GABY Inc. — Interim / Quarterly Report 2021

May 26, 2021

GABY INC.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020 (in Canadian dollars)

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NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Under National Instrument 51‐102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements of GABY Inc. (the “Corporation”) have been prepared by and are the responsibility of the Corporation’s management.

The Corporation’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.

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GABY INC.

Condensed Interim Consolidated Statements of Financial Position

GABY INC. Condensed Interim Consolidated Statements of Financial Position
	(Unaudited) (Audited)
	March 31, December 31,
In Canadian dollars Note	2021 2020
ASSETS Current Cash Restricted cash 3 Accounts receivable Inventories Prepaid expenses	146,739 102,808 8,158,309 83,760 625,155 611,107 548,264 642,883 353,236 86,857
Non‐current Property and equipment 4 Intangible assets and goodwill Securitydeposits	9,831,703 1,527,415 1,019,124 1,095,090 2,358,840 2,392,042 19,894 22,086
Total assets	13,229,561 5,036,633
LIABIITIES AND SHAREHOLDERS’ EQUITY Current liabilities Bank indebtedness 6 Accounts payable and accrued liabilities 5 Income taxes payable Short‐term notes payable Current portion of lease liabilities 9 Currentportion of long‐term debt 10	‐ 155,370 7,151,001 7,065,310 60,553 61,405 88,025 89,264 59,199 61,504 86,544 85,400
Current liabilities before the following: Promissory notes payable 7 Convertible debentures 8	7,445,322 7,518,253 312,783 1,411,233 526,116 653,904
Non‐current liabilities Lease liabilities 9 Long‐term debt 10 Deferred tax liability	8,284,221 9,583,390 545,829 569,157 188,720 207,196 9,240 16,729
Total liabilities	9,028,010 10,376,472
SHAREHOLDERS’ EQUITY (DEFICIENCY) Share issuance obligation Share capital 12 Contributed surplus 11,12 Deficit Accumulated other comprehensive loss	8,646,456 119,947 47,604,460 45,074,695 6,726,216 5,721,708 (58,453,476) (55,933,646) (322,105) (322,543)
	4,201,551 (5,339,839)
Total liabilities and shareholders’ equity (deficiency)	13,229,561 5,036,633
Going concern 1 Subsequent events 20

See accompanying notes to the condensed interim consolidated financial statements

[signed]

On behalf of board: Margot M. Micallef, Director

[signed]

Jackie Altwasser, Director

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GABY INC.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(Unaudited) In Canadian dollars Note	Three months ended March 31,
	2021 2020
CONTINUING OPERATIONS REVENUE	3,411,901 1,449,054
COST OF SALES Direct inventorycosts 13	3,042,343 1,467,729
Variablegrossprofit	369,558 (18,675)
Allocated indirect costs 14 Distribution costs	65,572 133,429 68,746 71,523
Total cost of sales	3,176,661 1,672,681
Gross profit (loss) Selling, general and administrative expenses 15 Share‐based compensation and expenses 11 Depreciation ofplant and equipment	235,240 (223,627) 1,111,102 2,269,683 220,072 134,714 10,763 148,099
**Loss from operations before the following: **	(1,106,697) (2,776,123)
Foreign exchange loss Gain on conversion of debt Gain on lease termination Interest expense Interest income 3 Penalties and interest on past‐due taxes Recovery of impairment amount Transaction costs	(169,884) (62,683) ‐ 74,874 ‐ 543 (135,261) (233,442) 581 ‐ (18,368) (231,222) ‐ 8,758 (1,097,509) ‐
Total other expenses	(1,420,441) (443,172)
Loss before income tax expense(recovery)	(2,527,138) (3,219,295)
Current income tax expense Deferred income tax recovery	‐ 5,346 (7,308) (63,454)
Income tax recovery	(7,308) (58,108)
Net loss from continuing operations	(2,519,830) (3,161,187)
DISCONTINUED OPERATIONS Net loss from discontinued operations	‐ (839,678)
Net loss Other comprehensive loss, net of tax Items that may be reclassified to net profit in the future: Exchange difference on translation	(2,519,830) (4,000,865) 438 1,008,354
Total comprehensive loss	(2,519,392) (2,992,511)
Net lossper share:
Basic and diluted 16	($0.01) ($0.02)

See accompanying notes to the condensed interim consolidated financial statements

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GABY INC.

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

(Unaudited) In Canadian dollars Note Share issuance obligation Share capital Contributed surplus	Deficit Accumulated other comprehensive income(loss) Total
Balance as at December 31,2019 ‐ 43,068,525 5,373,688	(41,943,032) (548,094) 5,951,087
Net and comprehensive loss ‐ ‐ ‐	(4,000,865) 1,008,354 (2,992,511)
Issuance of shares to settle debts 12 ‐ 1,228,583 ‐	‐ ‐ 1,228,583
Issuance of subscription shares 12 ‐ 250,000 ‐	‐ ‐ 250,000
Stock option and RSU expense 11 ‐ ‐ 107,141	‐ ‐ 107,141
Other share‐based compensation ‐ ‐ 7,646	‐ ‐ 7,646
Balance as at March 31, 2020 ‐ 44,547,108 5,488,475	(45,943,897) 460,260 4,551,946
Balance as at December 31, 2020 119,947 45,074,695 5,721,708	(55,933,646) (322,543) (5,339,839)
Net and comprehensive loss ‐ ‐ ‐	(2,519,830) 438 (2,519,392)
Issuance of Units 12 (36,187) 3,446,039 560,983	‐ ‐ 3,970,835
Issuance costs 12 ‐ (916,274) 319,703	‐ ‐ (596,571)
Issuance of Subscription Receipts 12 8,562,696 ‐ ‐	‐ ‐ 8,562,696
Stock option and RSU expense 11 ‐ ‐ 123,822	‐ ‐ 123,822
Balance as at March 31, 2021 8,646,456 47,604,460 6,726,216	(58,453,476) (322,105) 4,201,551

See accompanying notes to the condensed interim consolidated financial statements

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GABY INC.

Condensed Interim Consolidated Statements of Cash Flows

GABY INC. Condensed Interim Consolidated Statements of Cash Flows
(Unaudited) In Canadian dollars Note	Three months ended March 31,
	2021 2020
OPERATING ACTIVITIES Net loss Adjustments to reconcile net loss to cash flow from operations: Deferred income tax recovery Depreciation 4 Gain on conversion of debt Gain on lease termination Interest expense Interest income 3 Recovery of impairment Share‐based compensation 11 Unrealized foreign exchange loss	(2,519,830) (4,000,865) (7,308) (63,454) 61,191 223,276 ‐ (74,874) ‐ (8,261) 135,261 244,656 (581) ‐ ‐ (8,758) 123,822 134,714 157,906 34,369
Cash used in operating activities before the following: Net change in non‐cash workingcapital related to operations	(2,049,539) (3,519,197) (256,022) 2,184,216
Cash used in operating activities	(2,305,561) (1,334,981)
INVESTING ACTIVITIES Purchase of property and equipment 4 Proceeds from sale of property and equipment Deposit refunds received	‐ (3,119) ‐ 14,000 1,899 296
Cashgenerated by investing activities	1,899 11,177
FINANCING ACTIVITIES Proceeds on promissory notes Repayments to related parties, net 5 Repayment of promissory notes and debentures Repayment of long‐term debt Repayment of lease liabilities 9 Issuance of share capital 12 Issuance of Units 12 Issuance of Subscription Receipts 12 Restricted cash 3 Interestpaid	‐ 705,788 (194,056) ‐ (1,210,992) ‐ (20,108) (19,753) (17,050) (87,724) ‐ 250,000 4,007,022 ‐ 8,562,696 ‐ (8,562,696) ‐ (215,197) (197,296)
Cashgenerated by financing activities	2,349,619 651,015
Foreign currencytranslation adjustment	(2,026) 27,992
Net change in cash Cash, beginning ofperiod	43,931 (644,797) 102,808 698,951
Cash, end ofperiod	146,739 54,154

See accompanying notes to the condensed interim consolidated financial statements See Note 17 for detail of non‐cash transactions

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GABY INC.

Condensed Interim Consolidated Statements of Cash Flows ‐ Continued

(Unaudited) In Canadian dollars Note	As at March 31,
	2021 2020
CASH CONSISTS OF: Cash Bank indebtedness	146,739 186,650 ‐ (132,496)
	146,739 54,154

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

NATURE OF BUSINESS

GABY 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 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 April 2020, GABY also produced and marketed health food products in the USA and Canada 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 consumer packaged goods (“CPG”) in the USA.

1. GOING CONCERN

These interim condensed consolidated financial statements for the three months ended March 31, 2021 and 2020 (“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.

For the three months ended March 31, 2021 the Corporation had a net loss of $2.5 million and negative cash flow from operations of $2.3 million. For the year ended December 31, 2020, the Corporation had a net loss of $14.0 million and negative cash flow from operations of $1.7 million. As at March 31, 2021 working capital amounted to $1.5 million of which subsequent thereto, $6.3 million of restricted cash was used for the cash portion of the Miramar Transaction. The cash remaining from the issuance of Units and Subscription Receipts, plus cash flow generated from the subsequent acquisition of Mankind (see Note 20) will be used in part to fund the future operations of the Corporation and to service interest payments on the debt issued pursuant to the acquisition. In addition, management believes it will harvest further synergies from the acquisition of Mankind, including increased revenue generation from onboarding of additional third‐ party brands to its distribution and manufacturing platform, reaping of additional margins on its proprietary brands through its multi‐ vertical infrastructure which spans from manufacturing to retail, and streamlining of shared overhead costs. Management believes this, in conjunction with prudent management of working capital, will enable GABY to support operations over the next year and beyond.

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.

GABY will need to raise capital to service future balloon payments on the debt issued pursuant to the acquisition of Mankind, and to fund growth of its operations and future growth strategy, including future acquisitions as part of its consolidation 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. 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

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

matters cannot be predicted at this time.

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 audit committee on May 25, 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 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 period’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.

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

3. RESTRICTED CASH

Restricted cash consists of cash held in trust relating to the Brokered Private Placement described in Note 12. A reconciliation of the balance for the period ended March 31, 2021 is as follows:

reconciliation of the balance for the period ended March 31, 2021 is as	follows:
In$	Note	March 31, 2021
Beginning balance as at December 31, 2020		83,760
Additional funds received in trust for Brokered Private Placement		8,562,696
Total proceeds from Brokered Private Placement		8,646,456
Funds withheld by broker to cover equity issuance costs	17	(325,226)
Interest income received		581
Effect of foreign exchange		(163,502)
Ending balance of Restricted cash		8,158,309

As described in Note 20, the restricted cash was released to GABY in April 2021. A portion of the funds was used to pay the cash portion for the Mankind acquisition and additional transaction costs and as payment of various debts of the Corporation. The remainder of the proceeds will be used for the pro forma business plan of the Corporation and for general corporate purposes.

4. PROPERTY AND EQUIPMENT

	Net	book value of property and equipment	book value of property and equipment	book value of property and equipment	book value of property and equipment
	Right‐of use	Right‐of use		All other
	assets ‐	assets ‐	property and
In$	facilities	equipment		equipment	Total
Balance as at Dec 31, 2019	6,471,210	56,579		857,159	7,384,948
Purchase	‐	‐		3,119	3,119
Disposals	(553,068)	(53,579)		(62,301)	(668,948)
Depreciation	(175,411)	‐		(47,865)	(223,276)
Effect of foreign exchange	463,774	‐		82,688	546,462
Balance as at Mar 31,2020	6,206,505	3,000		832,800	7,042,305
Balance as at Dec 31, 2020	527,930	‐		567,160	1,095,090
Depreciation	(19,417)	‐		(41,774)	(61,191)
Effect of foreign exchange	(7,192)	‐		(7,583)	(14,775)
Balance as at Mar 31,2021	501,321	‐		517,803	1,019,124

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

5. 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 Operating expenses: Note	March 31,
	2021 2020
Compensation of key management personnel (“KMP”)1 Cash compensation Share‐based compensation	71,433 300,490 81,727 72,748
Total compensation of KMP Other expenses paid 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 an officer and director b. Amounts included in Interest expense: Interest on convertible debentures to KMP Interestpaid to directors in respect ofpromissorynotes	153,160 373,238 7,211 31,707 45,000 45,000 ‐ 10,968 1,274 3,730 5,598 14,660
c. Due to relatedparties included in statement of financialposition	Mar 31, 2021 Dec 31, 2020
Included in Promissory notes payable: To directors and entities controlled by directors 7 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 b) above Rent payable to a company controlled by an officer and director Consulting fees payable to a company controlled by a close family member of certain KMP Amounts due on reimbursements of other expenses in a)above	‐ 780,903 ‐ 100,000 54,032 302,305 788 47,718 ‐ 19,973 15,356 15,356 ‐ 31,500 6,687 174,731

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 Corporation’s board of directors (“Board”).

2 Includes $30,000 (2020 ‐ $43,333) paid to separate management entities.

6. BANK INDEBTEDNESS

The demand operating loan that was closed with an outstanding balance in September 2020 as described in the Annual Financial Statements, and which had a balance of $155,370 as at December 31, 2020 including interest up to that date, was assumed by certain KMP effective January 1, 2021. The KMP was compensated for assuming this debt through a corresponding amount receivable from the Corporation, which was later paid in conjunction with the Non‐brokered Private Placement.

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

7. PROMISSORY NOTES PAYABLE

7. PROMISSORY NOTES PAYABLE
Note	In $
	Mar 31, 2021 Dec 31, 2020
Due to related parties, repaid during the 2021 period a Due to others: Promissory notes repaid during the 2021 period a Notepayable,includingaccrued interest of$57,851(Dec 31,2020 ‐$55,336) b	‐ 780,903 ‐ 324,995 312,783 305,335
	312,783 1,411,233

• a) These promissory notes, along with accrued interest up to the repayment date, were repaid in February 2021 in conjunction with the Non‐brokered Private Placement.

• b) This promissory note accrues interest at a rate of 12% per annum compounded annually. Until March 1, 2021, this promissory note was payable on demand. Effective March 1, 2021, the terms of the promissory note were modified to recharacterize $4,932 of accrued interest to principal and to extend the maturity date to April 1, 2022. Although the new maturity date would allow for presentation as a non‐current liability, the Corporation has not presented it as such for these interim statements, as it would move back to current in the next interim period.

8. CONVERTIBLE DEBENTURES

The Debentures accrue interest at a rate of 15% per annum and originally matured March 1, 2021. The remaining convertible debentures outstanding were modified effective March 1, 2021 to recharacterize a portion of the accrued interest payable to convertible debenture principal on the same terms as the original convertible debentures, and to extend the maturity date to April 1, 2022. Although the new maturity date would allow for presentation as a non‐current liability, the Corporation has not presented it as such for these interim statements, as it would move back to current in the next interim period.

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. 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 periods:

	In $
	Mar 31, 2021 Mar 31,2020
Beginning balance as at December 31, 2020 and 2019 Repayments Accrued interest recharacterized as principal Interest accretion expense on warrants and legal	653,904 635,255 (202,008) ‐ 71,116 ‐ 3,104 4,662
Ending balance of convertible debentures	526,116 639,917

Total interest for the three months ended March 31, 2021 relating to the convertible debentures, including coupon interest and accretion of issuance costs, is $23,383 (March 31, 2020 ‐ $29,165).

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Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

GABY INC.

9. 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 months ended March 31, 2021 and 2020 is as follows:

	In $
	Mar 31, 2021 Mar 31, 2020
Beginning balance as at December 31, 2020 and 2019 Divestitures Total cash outflows for leases Variable lease payments not included in the measurement of lease liabilities Portion of lease payments allocated to interest expense Guarantee fee – GABY warrants Effect of foreign exchange	630,661 6,748,329
	‐ (651,949)
	(49,105) (345,642)
	14,710 70,473
	17,345 188,553
	‐ (7,822)
	(8,583) 481,067
Balance, end ofperiod	605,028 6,483,009
Currentportion of lease liabilities	(59,199) (278,553)
Non‐currentportion, end ofperiod	545,829 6,204,456

10. LONG‐TERM DEBT

Long‐term debt consists of the following at March 31, 2021 and December 31, 2020:

Long‐term debt consists of the following at March 31, 2021 and December 31, 2020:
Repayable in monthly instalments, including interest, of: Interest Maturity	In $
	Mar 31, 2021 Dec 31,2020
Vehicle finance loans secured by the vehicles financed: USD 448 4.90% Sep 2023 USD 875 1.90% Apr 2023 USD 707 1.90% Apr 2023 USD 743 2.90% Jun 2023 USD 620 5.24% Sep 2022 USD 1,150 5.24% Sep 2022 USD 1,150 5.24% Sep2022	15,855 17,586 25,839 29,414 21,747 24,646 23,504 26,497 12,706 15,072 24,928 29,322 24,928 29,322
	149,507 171,859
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 aggregatepayments of USD 1,212per month	29,676 28,268 96,081 92,469
	125,757 120,737
Total long‐term debt Less: currentportion	275,264 292,596 (86,544) (85,400)
	188,720 207,196

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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:

Note	In $
	Mar 31, 2021 Mar 31,2020
Share‐based payments included in operating expenses: Stock option plan employee compensation and consulting fees 11a RSU plan employee compensation 11b Forfeiture of options Amortization of prepaid share‐based payment Shares for services	39,118 200,614 84,704 4,490 ‐ (97,963) ‐ 27,573 96,250 ‐
Total share‐basedpayments included in operating expenses	220,072 134,714
Settlement of accounts payable in lieu of cash payment 11c Settlement of amounts due to a director in lieu of cashpayment	‐ 99,000 ‐ 33,898
Total share‐basedpayments	‐ 267,612

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:

	March 31, 2021 Average exercise price per option Number of options	March 31, 2020
		Average exercise price per option Number of options
Opening Forfeited	$0.30 6,165,000 ‐ ‐	$0.30 11,790,000 $0.28 (1,650,000)
Closing	$0.30 6,165,000	$0.30 10,140,000
Vested and exercisable atperiod end	$0.29 3,860,000	$0.27 2,655,000

Share options outstanding as at March 31, 2021 and December 31, 2020 have the following range of exercise prices and weighted average remaining contractual life:

March 31, 2021 Exercise price Number Weighted average contractual life in years	December 31, 2020
	Number Weighted average contractual life in years
$0.125 150,000 3.64 $0.270 2,740,000 3.52 $0.286 1,250,000 2.43 $0.350 25,000 3.07 $0.360 2,000,000 3.35	150,000 3.88 2,740,000 3.76 1,250,000 2.67 25,000 3.32 2,000,000 3.59
6,165,000 3.24	6,165,000 3.49

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

The amount included in operating expenses for directors’, officers’ and consulting services received for the period ended March 31, 2021 is $39,117 (March 31, 2020 ‐ $102,651) and is classified as contributed surplus on the Corporation’s consolidated statement of financial position. Of the foregoing amounts, $29,720 was in respect of KMP for the period ended March 31, 2021 (March 31, 2020 ‐ $71,410).

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 $0.04 to $0.07 per share. The fair value of the RSUs issued from inception of the plan to date, adjusted for estimated forfeitures, relating to RSUs for future services is estimated as $570,455 which will be recorded as an expense over the three years in which services are received with a corresponding amount recorded as contributed surplus.

Set out below is a summary of RSUs activity for the three months ended March 31, 2021 and 2020:

Number of RSUs	March 31, 2021 March 31,2020
Opening Granted	16,375,000 ‐ ‐ 2,040,000
Closing	16,375,000 2,040,000
Vested atperiod end	401,667 ‐

The amount included in operating expenses for directors’, officers’ and consulting services received for the period ended March 31, 2021 is $84,704 (March 31, 2020 ‐ $4,490) and is classified as contributed surplus on the Corporation’s consolidated statement of financial position. Of the foregoing amounts, $52,007 was in respect of KMP for the period ended March 31, 2021 (March 31, 2020 ‐ $1,338).

c. Shares issued for settlement of accounts payable

c. Shares issued for settlement of accounts payable
Shares issued in respect of:	March 31, 2021 March 31, 2020
	Number $ Number $
Consulting service fees payable i Consultingservices feespayable to relatedparty ii	‐ ‐ 420,000 31,500 ‐ ‐ 750,000 67,500
Total common shares issued	‐ ‐ 1,170,000 99,000

• i) A consultant agreed to receive payment for two 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 $0.075 per share.

• ii) A consultant agreed to receive payment for four months of current and future 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 $0.09 per share.

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Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

GABY INC.

12. SHARE CAPITAL AND CONTRIBUTED SURPLUS

Authorized share capital

The Corporation is authorized for an unlimited number of shares without nominal or par value as follows:

Unlimited number of Class A common voting shares

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

Common shares issued and outstanding and Contributed surplus

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

	Share capital
Note	Class A common voting shares	Contributed surplus	Total transaction
	Number $	$	$
Balance as at December 31, 2019 Issuance of shares to settle indebtedness to company controlled by director and officer 12b Issuance of shares to director from treasury 12c Stock option expense 11a RSU expense 11b Share‐based payments 11c Issuance of shares to settle short‐term notespayable 12f	205,775,825 43,068,525 16,666,666 1,083,333 3,003,003 250,000 ‐ ‐ ‐ ‐ 1,170,000 99,000 462,497 46,250	5,373,688 ‐ ‐ 102,651 4,490 7,646 ‐	48,442,213 1,083,333 250,000 102,651 4,490 106,646 46,250
Closing balance, March 31, 2020	227,077,991 44,547,108 5,488,475 50,035,583
Balance as at December 31, 2020 Issuance of Units 12a Equity issuance costs 12a Stock option expense 11a RSU expense 11b	237,793,408 45,074,695 80,140,444 3,446,039 ‐ (916,274) ‐ ‐ ‐ ‐	5,721,708 560,983 319,703 39,118 84,704	50,796,403 4,007,022 (596,571) 39,118 84,704
Closing balance, March 31, 2021	317,933,852 47,604,460 6,726,216 54,330,676

a. Private Placement

On February 4, 2021, the Corporation closed a brokered private placement of subscription receipts of the Corporation (the “Brokered Private Placement”) together with its non‐brokered private placement of units of the Corporation (the “Non‐Brokered Private Placement”) for aggregate gross proceeds of $12.5 million.

Pursuant to the Brokered Private Placement, the Corporation issued 172,929,123 subscription receipts of the Corporation (“Subscription Receipts”) at a price of $0.05 per Subscription Receipt. The total value of $8,646,456 is included in Share Issuance Obligation within equity and will be reclassified to share capital and contributed surplus when converted to Units. Each Subscription Receipt represents the right to receive, without payment of additional consideration or further action on the part of the holder thereof, one unit of the Corporation (each, a “Unit”) upon the later of: (i) the satisfaction of certain escrow release conditions; and (ii) the date that is the earlier of: (A) June 5, 2021; and (B) the second business day following the filing of a qualifying prospectus.

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

Each Unit will consist of: (i) one GABY Share; and (ii) one GABY Share purchase warrant (each, a “Warrant”). Each Warrant will entitle the holder to purchase a GABY Share at an exercise price of $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 Warrants, the volume weighted average trading price of the common shares on the CSE, or other principal exchange on which the GABY Shares are listed, is greater than $0.18 for 5 consecutive trading days, the Corporation may, within 10 business days of the occurrence of such event, deliver a notice to the holders of the Warrants (the “Acceleration Right”) accelerating the expiry date of the Warrants to the date that is 30 days following the date of such notice (the “Accelerated Exercise Period”). Any unexercised Warrants will automatically expire at the end of the Accelerated Exercise Period.

The Corporation issued Broker Warrants valued at $319,703 (see Note 12e) and paid other fees and expenses of $596,571, for aggregate equity issuance costs of $916,274 which was offset against share capital.

Pursuant to the Non‐Brokered Private Placement, the Corporation issued 80,140,444 Units at a price of $0.05 per Unit. The total value of $4,007,022 has been bifurcated between share capital and contributed surplus based on the relative fair value of the common shares and Warrants.

All securities issued in connection with the Private Placement are subject to a four month and one day hold period from the date of issue in accordance with applicable securities laws.

b. 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 closing price of the shares one day prior to the Board’s approval of the issuance.

based on closing price of the shares one day prior to the Boar	d’s approval of the issuance.
	USD (if applicable) CAD
Promissory notes plus interest issued in USD Promissory note plus interest issued in CAD Settlement of other amounts due to relatedparty	447,167 583,099 466,336 33,898
	1,083,333

c. 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 based on the five day weighted average closing price of the shares prior to the date of issuance.

d. Warrants

Set out below are summaries of warrants activity for the three months ended March 31, 2021 and 2020:

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

	March 31, 2021 Average exercise price per warrant Number of warrants	March 31, 2020
		Average exercise price per warrant Number of warrants
Opening1 Granted 12a Expired	$0.38 38,404,193 $0.09 80,140,444 $0.37 (650,000)	$0.38 78,590,766 ‐ ‐ ‐ ‐
Closing	$0.18 117,894,637	$0.38 78,590,766
Vested and exercisable atperiod end	$0.18 115,294,637	$0.38 77,590,766

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

March 31, 2021 Exercise price Number of warrants Weighted average contractual life in years	December 31, 2020
	Number of warrants Weighted average contractual life in years
$0.09 80,140,444 1.85 $0.20 ‐ $0.35 2,000,000 2.08 $0.37 ‐ ‐ $0.375 ‐ 0.38 34,104,193 0.23 $0.42‐$0.65 1,650,000 1.10	‐ ‐ 2,000,000 2.33 650,000 0.16 34,104,193 0.47 1,650,000 1.34
117,894,637 1.37	38,404,193 0.60

e. Broker 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 Broker Warrants. The balance included in Broker Warrants is comprised of two tranches of Broker Warrants as follows:

	March 31, 2021 December 31, 2020
	Number $ Number $
Broker Warrants – February 2021 i. Broker Warrants – June 2019 ii.	7,992,569 319,703 ‐ ‐ 4,522,634 927,140 4,522,634 927,140
	1,246,843 927,140

i. Broker Warrants – February 2021

The Corporation issued Broker Warrants to the brokers in the February 2021 Brokered Private Placement. Each Broker Warrant entitles the holder to acquire one common share and one warrant at a combined price of $0.05 for a period of 24 months following the Escrow Release Date of June 5, 2021. Each warrant acquired through exercise of the Broker Warrants entitles the holder to acquire one common share at a price of $0.09 per share for a period of 24 months from the Escrow Release Date. The weighted average remaining life of the Broker Warrants is 2.18 years.

If at any time after the date of issuance, the volume weighted average trading price per common share is equal to or greater than $0.18 for any five consecutive trading days, the Corporation shall be entitled, at the sole option of the

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

Corporation, within ten business days of such event, to accelerate the Expiration Date to the date that is thirty days following the delivery of a written notice of acceleration to the holder.

ii. Broker Warrants – June 2019

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 weighted average remaining life of the Broker Warrants is 0.20 years.

f. Shares issued to settle short‐term notes payable

On January 31, 2020, 462,497 common shares were issued at a price of $0.10 per share to settle USD 90,000 of the short‐ term notes payable. The settlement was recorded based on the closing price of the shares on the date of issuance.

13. DIRECT INVENTORY COSTS

In $ Balance comprised of:	March 31,
	2021 2020
Salaries and benefits Direct materials Other direct costs	218,852 437,051 2,795,174 993,556 28,317 37,122
	3,042,343 1,467,729

14. ALLOCATED INDIRECT COSTS

In $ Balance comprised of:	March 31,
	2021 2020
Salaries and benefits Production licences and permits Production facility costs Depreciation of production equipment Other overhead costs	15,635 ‐ 7,123 40,320 20,599 50,005 13,911 12,984 8,304 30,120
	65,572 133,429

15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In $	March	31,
Balance comprised of:	2021	2020
Salaries and benefits	421,797	1,313,186
Consulting fees	211,876	395,253
Administrative costs	246,030	350,229
Advertising and promotion	96,035	34,834
Professional fees	135,364	176,181
	1,111,102	2,269,683

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Notes to the Condensed Interim Consolidated Financial Statements In Canadian dollars, unless otherwise stated (Unaudited)

GABY INC.

16. LOSS PER SHARE

Basic loss per share is calculated by dividing the net loss by the weighted average number of shares outstanding during the period. The potentially dilutive common shares issuable on the outstanding Warrants, Broker Warrants, Stock Options, and RSUs 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 months ended March 31, 2021 was 287,658,573 (three months ended March 31, 2020 – 222,946,438).

17. NON‐CASH TRANSACTIONS

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

In$	March 31,
	2021 2020
1 Non‐cash equity issuance costs: Decrease in restricted cash Increase in accounts receivable Increase in accounts payable Increase in contributed surplus Decrease in share capital (equity issuance costs recorded) 2 Assumption of bank indebtedness by certain KMP Increase in accounts payable to related party Decrease in bank indebtedness 3 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 Gain on lease terminations 4 Payment of consulting fees through issuance of common shares: Increase in common shares Decrease in accounts payable Increase in prepaid expenses 5 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	325,226 ‐ 13,623 ‐ 284,968 ‐ 319,703 ‐ 916,274 ‐ 155,370 ‐ 155,370 ‐ ‐ 16,500 ‐ 646,190 ‐ 13,998 ‐ 651,949 ‐ 8,261 ‐ 99,000 ‐ 63,000 ‐ 36,000 ‐ 1,066,453 ‐ 33,898 ‐ 98,093 ‐ 1,129,583 ‐ 6,013 ‐ 74,874

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GABY INC.

Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Corporation's current financial instruments include cash, restricted 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.

19. SEGMENTED INFORMATION

The Corporation’s chief operating decision makers are the President and Chief Executive Officer and the 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 cannabis or CBD products to address a variety of recreational and medical purposes including 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 for the three months ended March 31, 2021 and 2020 is as follows:

In$, period ended March 31,	Licensed Unlicensed Total
	2021 2020 2021 2020 2021 2020
Revenue Cost of sales	3,210,354 1,199,605 201,547 249,449 3,411,901 1,449,054 3,076,469 1,554,368 100,192 118,313 3,176,661 1,672,681
Grossprofit(loss)	133,885 (354,763) 101,355 131,136 235,240 (223,627)

20. SUBSEQUENT EVENTS

Acquisition of Miramar Professional Services and subsidiary (“Mankind”)

On February 15, 2021, the Corporation executed a definitive share purchase agreement (the "Definitive Agreement") with Mankind, a cannabis retailer and distributor in Southern California. The Definitive Agreement provided for the merger of GABY with Mankind through the acquisition of all the equity securities of Mankind for total consideration of USD 36.5 million, subject to adjustment in accordance with the Definitive Agreement. The acquisition closed effective April 1, 2021. The consideration was satisfied through: (i) the payment of USD 5.0 million in cash; (ii) the issuance of 157,894,737 common shares; and (iii) the issuance of a secured non‐convertible promissory note for USD 25.5 million.

Through the acquisition, the Corporation has secured a Type 10 retail licence (“Type 10 Licence”), and a Type 11 distribution licence (“Type 11 Licence”) both issued by the Bureau of Cannabis Control in the state of California; the retail and distribution facilities and related assets located in San Diego, California; and the Kind Republic brand recently launched by Mankind’s subsidiary, Wild West Industries Inc.

The Corporation is in the process of obtaining a valuation of the underlying assets of Mankind including its property, plant

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Notes to the Condensed Interim Consolidated Financial Statements

In Canadian dollars, unless otherwise stated (Unaudited)

and equipment; intangibles, including the Type 10 Licence and the Type 11 Licence, the Kind Republic brand, customer lists and goodwill; and is also determining Mankind’s final working capital balances. The composition of goodwill, if recognized, would include knowledge and experience of Mankind in respect of retail operations of cannabis products in the state of California; its established relationship with reputable cannabis manufacturers and distributors, as well as the expected synergies from the combination of Mankind’s retail licence with Sonoma Pac’s distribution licence combined with GABY’s consumer packaged goods expertise in branding. Any goodwill recognized would have $nil tax value.

Below is a summary of selected financial information from the most recent audited financial statements of Mankind as of and for the year ended September 30, 2020:

and for the year ended September 30, 2020:
As at and for theyear ended September 30, 2020	USD as reported CAD equivalent
Total assets Total liabilities Revenue Gross margin Net income Cashgenerated byoperatingactivities	13,096,436 17,447,072 16,020,084 21,341,956 29,751,508 40,018,753 13,555,188 18,233,083 1,219,415 1,640,235 4,035,458 5,428,095

Other equity issuances

Subsequent to March 31, 2021, the Corporation has issued the following:

• A total of 7,174,506 common shares valued at $727,193 to consultants and others for past and future services

• 200,000 warrants to a consultant for past services valued at $8,000, with an exercise price of $0.15 and a one‐ year life

• A total of 7,000,000 RSUs valued at $472,350 based on a share price on date of grant of $0.10 ‐ $0.105 and a forfeiture rate of 33%, which will be recorded as an expense over the three years in which services are received with a corresponding amount recorded as contributed surplus

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