Nanalysis Scientific — Management Reports 2022

Apr 28, 2022

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Q4 and Full Year 2021

Management Discussion and Analysis . Nanalysis Scientific Corp

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READER ADVISORY

The Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of operations of Nanalysis Scientific Corp. (“Nanalysis” or the “Company” or the “Corporation”), is prepared as at April 22, 2022. This discussion should be read in conjunction with the Corporation’s audited Annual Consolidated Financial Statements for the year ended December 31, 2021 and 2020 and notes thereto, other information on Nanalysis is available on SEDAR at www.sedar.com and on the Corporation’s website at www.nanalysis.com. This discussion should not be considered all-inclusive as it does not include all changes regarding general economic, political, governmental and environmental events.

This discussion should not be considered all-inclusive as it does not include all changes regarding general economic, political, governmental and environmental events. This MD&A contains certain statements that constitute forward-looking statements under the meaning of applicable securities laws. Please see “Forward-Looking Statement Advisory” on page 15 for a discussion regarding Nanalysis’ use of such information. For the reader’s reference, the definition, calculation and reconciliation of non-GAAP terms are provided in “Non-GAAP Terms” on page 14. Readers are cautioned that these non-GAAP terms should not replace net earnings (loss), earnings (loss) per share, purchases and proceeds on sale of property, plant and equipment and debt as indicators of GAAP performance.

This MD&A and the consolidated financial statements were reviewed by the Audit Committee of the Company’s Board of Directors and approved by Nanalysis’ Board of Directors on April 27, 2022. All dollar figures are in thousands of Canadian dollars, except per share amounts or unless otherwise stated.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 2

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OVERVIEW OF THE BUSINESS

Nanalysis Scientific Corp. is listed on the TSX-V as Nanalysis Scientific Corp (NSCI). The Company is headquartered in Calgary, Alberta, Canada and performs product development and manufacturing in its Calgary and Strasbourg facilities.

The Company’s executive leadership is responsible for strategic decision making, resource allocation, and assessing financial performance and, as a group, is identified as our chief operating decision maker for the purposes of reporting segment information under International Financial Reporting Standards ("IFRS").

The Company is focused on the proliferation of magnetic resonance (“MR”) technology into industrial, research and teaching markets through the release of accessible, affordable and automatable MR systems. By focusing on innovation in both method development and magnet and electronic design, the Company’s product line addresses unmet needs of customers in a variety of applications, including mining, oil and gas, law-enforcement, and cannabis. The Company has a focused, direct sales force in the United States, Germany, France and Canada and works through a distribution channel of distributors and dealers in other geographical areas to ensure penetration of the current market in a simultaneous fashion. The Company’s activities are carried out through three reportable segments: Nanalysis, RS2D and Corporate.

Nanalysis Corp. (“Nanalysis”): a subsidiary of the Company was founded in 2009 with the specific intent of developing the world’s first portable magnetic resonance (“MR”) spectrometer to address the three main limitations of this powerful magnetic resonance technique – affordability, accessibility and automatability. After approximately four years of development, Nanalysis began shipping its first commercial product in 2012. Since this time Nanalysis has expanded the functionality of this platform and launched the highest performing instrument available in the market to address the industrial market demands for increased performance metrics. Nanalysis Corp. is a provider of cutting edge, patent-protected magnetic resonance (“MR”) technology to facilitate simple and rapid unknown chemical identification, quantification and diagnostics in a number of end markets including pharmaceutical, biotechnology, chemical, security, food, oil & gas and educational industries. Customers include Eli Lilly, Johnson & Johnson, Takeda Pharmaceutical, BASF, Hitachi Chemical, US Department of Agriculture, Lubrizol, Aramco Services, SABIC, Oxford University, Harvard University and many other Fortune 500 organizations. In 2018 the Company incorporated a wholly owned subsidiary in Germany, at which it conducts direct sales, marketing, technical support and channel management activities in the European region. The Company plans to open other international subsidiaries in upcoming years that will conduct similar activities in strategic geographical regions.

RS2D S.A.S. (“RS2D”): In March 2020, the Company acquired all outstanding shares of RS2D, a complementary technology company based in Strasbourg France that specializes in the development of cutting-edge MR electronics. Based on a single electronic board, RS2D has developed MR product lines in high-field (“HF”) NMR and magnetic resonance imaging (“MRI”) that can further advance Nanalysis’ existing product line, while the new products round out the Company’s magnetic resonance technology portfolio.

Corporate : This segment is the corporate entity of the Company; included in this segment is executive, legal, and other administrative costs.

BUSINESS ACQUSITION

On July 28, 2021, the Company acquired all of the outstanding shares of One Moon Scientific (“OMS”) a software company based in New York, USA. OMS specializes in a suite of software tools to streamline and automate Magnetic Resonance ("MR") data analysis and management. Originally developed at a leading pharmaceutical company, this advanced software platform was designed from the ground up to be a powerful platform to provide routine, high-performance data processing and fill niches in MR data analysis, including machine learning and database construction/search algorithms. The base consideration paid for OMS was $346K in cash, the issuance of four promissory notes valued at US $350K (CAD $441K). The promissory notes can be settled at the option of Nanalysis either in: (i) USD cash or; (ii) Nanalysis common shares. The former shareholders of OMS may also receive an earn-out over the three years to December 31, 2024, based on future revenue growth objectives, this has been valued at $319K, based on probability of these targets being achieved. Transaction costs associated with the acquisition were $96K.

The acquisition was accounted for as a business combination. The Company determined the purchase consideration to be $1,106K,

comprised of the following:

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 3

Purchase Price Allocation:

Purchase Price Allocation:
($000's)
Cash	346
Promissory notes	441
Contingent consideration	319
Purchase consideration	1,106

The assets acquired and liabilities assumed are recorded at their fair value.

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Fair value recognized on
($000's) acquisition
LIABILITIES
Accounts payable and accrued liabilities 1
Unearned revenue 13
Deferred tax liability 258
Total liabilities 272
Net assets before cash and cash equivalents (272)
Cash and cash equivalents 2
Net assets (270)
Intangible assets 991
Goodwill 385
Purchase consideration 1,106
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On March 3, 2020, the Company acquired all of the outstanding shares of RS2D S.A.S. (“RS2D”), a technology company based in Strasbourg, France that designs and builds cutting-edge electronics components for precision analytical instruments. The base consideration paid for RS2D was $1,897K in cash and the issuance of 2.9 million common shares, which are subject to a three-year lock-up period restricting the sale of shares for specific periods. The former shareholders of RS2D may also receive an earnout over the three years to December 31, 2022, based on future revenue growth thresholds. As receipt of this earnout is not subject to any service requirement by the former shareholders, management concluded the earnout was part of the purchase consideration and assessed its fair value to be $Nil at the time of closing. Transaction costs for the acquisition were $268K. Subsequent to closing the Company paid $177K in 2021 and $276K amount in 2020 as earn out.

The acquisition was accounted for as a business combination. The Company determined the purchase consideration to be $3.9 million, comprised of the following:

Purchase Price Allocation:

Purchase Price Allocation:
($000's)
Cash 1,897 Common shares 2,030
Purchase consideration 3,927

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 4

The assets acquired and liabilities assumed are recorded at their fair value.

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Fair value recognized on
($000's) acquisition
ASSETS
Accounts receivable 823
Other receivables 418
Inventory 151
Prepaid expenses and deposit 180
Property and equipment 96
Right of use assets 530
Intangible assets 146
Total assets 2,344
LIABILITIES
Accounts payable and accrued liabilities 1,301
Warranty provision 64
Unearned revenue 808
Lease liabilities 524
Debt and repayable contributions 903
Total liabilities 3,600
Net assets before cash (1,256)
Acquired cash 688
Net assets (568)
Intangible assets 4,495
Purchase consideration 3,927
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_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 5

Magnetic Resonance Test, Measure and Dianostic Systems

Nanalysis Scientific Corp.’s line of magnetic resonance imaging and spectroscopy systems are designed to offer accessible and affordable options to proliferate the use of this powerful technique in underserved markets (e.g., academia, small & medium enterprise chemical production, etc.), industrial QA/QC assays (e.g., pharma/biotechnology, materials/polymers, cannabis, food, etc.), process control (e.g., crude refining, chemical production), and point-of-need diagnostics ( e.g ., ski hills, doctor’s offices etc.).

By powering the entire range of magnetic resonance products on one electronic platform, the Cameleon 4 or Cam4[TM] , and building tailored software layers from the ground up, Nanalysis can optimize data acquisition, processing, analysis, and integrity. Additionally, it provides the flexibility to provide automated software layers to ensure that these products can be operated by non-experts without compromising repeatability or reliability of the results.

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Bridging the Gap in MR Accessibility

MRI and nuclear magnetic resonance (“NMR”) spectroscopy have long been the workhorse in medical diagnostics and chemical analysis. However, given the capital and operating expenditures of these instruments, they are often limited by accessibility and other, often lesser techniques, are used to supplement the need. To address this issue, in 2009, Nanalysis Scientific Corp.’s first focus was on developing powerful, extremely uniform, permanent magnetbased systems that were more affordable and require little to no maintenance.

Launching its first platform, the 60 MHz in 2012, and the market-leading 100MHz in 2019 Nanalysis decided to expand its magnetic resonance portfolio to offer high-field NMR electronics and accessories and MRI for pre-clinical and OEM applications.

Hardware Technlogy Portfolio

			Underserved Traditional MR Markets	Underserved Traditional MR Markets
			Teaching	Research	Industrial QA/QC	Process	Diagnostics
	60 MHz		✔		✔	✔
Benchtop	100 MHz		✔	✔
NMR	Accesso-	Flow		✔		✔
	ries	AUTOSample		✔	✔
HF-NMR	Pulse NMR Console		✔	✔	✔
	Gecho			✔
MRI	Cam 4 Con- sole		✔	✔			✔
	NMRGUi		✔	✔	✔
Software	SPINit		✔	✔			✔
	OneMoon		✔	✔	✔	✔	✔

Benchtop NMR 60 MHz 60 MHz Platform

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The initial flagship product of Nanalysis Scientific Corp., the 60 MHz is the most compact, high-performance model in its class. Shipping commercially since 2012, there are almost 1000 instruments in the field in a variety of applications including academia and industrial QA/QC assay and with process chemistry innovator and early adopter adopters.

To grow the market of the 60 MHz product line, Nanalysis is actively working with collaborators in method development to provide the necessary software layers to simplify and automate data analysis and maintain data integrity in several fields (e.g., cannabinoid detection, lithium quantification in brine).

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 6

Benchtop NMR 100MHz

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High-field NMR

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High-field NMR

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MRI

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100 MHz Platform

With market-leading, unparalleled resolution, the 100 MHz platform was announced to meet the high-end needs of customers needing higher sensitivity and resolution than the 60 MHz platform. It’s easy-to-use, ergonomic touchscreen, and unparalleled data has been well received in the market since it began shipping in late 2020.

Pulse NMR Console

Aimed as an OEM console for magnet manufacturers, this compact electronics platform can be incorporated on existing super conducting systems ranging from 200-600 MHz. By combing the benchtop NMR with the Pulse NMR Console, Nanalysis is posed to offer full analytical solutions to a variety of laboratories ranging from academia, government, and industrial research through industrial QA/QC.

Gecho

NMR is largely considered to be the most information rich analytical technique available to chemists, however, its only major drawback is that it is limited in sensitivity when compared to ultra-sensitive characterization techniques (e.g., Mass Spectrometry (“MS”)). One breakthrough in the field has come with the discovery of hyperpolarization methods that allow for significant sensitivity enhancements. The Gecho is Nanalysis’ answer to this important research field and is aimed at improving industrial QA/QC.

Cameleon 4 Console

The Cam 4 console provides a compact and affordable alternative to facilitate adoption of MRI in teaching and to springboard MRI innovations to provider safer, high-resolution instruments and develop necessary software for earlier identification with key OEM partners.

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 7

Software Portfolio

NMRGui

The onboard Nanalysis user interface enables one-click data acquisition and processing for the benchtop NMR product line. The interface was designed to simplify usage for non-experts while still providing more advanced users with the flexibility to modify acquisition parameters, or experiment sequences as required. This python-based software operates on a Linux operating system to allow users to write their own applications while also ensuring with data integrity and automation in mind to allow users to write their own applications.

SPINit

SPINit is an all-in-one MR software platform to facilitate data acquisition, processing and high-level pulse programming for High-field NMR and MRI product lines. As competitive software packages require coding knowledge and expertise to develop experiments, the SPINit design

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philosophy focused on transparency and usability to generate experiments directly from a graphical interface without requiring coding. There are several optional plug-ins to the SPINit workflow to tailor workflow and automation to the user including SPINplanner (to control an autosampler) and Driver (to launch acquisition from any software).

NMRFx

The newest component to Nanalysis’ MR offerings, the One Moon Scientific Platform offers a suite of premium software tools to streamline and automate MR data analysis and management. Originally developed in a leading pharmaceutical company, this advanced software platform was designed to be a powerful platform to provide routine, high-performance data processing and fill niches in MR data analysis, including machine learning and database construction/search algorithms.

By combining these premium data analysis tools with the NMRGui software interface, Nanalysis can start offering the analyzer, appification of MR solutions it has been validating.

TECHNOLOGY UNDER DEVELOPMENT

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Permanent magnet Based MRI

By combining the Cam4[TM] console with Nanalysis innovative core competencies of making unique, highly homogenous, permanent magnet arrays, in the future Nanalysis will be working to make a series of portable MRIs that can be located at point of need to accelerate diagnostics of sprains and facilitate the early detection of tumors.

Robust Industrial Detector

The unique magnet designs at Nanalysis enable the development of an industrial-hardened spectrometer capable of being incorporated directly into chemical production and refinery type applica-

tions. With high-pressure and high-temperature sampling and explosion proof requirements, Nanalysis is working to use their existing benchtop NMR platforms to develop an online sensor that can improve safety, limit by-product formation and improve yields in a completely automated sense.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 8

SELECTED FINANCIAL INFORMATION

SELECTED FINANCIAL INFORMATION
($000's except share information amounts)	Twelve months ended December 31
	2021 2020 2019
Financial results Revenue Gross profit Earnings (loss)	16,043 7,874 8,364 10,240 5,167 6,060 (1,772) (3,678) (1,660)
Share Information Earnings (loss) per share (basic and diluted) SharePrice (December31)	(0.03) (0.06) (0.03) 1.45 0.48 0.48
Other Information Capitalized property plant and equipment Capitalized development expenditures	595 427 545 2,203 2,474 2,594
($ 000's)	December<br>31,2021<br>December 31,2020 `December 31,2019
Financial Position Total assets Total debt obligations (includes current portion) Total liabilities Shareholders' Equity	37,793 23,989 18,306 4,215 3,024 1,507 13,832 9,645 3,187 23,961 14,344 15,119

FINANCIAL POSITION

At December 31, 2021, the Company had $13,163K (December 31, 2020 - $3,049K) of working capital, including $10,405K (December 31, 2020 - $3,158K) in cash. The following significant transactions occurred in 2021 and early 2022, directly improving the financial position of the Company:

• August 25, 2021 the Company closed a bought deal public offering and a non-brokered private placement for gross proceeds of $10,998K.

• February 11, 2022 the Company closed an upsized public offering and a non-brokered private placement for gross proceeds of $15,224K.

• March 17, 2022 the Company received interest free repayable funding commitment of $4,985K to expand manufacturing operations from the Canadian government.

• The Company has undrawn credit facilities of approximately $2,000K.

The funds on hand will be used to accelerate organic growth, continue product development and expansion of manufacturing facilities and to continue the Company’s acquisition strategy.

OVERALL PERFORMANCE

For the twelve months ended December 31, 2021, the Company reported consolidated revenue of $16,043K, an increase of $8,169K or 104% from the comparative period in 2020. The increase in revenue is due to the completion of ongoing RS2D contract milestones and shipments of Nanalysis’ new flagship product: the 100MHZ spectrometer. As at December 31, 2021 Nanalysis has $3,503K of backlog associated with the 100MHz, of which $679K has been prepaid by customers and is recorded in unearned revenue on the balance sheet. During the year the Company doubled its manufacturing facility, the additional manufacturing capacity will allow for increased production and quicker fulfillment of 100MHz backlog in 2022.

Gross profit for twelve months ended December 31, 2021, was $10,240K (gross margin of 64%) compared to gross profit of $5,167K (a margin of 66%) for the twelve months ended December 31, 2020.

The Company's net loss for the twelve months ended December 31, 2021, was $1,772K as compared to a loss of $3,678K for the comparable period of 2020. The overall improvement to net loss for the twelve months ended December 31, 2021, was due to the significant increase of revenue and decreased business acquisition costs. The year over year improvement has been partially offset by increased sales and marketing, general and administration, research and development, increased depreciation and amortization, increased stock-based compensation, decrease finance income, increased foreign exchange loss and RS2D severance in the year.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 9

DISCUSSION OF OPERATIONS

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Three months ended December 31 Twelve months ended December 31
($000's) 2021 2020 ($) Change 2021 2020 ($) Change
Revenue 5,077 2,680 2,397 16,043 7,874 8,169
Cost of products sold 1,985 930 1,055 5,803 2,707 3,096
Gross profit 3,092 1,750 1,342 10,240 5,167 5,073
Expenses
Sales and marketing 1,295 1,022 273 4,011 3,239 772
General and administration 1,269 987 282 3,681 3,096 585
Research and development 115 437 (322) 643 476 167
Earnings (loss) before other items 413 (696) 1,109 1,905 (1,644) 3,549
Other items
Business acquisition costs 98 - 118 194 268 (74)
Depreciation and amortization expense 620 430 190 2,505 1,681 824
Stock-based compensation 245 102 143 591 416 175
Finance expense (income) 66 (242) 308 (2) (328) 326
Foreign exchange loss 120 2 118 38 18 20
RS2D earn-out & severance 176 276 (100) 351 276 75
Loss before tax (912) (1,264) 352 (1,772) (3,975) 2,203
Deferred tax recovery (254) (39) (215) - (297) 297
Net loss (658) (1,225) 567 (1,772) (3,678) 1,906
Other comprehensive income (2) 33 (35) (50) 215 (265)
Total comprehensive loss (660) (1,192) 532 (1,822) (3,463) 1,641
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Revenue

The Company derives revenue from two operating segments, Nanalysis and RS2D. Nanalysis has been involved in the development, manufacturing, and sales of MR spectrometers from inception in 2009. As such, all revenue is related to product sales and extended warranties. Nanalysis does not engage in consulting services or any other revenue generating activity unrelated to product sales. RS2D is a technology company based in Strasbourg, France which specializes in the manufacturing of cutting-edge electronics components for precision MR technologies, its revenue is derived from product sales, engineering services, licenses and contracted installation services of these products.

For the three months ended December 31, 2021 the Company reported revenue of $5,077K, a 89% increase from the $2,680K recognized for the comparable period December 31, 2020. The increase in revenue is due to RS2D completion of milestones, specifically work done on the OEM contract signed with Quad Systems, coupled with increased shipments of Nanalysis’ new flagship product, the 100MHz.

For the twelve-month period revenue the Company reported revenue of $16,043K as compared to $7,874K for the comparable period December 31, 2020. The significant increase of revenue is due to the aforementioned shipment of the 100MHz, coupled with increased revenue from RS2D and 60MHz benchtop sales.

Cost of products sold

Cost of sales for the Company includes the costs of manufacturing its products as well as the costs of servicing those products. The cost of sales for products comprises of raw materials, direct costs, direct labor, an allocation of overhead, freight charges, warranty and depreciation. The Company has consolidated manufacturing for both RS2D and Nanalysis to its facility in Calgary, Alberta.

Cost of products sold for the three months ended December 31, 2021 was $1,985K or 39 percent of revenue as compared to $930K or 35 percent of revenue for the same period of the prior year. On a dollar basis cost of product sold has increased due to more sales in the fourth quarter of 2021. Margin has compressed due to the increase of the cost of material linked to the worldwide supply constraints and inflation.

Cost of products sold for the year ended December 31, 2021, was $5,803K or 36 percent of revenue as compared to $2,707K or 34 percent of revenue for the comparable period of the prior year. On a dollar basis cost of product sold has increased due to more sales in 2021. Margin has compressed due to the aforementioned, specifically the fourth quarter impact on the year to date numbers.

Sales and marketing (“S&M”)

S&M expenses include the salaries, benefits and expense of the sales, commissions, marketing, business development, travel costs, selling and marketing expenses.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 10

S&M for the three months ended December 31, 2021 was $1,295K as compared to $1,022K for the same period of the prior year. The quarter over quarter increase is due to increases sales and associated sales commissions but also more travel and tradeshow expenses compared to last year when there was COVID-19 restrictions.

For the year ended December 31, 2021, S&M was $4,011K as compared to $3,239K for the same period of the prior year. The year over year increase is due to the aforementioned increased sales commissions and increased travel expense, as well as increased marketing expenses associated with the launch of the 100MHz.

General and administrative expenses (“G&A”)

G&A includes the cost of maintaining a corporate office, all publicly traded company-related expenses as well as the G&A incurred with respect to the day-to-day operation of the Company.

For the three months ended December 31, 2021, G&A was $1,269K as compared to $987K for the same period of the prior year. The increase for the three months ended is due increased salaries and wages due to overall increased head count, increased investor relations expense and increased audit fees partially offset by consolidation of the German office into the Strasbourg location.

For the year ended December 31, 2021, G&A was $3,681K as compared to $3,096K for the same period of the prior year. The year over year increase is due to the aforementioned increased in head count and investor relation expenses partially offset by the consolidation of the German office into the Strasbourg location.

Amortization and depreciation of property, plant, equipment and intangibles

For the three months and year ended December 31, 2021 amortization and depreciation was $620K and $2,505K respectively, as compared to $430K and $1,681K for the three months and year ended December 31, 2020. The increase for both the three and twelve month periods is due to the amortization of the intangible asset acquired on the acquisition of RS2D and the commencement of amortization of the intangible asset associated with the 100MHz product.

Finance income

For the three month period ended December 31, 2021, finance expense was $66K as compared to finance income of $242K for the same period of the prior year. Accounting treatment of interest free government loans results in income upon initial receipt of funds, no drawings on interest free debt occurred during the quarter resulting in no finance income.

For the year ended December 31, 2021 finance income was $2K as compared to $328K from the comparative period. The decrease is due to increased finance expense from the accretion of interest on zero interest government loans, this has been mostly offset by finance income derived from drawings on WINN loan #2 and the Regional Recovery Relief Fund in 2021.

Foreign exchange

Foreign exchange gains or losses typically occur when the exchange rate changes between the time revenue or expenses are recognized and when the resulting receivable is collected, or invoice is paid. Nanalysis conducts the vast majority of its business in US dollars and Euro’s.

RS2D earn-out & Severance

The Company accrued additional consideration of $175K for the shareholders of RS2D based on performance targets. There was also $176K of severance costs paid in 2021.The earn-out was paid in cash and shares. Total cash consideration was $232K and total number shares issued was 479,000. The shares are locked up as follows (i) one-third (1/3rd) on the day they were attributed, subject to a 4 month hold period as defined in the applicable TSX Venture Exchange policies; (ii) one-third (1/3rd) on 31 January 2022; and (iii) the remaining proportion after 31 January 2023.

SUMMARY OF QUARTERLY RESULTS

The following table highlights revenue, cash used in operating activities, net earnings (loss) and earnings (loss) per share for the eight most recently completed quarters ended December 31, 2021.

($000's)	Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 2020 2021
Revenue Cash (used in) generated from operating activities Net earnings (loss) for the period Loss pershare basic and diluted	5,077 3,336 4,343 3,277 2,680 1,700 1,995 1,523 (1,511) 312 (367) 823 (1,141) 518 (562) 563 (658) (857) 222 (910) (1,225) (1,099) (525) 10 (0.01) (0.01) - (0.01) (0.02) (0.02) (0.01) (0.01)

• Q4 2021 continued to see a significant increase to revenue and lead to a strong YTD revenue, results were slightly hindered due to severance costs, increased stock-based compensation, increased depreciation and amortization and slightly reduced margins.

• Q3 2021 continued to trend similar to the previous quarters, with a 96% increase in revenue compared to the three months ended of Q3 2020. The increased revenue also resulted in increased operating results to both income before other items and overall decreased net loss.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 11

• Q2 2021 continued to see a significant increase to revenue and overall operating results stemming from strong demand for the 100MHz product.

• Q1 2021 saw increased results in all aspects of the business. Q1 2021 is the second quarter of shipping the new 100MHz product, these shipments coupled with the completion of outstanding RS2D contracts attributed to the 115% period over period increase to revenue.

• Q4 2020 marked the first quarter that that had revenue associated with the shipment of Nanalysis’ new product, the 100MHz. The Company was able to ship out four systems at the end of Q4, this, coupled with performance of RS2D on contract work that they were able to complete despite delays due to COVID-19 travel restrictions, resulted in a 26% increase compared to Q4 2019.

• Q3 2020 continued to be impacted by COVID-19 as RS2D employees were unable to travel to complete installations, in addition Nanalysis saw lower sales due to its customers’ capital budgets being impacted by COVID-19. While macro forces negatively impacted sales at both our Nanalysis and RS2D segments, the acquisition of RS2D earlier in 2020 and the inclusion of its revenue in Q3 2020 (versus none in 2019) enabled sales to show a 4% increase overall.

• Q2 2020 was impacted by COVID-19, as borders and businesses shut down, the Company was impacted significantly on revenue, but continued to take pre-orders for the new 100MHz product in spite of reduced sales activity for the quarter.

• Q1 2020 completed the acquisition of RS2D, results were impacted by COVID-19 as borders and businesses alike shut down in the month of March.

INVESTMENT IN INTANGIBLES AND DEVELOPMENT COSTS

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(#000'S) December 31, 2021December 31, 2020
Net development costs 3,246 3,231
Less: government grants (1,043) (757)
Additions to intangibles 2,203 2,474
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The Company is engaged in research and development activities and has internally generated intangible assets. Total development costs are reduced by government grants with the net difference being capitalized. Government grants consist of federal grants received under the Industrial Research Assistance Program (“IRAP”) and scientific research and experimental development (“SRED”) tax credits, as well as provincial assistance through the Alberta Innovates (“AI”) Voucher Program and the Alberta Economic Development and Trade (“AEDT”) Alberta-Germany Collaboration Fund for Product Development and Commercialization, the AlbertaCanada-France Joint Industrial R&D Projects Program and CEWS for business affected by COVID-19.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 12

LIQUIDITY & CAPITAL RESOURCES

LIQUIDITY & CAPITAL RESOURCES
($000's)	December 31, 2021	December 31, 2020
Western Economic Diversification Canada (WINN #1) interest free loan
$496K repayable in monthly installments of $8K commencing June 30,
2017, and maturing February 28, 2023. Any amounts in default will incur interest at the Bank of Canada's interest rate plus 3% compounded	111	206
monthly. The obligation is recorded at its present value using a 7.04%
discount rate. This loan is unsecured.
Western Economic Diversification Canada (WINN #2) interest free loan,
repayable in monthly installments of $46K commencing February 1, 2022,
and maturing January 31, 2027. Total available under this loan is
$2,773K. Any amounts in default will incur interest at the Bank of	2,379	1,763
Canada’s interest rate plus 3% compounded monthly. The obligation is
recorded at its present value using a 6.0% discount rate. This loan is
unsecured.
The Canada Emergency Business Account (CEBA) interest-free loan of
$40K repayable on or before December 31, 2022. The obligation is recorded at its present value using a 6.0% discount rate. The loan is	40	38
unsecured.
Prêt garanti par l’état – (PGE) is a Euro denominated loan granted by the
French state to RS2D. The loan bears interest at 0.7% Interest and is
repayable in monthly installements of $2.5K commencing on July 20, 2021	130	145
and maturing June 20, 2026. The obligation is recorded as its present
value using a 2.5% discount rate. This loan is unsecured.
Procedure de sauvegarde, interest free Euro denominated loan repayable
in annual payments due in March, payments are $221K, $265K, $265K,
respectively, with the final payment maturing March 2024. The obligation	695	872
is recorded as its present value using a 2.5% discount rate. This loan is
unsecured.
Regional Recovery Relief Fund (RRRF) interest-free loan of $1.0 million
loan repayable in 35 consecutive monthly installments of $28K
commencing January 1, 2023. The obligation is recorded as its present
value using a 6.0% discount rate. Any amounts in default will incur interest	860	-
at the Bank of Canada's interest rate plus 3% compounded monthly. The
loan is unsecured. The Company does not have unconditional right to
defer payment, as such this liability has been recorded as current.
	4,215	3,024
Less: current portion	1,703	209
Non-currentportion of loans and borrowings	2,512	2,815

Credit facility

The Company has an undrawn line of credit agreement with a major Canadian financial institution, pursuant to which it may borrow up to maximum of $2,000K (“the Credit Facility”). Borrowings under the Credit Facility bear interest at prime plus 0.75%. Under the terms of the Credit Facility, the Company is required to comply with the following financial covenants:

• Current Ratio must be at least 1.10 to 1, as at December 31, 2021 the Company’s current ratio is 2.4 to 1.

The borrowing base is calculated using the aggregate of 75% of eligible USD receivables, 85% of eligible CAD investment grade receivables, and 50% of eligible inventory.

Promissory note

The Company issued as part of its consideration for the acquisition of One Moon Scientific four promissory notes for 82,472 common shares which at the date of acquisition were valued a price of C$1.34 per share resulting in a value of each promissory note of $87,500 USD. On the maturity date, the Company, at its sole option, shall repay the total indebtedness of the note by: (i) the issuance

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 13

of 82,472 common shares (ii) a USD cash payment equal to the value of 82,472 common shares using the volume weighted average of the closing sales prices of common shares on the TSX Venture Exchange Inc. during the five (5) trading days immediately preceding the maturity date and using the average of the Bank of Canada U.S. dollar daily exchange rate during the five (5) trading days immediately preceding the maturity date. The obligation is accounted for as a financial liability as a result of its settlement in a foreign currency that differs from the Company’s functional currency. The promissory note is unsecured and bears no interest. It is accounted for as a derivative financial liability and will be revalued to its fair value each period.

LEASE LIABILITIES

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($000's) December 31, 2021 December 31, 2020
Balance beginning of the year 752 371
Additions 784 62
Additions from RS2D acquisition (note 5) - 524
Interest expense 51 55
Lease payments (218) (239)
Foreign exchange (14) 34
Balance, end of the year 1,304 752
Current portion 262 225
Long-term portion 1,042 527
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During 2021 the Company renegotiated its lease for the manufacturing building located in Calgary Alberta. The Company extended the lease for five years, starting December 2021 and ending December 2026, while also doubling the size of the manufacturing facility.

The Company and its subsidiaries have commitments under leases for buildings, office space and vehicles with varying terms that expire between 2022 and 2026, captured in the below value. The approximate undiscounted lease payments remaining are as follows:

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($000's)
Year Lease Payments
2022 353
2023 345
2024 319
2025 252
2026 213
Thereafter -
Balance at December 31, 2021 1,482
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WORKING CAPITAL

($000's)	December 31,2021	December 31,2020	$Change
Cash	10,405	3,158	7,247
Loans and leases	5,519	3,776	1,743
Workingcapital(1)	12,116	3,049	9,067

(1) Working capital is calculated as current assets less current liabilities.

At December 31, 2021 the Company had $12,116K of working capital (December 31, 2020, – $3,049K), which included $10,405K of cash (December 31, 2020 - $3,158K), of which $424K was denominated in U.S dollars and 415K in Euro’s (December 31, 2020 $450K and 331K Euro, respectively). The primary reason for the increase in working capital is due to the cash inflow of $9,977K from the closing of a bought deal public offering and a non-brokered private placement in August 2021.

The Company’s objectives when managing capital are to safeguard the Company's ability to continue as a going concern, and manage capital so that it can continue to provide returns for shareholders and benefits for other stakeholders through the development and sales of its spectrometers. The Company attempts to maximize return to shareholders.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 14

The Company defines its capital as share capital, debt and contributed surplus. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company’s liquidity needs in short term and long term can be sourced multiple ways including: funds from operations, available cash balances, new debt instruments, equity issuances and government funding. The Company monitors its financing requirements through regular forecasting of its cash position. Financing decisions are based on the timing and extent of expected operating and capital cash outlays.

The Company has financed its capital requirements primarily through loans and share issuances since inception. The Company may issue new securities. The Company is not subject to any externally imposed capital requirements.

FINANCIAL MANAGEMENT

	Twelve months ended	December 31,
($000's)	2021	2020	$Change
Cash generated provided by (used in):
Operating activities	(1,199)	(623)	(576)
Investing activities	(3,347)	(4,110)	763
Financingactivities	11,793	1,272	10,521
Increase(decrease)in cash	7,247	(3,461)	10,708

Cash flows used in operating activities increased for the twelve months ended December 31, 2021, from the same period in 2020 by $576K. The increase is due to decreased to non-cash working capital, this has been partially offset by increased earnings in 2021.

Cash flows used in investing activities decreased for the twelve months ended December 31, 2021, from the same period in 2020 by $763K. The decreased of funds used in investing activities was due to decreased development expenditures slightly offset by increased purchases of PPE and reduced acquisition expenses as RS2D was a larger cash outlay in 2020, as compared to the acquisition of One Moon Scientific in 2021.

Cash flows provided by financing activities increased for the twelve months ended December 31, 2021, from the same period in 2020 by $10,521K. The increase is due to the closing of a bought deal public offering and a non-brokered private placement in August 2021 for net proceeds of $10,179K.

AUGUST 2021 FINANCING – NET PROCEEDS $10,179K

Below is a reconciliation of the manner in which the net proceeds from the Company’s bought deal public offering were used by the Company compared to the disclosure in the Company’s final short form prospectus dated August 17, 2021. The table reflects the actual use of net proceeds as of December 31, 2021.

($000’s)
Principal Purpose	Estimated Allocation of Net Pro- ceeds ($)	Actual Use of Net Pro- ceeds ($)	Explanation of variances and the impact, if any, on your company’s ability to achieve its business objectives and milestones
Expenses relating to the Offering (Underwriters' Fee and estimated Offering expenses)	910K	1,051K	The expenses related to the offering were higher than what was estimated.
Sales and marketing	250K	250K	The Company has applied $250,000 of the net proceeds for sales and marketing.
Research and development	500K	500K	The Company has applied $500,000 of the net proceeds for activities undertaken by the Company’s scientists and engineers to create new nuclear magnetic resonance ("NMR") products or improve existing NMR products.
Potential acquisitions	4,000K	Nil	The Company has not applied any of the net proceeds in connection with potential acquisitions. The remaining approximately $4,000,000 is expected to be used in the next 18-month period.
Working capital for future acquisitions	440K	Nil	As at December 31, 2021, the Company had sufficient working capital for future acquisi- tions. The remaining $440,000 is expected

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 15

			to be used for working capital and general corporate purposes in the next 12-month pe- riod.
Capital equipment	400K	227K	The Company has applied $227,000 of the net proceeds for the purchase of office fur- niture, computer hardware, manufacturing equipment and leasehold improvements. The remaining approximately $173,000 is expected to be used in the next 6-month period.
Procedure de sauvegarde - debt negotiation	450K	Nil	The Company did not use any of the net pro- ceeds for this purpose as the creditors did not accept the offers of settlement. The re- maining $450,000 is expected to be used for working capital and general corporate pur- poses in the next 12-month period.

SHARE CAPITAL

[a] Authorized

Unlimited number of common shares, without nominal or par value Unlimited number of Class A voting preferred shares without par value Unlimited number of Class B non-voting preferred shares without par value

[b] Issued

Public offering and concurrent private placement

On August 25, 2021 the Company completed a public offering and a concurrent private placement of units. The combined offering resulted in the Company issuing 9,165,000 units at a price of $1.20 per unit for gross proceeds of $11,000K. Each unit consists of (1) common share and one-half (1/2) of one common share purchase warrant. Each full warrant entitles the holder to acquire one common share of the Company at the exercise price of $1.70 per share for a period of two years.

Common shares

At December 31, 2021 Nanalysis had 77,166,000 common shares outstanding. There are 2.1 million shares under lock up issued for the acquisition of RS2D, these common shares are scheduled for release as follows:

• 159,667 on January 31, 2022

• 870,000 on March 3, 2022

• 159,667 on January 31, 2023

• • 870,000 on March 3, 2023

• [i] During the year ended December 31, 2021 the Company issued the following common shares:

  • 1,335,000 shares upon the exercise of options and RSUs for cash consideration of $494K

  • • 479,000 shares issued as partial payment for the RS2D earn-out

  • 9,315,000 shares issued through issuance of common shares for cash.

• [ii] During the year ended December 31, 2020 the Company issued the following common shares:

  • 777,000 shares upon the exercise of options for cash consideration of $242K

  • 2,900,000 shares issued at a price of $0.70 for the acquisition of RS2D.

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 16

[c] Earnings per share

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Twelve months ended
December 31,
($000's) except for number of shares 2021 2020
Numerator `
Income (loss) attributable to common shares ($) (1,772) (3,678)
Denominator
Weighted average number of shares for basic earning per
70,402 65,324
share calculation (000's)
Weighted average number of shares for diluted earning per
share calculation (000's) 70,402 65,324
Loss per common share ($/share) (0.03) (0.06)
Diluted loss per common share ($/share) (0.03) (0.06)
----- End of picture text -----

[d] Stock options

The Company has a stock option plan that provides for the issuance of options to eligible persons. The option price under each option granted must be no less than the discount market price defined by the TSX-V. The term of the options must be no longer than 5 years and the directors determine the vesting period, which is typically 3 years. The maximum number of outstanding options must be no more than 10% of the issued and outstanding common shares at any point in time, the 10% includes both stock options and restricted share units in aggregate. The maximum number of outstanding options issued for investor relations must be no more than 2% of the issued and outstanding shares and the options issued to investor relations must vest in stages over a 12 month period with no more than one quarter of the options vesting in any three month period.

		Weighted Average
	Number	Exercise Price
		$
Balance, December 31, 2019	3,893,500	0.46
Granted	1,767,500	0.60
Exercised	(776,250)	(0.31)
Forfeitures	(197,500)	(0.60)
Balance, December 31, 2020	4,687,250	0.53
Granted Q1	1,148,000	0.60
Granted Q3	175,000	1.47
Granted Q4	275,000	1.47
Exercised	(1,255,499)	(0.37)
Forfeitures	(136,417)	0.45
Balance, December 31, 2021	4,893,334	0.62

During the years ended December 31, 2021 and 2020, the Company recorded stock-based compensation expense of $591K and $416K, respectively, for stock options granted.

As at December 31, 2021 the Company had the following stock options outstanding and exercisable:

Exercise Price Number of Options Outstanding ($)	Weighted Average Life Number of Options Exercisable 0.08 45,000 0.87 186,000 3.26 1,269,444 2.53 66,667 4.51 4.79 - 5.00 - 4.71 - 3.25 1,567,111
0.42 45,000 0.45 186,000 0.60 4,012,334 0.75 200,000 1.24 50,000 1.30 100,000 1.50 200,000 1.70 100,000
4,893,334

[e] Restricted Share Units (“RSU”)

On March 24, 2021, the Company granted 40,000 RSU’s to each of three independent directors of the Company for a total of 120,000 RSUs. These RSUs vest in two stages, one half 18 months from the date of grant and one half 36 months from the date of grant. Each vested RSU entitles the holder to receive one common share of the Company. During the twelve months ended December 31,

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 17

2021, the Company recorded stock-based compensation expense related to RSU’s of $81K (twelve months ended December 31, 2020 - $24K).

Total RSU’s outstanding as of December 31, 2021 was 280,000 (December 31, 2020 – 160,000).

[f] Share purchase warrants

On August 25, 2021 the Company completed a public offering and a concurrent private placement of units. The combined offering resulted in the Company issuing 5,119,038 warrants that expire on August 25, 2023. As at December 31, 2021 all 5,119,038 outstanding warrants were vested and exercisable at a price of $1.70. The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as units. The residual value method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component. The Company considers the fair value of common shares issued in these types of transactions to be the more easily measurable component and the common shares are valued at their fair value, as determined by the closing quoted bid price on the announcement date. The balance, if any, is allocated to the attached warrants. Any fair value attributed to the warrants is recorded to reserves. The fair value of the warrants was determined based on the residual value method to be $0.08 per warrant.

BUSINESS RISK AND UNCERTAINTIES

The Company has exposure to the following risks from its use of financial instruments:

• Credit risk;

• Liquidity risk;

• Market risk; and

• Interest rate risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

Credit risk

Credit risk is the risk of a financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk in the event of non-performance by counterparties in connection with its cash, accounts receivable, and other receivables. The Company’s maximum exposure to credit risk at December 31, 2021 is the carrying amount of cash, accounts receivable, and other receivables on the consolidated statements of financial position. The Company mitigates this risk by holding its cash in major Canadian financial institutions and performing credit enquiries on its customers.

Management regularly assesses the Company’s exposure to credit risk and provides allowances for potentially uncollectible accounts receivable as they become known. Although collection of these receivables could be influenced by economic factors, management considers the risk of significant loss to be mitigated by the number, reputation and nature of the companies with which the Company does business. Trade accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of the counterparty to engage in a repayment plan with the Company, and a failure to make contractual payments for a period of greater than 180 days past due. During the 12 months ended December 31, 2021, no receivables were recognized as bad debt expense (2020 - $107K).

Included in Other Receivables for 2021 is a Innovation Employment Grant of $600K and $400K of Credit impot Recherche (“CIR”) (2020 - $200K SR&ED refund, $800K of CIR).

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they come due. As of December 31, 2021, the Company had working capital of $12,116K (December 31, 2020 - $3,049K). The Company’s exposure to liquidity risk is dependent on its ability to capitalize on its research and development, ability to manufacture and deploy new products, sale of inventory, collection of accounts receivable and other receivables, the raising of funds to meet commitments, sustain operations, and continue research and development. The Company manages liquidity risk by management of working capital, cash flows, availability of borrowing facilities and share issuances.

Market risk

Market risk is the risk of loss that results from changes in market prices, market risk is comprised of foreign currency risk, interest rate risk and other price risks. The level of market risk to which the Company is exposed to depends on market condition, expectations of future price or market rate movements and the composition of the Company’s financial assets and liabilities. The Company regularly monitors market risk exposure, tolerance and control processes in order to manage the exposure related to changes in market risk and to stay within acceptable market risk limits.

[i] Currency risk

The Company is exposed to the financial risk related to the fluctuation of foreign exchanges rates. The majority of the Company’s sales are in U.S. dollars. The Company has not entered into foreign exchange derivative contracts.

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 18

The Company had the following assets and liabilities denominated in U.S. dollars at the end of period:

	December 31,	2021	December 31,	2020
($000's)	US$		US$
Cash		424		421
Accounts receivable	2,481			995
Accounts payable and accrued liabilities		(409)		(188)
Total	2,496		1,228

The above assets and liabilities were translated using an exchange rate of 1.27 at December 31, 2021 (2020 – 1.27). Based on the above net exposure as at December 31, 2021 and 2020, assuming that all other variables remain constant, a 10% appreciation or deterioration of the Canadian dollar against the U.S. dollar would result in a change of approximately $317K (December 31, 2020 - $156K) in the Company’s net earnings/loss. Total sales in U.S. dollars for December 31, 2021 was $5.2 million (December 31, 2020$3.4 million), a 10% appreciation or deterioration of the Canadian dollar against the U.S. dollar would result in a change of approximately $660K in revenue (December 31, 2020 -$431K).

As at December 31, 2021 and 2020, the Company had the following assets and liabilities denominated in Euros:

||December|31,|December|31,|
|---|---|---|---|---|
||2021||2020||
|(€000's)|Euro (€)||Euro (€)||
|Cash||415||331|
|Accounts receivable|1,294|||975|
|Inventory||127||228|
|Prepaids||154||67|
|Unearned revenue||(981)||(538)|
|Debt and lease liabilities||(835)||(980)|
|Accounts payable and accrued liabilities|(2,186)||(1,461)||
|Total|(2,012)||(1,378)||

The above assets and liabilities were translated at 1.44 at December 31, 2021 (December 31, 2020 - 1.56). Based on the above net exposure as at December 31, 2020, assuming that all other variables remain constant, a 10% appreciation or deterioration of the Canadian dollar against the Euro would result in a change of approximately $290K (December 31, 2020 $215K) in the Company’s other comprehensive income. Total sales in Euros for the year ended December 31, 2021 was €3.2 million (December 31, 2020 - €1.4 million) - a 10% appreciation or deterioration of the Canadian dollar against the Euro would result in a change of approximately $454K in revenue (December 31, 2020 - $225K).

[ii] Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in the market interest rates. During the year ended December 31, 2021 and 2020, fluctuations in the market interest rates had no significant impact on its interest expense.

REVENUE AND SEGMENT INFORMATION

($000's)
Twelve months ended December 31, 2021	Nanalysis	RS2D	Corporate	Total
Revenue	10,590	5,453		- 16,043
Operating earnings (loss)	3,136	735	(1,966) 1,905
Net income (loss)	1,407	(241)	(2,938) (1,772)
Depreciation and amortization	1,828	677		- 2,505
Capital expenditures	3,004	-		- 3,004
Total assets as at December 31, 2021	21,138	7,351	9,304 37,793

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 19

($000's)

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Twelve months ended December 31, 2020 Nanalysis RS2D Corporate Total
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||||||
|---|---|---|---|---|
|Revenue|5,731 2,143|- 7,874|
|Operating earnings (loss)|558 (694)|(1,508)|(1,644)|
|Net loss|(160)|(1,068)|(2,450)|(3,678)|
|Depreciation and amortization|1,345 156 180 1,681|
|Capital expenditures|2,736 165|- 2,901|
|Total assets as at December 31, 2020|14,441 7,726 1,822 23,989|

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GEOGRAPHIC LOCATION

During the twelve months ended December 31, 2021 the Company was not economically dependent on any customer accounting for more than 10% of revenue (December 31, 2020 – none). The Company’s revenues are allocated to geographic segments for the twelve months ended December 31, 2021 and 2020 as follows:

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($000's) December 31, 2021December 31, 2020
United States of America 6,560 3,446
Europe 4,690 1,522
Canada 883 391
Asia 1,358 710
Other (Brazil, Chile, India, Mexico, Morocco, Nigeria) 2,552 1,805
Total 16,043 7,874
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RELATED PARTY DISCLOSURE

Key management personnel compensation

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the business activities of the Company, including all of its directors, along with certain executives. Directors are remunerated through a cash directors fee and participation in the stock option and RSU plans. Executive compensation is comprised of base salary, bonus, benefits and participation in the stock option and RSU plans. The Company does not have a defined benefit or actuarial pension plan. Key management personnel participate in the stock option plan. Total remuneration to key management personnel were as follows:

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Twelve months ended
December 31,
($000's) 2021 2020
Officer & director salaries, wages, fees & benefits 687 478
Stock-based compensation 147 129
834 607
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SUBSEQUENT EVENTS

On January 12, 2022 the Company closed the acquisition of K’(Prime) Technologies Inc. (“KPrime”) a North American sales and service company with a particular focus on scientific instruments for pharma, food, chemical and oil & gas customers, as well as imaging systems for security applications. The base consideration paid for KPrime is $3 million in cash and the issuance of 2.76 million Nanalysis shares, which are subject to a two-year lock-up period. The former shareholders of KPrime may also receive earnout consideration of up to $1.0 million over two years, based on future revenue objectives.

On January 18, 2022 the Company provided Quad Systems with a CHF 1,000K (CND $1,360K) loan which is convertible into 40,000 shares in the capital of Quad Systems. On March 08, 2022 the Company entered into a subscription agreement between the Company and QUAD Systems, the Company has been issued 260,000 QUAD Systems shares for a subscription price of CHF 6,500K (CND $8,775K) and two representatives of the Company have been appointed to Quad Systems' Board of Directors. Currently, the Company owns 43% of Quad Systems. Additionally, until July 1, 2023 the Company has an option to acquire the remaining 57% of the issued and outstanding shares of Quad Systems, at a pre-set valuation formula in a combination of cash and Nanalysis shares. During the option period, the Company has a right of first refusal on all debt and equity offerings of Quad Systems.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 20

On February 11, 2022 the Company closed a best efforts marketed public offering of common shares of the Company, including the full exercise of the over-allotment option and a non-brokered private placement of common shares for combined gross proceeds of $15.2 million. Pursuant to the terms of the public offering and non-brokered private placement the Company issued 13,840,637 common shares.

On March 3, 2022 the Company's Board of Directors granted a total of 2,629,500 stock options and 60,000 restricted share units to its directors, officers and employees pursuant to the Company's stock option plan. Each option is exercisable to purchase one common share in the capital of the Company at $1.32 per share for a period of five years from the date of issuance. The options vest as to one-third on each of the 12-month, 24 month and 36 month anniversary date of grant.

On March 17, 2022 the Company received a funding contribution commitment of $5.0 million from the Canadian government. The funding is provided through Prairies Economic Development Canada’s Business Scale-up and Productivity program, which provides fast growing tech firms with support to scale-up and enter new markets. The grant is an unsecured interest free loan, the Company will draw down on the facility over the next three years with repayments commencing on September 1, 2025.

OFF-BALANCE SHEET ARRANGMENTS

The Company does not have any off-balance sheet financing arrangements.

NON - GAAP TERMS

The Company reports on certain key financial performance measures that are used by management to evaluate the performance of Nanalysis. These key financial performance measures are not recognized financial terms ("Non-GAAP Terms") under Canadian generally accepted accounting principles (Canadian "GAAP"). For publicly accountable enterprises, such as Nanalysis, Canadian GAAP is governed by principles based on International Financial Reporting Standards ("IFRS"). Management believes these NonGAAP Terms are useful supplemental measures.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company prepares its consolidated financial statements in accordance with IFRS. In preparing its financial statements, management is required to make various estimates and judgments in determining the reported amounts of assets and liabilities, revenues and expenses, as well as the disclosure of commitments and contingencies. Management bases its estimates and judgments on its own experience and various other assumptions believed to be reasonable at the time and under the circumstances in existence when the financial statements were prepared. Anticipating future events cannot be done with certainty; therefore, these estimates may change as new events occur, more experience is acquired or the Company's operating environment changes. More detailed information regarding the accounting estimates believed by management to require the most difficult, subjective or complex judgments and which are material to the Company’s financial reporting results are discussed in the Company’s Annual Financial Statements for the year ended December 31, 2021, Company’s profile on SEDAR at www.sedar.com.

ADDITIONAL CORPORATE INFORMATION

The Company is a publicly-traded Corporation listed on the TSX Venture Exchange under the symbol “NSCI”. Additional information relating to the Company, can be found on SEDAR at www.sedar.com .

FORWARD LOOKING STATEMENTS

This Management’s Discussion and Analysis (“MD&A”) contains certain forward looking statements and forward looking information (collectively referred to herein as “forward looking statements”) within the meaning of applicable Canadian securities laws. All statements other than statements of present or historical fact are forward looking statements. Forward looking information is often, but not always, identified by the use of words such as “could”, “should”, “can”, “anticipate”, “expect”, “believe”, “will”, “may”, “projected”, “sustain”, “continues”, “strategy”, “potential”, “projects”, “grow”, “take advantage”, “estimate”, “well positioned” or similar words suggesting future outcomes. In particular, this MD&A may contain forward looking statements relating to future opportunities, business strategies, development and production plans and competitive advantages.

The forward looking statements regarding the Company are based on certain key expectations and assumptions of the Company concerning anticipated financial performance, business prospects, strategies, regulatory developments, exchange rates, tax laws, the sufficiency of budgeted capital expenditures in carrying out planned activities, the availability and cost of labour and services and the ability to obtain financing on acceptable terms and future costs and expenses being based on historical costs and expenses, adjusted for inflation, all of which are subject to change based on market conditions and potential timing delays. Although management of the Company consider these assumptions to be reasonable based on information currently available to them, they may prove to be incorrect.

By their very nature, forward looking statements involve inherent risks and uncertainties (both general and specific) and risks that forward looking statements will not be achieved. Undue reliance should not be placed on forward looking statements, as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in the forward looking statements, including among other things: general economic and market factors, including business competition, changes in government regulations or in tax laws; component prices; technology development or operational activities; inability to scale manufacturing; changes in market demand; changes in international trade regulations, affecting the Company; timing and availability of external financing on acceptable terms; and lack of qualified, skilled labour or loss of key individuals; as well as those factors detailed from time to time in the Company's interim and annual financial

_____________________ Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 21

statements and management's discussion and analysis of those statements. Readers are cautioned that the foregoing list is not exhaustive.

The forward looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward looking statements included in this MD&A are made as of the date of this MD&A and the Company does not undertake and is not obligated to publicly update such forward looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws.

Nanalysis Scientific Corp. 2021 Management`s Discussion and Analysis 22