31, 2019	As at and for the year ended December 31, 2018	As at and for the year ended December 31, 2017
Total revenue	2,995,955	10,975,492	1,491,601	952,525
Net loss from continuing operations	(6,239,458)	(22,788,409)	(7,720,514)	(3,760,259)
Loss per share from continuing operations – basic and diluted`(1)`	(0.03)	(0.16)	(0.12)	(0.09)
Net loss	(7,335,106)	(22,788,409)	(7,720,514)	(3,760,259)
Net loss per share – basic and diluted	(0.03)	(0.16)	(0.12)	(0.09)
Total assets	10,774,523	19,865,539	4,614,142	1,163,992
Total long-term financial liabilities	844,293	6,519,853	79,087	24,329
Cash dividends declared per share	0	0	0	0

Note:

(1) Unaudited.

Miramar

The following table provides a brief summary of the select consolidated financial information of Miramar for the last two fiscal years, which should be read in conjunction with Miramar's annual financial statements attached hereto as Schedule “G”, and Miramar’s interim financial statements for the three month period ended December 31, 2021, attached hereto as Schedule “I”.

	As at and for the three month period ended December 31, 2021 (US$)	As at and for the year ended September 30, 2020 (US$)	As at and for the year ended September 30, 2019 (US$)
Total revenue	7,034,403	29,751,508	25,360,856
Net income	382,118	1,219,415	1,034,676
Net income per share–basic	0.38	1.22	1.03
Net income per share–diluted	0.38	1.22	1.03
Total assets	12,778,402	13,096,436	5,840,856
Total long-term financial liabilities	7,013,014	6,908,302	1,126,574
Cash dividends declared per share	0.38	1.82	2.38

The Resulting Issuer

The figures in the table below are based on the Pro Forma Consolidated Statement of Loss and Comprehensive Loss for the most recently audited year of GABY and the closest fiscal year to that time

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period for Miramar; specifically, GABY’s fiscal year ended December 31, 2019 and Miramar’s fiscal year ended September 30, 2019. The assets and long-term financial liabilities are based on the Pro Forma Consolidated Statement of Financial Position as at September 30, 2020, the date of the most recently issued statement of financial position for both GABY and Miramar.

	Prior to the Transaction ($)	After giving effect to the Transaction ($)
Total revenue	10,975,492	41,608,776
Net income	(22,788,409)	(21,414,566)
Net income per share–basic	(0.16)	(0.03)1
Net income per share–diluted	(0.16)	(0.03)1
Total assets	10,774,523	86,192,122
Total long-term financial liabilities	844,293	44,018,633
Cash dividends declared per share	0	0

Note:

(1) These figures were calculated as the pro forma net income divided by the pro forma total common shares outstanding after the Transaction of 648,757,712.

5.3 Quarterly Information

GABY

Quarterly financial information of GABY from the last eight quarters, sourced from the Issuer's interim financial statements attached hereto as Schedule “A” and available at www.sedar.com is set out in the table below:

Quarter ended September 30, 2020 Quarter ended June 30, 2020 Quarter ended March 31, 2020 Quarter ended December 31, 2019 Quarter ended September 30, 2019 Quarter ended June 30, 2019 Quarter ended March 31, 2019 Quarter ended December 31, 2018	Revenue Net loss from continuing operations Net loss from continuing operations per share (basic and diluted) Net loss Net loss per share (basic and diluted)
	806,699 (1,390,964) (0.01) (1,536,080) (0.01) 740,202 (1,687,307 (0.01) (1,798,161) (0.01) 1,449,054 (3,161,187) (0.01) (4,000,865) (0.02) 2,043,650 (13,088,848) (0.07) (13,088,848) (0.07) 6,173,178 (2,347,919) (0.01) (2,347,919) (0.01) 2,501,669 (4,971,889) (0.04) (4,971,889) (0.04) 256,995 (2,379,753) (0.03) (2,379,753) (0.03) 425,453 (2,763,274) (0.03) (2,763,274) (0.03)

5.4 Dividends

GABY

GABY has not declared distribution on its GABY Shares.

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There are no restrictions in GABY's articles or elsewhere, other than customary general solvency requirements, which would prevent GABY from paying dividends. All of the GABY Shares are entitled to an equal share in any dividends declared and paid on such Resulting Issuer Shares. It is anticipated that all available funds will be invested to finance the growth of GABY's business and accordingly it is not contemplated that any dividends will be paid on GABY Shares in the immediate or foreseeable future.

The directors of GABY will determine if, and when, dividends will be declared and paid in the future from funds properly applicable to the payment of dividends based on GABY's financial position at the relevant time.

Miramar

Miramar has historically declared and paid distributions on its common stock on a monthly basis.

The Definitive Agreement restricts Miramar's ability to pay dividends or distributions on its capital stock. The PMW Loan restricts Miramar's ability to pay dividends on its capital stock after the occurrence of an event of default under the PMW Loan, or if the dividend would cause Miramar to fail to be in compliance with the loan's covenants. There are no restrictions in Miramar's articles or elsewhere, other than customary general solvency requirements, which would prevent Miramar from paying dividends.

The Resulting Issuer

There are no restrictions in the Resulting Issuer’s articles or elsewhere, other than customary general solvency requirements, which would prevent Resulting Issuer from paying dividends. All of the Common Shares are entitled to an equal share in any dividends declared and paid on such Resulting Issuer Shares. It is anticipated that all available funds will be invested to finance the growth of Resulting Issuer's business and accordingly it is not contemplated that any dividends will be paid on Common Shares in the immediate or foreseeable future.

5.5 Foreign GAAP

Not applicable.

6. Management's Discussion and Analysis

GABY's Management Discussion and Analysis (" MD&A ") for the nine month period ended September 30, 2020 (the " GABY Interim MD&A ") is attached to this Listing Statement as Schedule “B” – Interim MD&A and GABY's MD&A for the year ended December 31, 2019 (the " GABY Annual MD&A ") is attached to this Listing Statement as Schedule “D” – 2019 Annual MD&A.

Miramar’s MD&A for the three month period ended December 31, 2020 (the “ Miramar Interim MD&A ”) is attached to this Listing Statement as Schedule “J” – Miramar Interim MD&A. Miramar’s MD&A for the year ended September 30, 2020 (the “ Miramar Annual MD&A ”) is attached to this Listing Statement as Schedule “H” – Miramar Annual MD&A.

7. Market for Securities

GABY

GABY began trading on the CSE under the symbol GABY on September 5, 2018 and on the OTCQB under the symbol GABLF on June 3, 2019. As a result of the Transaction, which constitutes a “fundamental

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change” of GABY under the rules and policies of the CSE, trading in GABY Shares has been halted and will remain halted until the CSE has granted final approval.

Miramar

There is no market for Miramar's securities.

The Resulting Issuer

The Resulting Issuer will trade on the CSE under the symbol GABY and on the OTCQB under the symbol GABLF.

8. Consolidated Capitalization

Except as described below and herein, there has not been any material change changes in the share capital of GABY since the date of GABY's audited annual financial statements.

The following table summarizes (i) the consolidated share capital of the Resulting Issuer immediately prior to the Financing; (ii) the consolidated share capital of the Resulting Issuer after giving effect to the Financing; and (iii) the Resulting Issuer's pro forma consolidated capitalization after completing the Transaction contemplated herein. The table should be read in conjunction with the financial statements of GABY and the pro forma financial statements.

Designation of Securities	Number of	Number of	Number of
	Securities prior to	Securities after	Securities after
	the Financing(1)	giving effect to the	giving effect to the
		Financing(2)	Acquisition(3)
GABY Shares	237,793,408	317,933,852	648,757,712
Warrants(4)	37,754,193	117,894,637	290,823,760
Subscription Receipts	0	172,929,123	0
Unit Warrants(5)	4,522,634	12,515,203	12,515,203
GABY Options	6,165,000	6,165,000	6,165,000
Restricted Share Units	16,375,000	16,375,000	16,375,000

Note:

(1) These figures reflect GABY’s share capital as of February 3, 2021, prior to giving effect to the Non-Brokered Private Placement and the Brokered Private Placement.

(2) These figures reflect GABY’s share capital as of February 4, 2021, reflecting the issuance of the Non-Brokered Units pursuant to the Non-Brokered Private Placement and the issuance of the Subscription Receipts pursuant to the Brokered Private Placement.
(3) These figures reflect GABY’s share capital as of a date following the completion of the Acquisition and the issuance of the Consideration Shares in connection therewith, and the conversion of the Subscription Receipts into GABY Shares and Warrants following the occurrence of the Qualification Date. The Qualification Date has not yet occurred as of the date of this Listing Statement.
(4) Figures reflect the expiration of 650,000 warrants on March 1, 2021.
(5) Unit Warrants are exercisable to acquire one GABY Share and either one half of or one whole common share purchase warrant, as further described herein. See Description of Securities.

Except as described below and herein, there has not been any material change in the loan capital of GABY since the date of GABY's audited annual financial statements.

38 -

Indebtedness	Prior to the Acquisition ($)	After giving effect to the
		Acquisition ($)(1)
Short-term notes payable	89,460	577,656
Promissory notes payable	313,007	313,007
Convertible debentures	480,000	480,000
Longterm debt	556,460	33,784,460
Total	1,438,927	35,155,123

Note:

(1) The indebtedness gained after giving effect to the Acquisition is further described in Section 3.2 – Significant Acquisition .

9. Options to Purchase Securities

An aggregate of 6,165,000 GABY Options to purchase Common Shares are outstanding as at the date of this Listing Statement, particulars of which are set out below.

Holder Group	Number of	Vested Options	Unvested	Total
	Holders for		Options	Options
	Directors &
	Officers
Directors	3	366,667	108,333	475,000
Officer	1	1,950,000	1,500,000	3,450,000
Employees		Nil	Nil	Nil
Consultants		1,543,333	696,667	2,240,000
Total		3,860,000	2,305,000	6,165,000

Grant Date	Expiry Date	Options	Exercise	Vesting Provisions
			Price
September 4, 2018	September 4, 2023	1,250,000	$0.2857	1/3 upon grant, 1/3 on
				the first anniversary of
				the initial grant, 1/3 on
				the second anniversary
				of the initial grant
April 28, 2019	April 28, 2024	25,000	$0.35	1/3 upon grant, 1/3 on
				the first anniversary of
				the initial grant, 1/3 on
				the second anniversary
				of the initial grant
July 23, 2019	July 23, 2024	2,000,000	$0.36	1/3 on the first
				anniversary, 1/3 on the
				second anniversary
				and the balance on the
				third anniversary

39 -

Grant Date	Expiry Date	Options	Exercise	Vesting Provisions
			Price
October 5, 2019	October 6, 2024	2,740,000	$0.27	1/3 upon grant, 1/3 on
				the first anniversary of
				the initial grant, 1/3 on
				the second anniversary
				of the initial grant
November 20, 2019	November 20, 2024	150,000	$0.125	1/3 upon grant, 1/3 on
				the first anniversary of
				the initial grant, 1/3 on
				the second anniversary
				of the initial grant

The GABY Options were granted under the GABY Option Plan. See Item 15 – Executive Compensation – Stock Option Plans and Other Incentive Plans for details of the terms of the GABY Option Plan.

An aggregate of 16,375,000 restricted share units (" RSUs ") are outstanding as at the date of this Listing Statement, particulars of which are set out below.

Holder Group	Number for Holders for Officers & Directors	Vested RSUs	Unvested RSUs	Total RSUs
Directors	3	0	7,290,000	7,290,000
Officers	1	Nil	1,830,000	1,830,000
Employees		0	7,255,000	7,255,000
Consultants		Nil	Nil	Nil
Total		0	16,375,000	16,375,000

The GABY RSUs were granted under the RSU Plan. See Item 15 – Executive Compensation – Stock Option Plans and Other Incentive Plans for details of the terms of the RSU Plan.

An aggregate of 15,007,000 SARs are outstanding as at the date of this Listing Statement, particulars of which are set out below.

out below.
Holder Group	Number of Holders for Directors & Officers	Total SARs
Directors	0	-
Officers	1	1,540,000
Employees		8,427,000
Consultants		5,040,000
Total		15,007,000

The SARs were granted under the Stock Appreciation Plan. See Item 15 – Executive Compensation – Stock Option Plans and Other Incentive Plans for details of the terms of the Stock Appreciation Plan.

40 -

10. Description of the Securities

GABY is authorized to issue an unlimited number of GABY Shares and an unlimited number of preferred shares in the capital of GABY, issuable in series. Following completion of the Transaction, including the occurrence of the Qualification Date and the conversion of the Subscription Receipts in connection therewith, there will be 648,757,712 GABY Shares, 290,823,760 Warrants, 12,515,203 Unit Warrants, 6,165,000 GABY Options and 16,375,000 RSUs issued and outstanding of the Resulting Issuer.

The share capital of the Resulting Issuer shall be the share capital of GABY following completion of the Transaction. As such, the descriptions below are made as against GABY, but will be the go-forward share capital of the Resulting Issuer.

The GABY Shares and preferred shares have the following rights, privileges and obligations:

GABY Shares

GABY is authorized to issue an unlimited number of GABY Shares. The holders of the GABY Shares are entitled to dividends if, as and when declared by the GABY Board, subject to the prior rights of any other class of shares of GABY. They are also entitled to receive notice of, to attend and to one vote per GABY Share at meetings of the Shareholders and, upon liquidation, subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of GABY, to receive the remaining property and assets of GABY. All GABY Shares currently outstanding are fully paid and non-assessable and are not subject to any pre-emptive rights, conversion or exchange rights, redemption, retraction, purchase for cancellation or surrender provisions.

Preferred Shares

GABY is authorized to issue an unlimited number of preferred shares issuable in series, each series consisting of such number of shares and having such rights, privileges, restrictions and conditions as may be determined by the GABY Board prior to the issuance thereof. With respect to the payment of dividends and the distribution of assets in the event of liquidation, dissolution or winding up of GABY, whether voluntary or involuntary, the preferred shares are entitled to preference over the GABY Shares and any other shares ranking junior to the preferred shares from time to time and may also be given such other preferences over the GABY Shares and any other shares ranking junior to the preferred shares as may be determined at the time of creation of such series.

Warrants

As at the closing of the Transactions contemplated herein, the Resulting Issuer will have 290,823,760 Common Share purchase warrants (" Warrants ") outstanding, as described below.

As at the closing of th Common Share purcha	e Transactions contempla se warrants ("Warrants")	ted herein, the Re outstanding, as des	sulting Issue cribed below.	r will have 290,823,76
Date of Issuance April 30, 2019 May 28, 2019 June 12, 2019 July 2, 2019 July 23, 2019	Category Warrants issued to consultants 2019 Warrants 2019 Warrants Warrants issued to consultants Warrants issued to consultants	Number of Warrants Outstanding 600,000 312,500 33,291,693 200,000 300,000	Exercise Price $0.50 $0.38 $0.38 $0.375 $0.38	Expiry Date
				April 30, 2022(1) June 12, 2021(2) June 12, 2021(2) July 2, 2021 July 23, 2024

41 -

Date of Issuance July 23, 2019 August 1, 2019 August 1, 2019 December 31, 2019 April 30, 2020 April 30, 2020 April 30, 2020 April 30, 2020 February 4, 2021 Qualification Date	Category Warrants issued to consultants Warrants issued to consultants Warrants issued to consultants 2Rise Warrants Warrants issued to consultants Warrants issued to consultants Warrants issued to consultants Warrants issued to consultants Non-Brokered Warrants Underlying Warrants	Number of Warrants Outstanding 200,000 175,000 175,000 500,000 500,000 500,000 500,000 500,000 80,140,444 172,929,123	Exercise Price $0.48 $0.42 $0.45 $0.45 $0.20 $0.25 $0.30 $0.35 $0.09 $0.09	Expiry Date
				July 23, 2024 August 1, 2021 August 1, 2021 December 31, 2021 April 30, 2023(3) April 30, 2023(3) April 30, 2023(3) April 30, 2023(3) February 4, 2023(4) 24 months following the occurrence of the Qualification Date(4)

Note:

(1) Subject to vesting conditions of GABY Shares reaching certain performance targets.
(2) Provided, however, that if, after December 12, 2019, the GABY Shares reach certain performance targets, GABY may, upon providing written notice to the holders of the 2019 Warrants, accelerate the expiry date of the 2019 Warrants to the date that is no less than 30 days following the date of such written notice.
(3) Subject to vesting conditions of GABY Shares reaching certain performance targets.
(4) Provided that if, at any time prior to the expiry date of the Non-Brokered Warrants and the Underlying Warrants (together, the " Financing Warrants "), the GABY Shares reach certain performance targets, GABY may, within 10 business days of the occurrence of such event, deliver a notice to the holders of Financing Warrants accelerating the expiry date of the Financing Warrants to the date that is 30 days following the date of such notice. Any unexercised Financing Warrants will automatically expire at the end of the Accelerated Exercise Period

Unit Warrants

As at the closing of the Transactions contemplated herein, the Resulting Issuer will have 12,515,203 unit purchase warrants (" Unit Warrants ") outstanding, as described below.

Date of Issuance June 12, 2019 February 4, 2021	Category Broker Warrants Compensation Warrants	Number of Warrants Outstanding 4,522,634 7,992,569	Exercise Price $0.30 $0.05	Expiry Date
				June 14, 2021(1) February 4, 2023(2)

Note:

(1) Each Broker Warrant entitles the holder thereof to acquire one unit at an exercise price of $0.30 for a period of 24 months from June 14, 2019, each unit comprised of one GABY Share and one-half of a warrant (each whole warrant, an " Underlying Broker Warrant Share "). Each Underlying Broker Warrant Share acquired
42 -
through the exercise of the Broker Warrants entitles the holder to acquire one GABY Share at a price of $0.38 per GABY Share for a period of 24 months from the date of issuance of the Underlying Broker Warrant Share.
(2) Each Compensation Warrant entitles the holder thereof to acquire one unit at an exercise price of $0.05 for a period of 24 months from February 4, 2021, each unit comprised of one GABY Share and one warrant (each, an " Underlying Compensation Warrant Share "). Each Underlying Warrant Share shall entitle the holder thereof to purchase one GABY Share at an exercise price of $0.09 for a period of 24 months following the Escrow Release Date (as defined in the Financing), provided that if, at any time prior to the expiry date of the Compensation Warrant, certain conditions are met, GABY may, within 10 business days of the occurrence of such event, deliver a notice to the holders of the Compensation Warrants accelerating the expiry date of the Compensation Warrants to the date that is 30 days following the date of such notice. Any unexercised Compensation Warrants will automatically expire at the end of the Accelerated Exercise Period.

10.2 Debt securities

Not applicable.

10.3 Other securities

Not applicable.

10.4 Modification of terms

Not applicable.

10.5 Other attributes

Not applicable.

10.6 Prior Sales

GABY

The following table summarizes the issuances by GABY of GABY Shares, and securities that are convertible or exchangeable into GABY Shares, since the release of GABY's Annual Financials. See also 3. General Development of GABY for further information on each issuance.

Date of issuance	Type of Security	Number of	Price Per
		Securities	Security
January 15, 2020	GABY Shares	16,666,666(1)	$0.065
January 20, 2020	GABY Shares	262,500	$0.06
January 31, 2020	GABY Shares	462,497	$0.10
February 1, 2020	GABY Shares	3,003,003	$0.08
February 20, 2020	GABY Shares	157,500	$0.10
February 26, 2020	GABY Shares	750,000	$0.09
March 16, 2020	RSUs	885,000	N/A
March 23, 2020	RSUs	320,000	N/A
April 14, 2020	RSUs	4,000,000	N/A
April 20, 2020	GABY Shares	1,000,786	$0.061
May 19, 2020	GABY Shares	686,538	$0.052
June 22, 2020	RSUs	2,335,000	N/A
June 23, 2020	GABY Shares	623,581	$0.044

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Date of issuance	Type of Security	Number of	Price Per
		Securities	Security
July 17, 2020	GABY Shares	701,019	$0.055
September 2, 2020	RSUs	4,400,000	N/A
September 24, 2020	GABY Shares	1,909,500	$0.05
October 8, 2020	RSUs	4,435,000	N/A
October 15, 2020	GABY Shares	1,295,200	$0.05
November 23, 2020	GABY Shares	1,007,692	$0.065
December 30, 2020	GABY Shares	3,491,101	$0.05
February 4, 2021	Subscription Receipts(2)	172,929,123	$0.05
February 4, 2021	Non-Brokered Units(2)	80,140,444	$0.05
April 5, 2021	GABY Shares(3)	157,894,737	$0.05

Note:

(1) The 16,666,666 of common shares were issued to settle $1,083,333 of indebtedness owed to a company (" CEOCo ") controlled by the Chair and CEO, comprised of loan capital of $1,049,435 and consulting fees payable to CEOCo of $33,898.
(2) The Subscription Receipts and Non-Brokered Units were issued pursuant to the Financing as described elsewhere in this Listing Statement.
(3) Issued pursuant to the Acquisition.

Miramar

None of the Miramar Shares have traded in the last 12 months. To Miramar's knowledge, none of its Related Parties have traded any GABY Shares in the last 12 months.

10.7 Stock Exchange Price

The price ranges and volume traded of the GABY Shares on the Canadian Securities Exchange since December 31, 2019, are as follows:

Period	High Trading	Low Trading	Volume (#)
	Price	Price
Feb 1, 2021 – Feb 18, 2021	$0.11	$0.05	7,890,068
January 2021	$0.08	$0.05	2,121,512
December 2020	$0.10	$0.05	4,655,543
November 2020	$0.09	$0.04	3,144,676
October 2020	$0.05	$0.035	1,420,876
September 2020	$0.06	$0.03	2,081,590
August 2020	$0.06	$0.035	1,524,578
July 2020	$0.065	$0.04	518,033
June 2020	$0.08	$0.04	1,724,805
May 2020	$0.05	$0.04	1,964,238
April 2020	$0.08	$0.05	1,154,992
March 2020	$0.09	$0.35	2,394,688
February 2020	$0.12	$0.09	1,872,441
January 2020	$0.10	$0.06	9,038,922

44 -

11. Escrowed Securities

In connection with the Transaction, an aggregate of 118,421,053 GABY Shares, representing 75% of the Consideration Shares issued to the Miramar Vendors, are subject to a contractual escrow for a period of 12 months.

This table sets out particulars of the securities of GABY held in escrow as at the date of this Listing Statement pursuant to National Policy 46-201 – Escrow for Initial Public Offerings and the policies of the CSE:

	Designation of Class Number of Securities Percentage of Class
	GABY Shares 106,138,569(1) (2) (3) (4) (5) (6) 16.3%(7)
Note:
(1)	9,555,576 GABY Shares are deposited with Odyssey as escrow agent pursuant to an escrow agreement
	entered into and between GABY and Odyssey dated August 31, 2018, to be released by August 31, 2021.
(2)	233,333 GABY Shares are deposited with Gowling WLG ("Gowling") as escrow agent pursuant to an escrow
	agreement entered into and between GABY and Gowling dated January 22, 2019, to be released by January
	21, 2022.
(3)	13,750,000 GABY Shares are deposited with Gowling as escrow agent pursuant to an escrow agreement
	entered into and between GABY and Gowling dated November 12, 2019, to be released by November 8,
	2022.
(4)	4,605,104 GABY Shares are deposited with Odyssey as escrow agent pursuant to an escrow agreement
	entered into and between GABY and Odyssey dated December 31, 2019, to be released by December 31,
	2022.
(5)	5,780,000 GABY Shares are deposited with Gowling as escrow agent pursuant to an escrow agreement
	entered into and between GABY and Gowling dated December 31, 2019, to be released by January 3, 2022.
(6)	72,214,556 GABY Shares are deposited with Odyssey as escrow agent pursuant to an escrow agreement
	entered into and between GABY and Odyssey dated April 5, 2021, to be released 36 months after the GABY
	Shares are approved for listing on the CSE in connection with the Transaction.
(7)	Based on 648,757,712 GABY Shares outstanding upon completion of the Transaction.

12. Principal Shareholders

To the knowledge of the directors and officers of GABY, the following persons beneficially own, directly or indirectly, or exercise control or direction over voting securities carrying more than 10% of the voting rights attached to any class of voting securities of GABY:

Name	Number of Common	Percentage of Class(1)
	Shares
Margot Micallef	68,132,756	10.5%
EBZ Management	72,214,556	11.1%

Note:

(1) Based on 648,757,712 GABY Shares outstanding upon completion of the Transaction, including the conversion of the Subscription Receipts on the Qualification Date, which date has not yet occurred.

13. Directors and Officers

13.1 13.1-13.4 Directors and Officers

The following table lists the names, municipalities of residence of the directors and officers of GABY, their positions and offices to be held with GABY, their principal occupation during the past five years, and the number of securities of GABY that are beneficially owned, directly or indirectly, or over which control or direction will be exercised by each, as at the date hereof.

45 -

Name, Position and	Principal Occupation for Previous	Date Appointed	Number and
Municipality of	Five Years	as	Percentage of
Residence		Director/Officer	Common Shares
			Beneficially
			Owned,
			Controlled or
			Directed, Director
			or Indirectly(4)
Margot Micallef	Ms. Micallef has been serving as Chief	December 3,	68,132,756
Director	Executive Officer of GABY since 2016.	2023	(10.5%)
Chair, President and
Chief Executive
Officer(1)
Calgary Alberta
Brad Isfeld	Mr. Isfeld has been serving as interim	April 1, 2021	Nil.
Interim Chief Financial	Chief Financial Officer of GABY since
Officer	April 1, 2021. Prior thereto, Mr. Isfeld
Medicine Hat, Alberta	held roles at Methanex, Patriot
	Equipment Ltd., and was a partner at
	EBT Chartered Accountants from
	2004 until 2016.
Jackie Altwasser(2)(3)	Ms. Altwasser is the Chief Financial	August 22, 2016	2,803,422
Director	Officer of Oliver Capital Partners, a		(less than 0.01%)
Calgary, Alberta	North American merchant and
	investment bank. Ms. Altwasser has
	also served as the Chief Financial
	Officer and Director of Subway
	Developments 2000 Inc. ("Subway
	Developments") since 2008. Ms.
	Altwasser is engaged by Oliver Capital
	Partners and Subway Developments
	through her personal holding
	company, 891310 Alberta Ltd.
Robert Travis(2)	Mr. Travis currently serves as a	November 26,	200,000
Director	Managing Partner with Boyden Global	2018	(less than 0.01%)
Calgary, Alberta	Executive Search in both Canada and
	the United States, specializing in
	executive leadership placements with
	a focus on industrial, consumer and
	technology practice groups and most
	recently, cannabis. Mr. Travis has
	more than 22 years of industry
	experience focused across various
	industries that include manufacturing,
	fabrication, consumer, energy, energy
	services, technology and cannabis.

46 -

Name, Position and	Principal Occupation for Previous	Date Appointed	Number and
Municipality of	Five Years	as	Percentage of
Residence		Director/Officer	Common Shares
			Beneficially
			Owned,
			Controlled or
			Directed, Director
			or Indirectly(4)
Matthew Bartlett(2)	Mr. Bartlett is currently an Operating	November 20,	Nil.
Director	Partner at Merida Capital Partners, a	2019
Sonoma County,	leading US cannabis private equity
California	firm based in New York, NY. At Merida,
	he works with portfolio investment
	companies on operations and growth
	strategy implementation and new
	investment due diligence. Prior to
	joining Merida, he was a founding
	team member of Garden Society, a
	boutique Sonoma County, CA based
	cannabis company distributed
	throughout California.
	Prior to his roles in operations; Mr.
	Bartlett established the Wine Division
	for Bank of Marin (NASDAQ: BMRC),
	was Vice President at American
	AgCredit, a part of the National Farm
	Credit System, and was a VP and
	Regional Manager in Capital Markets
	Finance at HSBC. He is a graduate of
	Cal Poly San Luis Obispo and Sonoma
	State University.
Leanne Likness	Ms. Swanson is the President of	N/A	2,000,000
Swanson	Praevalidus Corporate Services Inc.		(less than 0.01%)
Corporate Secretary	Prior thereto, she held several senior
Calgary, Alberta	governance positions at both publicly
	traded and private companies such as
	Shell Canada, Sun Life Financial,
	ENMAX, and Superior Plus Inc. She
	holds a Bachelor of Commerce, a
	Masters of Law, and the Chartered
	Director designation.
Javier Estades	Mr. Estades was the President and	March 25, 2021	Nil.
Proposed Director	CEO of Tabacalera USA Inc., leading
Fort Lauderdale,	and engaging a high-performing team
Florida	responsible for esteemed U.S. cigar
	brands such as Romeo & Julieta and
	Montecristo.
James	Mr. Schmachtenberger is the nominee	March 25, 2021	Nil.
Schmachtenberger	of Miramar in connection with the
Proposed Director	Definitive Agreement. Mr.
Carlsbad, California	Schmachtenberger is the co-founder

47 -

Name, Position and Principal Occupation for Previous Date Appointed Number and Municipality of Five Years as Percentage of Residence Director/Officer Common Shares Beneficially Owned, Controlled or Directed, Director or Indirectly[(4) ]

and Chief Executive Officer of Miramar.

Notes:

(1) Throughout 2018, 2019 and 2020, GABY retained the services of its Chief Executive Officer, Margot M. Micallef, for $200,000 per year either directly from Ms. Micallef or through management services agreement with Oliver Capital Partners Inc. (" Oliver "), pursuant to which Oliver agreed to provide the services of its President, Margot Micallef, as Chief Executive Officer of GABY. All compensation was paid or payable to Oliver, other than $68,000 from 2020 which was paid or payable directly to Ms. Micallef. GABY has not entered into any non-competition or non-disclosure agreement with Oliver. Monthly payments for Ms. Micallef's services from November 2019 onwards were deferred and are expected to be paid in 2021.
(2) Member of the Audit and Finance Committee.
(3) GABY has also entered into an interim management services agreement with 891310 Alberta Ltd., pursuant to which 891310 Alberta Ltd. has agreed to provide the services of its officer, Jackie Altwasser, as Director of GABY. As compensation for the services provided under the interim management services agreement, GABY is required to pay 891310 Alberta Ltd. CA$5,000 per month.
(4) Based on 648,757,712 GABY Shares issued and outstanding upon completion of the Transaction.

All of the directors of GABY will be appointed to hold office until the next annual general meeting of shareholders or until their successors are duly elected or appointed, unless their office is earlier vacated.

As of the date of this Listing Statement, the directors, officers and promoters, as a group, directly or indirectly own 71,336,178 Common Shares, representing 10.9% of the 648,757,712 issued and outstanding GABY Shares on an undiluted basis upon the completion of the Transaction, including the occurrence of the Qualification Date, which date has not yet occurred.

GABY has an audit committee which is comprised of Matthew Bartlett (Chair), Robert Travis and Jackie Altwasser. All audit committee members are considered financially literate, as defined by applicable securities legislation, and all audit committee members, aside from Jackie Altwasser, are considered to be independent within the meaning of applicable securities laws. GABY has a written audit committee charter, which is attached as Schedule “C” to its final long form prospectus dated August 28, 2018, available on GABY’s SEDAR profile at www.sedar.com and on GABY’s website. GABY is relying on the exemption in section 6.1 of NI 51-110 as it relates to the independence of the audit committee.

13.5 Other Principal Occupations

Not applicable.

13.6 (13.6-13.9) Corporate Cease Trade Orders or Bankruptcies; Penalties or Sanctions; Personal Bankruptcies

Cease Trade Orders

To GABY's knowledge and other than as disclosed herein, no existing or proposed director or executive officer of GABY is, as at the date of this Listing Statement, or was within 10 years before the date hereof, a director, chief executive officer or chief financial officer of any company, including GABY Inc., that:

48 -
(a) was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the company access to any exemption under securities legislation, in each case for a period of more than 30 consecutive days, that was issued while the director or executive officer was acting in the capacity of a director, the chief executive officer or the chief financial officer thereof; or
(b) was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the company access to any exemption under securities legislation, in each case for a period of more than 30 consecutive days, that was issued after the director or executive officer ceased to be a director, the chief executive officer or the chief financial officer thereof and which resulted from an event that occurred while that person was acting in such capacity.

Bankruptcies

To GABY's knowledge and other than as disclosed herein, no existing or proposed director or executive officer of GABY or a shareholder holding a sufficient number of securities of GABY to affect materially the control of GABY:

(a) is, as at the date of this Listing Statement, or has been within the 10 years before the date hereof, a director or executive officer of any company, including GABY, that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or
(b) has, within the 10 years before the date of this Listing Statement, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or became subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, executive officer or shareholder.

Mr. Schmachtenberger declared personal bankruptcy in June 2009 and was subsequently discharged from personal bankruptcy in December 2011.

Mr. Isfeld was a director and officer of Patriot Equipment Ltd. when it went into receivership in April 2018 and was liquidated.

On June 17, 2020, management filed for and the Alberta Securities Commission, as principal regulator, issued an extension of time for GABY to file the required period disclosure, being annual filings for the year ended December 31, 2019. The extension was issued in conjunction with a standard management cease trade order. This request for the extension was due to the continued impact of COVID-19, of which caused a delay in the year end audit work, in that GABY's auditor is based in Vancouver, British Columbia and GABY's head office and operations are located in California. Fieldwork delays resulted from the inability to travel to GABY's California office due to the continued closure of the US/Canada border and the roll back of business openings in California, civil unrest concerns around safety and other typical issues arising directly and indirectly arising from the pandemic. GABY continued to work diligently and expeditiously with its auditors on the steps required to complete the annual filings, and the order was revoked on August 20, 2020, following the filing of the required financial statements and other continuous disclosure documents.

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13.7 Penalties or Sanctions

To GABY's knowledge other than as disclosed herein, no director or executive officer of GABY or a shareholder holding sufficient securities of GABY to affect materially the control of GABY, has been subject to:

(a) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or
(b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor making an investment decision.

See Item 13.6-13.9 - Corporate Cease Trade Orders or Bankruptcies; Penalties or Sanctions; Personal Bankruptcies – Cease Trade Orders .

13.8 Conflicts of Interest

Not applicable.

13.9 Management of the Corporation

Brief descriptions of the biographies for all of the officers and directors of GABY are set out below:

Margot Micallef, Director, Chair, President and Chief Executive Officer

Margot M. Micallef, Q.C. has been the Chair and Chief Executive Officer of GABY since July 2016. Ms. Micallef was the President of Oliver Capital Partners, a company she founded in 2003 to invest in private companies looking for expansion capital or an outright sale. Since its inception, Oliver Capital Partners has directly and indirectly invested in a number of diverse businesses including: broadcasting, publishing, food manufacturing and real estate and manages or has managed the franchise development rights for a number of well-known quick service restaurant brands. Under Margot's leadership Oliver has established a track record of delivering industry leading returns to its investors. Ms. Micallef is also a Promoter of GABY and owns 68,132,756 or 10.5% of the issued and outstanding GABY Shares as at the date hereof.

Margot has also served as an Adjunct Professor in governance and ethics for the MBA Program at the University of Alberta and was on the Faculty of the Directors College, a joint venture between McMaster University and the Conference Board of Canada. Prior to founding Oliver Capital Partners Inc., Margot was a Senior Vice-President of Shaw Communications Inc., in Calgary, Alberta; a Partner with Russell and DuMoulin (now Fasken Martineau DuMoulin) in Vancouver, British Columbia; and was a co-instructor for the Faculty of Law at the University of British Columbia. Ms. Micallef serves or has served on a number of public and private company boards including Vista Radio Ltd., ENMAX Corporation – where she also served as Chair of the Corporate Governance Committee, Solium Capital Inc., Tecterra Inc., Canwest Global Communications Inc., and TheraCann International Benchmarking Inc. She has been recognized for her business and entrepreneurial leadership and success by a number of leading organizations including WXN, Women in Communications & Technology, Ernst & Young, RBC and the Calgary Chamber of Commerce.

Margot received a Bachelor of Arts from Simon Fraser University in December 1980, and received a LLB from the University of British Columbia in June 1984. Margot devotes 100% of her time to GABY.

Brad Isfeld, Interim CFO

Brad Isfeld is a Chartered Professional Accountant and has 25 years of accounting and finance experience. From 2004 to 2016, he was a partner at EBT Chartered Accountants in Medicine Hat, Alberta, and has held a variety of accounting and finance roles at oil and gas companies. Brad has experience with small, medium

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and large corporations, and in his time as a partner at EBT Chartered Accountants, ran the firm’s audit practice.

Brad received a Bachelor of Commerce from the University of Alberta in 1991, and became a member of the Chartered Professional Accountants of Alberta in 1995. Brad devotes 100% of his time to GABY.

Jackie Altwasser, Director

Jackie Altwasser is a Chartered Professional Accountant and an independent consultant, providing financial and accounting advisory services to public and private companies. From 1993– 2005, Ms. Altwasser was with Shaw Communications Inc. in progressive financial roles, with the most recent being VP Finance (2001) where she gained extensive experience in finance, tax, acquisitions, divestitures, and reporting for a public company. Prior thereto, she was with Ernst & Young in Edmonton, Alberta and Montreal, Quebec. Ms. Altwasser obtained a Diploma in Public Accountancy from McGill University in 1990 and a Bachelor of Commerce degree from the University of Calgary in 1988. Ms. Altwasser served as former Chair of the Board of Canada Pizza Delivery Corp., which through its subsidiary holds the master franchise of Dominos Pizza for Canada. Jackie is also the President and owner of Foothills Educational Materials, a Canadian distributor of specialized educational materials.

Jackie received a Bachelor of Commerce from the University of Calgary in April 1988, and received her Chartered Accountant designation in 1991 from the Chartered Professional Accountants of Ontario, and received her designation from the Chartered Professional Accountants of Alberta in July 2015. Jackie devotes 50% of her time to GABY.

Robert Travis, Director

Mr. Travis currently serves as a Managing Partner with Boyden Global Executive Search ("Boyden") in both Canada and the United States, specializing in executive leadership placements with a focus on industrial, consumer, technology and cannabis practice groups. Robert has more than 22 years of industry experience focused across various industries that include manufacturing, fabrication, consumer, energy, energy services, technology and cannabis. He successfully led Boyden's international expansion by becoming the Founding Partner of the Calgary office in 1996, and subsequently, the Founding Partner of the Atlanta office in 2008. Robert's success has garnered him an impressive portfolio of client accounts, including several Fortune 100 and 500 companies. With both Canadian and United States citizenship along with extensive experience, Robert is ideally suited to provide valuable oversight to GABY as GABY develops a comprehensive, crossborder team capable of executing GABY's vision of being a leading, trusted cannabis wellness company. Further, Boyden has already significantly impacted the cannabis industry through recruitment of positions including CEO, CFO, President, Chairman, and Vice President for an array of companies such as Canopy Growth (TSX:WEED), Tilray (NASDAQ:TLRY), Harvest One Cannabis (TSXV:HVY) and The Green Organic Dutchman (TSX:TGOD).

Robert received a Bachelor of Arts from Stetson University in 1989, and devotes 5% of his time to GABY.

Matthew Bartlett, Director

Matthew Bartlett is currently an Operating Partner at Merida Capital Partners, a leading US cannabis private equity firm based in New York, NY. At Merida, he works with portfolio investment companies on operations and growth strategy implementation and new investment due diligence.

Mr. Bartlett has specialized in commercial and capital markets, agriculture finance, beverage M&A and global wine & spirits operations for the past 15 years. Prior to joining Merida, he was a founding team member of Garden Society, a boutique Sonoma County, CA based cannabis company distributed throughout California and featured in Forbes, LA Times, NPR, Metro and ESPN. Matthew brings extensive knowledge in brand and operations management in early-stage CPG as well as managing global logistics

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and supply chain for Costco's Kirkland Wine & Spirits and several multi-nationally distributed Napa, Sonoma and California premium & luxury wine brands.

Prior to his roles in operations; Matthew established the Wine Division for Bank of Marin (NASDAQ: BMRC), was Vice President at American AgCredit, a part of the National Farm Credit System, and was a VP and Regional Manager in Capital Markets Finance at HSBC. Matthew received his undergraduate degree from Cal Poly San Luis Obispo in June 2003 and his MBA from Sonoma State University in June 2015. Matthew devotes 5% of his time to GABY.

Leanne Likness Swanson, Corporate Secretary

Leanne Likness Swanson has acted as the Corporate Secretary for GABY since June 2018. She is also President of Praevalidus Corporate Services Inc. Ms. Likness Swanson has over 20 years in the corporate governance profession, acting in senior management roles and overseeing various governance programs and related public disclosure and securities compliance for both public and private entities, including, but not limited to, Shell Canada, Sun Life Financial, Superior Plus Corp., and ENMAX. Ms. Likness Swanson is an active member of the Institute of Corporate Directors, the Institute of Chartered Secretary's and Administrators, and the International Corporate Governance Network.

Ms. Likness Swanson has received a Bachelor of Commerce Degree from the University of Calgary in 1998, a Masters of International Business Law from the University of Liverpool in 2019, the Chartered Directors Designation from McMaster University in 2010, and has completed the Canadian Securities Course, many courses offered by the Canadian Institute of Financing Planning, including the Certified Financial Planner course, as well as a Securities Law Fellowship Degree. Ms. Likness Swanson devotes 50% of her time to GABY.

Ms. Likness Swanson is a frequent lecturer and author on corporate governance matters. She also serves on the Board of Directors of Accessible Housing Society (and Chair of the Governance Committee).

Javier Estades, Proposed Director

Javier Estades Saez Johansson joins the GABY team with an outstanding track record in business and leadership, most recently as President and CEO of Tabacalera USA Inc., leading and engaging a highperforming team responsible for esteemed U.S. cigar brands such as Romeo & Julieta and Montecristo.

Javier's exceptional leadership first in Spain and now in the U.S. has helped establish Tabacalera USA and its brands become true leaders in the U.S. premium cigar market. As a board member of GABY, Javier will be instrumental in the development of GABY's retail strategy, leveraging his expertise in brand management and business strategy and implementation.

James Schmachtenberger, Proposed Director

James Schmachtenberger has worked extensively in the cannabis industry since 2009, having founded some of the most successful dispensaries in the industry including Mankind in San Diego. In additional to his work on the retail side of the industry James has been involved with delivery, cultivation and CPG as well as played a significant role in legislative development. James was the President of one of the first industry trade associations in the cannabis industry and has been deeply involved in advancing legislation in California. He is a serial entrepreneur with a particular focus on increasing humanity's quality of life and consciousness at scale. His career began in education as the President of Body Mind College which provided practitioner trainings in alternative medicine and psychology. James also co-founded Neurohacker Collective which is a cutting edge wellness products company that uses complex systems science to develop products to enhance human performance. James has had a diverse career, all driven by a desire to reduce suffering and improve quality of life for all forms of sentience.

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14. Capitalization

14.1 Issued Capital

For the GABY Shares to be listed, the following chart sets out the issued capital on a pro forma basis, assuming the Transactions contemplated herein are completed, including that the Qualification Date has occurred and GABY’s Subscription Receipts have converted (as described herein, and which date has not occurred as of the date of this Listing Statement):

Public Float Total outstanding (A) Held by Related Persons or employees of the Issuer or Related Person of the Issuer, or by persons or companies who beneficially own or control, directly or indirectly, more than a 5% voting position in the Issuer (or who would beneficially own or control, directly or indirectly, more than a 5% voting position in the Issuer upon exercise or conversion of other securities held) (B) Total Public Float (A-B) Freely-Tradeable Float Number of outstanding securities subject to resale restrictions, including restrictions imposed by pooling or other arrangements or in a shareholder agreement and securities held by control block holders (C) Total Tradeable Float (A-C)	Number of GABY Shares (non-diluted) Number of GABY Shares (fully-diluted) % of Issued (non-diluted) % of Issued (fully diluted) 648,757,712 984,890,561 100% 100%
	229,030,915 272,665,030 35% 28%
	419,726,797 712,225,531 65% 72%
	203,166,601 283,307,045 31% 29%
	445,591,111 701,583,516 69% 71%

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Public Securityholders (Registered)

Size of Holding

Number of holders

Total number of securities

1 – 99 securities 0 100 – 499 securities 0 500 – 999 securities 0 1,000 – 1,999 securities 0 2,000 – 2,999 securities 0 3,000 – 3,999 securities 1 3,332 4,000 – 4,999 securities 0 5,000 or more securities 121 419,726,797

Public Securityholders (Beneficial)

Instruction: Include (i) beneficial holders holding securities in their own name as registered shareholders; and (ii) beneficial holders holding securities through an intermediary where the Issuer has been given written confirmation of shareholdings. For the purposes of this section, it is sufficient if the intermediary provides a breakdown by number of beneficial holders for each line item below; names and holdings of specific beneficial holders do not have to be disclosed. If an intermediary or intermediaries will not provide details of beneficial holders, give the aggregate position of all such intermediaries in the last line.

Size of Holding

Number of holders

Total number of securities

1 – 99 securities

100 – 499 securities 500 – 999 securities

1,000 – 1,999 securities 2,000 – 2,999 securities 3,000 – 3,999 securities 4,000 – 4,999 securities 5,000 or more securities Unable to confirm

4 99 28 5,774 21 12,925 44 54,324 24 55,450 13 42,350 9 37,967 311 48,298,470 N/A 600,250,353

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Non-Public Securityholders (Registered)

Instruction: For the purposes of this report, "non-public securityholders" are persons enumerated in section (B) of the issued capital chart.

Size of Holding Number of holders 1 – 99 securities 100 – 499 securities 500 – 999 securities 1,000 – 1,999 securities 2,000 – 2,999 securities 3,000 – 3,999 securities 4,000 – 4,999 securities 5,000 or more securities 8 229,030,915

Number of holders Total number of securities

14.2 Provide the following details for any securities convertible or exchangeable into any class of listed securities

Description of Security Number of convertible / Number of listed securities (include conversion / exercise exchangeable securities issuable upon conversion / terms, including conversion / outstanding exercise exercise price) Compensation Warrants 7,992,569 15,985,138 GABY Shares issuable upon exercise, upon the terms described herein. Subscription Receipts 172,929,123 172,929,123 GABY Shares and 172,929,123 Underlying Warrants issuable on conversion upon the occurrence of the Qualification Date (accounted for in the above pro forma share capitalization).

14.3 Listed Securities Reserved for Issuance

There are no listed securities reserved for issuance other than those listed under Section 14.2.

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15. Executive Compensation

Named Executive Officer ("NEOs") Compensation

The NEOs whose compensation is disclosed in this Compensation Discussion and Analysis are:

Margot Micallef, Founder, Chair and Chief Executive Officer
Barb Feit, Former Chief Financial Officer[(1)]
Jamie Fay, Former President[(1)]

Notes:

(1) The employment of Ms. Feit ceased on March 24, 2020 and the employment of Mr. Fay ceased on January 15, 2020.

There were no other NEOs during the most recently completed financial year.

The elements of compensation and board governance as described below in regard to GABY will be the compensation and board governance elements of the Resulting Issuer going forward.

Composition of the Human Resources And Compensation Committee

The Human Resources and Compensation Committee of the Board (the " HRC Committee ") was formed on March 26, 2019. Our HRC Committee is made up of directors who bring different perspectives, approaches and experience to the governance of our compensation program. They are highly experienced senior executives who have dealt with numerous compensation issues over the course of their careers. They are well equipped to inquire, debate and ultimately make decisions in respect of a wide range of human resources and compensation issues, as well as other matters for which they are responsible, as outlined in the written mandate of the HRC Committee. As such, the HRC Committee provides a strong level of leadership and governance in respect of the design and execution of our compensation program.

Compensation Process

GABY's executive compensation program during the most recently completed financial year was administered by the board of directors. The board of directors based the executive compensation on comparable positions at start-up cannabis wellness entities with limited funds.

In 2019, the Governance and Compensation Committee of the Board was disbanded and the Governance and Nominating Committee and the HRC Committee were established. On an ongoing basis, the HRC Committee will be responsible for annually reviewing the composition and use of comparator groups to assist in determining the compensation recommendations for GABY’s senior officers, including the Chair and CEO and other NEOs, which will then be brought to the Board for approval. The HRC Committee will undertake periodic reviews of compensation design and total compensation opportunities for the senior management team, which will help to ensure the programs are current and that they fairly compare for particular roles, recognizing varying responsibility and scope of executive positions within GABY. It is within the HRC Committee's mandate to engage the services of external compensation advisors to compile market information on senior management compensation relating to base salary, and any short-and long-term incentives.

Beginning in 2019, for each executive position, a range for potential compensation, salary and otherwise, will be established annually, using the benchmarking data along with other information on industry trends for positions of similar scope and responsibility. The Chair and CEO will conduct annual performance assessments on members of the senior management team, including each of the NEOs, which will shape the annual salary adjustment recommendations. Based on the performance assessments and the benchmarking data, the Chair and CEO will then recommend total target compensation for each senior leader, including the NEOs (but excluding herself) to the HRC Committee for review and approval. With

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respect to the Chair and CEO, the HRC Committee will review benchmark data and other information on industry trends for positions of similar scope. Following this process, the HRCC will make recommendations for total target compensation for all of the senior management team, including the Chair and CEO and the other NEOs, to the Board of Directors. As part of the annual compensation review process, the HRC Committee will review emerging best practices and risk considerations.

Director Compensation

Directors' compensation for the directors is determined by the Governance and Nominating Committee and will be recommended for approval to the GABY Board on an ongoing basis.

Significant Elements Of Compensation

During the fiscal years ended December 31, 2019 and 2020, the NEOs, were compensated primarily through cash salaries, stock options and RSUs.

Cash Salary

During the fiscal years ended December 31, 2019 and 2020, GABY set cash compensation for management at a level deemed appropriate for the responsibilities associated with each executive position, the experience of the individuals filling these positions and the available funds of GABY, based on comparable positions at start-up cannabis wellness entities with limited funds.

Performance Bonus

During the financial years ended December 31, 2019 and 2020, no performance bonuses were provided to any of the NEOs.

Employment, Consulting, And Management Agreements

In 2018 and 2019 and 2020, Management Services Agreements were in place as follows:

Throughout 2018, 2019 and 2020, GABY retained the services of its Chief Executive Officer, Margot M. Micallef, for $200,000 per year either directly from Ms. Micallef or through management services agreement with Oliver Capital Partners Inc. (" Oliver "), pursuant to which Oliver ~~a~~ greed to provide the services of its President, Margot Micallef, as Chief Executive Officer of GABY. All compensation was paid or payable to Oliver, other than $68,000 from 2020 which was paid or payable directly to Ms. Micallef. GABY has not entered into any non-competition or non-disclosure agreement with Oliver. Monthly payments for Ms. Micallef's services from November 2019 onwards were deferred and are expected to be paid in 2021.
From July 2018 to December 2020, GABY had a management services agreement with 891310 Alberta Ltd., pursuant to which 891310 Alberta Ltd. has agreed to provide the services of its officer, Jackie Altwasser, as Director of and Financial Advisor to GABY. The compensation paid for these services was $5,000 per month up to the period ending December 2019. In 2020, payments were made in restricted share units, in the amount of 4,000,000 RSUs.
In 2018, GABY had entered into a management services agreement with Sagamore Capital Advisors, LLC., pursuant to which Sagamore Capital Advisors, LLC. agreed to provide the services of its managing director, Vincent Micallef, as President and Chief Financial Officer of GABY. As compensation for the services provided under the management services agreement, GABY was required to pay Sagamore Capital Advisors, LLC $100,000 per year. GABY has not entered into any non-competition or non-disclosure agreement with Sagamore Capital Partners LLC. Effective January 1, 2019, and the management services agreement with Sagamore Capital Partners LLC was terminated.
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In October 2018, GABY entered into a management services agreement with CC&H Management Advisors LLC, pursuant to which CC&H Management Advisors LLC agreed to provide the services of its officer, John Shaw, as Senior Vice President of North American Sales of GABY's food division. As compensation for the services provided under the management services agreement, GABY was required to pay CC&H Management Advisors LLC USD$170,000 per year. The management services agreement with CC&H Management Advisors LLC was terminated effective April 4, 2019.
In 2019 GABY entered into a management services agreement with Putnam Marketing Solutions (" PMS "), pursuant to which PMS agreed to provide the services of its officer, Maureen Putnam as Chief Marketing Advisor. The compensation for services provided under the management services agreement amounted to USD$60,144 (CAD$77,872) in 2019.

Stock Option Plan

The Stock Option Plan is available to all employees, directors and consultants, including the NEOs of GABY. The objective of the Stock Option Plan is to tie the interests of the directors, employees and consultants of GABY directly to the interests of the shareholders of GABY, as increases in the value of the GABY Shares cause related increases in the value of the stock options (" Options ") issued pursuant to the Stock Option Plan. In that regard, the Stock Option Plan is intended to serve as a long term retention and incentive tool.

The exercise price, terms, vesting and conditions of any Options granted are established by the Board of Directors. The GABY Board are able to grant up to 10% of the issued and outstanding Common Shares, from time to time, and upon the exercise of an Option, the number of Common Shares thereafter available to be issued under the Stock Option Plan is decreased by the number of Common Shares as to which the Option is exercised. If an Option granted under the Stock Option Plan has expired or terminated for any reason without having been exercised in full, the un-issued Common Shares subject thereto are again available for issuance under the Stock Option Plan. Currently, the Options granted pursuant to the Stock Option Plan can be exercised during a period not exceeding five years from the date of grant. The Options granted pursuant to the Stock Option Plan are non-transferable.

Awards of Options for all directors and employees, including NEOs, are approved by the GABY Board on an ongoing basis. The determination of an award of Options, as well as the number of Options of any award, is at the sole discretion of the GABY Board. In deciding to grant Options, the GABY Board takes previous Option grants into consideration. There are no performance or other conditions related to the vesting of the Options, other than continued employment with GABY.

Stock Appreciation Rights Plan

Prior to listing on the CSE, GABY adopted a stock appreciation rights plan (the " SAR Plan ") in lieu of a Stock Option Plan. The SAR Plan provides that the GABY Board may from time to time, in its discretion, grant to Participants non-transferable stock appreciation right units (" SAR Units "). Each SAR Unit represents a notional unit credited to the SAR Plan recipient's (the " Participant ") account by means of a book-keeping entry on the books of GABY. Each SAR Unit entitles the Participant to a payment in the event of a liquidity event (being the sale of all or substantially all of the GABY Shares or the assets of GABY (a " Sale Event ")).

Upon the occurrence of a Sale Event, Participants are entitled to a payment from GABY equal to such Participant's participation percentage of the total proceeds of the Sale Event. The form of payment shall be consistent with the character of the compensation received by the Shareholders (i.e. cash, shares, notes or other forms of consideration) or the proceeds received by GABY, as applicable. Additionally, in the event that GABY pays a dividend to Shareholders, holders of SAR Units are entitled to receive an equivalent amount per SAR Unit vested as paid on each GABY Share.

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The SAR Plan terminates automatically upon the payment by GABY of any amounts owing to Participants after the occurrence of a Sale Event.

Subject to certain exceptions, a Participant will forfeit all of such Participant's rights to any payment in respect of their SAR Units on the date that such Participant ceases to act in their capacity as an employee or consultant of GABY as a result of termination of the relationship by the Participant. Subject to certain exceptions, a Participant will have no rights to any payment in respect of their SAR Units in the event that GABY terminates the employment or consulting relationship with such Participant for:

1) any act involving fraud or dishonesty respecting the property or reputation of GABY;
2) engaging in any criminal act, including the commission of any act of criminal fraud, embezzlement, theft or similar offence;
3) engaging in any intentional acts, carrying out any activity or making any statement that would:
a) be contrary to the best interests of GABY;
b) be materially injurious to GABY (financially or otherwise); or
c) prejudice or impair the good name or standing of GABY or would bring GABY into contempt or ridicule;
4) the Participant's conviction of an indictable offence or fraud or other criminal offence involving moral turpitude;
5) wilful or gross misconduct or neglect that relates to or affects GABY; or
6) engagement in any act or omission which constitutes just cause for termination under common law.

The employment or consulting arrangement of most of the participants in the SAR Plan has been terminated and it is not anticipated that additional SARs units will be issued in the future.

Restricted Share Units ("RSU Plan")

In 2019, the GABY Board approved the RSU Plan, which will be presented for approval to the shareholders at the Meeting. The principal purposes of the RSU Plan are to: (i) attract and retain qualified Eligible Participants that GABY requires; (ii) promote a proprietary interest in GABY by such Eligible Participants and to encourage such Eligible Participants to remain in the employ or service of GABY and put forth maximum efforts for the success of the business of GABY; and (iii) focus Eligible Participants on GABY's operating and financial performance and long-term return.

Restricted Awards (or RSUs) shall be in addition to, and not in substitution for or in lieu of, ordinary salary and wages or consulting fees received by an Eligible Participant in respect of his or her services to GABY during the Service Year. The size of the award of RSUs is generally inversely related to the amount of cash compensation paid to the Eligible Participant relative to equivalent positions in the industry generally. GABY prefers to pay a lower cash salary and reward employees with more generous RSU grants so as to further align the interests of its employees and its shareholders. All full time employees participate in GABY's RSU Plan.

The GABY Board administers the RSU plan had has the authority to make grants of awards under the plan and the terms of those grants, upon recommendations from Management.

RSUs will expire on the third calendar year following the end of the applicable service year. Restricted Awards granted pursuant to the RSU Plan shall, unless otherwise determined by the Board or as specifically set out therein, vest as to one-third (1/3) of the granted Restricted Awards on each of the first and second anniversaries of the Grant Date, and the remaining one-third (1/3) shall vest on the earlier of: (i) the third anniversary of the Grant Date, and (ii) December 31 of the third calendar year following the Service Year in respect of which the Restricted Awards were granted.

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Upon vesting, the payout amount may be made in cash or common shares of GABY, at the sole discretion of GABY.

Where GABY elects to pay any amounts pursuant to a Restricted Award by acquiring GABY Shares on the Exchange, or by GABY issuing GABY Shares from treasury, the number of GABY Shares to be delivered is equal to the nominal number of GABY Shares underlying the Restricted Award.

If an employee resigns or is terminated with cause, all outstanding RSUs shall be immediately terminated and all rights to receive payments thereunder shall be forfeited by the Grantee.

If an employee is terminated without cause, then any RSUs held by such Grantee with a Vesting Date that is within ninety (90) days following the date of termination, the vesting (or settlement date), will be the date of termination, and the Grantee shall be entitled to receive the Payout Amount of such Restricted Awards.

Summary Compensation Table for NEOs and Directors

The compensation paid to the NEOs and directors of GABY, excluding compensation securities, for the periods noted, is summarized in the following table and is expressed in Canadian dollars.

SUMMARY COMPENSATION TABLE

Name and position	Year	Salary, consulting fee, retainer or commission ($)(1)	Bonus ($)	Committee or Board meeting fees ($)	Option Based Awards ($)(2)	Share Based Awards ($)(3)	Value of all other compensation ($)(4)	Total compensation ($)
			Named Executive Officers
Margot Micallef, Chair, President and CEO(5)	2018	200,000	-	-	-	-	-	200,000
	2019	200,0004	-	-	-	-	-	200,000
	2020	200,000	-	-	-	110,050	-	310,050
Barb Feit, Former CFO(6)	2019	175,000	-	-	-	-	-	175,000
	2020	55,750	-	-	-	-	-	55,750
Jamie Fay, Former President(7)	2019	411,818	-	-	-	-	-	411,818
Vincent Micallef, Former President & CFO and COO(8)	2018	100,000	100,000	-	-	-	-	200,000
	2019	8,333		-	-	-	-	8,333

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Name and position	Year	Salary, consulting fee, retainer or commission ($)(1)	Bonus ($)	Committee or Board meeting fees ($)	Option Based Awards ($)(2)	Share Based Awards ($)(3)	Value of all other compensation ($)(4)	Total compensation ($)
		Directors(noting		that Ms. Micallef is also a Director)
Robert Travis, Director & Chair of the Human Resources and Compensation Committee	2018	-	-	-	-	-	-	-
	2019	-	-	-	-	-	-	-
	2020	-	-	-	-	67,800	-	67,800
Jackie Altwasser	2018	30,000	-	-	-	-	-	30,000
	2019	60,000	-	-	-	-	-	60,000
	2020	0	-	-	-	269,550	-	269,550
Matthew Bartlett	2019	-	-	-	-	-	-	-
	2020	-	-	-	-	67,800	-	67,800
Jason Kujath, Director(9)	2018	-	-	-	-	-	-	-
	2019	-	-	-	-	-	-	-
Russell Wilson(10)	2018	-	-	-	-	-	-	-
	2019	-	-	-	-	-	-	-
Maureen Putnum(11)	2018	-	-	-	-	-	-	-
	2019	77,872	-	-	-	-	-	77,872
Charles Mannix(12)	2019	-	-	-	-	-	-	-
Mara Gordon, Former Director and Chief Research Officer(13)	2018	39,685	-	-	-	-	-	39,685
	2019	119,700	-	-	-	-	-	119,700
Richard Bonnycastle, Former Director(14)	2018	-	-	-	-	-	-	-

Notes:

(1) All compensation noted is compensation received under the consulting agreements described above, with the exception of Ms. Gordon and Ms. Putman who received additional compensation for their roles as Chief Research Officer and Chief Marketing Officer, respectively.

(2) As option-based compensation is always granted at an exercise price either at or below the closing price of the GABY Shares on the CSE on the date of grant of the options, a value of $nil has been assigned as the fair value of the options. This fair value differs from the fair value determined in accordance with IFRS 2 Share-Based Payments as follows:

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Name	Year	Option Based Awards($)
Margot Micallef, Chair, President and CEO	2018	142,500
	2019	515,648
	2020	n/a
Barb Feit, Former CFO	2019	633,072
	2020	n/a
Jamie Fay, Former President	2019	406,936
Vincent Micallef, Former President & CFO and COO	2018	n/a
	2019	n/a
Robert Travis, Director & Chair of the Human Resources and Compensation Committee	2018	42,000
	2019	14,500
	2020	n/a
Jackie Altwasser	2018	22,500
	2019	n/a
	2020	n/a
Matthew Bartlett	2019	7,500
	2020	n/a
Jason Kujath, Director	2018	30,000
	2019	-n/a
Russell Wilson	2018	26,250
	2019	n/a
Maureen Putnum	2018	91,500
	2019	10,581
Charles Mannix	2019	7,500
Mara Gordon, Former Director and Chief Research Officer	2018	187,500
	2019	80,000
Richard Bonnycastle, Former Director	2018	22,500

(3) The fair value of share based compensation reflects the full value on the date of grant, irrespective of whether such stock based compensation has vested or not, based on the upon the closing price of the Common Shares on the CSE on the date of grant multiplied by the number of units granted.

(4) No perquisites were granted to any NEO or Director in 2018, 2019, or 2020. (5) Ms. Micallef deferred compensation starting September 2019. All outstanding compensation is expected to be paid in 2021.
(6) Ms. Feit's position as Chief Financial Officer of GABY terminated on March 24, 2020. All option based rewards have since been cancelled in accordance with GABY's stock option plan. Fees earned were based on both salary prior to Ms. Feit's termination, as well as consulting fees after the date thereof.
(7) Mr. Fay was terminated from his position as President on January 15, 2020. All option based rewards have since been cancelled in accordance with GABY's stock option plan.
(8) Mr. Micallef's role as President and Chief Financial Officer of GABY was terminated effective January 1, 2019. (9) Mr. Kujath's position as a Director of GABY terminated on March 12, 2020. All option based rewards have since been cancelled in accordance with GABY's stock option plan.
(10) Mr. Wilson's position as a Director of GABY terminated on March 12, 2020. All option based rewards have since been cancelled in accordance with GABY's stock option plan.
(11) Ms. Putnam's position as a Director of GABY terminated on March 9, 2020. She continues to serve in an advisory capacity to GABY.
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(12) Mr. Mannix's position as a Director of GABY terminated on March 9, 2020. All option based rewards have since been cancelled in accordance with GABY's stock option plan.Ms. Gordon's position as Director and Chief Research Officer of GABY terminated on July 30, 2019. All option based rewards have since been cancelled in accordance with GABY's stock option plan.
(13) Ms. Gordon's position as Director and Chief Research Officer of GABY terminated on July 30, 2019. All option based rewards have since been cancelled in accordance with GABY's stock option plan.
(14) Mr. Bonnycastle's position as a Director of GABY terminated on November 26, 2018. He continues to serve in an advisory capacity to GABY.

Stock Options And Other Compensation Securities For NEOs And Directors

NEO and Director Equity Based Awards

The following table sets out the compensation securities granted or issued to each director and NEO by GABY in the 2020 financial year for services provided, directly or indirectly, to GABY.

COMPENSATION SECURITIES

Name and position	Type of compensati on security		Date of issue or grant	Issue, conversio n, or exercise price ($)	Closing price of security or underlying security on date of grant ($)	Closing price of security or underlying security at year end ($)	Expiry date
		NAMED EXECUTIVE OFFICERS & DIRECTORS
Margot Micallef, Chair and CEO	RSUs	400,000	March 16, 2020	N/A	$0.07	$0.05	December 31, 2023
	RSUs	30,000	March 23, 2020	N/A	$0.035	$0.05	December 31, 2023
	RSUs	1,000,000	April 14, 2020	N/A	$0.065	$0.05	December 31, 2023
	RSUs	400,000	September 2, 2020	N/A	$0.04	$0.05	December 31, 2023
Robert Travis, Director	RSUs	80,000	March 23, 2020	N/A	$0.035	$0.05	December 31, 2023
	RSUs	1,000,000	April 14, 2020	N/A	$0.065	$0.05	December 31, 2023
Matthew Bartlett, Director	RSUs	80,000	March 23, 2020	N/A	$0.035	$0.05	December 31, 2023
	RSUs	1,000,000	April 14, 2020	N/A	$0.065	$0.05	December 31, 2023

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Name and position	Type of compensati on security		Date of issue or grant	Issue, conversio n, or exercise price ($)	Closing price of security or underlying security on date of grant ($)	Closing price of security or underlying security at year end ($)	Expiry date
Jackie Altwasser, Director	RSUs	130,000	March 23, 2020	N/A	$0.035	$0.05	December 31, 2023
	RSUs	1,000,000	April 14, 2020	N/A	$0.065	$0.05	December 31, 2023
	RSUs	4,000,000	October 8, 2020	N/A	$0.05	$0.05	December 31, 2023

	Option Based Awards (NEOs only)	Option Based Awards (NEOs only)	Option Based Awards (NEOs only)		Share	Based Awards (NEOs only)	Based Awards (NEOs only)
Name	Number of Securities underlying unexercised option	Option Exercise Price ($)	Option expiration date	Value of unexercised in-the money options ($)	Number of shares or units of shares that have not Vested ($)	Market or payout value of share based awards that have not vested ($)(1)	Market or payout value of vested share- based awards not paid out or distributed ($)
Margot Micallef	950,000	$0.29	September 24, 2023	Nil	1,830,000	$91,500	N/A
	2,000,000	$0.36	July 23, 2024	Nil
	500,000	$0.27	October 5, 2024	Nil

Note:

(1) Market value of share based awards (RSUs) have been determined based upon the closing price of the GABY Shares on the CSE on GABY’s year end of December 31, 2020 of $0.05.

Incentive Plan Awards – Value Vested or Earned During the Year

Name (NEOs only)	Option-based awards – Value vested during the year ($)(1)	Share-based awards – Value vested during the year ($)	Non-equity incentive plan compensation – Value earned during the year ($)
Margot Micallef	Nil	N/A	N/A

Note:

(1) Value based on difference between closing price of the GABY Shares on the CSE on the vesting date of option-based awards and the exercise price of the option-based award.

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Post-Transaction Executive Compensation

After Completion of the Transaction, the Resulting Issuer will enter into management agreements with certain key employees of the company pursuant to which each will provide their respective services to the Resulting Issuer. The terms and conditions of all such management agreements have not yet been determined and will be subject to the prior approval of the Resulting Issuer's Board of Directors.

It is anticipated that the Resulting Issuer will pay compensation to its directors in the form of annual fees for attending meetings of the Resulting Issuer's Board of Directors. Directors may receive additional compensation for participating in and acting as chairs of committees of the Resulting Issuer. Directors will also be entitled to receive stock options and other applicable awards as determined by the Resulting Issuer's Board and will be reimbursed for any out-of-pocket travel expenses incurred in order to attend meetings of the Resulting Issuer's Board, committees of the Resulting Issuer's Board or meetings of the shareholders of the Resulting Issuer. It is also anticipated that the Resulting Issuer will obtain customary insurance for the benefit of its directors and enter into indemnification agreements with its directors pursuant to which the Resulting Issuer will agree to indemnify its directors to the extent permitted by applicable law.

Exercise of Compensation Securities by Directors and NEOs

No compensation securities were exercised during 2020.

16. Indebtedness of Directors and Executive Officers

As of the date of the Listing Statement, none of the directors or officers of GABY, nor any of their associates, will be indebted to GABY, and neither will any indebtedness of any of these individuals or associates to another entity be the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by GABY.

17. Risk Factors

There are a number of risk factors that could cause future results to differ materially from those described herein. The risks and uncertainties described herein and in the documents incorporated by reference herein are not the only ones the GABY faces. Additional risks and uncertainties, including those that the GABY does not know about now or that it currently deems immaterial, may also adversely affect the GABY’s business. If any of the following risks actually occur, GABY’s business may be harmed and its financial condition and results of operations may suffer significantly. The risk factors described below may be in respect of GABY, Miramar or the Resulting Issuer. Where GABY is specified, the Resulting Issuer’s business is also included.

The market reaction to the Transaction and the future trading prices of the Resulting Issuer shares cannot be predicted.

Following the Transaction, the price of the Resulting Issuer’s shares may fluctuate significantly due to the market's reaction to the Transaction and general market and economic conditions. An active trading market for the Resulting Issuer Shares following the Transaction may never develop or, if developed, it may not be sustained.

The COVID-19 Pandemic and other Natural Disasters, Terrorist Acts, Health Crises and Other Disruptions

Global markets have been adversely impacted by natural disasters, terrorist acts, health crises and other disruptions, including emerging infectious diseases and/or the threat of outbreaks of viruses and other contagions, in particular the novel COVID-19. The cannabis industry has been impacted by these market conditions. If increased levels of volatility continue or in the event of a rapid destabilization of global economic conditions, it may result in a material adverse effect on prices or demand for GABY’s products, availability of credit, investor confidence, and general financial market liquidity, all of which may adversely

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affect GABY’s business and the market price of the GABY Shares. In addition, there may not be an adequate response to emerging infectious diseases, or significant restrictions may be imposed by the Canadian and/or the United States government, either of which may impact GABY’s operations. GABY’s operations might be suspended due to labour shortages and shutdowns, delays and disruption in supply chains, social unrest, government or regulatory actions or inactions, including mandated self-isolation, hospitalizations, travel restrictions, declaration of national emergencies, permanent changes in taxation or policies, decreased demand or the inability to sell and deliver its products, delays in permitting or approvals, suspensions or mandated shut downs of operations, or other unknown but potentially significant impacts.

Failure to successfully integrate acquired businesses, its products and other assets into GABY, or if integrated, failure to further GABY’s business strategy, may result in GABY’s inability to realize any benefit from such acquisition.

GABY has grown and expects to continue growing by acquiring businesses, including Miramar. The consummation and integration of any acquired business, product or other assets into GABY may be complex and time consuming and, if such businesses and assets are not successfully integrated, GABY may not achieve the anticipated benefits, cost-savings or growth opportunities. Furthermore, these acquisitions and other arrangements, even if successfully integrated, may fail to further GABY's business strategy as anticipated, expose GABY to increased competition or other challenges with respect to GABY's products or geographic markets, and expose GABY to additional liabilities associated with an acquired business, technology or other asset or arrangement.

When GABY acquires cannabis businesses, it may obtain the rights to applications for licenses as well as licenses; however, the procurement of such applications for licenses and licenses generally will be subject to governmental and regulatory approval, including, in the case of Miramar, BCC approval. There are no guarantees that GABY will successfully consummate such acquisitions, and even if GABY consummates such acquisitions, the procurement of applications for licenses may never result in the grant of a license by any state or local governmental or regulatory agency and the transfer of any rights to licenses may never be approved by the applicable state and/or local governmental or regulatory agency.

GABY may not be able to effectively manage its growth and operations, which could materially and

adversely affect its business.

GABY has grown by acquisition. If GABY implements its business plan as intended, it may in the future experience rapid growth and development in a relatively short period of time. The management of this growth will require, among other things, continued development of GABY's financial and management controls and management information systems, stringent control of costs, the ability to attract and retain qualified management personnel and the training of new personnel. GABY intends to utilize outsourced resources, and hire additional personnel, to manage its expected growth and expansion. Failure to successfully manage its possible growth and development could have a material adverse effect on the GABY's business and the value of the GABY Shares.

GABY’s industry is experiencing rapid growth and consolidation that may cause GABY to lose key relationships and intensify competition.

The cannabis industry and businesses ancillary to and directly involved with cannabis businesses are undergoing rapid growth and substantial change, which has resulted in an increase in competitors, consolidation and formation of strategic relationships. Acquisitions or other consolidating transactions could harm the Result in a number of ways, including by losing strategic partners if they are acquired by or enter into relationships with a competitor, losing customers, revenue and market share, or forcing GABY to expend greater resources to meet new or additional competitive threats, all of which could harm the GABY's operating results. As competitors enter the market and become increasingly sophisticated, competition in GABY’s industry may intensify and place downward pressure on retail prices for its products and services, which could negatively impact its profitability. GABY continues to sell shares for cash to fund operations, capital expansion, mergers and acquisitions that will dilute the current shareholders.

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GABY faces competition from other companies where conducts business that may have higher capitalization, more experienced management or may be more mature as a business.

The recreational cannabis and CBD market in North America is highly competitive. GABY competes with numerous other national and international competitors, some of which are very large and have substantially greater financial resources than those of GABY. These factors may result in higher trade marketing costs, discounts and/or promotional rebates used to promote the GABY's products and may affect the GABY’s revenues. GABY may also be affected by new entrants into the marketplace from the expansion or renovation of existing competitors. Failure by GABY to sustain its competitive position could adversely impact the GABY's financial performance.

An increase in the companies competing in this industry could limit the ability of GABY to expand its operations. Current and new competitors may have better capitalization, a longer operating history, more expertise and able to develop higher quality equipment or products, at the same or a lower cost. GABY cannot provide assurances that it will be able to compete successfully against current and future competitors. Competitive pressures faced by GABY could have a material adverse effect on its business, operating results and financial condition.

If GABY is unable to attract and retain key personnel, it may not be able to compete effectively in the cannabis market.

GABY's continued growth is dependent on its ability to hire, retain and develop its leaders and other key personnel. Any failure to effectively attract talented and experienced employees and to establish adequate succession planning and retention strategies could result in a lack of requisite knowledge, skill and experience. This could negatively affect GABY's ability to operate its business, which in turn, could adversely affect the GABY's reputation, operations or financial performance.

GABY’s success has depended and continues to depend upon its ability to attract and retain key management, including GABY's Chief Executive Officer, and technical experts. GABY will attempt to enhance its management and technical expertise by continuing to recruit qualified individuals who possess desired skills and experience in certain targeted areas. GABY’s inability to retain employees and attract and retain sufficient additional employees or engineering and technical support resources could have a material adverse effect on GABYs business, results of operations, sales, cash flow or financial condition. Shortages in qualified personnel or the loss of key personnel could adversely affect the financial condition of GABY, results of operations of the business and could limit GABY’s ability to develop and market its cannabis-related products. The loss of any of GABY’s senior management or key employees could materially adversely affect GABY’s ability to execute GABY’s business plan and strategy, and GABY may not be able to find adequate replacements on a timely basis, or at all. GABY does not maintain key person life insurance policies on any of GABY’s employees.

GABY is subject to uncertainty regarding legal and regulatory status and changes.

Achievement of GABY’s business objectives is also contingent, in part, upon compliance with other regulatory requirements enacted by governmental authorities and obtaining other required regulatory approvals. The regulatory regime applicable to the cannabis business in the US is currently undergoing significant proposed changes and GABY cannot predict the impact of the regime on its business once the structure of the regime is finalized. Similarly, GABY cannot predict the timeline required to secure all appropriate regulatory approvals for its products, or the extent of testing and documentation that may be required by governmental authorities. Any delays in obtaining, or failing to obtain, required regulatory approvals may significantly delay or impact the development of markets, products and sales initiatives and could have a material adverse effect on the business, results of operations and financial condition of GABY. GABY will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions on GABY’s operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to GABY’s operations, increased compliance costs or give rise to

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material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of GABY.

Business Structure Risk

GABY is a holding company and effectively all its assets are the capital stock of its subsidiaries in California. It has no material assets, except ownership of its subsidiaries. As a result, investors in GABY are subject to the risks attributable to its subsidiaries. As a holding company, GABY conducts substantially all its business through its subsidiaries, which generate substantially all of its revenues. Consequently, GABY’s cash flows and ability to complete current or desirable future enhancement opportunities are dependent on the earnings of its subsidiaries and the distribution of those earnings to GABY. To the extent that GABY requires funds, and its subsidiaries and such other entities are restricted from making such distributions by applicable law, regulation or contract, or are otherwise unable to provide such funds, it could materially adversely affect GABY’s liquidity and financial condition, as well as its ability to make distributions to its shareholders. In the event of a bankruptcy, liquidation or reorganization of any of GABY’s material subsidiaries, holders of indebtedness and trade creditors may be entitled to payment of their claims from the assets of those subsidiaries before GABY.

Product Safety

GABY's products may expose it to risks associated with product safety and integrity. GABY cannot assure that active management of these risks, including maintaining strict controls in its facilities and distribution systems, will eliminate all the risks related to food and product safety. GABY could be adversely affected in the event of a significant outbreak of food-borne illness or food safety issues including food or product tampering or contamination. Failure to trace or locate any contaminated or defective products or ingredients could affect GABY's ability to be effective in a recall situation. If any of these risks were to materialize, it could result in harm to customers, negative publicity or could adversely affect the GABY's brands, reputation, operations or financial performance and could lead to unforeseen liabilities from legal claims or otherwise.

Economic Conditions and Retail Trends

GABY's revenue and profitability are impacted by consumer discretionary spending which is influenced by general economic conditions. These economic conditions could include high levels of unemployment, political uncertainty, energy costs, natural disasters, acts of terrorism, inflation, interest rate changes, and access to consumer credit. Additionally, the CPG industry is continually evolving as consumer preferences and consumption patterns shift. As a result of evolving retail customer trends, GABY must anticipate and meet these trends in a highly competitive environment on a timely basis. GABY's failure to anticipate and react to shifting consumer trends and preferences through successful innovation could result in decreased demands for its products, which could in turn affect the financial performance of GABY.

Negative Operating Cash Flow

GABY reported negative cash flow from operations for the year ended December 31, 2019 and for the nine months ended September 30, 2020. GABY's cash flow may not be sufficient to fund its ongoing activities at all times and from time to time, GABY may require additional financing to conduct its business. There is risk that if the economy and banking industry experienced unexpected and/or prolonged deterioration, the GABY's access to additional financing may be affected. Failure to obtain such financing on a timely basis could have a material adverse effect on GABY.

There is no assurance that GABY will maintain relevant licenses.

Current and new state or local licenses obtained in the U.S. are expected to be subject to ongoing compliance and reporting requirements, as well as, in certain cases, annual renewal thereof. Failure by GABY to comply with the requirements of licenses or any failure to maintain licenses would have a material

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adverse impact on the business, financial condition and operating results of GABY. Should any jurisdiction in which GABY requires a license not issue, extend or renew such license or should it extend or renew such license on different terms, or should it decide to issue more than the total anticipated number of licenses, the business, financial condition and results of the operation of GABY could be materially adversely affected.

Cybersecurity

GABY depends on the uninterrupted operation of information technology ("IT") systems to process, transmit and store information for the operation of its business. Some of this information concerns the business, its customers or partners and may be sensitive or confidential in nature. GABY has implemented security measures to protect and prevent unauthorized access to its IT systems. However, these IT systems may still be vulnerable to an increasing number of sophisticated cyber threats and other failures such as interruptions, natural disasters, human error and other security issues.

If GABY does not allocate and effectively manage the resources necessary to build and sustain reliable IT infrastructure, fails to identify or respond to cybersecurity threats in a timely manner, or GABY's IT systems are damaged, destroyed, shut down or cease to function properly, GABY's business could be disrupted and could adversely affect GABY's reputation, operations or financial performance.

Trademark and Brand Protection

GABY believes its brands and other intellectual property are important to its success. GABY relies on common law protections of its intellectual property rights to protect its brands and products, given U.S. federal restrictions on intellectual property rights related to cannabis. GABY depends on its continued ability to use its intellectual property to increase brand awareness and further develop brands and products. GABY has taken steps to protect certain of its intellectual property. However, GABY’s proprietary rights could be challenged, circumvented, infringed or invalidated by third parties. There can be no assurance that the processes and resources invested by GABY to protect its intellectual property from third party infringement will be sufficient. Third parties may also assert or prosecute infringement claims against GABY for its use of intellectual property allegedly owned by third parties. The materialization of any of these risks could result in substantial costs, diversion of resources, the invalidation of GABY's intellectual property, or otherwise adversely affect the reputation, operations or financial performance of GABY.

Insurance

GABY has insurance to protect its assets, operations and employees. While GABY believes its insurance coverage addresses the material risks to which it is exposed and is adequate for its current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for all the risks and hazards to which GABY is exposed. If GABY were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, GABY could experience adverse impacts to its operations or financial performance.

Inventory Management

GABY is subject to risks associated with managing its inventory. Failure to successfully manage such risks could result in shortages of inventory, or excess or obsolete inventory which cannot be sold profitably or at all. Any of these outcomes could adversely affect the financial performance of GABY.

Litigation

GABY may become subject to legal proceedings, which may involve suppliers, customers, consumers, regulators, tax authorities or other persons. The potential outcome of legal proceedings and claims could result in a material adverse affect on GABY's reputation, operations or financial performance.

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Third Party Risk

GABY has a variety of key business relationships with third parties including vendors, suppliers, distributors, retailers and contractors. GABY has no direct influence on the operation or management of such third parties. Negative events affecting such third parties could adversely impact GABY's reputation, operations or financial performance. Additionally, the loss or disruption on any of GABY's supply or distribution network could interrupt product supply. If not effectively managed or remedied, this could negatively impact GABY's ability to attract and retain customers, and could adversely affect GABY's reputation, operations or financial performance.

Supply of Raw Materials

GABY's costs are directly impacted by fluctuations in the prices of raw materials that it processes into finished products. Fluctuations in raw material prices can therefore drive GABY's financial results upward or downward and may materially impact GABY's financial performance.

GABY’s officers and directors may be engaged in a range of business activities resulting in conflicts of interest.

GABY may be subject to various potential conflicts of interest because some of its officers and directors may be engaged in a range of business activities. In addition, GABY’s executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to GABY. In some cases, GABY’s executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to GABY’s business and affairs and that could adversely affect GABY’s operations. These business interests could require significant time and attention of GABY’s executive officers and directors.

In addition, GABY may also become involved in other transactions which conflict with the interests of its directors and the officers who may from time to time deal with persons, firms, institutions or companies with which GABY may be dealing, or which may be seeking investments similar to those desired by it. The interests of these persons could conflict with those of GABY. In addition, from time to time, these persons may be competing with GABY for available investment opportunities. Conflicts of interest, if any, will be subject to the procedures and remedies provided under applicable laws. In particular, if such a conflict of interest arises at a meeting of GABY’s directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, the directors of GABY are required to act honestly, in good faith and in the best interests of GABY.

In certain circumstances, GABY’s reputation could be damaged.

Damage to GABY’s reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views regarding GABY and its activities, whether true or not. Although GABY believes that it operates in a manner that is respectful to all stakeholders and that it takes care in protecting its image and reputation, GABY does not ultimately have direct control over how it is perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to GABY’s overall ability to advance its projects, thereby having a material adverse impact on financial performance, financial condition, cash flows and growth prospects.

No guarantee on the use of available funds by GABY.

GABY cannot specify with certainty the particular uses of available funds. Management has broad discretion in the application of its available funds. GABY’s management may spend a portion or all of the available funds in ways that GABY’s shareholders might not desire, that might not yield a favourable return and that

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might not increase the value of a purchaser’s investment. The failure by management to apply these funds effectively could harm GABY’s business. Pending use of such funds, GABY might invest the proceeds in a manner that does not produce income or that loses value.

Regulatory Regime

The business and activities of GABY are heavily regulated in all jurisdictions where it carries on business. GABY’s operations are subject to various laws, regulations and guidelines by governmental authorities. Laws and regulations, applied generally, grant government agencies and self-regulatory bodies broad administrative discretion over the activities of GABY, including the power to limit or restrict business activities as well as impose additional disclosure requirements on GABY’s products and services. Achievement of GABY’s business objectives is contingent, in part, upon compliance with regulatory requirements enacted by governmental authorities and obtaining all regulatory approvals, where necessary, for the sale of its products. GABY cannot predict the impact of the compliance regime that is implementing for the United States cannabis industry. Similarly, GABY cannot predict the time required to secure all appropriate regulatory approvals for its products, or the extent of testing and documentation that may be required by governmental authorities. Any delays in obtaining, or failure to obtain regulatory approvals would significantly delay the development of markets and products and could have a material adverse effect on the business, results of operations and financial condition of GABY.

GABY will incur ongoing costs and obligations related to regulatory compliance in the United States. Failure to comply with regulations may lead to possible sanctions including the revocation or imposition of additional conditions on licenses to operate GABY’s business, the suspension or expulsion from a particular market or jurisdiction or of its key personnel, and the imposition of fines and censures. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to GABY’s operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of GABY.

Changes in Laws, Regulations and Guidelines

GABY’s operations are subject to various laws, regulations, guidelines and licensing requirements in the United States. While, with the exception of United States federal laws and regulations which continue to classify cannabis as a Schedule I controlled substance, GABY is in compliance with all such laws, any changes to such laws, regulations, guidelines and policies due to matters beyond the control of GABY could have a material adverse effect on GABY’s business, results of operations and financial condition. Additionally, as noted above, cannabis remains a Schedule I controlled substance under United States federal law, and GABY’s activities in the states of the United States in which GABY operates may constitute a violation of United States federal criminal laws applicable to such conduct, including, but not limited to, the Controlled Substances Act and anti-money laundering laws.

GABY is subject to certain legal constraints in marketing its products

The development of GABY’s business and operating results may be hindered by applicable restrictions on sales and marketing activities imposed by government regulatory bodies. The regulatory and legal environments in the United States, particularly the existence of federal criminal laws that may prohibit certain marketing of cannabis products, limits companies’ abilities to compete for market share in a manner similar to other industries. If GABY is unable to effectively market its products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed through increased selling prices for its products, GABY’s sales and results of operations could be adversely affected.

Cannabis Continues to be a Controlled Substance under the Controlled Substances Act

GABY is directly engaged in the medical and adult-use cannabis industry in the U.S. in California, which remains illegal under U.S. federal law. Cannabis continues to be categorized as a Schedule I controlled

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substance under the federal Controlled Substances Act. A Schedule I drug is considered to have a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the substance under medical supervision. Federal law prohibits commercial production and sale of Schedule I controlled substances, and as such, cannabis-related activities, including without limitation, the importation, cultivation, manufacture, distribution, sale and possession of cannabis remain illegal under U.S. federal law. It is also illegal to aid or abet such activities or to conspire or attempt to engage in such activities. Strict compliance with state and local laws with respect to cannabis may neither absolve GABY of liability under U.S. federal law, nor provide a defense to any federal proceeding brought against GABY. An investor’s contribution to and involvement in such activities may result in federal civil and/or criminal prosecution, including, but not limited to, forfeiture of his, her or its entire investment, fines, and/or imprisonment. Although the Cole Memorandum has been rescinded, the United States Congress has repeatedly enacted legislation to protect the medical marijuana industry from prosecution.

Violations of any federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges and penalties, including, but not limited to, disgorgement of profits, cessation of business activities, divestiture, forfeiture of property or funds or prison time. This could have a material adverse effect on GABY, including its reputation and ability to conduct business, its holding (directly or indirectly) of medical and adult use cannabis licenses in the U.S., the listing of its securities on the CSE, its financial position, operating results, profitability or liquidity or the market price of its publicly traded shares. In addition, it is difficult for GABY to estimate the time or resources that would be needed for the investigation or defense of any such matters or its final resolution because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial.

Should the federal government in the United States change course and decide to prosecute those dealing in medical or adult-use cannabis under applicable law, there may not be any market for GABY’s products and services in the United States.

GABY is operating at a regulatory frontier. The cannabis industry is a new industry that may not succeed.

Cannabis is a new industry subject to extensive regulation, and there can be no assurance that it will grow, flourish or continue to the extent necessary to permit us to succeed. We are treating the cannabis industry as a deregulating industry with significant unsatisfied demand for our proposed products and will adjust our future operations, product mix and market strategy as the industry develops and matures.

Risks Associated with Banking, Financial Transactions, and Anti-Money Laundering Laws and Regulations

GABY is subject to a variety of laws and regulations domestically and in the U.S. that involve money laundering, financial recordkeeping and proceeds of crime, including the Bank Secrecy Act , as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, the Criminal Code (Canada) and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the U.S. and Canada. Since the cultivation, manufacture, distribution and sale of cannabis remains illegal under the Controlled Substances Act , banks and other financial institutions providing services to cannabis-related businesses risk violation of federal anti-money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money-remitter statute (18 U.S.C. § 1960) and the Bank Secrecy Act , among other applicable federal statutes. Banks or other financial institutions that provide cannabis businesses with financial services such as a checking account or credit card in violation of the Bank Secrecy Act could be criminally prosecuted for willful violations of money laundering statutes, in addition to being subject to other criminal, civil, and regulatory enforcement actions. Banks often refuse to provide banking services to businesses involved in the cannabis industry due to the present state of the laws and regulations governing financial institutions in the U.S. The lack of banking and financial services presents unique and significant challenges to businesses in the cannabis industry. The potential lack of a

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secure place in which to deposit and store cash, the inability to pay creditors through the issuance of checks and the inability to secure traditional forms of operational financing, such as lines of credit, are some of the many challenges presented by the unavailability of traditional banking and financial services. These statutes can impose criminal liability for engaging in certain financial and monetary transactions with the proceeds of a “specified unlawful activity” such as distributing controlled substances which are illegal under federal law, including cannabis, and for failing to identify or report financial transactions that involve the proceeds of cannabis-related violations of the Controlled Substances Act . GABY may also be exposed to the foregoing risks.

For additional discussion of the risk factors applicable to GABY, please refer to the "Risk Factors" section of the MD&A attached to this Listing Statement as Schedule “B” – Interim MD&A and Schedule “D” – Annual MD&A .

18. Promoters

18.2 Promoters

Margot Micallef took the initiative in founding and organizing GABY and so is considered to be a promoter of GABY.

As of the date of this Listing Statement, Ms. Micallef directly owns 68,132,756 GABY Shares representing 10.5% of the issued and outstanding GABY Shares on a non-diluted basis after giving effect to the Transaction.

See Item 15 – Executive Compensation.

18.3 Cease Trade Orders or Bankruptcies, Penalties or Sanctions, Personal Bankruptcies

See Item 13.6-13.9 - Corporate Cease Trade Orders or Bankruptcies; Penalties or Sanctions; Personal Bankruptcies – Cease Trade Orders .

19. Legal Proceedings

19.2 Legal Proceedings

Not applicable.

19.3 Regulatory Actions

Not applicable.

20. Interest of Management and Others in Material Transactions

None of GABY 's directors, executive officers or shareholders, owning or exercising control or direction over more than 10% of the common shares, or any associate or affiliate of the foregoing, has had any material interest, direct or indirect, in any transaction within the three most recently completed financial years or during the current financial year prior to the date of this Listing Statement that has materially affected GABY or is reasonably expected to materially affect GABY.

Management Contracts

In 2018, 2019 and 2020, Management Services Agreements were in place as follows:

Throughout 2018, 2019 and 2020, GABY retained the services of its Chief Executive Officer, Margot M. Micallef, for $200,000 per year either directly from Ms. Micallef or through management
73 -

services agreement with Oliver Capital Partners Inc. ("Oliver"), pursuant to which Oliver ~~a~~ greed to provide the services of its President, Margot Micallef, as Chief Executive Officer of GABY. All compensation was paid or payable to Oliver, other than $68,000 from 2020 which was paid or payable directly to Ms. Micallef. GABY has not entered into any non-competition or non-disclosure agreement with Oliver. Monthly payments for Ms. Micallef's services from November 2019 onwards were deferred and are expected to be paid in 2021.

From July 2018 to December 2020, GABY had a management services agreement with 891310 Alberta Ltd., pursuant to which 891310 Alberta Ltd. has agreed to provide the services of its officer, Jackie Altwasser, as Director of and Financial Advisor to GABY. The compensation paid for these services was $5,000 per month up to the period ending December 2019. In 2020, payments were made in restricted share units, in the amount of 4,000,000 RSUs.
In 2018, GABY had entered into a management services agreement with Sagamore Capital Advisors, LLC., pursuant to which Sagamore Capital Advisors, LLC. agreed to provide the services of its managing director, Vincent Micallef, as President and Chief Financial Officer of GABY. As compensation for the services provided under the management services agreement, GABY was required to pay Sagamore Capital Advisors, LLC $100,000 per year. GABY has not entered into any non-competition or non-disclosure agreement with Sagamore Capital Partners LLC. Effective January 1, 2019, and the management services agreement with Sagamore Capital Partners LLC was terminated.
In October 2018, GABY entered into a management services agreement with CC&H Management Advisors LLC, pursuant to which CC&H Management Advisors LLC agreed to provide the services of its officer, John Shaw, as Senior Vice President of North American Sales of GABY's food division. As compensation for the services provided under the management services agreement, GABY was required to pay CC&H Management Advisors LLC USD$170,000 per year. The management services agreement with CC&H Management Advisors LLC was terminated effective April 4, 2019.
In 2019 GABY entered into a management services agreement with Putnam Marketing Solutions ("PMS"), pursuant to which PMS agreed to provide the services of its officer, Maureen Putnam as Chief Marketing Advisor. The compensation for services provided under the management services agreement amounted to USD$60,144 (CAD$77,872) in 2019.

21. Auditors, Transfer Agents and Registrars

21.2 Auditors

GABY’s auditor for the year ended December 31, 2020 was Davidson & Company LLP. Davidson & Company LLP is independent within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Alberta.

Miramar's auditor for the year ended September 30, 2020 was Davidson & Company LLP. Davidson & Company LLP is independent within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Alberta.

21.3 Registrar and Transfer Agent

The transfer agent and registrar of GABY and of the Resulting Issuer is Odyssey Trust Company at its offices in Calgary, Alberta.

22. Material Contracts

The Definitive Agreement is a material contract, and is available on GABY’s profile at www.sedar.com. Other than as disclosed in the Financial Statements and described herein, GABY has not entered into any

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material contracts. See Schedule “A” – Interim Financial Statements; Schedule “C” – 2019 Annual Financial Statements ; Schedule “E” – 2018 Annual Financial Statements ; Schedule “F” – 2017 Annual Financial Statements .

23. Interest of Experts

The financial statements of GABY included in this Listing Statement have been audited by Davidson & Company LLP, as set forth in their audit reports. Davidson & Company LLP are independent auditors of GABY and are independent within the meaning of the Rules of Professional Conduct of the Chartered Accountants of Alberta.

The financial statements of Miramar included in this Listing Statement have been audited by Davidson & Company LLP.

Other than as disclosed in Item 13.10 - Directors and Officers – Conflicts of Interest and Item 20 – Interests of Management and Others in Material Transactions , no person or company who is named as having prepared or certified a part of this Listing Statement or prepared or certified a report or valuation described or included in this Listing Statement has any direct or indirect interest in GABY.

24. Other Material Facts

Not applicable.

25. Financial Statements

The following documents of GABY and Miramar and the Resulting Issuer are appended hereto in the following Schedules:

GABY’s Interim financial statements as Schedule “A”;
GABY’s Interim MD&A as Schedule “B”;
GABY’s Annual financial statements for the financial year ended December 31, 2019Schedule “C”;
• GABY’s Annual MD&A as Schedule “D”;
GABY’s Annual financial statements for the financial year ended December 31, 2018 as Schedule “E”;
GABY’s Annual financial statements for the financial year ended December 31, 2017 as Schedule “F”;
Miramar’s audited financial statements for the financial year ended September 30, 2020 as Schedule “G”;
Miramar’s Annual MD&A as Schedule “H”;
Miramar’s interim financial statements for the three month period ended December 31, 2020 as Schedule “I”;
Miramar’s Interim MD&A as Schedule “J”; and
Pro Forma consolidated financial statements as Schedule “K”.

GABY CERTIFICATE

The foregoing contains full, true and plain disclosure of all material information relating to GABY Inc. It contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in light of the circumstances in which it was made.

Dated at Calgary, Alberta this 21th day of April, 2021.

(Signed) " Margot Micallef " (Signed) " Leanne Likness Swanson " Margot Micallef Leanne Likness Swanson Chief Executive Officer Corporate Secretary

(Signed) " Jackie Altwasser " (Signed) " Robert Travis " Jackie Altwasser Robert Travis Director Director

C-1

MIRAMAR CERTIFICATE

The foregoing contains full, true and plain disclosure of all material information relating to Miramar. It contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to prevent a statement that is made from being false or misleading in light of the circumstances in which it was made.

Dated at San Diego, California this 21th day of April, 2021.

(Signed) " James Schmachtenberger " (Signed) " Vera Leavitt " James Schmachtenberger Vera Leavitt CEO and Co-Founder Officer (Signed) " Dana Gagnon " (Signed) " Ken Hanaoka " Dana Gagnon Ken Hanaoka Director Director

C-2

SCHEDULE “A” – GABY Interim Financial Statements

(See attached)

A - 1

GABY INC.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (in Canadian dollars)

1 | P a g e G A B Y I n c .

GABY INC.

Condensed Interim Consolidated Statements of Financial Position

GABY INC. Condensed Interim Consolidated Statements of Financial Position
	(Unaudited) (Audited)
	September 30, December 31,
*In Canadian dollars* Note	2020 2019
ASSETS Current Cash Accounts receivable Inventories Prepaid expenses and deferred costs	123,052 698,951 1,199,410 2,088,201 407,437 1,471,410 147,081 750,338
Non‐current Property and equipment 3 Intangible assets and goodwill Securitydeposits	1,876,980 5,008,900 1,206,239 7,384,948 7,668,230 7,217,874 23,074 253,817
Total assets	10,774,523 19,865,539
LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Bank indebtedness 5 Accounts payable and accrued liabilities 4 Income taxes payable Short‐term notes payable 6 Current portion of lease liabilities 9 Currentportion of long‐term debt 10	152,080 ‐ 6,317,756 4,207,012 52,615 48,349 93,254 207,424 66,449 406,068 84,994 80,118
Current liabilities before the following: Promissory notes payable 4,7 Convertible debentures 4,8	6,767,148 4,948,971 1,190,400 1,463,179 649,242 635,255
Non‐current liabilities Lease liabilities 9 Long‐term debt 10 Deferred tax liability	8,606,790 7,047,405 610,495 6,342,261 233,798 177,592 179,602 347,194
Total liabilities SHAREHOLDERS’ EQUITY Share capital 12 Contributed surplus 12 Deficit Accumulated other comprehensive income(loss)	9,630,685 13,914,452 44,785,613 43,068,525 5,627,520 5,373,688 (49,278,138) (41,943,032) 8,843 (548,094)
	1,143,838 5,951,087
Total liabilities and shareholders’ equity	10,774,523 19,865,539
Going concern 1 Subsequent events 24

See accompanying notes to the condensed interim consolidated financial statements

3 | P a g e G A B Y I n c .

GABY INC.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(Unaudited) *In Canadian dollars* Note	Three months ended September 30, Nine months ended September 30,	Three months ended September 30, Nine months ended September 30,
	2020	2019 2020 2019
CONTINUING OPERATIONS
REVENUE COST OF SALES Direct inventorycosts 13	806,699	5,793,974 2,995,955 7,980,976 5,481,850 2,717,994 7,432,597

	678,471
Variablegrossprofit	128,228	312,124 277,961 548,379
Allocated indirect costs 14 Distribution costs	51,903	165,597 247,077 337,209 ‐ 210,220 ‐
	53,828
Total cost of sales	784,202	5,647,447 3,175,291 7,769,806
Gross profit (loss) Selling, general and administrative expenses 15 Share‐based compensation and expenses 11 Depreciation ofplant and equipment	22,497	146,527 (179,336) 211,170 2,915,766 5,274,847 7,819,613 328,907 182,745 708,259 170,748 282,211 234,205
	1,393,110
	148,353
	28,044
Loss from operations before the following:	(1,547,010)	(3,268,894) (5,919,139) (8,550,907)
Interest expense Interest income Other items of income(expense) 16	(72,549)	(199,733) (446,438) (467,923) 23 ‐ 3,851 1,749,228 (48,034) 1,589,434
	‐
	148,340
Total other income(expense)	75,791	1,549,518 (494,472) 1,125,362
Loss before income tax expense(recovery)	(1,471,219)	(1,719,376) (6,413,611) (7,425,545)
Current income tax expense Deferred income tax recovery	‐	40,287 5,565 140,238 (48,060) (179,718) (158,877)
	(80,255)
Income tax expense(recovery)	(80,255)	(7,773) (174,153) (18,639)
Net loss from continuing operations	(1,390,964)	(1,711,603) (6,239,458) (7,406,906)
DISCONTINUED OPERATIONS Net loss from discontinued operations 18		(636,316) (1,095,648) (2,292,655)
	(145,116)
Net loss Other comprehensive income (loss) Items that may be reclassified to net profit in the future: Exchange difference on translation 2 Reclassified to net profit in the current period: Divestiture of subsidiary	(1,536,080)	(2,347,919) (7,335,106) (9,699,561) (124,713) 556,937 (247,996) (94,525) ‐ (94,525)



	(156,829)

	‐
Total comprehensive loss	(1,692,909)	(2,567,157) (6,778,169) (10,042,082)
Net lossper share:

Basic and diluted 17	($0.01)	($0.01) ($0.03) ($0.07)

See accompanying notes to the condensed interim consolidated financial statements

4 | P a g e G A B Y I n c .

GABY INC.

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

							Accumulated
(Unaudited) *In Canadian dollars*	Note	Share issuance obligation	Share capital	Contributed surplus	Deficit		other comprehensive income(loss)		Total
Balance as at
December 31, 2018		511,200	18,218,110	1,270,663	(19,154,623)		125,381		970,731
Net and
comprehensive loss		‐	‐	‐	(9,794,086)		(247,996)		(10,042,082)
Reclassification of
comprehensive loss		‐	‐	‐	94,525		(94,525)		‐
Settlement of share‐	12
issuance obligation		(511,200)	511,200	‐		‐		‐	‐
Issuance of Units		‐	17,977,518	1,997,502		‐		‐	19,975,020
Equity issuance costs	12	‐	(1,339,710)	‐		‐		‐	(1,339,710)
Issued on business
acquisition		‐	4,830,000	‐		‐		‐	4,830,000
Warrant exercise		‐	216,286	(2,236)		‐		‐	214,050
Share‐based
compensation		83,333	250,000	177,017		‐		‐	510,350
Stock option expense	11	‐	‐	634,303		‐		‐	634,303
Forfeiture of stock
options		‐	‐	(123,254)		‐		‐	(123,254)
Issuance of warrants
with convertible
debentures	12	‐	‐	81,900		‐		‐	81,900
Issuance of warrants
withpromissorynotes		‐	‐	40,625		‐		‐	40,625
Returned to treasury		‐	(457,892)	‐		‐		‐	(457,892)
Balance as at
September 30, 2019		83,333	40,205,512	4,076,520	(28,854,184)		(217,140)		15,294,041
Balance as at
December 31, 2019		‐	43,068,525	5,373,688	(41,943,032)		(548,094)		5,951,087
Net loss and
comprehensive income		‐	‐	‐	(7,335,106)		556,937		(6,778,169)
Issuance of shares to	12
settle debts		‐	1,467,088	‐		‐		‐	1,467,088
Issuance of	12
subscription shares		‐	250,000	‐		‐		‐	250,000
Stock option and RSU	11
expense		‐	‐	265,127		‐		‐	265,127
Other share‐based
compensation		‐	‐	(11,295)		‐		‐	(11,295)
Balance as at
September 30, 2020		‐	44,785,613	5,627,520	(49,278,138)		8,843		1,143,838

See accompanying notes to the condensed interim consolidated financial statements

5 | P a g e G A B Y I n c .

GABY INC.

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited) *In Canadian dollars* Note	Three months ended September 30, Nine months ended September 30,
	2020 2019 2020 2019
OPERATING ACTIVITIES Net loss Adjustments to reconcile net loss to cash flow from operations: Deferred income tax recovery Depreciation 3 Amortization of intangible assets Interest expense Interest income Share‐based compensation 11 Unrealized foreign exchange loss (gain) Other adjustments 19	(1,536,080) (2,347,919) (7,335,106) (9,699,561) (80,255) (48,060) (179,718) (158,877) 60,982 260,700 403,964 521,068 ‐ 4,560 ‐ 13,530 69,455 213,120 455,380 510,452 ‐ ‐ ‐ (3,828) 278,353 328,907 312,745 708,259 2,278 (308,644) 34,607 (148,850) (274,177) (1,542,996) (356,994) (1,542,996)
Cash used in operating activities before the following: Net change in non‐cash working capital related to operations	(1,475,725) (3,440,332) (6,661,403) (9,800,803) 1,230,345 (3,768,901) 4,992,688 (5,750,420)
Cash used in operating activities 18	(245,379) (7,209,233) (1,668,715) (15,551,223)
INVESTING ACTIVITIES Purchase of property and equipment 3 Purchase of intangible assets Proceeds from sale of property and equipment Issuance of notes receivable Cash purchased in acquisition Cash disposed in divestiture Deposits paid Deposit refunds received	‐ (595,493) (6,565) (721,284) ‐ (459,760) ‐ (459,760) 24,434 ‐ 109,895 ‐ ‐ ‐ ‐ (500,175) ‐ ‐ ‐ 168,348 ‐ (5,655) ‐ (5,655) ‐ (181,800) (1,747) (219,745) ‐ 1,595 ‐ 1,595
Cashgenerated(used) in investing activities 18	24,434 (1,241,113) 101,583 (1,736,676)
FINANCING ACTIVITIES Proceeds on convertible debentures 8 Issuance costs paid – convertible debentures 8 Proceeds on promissory notes Proceeds on long‐term debt 10 Advances from related parties 4 Repayment of long‐term debt Repayment of lease liabilities Repayment of promissory notes, debentures Issuance of share capital 12 Issuance of share capital ‐ warrant exercise Equity issuance costs Interest paid	‐ ‐ ‐ 1,300,000 ‐ ‐ ‐ (8,019) ‐ ‐ 705,788 2,100,000 336,091 ‐ 376,091 ‐ 6,000 (64,845) 6,000 (161,453) (30,605) (27,286) (65,380) (31,778) (18,668) (183,997) (145,946) (321,595) ‐ (381,000) ‐ (2,112,992) ‐ ‐ 250,000 19,975,020 ‐ 12,400 ‐ 214,050 ‐ ‐ ‐ (1,089,696) (9,928) (250,620) (291,081) (348,782)
Cashgenerated(used) in financing activities 18	282,890 (895,348) 835,472 19,514,755
Foreign currencytranslation adjustment	(23,972) 73,663 3,681 (16,460)
Net change in cash Cash(Bank indebtedness), beginning ofperiod	37,973 (9,272,031) (727,979) 2,210,396 (67,001) 11,536,085 698,951 53,658
Cash(Bank indebtedness), end ofperiod 5	(29,028) 2,264,054 (29,028) 2,264,054

6 | P a g e G A B Y I n c .

GABY INC.

Condensed Interim Consolidated Statements of Cash Flows ‐ Continued

(Unaudited) *In Canadian dollars* Note	As at September 30,
	2020 2019
CASH (BANK INDEBTEDNESS) CONSISTS OF: Cash Bank indebtedness	123,052 2,264,054 (152,080) ‐
	(29,028) 2,264,054

See accompanying notes to the condensed interim consolidated financial statements See Note 20 for detail of non‐cash transactions and Note 18 for detail of cash flows from discontinued operations

7 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

NATURE OF BUSINESS

On September 4, 2019, Gabriella's Kitchen Inc. changed its name to GABY Inc. (“GABY” or "the Corporation"). GABY is incorporated in Canada under the Business Corporations Act of Alberta. The Corporation’s registered office is 200, 209 – 8th Avenue SW, Calgary, Alberta T2P 1B8, Canada and it trades on the Canadian Securities Exchange (“CSE”) under the symbol GABY and on the OTCQB under the symbol GABLF. The Corporation is a wellness focused company that packages and/or markets for its own proprietary brands as well as for third parties a variety of cannabis products, including: flower, concentrates, pre‐rolls, edibles, topicals, tinctures, and other products derived from or infused with cannabis or hemp. As of the end of March 2020, GABY’s business is focused in the United States of America (“USA”). Prior to March 2020, GABY also produced and marketed health food products in the USA and Canada (see Note 18 in respect of the shuttering of traditional food operations) and prior to April 1, 2019, this comprised substantially all of the Corporation’s business activity. Thereafter, through acquisitions, the Corporation now produces, markets, and distributes cannabis‐related CPG in the USA.

1. GOING CONCERN

These condensed interim consolidated financial statements for the three and nine months ended September 30, 2020 and 2019 (“Financial Statements”) have been prepared using International Financial Reporting Standards (“IFRS”) applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due. The Corporation’s holdings are in the initial growth stage of the business life cycle and have not yet reached a profitable level of operations. Further, certain of the Corporation’s operations are in the USA cannabis sector which has been legalized by certain USA states but remains federally illegal and is subject to legislative uncertainty.

For the nine months ended September 30, 2020 the Corporation had a net loss of $7.3 million and negative cash flow from operations of $1.7 million. For the year ended December 31, 2019, the Corporation had a net loss of $22.8 million and negative cash flow from operations of $17.3 million. As at September 30, 2020 the working capital deficit was $6.7 million. Management is continuing to address the need to increase revenue and control costs with the goal of becoming profitable on a run‐rate basis by the end of 2020. This focus included the shuttering of traditional food operations as described in Note 18. To date, management has obtained bridge financing as described in Note 7 and government loans as described in Note 10 while it works to secure longer‐term financing. The novel coronavirus (“COVID‐19”) was declared a pandemic by the World Health Organization and has caused significant uncertainty. It is difficult to reliably measure the potential impact of this uncertainty on GABY’s future results.

Historically, the Corporation has had operating losses, negative cash flows from operations and working capital deficiencies. Whether, and when, the Corporation can attain profitability and positive cash flows from operations is uncertain. These uncertainties cast significant doubt upon the Corporation’s ability to continue as a going concern.

The Corporation will need to raise capital to fund its operations. While the Corporation has been successful in raising capital in the past, there can be no assurance that it will be able to do so in the future. The ability to raise capital may be adversely impacted by uncertain market conditions, including the impact of COVID‐19. To address its financing requirements, the Corporation will seek financing through debt and equity financings, asset sales, and rights offerings to existing shareholders. The outcome of these matters cannot be predicted at this time.

8 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

Should the Corporation be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they come due. These Financial Statements do not reflect adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the Corporation was unable to realize its assets and settle its liabilities as a going concern in the normal course of operation. These adjustments could be material.

2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Statement of compliance

These Financial Statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee.

These Financial Statements were approved and authorized for issue by the Corporation’s board of directors (“Board”) on November 25, 2020.

Basis of presentation

These Financial Statements have been prepared under the historical cost convention, except for financial instruments classified as financial instruments at fair value through profit and loss, which are stated at their fair value, and are expressed in Canadian dollars unless otherwise indicated. Other measurement bases used are detailed in the Corporation’s annual consolidated financial statements (“Annual Financial Statements”).

Certain comparative figures have been reclassified to conform to the current year’s presentation.

The notes presented in these Financial Statements include only significant events and transactions occurring since the Corporation’s last fiscal year end and are not fully inclusive of all matters required to be disclosed by IFRS in the Corporation’s annual consolidated financial statements. As a result, these Financial Statements should be read in conjunction with the Annual Financial Statements.

These Financial Statements follow the same accounting policies and methods of application as the most recent Annual Financial Statements except as noted below.

Foreign Currency Translation

In the most recent Annual Financial Statements, it was disclosed that the functional currency of one of the subsidiaries, Gabriella’s Kitchen LLC, was the Canadian dollar. The functional currency was re‐evaluated in 2020 and it was determined that given the change in operations of the consolidated entity, including the shift to US dollar operations and the discontinuance of the Canadian operations, the functional currency is now the US dollar effective January 1, 2020. Accordingly, the transactions and balances of Gabriella’s Kitchen LLC are now translated in the same manner as the other subsidiaries. As a result of this change, the translation loss of $64,198 was included in other comprehensive income rather than a translation loss of $72,845 being included in net loss.

Accounting for Government Assistance

9 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

only when there is reasonable assurance that (a) the Company will comply with any conditions attached to the grant and (b) the grant will be received. Government assistance income is recognized in profit or loss on a systematic basis over the periods in which the Company recognizes the expense for the related costs for which the grants and/or subsidies are intended to compensate, if applicable. If the assistance does not relate to any specific expenditures or asset purchases, the income is recognized in full once the recognition criteria are met.

3. PROPERTY AND EQUIPMENT

	Net book value of Property and equipment
In$	Right of use assets ‐ facilities Right of use assets ‐ equipment Assets under finance lease All other property and equipment Total
Balance as at December 31, 2018 Jan 1, 2019 adoption of IFRS 16 Additions Acquired on business acquisition Divestiture Depreciation Effect of foreign exchange	‐ ‐ 163,877 370,151 534,028 851,416 163,877 (163,877) ‐ 851,416 5,932,236 ‐ ‐ 1,008,783 6,941,019 695,977 ‐ ‐ 40,667 736,644 (471,758) ‐ ‐ (168,396) (640,154) (324,366) (55,422) ‐ (141,280) (521,068) (19,772) ‐ ‐ (6,310) (26,082)
Balance as at September 30,2019	6,663,733 108,455 ‐ 1,103,615 7,875,803
Balance as at December 31, 2019 Additions Disposals Depreciation Effect of foreign exchange	6,471,210 56,579 ‐ 857,159 7,384,948
	‐ ‐ ‐ 6,565 6,565
	(5,941,525) (56,579) ‐ (132,696) (6,130,800)
	(269,431) ‐ ‐ (134,533) (403,964)
	311,701 ‐ ‐ 37,789 349,490
Balance as at September 30,2020	571,955 ‐ ‐ 634,284 1,206,239

10 | P a g e G A B Y I n c .

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

GABY INC.

4. RELATED PARTY TRANSACTIONS

These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. No amounts are owing to or owing from the related parties in respect of the transactions unless otherwise referenced in the table below.

In $ a. Amounts included in Selling, general and administrative expenses:	Three months ended Nine months ended
	Sep 30, 2020 Sep 30, 2019 Sep 30, 2020 Sep 30, 2019
Compensation of key management personnel (“KMP”)1 Cash compensation for services provided by separate management entities Cash compensation to individuals Share‐based compensation,net of forfeitures	30,000 52,610 103,333 277,991 21,333 119,797 305,157 450,737 83,871 83,668 49,144 354,812
Total compensation of KMP Other expenses on behalf of the Corporation by an entity controlled by a director and officer Consulting fees to a company controlled by close family of certain KMP Rent paid to a company controlled by certain KMP b. Amounts included in Cost of sales: Royalty and licensing fees paid to a company controlled by a close family member of certain KMP c. Amounts included in Interest expense: Interest on convertible debentures to directors and entities controlled by directors Interest on convertible debenture to a company controlled by close family of certain KMP Interest paid to directors in respect of short‐term promissorynotes	135,205 256,075 457,634 1,083,540 39,190 23,034 77,910 221,820 45,000 ‐ 135,000 ‐ ‐ 10,968 10,968 32,905 ‐ ‐ ‐ 16,915 3,771 4,875 11,230 22,407 ‐ ‐ ‐ 2,328 17,969 723 50,566 2,475
d. Advances from related parties, net Short‐term advance from an officer and director	6,000 ‐ 6,000 ‐
e. Due to relatedparties included in statement of financialposition Note Sep 30, 2020 Dec 31, 2019
Included in Promissory notes payable: To directors, entities controlled by directors, close family member of a director 7 762,875 698,693 Included in convertible debentures: To entity controlled by certain KMP 100,000 100,000 Included in accounts payable and accrued liabilities Compensation payable to KMP or their separate management entities 254,472 91,875 Other amounts due to KMP (including advance in d. above) 14,575 39,621 Interest payable in respect of c) above 16,202 4,973 Rent payable to a company controlled by certain KMP 15,356 3,839 Consulting fees payable to a company controlled by close family of certain KMP ‐ 15,750 Amounts due on reimbursements of other expenses in a)above 152,338 108,326

1 KMP consist of those that have the authority and responsibility for planning, directing and controlling the activities of the Corporation, which includes the most senior executive team and the Board (C‐suite executives and the Board).

11 | P a g e G A B Y I n c .

In Canadian dollars, unless otherwise stated (Unaudited)

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

5. BANK INDEBTEDNESS

Until September 2020, a demand operating loan was authorized by TD Canada Trust to a maximum of $150,000 (2019 ‐ $150,000), which bears interest at the bank's prime lending rate plus 3.00% per annum and is secured by a general security agreement and an assignment of insurance. The prime rate at September 30, 2020 was 2.45% (December 31, 2019 ‐ 3.95%). In light of the Corporation’s involvement with the US cannabis industry, the bank closed the operating loan account in September 2020 with an amount owing of $152,080. As at the date of the Financial Statements, the bank has granted the Corporation additional time to repay the loan.

6. SHORT‐TERM NOTES PAYABLE

6. SHORT‐TERM NOTES PAYABLE
	In $
	Sep 30, 2020 Dec 31, 2019
Non‐interest bearing Promissory notes payable of USD 70,000 due on closing of next financing transaction undertaken by the Corporation generating proceeds of at least $500,000 Otherpromissorynotespayable of USD 90,000	93,254 90,748 ‐ 116,676
	93,254 207,424

7. PROMISSORY NOTES PAYABLE

	In $
	Sep 30, 2020 Dec 31, 2019
Due to related parties: Note USD note payable, including interest accrual of $nil (Dec 31, 2019 ‐ $6,758) a Note payable, including interest accrual of $19,333 (Dec 31, 2019 ‐ $617) b Note payable, including interest accrual of $4,691 (2019 ‐ n/a) c USD notes payable, including interest accrual of $9,980 (2019 ‐ n/a) d Notespayable,includinginterest accrual of $13,934(2019 – n/a) e	‐ 448,076 269,333 250,617 89,691 ‐ 169,917 ‐ 233,934 ‐
Promissory notes payable to related parties Due to others: Note payable, including interest accrual of $2,822 (Dec 31, 2019 ‐18,233) f Notes payable, including interest accrual of $68,774 (Dec 31, 2019 ‐ $46,253) g Notepayable,includinginterest accrual of$5,929(2019 –n/a) h	762,875 698,693 2,822 468,233 318,774 296,253 105,929 ‐
	1,190,400 1,463,179

a) The promissory note was for a principal amount of USD 340,500 that was payable on demand to a company controlled by an officer and director of the Corporation. The note accrued interest, which is payable monthly in arrears, at a rate of 10% per annum on the unpaid portion of the principal until the principal is repaid in full. The promissory note plus interest was repaid through issuance of treasury common shares in January 2020 as described in Note 12.
b) The promissory note, payable to a director of the Corporation, accrues interest, which is payable monthly in arrears, at a rate of 10% per annum on the unpaid portion of the principal until the principal is repaid in full. The note matures on the earlier of the first business day following the date on which the Corporation receives
12 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

proceeds of an equity or debt financing in excess of $5 million; and an initial term ended September 30, 2020 which has ended and is now payable on demand.

c) The promissory note, payable to a close family member of an officer and director of the Corporation, accrues interest, which is payable monthly in arrears, at a rate of 10% per annum on the unpaid portion of the principal until the principal is repaid in full.
d) The promissory notes were for a total principal amount of USD 220,000 that was payable on demand to a company controlled by an officer and director of the Corporation. USD 100,000 of these notes payable was settled in January 2020 through issuance of common shares (see Note 12). The notes accrue interest, which is payable monthly in arrears, at a rate of 10% per annum on the unpaid portion of the principal until the principal is repaid in full.
e) The promissory notes, payable on demand to a company controlled by an officer and director of the Corporation, accrue interest, which is payable monthly in arrears, at a rate of 10% per annum on the unpaid portion of the principal until the principal is repaid in full.
f) The promissory note accrued interest at a rate of 5% per annum compounded annually, had a three‐month initial term which ended July 25, 2019 and therefore was repayable on demand. The promissory note plus interest (all but $2,822) was repaid through issuance of treasury common shares in January 2020 as described in Note 12.
g) Three promissory notes payable on demand with interest at a rate of 12% per annum compounded annually and repayable at any time without penalty subject to a minimum of 1% interest on the principal. The outstanding balance is comprised of the interest and principal of one of the notes, plus accrued interest of one other.
h) The promissory note is payable on demand and accrues interest, which is payable monthly in arrears, at a rate of 10% per annum on the unpaid portion of the principal until the principal is repaid in full.

8. CONVERTIBLE DEBENTURES

The Debentures accrue interest at a rate of 15% per annum and mature March 1, 2021. The principal of the Debentures, plus any accrued and unpaid interest thereon, are redeemable by the Corporation and retractable by the holder of the Debenture, at the option of such party at any time. The holder of the Debenture also has the option to convert the principal amount of the Debentures, plus any accrued and unpaid interest thereon, at the greater of: (i) $0.37; or (ii) the last closing price of the Corporation’s common shares. The debentures are secured by a general security agreement granted by the Corporation.

The following table summarizes the outstanding balance and changes in the amounts recognized in the components of the convertible debentures during the nine‐month periods:

the convertible debentures during the nine‐month periods:
In$	Nine months ended
	Sep 30, 2020 Sep30,2019
Beginning balance Gross proceeds received Issue costs – legal fees and commissions Equitycomponent – 650,000 warrants	635,255 ‐ ‐ 1,300,000 ‐ (8,019) ‐ (81,900)
Remaining liability component initially recognized Repayments Interest accretion expense on warrants and legal	635,255 1,210,081 ‐ (712,992) 13,987 61,160
Ending balance of convertible debentures	649,242 558,249

13 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

Total interest for the three and nine months ended September 30, 2020 relating to the convertible debentures, including coupon interest and accretion of issuance costs, is $29,434 and $87,765 (three and nine months ended September 30, 2019 ‐ $43,212 and $146,195).

9. LEASE LIABILITIES

The Corporation is obligated under various lease agreements as described in the Annual Financial Statements. However, the Corporation has terminated most of its lease agreements in 2020, to the extent that the only long‐term lease obligations remaining as of September 30, 2020 are the Sonoma Pac facility lease and 2 small equipment leases. A reconciliation of the balance of lease liabilities for the periods ending September 30, 2020 and 2019 is as follows:

	September 30, In$
	2020 2019
Balance, beginning of period Acquired on business acquisition Additions related to new lease agreements Divestitures Total cash outflows for leases Initial payments capitalized to right of use assets Variable lease payments not included in the measurement of lease liabilities Portion of lease payments allocated to interest expense Guarantee fee – GABY warrants Effects of changes in foreign exchange rate	6,748,329 1,036,045
	‐ 733,765
	‐ 5,850,372
	(6,236,504) (503,295)
	(538,738) (731,637)
	‐ 67,289
	107,525 200,261
	286,766 233,460
	(10,505) (7,737)
	320,071 (21,434)
Balance, end of period Currentportion of lease liabilities	676,944 6,857,089
	(66,449) (397,782)
Non‐currentportion, end ofperiod	610,495 6,459,307

14 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

10. LONG‐TERM DEBT

Long‐term debt consists of the following:

Repayable in monthly instalments, including interest of: Interest Matures	In $
	Sep 30, 2020 Dec 31,2019
Vehicle finance loans secured by the vehicles financed: USD 448 4.9% Sept 2023 USD 875 1.9% April 2023 USD 707 1.9% April 2023 USD 743 2.90% June 2023 USD 620 5.24% Sept 2022 USD 1,150 5.24% Sept 2022 USD 1,150 5.24% Sept 2022	19,929 23,756 34,068 43,924 28,443 35,479 30,442 38,446 18,001 24,635 34,802 45,735 34,802 45,735
	200,487 257,710
Government assistance loans, net of discount: Canada Emergency Business Account (“CEBA”) loan, interest free and eligible for 25% debt forgiveness if 75% repaid by December 31, 2022. Otherwise, the loan converts on that date into a 3‐year note bearing interest at 5% per annum US government assistance loans, bearing interest at 3.75% per annum, repayable over a term of 30 years with payments being deferred until July 2021, after which the loans will require aggregate payments of USD 1,212 per month	26,860 ‐ 91,445 ‐
	118,305 ‐
Total long‐term debt Less: currentportion	318,792 257,710 (84,994) (80,118)
	233,798 177,592

The US government assistance loans are two loans (see Note 16) separately guaranteed and secured by the tangible and intangible personal property of the two subsidiaries that are the borrowers.

The following table summarizes the outstanding balance and changes in the amounts recognized in the components of the government assistance loans during the nine‐month periods:

In$	Nine months ended
	Sep 30, 2020 Sep30,2019
Beginning balance Gross proceeds – CEBA loan Gross proceeds – US government assistance loans – USD 248,500 Discount to apply effective interest method Foreign exchange adjustment	‐ ‐ 40,000 ‐ 336,091 ‐ (262,167) ‐ 663 ‐
Remaining liability initially recognized Interest accretion expense – effective interest method	114,587 ‐ 3,718 ‐
Ending balance of Government assistance loans, net of discount	118,305 ‐

15 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

11. SHARE‐BASED COMPENSATION AND PAYMENTS

Amounts recognized from share‐based payment transactions recognized are as follows:

In $ Note	Three months ended Nine months ended	Three months ended Nine months ended
	Sep 30, 2020	Sep 30, 2019 Sep 30, 2020 Sep 30, 2019
Included in operating expenses: Stock option plan employee compensation and consulting fees 11a Consulting fees settled through issuance of warrants 12c Consulting services to be settled through shares RSU plan employee compensation 11b Forfeiture of options Amortization ofprepaid share‐basedpayment 11c		135,817 437,086 511,049 86,658 4,000 90,778 106,432 ‐ 106,432 ‐ 97,019 ‐ ‐ (398,978) ‐ ‐ 43,618 ‐
	79,865
	‐
	‐
	52,443
	‐
	16,045
Included in other expenses: Interest expense – accretion of warrants issued with promissory notes RSU plan expense included in loss from discontinued operations 11b	148,353	328,907 182,745 708,259 ‐ ‐ 40,625 ‐ 130,000 ‐

	‐
	130,000
Total share‐basedpayments included in net loss	278,353	328,907 312,745 748,884
Settlement of accounts payable in lieu of cash 11d Settlement of amounts due to a director in lieu of cash payment Share‐based compensation netted against common shares (cost of equity issuance)	119,136	‐ 337,505 ‐ ‐ 33,898 ‐ 250,000 ‐ 250,000
	‐
	‐
Total share‐basedpayments	397,489	578,907 684,148 998,884

a. Stock option plan

Set out below are summaries of activity in respect of the Corporation’s stock options for the periods ended as follows:

	September 30, 2020 Average exercise price per option in $ Number of options	September 30, 2019
		Average exercise price per option in $ Number of options
Opening Granted Forfeited	$0.30 11,790,000 ‐ ‐ $0.30 (5,625,000)	$0.39 3,375,000 $0.46 9,785,000 $0.46 (1,250,000)
Closing	$0.30 6,165,000	$0.42 11,910,000
Vested and exercisable atperiod end	$0.30 2,896,666	$0.31 1,241,667

16 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

Share options outstanding as at September 30, 2020 and December 31, 2019 have the following range of exercise prices and weighted average remaining contractual lives:

	September	September	30, 2020	December	31, 2019
			Weighted		Weighted
			average		average
Exercise		contractual			contractual
price	Number	life in years		Number	life in years
$0.1250	150,000		4.14	300,000	4.89
$0.2700	2,740,000		4.02	5,890,000	4.77
$0.2856	1,250,000		2.93	1,625,000	3.68
$0.3500	25,000		3.57	25,000	4.32
$0.3600	2,000,000		3.85	3,950,000	4.60
	6,165,000		3.74	11,790,000	4.56

Fair value of options granted

The options are granted for no consideration. There were no options granted during the nine months ended September 30, 2020. The fair value of the options granted during the period ended September 30, 2019 of $0.17 per option was determined using the Black Scholes Model which considers the following inputs:

				Average
			Share price at	Risk‐free		Expected	Expected
		Exercise	measurement	interest	Expected	life in	dividend
Grant	dates	price	date	rate1	volatility2	years	yield
Jan	2019	$0.50	$0.29	1.90%	80%	5	0%
Apr	2019	$0.35	$0.35	1.53%	80%	5	0%
Aug	2019	$0.36	$0.36	1.53%	80%	5	0%

1 Based on interest rates of Government of Canada Bonds with similar maturity at the date of grant

2 Estimated by considering industry share price volatility. The expected volatility reflects the assumption that the historical volatility over a period similar to the expected life of the options is indicative of future trends, which may not necessarily be the actual outcome.

The amount included in operating expenses for directors’, officers’ and consulting services received for the three and nine months ended September 30, 2020, net of credits for forfeitures, is $79,865 and $38,108 (September 30, 2019 ‐ $135,817 and $511,049) and is classified as contributed surplus on the Corporation’s consolidated statement of financial position. Of the foregoing amounts, $52,700 and negative $13,992 was in respect of KMP for the three and nine months ended September 30, 2020, respectively (September 30, 2019 ‐ $83,668 and $354,812).

b. Restricted share units (“RSUs”)

The Corporation implemented an RSU plan in 2020. The RSUs vest one‐third each over the first, second and third anniversary year from the date of grant and are each issuable into one common share of the Corporation. The share price at date of grants ranged from $0.035 to $0.07 per share. The fair value of the RSUs adjusted for estimated forfeitures is

17 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

estimated as $551,882. Of this amount, $130,000 was expensed immediately and included in loss from discontinued operations as it related to past service to discontinued operations, and $421,882 will be recorded as an expense over the three years in which services are received with a corresponding amount recorded as contributed surplus.

The RSU Plan is to be administered by the Board, or a committee thereof, either of which has full and final authority with respect to the granting of RSUs under the RSU Plan. The vesting conditions of any RSUs granted under the RSU Plan shall be determined by the Board at the time of grant but provided that the vesting term of any RSUs may not exceed three years.

The RSU Plan provides that, subject to the requirements of the Exchange, the aggregate number of securities reserved for issuance, set aside and made available for issuance under the RSU plan and the Corporation’s Option Plan may not exceed 10% of the issued and outstanding Common Shares at the time of granting of Options (including all Options previously granted by the Corporation).

Subject to certain exceptions, if a director or officer ceases to hold office, any unvested RSUs held by such person will expire immediately after they cease to hold office. The settlement of RSUs into shares shall generally occur on or shortly after the vesting date, subject to security regulations including black‐out periods. The Corporation has the sole and absolute discretion to settle the RSUs in cash, purchase of its own shares on the CSE, or if approved by the Board, to issue shares from treasury. Until and unless common shares have been issued in accordance with the RSU Plan, the holder of the RSUs has no shareholder rights in respect of the RSUs, including the right to receive dividends.

Set out below is a summary of RSUs activity for the nine months ended September 30, 2020:

	Number of RSUs
Opening Granted Forfeited	‐
	13,395,000
	(895,000)
Closing	12,500,000
Vested atperiod end	‐

The weighted average fair value of the RSUs granted during the period ending September 30, 2020 was $0.057 per RSU, which was based on the common share closing price on the CSE on the date of grant and assumes no future expected dividends.

The amount included in share‐based compensation and expenses for the three and nine months ended September 30, 2020 is $52,443 and $97,019 (September 30, 2019 ‐ $nil) and is classified as contributed surplus on the Corporation’s consolidated statement of financial position. Of the foregoing amounts, $31,171 and $63,136 was in respect of KMP for the three and nine months ended September 30, 2020, respectively (September 30, 2019 ‐ $nil for both periods). Expense of $130,000 was included in loss from discontinued operations for the three and nine months ended September 30, 2020 (September 30, 2019 ‐ $nil for both periods).

18 | P a g e G A B Y I n c .

Notes to the Condensed Interim Consolidated Financial Statements

GABY INC.

In Canadian dollars, unless otherwise stated (Unaudited)

c. Warrants issued for services

i. Warrants not Subject to Vesting Conditions

The Corporation enters into agreements for various services for which all or partial consideration is comprised of warrants. As the fair value of the provision of services is difficult to measure, the Corporation measures the fair value of services received or to be received by reference to the fair value of warrants granted using the Black‐Scholes Model as described in the Corporation’s Annual Financial Statements. Below are transactions from 2019 which affect the current year’s expenses:

On August 1, 2019, the Corporation entered into an agreement for investor relations services over a period of one year for consideration of $10,000 per month plus 350,000 warrants each exercisable into one common share at any time up to August 1, 2021. Of these warrants, 175,000 are exercisable at a price of $0.42 per warrant and 175,000 are exercisable at a price of $0.45 per warrant. The fair value of the warrants of $47,250 was set up as a prepaid with a corresponding increase to contributed surplus and was being expensed over twelve months, as the service obligation was contractually required over that period. In January 2020, the Corporation terminated the contract, resulting in expensing of the remaining prepaid. The resulting expense included in share‐based compensation and expenses for the period is $27,573 (2019 ‐ $nil).

On July 2, 2019 the Corporation entered into an agreement for public relations services for twelve months of services for a payment of USD 2,000 per month plus 200,000 warrants each exercisable into one common share at any time up to July 2, 2021 at an exercise price of $0.375 per warrant. The fair value of the warrants of $32,000 was set up as prepaid with a corresponding increase to contributed surplus and was being expensed over twelve months as the service was contractually required over that period. In July 2020, the Corporation terminated the contract resulting in expensing of the remaining prepaid. The resulting expense included in share‐based compensation and expenses for the period is $16,045 (2019 ‐ $nil).

ii. Warrants Subject to Vesting Conditions

On May 1, 2020, the Corporation issued four tranches of warrants totaling 2,000,000 in number as partial compensation for services of a consultant. Each warrant has a three‐year life and is exercisable into one common share for a set exercise price per warrant upon the common shares reaching varying targets of volume weighted average price over 20 consecutive days (“Target VWAP”) as outlined in the table below.

The Corporation measured the fair value of the service received by reference to the fair value of the warrants granted using the Black‐Scholes Model with takes into account the inputs, including the probability of attaining the market performance condition (“Market Probability”):

Number of	Target	Exercise	Expected	Market
Warrants	VWAP	price	life in years	Probability
500,000	$0.15	$0.20	2	76%
500,000	$0.20	$0.25	3	5%
500,000	$0.25	$0.30	3	0%
500,000	$0.30	$0.35	3	0%
2,000,000

19 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

The resulting amount included in share‐based compensation for the three and nine months ended September 30, 2020 is $nil and $4,000, respectively (2019 ‐ $nil both periods).

d. Shares issued for settlement of accounts payable

*d. Shares issued for settlement of accounts payable*
Shares issued in respect of:	September 30, 2020 September 30, 2019
	Number $ Number $
Consulting service fees payable i Consulting services fees payable to related party ii Corporate service feespayable iii	2,676,809 141,750 ‐ ‐ 2,864,324 171,119 ‐ ‐ 550,291 24,636
Total common shares issued	6,091,424 337,505 ‐ ‐

i) A consultant agreed to receive payment for nine months of consulting fees in shares rather than cash. The Corporation measured the fair value of services received as invoiced as measured when such services were previously paid in cash. The common shares were measured using five‐day weighted‐average share price on date of issuance at an average of $0.053 per share.
ii) A consultant who is close family of certain KMP agreed to receive payment for ten months of consulting fees in shares rather than cash. The Corporation measured the fair value of services received as invoiced as measured when such services were previously paid in cash. The common shares were measured using five‐ day weighted‐average share price on date of issuance at an average of $0.060 per share.

iii) A corporate services provider agreed to receive payment for three months of service fees in shares rather than cash. The Corporation measured the fair value of services received as invoiced as measured when such services were previously paid in cash. The common shares were measured using five‐day weighted‐average share price on date of issuance at an average of $0.045 per share.

20 | P a g e G A B Y I n c .

Notes to the Condensed Interim Consolidated Financial Statements

GABY INC.

In Canadian dollars, unless otherwise stated (Unaudited)

12. SHARE CAPITAL AND CONTRIBUTED SURPLUS

Authorized share capital – unlimited number of shares without nominal or par value:

Unlimited number of Class A common voting shares

Unlimited number of Class B non‐voting, retractable, redeemable, preferred shares, issuable in series

A reconciliation of the Corporation’s Common shares and Contributed surplus is as follows:

Note	Share Capital
	Class A common voting shares	Contributed Surplus	Total transaction
	Number $	$	$
Balance as at December 31, 2018 Settlement of share-issuance obligations Issuance of Units Equity issuance costs Stock option expense Issuance of warrants attached to convertible debentures Issuance of warrants attached to promissory notes Issued on business acquisition Returned to treasury Warrant exercise Compensation warrant exercise Share-based compensation	90,480,783 18,218,110 2,217,133 761,200 66,583,400 17,977,518 - (1,339,710) - - - - - - 17,250,000 4,830,000 (1,115,178) (457,892) 565,000 210,501 17,500 5,785 - -	1,270,663 - 1,997,502 - 511,049 81,900 40,625 - - (1,451) (785) 177,017	19,488,773 761,200 19,975,020 (1,339,710) 511,049 81,900 40,625 4,830,000 (457,892) 209,050 5,000 177,017
Closing balance, September 30, 2019	175,998,638 40,205,512 4,076,520 44,282,032
Balance as at December 31, 2019 Issuance of shares to settle indebtedness to company controlled by director and officer 12a Issuance of shares to director from treasury 12b Stock option expense 11a RSU compensation expense 11b Stock option forfeitures 11a Warrant forfeitures 12c Share-based payments 11d Issuance of shares to settle non-interest-bearing promissory notes 12e	205,775,825 43,068,525 16,666,666 1,083,333 3,003,003 250,000 - - - - - - - - 6,091,424 337,505 462,497 46,250	5,373,688 - - 437,086 227,019 (398,978) (25,490) 14,195 -	48,442,213 1,083,333 250,000 437,086 227,019 (398,978) (25,490) 351,700 46,250
Closing balance, September 30, 2020	231,999,415 44,785,613 5,627,520 50,413,133

a. Shares issued from treasury to settle indebtedness

In January 2020, 16,666,666 common shares issued at $0.065 per share were issued to a company controlled by a director and officer of the Corporation to settle amounts owing of $1,083,333 as detailed in the table below. The share price was based on the closing price of the shares one day prior to the Board’s approval of the issuance.

	USD CAD
Promissory notes plus interest issued in USD Promissory note plus interest issued in CAD Settlement of other amounts due to relatedparty	447,167 583,099 n/a 466,336 n/a 33,898
	1,083,333

21 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

b. Shares issued from treasury to a company controlled by a director

In February 2020, 3,003,003 common shares were issued to a director for total proceeds of $250,000 or $0.083 per share, based on the five‐day weighted‐average closing price of the shares prior to the date of issuance.

c. Warrants

Set out below are summaries of warrants granted by the Corporation for the nine‐month periods:

	September 30, 2020 Average exercise price per warrant in $ Number of warrants	September 30, 2019
		Average exercise price per warrant in $ Number of warrants
Opening Granted Issued on compensation warrants Exercised Forfeited Expired	$0.38 78,590,766 $0.28 2,000,000 ‐ ‐ ‐ ‐ $0.54 (500,000) $0.37 (41,686,573)	$0.37 42,234,073 $0.38 36,404,193 $0.37 17,500 $0.37 (565,000) ‐ ‐ ‐ ‐
Closing	$0.38 38,404,193	$0.38 78,090,766
Vested and exercisable atperiod end	$0.38 35,804,193	$0.38 77,090,766

Warrants outstanding as at the end of the periods have the following range of exercise prices and weighted average remaining contractual lives:

September 30, 2020 Exercise price Number Weighted average contractual life in years	December 31, 2019
	Number Weighted average contractual life in years
$0.20 ‐ $0.35 2,000,0002 2.58 $0.37 650,000 0.42 $0.375 ‐ $0.38 34,104,193 0.73 $0.42‐$0.65 1,650,0001 1.60	‐ ‐ 42,336,573 0.67 34,204,193 1.51 2,050,0001 2.77
38,404,193 0.85	78,590,766 1.09

1 See Note 18 of the Annual Financial Statements for market vesting conditions for 600,000 warrants exercisable at $0.50. 2 See Note 11c(ii) for market vesting conditions for 2,000,000 warrants exercisable at an average of $0.28

d. Special Warrants

The Corporation from time to time issues instruments exercisable for the purchase of Common Shares and Warrants for the purpose of compensating brokers or agents in connection with financing transactions, which are referred to above as Special Warrants. The balance included in Special Warrants is comprised of Compensation Warrants and Broker Warrants as follows:

22 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

	September 30, 2020 December 31, 2019
	# $ # $
Compensation Warrants i. Broker Warrants ii.	‐ ‐ 477 79,215 4,522,634 927,140 4,522,634 927,140
Special Warrants	927,140 1,006,355

i. Compensation Warrants

The 477 Compensation Warrants entitled the holder thereof to acquire 3,500 Common Shares and 3,500 Warrants at a price of $1,000, or effectively one Common Share and one Warrant at a combined price of $0.2857 and expired on June 13, 2020.

Set out below are summaries of Compensation Warrant activity by the Corporation for the periods ended September 30:

	September 30, 2020 September 30, 2019
	Average exercise price in$ Number of Compensation Warrants Average exercise price in$ Number of Compensation Warrants
Opening Exercised Expired	$1,000 477 $1,000 482 ‐ ‐ $1,000 (5) ‐ (477) ‐ ‐
Closing and vested at period end	‐ ‐ $1,000 477
Weighted average remaininglife inyears	n/a 0.70

ii. Broker Warrants

Each Broker Warrant entitles the holder to acquire one Common Share and one half‐warrant at a combined price of $0.30 for a period of 24 months following the closing date of June 19, 2019. Each whole warrant acquired through exercise of the Broker Warrants entitles the holder to acquire one Common Share at a price of $0.38 per share for a period of 24 months from the date of issuance of the warrant.

Set out below are summaries of Broker Warrant activity by the Corporation for the periods ended September 30:

	September 30, 2020 September 30, 2019
	Average exercise price in $ Number of Broker Warrants Average exercise price in $ Number of Broker Warrants
Opening Granted Exercised Expired	$0.30 4,522,634 ‐ ‐ ‐ ‐ $0.30 4,522,634 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐
Closingand vested atperiod end	$0.30 4,522,634 $0.30 4,522,634
Weighted average remaininglife inyears	0.70 1.70

23 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

e. Shares issued to settle non‐interest‐bearing promissory notes

On January 31, 2020, 462,497 common shares were issued at fair value of $46,250 to settle USD 90,000 of the short‐term notes payable (Note 6) resulting in a gain on settlement of $74,874 as included in the consolidated statement of loss and comprehensive loss.

13. DIRECT INVENTORY COSTS

13. DIRECT INVENTORY COSTS
In $ Balance comprised of:	Three months ended September 30, Nine months ended September 30,
	2020 2019 2020 2019
Salaries and benefits Direct material Other direct costs	139,444 526,840 650,980 877,128 568,324 4,847,233 2,048,621 6,295,220 11,317 107,777 59,007 260,249
	719,085 5,481,850 2,758,608 7,432,597

14. ALLOCATED INDIRECT COSTS

14. ALLOCATED INDIRECT COSTS
In $ Balance comprised of:	Three months ended September 30, Nine months ended September 30,
	2020 2019 2020 2019
Production licenses and permits Production facility costs Depreciation of production equipment Other overhead costs	1,456 ‐ 83,344 ‐ 26,822 27,219 83,913 98,741 13,389 3,310 40,279 13,356 10,236 135,068 39,541 225,112
	51,903 165,597 247,077 337,209

15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

In $ Balance comprised of:	Three months ended September 30, Nine months ended September 30,
	2020 2019 2020 2019
Employee salaries and benefits Consulting fees Administrative costs Advertising and promotion Professional fees	405,925 1,404,318 2,607,801 3,054,885 203,622 126,113 916,030 1,556,715 472,494 782,509 987,356 1,972,725 30,925 240,331 102,049 324,716 280,144 362,495 661,611 910,572
	1,393,110 2,915,766 5,274,847 7,819,613

24 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

16. OTHER ITEMS OF INCOME (EXPENSE)

In $ Balance comprised of: Note	Three months ended September 30, Nine months ended September 30,
	2020 2019 2020 2019
Loss on divestiture Fair value loss on derivative liability Gain (loss) on foreign exchange Gain on contingent liability Gain on conversion of debt 12e Gain on disposal of assets Gain on lease termination Government assistance income a Impairment recovery Penalties and interest on past‐due taxes Other income	‐ (550,962) ‐ (550,962) ‐ (6,042) ‐ (6,042) 13,754 206,232 (22,919) 46,438 ‐ 2,100,000 ‐ 2,100,000 ‐ ‐ 61,255 ‐ ‐ ‐ 963 ‐ ‐ ‐ 543 ‐ 267,579 ‐ 267,579 ‐ ‐ ‐ 12,338 ‐ (133,240) ‐ (368,040) ‐ 247 ‐ 247 ‐
	148,340 1,749,228 (48,034) 1,589,434

a. Government assistance

During the nine months ended September 30, 2020, the Corporation received three loans from government entities as a mode of government assistance. As at September 30, 2020 there was reasonable assurance that all conditions of the funds received will be met. These loans were provided at below‐market interest rates and one contains a debt forgiveness provision if repaid by the initial deadline (see Note 10 for further detail).

The proceeds of the US government assistance loans received are required to be used for working capital needs, and the borrower is required to obtain and itemize receipts and contracts for all loan funds spent and retain these records for three years from the date of final disbursement. The borrowers could be required to provide reviewed financial statements and/or other records if requested. Any amount not spent in accordance with the agreement by the reporting date is immaterial. The loans require security interests in certain assets of the entities to which they were issued, as disclosed in Note 10.

Government assistance income was calculated and recognized for the difference between the obligations discounted at an estimated market rate of 18.50% and the face value of the loans, as follows:

			Obligation
		Face Value	discounted	Government
	Rate	(CAD)	at 18.50%	assistance
Canada Emergency Business Account loan	0%	40,000	24,514	15,486
US government assistance loan – USD 147,200	3.75%	199,265	53,015	146,250
US government assistance loan – USD 101,300	3.75%	136,826	36,395	100,431
Grants in relation to loans – USD 4,000	n/a	n/a	n/a	5,412
				267,579

25 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

17. LOSS PER SHARE

Basic loss per share is calculated by dividing the net loss by the weighted average number of shares outstanding during the year. The potentially dilutive Common Shares issuable on the outstanding Warrants, Compensation Warrants, Special Warrants, RSUs and Stock Options are non‐dilutive and are therefore excluded from the diluted loss per share for the periods in which they were outstanding. The weighted average numbers of shares outstanding for the three and nine months ended September 30, 2020 was 230,330,565 and 227,236,571 (three and nine months ended September 30, 2019 – 176,189,153 and 130,603,774).

26 | P a g e G A B Y I n c .

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

GABY INC.

18. DISCONTINUED OPERATIONS

As described in Note 1, the Corporation shuttered its traditional food operations based in Canada in March 2020. The total net assets held for sale at September 30, 2020 as a result is immaterial and therefore has not been reclassified in the Condensed Interim Consolidated Statements of Financial Position. The following amounts have been reclassified out of continuing operations in the Condensed Interim Consolidated Statements of Loss for the three and nine months ended September 30, 2020 and 2019:

In $ Three months ended September 30, Nine months ended September 30,	In $ Three months ended September 30, Nine months ended September 30,
Net loss from discontinued operations comprised of: 2020	2019 2020 2019
Revenue (11,920)	379,203 276,520 950,865
Cost of sales Direct inventory costs ‐ Allocated indirect costs ‐ Distribution costs ‐	329,244 384,241 901,906 198,287 213,154 538,770 43,207 49,198 142,587
Total cost of sales ‐	570,738 646,593 1,583,263
Gross margin (11,920)	(191,535) (370,073) (632,398)
Selling, general, and administrative expenses Employee salaries and benefits 11,052 Consulting fees 3,500 Administrative costs 33 Advertising and promotion ‐ Sellingcosts ‐	95,393 119,714 321,187 16,644 10,461 240,250 78,768 132,476 351,914 68,409 26,029 187,880 152,194 103,015 457,949
Total selling, general,and administrative expenses 14,585	411,408 391,695 1,559,180
Share‐based compensation and expenses 130,000 Depreciation of plant and equipment ‐ Amortization of intangible assets ‐	‐ 130,000 ‐ 15,426 4,634 45,018 4,560 ‐ 13,530
Operatingloss from discontinued operations (156,505)	(622,929) (896,402) (2,250,126)
Other income (expense) Gain on lease termination ‐ Gain on disposal of assets 12,010 Interest on lease liabilities (621) Inventorywrite‐down ‐	‐ 7,718 ‐ ‐ 12,010 ‐ (13,387) (12,657) (42,529) ‐ (206,317) ‐
Total other income(expense) 11,389	(13,387) (199,246) (42,529)
Net loss from discontinued operations (145,116)	(636,316) (1,095,648) (2,292,655)

Cash flows from discontinued operations for the three‐ and nine‐month periods are as follows:

In $ Net cash flows from discontinued operations:	Three months ended September 30, Nine months ended September 30,
	2020 2019 2020 2019
Net cash used in operating activities Net cash generated by (used in) investing activities Net cash used in financingactivities	(12,956) (1,098,096) (143,174) (2,215,303) 25,010 ‐ 39,010 (45,467) (7,695) (48,588) (61,485) (142,856)
	4,359 (1,146,684) (165,649) (2,403,626)

27 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

19. OTHER ADJUSTMENTS TO ARRIVE AT CASH FLOW FROM OPERATIONS

In $ Balance comprised of: Note	Three months ended September 30, Nine months ended September 30,
	2020 2019 2020 2019
Fair value loss on derivative liability Gain on contingent liability Gain on conversion of debt 20 Gain on disposal of assets Gain on lease termination Government assistance (non‐cash portion) 10 Impairment recovery Loss on divestiture	‐ 6,042 ‐ 6,042 ‐ (2,100,000) ‐ (2,100,000) ‐ ‐ (61,255) ‐ (12,010) ‐ (12,973) ‐ ‐ ‐ (8,261) ‐ (262,167) ‐ (262,167) ‐ ‐ ‐ (12,338) ‐ ‐ 550,962 ‐ 550,962
	(274,177) (1,542,996) (356,994) (1,542,996)

20. NON‐CASH TRANSACTIONS

Non‐cash transactions took place during the three‐ and nine‐month periods ended as follows:

September 30, 2020, In$	3 months 9 months
1 The following adjustments were recorded as a result of lease terminations: Increase in accounts receivable Decrease in property and equipment, net (including right of use assets) Decrease in security deposits Decrease in lease liabilities Increase in accrued liabilities Gain on lease terminations 2 Payment of consulting fees through issuance of common shares: Increase in common shares Decrease in accounts payable Loss on settlement of debts 3 Extinguishment of debts through issuance of common shares: Decrease in promissory notes Decrease in amounts due to related party Decrease in short‐term notes payable Increase in common shares Loss on foreign exchange Gain on conversion of debt
	‐ 16,500
	259,612 5,891,727
	18,156 202,931
	277,942 6,088,618
	174 2,199
	‐ 8,261

	119,136 337,505
	119,136 323,886
	‐ 13,619

	‐ 1,066,453
	‐ 33,898
	‐ 98,093
	‐ 1,129,583
	‐ 6,013
	‐ 74,874

28 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

	September 30, 2019, In$	3 months	9 months
1	Lease capitalization
	Increase in lease liability	5,065,573	5,849,326
	Increase in right‐of‐use assets	5,065,573	5,849,326
2	Settlement of share issuance obligation through issuance of shares:
	Decrease in share issuance obligation	‐	511,200
	Increase in common shares	‐	511,200
3	Business acquisition – Sonoma Pac
	Increase in subsidiary investment (eliminated in consolidation)	‐	8,750,000
	Increase in contingent consideration	‐	3,920,000
	Increase in share capital	‐	4,830,000
4	Shares for services
	Increase in share issuance obligation	‐	250,000
	Decrease in share capital	‐	250,000
5	Direct financing of capital assets
	Increase in long‐term debt	189,770	287,499
	Increase in capital assets	189,770	287,499

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Corporation's current financial instruments include cash, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, income taxes payable, short‐term notes payable, promissory notes payable, and convertible debentures, and are measured at amortized cost. The carrying value of these instruments approximates their fair value due to their short‐term maturities. The Corporation’s non‐current financial instruments include lease liabilities and long‐ term debt, which are measured at amortized cost.

22. STOCK APPRECIATION RIGHTS

During the three and nine months ended September 30, 2020, the Corporation issued 145,000 and 824,000 stock appreciation rights (SARs) to employees, consultants, and vendors of the Corporation (three and nine months ended September 30, 2019 ‐ 140,000, and 4,235,000). Total issued SARs units outstanding as at September 30, 2020 was 15,007,000 (December 31, 2019 – 14,183,000). The SARs hold no value until a liquidity event occurs, defined in the SARs Plan as either the sale of all or substantially all of the assets or shares of the corporation. As of September 30, 2020, no liquidity event has occurred.

23. SEGMENTED INFORMATION

The Corporation’s chief operating decision makers are the Chief Executive Officer and Chief Financial Officer. They review the operating performance of the Corporation by two segments comprised of licensed and unlicensed channels, both of which are or have been in the manufacturing, distribution and marketing of wellness products to address a variety of dietary and health concerns. The licensed channel includes cannabis‐related products to which the sale and distribution are subject to regulation. The unlicensed channel includes all other wellness products not subject to the licensing requirements in respect of cannabis. The accounting policies of the segments are the same as those described in the

29 | P a g e G A B Y I n c .

GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

summary of significant accounting policies contained in the Annual Financial Statements. The chief operating decision makers utilize gross profit as a key measure in making operating decisions and assessing performance. Information by segment is as follows:

makers utilize gross profit as a key m segment is as follows:	easure in making operating decisions and assessing performance. Information b
Three months ended September 30, In$	Licensed Unlicensed Total
	2020 2019 2020 2019 2020 2019
Revenue Cost of sales	601,470 5,793,974 205,229 ‐ 806,699 5,793,974 646,596 5,647,447 137,606 ‐ 784,202 5,647,447
Grossprofit(loss)	(45,126) 146,527 67,623 ‐ 22,497 146,527
Nine months ended September 30, In$	Licensed Unlicensed Total
	2020 2019 2020 2019 2020 2019
Revenue Cost of sales	2,304,629 7,980,976 691,326 ‐ 2,995,955 7,980,976 2,708,632 7,769,806 466,659 ‐ 3,175,291 7,769,806
Grossprofit(loss)	(404,003) 211,170 224,667 ‐ (179,336) 211,170

24. SUBSEQUENT EVENTS

Subsequent to September 30, 2020 the Corporation issued 4,435,000 Restricted Share Units to directors and employees. The Corporation also cancelled 500,000 RSUs and issued 500,000 common shares in their place, as well as issuing 795,200 other common shares for services similar to those issued in the current period (see Note 11d). The Corporation also issued 1,007,692 common shares to settle accrued liabilities.

30 | P a g e G A B Y I n c .

SCHEDULE “B” – GABY Interim MD&A

(See attached)

B - 1

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

FORWARD

The following is Management’s Discussion and Analysis (“ MD&A ”) of the financial condition and results of operations of GABY Inc., formerly Gabriella’s Kitchen Inc. prior to name change in September 2019, (the “ Corporation ” or “ GABY ”) for the three and nine months ended September 30, 2020 and 2019. This MD&A should be read in conjunction with the unaudited condensed interim consolidated financial statements of the Corporation and accompanying notes for the three and nine months ended September 30, 2020 and 2019 (the “ Financial Statements ”) and the audited consolidated financial statements of the Corporation and accompanying notes as at and for the years ended December 31, 2019 and 2018 (the “ Annual Financial Statements ”). The Financial Statements, Annual Financial Statements and the “SELECTED FINANCIAL INFORMATION” (other than Non-GAAP measures) and “SELECTED QUARTERLY INFORMATION” sections of this MD&A have been prepared using International Financial Reporting Standards (“ IFRS ”) and all amounts are reported in Canadian dollars (“ CAD” ) unless otherwise noted in United States dollars (“ USD ”). Additional information about the Corporation can be found on SEDAR at www.sedar.com and on GABYs corporate website at www.gabyinc.com. Readers should also read the section “CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS” contained at the end of this document. This MD&A is dated November 25, 2020.

NON-GAAP MEASURES: GABY refers to adjusted EBITDA from continuing operations. This measure is not defined under IFRS and is considered a non-GAAP measure. Management believes that, in addition to revenue and net loss, adjusted EBITDA from continuing operations provides a measure of operating cash flows before servicing debt, income taxes, capital expenditures and other gains and losses. This measure does not have a standardized meaning and may not be comparable to similar measures presented by other issuers and should not be viewed as a substitute for measures reported under IFRS. This financial measure is reconciled to IFRS in the section titled “NON-GAAP DISCLOSURE” towards the end of this document.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

CORPORATE PROFILE

GABY is a holding company with USA subsidiaries, with the most significant being Sonoma Pacific Distribution Inc. (“ SPD ”) which operates in the cannabis industry. SPD holds a distribution license issued by the California Bureau of Cannabis Control (“ CBCC ”). With its distribution license, long-standing relationships with appellation farms and craft cannabis growers, its existing infrastructure of retailers, and its on-line direct-to-consumer marketplace, GABY is positioned to bring its proprietary brands to market in both the licensed, CBD and mainstream market. GABY trades on the Canadian Securities Exchange (“ CSE ”) under the symbol GABY and on the OTCQB under the symbol GABLF. As of the date of the MD&A, GABY’s operations include:

==> picture [115 x 73] intentionally omitted <==

Licensed distributor of proprietary, wholesale and third-party-branded products.

==> picture [100 x 101] intentionally omitted <==

Artisan Chocolates

Artisan Dark Chocolates that open your heart, while nourishing your body. All products are 100% organic, vegan, fair trade, paleofriendly, soy & gluten free, raw & sweetened with low-glycemic coconut sugar.

==> picture [101 x 101] intentionally omitted <==

Artisan Cannabis Edibles Edibles developed to bring consumers the most full-spectrum benefit that cannabis can offer, without creating unwanted side effects or intoxication. Lulu’s specific ratio of cannabinoids and plentiful live cannabis terpenes work together synergistically to create a balanced, elevated experience.

==> picture [101 x 101] intentionally omitted <==

==> picture [123 x 29] intentionally omitted <==

Full Spectrum CBD Wellness

EXTRACTS WITH IMPACT — 2Rise’s versatile vertical was built to offer relief for total mind and body support for a community of well-being. 2Rise is always testing more innovative ways to deliver results-driven products that suit every individual’s needs.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

Q3 2020: LOWER LOSSES ON COST CUTTING DESPITE DECLINE IN REVENUES

The strategic initiatives introduced by GABY at the end of Q1 2020 facilitated reduction of its net losses to $1.5 million and $7.3 million, for the three (“QTD”) and nine months ended September 30, 2020 (“YTD”), respectively, which represented improvements of 35% or $0.8 million and 24% or $2.4 million over the respective periods last year. This progress occurred despite revenue of $0.8 million QTD and $3.0 million YTD decreasing from $5.8 million and $8.0 million in the same respective periods last year. The revenue decrease reflects a number of internal factors, including GABY’s strategic shift to lower-volume, higher-margin revenues, as well as external factors including the COVID-19 pandemic and the California wildfires.

The reduction of the net loss in the quarter reflects a number of initiatives that GABY implemented at the end of Q1 2020 and continued into Q2 and Q3 2020 including:

relocating all operating and finance roles to Santa Rosa, California, after the positions of the President and COO, and the CFO and all operating and supporting staff in Canada were terminated;
consolidating its office and operations to Santa Rosa, California, eliminating five out of six office and warehouse leases;
Margot Micallef, adding to her role of CEO, the day to day responsibility of running the operations after terminating the employment of the President and Chief Operating Officer and other senior sales and operating roles;
broadening its procurement infrastructure to several third-party contractors having cultivation relationships with a wider base of farmers in lieu of an in-house procurement department with more limited cultivation relationships;
simplifying its operations by creating greater efficiencies, rationalizing staff count and lowering costs;
developing more effective standard operational protocols to maximize efficient regulatory compliance and simplify operating processes;
shuttering unprofitable business operations; and
terminating third party service and distribution relationships that were providing insufficient or low margins

This resulted in selling, general and administrative (“ SG&A” ) expenses of $1.4 million QTD being $1.5 million lower than Q3 2019 and the YTD of $5.3 million being $2.5 million lower than the same period last year. In addition, GABY shuttered its frozen food operations, Gabriella’s Kitchen or GK, which resulted in $0.5 million and $1.2 million of savings in the threeand nine-month periods as reflected in the loss from discontinued operations. It is anticipated that these actions should save GABY over $6 million on an annualized basis.

Along with the operational restructuring and cost cutting measures described above, GABY effectively managed its working capital including limiting the extension of payment terms to its customers, tying the payments to vendors to receipt of payment from its customers and issuing shares for services. As a result, in Q2 and Q3 2020, GABY did not require the additional capital injections that were required in Q1 2020 (which had been provided primarily by GABY’s directors and officers). The only borrowings in Q2 and Q3 were $40,000 and $336,091, respectively, of government assistance for GABY’s mainstream businesses.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

In addition, GABY replaced a number of senior positions with people experienced in start-ups who know how to do a lot with a little, having the discipline to push its revenue mix towards slower-growing but more sustainable higher-margin business by:

prioritizing the sale and self-distribution in mainstream and regulated channels of GABY’s proprietary brands;
focusing on more strategic procurement, requiring a minimum margin for wholesale brokerage;
terminating any speculative wholesale procurement;
establishing a multi-department protocol to ensure all third-party distribution and production services met GABY’s pre-determined minimum margin threshold; and
changing its commission structure under its wholesale contracts as a percentage of margin only, aligning procurement and sales efforts and interests.

The sum of all these actions, namely, the operational restructuring, the cost cutting measures, the focused hiring of startup expertise, the disciplined emphasis on sustainable higher-margin revenue; and the risk mitigation strategies have resulted in more efficient operations, better management decisions, and less operational risk - all while pushing GABY towards profitability.

Ironically, the fallout from COVID 19 is providing opportunities for GABY to focus on accretive acquisitions and continue its infrastructure strategy to position it in 2020 with self-sufficiency, the ability to scale the business and grow market share and revenue while maintaining margin. The goal is to become profitable on a run-rate basis by the end of 2020.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

SELECTED FINANCIAL INFORMATION AND OVERALL PERFORMANCE

FINANCIAL PERFORMANCE

FINANCIAL PERFORMANCE
In $	Three months ended September 30, 2020 20191 % Change	Nine months ended September 30,
		2020 20191 % Change
Revenue Direct inventory costs Variable gross profit Variable gross profit as a % of gross revenue Gross profit (loss) after distribution and allocated indirect costs Adjusted EBITDA from continuing operations3 Loss from operations before other income (expense) Net loss from continuing operations Net loss from discontinued operations Net loss Total comprehensive loss Total assets Total non-current financial liabilities Loss per share, basic and diluted2 Weighted average number of common shares – basic and diluted	806,699 5,793,974 (86%) 678,471 5,481,850 (86%) 128,228 312,124 (59%) 16% 5% 22,497 146,527 (85%) (1,370,613) (2,769,239) (51%) (1,547,010) (3,268,894) (53%) (1,390,964) (1,711,603) (19%) (145,116) (636,316) (77%) (1,536,080) (2,347,919) (35%) (1,692,909) (2,567,157) (34%) (0.01) (0.01) (50%) 230,330,565 176,189,153 31%	2,995,955 7,980,976 (62%) 2,717,994 7,432,597 (63%) 277,961 548,379 (49%) 9% 7% (179,336) 211,170 (185%) (5,454,183) (7,608,443) (28%) (5,919,139) (8,550,907) (31%) (6,239,458) (7,406,906) (16%) (1,095,648) (2,292,655) (52%) (7,335,106) (9,699,561) (24%) (6,778,169) (10,042,082) (33%) 10,774,523 19,865,539 (46%) 844,293 6,519,853 (87%) (0.03) (0.07) (57%) 227,236,571 130,603,774 74%

(1) As restated to reflect discontinued operations

(2) Percentage change based on unrounded earnings per share

(3) See NON-GAAP DISCLOSURE towards the end of this document

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

OVERALL PERFORMANCE AND RESULTS OF OPERATIONS

Segmented information:

Segmented information:
Three months ended September 30, In$	Licensed	Unlicensed	Total
	2020 2019	2020 2019	2020 2019
Revenue Cost of sales	601,470 5,793,974 646,596 5,647,447	205,229 - 137,606 -	806,699 5,793,974 784,202 5,647,447
Grossprofit(loss)	(45,126) 146,527	67,623 -	22,497 146,527
Nine months ended September 30, In$	Licensed	Unlicensed	Total
	2020 2019	2020 2019	2020 2019
Revenue Cost of sales	2,304,629 7,980,976 2,708,632 7,769,806	691,326 - 466,659 -	2,995,955 7,980,976 3,175,291 7,769,806
Grossprofit(loss)	(404,003) 211,170	224,667 -	(179,336) 211,170

QTD revenue of $806,699 decreased over the same quarter last year (“ QTD 19”) by 86%. The QTD decrease reflects the complications caused by COVID-19, as further explained below, and the shift from low-margin, high revenue sales to sales producing lower revenue with higher margins in the licensed segment. These factors resulted in a QTD reduction of revenue of 90% in the licensed segment, which was partially offset by revenue of $205,229 from the acquisitions of Lulu’s and 2Rise at December 31, 2019. YTD revenue of $2,995,955 decreased dramatically over the same time period from YTD 2019 despite the acquisition growth from Lulu’s and 2Rise of $691,326 and also having Sonoma Pac in operation for a full nine months versus six months last year. The licensed segment YTD revenue was $2.3 million, down from $8.0 million in the same nine months last year due to COVID-19, the temporary spike in pricing of raw materials and as further described below.

Variable gross margin of 16% was up over 200% in Q3 2020 compared to 5% in Q3 2019 and up from 7% in Q2 YTD 2020. The improvement over both periods reflects GABY’s strategy of focusing on profitable sales with the shifting of its revenue mix towards the sale of its (limited) but existing inventory of slower growing but more sustainable higher-margin proprietary products and third-party brands, and the provision of production and other services to third-parties, utilizing its existing distribution and production infrastructure. In 2019, the emphasis was on expansion of the Sonoma Pac footprint through low margin sales which resulted in it effectively tripling its base of dispensaries from 82 to 239.

The improvement over Q2 YTD 2020 also reflects selling in Q1 at reduced margins on the heels of the California wildfires which resulted in temporary closure of Sonoma Pac’s facilities and significantly reduced sales activity in the fourth quarter of 2019. With the slowdown in sales, Sonoma Pac had excess inventory of flower that it had purchased at the height of the market and was required to sell that inventory at reduced margin into Q1 of 2020. Notwithstanding this, YTD variable gross margin was 9% compared to 7% the same period last year.

Further, in Q2 and Q3 2020 sales efforts were partially incapacitated due to the shelter-in-place and social distance policies related to COVID-19. As well, pricing of raw materials temporarily spiked, due in part to lower supply pending the harvest of outdoor flower and the heightened activity in the illicit market (resulting from lower scrutiny by regulators who were temporarily furloughed or unable to travel to physically inspect properties). This pricing spike made buying new raw materials too costly to profitably process and take to market. The Corporation, respecting its commitment to focus on profitable sales as described above, exercised discipline, resisting the temptation to buy expensive flower and biomass

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

knowing it would temporarily reduce revenue. GABY expects that the recent heightened enforcement activity of the regulatory authorities will reduce the likelihood that this anomaly will repeat itself.

Gross margin for the third quarter of 3% was unchanged from the 3% in Q2 2020 and 3% in Q3 2019. This reflects that the decrease in variable gross margin from Q2 was offset by a decrease in the other components of cost of sales per dollar of revenue. In comparison to the same quarter in 2019, this reflects that the increase in variable gross margin was offset by partially fixed production overheads and distribution costs being allocated to a much lower volume of sales.

Selling, general and administration (“ SG&A ”) expenses decreased by $1.5 million and $2.5 million to $1,393,110 and $5,274,847 QTD and YTD, respectively. The decrease over both periods reflects cost-cutting measures implemented in late Q1 2020, which continued in Q2 and Q3 2020, as described previously. Also, consulting fees were $0.1 million and $0.8 million lower on a QTD and YTD basis, respectively, mostly due to investor relations and other fees incurred in respect of the $20 million private placement in June 2019.

Adjusted EBITDA improved by $1.4 million and $2.2 million respectively for the three- and nine-month periods ended September 30, 2020 as compared to the same periods last year. This reflects the decreases in SG&A expenses outlined above, partially offset by the decreases in gross margin over the same periods as outlined above.

Share-based compensation and expenses was $148,353 and $182,745, QTD and YTD, respectively, compared to expenses of $328,907 and $708,259 for the respective periods last year. The decrease in 2020 YTD reflects the forfeiture of sharebased compensation due to staff rationalization in Q2 2020.

Depreciation of property and equipment was $28,044 and $282,211 QTD and YTD, respectively, compared to $170,748 and $234,205 in the same respective periods last year. The YTD increase is mostly due to inclusion of Sonoma Pac operations from April 1, 2019 onwards and KJM operations from July 1, 2019 onwards and additional depreciation on additions subsequent thereto. The QTD decrease reflects all right-of-use assets other than that relating to the Sonoma Pac lease being divested on or before July 1, 2020 and hence having no related depreciation in Q3.

Significant items of Other income (expenses) as reported on the statement of loss include the following:

Interest expense

Interest expense was $72,549 and $446,438 QTD and YTD, respectively, compared to $199,733 and $467,923 the same periods last year. The decrease in interest expense primarily relates to the lease liabilities being reversed in conjunction with the divestiture of right of use assets as described above when the lease agreements other than the Sonoma Pac lease were terminated (all on or before July 1, 2020).

Interest revenue

The interest revenue of $3,851 YTD 2019 was primarily in respect of advances totaling USD 375,000 to Sonoma Pac during Q1 2019. The advances were made in anticipation of GABY’s acquisition of Sonoma Pac on April 1, 2019. Post-acquisition interest income and expense between the two companies is eliminated upon the consolidation of Sonoma Pac.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

Other items of income (expense)

2020:

Gain (loss) on foreign exchange

A foreign exchange gain of $13,754 and a loss of $22,919 was recorded QTD and YTD, respectively, compared to gains of $206,232 and $46,438 in the same periods last year. In 2019, the gains and losses are in respect of settlement and translation of certain working capital balances and includes gains and losses on translation of share-based contingent consideration of USD 1,184,000. In 2020, most of the foreign exchange gains and losses are in respect of translation of USD promissory notes.

Gain on conversion of debt

In January 2020, non-interest-bearing promissory notes with a fair value of $121,124 (USD 90,000), based on the foreign exchange rates in effect on the dates of conversion, were converted into 462,497 common shares with a fair value of $46,250 resulting in a gain on the conversion of debt of $74,874. This gain was partially offset by a loss of $13,619 in Q2 resulting from the issuance of 1,579,025 common shares originally valued at $123,869 to settle $110,250 of accounts payable at a later date after the share price declined.

Government assistance income

The Corporation recognized government assistance income with respect to loans received from government entities at below-market rates of interest and/or with a provision for debt forgiveness, as well as grants received in connection with some of the loans. See Note 16 to the Financial Statements for further detail. The loan discount recognized in conjunction with the recognition of government assistance income reduces the outstanding balance of the loan as presented in the Consolidated Statement of Financial Position, and will result in higher interest expense over the life of the loans.

Impairment recovery in 2020

Actual proceeds received on the disposal of property and equipment, on which impairment losses were taken in 2019, came in higher than estimated resulting in an impairment recovery of $12,338 in 2020.

Penalties and interest on past due taxes

In 2020, the Corporation incurred penalties and interest charges of $133,240 and $368,040, respectively, QTD and YTD, in respect of excise taxes on Cannabis sales which were submitted late. The Corporation has entered into a payment plan with the California Department of Tax and Fee Administration for payments of arrears and intends to seek relief from penalties incurred for late payment of taxes, amongst other reasons, on the basis of the industry wide systemic problem with collections and payments of accounts receivable.

2019:

As further detailed in Note 16, Other items of income (expense) of $1,749,228 QTD and $1,589,434 YTD 2019 mostly arise from the $2.1 million gain on settlement of contingent consideration on Sonoma Pac as further described in the 2019 Annual Financial Statements. The gain arose due to the subsequent decline in the fair value of common shares from the initial estimate of contingent consideration at April 1[st] , 2019 to the final settlement on November 8[th] , 2019. Partially offsetting the gain was: a loss on the divestiture of The Oil Plant (“ TOP ”) on

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

August 28, 2019 of $550,962; and a fair value loss on derivative liability of $6,042 on the warrants issued in respect of the KJM assets, both of which are described further in the 2019 Annual Financial Statements.

Current income tax expense

Although the Corporation is incurring losses, most expenses in respect of cannabis-related activities, other than cost of sales, are not deductible at the federal level in the USA, which resulted in the Corporation recording a current income tax expense of $nil and $5,565 QTD and YTD compared to $40,287 and $140,238 in the comparable periods in 2019.

Deferred tax recovery

The Corporation recorded a deferred income tax recovery of $80,255 and $179,718, QTD and YTD, respectively, compared to $48,060 and $158,877 for the same respective periods last year. The relatively low recovery rate in relation to the net loss reflects that loss carry forwards are subject to a valuation allowance and that for USA federal purposes, expenses other than cost of sales are not deductible.

Net loss from continuing operations

The QTD net loss from continuing operations was $1.4 million compared to $1.7 million QTD 2019 (or $0.3 million lower) and $6.2 million YTD compared to $7.4 million YTD 2019 (or $1.2 million lower). The improvement of $0.3 million in the quarter mostly reflects lower SG&A and depreciation of $1.7 million; mostly offset by a decrease in other income of $1.5 million and lower gross margin of $0.1 million. The improvement of $1.2 million on a YTD basis mostly reflects lower SG&A of $2.5 million and lower share-based compensation and expenses of $0.5 million, mostly offset by a decrease in other income of $1.6 million and lower gross margin of $0.4 million.

Loss from discontinued operations

In March 2020, the Corporation shuttered its operations related to Gabriella’s Kitchen (“ GK ”). Accordingly, the results of GK have been reclassified out of continuing operations as detailed in Note 18 to the Financial Statements. The QTD loss of $0.1 million reflects final costs of shutting down compared to a loss of $0.6 million Q3 2019 and YTD loss of 1.1 million, which includes the operating loss in Q1 of $0.8 million (including a $0.2 million inventory write-off) compared to $2.3 million operating loss in the corresponding time period in 2019. Based on GK’s annualized gross loss and SG&A, GABY stands to save approximately $2.4 million on an annual basis from shuttering these operations.

Net loss and Other comprehensive income (loss)

Other comprehensive loss includes a foreign exchange gain (loss) on the translation of GABY’s self-sustaining USA subsidiaries, of ($156,829) and $556,937, QTD and YTD, respectively, compared to ($124,713) and ($247,996) in the respective comparative periods last year. A loss of $94,525 was reclassified out of other comprehensive income to net loss on divestiture of TOP in 2019 QTD and YTD, compared to $nil in 2020.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

SELECTED QUARTERLY FINANCIAL INFORMATION

CHANGES IN PRESENTATION RELATED TO DISCONTINUED OPERATIONS

The prior periods for 2019 have been restated to reflect reclassifications for the discontinued operations of GK which was shuttered in Q1 2020. The prior period revenue for 2018 has also been restated to reflect reclassifications for the discontinued operations of GK; however, the net loss from continuing operations and net loss per share from continuing operations are not available as these future periods will not be presented in GABY’s comparative financial statements.

REVENUE

Prior to Q4 2018, the activities of GABY were all in the unlicensed segment operating as GK, which were shuttered in Q1 2020. In Q4 2018, GABY first entered the licensed segment with its acquisition of The Oil Plant (“TOP”) which revenue was reported in Q4 2018 and Q1 2019. In Q2 2019 GABY acquired Sonoma Pac which resulted in the revenue increases starting in Q2 2019. The decrease in revenue in Q4 2019 and Q1 2020 reflect that Sonoma Pac was affected by the northern California wildfires which resulted in temporary closure of its facilities and significantly reduced sales activity in Q4 2019, having inventory implications which spilled over into Q1 2020. Q2 2020 decrease in revenue reflects the impact of COVID19 on both operations and the price of raw materials. Q3 2020 was also affected by COVID-19 both for sales and raw material costs, but the marked decrease in Q3 2020 compared to Q3 2019 is primarily due to a shift in strategy to slowergrowing but higher-margin sales.

NET LOSS

The general successive increases in net losses from Q3 2018 to Q1 2020 and in net losses from continuing operations from Q1 2019 to Q1 2020, mostly reflects increased costs required to obtain and maintain public listing obtained in August 2018 and to support GABY’s organic and acquisition growth. The decrease in net loss in Q3 2019 from Q2 2019 mostly reflects a $2.1 million gain on contingent consideration on the Sonoma Pac acquisition as described in the Annual Financial Statements and lower SG&A of $0.9 million mostly on lower advertising and investor relation costs. The increase in net loss in Q4 2019 over Q3 2019 of $10.8 million mainly reflects the effect of the aforementioned $2.1 million gain the prior quarter, $6.9 million of impairment losses and a $1.3 million write-down of inventory. The $9.1 million lower loss in Q1 2020 relative to Q4 2019 is mainly due to the aforementioned impairment loss and inventory write-down and lower SG&A in Q1 2020 as GABY started to shed costs. The lower net loss of $1.8 million in Q2 2020 compared to $4.0 million in Q1 2020 reflects cost saving initiatives discussed in overall performance and results from operations, which continued into Q3 2020.

Q3 2020.
Note a		2020			2019			2018
In $	Q3	Q2	Q1	Q4	Q3	Q2	Q1	Q4
Revenue	806,699	740,202	1,449,054	2,043,650	6,173,178	2,132,827	54,175	117,007
Net loss and loss per share from continuing operations
Net loss	(1,390,964)	(1,687,307)	(3,161,187)	(12,014,477)	(1,724,993)	(4,195,077)	(1,503,411)	Not available
Loss per share	(0.01)	(0.01)	(0.01)	(0.06)	(0.01)	(0.03)	(0.02)	Not available
Net loss and loss per share
Net loss	(1,536,080)	(1,798,161)	(4,000,865)	(13,088,847)	(2,347,919)	(4,971,889)	(2,379,753)	(2,763,274)
Loss per share	(0.01)	(0.01)	(0.02)	(0.07)	(0.01)	(0.04)	(0.03)	(0.03)

a Refer to “CHANGES IN PRESENTATION RELATED TO DISCONTINUED OPERATIONS” above

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

FINANCIAL CONDITION

Readers should refer to Note 1 to the Financial Statements regarding the going concern assumption in conjunction with the discussion below.

The following chart highlights significant changes in the Consolidated Statements of Financial Position from December 31, 2019 to September 30, 2020. As most of the balances are in USD translated into CAD, the accounts are affected by foreign currency fluctuations. The foreign exchange rates of CAD to USD used to translate period-end balances were 1.2964 and 1.3322 on December 31, 2019 and September 30, 2020, respectively.

Line item	Increase	Primary factors explaining change for the nine months ended
	(decrease) in$	September 30, 2020
Current assets	(3,131,920)	Lower cash of $0.6 million used in operations and other lower balances
		mainly due to the shuttering of GK operations; and the collection of
		receivables and lower investment in inventories in Sonoma Pac
Property and	(6,178,709)	Primarily due to reduction of right of use assets on lease terminations
equipment
Intangibles and	450,356	Primarily due to higher exchange rate on translation of USD based
goodwill		intangibles and goodwill
Security deposits	(230,743)	Application of deposits towards rent on termination of leases
Current liabilities	1,818,177	Primarily increase in bank indebtedness and accounts payable while the
before promissory		Corporation arranged for short-term and long-term financing (See
notes payable and		“Liquidity and Capital Resources” discussion below)
convertible debentures
Promissory notes	(272,779)	Issuances during the year more than offset by the conversion of
payable		promissory notes to share capital as described in related party
		transactions
Convertible debentures	13,987	Due to accretion of discount and issuance costs
Lease liabilities	(5,731,766)	Primarily due to elimination of lease obligations on lease terminations
Long-term debt	56,206	Receipt of government assistance loans, offset by discounts recorded to
		apply effective interest method of accounting
Deferred tax liability	(167,592)	Mostly due to recovery provision relating to increased net operating loss
		carryforward provisions
Equity	(4,807,249)	Primarily comprehensive loss of $6.8 million, partially offset by issuance
		of shares of $1.7 million on debt conversion and share issuance. See
		Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

LIQUIDITY AND CAPITAL RESOURCES

Going Concern

Readers should refer to Note 1 to the Financial Statements.

For the nine months ended September 30, 2020 the Corporation had a net loss of $7.3 million and negative cash flow from operations of $1.7 million. For the year ended December 31, 2019, the Corporation had a net loss of $22.8 million and negative cash flow from operations of $17.3 million. As of September 30, 2020, the working capital deficit was $6.7 million. The Corporation continued to incur operating losses in 2020 which were funded by a combination of issuance of: CAD demand promissory notes of $405,000; USD demand promissory notes USD 120,000; government assistance loans totaling $40,000 CAD and USD 248,500; 6,091,424 common shares for $337,505 of services; and 3,033,003 common shares for $250,000 cash from a then director of GABY. These capital injections, plus management of working capital, provided GABY with additional runway to also deal with the impact of COVID-19 which hampered GABY’s ability to fully operate in 2020 to date.

To stem future operating losses, GABY implemented cost cutting measures in 2020, most of which occurred in late March through Q3. This included shedding itself of the traditional food business, consolidation of its office and operations in Santa Rosa, California, which eliminated five out of six office and warehouse leases, and simplifying its structure with rationalization of staff and lowered costs. The foregoing should result in costs savings of over $6 million on an annualized basis. In addition, GABY is changing its revenue mix towards slower growing but more sustainable higher-margin business, such as the sale and self-distribution in mainstream and regulated channels of GABY’s proprietary brands, more strategic procurement, and synergistic third-party brand expansion. The goal is to become profitable on a run-rate basis by the end of 2020.

GABY will need to raise capital to fund its operations and future growth strategy. While the Corporation has been successful in raising capital in the past, there can be no assurance that it will be able to do so in the future. The ability to raise capital may be adversely impacted by uncertain market conditions, including the impact of COVID-19. Should longerterm financing take longer than anticipated, the Corporation will pivot its current operations to focus on selling its services (co-packing) and distributing third-party brands, which requires less working capital investment while allowing it to grow its proprietary brands, albeit more slowly. Management anticipates that these back-up plans will enable it to become cash flow positive sooner and will enable it to support operations over the next year.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

Analysis of Cash Flows

Analysis of Cash Flows
In $	Three months ended September 30,	Nine months ended September 30,
	2020 2019 Increase (decrease) in cash	2020 2019 Increase (decrease) in cash
Net loss Non-cash items	(1,536,080) (2,347,919) 811,839 60,355 (1,092,413) 1,152,768	(7,335,106) (9,699,561) 2,364,455 673,703 (101,242) 774,945
Cash operating loss Non-cash working capital changes	(1,475,725) (3,440,332) 1,964,607 1,230,346 (3,768,901) 4,999,247	(6,661,403) (9,800,803) 3,139,400 4,992,688 (5,730,420) 10,743,108
Operating activities Investing activities Financing activities Foreign currency translation adjustment	(245,379) (7,209,233) 6,963,854 24,434 (1,241,113) 1,265,547 282,890 (895,348) 1,178,238 (23,972) 73,663 (97,635)	(1,668,715) (15,551,223) 13,882,508 101,583 (1,736,676) 1,838,259 835,472 19,514,755 (18,679,283) 3,681 (16,460) 20,141
Increase (decrease) in cash Cash (bank indebtedness), beginning of period	37,973 (9,272,031) 9,310,004 (67,001) 11,536,085 (11,603,086)	(727,979) 2,210,396 (2,938,375) 698,951 53,658 645,293
Cash (bank indebtedness), end of period	(29,028) 2,264,054 (2,293,082)	(29,028) 2,264,054 (2,293,082)

The QTD increase in cash flow before non-cash working capital changes of $2.0 million mainly reflects lower SG&A of $1.5 million and lower losses from discontinued operations of $0.5 million. The increase in non-cash working capital of $5.0 million primarily reflects that after the $20 million private placement in June 2019, GABY repaid a significant amount of its accounts payable, as well as significant decreases in accounts receivable and inventory as compared to the same period in the previous year.

The YTD increase in cash flow before non-cash working capital changes of $3.1 million mainly reflects lower SG&A of $2.5 million and lower losses from discontinued operations of $1.2 million, partially offset by penalties and interest on past due taxes of $0.4 million. The increase in non-cash working capital of $10.7 million primarily reflects that after the $20 million private placement in June 2019, GABY repaid a significant amount of its accounts payable, as well as significant decreases in inventory and prepaid expenses as compared to the same period in the previous year.

The QTD and YTD 2020 investing cashflows of $24,434 and $101,583, respectively primarily reflect proceeds received on the sale of plant equipment from Gabriella’s Kitchen and KJM. The QTD 2019 investing activities of negative $1,241,113 primarily reflect purchases of property and equipment, intangible assets of KJM, and payment of lease deposits, net of cash acquired on the Sonoma Pac acquisition of $168,348. The YTD 2019 investing activities of negative $1,736,676 mostly reflects the investment in the notes receivable to Sonoma Pacific in addition to the QTD items.

QTD financing activities of $282,890 mostly reflect debt and lease servicing, net of proceeds of $336,091 from government assistance loans received. YTD financing activities of $835,472 reflect the foregoing loans plus another $40,000 of the same, the issuance of $0.7 million in 10% promissory notes and $250,000 share issuance proceeds partially offset by debt and lease servicing. The QTD financing activities in Q3 2019 primarily reflect debt and lease servicing and repayment of promissory notes and debentures. The YTD financing activities in Q3 2019 primarily reflect the $20 million proceeds on the June 2019 private placement.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

FINANCIAL INSTRUMENTS

The Corporation's current financial instruments are listed in Note 21 of the Financial Statements.

The Corporation’s activities are exposed to a variety of financial risks, including price risk, credit risk and liquidity risk. The Corporation’s overall risk management program focuses on the unpredictability of financial and economic markets and seeks to minimize potential adverse effects on the Corporation’s financial performance. Risk management is carried out by financial management in conjunction with overall corporate governance.

The Corporation is exposed to the following risks in respect of certain of the financial instruments held:

Interest rate risk

The Corporation’s exposure to interest rate fluctuations is with respect to the use of its bank revolving credits which bears interest at floating rates. The rates are tied to the prime rate of interest. Rate changes are likely to be minimal. The account was closed in September 2020 with an amount owing of $152,080. Alternative payment terms for the outstanding balance have not been set. Assuming the same payment terms for the time being, A 1.00% change in interest rates would change annual interest expense by approximately $1,521.

Credit risk

With the acquisition of Sonoma Pac effective April 1, 2019, the Corporation’s exposure to credit risk changed as customers are slower paying due to the cash nature of the business. In addition, the aging of accounts receivable was affected by the disruption caused by the fires in Northern California as is reflected in the Annual Financial Statements. The Corporation is exposed to credit risk in the event of non-performance by customers. Credit losses totaling about $300,000 were recorded in Q3 for accounts for which collection has become doubtful. With the exception of these amounts, management does not believe that it has significant credit risk associated with its customers as the level of concentrations is less with the acquisition of Sonoma Pac; however, COVID-19 has caused significant economic uncertainty and consequently collection of receivables will likely take longer to collect and is subject to further uncertainty. The maximum credit risk is the fair value of the accounts receivable. The allowance for doubtful accounts and past due receivables is reviewed by management at each balance sheet reporting date. The Corporation updates its estimate of the allowance for doubtful accounts based on the evaluation of the recoverability of accounts receivable balances of each customer considering historic collection trends, the contractual relationship with the customer and the nature of the customer.

Accounts receivable from two customers in the licensed segment in the USA amounted to 37% of gross trade accounts receivable as at September 30, 2020 (December 31, 2019 – two major customers in the licensed segment in the USA amounted to 34%).

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

The following tables outlines the Corporation’s exposure to credit risk for trade receivables by aging of the accounts and by geographic area:

In $	September 30, 2020 December 31, 2019
Trade accounts receivable GST receivable Other accounts receivable	1,489,630 1,726,816 20,484 63,834 11,844 303,065
Allowance for doubtful accounts	1,521,958 2,093,715 (322,548) (5,514)
	1,199,410 2,088,201
Aging: 30 days 60 days 90 days Over 90 days	142,178 869,835 73,615 169,615 4,020 698,817 1,302,145 355,448
	1,521,958 2,093,715
By Geography: Canada United States	45,293 52,544 1,476,665 2,041,171
	1,521,958 2,093,715

Foreign currency risk

With the acquisition of Sonoma Pac and other US entities, the Corporation conducts most of its operations in USD. As at September 30, 2020, the following working capital financial instrument balances were included in the Financial Statements:

In$	USD CAD
Cash Accounts receivable	92,367 123,052 866,324 1,154,117
Total current assets Accounts payable and accrued liabilities Income taxes payable Short-term notespayable	958,691 1,277,169 (3,324,205) (4,428,506) (39,495) (52,615) (70,000) (93,254)
	(2,475,009) (3,297,206)

In addition, the Corporation has promissory notes, long-term debt and lease liabilities totaling USD 846,791 (CAD 1,128,095). As at September 30, 2020, each one cent strengthening (weakening) in the USD relative to the CAD, would increase (decrease) the Corporation’s net comprehensive loss by approximately $33,000 . Most of the Corporation’s exposure to foreign currency risk is in respect of self-sustaining operations. Accordingly, the Corporation has in effect hedged its foreign exchange exposure.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

Other price risk

The Corporation’s exposure to other price risk is limited since there are no significant financial instruments which fluctuate as a result of changes in market prices.

Liquidity risk and capital management

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit lines. The Corporation’s accounts payable and accrued liabilities and current portion of lease liabilities and long-term debt are due within one year. The degree to which the Corporation is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to improve cash flows from operations.

The Corporation manages its liquidity risk through the management of its capital structure and financial leverage as outlined in Note 24 to the Annual Financial Statements. It also manages liquidity risk by continuously monitoring actual cash flows. Due the Corporation being in the initial growth stage of the business life cycle, it uses increased share-based compensation to conserve cash and may rely on bridge financing from key management personnel from time to time.

Off-Balance Sheet Arrangements

The Corporation does not have any special purpose entities nor is it party to any arrangement that would be excluded from the balance sheet, other than the operating lease commitments as disclosed in the notes to the Annual Financial Statements.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

All related party transactions are reviewed by the Audit Committee of the Corporation. Note 4 to the Financial Statements sets out the amounts of related party transactions, the nature of which are further outlined below.

a) Amounts included in Selling, general and administrative expenses

Compensation of key management personnel

Certain services of C-suite executives of GABY were provided through companies controlled by certain shareholders (“ Management Entities ”). The C-suite executives, along with the Board have the authority and responsibility for directing and controlling the activities of the Corporation. Compensation for consulting and marketing services is paid to these C- suite executives for the provision of their services. The directors do not receive cash compensation for services related to the Board, but along with C-suite executives, receive share-based compensation.

Other expenses

One of the Management Entities is reimbursed for expenses incurred by it in respect of GABY’s business. GABY enters into this related party transaction as the Management Entity is responsible for a number of its investment companies and can often provision the services more economically and efficiently. The Management Entity does not charge a mark-up on these expenses.

Consulting fees

The Corporation pays $15,000 per month for general capital markets and merger and acquisitions advisory services from a company controlled by a close family member of a director and officer. In 2020, these ongoing fees, plus $15,750 owing from 2019, were settled through the issuance of common shares as described in Note 11 to the Financial Statements.

Rent included in SG&A expenses

Starting in October of 2018, GABY sublet office space on a month-to month basis from an entity controlled by an officer and director of GABY. The entity charges rent based on the actual rent paid by it in total apportioned to GABY and others based on the percentage of square footage occupied by each party. With the move of GABY’s operations to California in March of 2020, effective April 1, 2020, GABY no longer leases this office space.

b) Amounts included in Cost of sales

Royalties and licensing fees included in cost of sales

A former acquisition of GABY’s, The Oil Plant (“TOP”) paid royalty fees to two entities which owned rights to the underlying intellectual property and which were controlled by a close family member of a then officer and director of GABY. With the divestiture of TOP in 2019, the royalties are no longer applicable.

c) Amounts included in interest expense

From time to time, the Corporation is and has been financed by related parties, often to bridge cash flow needs until the Corporation is able to raise capital. This support is not unusual for companies like GABY which are in the initial growth stage of the business life cycle and in the cannabis industry, where often traditional sources of financing are unavailable.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

d) Due to related parties and other transactions

Shares and promissory notes issued to directors and officers

As described in Note 12a to the Financial Statements, in January 2020, a company controlled by the CEO and co-founder of GABY’s was issued 16,666,666 common shares to settle $1,083,333 owed to it. The settlement was primarily in respect of interest-bearing debt, including a USD 100,000 promissory note issued in January 2020. In 2020, the CEO also injected a further USD 120,000 and CAD 220,000 in return for 10% interest bearing promissory notes for like amounts. Further, on January 27, 2020, 3,033,003 of common shares were issued to a director of GABY for $250,000 cash and in March 2020 a close family member of a KMP advanced $85,000 in return for a 10% interest bearing promissory note. As is common for venture corporations in early stages of the business life cycle, the founder, family and directors often provide capital to support operations.

Convertible debentures March 2019

In connection with the March 1, 2019 issuance of $1.3 million of convertible debentures (see Note 8 to the Financial Statements), the Corporation issued $430,000 of convertible debentures to related parties as follows: $100,000 to and officer and director; $275,000, directly and indirectly, to four directors; and $55,000 to a company that is controlled by a relative of a director and officer of the Corporation. The convertible debentures were issued to these related parties on the same terms and conditions as to unrelated parties to provide bridge financing while the Corporation completed the Private Placement. During 2019, all the related party convertible debentures were repaid with the exception of $100,000 payable to a director and officer, which amount plus accrued interest remains outstanding.

Short term promissory note

Other amounts due and from related parties

Refer to Note 4 to the Financial Statements for further related party transaction detail and amounts owed to and from these related parties in respect of the above-mentioned transactions

These related party transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

Other transactions settled during the period

A promissory note of USD 83,113 (CAD 116,022) assumed on the acquisition of Sonoma Pac was due to an employee and was repaid July 2019. An advance to a director and officer of $61,677 was settled in August 2019 on the divestiture of TOP.

CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

The Corporation adopted no new accounting policies in 2020 except as noted below:

Foreign Currency Translation

In the most recent Annual Financial Statements, it was disclosed that the functional currency of one of the subsidiaries, Gabriella’s Kitchen LLC, was the Canadian dollar. The functional currency was re-evaluated in 2020 and it was determined that given the change in operations of the consolidated entity, including the shift to US dollar operations and the discontinuance of the Canadian operations, the functional currency is now the US dollar effective January 1, 2020. Accordingly, the transactions and balances of Gabriella’s Kitchen LLC are now translated in the same manner as the other subsidiaries. As a result of this change, the translation loss of $64,198 was included in other comprehensive income rather than a translation loss of $72,845 being included in net loss.

Accounting for Government Assistance

The Company applied IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance in relation to receiving the Canada and US government assistance loans and related advances. Government assistance is recognized only when there is reasonable assurance that (a) the Company will comply with any conditions attached to the grant and (b) the grant will be received. Government assistance income is recognized in profit or loss on a systematic basis over the periods in which the Company recognizes the expense for the related costs for which the grants and/or subsidies are intended to compensate, if applicable. If the assistance does not relate to any specific expenditures or asset purchases, the income is recognized in full once the recognition criteria are met.

VOTING SECURITIES AND SECURITIES CONVERTIBLE INTO VOTING SECURITIES OUTSTANDING

As of the date of the MD&A, the Corporation had outstanding:

	Securities exercisable or convertible into Class A voting Common Shares	Securities exercisable or convertible into Class A voting Common Shares	Securities exercisable or convertible into Class A voting Common Shares	Securities exercisable or convertible into Class A voting Common Shares
	Warrants	Stock Options	Special Warrants	RSUs2	Class A voting Common Shares
Outstanding as of the date of the MD&A1	38,404,193	6,165,000	4,522,634	16,435,000	234,302,307
Number of Class A voting Common Shares issuable on the conversion or exercise of outstanding security	38,404,193	6,165,000	6,783,951	16,435,000	67,788,144
					302,090,451

(1) Reflects 2,302,892 shares and 4,435,000 RSUs issued subsequent to September 30, 2020

(2) Outstanding RSUs reflect cancellation of 500,000 units subsequent to September 30, 2020

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

RISKS AND UNCERTAINTIES

Reader’s should refer to Risk Factors in the Corporation’s December 31, 2019 MD&A and to “ISSUERS WITH UNITED STATES CANNABIS-RELATED ACTIVITIES” below.

ISSUERS WITH UNITED STATES CANNABIS-RELATED ACTIVITIES

Canadian Securities Administrators Staff Notice 51-352 (Revised) – Issuers with U.S. Marijuana-Related Activities (“ Staff Notice 51-352 ”) provides specific disclosure expectations for issuers that currently have, or are in the process of developing, cannabis-related activities in the USA as permitted within a particular state's regulatory framework.

In accordance with Staff Notice 51-352, the Corporation will evaluate, monitor and reassess the disclosure contained herein, and any related risks, on an ongoing basis and the same will be supplemented, amended and communicated to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding marijuana regulation. As a result of the Corporation’s direct involvement in distribution of Cannabis edibles (as described herein), the Corporation is subject to Staff Notice 51-352 and accordingly provides the following disclosure.

Nature of involvement and exposure to USA cannabis-related activities

As of September 30, 2020, the Corporation had direct involvement in USA cannabis-related activities through its 100% owned subsidiary, Sonoma Pac, which holds a cannabis distribution license for the State of California issued by the CBCC. The disclosure contained herein reflects the Corporation’s direct involvement with the USA cannabis industry as at September 30, 2020.

The Corporation, through a wholly-owned subsidiary, derives and will continue to derive a substantial portion of its revenues from the cannabis industry in certain states of the USA, which industry is illegal under USA federal law. While some states in the USA have authorized the use and sale of cannabis, it remains illegal under federal law and the approach to enforcement of USA federal laws against cannabis is subject to change. Because the Corporation engages in cannabisrelated activities in the USA, it assumes certain risks due to conflicting state and federal laws. The federal law relating to cannabis could be enforced at any time and this would put the Corporation at risk of being prosecuted and having its assets in the USA seized.

To GABY’s knowledge, some form of cannabis has been legalized in 48 states and Washington, D.C., Puerto Rico, Northern Mariana Islands, US Virgin Islands and Guam as of September 2020. Notwithstanding the foregoing, marijuana remains illegal under U.S. federal law with marijuana listed as a Schedule I drug under the United States Controlled Substances Act of 1970, as amended (the “ Controlled Substances Act ”).

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

and regulated under cannabis laws of the relevant state. Also in 2014, following the Cole Memorandum, the Financial Crimes Enforcement Network under the U.S. Treasury Department notified banks that it would not seek enforcement of money laundering laws against banks that service cannabis companies operating under state law, provided strict due diligence and reporting standards are met. While most banks continue to decline to operate under such strict requirements, a number of local banks have undertaken to service the cannabis industry with basic financial services. Since 2014, the U.S. Congress has annually passed appropriations bills that include a provision, known as the RohrabacherFarr Amendment, now known as the Leahy Amendment (the “ Leahy Amendment ”), which prohibits expenditure of federal budget resources on the enforcement of federal controlled substances laws that interfere with state medical cannabis programs.

In January 2018, former Attorney General Sessions rescinded the aforementioned Cole Memorandum, substituting it with a policy that assigns the enforcement of federal marijuana laws the USA Attorney(s) in each state (“ Sessions Memorandum ”). While there is a risk that these USA Attorneys and the current administration at large may seek to enforce federal drug laws against use that is now permitted under state law, the Leahy Amendment remains in force, preventing the expenditure of Department of Justice budgetary resources on such enforcement against medical cannabis companies. Additionally, Senators Gardner (R-CO) and Warren (D-MA) introduced legislation that would amend the federal Controlled Substances Act to exempt state-legal marijuana activity from its provisions. Public support in the USA for legalization of medical and adult-use cannabis continues to grow, with a majority of the public supporting legalization, which continues to spread under state law.

The Cole Memorandum and the Leahy Amendment gave medical cannabis operators and investors in states with legal regimes greater certainty regarding federal enforcement as to establish cannabis businesses in those states. While the Sessions Memorandum has introduced some uncertainty regarding federal enforcement, the cannabis industry continues to experience growth in legal medical and adult-use markets across the USA. USA Attorney General Jeff Sessions resigned on November 7, 2018. As of his resignation, Matthew Whitaker was the acting USA Attorney General until William Barr was appointed as the USA Attorney General on February 14, 2019. In an April 10, 2019 Senate Appropriations Subcommittee meeting to discuss the Justice Department's budget 2020, in response to a question about his position on the proposed Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, Attorney General Barr stated: “Personally, I would still favor one uniform federal rule against marijuana,” “But if there is not sufficient consensus to obtain that then I think the way to go is to permit a more federal approach so states can, you know, make their own decisions within the framework of the federal law. So we’re not just ignoring the enforcement of federal law.” The STATES Act, if it were to pass, would allow states to determine their own approaches to marijuana. Attorney General Barr said the legislation is still being reviewed by his office but that he would "much rather... the approach taken by the STATES Act than where we currently are.” It is unclear what impact this development will have on USA federal government enforcement policy. Despite the expanding market for legal cannabis, traditional sources of financing, including bank lending or private equity capital is lacking, which can be attributed to the fact that cannabis remains a Schedule I substance under the Controlled Substances Act. These traditional sources of financing are expected to remain scarce until the federal government legalizes cannabis cultivation and sales.

Notwithstanding the foregoing, as part of the Congressional omnibus-spending bill, Congress renewed, through September 30, 2020, the Rohrabacher-Farr Amendment, which prohibits the Department of Justice from expending any funds for the prosecution of medical cannabis businesses operating in compliance with state and local laws. In July 2020 a House subcommittee introduced a base appropriations bill with the amendment included. On October 1 the amendment was renewed through the signing of a stopgap spending bill, effective through December 11, 2020. Should the Rohrabacher-Farr Amendment not be renewed upon expiration in subsequent spending bills, there can be no assurance that the federal government will not seek to prosecute cases involving cannabis businesses that are otherwise compliant with state law. Such potential proceedings could involve significant restrictions being imposed upon GABY or third parties, while diverting the attention of key executives. Such proceedings could have a material adverse effect on GABY’s business,

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

revenues, operating results and financial condition as well as GABY’s reputation, even if such proceedings were concluded successfully in favor of GABY.

Although the Corporation’s activities are compliant with applicable state and local law in the USA, strict compliance with such state and local laws with respect to cannabis may neither absolve the Corporation of liability under USA federal law, nor may it provide a defense to any federal proceeding which may be brought against the Corporation.

There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the USA Congress amends the CSA with respect to medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current federal law. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, the Corporation's business, results of operations, financial condition and prospects would be materially adversely affected.

Service Providers

As a result of any adverse change to the approach in enforcement of USA cannabis laws, adverse regulatory or political change, additional scrutiny by regulatory authorities, adverse change in public perception in respect of the consumption of marijuana or otherwise, third party service providers to the Corporation could suspend or withdraw their services, which may have a material adverse effect on the Corporation’s business, revenues, operating results, financial condition or prospects.

Ability to Access Capital

The Corporation requires equity and/or debt financing to support ongoing operations, to undertake capital expenditures or to undertake acquisitions or other business combination transactions. There can be no assurance that additional financing will be available to the Corporation when needed or on terms which are acceptable. The Corporation’s inability to raise financing through traditional banking to fund ongoing operations, capital expenditures or acquisitions could limit its growth and may have a material adverse effect upon the Corporation’s business, results of operations, financial condition or prospects.

If additional funds are raised through further issuances of equity or convertible debt securities, existing Corporation shareholders could suffer some level of dilution.

Restricted Access to Banking

In February 2014, the Financial Crimes Enforcement Network (“ FinCEN ”) bureau of the USA Treasury Department issued guidance (which is not law) with respect to financial institutions providing banking services to cannabis businesses, including burdensome due diligence expectations and reporting requirements. This guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the Department of Justice, FinCEN or other federal regulators. Thus, most banks and other financial institutions in the USA do not appear to be comfortable providing banking services to cannabis-related businesses, or relying on this guidance, which can be amended or revoked at any time by the federal government. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses. As a result, the Corporation may have limited or no access to banking or other financial services in the USA. The inability or limitation in the Corporation’s ability to open or maintain bank accounts, obtain other banking services and/or accept

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

credit card and debit card payments may make it difficult for the Corporation to operate and conduct its business as planned or to operate efficiently.

Anti-Money-Laundering Laws and Regulations

The Corporation is subject to a variety of laws and regulations domestically and in the USA that involve money laundering, financial recordkeeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), Sections 1956 and 1957 of U.S.C. Title 18 (the Money Laundering Control Act), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, the Criminal Code (Canada) and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the USA and Canada.

In the event that any of the Corporation’s operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the USA were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of the Corporation to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while there are no current intentions to declare or pay dividends on the Corporation’s common shares in the foreseeable future, in the event that a determination was made that the Corporation’s proceeds from operations (or any future operations or investments in the USA) could reasonably be shown to constitute proceeds of crime, the Corporation may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.

Heightened Scrutiny by Regulatory Authorities

For the reasons set forth above, the Corporation’s existing operations in the USA, and any future operations or investments of the Corporation, may become the subject of heightened scrutiny by regulators, stock exchanges and other authorities in Canada. As a result, the Corporation may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on the Corporation’s ability to operate or invest in the USA or any other jurisdiction, in addition to those described herein.

Compliance with State Licensing and Regulatory Frameworks

The Corporation obtains legal advice from its counsel regarding the compliance with applicable state regulatory frameworks and potential exposure and implications arising from federal law of the USA.

Program for Monitoring Compliance and Disclosure of Material Non-Compliance

The following sections present an overview of market and regulatory conditions for the cannabis industry in USA states in which the Corporation is directly involved and is presented as of September 30, 2020, unless otherwise indicated. Although the Corporation’s activities are compliant with applicable USA state and local law, strict compliance with state and local laws with respect to cannabis would neither absolve the Corporation of liability under USA federal law, nor provide a defense to any federal proceeding which may be brought against the Corporation.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

Balance sheet and operating statement exposure to USA cannabis-related activities

Below are the line items of GABY’s consolidated statement of financial position and loss and comprehensive loss which contain USA-cannabis related activities:

*Dollar value and proportion of Applicable Financial Statement line items* *which relates to USA cannabis-related activities for the period ended September 30, 2020*	*Dollar value and proportion of Applicable Financial Statement line items* *which relates to USA cannabis-related activities for the period ended September 30, 2020*
*Consolidated Statement of Financial Position*	$ %
Cash Accounts receivable Inventories Prepaid expenses and deferred costs Property and equipment Intangible assets and goodwill Security deposits	47,555 39 1,092,212 91 244,409 60 99,751 68 1,172,696 97 6,235,026 81 21,075 91
Total assets	8,912,724 83
Accounts payable and accrued liabilities Income taxes payable Long term debt Lease liabilities Deferred tax liability	3,388,994 54 46,339 88 200,488 63 666,245 98 179,602 100
Total liabilities	4,481,668 47
*Consolidated Statement of Loss and Comprehensive Loss* Total revenue Loss from operations1	$ % 2,304,629 77 2,851,781 48

1 Before line items as described in the Consolidated Statement of Loss and Comprehensive Loss

California

In 1996, California voters approved Proposition 215 (the “Compassionate Use Act”), allowing physicians to recommend cannabis for an inclusive set of qualifying conditions including chronic pain. The law established a not-for-profit patient/caregiver system, but there was no state licensing authority to oversee the businesses that emerged as a result of the system. In September of 2015, the California legislature passed three bills, collectively known as the “Medical Marijuana Regulation and Safety Act”. In 2016, California voters passed “The Adult Use of Marijuana Act”, which legalized adult-use cannabis for adults 21 years of age and older and created a licensing system for commercial cannabis businesses. On June 27, 2017, Governor Brown signed SB-94 into law. SB-94 combined California’s medicinal and adult-use cannabis regulatory frameworks into one licensing structure under the Medicinal and Adult-Use of Cannabis Regulation and Safety Act (“ MAUCRSA ”).

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

Emergency Regulations”). The three agencies also released the first draft of their permanent rulemakings in July 2018 and the second draft of their permanent rulemakings in October 2018, which are currently undergoing the rulemaking process (the “Proposed Non-Emergency Regulations”). The Readopted Emergency Regulations will remain in effect until the Proposed Non-Emergency Regulations are formally completed. All three agencies began issuing temporary licenses in January 2018 and are currently evaluating annual license applications. To operate legally under state law, cannabis operators must obtain a state license and local approval. Local authorization is a prerequisite to obtaining state licensure from all three state licensing agencies, and local governments are permitted to prohibit or otherwise regulate the types and number of cannabis businesses allowed in their locality. California has not set a limit on the number of state licenses an entity may hold, unlike other states that have restricted how many cannabis licenses an entity may hold in total or for various types of cannabis activity. Although vertical integration across multiple license types is allowed under MAUCRSA, testing laboratory licensees may not hold any other licenses aside from a laboratory license. There are also no residency requirements for ownership under MAUCRSA.

As of the reporting date of September 30, 2020, the Corporation was directly involved in the distribution of cannabis in California through Sonoma Pac. Sonoma Pac has represented to the Corporation that their respective businesses were conducted in compliance with the regulatory framework enacted by the State of California. Following the respective acquisitions, Sonoma Pac has operated in compliance with all applicable California laws, regulations, and guidelines. Sonoma Pac has been subject to site visits by the CBCC during 2019 and all minor non-conformances noted have been rectified as of the date of this document.

Below is an overview of some of the principal license types issued in California (each of which can be issued with a Medical

(M-Class) or Adult-Use (A-Class) designation):

Type 7: authorized to manufacture cannabis products using volatile solvent extractions.

Type 6: authorized to manufacture cannabis products using mechanical or non-volatile solvent extractions.

Type N: authorized to manufacture cannabis products (other than extracts or concentrates) using infusion processes but does not conduct extractions.

Type P: authorized to only package or repackage cannabis products or relabel the cannabis product container.

Each of the above manufacturing license types is inclusive of the types in the list below it. For example, a Type 7 licensee would be able to perform Type 6, N or P tasks. A Type 6 license could perform Type N or P tasks. A Type N licensee would be able to perform Type P tasks. In addition to these four licenses, MCSB is developing a fifth license type, Type S, for shared-use manufacturing facilities. This license type will be for businesses and facility owners that alternate use of a manufacturing premises.

Type 8: authorized to test the chemical composition of cannabis and cannabis products. Type 9: authorized to conduct retail cannabis sales exclusively by delivery.

Type 10: authorized to sell cannabis goods to customers.

Type 11: authorized to transport and store cannabis goods purchased from other licensed entities and sell them to licensed retailers, and responsible for laboratory testing and quality assurance to ensure packaging and labeling compliance. Type 13: authorized to transport cannabis goods between licensed cultivators, manufacturers, and distributors.

Local Licensure, Zoning and Land Use Requirements

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

process, granting the initial rounds of local authorization to applicants that previously conducted cannabis activity pursuant to the Compassionate Use Act or those that meet the locality’s definition of social equity. Sonoma Pac was granted full zoning and use permits by Sonoma County on March 14, 2019.

Record-Keeping and Continuous Reporting Requirements

California’s state license application process additionally requires comprehensive criminal history, regulatory history and personal disclosures for all owners. Any criminal convictions or civil penalties or judgments occurring after licensure must promptly be reported to the regulatory agency from which the licensee holds a license. State licenses must be renewed annually. Disclosure requirements for local authorization may vary, but generally tend to mirror the State of California’s requirements. Licensees must also keep detailed records pertaining to various aspects of the business for up to seven years. Such records must be easily accessible by the regulatory agency from which the licensee holds a license. Additionally, licensees must record all business transactions, which must be uploaded to the statewide traceability system once the system has been implemented by CalCannabis.

Operating Procedure Requirements

Applicants must submit standard operating procedures describing how the operator will, among other requirements, secure the facility, manage inventory, comply with California’s seed-to-sale tracking requirements, dispense cannabis, and handle waste, as applicable to the license sought. Once the standard operating procedures are determined compliant and approved by the applicable state regulatory agency, the licensee is required to abide by the processes described and seek regulatory agency approval before any changes to such procedures may be made. Licensees are additionally required to train their employees on compliant operations and are only permitted to transact with other legal and licensed businesses.

Site Visits & Inspections

Sonoma Pac will not be able to obtain or maintain state licensure, and thus engage in commercial cannabis activities in the State of California, without satisfying and maintaining compliance with state and local law. As a condition of state licensure, operators must consent to random and unannounced inspections of the commercial cannabis facility as well as the facility’s books and records to monitor and enforce compliance with state law. Many localities have also enacted similar standards for inspections, and the state has already commenced site visits and compliance inspections for operators who have received state temporary or annual licensure. Sonoma Pac has been subject to site visits by the CBCC during 2019 and all minor non-conformances noted have been rectified as of the date of this document.

Compliance Procedures

Since its inception, Sonoma Pac has retained industry experts in California cannabis law as local outside counsel to oversee and monitor compliance with USA state law on an ongoing basis. These experts in the field keep Sonoma Pac fully informed of regulatory changes and recommend standard operating procedures to facilitate the implementation and maintenance of compliant operations, required tracking and license reporting. The Corporation will continue to work closely with the advisors to develop and improve its internal compliance program and will defer to their legal opinions and risk mitigation guidance regarding California’s complex regulatory framework. The internal compliance program, including the update of operational procedures and use of checklists, requires continued monitoring by managers and executives of the Corporation to ensure all operations conform with legally compliant standard operating procedures. In anticipation of future growth, the Corporation is investigating a number of software solutions developed specifically for the cannabis industry to allow for automation of both internal as well as third-party compliance auditing, covering all state and municipal, facility and operational requirements to maintain licensing criteria. Sonoma Pac is required to report and

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

disclose to the Corporation all instances of non-compliance, regulatory, administrative, or legal proceedings that may be initiated against them. Sonoma Pac has been in compliance with the regulatory requirements as they have unfolded throughout 2019 and 2020.

NON-GAAP DISCLOSURE

Adjusted EBITDA from continuing operations does not have any standardized meaning as prescribed by IFRS, and, therefore, is considered a non-GAAP measure and may not be comparable to similar measures presented by other issuers. The non-GAAP measure of adjusted EBITDA from continuing operations, combined with IFRS measures such as revenue and net loss, is a useful measure to our investors and management as it provides a measure of operating cash flows before servicing debt, income taxes, capital expenditures and other gains and losses.

Adjusted EBITDA from continuing operations is calculated as follows:

	Three months ended September 30,	Nine months ended September 30,
In$	2020 2019	2020 2019
Gross profit (loss) as reported in Financial Statements Subtract: Selling, general and administrative expenses Adjusted EBITDA from continuingoperations	22,497 146,527 1,393,110 2,915,766 (1,370,613) (2,769,239)	(179,336) 211,170 5,274,847 7,819,613 (5,454,183) (7,608,443)

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of Canadian securities laws (“forward-looking statements”). Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on management’s current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions of the Corporation. In addition, the Corporation may make or approve certain statements in future filings with Canadian securities regulatory authorities, in press releases, or in oral or written presentations by representatives of the Corporation that are not statements of historical fact and may also constitute forward-looking statements.

All statements, other than statements of historical fact, made by the Corporation that address activities, events or developments that the Corporation expects or anticipates will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words and includes, among others, information regarding: expectations for the effects of any transactions; expectations for the potential benefits of any transactions; statements relating to the business and future activities of, and developments related to, the Corporation after the date of this MD&A, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Corporation’s business, operations and plans; expectations that planned acquisitions will be completed, including but not limited to other potential acquisition(s); expectations that licenses applied for will be obtained; potential future legalization of adult-use and/or medical cannabis under USA federal law; expectations of market size and growth in the USA, California and such other states in which the Corporation has expressed desire to operate in; expectations for other economic, business, regulatory and/or competitive factors related to the Corporation or the cannabis industry generally; and other events or conditions that may occur in the future.

GABY Inc. (formerly Gabriella’s Kitchen Inc.) Management’s Discussion & Analysis September 30, 2020 and 2019

Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance or business developments. These statements speak only as of and at the date they are made and are based on information currently available and on the then current expectations. Holders of securities of the Corporation are cautioned that forward-looking statements are not based on historical facts but instead are based on reasonable assumptions and estimates of management of the Corporation at the time they were provided or made and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties related to: the available funds of the Corporation and the anticipated use of such funds; the availability of financing opportunities; legal and regulatory risks inherent in the cannabis industry; risks associated with economic conditions, dependence on management; risks relating to USA regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti-money-laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to contracts with third-party service providers; risks related to the enforceability of contracts; reliance on the expertise and judgment of senior management of the Corporation, and ability to retain such senior management; risks related to proprietary intellectual property and potential infringement by third parties; risks relating to the management of growth; increasing competition in the industry; risks associated to cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; cybersecurity risks; ability and constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax- and insurance-related risks; risks related to the economy generally; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the difficulty of enforcement of judgments and effecting service outside of Canada; risks related to future acquisitions or dispositions; sales by existing shareholders; limited research and data relating to cannabis; as well as those risk factors discussed under “Risk Factors” described in the Annual Financial Statements.

The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. In particular, but without limiting the foregoing, disclosure in this MD&A as well as statements regarding the Corporation’s objectives, plans and goals, including future operating results and economic performance may make reference to or involve forward-looking statements. Although the Corporation believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Certain of the forward-looking statements and other information contained herein concerning the cannabis industry, its medical, adult-use and hempbased CBD markets, and the general expectations of the Corporation concerning the industry and the Corporation’s business and operations are based on estimates prepared by the Corporation using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which the Corporation believes to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. While the Corporation is not aware of any misstatement regarding any industry or government data presented herein, the cannabis industry involves risks and uncertainties that are subject to change based on various factors.

A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. You should not place undue reliance on forward-looking statements contained in this MD&A. Such forward-looking statements are made as of the date of this MD&A. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The Corporation’s forward-looking statements are expressly qualified in their entirety by this cautionary statement.

SCHEDULE “C” – GABY Annual Financials for the FY 2019

(See attached)

C - 1

GABY INC.

(formerly GABRIELLA’S KITCHEN INC.) CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019 AND 2018 (in Canadian dollars)

August 13, 2020

Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements of Gaby Inc. (formerly Gabriella’s Kitchen Inc.) and all information in Management’s Discussion and Analysis are the responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and, where appropriate, reflect management’s best estimates and judgments. Management is responsible for the accuracy, integrity, and objectivity of the consolidated financial statements within reasonable limits of materiality and has ensured consistency with the financial information presented elsewhere in Management’s Discussion and Analysis.

To assist management in the discharge of these responsibilities, the Corporation has established an organizational structure that provides appropriate delegation of authority, division of responsibilities, and selection and training of properly qualified personnel. Management is also responsible for the development of internal controls over the financial reporting process.

The Board of Directors is assisted in exercising its responsibilities through the Audit Committee of the Board, which is composed of a majority of independent directors. The Committee meets regularly with management and the independent auditors to satisfy itself that management’s responsibilities are properly discharged and to review the financial statements. The Audit Committee reports its findings to the Board of Directors for consideration in approving the consolidated financial statements for presentation to the shareholders. The external auditors have direct access to the Audit Committee of the Board of Directors.

The consolidated financial statements have been audited independently by Davidson & Company on behalf of the shareholders in accordance with generally accepted auditing standards. Their report outlines the nature of their audits and expresses their opinion on the consolidated financial statements.

[signed] Margot M. Micallef Chair & CEO and acting CFO

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Gaby Inc. (formerly Gabriella’s Kitchen Inc.)

Opinion

We have audited the accompanying consolidated financial statements of Gaby Inc. (formerly Gabriella’s Kitchen Inc., the “Company”), which comprise the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of loss and comprehensive loss, changes in shareholders’ equity (deficiency), and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 of the consolidated financial statements, which indicates the Company has had operating losses, negative cash flows from operations and working capital deficiencies. These events and conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information obtained at the date of this auditor's report includes Management’s Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor’s report is Dylan Connelly.

“DAVIDSON & COMPANY LLP”

Vancouver, Canada August 14, 2020

Chartered Professional Accountants

GABY INC. (formerly GABRIELLA’S KITCHEN INC.)

Consolidated Statements of Financial Position

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Consolidated Statements of Financial Position
*In Canadian dollars* Note	As at December 31
	2019 2018
ASSETS Current Cash Accounts receivable 4 Inventories 5 Prepaid expenses and deferred costs 6	698,951 53,658 2,088,201 367,590 1,471,410 592,771 750,338 236,259
Non-current Property and equipment 7 Intangible assets and goodwill 8 Security deposits	5,008,900 1,250,278 7,384,948 534,028 7,217,874 2,775,642 253,817 54,194
Total assets	19,865,539 4,614,142
LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities Accounts payable and accrued liabilities 10 Income taxes payable 24 Short-term notes payable 12 Current portion of lease liabilities 16 Current portion of long-term debt 17	4,207,012 1,510,790 48,349 - 207,424 - 406,068 58,600 80,118 -
Current liabilities before the following: Promissory notes payable 13 Convertible debentures 15 Contingent consideration payable 3	4,948,971 1,569,390 1,463,179 - 635,255 - - 1,615,392
Non-current liabilities Lease liabilities 2,16 Long-term debt 17 Deferred lease inducement 2 Deferred tax liability 24	7,047,405 3,184,782 6,342,261 79,087 177,592 - - 46,942 347,194 332,600
Total liabilities SHAREHOLDERS’ EQUITY Share issuance obligation 18 Share capital 19 Contributed surplus 19 Deficit Accumulated other comprehensive income (loss)	13,914,452 3,643,411 - 511,200 43,068,525 18,218,110 5,373,688 1,270,663 (41,943,032) (19,154,623) (548,094) 125,381
	5,951,087 970,731
Total liabilities and shareholders’ equity	19,865,539 4,614,142
Going concern 1 Contingencies 31 Subsequent events 34

See accompanying notes to the consolidated financial statements

[signed]

On behalf of board: Margot M. Micallef, Director

[signed]

Jackie Altwasser, Director

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.)

Consolidated Statements of Loss and Comprehensive Loss

*In Canadian dollars* Note	Year Ended December 31
	2019 2018
REVENUE Gross revenue Promotional activity Amortization ofproduct listingfees	11,887,741 2,442,236 (770,928) (838,831) (141,321) (111,804)
Total revenue	10,975,492 1,491,601
COST OF SALES Direct inventorycosts 20	10,553,642 1,340,960
Variable gross profit (loss) Allocated indirect costs 21 Distribution costs	421,850 150,641 1,138,846 646,711 192,760 204,196
Total cost of sales	11,885,248 2,191,867
Gross profit (loss) Selling, general and administrative expenses 22 Share-based compensation and expenses 18 Depreciation of plant and equipment 7 Amortization of intangibles 8	(909,756) (700,266) 12,788,201 5,024,538 1,216,624 803,295 517,695 54,430 16,916 15,558
Loss from operations before the following:	(15,449,192) (6,598,087)
Interest expense Interest income Othergains(losses) 23	(770,638) (633,101) 3,851 9,744 (6,899,805) (499,070)
Total other income(expenses)	(7,666,592) (1,122,427)
Loss before income tax expense (recovery) Current income tax expense Deferred income tax recovery	(23,115,784) (7,720,514) 22,280 - (349,655) -
Income tax expense(recovery) 24	(327,375) -
Net loss	(22,788,409) (7,720,514)
Other comprehensive income (loss), net of tax Items that may be reclassified to net profit or loss in the future: Exchange difference on translation Items reclassified to net profit in the current period: Divestiture of subsidiary 3	(578,950) 125,381 (94,525) -
Total comprehensive loss	(23,461,884) (7,595,133)
Net lossper share:
Basic and diluted 25	($0.16) ($0.12)

See accompanying notes to the consolidated financial statements

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.)

Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

*In Canadian dollars* Note	Share issuance obligation Share capital Contributed surplus Deficit Accumulated other comprehensive income(loss) Total
Balance as at December 31, 2017	- 6,544,097 - (11,434,109) - (4,890,012)
Net and comprehensive loss	- - - (7,720,514) 125,381 (7,595,133)
Issuance of shares and warrants for cash 19	- 576,199 98,313 - - 674,512
Issuance of shares and warrants – debt conversion 19	- 4,095,883 698,822 - - 4,794,705
Issuance of warrants attached to convertible debentures 19	- - 102,616 - - 102,616
Share-based compensation 18	511,200 604,510 124,886 - - 1,240,596
Debenture conversion 15	- 5,861,289 (45,529) - - 5,815,760
Warrant exercise 19	- 78,240 (540) - - 77,700
Issued on business acquisition 3	- 457,892 - - - 457,892
Stock option expense 18	- - 292,095 - - 292,095
Balance as at December 31, 2018	511,200 18,218,110 1,270,663 (19,154,623) 125,381 970,731
Net and comprehensive loss	- - - (22,882,934) (578,950) (23,461,884)
Reclassification of comprehensive loss 3	- - - 94,525 (94,525) -
Settlement of share-issuance obligation 18	(511,200) 511,200 - - - -
Issuance of Units 19	- 17,977,518 1,997,502 - - 19,975,020
Issuance of shares subscribed for 19	- 250,000 - - - 250,000
Issued on business acquisitions 3	- 7,780,138 5,000 - - 7,785,138
Equityissuance costs 19	- (2,205,885) 927,140 - - (1,278,745)
Warrant exercise 19	- 216,286 (2,236) - - 214,050
Share-based compensation 18,19	- 779,050 184,664 - - 963,714
Stock option expense 18	- - 1,048,848 - - 1,048,848
Forfeiture of stock options 18	- - (72,236) - - (72,236)
Issuance of warrants attached to convertible debentures 19	- - 81,900 - - 81,900
Issuance of warrants attached topromissorynotes 13	- - 40,625 - - 40,625
Returned to treasuryand stock option cancellation 3	- (457,892) (108,182) - - (566,074)
Balance as at December 31, 2019	- 43,068,525 5,373,688 (41,943,032) (548,094) 5,951,087

See accompanying notes to the consolidated financial statements

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.)

Consolidated Statements of Cash Flows

*In Canadian dollars* Note	Year Ended December 31
	2019 2018
OPERATING ACTIVITIES Net loss Adjustments to arrive at cash flow from operations: Deferred income tax recovery Depreciation 7 Amortization of intangible assets 8 Interest expense Interest income Share-based payments 18 Unrealized foreign exchange loss (gain) Other adjustments 26	(22,788,409) (7,720,514) (349,655) - 813,352 170,132 16,916 15,558 770,638 633,101 (3,851) (9,651) 1,216,624 1,145,011 (97,996) 173,504 5,319,353 (68,868)
Cash used in operating activities before the following: Net change in non-cash workingcapital related to operations27	(15,103,028) (5,661,727) (2,188,069) 515,820
Cash used in operating activities	(17,291,097) (5,145,907)
INVESTING ACTIVITIES Purchase of property and equipment Purchase of intangible assets Issuance of notes receivable Notes receivable – payments received Cash purchased in acquisition 3 Cash divested in divestiture 3 Deposits paid Deposit refunds received	(836,168) (81,954) (512,304) (42,918) (838,288) (1,124,830) - 390,630 184,055 151,258 (5,655) - (219,745) - 1,595 -
Cash used in investing activities	(2,226,510) (707,814)
FINANCING ACTIVITIES Proceeds of promissory notes Proceeds on callable debt Repayment of convertible debenture/ promissory notes Proceeds on convertible debentures, attached warrants 15 Issuance costs paid – convertible debentures 15 Advances from (to) related parties, net 11 Repayment of callable debt Repayment of long-term debt Repayment of lease liabilities Cash received for shares not yet issued Warrant exercise Issuance of common shares and warrants 19 Equity issuance costs 19 Interestpaid	2,799,085 - - 387,960 (2,292,992) - 1,550,000 6,350,000 (27,893) (649,400) (161,062) (8,018) - (408,399) (35,118) (7,308) (387,518) (38,220) - 435,011 214,050 77,700 20,225,020 - (1,028,731) - (542,645) (27,646)
Cashprovided by financing activities	20,312,196 6,111,680
Foreign currency translation adjustment	(149,296) (52,457)
Net change in cash Cash (bank indebtedness), beginning of year	645,293 205,502 53,658 (151,844)
Cash, end of year	698,951 53,658

See accompanying notes to the consolidated financial statements, including Notes 26, 27 and 28

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

NATURE OF BUSINESS

On September 4, 2019, Gabriella's Kitchen Inc. changed its name to GABY Inc. (“GABY” or "the Corporation"). GABY is incorporated in Canada under the Business Corporations Act of Alberta. The Corporation’s registered office is 200, 209 – 8th Avenue SW, Calgary, Alberta T2P 1B8, Canada and it trades on the Canadian Securities Exchange (“CSE”) under the symbol GABY and on the OTCQB under the symbol GABLF. The Corporation is a wellness company that produces and markets health food products, topicals and tinctures in the United States of America (“USA”) and prior to March 2020, produced and marketed health food products in Canada (see Note 34 in respect of the shuttering of traditional food operations). Prior to October 1, 2018, the Corporation only operated in the mainstream consumer packaged goods (“CPG”) channel or unlicensed channel, with its offering of traditional better-for-you foods in both USA and Canada. Subsequent thereto, primarily through the acquisitions described in Note 3, the Corporation now produces, markets, and distributes cannabis-related CPG in the USA.

1) GOING CONCERN

These consolidated financial statements for the years ended December 31, 2019 and 2018 (“Financial Statements”) have been prepared using International Financial Reporting Standards (“IFRS”) applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due.

During 2019, the Corporation continued to implement its strategy of raising equity financing, growing its portfolio of business holdings via acquisition and providing working capital to fund operations. The Corporation’s holdings are in the initial growth stage of the business life cycle and have not yet reached a profitable level of operations. Further, certain of the Corporation’s operations are in the USA cannabis sector which has been legalized by certain USA states but remains federally illegal and is subject to legislative uncertainty.

For the year ended December 31, 2019, the Corporation had a net loss of $22.8 million and negative cash flow from operations of $17.3 million. As at December 31, 2019 the working capital deficit was $2.0 million. Management is continuing to address the need to increase revenue and control costs with the goal of becoming profitable on a run-rate basis by the end of 2020. This included the shuttering of traditional food operations as described in Note 34. In addition, Management continues to obtain bridge financing as described in Note 34 while it plans to secure longer term financing. The novel coronavirus (“COVID-19”) was declared a pandemic by the World Health Organization and has caused significant uncertainty and consequently it is difficult to reliably measure the potential impact of this uncertainty on GABY’s future results.

Historically the Corporation has had operating losses, negative cash flows from operations and working capital deficiencies. Whether, and when, the Corporation can attain profitability and positive cash flows from operations is uncertain. These uncertainties cast significant doubt upon the Corporation’s ability to continue as a going concern.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

requirements, the Corporation will seek financing through debt and equity financings, asset sales, and rights offerings to existing shareholders. The outcome of these matters cannot be predicted at this time.

2) BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Statement of compliance

These Financial Statements were approved and authorized for issue by the audit committee of the Corporation’s board of directors (“Board”) on August 13, 2020.

Basis of presentation

Certain comparative figures have been reclassified to conform to the current year’s presentation.

New accounting standards, interpretations and amendments adopted by the Corporation

IFRS 16, Leases, applies to annual reporting periods beginning on or after January 1, 2019 and was adopted by the Corporation pursuant thereto. IFRS 16 specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

The new accounting policy and the transitional provisions and disclosures are as follows:

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

Policy applicable from January 1, 2019

At inception of a contract, the Corporation assesses whether the contract is, or contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Corporation assesses whether:

The contract involves the use of any identified assets: this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;
The Corporation has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
The Corporation has the right to direct the use of the asset. The Corporation has this right when it has the decisionmaking rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Corporation has the right to direct the use of the asset if either:
The Corporation has the right to operate the asset; or
The Corporation designed the asset in a way that predetermines how and for what purpose it will be used.

This policy is applied to contracts entered into, or changed, on or after January 1, 2019.

At inception or on reassessment of a contract that contains a lease component, the Corporation allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices. However, for the leases of land and buildings in which it is a lessee, the Corporation has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

As a lessee

The Corporation recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentive received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term unless it is reasonably certain that the Corporation will purchase or receive title to the asset at or before the end of the lease term, in which case the asset is depreciated over its useful life regardless of the lease term. The estimated useful lives of right-of use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Corporation’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability are comprised of the following:

Fixed payments, including in-substance fixed payments;
Variable lease payments that depend on an index or a rate, initially measured using the index or rate at the commencement date;
Amounts expected to be payable under a residual value guarantee; and
The exercise price under a purchase option that the Corporation is reasonably certain to exercise, lease payments in an option renewal period if the Corporation is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Corporation is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Corporation’s estimate of the amount expected to be payable under a residual value guarantee, or if the Corporation changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use assets, or is recorded in profit or loss if the carrying amount of the right-of-use assets has been reduced to zero.

The Corporation presents right-of-use assets that do not meet the definition of investment property in property and equipment and lease liabilities separately in the statement of financial position.

Short-term leases and leases of low value assets

The Corporation has elected not to recognize right-of-use assets and lease liabilities for short-term leases of assets that have a lease term of 12 months or less and leases of low value assets including information technology equipment. The Corporation recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Initial adoption

Previously, the Corporation determined at contract inception whether an arrangement is or contains a lease under IFRIC 4. Under IFRS 16, the Corporation assesses whether a contract is or contains a lease based on the definition of a lease as described above.

On transition to IFRS 16, the Corporation elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not re-assessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after January 1, 2019.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

i. Leases classified as operating leases under IAS 17

As lessee, the Corporation previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Corporation. Under IFRS 16, the Corporation recognizes right-of-use assets and lease liabilities for most leases.

At transition, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Corporation’s incremental borrowing rate as at January 1, 2019 (" Discount Rate ”). Right-of-use assets are measured at either:

Their carrying amount as if IFRS 16 had been applied since the commencement date, discounted using the Discount Rate at the date of initial application; or
An amount equal to the lease lability, adjusted by the amount of any prepaid or accrued lease payments.

The Corporation used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:

Applied a single discount rate to a portfolio of leases with similar characteristics;
Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than 12 months of lease term;
Excluded initial direct costs from measuring the right-of-use asset at the date of initial application;
Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

ii. Leases previously classified as finance leases

For leases that were previously classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and

the lease liability at January 1, 2019 are determined as the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date.

Impacts of initial adoption on the Financial Statements

On transition to IFRS 16, the Corporation recognized an additional $851,416 of right-of-use assets and $898,358 of lease liability, with the difference of $46,942 reducing the deferred lease inducement liability to $nil.

When measuring the lease liabilities, the Corporation discounted lease payments using a Discount Rate at January 1, 2019. The weighted average rate applied was 11.2%.

	In$
Operating lease commitment at December 31, 2018 as disclosed in the Corporation’s consolidated financial statements	1,115,093
Above discounted using the Discount Rate at January 1, 2019 Finance lease liabilities recognized as at December 31,2018	898,358
	137,687
Lease liabilities recognized at January1,2019	1,036,045

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

Basis of consolidation

The Financial Statements include the accounts of the Corporation and those of its subsidiaries, which are entities over which the Corporation has control. Control exists when the Corporation has power over an investee, is exposed to or has rights to variable returns from its involvement and has the ability to affect those returns. Intercompany transactions and balances are eliminated on consolidation. The results of operation of subsidiaries acquired during the period are included from their respective dates of acquisitions, being the time at which the Corporation obtains control. The Corporation assesses control through share ownership and voting rights. The following companies have been consolidated in the Financial Statements:

	Registered	Holding	Functional Currency
Gaby Inc. (formerly Gabriella’s Kitchen Inc.)	Alberta, Canada	Parent Company	Canadian dollar
Gabriella’s Kitchen LLC	Delaware, USA	100%	Canadian dollar
Sonoma Pacific Distribution Inc. (“Sonoma	California, USA	100%	United States dollar (“USD”)
Pac”)
KJM Data and Research, LLC	California, USA	80%	United States dollar (“USD”)
GK Brands Inc.	California, USA	100%	United States dollar (“USD”)
2Rise Naturals LLC	Arizona, USA	100%	United States dollar (“USD”)
Raw Chocolate Alchemy Inc.	California, USA	100%	United States dollar (“USD”)

In addition, the Financial Statements include the income and expense accounts of The Oil Plant, Inc. (“TOP”), a California corporation, for the period from October 1, 2018 through August 26, 2019, which is the period that The Oil Plant, Inc. was controlled by GABY.

Intercompany balances and transactions, and any unrealized gains or losses arising from intercompany transactions, are eliminated in preparing the Financial Statements.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

Business combinations

Business combinations are accounted for using the acquisition method when control is transferred to the Corporation. The consideration transferred in the acquisition is generally measured at fair value, along with identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred.

The consideration transferred does not include amounts related to the settlements of pre-existing relationships; such amounts are generally included in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured, and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

Translation of foreign currencies

a. Transactions and balances

The accounts of the Corporation are presented in Canadian dollars. Transactions in foreign currencies are translated at the actual rates of exchange on the date the transaction occurred. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the Canadian dollar at the exchange rate at that date. Revenue and expense transactions are translated using the actual rate on the date of the transaction. Foreign exchange differences arising on translation are recognized in profit or loss. Non-monetary assets and liabilities that are measured at the historical cost, and expenses related to them, are translated using the historical exchange rate at the date of the transaction.

b. Subsidiaries

Items included in the Financial Statements of each entity in the Corporation are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”) and has been determined for each entity within the Corporation.

Where foreign operations are carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy, and the foreign entity does not generate revenue, the functional currency of the foreign subsidiary is determined to be the Canadian dollar. Accordingly, the translation of the subsidiary from foreign currencies to Canadian dollars is accounted for as a translation to the functional currency as described above.

Where foreign operations are carried out with a significant degree of autonomy and generate revenue, the functional currency is different than the presentation currency and its results and financial position are translated into Canadian dollars as follows:

assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position

16 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

income and expenses for each statement of income or loss and statement of comprehensive income or loss are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and
all resulting exchange differences are recognized in other comprehensive income or loss.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognized in other comprehensive income or loss. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate as described above.

Cash

Cash consists of cash on hand and balances with financial institutions. Cash in bank deposit accounts, at times, exceeds federally insured limits.

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of manufactured inventories is based on the first-in first-out method. The cost of procured finished goods and unprocessed raw material inventory is based on weighted average cost. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories includes expenditures incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing the inventories to their existing location and condition. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset or its development when those costs are necessarily incurred for the asset to function in the manner intended by management. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property and equipment.

All assets having limited useful lives are depreciated using the straight-line or declining balance method over their estimated useful lives. In the year of acquisition, depreciation is taken at one-half of the rates below. Internally constructed assets are depreciated from the time an asset is capable of operating in the manner intended by management. No depreciation is recorded on property and equipment that is not available for use.

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

refurbishment or replacement of major components of the asset, when the refurbishment results in a significant extension in the physical life of the component, and in which case, the carrying amount of the replaced part is derecognized. The costs of the day-to-day maintenance of property and equipment are expensed as incurred in profit or loss.

Any gain or loss on de-recognition of an asset is determined by comparing the proceeds from disposal with the carrying amount of property and equipment and is recognized on a net basis in profit or loss.

The residual value, useful life and depreciation method applied to each class of assets are reassessed at each reporting date. The methods of depreciation and depreciation rates applicable for each class of asset are as follows:

Production equipment 4 years Straight-line Other equipment 20% Declining balance Signs 20% Declining balance Furniture and fixtures 20% Declining balance Computer equipment 30-55% Declining balance

Depreciation of leasehold improvements is recorded over the remaining term of the lease plus the first renewal option.

Assets under finance lease

Assets under finance leases are recorded at cost. The Corporation provides for depreciation using the straight-line method over the lesser of the assets’ estimated useful lives, or the lease term, unless buy-out at the end of the lease term is reasonably assured.

Intangible assets

Intangible assets acquired separately are measured at cost on initial recognition. Intangible assets acquired in a business combination are recorded at fair value on the date of acquisition. Subsequent to initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if applicable.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortized over their useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. The methods of amortization and amortization rates applicable for each class of intangible asset with finite life are as follows:

Computer software 55% Declining balance Website costs 55% Declining balance or 3 years Straight-line

Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually at the cashgenerating unit (“CGU”) level. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable.

18 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

The life of the cannabis licenses and permits has been determined to be indefinite. While licenses and permits must be renewed from time to time, they are only subject to being in compliance with the conditions thereto and are perfunctory in nature. In addition, there are currently no legal, regulatory, competitive or other factors that limit the useful lives of these assets.

Goodwill

Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the fair value of the net tangible and intangible assets acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to CGU or groups of CGUs which are expected to benefit from the synergies of the combination. Goodwill is tested annually for impairment.

Impairment

a. Financial assets at amortized cost

An ‘expected credit loss’ impairment model applies, which requires a loss allowance to be recognized based on expected credit losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s original effective interest rate, either directly or through the use of an allowance account. The resulting loss is recognized in profit or loss for the period.

In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously-recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

b. Non-financial assets

The carrying amounts of the Corporation’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If such an indication exists, the recoverable amount is estimated.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of cash inflows from other assets or groups of assets or CGU. The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. Impairment losses recognized in prior years are reviewed by the Corporation at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An asset’s carrying amount, increased through the reversal of

19 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

an impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Financial Instruments

Financial assets and liabilities are recognized when the Corporation becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Corporation has transferred substantially all risks and rewards of ownership.

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

The Corporation classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”), or at amortized cost. The Corporation determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Corporation’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Corporation can make an irrevocable election (on an instrument-by-instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Corporation has opted to measure them at FVTPL.

The Corporation classifies the fair value of financial instruments according to the following hierarchy based on the reliability of observable inputs used to value the instrument.

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1. Prices in Level 2 are either directly or indirectly observable as of the reporting date. Level 2 valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the marketplace.

Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The Corporation’s financial instruments include cash, accounts receivable, accounts payable and accrued liabilities, shortterm notes payable, long-term debt, lease liabilities, promissory notes payable, and convertible debentures. The carrying value of current financial instruments approximate their fair value due to their immediate or short term to maturity, or their ability for liquidation at comparable amounts. The fair value of the Corporation’s non-current financial instruments is approximated by their carrying values as the contractual interest rates are comparable to current market interest rates.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

The Corporation has made the following classifications:

a. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Corporation’s loans and receivables are comprised of trade and other receivables and are included in current assets due to their short-term nature. Loans and receivables are initially recognized at the amount expected to be received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less any provision for impairment.

b. Financial liabilities at amortized cost

Financial liabilities at amortized cost include trade accounts payable and accrued liabilities, long-term debt and obligations under finance lease. Trade payables are initially recognized at the amount required to be paid less, when material, a discount to reduce the payables to fair value. Subsequently, trade payables are measured at amortized cost using the effective interest method. Accrued interest, callable debt, long-term debt and obligations under finance lease are initially recognized at fair value net of transaction costs that are directly attributable to the financial liability, and subsequently at amortized cost using the effective interest method.

c. Compound financial instruments

Convertible debentures, where applicable, are separated into their liability and equity components using the effective interest rate method. The fair value of the liability component at the time of issue was determined based on an estimated interest rate of the debentures without the conversion feature. The fair value of the equity components is determined as the difference between the proceeds received on the issuance of convertible debentures and accompanying equity components and the fair value of the liability component. The total fair value of the equity components is apportioned to the individual equity components based on the relative fair values thereof on the date of issuance as determined using the Black-Scholes option pricing model.

The liability component, net of transaction costs that are directly attributable to the acquisition or issue of the financial liability, is subsequently measured at amortized cost using the effective interest method.

Interest related to the financial liability is recognized in profit or loss. On conversion, the financial liability and amount attributable to the conversion feature previously recognized as contributed surplus is reclassified to equity and no gain or loss is recognized.

21 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

d. Warrants

Warrants that have been issued in combination with common shares or convertible instruments are evaluated under IAS 32 - Financial Instruments: Presentation. Equity classification applies to instruments where a fixed amount of cash (or liability) denominated in the issuer’s functional currency is exchanged for a fixed number of shares (often referred to as the “fixed for fixed” criteria). Warrants that are classified as equity are valued under the Black Scholes Model. If a warrant is exercised, the value of the warrant is included in share capital. If a warrant expires, the value of the warrant is included in contributed surplus.

Research and development costs

The Corporation incurs costs on activities that relate to the research and development of new and existing products. Research costs are expensed as they are incurred. The Corporation capitalizes development costs as incurred when these costs meet the criteria for deferral and amortization pursuant to IAS 38, Intangible assets. Investment tax credits related to the expenditures are recorded when there is reasonable assurance that the credits will be realized. The cost reduction approach is followed whereby investment tax credits related to non-capitalized expenditures are an offset to research and development expense in the year, and investment tax credits related to capitalized expenditures are deducted from the related assets. Investment tax credits are recoverable from the Government of Canada under the Scientific Research and Experimental Development Incentive Programs and are subject to government approval.

Income taxes

Income tax comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a non-discounted basis using tax rate and laws that have been enacted or substantively enacted at the statement of financial statement date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered. Deferred income tax assets and liabilities are presented as noncurrent.

Loss per common share

Basic loss per common share is calculated by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share is calculated by dividing the applicable net loss by the sum of the weighted average number of common shares outstanding and all additional common shares that would have been outstanding if potentially dilutive common shares had been issued during the period. If the Corporation incurs a net loss during a reporting period the calculation of fully diluted loss per share will not include potentially dilutive equity instruments which would reduce the net loss per share.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

Revenue recognition

Revenue from the sale of products is recognized when the risks and rewards of the products have been substantially transferred to the customer (usually on delivery of the goods), which is the Corporation's sole performance obligation. The Corporation experiences few product returns and, accordingly, does not record an obligation for estimated returns. Collection of the Corporation's invoices is consistently high and typically occurs within 90 days of the sale.

Marketing programs provided to customers and operators, including volume rebates, cooperative advertising and other trade marketing programs, are all customer-specific programs to promote the Corporation’s products. Consequently, sales are recorded net of these estimated marketing costs at the time of sale. All other non-customer-specific marketing costs (general advertising, etc.) are expensed as incurred as selling, general and administrative expenses.

Certain customers in the unlicensed segment require payment of one-time listing allowances (or "product listing fees") to obtain space for a new product in their stores. These fees are considered incremental costs of obtaining a contract and, if recovery is expected through sales to the customer in future periods, are capitalized as product listing fees (included in prepaid expenses and deferred costs) and amortized to contra-revenue over the estimated recovery period. Product listing fees that are insignificant or are not estimated to have future economic benefit are recorded to contra-revenue in the period incurred.

Share-based payments

The Corporation has a share option plan which permits the Board to grant options to acquire common shares of the Corporation at an exercise price that is equal to or greater than the market price of the common shares on the date of the grant. Share-based payments to employees, executives and non-employee directors are measured at the fair value of the instruments issued and amortized as compensation expense over the vesting periods with a corresponding increase to contributed surplus.

Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined that fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to:

Contributed surplus - in the case of stock options;

Share issuance obligation - in the case of an obligation to issue a set amount of shares in the future; and Share capital - where common shares are awarded directly.

The fair value of share options is determined using a Black-Scholes option pricing model. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

Consideration paid on the exercise of options is credited to share capital and the associated amount in contributed surplus is reclassified to share capital. When shares are issued pursuant to the share issuance obligations, the corresponding amount is reclassified from share issuance obligation to share capital.

For equity instruments issued in advance of the services being provided, the share capital would be recognized when issued, with a corresponding prepaid expense asset for the portion of services yet to be received.

Critical accounting estimates, judgments and measurement uncertainty

The preparation of these Financial Statements requires management of the Corporation to make judgments in applying accounting policies. Judgments that have the most significant effect on the amounts recognized in the Financial Statements are described below. Management also makes assumptions and critical estimates. Critical estimates are those which are most subject to uncertainty and have the most significant risk of resulting in a material change to the carrying amounts of assets and liabilities within the next year. Judgments, assumptions and estimates are based on historical experience, business trends, and all available information that management considers relevant at the time of the preparation of the Financial Statements. However, future events and their effects cannot be anticipated with certainty; accordingly, as confirming events occur, actual results could differ from those estimates and such differences could be material.

The following discusses the most significant accounting judgments and estimates that the Corporation has made in the preparation of these Financial Statements. The sensitivity analysis below should be used with caution as the changes are hypothetical and the impact of changes in each key assumption may not be linear.

a. Going concern

The assessment of the Corporation's ability to continue as a going concern involves judgment regarding future funding available for its operations and working capital requirements as discussed in Note 1.

b. Business combinations

In a business combination, all identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values. One of the most significant estimates relates to the determination of the fair value of these assets and liabilities. The contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IFRS 9, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss. The amount of contingent consideration to be paid is based on the occurrence of future events, such as the achievement of future revenue targets ("Targets"). Accordingly, the estimate of fair value contains uncertainties, as it involves judgment about the likelihood of achieving these Targets, and changes in fair value of the contingent consideration will result from changes to the assumptions used to estimate the probability of success for

24 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

achieving Targets. A change in the assumed probabilities could have produced different fair value on the acquisition date, which could have a material impact on the results of operations.

For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and any changes in the discount rate applied. Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting for a business combination, they may be adjusted retrospectively in subsequent periods. However, the measurement period will last for one year from the acquisition date.

c. Allowance for doubtful accounts

GABY applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The carrying amount of the receivable is reduced through use of an allowance account, and impaired receivables are derecognized when they are assessed as uncollectible. Accordingly, management establishes an allowance for estimated losses arising from non-payment and other sales adjustments (such as merchant charge backs), taking into consideration customer creditworthiness, current economic trends and past experience. If future collections differ from estimates, future earnings would be affected. See Note 4.

d. Share-based payments

The Black-Scholes option pricing model is used to determine the fair value of stock options and warrants. In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of options, volatility of the Corporation’s future share price, risk free rate, future dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value could result in materially different results.

e. Fair value of financial instruments

The individual fair values attributed to the different components of a financing transaction, notably convertible debentures, were determined using valuation techniques. The Corporation uses judgment to select the methods used to make certain assumptions and in performing the fair value calculations in order to determine: (a) the values attributed to each component of a transaction at the time of their issuance; (b) the fair value measurements for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.

25 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

f. Income taxes

The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Corporation’s ability to utilize the underlying future tax deductions against future taxable income before they expire. The Corporation’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment of the Corporation’s ability to utilize the underlying future tax deductions changes, the Corporation would be required to recognize more or fewer of the tax deductions as assets, which would decrease or increase the income tax expense in the period in which this is determined. See Note 24.

g. Inventories

Management makes estimates of the future customer demand for products when establishing appropriate provisions for inventory. In making these estimates, management considers the product life of inventory and the profitability of recent sales of inventory. In many cases, products sold by us turn quickly and inventory on-hand values are low, thus reducing the risk of inventory obsolescence. However, code or ‘‘best before’’ dates are very important in the determination of realizable value of inventory. Management ensures that systems are in place to highlight and properly value inventory that may be approaching code dates. To the extent that actual losses on inventory differ from those estimated, inventory, net income (loss), and comprehensive income (loss) will be affected in future periods.

h. Property and equipment

Components of an item of plant and equipment may have different useful lives. Management makes significant estimates and judgments when determining asset depreciation rates and useful lives, which require taking into account companyspecific factors, such as our past experience and expected use. The Corporation monitors and reviews asset depreciation rates and useful lives at least once per year, and revises them if they are different from previous estimates. The Corporation recognizes the effect of changes in estimates in net income prospectively. Changes to estimates could be caused by a variety of factors, including changes to the physical life of the assets. A change in any of the estimates would result in a change in the amount of depreciation and, as a result, a charge to net loss recorded in the period in which the change occurs, with a similar change in the carrying value of the asset in the statement of financial position.

Furthermore, property and equipment is reviewed for indicators of impairment at each reporting date. Where impairment indicators are identified, the Corporation uses the fair-value-less-cost-to-sell approach to determine the recoverable amount of the assets included in property and equipment, which drives the conclusion of whether impairment exists, and if it does, the amount of impairment to record.

Fair value less cost to sell is determined based on the best information available to reflect the amount that the entity could obtain from the disposal of the assets in an arm’s length transaction between knowledgeable, willing parties, after deducting costs to sell. This approach requires assumptions to be formulated about the overall physical condition of the assets and the costs involved to sell the equipment.

26 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

Management regularly evaluates these estimates and assumptions. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

i. Intangible assets and goodwill

Management uses estimates in determining the recoverable amount of intangible assets and goodwill. The determination of the recoverable amount for the purpose of impairment testing requires the use of significant estimates, such as:

future cash flows;
terminal growth rates; and
discount rates.

Judgment is also applied in choosing methods of amortizing intangible assets that management believes most accurately represent the consumption of those assets and are most representative of the economic substance of the intended use of the underlying assets. A change in the estimate would result in a change in the amount of amortization and, as a result, a charge to net loss recorded in the period in which the change occurs, with a similar change in the carrying value of the asset in the statement of financial position. See Note 23.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

3) BUSINESS ACQUISITIONS AND DIVESTITURE

The Corporation’s acquisition and divestiture activity is outlined below. The revenue and net loss of the combined entity as though the acquisitions had occurred at the beginning of the annual reporting period have not been provided as it is impractical to provide due to the acquired entities not being audited under IFRS before the acquisition date.

I. Acquisition of Sonoma Pac a) Description

On, April 1, 2019, the Corporation acquired 100% of the issued and outstanding equity of Sonoma Pac, a cannabis distribution and marketing company. Through the acquisition, the Corporation obtained a Provisional Type 11 distribution license (“Type 11 License”) issued by the Bureau of Cannabis Control in the State of California; the distribution facility and related assets located in Santa Rosa, California; and the Sonoma Pacific brand under which a number of products are sold. The acquisition date fair value of the total consideration is as follows:

Note	USD CAD
14,719,567 common shares earned in respect of 2018 target 3.I b) 2,530,433 excess common shares issued held in escrow in respect of 2019 target 3.I b) Contingent considerationpayable based on 2019 target 3.I b)	3,087,250 4,121,479 530,727 708,521 2,936,330 3,920,000
Total estimated consideration	6,554,307 8,750,000
The amounts recognized as of the acquisition date are as follows: Cash Accounts receivable – fair and gross value, estimate 100% recoverable Inventory Prepaid expenses and deposits Plant and equipment 7 Security deposits Intangibles – Type 11 License 8 Net deferred tax liability 24 Accounts payable and accrued liabilities Income taxes payable 24 Due to related party Lease liability 16 Long-term debt 17 Notespayable to the Corporation 3.I e)	126,103 168,348 6,533,563 8,722,307 991,858 1,324,130 6,500 8,678 551,793 736,644 14,076 18,791 2,163,146 2,887,800 (455,971) (608,721) (9,087,393) (12,131,670) (99,706) (133,108) (122,173) (163,101) (549,637) (733,765) (21,506) (28,711) (375,000) (500,625)
Net identifiable liabilities assumed Add: Goodwill 3.I d)	(324,347) (433,003) 6,878,654 9,183,003
	6,554,307 8,750,000

28 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

b) Consideration including contingent consideration

The total consideration was payable in the Corporation’s common shares and was contingent upon performance targets in respect of Sonoma Pac’s calendar year of 2018 and 2019 as follows:

1) 2018 target: Based on Sonoma Pac’s 2018 revenue of United States Dollars (“USD”) 4,696,674 as reported in its audited financial statements for the year ended December 31, 2018, 14,719,567 Common Shares were payable in respect of performance targets (based on translation of USD to Canadian dollars (“CAD”). The common shares were valued at the closing price of $0.28 at April 1, 2019.
2) 2019 target: The number of common shares issuable is equal to 0.35 times the increase in verifiable licensed revenue of Sonoma Pac for the year ended December 31, 2019 over 2018 verifiable licensed revenue attributable solely to the verifiable revenue-generating assets of Sonoma Pac acquired by GABY (“2019 Earn-out”) translated into Canadian dollars, divided by the volume-weighted average price of the common shares for the 20-day period ending on the day following the public release of GABY’s 2019 consolidated financial statements. Based on initial assigned probabilities of different outcomes incorporating results reported by Sonoma Pac to date of the acquisition plus estimated verifiable revenue to the end of fiscal 2019 and an estimate of the percentage of the verifiable revenue generated from the revenue-generating assets of Sonoma Pac acquired by GABY, the Corporation recorded contingent consideration payable of USD 2,936,330 or CAD 3,920,000 is payable in respect of the 2019 target.

Pursuant to the closing, 17,250,000 shares were issued in escrow (“Escrow Shares”), with the amount and timing of release thereof to Sonoma Pac shareholders subject to final verification of the 2019 Earn-out. As there were 2,530,433 excess shares held in escrow in respect of meeting the 2019 target valued at $708,521, the Corporation originally recorded total contingent consideration payable of $3,920,000. On November 8, 2019, the Corporation negotiated a settlement of the 2019 target with the additional issuance of 14,000,000 common shares with a fair value of $0.13 at time of issuance, which reduced the contingent consideration payable to $1,820,000 and resulted in a gain on contingent consideration liability of $2,100,000.

A total of 26,875,000 of the common shares issued pursuant to this transaction are subject to an escrow condition as follows:

6,250,000 to be released upon perfunctory approvals or earlier if the common shares 20-day volume-weighted average trading price (" VWAP ") is equal to or greater than $3.00
6,875,000 to be released the earlier of one year and if VWAP is equal or greater than $1.00
6,875,000 to be released the earlier of two years and if VWAP is equal or greater than $2.00
6,875,000 to be released the earlier of three years and if VWAP is equal or greater than $3.00

Although the shares are held in escrow, the beneficial holders are entitled to dividends and votes thereon and the release from escrow is perfunctory. Therefore, the shares have been recorded as fully outstanding.

29 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

c) Acquisition cash flows

c) Acquisition cash flows
In$	2019 2018
Cash consideration Less cash acquired on acquisition	- - 168,348 -
Net cash inflow – investing activities	168,348 -

d) Goodwill

The composition of goodwill included the knowledge and experience of Sonoma Pac in respect of distribution of cannabis products in the state of California; its established relationship with reputable cannabis cultivators and manufacturers; as well as the expected synergies from the combination of Sonoma Pac’s distribution license and the manufacturing, distribution and pending cultivation licenses acquired subsequently together with GABY’s consumer packaged goods expertise. The goodwill recognized had $nil tax value.

e) Pre-existing arrangements

As a result of the acquisition, a 5% short-term note receivable plus interest receivable thereon, amounting to USD 375,000 (CAD 500,625) were eliminated on consolidation against the same amounts due from Sonoma Pac. The interest income and interest expense in respect of the 5% short-term note receivable/payable were eliminated on consolidation effective April 1, 2019. The short-term note payable by Sonoma Pac is included in the determination of Sonoma Pac’s net assets in the determination of goodwill.

f) Acquisition costs

Acquisition-related costs of $31,682 that were not directly attributable to the issue of shares are included in selling, general and administrative expenses in the statement of loss and comprehensive loss and in operating cash flows in the statement of cash flows.

g) Revenue and loss contribution

Revenue and net loss from the Sonoma Pac acquisition included in the results of the Corporation for the period from April 1, 2019 to December 31, 2019 were $9,819,278 and $4,706,478, respectively, excluding the impairment charge to goodwill of $5,900,000 (see Note 23). The revenue and net loss of the Corporation for 2019 would have been $21,072,920 [Unaudited] and $23,287,781 [Unaudited], respectively, has the acquisition of date for Sonoma Pac occurred on January 1, 2019.

30 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

II. Acquisition of 2Rise Naturals LLC (“2Rise”) a) Description

On December 31, 2019 the Corporation acquired all the issued and outstanding shares of 2Rise. 2Rise owns a portfolio of high-quality organic CBD products. 2Rise’s products are focused on the CBD supplement market and complement GABY’s existing CBD line.

The Corporation is in the process of obtaining a valuation of the underlying assets of 2Rise, including its intangibles and goodwill, and is also determining 2Rise’s working capital balances. The acquisition date fair value of the total consideration is as follows:

is as follows:
Note	USD CAD
5,780,000 common shares issued on acquisition 3.II b) 500,000 warrants 3.II b) Additionalpayments(inventory)	423,558 549,100 3,857 5,000 5,652 7,327
Total estimated consideration The amounts recognized as of the acquisition date are as follows: Cash 3.II c) Accounts receivable Inventory Accounts payable and accrued liabilities Income taxes payable Due to relatedparty	433,067 561,427 5,430 7,040 9,000 11,668 17,396 22,552 (1,159) (1,503) (2,510) (3,255) (600) (778)
Net identifiable liabilities assumed Add: Goodwill 3.II d)	27,557 35,724 405,510 525,703
	433,067 561,427

b) Consideration

GABY acquired all issued and outstanding shares of 2Rise in an arm’s-length transaction through issuance of common shares of GABY to the holders of 2Rise shares in exchange for all issued and outstanding 2Rise shares. As part of the transaction, GABY issued 500,000 warrants providing the right to purchase 500,000 GABY common shares at a price of $0.45 for a period of two years.

31 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

c) Acquisition cash flows

c) Acquisition cash flows
In$	2019 2018
Cash consideration Less cash acquired on acquisition	- - 7,040 -
Net cash inflow – investing activities	7,040 -

d) Goodwill

The composition of goodwill includes knowledge and experience of 2Rise in respect of manufacturing and wholesale of skincare products in the United States, as well as the expected synergies from the combination of Sonoma Pac’s distribution license together with GABY’s consumer packaged goods expertise. Any goodwill recognized has $nil tax value.

e) Acquisition costs

Acquisition-related costs of $16,626 that were not directly attributable to the issue of shares are included in selling, general and administrative expenses in the statement of loss and comprehensive loss and in operating cash flows in the statement of cash flows.

f) Revenue and loss contribution

As the acquisition date was the last day of the year, revenue and net loss from the 2Rise acquisition included in the results of the Corporation for the year are $nil.

As of the date of these consolidated financial statements, the determination of fair value of assets and liabilities acquired is based on preliminary estimates and has not been finalized.

III. Acquisition of Lulu’s Chocolate a) Description

On December 31, 2019, GABY acquired 100% of the member shares of Raw Chocolate Alchemy LLC (d.b.a. Lulu’s Chocolate). Lulu’s CBD-infused chocolates are sold in grocery stores across the United States. In addition, Lulu’s THCinfused chocolates are sold in dispensaries in California.

32 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

The Corporation is in the process of obtaining a valuation of the underlying assets of Lulu’s Chocolate, including its property, plant and equipment and its intangibles and goodwill, and is also determining Lulu’s Chocolate’s working capital balances. The acquisition-date fair value of the total consideration is as follows:

Note	USD CAD
6,116,193 common shares issued on acquisition 3.III b) Promissory notes issued to former members 3.III b)	448,193 581,038 105,000 136,122
Total estimated consideration The amounts recognized as of the acquisition date are as follows: Cash 3.III c) Accounts receivable – fair and gross value, estimate 100% collectible Inventory Prepaid expenses and deposits Plant and equipment 7 Accounts payable and accrued liabilities 10 Other notes and amounts payable 12 Note and amountspayable to the Corporation and its subsidiaries 3.III e)	553,193 717,160 6,686 8,667 25,091 32,528 99,943 129,566 78,238 101,427 19,412 25,166 (24,520) (31,787) (27,987) (36,283) (295,051) (382,504)
Net identifiable liabilities assumed Add: Goodwill 3.III d)	(118,189) (153,220) 671,382 870,380
	553,193 717,160

b) Consideration

GABY acquired all issued and outstanding shares of Lulu’s in an arm’s-length transaction through issuance of common shares of GABY to the holders of Lulu’s member shares in exchange for all of Lulu’s member shares. As part of the Transaction, GABY issued promissory notes totaling USD 105,000 to various former members of Lulu’s.

c) Acquisition cash flows

c) Acquisition cash flows
In$	2019 2018
Cash consideration Less cash acquired on acquisition	- - 8,667 -
Net cash inflow – investing activities	8,667 -

d) Goodwill

The composition of goodwill would includes knowledge and experience of Lulu’s in respect of manufacturing and wholesale of chocolate products in the state of California, as well as the expected synergies from the combination of Sonoma Pac’s distribution license together with GABY’s consumer packaged goods expertise. Any goodwill recognized has $nil tax value.

33 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

e) Pre-existing arrangements

In contemplation of the Corporation’s acquisition of Lulu’s, it and is subsidiaries advanced USD 295,051 (CAD 382,504) to Lulu’s prior to the close of the acquisition. The payable by Lulu is included in its net assets in the determination of goodwill and pursuant to the acquisition, such amount is eliminated against the offsetting receivable of the Corporation. Included therein, is a short term payable previously due from Lulu’s for USD 40,000 which the Corporation assumed immediately prior to and in contemplation of the close of the acquisition.

f) Acquisition costs

Acquisition-related costs of $30,981 that were not directly attributable to the issue of shares are included in selling, general and administrative expenses in the statement of loss and comprehensive loss and in operating cash flows in the statement of cash flows.

g) Revenue and loss contribution

As the acquisition date was the last day of the year, revenue and net loss from the Lulu’s acquisition included in the results of the Corporation for the year are $nil.

As of the date of these consolidated financial statements, the determination of fair value of assets and liabilities acquired is based on preliminary estimates and has not been finalized.

34 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

IV. TOP Acquisition (2018) and Divestiture (2019) a) Description

On October 1, 2018 the Corporation acquired 100% of issued and outstanding equity of TOP, a cannabis extractor and infused product manufacturer located in Northern California. The acquisition included: a Type-6 non-volatile manufacturing licence (“Type 6 Licence”); a cannabis extraction and infusion facility in the state of California; a nonexclusive licence held by TOP to access an extensive database (“Database”) of formulations and other associated health attributes to create cannabis-infused products; and the rights to the trademark “Aunt Zelda’s™ (“AZ trademark”) for 10 years, which is a brand of proprietary, infused topicals and tinctures, which utilize TOP’s extracts.

The acquisition-date fair value of the total consideration is as follows:

Note	USD CAD
1,115,578 common shares issued Contingent considerationpayable based on 2019 revenue targets	357,644 457,892 1,184,000 1,515,875
Total consideration 3.IV b) The amounts recognized as of the acquisition date are as follows: Cash Accounts receivable – fair and gross value, estimate 100% collectible Inventory Prepaid expenses and deposits Plant and equipment 7 Intangibles – Type 6 Licence 8 Goodwill 3.IV d) Net deferred tax liability 24 Accounts payable and accrued liabilities Due to related party Deferred lease inducement liability Note and amountspayable to the Corporation 3.IV e)	1,541,644 1,973,767 118,143 151,258 23,146 29,634 132,401 169,513 16,839 21,559 109,996 140,828 991,000 1,268,777 1,012,771 1,296,651 (243,796) (312,132) (19,845) (25,408) (6,587) (8,433) (9,455) (12,105) (582,969) (746,375)
	1,541,644 1,973,767

b) Consideration including contingent consideration

The total consideration was payable in the Corporation’s common shares and was contingent upon performance targets in respect of TOP’s calendar year of 2018 and 2019 as follows:

1) In calendar 2018, TOP met 100% of its performance targets and therefore in October 2018, its sole shareholder, a director of the Corporation (at the time), was issued 1,115,178 common shares of the Corporation valued at the 20day weighted average trading price of the Corporation’s share on the acquisition date of October 1, 2018, for total fair value of USD 357,544 (CAD 457,892) The number of common shares was based on deemed maximum consideration of USD 250,000 divided by a fixed price of CAD 0.28 translated at the foreign exchange rate on the same date to USD 0.2242 per share.
35 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

2) In calendar 2019, contingent consideration up to a maximum of USD 1,850,000 payable in the Corporation’s shares based on prevailing market price, calculated and paid quarterly, subject to meeting a revenue target of USD 10,000,000 in fiscal 2019 (“Earnout”). The contingent consideration amount of USD 1,850,000 is adjusted in proportion to the percentage of meeting the Earnout (subject to maximum of 100%). The range of value of common shares to be issued is USD nil to USD 1,850,000 or CAD nil to CAD 2,368,555 using the USD/CAD exchange rate on the date of acquisition of October 1, 2018. Based on the assigned probabilities of different outcomes, the Corporation recorded contingent consideration payable of USD 1,184,000 (CAD 1,515,875), which assumes achievement of 64% of the Earnout.

As the number of shares issuable in respect of the contingent consideration was variable, it had been recorded as a liability and was remeasured at each reporting date, with changes recognized in profit or loss until the final sharebased consideration is determined. As the Corporation divested of its interest in TOP as described in Note h below, there is nil contingent consideration as at December 31, 2019 (2018 - $1,615,392).

c) Acquisition and divestiture cash flows

sition and divestiture cash flows
In$	2019 2018
Cash consideration Less cash acquired on acquisition Cash divested in divestiture	- - - 151,258 (5,655) -
Net cash inflow – investing activities	(5,655) 151,258

d) Goodwill

The composition of goodwill included knowledge and experience of TOP management in respect of manufacturing cannabis products with industry-leading quality. The goodwill had $nil tax value.

e) Pre-existing arrangements

As a result of the acquisition, a 5% short-term note receivable plus interest receivable thereon, plus a non-interest bearing advance to TOP amounting to USD 631,161 (CAD 860,303) were eliminated on consolidation against the same amounts due from TOP. The interest income and interest expense in respect of the 5% short-term note receivable/payable were eliminated on consolidation effective October 1, 2018. The short-term note payable by TOP was included in the determination of TOP’s net assets in the determination of goodwill.

f) Acquisition costs

Acquisition-related costs of $14,776 that were not directly attributable to the issue of shares are included in selling, general and administrative expenses in the statement of loss and comprehensive loss and in operating cash flows in the statement of cash flows for the year ending December 31, 2018.

36 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

g) Revenue and loss contribution

TOP contributed revenues of $117,007 and incurred net loss of $129,309 to the group for the period from October 1, 2018 to December 31, 2018. For the period from January 1, 2019 through August 26, 2019 (divestiture date), TOP contributed revenues of $61,176 and incurred net loss of $759,215 to the group.

h) Divestiture

With its acquisition of the cannabis licenses and permits described in Note 8, the manufacturing license owned by TOP became redundant, and therefore, effective August 26, 2019, GABY divested entirely of its 100% interest therein through the termination of the original sales and purchase agreement with the original sole shareholder and former director of GABY, Mara Gordon. Pursuant thereto, 1,115,178 common shares originally issued on the transaction were returned and cancelled; all amounts due to and from GABY and its subsidiaries and TOP were cancelled and forgiven; and any and all obligations to issue additional common shares to Ms. Gordon were terminated. A loss on divestiture of $550,962 was recognized in the statement of loss and comprehensive loss. TOP’s results of operations up to the date of separation are included in the licensed operating segment. Accumulated other comprehensive income of $94,525 relating to TOP up to the date of separation has been reclassified out of other comprehensive income to net loss during the year ended December 31, 2019.

The loss on divestiture is comprised of the following:

The loss on divestiture is comprised of the following:
In $ Note	2019
Cancellation of common shares – original book value 18 Cancellation of contingent consideration	457,892
	1,570,221
Return of consideration Net book value of TOP at time of disposal: Intangibles and goodwill 8 Plant, property and equipment 7 Other assets and liabilities	2,028,113

	2,657,401
	640,076
	(718,402)
Total of net book value of TOP	2,579,075
	550,962

37 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

4) ACCOUNTS RECEIVABLE

ACCOUNTS RECEIVABLE
In$, Balance comprised of:	2019 2018
Trade accounts receivable GST receivable Other accounts receivable	1,726,816 313,121 63,834 66,298 303,065 41,882
Sub-total before allowance Allowance for doubtful accounts	2,093,715 421,301 (5,514) (53,711)
	2,088,201 367,590
Aging of receivables:
30 days 60 days 90 days Over 90 days	869,835 227,450 169,615 114,085 698,817 12,716 355,448 67,050
	2,093,715 421,301
Exposure by geographic area:
Canada United States	52,544 130,193 2,041,171 291,108
	2,093,715 421,301

Trade accounts receivable bear normal commercial credit terms, usually 30 days or less, and are not interest bearing.

5) INVENTORIES

INVENTORIES
In$, Balance comprised of:	2019 2018
Raw and semi-finished materials Packaging materials Finishedgoods	124,161 229,922 147,040 74,805 1,200,209 288,044
	1,471,410 592,771

Inventories expensed in cost of sales for the year amounted to $11,885,248 (2018 - $2,191,867). Total write-downs of inventory amounted to $1,262,109 (2018 - $55,976). These amounts resulted from write-offs of inventory that expired, as well as a write-down of inventory (see Note 23) to estimated net realizable value and are included in other expenses as "Loss on inventory write-down".

6) PREPAID EXPENSES AND DEFERRED COSTS

6) PREPAID EXPENSES AND DEFERRED COSTS
In$, Balance comprised of:	2019 2018
Prepaid expenses Product listingfees	750,338 51,146 - 185,113
	750,338 236,259

38 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

Of the amounts above, $1,773 is expected to be recovered more than twelve months after the end of the reporting period (2018 - $91,800). Prepaid product listing fees of $134,703 were expensed at year-end and included in Other gains (losses) on the statement of loss and comprehensive loss (see Note 23 a))

7) PROPERTY AND EQUIPMENT

Property and equipment, which includes right-of-use assets, is summarized as follows:

In$ Note	Right-of use assets - facilities Right-of use assets - equipment Equipment - finance lease All other property and equipment Total	Right-of use assets - facilities Right-of use assets - equipment Equipment - finance lease All other property and equipment Total
Balance as at December 31, 2017
Cost	- - 54,450 687,114 741,564
Accumulated depreciation	- - (13,052) (392,178) (405,230)
Net book value	- - 41,398 294,936 336,334
Additions Acquired on business acquisition 3 Depreciation1 Effect of foreign exchange2	- - 145,287 72,748 218,035 - - - 140,828 140,828 - - (22,808) (147,324) (170,132) - - - 8,963 8,963
Balance as at December 31, 2018
Cost	- - 199,737 909,916 1,109,653
Accumulated depreciation	- - (35,860) (539,765) (575,625)
Net book value	- - 163,877 370,151 534,028
Jan 1, 2019 adoption of IFRS 16 2 Additions Acquired on business acquisitions 3 Divestiture 3 Depreciation1 Impairment loss Effect of foreign exchange2	851,416 163,877 (163,877) - 851,416 5,932,236 - - 1,106,397 7,038,633 695,977 - - 65,833 761,810 (471,757) - - (168,319) (640,076) (503,608) (74,099) - (235,645) (813,352) - (33,199) - (256,443) (289,642) (33,054) - - (24,815) (57,869)
Balance as at December 31, 2019
Cost	6,876,295 163,877	- 1,852,539 8,892,711
Accumulated depreciation, impairment losses and foreign exchange	(405,085) (107,298)	- (995,380) (1,507,763)
Net book value	6,471,210 56,579	- 857,159 7,384,948
		2019 2018
1Depreciation recognized was allocated to the following accounts:
Cost of sales		223,182 100,019
Inventories		72,475 15,683
Depreciation of plant and equipment		517,695 54,430
		813,352 170,132

39 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

Detail of other property and equipment by type is as follows:

In $	Production equipment Leasehold improve- ments Equipment Vehicles Signs Furniture and fixtures Computer equipment Total
Balance as at December 31, 2017
Cost 508,290 31,818 92,452 - 15,947 20,770 17,837 687,114
Accumulated depreciation (304,557) (5,025) (59,329) - (6,581) (10,995) (5,691) (392,178)
Net book value 203,733 26,793 33,123 - 9,366 9,775 12,146 294,936
Purchase - 61,762 3,826 - - 2,060 5,100 72,748 Acquired on business acquisition 47,456 5,310 - - - 88,062 - 140,828 Depreciation (115,703) (8,203) (7,006) - (1,873) (6,950) (7,589) (147,324) Foreign exchange2 3,007 337 - - - 5,619 - 8,963
Balance as at December 31, 2018
Cost 558,855 99,238 96,278 - 15,947 116,661 22,937 909,916
Accumulated depreciation (420,362) (13,239) (66,335) - (8,454) (18,095) (13,280) (539,765)
Net book value 138,493 85,999 29,943 - 7,493 98,566 9,657 370,151
Purchase 435,666 243,407 8,700 357,759 - 22,993 37,872 1,106,397 Acquired on business acquisition 22,696 11,787 - 28,880 - 1,672 798 65,833 Disposed in business divestiture (37,115) (56,344) - - - (74,860) - (168,319) Depreciation (110,911) (39,047) (14,980) (34,443) (1,499) (17,268) (17,497) (235,645) Impairment loss (75,879) (165,206) - - (5,994) (6,122) (3,242) (256,443) Foreign exchange2 (9,605) (3,943) - (8,100) - (2,943) (224) (24,815)
Balance as at December 31, 2019
Cost 957,669 287,874 104,978 377,765 15,947 46,979 61,327 1,852,539
Accumulated depreciation and impairment losses (594,324) (211,221) (81,315) (33,669) (15,947) (24,941) (33,963) (995,380)
Net book value 363,345 76,653 23,663 344,096 - 22,038 27,364 857,159

2Foreign exchange difference arising on translation of foreign operation into Canadian dollars.

40 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.)

Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

8) INTANGIBLE ASSETS AND GOODWILL

	Definite life intangibles Indefinite life intangibles (note b)
In $ Note	Computer software Website costs Cannabis licenses and permits Goodwill Total
Balance as at December 31, 2017
Cost	20,924 28,066 - - 48,990
Accumulated amortization	(9,760) (23,946) - - (33,706)
Net book value	11,164 4,120 - - 15,284
Additions Acquired on business acquisition 3 Amortization Effect of foreign exchange1	- 42,918 - - 42,918 - - 1,268,777 1,296,651 2,565,428 (6,141) (9,417) - - (15,558) - - 83,110 84,460 167,570
Balance as at December 31, 2018
Cost	20,924 70,984 1,351,887 1,381,111 2,824,906
Accumulated amortization	(15,901) (33,363) - - (49,264)
Net book value	5,023 37,621 1,351,887 1,381,111 2,775,642
Additions a) Acquired on business acquisition 3 Divestiture 3 Amortization Impairment losses 23 Effect of foreign exchange1	- - 591,120 - 591,120 - - 2,887,800 10,579,087 13,466,887 - - (1,314,264) (1,343,137) (2,657,401) (2,969) (13,947) - - (16,916) (2,054) (23,674) (583,380) (5,900,000) (6,509,108) - - (128,860) (303,490) (432,350)
Balance as at December 31, 2019
Cost	20,924 70,984 3,387,683 10,313,571 13,793,162
Accumulated amortization and impairment losses	(20,924) (70,984) (583,380) (5,900,000) (6,575,288)
Net book value	- - 2,804,303 4,413,571 7,217,874

1Foreign exchange difference arising on translation of foreign operation into Canadian dollars.

a) Acquisition of separately acquired intangibles of KJM Data and Research, LLC (“KJM”)

On July 25, 2019, GABY acquired 80% of the issued and outstanding member shares of KJM for USD 400,000 ($591,120), and has the right to purchase the remaining 20% of KJM member shares subject to certain licensing milestones and other conditions, in exchange for the grant of a two-year warrant for USD 200,000 worth of GABY common shares at an exercise price to be established at the closing price of GABY common shares one trading day prior to the closing of the remaining 20% purchase (“KJM Future Warrants”).

KJM currently has four use permits issued by Sonoma County: manufacturing; cultivation; nursery and distribution. A Provisional State License for Type 6 (non-volatile) manufacturing has been issued by the Bureau of Cannabis Control (“BCC”) of the State of California and an application for a cultivation license from the California Department of Food and Agriculture was in process at the time of acquisition.

41 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

The foregoing licenses acquired through the member share purchase did not constitute a business combination and the transaction was therefore accounted for as an asset acquisition. The total purchase price of USD 450,000 represented 100% of the ownership interest in KJM, as the transfer of the remaining 20%, while subject to BCC approval, was expected to occur due to the passage of time, and is comprised of USD 400,000 in cash plus USD 50,000 being the fair value attributable to the derivative liability of the KJM Future Warrants (see Note 14). Further, the 20% interest is held in title only and is not entitled to any beneficial rights, including voting and distributions, or obligations thereto, including any possible funding requirements.

Subsequent to December 31, 2019, the KJM licences were abandoned and, accordingly, an impairment loss of the full USD 450,000 attributable to the licenses has been recorded (See Note 23).

b) Carrying amount of intangible assets with indefinite useful lives and goodwill by CGU

Cash generating unit Note Unlicensed operating segment: Lulu’s i 2Rise i	Indefinite life intangibles Goodwill - 870,380 870,380 - 525,703 525,703
Licensed operatingsegment(Sonoma Pac) ii	2,804,303 3,017,488 7,421,791
	2,804,303 4,413,571 8,817,874

i) Both Lulu’s and 2Rise value of goodwill is based on the purchase price paid on December 31, 2019 as detailed in Note 3. The allocation of the purchase price to the underlying assets, including to possible indefinite life intangibles and goodwill, is still subject to final adjustments.
ii) Sonoma Pac’s carrying amount of indefinite life intangibles and goodwill is based on fair value less costs of disposal as detailed in Note 23.

9) BANK INDEBTEDNESS

A demand operating loan has been authorized by TD Canada Trust to a maximum of $150,000 (2018 - $150,000), which bears interest at the bank's prime lending rate plus 3.00% per annum and is secured by a general security agreement and an assignment of insurance. The prime rate at December 31, 2019 and December 31, 2018 was 3.95%. No amounts were outstanding under the demand operating loan as of December 31, 2019 and December 31, 2018.

42 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

10) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

10) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Balance comprised of:	In $
	2019 2018
Trade accounts payable Credit cards payable Payroll liabilities Accrued liabilities Sales,excise,and user taxespayable	2,086,398 1,171,405 6,462 7,637 248,288 28,900 918,841 302,848 947,023 -
	4,207,012 1,510,790
Aging of trade accounts payable:
30 days 60 days 90 days Over 90 days	800,686 356,617 468,068 528,478 192,673 61,695 594,971 224,615
	2,086,398 1,171,405

As of December 31, 2019, trade accounts payable includes $235,199 (December 31, 2018 - $295,211) due to shareholders, key management personnel, and other related entities in respect of services described in Note 11.

43 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

11) RELATED PARTY TRANSACTIONS

	In $
	2019 2018
a. Amounts included in Selling, general and administrative expenses: Compensation of key management personnel (“KMP”)1: Cash compensation for services provided by separate management entities Cash compensation to individuals Share-based compensation	346,205 430,000 706,518 39,685 647,075 226,833
Total compensation of KMP Other expenses paid on behalf of the Corporation by an entity controlled by a director and officer Consulting fees paid to a company controlled by a close family member of a KMP Rent charged by a company controlled by a director and officer b. Amounts included in Cost of sales: Royalty and licensing fees paid to a company controlled by a close family member of a KMP c. Amounts included in Interest expense: Interest on convertible debentures to directors and entities controlled by directors Interest on convertible debentures to entity controlled by person related to officer and director of the Corporation Interest paid to a director in respect of short-term promissory notes as described in Note 13 Interest paid to an entity controlled by an officer and director in respect of USD promissory note described in Note 13 (USD 5,131) Interest on callable debt to shareholders and an entity related by common ownership d. Convertible debentures issued (netted as issue cost of convertible debenture issued at the time): Finder’s fees paid to a company significantly influenced by a person who is a family member who was a controlling shareholder at the time. 285 Compensation Warrants for finder’s fees issued to the same company above, in connection with the issuance of convertible debentures and at the time were netted against the convertible debentures.	1,699,798 696,518 291,429 185,738 45,000 - 43,873 10,565 16,868 7,544 26,188 - 2,328 - 3,091 - 6,773 - 10,119 - 205,230 - 47,330

1 KMP consist of those that have the authority and responsibility for planning, directing and controlling the activities of the Corporation, which includes the most senior executive team (C-suite executives) and the Board.

44 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

	In$
e. Due to or from related parties included in statement of financial position Note	2019 2018
Included in Promissory notes payable: To directors and entities controlled by directors Included in Convertible debentures: To entity controlled by directors Included in Accounts payable and accrued liabilities Compensation payable to KMP or their separate management entities Other amounts due to KMP Interest payable in respect of c) above Rent payable to a company controlled by an officer and director Amounts due on reimbursements of other expenses in a) above Consulting fees payable to a company controlled by a close family member of a KMP Royalties and licensing fees payable to a company controlled by a close family member of a KMP	698,693 - 100,000 - 91,875 145,867 9,621 - 4,973 - 3,839 3,586 108,326 106,442 15,750 - - 9,516
f. Advances from (to) related parties, net Repayment of related party payables acquired on Sonoma Pac acquisition 3 Repayment from(advances to)KMP of TOP	(162,026) - 964 (8,017)
	(161,062) (8,018)

12) SHORT-TERM NOTES PAYABLE

The Corporation issued or assumed various non-interest-bearing promissory notes in connection with or as a result of the Lulu’s acquisition totaling $207,424 (USD 160,000) at December 31, 2019 (2018 – nil). These notes include USD 70,000 (CAD 90,748) that are due in cash on the closing of the next financing transaction undertaken by the Corporation generating proceeds of at least $500,000. The remaining USD 90,000 (CAD 116,676) were settled in shares of the Corporation subsequent to December 31, 2019 (Note 34).

13) PROMISSORY NOTES PAYABLE

13) PROMISSORY NOTES PAYABLE
Note	In $
	2019 2018
Due to related parties: USD promissory note payable, including interest accrual of $6,758 (USD 5,131) a Promissorynotepayable,includinginterest accrual of$617 b	448,076 - 250,617 -
Sub-total of promissory notes payable to related parties Due to others: Promissory note payable, including interest accrual of $18,233 c	698,693 - 468,233 -

45 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

GABY INC.(formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 *In Canadian dollars, unless otherwise stated*
Promissorynotespayable,includinginterest accrual of$46,253	d	296,253	-
		1,463,179	-

a) The promissory note is for a principal amount of USD 340,500 that is payable on demand to an officer and director of the Corporation. The note accrues interest, which is payable monthly in arrears, at a rate of 10% per annum on the unpaid portion of the principal until the principal is repaid in full. Interest is also due at the same rate on any overdue interest amounts.
b) The promissory note, payable to a director of the Corporation, accrues interest, which is payable monthly in arrears, at a rate of 10% per annum on the unpaid portion of the principal until the principal is repaid in full. The note matures on the earlier of the first business day following the date on which the Corporation receives proceeds of an equity or debt financing in excess of $5 million; and March 31, 2020.
c) The promissory note accrues interest at a rate of 5% per annum compounded annually, has a three-month initial term which ended July 25, 2019, and can be repaid at any time without penalty. As the initial term has ended, the note has been automatically extended and is now payable on demand.
d) Three promissory notes totaling $1,250,000 were issued in May 2019 which accrue interest at a rate of 12% per annum compounded annually and can be repaid at any time without penalty subject to a minimum of 1% interest on the principal. The initial term of the notes has ended, and the remaining notes are now payable on demand. The counterparties of these notes received a loan fee of 3% of the principal, as well as an aggregate total of 312,500 warrants as incentive to issue the notes (see Note 19).

14) DERIVATIVE LIABILITY

In conjunction with the purchase of assets as described in Note 8a, GABY issued the KJM Future Warrants, which is a derivative liability and was initially recognized at its fair value of $65,902 (USD 50,000). Subsequent changes in fair value of the KJM Future Warrants are recognized through profit and loss. The issuance of the KJM Future Warrants was classified as an option liability, as it will be settled through the issuance of a variable number of warrants based on the exchange rate and trading price of GABY’s common shares at the time of settlement. At December 31, 2019 the KJM Future Warrants were valued at $54,585 (USD 42,105), resulting in a gain on fair value of derivatives of $10,477 (USD 7,895) for the year ended December 31, 2019 (2018 - $nil). In consideration of events subsequent to December 31, 2019, including the abandonment of the licences purchased to which the future settlement of the derivative liability was tied, the derivative liability was adjusted to $nil at December 31, 2019, the gain being recorded as an offset to the impairment loss recorded on the related licences.

46 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

15) CONVERTIBLE DEBENTURES

The following table summarizes the outstanding balance and changes in the amounts recognized in the components of the convertible debentures during the periods:

the convertible debentures during the periods:
	In $
	2019 2018
Beginning balance Gross proceeds received Issue costs – legal fees and commissions Equity component – 650,000 warrants(2018-22,225,000) Equity component – conversion feature	- - 1,550,000 6,350,000 (27,893) (1,037,080) (81,900) (57,087) - (45,529)
Liability component initially recognized	1,440,207 5,210,304
Repayments Interest accretion expense on warrants and legal Converted to common shares	(892,992) - 88,040 605,456 - (5,815,760)
Ending balance of convertible debentures	635,255 -

a) 2019 convertible debentures

The Corporation received gross proceeds of $1,300,000 from a non-brokered private placement of 1,300 units (“Units”) of the Corporation at a price of $1,000 per Unit (“Offering”). Each Unit is comprised of a secured convertible debenture in the principal amount of $1,000 (“Debentures”) and 500 common share purchase warrants (“Purchase Warrants”) (See Note 18). The Corporation also received gross proceeds of $250,000 from a private placement of 250 Debentures. The Debentures accrue interest at a rate of 15% per annum and mature March 1, 2021. The principal of the Debentures, plus any accrued and unpaid interest thereon, are redeemable by the Corporation and retractable by the holder of the Debenture, at the option of such party, at any time after May 30, 2019 up to and including March 1, 2021. Over that same time period, the holder of the Debenture also has the option to convert the principal amount of the Debentures, plus any accrued and unpaid interest thereon, at the greater of: (i) $0.37; or (ii) the last closing price of the Corporation’s common shares. The Debentures are secured by a general security agreement granted by the Corporation.

b) 2018 convertible debentures

A total of 6,350 convertible debentures with a face value of $1,000 and 22,225,000 warrants (“Warrants”) (See Note 19) were issued by the Corporation on June 13, 2018 for total gross proceeds of $6,350,000. The convertible debentures were contingently convertible as explained below and would have otherwise matured December 13, 2018 at their face value plus accrued interest a rate of 10% per annum. The convertible debentures were convertible into Class A common shares of the Corporation (“Common Shares”) at a price of $0.2857 per Common Share at the holder’s option any time up to the maturity date; however pursuant to certain events (“Conversion Event”), one of which occurred on August 28, 2018 with the Corporation’s shares being approved for listing on the Canadian Securities Exchange, resulted in the automatic conversion of the convertible debentures into Common Shares at a rate of $0.2857 per Common Share for no additional consideration. Accordingly, the convertible debentures with a face value of $6,350,000 automatically converted into 22,226,092 Common Shares, resulting in a reduction of convertible debentures by $5,815,760 (including interest accretion accruals up to that date); an increase in share capital of $5,861,289 and decrease in contributed surplus of $45,529. 47 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

In conjunction with the 2018 issuance, the Corporation also issued 1,076,776 Common Shares, 1,076,776 Warrants and 482 “Compensation Warrants” as compensation to broker and advisory agents (“Brokers’ fees”). Each Compensation Warrant entitles the holder thereof to acquire 3,500 Common Shares and 3,500 Warrants for $1,000, or effectively one Common Share and one Warrant at a combined price of $0.2857 per share up to June 13, 2020. As detailed in Note 18, this share-based compensation was valued at $387,680. The Brokers’ fees, plus legal, commission and advisory fees of $649,400 paid in connection with the issuance were netted against the convertible debentures and were accreted as interest expense up to August 28, 2018.

c) Fair value of convertible debentures

The convertible debentures were separated into their liability and equity components using the effective interest method. The fair value of the liability component was determined based on an estimated rate of 18.95% (2018 – 13.2%) for convertible debentures without the conversion feature or attached warrants. The fair value of the equity components of the warrants and the conversion feature was determined as the difference between the face value of the convertible debentures and the fair value of the liability component and apportioned to the Warrants and conversion feature based on their relative values using the Black-Scholes option pricing model. However, the conversion feature of the 2019 convertible debentures was determined to have no value and, as such, the equity portion was allocated all to the Purchase Warrants. The fair value was allocated as follows:

	Issue Date
In$	March 2019 June 2018
Convertible debenture fair value Embedded option to convert the liability into equity 650,000 Purchase Warrants(2018 – 22,225,000 Warrants)	1,468,100 6,247,384 - 45,529 81,900 57,087
Totalproceeds received	1,550,000 6,350,000

d) Interest expense

Total interest for the year ended December 31, 2019 relating to the convertible debentures, including coupon interest and accretion of issuance costs and debenture discount, is $197,907 (2018 - $605,456).

48 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

16) LEASE LIABILITIES

The Corporation is obligated under various lease agreements, which are summarized below. Several of the facilities leases require escalating payments. The current payment as of December 31, 2019 is shown in the summary below, and the future escalating payments are reflected in the estimated future payment tables below. Management has determined that it is reasonably certain that GABY will exercise all options to extend the leases below. Accordingly, the lease terms used to calculate the lease liabilities include the renewal periods where applicable.

alculate the lease liabilities include the renewal periods where applicable.
Finance leases, all secured by asset financed, due: Monthly instalments (CAD) including interest Interest	In $
	2019 2018
Ontario, Canada production facility April2023 9,821 11.17%	334,247 -
California, USA facilities June 2026 with extension to June 2031 56,207 11.17% May 2022 with extension to May 2025 11,927 11.17% Sept 2022 with extension to Sept 2027 10,026 11.17%	5,002,873 - 649,760 - 682,666 -
	6,335,299 -
Production equipment July 2021 2,634 9.00% February 2021 1,186 15.90% June 2021 587 13.48% June 2020 387 8.34% September 2020 346 16.93% September 2020 296 14.13% 2019	46,487 72,624 15,067 25,946 9,514 14,874 2,296 6,701 2,904 6,249 2,515 5,482 - 5,811
	78,783 137,687
Total lease liabilities Less current portion	6,748,329 137,687 (406,068) (58,600)
Long-term lease liabilities	6,342,261 79,087

49 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

Estimatedpayments on finance leases are as follows	In $
2020 2021 2022 2023 2024 Thereafter	1,144,570
	1,130,551
	1,132,814
	1,068,656
	1,070,136
	6,105,895
Total future minimum lease payments Less amount representinginterest	11,652,622
	(4,904,293)
Finance lease obligations	6,748,329
Estimatedprincipal repayments are as follows

2020 2021 2022 2023 2024 Thereafter	406,068
	445,492
	499,455
	491,981
	549,938
	4,355,395
	6,748,329

A reconciliation of the balance of lease liabilities for the year 2019 is as follows:

Note	In$
Recognized at January 1, 2019 2 Recognized after January 1, 2019: Acquired on business acquisition 3 Additions related to new lease agreements Divestitures 3 Total cash outflows for leases Initial payments capitalized to right of use assets Variable lease payments not included in the measurement of lease liabilities Portion of lease payments allocated to interest expense (2018 - $13,596) Guarantee fee - GABY warrants Effects of changes in foreign exchange rate	1,036,045

	733,765
	5,850,372
	(503,295)
	(1,069,204)
	67,167
	259,309
	424,006
	(15,446)
	(34,390)
Balance at December 31,2019	6,748,329
Less currentportion	(406,068)
Non-currentportion as at December 31,2019	6,342,261

To entice the lessor of the major California facility to approve the lease, GABY paid a lease guarantee fee in warrants to purchase its common shares (Note 18), the fair value of which has been added to the lease liability and included in the lease summary and the future payment schedules.

See Note 7 for information regarding the related right-of-use assets and depreciation of those assets.

50 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

17) LONG-TERM DEBT

Long-term debt consists of vehicle finance loans secured by the vehicles financed as follows:

Repayable in monthly instalments, including interest of: Interest Matures	In $
	2019 2018
USD 448 4.9% Sept 2023 USD 875 1.9% April 2023 USD 707 1.9% April 2023 USD 743 2.90% June 2023 USD 620 5.24% Sept 2022 USD 1,150 5.24% Sept 2022 USD 1,150 5.24% Sept 2022	23,756 - 43,924 - 35,479 - 38,446 - 24,635 - 45,735 - 45,735 -
	257,710 -
Less: currentportion	(80,118) -
	177,592 -

Principal repayments are scheduled as follows:

2020	80,118
2021	83,359
2022	75,321
2023	18,912
2024	-
	257,710

51 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

18) SHARE-BASED PAYMENTS AND SHARE ISSUANCE OBLIGATION

Amounts recognized from share-based payment transactions during the year are as follows:

In $ Note	2019 2018
Share-based payments included in operating expenses: Stock option plan employee compensation and consulting fees 18a Cancellation of options (TOP divestiture) Forfeiture of options	1,048,848 292,095 (108,182) - (72,236) -
Total expense relating to stock option plan Consulting services settled through issuance of warrants 18b Consultingservices settled through issuance of shares 18c	868,430 292,095 110,808 - 237,386 511,200
Total share-based payments included in operating expenses Other expenses: Interest expense – accretion of warrants issued with promissory notes Othergains and losses 18c	1,216,624 803,295 40,625 - - 341,716
Total share-based expenses included in net loss and comprehensive loss	1,257,249 1,145,011
Other share-based payments: Share-based compensation offset against convertible debentures 18e Share-based compensation netted against common shares 18c Broker warrants issued, netted against common shares 18d	- 387,680 250,000 - 927,140 -
Total share-basedpayments	2,434,389 1,532,691

a. Stock option plan

The Corporation adopted an incentive stock option plan (the "Option Plan") which provides that the Board may from time to time, in its discretion, grant to directors, officers, employees and consultants of the Corporation, non-transferable options ("Options") to purchase Common Shares. The purpose of the plan is to advance the interests of the Corporation and its shareholders by attracting, retaining and motivating such directors, officers, employees and consultants and to encourage and enable such persons to acquire and retain a proprietary interest in the Corporation through ownership of Common Shares.

The Option Plan provides that, subject to the requirements of the Exchange, the aggregate number of securities reserved for issuance, set aside and made available for issuance under the Option Plan may not exceed 10% of the issued and outstanding Common Shares at the time of granting of Options (including all Options previously granted by the Corporation).

The number of Common Shares which may be reserved in any 12-month period for issuance to any one individual upon exercise of all Options held by that individual may not exceed 5% of the issued and outstanding Common Shares of the Corporation at the time of grant.

52 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

The Option Plan is to be administered by the Board, or a committee thereof, either of which has full and final authority with respect to the granting of Options under the Option Plan.

The exercise price of any Options granted under the Option Plan shall be determined by the Board, but may not be less than the market price of the Common Shares on the Exchange on the date of the grant. The term of any Options granted under the Option Plan shall be determined by the Board at the time of grant but provided that the term of any Options may not exceed ten years. Options granted up to December 31, 2019, including the affect of the amendment described below, vest evenly on the anniversary dates from the original grant date at either 33% per year, or 1/3 immediately and two anniversary dates following; and in one case 1/3 immediately and 2/3 in year two. Options are not transferable or assignable, other than by will or other testamentary instrument or pursuant to the laws of succession.

Subject to certain exceptions, if a director or officer ceases to hold office, any Options held by such person will expire 60 days after they cease to hold office. Subject to certain exceptions, if an employee or consultant ceases to act in that capacity in relation to the Corporation, Options held by such person will expire 60 days after they cease to act in that capacity in relation to the Corporation.

Set out below are summaries of options granted under the Corporation stock option plan:

	2019 Average exercise price per option in $ Number of options	2018
		Average exercise price per option in $ Number of options
Opening Granted Exercised Expired Forfeited / cancelled Stock option amendment Cancellation Issuance	$0.39 3,375,000 $0.43 10,315,000 - - - - $0.48 (1,900,000) $0.50 (5,660,000) $0.27 5,660,000	- - $0.39 3,375,000 - - - - - - - - - -
Closing	$0.30 11,790,000	$0.39 3,375,000
Vested and exercisable atperiod end	$0.27 3,155,000	$0.36 908,333

In October 2019, stock options originally issued at an exercise price of $0.50 were either cancelled (5,660,000) or forfeited (650,000). Approximately 94% of the options cancelled had remaining lives of over nine years with original vesting evenly over five years and the remaining 6% originally vested over two years and had remaining lives of four to five years. Concurrently, a total of 5,660,000 stock options were issued in place of the cancelled options at an exercise price of $0.27 vesting one third each, immediately and on the first and second anniversary date. Accordingly, the new stock options were treated as amendments where the incremental fair value (if applicable) of the new stock options over the fair value of the cancelled stock options as at the date of cancellation are recognized as an expense over the new vesting period. The fair value of the new options was determined as outlined in the table below (October 2019) and was equal to or less than the fair value of the replaced options determined as at the date of cancellation based on the same assumptions, except for the higher exercise price of $0.50 and longer assumed life of five years. As such, the incremental value was

53 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

$nil. Therefore, the remaining original fair value of the cancelled options will be amortized over the revised shorter vesting period.

Share options outstanding at the end of the year have the following range of exercise prices and weighted average remaining contractual life:

Share options outstanding at the end of the year have the following remaining contractual life:	range of exercise prices and weighted
2019 Exercise price Number Weighted average contractual life in years	2018
	Number Weighted average contractual life in years - - - - 1,775,000 4.68 - - - - 1,600,000 8.89 3,375,000 6.68
$0.125 300,000 4.89 $0.270 5,890,000 4.77 $0.286 1,625,000 3.68 $0.350 25,000 4.32 $0.360 3,950,000 4.60 $0.500 - -
11,790,000 4.56

Fair value of options granted

The options are granted for no consideration. The weighted average fair value of the options granted during year of $0.16 per option (2018- $0.23) was determined using the Black Scholes Model, which takes into account the following inputs:

Grant dates Exercise price Share price at measurement date	Average Risk free interest rate1 Expected volatility2 Expected life in years Expected dividend yield
January 2019 $0.50 $0.29 April 2019 $0.35 $0.35 August 2019 $0.36 $0.36 October 2019 $0.27 $0.27 November 2019 $0.125 $0.125	1.90% 80% 5 0%
	1.53% 80% 5 0%
	1.53% 80% 3 0%
	1.50% 80% 2 0%
	1.52% 80% 2 0%

1 Based on interest rates of Government of Canada Bonds with similar maturity at the date of grant

The amount included in Share-based compensation and expenses for the year was $868,430 (2018 - $292,095), and is classified as contributed surplus on the Corporation’s consolidated statement of financial position. Of the foregoing amounts, $647,075 (Note 11) was in respect of key management personnel for the year (2018 - $226,833).

54 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

b. Warrants issued or issuable for services

i. Warrants Subject to No Vesting Conditions

The Corporation enters into agreements for various services for which all or partial consideration is comprised of warrants. As the fair value of the provision of services is difficult to measure, the Corporation measures the fair value of services received or to be received by reference to the fair value of warrants granted using the Black-Scholes Model, which takes into account the assumptions outlined in iii. below.

On August 1, 2019 the Corporation entered into an agreement for investor relations services over a period of one year for consideration of $10,000 per month plus 350,000 warrants each exercisable into one common share at any time up to August 1, 2021. Of these warrants, 175,000 are exercisable at a price of $0.42 per warrant and 175,000 are exercisable at a price of $0.45 per warrant. The fair value of the warrants of $47,250 was recorded as a prepaid expense with a corresponding increase to contributed surplus and is being expensed over 12 months, as the service obligation is contractually required over that period. The resulting expense included in share-based compensation and expenses for year is $19,418 (2018 - $nil).

On August 1, 2019 the Corporation entered into an agreement for consulting services in respect of investing and financing opportunities for the Corporation in exchange for the issuance of 500,000 warrants each exercisable into one common share at any time up to August 1, 2024. The exercise price is $0.38 for 300,000 of the warrants and $0.48 for 200,000 of the warrants. The fair value of the warrants of $71,000 was recorded as share-based compensation and expensed during the year (2018 - $nil) with a corresponding increase in contributed surplus.

On July 2, 2019 the Corporation entered into an agreement for public relations services 12 months of services for a payment of USD 2,000 per month plus 200,000 warrants each exercisable into one common share at any time up to July 2, 2021 at an exercise price of $0.375 per warrant. The fair value of the warrants of $32,000 was recorded as a prepaid expense with a corresponding increase to contributed surplus and is being expensed as the service is used. The resulting expense included in share-based compensation and expenses for year is $16,000 (2018 - $nil).

On July 1, 2019, the Corporation issued a total of 500,000 warrants each exercisable into one common share. The warrants expire July 1, 2024 and vest and are exercisable as outlined in the table below:

Vest Number of Warrants Exercise Price	Expected life in years
July 1, 2019 100,000 $0.38 July 1, 2020 100,000 $0.50 July 1, 2021 100,000 $0.55 July 1, 2022 100,000 $0.60 July1,2023 100,000 $0.65	2
	2
	2
	3
	4
500,000

55 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

The warrants were issued in lieu of a personal guarantee in respect of a building lease entered into on July 1, 2019 (see Note 16). As the fair value of the personal guarantee is difficult to estimate, the Corporation measured the fair value of the personal guarantees using the Black-Scholes Model with the following inputs for all tranches: Share price at measurement date of $0.39, average risk-free interest rate of 1.39% based on interest rates of Government of Canada Bonds with similar maturities at the date of grant; expected volatility of 80% consistent with assumptions in (a) above, expected dividend yield of 0% and expected life in years as outlined in the table above. The resulting fair value of $77,000 has been included in the calculation of the net present value of the lease asset, of which $30,294 has been recognized as an increase in contributed surplus.

ii. Warrants Subject to Market Vesting Conditions

On April 30, 2019 the Corporation issued a total of 600,000 warrants in five tranches as partial compensation for services from a consultant providing similar services to employees. Accordingly, the Corporation measured the fair value of service received by reference to the fair value of the warrants granted determined using the Black-Scholes Model which takes into account the inputs in iii. below for all tranches, as well as the probability of attaining the market performance condition (“ Market Probability ”) as outlined below.

Each warrant has a three-year life and is exercisable into one common share for $0.50 per warrant upon the common shares reaching varying targets of volume weighted average price over 20 consecutive days ( “Target VWAP”) as outlined in the table below.

Number of Warrants Target VWAP	Expected life inyears Market Probability
100,000 $0.75 100,000 $1.00 100,000 $1.25 150,000 $1.50 150,000 $1.75	2 36%
	3 4%
	3 0%
	3 0%
	3 0%
600,000

The resulting amount included in operating expenses for the consultant’s services for the year is $4,120 (2018 - $nil).

iii. Fair value of warrants granted

The weighted average fair value of the warrants granted during 2019 was $0.06 per Warrant based on the assumptions outlined in Note 19 b. The weighted average fair value of the warrants granted during 2018 was $0.0416 per Warrant based on the following assumptions:

i) Weighted average share price of $0.2478 at the measurement date
ii) Expected volatility of 49% estimated by considering industry share price volatility adjusted to consider that the Corporation’s common shares were not traded publicly at the measurement date.
iii) Risk-free interest rate of 1.75% based on interest rate on two-year Government of Canada bonds
iv) Expected life of two years
v) Expected dividend yield of 0%
vi) Assumed no Conversion Event such that the Warrants entitled holder to acquire 1.1 Common Shares per Warrant.
56 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

c. Shares issued for services

*c. Shares issued for services*
Shares issued in respect of:	2019 2018
	Number $ Number $
Private placement as described Note 19 i To settle share issuance obligation at Dec 31, 2018 ii Advisory services - corporate iii Advisory services – product development iv Consulting services v Contract terminationpayment vi	833,333 250,000 - - 1,383,800 511,200 - - 1,351,351 500,000 - - 140,000 13,300 - - 157,500 15,750 - - - - 1,400,070 341,716
Total common shares issued	3,865,984 1,290,250 1,400,070 341,716

i) In May 2019, the Corporation entered into an arrangement for a consultant to provide services directly in respect of the private placement as described in Note 19. In exchange for the services, the Corporation agreed to issue 833,333 common shares to the consultant. As the fair value of the services cannot be estimated reliably, the Corporation measured the fair value of the services based on the fair value of the common shares on the date that the agreement was entered into. The resulting amount of $250,000 was recorded as a share issuance obligation in shareholders’ equity, as the amount of shares issuable pursuant to the agreement was fixed, and a corresponding amount was reflected as a deduction from the proceeds of common shares issued pursuant to the private placement. Upon issuance of the 833,333 common shares in September 2019, the share issuance obligation was relieved by $250,000 and a corresponding amount was recorded as share capital.
ii) On January 21, 2019 the Corporation issued 1,383,800 common shares to settle the share issuance obligation of $511,200 in respect of marketing expenses of $45,000 and consulting expenses of $466,200, included in 2018 share-based compensation and expenses. The advertising expense was determined in reference to the fair value of marketing services provided and approximated the fair value of the 123,800 shares issued to the party on January 21, 2019. The fair value of the consulting services was considered to be the fair value of the 1,260,000 common shares issued to the parties on January 21, 2019.
iii) On August 1, 2019 the Corporation entered into an agreement for a consultant to provide advisory services in respect of strategic growth and development of the Corporation for a period of one year for $500,000 payable by the issuance of 1,351,351 common shares which are subject to release from escrow in four equal quarterly instalments as services are received. The Corporation recorded a prepaid expense of $291,667 and sharebased compensation expense of $208,336 (2018-$nil for both).
iv) A consultant agreed to provide scientific advisory services for fiscal 2019 in return for the issuance of 140,000 common shares, which were issued in December 2019. The Corporation has recorded share-based compensation expense of $13,300 for the year with respect to this agreement based on the GABY share price on the date of issuance (2018-$nil).
v) A consultant agreed to receive payment for a monthly consulting fee in shares rather than cash. The consultant was issued 157,500 shares as payment, based on the GABY share price on the date of issuance of $0.10 per share.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

vi) On June 30, 2018, the Stem for Life Foundation (“SFL”) was issued 1,400,070 Common Shares of the Corporation in exchange for terminating a sponsorship agreement with the Corporation. Under the sponsorship agreement, the Corporation received certain sponsorship and promotional rights and opportunities provided by SFL, in exchange for a future donation should the Corporation undergo a form of liquidity event as defined in the agreement, with such amount determined in varying amounts depending on the value of the Corporation. Due to the unique nature of the contract and given that the promotional services received are difficult to fair value, the fair value of the payment was determined in reference to the fair value of the 1,400,700 Common Shares issued at $0.24 per share based on the aforementioned share issuances during 2018, for a total of $341,716, included in Other gains and losses on the statement of loss and comprehensive loss for the year 2018 (2019 - $nil).
d. Broker warrants issued with 2019 private equity placement

In conjunction with the private equity capital raise of $20 million in June 2019, the Corporation issued 4,522,634 broker warrants as compensation to the broker agents engaged for the offering (“Broker Warrants”). Each Broker Warrant entitles the holder to acquire one Common Share and one half-warrant at a combined price of $0.30 for a period of 24 months following the closing date of June 19, 2019. Each whole warrant acquired through exercise of the Broker Warrants entitles the holder to acquire one Common Share at a price of $0.38 per share for a period of 24 months from the date of issuance of the warrant.

The fair value of the Broker Warrants was estimated on the date of grant using the following assumptions:

i) Share price of $0.42 at the measurement date ii) Expected volatility of 80%
iii) Risk-free interest rate of 1.49% based on interest rate on two-year Government of Canada bonds iv) Expected life of 0.5 years
v) Expected dividend yield of 0%
e. Shares, Warrants, and Compensation Warrants issued with 2018 convertible debentures

In conjunction with the convertible debenture offering (see Note 15), the Corporation issued 1,076,776 Common Shares, 1,076,776 Warrants and 482 Compensation Warrants as compensation to the broker and advisory agents engaged for the offering. Each Compensation Warrant entitles the holder thereof to acquire 3,500 Common Shares and 3,500 Warrants for $1,000, or effectively one Common Share and one Warrant at a combined price of $0.2857 per share up to June 13, 2020. The aggregate fair value of this share-based payment was determined to be $387,680 based on an estimated fair value of $875,000 for broker and advisory fees customarily paid on an offering of comparable size less cash consideration paid of $487,320. The fair value of the share-based payment was apportioned as $262,794 for the 1,076,776 Common Shares, $44,841 for the 1,076,776 Warrants and the residual amount of $80,045 to the 482 Compensation Warrants. The combined fair value of the Common Shares and Warrants was based on the Common Shares and Warrants issued April 23, 2018 and June 13, 2018 (see Note 19), at a cash cost or value of $0.2857 for one Common Share and one Warrant, with $0.0416 of fair value being attributable to the Warrant based on the Black-Scholes option pricing model. As described in Note 15, the foregoing amounts were recorded against the value of the convertible debentures and were accreted as interest expense up to August 28, 2018.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

The fair value of the Warrants granted during 2018 was estimated on the date of grant using the following assumptions:

i) Weighted average share price of $0.2478 at the measurement date
ii) Expected volatility of 49% estimated by considering industry share price volatility adjusted to consider that Corporation’s common shares were not traded publicly at the measurement date.
iii) Risk-free interest rate of 1.75% based on interest rate on two-year Government of Canada bonds
iv) Expected life of two years
v) Expected dividend yield of 0%
vi) Assumed no Conversion Event such that the Warrants entitled holder to acquire 1.1 Common Shares per Warrant.

The weighed average fair value of the warrants granted during 2018 was $0.0416.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

19) SHARE CAPITAL AND CONTRIBUTED SURPLUS

Authorized share capital – unlimited number of shares without nominal or par value:

Unlimited number of Class A common voting shares

Unlimited number of Class B non-voting, retractable, redeemable, preferred shares, issuable in series

A reconciliation of the Corporation’s Common shares and Contributed surplus is as follows:

	Share Capital	Contributed Surplus
	Class A common voting shares	Warrantsb Special Warrantsc Conv- ersion feature deben- tures Stock option plan Total	Total transaction
	Number $	Number $ $ $ $ $	$
Opening January 1, 2018a Issued with application of Subscription Liability Proceeds Issued on callable debt and due to related party balance conversion Issued with convertible debentures Debenture conversion Issued to agents on convertible debenture issue Issued to SFL (Note 18c) Warrant exercise Issued on business acquisition Stock option plan expense	45,310,370 6,544,097 2,360,796 576,199 16,781,501 4,095,883 - - 22,226,092 5,861,289 1,076,776 262,794 1,400,070 341,716 210,000 78,240 1,115,178 457,892 - -	- - - - - - 2,360,796 98,313 - - - 98,313 16,781,501 698,822 - - - 698,822 22,225,000 57,087 - 45,529 - 102,616 - - - (45,529) - (45,529) 1,076,776 44,841 80,045 - - 124,886 - - - - - - (210,000) (540) - - - (540) - - - - - - - - - - 292,095 292,095	6,544,097 674,512 4,794,705 102,616 5,815,760 387,680 341,716 77,700 457,892 292,095
Closing, Dec 31, 2018	90,480,783 18,218,110	42,234,073 898,523 80,045 - 292,095 1,270,663 19,488,773
Settlement of share- issuance obligations (Note 18c) Issuance of Units (Note 19d) Issuance of shares to director from treasury Equity issuance costs (Note 19e) Stock option expense (Note 18a) Issuance of warrants attached to convertible debentures (Note 15) Issuance of warrants attached to promissory notes (Note 13) Issued on business acquisitions (Note 3) Returned to treasury / cancelled (Note 3) Warrant exercise Compensation warrant exercise Share-based compensation (Note 18)	1,383,800 511,200 66,583,400 17,977,518 2,232,143 250,000 - (2,205,885) - - - - - - 43,146,193 7,780,138 (1,115,178) (457,892) 565,000 210,501 17,500 5,785 2,482,184 779,050	- - - - - - 33,291,693 1,997,502 - - - 1,997,502 - - - - - - - - 927,140 - - 927,140 - - - - 976,612 976,612 650,000 81,900 - - - 81,900 312,500 40,625 - - - 40,625 500,000 5,000 - - - 5,000 - - - - (108,182) (108,182) (565,000) (1,451) - - - (1,451) 17,500 45 (830) - - (785) 2,150,000 184,664 - - - 184,664	511,200 19,975,020 250,000 (1,278,745) 976,612 81,900 40,625 7,785,138 (566,074) 209,050 5,000 963,714
Closing Dec 31, 2019	205,775,825 43,068,525	78,590,766 3,206,808 1,006,355 - 1,160,525 5,373,688 48,442,213

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

a. Class A common voting shares stock split

On April 18, 2018, the shareholders of the Corporation authorized a 7-for-1 stock split of the Corporation’s Common Shares. All shares and loss per share information have been retroactively adjusted to reflect the increase in the number of common shares and SARs (Note 32) from the stock split.

b. Warrants

Set out below are summaries of warrants granted by the Corporation:

	2019 Average exercise price per warrant in$ Number of warrants	2018
		Average exercise price per warrant in Number of warrants
Opening1 Granted2 Issued on compensation warrants Exercised Expired Forfeited	$0.37 42,234,073 $0.39 36,904,193 $0.37 17,500 ($0.37) (565,000) - - - -	- - $0.37 42,444,073 - - $0.37 (210,000) - - - -
Closing	$0.38 78,590,766	$0.37 42,234,073
Vested and exercisable atperiod end	$0.38 77,590,766	$0.37 42,234,073

Warrants outstanding as at the end of the year have the following range of exercise prices and weighted average remaining contractual lives:

		2019	2019	2018
			Weighted		Weighted
			average		average
			contractual life		contractual
Exerciseprice		Number	in years	Number	life in years
	$0.37	42,336,573	0.671	42,234,073	1.66
	$0.375 - 0.38	34,204,193	1.51	-	-
	$0.42 -$0.65	2,050,000	2.772	-	-
		78,590,766	1.09	42,234,073	1.66

1 The Corporation may accelerate the expiry date of 41,686,573 of the warrants exercisable at $0.37 per common share upon 30 days written notice to the holders.

2 See Note 18 for market vesting conditions for 600,000 warrants exercisable at $0.50 and for the vesting schedule of 500,000 warrants vesting in tranches (100,000 of which have already vested at December 31, 2019).

The fair value assigned to the warrants issued during the year as outlined in the table above were determined using the Black Scholes Model which takes into account the following inputs:

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

INC.(formerly GABRIELLA’S KITCHEN INC.) to the Consolidated Financial Statements ber 31, 2019 and 2018 *adian dollars, unless otherwise stated*
Grant date Exercise Price Share price at measurement date	Average risk free interest rate1 Expected volatility2 Expected life in years Expected dividend yield
March & May,2019 $0.37 $0.325-$0.35	1.50% 80% 2 0%
April 20193 $0.50 $0.32	1.49% 80% 2 - 3 0%
June 2019 $0.38 $0.42	1.49% 80% 0.5 0%
July2019 $0.375$0.65 $0.375	1.42% 80% 2 - 5 0%
August 2019 $0.38 -$0.48 $0.36	1.50% 80% 2 - 5 0%
December 2019 $0.45 $0.095	1.50% 80% 2 0%

1 Based on interest rates of Government of Canada Bonds with similar maturity at the date of grant

2 Estimated using a 50% weighting towards GABY’s actual stock volatility over a period of less than one year and a 50% weighting of a composite of comparable industry share price volatility. The expected volatility reflects the assumption that the historical volatility over a period similar to the expected life of the options is indicative of future trends, which may not necessarily be the actual outcome. 3 In addition, assumes probability of exercise based on meeting market vesting conditions as outlined in Note 18b ranging from 0% to 36%

c. Special Warrants

	2019 2018
	# $ # $
Compensation Warrants i. Broker Warrants ii.	477 79,215 482 80,045 4,522,634 927,140 - -
Special Warrants	1,006,355 80,045

i. Compensation Warrants

Each Compensation Warrant entitles the holder thereof to acquire 3,500 Common Shares and 3,500 Warrants at a price of $1,000, or effectively one Common Share and one Warrant at a combined price of $0.2857 per share up to June 13, 2020. The Warrants issuable pursuant to the exercise are subject to the same conditions and terms of the Warrants described above.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

Set out below are summaries of Compensation Warrants granted by the Corporation:

	2019 2018
	Average exercise price in $ Number of Compensation Warrants Average exercise price in $ Number of Compensation Warrants
Opening Granted Exercised Expired	$1,000 482 - - - - $1,000 482 $1,000 (5) - - - - - -
Closingand vested atperiod end	$1,000 477 $1,000 482
Weighted average remaining life in years	0.45 1.45

ii. Broker Warrants

Each Broker Warrant entitles the holder to acquire one Common Share and one half-warrant at a combined price of $0.30 for a period of 24 months following the closing date of June 19, 2019. Each whole warrant acquired through exercise of the Broker Warrants entitles the holder to acquire one Common Share at a price of $0.38 per share for a period of 24 months from the date of issuance of the warrant.

Set out below are summaries of Compensation Warrants granted by the Corporation:

	2019 2018
	Average exercise price in $ Number of Broker Warrants Average exercise price in $ Number of Broker Warrants
Opening Granted Exercised Expired	- - - - $0.30 4,522,634 - - - - - - - - - -
Closingand vested atperiod end	$0.30 4,522,634 - -
Weighted average remaining life in years	1.45 n/a

d. Private Placement

On June 12, 2019 the Corporation completed a private placement for gross proceeds of $19,975,020 through the issuance of 66,583,400 units of the Company (“PP Units”). Each PP Unit consists of one common share and one-half warrant. Each whole warrant is exercisable into one common share at an exercise price of $0.38 per share up to June 12, 2021, provided, however, that if, before December 12, 2019, the VWAP of the Corporation’s common shares is equal to or great than $0.55 for any five consecutive trading-day period, the Corporation may upon 30 days written notice to the holders,

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

accelerate the expiry date of the warrants. The Corporation allocated the proceeds between the common shares and warrants based on the relative fair value of the common shares on the date of issue.

e. Share issue costs

The Corporation incurred share issue costs of $5,093 in legal fees in respect of the 1,383,000 common shares issued to settle a share issuance obligation and $1,273,652 in respect of the PP Units comprised of legal fees and commission of $1,023,652, plus share-based compensation for services of $250,000 as described in Note 18c. Further, the Corporation issued Broker Units (see Note 18d) with fair value of $927,140 that were recorded as share issue costs.

f. Equity line of credit

20) DIRECT INVENTORY COSTS

20) DIRECT INVENTORY COSTS
In $	2019 2018
Balance comprised of: Salaries and benefits Direct material Other direct costs	1,720,857 511,399 8,459,336 814,648 373,449 14,913
	10,553,642 1,340,960

21) ALLOCATED INDIRECT COSTS

21) ALLOCATED INDIRECT COSTS
In $	2019 2018
Balance comprised of: Employee salaries, wages and benefits Production facility costs Depreciation of production equipment Other overhead costs	193,550 203,472 631,606 200,485 154,314 100,019 159,376 142,735
	1,138,846 646,711

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

22) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

22) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In $	2019 2018
Balance comprised of: Employee salaries and benefits Consulting fees Administrative costs Advertising and promotion Selling costs Professional fees	4,920,196 1,474,652 2,119,487 960,483 3,125,571 1,041,679 711,585 312,383 609,949 357,859 1,301,413 877,482
	12,788,201 5,024,538

23) OTHER GAINS (LOSSES)

23) OTHER GAINS (LOSSES)
In $ Note	2019 2018
Balance comprised of: Foreign exchange gain (loss) Loss on divestiture 3 Fair value gain on derivative liability 14 Gain on contingent consideration liability 3 Gain on conversion of debt Contract termination payment 18c Loss on inventory write-down 5 Impairment losses Penalties and interest onpast-due taxes	97,996 (173,504) (550,962) - 10,477 - 2,100,000 - - 72,126 - (341,716) (1,262,109) (55,976) (6,878,868) - (416,339) -
	(6,899,805) (499,070)

The impairment loss is comprised of the following:

In$ Unlicensed	Licensed Total
Cash generating unit GK(note a) Class of asset (liability) Prepaid expenses and deferred costs 134,703 Property and equipment 128,995 Intangible assets 25,728 Goodwill - Derivative liability -	KJM(note b) Sonoma Pac (note c)) Sub-total Licensed - - 134,703 160,647 - 160,647 289,642 583,380 - 583,380 609,108 - 5,900,000 5,900,000 5,900,000 (54,585) - (54,585) (54,585)
289,426	689,442 5,900,000 4,989,442 6,878,868

65 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

a) Impairment loss – GK

The impairment loss of $289,426 in the unlicensed segment is in respect of a CGU operating under the name of Gabriella’s Kitchen (“ GK” ), which manufactured health food products in Canada and distributed and marketed in Canada and the USA.

As a result of past and future losses in respect of GK led the Corporation to record an impairment loss and in March 2020 it shuttered GK’s operations. The recoverable amount of the assets being property and equipment is $444,369 which is fair value less costs of disposal classified as follows:

In $ Note	Total
Fair value measurements Level 1 inputs based on actual sales price received Level 1 inputs based on value of underlying lease obligation that Corporation was able to terminate on return of assets or vacating of premises Level 2 inputs based on actual sales price received on similar assets received above i	57,543 373,826 13,000
	444,369

i) The fair value assumes that the Corporation would receive similar proceeds on the sale of similar manufacturing. If the Corporation is unable to find a buyer, it may have to abandon these assets and the carrying amount would exceed the recoverable amount by $13,000.

b) Impairment loss – KJM

The impairment loss of $689,442 in respect of the KJM is a CGU comprised of the cultivation and manufacturing licenses acquired from KJM as described in Note 8, as well as property and equipment acquired to use in conjunction with the licenses, including the acquisition of leased premises which are tied to the licenses. Subsequent to the acquisition of KJM, the assets’ value declined by year-end and it was determined that GABY would not be able to execute manufacturing and cultivation as originally planned with limited liquidity and the financial burden of the lease. This was verified subsequent to year end as GABY deemed that the lease was invalid and therefore void and GABY vacated the premises in April 2020.

The recoverable amount of the assets is $65,436 based on fair value less costs of disposal using Level 1 inputs based on actual sales price received. As the licences are tied to the premises, the values assigned thereto were written down to $nil.

c) Impairment loss – Sonoma Pac

The impairment loss of $5,900,000 in respect of Sonoma Pac is a CGU comprised of the business operations of cannabis distribution business acquired April 1, 2019 as described in Note 3. As a result of set-backs caused by the fires in Sonoma County and resulting delays in financing, the Corporation was not able to implement its growth strategy. This plus a general decline in the cannabis industry in California resulted in the Corporation forecasting a reduction and delay of it’s anticipate growth of cash flows and the resulting impairment of goodwill of $5,900,000 (USD 4,551,064). The recoverable

66 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

amount of Sonoma Pac is $5,890,998 (USD 4,551,064) determined by its fair value less costs of disposal being the present value of future cash flows expected to be derived from Sonoma Pac.

The key assumptions used in the calculation of the recoverable amount relate to the cash flows and growth projections, future weighted average cost of capital and, terminal growth rate. These key assumptions were based on historical data from historical sources as well as industry and market trends. The Corporation estimated the recoverable amount of CGU based on discounted cash flows of six years and a terminal year thereafter and incorporated assumptions an independent market participant would apply. The after-tax discount rate used was 25% and perpetual growth rate used was 2%.

The assumptions used above are considered significant estimates, which the impact of possible changes thereto are as follows:

If the budgeted earnings before interest, taxes, depreciation and amortization had been 5% lower than management’s estimates at December 31, 2019, the Corporation would have had to recognize a further impairment to goodwill of $777,000. If the after-tax discount rate applied to the cash flow projections had been 1% higher than management’s estimates or 26%, the Corporation would have had to recognize a further impairment to goodwill of $389,000. If the perpetual growth rate had been 0% instead of 2%, the Corporation would have had to recognize a further impairment to goodwill of $260,000.

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

24) INCOME TAXES

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

	In $
	2019 2018
Loss for the year before income taxes Expected income tax (recovery) Change in statutory, foreign tax, foreign exchange rates and other Non-deductible expenses Non-deductible expenses of foreign subsidiary Share issue costs Change in unrecognized deductible temporarydifferences	(23,115,784) (7,720,514) (6,125,683) (2,084,539) 390,191 11,446 2,212,000 385,000 - 118,000 (339,000) (246,000) 3,535,117 1,816,093
Total income tax expense(recovery)	(327,375) -
Current income tax expense Deferred income tax recovery	22,280 - (349,655) -

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GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

For Canadian income tax purposes, the Corporation has losses carried forward from prior years which can be applied to reduce future years' taxable income. These losses expire as follows:

Expiry	Balance	Expiry	Balance
2026 2027 2028 2029 2030 2031 2032	15,105	2033 2034 2035 2036 2037 2038 2039	895,431
	27,748		288,500
	89,553		2,580,737
	-		2,851,694
	350		3,370,176
	145,291		6,110,466
	119,422		8,241,688
		Total	24,736,161

The Corporation also has a capital loss of $1,597,263 which carries forward indefinitely to offset future capital gains.

In addition to the losses carried forward presented above, the Corporation has losses for United States federal income tax purposes of USD 4,755,956 (CAD 6,165,622) which carry forward indefinitely, losses for California state income tax purposes of USD 6,202,795 (CAD 8,041,303) which expire in 2038-2039, and losses for Delaware state income tax purposes of USD 3,320,102 (CAD 4,304,181) which expire in 2038-2039.

The Corporation’s net deferred income tax liabilities are as follows:

	In $
	2019 2018
Deferred tax assets: Losses available for offset against future taxable income Expenses deducted over futureperiods for taxpurposes	8,173,937 4,421,000 561,543 324,415
Unrecognized deferred tax assets	8,735,480 4,745,415 (8,188,219) (4,653,102)
Deferred tax assets available for offset against liabilities	547,261 92,313
Deferred tax liabilities: Intangibles assets Propertyand equipment	836,802 378,300 57,653 46,613
Deferred tax liabilities	894,455 424,913
Net deferred income tax liabilities	347,194 332,600

Deferred income tax assets are recognized for loss carry-forwards and other deductible temporary differences to the extent that the realization of the related tax benefit through future taxable profits is probable. The Corporation does not yet have a history of profitability or other supporting evidence of future profitability to support the recognition of deferred tax assets in excess of deferred tax liabilities. Accordingly, the net deferred tax assets by jurisdiction are offset by a valuation allowance, which is re-evaluated at the end of each reporting period.

69 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

25) LOSS PER SHARE

Basic loss per share is calculated by dividing the net loss by the weighted average number of shares outstanding during the year. The potentially dilutive Common Shares issuable on the outstanding Warrants, Compensation Warrants, Broker Warrants, and Stock Options are non-dilutive and are therefore excluded from the diluted loss per share for the periods in which they were outstanding. The weighted average numbers of shares outstanding for the year was 144,562,707 (2018 – 65,164,311).

26) OTHER ADJUSTMENTS TO ARRIVE AT CASH FLOW FROM OPERATIONS

In$ Note	2019 2018
Balance comprised of: Impairment losses 23 Increase in deferred lease inducement 2 Loss on divestiture 3 Fair value gain on derivative liability 14 Gain on contingent consideration liability 3 Gain on conversion of debt	6,878,868 - - 3,258 550,962 - (10,477) - (2,100,000) - - (72,126)
	5,319,353 (68,868)

27) NET CHANGE IN NON-CASH WORKING CAPITAL RELATED TO OPERATIONS

In$	2019 2018
Balance comprised of: Accounts receivable Inventories Prepaids and deferred costs Accounts payable and accrued liabilities Income taxes payable	6,943,707 16,471 365,180 (242,414) (89,829) 10,736 (9,321,027) 731,027 (86,100) -
	(2,188,069) 515,820

70 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

28) NON-CASH TRANSACTIONS AND CASH FLOW DISCLOSURES

Non-cash transactions took place during the years as follows:

In$

2019
2018

1
Lease capitalization
Increase in lease liability (2018 – finance lease obligation)
Increase in right-of-use assets (2018 – assets under finance lease)
2
Issuance of shares and warrants previously paid for / earned:
Decrease in share issuance obligation
Decrease in share issuance liability
Increase in share capital
Increase in contributed surplus
3
Issuance of Broker Units
Increase in contributed surplus
Decrease in share capital
4
Shares for services
Increase in share issuance obligation
Decrease in share capital
5
Direct financing of capital assets
Increase in long-term debt
Increase in capital assets
6
Conversion of callable debt to share capital and warrants:
Decrease in callable debt
Increase in share capital
Increase in contributed surplus
Recognition of gain on conversion of debt
7
Deferred convertible debenture costs of issuance not paid in cash:
Decrease in convertible debentures
Increase in share capital
Increase in contributed surplus
8
Conversion of convertible debentures:
Decrease in convertible debentures
Increase in share capital
Decrease in contributed surplus

5,849,326
136,082
5,849,326
136,082
511,200
-
-
239,500
511,200
145,980
-
93,520
927,140
-
927,140
-
250,000
-
250,000
-
270,229
-
270,229
-
-
4,866,832
-
4,095,883
-
698,823
-
72,126
-
387,680
-
262,794
-
124,886
-
5,815,760
-
5,861,289
-
45,529

71 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

GABY INC.(formerly GABRIELLA’S KITCHEN INC.)
Notes to the Consolidated Financial Statements
December 31, 2019 and 2018
In Canadian dollars, unless otherwise stated

In $

2019
2018

9
Purchase of intangible assets – non-cash portion
Increase in intangible assets
Increase in accounts payable and accrued liabilities
10 Business acquisitions
Increase in share capital
Increase in contributed surplus
Increase in contingent consideration payable
Increase in short-term loans payable
Increase in accrued liabilities (relating to consideration payable)
Increase in consolidated assets (other than goodwill)
Increase in consolidated liabilities
Increase in goodwill
11 Business divestiture
Decrease in share capital
Decrease in contingent consideration payable
Decrease in consolidated assets (other than goodwill)
Decrease in consolidated liabilities
Decrease in goodwill
Decrease in accumulated other comprehensive income
Increase in foreign exchange gain
Loss on divestiture
12 Settlement of contingent consideration payable
Increase in share capital
Decrease in contingent consideration payable
Contingent considerationgain

78,816
-
78,816
-
5,960,138
457,892
5,000
-
3,920,000
1,515,875
136,122
-
7,327
-
14,205,313
1,781,569
14,755,813
1,104,453
10,579,087
1,296,651
457,892
-
1,570,221
-
2,078,374
-
769,786
-
1,343,137
-
94,525
-
21,875
-
550,962
-
1,820,000
-
3,920,000
-
2,100,000
-

The Corporation paid income taxes of $85,511 during 2019 (2018 - $nil). Interest paid is disclosed in the consolidated statements of cash flows.

72 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

29) FAIR VALUE OF FINANCIAL INSTRUMENTS

The Corporation's current financial instruments include cash, accounts receivable, accounts payable and accrued liabilities, short-term notes payable, promissory notes payable, and convertible debentures and are measured at amortized cost. The carrying values of these instruments approximate their fair value due to their short-term maturities. The Corporation’s non-current financial instruments include lease liabilities and long-term debt, which are measured at amortized cost.

The Corporation is exposed to the following risks in respect of certain of the financial instruments held:

(a) Interest rate risk

The Corporation's exposure to interest rate fluctuations is with respect to the use of its bank revolving credits which bears interest at floating rates. The rates are tied to the prime rate of interest. Rate changes are likely to be minimal. A 1.00% change in interest rates would have changed annual interest expense by approximately $1,500. At December 31, 2019 $nil was outstanding on the line of credit.

(b) Credit risk

The Corporation is exposed to credit risk in the event of non-performance by customers. The maximum credit risk is the fair value of the accounts receivable. The allowance for doubtful accounts and past due receivables is reviewed by management for each reporting period. The Corporation updates its estimate of the allowance for doubtful accounts based on the evaluation of the recoverability of accounts receivable balances of each customer taking into account historic collection trends, the contractual relationship with the customer and the nature of the customer. Management does not believe that it has significant credit risk associated with its customers as the concentration is more spread with the acquisition of Sonoma Pac; however, COVID-19 has caused significant economic uncertainty and consequently collection of receivables will likely take longer to collect and is subject to further uncertainty. See Note 4 for detail of the Corporation’s exposure to credit risk for trade receivables by aging of the accounts and by geographic area.

Accounts receivable from two major customers amounted to 34% of gross trade accounts receivable as at December 31, 2019 (2018 – three major customers amounted to 84%).

73 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

(c) Foreign currency risk

The Corporation conducts most of its operations in United States dollars. As at December 31, 2019, the following operational working capital balances denominated in US dollars were included in the Financial Statements.

	Receivable (Payable)
	USD CAD equivalent
Cash Accounts receivable	413,357 535,876 1,567,993 2,032,746
Total current assets Accounts payable and accrued liabilities Income taxespayable	1,981,350 2,568,622 (2,306,782) (2,990,456) (37,295) (48,349)
Net exposure	(362,727) (470,183)

In addition to the balances above, the Corporation has foreign exchange exposure with regards to short-term debt, promissory notes, lease liabilities, and long-term debt totaling USD 5,519,266 (CAD 7,248,507). As at December 31, 2019, each one cent strengthening (weakening) in the USD relative to the CAD would decrease (increase) the Corporation’s comprehensive loss by about $59,000. The Corporation’s net exposure to foreign currency risk has not been hedged.

(d) Other price risk

The Corporation’s exposure to other price risk is limited since there are no significant financial instruments which fluctuate as a result of changes in market prices.

(e) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit lines. The Corporation’s accounts payable and accrued liabilities, income taxes payable, shortterm notes payable, and current portions of lease liabilities and long-term debt are due within one year. The degree to which the Corporation is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to improve cash flows from operations.

The Corporation manages its liquidity risk through the management of its capital structure and financial leverage as outlined in Note 29. It also manages liquidity risk by continuously monitoring actual cash flows.

GABY continued to incur operating losses beyond December 31, 2019 funded by existing cash, its operating line of $150,000, short term promissory notes, issuance of shares for services (see Note 34) and through management of working capital. Management is continuing to address the need to increase revenue and control costs with the goal of becoming profitable on a run-rate basis by the end of 2020. This included the shuttering of traditional food operations as described in Note 34 of the Financial Statements, the termination of three of four building leases in 2020 and reduction of staff. In addition, Management continues to obtain bridge financing as described in Note 34 while it plans to secure longer term financing which has been delayed due to business interruptions caused by the COVID-19 pandemic. Should longer term financing take longer than anticipated, the Corporation will pivot its current operations to focus on selling its services (copacking) which requires less working capital investment and grow its proprietary brands more slowly. Management 74 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

anticipates that these back-up plans will enable it to become cash flow positive sooner and will enable it to support operations over the next year. Readers should refer to the going concern assumption in Note 1.

30) CAPITAL DISCLOSURE

The Corporation’s objectives when managing capital are:

to ensure sufficient liquidity to enable the internal financing of capital projects;
to develop a strong capital base to increase investor, creditor and market confidence; and
to ultimately provide an adequate return to shareholders.

The Corporation’s capital is currently composed of share capital and contributed surplus, long-term debt, convertible debentures, promissory notes payable, short-term notes payable and access to a revolving bank line of credit (Note 9). The Corporation’s primary uses of capital in the past have been to finance its operations, growth (internal and through business acquisitions), and property and equipment purchases. The Corporation maintains a secured operating line of credit with a chartered bank that it uses for its business activities. The Board does not establish quantitative return on capital criteria for management. The Corporation is not subject to any externally imposed capital requirements.

31) CONTINGENCIES

From time to time, the Corporation is subject to legal proceedings and or claims in the normal course of business. Management vigorously defends any allegations under such suits or claims that arise from time to time and believes that the ultimate liability, if any, under any pending matters will not materially affect the financial position or results of operations of the Corporation. At December 31, 2019, the Corporation was not subject to any material legal proceedings.

32) STOCK APPRECIATION RIGHTS

In 2019 the Corporation issued 4,250,000 stock appreciation rights (SARs) to employees, consultants, and vendors of the Corporation (2018 - 4,930,331). Total issued SARs units outstanding as at December 31, 2019 was 14,183,000 (2018 - 9,933,000). The SARs hold no value until a liquidity event occurs, defined in the SARs Plan as either the sale of all or substantially all of the assets or shares of the corporation. As of December 31, 2019, no liquidity event has occurred.

33) SEGMENTED INFORMATION AND CONCENTRATIONS

The Corporation’s chief operating decision makers are the Chief Executive Officer, President and Chief Operating Officer, and Chief Financial Officer. They review the operating performance of the Corporation by two segments comprised of licensed and unlicensed channels, both of which are or were in the manufacturing, distribution and marketing of wellness products to address a variety of dietary and health concerns. The licensed channel includes cannabis-related products to which the manufacturing, sale and distribution are subject to regulation. The unlicensed channel includes all other wellness products not subject to the licensing requirements in respect of cannabis. The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained in the Annual Financial Statements. The chief operating decision makers utilize gross profit as a key measure in making operating decisions and assessing performance. Information by segment is as follows:

75 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018

In Canadian dollars, unless otherwise stated

In$	Licensed	Unlicensed	Total
	2019 2018	2019 2018	2019 2018
Gross revenue Promotional activity Amortization of product listing fees	9,880,454 117,007 - - - -	2,007,287 2,325,229 (770,928) (838,831) (141,321) (111,804)	11,887,741 2,442,236 (770,928) (838,831) (141,321) (111,804)
Total revenue Cost of sales	9,880,454 117,007 9,801,778 88,114	1,095,038 1,374,594 2,083,470 2,103,753	10,975,492 1,491,601 11,885,248 2,191,867
Gross income(loss)	78,676 28,893	(988,432) (729,159)	(909,756) (700,266)

The Corporation generates revenues from external customers and has non-current assets in two geographic areas as follows:

In $	2019 2018
Gross Revenue: Canada United States	283,412 378,498 11,604,329 2,063,738
	11,887,741 2,442,236
Security deposits Canada United States	32,995 32,955 220,822 21,199
	253,817 54,194
Property and equipment: Canada United States	398,590 392,662 6,986,358 141,366
	7,384,948 534,028
Intangible assets and goodwill: Canada United States	- 42,644 7,217,874 2,732,998
	7,217,874 2,775,642

The Corporation has recorded gross revenue of $3,625,239 from two major customers, representing 30% of gross revenue (2018 gross revenue of $2,172,465 from three major customers, representing 89% of total revenue). Accounts receivable due from these customers as at December 31, 2019 amounted to 26% of total accounts receivable (2018 – 47%). The major customers are distributors who represent several retail clients and therefore, if the relationship did not continue with any one of these distributors, the Corporation would still be able access those customers, either through another distributor or directly.

76 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

34) SUBSEQUENT EVENTS

a) Share Issuances

From January to July of 2020, a total of 4,181,924 common shares were issued to three separate companies to settle $243,306 of amounts payable in respect of consulting services. One of the companies is a related party as it is a company controlled by a close family member of certain key management personnel. It received 2,120,574 common shares to settle $126,000 of services and fees owed to it for the period December 2019 to July 2020.

On January 15, 2020, GABY issued 16,666,666 of common shares to settle $1,083,333 of indebtedness owed to a company (“CEOCo”) controlled by the Chair and CEO. The indebtedness was comprised of loans and interest of $1,049,435, including a $450,000 promissory note (plus accrued interest) (Note 18) assumed by CEOCo subsequent to December 31, 2019, and a USD 100,000 10% loan to GABY on January 10, 2020 (see d) below) (plus interest), plus $33,898 of consulting fees payable to CEOCo.

On January 27, 2020 3,033,003 of common shares were issued to a director of the Corporation for $250,000 cash.

On January 31, 2020, 462,497 common shares were issued to settle USD 90,000 of non-interest bearing promissory notes.

b) RSUs and Warrants issuances

Pursuant to a restricted share unit (“RSU”) incentive plan implemented in 2020, the Corporation has 8,340,000 RSUs outstanding at the date of issue of these consolidated financial statements. The RSUs vest one-third each over the first, second and third anniversary year from the date of grant and are each issuable into one common share of the Corporation. The share price at date of grants ranged from $0.035 to $0.07 per share. The fair value of the RSUs adjusted for estimated forfeitures is estimated as $433,962 which will be recorded as an expense over the three years in which services are received with a corresponding amount recorded as contributed surplus.

On May 1, 2020 the Corporation issued four tranches of warrants totaling 2,000,000 in number as partial compensation for services from a consultant. Each warrant has a three year life and is exercisable into one common share for the exercise price per warrant outlined below upon the common shares reaching varying targets of volume weighted average price over 20 consecutive days (“Target VWAP”) as follows:

et VWAP”) as follows:
Number of Warrants in each Tranche Target VWAP	Exercise price
500,000 $0.15 500,000 $0.20 500,000 $0.25 500,000 $0.30	$0.20
	$0.25
	$0.30
	$0.35
600,000

77 | P a g e G A B Y I n c .

GABY INC. (formerly GABRIELLA’S KITCHEN INC.) Notes to the Consolidated Financial Statements December 31, 2019 and 2018 In Canadian dollars, unless otherwise stated

c) Promissory notes

In addition to the USD 100,000 promissory note described in Note 34 a) subsequently repaid through the issuance of shares, the Corporation issued the following promissory notes subsequent to year-end:

Date Interest rate CAD	USD Description
February 10, 2020 10% 100,000 February 13, 2020 10% - February 18, 2020 10% - February 19, 2020 10% 20,000 February 27, 2020 10% 100,000 March 12, 2020 10% 85,000 Total 305,000	- Issued to CEOco, repayable on demand
	100,000 Issued to CEOco, repayable on demand
	20,000 Issued to CEOco, repayable on demand
	- Issued to CEOco, repayable on demand
	- Repayable on demand
	- Issued to a a close family member of a KMP, repayable on demand
	120,000

d) Discontinued operations March 2020

e) Uncertainty due to COVID-19

COVID-19 has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the corona virus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures may have an adverse impact on global economic conditions as well as on the Corporation's business activities. The extent to which the corona virus may impact the Corporation's business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. These events are highly uncertain and as such, the Corporation cannot determine their financial impact at this time.

78 | P a g e G A B Y I n c .

SCHEDULE “D” – GABY Annual MD&A

(See attached)

D - 1

Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

FOREWARD FORWARD

FORWARD

The following is Management’s Discussion and Analysis (“ MD&A ”) of the financial condition and results of operations of GABY Inc., formerly Gabriella’s Kitchen Inc. prior to name change in September 2019 (“ the Corporation ” or “ GABY ”) for the years ended December 31, 2019 and 2018. This MD&A should be read in conjunction with the audited consolidated financial statements of the Corporation and accompanying notes as at and for the years ended December 31, 2019 and 2018 (the “ Financial Statements ”). The Financial Statements, and the “SELECTED FINANCIAL INFORMATION” and “SELECTED QUARTERLY INFORMATION” sections of the MD&A have been prepared using International Financial Reporting Standards (“ IFRS ”) and all amounts are reported in Canadian dollars (“CAD”) unless otherwise noted, including United States dollars (USD ” ). Additional information about the Corporation can be found on SEDAR at www.sedar.com and on GABYs corporate website at www.gabyinc.com. Readers should also read the section “CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS” contained at the end of this document. This MD&A is dated August 13, 2020.

NON-GAAP MEASURES: GABY has previously referred to pro forma gross revenue This measure is not defined under IFRS and is considered a non-GAAP measure. Management believes that, in addition to revenue and net loss, pro forma gross revenue is a useful supplemental measure to our investors as management relies on it to provide insight into future operations. This measure does not have a standardized meaning and may not be comparable to similar measures presented by other issuers and should not be viewed as a substitute for measures reported under IFRS. This financial measure is reconciled to IFRS in the following section titled “NON-GAAP DISCLOSURE.”

In its Q3 MD&A, management anticipated that through its acquired and organic revenue, it would achieve pro forma gross revenue of $35 million in 2019. Actual pro forma gross revenue was $23.1 million (see NON-GAAP DISCLOSURE section below). The shortfall was partially due to lower gross revenue caused by the northern California wildfires, but mostly due to planned acquisitions in the CBD space, not taking place. Management determined that the CBD space was not growing as rapidly as first anticipated and that until the Food & Drug Administration passed guidelines establishing standards of quality, that the current consumer confusion and retailer resistance would continue. Management thus determined that while it was still committed to the space, it would move its distribution and sales to an online platform so that GABY could both educate consumers on the use and quality of its products and harvest the full margin from sales without the need to deploy extensive capital or resources to grow its CBD lines. This decision also allows Management to intensify its focus on the THC side of the business.

Given the uncertainty caused by COVID-19 (see RISK FACTORS below) management is not at this time providing any financial guidance in respect of 2020.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

CORPORATE PROFILE

GABY is a USA-focused, CPG company operating in the cannabis industry. GABY holds a distribution license issued by the California Bureau of Cannabis Control (“ CBCC ”). With its distribution license, long standing relationships with appellation farms and craft cannabis growers, its existing infrastructure of major retailers and an extensive broker and distribution network in the mainstream channel, GABY is positioned to bring its proprietary brands to market in both the licensed and mainstream market. GABY trades on the Canadian Securities Exchange (“ CSE ”) under the symbol GABY and on the OTCQB under the symbol GABLF. As of December 31, 2019, GABY’s brands were comprised of:

==> picture [149 x 49] intentionally omitted <==

Hemp infused Conventional Foods (shuttered March 2020)

Healthy plant-based frozen entries infused with Hemp to boost nutritional value.

==> picture [149 x 104] intentionally omitted <==

Cannabis Brand and Distribution

Boutique Brand and Distributor of Cannabis flower and wellness products.

==> picture [188 x 60] intentionally omitted <==

HEMP CBD Wellness

Specifically Blended CBD products utilizing the newly discovered power of Hemp Derived CBD.

==> picture [100 x 95] intentionally omitted <==

Artisan Chocolates

Artisan Dark Chocolates that open your heart, while nourishing your body. All products are 100% organic, vegan, fair trade, paleo-friendly, soy & gluten free, raw & sweetened with low-glycemic coconut sugar.

==> picture [103 x 98] intentionally omitted <==

Artisan Cannabis Edibles

Edibles developed to bring consumers the most full spectrum benefit that cannabis can offer, without creating unwanted side effects or intoxication. Lulu’s specific ratio of cannabinoids and plentiful live cannabis terpenes work together synergistically to create a balanced, elevated experience.

==> picture [98 x 96] intentionally omitted <==

==> picture [123 x 29] intentionally omitted <==

Full Spectrum CBD Wellness

2 | P a g e

Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

2019 Accomplishments and Outlook for 2020

GABY has been public and building its cannabis business since September 2018. During that time. with the aid of $20 million equity financing in June of 2019, GABY focused on building out its infrastructure, putting the right people on the team, building brands and market share. GABY focused on these fundamentals and on revenue over margin because building the foundation and capturing market share is imperative to brand building.

Prior to April 2019, GABY was primarily a manufacturer and distributor of better-for-you frozen food entrees in Canada and USA. Thereafter, GABY initiated its main foray into the cannabis business with the acquisition of Sonoma Pacific Distribution, Inc. (“ Sonoma Pac ”), which holds a cannabis distribution license issued by the CBCC and the County of Santa Rosa. Sonoma Pac’s distribution network in the California cannabis market, along with its proprietary brand, Sonoma Pacific™, plus its long-standing relationship with appellation farms and craft cannabis growers, complements GABY’s extensive experience in consumer-packaged goods (“ CPG”) . The combined experience allows GABY to develop high quality Cannabis products and to bring them efficiently and quickly to market via the Sonoma Pac cannabis distribution license. Sonoma Pac will sell proprietary and third-party licensed products into the licensed dispensary channel in California.

Further, these combined synergies enabled expansion of its brand portfolio and sales channel with the subsequent acquisitions of Raw Chocolate Alchemy LLC (d.b.a Lulu’s ) and 2Rise Naturals, LLC (“ 2Rise ”) on December 31, 2019. Lulu’s CBD-infused chocolates are sold in approximately 250 mainstream grocery stores and its un-infused chocolates are sold in an additional 200 mainstream grocery stores across the USA, including Whole Foods Market in Northern California and Arizona. In addition, Lulu’s THC-infused chocolates are sold in 15 dispensaries in California. 2Rise has received market recognition for its transparently sourced CBD tinctures and capsules which are distributed online and in over 100 stores in the USA. As a result of GABY’s 2019 acquisitions, pro forma gross revenue for 2019 was $23.1 million (see NON-GAAP DISCLOSURE section below) compared to gross revenue of $2.4 million in 2018.

While GABY transformed itself into a brand building and brand acquisition public entity in the USA CPG cannabis space, it incurred the growing pains associated with a relatively new public company integrating its acquisitions, including additional costs of people, professional fees, working capital as well as branding and sales activities. Further, fourth quarter operations were affected by the northern California wildfires and a ban by the State of California on the sale of certain of Sonoma Pac’s vape pens which resulted in a write-off $1.3 million of inventory. Amidst these growing pains and temporary setbacks, the Corporation repositioned itself in 2020 by shedding itself of the traditional food business, cultivation and manufacturing divisions (as further described below). This repositioning, plus the re-forecasted cash flow projections of Sonoma Pac, resulted in the Corporation taking a $6.9 million impairment charge in the year resulting in a net loss of $22.8 million on gross revenue of $11.9 million compared to a net loss of $7.7 million of gross revenue of $2.4 million last year.

GABY’s focus in 2020 has been to cut costs, implement operating efficiencies, further scale the business and grow California market share in both the THC and CBD channels while maintaining margins. In addition, GABY will focus on accretive acquisitions and providing its infrastructure services to third party brands that complement its portfolio and help subsidize GABY’s infrastructure costs. The infrastructure strategy GABY invested in in 2019 will help position it in 2020 with self-sufficiency and ability to scale the business and grow market share and revenue while maintaining margin. The goal is to become profitable on a run-rate basis by the end of 2020.

3 | P a g e

Gabriella’s Kitchen Inc.

Management’s Discussion & Analysis December 31, 2019 and 2018

In March 2020, GABY confirmed its commitment to focus its capital spending and investment on organic acquisitions and growth in the licensed (THC) cannabis space and the unlicensed CBD space exclusively in California. GABY relocated all operating and finance roles to California, after the positions of the COO, and the CFO and all operating and supporting staff in Canada were terminated.

Further, in early 2020, management concluded that it was not economical for GABY to continue to operate the traditional food business operating as Gabriella’s Kitchen (“ GK ”) in Canada, nor was it congruent with GABY’s focus of leveraging its cannabis infrastructure in California. GK was therefore shuttered in March 2020. The CPG experience gained with GK has, and will translate, into GABY’s continued expansion of its brands into additional points of distribution.

In further support of ongoing efficiencies and margin expansion, GABY consolidated its office and operations in Santa Rosa, California which eliminated five out of six office and warehouse leases. This included shuttering the cultivation and manufacturing licenses which removes the capital investment required to develop upstream operations. GABY also simplified its structure with rationalization of staff and lowered costs. The foregoing should result in costs savings of approximately $5 million on an annualized basis. In addition, GABY is changing its revenue mix towards slower growing but more sustainable higher margin business, such as the sale and self-distribution in mainstream and regulated channels of GABY’s proprietary brands, more strategic procurement and synergistic third-party brand expansion. The sum of all these actions provide for more efficient operations, closer to the customer where GABY can better capitalize on its brand expertise, all while pushing GABY towards profitability.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

SELECTED ANNUAL FINANCIAL INFORMATION

In 2018 GABY rapidly expanded its product lines, distribution network and marketing programs in its unlicensed segment (primarily frozen food entrees). In September 2018, GABY became public and shortly thereafter entered the cannabis market with its acquisition of Sonoma Pac on April 1, 2019. The increasing trend of revenue growth reflects the organic and acquisitions growth. The increasing net loss, reflects the required investment in people and resources to expand sales, make strategic acquisitions and to obtain and maintain a public listing and in 2019, reflects a $6.9 million impairment loss included in other gains (losses).

loss included in other gains (losses).
	Year ended December 31, In$ unless otherwise stated % Change inyear 2019 2018 2017 2019 2018
		2019 2018
Licensed gross revenue	9,880,454 117,007 -	8,344 n/a
Unlicensedgross revenue	2,007,287 2,325,229 1,274,517	(14) 82
Gross revenue	11,887,741 2,442,236 1,274,517	387 92
Revenue	10,975,492 1,491,601 952,525	636 57
Revenue as a % of gross revenue	92% 61% 75%
Direct inventory costs	10,533,642 1,340,960 664,383	687 102
Direct inventory costs as % of gross revenue	89% 55% 52%
Variable gross profit (loss)	421,850 150,641 288,142	180 (48)
Variable gross profit (loss) as % of gross revenue	4% 6% 23%
Gross loss after distribution and allocated indirect costs	(909,756) (700,266) (420,644)	30 66
Net loss from operations	(15,449,192) (6,598,087) (3,392,512)	134 94
Net loss	(22,788,409) (7,720,514) (3,760,259)	195 105
Total comprehensive loss	(23,461,884) (7,595,133) (3,760,259)	209 102
Total assets	19,865,539 4,614,142 1,163,992	331 296
Total non-current financial liabilities	6,519,853 458,629 294,587	1,322 56
Loss per share, basic and diluted1,2	(0.16) (0.12) (0.09)	33 37
Weighted average number of common shares – basic and diluted1	144,562,707 65,164,311 43,559,481	122 50

(1) On April 18, 2018, GABY amended its articles to effect a subdivision of its common shares on the basis of seven Common Shares for post-subdivision Common Shares for each pre-subdivision Common Share then outstanding, and to amend its articles to replace the existing classes of shares of GABY with one class of common shares and one class of preferred shares. The loss and comprehensive loss per share and outstanding share capital disclosed above reflects the subdivision.

(2) Percentage change based on unrounded earnings per share

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Gabriella’s Kitchen Inc.

Management’s Discussion & Analysis December 31, 2019 and 2018

OVERALL PERFORMANCE AND RESULTS OF OPERATIONS

Segmented revenues and gross profttis (loss):

==> picture [541 x 125] intentionally omitted <==

Gross revenue of $11.9 million for the year ended December 31, 2019 increased $9.4 million or 387% over last year due to acquisition growth of $9.8 million in the licensed segment from the acquisition of Sonoma Pac being partially offset by a 14% or $0.3 million decline in the unlicensed segment.

Revenue, which is after promotional activities, such as couponing, and amortization of product listing fees, improved as a percentage of revenue to 92% of gross revenue compared to 61% last year. The improvement reflects that licensed gross revenue is not subject to these expenses, while the unlicensed segment incurred costs as a percentage of gross revenue of 45% compared to 41% last year, reflecting higher promotional activity in early 2019 and fixed product listing fees .

During the second quarter, management downsized and restructured the unlicensed sales team, reduced and renegotiated promotional spending, phased out slower moving stock keeping units (“SKU’s”) and prepared for the introduction of new hemp-based protein bowl product offerings and implemented initiatives to reduce production costs. The reduction of SKUs, increased competition and reduced sales and promotional spending, resulted in the 14% decline in gross revenue in this segment, with Canadian sales of $283,412 down 25% and US sales of $1,723,875 down 11%.

In March of 2020, GABY announced its intention to sell the frozen food business marketed under the Gabriella’s Kitchen[TM] and subsequent thereto, to stem operating losses, particularly in light of the COVID-19 crisis, wound down those operations effective March 31, 2020. The exit from the traditional food business will enable GABY to better apply the experience gained in the CPG space to building relationships with its consumers in the higher growth cannabis licensed channel and the unlicensed CBD mainstream channel in California.

Variable gross profit increased to $0.4 million (4% of gross revenue) compared to $0.2 million (6% of gross revenue) last year. The improvement was due to the acquisition of Sonoma Pac.

As shown in the table above, gross profit after the allocation of indirect overhead costs and distribution costs was negative $0.9 million (8% of gross revenue) compared to $0.7 million (29% of gross revenue) last year. The increase in the loss of $0.2 million primarily reflects an increase of $0.3 million of the loss attributable to unlicensed traditional food business of GK, subsequently discontinued. The gross profit of $0.1 million on $9.9 million of revenue in the licensed segment largely reflects low margin cannabis flower sales which enabled Sonoma Pac to grow the licensed dispensary channel from 170 to approximately 260 at December 31, 2019 . The increased distribution footprint provides a springboard for Sonoma Pac to increase sales in 2020 of its higher margin cannabis infused products, including cannabis infused chocolates by Lulus, which was acquired December 31, 2019. The low margin also reflects the impact of the northern California wildfires which resulted in temporary closure of Sonoma Pac’s facilities and significantly reduced sales activity. With the slow down, there was excess inventory of flower in the market and Sonoma was required to sell at reduced margin.

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Gabriella’s Kitchen Inc.

Management’s Discussion & Analysis December 31, 2019 and 2018

Selling, general and administrative expenses (“ SG&A ”) increased to $12.8 million compared to $5.0 million in 2018. The $7.8 million increase includes $4.3 million in respect of the newly acquired licensed segment acquisitions. Of this amount, $0.6 million was in respect of bad debt on Sonoma Pac receivables deemed uncollectable due to financial difficulties spurred by the southern California wildfires in the fall of 2019 and later exacerbated by COVID-19 and $0.4 million was in respect of TOP SG&A which as described further below, was disposed of in August 2019.

The remaining increase of SG&A of $3.5 million is in respect of unlicensed operations, including corporate activities, which increase is attributable to the following: $1.8 million investment in personnel and travel to support the acquisition and integration of Sonoma Pac, Lulu’s, 2Rise and future acquisition targets; $1.3 million on higher legal, accounting, regulatory, investor relations and insurance costs to maintain GABY’s shares for listing on a public exchange and to further support GABY’s acquisition activities; and $0.4 million higher advertising and brokerage fees on rebranding and expansion of the distribution network. With the shuttering of GK in March 2020 and other cost-cutting measures introduced at the end of Q1 2020, management estimates that it will be able to cut $5.0 million of costs on an annual run-rate basis.

Share-based compensation and expenses were $1.2 million compared to $0.8 million last year. The increase reflects higher reliance on non-cash-based compensation to help finance GABY’s initial growth state of the business life cycle.

Depreciation of property and equipment increased to $517,695 compared to $54,430 last year due to GABY’s adoption of IFRS 16 Leases as more fully described below, which resulted in recognizing right-of-use assets of $851,416 on January 1, 2019 on which amortization is now recorded. In addition, 2019 includes amortization on the property and equipment on business acquisitions (primarily Sonoma Pac) and the facilities lease acquired in conjunction with the purchase of assets from KJM (see Note 8 of the Financial Statements).

Amortization of intangibles was $16,916 compared to $15,558 last year as most of the Corporation’s intangibles are not subject to amortization.

The resulting loss from operations before interest and other gains and losses increased to $15.4 million compared to $6.6 million last year primarily due to the increase in SG&A expenses.

Interest expense

Interest expense was $770,638 compared to $633,101 last year. Interest in the prior periods mostly reflects the interest on the convertible debentures issued June 2018 which were converted to share capital August 2019 whereas interest recorded in 2019 primarily relates to the interest accretion and accrual in respect of the convertible debentures from March 1, 2019 and the promissory notes from May 2019 onwards as well as notes acquired on the Sonoma Pac acquisition.

Interest revenue

The Corporation recorded interest income of $3,851 primarily on advances totaling USD $375,000 to Sonoma Pac during the quarter ended March 31, 2019. The advances were made in anticipation of GABY’s acquisition of Sonoma Pac on April 1, 2019 and along with future interest income and expense between the two companies, is eliminated upon the consolidation of Sonoma Pac. The prior year’s interest income of $9,744 was in respect of interest-bearing advances to TOP which were eliminated on the consolidation of TOP on October 1, 2019 and its subsequent divestiture in August 2019.

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Gabriella’s Kitchen Inc.

Management’s Discussion & Analysis December 31, 2019 and 2018

Other gains (losses) (Detailed in Note 23 of the Financial Statements)

Details of other gains (losses) are as follows:

of other gains (losses) are as follows:
In $ Note	2019 2018
Balance comprised of: Foreign exchange gain (loss) a Loss on divestiture b Fair value gain on derivative liability c Gain on contingent consideration liability d Gain on conversion of debt e Contract termination payment f Loss on inventory write-down g Impairment losses h Penalties and interest onpast-due taxes i	97,996 (173,504) (550,962) - 10,477 - 2,100,000 - - 72,126 - (341,716) (1,262,109) (55,976) (6,878,868) - (416,339) -
	(6,899,805) (499,070)

a) Foreign exchange gain (loss)

The gains and losses are in respect of: settlement and translation of USA denominated working capital balances in the unlicensed segment; and, in 2018, on the callable debt denominated in USD currency; and, in 2019, the gain on translation of share-based contingent consideration of USD $1,184,000 which is no longer outstanding.

b) Loss on divestiture

As further described in Note 3 to the Financial Statements, the corporation divested of The Oil Plant (“TOP”) on August 28, 2019 as it had acquired a separate manufacturing license as described in Note 8 of the Financial Statements. The loss arose on the difference between the return and cancellation of the original purchase consideration on the original purchase of TOP valued at $2.0 million being in excess the of the net book value of TOP net assets of $2.6 million.

c) Fair value gain on derivative liability

As further described in Note 14 of the Financial Statements, in conjunction with the purchase of certain cannabis licenses and permits, GABY issued the KJM Future Warrants. The issuance of the KJM Future Warrants was classified as an option liability, as it will be settled through the issuance of a variable number of warrants based on the exchange rate and trading price of GABY’s common shares at the time of settlement. The gain of $10,477 reflects the change in the fair value of the derivative liability from its initial issuance to December 31, 2019.

d) Gain on contingent consideration liability

As further described in Note 3 to the Financial Statements, contingent consideration was initially recorded on the Sonoma Pac acquisition. The $2.1 million gain reflects the reduction between the estimated value of contingent consideration payable on the purchase date of April 1, 2019 and the final agreed settlement of the contingent consideration.

e) Gain on conversion of debt

The gain of 72,126 in 2018 was in respect of the gain on the conversion of callable debt to common shares represented by the difference between the book value of the debt and the fair value of the common shares issued on conversion.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

f) Contract termination payment

IN 2018 a share-based payment of $341,716 was recorded as a cost of terminating a sponsorship agreement as described in Note 18 of the Financial Statements.

g) Loss on inventory write-down

In Q4 2019, the Corporation recorded a write-down of inventory of $1.3 million in respect of certain vape pens that were banned from sale in the State of California.

h) Impairment losses

The impairment losses as detailed in Note 23 are comprised of losses of the following cash-generating units (“CGU” s):

		h) Impairment losses The impairment losses as detailed in No s):
		Unlicensed segment: Gabriella’s Kitchen $0.3 million Licensed segment: KJM $0.7 million Sonoma Pac $5.9 million
		Total $6.9 million

GABY recorded an impairment loss of $0.3 million in respect of Gabriella’s Kitchen, based on the recoverable amount of the CGU of $0.4 million, which is fair value less costs of disposal. To stem further operating losses, in March 2020 it shuttered Gabriella’s Kitchen’s operations.

The impairment loss of $0.7 million in respect of the CGU comprised of the cultivation and manufacturing licenses held by

KJM as described in Note 8, as well as property and equipment acquired to use in conjunction with the licenses, including the acquisition of leased premises which are tied to the licenses. Subsequent to the acquisition of KJM, the assets’ value declined by year-end and it was determined that GABY would not be able to execute manufacturing and cultivation as originally planned with limited liquidity and the financial burden of the lease. This was verified subsequent to year end as GABY deemed, after the actions of its landlord and based on legal advice, that the lease was invalid and voidable by GABY and therefore, GABY vacated the premises in April 2020.

As a result of setbacks caused by the fires in Sonoma County and resulting delays in financing, the Corporation was not able to implement its growth strategy in the fourth quarter. This, plus a general decline in the cannabis industry in California resulted in the Corporation forecasting a reduction and delay of its anticipated growth of cash flows and the resulting impairment of goodwill of $5,900,000 (USD4,551,064) in respect of the CGU, Sonoma Pac.

i) Penalties and interest on past due taxes

The Corporation incurred penalties and interest charges of $0.4 million in respect of excise taxes on Cannabis sales which were submitted late.

Current income tax expense

Although the Corporation is incurring losses, some expenses in respect of cannabis related activities, other than cost of goods sold, are not deductible at the federal level in the USA, which resulted in the Corporation recording a current income tax expense of $22,280 compared to $nil last year.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

Deferred income tax recovery

The deferred income tax recovery of $349,655 is a result of the use of loss carryforwards previously offset by valuation allowances being used to reduce taxable income in the current year. In the prior year, the Corporation had $nil deferred tax recovery as it had taken an 100% valuation allowance against net deferred tax assets arising mostly in respect of tax loss carryforward balances.

Net loss

After consideration of the foregoing other gain (losses) items, the net loss for the year increased to $22.8 million, compared to $7.7 million last year, or by 195%. Basic and diluted loss per share only increased by 33% to $0.16 per share as the number of weighted average common shares increased by 122% to 144,562,707.

Other comprehensive loss

Other comprehensive loss (“OCL”) includes a foreign exchange losses on the translation of GABY’s self-sustaining USA subsidiaries, TOP and Sonoma Pac of $578,950 (prior year a gain of $125,381), plus the loss on the divestiture of a subsidiary of $94,525 on the reclassification of the cumulative OCL to profit and loss on the divestiture of TOP in Q3.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

SELECTED QUATERLY FINANCIAL INFORMATION Including fourth quarter performance

The increase in gross revenue, revenue and net loss since Q2 2019 primarily reflects the acquisition in the licensed segment of Sonoma Pac effective April 1, 2019. The relatively lower gross losses in Q2 and Q3 of 2019 reflects that Sonoma Pac has higher margins than GABY’s unlicensed segment, due to promotional costs in the latter; however in Q4 2019 Sonoma Pac was affected by the northern California wildfires which resulted in temporary closure of Sonoma Pac’s facilities and significantly reduced sales activity as reflected in the lower Q4 revenue. With the slow down, there was excess inventory of flower in the market and Sonoma was required to sell its inventory on hand at reduced margin.

The significant increase in the net loss starting in Q2 2018 onwards reflects non-cash share-based payments and compensation of $341,716, $99,843, $703,452, $173,296, $206,056 , $328,908 and $508,365 from Q2 2018 to Q4 2019, respectively, as well as increased costs required to obtain and maintain public listing obtained in August 2018 and to support GABY’s organic and acquisition growth. The decrease in net loss in Q3 from Q2 mostly reflects a $2.1 million gain on contingent consideration on the Sonoma Pac acquisition described above and lower SG&A of $0.9 million mostly on lower advertising and investor relation costs. The increase in net loss in Q4 over Q3 of $10.8 million reflects the effect of the aforementioned $2.1 million gain the prior quarter, the reduction in gross profit of $0.4 million as described above, $6.9 million of impairment losses as described above and $0.4 million of penalties and interest on late payment of excise tax, all partially offset by fact that Q3 included a loss on divestiture of The Oil Plant of $0.6 million (as all described above).

Prior to Q2 2019, GABY traditionally experienced seasonal fluctuations in gross revenue, net revenue and net loss, with the first and fourth quarters (fall and winter) being typically stronger than the second and third quarters (spring and summer) for frozen food entrees. These seasonal variations are also dependent on numerous factors, including GABY’s entry into new markets and offering of new products, weather, consumer behavior and overall industry competition and dynamics, mostly in the USA. Seasonality may also impact some activities in the licensed segment depending on the portfolio of business activities undertaken in that segment in the future.

In$		2019	2019		2018	2018	2018	2018
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Gross revenue	2,321,097	6,352,919	2,715,382	498,343	680,219	539,766	560,952	661,299
Revenue	2,043,650	6,173,178	2,501,669	256,995	425,453	289,092	319,737	457,319
Gross profit	(488,529)	(45,008)	(49,712)	(326,507)	(149,061)	(173,518)	(264,607)	(113,080)
Net loss	(13,088,848)	(2,347,919)	(4,971,889)	(2,379,753)	(2,763,274)	(2,107,367 )	(1,879,509)	(970,364)
Loss per share	(0.07)	(0.01)	(0.04)	(0.03)	(0.03)	(0.03)	(0.03)	(0.02)

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

FINANCIAL CONDITION

Readers should refer to the Note 1 of the Financial Statements regarding the going concern assumption in conjunction with the discussion below.

The significant changes in the Consolidated Statements of Financial Position during the year are:

	Increase
Line item	(decrease) in$	Primary factors explaining change during 2019
Current assets	3,758,622	Increase in cash of $0.6 million on remaining proceeds from private
		placement June 2019 plus increase in current assets on the acquisition of
		Sonoma Pac
Property and	6,850,920	Increase due to recording of right-of-use (“ROU”) assets of approximately
equipment		$0.9 million on adoption of IFRS 16 Leases on January 1, 2019; $0.8
		million on the acquisitions (primarily Sonoma Pac); and $7.0 million of
		asset additions including $5.9 million in respect of ROU assets mostly in
		respect of new manufacturing and distribution facility partially offset by
		disposition of TOP $0.6 million, depreciation of $0.8 million and
		impairment losses of $0.3 million.
Intangibles and	4,442,232	Increase of $14.1 million on acquisitions and additions (primarily Sonoma
goodwill		Pac acquisition) less $2.7 million divestiture of TOP, less goodwill
		impairment of $6.5 million less amortization and effect of foreign
		exchange.
Security deposits	199,623	Primarily deposit on lease of manufacturing and distribution facility
Current liabilities	3,379,581	Increase mostly in respect of Sonoma Pac acquisition
before: promissory
note payable,
convertible debentures
and contingent
consideration payable
Promissory notes	1,463,179	Promissory notes issued to bridge working capital needs – see Note13 of
payable		Financial Statements
Convertible debentures	635,255	Due to issuance on March 1, 2019 net of amounts repaid– see Note 15 of
		Financial Statements
Contingent	(1,615,392)	Contingent consideration removed on divestiture of TOP see Note 3 of
consideration payable		Financial Statements
Lease liabilities	6,263,174	Recording of ROU assets of approximately $0.9 million on adoption of
		IFRS 16 Leases on January 1, 2019, plus business acquisitions of $0.7
		million, plus addition of $5.9 million on new building lease less divestiture
		on TOP of $0.5 million less payments of $1.1 million
Long term debt	177,592	Acquired on Sonoma Pac acquisition
Deferred lease	(46,942)	Elimination on adoption of IFRS 16 Leases on January 1, 2019
inducement
Deferred tax liability	14,594	Acquisition of Sonoma Pac partially offset by disposition of TOP
Equity	4,980,3356	Primarily due to private placement of $20 million less YTD losses. See
		Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

LIQUIDITY AND CAPITAL RESOURCES

Readers should refer to Note 1, Going Concern of the Financial Statements.

For the year ended December 31, 2019, the Corporation had a net loss of $22.8 million and negative cash flow from operations of $17.3 million. As at December 31, 2019 the working capital deficit was $2.0 million. The Corporation continued to incur operating losses in 2020 which were funded by a combination of issuance of: CAD demand promissory notes of $305,000; USD demand promissory notes USD 120,000; 4,181,924 common shares for $243,306 of services; and 3,033,003 common shares for $250,000 cash from a then director of GABY (see Note 34 of the Financial Statements). These capital injections, plus management of working capital provided GABY with additional runway to also deal with the impact of the novel coronavirus (“COVID-19”) which had and continues to hamper GABY’s ability to fully operate.

To stem future operating losses, GABY implemented cost cutting measures in 2020, most of which occurred in late March and April. This included shedding itself of the traditional food business and cultivation and manufacturing divisions, consolidation of its office and operations in Santa Rosa, California, which eliminated five out of six office and warehouse leases, and simplifying its structure with rationalization of staff and lowered costs. The foregoing should result in costs savings of approximately $5 million on an annualized basis. In addition, GABY is changing its revenue mix towards slower growing but more sustainable higher margin business, such as the sale and self-distribution in mainstream and regulated channels of GABY’s proprietary brands, more strategic procurement and synergistic third-party brand expansion. The ambition is to become profitable on a run-rate basis by the end of 2020.

GABY will need to raise capital to fund its operations and future growth strategy. While the Corporation has been successful in raising capital in the past, there can be no assurance that it will be able to do so in the future. The ability to raise capital may be adversely impacted by uncertain market conditions including the impact of COVID-19. Should longer term financing take longer than anticipated, the Corporation will pivot its current operations to focus on selling its services (co-packing) which requires less working capital investment and grow its proprietary brands more slowly. Management anticipates that these back-up plans will enable it to become cash flow positive sooner and will enable it to support operations over the next year.

Funding from private placement June 2019

On June 12, 2019, GABY completed a private placement ( “Private Placement ”) as described in Note 19 e of the Financial Statement as follows:

On June 12, 2019, GABY completed a private placement (“Private Placement” Statement as follows:	) as described in No
	In$
Grossproceeds from Units	19,975,020
Cash issuance costs – commissions and legal	(1,023,652)
Net cash received on issuance	18,951,368

The net proceeds of $19.0 million plus supplemental net funds of $1.0 million from the issuance of promissory notes, convertible debentures and share issuances primarily funded: operating losses and working capital requirements of $16.2 million from Q2 to Q4; $1.7 million of investing activities in Q3 (including $0.3 million advances to target acquisitions, $0.5 million of cannabis permits and licenses as described in Note 6, $0.7 million of property and equipment to build out manufacturing and distribution facilities and $0.2 million on deposit of leased facilities); servicing of lease and debt interest and principal of $0.7 million; repayment of a portion of bridge financing and bank indebtedness of $0.5 million; and repayment of bank indebtedness of $0.1 million, leaving $0.7 million in cash at December 31, 2019.

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Gabriella’s Kitchen Inc.

Management’s Discussion & Analysis December 31, 2019 and 2018

Analysis of Cash Flows

In $ Summary of Cash Flows from: Net loss Non-cash items	Year ended December 31,
	2019 2018 Increase (decrease) in cash over prior year (22,788,409) (7,720,514) (15,067,895) 7,685,381 2,058,787 5,626,594
Cash operating loss Non-cash workingcapital changes	(15,103,028) (5,661,727) (9,441,301) (2,188,069) 515,820 (2,703,889)
Operating activities Investing activities Financing activities Foreign currencytranslation adjustment	(17,291,097) (5,145,907) (12,145,190) (2,226,510) (707,814) (1,518,696) 20,312,196 6,111,680 14,200,516 (149,296) (52,457) (96,839)
Increase in cash Cash(bank indebtedness),beginningofyear	645,293 205,502 439,791 53,658 (151,844) 205,502
Cash(bank indebtedness), end ofyear	698,951 53,658 645,293

As shown in the table above, cash flow from operating activities before changes in non-cash working capital decreased by $9.4 million in 2019. The decrease mostly reflects the increase in SG&A of $7.8 million and decline in gross profit of $0.2 million of as described in Overall Performance and Results of Operations plus inventory write-down of $1.3 million.

The increase in net cash outflow from non-cash working capital of $2.7 million, mostly reflects payments on accounts payable that had accrued prior to the Corporation completing the private placement in June 2019 of $19 million (after cash issuance costs).

The increased use of cash for investing activities of $1.5 million, mostly reflect $0.5 million of intangible assets on KJM purchase; plus, higher investment in property and equipment of approximately $0.8 million.

The financing activities of $20.3 million primarily reflect the private placement of $19 million (after cash issuance costs), while the comparative period last year was $6.0 million primarily related to the issuance of convertible debentures in June 2018.

FINANCIAL INSTRUMENTS

The Corporation's current financial instruments include cash, accounts receivable, accounts payable and accrued liabilities, short term notes payable, promissory notes payable and convertible debentures, and are measured at amortized cost. The carrying value of these instruments approximates their fair value due to their short-term maturities. The Corporation’s non-current financial instruments include lease liabilities and long-term debt, which are measured at amortized cost.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

seeks to minimize potential adverse effects on the Corporation’s financial performance. Risk management is carried out by financial management in conjunction with overall corporate governance.

The Corporation is exposed to the following risks in respect of certain of the financial instruments held:

Interest rate risk

The Corporation's exposure to interest rate fluctuations is with respect to the use of its bank revolving credit facility which bears interest at floating rates of which none was outstanding at period end and therefore the Corporation has no exposure to changes in interest rates as of December 31, 2019.

Credit risk

With the acquisition of Sonoma Pac effective April 1, 2019, the Corporation’s exposure to credit risk changed as customers are slower paying due to the cash nature of the business. In addition, aging was affected by the disruption caused by the fires in Northern California as is reflected in the aging schedule below. The Corporation is exposed to credit risk in the event of non-performance by customers. Management does not believe that it has significant credit risk associated with its customers as the concentration is more spread with the acquisition of Sonoma Pac; however, COVID-19 has caused significant economic uncertainty and consequently collection of receivables will likely take longer to collect and is subject to further uncertainty. The maximum credit risk is the fair value of the accounts receivable. The allowance for doubtful accounts and past due receivables is reviewed by management at each balance sheet reporting date. The Corporation updates its estimate of the allowance for doubtful accounts based on the evaluation of the recoverability of accounts receivable balances of each customer considering historic collection trends, the contractual relationship with the customer and the nature of the customer.

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Gabriella’s Kitchen Inc.

Management’s Discussion & Analysis December 31, 2019 and 2018

The following tables outlines the Corporation’s exposure to credit risk for trade receivables by aging of the accounts and by geographic area:

In$, Balance comprised of:	2019 2018
Trade accounts receivable GST receivable Other accounts receivable	1,726,816 313,121 63,834 66,298 303,065 41,882
Sub-total before allowance Allowance for doubtful accounts	2,093,715 421,301 (5,514) (53,711)
	2,088,201 367,590
Aging of receivables:
30 days 60 days 90 days Over 90 days	869,835 227,450 169,615 114,085 698,817 12,716 355,488 67,050
	2,093,715 421,301
Exposure by geographic area:
Canada United States	52,544 130,193 2,041,171 291,108
	2,093,715 421,301

Accounts receivable from two major customers amounted to 34% of gross trade accounts receivable as at December 31, 2019 (2018 – three major customers amounted to 84%).

Foreign currency risk

As the Corporation’s operations are in Canada and the USA, it is subject to currency transaction and translation risks in respect of its USD denominated working capital of negative USD 362,727 (CAD 470,183). In addition to the balances above, the Corporation has foreign exchange exposure with regards to short-term debt, promissory notes, lease liabilities, and long-term debt totaling USD 5,519,266 (CAD 7,248,507). As at December 31, 2019, each one cent strengthening (weakening) in the USD relative to the CAD would decrease (increase) the Corporation’s comprehensive loss by about $59,000. The Corporation’s net exposure to foreign currency risk has not been hedged.

Other price risk

The Corporation’s exposure to other price risk is limited since there are no significant financial instruments which fluctuate because of changes in market prices.

Liquidity risk and capital management

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

Corporation is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to improve cash flows from operations.

The Corporation manages its liquidity risk through the management of its capital structure and financial leverage as outlined in Note 30to the Financial Statements. It also manages liquidity risk by continuously monitoring actual cash flows.

A further discussion of the Corporation’s liquidity risk is provided above under “Liquidity and Capital Resources”.

Off-Balance Sheet Arrangements

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES

All related party transactions are reviewed by the Audit Committee of the Corporation. Note 11 to the Financial Statements sets out the amounts of related party transactions the nature of which are further outlined as below.

a) Amounts included in Selling, general and administrative expenses

Compensation of key management personnel

Other expenses

Consulting fees

Effective October 1, 2019, the Corporation receives general capital markets and merger and acquisitions (“M&A”) advisory services from a company controlled by a close family member of a director and officer for $15,000 per month. In 2020, these ongoing fees, plus $15,750 owing from 2019, were settled through the issuance of common shares as described in Note 34 of the Financial Statements.

Rent included in SG&A expenses

Starting in October of 2018, GABY sublet office space on a month-to month basis from an entity controlled by an officer and director of GABY. The entity charges rent based on the actual rent paid by it in total apportioned to GABY and others based on the percentage of square footage occupied by each party. With the move of all of GABY’s operations to California in March of 2020, effective April 1, 2020, GABY no longer leases this office space.

b) Royalties included in cost of sales

Up to its divestiture on August 28, 2019, TOP paid royalty fees to two entities which own rights to the underlying intellectual property, and which were controlled by a close family member of a former officer and director of GABY.

c) Amounts included in interest expense

From time to time, the Corporation is and has been financed by related parties, often to bridge cash flow needs until the Corporation is able to raise equity. This support is not unusual for companies like GABY which are in the initial growth stage of the business life cycle and in the cannabis industry, where often traditional sources of financing are unavailable. The related party transactions arising in respect of financing activities are as follows:

Convertible debentures March 2019

In connection with the March 1, 2019 issuance of $1.3 million of convertible debentures (see Note 15 a) of the Financial Statements), the Corporation issued $430,000 of convertible debentures to related parties as follows: $100,000 to an officer and director; $275,000 directly and indirectly to four directors; and $55,000 to a company that is controlled by a

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relative of a director and officer of the Corporation. The convertible debentures were issued to these related parties on the same terms and conditions as to unrelated parties to provide bridge financing while the Corporation completed the Private Placement.

During the year, all of the debentures due to these related parties, plus accrued interest thereon, were repaid except for $100,000 and accrued interest of $9,621 due to a director and officer.

Short term promissory notes

In November 2019, the Corporation borrowed USD $340,500 from a director and office of the Corporation. The promissory note plus accrued interest at 10% of USD 6,758 was outstanding at December 31, 2019 (see Note 13 a) of the Financial Statements). On January 15, 2020, this promissory loan and related accrued interest was repaid in conjunction with the issuance of 16,333,333 common shares as described in the Subsequent Event Note of the Financial Statements.

In May 2019, a director of the Corporation lent $200,000 to provide bridge financing prior to the Corporation’s completion of the Private Placement. The loan plus interest at prime rate plus 3% was repaid to the director in July 2019. In December 2019, this same director provided further bridge financing of $250,000 at 10%, which amount plus accrued interest of $617 is outstanding at December 31, 2019 (see Note 13 b of the Financial Statements).

Interest on callable debt in 2018

Prior to GABY becoming a publicly traded company, it paid interest on callable debt owed to shareholders and an entity related by common ownership. GABY entered into this related party transaction because alternate sources of financing were unavailable, and it had not yet reached a profitable level of operations due to GABY being in the initial growth stage of the business life cycle. All the callable debt, apart from $150,000 which was repaid July 2018, as well as $841,488 of a related party payable, was converted to share capital in June 2018.

d) Transactions in respect of convertible debentures in 2018

Finder’s fees in connection with the issuance of convertible debentures were paid to a company significantly influenced by a controlling owner of a corporate shareholder who is also a family member of multiple shareholders. The fees included a cash payment of $205,230 and the issuance of Compensation Warrants fair valued at $47,330. The total compensation paid was comparable to other agents involved in the issuance of the convertible debentures. The aforementioned corporate shareholder also subscribed for $125,000 of convertible debentures.

e) Due to or from related parties included in statement of financial position

The statement of financial position reflects the remaining outstanding promissory notes payable and convertible debentures in respect of the transactions described in c) above and the amounts included in accounts payable and accrued liabilities are in respect of the transactions in a) above and interest on the convertible debentures in c) above.

f) Advances from (to) related parties, net as reflected in the statement of cash flows

The repayment of related party payables of $162,026 is in respect of amounts due to employees of Sonoma Pac. The employees had advanced funds to Sonoma Pac prior to GABY’s acquisition.

In 2018, GABY had advanced $8,017 to a KMP of TOP of which $964 was repaid in 2019.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION

The Financial Statements have been prepared using the IFRS standards and interpretations currently issued. The Corporation initially adopted effective January 1, 2019, the following standard:

IFRS 16 Leases was issued January 2016 and replaces IAS 17 Leases. The new standard requires entities to recognize lease assets and lease obligations on the balance sheet. For lessees, IFRS 16 removes the classification of leases as either operating leases or finance leases, effectively treating all leases as finance leases. Certain shorter-term leases (less than 12 months) and leases of low value are exempt from the requirements and may continue to be treated as operating leases. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

For expediency and as permitted, GABY used the modified retrospective approach for adopting the new policy effective January 1, 2019 as opposed to applying the policy retroactively. On adoption of the policy, on January 1, 2019 the Corporation recognized an additional $851,416 of right-of-use assets and $898,358 of lease liability, with the difference of $46,942 reducing the lease inducement liability to $nil.

RISK FACTORS

The following are certain factors relating to the business of GABY. These risks and uncertainties are not the only ones facing GABY. Additional risks and uncertainties not presently known to the GABY or currently deemed immaterial by GABY, may also impair the operations of GABY. If any such risks actually occur, shareholders of GABY could lose all or part of their investment and the business, financial condition, liquidity, results of operations and prospects of GABY could be materially adversely affected and the ability of the GABY to implement its growth plans could be adversely affected.

The acquisition of any of the securities of the GABY is speculative, involving a high degree of risk and should be undertaken only by persons whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the securities of the GABY should not constitute a major portion of an individual’s investment portfolio and should only be made by persons who can afford a total loss of their investment. GABY’s Shareholders should carefully evaluate the following risk factors associated with the GABY’s securities, along with the risk factors described elsewhere in this MD&A.

COVID-19

The COVID-19 outbreak has been declared a pandemic by the World Health Organization. This has resulted in governments worldwide, including the American, Canadian and state and provincial governments, enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally and in the USA and Canada resulting in an economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions however the success of these interventions is not currently determinable. The current challenging economic climate may lead to adverse changes in cash flows, working capital levels and/or debt balances, which may also have a direct impact on GABY's operating results and financial position in the future. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect our business is not known at this time.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

Business Structure Risk

GABY is a holding company and after the shuttering of its traditional food business in March 2020, effectively all its assets are the capital stock of its subsidiaries in California. It has no material assets, except ownership of its subsidiaries. As a result, investors in GABY are subject to the risks attributable to its subsidiaries. As a holding company, GABY conducts substantially all its business through its subsidiaries, which generate substantially all of its revenues. Consequently, GABY’s cash flows and ability to complete current or desirable future enhancement opportunities are dependent on the earnings of its subsidiaries and the distribution of those earnings to GABY. To the extent that GABY requires funds, and its subsidiaries and such other entities are restricted from making such distributions by applicable law, regulation or contract, or are otherwise unable to provide such funds, it could materially adversely affect GABY’s liquidity and financial condition, as well as its ability to make distributions to its shareholders. In the event of a bankruptcy, liquidation or reorganization of any of GABY’s material subsidiaries, holders of indebtedness and trade creditors may be entitled to payment of their claims from the assets of those subsidiaries before GABY.

GABY has no earnings or dividend record, and the ability of these entities to pay dividends and other distributions will depend on their operating results and will be subject to applicable laws and regulations which require that solvency and capital standards be maintained by such companies and contractual restrictions contained in the instruments governing their debt. Dividends paid by GABY would be subject to tax and, potentially, withholdings. GABY does not anticipate paying any dividends on its common shares in the foreseeable future. Please see “Anti-Money Laundering Laws and Regulations in ISSUERS WITH UNITED STATES CANNABIS-RELATED ACTIVITIES Section”.

GABY is engaged directly and indirectly in the recreational-use cannabis industry in California .

READERS SHOULD REFER TO “ISSUERS WITH UNITED STATES CANNABIS-RELATED ACTIVITIES” SECTION BELOW

Operating Risks

Competition

Product Safety

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

Economic Conditions and Retail Trends

Negative Operating Cash Flow

GABY reported negative cash flow from operations for the year ended December 31, 2019. It is anticipated that the Corporation will continue to report negative operating cash flow in future periods as it strives to reach positive operating cash flow on a run-rate basis by the end of 2020.

GABY's cash flow may not be sufficient to fund its ongoing activities at all times and from time to time, GABY may require additional financing to conduct its business. There is risk that if the economy and banking industry experienced unexpected and/or prolonged deterioration, the GABY's access to additional financing may be affected. Failure to obtain such financing on a timely basis could have a material adverse effect on GABY.

Reliance on a Single Facility

As of April 2020, the GABY’s activities and resources are primarily focused on its facility in Santa Rosa, California and the Corporation expects to continue to be focused on operations at that facility for the foreseeable future. Adverse changes or developments affecting the facility, including any maintenance requirements of, or material damage or destruction to, the facility, could have a material adverse effect on GABY.

Cybersecurity

If GABY does not allocate and effectively manage the resources necessary to build and sustain reliable IT infrastructure, fails to identify or respond to cybersecurity threats in a timely manner, or the Corporation's IT systems are damaged, destroyed, shut down or cease to function properly, GABY's business could be disrupted and could adversely affect the Corporation's reputation, operations or financial performance.

Trademark and Brand Protection

GABY believes its brands and other intellectual property are important to its success. GABY relies on a number of trademarks, copyrights, trade secrets and other intellectual property rights to protect its brands and products. The Corporation depends on its continued ability to use its intellectual property to increase brand awareness and further develop brands and products. The Corporation has taken steps to protect certain of its intellectual property in Canada and

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elsewhere. However, the Corporation's proprietary rights could be challenged, circumvented, infringed or invalidated by third parties. There can be no assurance that the processes and resources invested by the Corporation to protect its intellectual property from third party infringement will be sufficient. Third parties may also assert or prosecute infringement claims against the Corporation for its use of intellectual property allegedly owned by third parties. The materialization of any of these risks could result in substantial costs, diversion of resources, the invalidation of the Corporation's intellectual property, or otherwise adversely affect the reputation, operations or financial performance of the Corporation.

Insurance

Inventory Management

Employee Attraction and Development

Reliance on Key Personnel

GABY's success depends in part on certain key personnel and effective leadership. The loss of the services of such key personnel may have a material adverse effect on the operations or financial performance of GABY or affect its ability to implement its long-term strategic objectives.

Control of Common Shares

The officers and directors of GABY currently own approximately 21% of the issued and outstanding Common Shares. GABY’s shareholders nominate and elect the Board, which generally has the ability to control the acquisition or disposition of the GABY’s assets, and the future issuance of its Common Shares or other securities. Accordingly, for any matters with respect to which a majority vote of the Common Shares may be required by law, GABY’s directors and officers may have the ability to control such matters. Because the directors and officers control a substantial portion of such Common Shares, investors may find it difficult or impossible to replace GABY’s directors if they disagree with the way GABY’s business is being operated.

Management of Growth

GABY may be subject to growth-related risks including capacity constraints and pressures on its internal systems and controls. The ability of GABY to manage growth effectively will require it to continue to implement and improve its operational and financial systems and expand, train and manage its employee base. The inability of GABY to deal with such growth-related challenges may have a material adverse effect on GABY, its operations or financial performance.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

Litigation

Third Party Risk

Supply of Raw Materials

Financial Risks

GABY is subject to various financial risks, including liquidity, credit, interest rate and foreign exchange risks. READERS SHOULD REFER TO “FINANCIAL INSTRUMENTS” SECTION ABOVE AND THE GOING CONCERN ASSUMPTION IN NOTE 1 OF THE FINANCIAL STATEMENTS

ISSUERS WITH UNITED STATES CANNABIS-RELATED ACTIVITIES

In accordance with Staff Notice 51-352, the Corporation will evaluate, monitor and reassess the disclosure contained herein, and any related risks, on an ongoing basis and the same will be supplemented, amended and communicated to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding marijuana regulation. As a result of Corporation’s direct involvement in distribution of Cannabis edibles (as described herein), the Corporation is subject to Staff Notice 51-352 and accordingly provides the following disclosure.

Nature of involvement and exposure to USA cannabis-related activities:

As of December 31, 2019, the Corporation had direct involvement in USA cannabis-related activities through its assets acquired 100% owned subsidiaries: Sonoma Pac which holds a cannabis distribution license for the State of California issued by the CBCC and the acquisition in July 2019 of four use permits issued by Sonoma County: manufacturing; cultivation; nursery and distribution as well as a Provisional State License for Type 6 (non-volatile) manufacturing issued by the CBCC and an application for a cultivation license from the California Department of Food and Agriculture is in process. As described in Note 3 to the Financial Statements on December 31, 2019, the Corporation acquired Lulu’s, which manufactures and sells CBD infused chocolates in approximately 250 grocery stores across the United States and THCinfused chocolates to 35 dispensaries in California and acquired 2Rise which owns a portfolio of high-quality organic CBD products including: THC-Free CBD tincture, full-spectrum tincture with turmeric or vanilla, and high potency full spectrum

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capsules. The disclosure contained herein reflects the Corporation’s direct involvement with the USA cannabis industry as at December 31, 2019.

USA Federal Law and Enforcement

Pursuant to the above-mentioned acquisitions the Corporation derives and will continue to derive a substantial portion of its revenues from the cannabis industry in certain states of the USA, which industry is illegal under USA federal law. While some states in the USA have authorized the use and sale of cannabis, it remains illegal under federal law and the approach to enforcement of USA federal laws against cannabis is subject to change. Because the Corporation engages in cannabis-related activities in the USA, it assumes certain risks due to conflicting state and federal laws. The federal law relating to cannabis could be enforced at any time and this would put the Corporation at risk of being prosecuted and having its assets in the USA seized.

To GABY’s knowledge, some form of cannabis has been legalized in 40 states and Washington, D.C., Puerto Rico and Guam as of March 2020. Additional states have pending legislation regarding the same. Notwithstanding the foregoing, marijuana remains illegal under U.S. federal law with marijuana listed as a Schedule I drug under the United States Controlled Substances Act of 1970, as amended (the “ Controlled Substances Act ”).

In 2013, the Department of Justice issued the Cole memorandum (“ Cole Memorandum ”), which instructs federal law enforcement agencies not to prosecute violations of federal drug laws related to cannabis where the activity is permitted and regulated under cannabis laws of the relevant state. Also in 2014, following the Cole Memorandum, the Financial Crimes Enforcement Network under the U.S. Treasury Department notified banks that it would not seek enforcement of money laundering laws against banks that service cannabis companies operating under state law, provided strict due diligence and reporting standards are met. While most banks continue to decline to operate under such strict requirements, a number of local banks have undertaken to service the cannabis industry with basic financial services. Since 2014, the U.S. Congress has annually passed appropriations bills that include a provision, known as the RohrabacherFarr Amendment, now known as the Leahy Amendment (the “ Leahy Amendment ”), which prohibits expenditure of federal budget resources on the enforcement of federal controlled substances laws that interfere with state medical cannabis programs.

The Leahy Amendment was included in the fiscal year 2019 budget and will remains in effect until September 30, 2019. At such time, it may or may not be included in the omnibus appropriations package or a continuing budget resolution once the current continuing resolution expires. The Cole Memorandum and the Leahy Amendment gave medical cannabis operators and investors in states with legal regimes greater certainty regarding federal enforcement as to establish

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Management’s Discussion & Analysis December 31, 2019 and 2018

cannabis businesses in those states. While the Sessions Memorandum has introduced some uncertainty regarding federal enforcement, the cannabis industry continues to experience growth in legal medical and adult-use markets across the USA. USA Attorney General Jeff Sessions resigned on November 7, 2018. As of his resignation, Matthew Whitaker was the acting USA Attorney General until William Barr was appointed as the USA Attorney General on February 14, 2019. In an April 10, 2019 Senate Appropriations Subcommittee meeting to discuss the Justice Department's budget 2020, in response to a question about his position on the proposed Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, Attorney General Barr stated: “Personally, I would still favor one uniform federal rule against marijuana,” “But if there is not sufficient consensus to obtain that then I think the way to go is to permit a more federal approach so states can, you know, make their own decisions within the framework of the federal law. So we’re not just ignoring the enforcement of federal law.” The STATES Act, if it were to pass, would allow states to determine their own approaches to marijuana. Attorney General Barr said the legislation is still being reviewed by his office but that he would "much rather... the approach taken by the STATES Act than where we currently are.” It is unclear what impact this development will have on USA federal government enforcement policy. Despite the expanding market for legal cannabis, traditional sources of financing, including bank lending or private equity capital, is lacking which is can be attributable to the fact that cannabis remains a Schedule I substance under the Controlled Substances Act. These traditional sources of financing are expected to remain scarce until the federal government legalizes cannabis cultivation and sales.

Notwithstanding the foregoing, as part of the Congressional omnibus-spending bill, Congress renewed, through September 30, 2020, the Rohrabacher-Farr Amendment, which prohibits the Department of Justice from expending any funds for the prosecution of medical cannabis businesses operating in compliance with state and local laws. At such time, it may or may not be included in the omnibus appropriations package or a continuing budget resolution once the current continuing resolution expires. Should the Rohrabacher-Farr Amendment not be renewed upon expiration in subsequent spending bills, there can be no assurance that the federal government will not seek to prosecute cases involving cannabis businesses that are otherwise compliant with state law. Such potential proceedings could involve significant restrictions being imposed upon GABY or third parties, while diverting the attention of key executives. Such proceedings could have a material adverse effect on the GABY’s business, revenues, operating results and financial condition as well as the GABY’s reputation, even if such proceedings were concluded successfully in favor of GABY.

Service Providers

As a result of any adverse change to the approach in enforcement of USA cannabis laws, adverse regulatory or political change, additional scrutiny by regulatory authorities, adverse change in public perception in respect of the consumption of marijuana or otherwise, third party service providers to the Corporation could suspend or withdraw their services, which may have a material adverse effect on the Corporation’s business, revenues, operating results, financial condition or prospects.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

Ability to Access Capital

The Corporation requires equity and/or debt financing to support on-going operations, to undertake capital expenditures or to undertake acquisitions or other business combination transactions. There can be no assurance that additional financing will be available to the Corporation when needed or on terms which are acceptable. The Corporation’s inability to raise financing through traditional banking to fund on-going operations, capital expenditures or acquisitions could limit its growth and may have a material adverse effect upon the Corporation’s business, results of operations, financial condition or prospects.

If additional funds are raised through further issuances of equity or convertible debt securities, existing Corporation shareholders could suffer significant dilution.

Restricted Access to Banking

In February 2014, the Financial Crimes Enforcement Network (“ FinCEN ”) bureau of the USA Treasury Department issued guidance (which is not law) with respect to financial institutions providing banking services to cannabis businesses, including burdensome due diligence expectations and reporting requirements. This guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the Department of Justice, FinCEN or other federal regulators. Thus, most banks and other financial institutions in the USA do not appear to be comfortable providing banking services to cannabis-related businesses, or relying on this guidance, which can be amended or revoked at any time by the Trump administration. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses. As a result, the Corporation may have limited or no access to banking or other financial services in the USA. The inability or limitation in the Corporation’s ability to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments may make it difficult for the Corporation to operate and conduct its business as planned or to operate efficiently.

Anti-Money Laundering Laws and Regulations

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Heightened Scrutiny by Regulatory Authorities

Balance sheet and operating statement exposure to USA cannabis-related activities

Below are the line items of GABY’s consolidated statement of financial position and loss and comprehensive loss which contain USA-cannabis related activities:

Dollar value and proportion of Applicable Financial Statement line items which relates to USA cannabis-related activities for theperiod ended December 31,2019	Dollar value and proportion of Applicable Financial Statement line items which relates to USA cannabis-related activities for theperiod ended December 31,2019
*Consolidated Statement of Financial Position*	$ %
Cash Accounts receivable Inventories Prepaid expenses and deferred costs Property and equipment Intangible assets and goodwill Security deposits	500,508 72 1,883,345 90 847,716 58 102,552 14 6,961,193 94 5,821,789 81 20,509 8
Total assets	16,137,612 81
Accounts payable and accrued liabilities Income taxes payable Long term debt Lease liabilities Deferred tax liability	2,422,724 58 45,093 93 257,709 100 6,335,299 100 347,194 100
Total liabilities	9,408,020 68
*Consolidated Statement of Loss and Comprehensive Loss* Gross revenue Total revenue Lossfrom operations1	$ % 9,880,454 83 9,880,454 90 4,345,272 28

1 Before line items as described in the Consolidated Statement of Loss and Comprehensive Loss

Compliance with State Licensing and Regulatory Frameworks

The Corporation obtains legal advice from its counsel regarding the compliance with applicable state regulatory frameworks and potential exposure and implications arising from federal law of the USA.

Program for Monitoring Compliance and Disclosure of Material Non-Compliance

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laws with respect to cannabis would neither absolve the Corporation of liability under USA federal law, nor provide a defense to any federal proceeding which may be brought against the Corporation.

California

Pursuant to MAUCRSA: (1) CalCannabis, a division of the California Department of Food and Agriculture, issued licenses to cannabis cultivators; (2) the Manufactured Cannabis Safety Branch issues licenses to cannabis manufacturers; and (3) the California Department of Consumer Affairs, via its agency the CBCC, issues licenses to cannabis distributors, testing laboratories, retailers and micro-businesses. These agencies also oversee the various aspects of implementing and maintaining California’s cannabis landscape, including the statewide track and trace system. All three agencies released their emergency rulemakings at the end of 2017 and updated them with revisions in June 2018 (the “Readopted Emergency Regulations”). The three agencies also released the first draft of their permanent rulemakings in July 2018 and the second draft of their permanent rulemakings in October 2018, which are currently undergoing the rulemaking process (the “Proposed Non-Emergency Regulations”). The Readopted Emergency Regulations will remain in effect until the Proposed Non-Emergency Regulations are formally completed. All three agencies began issuing temporary licenses in January 2018 and are currently evaluating annual license applications. To operate legally under state law, cannabis operators must obtain a state license and local approval. Local authorization is a prerequisite to obtaining state licensure from all three state licensing agencies, and local governments are permitted to prohibit or otherwise regulate the types and number of cannabis businesses allowed in their locality. California has not set a limit on the number of state licenses an entity may hold, unlike other states that have restricted how many cannabis licenses an entity may hold in total or for various types of cannabis activity. Although vertical integration across multiple license types is allowed under MAUCRSA, testing laboratory licensees may not hold any other licenses aside from a laboratory license. There are also no residency requirements for ownership under MAUCRSA.

As of the reporting date of December 31, 2019, the Corporation was directly involved in the manufacturing and distribution of cannabis in California through Sonoma Pac and the licenses and permits acquired through asset acquisition in respect of KJM. Both KJM and Sonoma Pac have represented to the Corporation that their respective businesses were conducted in compliance with the regulatory framework enacted by the State of California. Following the respective acquisitions, KJM and Sonoma Pac have operated in compliance with all applicable California laws, regulations, and guidelines. Sonoma Pac has been subject to site visits by the CBCC during 2019 and all minor non-conformances noted have been rectified as of the date of this document. Effective April 2020, GABY abandoned the KJM four use permits issued by Sonoma County: manufacturing; cultivation; nursery and distribution.

Below is an overview of some of the principal license types issued in California (each of which can be issued with a Medical (M-Class) or Adult-Use (A-Class) designation):

Type 7: authorized to manufacture cannabis products using volatile solvent extractions.

Type 6: authorized to manufacture cannabis products using mechanical or non-volatile solvent extractions.

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Type N: authorized to manufacture cannabis products (other than extracts or concentrates) using infusion processes but does not conduct extractions.

Type P: authorized to only package or repackage cannabis products or relabel the cannabis product container.

Each of the above manufacturing license types is inclusive of the types in the list below it. For example, a Type 7 licensee would be able to perform Type 6, N or P tasks. A Type 6 license could perform Type N or P tasks. A Type N licensee would be able to perform Type P tasks. In addition to these four licenses, MCSB is developing a fifth license type, Type S, for shared-use manufacturing facilities. This license type will be for businesses and facility owners that alternate use of a manufacturing premises.

Type 8: authorized to test the chemical composition of cannabis and cannabis products.

Type 9: authorized to conduct retail cannabis sales exclusively by delivery.

Type 10: authorized to sell cannabis goods to customers.

Type 13: authorized to transport cannabis goods between licensed cultivators, manufacturers, and distributors.

Local Licensure, Zoning and Land Use Requirements

To obtain a state license, cannabis operators must first obtain local authorization, which is a prerequisite to obtaining state licensure. All three state regulatory agencies require confirmation from the applicable locality that an applicant is in compliance with local requirements and has either been granted authorization to, upon state licensure, continue previous cannabis activities or commence cannabis operations. One of the basic aspects of obtaining local authorization is compliance with all local zoning and land use requirements. Local governments are permitted to prohibit or otherwise regulate the types and number of cannabis businesses allowed in their locality. Some localities have limited the number of authorizations an entity may hold in total or for various types of cannabis activity. Others have tiered the authorization process, granting the initial rounds of local authorization to applicants that previously conducted cannabis activity pursuant to the Compassionate Use Act or those that meet the locality’s definition of social equity. Sonoma Pac was granted full zoning and use permits by Sonoma County on March 14, 2019.

Record-Keeping and Continuous Reporting Requirements

Operating Procedure Requirements

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regulatory agency approval before any changes to such procedures may be made. Licensees are additionally required to train their employees on compliant operations and are only permitted to transact with other legal and licensed businesses.

Site Visits & Inspections

Sonoma Pac will not be able to obtain or maintain state licensure, and thus engage in commercial cannabis activities in the State of California, without satisfying and maintaining compliance with state and local law. As a condition of state licensure, operators must consent to random and unannounced inspections of the commercial cannabis facility as well as the facility’s books and records to monitor and enforce compliance with state law. Many localities have also enacted similar standards for inspections, and the state has already commenced site-visits and compliance inspections for operators who have received state temporary or annual licensure. Sonoma Pac has been subject to site visits by the CBCC during 2019 and all minor non-conformances noted have been rectified as of the date of this document.

Compliance Procedures

Since its inception, Sonoma Pac has retained industry experts in California cannabis law, as local outside counsel to oversee and monitor compliance with USA. state law on an ongoing basis. These experts in the field keep Sonoma Pac fully informed of regulatory changes and recommend standard operating procedures to facilitate the implementation and maintenance of compliant operations, required tracking and license reporting. The Corporation will continue to work closely with the advisors to develop and improve its internal compliance program and will defer to their legal opinions and risk mitigation guidance regarding California’s complex regulatory framework. The internal compliance program, including the update of operational procedures and use of checklists, requires continued monitoring by managers and executives of the Corporation to ensure all operations conform with legally compliant standard operating procedures. In anticipation of future growth, the Corporation is investigating a number of software solutions developed specifically for the cannabis industry to allow for automation of both internal as well as third-party compliance auditing, covering all state and municipal, facility and operational requirements to maintain licensing criteria. Sonoma Pac is required to report and disclose to the Corporation all instances of non-compliance, regulatory, administrative, or legal proceedings that may be initiated against them. Sonoma Pac and KJM have been in compliance with the regulatory requirements as they have unfolded throughout 2018 and 2019.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

VOTING SECURITIES AND SECURITIES CONVERTIBLE INTO VOTING SECURITIES OUTSTANDING

As of the date of the MD&A, GABY had outstanding:

Outstanding as of the date of the MD&A1	Securities exercisable or convertible into Class A votingCommon Shares Warrants2 Stock Options3 Special Warrants RSUs4 80,590,766 6,165,000 4,522,634 8,340,000 80,590,766 6,165,000 6,783,951 8,340,000 $30,214,375 $1,844,425 2,216,238 $-	Class A voting Common Shares5 230,089,915
Number of Class A voting Common Shares issuable on the conversion or exercise of outstanding security		101,879,717
		331,969,632
Cash payable on exercise		$34,275,038

(1) The outstanding securities reflect that 477 of the Compensation Warrants expired subsequent to December 31, 2019.

(2) Warrants outstanding at the date of MD&A reflects the issuance of: shares as described in the Subsequent Event Note of the Financial Statements.

(3) Stock options outstanding as at the date of the MD&A reflect the cancellation of options subsequent to December 31, 2019 in respect of employees no longer with GABY.

(4) The RSUs were issued subsequent to December 31, 2019 as further described in the Subsequent Event Note of the Financial Statements.

(5) Class A voting Common Shares outstanding at the date of MD&A reflects the issuance of: shares as described in the Subsequent Event Note of the Financial Statements.

NON-GAAP DISCLOSURE

Pro forma gross revenue does not have any standardized meaning as prescribed by IFRS, and, therefore, is considered a non-GAAP measure and may not be comparable to similar measures presented by other issuers. The non-GAAP measure of pro forma gross revenue, combined with IFRS measures, such as revenue and net loss, is a useful measure to our investors as management relies on it to provide insight into future operations.

Pro forma gross revenue for the year ended December 31, 2019 is calculated as if the April 1, 2019 acquisition of Sonoma Pac and December 31, 2019 acquisitions of Lulu’s and 2Rise had all occurred January 1, 2019 and is calculated as follows:

Pro formagross revenue foryear ended December 31, 2019 In $millions Actual	Pro formagross revenue foryear ended December 31, 2019 In $millions Actual
Total as reported in Financial Statements	11.9
Sonoma Pac Jan 1 - March 31, 2019 gross revenue (unaudited)1	9.9
Lulu’s and 2Rise 2019gross revenue(unaudited)2	1.3
Totalpro formagross revenue2,3	23.1

1 Gross revenue for the Sonoma PAC is calculated as USD 7.6 million multiplied by previously assumed exchange rate for the year of 1.3 Canadian dollars for each U.S. dollar and is based on the internal accounting records of the company as provided by its management. The numbers have not been reviewed or audited by an independent accounting firm for the purposes of the calculation above and may be subject to adjustments.

2 Gross revenue for Lulu’s and 2Rise is calculated as USD 1.0 million multiplied by previously assumed exchange rate for the year of 1.3 Canadian dollars for each U.S. dollar and is based on the internal accounting records of the company as provided by its management. The numbers have not been reviewed or audited by an independent accounting firm and may be subject to adjustments.

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Gabriella’s Kitchen Inc. Management’s Discussion & Analysis December 31, 2019 and 2018

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of Canadian securities laws (“ forward-looking statements ”). Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on management’s current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions of the Corporation. In addition, the Corporation may make or approve certain statements in future filings with Canadian securities regulatory authorities, in press releases, or in oral or written presentations by representatives of the Corporation that are not statements of historical fact and may also constitute forward-looking statements. All statements, other than statements of historical fact, made by the Corporation that address activities, events or developments that the Corporation expects or anticipates will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words and includes, among others, information regarding: expectations for the effects of any transactions; expectations for the potential benefits of any transactions; statements relating to the business and future activities of, and developments related to, the Corporation after the date of this MD&A, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Corporation’s business, operations and plans; expectations that planned acquisitions will be completed, including but not limited to other potential acquisition(s); expectations that licenses applied for will be obtained; potential future legalization of adult-use and/or medical cannabis under USA federal law; expectations of market size and growth in the USA, California and such other states in which the Corporation has expressed desire to operate in; expectations for other economic, business, regulatory and/or competitive factors related to the Corporation or the cannabis industry generally; and other events or conditions that may occur in the future. Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance or business developments. These statements speak only as of and at the date they are made and are based on information currently available and on the then current expectations. Holders of securities of the Corporation are cautioned that forward-looking statements are not based on historical facts but instead are based on reasonable assumptions and estimates of management of the Corporation at the time they were provided or made and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties related to: the available funds of the Corporation and the anticipated use of such funds; the availability of financing opportunities; legal and regulatory risks inherent in the cannabis industry; risks associated with economic conditions, dependence on management; risks relating to USA regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti-money laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to contracts with thirdparty service providers; risks related to the enforceability of contracts; reliance on the expertise and judgment of senior management of the Corporation, and ability to retain such senior management; risks related to proprietary intellectual property and potential infringement by third parties; risks relating to the management of growth; increasing competition in the industry; risks associated to cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; cybersecurity risks; ability and constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax and insurance related risks; risks related to the economy generally; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the

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Gabriella’s Kitchen Inc.

Management’s Discussion & Analysis December 31, 2019 and 2018

difficulty of enforcement of judgments and effecting service outside of Canada; risks related to future acquisitions or dispositions; sales by existing shareholders; limited research and data relating to cannabis; as well as those risk factors discussed under “Risk Factors” described above.

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SCHEDULE “E” – GABY Annual Financials for the FY 2018

(See attached)

E - 1

GABRIELLA'S KITCHEN INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2018 AND 2017 (in Canadian dollars)

1 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

April 30, 2019

Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements of Gabriella’s Kitchen Inc. and all information in Management’s Discussion and Analysis are the responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and, where appropriate, reflect management’s best estimates and judgments. Management is responsible for the accuracy, integrity, and objectivity of the consolidated financial statements within reasonable limits of materiality and has ensured consistency with the financial information presented elsewhere in Management’s Discussion and Analysis.

[signed] [signed] Margot M. Micallef Barbara Feit Chair & CEO Chief Financial Officer

2 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Gabriella’s Kitchen Inc.

Opinion

We have audited the accompanying consolidated financial statements of Gabriella’s Kitchen Inc. (the “Company”), which comprise the consolidated statement of financial position as at December 31, 2018, and the consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2018, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

Other Matters

The consolidated financial statements of Gabriella’s Kitchen Inc. for the year ended December 31, 2018 were audited by another auditor who expressed an unmodified opinion on those statements on April 30, 2018.

Other Information

Management is responsible for the other information. The other information obtained at the date of this auditor's report includes Management’s Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

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Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We remain solely responsible for our audit opinion.

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The engagement partner on the audit resulting in this independent auditor’s report is Erez Bahar.

“DAVIDSON & COMPANY LLP”

Vancouver, Canada April 30, 2019

Chartered Professional Accountants

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GABRIELLA’S KITCHEN INC.

Consolidated Statements of Financial Position

GABRIELLA’S KITCHEN INC. Consolidated Statements of Financial Position
*In Canadian dollars* Note	As at December 31
	2018 2017
ASSETS Current Cash Accounts receivable 4 Inventories 5 Prepaid expenses and deferred costs 6	53,658 15,767 367,590 349,294 592,771 169,041 236,259 245,277
Non-current Property and equipment 7 Intangible assets and goodwill 8 Securitydeposits	1,250,278 779,379 534,028 336,334 2,775,642 15,284 54,194 32,995
Total assets	4,614,142 1,163,992
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) Current liabilities Bank indebtedness 9 Accounts payable and accrued liabilities 10 Current portion of long-term debt 11 Currentportion of finance lease obligation 12	- 167,611 1,510,790 748,617 - 7,308 58,600 15,496
Current liabilities before the following: Callable debt 13 Due to related parties 14 Contingent considerationpayable 3b	1,569,390 939,032 - 3,978,897 - 841,488 1,615,392
Non-current liabilities Finance lease obligation 12 Deferred lease inducement 28 Deferred tax liability 22 Share subscription liability 16	3,184,782 5,759,417 79,087 24,329 46,942 30,758 332,600 - - 239,500
Total liabilities SHAREHOLDERS’ EQUITY (DEFICIENCY) Share issuance obligation 17d Share capital 18 Contributed surplus 18 Deficit Accumulated other comprehensive loss	3,643,411 6,054,004 511,200 - 18,218,110 6,544,097 1,270,663 - (19,154,623) (11,434,109) 125,381 -
	970,731 (4,890,012)
Total liabilities and shareholders’ equity (deficiency)	4,614,142 1,163,992
Going concern 1 Lease commitments 28 Contingencies 29

See accompanying notes to the consolidated financial statements

[signed] [signed]

On behalf of board: Margot M. Micallef, Director

Jackie Altwasser, Director

6 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Consolidated Statements of Loss and Comprehensive Loss

*In Canadian dollars, except number of common shares* Note	Year Ended December 31
	2018 2017
REVENUE Gross revenue Promotional activity Amortization ofproduct listingfees	2,442,236 1,274,517 (838,831) (236,990) (111,804) (85,002)
Total revenue	1,491,601 952,525
COST OF SALES Direct inventorycosts 19	1,340,960 664,383
Variablegrossprofit	150,641 288,142
Allocated indirect costs 20 Distribution costs	646,711 564,925 204,196 143,861
Total cost of sales	2,191,867 1,373,169
Gross profit (loss) Selling, general and administrative expenses 21 Share-based compensation and expenses 17 Depreciation of plant and equipment 7 Amortization of intangibles 8	(700,266) (420,644) 5,024,538 2,936,710 803,295 - 54,430 25,030 15,558 10,128
Loss from operations before the following:	(6,598,087) (3,392,512)
Foreign exchange gain (loss) Gain on conversion of callable debt 18c Interest expense Interest income Contract termination payment 17c Loss on inventorywrite-down 5	(173,504) 20,841 72,126 - (633,101) (227,569) 9,744 64 (341,716) - (55,976) (161,083)
Total other expenses	(1,122,427) (367,747)
Net loss	(7,720,514) (3,760,259)
Other comprehensive loss, net of tax Items that may be reclassified to net profit in the future: Exchange difference on translation	125,381 -
Total comprehensive loss	(7,595,133) (3,760,259)

Net lossper share:
Basic and diluted 23	($0.12) ($0.09)

See accompanying notes to the consolidated financial statements

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GABRIELLA’S KITCHEN INC.

Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

*In Canadian dollars* Note	Share issuance obligation	Share capital Contributed surplus Deficit	Accumulated other comprehensive loss Total
Balance as at December 31, 2016 Net and comprehensive loss Issuance of shares	-	4,599,543 - (7,673,850)	- (3,074,307) - (3,760,259) - 1,944,554
	-	- - (3,760,259)
	-	1,944,554 - -
Balance as at December 31, 2017 Net and comprehensive loss Issuance of shares and warrants for cash 18 Issuance of shares and warrants – debt conversion 18 Issuance of warrants attached to convertible debentures 18 Share-based compensation 17 Debenture conversion 15 Warrant exercise 17 Issued on business acquisition Issuance of stock options 18	-	6,544,097 - (11,434,109)	- (4,890,012) 125,381 (7,595,133) - 674,512 - 4,794,705 - 102,616 - 1,240,596 - 5,815,760 - 77,700 - 457,892 292,095 -
	-	- - (7,720,514)
	-	576,199 98,313 -
	-	4,095,883 698,822 -
	-	- 102,616 -
	511,200	604,510 124,886 -
	-	5,861,289 (45,529) -
	-	78,240 (540) -
	-	457,892 - -
	-	- 292,095 -
Balance as at December 31, 2018	511,200	18,218,110 1,270,663 (19,154,623)	125,381 970,731

See accompanying notes to the consolidated financial statements

8 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Consolidated Statements of Cash Flows

GABRIELLA’S KITCHEN INC. Consolidated Statements of Cash Flows
*In Canadian dollars* Note	Year Ended December 31
	2018 2017
OPERATING ACTIVITIES Net loss Adjustments to reconcile net loss to cash flow from operations: Depreciation 7 Amortization of intangible assets 8 Interest expense Interest income Share-based payments or payable 17 Gain on conversion of callable debt 13 Unrealized foreign exchange loss (gain) Increase in deferred lease inducement	(7,720,514) (3,760,259) 170,132 137,463 15,558 10,128 633,101 227,569 (9,651) - 1,145,011 - (72,126) - 173,504 (142) 3,258 13,880
Cash used in operating activities before the following: Net change in non-cash workingcapital related to operations 24	(5,661,727) (3,371,361) 515,820 (93,598)
Cash used in operating activities	(5,145,907) (3,464,959)
INVESTING ACTIVITIES Purchase of property and equipment Purchase of intangible assets Issuance of notes receivable Purchase acquisition 3c Proceeds on notes receivable Deposits returned(paid)	(81,954) (49,674) (42,918) (13,998) (1,124,830) - 151,258 - 390,630 - - 3,210
Cash used in investing activities	(707,814) (60,462)
FINANCING ACTIVITIES Proceeds on convertible debentures and attached warrants Issuance costs paid – convertible debentures Proceeds on callable debt Advances from related parties Repayment to related parties 14 Repayment of callable debt Repayment of long-term debt Repayment of finance lease obligation Cash received for shares not yet issued 16 Issuance of share capital from treasury Proceeds on warrants exercised Interestpaid	6,350,000 - (649,400) - 387,960 1,058,620 - 408,038 (8,018) - (408,399) - (7,308) (30,186) (38,220) (9,132) - 239,500 435,011 1,940,466 77,700 - (27,646) (15,747)
Cash flowprovided from financing activities	6,111,680 3,591,559
Effect of exchange rate change on cash	(52,457) (47,888)
Net change in cash flow Bank indebtedness, beginning ofyear 9	205,502 18,250 (151,844) (170,094)
Cash(bank indebtedness), end ofyear 9	53,658 (151,844)

See accompanying notes to the consolidated financial statements

9 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Consolidated Statements of Cash Flows - Continued

GABRIELLA’S KITCHEN INC. Consolidated Statements of Cash Flows - Continued
*In Canadian dollars* Note	Year Ended December 31
	2018 2017
CASH (BANK INDEBTEDNESS) CONSISTS OF: Cash Bank indebtedness Canadian dollar account – bank indebtedness Canadian dollar account – cheques in excess of bank balance US dollar account(stated in Canadian dollars)	53,658 15,767 - (132,174) - (52,126) - 16,689
	53,658 (151,844)
OTHER INFORMATION Interest paid Interest received Income taxes paid (recovered)	27,646 15,747 93 64 - -

See Note 25 for detail of non-cash transactions

10 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

NATURE OF BUSINESS

Gabriella's Kitchen Inc. (“GABY” or "the Corporation") is incorporated in Canada under the Business Corporations Act of Alberta. The Corporation’s registered office is 200, 209 – 8th Avenue SW, Calgary, Alberta T2P 1B8, Canada and it trades on the Canadian Securities Exchange (“CSE”) under the symbol GABY. Prior to October 1, 2018, the Corporation operated in the mainstream consumer packaged goods (“CPG”) channel or unlicensed channel, with its offering of traditional betterfor-you foods in both United States (“USA”) and Canada. Subsequent thereto and subsequent to year end, through the acquisitions described in Note 3 and Note 32, respectively, the Corporation now produces, markets, and distributes cannabis-related CPG in the USA.

1. GOING CONCERN

These consolidated financial statements for the years ended December 31, 2018 and 2017 (“Financial Statements”) have been prepared using International Financial Reporting Standards (“IFRS”) applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due.

The Corporation is in the initial growth stage of the business life cycle and has not yet reached a profitable level of operations. Until the Corporation reaches profitability, its ability to continue as a going concern is dependent upon the availability of operating and long-term financing. Management is continuing to address the need to increase revenue, control costs, and obtain working capital and long-term financing. As described under the Liquidity section of Note 26, management has short term and long-term financing plans in place to fund future operations. With these plans, the Corporation should have sufficient funds in place to fund operational losses for one year and beyond.

Should the Corporation be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they come due. These Financial Statements do not reflect adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary if the Corporation was unable to realize its assets and settle its liabilities as a going concern in the normal course of operation. These adjustments could be material.

2. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Statement of compliance

These Financial Statements were approved and authorized for issue by the Corporation’s board of directors (“Board”) on April 28, 2019.

Basis of presentation

These Financial Statements have been prepared under the historical cost convention, except for financial instruments classified as financial instruments at fair value through profit and loss, which are stated at their fair value, and are expressed in in Canadian dollars unless otherwise indicated. Other measurement bases used are outlined below and in the applicable notes.

11 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

Certain comparative figures have been reclassified to conform to the current year’s presentation.

Basis of consolidation

	Registered	Holding	Functional Currency
Gabriella’s Kitchen Inc.	Alberta, Canada	Parent Company	Canadian dollar
Gabriella’s Kitchen LLC	Delaware, USA	100%	Canadian dollar
The Oil Plant, Inc. (“TOP”)	California, USA	100%	United States dollar (“USD”)

Intercompany balances and transactions, and any unrealized gains or losses arising from intercompany transactions, are eliminated in preparing the Financial Statements.

Business combinations

The consideration transferred does not include amounts related to the settlements of pre-existing relationships; such amounts are generally included in profit or loss.

Translation of foreign currencies

a. Transactions and balances

The accounts of the Corporation are presented in Canadian dollars. Transactions in foreign currencies are translated at the actual rates of exchange on the date the transaction occurred. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the Canadian dollar at the exchange rate at that date. Revenue and expense transactions are translated using the actual rate on the date of the transaction. Foreign exchange differences 12 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

arising on translation are recognized in profit or loss. Non-monetary assets and liabilities that are measured at the historical cost, and expenses related to them, are translated using the historical exchange rate at the date of the transaction.

b. Subsidiaries

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet
income and expenses for each statement of profit or loss and statement of comprehensive income or loss are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and
all resulting exchange differences are recognized in other comprehensive income or loss.

Cash

Cash consists of cash on hand and balances with financial institutions. Cash in bank deposit accounts, at times, exceeds federally insured limits. The Corporation has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

13 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

Inventories

Property and equipment

Subsequent costs are included in the asset's carrying amount when it is probable that future economic benefits associated with the asset will flow to the Corporation, and the costs can be measured reliably. This would include costs related to the refurbishment or replacement of major components of the asset, when the refurbishment results in a significant extension in the physical life of the component, and in which case, the carrying amount of the replaced part is derecognized. The costs of the day-to-day maintenance of property and equipment are expensed as incurred in profit or loss.

Any gain or loss on the derecognition of an asset is determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and is recognized on a net basis in profit or loss.

Production equipment	4 years Straight-line
Other equipment	20% Declining balance
Signs	20% Declining balance
Furniture and fixtures	20% Declining balance
Computer equipment	30-55% Declining balance

Depreciation of leasehold improvements is recorded over the remaining term of the lease plus the first renewal option.

14 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

Assets under finance lease

Assets under finance leases are recorded at cost. The Corporation provides for depreciation using rates designed to depreciate the cost of the assets under finance lease over the lesser of their estimated useful lives, or the lease term, unless buy-out at the end of the lease term is reasonably assured. Half of a year's depreciation is recorded in the year of acquisition. No depreciation is recorded in the year of disposal. The depreciation methods and rates are as follows:

Equipment 20% Declining balance

Intangible assets

The useful lives of intangible assets are assessed to be either finite or indefinite.

Computer software 55% Declining balance Website costs 55% Declining balance or 3 years Straight-line

Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually at the cashgenerating unit level. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. The life of the licences has been determined to be indefinite.

Goodwill

Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the fair value of the net tangible and intangible assets acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to the cash generating unit (“CGU”) or groups of CGUs which are expected to benefit from the synergies of the combination. Goodwill is tested annually for impairment.

15 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

Impairment

a. Financial assets at amortized cost

An ‘expected credit loss’ impairment model applies which requires a loss allowance to be recognized based on expected credit losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present value of the future cash flows associated with the asset, discounted at the financial asset’s original effective interest rate, either directly or through the use of an allowance account and the resulting loss is recognized in profit or loss for the period.

In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

b. Non-financial assets

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of cash inflows from other assets or groups of assets ("cashgenerating unit"). The recoverable amount of an asset or a cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. Impairment losses recognized in prior years are reviewed by the Corporation at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An asset’s carrying amount, increased through the reversal of an impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Financial Instruments

The Corporation adopted IFRS 9, Financial Instruments , in 2015. Adoption of this standard had no effect on the Corporation's accounting for financial instruments.

Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is

16 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

The Corporation classifies the fair value of financial instruments according to the following hierarchy based on the reliability of observable inputs used to value the instrument.

Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The Corporation’s financial instruments include cash, accounts receivable, bank indebtedness, long-term debt, callable debt, accounts payable and accrued liabilities, due to related parties, finance lease obligation, deferred lease inducement, share subscription liability and contingent consideration payable. The carrying value of current financial instruments approximate their fair value due to their immediate or short term to maturity, or their ability for liquidation at comparable amounts. The fair value of the Corporation’s non-current financial instruments is approximated by their carrying values as the contractual interest rates are comparable to current market interest rates.

The Corporation has made the following classifications:

a. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Corporation’s loans and receivables are comprised of trade and other receivables and are included in current assets due to their short-term nature. Loans and receivables are initially recognized at the amount expected to be 17 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less any provision for impairment.

b. Financial liabilities at amortized cost

Financial liabilities at amortized cost include trade accounts payable and accrued liabilities, callable debt, long-term debt and obligations under finance lease. Trade payables are initially recognized at the amount required to be paid less, when material, a discount to reduce the payables to fair value. Subsequently, trade payables are measured at amortized cost using the effective interest method. Accrued interest, callable debt, long-term debt and obligations under finance lease are initially recognized at fair value net of transaction costs that are directly attributable to the financial liability, and subsequently at amortized cost using the effective interest method.

c. Compound financial instruments

d. Warrants

Research and development costs

18 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

costs meet the criteria for deferral and amortization pursuant to IAS 38, Intangible assets. Investment tax credits related to the expenditures are recorded when there is reasonable assurance that the credits will be realized. The cost reduction approach is followed whereby investment tax credits related to non-capitalized expenditures are an offset to research and development expense in the year, and investment tax credits related to capitalized expenditures are deducted from the related assets. Investment tax credits are recoverable from the Government of Canada under the Scientific Research and Experimental Development Incentive Programs and are subject to government approval.

Leases

Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification is re-assessed if the terms of the lease are changed.

a. Finance lease

Leases in which substantially all the risks and rewards of ownership are transferred to the Corporation are classified as finance leases. Assets meeting finance lease criteria are capitalized at the lower of the present value of the related lease payments or the fair value of the leased asset at the inception of the lease. Minimum lease payments are apportioned between the finance charge and the liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

b. Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under an operating lease are recognized in the income statement on a straight-line basis over the period of the lease.

Income taxes

19 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

Loss per common share

Revenue recognition

Certain customers require payment of one-time listing allowances (or "product listing fees") to obtain space for a new product in their stores. These fees are considered incremental costs of obtaining a contract and, if recovery is expected through sales to the customer in future periods, are capitalized as product listing fees (included in prepaid expenses and deferred costs) and amortized to contra-revenue over the estimated recovery period. Product listing fees that are insignificant or are not estimated to have future economic benefit are recorded to contra-revenue in the period incurred.

Share-based payments

Contributed surplus - in the case of stock options;

Share issuance obligation - in the case of an obligation to issue a set amount of shares in the future; and Share capital - where common shares are awarded directly.

The fair value of share options is determined using a Black-Scholes option pricing model. The number of shares and options

20 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

For equity instruments issued in advance of the services being provided, the share capital would be recognized as the services are provided. The Corporation has not entered any arrangements of that particular nature.

Critical accounting estimates, judgments and measurement uncertainty

a. Going concern

b. Business combinations

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GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

such as the achievement of future revenue targets ("Targets"). Accordingly, the estimate of fair value contains uncertainties, as it involves judgment about the likelihood of achieving these Targets, and changes in fair value of the contingent consideration will result from changes to the assumptions used to estimate the probability of success for achieving Targets. A change in the assumed probabilities could produce a different fair value, which could have a material impact on the results of operations. The impact of changes in the range of probabilities is described in Note 3.

c. Allowance for doubtful accounts

The group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due. The carrying amount of the receivable is reduced through use of an allowance account, and impaired receivables are derecognized when they are assessed as uncollectible. Accordingly, management establishes an allowance for estimated losses arising from non-payment and other sales adjustments (such as merchant charge backs), taking into consideration customer creditworthiness, current economic trends and past experience. If future collections differ from estimates, future earnings would be affected. See Note 4.

d. Share-based payments

e. Fair value of financial instruments

22 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

f. Income taxes

g. Inventories

h. Product listing fees

The Corporation regularly pays suppliers a listing fee for the supplier to carry the Corporation's product in their stores. Management must assess the useful life of these listing fees based on the expected retail life of the products being listed. Management has determined that three years is the estimated useful life of the listing fees. If the recovery period of these assets changes, future earnings would be affected. See Note 6.

i. Property and equipment

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GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

j. Intangible assets and goodwill

future cash flows;
terminal growth rates; and
discount rates.

Judgment is also applied in choosing methods of amortizing intangible assets that management believes most accurately represent the consumption of those assets and are most representative of the economic substance of the intended use of the underlying assets. A change in the estimate would result in a change in the amount of amortization and, as a result, a charge to net loss recorded in the period in which the change occurs, with a similar change in the carrying value of the asset on the Consolidated Statement of Financial Position.

Accounting standards issued and not applied

Certain new accounting standards and interpretations have been published that are not mandatory for December 31, 2018 reporting periods and have not been early adopted by the Corporation. The Corporation’s assessment of the impact of these new standards and interpretations is set out below.

IFRS 16, Leases, was issued in January 2016 and applies to annual reporting periods beginning on or after January 1, 2019. IFRS 16 specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liability for all leases unless the term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.

24 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

The Corporation is in the process of completing its review and analysis of IFRS 16 and will apply IFRS 16 using the modified retrospective approach where the additional right-of-use assets and lease liabilities will be recorded from that date forward and will not require restatement of prior years’ comparative information. The Corporation will provide the quantitative impact of adopting IFRS 16 in its first quarter 2019 unaudited condensed consolidated interim financial statements.

3. BUSINESS ACQUISITION

a) Description of acquisition of TOP

On October 1, 2018 the Corporation acquired 100% of issued and outstanding equity of TOP. TOP is a cannabis extractor and infused product manufacturer located in Northern California. Through the acquisition, the Corporation has secured a Type-6 non-volatile manufacturing licence (“Type 6 Licence”); a cannabis extraction and infusion facility in the state of California; a non-exclusive licence held by TOP to access an extensive database (“Database”) of formulations and other associated health attributes to create cannabis-infused products. TOP also holds the rights to the trademark “Aunt Zelda’s™ (“AZ trademark”) for 10 years, which is a brand of proprietary, infused topicals and tinctures, which utilize TOP’s extracts.

The acquisition-date fair value of the total consideration is as follows:

Note	USD Canadian$
1,115,578 common shares issued Contingent considerationpayable based on 2019 revenue targets	357,644 457,892 1,184,000 1,515,875
Total consideration 3 b) The amounts recognized as of the acquisition date are as follows: Cash Accounts receivable – fair and gross value, estimate 100% Inventory Prepaid expenses and deposits Plant and equipment Intangibles – Type 6 Licence 8 Goodwill 3 d) Net deferred tax liability 22 Accounts payable and accrued liabilities Due to related party Deferred lease inducement liability Note and amountspayable to the Corporation 3 e)	1,541,644 1,973,767 118,143 151,258 23,146 29,634 132,401 169,513 16,839 21,559 109,996 140,828 991,000 1,268,777 1,012,771 1,296,651 (243,796) (312,132) (19,845) (25,408) (6,587) (8,433) (9,455) (12,105) (582,969) (746,375)
	1,541,644 1,973,767

25 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

b) Consideration including contingent consideration

The total consideration is payable in the Corporation’s common shares and is contingent upon performance targets in respect of TOP’s calendar year of 2018 and 2019 as follows:

1) In calendar 2018, TOP met 100% of its performance targets and therefore in October 2018, its sole shareholder, a director of the Corporation, was issued 1,115,178 common shares of the Corporation valued at the 20-day weighted average trading price of the Corporation’s share on the acquisition date of October 1, 2018, for total fair value of USD 357,544 (CAD 457,892.) The number of common shares was based on deemed maximum consideration of USD 250,000 divided by a fixed price of CAD 0.28 translated at the foreign exchange rate on the same date to USD 0.2242 per share.
2) In calendar 2019, contingent consideration up to a maximum of USD 1,850,000 payable in the Corporation’s shares based on prevailing market price, calculated and paid quarterly, subject to meeting a revenue target of USD 10,000,000 in fiscal 2019 (“Earnout”). The contingent consideration amount of USD 1,850,000 is adjusted in proportion to the percentage of meeting the Earnout (subject to maximum of 100%). The range of value of common shares to be issued is USD nil to USD 1,850,000 or CAD nil to 2,368,555 using the USD/CAD exchange rate on the date of acquisition of October 1, 2018. Based on the assigned probabilities of different outcomes, the Corporation recorded contingent consideration payable of USD 1,184,000 (CAD 1,515,875), which assumes achievement of 64% of the Earnout. As the number of shares issuable in respect of the contingent consideration is variable, it has been recorded as a liability and will be remeasured at each reporting date, with changes recognized in profit or loss until the final share-based consideration is determined. At December 31, 2018, the contingent consideration payable was $1,615,392 to reflect the year end foreign exchange rate and reflects an unchanged estimate of achievement of 64% of the Earnout. Each 10% increase or decrease in the assumed percentage of achieving the Earnout would result in a corresponding increase (decrease) of USD 185,000 (CAD 252,371 based on the year end exchange rate) in the contingent liability and loss, subject to the minimum and maximum amounts described above.

c) Purchase consideration – cash inflow

ase consideration – cash inflow
In$	2018 2017
Cash consideration Less cash acquired on acquisition	- - 151,258 -
Net cash inflow – investing activities	151,258 -

d) Goodwill

The composition of goodwill includes knowledge and experience of TOP management in respect of manufacturing cannabis products with industry-leading quality. The goodwill has $nil tax value.

e) Pre-existing arrangements

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GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

due from TOP. The interest income and interest expense in respect of the 5% short-term note receivable/payable were eliminated on consolidation effective October 1, 2018. The short-term note payable by TOP has been included in the determination of TOP’s net assets in the determination of goodwill.

f) Acquisition costs

g) Revenue and loss contribution

TOP contributed revenues of $117,007 and incurred net loss of $129,309 to the group for the period from October 1, 2018 to December 31, 2018. The revenue and profit and loss of the combined entity as though the acquisition had occurred at the beginning of the annual reporting period has not been provided as it is impractical to provide.

As of the date of these consolidated financial statements, the determination of fair value of assets and liabilities acquired is based on preliminary estimates and has not been finalized.

4. ACCOUNTS RECEIVABLE

Balance comprised of:	In $
	2018 2017
Trade accounts receivable Accrued merchant charge-backs GST receivable Other accounts receivable	313,121 309,296 - (23,299) 66,298 46,758 41,882 68,404
Sub-total before allowance Allowance for doubtful accounts Allowance for merchant charge-backs	421,301 401,159 (53,711) (41,865) - (10,000)
Total allowance	(53,711) (51,865)
	367,590 349,294
Aging of receivables:
30 days 60 days 90 days Over 90 days	227,450 176,193 114,085 65,465 12,716 59,836 67,050 99,665
	421,301 401,159
Exposure by geographic area: Canada United States	130,193 163,511 291,108 237,648
	421,301 401,159

Trade accounts receivable bear normal commercial credit terms, usually 30 days or less, and are non-interest bearing.

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GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

5. INVENTORIES

INVENTORIES
Balance comprised of:	In $
	2018 2017
Raw and semi-finished materials Packaging materials Finishedgoods	229,922 23,538 74,805 57,748 288,044 87,755
	592,771 169,041

Inventories expensed in cost of sales for the year amounted to $2,191,867 (2017 - 1,373,169). Total write-offs of inventory amounted to $55,976 (2017 - $161,083). The write-off amounts were excluded from cost of sales and expensed as an other expense item titled "Loss on inventory write-down". This amount resulted from a write-off of inventory that expired and was no longer able to be sold, as well as a write-down of inventory to estimated net realizable value in 2018 and 2017.

6. PREPAID EXPENSES AND DEFERRED COSTS

6. PREPAID EXPENSES AND DEFERRED COSTS
Balance comprised of:	In $
	2018 2017
Prepaid expenses Product listingfees	51,146 40,783 185,113 204,494
	236,259 245,277

Of the amounts above, $91,800 is expected to be recovered more than twelve months after the end of the reporting period (2017 - $106,198).

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GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

7. PROPERTY AND EQUIPMENT

In $	Production equipment	Leasehold improve- ments Equipment Signs Furniture and fixtures Computer equipment Equipment under finance lease Total
Balance as at December 31, 2016
Cost 508,290		24,288 69,750 15,947 17,464 1,701 30,900 668,340
Accumulated depreciation (192,124)		(1,518) (53,887) (4,240) (8,964) (1,388) (5,646) (267,767)
Net book value 316,166		22,770 15,863 11,707 8,500 313 25,254 400,573
Purchase - Additions of assets under lease -		7,530 22,702 - 3,306 16,136 - 49,674 - - - - - 23,550 23,550
Depreciation1 (112,433)		(3,507) (5,442) (2,341) (2,031) (4,303) (7,406) (137,463)
Balance as at December 31, 2017
Cost 508,290		31,818 92,452 15,947 20,770 17,837 54,450 741,564
Accumulated depreciation (304,557)		(5,025) (59,329) (6,581) (10,995) (5,691) (13,052) (405,230)
Net book value 203,733		26,793 33,123 9,366 9,775 12,146 41,398 336,334
Purchase - Additions of assets under lease - Acquired on business acquisition 47,456		61,762 3,826 - 2,060 5,100 9,206 81,954 - - - - - 136,081 136,081 5,310 - - 88,062 - - 140,828
Depreciation1 (115,703)		(8,203) (7,006) (1,873) (6,950) (7,589) (22,808) (170,132)
Foreign exchange2 3,007		337 - - 5,619 - - 8,963
Balance as at December 31, 2018
Cost 558,855		99,238 96,278 15,947 116,661 22,937 199,737 1,109,653
Accumulated depreciation (420,362)		(13,239) (66,335) (8,454) (18,095) (13,280) (35,860) (575,625)
Net book value 138,493		85,999 29,943 7,493 98,566 9,657 163,877 534,028

Net book value 138,493 85,999 29,943 7,493 98,566 9,657	163,877 534,028
1Depreciation recognized was allocated to the following accounts:	2018 2017
Cost of sales	100,019 97,784
Loss on inventory write-down	- 3,442
Inventories	15,683 11,207
Depreciation ofplant and equipment	54,430 25,030
	170,132 137,463

2Foreign exchange difference arising on translation of foreign operation into Canadian dollars.

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GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017 In Canadian dollars, unless otherwise stated

8. INTANGIBLE ASSETS AND GOODWILL

In $	Computer software	Website costs Licences Goodwill Total
Balance as at December 31, 2016
Cost 6,926		28,066 - - 34,992
Accumulated amortization (4,667)		(18,911) - - (23,578)
Net book value 2,259		9,155 - - 11,414
Purchase 13,998		- - - 13,998
Amortization (5,093)		(5,035) - - (10,128)
Balance as at December 31, 2017
Cost 20,924		28,066 - - 48,990
Accumulated amortization (9,760)		(23,946) - - (33,706)
Net book value 11,164		4,120 - - 15,284
Purchase - Acquired on business acquisition -		42,918 - - 42,918 - 1,268,777 1,296,651 2,565,428
Amortization (6,141)		(9,417) - - (15,558)
Foreign exchange1 -		- 83,110 84,460 167,570
Balance as at December 31, 2018
Cost 20,924		70,984 1,351,887 1,381,111 2,824,906
Accumulated amortization (15,901)		(33,363) - - (49,264)
Net book value 5,023		37,621 1,351,887 1,381,111 2,775,642

1Foreign exchange difference arising on translation of foreign operation into Canadian dollars.

9. BANK INDEBTEDNESS

A demand operating loan has been authorized by a financial institution to a maximum of $150,000 (2017 - $150,000) and bears interest at the bank's prime lending rate plus 3.00% per annum and is secured by a general security agreement and an assignment of insurance. The prime rate at December 31, 2018 was 3.95% (2017 – 3.20%).

30 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Balance comprised of:	In $
	2018 2017
Trade accounts payable Credit cards payable Payroll liabilities Accrued liabilities	1,171,405 690,914 7,637 9,600 28,900 17,090 302,848 31,013
	1,510,790 748,617
Aging:
30 days 60 days 90 days Over 90 days	356,617 290,683 528,478 217,906 61,695 32,786 224,615 149,539
	1,171,405 690,914

As of December 31, 2018, trade accounts payable includes $295,211 (December 31, 2017 - $53,424) due to shareholders, employees, and entities under common control in respect of services described in Note 14.

11. LONG-TERM DEBT

11. LONG-TERM DEBT
	In $
	2018 2017
Equipment finance loan, repaid in current year Less current portion	- 7,308 - (7,308)
	- -

12. FINANCE LEASE OBLIGATION

12. FINANCE LEASE OBLIGATION
Finance leases, all secured by asset financed, due: Monthly instalments in $ including interest Interest	In $
	2018 2017
July 2021 2,634 9.00% February 2021 1,186 15.90% June 2021 587 13.48% June 2020 387 5.00% September 2020 346 16.93% September 2020 296 14.13% January 2020 335 10.63% July2019 262 21.08%	72,624 - 25,946 - 14,874 - 6,701 11,003 6,249 9,075 5,482 8,060 4,096 7,483 1,715 4,204
Less currentportion	137,687 39,825 58,600 15,496
	79,087 24,329

31 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

Imputed interest related to capital lease obligations amounted to $13,596 during the year (2017 - $3,151).

Estimatedpayments on finance leases are as follows	In $
2019 2020 2021	71,100
	61,300
	24,300
Total future minimum lease payments Less amount representinginterest	156,700
	(19,013)
Finance lease obligations	137,687
Estimated principal repayments are as follows
2019 2020 2021	58,600
	55,500
	23,587
	137,687

13. CALLABLE DEBT

13. CALLABLE DEBT
Note	In $
	2018 2017
Demand promissory note payable to a related party (family member of multiple shareholders) repaid July 2018. The note paid interest of prime plus 5%. Demand promissory notes payable to various parties, settled by issuance of share capital and warrants in June 2018 18	- 150,000 - 3,828,897
	- 3,978,897

32 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

14. RELATED PARTY TRANSACTIONS

These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties, apart from the Compensation Warrants, which were valued in accordance with share-based payments as described in Note 17. No amounts are owing to or owing from the related parties in respect of the transactions unless otherwise referenced in the table below.

transactions unless otherwise referenced in the table below.
a. Amounts included in Selling, general and administrative expenses (except as otherwise noted): Note	In $
	2018 2017
Compensation of key management personnel1 Cash compensation for services provided by separate management entities, which are also corporate shareholders Other cash compensation Share-based compensation to officers and directors	430,000 299,996 39,685 - 226,833 -
Total compensation of key management personnel Other expenses on behalf of the Corporation by a corporate shareholder and an entity related by common ownership Rent paid to a company controlled by an officer and director b. Amounts included in Cost of sales: Royalty and licensing fees paid to entities controlled by a close family member of certain key management personnel c. Amounts included in Interest expense: Interest on callable debt to shareholders and an entity related by common ownership d. Convertible debentures issued: Finder’s fees paid to a company significantly influenced by a controlling owner of a corporate shareholder and who is a family member of multiple shareholders – included in total Issue costs – professional fees and commissions of $649,400 15 285 Compensation Warrants for finder’s fees issued to the same company above, in respect of issuance of convertible debentures included in fair value of Compensation Warrants 15, 17	696,518 299,996 185,738 224,487 10,565 - 7,544 - 10,119 220,064 205,230 - 47,330 -
e. Due to(from) relatedparties
Corporate shareholder controlled by a director 18c Shareholder and director	- 845,774 - (4,286)
	- 841,488

1Key management personnel consist of those that have the authority and responsibility for planning, directing and controlling the activities of the Corporation, which includes the most senior executive team and the Board.

Trade accounts payable due to related parties are included with accounts payable in the statement of financial position and are noted separately in Note 10.

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GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

15. CONVERTIBLE DEBENTURES

A total of 6,350 convertible debentures with a face value of $1,000 and 22,225,000 warrants (“Warrants”) (See Note 17) were issued by the Corporation on June 13, 2018 for total gross proceeds of $6,350,000. The convertible debentures were contingently convertible as explained below and would have otherwise matured December 13, 2018 at their face value plus accrued interest a rate of 10% per annum. The convertible debentures were convertible into Class A common shares of the Corporation (“Common Shares”) at a price of $0.2857 per Common Share at the holder’s option anytime up to the maturity date; however pursuant to certain events (“Conversion Event”), one of which occurred on August 28, 2018 with the Corporation’s shares being approved for listing on the Canadian Securities Exchange, resulted in the automatic conversion of the convertible debentures into Common Shares at a rate of $0.2857 per Common Share for no additional consideration. Accordingly, the convertible debentures with a face value of $6,350,000 automatically converted into 22,226,092 Common Shares, resulting in a reduction of convertible debentures by $5,815,760 (including interest accretion accruals up to that date); an increase in share capital of $5,861,289 and decrease in contributed surplus of $45,529.

For accounting purposes, the convertible debentures were separated into their liability and equity components using the effective interest method. The fair value of the liability component at the time of issue was determined based on an estimated rate of 13.2% for convertible debentures without the conversion feature. The fair value of the equity components of the Warrants and the conversion feature was determined as the difference between the face value of the convertible debentures and the fair value of the liability component and apportioned to the Warrants and conversion feature based on their relative values using the Black-Scholes option pricing model.

As at June 13, 2018	In$
Convertible debenture fair value Embedded option to convert the liability into equity 22,225,000 Warrants	6,247,384
	45,529
	57,087
Totalproceeds received	6,350,000

In conjunction with the issuance, the Corporation also issued 1,076,776 Common Shares, 1,076,776 Warrants and 482 “Compensation Warrants” as compensation to broker and advisory agents (Brokers’ fees”). Each Compensation Warrant entitles the holder thereof to acquire 3,500 Common Shares and 3,500 Warrants for $1,000, or effectively one Common Share and one Warrant at a combined price of $0.2857 per share up to June 13, 2020. As detailed in Note 17, this sharebased compensation was valued at $387,680. The Brokers’ fees, plus legal, commission and advisory fees of $649,400 paid in connection with the issuance, were netted against the convertible debentures and were accreted as interest expense up to August 28, 2018. The interest for the year ended December 31, 2018 is $605,456 (2017 - $nil).

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GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

The following table summarizes the outstanding balance and changes in the amounts recognized in the components of the convertible debentures during the periods:

	In $
	2018 2017
Beginning balance Grossproceeds received	- - 6,350,000 -
Issue costs – 1,076,666 Common Shares issued to agents 17b Issue costs – 1,076,666 Warrants issued to agents 17b Issue costs – 482 Compensation Warrants issued to agents 17b	(262,794) - (44,841) - (80,045) -
Total of share-based compensation to agents Issue costs - professional fees and commissions Equity component – 22,225,000 warrants Equity component – conversion feature	(387,680) - (649,400) - (57,087) - (45,529) -
Liability component initially recognized	5,210,304 -
Interest accretion expense on share-based compensation Interest accretion expense on remaining	161,004 - 444,452 -
Total interest accretion expense	605,456 -
Balance converted to common shares	5,815,760 -

16. SHARE SUBSCRIPTION LIABILITY

As of December 31, 2017, the Corporation had received $239,500 in cash from investors for shares and warrants of the Corporation, for which the shares had not yet been issued. All of the shares and warrants were issued in 2018 as described in Note 18.

17. SHARE-BASED PAYMENTS AND SHARE ISSUANCE OBLIGATION

Amounts recognized from share-based payment transactions recognized during the year are as follows:

	In $
	2018 2017
Share-based compensation and expenses: Stock option plan employee compensation and consulting fees 17a Share-based payments for consulting fees 17d Share-basedpayments for marketing 17d	292,095 - 466,200 - 45,000 -
Contract terminationpayment: 17c	803,295 - 341,716 -
Total share-based expense in net loss and comprehensive loss Share-based compensation offset against convertible debentures 15/17b	1,145,011 - 387,680 -
Total share-based compensation	1,532,691 -

35 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

a. Stock option plan

During 2018 the Corporation adopted an incentive stock option plan (the "Option Plan") which provides that the Board may from time to time, in its discretion, grant to directors, officers, employees and consultants of the Corporation, nontransferable options ("Options") to purchase Common Shares. The purpose of the plan is to advance the interests of the Corporation and its Shareholders by attracting, retaining and motivating such directors, officers, employees and consultants and to encourage and enable such persons to acquire and retain a proprietary interest in the Corporation through ownership of Common Shares.

The Option Plan is to be administered by the Board, or a committee thereof, either of which has full and final authority with respect to the granting of Options under the Option Plan.

The exercise price of any Options granted under the Option Plan shall be determined by the Board, but may not be less than the market price of the Common Shares on the Exchange on the date of the grant. The term of any Options granted under the Option Plan shall be determined by the Board at the time of grant but provided that the term of any Options may not exceed ten years. Options granted up to December 31, 2018 vest evenly on the anniversary dates from the original grant date at either 20% per year or 1/3 immediately and two anniversary dates following; and in one case 1/3 immediately and 2/3 in one year. Options are not transferable or assignable, other than by will or other testamentary instrument or pursuant to the laws of succession.

36 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

Set out below are summaries of options granted under the plan:

	2018 2017 Average exercise price per option in $ Number of options Average exercise price per option in $ Number of options
As at January 1 Granted during the year Exercised during the year Expired during the year Forfeited duringtheyear	- - - - $0.39 3,375,000 - - - - - - - - - - - - - -
As at December 31	$0.39 3,375,000 - -
Vested and exercisable at December 31	$0.36 908,333 - -

Share options outstanding at the end of the year have the following expiry dates and exercise prices:

Grant date Expiry date		Number of options
	Exerciseprice	2018 2017
September 4, 2018 September 4, 2023 October 21, 2018 October 21, 2028 November 26,2018 November 26,2023	$0.2856	1,775,000 - 1,300,000 - 300,000 -
	$0.5000
	$0.5000
Total		3,375,000 -
Weighted average remainingcontractual life of options outstandingend ofyear		6.68years -

Fair value of options granted

The assessed fair value at grant date of options granted during 2018 was $0.23 per option (2017 – not applicable). The options are granted for no consideration.

The amount included in share-based compensation and expenses for directors’, officers’ and consulting services received for the year is $292,095 (2017 - $nil) and is classified as contributed surplus on the Corporation’s consolidated statements of financial position.

37 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

The fair value at the grant date as determined using the Black Scholes Model which takes into account the following inputs:

Grant date 2018 Exercise price Share price at measurement date	Risk free interest rate1	Expected volatility2 Expected life in years Expected dividend yield
September 4 $0.2857 $0.2478 October 21 $0.5000 $0.5000 November 26 $0.5000 $0.4400	2.25%	80% 5 0%
	2.47%	80% 5 0%
	2.30%	80% 5 0%
Weighted average $0.3873 $0.3620	2.35%

1 Based on interest rates of Government of Canada Bonds with similar maturity at the date of grant.

b. Shares, Warrants, and Compensation Warrants issued with convertible debentures

In conjunction with the convertible debenture offering (see Note 15), the Corporation issued 1,076,776 Common Shares, 1,076,776 Warrants and 482 Compensation Warrants as compensation to the broker and advisory agents engaged for the offering. Each Compensation Warrant entitles the holder thereof to acquire 3,500 Common Shares and 3,500 Warrants for $1,000, or effectively one Common Share and one Warrant at a combined price of $0.2857 per share up to June 13, 2020. The aggregate fair value of this share-based payment was determined to be $387,680 based on an estimated fair value of $875,000 for broker and advisory fees customarily paid on an offering of comparable size less cash consideration paid of $487,320. The fair value of the share-based payment was apportioned as $262,794 for the 1,076,776 Common Shares, $44,841 for the 1,076,776 Warrants and the residual amount of $80,045 to the 482 Compensation Warrants. The combined fair value of the Common Shares and Warrants was based on the Common Shares and Warrants issued April 23, 2018 and June 13, 2018 (see Note 18), at a cash cost or value of $0.2857 for one Common Share and one Warrant, with $0.0416 of fair value being attributable to the Warrant based on the Black-Scholes option pricing model. As described in Note 15, the foregoing amounts were recorded against the value of the convertible debentures and were accreted as interest expense up to August 28, 2018.

The fair value of the Warrants granted during 2018 (2017 – n/a) was estimated on the date of grant using the following assumptions:

i. Weighted average share price of $0.2478 at the measurement date
ii. Expected volatility of 49% estimated by considering industry share price volatility adjusted to consider that Corporation’s common shares were not traded publicly at the measurement date.
iii. Risk-free interest rate of 1.75% based on interest rate on two-year Government of Canada bonds
iv. Expected life of two years
v. Expected dividend yield of 0%
vi. Assumed no Conversion Event such that the Warrants entitled holder to acquire 1.1 Common Shares per Warrant.

The weighted average fair value of the warrants granted during 2018 was $0.0416 (2017 – not applicable).

38 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

c. Shares issued for services

On June 30, 2018, the Stem for Life Foundation (“SFL”) was issued 1,400,070 Common Shares of the Corporation in exchange for terminating a sponsorship agreement with the Corporation. Under the sponsorship agreement, the Corporation received certain sponsorship and promotional rights and opportunities provided by SFL, in exchange for a future donation should the Corporation undergo a form of liquidity event as defined in the agreement, with such amount determined in varying amounts depending on the value of the Corporation. Due to the unique nature of the contract and given that the promotional services received to date are difficult to fair value, the fair value of the payment was determined in reference to the fair value of the 1,400,700 Common Shares issued at $0.24 per share based on the aforementioned share issuances during 2018, for a total of $341,716, recorded as “Contract termination payment” on the statement of loss and comprehensive loss.

During 2017, the Corporation issued shares with a book value of $4,088 in exchange for services. The related expenses for the services were accrued in previous years and were valued at $4,230 in accounts payable at December 31, 2016. As a result, the Corporation recognized a foreign exchange gain on this transaction of $142. The fair value of the equity instruments was determined to be the invoice amount of the services received, which is considered to be the market value of the services.

d. Shares issuable for services

On January 21, 2019 the Corporation issued 1,383,800 common shares to three parties in respect of consulting and advertising services conducted or settled in respect of the year ended December 31, 2018. In 2018, the Corporation recorded marketing expense of $45,000 and consulting expense of $466,200, both of which are included in share-based compensation and expenses. An offsetting amount of $511,200 was recorded as a share issuance obligation in Shareholders’ Equity (Deficiency). The advertising expense was determined in reference to the fair value of marketing services provided and approximated the fair value of the 123,800 shares issued to the party on January 21, 2019. The fair value of the consulting services was considered to be the fair value of the 1,260,000 common shares issued to the parties on January 21, 2019.

39 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

18. SHARE CAPITAL AND CONTRIBUTED SURPLUS

Authorized share capital – unlimited number of shares without nominal or par value:

Unlimited number of Class A common voting shares

Unlimited number of Class B non-voting, retractable, redeemable, preferred shares, issuable in series

A reconciliation of the Corporation’s Common shares and Contributed surplus is as follows:

	Share Capital	Contributed Surplus
	Class A common voting shares	Warrantsd Compensation Warrantse Conver- sion feature deben- tures Stock option plan Total	Total transac- tion
	Number $	Number $ Number $ $ $ $	$
Opening, Jan 1, 2017a Issued for casha Share issue costsb	38,230,689 4,599,543- 7,079,681 2,023,804- - (79,250)	- - - - - - - - - - - - - - - - - - - - -	4,599,543- 2,023,804- (79,250)
Closing, Dec 31, 2017a Issued with application of Subscription Liability Proceeds (Note 16) Issued on callable debt and due to related party balance conversionc Issued with convertible debentures (Note 15) Debenture conversion Issued to agents on convertible debenture issue (see Note 17b) Issued to Stem for Life (Note 17c) Warrant exercise Issued on business acquisition (Note 3b) Stock option plan expense (Note 17a)	45,310,370 6,544,097- 2,360,796 576,199 16,781,501 4,095,883 - - 22,226,092 5,861,289 1,076,776 262,794 1,400,070 341,716 210,000 78,240 1,115,178 457,892 - -	- - - - - - - 2,360,796 98,313 - - - - 98,313 16,781,501 698,822 - - - - 698,822 22,225,000 57,087 - - 45,529- - 102,616 - - - - (45,529) - (45,529) 1,076,776 44,841 482 80,045 - - 124,886 - - - - - - - (210,000) (540) - - - - (540) - - - - - - - - - - - - 292,095 292,095	6,544,097- 674,512- 4,794,705 102,616- 5,815,760 387,680 341,716 77,700 457,892 292,095
Closing, Dec 31, 2018	90,480,783 18,218,110	42,234,073 898,523 482 80,045 - 292,095 1,270,663 19,488,773

a. Class A common voting shares stock split

b. Share issue costs

During the year ended December 31, 2017, the Corporation paid finders’ fees of $79,250 related to issuance of shares with a fair value of $1,585,000.

40 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

c. Callable debt and due to related party conversion

On June 13, 2018, callable debt with a fair value of $4,025,344, based on the foreign exchange rates in effect on the dates of conversion, and $693,224 of amounts due to a corporate shareholder, controlled by a director (see Note 14), for a total of $4,718,568 in fair value were converted into 16,262,551 Common Shares and 16,262,551 Warrants with a fair value of $4,646,442 resulting in a gain on the conversion of debt of $72,126 as reported in the consolidated statement of loss and comprehensive loss.

On December 31, 2018 the related party payable of $148,264 was converted into 518,950 Common Shares and 518,950 Warrants as described in Note 14.

d. Warrants

Each Warrant entitled the holder to acquire one Common Share at a price of $0.37 up to August 28, 2020. The Corporation may accelerate the expiry date of the Warrants upon 30 days written notice to the holders. Subject to the foregoing, the average remaining weighted life of the Warrants is 1.66 years.

e. Compensation Warrants

19. DIRECT INVENTORY COSTS

19. DIRECT INVENTORY COSTS
Balance comprised of:	In $
	2018 2017
Salaries and benefits Direct materials Other direct costs	511,399 192,663 814,648 471,720 14,913 -
	1,340,960 664,383

20. ALLOCATED INDIRECT COSTS

20. ALLOCATED INDIRECT COSTS
Balance comprised of:	In $
	2018 2017
Employee salaries, wages and benefits Production facility costs Depreciation of production equipment Other overhead costs	203,472 186,233 200,485 165,868 100,019 107,410 142,735 105,414
	646,711 564,925

41 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

21. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

21. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
	In $
Balance comprised of:	2018 2017
Employee salaries and benefits Consulting fees Administrative costs Advertising and promotion Professional fees	1,474,652 1,081,192 960,483 321,654 1,399,538 898,303 312,383 553,200 877,482 82,361
	5,024,538 2,936,710

22. INCOME TAXES

The provision for income taxes recorded in the Financial Statements differs from the amount which would be obtained by applying the statutory income tax rate of 27% (2017 – 27%) to the loss of the year as follows:

	In $
	2018 2017
Loss for the year before income taxes Anticipated tax benefit Tax effect of the following: Benefit of income tax losses not recognized Foreign exchange and others Non-deductible expenses Share issue costs Non-deductible expenses of foreign subsidiary	(7,720,514) (3,760,259) (2,084,539) (1,015,270) 1,816,093 910,547 11,446 - 385,000 3,652 (246,000) - 118,000 101,071
Income tax benefit	- -

For Canadian income tax purposes, the Corporation has losses carried forward from prior years which can be applied to reduce future years' taxable income. These losses expire as follows:

Expiry	Balance	Expiry	Balance
2026 2027 2028 2029 2030 2031 2032	15,105 27,748 89,553 - 350 151,365 132,230	2033 2034 2035 2036 2037 2038	876,549
			336,262
			2,606,150
			2,881,932
			3,370,176
			5,732,315
		Total	16,219,735

42 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

In addition to the losses carried forward presented above, the Corporation has losses for United States federal income tax purposes of $51,749 which carry forward indefinitely, and losses for California state income tax purposes of $364,142 which expire in 2038.

In addition to the amounts in the table and paragraph above, the Corporation did not recognize deferred income tax assets of $324,051 (2017 - $205,662) in respect of deductible temporary differences amounting to $1,200,187 (2017 - $761,710) that can be carried forward against future taxable income, which consists of net operating losses for United States federal and state tax purposes. These losses have not been recognized as they will not be deductible unless the nature of the operations of its foreign subsidiary incurring these losses changes in the future.

The composition of deferred income tax assets and liabilities are as follows:

	In $
	2018 2017
Deferred tax assets: Losses available for offset against future taxable income Expenses deducted over futureperiods for taxpurposes	4,421,000 2,846,260 324,415 19,058
Valuation allowance	4,745,415 2,865,318 (4,653,102) (2,837,907)
Deferred tax assets available for offset against liabilities	92,313 27,411
Deferred tax liabilities: Temporary difference in cost basis of intangible assets Accelerated depreciation for tax purposes on property and equipment and intangibles	378,300 - 46,613 27,411
Deferred income tax liabilities	424,913 27,411
Net deferred income tax liabilities	332,600 -

Deferred income tax assets are recognized for loss carry-forwards and other deductible temporary differences to the extent that the realization of the related tax benefit through future taxable profits is probable. The Corporation does not yet have a history of profitability or other supporting evidence of future profitability to support the recognition of deferred tax assets in excess of deferred tax liabilities. Accordingly, the net deferred tax assets of Gabriella's Kitchen Inc. are offset by a valuation allowance, which is re-evaluated at the end of each reporting period.

23. LOSS PER SHARE

Basic loss per share is calculated by dividing the net loss by the weighted average number of shares outstanding during the year. The potentially dilutive Common Shares issuable on the outstanding Warrants, Compensation Warrants and Stock Options are non-dilutive and are therefore excluded from the diluted loss per share for the periods in which they were outstanding. The weighted average numbers of shares outstanding in 2018 was 65,164,311 (2017 – 43,559,481).

43 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

24. NON-CASH CHANGES IN WORKING CAPITAL

24. NON-CASH CHANGES IN WORKING CAPITAL
	In $
	2018 2017
Accounts receivable Inventories Prepaid expenses and deferred costs Accountspayable and accrued liabilities	16,471 (272,258) (242,414) 78,084 10,736 (81,851) 731,027 182,427
	515,820 (93,598)

25. NON-CASH TRANSACTIONS

The following non-cash transactions took place during the years:

In $

2018
2017

1
Assets under finance lease and finance lease obligations were recognized
in equal and offsetting amounts of
2
Conversion of callable debt and related party balance to share capital and
warrants:
Decrease in callable debt/related party balance
Increase in share capital
Increase in contributed surplus
Gain recognized on conversion
3
Issuance of shares and warrants previously paid for:
Decrease in share issuance liability
Increase in share capital
Increase in contributed surplus
4
Deferred costs of issuance of convertible debentures which were not paid
in cash:
Decrease in convertible debentures
Increase in share capital
Increase in contributed surplus
5
Conversion of convertible debentures:
Decrease in convertible debentures
Increase in share capital
Decrease in contributed surplus
6
Accounts payable settled by share issuance
7
Business acquisition - TOP
Increase in subsidiary investment (eliminated in consolidation)
Increase in share capital
Increase in contingent considerationpayable

136,082
23,550
4,866,832
-
4,095,883
-
698,823
-
72,126
239,500
-
145,980
-
93,520
-
387,680
-
262,794
-
124,886
-
5,815,760
-
5,861,289
-
45,529
-
-
4,230
1,973,767
-
457,892
-
1,515,875
-

44 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

26. FINANCIAL INSTRUMENTS RISKS AND UNCERTAINTIES

The Corporation's financial instruments include cash, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, finance lease obligation, deferred lease inducement, share subscription liability, and contingent consideration payable and are measured at amortized cost. The carrying value of these instruments approximates their fair value due to their short-term maturities. The fair value of the Corporation’s non-current financial instruments is approximated by their carrying values as the contractual interest rates are comparable to current market interest rates.

The Corporation is exposed to the following risks in respect of certain of the financial instruments held:

(a) Interest rate risk

The Corporation's exposure to interest rate fluctuations is with respect to the use of its bank revolving credits which bears interest at floating rates. The rates are tied to the prime rate of interest. Rate changes are likely to be minimal. A 1.00% change in interest rates would change annual interest expense by approximately $550.

(b) Credit risk

The Corporation is exposed to credit risk in the event of non-performance by customers, but does not anticipate such nonperformance due to the nature of its customers. The maximum credit risk is the fair value of the accounts receivable. The allowance for doubtful accounts and past due receivables is reviewed by management for each reporting period. The Corporation updates its estimate of the allowance for doubtful accounts based on the evaluation of the recoverability of accounts receivable balances of each customer taking into account historic collection trends, the contractual relationship with the customer and the nature of the customer. Management believes that the risk associated with concentrations of credit risk with respect to accounts receivable is limited due to the nature of the customers. See Note 4 for detail of the Corporation’s exposure to credit risk for trade receivables by aging of the accounts and by geographic area.

Accounts receivable from three major customers amounted to 84% of gross trade accounts receivable as at December 31, 2018 (2017 – three major customers amounted to 84%).

45 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

(c) Foreign currency risk

The Corporation conducts certain of its operations in United States dollars. As at December 31, 2018, the following working capital balances were included in the Financial Statements.

	Receivable (Payable)
	USD CAD equivalent
Cash Accounts receivable	79,340 108,232 213,396 291,107
Total current assets Accountspayable and accrued liabilities	292,736 399,339 (308,604) (420,747)
Net exposure	(15,868) (21,408)

In addition to the balances above, the Corporation has foreign exchange exposure with regards to the contingent consideration payable relating to the acquisition of TOP of $1,184,000 USD (1,615,392 CAD). As at December 31, 2018, each one cent strengthening (weakening) in the USD relative to the CAD dollar, would decrease (increase) the Corporation’s net loss by about $12,000. The Corporation’s net exposure to foreign currency risk is minor and, accordingly, the foreign currency exposure above has not been hedged.

(d) Other price risk

The Corporation’s exposure to other price risk is limited since there are no significant financial instruments which fluctuate as a result of changes in market prices.

(e) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit lines. The Corporation’s accounts payable and accrued liabilities and current portion of finance lease obligation are due within one year. The degree to which the Corporation is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to improve cash flows from operations.

The Corporation manages its liquidity risk through the management of its capital structure and financial leverage as outlined in Note 27. It also manages liquidity risk by continuously monitoring actual cash flows.

With the increased demand on cash resources to fund growth and development, as at December 31, 2018, GABY had a working capital deficiency of $319,112 (excluding contingent consideration payable which will be settled in GABY’s common shares). Subsequent to year end, GABY financed this short-term deficiency and ongoing operations through the issuance of $1,300,000 of debentures and $650,000 in promissory notes and arranged for a USD 10 million equity line of credit as more fully described in Note 32. These subsequent financings plus a $150,000 demand operating loan facility should enable GABY to fund operations for the next year while GABY finalizes plans for long-term financing to fund future growth plans towards sustainable growth and positive cash flow.

46 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

The Corporation may also be exposed to liquidity risk as a result of its economic dependence on revenues coming from a few major distributors (representing several customers), as outlined in Note 31.

27. CAPITAL DISCLOSURE

The Corporation’s objectives when managing capital are:

to ensure sufficient liquidity to enable the internal financing of capital projects;
to develop a strong capital base to increase investor, creditor and market confidence; and
to ultimately provide an adequate return to shareholders.

The Corporation’s capital is currently composed of a share issuance obligation, share capital and contributed surplus and subsequent to year-end, includes convertible debentures, promissory notes and access to an Equity LOC as described in Note 32. The Corporation’s primary uses of capital in the past have been to finance its operations, growth, and property and equipment purchases. The Corporation maintains a secured operating line of credit with a chartered bank that it uses for its business activities. The Board does not establish quantitative return on capital criteria for management. The Corporation is not subject to any externally imposed capital requirements.

28. LEASE COMMITMENTS

The Corporation has the following operating lease commitments as at December 31, 2018:

Lease of a commercial property in Ontario, Canada, which ends in April 2023, with options under the lease for two oneyear extensions. The lease requires monthly payments (plus HST) of $7,619 in year one, $8,577 in year 2, $9,535 in year 3, $9,821 in year 4, and $10,302 in years 5-7. The deferred lease inducements balance related to the recognition of the lease payments on the straight-line basis ($9,494 per month) was $33,138 as at December 31, 2018 (2017 - $30,758).

Lease of a commercial property in California, United States which ends in July 2022. The lease currently requires monthly payments of $9,734 USD ($13,278 CAD), with escalation of 3% each year. The deferred lease inducements balance related to the recognition of the lease payments on the straight-line basis ($13,580 per month) was $13,804 as at December 31, 2018 (2017 - $0).

The Corporation's total commitments under the operating lease agreement described above, exclusive of occupancy costs, are as follows:

Year	$
2019 2020 2021 2022 2023	277,532
	287,531
	293,934
	225,190
	30,906
	1,115,093

47 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

29. CONTINGENCIES

From time to time, the Corporation is subject to legal proceedings and or claims in the normal course of business. Management vigorously defends any allegations under such suits or claims that arise from time to time and believes that the ultimate liability, if any, under any pending matters will not materially affect the financial position or results of operations of the Corporation. At December 31, 2018, the Corporation was not subject to any material legal proceedings.

30. STOCK APPRECIATION RIGHTS

In 2018 and 2017, respectively, the Corporation issued 4,930,331 and 2,599,331 stock appreciation rights (SARs) to employees, consultants, and vendors of the Corporation. Total issued SARs units outstanding as at December 31, 2018 was 9,933,000 (2017 – 5,002,669). The SARs hold no value until a liquidity event occurs, defined in the SARs Plan as either the sale of all or substantially all of the assets or shares of the corporation. As of December 31, 2018, no liquidity event has occurred.

31. SEGMENTED INFORMATION AND ECONOMIC INDEPENDENCE

The Corporation’s chief operating decision makers are the Chief Executive Officer, President and Chief Financial Officer. They review the operating performance of the Corporation by two segments comprised of licensed and unlicensed channels, both of which are in the manufacturing, distribution and marketing of wellness products to address a variety of dietary and health concerns. The licensed channel includes cannabis-related products to which the manufacturing, sale and distribution are subject to regulation. The unlicensed channel includes all other wellness products not subject to the licensing requirements in respect of cannabis. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The chief operating decision makers utilize gross profit as a key measure in making operating decisions and assessing performance. Information by segment is as follows:

	Licensed	Unlicensed	Total (In $)
	2018 2017	2018 2017	2018 2017
Gross revenue Promotional activity Amortization ofproduct listingfees	117,007 - - - - -	2,325,229 1,274,517 (838,831) (236,990) (111,804) (85,002)	2,442,236 1,274,517 (838,831) (236,990) (111,804) (85,002)
Total revenue Cost of sales	117,007 - 88,114 -	1,374,594 952,525 2,103,753 1,373,169	1,491,601 952,525 2,191,867 1,373,169
Grossprofit(loss)	28,893 -	(729,159) (420,644)	(700,266) (420,644)

48 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

The Corporation generates revenues from external customers and has non-current assets in two geographic areas as follows:

ollows:
	In $
	2018 2017
Gross Revenue: Canada United States	378,498 516,352 2,063,738 758,165
	2,442,236 1,274,517
Property and equipment: Canada United States	392,662 336,334 141,366 -
	534,028 336,334
Intangible assets: Canada United States	42,644 15,284 2,400,398 -
	2,443,042 15,284

The Corporation has recorded gross revenue of $2,172,465 from three major customers, representing 89% of gross revenue (2017 gross revenue of $1,039,557 from three major customers, representing 82% of total revenue). Accounts receivable due from these customers as at December 31, 2018 amounted to 47% of total accounts receivable (2017 – 84%). The major customers are distributors who represent several retail clients and therefore, if the relationship did not continue with any one of these distributors, the Corporation would still be able access those customers, either through another distributor or directly.

32. SUBSEQUENT EVENTS

Equity Line of Credit

Effective April 2, 2019, the Corporation signed a term sheet that would give it the right, but not the obligation, to issue up to USD 10,000,000 of its common shares to an investor (“Investor”) over the course of one year ending April 2, 2020 (“Equity LOC”). GABY has full control and discretion over the timing and amount of any common shares that they sell to the Investor. The purchase price of the shares will be calculated as 85% of the average of the highest four of the eight lowest daily low trading prices of GABY’s common shares over the ten consecutive trading days following a put request, subject to the lowest price permitted by the CSE. In consideration for entering into the Equity LOC, the Corporation will issue common shares representing 5% of the total Equity LOC.

Secured Convertible Debentures and Promissory Notes

Subsequent to year-end, the Corporation received gross proceeds of $1,300,000 from a non-brokered private placement of 1,300 units (“Units”) of the Corporation at a price of $1,000 per Unit (“Offering”). Each Unit is comprised of a secured convertible debenture in the principal amount of $1,000 (“Debentures”) and 500 common share purchase warrants (“Purchase Warrants”). The Debentures accrue interest at a rate of 15% per annum and mature two years from the 49 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC. Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

closing of the Offering (the “Maturity Date”). The principal of the Debentures, plus any accrued and unpaid interest thereon, are redeemable by the Corporation and retractable by the holder of the Debenture, at the option of such party, at anytime following 90 days from the date of issuance up to and including the Maturity Date. The holder of the Debenture also has the option to convert the principal amount of the Debentures, plus any accrued and unpaid interest thereon, at any time following 90 days from the date of issuance up to and including the Maturity Date at the greater of: (i) $0.37; or (ii) the last closing price of the Corporation’s common shares. Each Purchase Warrant is exercisable at a price of $0.37 per common share for a period expiring two years from the closing of the Offering. The securities issued under the Offering are subject to a four-month and one-day hold period in accordance with Canadian securities laws. Of the total, $375,000 was issued directly or indirectly to directors of the Corporation. The Corporation will record a liability of $1.3 million less issue costs and less value attributable to the warrants and conversion feature, if applicable, which will be recorded as a credit to contributed surplus.

In addition, the Corporation issued promissory notes totaling $650,000 to an investor. These promissory notes accrue interest at a rate of 5% per month compounded annually, have three-month initial terms, and can be repaid at any time without penalty. After the initial term has ended, the notes are automatically extended and become payable on demand.

Acquisition of Sonoma Pacific Distribution

On, April 1, 2019, the Corporation acquired 100% of the issued and outstanding equity of Sonoma Pacific Distribution (“Sonoma Pac”), a cannabis distribution and marketing company. Through the acquisition, the Corporation has secured a Type 11 distribution licence (“Type 11 Licence”) issued by the Bureau of Cannabis Control in the state of California; the distribution facility and related assets located in Santa Rosa, California; and the Sonoma Pacific brand under which a number of products are sold.

The Corporation is in the process of obtaining a valuation of the underlying assets of Sonoma Pac including its property, plant and equipment, intangibles, including the Type 11 Licence, the Sonoma Pacific brand, customer lists and goodwill, and is also determining Sonoma Pac’s final working capital balances. The composition of goodwill, if recognized, would include knowledge and experience of Sonoma Pac in respect of distribution of cannabis products in the state of California; it’s established relationship with reputable cannabis cultivators and manufacturers, as well as the expected synergies from the combination of Sonoma Pac’s distribution licence with TOP’s manufacturing licence combined with GABY’s consumer packaged goods expertise in branding. Any goodwill recognized would have $nil tax value.

The total consideration is payable in the Corporation’s common shares and is contingent upon performance targets in respect of Sonoma Pac’s calendar year of 2018 and 2019 as follows:

1) 2018 target: The number of common shares issuable is equal to the verifiable licensed revenue of Sonoma for the year ended December 31, 2018 (“2018 Revenue”) translated into Canadian dollars at a rate of 1.30 Canadian to USD divided by the deemed price per share of $0.4148, subject to a maximum of 17,250,000. Pursuant to the closing, 17,250,000 shares were issued in escrow (“2018 Shares”), with the amount and timing of release thereof to Sonoma Pac shareholders subject to final verification of the 2018 Revenue and the schedule outlined below. Any 2018 Shares not released pursuant to the performance conditions will be returned to treasury for cancellation. The 2018 Revenue is still subject to verification procedures; however, it is anticipated that the
50 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

GABRIELLA’S KITCHEN INC.

Notes to the Consolidated Financial Statements December 31, 2018 and 2017

In Canadian dollars, unless otherwise stated

maximum target will be met and consideration and common shares of CAD 5,149,769 (USD 3,988,513) will be recorded in respect of the 2018 Revenue target.
2) 2019 target: The number of common shares issuable is equal to 0.35 times the increase in verifiable licensed revenue of Sonoma Pac for the year ended December 31, 2019 over 2018 revenue (“2019 Earn-out”) translated into Canadian dollars, divided by the volume weighted average price of the common shares for the 20-day period ending on the day following the public release of GABY’s 2019 consolidated financial statements. The range of value of common shares to be issued is $1.1 million (based on revenue as internally reported by Sonoma PAC in the first quarter of 2019) to an unlimited amount. Based on initial assigned probabilities of different outcomes incorporating results reported by the Sonoma Pac in fiscal 2018 and the first quarter of 2019, the Corporation expects to record contingent consideration payable of CAD ~13 million (USD ~10 million) for total consideration payable of CAD ~18 million (USD ~14 million); however the foregoing estimate is subject to independent appraisal of the fair value of Sonoma Pac and expected probabilities. As the number of potential shares issuable is variable, it will be recorded as a liability and remeasured at each reporting date, with changes recognized in the statement of loss until the final share-based consideration is determined.

All of the common shares issued pursuant to this transaction are subject to a three year escrow from the date of issuance, pursuant to which 15% of the shares held in escrow will be released in equal tranches every six months.

Issuance of shares pursuant to share issuance obligation

On January 21, 2019, the Corporation issued 1,383,800 common shares to settle the share issuance obligation of $511,200 at December 31, 2018 as described in Note 17.

Issuance of share options

In January 2019, 5,810,000 stock options were granted to certain officers and consultants of the Corporation with an exercise price of $0.50 per share which vest over a five-year period and expire on the date that is ten years from the grant date.

51 | P a g e G a b r i e l l a ’ s K i t c h e n I n c .

SCHEDULE “F” – GABY Annual Financials for the FY 2017

(See attached)

F - 1

GABRIELLA'S KITCHEN INC.

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

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GABRIELLA'S KITCHEN INC.

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

	Page
INDEPENDENT AUDITOR'S REPORT	1 - 2
FINANCIAL STATEMENTS
Consolidated Statements of Financial Position	3 - 4
Consolidated Statement of Loss and Comprehensive Loss	5
Consolidated Statements of Changes in Shareholders' Equity	6
Consolidated Statements of Cash Flows	7 - 8
Notes to the Consolidated Financial Statements	9 - 39
Consolidated Schedules of Allocated Indirect Costs	40
Consolidated Schedules of Operating Expenses	41

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Gabriella's Kitchen Inc.

We have audited the accompanying consolidated financial statements of Gabriella's Kitchen Inc., which comprise the Consolidated Statements of Financial Position as at December 31, 2017 and 2016, and the Consolidated Statements of Loss and Comprehensive Loss and Changes in Shareholders' Equity and Cash Flows for each of the years ended December 31, 2017, 2016 and 2015, and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion on the financial performance and cash flows for the years ended December 31, 2016 and 2015, and for our unmodified audit opinion on the financial position as at December 31, 2016 and on the consolidated financial statements for the year ended December 31, 2017.

Basis for Qualified Opinion on the Financial Performance and Cash Flows

Because we were appointed auditors of Gabriella's Kitchen Inc. in 2017, we were unable to observe the counting of physical inventories at the beginning or end of 2015 or satisfy ourselves concerning these inventory quantities by alternative means. Since opening inventories affect the determination of the financial performance and cash flows, we were unable to determine whether adjustment to the financial performance and cash flows might be necessary for the years ended December 31, 2016 or 2015.

INDEPENDENT AUDITOR'S REPORT, continued

Qualified Opinion on the Financial Performance and Cash Flows

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion on the Financial Performance and Cash Flows paragraph, the Consolidated Statements of Loss and Comprehensive Loss, Changes in Shareholders' Equity, and Cash Flows present fairly, in all material respects, the financial performance and cash flows of Gabriella's Kitchen Inc. and its subsidiary for the years ended December 31, 2016 and 2015 in accordance with International Financial Reporting Standards.

Opinion on the Financial Position, Financial Performance and Cash Flows

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Gabriella's Kitchen Inc. and its subsidiary as at December 31, 2017 and 2016, and their financial performance and cash flows for the year ended December 31, 2017 in accordance with International Financial Reporting Standards.

Emphasis of Matter

Without qualifying our opinion for this matter, we draw attention to Note 1 in the consolidated financial statements which describes matters and conditions that indicate the existence of a material uncertainty that may cast significant doubt about the ability of Gabriella's Kitchen Inc. to continue as a going concern.

Medicine Hat, Alberta April 30, 2018

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CHARTERED ACCOUNTANTS LLP

GABRIELLA'S KITCHEN INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

ASSETS

						2017	2016
CURRENT ASSETS
Cash					$	15,767 $	2,580
Accounts receivable				(Note 4)		302,536	6,980
Inventories		(Note 5)				169,041	247,125
Prepaid expenses and deferred costs (Note 6)						245,277	163,426
GST	receivable					46,758	70,056
						779,379	490,167
NON-CURRENT ASSETS
Property and equipment					(Note 7)	336,334	400,573
Intangible assets			(Note 8)			15,284	11,414
Security deposits						32,995	36,205
TOTAL ASSETS					$	1,163,992 $	938,359

On behalf of the Board of Directors

(signed) "Margot Micallef"

(signed) "Jackie Altwasser" Director

GABRIELLA'S KITCHEN INC.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

LIABILITIES

		2017	2016
CURRENT LIABILITIES
Bank indebtedness (Note 9)	$	167,611 $	172,674
Accounts payable and accrued liabilities (Note 10)		748,617	570,420
Current portion of long-term debt (Note 13)		7,308	29,900
Current portion of finance lease obligation (Note 14)		15,496	7,000
Current liabilities before callable debt		939,032	779,994
Callable debt (Note 11)		3,978,897	2,756,343
Due to (from) related parties (Note 12)		841,488	433,450
		5,759,417	3,969,787
NON-CURRENT LIABILITIES
Long-term debt (Note 13)		-	7,594
Finance lease obligation (Note 14)		24,329	18,407
Deferred lease inducement (Note 23)		30,758	16,878
Share subscription liability (Note 15)		239,500	-
TOTAL LIABILITIES		6,054,004	4,012,666
SHAREHOLDERS' DEFICIENCY
SHARE CAPITAL (Note 17)		6,544,097	4,599,543
DEFICIT		(11,434,109)	(7,673,850)
		(4,890,012)	(3,074,307)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY	$	1,163,992 $	938,359

GOING CONCERN (Note 1)

LEASE COMMITMENTS (Note 23)

CONTINGENCIES (Note 24)

GABRIELLA'S KITCHEN INC.

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015

(in Canadian dollars)

	2017 2016 2015
SALES Gross sales Merchant charge backs Amortization ofproduct listingfees	1,274,517 $ 704,490 $ 391,926 $ (236,990) (125,620) (12,285) (85,002) (54,469) (18,922)
	952,525 524,401 360,719
COST OF SALES (Note 5) Direct inventory costs Variable gross profit Allocated indirect costs (Schedule 1) Distribution costs	664,383 502,683 314,961
	288,142 21,718 45,758 564,925 179,300 68,425 143,861 68,936 39,562
GROSS PROFIT AFTER DISTRIBUTION AND ALLOCATED INDIRECT COSTS OPERATING EXPENSES(Schedule 2)	(420,644) (226,518) (62,229) 2,971,868 2,387,351 2,562,107
LOSS FROM OPERATIONS	(3,392,512) (2,613,869) (2,624,336)
OTHER Gain (loss) on foreign exchange transactions and translation Interest expense Interest income Loss on disposal of property and equipment Loss on inventorywrite-down(Note 5)	20,841 10,219 (62,028) (227,569) (135,349) (51,319) 64 205 2 - (32,476) - (161,083) (273,104) (60,643)
	(367,747) (430,505) (173,988)
NET LOSS AND COMPREHENSIVE LOSS	(3,760,259) $ (3,044,374) $ (2,798,324) $
BASIC AND DILUTED LOSS PER SHARE (Note 19)	(0.60) $ (0.68) $ (0.98) $
WEIGHTED AVERAGE NUMBER OF COMMON AND DILUTED SHARES (Note 19)	6,222,783 4,467,433 2,841,158

GABRIELLA'S KITCHEN INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (in Canadian dollars)

	Shares	Share capital	Share capital	Deficit	Total
Balance, December 31, 2014	2,502,336	$	2,113,076 $	(1,831,152) $	281,924
Net and comprehensive loss	-		-	(2,798,324)	(2,798,324)
Issuance of shares	433,715		553,067	-	553,067
Balance, December 31, 2015	2,936,051		2,666,143	(4,629,476)	(1,963,333)
Net and comprehensive loss	-		-	(3,044,374)	(3,044,374)
Callable debt converted to shares	2,150,000		1,300,000	-	1,300,000
Issuance of shares	375,476		633,400	-	633,400
Balance, December 31, 2016	5,461,527		4,599,543	(7,673,850)	(3,074,307)
Net and comprehensive loss	-		-	(3,760,259)	(3,760,259)
Issuance of shares	1,011,383		1,944,554	-	1,944,554
Balance, December 31, 2017	6,472,910	$	6,544,097 $	(11,434,109) $	(4,890,012)

GABRIELLA'S KITCHEN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (in Canadian dollars)

							2017	2016	2015
OPERATING ACTIVITIES
Net and	comprehensive		loss			$	(3,760,259) $	(3,044,374) $	(2,798,324)
Adjustments for
Depreciation							137,463	103,758	57,201
Amortization of intangible assets							10,128	13,955	9,623
Loss	on disposal of property and				equipment		-	32,476	-
Interest expense							227,569	135,349	51,319
Investment		interest income					(64)	(205)	-
Non-cash expenses - settled by share
issuance		(Note 16)					-	-	193,494
Expenses accrued to related party payable							408,038	476,004	232,999
Gain on foreign exchange from non-cash
transaction (Note			16)				(142)	(13,400)	-
Increase in		deferred	lease	inducement (Note 23)			13,880	16,878	-
							(2,963,387)	(2,279,559)	(2,253,688)
Changes in non-cash working capital
Accounts receivable							(295,556)	180,119	(133,533)
Inventories							78,084	23,600	(240,037)
Prepaid expenses and deferred costs							(81,851)	7,578	(171,004)
GST							23,298	(37,938)	(11,524)
Accounts payable and accrued liabilities							182,427	(186,575)	869,254
							(3,056,985)	(2,292,775)	(1,940,532)
INVESTING ACTIVITIES
Purchase of property and equipment							(49,674)	(99,288)	(199,891)
Purchase of intangible assets							(13,998)	-	(34,992)
Deposits returned (paid)							3,210	(21,631)	(24,790)
Interest	received						64	205	-
							(60,398)	(120,714)	(259,673)

GABRIELLA'S KITCHEN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (in Canadian dollars)

			2017		2016		2015
FINANCING ACTIVITIES
Proceeds of callable debt			1,058,620		1,996,302		813,408
Repayment to related party			-		-		(47,359)
Repayment of long-term	debt		(30,186)		(10,710)		(34,396)
Repayment of finance lease obligation			(9,132)		(4,563)		-
Cash received for shares	not yet issued (Note 15)		239,500		-		-
Interest paid			(15,747)		(15,555)		(2,538)
Proceeds from share subscriptions receivable			-		-		350,000
Issuance of share capital			1,940,466		370,000		160,500
			3,183,521		2,335,474		1,239,615
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT			(47,888)		8,362		-
DECREASE (INCREASE) IN BANK
INDEBTEDNESS			18,250		(69,653)		(960,590)
CASH (BANK INDEBTEDNESS), beginning of year			(170,094)		(100,441)		860,149
BANK INDEBTEDNESS,	end of year	$	(151,844) $ (170,094) $ (100,441)
BANK INDEBTEDNESS CONSISTS OF:
Cash		$	15,767	$	2,580	$	23,064
Bank indebtedness			-		-		(123,505)
Canadian dollar account - bank indebtedness			(132,174)		(140,397)		-
Canadian dollar account - cheques in excess of
bank balance			(52,126)		-		-
US dollar account (stated in Canadian dollars)			16,689		(32,277)		-
		$	(151,844) $ (170,094) $ (100,441)
OTHER INFORMATION
Interest paid		$	15,747	$	15,555	$	2,538
Interest received			64		205		2
Income taxes paid (recovered)			-		-		-

See Note 20 for detail of non-cash transactions.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

NATURE OF BUSINESS

Gabriella's Kitchen Inc. ("the company") is a privately owned company that was incorporated in Canada under the Business Corporations Act of Alberta on December 3, 2003. The company name was Hollywood Foods Inc. until December 2014, when the name was changed to Gabriella's Kitchen Inc. The address of the company’s registered office is 3016 5th Avenue NE #102, Calgary, Alberta T2A 6K4, Canada. The subsidiary, Gabriella's Kitchen LLC, was organized in the United States of America with the Delaware Secretary of State on September 16, 2014 and is wholly owned by the company. The company is a producer and marketer of betterfor-you food products in both Canada and the United States of America.

1. GOING CONCERN

These consolidated financial statements have been prepared using International Financial Reporting Standards applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due.

The company is in the initial growth stage of the business life cycle and has not yet reached a profitable level of operations. Until the company reaches profitability, its ability to continue as a going concern is dependent upon the availability of operating and long-term financing. Management is continuing to address the need to increase revenue, control costs, and obtain working capital and long-term financing. To fund its working capital, subsequent to December 31, 2017, the company has obtained additional financing from both related and non-related parties (see Note 27).

Should the company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. These financial statements do not reflect adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary if the company was unable to realize its assets and settle its liabilities as a going concern in the normal course of operation. These adjustments could be material.

2. BASIS OF PRESENTATION AND ADOPTION OF IFRS

Statement of Compliance

These financial statements have been prepared in accordance with Part 1 of the CPA Canada Handbook which incorporates International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

The consolidated financial statements were approved by the board of directors and authorized for issue on April 30, 2018.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been applied consistently to all periods presented, unless otherwise stated.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the company and its wholly-owned U.S. subsidiary, Gabriella's Kitchen LLC. All inter-corporate balances and transactions have been eliminated.

TRANSLATION OF FOREIGN CURRENCIES

The accounts of the company are presented in Canadian dollars. Transactions in foreign currencies are translated at the actual rates of exchange on the date the transaction occurred. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the Canadian dollar at the exchange rate at that date. Revenue and expense transactions are translated using the actual rate on the date of the transaction. Foreign exchange differences arising on translation are recognized in net earnings. Non-monetary assets and liabilities that are measured at the historical cost, and expenses related to them, are translated using the historical exchange rate at the date of the transaction.

The functional currency of the foreign subsidiary has been determined to be the Canadian dollar because the activities of the foreign operation are carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy, and the foreign entity does not generate revenue. Accordingly, the translation of the subsidiary from United States dollars to Canadian dollars is accounted for as a translation to the functional currency.

BASIS OF MEASUREMENT

The consolidated financial statements have been prepared under the historical-cost convention.

CASH

Cash consists of balances with financial institutions. Cash in bank deposit accounts, at times, exceeds federally insured limits. The company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

INVENTORIES

PROPERTY AND EQUIPMENT

All assets having limited useful lives are depreciated using the straight-line or declining balance method over their estimated useful lives. In the year of acquisition, depreciation is taken at onehalf of the rates below. Internally constructed assets are depreciated from the time an asset is capable of operating in the manner intended by management.

Subsequent costs are included in the asset's carrying amount when it is probable that future economic benefits associated with the asset will flow to the company, and the costs can be measured reliably. This would include costs related to the refurbishment or replacement of major components of the asset, when the refurbishment results in a significant extension in the physical life of the component, and in which case, the carrying amount of the replaced part is derecognized. The costs of the day-to-day maintenance of property and equipment are expensed as incurred in the consolidated statement of comprehensive income.

Machinery and equipment	4 years Straight-line
Equipment	20% Declining balance
Signs	20% Declining balance
Furniture and fixtures	20% Declining balance
Computer equipment	30-55% Declining balance

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

PROPERTY AND EQUIPMENT, continued

Depreciation of leasehold improvements is recorded over the remaining term of the lease plus the first renewal option.

ASSETS UNDER FINANCE LEASE

Assets under finance leases are recorded at cost. The company provides for depreciation using rates designed to depreciate the cost of the assets under finance lease over the lesser of their estimated useful lives, or the lease term, unless buy-out at the end of the lease term is reasonably assured. Half of a year's depreciation is recorded in the year of acquisition. No depreciation is recorded in the year of disposal. The depreciation methods and rates are as follows:

Equipment

20% Declining balance

INTANGIBLE ASSETS

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually at the cash-generating unit level. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable.

The methods of amortization and amortization rates applicable for each class of intangible asset are as follows:

Computer software 55% Declining balance Website costs 55% Declining balance

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

IMPAIRMENT

Financial assets

A financial asset not carried at fair value through profit or loss is assessed at each financial statement reporting date to determine whether there is objective evidence that it is impaired. The company considers that a financial asset is impaired if objective evidence indicates that one or more loss events had a negative effect on the estimated future cash flows of that asset and if the effect can be estimated reliably.

An impairment test is performed on an individual basis for each material financial asset. Other individually non-material financial assets are tested as groups of financial assets with similar risk characteristics. Impairment losses are recognized in net profit.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in net profit and reflected in an allowance account against the respective financial asset. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through net profit.

Non-financial assets

The carrying amounts of the company’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If such an indication exists, the recoverable amount is estimated.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of cash inflows from other assets or groups of assets ("cash-generating unit"). The recoverable amount of an asset or a cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash-generating unit. Impairment losses recognized in prior years are determined by the company at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An asset’s carrying amount, increased through the reversal of an impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

FINANCIAL INSTRUMENTS

In 2013, the IASB issued amendments to IFRS 9, Financial Instruments ("IFRS 9"), issued in 2010, which will ultimately replace IAS 39. The replacement of IAS 39 is a three-phase project with the objective of improving and simplifying the reporting for financial instruments. The issuance of IFRS 9 provides guidance on the classification and measurement of financial assets and financial liabilities, and a new hedge accounting model with corresponding disclosures about risk management activity. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. IFRS 9 allows for early adoption, and the company elected to adopt this standard (version IFRS 9 2014) in conjunction with its adoption of IFRS in 2015. Adoption of this standard had no effect on the company's accounting for financial instruments.

Financial assets and liabilities are recognized when the company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the company has transferred substantially all risks and rewards of ownership.

The company has made the following classifications:

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The company’s loans and receivables are comprised of trade receivables and are included in current assets due to their short-term nature. Loans and receivables are initially recognized at the amount expected to be received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less any provision for impairment.

Financial liabilities at amortized cost

Financial liabilities at amortized cost include trade accounts payable, accrued liabilities, callable debt, long-term debt and obligations under finance lease. Trade payables are initially recognized at the amount required to be paid less, when material, a discount to reduce the payables to fair value. Subsequently, trade payables are measured at amortized cost using the effective interest method. Accrued interest, callable debt, long-term debt and obligations under finance lease are initially recognized at fair value, and subsequently at amortized cost using the effective interest method.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

RESEARCH AND DEVELOPMENT COSTS

The company incurs costs on activities that relate to the research and development of new and existing products. Research costs are expensed as they are incurred. The company capitalizes development costs as incurred when these costs meet the criteria for deferral and amortization pursuant to IAS 38, Intangible assets . Investment tax credits related to the expenditures are accrued when there is reasonable assurance that the credits will be realized. The cost reduction approach is followed whereby investment tax credits related to non-capitalized expenditures are an offset to research and development expense in the year, and investment tax credits related to capitalized expenditures are deducted from the related assets. Investment tax credits are recoverable from the Government of Canada under the Scientific Research and Experimental Development Incentive Programs and are subject to government approval.

LEASES

Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification is re-assessed if the terms of the lease are changed.

Finance lease

Leases in which substantially all the risks and rewards of ownership are transferred to the company are classified as finance leases. Assets meeting finance lease criteria are capitalized at the lower of the present value of the related lease payments or the fair value of the leased asset at the inception of the lease. Minimum lease payments are apportioned between the finance charge and the liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Operating lease

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

INCOME TAXES

Income tax comprises current and deferred tax. Income tax is recognized in the statement of operations except to the extent that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.

Deferred income tax assets and liabilities are presented as non-current.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

REVENUE RECOGNITION

In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers ("IFRS 15"), which replaces IAS 18, Revenue , IAS 11, Construction Contracts and various revenue-related interpretations. IFRS 15 establishes a new control-based revenue recognition model where revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The standard is applicable to all contracts the company has with customers. The standard also specifies a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of revenue and corresponding cash flows with customers. The new revenue standard is effective for annual periods beginning on or after January 1, 2018. IFRS 15 allows for early adoption, and the company elected to adopt this standard in conjunction with its adoption of IFRS in 2015. Adoption of this standard did not affect the revenue recognition of the company.

Revenue from the sale of products is recognized when the risks and rewards of the underlying products have been substantially transferred to the customer (usually on delivery of the goods), which is the company's sole performance obligation. The company experiences very few product returns and, accordingly, does not record an obligation for estimated returns. Collection of the company's invoices is consistently high and typically occurs within 90 days of the sale.

Marketing programs provided to customers and operators, including volume rebates, cooperative advertising and other trade marketing programs, are all customer-specific programs to promote the company’s products. Consequently, sales are recorded net of these estimated marketing costs at the time of sale. All other non-customer-specific marketing costs (general advertising, etc.) are expensed as incurred as operating expenses.

Certain customers require payment of one-time listing allowances (or "product listing fees") in order to obtain space for a new product in their stores. These fees are considered to be incremental costs of obtaining a contract and, if expected to be recovered through sales to the customer in future periods, are capitalized as product listing fees (included in prepaid expenses and deferred costs) and amortized to contra-revenue over the estimated recovery period. Product listing fees that are insignificant or are not estimated to have future economic benefit are recorded to contra-revenue in the period incurred.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

CRITICAL ACCOUNTING ESTIMATES, JUDGMENTS AND MEASUREMENT UNCERTAINTY

The preparation of the company’s financial statements, in conformity with IFRS, requires management of the company to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. These estimates and judgments have been applied in a manner consistent with prior periods.

The following discusses the most significant accounting judgments and estimates that the company has made in the preparation of the financial statements:

Allowance for doubtful accounts and merchant charge-backs

The company must make an assessment of whether accounts receivable are collectible from customers. A provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired receivables are derecognized when they are assessed as uncollectible. Accordingly, management establishes an allowance for estimated losses arising from non-payment and other sales adjustments (such as merchant charge backs), taking into consideration customer creditworthiness, current economic trends and past experience. If future collections differ from estimates, future earnings would be affected. See Note 4.

Income taxes

The estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the company’s ability to utilize the underlying future tax deductions against future taxable income before they expire. The company’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment of the company’s ability to utilize the underlying future tax deductions changes, the company would be required to recognize more or fewer of the tax deductions as assets, which would decrease or increase the income tax expense in the period in which this is determined. See Note 18.

Product listing fees

The company regularly pays suppliers a listing fee in order for the supplier to carry the company's product in their stores. Management must make an assessment of the useful life of these listing fees based on the expected retail life of the products being listed. Management has determined that three years is the estimated useful life of the listing fees. If the recovery period of these assets changes, future earnings would be affected. See Note 6.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

CRITICAL ACCOUNTING ESTIMATES, JUDGMENTS AND MEASUREMENT UNCERTAINTY, continued

Impairment of property and equipment

Property and equipment is reviewed for indicators of impairment at each reporting date. Where impairment indicators are identified, the company uses the fair value less cost to sell approach to determine the recoverable amount of the assets included in property and equipment, which drives the conclusion of whether impairment exists, and if it does, the amount of impairment to record.

SHARE-BASED PAYMENTS

The entity occasionally enters into agreements with vendors under which the services provided by the vendor will be paid for with shares of the entity rather than cash. Under such arrangements, the company issues the shares after the work is completed. As such, the share capital issued is recognizable on the date of issue, but the services would have been performed over a period of time before that date. For services provided to the entity under such an arrangement, the company accrues expenses as the services are received, with a corresponding liability being recognized until the date that the shares are issued. At that date, the company removes the liability and records the increase to share capital for the shares issued.

For equity instruments issued in advance of the services being provided, the share capital would be recognized as the services are provided. The company has not entered any arrangements of that particular nature.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES, continued

ACCOUNTING STANDARDS ISSUED AND NOT APPLIED

Certain new accounting standards and interpretations have been published that are not mandatory for December 31, 2017 reporting periods and have not been early adopted by the company. The company’s assessment of the impact of these new standards and interpretations is set out below.

IFRS 16, Leases , was issued in January 2016 and applies to annual reporting periods beginning on or after January 1, 2019. IFRS 16 specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liability for all leases unless the term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. The company is in the process of evaluating the impact that IFRS 16 may have on the financial statements.

4. ACCOUNTS RECEIVABLE

		2017	2016
Trade accounts receivable	$	309,296 $	60,088
Accrued merchant charge-backs		(23,299)	(28,108)
Other accounts receivable		68,404	41,865
		354,401	73,845
Allowance for doubtful accounts		(41,865)	(41,865)
Allowance for merchant charge-backs		(10,000)	(25,000)
		(51,865)	(66,865)
	$	302,536 $	6,980
		2017	2016
30 days	$	129,435 $	45,766
60 days		65,465	2,353
90 days		59,836	-
Over 90 days		99,665	25,726
	$	354,401 $	73,845

Accounts receivable bear normal commercial credit terms, usually 30 days or less, and are noninterest bearing.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

5. INVENTORIES

		2017	2016
Raw and semi-finished materials	$	23,538 $	27,360
Packaging materials		57,748	27,165
Finished goods		87,755	185,404
Promotional items		-	5,882
Supplies		-	1,314
	$	169,041 $	247,125

Inventories expensed in cost of sales for the year amounted to $1,373,169 (2016 - $750,919, 2015 - $422,948). Total write-offs of inventory amounted to $161,083 (2016 - $273,104, 2015 - $60,643). The write-off amounts were excluded from cost of sales and expensed as an other expense item titled "Loss on inventory write-down". This amount resulted from a significant and unusual write-off of inventory that expired and was no longer able to be sold, as well as a writedown of inventory to estimated net realizable value in both 2017 and 2016.

6. PREPAID EXPENSES AND DEFERRED COSTS

		2017	2016
Prepaid expenses	$	40,783 $	34,178
Product listing fees		204,494	129,248
	$	245,277 $	163,426

Of the amounts above, $106,198 is expected to be recovered more than twelve months after the end of the reporting period (2016 - $64,425).

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

7. PROPERTY AND EQUIPMENT

					Accumulated	Accumulated		2017	2016
				Cost	amortization			Net	Net
Capital assets
Machinery and equipment			$	508,290	$	304,557	$	203,733 $	316,166
Leaseholds				31,818		5,025		26,793	22,770
Equipment				92,452		59,329		33,123	15,863
Signs				15,947		6,581		9,366	11,707
Furniture and fixtures				20,770		10,995		9,775	8,500
Computer equipment				17,837		5,691		12,146	313
				687,114		392,178		294,936	375,319
Assets under finance lease
Equipment				54,450		13,052		41,398	25,254
			$	741,564	$	405,230	$	336,334 $	400,573
						2016
		Equipment
	(Machinery &
		equipment /
		Computer				Leasehold	Furniture and
		equipment)		Signs	improvements			fixtures	Total
Cost
Opening	$	411,248	$	14,697	$	42,704	$	11,531 $	480,180
Additions		199,393		1,250		24,288		5,933	230,864
Disposals		-		-		(42,704)		-	(42,704)
Closing		610,641		15,947		24,288		17,464	668,340
Accumulated
depreciation
Opening		(154,958)		(1,469)		(10,228)		(7,580)	(174,235)
Depreciation		(98,087)		(2,771)		(1,518)		(1,384)	(103,760)
		-		-		10,228		-	10,228
Closing		(253,045)		(4,240)		(1,518)		(8,964)	(267,767)
Net balance	$	357,596	$	11,707	$	22,770	$	8,500 $	400,573

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

7. PROPERTY AND EQUIPMENT, continued

Of the $103,760 of depreciation recognized in 2016, $41,117 was allocated to cost of sales, $21,455 to loss on inventory (depreciation allocated to units that were written off), and $27,026 was capitalized to ending inventory as part of the allocation of overhead costs. Depreciation of production equipment included in 2016 cost of sales of $58,293 consists of the current-year allocation of $41,117, plus $17,176 of depreciation capitalized to 2015 ending inventory that was sold in 2016.

					2017
		Equipment
	(Machinery &
		equipment /
		Computer			Leasehold	Furniture and
		equipment)	Signs	improvements			fixtures	Total
Cost
Opening	$	610,641 $	15,947	$	24,288	$	17,464 $	668,340
Additions		62,388	-		7,530		3,306	73,224
Disposals		-	-		-		-	-
Closing		673,029	15,947		31,818		20,770	741,564
Accumulated
depreciation
Opening		(253,045)	(4,240)		(1,518)		(8,964)	(267,767)
Depreciation		(129,584)	(2,341)		(3,507)		(2,031)	(137,463)
Closing		(382,629)	(6,581)		(5,025)		(10,995)	(405,230)
Net balance	$	290,400 $	9,366	$	26,793	$	9,775 $	336,334

Of the $137,463 of depreciation recognized in 2017, $97,784 was allocated to cost of sales, $3,442 to loss on inventory (depreciation allocated to units that were written off), and $11,207 was capitalized to ending inventory as part of the allocation of overhead costs. Depreciation of production equipment included in 2017 cost of sales of $107,410 consists of the current-year allocation of $97,784, plus $9,626 of depreciation capitalized to 2016 ending inventory that was sold in 2017.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

8. INTANGIBLE ASSETS

		Computer	software	software	Website costs	Website costs		Net
			Accumulated			Accumulated
		Cost	amortization		Cost	amortization		Total
2016
Opening	$	6,926	$	(1,905) $	28,066	$	(7,718) $	25,369
Additions		-		-	-		-	-
Amortization		-		(2,762)	-		(11,193)	(13,955)
Disposals		-		-	-		-	-
Balance		6,926		(4,667)	28,066		(18,911)	11,414
2017
Additions		13,998		-	-		-	13,998
Amortization		-		(5,093)	-		(5,035)	(10,128)
Disposals		-		-	-		-	-
Balance	$	20,924	$	(9,760) $	28,066	$	(23,946) $	15,284

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

9. BANK INDEBTEDNESS

A demand operating loan has been authorized by TD Canada Trust to a maximum of $150,000 (2016 - $150,000) and bears interest at the bank's prime lending rate plus 3.00% per annum and is secured by a general security agreement and an assignment of insurance. The prime rate at December 31, 2017 was 3.20% (2016 - 2.70%).

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

		2017	2016
Trade accounts payable	$	690,914 $	541,991
Credit cards payable		9,600	5,827
Payroll liabilities		17,090	16,143
Accrued liabilities		31,013	2,229
Accrued liability for services received under a share-based
payment arrangement		-	4,230
	$	748,617 $	570,420
		2017	2016
30 days	$	290,683 $	287,398
60 days		217,906	64,243
90 days		32,786	55,309
Over 90 days		149,539	135,041
	$	690,914 $	541,991

In the current year, trade accounts payable includes $53,424 (2016 - $77,256) due to shareholders and entities under common control.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

GABRIELLA'S KITCHEN INC.

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

11.

CALLABLE DEBT
2017
2016

Series of demand promissory notes payable to a corporate
shareholder, plus accrued interest thereon. The notes
accrue interest at prime plus 5.00%, and have no
specified payment terms
$ 2,304,966 $ 2,020,738
Series of demand promissory notes payable to a corporate
shareholder, plus accrued interest thereon. The notes are
denominated in US dollars ($400,000 USD), accrue
interest at prime plus 5.00%, and have no specified
payment terms
516,704
-
Series of demand promissory notes payable to an unrelated
party, plus accrued interest thereon. The notes are
denominated in US dollars ($200,000 USD), require
monthly interest payments at prime plus 5.00%, and have
no specified terms
253,671
-
Demand promissory note payable to a related party
(common owner), plus accrued interest thereon. The note
is denominated in US dollars ($150,000 USD), accrues
interest at prime plus 5.00%, and has no specified
payment terms
216,482
215,202
Series of demand promissory notes payable to a related
party (common owner), plus accrued interest thereon. The
notes are denominated in US dollars ($135,000 USD),
require monthly interest payments at prime plus 5.00%,
and have no specified terms for the principal repayment
193,095
181,265
Demand promissory note payable to a related party (family
member of multiple shareholders). The note accrues
interest at prime plus 5.00% and has no specified
payment terms
150,000
-
Series of demand promissory notes payable to a corporate
shareholder, plus accrued interest thereon. The notes
accrue interest at prime plus 4.00%, and have no
specified payment terms
131,631
131,631

Carried forward
$ 3,766,549 $ 2,548,836

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

11. CALLABLE DEBT, continued

		2017	2016
Carried forward	$	3,766,549 $	2,548,836
Demand promissory note payable to a related party
(common owner), plus accrued interest thereon. The note
accrues interest at prime plus 5.00% and has no specified
payment terms		114,796	106,898
Demand promissory note payable to a shareholder, plus
accrued interest thereon. The note accrues interest at
prime plus 5.00% and has no specified payment terms		50,000	50,000
Demand promissory note payable to a shareholder, plus
accrued interest thereon. The note is denominated in US
dollars ($35,000 USD), accrues interest at prime plus
5.00% and has no specified payment terms		45,056	48,113
Demand promissory note payable to a shareholder, who is
also a director, plus accrued interest thereon. The note
accrues interest at prime plus 5.00%, and has no specified
payment terms		2,496	2,496
	$	3,978,897 $	2,756,343

Management intends to settle all callable debt in 2018 through issuance of share capital, with the exception of one promissory note of $150,000, which management intends to repay with cash in 2018.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

12. RELATED PARTY TRANSACTIONS

(a) Transactions

These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The amounts relate primarily to consulting and marketing fees.

Expenses

(b)	2017 2016 2015
	Consulting fees to corporate shareholders $ 299,996 $ 258,331 $ 175,000 Marketing services to corporate shareholders - - 553,455 Other expenses on behalf of the company by a corporate shareholder and an entity related by common ownership 224,487 296,387 48,110 Interest on callable debt to shareholders and an entity related by common ownership 220,064 125,254 48,781
	$ 744,547 $ 679,972 $ 825,346
	Due to (from) related parties 2017 2016
	Corporate shareholder, controlled by a director $ 845,774 $ 437,736 Shareholder and director (4,286) (4,286)
	$ 841,488 $ 433,450

The balances due to related parties are unsecured, non-interest bearing with no specific terms of repayment.

Trade accounts payable due to related parties are included with accounts payable in the statement of financial position and are noted separately in the related note to the financial statements.

(c) As at December 31, 2017, the company's director, Margot Micallef, controlled 42.68% (2016 - 50.59%) of the voting shares of the company through various entities.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

13. 14.	LONG-TERM DEBT 2017 2016
	Equipment finance loan, repayable in monthly instalments of $2,622 including interest at 6.69%. The loan matures in March 2018 and is secured by the equipment financed, which had a net carrying value of $47,016 at December 31, 2017. $ 7,308 $ 37,494 Less current portion 7,308 29,900
	$ - $ 7,594
	FINANCE LEASE OBLIGATION 2017 2016
	Finance lease, repayable in monthly instalments of $387 including interest at 5.00%, secured by the asset financed, due June 2020 $ 11,003 $ 14,878 Finance lease, repayable in monthly instalments of $346 including interest at 16.93%, secured by the asset financed, due September 2020 9,075 - Finance lease, repayable in monthly instalments of $296 including interest at 14.13%, secured by the asset financed, due September 2020 8,060 - Finance lease, repayable in monthly instalments of $335 including interest at 10.63%, secured by the asset financed, due January 2020 7,483 10,529 Finance lease, repayable in monthly instalments of $262 including interest at 21.08%, secured by the asset financed, due July 2019 4,204 -
	39,825 25,407 Less current portion 15,496 7,000
	$ 24,329 $ 18,407

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

14. FINANCE LEASE OBLIGATION, continued

Imputed interest expense related to capital lease obligations amounted to $3,151 during the year (2016 - $1,777) (2015 - $410).

Estimated payments on finance leases are as follows:
2018	$	19,500
2019		18,200
2020		8,600
Total future minimum lease payments		46,300
Less amount representing interest		6,475
Finance lease obligations	$	39,825
Estimated principal repayments are as follows:
2018	$	15,500
2019		16,200
2020		8,125
	$	39,825

15. SHARE SUBSCRIPTION LIABILITY

As of December 31, 2017, the company had received $239,500 in cash from investors for shares of the company, for which the shares had not yet been issued. This amount is included as a liability until the share capital issuance occurs.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

16. SHARE-BASED PAYMENTS

In 2017, the company issued shares with a book value of $4,088 in exchange for services. The related expenses for the services were accrued in previous years and were valued at $4,230 in accounts payable at December 31, 2016. As a result, the company recognized a foreign exchange gain on this transaction of $142. The fair value of the equity instruments was determined to be the invoice amount of the services received, which is considered to be the market value of the services.

In 2016, the company issued shares with a book value of $263,400 in exchange for services. The related expenses for the services were accrued in previous years and were valued at $276,800 in accounts payable at December 31, 2015. As a result, the company recognized a foreign exchange gain on this transaction of $13,400. The fair value of the equity instruments was determined to be the invoice amount of the services received, which is considered to be the market value of the services.

In 2015, the company issued shares for services valued at $392,567. Of this amount, $193,494 was recognized as expense in 2015, and $199,073 was recognized as expense and accrued to accounts payable in 2014. The fair value of the equity instruments was determined to be the invoice amount of the services received, which is considered to be the market value of the services.

See the supplemental non-cash transaction disclosures included in Note 20 for further information.

17. SHARE CAPITAL

Authorized – unlimited number of shares without nominal or par value:

Unlimited number of Class A common voting shares Unlimited number of Class B common voting shares Unlimited number of Class C non-voting shares Unlimited number of Class D non-voting shares Unlimited number of Class E non-voting, retractable, redeemable, preferred shares

	2017		2016
	Issued	Amount	Issued	Amount
Issued
Class A common voting
shares	6,472,910 $	6,544,097	5,461,527 $	4,599,543

During 2017, the company paid finder's fees of $79,250 related to issuance of shares with a book value of $1,585,000. These fees have been included as an offset to the book value of share capital.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

18. INCOME TAXES

(a) The provision for income taxes recorded in the consolidated financial statements differs from the amount which would be obtained by applying the statutory income tax rate of 27% (2016 and 2015 - 27%) to the loss for the years as follows:

		2017		2016		2015
Loss for the year before income taxes	$	(3,760,259)	$	(3,044,374)	$	(2,798,324)
Anticipated income tax benefit	$	(1,015,270)	$	(821,981)	$	(755,547)
Tax effect of the following:
Benefit of income tax losses not
recognized		909,947		778,122		703,661
Permanent expense differences		3,652		1,144		2,315
Timing expense differences		2,945		12,020		15,062
Non-deductible expenses of foreign
subsidiary		101,071		62,607		45,441
Tax depreciation in excess of book
depreciation		(2,345)		(31,912)		(10,932)
Income tax benefit	$	-	$	-	$	-

(b)For Canadian income tax purposes, the company has losses carried forward from prior years which can be applied to reduce future years' taxable income. These losses expire as follows:

2024	$	20,734
2025		33,546
2026		15,105
2027		27,748
2028		89,553
2030		350
2031		151,365
2032		132,230
2033		876,549
2034		336,262
2035		2,606,150
2036		2,881,932
2037		3,370,176
	$	10,541,700

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016

(in Canadian dollars)

18. INCOME TAXES, continued

	December 31,	December 31,	December 31,	December 31,
		2017		2016
Deferred income tax
Accelerated depreciation for tax purposes on property and
equipment	$	(27,411)	$	(32,058)
Losses available for offset against future taxable income		2,846,260		1,936,312
Expenses deducted over future periods for tax purposes		19,058		16,123
Valuation allowance against deferred tax assets		(2,837,907)		(1,920,377)
Net deferred income tax assets	$	-	$	-

Deferred income tax assets are recognized for loss carry-forwards and other deductible temporary differences to the extent that the realization of the related tax benefit through future taxable profits is probable. The company does not yet have a history of profitability or other supporting evidence of future profitability to support the recognition of deferred tax assets in excess of deferred tax liabilities. Accordingly, the net deferred tax assets of Gabriella's Kitchen Inc. are offset by a valuation allowance, which is re-evaluated at the end of each reporting period.

In addition to the amounts in the table above, the company did not recognize deferred income tax assets of $205,662 (2016 - $104,591) in respect of deductible temporary differences amounting to $761,710 (2016 - $387,372) that can be carried forward against future taxable income, which consists of US net operating losses for tax purposes. These losses have not been recognized as they will not be deductible unless the nature of the operations of the foreign subsidiary, Gabriella's Kitchen LLC, changes in the future.

19. LOSS PER SHARE

Basic loss per share is calculated by dividing the net loss by the weighted average number of shares outstanding during the year. Diluted loss per share is calculated to reflect the dilutive effect of stock options and convertible debt outstanding.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

20. NON-CASH TRANSACTIONS

During the years 2017, 2016 and 2015, the following non-cash transactions took place:

(a) 2017

1) Assets under finance lease and finance lease obligations were recognized in equal and offsetting amounts of $23,550.

2) Accounts payable to a marketing vendor of $4,230 were settled in full through issuance of 1,525 shares with a book value of $4,088 in accordance with the intitial agreement with the vendor. A foreign exchange gain of $142 was recognized on this transaction as the effect of the change in the foreign exchange rate between the last translation of the accounts payable balance from USD to CAD and the date of share issuance.

(b)

2016

1) Accounts payable to a marketing vendor of $276,800 were settled in full through issuance of 190,476 shares with a book value of $263,400 in accordance with the intitial agreement with the vendor. A foreign exchange gain of $13,400 was recognized on this transaction as the effect of the change in the foreign exchange rate between the last translation of the accounts payable balance from USD to CAD and the date of share issuance.

2) Various convertible promissory notes from corporate shareholders included in callable debt with an aggregate value of $808,000 were converted to shares with a total book value of $808,000, and amounts due to a corporate shareholder totaling $492,000 were settled through issuance of shares with a book value of $492,000.

3) The company issued a note payable of $44,790 to a vendor in exchange for equipment, and deposits of $77,084 were applied as partial payment for various pieces of equipment.

4) Assets under finance lease and finance lease obligations were recognized in equal and offsetting amounts of $16,700.

(c) 2015

1) The company recorded an asset under finance lease in the amount of $14,200, with a corresponding finance lease liability of the same amount.

2) The company issued 235,714 common shares with book value of $310,379 to a consulting vendor in exchange for payment in full of accounts payable of $174,015 and expenses of $136,364.

3) The company issued 61,429 common shares with book value of $82,188 to a marketing vendor in exchange for payment in full of accounts payable of $25,058 and expenses of $57,130.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

21. FINANCIAL INSTRUMENTS RISKS AND UNCERTAINTIES

The company's financial instruments include cash, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, callable debt, long-term debt and obligations under finance lease. The carrying value of these instruments approximates their fair value due to their short-term maturities.

The company’s activities are exposed to a variety of financial risks, including price risk, credit risk and liquidity risk. The company’s overall risk management program focuses on the unpredictability of financial and economic markets and seeks to minimize potential adverse effects on the company’s financial performance. Risk management is carried out by financial management in conjunction with overall corporate governance.

The company is exposed to the following risks in respect of certain of the financial instruments held:

(a) Interest rate risk

The company's exposure to interest rate fluctuations is with respect to the use of its bank revolving credits, instalment loans, and demand promissory notes which bear interest at floating rates. The rates are tied to the prime rate of interest. Rate changes are likely to be minimal. A 1.00% change in interest rates would change annual interest expense by approximately $40,000.

(b) Credit risk

The company is exposed to credit risk in the event of non-performance by customers, but does not anticipate such non-performance due to the nature of its customers. The maximum credit risk is the fair value of the accounts receivable. The allowance for doubtful accounts and past due receivables are reviewed by management at each balance sheet reporting date. The company updates its estimate of the allowance for doubtful accounts based on the evaluation of the recoverability of accounts receivable balances of each customer taking into account historic collection trends, the contractual relationship with the customer and the nature of the customer. Management believes that the risk associated with concentrations of credit risk with respect to accounts receivable is limited due to the nature of the customers. See Note 4 for further information.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

21. FINANCIAL INSTRUMENTS, continued

(c) Foreign currency risk

The company conducts certain of its operations in United States dollars. As at December 31, 2017, the following balances were included in the consolidated financial statements.

			$CAD
		$USD	equivalent
Gabriella's Kitchen Inc. USD cash account	$	13,039 $	16,357
Gabriella's Kitchen LLC USD cash accounts		12,541	15,767
Trade accounts receivable - USD		187,688	235,961
Trade accounts payable - USD		(144,874)	(182,135)
Callable debt held in USD		(973,799)	(1,224,260)
	$	(905,405) $	(1,138,310)

(d) Other price risk

The company’s exposure to other price risk is limited since there are no significant financial instruments which fluctuate as a result of changes in market prices.

(e) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit lines. The company’s trade payables, other liabilities, and bank loan payable are due within one year and the company’s line of credit is close to its limit. The degree to which the company is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to improve cash flows from operations.

The company manages its liquidity risk through the management of its capital structure and financial leverage as outlined in Note 22. It also manages liquidity risk by continuously monitoring actual cash flows. The company has primarily been financed up to this point by demand promissory notes from shareholders. Willingness and ability of shareholders to continue lending funds to the company as needed has a significant effect on the liquidity risk of the company. No indications are present that the company will be unable to continue to received such financial support. The likelihood of shareholders calling the debts within the next year is considered to be low.

The company is exposed to liquidity risk as a result of its economic dependence on revenues coming from a few major customers, as outlined in Note 26.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

22. CAPITAL DISCLOSURE

The company's objectives when managing capital are:

(a) to ensure sufficient liquidity to enable the internal financing of capital projects;
(b) to develop a strong capital base to increase investor, creditor and market confidence; and
(c) to ultimately provide an adequate return to shareholders.

The company's capital is composed of bank indebtedness, bank loan and shareholder loans (callable debt). The company's primary uses of capital in the past have been to finance its operations, and property and equipment purchases. The company currently funds these requirements with shareholder financing. The company maintains a secured operating line of credit with a chartered bank that it uses for its business activities. The board of directors does not establish quantitative return on capital criteria for management. The company is not subject to any externally imposed capital requirements.

23. LEASE COMMITMENTS

The company has the following operating lease commitments as at December 31, 2017:

Lease of a commercial property in Ontario, Canada, which began in April 2016 and ends in April 2023, with options under the lease for two one-year extensions. The lease requires monthly payments (plus HST) of $7,619 in year one, $8,577 in year 2, $9,535 in year 3, $9,821 in year 4, and $10,302 in years 5-7. The deferred lease inducements balance related to the recognition of the lease payments on the straight-line basis ($9,494 per month) was $30,758 as at December 31, 2017 (2016 - $16,878). The former facilities lease had been extended into 2018, but the company was released from the lease obligation in April 2016 after surrender of the lease deposit.

The company's total commitments under the operating lease agreement described above, exclusive of occupancy costs, are as follows:

2018	$	111,550
2019		117,000
2020		122,183
2021		123,625
2022		123,625
Subsequent years		30,906
	$	628,889

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

24. CONTINGENCIES

From time to time, the company is subject to legal proceedings and or claims in the normal course of business. Management vigorously defends any allegations under such suits or claims that arise from time to time and believes that the ultimate liability, if any, under any pending matters will not materially affect the financial position or results of operations of the company. At December 31, 2017, the company was not subject to any material legal proceedings.

25. STOCK APPRECIATION RIGHTS

In 2017 and 2016, respectively, the company issued 371,333 and 235,001 stock appreciation rights (SARs) to employees of the company. Total issued SARs units outstanding as at December 31, 2017 was 714,667 (2016 - 343,334). The SARs hold no value until a liquidity event occurs, defined in the SARs Plan as either the sale of all or substantially all of the assets or shares of the corporation, or an initial public offering of the corporation's common shares. As of December 31, 2017, no liquidity event has occurred.

26. SEGMENTED INFORMATION AND ECONOMIC DEPENDENCE

The company operates in one industry, food manufacturing, and all of the company’s assets other than cash are in Canada. Gabriella's Kitchen LLC, the wholly-owned subsidiary of the company, operates as an extension of the parent company for administrative purposes and does not produce revenue or incur significant expenses. The company does not have any operating segments other than the operation as a whole.

The company earned $516,352 of its gross revenue in Canada (2016 - $553,511; 2015 - $354,990) and $758,165 of its gross revenue in the United States (2016 - $150,979; 2015 - $36,936). Revenue is attributed to a geographic region based on the location of the customer.

The company has recorded revenue of $1,039,557 from three major customers, representing 82% of total revenue (2016 revenue of $503,393 from three major customers representing 71%; 2015 revenue of $269,572 from three major customers representing 70%). The accounts receivable balance due from these customers amounts to 84% of total accounts receivable (2016 - 16%; 2015 - 84%).

27. SUBSEQUENT EVENTS

Subsequent to December 31, 2017, the company has raised approximately $400,000 of additional capital through issuance of shares. The company has also issued approximately 268,000 additional stock appreciation right units, which have no value until specified events occur, which have not yet occurred.

The company intends to file a prospectus with the Alberta Securities Commission to enable the company to become a reporting issuer on the Canadian Securities Exchange pursuant to applicable securities laws.

GABRIELLA'S KITCHEN INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017 AND 2016 (in Canadian dollars)

27. SUBSEQUENT EVENTS, continued

On April 18, 2018, the Company amended its articles to effect a subdivision of its common shares on the basis of 7 Common Shares for post-subdivision Common Shares for each pre-subdivision Common Share then outstanding, and to amend its articles to replace the existing classes of shares of the Corporation with one class of common shares and one class of preferred shares. The outstanding share capital disclosed in the notes above are pre-subdivision.

The company is in the process of issuing convertible debentures at a principal amount of $1,000 per Convertible Debenture as part of a Brokered Private Placement financing pursuant to the terms of an agency agreement. Each convertible debenture is convertible into common shares of the company at a price of $0.2857 per underlying share (the "conversion price") and warrants (each, an "underlying warrant", together with an underlying Share, an "Underlying Unit") at the conversion price, in accordance with the terms and conditions of the debenture indenture. Each underlying warrant shall, subject to the terms and conditions of a warrant indenture, entitle the holder thereof to acquire one common share in the capital of the Corporation (a “warrant share”) at a price of $0.3714 per Warrant Share for a period of 24 months following a liquidity event. The convertible debentures shall be non-interest bearing. Notwithstanding the foregoing, in the event that the Company does not complete a liquidity event prior to the Maturity Date, interest will accrue and be payable on the convertible debentures at a rate of 10% per annum, and such interest shall accrue and be payable in cash commencing from the date of issue of the Convertible Debentures. A “Liquidity Event", meaning: (i) a non-offering listing of the Common Shares on a recognized stock exchange; (ii) an initial public offering of the Common Shares; or (iii) a transaction with a capital pool company or other company that is a reporting issuer in at least one jurisdiction of Canada, which is acceptable to the Agents and the Corporation, by way of plan of arrangement, amalgamation, reverse takeover, qualifying transaction, or any other business combination or other similar transaction pursuant to which the Common Shares (or the common shares of the resulting issuer) are listed on a recognized stock exchange. As of the date of the report, the total proceeds generated from the brokered private placement are not known.

Schedules 1

GABRIELLA'S KITCHEN INC.

CONSOLIDATED SCHEDULES OF ALLOCATED INDIRECT COSTS

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (in Canadian dollars)

		2017	2016	2015
Abnormal production waste	$	20,722 $	1,201 $	705
Depreciation of production equipment		107,410	58,293	26,794
Indirect materials		32,010	11,103	7,886
Indirect production labour		186,233	7,849	755
Production facility costs		165,868	78,115	20,414
Repairs and maintenance		46,646	18,061	10,350
Other overhead costs		6,036	4,678	1,521
	$	564,925 $	179,300 $	68,425

Schedules 2

GABRIELLA'S KITCHEN INC.

CONSOLIDATED SCHEDULES OF OPERATING EXPENSES

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (in Canadian dollars)

		2017	2016	2015
Advertising and promotion	$	553,200 $	584,019 $	1,436,676
Amortization of intangible assets (Note 8)		10,128	13,955	9,623
Bad debts		519	59,023	4,500
Broker fees		129,406	87,049	64,037
Computer expense		16,532	-	-
Consulting fees		621,654	480,227	232,098
Contract service		74,486	89,964	55,593
Depreciation expense		25,030	14,162	13,232
Equipment lease		12,282	44,678	31,786
Freezer services		137,315	82,515	34,502
Freight		166,552	60,717	28,887
Insurance		4,006	8,893	6,529
Interest and bank charges		13,180	12,727	4,922
Laundry and cleaning		1,656	1,111	-
Meals and entertainment		27,053	974	11,781
Memberships		6,180	7,372	500
Office		14,832	21,815	32,701
Postage and courier		4,149	2,620	350
Professional fees		82,361	73,040	106,340
Rent		35,876	32,744	10,962
Repairs and maintenance		3,856	1,388	1,294
Salaries and benefits		781,192	445,380	238,998
Subscriptions and permits		21,843	16,948	8,637
Supplies		13,906	5,862	15,590
Telephone		17,316	6,158	7,209
Training		915	280	396
Travel		183,839	225,845	200,039
Utilities		12,604	7,885	4,925
	$	2,971,868 $	2,387,351 $	2,562,107

SCHEDULE “G” – Miramar Audited Financials

( See attached )

G - 1

MIRAMAR PROFESSIONAL SERVICES

CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 and 2019 (in United States dollars)

INDEPENDENT AUDITOR’S REPORT

To the Directors of Miramar Professional Services

Opinion

We have audited the accompanying consolidated financial statements of Miramar Professional Services (the “Company”), which comprise the consolidated statements of financial position as at September 30, 2020 and 2019, and the consolidated statements of comprehensive income, changes in shareholders’ equity (deficiency), and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

==> picture [237 x 51] intentionally omitted <==

Vancouver, Canada February 3, 2021

Chartered Professional Accountants

MIRAMAR PROFESSIONAL SERVICES

Consolidated Statements of Financial Position

MIRAMAR PROFESSIONAL SERVICES Consolidated Statements of Financial Position
*In US dollars* Note	September 30, 2020 September 30, 2019
ASSETS Current Cash Accounts receivable Inventory 3 Prepaid expenses 4 Notes receivable from shareholders 5	2,542,026 1,740,327 2,000 26,000 1,141,647 1,707,459 212,054 74,031 395,586 496,135
Non‐current Property and equipment 6 Intangible assets 7 Security deposits Deferred tax assets 15	4,293,313 4,043,952 7,121,489 1,595,603 1,515,076 ‐ 68,273 30,305 98,285 170,996
Total assets	13,096,436 5,840,856
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) Current liabilities Accounts payable and accrued liabilities 8 Due to related parties 9 Income taxes payable 15 Deferred revenue 10 Short‐term notes payable 11 Current portion of lease liabilities 12	2,035,199 1,302,040 ‐ 20,695 1,725,872 2,111,787 220,040 519,431 775,000 ‐ 259,700 202,200
Non‐current liabilities Lease liabilities 12 Other long‐term liabilities 15	5,015,811 4,156,153 6,908,302 1,126,574 4,095,971 2,882,692
Total liabilities SHAREHOLDERS’ EQUITY (DEFICIENCY) Share capital 13 Deficit	16,020,084 8,165,419 2,139,610 2,139,610 (5,063,258) (4,464,173)
	(2,923,648) (2,324,563)
Total liabilities and shareholders’ equity (deficiency)	13,096,436 5,840,856
Contingencies 20 Subsequent events 22

See accompanying notes to the consolidated financial statements

[signed]

On behalf of board: James Schmachtenberger, Director

4 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES

Consolidated Statements of Comprehensive Income

*In US dollars* Note	Year Ended September 30,
	2020 2019
Revenue, net	29,751,508 25,360,856
Cost of sales 14	16,196,320 14,998,588
Gross profit Selling, general and administrative expenses Employee salaries and benefits 9 Advertising and promotion Contract services Professional fees Office and administrative expenses Occupancy Insurance Taxes and licenses Vehicle Consulting fees 9 Other Depreciation ofplant and equipment 6	13,555,188 10,362,268 4,455,708 3,349,126 1,234,934 791,439 639,028 422,827 573,286 658,808 315,116 435,145 201,980 144,821 140,623 152,629 118,093 99,441 87,108 29,497 205,214 61,860 259,995 267,038 557,275 322,183
Income from operations before the following:	4,766,828 3,627,454
Interest expense Interest income Loss on disposal of equipment Penalties and interest onpast‐due taxes	(410,206) (115,948) 14,668 12,487 ‐ (1,874) (82,712) (205,664)
Total other income(expenses)	(478,250) (310,999)
Income before income tax expense	4,288,578 3,316,455
Current income tax expense 15 Deferred income tax expense 15	2,996,452 2,226,477 72,711 55,302
Income tax expense 15	3,069,163 2,281,779
Net and comprehensive income	1,219,415 1,034,676

See accompanying notes to the consolidated financial statements

5 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES

Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

Number of shares outstanding	*In US dollars*
	Share capital Deficit Total
Balance as at October 1, 2018 1,000,000 Net and comprehensive income ‐ Shareholder distributions ‐	2,139,610 (3,120,849) (981,239) ‐ 1,034,676 1,034,676 ‐ (2,378,000) (2,378,000)
Balance as at September 30, 2019 1,000,000 Net and comprehensive income ‐ Shareholder distributions ‐	2,139,610 (4,464,173) (2,324,563)
	‐ 1,219,415 1,219,415
	‐ (1,818,500) (1,818,500)
Balance as at September 30, 2020 1,000,000	2,139,610 (5,063,258) (2,923,648)

See accompanying notes to the consolidated financial statements

6 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES

Consolidated Statements of Cash Flows

*In US dollars* Note	Year Ended September 30,
	2020 2019
OPERATING ACTIVITIES Net income Adjustments to arrive at cash flow from operations: Deferred income tax expense 15 Depreciation 6 Loss on disposal of equipment Interest expense Interest income from shareholders	1,219,415 1,034,676 72,711 55,302 634,873 322,593 ‐ 1,874 410,206 115,948 (14,668) (12,487)
Cash generated by operating activities before the following: Net change in non‐cash working capital relating to operations 16	2,322,537 1,517,906 1,712,921 1,819,110
Cashgenerated by operating activities	4,035,458 3,337,016
INVESTING ACTIVITIES Purchase of property and equipment 6 Proceeds on sale of equipment Purchase of intangible assets 7, 17 Issuance of notes receivable from shareholders 5 Notes receivable from shareholders – payments received 5 Interest received from shareholders 5 Deposits paid	(136,797) (163,189) ‐ 14,123 (515,076) ‐ (260,000) (417,500) 62,919 14,880 ‐ 10,122 (37,968) ‐
Cash used in investing activities	(886,922) (541,564)
FINANCING ACTIVITIES Repayment of short‐term notes payable 11 Repayment of lease liabilities Interest paid Shareholder distributions 9	(225,000) (68,608) (184,734) (179,269) (410,206) (115,948) (1,526,897) (2,174,150)
Cash used in financing activities	(2,346,837) (2,537,975)
Net change in cash Cash,beginningofyear	801,699 257,477 1,740,327 1,482,850
Cash, end ofyear	2,542,026 1,740,327

See accompanying notes to the consolidated financial statements, including Notes 16 and 17

7 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

NATURE OF BUSINESS

Miramar Professional Services dba Mankind (“the Corporation” or “Mankind”) is a Corporation registered under the laws of the State of California. The Corporation’s registered office is 7128 Miramar Road, Suite 14B, San Diego, California 92121. Mankind is a retail cannabis business based in San Diego, California that offers cannabis goods to medical and recreational consumers through its storefront, curbside pickup, and delivery. Mankind is predominately a reseller of goods produced by other companies. Mankind offers a “self‐serve” retail model that distinguishes it from most of the retail cannabis market. Mankind has been operating in San Diego since the beginning of 2016 as a medical retailer and began offering products to medical and recreational customers at the beginning of 2018.

1) BASIS OF PRESENTATION

Statement of compliance

These consolidated financial statements for the years ended September 30, 2020 and 2019 (“Financial Statements”) have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee.

These Financial Statements were approved and authorized for issue by the Corporation’s board of directors (“Board”) on February 3, 2021.

Basis of presentation

These Financial Statements have been prepared under the historical cost convention, except for financial instruments classified as financial instruments at fair value through profit and loss, which are stated at their fair value, and are expressed in US dollars unless otherwise indicated. Other measurement bases used are outlined in Note 2 and in other applicable notes.

Going concern

These Financial Statements have been prepared using International Financial Reporting Standards (“IFRS”) applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due.

8 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

2) ACCOUNTING POLICIES

Basis of consolidation

The Financial Statements include the accounts of the Corporation and those of its subsidiary, an entity over which the Corporation has control. Control exists when the Corporation has power over an investee, is exposed to or has rights to variable returns from its involvement and has the ability to affect those returns. The results of operations of the subsidiary acquired during the period are included from their respective dates of acquisitions, being the time at which the Corporation obtains control. The Corporation assesses control through share ownership and voting rights. The following companies have been consolidated in the Financial Statements:

	Registered	Holding	Functional Currency
Miramar Professional Services	California, USA	Parent Company	United States dollar (“USD”)
Wild West Industries, Inc.	California, USA	100%	United States dollar (“USD”)

Intercompany balances and transactions, and any unrealized gains or losses arising from intercompany transactions, are eliminated in preparing the Financial Statements.

Business combinations

Business combinations are accounted for using the acquisition method when control of an entity operating as a business is transferred to the Corporation. The consideration transferred in the acquisition is generally measured at fair value, along with identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred.

The consideration transferred does not include amounts related to the settlements of pre‐existing relationships; such amounts are generally included in profit or loss.

Cash

Cash consists of cash on hand and balances with financial institutions. Cash in bank deposit accounts, at times, exceeds federally insured limits.

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of manufactured inventories is based on the first‐in first‐out method. The cost of procured finished goods and unprocessed raw material inventory is based on weighted average cost. Net realizable value is the estimated selling price in the ordinary course of business, less the

9 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

estimated costs of completion and selling expenses. The cost of inventories includes expenditures incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing the inventories to their existing location and condition. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity.

Property and equipment

All assets having limited useful lives are depreciated using the straight‐line method over their estimated useful lives. Internally constructed assets are depreciated from the time an asset is capable of operating in the manner intended by management. No depreciation is recorded on property and equipment that is not available for use.

Subsequent costs are included in the asset's carrying amount when it is probable that future economic benefits associated with the asset will flow to the Corporation, and the costs can be measured reliably. This would include costs related to the refurbishment or replacement of major components of the asset, when the refurbishment results in a significant extension in the physical life of the component, and in which case, the carrying amount of the replaced part is derecognized. The costs of the day‐to‐day maintenance of property and equipment are expensed as incurred in profit or loss.

Any gain or loss on de‐recognition of an asset is determined by comparing the proceeds from disposal with the carrying amount of property and equipment and is recognized on a net basis in profit or loss.

The residual value, useful life and depreciation method applied to each class of assets are reassessed at each reporting date. The estimated useful lives for each class of asset are as follows:

Production equipment	5 years
Other equipment	4‐5 years
Computer equipment	2 years
Furniture and fixtures	5 years
Vehicles (used)	3 years

Depreciation of leasehold improvements is recorded over the remaining term of the lease plus any renewal options that are reasonably certain to be exercised at the time the improvements are recorded.

Intangible assets

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually at the cash‐ generating unit (“CGU”) level. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable.

Impairment

a. Financial assets at amortized cost

In a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously‐recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

b. Non‐financial assets

The carrying amounts of the Corporation’s non‐financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If such an indication exists, the recoverable amount is estimated.

For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of cash inflows from other assets or groups of assets or CGU. The recoverable amount of an asset or a CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or the cash‐generating unit. Impairment losses recognized in prior years are reviewed by the Corporation at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in 11 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES

Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

the estimates used to determine the recoverable amount. An asset’s carrying amount, increased through the reversal of an impairment loss, must not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Deferred revenue

The Corporation records deferred revenue for rewards points earned by customers at time of product sales and recognizes the amounts as revenue when those points are redeemed. Points outstanding for which the customer has not made a purchase for more than one year are recognized as revenue on the assumption that the points will not be redeemed. The Corporation also includes outstanding gift cards in deferred revenue.

Leases

The Corporation elected to adopt IFRS 16, Leases, as of its date of transition to IFRS, which is reflected in the following accounting policy.

The contract involves the use of any identified assets: this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;
The Corporation has the right to obtain substantially all the economic benefits from use of the asset throughout the period of use; and
The Corporation has the right to direct the use of the asset. The Corporation has this right when it has the decision‐ making rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where the decision about how and for what purpose the asset is used is predetermined, the Corporation has the right to direct the use of the asset if either:
The Corporation has the right to operate the asset; or
The Corporation designed the asset in a way that predetermines how and for what purpose it will be used.

At inception or on reassessment of a contract that contains a lease component, the Corporation allocates the consideration in the contract to each lease component on the basis of their relative stand‐alone prices. However, for the leases of land and buildings in which it is a lessee, the Corporation has elected not to separate non‐lease components and account for the lease and non‐lease components as a single lease component.

As a lessee

The Corporation recognizes a right‐of‐use asset and a lease liability at the lease commencement date. The right‐of‐use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentive received.

The right‐of‐use asset is subsequently depreciated using the straight‐line method from the commencement date to the earlier of the end of the useful life of the right‐of‐use asset or the end of the lease term unless it is reasonably certain that the Corporation will purchase or receive title to the asset at or before the end of the lease term, in which case the asset is depreciated over its useful life regardless of the lease term. The estimated useful lives of right‐of use assets are determined on the same basis as those of property and equipment. In addition, the right‐of‐use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

Lease payments included in the measurement of the lease liability are comprised of the following:

Fixed payments, including in‐substance fixed payments;
Variable lease payments that depend on an index or a rate, initially measured using the index or rate at the commencement date;
Amounts expected to be payable under a residual value guarantee; and
The exercise price under a purchase option that the Corporation is reasonably certain to exercise, lease payments in an option renewal period if the Corporation is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Corporation is reasonably certain not to terminate early.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right‐of‐use assets or is recorded in profit or loss if the carrying amount of the right‐of‐use assets has been reduced to zero.

The Corporation presents right‐of‐use assets that do not meet the definition of investment property in property and equipment and lease liabilities separately in the statement of financial position.

Short‐term leases and leases of low value assets

The Corporation has elected not to recognize right‐of‐use assets and lease liabilities for short‐term leases of assets that have a lease term of 12 months or less and leases of low value assets including information technology equipment. The Corporation recognizes the lease payments associated with these leases as an expense on a straight‐line basis over the lease term.

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

Financial Instruments

The Corporation classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive income (loss) (“FVTOCI”), or at amortized cost. The Corporation determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Corporation’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Corporation can make an irrevocable election (on an instrument‐by‐instrument basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Corporation has opted to measure them at FVTPL.

The Corporation classifies the fair value of financial instruments according to the following hierarchy based on the reliability of observable inputs used to value the instrument.

Level 3 – Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The Corporation’s financial instruments include cash, accounts receivable, notes receivable from shareholders, accounts payable and accrued liabilities, amounts due to related parties, short‐term notes payable, and lease liabilities. The carrying value of current financial instruments approximate their fair value due to their immediate or short term to maturity, or their ability for liquidation at comparable amounts. The fair value of the Corporation’s non‐current financial instruments is approximated by their carrying values as the contractual interest rates are comparable to current market interest rates.

The Corporation has made the following classifications:

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

a. Loans and receivables

Loans and receivables are non‐derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Corporation’s loans and receivables are comprised of accounts receivable and notes receivable and are included in current assets due to their short‐term nature unless they are contractually receivable more than twelve months from the reporting date. Loans and receivables are initially recognized at the amount expected to be received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortized cost using the effective interest method less any provision for impairment.

b. Financial liabilities at amortized cost

Financial liabilities at amortized cost include trade accounts payable and accrued liabilities, amounts due to related parties, short‐term notes payable and lease liabilities. Current financial liabilities are initially recognized at the amount required to be paid less, when material, a discount to reduce the payables to fair value. Subsequently, they are measured at amortized cost using the effective interest method. Lease liabilities are initially recognized at fair value net of transaction costs that are directly attributable to the financial liability, and subsequently at amortized cost using the effective interest method.

Income taxes

Deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a non‐discounted basis using tax rate and laws that have been enacted or substantively enacted at the statement of financial statement date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered. Deferred income tax assets and liabilities are presented as non‐current.

As the Corporation operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Corporation is only allowed to deduct expenses directly related to the cost of producing the products or cost of production.

The Corporation elected to adopt IFRIC 23, Uncertainty over income tax treatments, as of its date of transition to IFRS, which is reflected in the following accounting policy.

The Corporation recognizes uncertain income tax positions using a probability‐weighted approach to determine the amount that is more‐likely‐than‐not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the Consolidated Statements of Comprehensive Income.

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

Revenue recognition

Critical accounting estimates, judgments and measurement uncertainty

The preparation of these Financial Statements requires management of the Corporation to make judgments in applying accounting policies. Judgments that have the most significant effect on the amounts recognized in the Financial Statements are described below. Management also makes assumptions and critical estimates. Critical estimates are those which are most subject to uncertainty and have the most significant risk of resulting in a material change to the carrying amounts of assets and liabilities within the next year. Judgments, assumptions, and estimates are based on historical experience, business trends, and all available information that management considers relevant at the time of the preparation of the Financial Statements. However, future events and their effects cannot be anticipated with certainty; accordingly, as confirming events occur, actual results could differ from those estimates and such differences could be material.

a. Income taxes

Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Corporation reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax - related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.

b. Inventories

MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

low, thus reducing the risk of inventory obsolescence. To the extent that actual losses on inventory differ from those estimated, inventory, net income (loss), and comprehensive income (loss) will be affected in future periods.

c. Property and equipment

Components of an item of plant and equipment may have different useful lives. Management makes significant estimates and judgments when determining asset depreciation rates and useful lives, which require taking into account company‐ specific factors, such as our past experience and expected use. The Corporation monitors and reviews asset depreciation rates and useful lives at least once per year, and revises them if they are different from previous estimates. The Corporation recognizes the effect of changes in estimates in net income prospectively. Changes to estimates could be caused by a variety of factors, including changes to the physical life of the assets. A change in any of the estimates would result in a change in the amount of depreciation and, as a result, a charge to net income recorded in the period in which the change occurs, with a similar change in the carrying value of the asset in the statement of financial position.

Furthermore, property and equipment is reviewed for indicators of impairment at each reporting date. Where impairment indicators are identified, the Corporation uses the fair‐value‐less‐cost‐to‐sell approach to determine the recoverable amount of the assets included in property and equipment, which drives the conclusion of whether impairment exists, and if it does, the amount of impairment to record.

d. Intangible assets

Management uses estimates in determining the recoverable amount of intangible assets. The determination of the recoverable amount for the purpose of impairment testing requires the use of significant estimates, such as:

future cash flows;
terminal growth rates; and
discount rates.

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

of the underlying assets. A change in the estimate would result in a change in the amount of amortization and, as a result, a charge to profit or loss recorded in the period in which the change occurs, with a similar change in the carrying value of the asset in the statement of financial position.

e. Lease accounting

The adoption of IFRS 16 Leases required the Corporation to assess its significant judgments and certain key estimates when applying the standard in Note 2. Critical judgments required in the application of IFRS 16 include the following:

Determining whether it is reasonably certain that an extension, purchase or termination option will be exercised, on a lease‐by‐lease basis. The Corporation considers all facts and circumstances and examines whether there is an economic incentive or penalty affecting the decision to exercise an option

Key sources of estimation uncertainty in the application of IFRS 16 include the following:

Estimating the lease term. The Corporation determines the lease term as the non‐cancellable period of the lease at the commencement date, adjusted for any purchase, renewal or termination options it deems reasonably certain to exercise;
Determining the appropriate incremental borrowing rate specific to each leased asset. The Corporation establishes incremental borrowing rates used as discount factors in discounting payments reflecting the Corporation’s borrowing rate, duration of lease term and credit spread; and
Assessing whether a right‐of‐use asset (“ROU asset”) is impaired if indicators are present.

Unanticipated changes in these judgments or estimates could affect the identification and determination of the fair value of lease liabilities and ROU assets at initial recognition, as well as the subsequent measurement of lease liabilities and ROU assets. Changes in the economic environment or changes in the cannabis and retail industry may impact management’s assessment of lease terms, and any changes in management’s estimate of lease terms may have a material impact on the Corporation’s Consolidated Statements of Financial Position and Consolidated Statements of Comprehensive Income. In addition, the Corporation’s assessed incremental borrowing rates are subject to change mainly due to macroeconomic changes in the environment and cannabis industry and the Corporation’s creditworthiness. These items could potentially result in changes to amounts reported in the Consolidated Statements of Comprehensive Income and Financial Position of the Corporation.

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

3) INVENTORY

The Corporation’s inventory consists primarily of purchased products for retail sale. Inventory expensed in cost of sales for the year ended September 30, 2020 amounted to $14,874,163 (year ended September 30, 2019 ‐ $14,585,715).

4) PREPAID EXPENSES

4) PREPAID EXPENSES
In$, Balance comprised of:	2020 2019
Prepaid licences and subscriptions Prepaid rent Prepaidprofessional fees	125,714 74,031 71,340 ‐ 15,000 ‐
	212,054 74,031

5) NOTES RECEIVABLE FROM SHAREHOLDERS

In$	Note receivable(a) Note receivable(b) Series of notes receivable(c) Total
Balance as at October 1, 2018	295,000 ‐ ‐ 295,000
Notes receivable issued Repayments received Distributions applied to balances Interest expense	‐ 90,000 327,500 417,500 (25,000) ‐ ‐ (25,000) ‐ ‐ (203,850) (203,850) 10,120 ‐ 2,365 12,485
Balance as at September 30, 2019	280,120 90,000 126,015 496,135
Notes receivable issued Repayments received Distributions applied to balances Related party payables applied to balances Interest expense	‐ ‐ 260,000 260,000 ‐ ‐ (62,919) (62,919) (31,250) (90,000) (170,353) (291,603) (3,961) ‐ (16,734) (20,695) 8,089 405 6,174 14,668
Balance as at September 30, 2020	252,998 405 142,183 395,586

Note receivable (a) is an unsecured promissory note originally issued by a shareholder to Mankind in July 2018 for $300,000, which was amended and restated in September 2019. The note accrues interest at 3.00% per annum and is payable in monthly instalments of principal and interest not less than $2,500, with the full balance due in July 2020. As the note is past the maturity date, it is callable at any time at the option of Mankind.

Note receivable (b) is an unsecured promissory note issued by a shareholder to Mankind in September 2019 for $90,000. The note accrues interest at 2.57% per annum and was payable after the first two months in monthly instalments of one tenth of the principal plus all accrued interest, with the full balance due in September 2020. The principal balance was repaid to Mankind via allocation of shareholder distributions during the year ended September 30, 2020, with only the accrued interest remaining.

The series of notes receivable (c) arose from professional fees and other costs payable by the shareholders that were paid by Mankind. The notes accrue interest at 2.57%, are unsecured, and matured in August 2020. As the notes are past the maturity date, they are callable at any time at the option of Mankind.

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

6) PROPERTY AND EQUIPMENT

Property and equipment, which includes right‐of‐use assets, is summarized as follows:

In $	Production equipment Leasehold improve‐ ments Equipment Vehicles	Furniture and fixtures Computer equipment Right‐of use assets ‐ facilities Total
Balance as at October 1, 2018
Cost ‐ 349,808 ‐ ‐		2,130 ‐ 1,508,042 1,859,980
Accumulated depreciation ‐ (88,890) ‐ ‐		(86) ‐ ‐ (88,976)
Net book value ‐ 260,918 ‐ ‐		2,044 ‐ 1,508,042 1,771,004
Purchases 6,157 54,080 6,501 59,278 Disposals ‐ ‐ ‐ (15,997) Depreciation1 (410) (43,900) ‐ (8,516)		37,173 ‐ ‐ 163,189 ‐ ‐ ‐ (15,997) (4,239) ‐ (265,528) (322,593)
Balance as at September 30, 2019
Cost 6,157 403,888 6,501 40,682		39,303 ‐ 1,508,042 2,004,573
Accumulated depreciation (410) (132,790) ‐ (5,917)		(4,325) ‐ (265,528) (408,970)
Net book value 5,747 271,098 6,501 34,765		34,978 ‐ 1,242,514 1,595,603
Purchases and additions ‐ 36,052 61,461 26,392 Remeasurement adjustments ‐ ‐ ‐ ‐ Depreciation1 (1,232) (50,355) (4,451) (19,469)		4,086 8,806 2,281,522 2,418,319 ‐ ‐ 3,742,440 3,742,440 (8,570) (2,083) (548,713) (634,873)
Balance as at September 30, 2020
Cost 6,157 439,940 67,962 67,074		43,389 8,806 7,532,004 8,165,332
Accumulated depreciation (1,642) (183,145) (4,451) (25,386)		(12,895) (2,083) (814,241) (1,043,843)
Net book value 4,515 256,795 63,511 41,688		30,494 6,723 6,717,763 7,121,489

1Depreciation recognized was allocated to the following accounts:	2020	2019
Cost of sales	77,598	410
Depreciation of plant and equipment	557,275	322,183
	634,873	322,593

20 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

7) INTANGIBLE ASSETS

On December 20, 2019, the Corporation acquired 100% of the issued and outstanding shares of Wild West Industries, Inc (“WWI”) for $1,500,000, with 20% of the WWI shares being held back by the previous owners subject to certain licensing milestones. The 20% interest is held in title only and is not entitled to any beneficial rights, including voting and distributions, or obligations thereto, including any possible funding requirements. The remaining shares will transfer to the Corporation as a matter of course and with no additional consideration being required. The Corporation incurred legal and other costs directly related to the acquisition of $15,076, which have been capitalized to the cost of the intangible assets for a total cost of $1,515,076.

WWI had two licenses when acquired: a provisional annual license for Type 6 (non‐volatile) manufacturing issued by the Department of Public Health of the State of California, and a provisional annual license for distribution of adult‐use and medicinal cannabis issued by the Bureau of Cannabis Control.

The foregoing licenses acquired through the WWI acquisition did not constitute a business combination and the transaction was therefore accounted for as an asset acquisition.

8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

8) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Balance comprised of:	In $
	2020 2019
Trade accounts payable Credit cards payable Payroll liabilities Accrued liabilities Sales,excise,and use taxespayable	593,107 254,739 ‐ ‐ 359,756 240,910 326,383 149,339 755,953 657,052
	2,035,199 1,302,040
Aging of trade accounts payable:
30 days 60 days 90 days Over 90 days	584,055 124,677 9,052 2,705 ‐ 12,032 ‐ 115,325
	593,107 254,739

As of September 30, 2020, accounts payable and accrued liabilities includes $198,577 (September 30, 2019 ‐ $38,128) due to related parties in respect of services described in Note 9.

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

9) RELATED PARTY TRANSACTIONS

	In $
	2020 2019
a. Amounts included in Selling, general and administrative expenses: Compensation of key management personnel (“KMP”)1: Cash compensation for services provided by an entity controlled by a KMP Cash compensation to individuals	150,000 ‐ 352,679 259,610
Total compensation of KMP (excluding distributions) Consulting fees paid to a company controlled by a close family member of a KMP Contract service fees paid to a close family member of a KMP b. Amounts included in Interest income: Interest on notes receivable from shareholders c. Distributionspaid to shareholders:	502,679 259,610 65,596 47,282 113,561 11,177 14,668 12,485
Cash distributions Distributions applied against notes receivable from shareholders	1,526,897 2,174,150 291,603 203,850
Total distributions to shareholder members of the board of directors	1,818,500 2,378,000

1 KMP consist of those that have the authority and responsibility for planning, directing and controlling the activities of the Corporation, which includes the most senior executive team (C‐suite executives) and the Board.

Related party cash flow information is included in the consolidated statements of cash flows by caption and in Note 17. Related party amounts included in the consolidated statements of financial position as at September 30 of each year are as follows:

	In $
	2020 2019
a. Notes receivable from shareholders (see Note 5) Notes receivable,includingaccrued interest income	395,586 496,135
b. Amounts included in accounts payable and accrued liabilities: Wage, vacation, and sick leave accruals relating to KMP Accrual for compensation for services provided by an entity controlled by a KMP Outstanding accounts payable for contract service fees to a close family member of a KMP	45,337 38,128 150,000 ‐ 3,240 ‐
Total due to related parties included in accounts payable and accrued liabilities c. Due to related parties: Miscellaneous outstandingadvances to shareholders	198,577 38,128 ‐ 20,695

22 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

10) DEFERRED REVENUE

The balance in deferred revenue consists of the following:

The balance in deferred revenue consists of the following:
In$, Balance comprised of:	2020 2019
Outstanding rewards points, net1 Outstanding gift cards	212,183 519,431 7,857 ‐
	220,040 519,431

1 Net of estimate of points that will not be redeemed of $522,773 and $375,396 as at September 30, 2020 and 2019 respectively

In June 2020, the Corporation amended its rewards points policy to reduce the rewards earned by customers from 5% of gross receipts to 2% of net sales.

11) SHORT‐TERM NOTES PAYABLE

The Corporation issued a promissory note for $1 million payable to the previous WWI shareholders on January 1, 2020 in connection with the WWI acquisition. The promissory note bears interest at a rate of 6% per annum and requires monthly payments of $25,000 plus interest, with the remaining balance of $700,000 due on January 1, 2021. As collateral for this promissory note, the shareholders of Miramar Professional Services pledged 25,000 of its outstanding common shares. The terms of this promissory note were modified subsequent to September 30, 2020 as described in Note 22.

The Corporation issued a promissory note of $160,000 in February 2018 to an individual in connection with an agreement to pay for or purchase various items for $235,000, with $75,000 being required upfront. The note bore interest at 10% per annum and required monthly blended payments of principal and interest over one year. The promissory note was repaid in full in February 2019.

12) LEASE LIABILITIES

The Corporation is obligated under various lease agreements, which are summarized below. The leases require escalating payments. The current payment as of September 30, 2020 is shown in the summary below, and the future escalating payments are reflected in the estimated future payment tables below. Management has determined that it is reasonably certain that the Corporation will exercise certain of the options to extend the leases below. Accordingly, the lease terms used to calculate the lease liabilities include the renewal periods where applicable. The discount rate used for the lease liability calculations was 8.00%.

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

Finance leases, all secured by asset financed, due: Monthly instalments including interest	In $
	2020 2019
WWI production and warehouse facility1 Jan 2025, with extension to Jan 2030 24,645	2,204,258 ‐
Miramar Professional Services facilities May 2025 with extension to May 20302 25,000 May 2025 with extension to May 20302 4,475 Feb 2023, five‐year extension available but not included in the lease term2 7,710 May 2025 with extension to May 20303 1,979	4,160,420 730,026 407,805 311,098 215,141 271,019 180,378 16,631
	4,963,744 1,328,774
Total lease liabilities Less current portion	7,168,002 1,328,774 (259,700) (202,200)
Long‐term lease liabilities	6,908,302 1,126,574

1The obligations under this lease agreement are guaranteed by Miramar Professional Services

2The obligations under this lease agreement are guaranteed by two shareholders of Miramar Professional Services

3The obligations under this lease agreement are guaranteed by one of the shareholders of Miramar Professional Services

Estimated futurepayments on finance leases are as follows	In $
Year ending September 30,
2021	825,165
2022	1,059,689
2023	1,069,214
2024	1,057,604
2025 ‐ payments required under current lease	606,064
2025 ‐ payments in option period included in lease liability	483,440
Thereafter – optionperiod included in lease liability	5,395,409
Total future minimum lease payments	10,496,585
Less amount representinginterest	(3,328,583)
Finance lease obligations	7,168,002
Estimatedprincipal repayments are as follows	In$
Year ending September 30,
2021	259,700
2022	524,542
2023	580,202
2024	615,269
2025	699,367
Thereafter	4,488,922
	7,168,002

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

A reconciliation of the balance of lease liabilities for the years ended September 30, 2020 and 2019 is as follows:

In$	2020 2019
Opening balance Additions related to new lease agreements Remeasurement adjustments resulting from lease modifications Total cash outflows for leases Variable lease payments not included in the measurement of lease liabilities Portion of leasepayments allocated to interest expense	1,328,774 1,508,043 2,281,522 ‐ 3,742,440 ‐ (731,279) (416,084) 176,006 122,592 370,539 114,223
Balance as at September 30	7,168,002 1,328,774
Less currentportion	(259,700) (202,200)
Non‐currentportion as at September 30	6,908,302 1,126,574

See Note 6 for information regarding the related right‐of‐use assets and depreciation of those assets.

13) SHARE CAPITAL

The corporation is authorized to issue only one class of shares of stock. The total number of shares authorized, issued, and outstanding is 1,000,000 as of September 30, 2020 and 2019, without par or stated value. As mentioned in Note 11, 25,000 of the common shares were pledged as security for the short‐term note payable as of September 30, 2020.

14) COST OF SALES

14) COST OF SALES
In$	2020 2019
Balance comprised of: Direct costs: Direct materials Salaries and benefits Merchant service fees Other direct costs	14,536,754 14,586,989 645,054 ‐ 677,455 331,115 184,581 80,074
Allocated indirect costs: Production facility costs Depreciation of facility and equipment Licenses and permits Other overhead costs	16,043,844 14,998,178 65,754 ‐ 77,598 410 6,137 ‐ 2,987 ‐
	152,476 410
Total cost of sales	16,196,320 14,998,588

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

15) INCOME TAXES

A reconciliation of income taxes at statutory rates with the reported taxes for the years ended September 30 is as follows:

In$	2020 2019
Income for the year before income taxes	4,288,578 3,316,455
Expected income tax at 29.84% combined statutory tax rate Change in provision for uncertain tax positions Permanent differences on application of IRC Section 280E Other permanent differences Other	1,279,712 989,630 1,213,279 1,224,706 327,502 299,421 17,985 40,646 230,685 (272,624)
Total income tax expense	3,069,163 2,281,779
Current income tax expense Deferred income tax expense	2,996,452 2,226,477 72,711 55,302

The Corporation’s net deferred income tax assets are as follows as at September 30 of each year:

Deferred tax assets(liabilities) related to the following:	In $
	2020 2019
Net lease accounting differences Deferred revenue Accrued liabilities Start‐upcosts capitalized for income taxpurposes	39,801 7,625 65,660 154,998 55,494 10,661 7,685 8,242
	168,640 181,526
Property and equipment Prepaid expenses	(69,954) (10,530) (401) ‐
	(70,355) (10,530)
Net deferred income tax assets	98,285 170,996

Income tax payable is comprised of the following, based on filed income tax returns or current income tax provisions:

In$	2020 2019
Federal income tax payable relating to the year 2018 California income taxpayable relatingto theyear 2018	334,210 965,548 ‐ 396,239
	334,210 1,361,787
Federal income tax payable relating to the year 2019 California income taxpayable relatingto theyear 2019	20,795 600,000 (106,674) 150,000
	(85,879) 750,000
Federal income tax provision for tax year 2020 to date California income taxprovision for taxyear 2020 to date	1,117,448 ‐ 360,093 ‐
	1,477,541 ‐
Total income taxpayable	1,725,872 2,111,787

26 | P a g e M i r a m a r P r o f e s s i o n a l S e r v i c e s

MIRAMAR PROFESSIONAL SERVICES

Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

Federal and State income tax returns are filed on a calendar‐year basis.

The Corporation has recorded a provision for uncertain tax positions relating to the application of IRC Section 280E of $4,095,971 as at September 30, 2020 ($2,882,692 as at September 30, 2019) which is included in Other long‐term liabilities in the Consolidated Statements of Financial Position. The amounts recorded relate to current federal income tax for the current and prior open tax years.

16) NET CHANGE IN NON‐CASH WORKING CAPITAL RELATED TO OPERATIONS

In$	2020 2019
Balance comprised of: Accounts receivable Inventories Prepaids expenses Accounts payable and accrued liabilities Income taxes payable Deferred revenue Other long‐term liabilities	24,000 (26,000) 565,812 (521,013) (138,023) 10,222 733,159 455,091 (385,915) 901,771 (299,391) (225,667) 1,213,279 1,224,706
	1,712,921 1,819,110

17) NON‐CASH TRANSACTIONS AND CASH FLOW DISCLOSURES

Non‐cash transactions took place during the years as follows:

In$

2020
2019

1
Lease capitalization and lease liability remeasurement adjustments:
Increase in lease liability
Increase in right‐of‐use assets
2
Direct financing of intangible assets:
Increase in short‐term notes payable
Increase in intangible assets
3
Application of shareholder distributions against notes receivable:
Decrease in notes receivable from shareholders
Decrease in retained earnings (accumulated deficit)
4
Offset of amounts payable to related parties against notes receivable:
Decrease in due to related parties
Decrease in notes receivable from shareholders

6,023,962
‐
6,023,962
‐
1,000,000
‐
1,000,000
‐
291,603
203,850
291,603
203,850
20,695
‐
20,695
‐

The Corporation paid income taxes of $2,189,883 during the year ended September 30, 2020 (2019 ‐ $100,000). Interest paid is disclosed in the Consolidated Statements of Cash Flows.

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

18) FAIR VALUE OF FINANCIAL INSTRUMENTS

The Corporation's current financial instruments include cash, accounts receivable, notes receivable from shareholders, accounts payable and accrued liabilities, and short‐term notes payable and are measured at amortized cost. The carrying values of these instruments approximate their fair value due to their short‐term maturities. The Corporation’s non‐current financial instruments consist of lease liabilities, which are measured at amortized cost.

The Corporation is exposed to the following risks in respect of certain of the financial instruments held:

(a) Credit risk

The Corporation is exposed to credit risk in the event of non‐performance by customers and shareholders (with respect of the notes receivable from shareholders). The maximum credit risk is the fair value of the accounts receivable and notes receivable from shareholders. The allowance for doubtful accounts and past due receivables is reviewed by management for each reporting period; however, accounts receivable are generally minimal and are collected consistently. Credit risk with respect to the notes receivable from shareholders is considered to be low as the Corporation routinely pays distributions in excess of the notes receivable balances on an annual basis and is able to apply the distributions against the notes receivable balances at the request of the shareholders.

(b) Other price risk

The Corporation’s exposure to other price risk is limited since there are no significant financial instruments which fluctuate as a result of changes in market prices.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit lines. The Corporation’s accounts payable and accrued liabilities, income taxes payable, short‐ term notes payable, and current portion of lease liabilities are due within one year. The degree to which the Corporation is leveraged may reduce its ability to obtain additional financing for working capital and to finance investments to improve cash flows from operations.

The Corporation manages its liquidity risk through the management of its capital structure and financial leverage as outlined in Note 19. It also manages liquidity risk by continuously monitoring actual cash flows.

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019 In US dollars, unless otherwise stated

19) CAPITAL DISCLOSURE

The Corporation’s objectives when managing capital are:

to ensure sufficient liquidity to enable the internal financing of capital projects;
to develop a strong capital base to increase investor, creditor and market confidence; and
to ultimately provide an adequate return to shareholders.

The Corporation’s capital is currently composed of share capital and short‐term notes payable. The Corporation’s primary uses of capital in the past have been to finance its operations, growth, and asset purchases. The Corporation has begun negotiations for a secured operating loan that it will use for expansion of its business activities relating to its own proprietary brands, which was executed subsequent to September 30, 2020 (see Note 22).

The Board does not establish quantitative return on capital criteria for management. The Corporation is not subject to any externally imposed capital requirements.

20) CONTINGENCIES

From time to time, the Corporation is subject to legal proceedings and or claims in the normal course of business. Management vigorously defends any allegations under such suits or claims that arise from time to time and believes that the ultimate liability, if any, under any pending matters will not materially affect the financial position or results of operations of the Corporation. At September 30, 2020, the Corporation was not subject to any material legal proceedings.

The Corporation’s operations are in the USA cannabis sector which has been legalized by certain USA states but remains federally illegal and is subject to legislative uncertainty.

21) CONCENTRATIONS

The Corporation’s sales activities are concentrated in a small geographic location in California, specifically, the communities in which the Corporation is located. Currently, economic growth in the area is relatively stable, but any unfavorable changes could also affect the Corporation.

22) SUBSEQUENT EVENTS

Letter of intent

The shareholders of the Corporation have entered into an exclusive non‐binding letter of intent (the "LOI") with GABY Inc, a Canadian public company (“GABY”), pursuant to which the parties are expected to execute a definitive transaction agreement (the "Definitive Agreement"). The Definitive Agreement is expected to provide for the merger of GABY with Mankind through the acquisition of all of the equity securities of Mankind for total consideration of $36.5 million, subject to adjustment in accordance with the Definitive Agreement. The consideration will be satisfied through: (i) the payment of $5.0 million in cash; (ii) the issuance of such number of common shares in the capital of GABY (“GABY Shares”) as is equal to an aggregate of $6.0 million with the GABY Shares priced at CDN$0.05 per GABY Share; and (iii) the issuance of a secured non‐convertible promissory note for $25.5 million. Pursuant to the LOI, Mankind has agreed to deal exclusively

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MIRAMAR PROFESSIONAL SERVICES Notes to the Consolidated Financial Statements September 30, 2020 and 2019

In US dollars, unless otherwise stated

with GABY with regard to the Merger. Completion of the Merger will be subject to customary closing conditions to be set forth in the Definitive Agreement. It is anticipated that the Merger will close on or about February 15, 2021.

Loan agreement

On December 29, 2020 the Corporation entered into a loan agreement with a maximum loan amount of $500,000. The loan will be secured by substantially all assets of the Corporation and guaranteed by one of the Corporation’s shareholders. The loan will accrue interest at a rate of 18.5% per annum and require advance fees of 2% of the amount advanced at the time of each advance. Interest‐only payments will be required for the first three months after the first advance, after which principal and interest payments will be required monthly. All amounts advanced shall bear interest for not less than 12 months; if the advance is repaid before that time, the interest for the remainder of the one‐year period will be payable at that time. The loan will be fully due and payable two years after the date of the first required interest payment. In addition to making the required payments, the Corporation also will be required to meet various covenants in order to avoid an event of default. In the event of a continuing default under the terms of the loan agreement, all amounts owing would become due on demand and interest of an additional 10% per annum could be charged on the outstanding principal balance at the option of the lender.

Short‐term note payable modification

Subsequent to September 30, 2020, the terms of the short‐term note payable were modified to extend repayment of the note over an additional year. Accordingly, the balloon payment of $700,000 due in January 2021 was reduced to $300,000, with principal payments of $18,000 plus interest due monthly thereafter through November 2021, $20,000 plus interest due in December 2021, and a final balloon payment of $200,000 plus interest due in January 2022.

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SCHEDULE “H” – Miramar Annual MD&A

( See attached )

H - 1

Miramar Professional Services Management’s Discussion & Analysis September 30, 2020 and 2019

FORWARD

The following is Management’s Discussion and Analysis (“ MD&A ”) of the financial condition and results of operations of Miramar Professional Services (“ Miramar ” or the “ Company ”) for the years ended September 30, 2020 (“ Fiscal 2020 ”) and 2019 (“ Fiscal 2019 ”). This MD&A should be read in conjunction with the audited consolidated financial statements of the Company and accompanying notes as at and for the years ended September 30, 2020 and 2019 (the “ Financial Statements ”). The Financial Statements, and the “SELECTED FINANCIAL INFORMATION” sections of the MD&A have been prepared using International Financial Reporting Standards (“ IFRS ”) and all amounts are reported in United States dollars (“USD ” ), unless otherwise noted. Readers should also read the section “CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS” contained at the end of this document. This MD&A is dated February 3, 2021.

BACKGROUND

Miramar operates a retail cannabis business in San Diego, California operating under the name of Mankind and in December 2019 Miramar acquired Wild West Industries, Inc. (“ Wild West ”), a California licensed cannabis distributor and manufacturer. Miramar operates only in one segment, retail sales, manufacturing and distribution of cannabis.

Mankind operates under Miramar’s Type 10 cannabis retail license issued by the California Bureau of Cannabis Control (“BCC”) and is one of the highest-volume cannabis retailers in California. Mankind offers cannabis goods to medical and recreational consumers through its storefront, curbside pickup, and delivery. It is predominately a reseller of goods produced by other companies.

As more fully described in Note 7 of the Annual Financial Statements, In the first quarter of Fiscal 2020, Miramar acquired the outstanding shares of Wild West for total consideration of $1,500,000, comprised of $500,000 cash and a $1,000,000 6% promissory note of which $775,000 was outstanding at September 30, 2020 (“ WW Promissory Note ”).

Wild West holds a provisional annual license for Type 6 (non-volatile) manufacturing issued by the Department of Public Health of the State of California, and a provisional annual license for distribution of adult-use and medicinal cannabis issued by the BCC ( “WW Licenses ”). Wild West, as a start-up, had minimal sales during fiscal 2020.

Subsequent to Fiscal 2020, the shareholders of Miramar and Miramar entered into an exclusive nonbinding letter of intent (“ LOI ”) with GABY Inc. (“ GABY ”), a Canadian public company and a cannabis consumer goods company with proprietary cannabis brands sold in over 200 dispensaries throughout California. Pursuant to the LOI, the parties are expected to execute a definitive transaction agreement (the " Definitive Agreement ") which is expected to provide for the merger of GABY with Miramar ( “Merger ”) through the acquisition of all of the equity securities of Miramar for total consideration of $36.5 million, subject to adjustment in accordance with the Definitive Agreement The consideration payable to the shareholders of Miramar will be satisfied through: (i) the payment of $5.0 million in cash; (ii) the issuance of such number of common shares in the capital of GABY (“ GABY Shares ”) as is equal to an aggregate of $6.0 million with the GABY Shares priced at CDN$0.05 per GABY Share; and (iii) the

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Miramar Professional Services Management’s Discussion & Analysis September 30, 2020 and 2019

issuance of a secured non-convertible promissory note for $25.5 million (“ GABY Promissory Note ”). Completion of the Merger will be subject to regulatory approvals and customary closing conditions of the Definitive Agreement.

OVERALL PERFORMANCE AND DISCUSSION OF OPERATIONS

The following table provides a brief summary of the select consolidated financial information of Miramar for the last two fiscal years:

SELECTED FINANCIAL INFORMATION:

	As at and for the year ended September 30, 2020	As at and for the year ended September 30, 2019	Increase (Decrease)
Revenue	29,751,508	25,360,856	17%
Cost of sales	16,196,320	14,998,588	8%
Grossprofit	13,555,188	10,362,268	31%
Gross margin %	46%	41%
Selling, general and administrative expense	8,231,085	6,412,631	28%
Depreciation of plant and equipment	557,275	322,183	73%
Income from operations before the following:	4,766,828	3,627,454	31%
Total other income(expenses)	(478,250)	(310,999)	54%
Income before income tax expense	4,288,578	3,316,455	29%
Income tax expense	3,069,163	2,281,779	35%
Net and comprehensive income	1,219,415	1,034,676	18%
Net income per share – basic and diluted	1.22	1.03	18%
Total assets	13,096,436	5,840,856	124%
Total long-term financial liabilities (comprised of Lease liabilities)	6,908,302	1,126,574	513%
Cash distributionsper share	1.53	2.17	(30%)

In Fiscal 2020, Miramar grew its revenue by 17% to $29.8 million, primarily through organic growth, as plans to develop the WW Licenses were put on hold as a result of the COVID-19 pandemic. The organic growth arose from volume increases of approximately 8% and price increases. The volume increase reflects growth in the legalized cannabis industry in California, with an increasing number of consumers switching their spend from the underground shops and illicit markets to licensed dispensaries.

With the expansion of Wild West on hold due to the pandemic, management focused on the operations of Mankind by expanding its delivery service and product offerings. The pandemic dictated a reduction

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Miramar Professional Services Management’s Discussion & Analysis September 30, 2020 and 2019

in the number of in store customers to maintain social distancing, and in response, management accelerated the transition to delivery and curbside pickup of previously placed orders.

Gross profit of $13.6 million grew by 31% over Fiscal 2019, which outpaced revenue growth of 17%, as a result of an increase in gross margin percentage from 41% to 46%. The improvement in gross margin reflects a combination of the aforementioned price increases and management’s negotiation of higher product discounts with its vendors.

Selling, general and administrative expense of $8.2 million increased by $1.8 million or 28% mostly in respect of an increase in employee salaries and benefits of $1.1 million, advertising and promotion of $0.4 million and consulting fees of $0.1 million. The increase in employee salaries and benefits primarily reflects increased staff to transition to curbside pick-up and delivery and to service higher sales, as well as investment in staff to develop the WW Licenses as further described below. Similarly, the increase in advertising and promotion reflects increased spend to promote these expanded services as well as its expanded product lines. The increase in consulting fees mostly reflects costs to ready Miramar for the completion of the Merger, including legal and accounting fees and expenses.

The increase in depreciation expense of 73% to $0.6 million reflects the increased amortization on the increase in right-of-use assets of $2.3 million on entering into a new lease and $3.7 million of remeasurement adjustments relating to lease amendments in Fiscal 2020.

Total other expense of $0.5 million increased by 54% or $0.2 million on increased interest expense of $0.3 million, mostly in respect of the increase in right-of-use lease obligation and interest on the WW Promissory Note, partially offset by lower penalties and interest on past-due taxes of $0.1 million.

Resulting net income before income taxes of $4.3 million was 29% or $1.0 million higher than Fiscal 2019. Income tax expense of $3.1 million and $2.3 million for Fiscal 2020 and Fiscal 2019, respectively, represent 72% and 69% of net income before income taxes, respectively, with resulting respective net income and comprehensive income of $1.2 million and $1.0 million. The relatively high percentage of income tax expense reflects that expenses, other than costs of sales, are not deductible under IRC Section 280E.

Net income per share increased by 18% to $1.22, which mirrored the increase in net and comprehensive income as share capital remained unchanged through Fiscal 2020 and 2019. Cash distributions per share declined by 30% as the Company reduced its distributions to preserve cash to service the WW Promissory Notes and to repay a $160,000 promissory note as described in Note 11 of the Financial Statements.

Total assets of $13.1 million as at September 30, 2020 increased $7.3 million or 124% over September 30, 2019 mostly in respect of increases of property and equipment of $5.5 million on increased right-of-use assets and the acquisition of intangible assets of $1.5 million, comprised of the WW licenses. The increase in right-of-use assets is in respect of a new lease of $2.3 million and remeasurement adjustments of $3.7 million (net of amortization of $0.5million) which resulted in a similar increase in long term financial liabilities or lease liabilities of $5.8 million. The new lease was entered into February 1, 2020 to house the operations pertaining to the Wild West licenses. The remeasurement adjustments were in respect of amendments to the lease for Miramar’s office space and Mankind’s dispensary where certain terms were changed and/or extended and further renewal options were offered, which management in most cases believe they are reasonably certain they will exercise.

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Miramar Professional Services Management’s Discussion & Analysis September 30, 2020 and 2019

Other significant changes in Miramar’s financial position include working capital and other long-term liabilities, which the latter increased by $1.2 million to $4.1 million. Both are more fully discussed in the LIQUIDITY AND CAPITAL RESOURCES section below.

Wild West – future expansion

With the eventual easing of COVID-19 restrictions in the state of California and Mankind’s accelerated transition to a higher proportion of its sales from delivery and curbside pick-up, in the third quarter of Fiscal 2020, management turned its attention to the WW licenses and developed its first in-house cannabis brand, “ Kind Republic .”. Sales of Kind Republic branded products commenced December 2020. Miramar is in the process of determining the viability and profitability of these new product lines. It is anticipated that in-house products will provide higher per unit margins than those generated from the resale of third-party products, as Miramar will be able to harness savings resulting from vertical integration. Miramar is one of only a few retailers in the San Diego County region with an operating distribution and manufacturing arm.

LIQUIDITY AND CAPITAL RESOURCES

Miramar generated net and comprehensive income of $1.2 million and $1.0 million in Fiscal 2020 and Fiscal 2019, respectively, and generated cash flow from operations of $4.0 million and $3.3 million, respectively. Working capital was negative $0.7 million and negative $0.1 million as at September 30, 2020 and 2019, respectively. Management anticipates that future cash flow from operations will be sufficient to service the current working capital deficit and current operations over the next year and beyond. Management also has the discretion to service future cash flow needs by altering or eliminating discretionary distributions to shareholders, which cash portion amounted to $1.5 million and $2.2 million in Fiscal 2020 and Fiscal 2019, respectively.

To fund its expansion plans in respect of the WW Licenses, subsequent to Fiscal 2020, Miramar amended the terms of the WW Promissory Note and borrowed $500,000 from PMW LLC (the “ PMW Loan ”). The WW Promissory Note amendment revised the repayment terms of the final balloon payment from $700,000 due January 2021 to: $300,000 due January 2021 and principal payments of $18,000 plus interest due monthly thereafter through November 2021, $20,000 plus interest due in December 2021, and a final balloon payment of $200,000 plus interest due in January 2022.

The PMW Loan is secured by substantially all the assets of Miramar. The PMW Loan accrues interest at a rate of 18.5% per annum and has a loan origination fee equal to 2% of the amount advanced under the loan. Interest-only payments are required for the first three months after the first advance (which occurred in December 2020), after which principal and interest payments are required monthly. All amounts advanced bear interest for at least 12 months such that if any principal is repaid before that time, the interest for the remainder of the 12-month period will be payable at that time. The PMW Loan matures in December 2022, being the two-year anniversary of the date of the first required interest payment. In addition to making the required payments, Miramar is required to meet various covenants to avoid an event of default. In the event of an unremedied default, the PMW loan would become due upon demand and interest of an additional 10% per annum could be charged on the outstanding principal balance at the option of the lender.

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Miramar Professional Services Management’s Discussion & Analysis September 30, 2020 and 2019

The PMW Loan proceeds were used to fund working capital requirements to create Mankind’s in-house brand, Kind Republic. The Company does not have any required commitments for capital expenditures in respect of the PMW Loan.

Other long-term liabilities of $4.1 million are in respect of a contingent liability as more fully described in Note 15 to the Annual Financial Statements. Subject to completion of the Merger and execution of the Definitive Agreement , the shareholders of Miramar have provided indemnities to GABY in respect of this liability through offset and reduction of the GABY Promissory Note.

As of the date of the MD&A, Miramar is in compliance with all requirements in respect of the WW Promissory Note and PMW Loan and all payments are up to date in respect to the foregoing obligations, as well as lease obligations. Management anticipates that the WW Promissory Note and PMW Loan will be serviced or refinanced through the enhanced cash flows generated from its development and sale of in-house brands, including Kind Republic, as well as from continued cash flow from operations from Mankind. There are no legal or practical restrictions preventing distribution of funds from Wild West to its parent Miramar or vice versa.

In addition, subject to the completion of the Merger, Miramar may have access to financing from its eventual parent company, GABY, to help fund the development of Wild West and future growth of Mankind; however, there is no certainty or commitment that GABY will provide or be able to provide financing to fund future growth plans of Miramar. In addition (subject to completion of the Merger and execution of the Definitive Agreement), GABY has agreed to guarantee Miramar’s obligations under the WW Promissory Note and PMW Loan.

While Miramar has been successful in growing cash flow from operations in the past, there are risks that it might not be able to do so in the future including, but not limited to: external factors such as increased competition, customer preferences, changing regulation of the cannabis industry, economic downturns, and the uncertain market condition of COVID-19; and internal factors, including the potential that management is unable to successfully execute the development of its in-house brands.

As at September 30, 2020, Miramar’s current financial instruments include cash, accounts receivable, notes receivable from shareholders, accounts payable and accrued liabilities, and short-term notes payable and are measured at amortized cost. The carrying values of these instruments approximate their fair value due to their short-term maturities. The Company’s non-current financial instruments consist of lease liabilities, which are measured at amortized cost. As Mankind is a retail operation, substantially all of its sales are in cash and therefore Miramar has minimal liquidity risk in respect of receivables, but it has the ability to extend the terms of many of its purchases for 30 days for more. The liquidity risk in respect of the note receivable from shareholders of $0.4 million is mitigated by the ability to offset shareholder distributions or by the shareholders repaying from proceeds of the Merger.

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Miramar Professional Services Management’s Discussion & Analysis September 30, 2020 and 2019

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of Canadian securities laws (“ forward-looking statements ”). Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on management’s current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions of the Company. In addition, the Company may make or approve certain statements in future filings with Canadian securities regulatory authorities, in press releases, or in oral or written presentations by representatives of the Company that are not statements of historical fact and may also constitute forward-looking statements. All statements, other than statements of historical fact, made by the Company that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words and includes, among others, information regarding: expectations for the effects of any transactions; expectations for the potential benefits of any transactions; statements relating to the business and future activities of, and developments related to, the Company after the date of this MD&A, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Company’s business, operations and plans; expectations that planned acquisitions will be completed, including but not limited to other potential acquisition(s); expectations that licenses applied for will be obtained; potential future legalization of adult-use and/or medical cannabis under USA federal law; expectations of market size and growth in the USA, California and such other states in which the Company has expressed desire to operate in; expectations for other economic, business, regulatory and/or competitive factors related to the Company or the cannabis industry generally; and other events or conditions that may occur in the future. Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance or business developments. These statements speak only as of and at the date they are made and are based on information currently available and on the then current expectations. Readers of the MD&A are cautioned that forward-looking statements are not based on historical facts but instead are based on reasonable assumptions and estimates of management of the Company at the time they were provided or made and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties related to: the available funds of the Company and the anticipated use of such funds; the availability of financing opportunities; legal and regulatory risks inherent in the cannabis industry; risks associated with economic conditions, dependence on management; risks relating to USA regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti-money laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to contracts with third-party service providers; risks related to the enforceability of contracts; reliance on the expertise and judgment of senior management of the Company, and ability to retain such senior

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Miramar Professional Services Management’s Discussion & Analysis September 30, 2020 and 2019

management; risks related to proprietary intellectual property and potential infringement by third parties; risks relating to the management of growth; increasing competition in the industry; risks associated to cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; cybersecurity risks; ability and constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax and insurance related risks; risks related to the economy generally; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the difficulty of enforcement of judgments and effecting service outside of USA; risks related to future acquisitions or dispositions; sales by existing shareholders; limited research and data relating to cannabis.

The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. In particular, but without limiting the foregoing, disclosure in this MD&A as well as statements regarding the Company’s objectives, plans and goals, including future operating results and economic performance may make reference to or involve forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Certain of the forward-looking statements and other information contained herein concerning the cannabis industry, its medical, adult-use and hemp-based CBD markets, and the general expectations of the Company concerning the industry and the Company’s business and operations are based on estimates prepared by the Company using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which the Company believes to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. While the Company is not aware of any misstatement regarding any industry or government data presented herein, the cannabis industry involves risks and uncertainties that are subject to change based on various factors.

A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. You should not place undue reliance on forward-looking statements contained in this MD&A. Such forward-looking statements are made as of the date of this MD&A. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The Company’s forward-looking statements are expressly qualified in their entirety by this cautionary statement.

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SCHEDULE “I” – Miramar Interim Financial Statements

For the three month period ended December 31, 2020.

( See attached )

I - 1

MIRAMAR PROFESSIONAL SERVICES

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED DECEMBER 31, 2020 AND 2019 (in United States dollars)

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Condensed Interim Consolidated Statements of Financial Position (Unaudited)

MIRAMAR PROFESSIONAL SERVICES Condensed Interim Consolidated Statements of Financial Position (Unaudited)
	December 31, September 30,
*In US dollars* Note	2020 2020
ASSETS Current Cash Accounts receivable Inventories Prepaid expenses 2 Notes receivable from shareholders	2,699,745 2,542,026 2,000 2,000 1,019,313 1,141,647 89,383 212,054 370,134 395,586
Non‐current Property and equipment 3 Intangible assets Security deposits Deferred tax assets	4,180,575 4,293,313 6,907,661 7,121,489 1,515,076 1,515,076 68,273 68,273 106,817 98,285
Total assets	12,778,402 13,096,436
LIABIITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) Current liabilities Accounts payable and accrued liabilities 4 Income taxes payable 5 Deferred revenue Short‐term notes payable 6 Current portion of lease liabilities 7 Currentportion of long‐term debt 6	2,177,074 2,035,199 1,110,917 1,725,872 177,513 220,040 ‐ 775,000 306,600 259,700 500,000 ‐
Non‐current liabilities Lease liabilities 7 Long‐term debt 6 Other long‐term liabilities 5	4,272,104 5,015,811 6,813,014 6,908,302 200,000 ‐ 4,409,814 4,095,971
Total liabilities SHAREHOLDERS’ EQUITY (DEFICIENCY) Share capital 9 Deficit	15,694,932 16,020,084 2,139,610 2,139,610 (5,056,140) (5,063,258)
	(2,916,530) (2,923,648)
Total liabilities and shareholders’ equity (deficiency)	12,778,402 13,096,436
Subsequent events 12

See accompanying notes to the condensed interim consolidated financial statements

[signed]

On behalf of board: James Schmachtenberger, Director

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MIRAMAR PROFESSIONAL SERVICES

Condensed Interim Consolidated Statements of Income and Comprehensive Income (Unaudited)

MIRAMAR PROFESSIONAL SERVICES Condensed Interim Consolidated Statements of Income and Comprehensive (Unaudited)	Income
*In US dollars* Note	Three months ended December 31,
	2020 2019
Revenue, net	7,034,403 7,775,517
Cost of sales 8	3,654,482 4,621,393
Gross profit Selling, general and administrative expenses 4 Employee salaries and benefits Advertising and promotion Contract services Professional fees Office and administrative expenses Occupancy Insurance Taxes and licenses Vehicle Consulting fees Other Depreciation ofplant and equipment	3,379,921 3,154,124 979,585 1,217,221 325,329 287,836 173,980 137,709 141,898 185,437 98,514 92,054 25,666 95,680 43,563 32,591 21,774 44,482 13,400 19,390 15,073 22,550 59,213 93,402 185,628 85,181
Income from operations before the following:	1,296,298 840,591
Interest expense Interest income Penalties and interest onpast‐due taxes	(156,039) (26,257) 3,798 3,667 (19,076) (153,668)
Total other expenses	(171,317) (176,258)
Income before income tax expense Current income tax expense Deferred income tax expense (recovery)	1,124,981 664,333 751,395 584,686 (8,532) 1,000
Income tax expense	742,863 585,686
Net and comprehensive income	382,118 78,647
Net incomeper share:
Basic and diluted 9	$0.38 $0.08

See accompanying notes to the condensed interim consolidated financial statements

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MIRAMAR PROFESSIONAL SERVICES

Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity (Deficiency) (Unaudited)

		Number of
		shares
*In US dollars*	Note	outstanding	Share capital	Deficit	Total
Balance as at September 30, 2019		1,000,000	2,139,610	(4,464,173)	(2,324,563)
Net and comprehensive income		‐	‐	78,647	78,647
Shareholder distributions	4	‐	‐	(563,500)	(563,500)
Balance as at December 31, 2019		1,000,000	2,139,610	(4,949,026)	(2,809,416)
Balance as at September 30, 2020		1,000,000	2,139,610	(5,063,258)	(2,923,648)
Net and comprehensive income		‐	‐	382,118	382,118
Shareholder distributions	4	‐	‐	(375,000)	(375,000)
Balance as at December 31, 2020		1,000,000	2,139,610	(5,056,140)	(2,916,530)

See accompanying notes to the condensed interim consolidated financial statements

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MIRAMAR PROFESSIONAL SERVICES

Condensed Interim Consolidated Statements of Cash Flows (Unaudited)

MIRAMAR PROFESSIONAL SERVICES Condensed Interim Consolidated Statements of Cash Flows (Unaudited)
*In US dollars* Note	Three months ended December 31,
	2020 2019
OPERATING ACTIVITIES Net income Adjustments to reconcile net income to cash flow from operations: Deferred income tax expense (recovery) Depreciation 3 Interest expense Interest income	382,118 78,647 (8,532) 1,000 214,929 85,489 156,039 26,257 (3,798) (3,667)
Cash generated by operating activities before the following: Net change in non‐cash working capital related to operations	740,756 187,726 43,241 439,616
Cash generated by operating activities	783,997 627,342
INVESTING ACTIVITIES Purchase of property and equipment 3 Purchase of intangible assets Issuance of notes receivable	(1,101) (15,086) ‐ (500,000) ‐ (100,000)
Cash used in investing activities	(1,101) (615,086)
FINANACING ACTIVITIES Repayment of short‐term notes payable 6 Repayment of long‐term debt 6 Repayment of lease liabilities 7 Interest paid Shareholder distributions 4	(50,000) ‐ (25,000) ‐ (48,388) (48,460) (156,039) (26,257) (345,750) (438,500)
Cash used in financing activities	(625,177) (513,217)
Net change in cash Cash, beginning ofperiod	157,719 (500,961) 2,542,026 1,740,327
Cash, end ofperiod	2,699,745 1,239,366

See accompanying notes to the condensed interim consolidated financial statements

See Note 10 for detail of non‐cash transactions and other cash flow disclosures

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Notes to the Condensed Interim Consolidated Financial Statements

In US dollars, unless otherwise stated (Unaudited)

NATURE OF BUSINESS

1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Statement of compliance

These condensed interim consolidated financial statements (“Financial Statements”) have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting Interpretations Committee.

These Financial Statements were approved and authorized for issue by the Corporation’s board of directors (“Board”) on March 29, 2021.

Basis of presentation

These Financial Statements have been prepared under the historical cost convention, except for financial instruments classified as financial instruments at fair value through profit and loss, which are stated at their fair value, and are expressed In US dollars unless otherwise indicated. Other measurement bases used are detailed in the Corporation’s annual consolidated financial statements (“Annual Financial Statements”).

Certain comparative figures have been reclassified to conform to the current year’s presentation.

These Financial Statements follow the same accounting policies and methods of application as the most recent Annual Financial Statements.

2. PREPAID EXPENSES

2. PREPAID EXPENSES
In$, Balance comprised of:	Dec 31, 2020 Sep30,2020
Prepaid licenses and subscriptions Prepaid rent Prepaidprofessional fees	76,883 125,714 ‐ 71,340 12,500 15,000
	89,383 212,054

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Condensed Interim Consolidated Financial Statements

In US dollars, unless otherwise stated (Unaudited)

3. PROPERTY AND EQUIPMENT

3. PROPERTY AND EQUIPMENT
	Net book value of Property and equipment
In$	Right‐of use assets All other property and equipment Total
Balance as at September 30, 2019 Purchases Depreciation1	1,242,514 353,089 1,595,603 ‐ 15,086 15,086 (66,382) (19,107) (85,489)
Balance as at December 31,2019	1,176,132 349,068 1,525,200
Balance as at September 30, 2020 Purchases Depreciation1	6,717,763 403,726 7,121,489
	‐ 1,101 1,101
	(188,962) (25,967) (214,929)
Balance as at December 31,2020	6,528,801 378,860 6,907,661

1Depreciation recognized was allocated to the following accounts for the ended December 31, 2020 and 2019:	three months 2020 2019
Cost of sales	29,301 308
Depreciation of plant and equipment	185,628 85,181
	214,929 85,489

4. RELATED PARTY TRANSACTIONS

otherwise referenced in the table below.
For the three months ended December 31,	In $
	2020 2019
a. Amounts included in Selling, general and administrative expenses: Compensation of key management personnel (“KMP”)1: Cash compensation to individuals Consulting fees paid to a company controlled by a close family member of a KMP Contract service feespaid to a close familymember of a KMP	108,507 88,519 15,184 18,750 46,675 10,381
b. Amounts included in Interest income: Interest on notes receivable from shareholders	3,798 3,667
c. Distributions paid to shareholders: Cash distributions Distributions applied against notes receivable from shareholders	345,750 438,500 29,250 125,000
Total distributions to shareholder members of the board of directors	375,000 563,500

1 KMP consist of those that have the authority and responsibility for planning, directing, and controlling the activities of the Corporation, which includes the most senior executive team (C‐suite executives) and the Board.

Related party cash flow information is included in the consolidated statements of cash flows by caption and in Note 10. Related party amounts included in the consolidated statements of financial position as at December 31, 2020 and

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Condensed Interim Consolidated Financial Statements

In US dollars, unless otherwise stated (Unaudited)

September 30, 2020 are as follows:

MIRAMAR PROFESSIONAL SERVICES Notes to the Condensed Interim Consolidated Financial Statements *In US dollars, unless otherwise stated (Unaudited)* September 30, 2020 are as follows:
	In $
	Dec 31, 2020 Sep 30, 2020
a. Notes receivable from shareholders Notes receivable,includingaccrued interest income	370,134 395,586
b. Amounts included in accounts payable and accrued liabilities: Wage, vacation, and sick leave accruals relating to KMP Compensation payable for services provided by an entity controlled by a KMP Outstanding contract service fees payable to a close family member of a KMP	42,502 45,337 150,000 150,000 656 3,240
Total due to relatedparties included in accountspayable and accrued liabilities	193,158 198,577

5. INCOME TAXES PAYABLE

Income tax payable is comprised of the following, based on filed income tax returns or current income tax provisions:

In$	Dec 31, 2020 Sep30,2020
Federal income tax payable relating to the year 2018 California income taxpayable relatingto theyear 2018	160,251 334,210 ‐ ‐
	160,251 334,210
Federal income tax payable relating to the year 2019 California income taxpayable relatingto theyear 2019	(18,019) 20,795 (104,315) (106,674)
	(122,334) (85,879)
Federal income tax provision for the year 2020, net of instalments California income taxprovision for theyear 2020	713,000 1,117,448 360,000 360,093
	1,073,000 1,477,541
Total income taxpayable	1,110,917 1,725,872

The Corporation has recorded a provision for uncertain tax positions relating to the application of IRC Section 280E of $4,409,814 as at December 31, 2020 ($4,095,971 as at September 30, 2020) which is included in Other long‐term liabilities in the Condensed Interim Consolidated Statements of Financial Position. The amounts recorded relate to current federal income tax for the current and prior open tax years.

6. SHORT‐TERM NOTE PAYABLE AND LONG‐TERM DEBT

The Corporation issued a note payable for $1 million payable to the previous WWI shareholders on January 1, 2020 in connection with the WWI acquisition. Under the original terms of the note payable, it bore interest at a rate of 6% per annum and required monthly payments of $25,000 plus interest, with the remaining balance of $700,000 due on January 1, 2021. In December 2020, the terms of the note payable were modified to extend repayment of the note over an additional year. Accordingly, the balloon payment of $700,000 due in January 2021 was reduced to $300,000, with principal payments of $18,000 plus interest due monthly thereafter through November 2021, $20,000 plus interest due in December 2021, and a final balloon payment of $200,000 plus interest due in January 2022. As a result of the modification, the note payable was reclassified from a short‐term note payable to long‐term debt, as follows:

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Condensed Interim Consolidated Financial Statements

In US dollars, unless otherwise stated (Unaudited)

MIRAMAR PROFESSIONAL SERVICES Notes to the Condensed Interim Consolidated Financial Statements *In US dollars, unless otherwise stated (Unaudited)*
For the three months ended December 31,	In $
	2020 2019
Short‐term note payable Opening balance Repayments of short‐term note payable Transfer to long‐term debt on modification of notepayable	775,000 ‐ (50,000) ‐ (725,000) ‐
Ending balance of short‐term note payable Long‐term debt Opening balance Transfer to long‐term debt on modification of note payable Repayments of long‐term debt	‐ ‐ ‐ ‐ 725,000 ‐ (25,000) ‐
	700,000 ‐
Less: currentportion of long‐term debt	(500,000) ‐
Long‐term debt	200,000 ‐

7. LEASE LIABILITIES

The Corporation is obligated under various lease agreements as described in the Annual Financial Statements. A reconciliation of the balance of lease liabilities for the three‐month periods ended December 31, 2020 and 2019 is as follows:

For the three months ended December 31,	In $
	2020 2019
Balance, beginning of period Total cash outflows for leases Variable lease payments not included in the measurement of lease liabilities Portion of leasepayments allocated to interest expense	7,168,002 1,328,774
	(210,819) (163,040)
	19,392 88,323
	143,039 26,257
Balance,end ofperiod	7,119,614 1,280,314
Currentportion of lease liabilities	(306,600) (209,600)
Non‐currentportion,end ofperiod	6,813,014 1,070,714

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Condensed Interim Consolidated Financial Statements

In US dollars, unless otherwise stated (Unaudited)

8. COST OF SALES

For the three months ended December 31,	In $
	2020 2019
Balance comprised of: Direct costs: Direct materials Salaries and benefits Merchant service fees Other direct costs	3,084,051 4,474,459 247,392 ‐ 221,403 126,393 34,989 20,233
	3,587,835 4,621,085
Allocated indirect costs: Production facility costs Depreciation of facility and equipment Licenses andpermits	32,579 ‐ 29,301 308 4,767 ‐
	66,647 308
Total cost of sales	3,654,482 4,621,393

Inventory expensed in cost of sales for the three months ended December 31, 2020 amounted to $3,131,283 (three months ended December 31, 2019 ‐ $4,473,889).

9. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net income by the weighted average number of shares outstanding during the year of 1,000,000 shares. The Corporation does not have any outstanding equity instruments other than common shares and, accordingly, diluted earnings per share is the same as basic earnings per share.

10. NON‐CASH TRANSACTIONS AND CASH FLOW DISCLOSURES

Non‐cash transactions took place during the three‐month periods ended as follows:

For the three months ended December 31,

In $

2020
2019

1
Application of shareholder distributions against notes receivable:
Decrease in notes receivable from shareholders
Decrease in retained earnings (accumulated deficit)
2
Direct financing of intangible assets:
Increase in short‐term notes payable
Increase in intangible assets
3
Offset of amounts payable to related parties against notes receivable:
Decrease in due to related parties
Decrease in notes receivable from shareholders

29,250
125,000
29,250
125,000
‐
1,000,000
‐
1,000,000
‐
20,695
‐
20,695

The Corporation paid income taxes of $937,414 during the three months ended December 31, 2020 (2019 ‐ $768,785).

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MIRAMAR PROFESSIONAL SERVICES

Notes to the Condensed Interim Consolidated Financial Statements

In US dollars, unless otherwise stated (Unaudited)

11. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Corporation's current financial instruments include cash, accounts receivable, notes receivable from shareholders, accounts payable and accrued liabilities, and short‐term notes payable and are measured at amortized cost. The carrying values of these instruments approximate their fair value due to their short‐term maturities. The Corporation’s non‐ current financial instruments consist of lease liabilities and long‐term debt, which are measured at amortized cost.

12. SUBSEQUENT EVENTS

Definitive agreement to be acquired

On February 15, 2021, the shareholders of the Corporation executed a definitive share purchase agreement (the "Definitive Agreement") with GABY Inc, a Canadian public company (“GABY”). The Definitive Agreement provides for the merger of GABY with Mankind through the acquisition of all the equity securities of Mankind for total consideration of $36.5 million, subject to adjustment in accordance with the Definitive Agreement. The consideration will be satisfied through: (i) the payment of $5.0 million in cash; (ii) the issuance of 157,894,737 common shares in the capital of GABY (“GABY Shares”); and (iii) the issuance of a secured non‐convertible promissory note for $25.5 million. Completion of the Merger will be subject to customary closing conditions as set forth in the Definitive Agreement. It is anticipated that the Merger will close on or about April 1, 2021.

Loan agreement

The Corporation entered into a loan agreement with a maximum loan amount of $500,000, the proceeds of which were advanced on January 4, 2021. The loan will be secured by substantially all assets of the Corporation and guaranteed by one of the Corporation’s shareholders. The loan will accrue interest at a rate of 18.5% per annum and require advance fees of 2% of the amount advanced at the time of each advance. Interest‐only payments will be required for the first three months after the first advance, after which principal and interest payments will be required monthly. All amounts advanced shall bear interest for not less than 12 months; if the advance is repaid before that time, the interest for the remainder of the one‐year period will be payable at that time. The loan will be fully due and payable two years after the date of the first required interest payment. In addition to making the required payments, the Corporation also will be required to meet various covenants to avoid an event of default. In the event of a continuing default under the terms of the loan agreement, all amounts owing would become due on demand and interest of an additional 10% per annum could be charged on the outstanding principal balance at the option of the lender.

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SCHEDULE “J” – Miramar Interim MD&A

( See attached )

J - 1

Miramar Professional Services Management’s Discussion & Analysis December 31, 2020 and 2019

FORWARD

The following is Management’s Discussion and Analysis (“ MD&A ”) of the financial condition and results of operations of Miramar Professional Services (“ Miramar” or “ the Company ”) for the three months ended December 31, 2020 (“ Q1 2021 ”) and 2019 (“ Q1 2020 ”). This MD&A should be read in conjunction with the unaudited condensed interim consolidated financial statements of the Company and the accompanying notes for the three months ended December 31, 2020 and 2019 (the “ Financial Statements ”) and the audited consolidated financial statements of the Company and accompanying notes as at and for the years ended September 30, 2020 and 2019 (the “ Annual Financial Statements ”). The Financial Statements, Annual Financial Statements and the “SELECTED FINANCIAL INFORMATION” sections of the MD&A have been prepared using International Financial Reporting Standards (“ IFRS ”) and all amounts are reported in United States dollars (“ USD” ), unless otherwise noted. Readers should also read the section “CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS” contained at the end of this document. This MD&A is dated March 29, 2021.

BACKGROUND

Mankind operates under Miramar’s Type 10 cannabis retail license issued by the California Bureau of Cannabis Control (“ BCC ”) and is one of the highest-volume cannabis retailers in California. Mankind offers cannabis goods to medical and recreational consumers through its storefront, curbside pickup, and delivery. It is predominately a reseller of goods produced by other companies.

As more fully described in Note 7 of the Annual Financial Statements, in Q1 2020, Miramar acquired the outstanding shares of Wild West for total consideration of $1,500,000, comprised of $500,000 cash and a $1,000,000 6% promissory note of which $700,000 was outstanding at December 31, 2020 (“ WW Promissory Note ”). Wild West holds a provisional annual license for Type 6 (non-volatile) manufacturing issued by the Department of Public Health of the State of California, and a provisional annual license for distribution of adult-use and medicinal cannabis issued by the BCC ( “WW Licenses ”). Wild West, as a startup, had minimal sales during fiscal 2020.

In February 2021, the shareholders of Miramar and Miramar entered into a definitive share purchase agreement (the “ Definitive Agreement ”) with GABY Inc. (“ GABY ”), a Canadian public company and a cannabis consumer goods company with proprietary cannabis brands sold in over 200 dispensaries throughout California. Upon closing of the Definitive Agreement, it is expected to provide for the merger of GABY with Miramar ( “Merger ”) through the acquisition of all of the equity securities of Miramar for total consideration of $36.5 million, subject to adjustment in accordance with the Definitive Agreement The consideration payable to the shareholders of Miramar will be satisfied through: (i) the payment of $5.0 million in cash; (ii) the issuance of 157,894,737 common shares in the capital of GABY (“ GABY Shares ”); and (iii) the issuance of a secured non-convertible promissory note for $25.5 million.

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Miramar Professional Services Management’s Discussion & Analysis December 31, 2020 and 2019

Completion of the Merger will be subject to regulatory approvals and customary closing conditions of the Definitive Agreement.

OVERALL PERFORMANCE AND DISCUSSION OF OPERATIONS

The following table provides a brief summary of the select consolidated financial information of Miramar for the last two fiscal years:

SELECTED FINANCIAL INFORMATION:

	For the three months ended:	For the three months ended:
	December 31, 2020	December 31, 2019	Increase (Decrease)
Revenue	7,034,403	7,775,517	(10%)
Cost of sales	3,654,482	4,621,393	(21%)
Grossprofit	3,379,921	3,154,124	7%
Gross margin %	48%	41%
Selling, general and administrative (“SG&A”)expenses	1,897,995	2,228,352	(15%)
Depreciation of plant and equipment	185,628	85,181	118%
Income from operations before the following:	1,296,298	840,591	54%
Total other expenses	(171,317)	(176,258)	(3%)
Income before income tax expense	1,124,981	664,333	69%
Income tax expense	742,863	585,686	27%
Net and comprehensive income	382,118	78,647	386%
Net income per share – basic and diluted	$0.38	$0.08	386%
Cash distributions per share	$0.35	$0.44	(21%)
		As at:
	December 31, 2020	September 30, 2020
Total assets	12,778,402	13,096,436	(2%)
Total long-term financial liabilities (comprised of Lease liabilities and Long-term debt)	7,013,014	6,908,302	2%

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Miramar Professional Services Management’s Discussion & Analysis December 31, 2020 and 2019

In Q1 2021, Miramar’s revenue declined by 10% to $7.0 million, which reflects lower sales volume partially offset by product price increases implemented by Mankind in January 2020. Although growth in the legalized cannabis industry in California helped boost Mankind’s sales volumes for the year ended September 30, 2020 compared to the prior fiscal year, Mankind’s sales volumes started to decline in August 2020. Management believes this decrease corresponds with the government ending the additional unemployment benefits that had been provided throughout the pandemic up to that point, which in turn decreased customers’ disposable income. In addition, it suspects that a surge of COVID cases in California in the fall of 2020 resulted in more customers being hesitant to leave their homes.

Despite the decline in revenue, gross profit improved by 7% to $3.4 million as a result of an increase in gross margin percentage from 41% to 48%. The improvement in gross margin reflects a combination of the aforementioned price increases and management’s negotiation of higher product discounts with its vendors.

SG&A expenses of $1,897,995 decreased by $330,357 or 15% mostly due to decreases in: employee salaries and benefits of $237,636, rent of $70,014 and professional fees of $43,539. The decrease in employee salaries and benefits is mostly due to reduced staffing in respect of post and pre COVID-19 periods. The lower rent in Q1 2021 reflects that prior to Miramar entering into a long-term lease for the WW facilities in February 2020, (which expenses pursuant to IFRS 16 Leases are included in amortization and interest), it rented facilities on a month-to-month basis, which expense is recorded in SG&A. The lower professional fees reflect that Dec 2019 included higher legal fees in respect of organizing Miramar’s legal structure.

The increase in depreciation expense of 118% to 185,628 is due to increased amortization on the increase in right-of-use assets of $6.0 million in 2020 on entering into the WW lease and on remeasurement adjustments in respect of lease amendments.

Other expenses remained relatively unchanged at $171,317 in Q1 2021 compared to $176,258 in Q1 2020, as the increase in interest expense of approximately $130,000 in Q1 2021 was more than offset by lower penalties and interest on past-due taxes of approximately $135,000. The increase in interest expense is mostly in respect of the increase in lease obligations and interest on the WW Promissory Note.

Resulting net income before income taxes of $1.1 million for Q1 2021 was 69% or $0.5 million higher than Q1 2020. Income tax expense of $0.7 million and $0.6 million for Q1 2021 and Q1 2020, respectively, represent 66% and 88% of net income before income taxes and 22% and 19% of gross profit, respectively, with resulting respective net income and comprehensive income of $0.4 million and $0.1 million. The relatively high percentage of income tax expense reflects that expenses, other than costs of sales, are not deductible under IRC Section 280E.

Net income per share increased by 386% to $0.38, which mirrored the increase in net and comprehensive income as share capital remained unchanged throughout Q1 2021 and Q1 2020. Cash distributions per share declined by 21% as the Company reduced its dividends to preserve cash to service increased debt.

Total assets of $12.8 million as at December 31, 2020 decreased $0.3 million or 2% over September 30, 2020 mostly in respect of amortization reducing property and equipment. The increase in long-term

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Miramar Professional Services Management’s Discussion & Analysis December 31, 2020 and 2019

financial liabilities of $0.1 million or 2% mostly reflects that in Q1 2021, management renegotiated the repayment terms of the WW Loan as further described below, resulting in a higher long-term classification.

Wild West – future expansion

With the eventual adaptation of operations in response to COVID-19, including Mankind’s accelerated transition to a higher proportion of its sales from delivery and curbside pick-up, in the third quarter of Fiscal 2020, management turned its attention to the WW licenses and developed its first in-house cannabis brand, “ Kind Republic .”. Sales of Kind Republic branded products commenced December 2020 and amounted to just over $30,000 in Q1 2021 and have been steadily increasing subsequent thereto. Miramar is in the process of determining the viability and profitability of these new product lines. It is anticipated that in-house products will provide higher per unit margins than those generated from the resale of third-party products, as Miramar will be able to harness savings resulting from vertical integration. Miramar is one of only a few retailers in the San Diego County region with an operating distribution and manufacturing arm.

LIQUIDITY AND CAPITAL RESOURCES

Miramar generated net and comprehensive income of $0.4 million and $0.1 million in Q1 2021 and Q1 2020, respectively, and generated cash flow from operations of $0.8 million and $0.6 million, respectively. Working capital was negative $0.1 million and negative $0.7 million as at December 31, 2020 and September 30, 2020, respectively. Management anticipates that future cash flow from operations will be sufficient to service the current working capital deficit and current operations over the next year and beyond. Management also has the discretion to service future cash flow needs by altering or eliminating discretionary distributions to shareholders, which cash portion amounted to $0.3 million and $0.4 million in Q1 2021 and Q1 2020, respectively.

To fund its expansion plans in respect of the WW Licenses, in Q1 2021 Miramar amended the terms of the WW Promissory Note and on January 4, 2021, borrowed $500,000 from PMW LLC (the “ PMW Loan ”). The WW Promissory Note amendment revised the repayment terms of the final balloon payment from $700,000 due January 2021 to: $300,000 due January 2021 and principal payments of $18,000 plus interest due monthly thereafter through November 2021, $20,000 plus interest due in December 2021, and a final balloon payment of $200,000 plus interest due in January 2022.

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Miramar Professional Services Management’s Discussion & Analysis December 31, 2020 and 2019

Other long-term liabilities of $4.4 million are in respect of a contingent liability as more fully described in Note 5 to the Financial Statements. Subject to completion of the Merger and execution of the Definitive Agreement , the shareholders of Miramar have provided indemnities to GABY in respect of this liability through offset and reduction of the GABY Promissory Note.

Miramar’s current financial instruments include cash, accounts receivable, notes receivable from shareholders, accounts payable and accrued liabilities, and short-term notes payable and are measured at amortized cost. The carrying values of these instruments approximate their fair value due to their shortterm maturities. The Company’s non-current financial instruments consist of lease liabilities and longterm debt, which are measured at amortized cost. As Mankind is a retail operation, substantially all of its sales are in cash and therefore Miramar has minimal liquidity risk in respect of receivables, but it has the ability to extend the terms of many of its purchases for 30 days for more. The liquidity risk in respect of the note receivable from shareholders of $0.4 million is mitigated by the ability to offset shareholder distributions or by the shareholders repaying from proceeds of the Merger.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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Miramar Professional Services Management’s Discussion & Analysis December 31, 2020 and 2019

strategies, operational results and other future conditions of the Company. In addition, the Company may make or approve certain statements in future filings with Canadian securities regulatory authorities, in press releases, or in oral or written presentations by representatives of the Company that are not statements of historical fact and may also constitute forward-looking statements. All statements, other than statements of historical fact, made by the Company that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by or that include words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words and includes, among others, information regarding: expectations for the effects of any transactions; expectations for the potential benefits of any transactions; statements relating to the business and future activities of, and developments related to, the Company after the date of this MD&A, including such things as future business strategy, competitive strengths, goals, expansion and growth of the Company’s business, operations and plans; expectations that planned acquisitions will be completed, including but not limited to other potential acquisition(s); expectations that licenses applied for will be obtained; potential future legalization of adult-use and/or medical cannabis under USA federal law; expectations of market size and growth in the USA, California and such other states in which the Company has expressed desire to operate in; expectations for other economic, business, regulatory and/or competitive factors related to the Company or the cannabis industry generally; and other events or conditions that may occur in the future. Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance or business developments. These statements speak only as of and at the date they are made and are based on information currently available and on the then current expectations. Readers of the MD&A are cautioned that forward-looking statements are not based on historical facts but instead are based on reasonable assumptions and estimates of management of the Company at the time they were provided or made and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties related to: the available funds of the Company and the anticipated use of such funds; the availability of financing opportunities; legal and regulatory risks inherent in the cannabis industry; risks associated with economic conditions, dependence on management; risks relating to USA regulatory landscape and enforcement related to cannabis, including political risks; risks relating to anti-money laundering laws and regulation; other governmental and environmental regulation; public opinion and perception of the cannabis industry; risks related to contracts with third-party service providers; risks related to the enforceability of contracts; reliance on the expertise and judgment of senior management of the Company, and ability to retain such senior management; risks related to proprietary intellectual property and potential infringement by third parties; risks relating to the management of growth; increasing competition in the industry; risks associated to cannabis products manufactured for human consumption including potential product recalls; reliance on key inputs, suppliers and skilled labor; cybersecurity risks; ability and constraints on marketing products; fraudulent activity by employees, contractors and consultants; tax and insurance related risks; risks related to the economy generally; risk of litigation; conflicts of interest; risks relating to certain remedies being limited and the difficulty of enforcement of judgments and effecting service outside of USA; risks

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Miramar Professional Services Management’s Discussion & Analysis December 31, 2020 and 2019

related to future acquisitions or dispositions; sales by existing shareholders; limited research and data relating to cannabis.

The purpose of forward-looking statements is to provide the reader with a description of management’s expectations, and such forward-looking statements may not be appropriate for any other purpose. In particular, but without limiting the foregoing, disclosure in this MD&A as well as statements regarding the Company’s objectives, plans and goals, including future operating results and economic performance may make reference to or involve forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Certain of the forward-looking statements and other information contained herein concerning the cannabis industry, its medical, adult-use and hemp-based CBD markets, and the general expectations of the Company concerning the industry and the Company’s business and operations are based on estimates prepared by the Company using data from publicly available governmental sources as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry which the Company believes to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. While the Company is not aware of any misstatement regarding any industry or government data presented herein, the cannabis industry involves risks and uncertainties that are subject to change based on various factors.

A number of factors could cause actual events, performance or results to differ materially from what is projected in the forward-looking statements. You should not place undue reliance on forward-looking statements contained in this MD&A. Such forward-looking statements are made as of the date of this MD&A. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. The Company’s forward-looking statements are expressly qualified in their entirety by this cautionary statement.

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SCHEDULE “K” – Pro Forma Financials

( See attached )

K - 1

GABY INC.

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2020 (In Canadian dollars, except as noted)

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Note 1 – Basis of Presentation

The accompanying unaudited pro forma consolidated financial statements (the “Unaudited Pro Forma Consolidated Financial Statements”) of GABY Inc. (“GABY” or the “Corporation”) have been prepared by management using principles consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board for inclusion in a management circular (the “Circular”) filed with the Alberta securities regulators to reflect the acquisition of Miramar Professional Services (“Miramar”) after giving effect to the proposed transactions (the “Transaction”) as described in Note 2.

The Unaudited Pro Forma Consolidated Financial Statements as at September 30, 2020, have been compiled from and include the i) GABY Inc. Audited Consolidated Financial Statements at December 31, 2019; ii) GABY Inc. Unaudited Condensed Consolidated Interim Financial Statements at September 30, 2020; iii) Audited Consolidated Financial Statements of Miramar Professional Services as at and for the years ended September 30, 2020 and 2019; iv) Unaudited Condensed Consolidated Interim Financial Statements at December 31, 2020 of Miramar; and v) unaudited internal financial statements of Miramar for the three months ended September 30, 2020.

In the opinion of management, the Unaudited Pro Forma Consolidated Financial Statements include all adjustments necessary for the fair presentation of the transactions described herein and are in accordance with IFRS applied on a basis consistent with the Corporation’s accounting policies.

The Unaudited Pro Forma Financial Statements have been prepared for illustrative purposes only and may not be indicative of the combined entities’ financial position and results of operations that would have occurred if the Transaction had been in effect at the dates indicated or of results which may be obtained in the future.

Note 2 ‐ Pro Forma Transactions

The accompanying Unaudited Pro Forma Consolidated Financial Statements of the Corporation give effect to the proposed acquisition of all 1,000,000 outstanding common shares of Miramar (the “Transaction”). The definitive agreement provides that shareholders of Miramar will receive US$5.0 million in cash; such number of common shares in the capital of GABY (“GABY Shares”) as is equal to an aggregate of US$6.0 million with the GABY Shares priced at CDN$0.05 per GABY Share; and a secured non‐convertible promissory note for US$25.5 million.

In conjunction with the Transaction, GABY will complete a brokered private placement and a non‐ brokered private placement with aggregate total gross proceeds of CDN$12.7 million.

For accounting purposes, GABY is deemed to have issued the following securities:

a) 172,929,123 subscription receipts (each of which entitles the holder to one common share and one common share purchase warrant) with a price of $0.05 per subscription receipt for total fair value of $8,657,030 issued by way of a brokered private placement less a finder’s fee of $414,366.

b) 80,140,444 Units at a price of $0.05 per unit (each of which entitles the holder to one common share and one common share purchase warrant) for total fair value of $3,996,448 issued by way of a non‐ brokered private placement.

5 | P a g e G A B Y I n c .

c) 157,894,737 shares with fair value of $0.105 per share for total fair value of $16,578,947 to acquire Miramar.

The preliminary allocation of the fair value to the identifiable assets acquired and liabilities assumed as at the date of the acquisition of Miramar were as follows:

	Preliminary fair value recognized
	on acquisition,in$CDN
Cash	3,394,929
Accounts receivable	2,515
Inventories	1,281,786
Prepaid expenses and deferred costs	112,399
Property and equipment	8,686,384
Intangible assets carried by Miramar	1,905,208
Security deposits	85,853
Deferred tax assets	134,322
Accounts payable and accrued liabilities	(2,737,669)
Income taxes payable	(1,396,978)
Deferred revenue	(223,223)
Lease liabilities	(8,952,915)
Long‐term debt	(880,250)
Other long‐term liabilities	(5,545,341)
Indemnification asset	5,545,341
Goodwill and intangible assets recorded on acquisition	52,513,956
Purchase consideration	53,926,317

Under the acquisition method, the acquired tangible and intangible assets and assumed liabilities of the acquired entity are primarily measured at their estimated fair value at the date of acquisition. The excess of the purchase consideration over the preliminary estimated fair value of net assets acquired is classified as goodwill on the accompanying unaudited pro forma consolidated statement of financial position. Such goodwill is not amortized but will be evaluated for impairment on at least an annual basis. The estimated fair values and useful lives of assets acquired and liabilities assumed are subject to final valuation adjustments which may cause some of the amounts ultimately recorded as goodwill to be materially different from those shown on the unaudited pro forma consolidated statement of financial position. The preliminary estimates used to prepare the pro forma information presented will be updated after the closing of the Transaction.

Note 3 – Pro Forma Assumptions and Adjustments

a) Cash is adjusted as follows, in $CDN:

Cash received from private placements	9,149,510
Less: cash‐based finders fees	(414,366)
Less: cash consideration for Miramar acquisition ‐ US$5 million	(6,287,500)
	2,447,644

b) Accounts receivable is adjusted to reflect estimated purchase price adjustments in relation to the Miramar acquisition that will offset future obligations.

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c) Fees and interest not incurred as of September 30, 2020 that were settled in the non‐brokered private placement included in the Pro Forma Statement of Financial Position total $774,106
d) The notes receivable held by Miramar will be eliminated via distribution to the current shareholders immediately before the acquisition takes place
e) The following were settled through issuance of Units in the non‐brokered private placement: Accounts payable and accrued liabilities of $270,680, Promissory notes payable of $868,804, and convertible debentures of $200,000
f) Share capital is adjusted as follows, in $CDN:

Elimination of Miramar share capital on consolidation	(2,690,560)
Subscription receipts and Units issued in private placements	12,653,478
Less: cash‐based finders fees	(414,366)
Shares issued to acquire Miramar	16,578,947
	26,127,499

The full equity amount to be recognized from the private placements is allocated to share capital for simplicity in the Pro Forma Statement of Financial Position. When the accounting is completed, a portion will be bifurcated and recorded as Contributed surplus for the amount attributable to the warrants issued as part of the Subscription Receipts and Units.

g) Accumulated deficit is adjusted as follows, in $CDN:

Elimination of Miramar accumulated deficit on consolidation	6,358,096
Less: acquisition closing fees to consultants and other	(1,390,378)
Distribution of shareholder notes receivable	(465,444)
	4,502,274

h) In the annual pro forma consolidated statement of loss and comprehensive loss, the only pro forma adjustment needed is the elimination of $3,040,861 of sales and cost of sales relating to transactions between GABY and Miramar. In the three‐month pro forma consolidated statement of loss and comprehensive loss, no pro forma adjustments were required as there was no activity between GABY and Miramar during the three‐month period.

Note 4 ‐ Pro Forma Share Capital

	Number of Underlying Resulting Issuer Shares	Number of Underlying Resulting Issuer Shares	Number of Underlying Resulting Issuer Shares	Number of Underlying Resulting Issuer Shares
	Prior to the
	Transaction and	Issued on	Issued to	Conversion of
	private	private	acquire	Subscription	Pro Forma
Designation of Securities	placements	placements	Miramar	Receipts	Total
Common Shares	237,793,408	80,140,444	157,894,737	172,929,123	648,757,712
Warrants	37,754,193	80,140,444	-	172,929,123	290,823,760
Broker Warrants	6,783,951	-	-	-	6,783,951
Options	6,165,000	-	-	-	6,165,000
Restricted Share Units	16,375,000	-	-	-	16,375,000
Subscription Receipts	-	345,858,246	-	(345,858,246)	-
Compensation Warrants	-	15,985,138	-	-	15,985,138
Total Fully Diluted Capital	304,871,552	522,124,272	157,894,737	-	984,890,561

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AI assistant

GABY Inc. — Capital/Financing Update 2021

47450_rns_2021-04-22_c60684ba-68be-4cdc-8892-efb6a7cdf43f.pdf

GABY INC. ("GABY")

Note regarding U.S. Cannabis involvement.

INTRODUCTION

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

CURRENCY

GLOSSARY

" ABCA " means the Business Corporations Act (Alberta);

" GABY Board " means GABY board of directors;

" KJM " means KJM Data and Research, LLC;

" Lead Agent " means Mackie Research Capital Corporation;

“ Subscription Receipt Agent ” means Odyssey;

1. Table of Contents

2. Corporate Structure

2.1 Corporate Structure

GABY

Miramar

Resulting Issuer

2.2 Jurisdiction of Incorporation

GABY

Miramar

2.3 Intercorporate Relationships

GABY

Miramar

2.4 Fundamental Change

The Resulting Issuer

2.5 Non-corporate Issuers and Issuers incorporated outside of Canada

3. General Development of the Business

3.1 General Development of GABY

Three Year History

Fiscal Year Ended 2018

Fiscal Year Ended 2019

Fiscal Year Ended 2020

Recent Developments

3.1 General Development of Miramar

Three Year History

Fiscal Year Ended 2018

Fiscal Year Ended 2019

Fiscal Year Ended 2020

Recent Developments

3.2 Significant Acquisitions and Dispositions

The Transaction

The Definitive Agreement

Representations and Warranties

Conditions for the Benefit of GABY

Conditions for the Benefit of Miramar and the Miramar Vendors

The Financing

3.3 Trends, Commitments, Events or Uncertainties

Nature of Involvement and Exposure to USA Cannabis-Related Activities

Regulatory Overview

USA Federal Law and Enforcement

Compliance with California State Licensing and Regulatory Frameworks

- Program for Monitoring Compliance and Disclosure of Material Non Compliance

The Regulatory Landscape on a US State Level

California

Local Licensing, Zoning, and Land Use Requirements

Record-Keeping and Continuous Reporting Requirements

Operating Procedure Requirements

Site Visits and Inspections

Retail Compliance

GABY and the Resulting Issuer's Compliance Procedures

Service Providers

Ability to Access Capital

Restricted Access to Banking

Anti-Money Laundering Laws and Regulations

Heighted Scrutiny by Regulatory Authorities

Balance Sheet and Operating Statement Exposure to USA Cannabis-Related Activities

GABY

Miramar

4. Narrative Description of the Business

4.2 General

GABY

General and Segment Information

Licensed

Licensed Product Portfolio

Cannabis Distribution and Related Assets

Unlicensed

Unlicensed Product Portfolio

GABY Inc. Capital/Financing Update 2021