Q1 2025

Management's Discussion & Analysis

Nanalysis Scientific Corp.

NANALYSIS SCIENTIFIC CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED MARCH 31, 2025
AMOUNTS ARE STATED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS AND CERTAIN OTHER EXCEPTIONS AS NOTED

Forward Looking Statements...3
Overview...5
Critical Accounting Policies and Estimates...7

SCIENTIFIC EQUIPMENT SEGMENT...10

Product Overview...10
Technology Portfolio...11
Software Portfolio...13
Technology Under Development...13
Third Party Equipment Sales...14

SECURITY SERVICES SEGMENT...15

Airport Security Maintenance Services...15
Commercial Security Services...15

FINANCE AND OPERATIONS...16

Overall Performance and Discussion of Operations...17
Investment in Capital Development Costs and Research and Development Expenditures...22
Summary of Quarterly Results...22
Selected Annual Financial Information...24

LIQUIDITY & CAPITAL RESOURCES...24

Loans and Borrowings...25
Lease Liabilities...28
Financial Management...29

SHARE CAPITAL...31

REVENUE AND SEGMENT INFORMATION...34

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT...35

RELATED PARTY DISCLOSURE...40

SUBSEQUENT EVENTS...41

nanalysis

READER AND FORWARD-LOOKING STATEMENT ADVISORY

The Management's Discussion and Analysis ("MD&A") for the three-month period ended March 31, 2025, of the financial condition and results of operations of Nanalysis Scientific Corp. ("the "Company" or "Nanalysis"), is prepared as at May 27, 2025. This discussion should be read in conjunction with the Company's interim condensed consolidated financial statements (hereafter referred to as the "financial statements" or "interim condensed consolidated financial statements") for the period ended March 31, 2025, and notes thereto. Other information on Nanalysis, including the Company's Annual Information Form, is available on SEDAR+ at www.sedarplus.ca and on the Company's website at www.nanalysis.com.

This MD&A and the interim condensed consolidated financial statements were reviewed by the Audit Committee of the Company's Board of Directors and approved by Nanalysis' Board of Directors on May 27, 2025. All dollar figures are in thousands of Canadian dollars, except per share amounts or unless otherwise stated.

This discussion should not be considered all-inclusive as it does not include all changes regarding general economic, political, governmental and environmental events. Certain comparative figures in this MD&A have been reclassified to conform with the presentation adopted in the current period.

Forward Looking Statements

This 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 included herein that address activities, events, or developments that Company expects or anticipates will or may occur in the future 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 or phrases suggesting future outcomes. In particular, this MD&A may contain forward-looking statements relating to: the continued stability in the Scientific Equipment segment through 2025; the replacement of units; the expectations regarding the Security Services segment; revenue increases from the Airport Security Maintenance Business; the issuance of new securities by the Company; expectations regarding cost reduction or efficiency improvement plans; future revenue, operations, 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, tariffs and international trade relations, 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 considers these assumptions to be reasonable based on information currently available to them, they may prove to be incorrect. Additionally, in the normal course of operations, the Company may become involved in, named as a party to, or be the subject of, various legal proceedings. The outcome of outstanding, pending, or future proceedings cannot be predicted with certainty. For claims in which outcomes are not determinable, no provision for settlement has been made in the consolidated financial statements.

By their very nature, forward-looking statements involve inherent risks, uncertainties (both general and specific) and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from any future results,

performance, or achievements expressed or implied by the forward-looking statements. A number of important factors could cause the actual events or 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; the ability of the Company to maintain its debt covenants and servicing requirements, 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 statements, the management's discussion and analysis of those statements, and in the Company's annual information form filed with regulators in Canada at www.sedarplus.ca. Readers are cautioned that the foregoing list is not exhaustive.

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those contained in forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, investors should not place undue reliance on forward-looking statements or information.

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

Business overview

Overview

The Company is the ultimate parent in the group. In June 2019, the Company completed a reverse takeover ("RTO") and obtained a listing on the TSX-V under the symbol "NSCI". 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 carries out its business within two reportable business segments: Scientific Equipment and Security Services.

Scientific Equipment Segment

Nanalysis 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.

The scientific equipment segment is primarily engaged in the development and distribution of MR technology into industrial, research and teaching markets through the sale 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 pharmaceutical, academia, mining, oil and gas, and the cannabis industry, among others. Founded in 2009 with the specific intent of developing the world's first portable MR spectrometer, Nanalysis aimed to address the three main limitations of this powerful MR technique – affordability, accessibility and automatability. After approximately four years of development, Nanalysis began shipping its first commercial product in 2012. Since then, Nanalysis has expanded the platform's functionality, including launching its 100MHz instrument, which has the highest usable field on a fully featured benchtop NMR on the market, to address industrial market demands for increased performance metrics. In 2024, the Company continued to develop its 60Mhz and 100Mhz platforms to further improve manufacturability and continue to enhance end user experience. In early 2025, this resulted in the launch of its new 60MHz instrument which is based on the successful 100MHz product line.

nanalysis

In March 2020, the Company acquired all outstanding shares of RS2D S.A.S., 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"), Nuclear Magnetic Resonance ("NMR"), and Magnetic Resonance Imaging ("MRI") that can further advance Nanalysis' existing product lines in the Scientific Equipment segment, while rounding out the Company's MR technology portfolio.

In July 2021, the Company acquired One Moon Scientific ("OMS"), a software company based in New York, USA, specializing in a suite of software tools to streamline and automate MR data analysis and management.

In January 2022, the Company acquired K'(Prime) Technologies Inc. ("K'Prime"). Founded in 1997, K'Prime is a North American sales and service company, with a particular focus on scientific instrumentation for pharma, food, chemical and oil & gas customers, as well as imaging systems for security applications. Within the Scientific Equipment segment, the Company carries on providing manufacturer representative services as an outsourced sales force for original equipment manufacturers of chemical analysis laboratory instrumentation and providing ad hoc maintenance and other services on the same equipment.

Nanalysis continued to expand its presence in the NMR market with its 43% strategic investment in QUAD Systems AG ("Quad") in 2022, a company based in Zurich, Switzerland that offers traditional MR technology with innovative solutions to address long standing limitations of MR technology, including accelerated data acquisition and improved sensitivity in biological samples. In April 2023, Quad launched its full high-field NMR system with a minimum resolution of 400MHz. Nanalysis supports Quad with the development and manufacturing of an NMR console capable of resolutions from 300MHz to 800MHz.

For the year ended December 31, 2024, the Company identified impairment indicators related to its investment in Quad, as well as a loan advanced to Quad in 2023. The Company conducted an impairment analysis on Quad using the discounted cash flow method and expected credit losses method for the investment and loan, respectively, and determined that both should be fully impaired as at December 31, 2024.

The Company maintains a focused, direct sales force in the United States, Germany, France, and Canada, and works through a channel of distributors and dealers in other geographical areas to ensure penetration in the current market.

Security Services Segment

The Company's Security Services segment provides preventative and on-call maintenance services for technological detection equipment in a variety of security verticals as well as general sales and maintenance of commercial security equipment. Since the Company's acquisition of K'Prime in January 2022, the Company has been providing services for original equipment manufacturers and individual customers in service lines such as airport security equipment maintenance, secure facility detection equipment maintenance, and installation of such equipment. In May 2022, the Company was awarded a five-year, $160 million contract to provide airport security equipment maintenance services within Canada. This contract allowed the Company to materially expand its security services business by providing preventative maintenance, on-call maintenance, and ad-hoc services in Canadian airports through the second quarter of 2028, with two five-year renewal periods at the customer's option. Upon adding this new service (the "Airport Security Maintenance Business"), the Company expanded this segment rapidly. The Company began ramping up the Airport Security Maintenance Business in 2022 and completed its rollout of all essential services in all required locations in January 2024.

Currently, the Company has over 130 employees in the Security Services segment and operates in each province and territory in Canada, as well as in limited US markets. The Company provides preventative maintenance, corrective maintenance, and additional project work related to the Airport Security Maintenance Business in up to 89 active airports and training locations in Canada. This entails having technicians stationed in 24 primary locations while travelling for maintenance work in satellite locations tied to the primary location. Under the existing airport security maintenance contract in Canada, the Company must maintain strict response times in the event of equipment breakdown or malfunction and provide on-call services in its primary locations. Required response times required vary from airport to airport. In addition, the Company provides inventory services to the customer by maintaining certain spare parts stock at various locations within Canada. This involves the Company monitoring inventory levels, ordering, and distributing inventory within Canada on behalf of the customer. With the project roll-out complete, the Company continues to enhance efficiency in this business and complete additional project work for the customer. Currently, this constitutes the majority of the Company's security services segment.

In addition, the Company provides installation and maintenance for a wide spectrum of security equipment, including security cameras, access controls, and screening systems, including millimeter wave and X-Ray technology within both Canada and the United States, to a variety of customers. The Company is continuing to pursue growth initiatives in its services business, including exploring expansion within the scientific instrumentation industry and providing services to customers of the Benchtop NMR and MRI business.

The Company expects to expand all businesses within the Security Services segment by adding new customers and service agreements in the future.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements and this MD&A requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Notes 2 and 3 of the Company's audited consolidated financial statements as at and for the year ended December 31, 2024, contain a description of the accounting policies, judgements, estimates and assumptions that are considered significant.

nanalysis

Non-IFRS and Supplementary Financial Measures

The Company prepares and reports its financial statements in accordance with IFRS as issued by the International Accounting Standards Board, as adopted by the Canadian Accounting Standards Board. However, this MD&A may make references to certain non-IFRS measures, including key performance indicators used by management. These measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are, therefore, unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, these measures should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS.

The Company uses non-IFRS measures, including Flow-through inventory revenue and costs, Security services revenue and costs, Loans and leases, and Adjusted Earnings Before Interest, Tax, Depreciation and Amortization ("Adjusted EBITDA"), which may be calculated differently by other companies. These non-IFRS measures and metrics are used to provide investors with supplemental measures of the Company's operating performance and liquidity and thus highlight trends in the Company's business that may not otherwise be apparent when relying solely on IFRS measures. The Company also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of companies in similar industries. Management also uses non-IFRS measures and metrics to facilitate operating performance comparisons from period to period, to prepare annual operating budgets and forecasts, and to determine components of executive compensation.

Security Services Revenue

($000's)	Three months ended March 31
	2025	2024	($) Change
Security services revenue	5,023	4,723	300
Flow-through inventory revenue	1,884	2,223	(339)
Total Service Revenue	6,907	6,946	(39)
Security services costs	4,724	4,355	369
Flow-through inventory costs	1,884	2,223	(339)
Total Cost of Services	6,608	6,578	30

Loans and Leases

($ 000's)	March 31, 2025	December 31, 2024
Total loans and borrowings net of finance fees	14,025	16,157
Lease liabilities	1,988	2,204
Loans and Leases	16,013	18,361

nanalysis

Adjusted EBITDA

($000's)	Three months ended March 31
	2025	2024	($) Change
Net loss	(1,307)	(2,522)	1,215
Depreciation and amortization expense	924	1,152	(228)
Finance expense	327	354	(27)
Stock-based compensation	131	260	(129)
Other (income) expenses	(138)	254	(392)
Amortization of deferred wages	190	190	-
Loss from associate	-	200	(200)
Current income tax expense	27	32	(5)
Deferred income tax expense (recovery)	26	(24)	50
Adjusted EBITDA	180	(104)	284

Supplementary Financial Measures

The Company may also use supplementary financial measures which are intended to be disclosed on a periodic basis to depict the historical or expected future financial performance, cash position, or cash flow of the Company, are not a non-IFRS measure, and are not presented in the financial statements. The measures as discussed in the MD&A include:

Working capital, which is defined as current assets less current liabilities;
Gross margin, which is defined as either Product sales less Cost of product sold, or, Security services revenue less Security services cost; and,
Gross margin percentage, which is defined as either (Product sales less Cost of product sold) divided by Product sales or (Security services revenue less Security services costs) divided by Security services revenue.

nanalysis

SCIENTIFIC EQUIPMENT SEGMENT

Product Overview

Magnetic Resonance Test, Measurement and Diagnostic Systems

The Company's line of MR 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 and medium sized enterprise based chemical production, etc.), industrial quality assurance and control assays (e.g., pharma/biotechnology, materials/polymers, cannabis, food, etc.), process control (e.g., crude refining, chemical production), and, in the long-term vision of the Company, point-of-need diagnostics (e.g., ski hills, doctor's offices etc.).

By powering most MR products on one electronic platform, the Cameleon 4 or $\mathrm{Cam4^{TM}}$, and building tailored software layers from the ground up, Nanalysis can optimize data acquisition, processing, analysis, and integrity. Additionally, it provides flexibility to add automated software layers to ensure that these products can be operated by non-experts without compromising repeatability or reliability of the results.

Bridging the Gap in MR Accessibility

MRI and NMR spectroscopy have long been workhorses of medical diagnostics and chemical analysis. Given the capital and operating expenditures of these instruments, however, they are often limited by accessibility and other, often lesser techniques, are used to supplement these applications. To address this issue, in 2009, the Company's first focus was on developing powerful, extremely uniform, permanent magnet-based systems that were more affordable and required little to no maintenance.

Launching its first platform, the 60 MHz, in 2012, the flagship 100MHz in 2019, and its advanced 60MHz platform in 2025, Nanalysis continues to expand its MR portfolio to offer high-field NMR electronics and accessories, as well as MRI for pre-clinical applications.

Technology Portfolio

		Underserved Traditional MR Markets
		Teaching	Research	Industrial QA/QC	Process	Diagnostics
Benchtop NMR	60 MHz	☑	☐	☑	☑	☐
	100 MHz	☑	☑	☐	☐	☐
	Accessories - Flow	☐	☑	☐	☑	☐
	Accessories - AUTOSampler	☐	☑	☑	☐	☐
HF-NMR	QUAD NMR Console	☑	☑	☑	☐	☐
MRI	Cam 4 Console	☑	☑	☐	☐	☑
Software	NMRGUI	☑	☑	☑	☐	☐
	SPINit	☑	☑	☐	☐	☑
	NMRFx	☑	☑	☑	☑	☑

Nanalysis 60-TEACH
Nanalysis 60-NMR

The first commercial product of Nanalysis, the original 60 MHz is the most compact model in its class. Shipping commercially since 2012, there are almost 1,000 instruments in the field in a variety of applications within industries and market segments including academia, industrial QA/QC assay and process chemistry innovators and early adopters.

Most popular in the academic teaching space, the latest subproduct of this original line, the 60-TEACH, will give educators and researchers a high-quality product, unmatched in ease of use, at a competitive price point.

Launched in March 2025, the latest product from Nanalysis is the 60-NMR. Based on the successful 100-NMR platform, this next generation of the 60 MHz product offering provides superior NMR data in a standard 60 MHz field strength instrument. With a variety of optional software add-ons, this product advances Nanalysis' offering by bringing many of the same advances found in the 100-NMR Platform to a more compact, 60 MHz design.

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

Nanalysis 100-NMR

The flagship Nanalysis 100 MHz platform provides the highest usable field strength in a fully featured Benchtop NMR unit available today. Developed to meet the requirements of customers needing higher sensitivity and resolution than the original 60 MHz platform could provide, it's easy-to-use ergonomic touchscreen and unparalleled data has been well received in the market since it began shipping in late 2020.

With the launch of the new 60-NMR Platform in Q1 2025, the 100-NMR and 60-NMR offer two highly capable options to Nanalysis customers on a unified software platform.

High-field NMR

QUAD NMR Console

Aimed as an OEM console for magnet manufacturers, this compact high-field electronics platform can be incorporated on existing super conducting systems ranging from 300-800 MHz.

The Company currently manufactures these High Field NMR consoles for QUAD, in which the Company holds a 43% direct investment.

MRI

Cameleon 4 Console

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

nanalysis

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 data integrity and automation.

SPINit

SPINit is an all-in-one MR software platform to facilitate data acquisition, processing and high-level pulse programming for the Company's High-field NMR and MRI product lines. While competitive software packages require coding knowledge and expertise to develop experiments, the SPINit design philosophy is focused on transparency and usability to generate experiments directly from a graphical interface without requiring coding. There are several optional plug-ins to SPINit which allow for tailored workflow and automation to the user. These include SPINplanner (to control an autosampler) and Driver (to launch acquisition from any software).

NMRFx

The newest component to Nanalysis' MR offerings, the NMRFx 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 and search algorithms.

By combining these premium data analysis tools with the NMRGui software interface, Nanalysis offers analysis and application software tools alongside its NMR equipment offerings.

Technology Under Development

MRI Technology Platform

Nanalysis works on research projects with a variety of third parties to further develop its existing $\mathrm{Cam4^{TM}}$ console for MRI applications. Projects include improving the safety, innovation, portability, and economics for neonatal, intraoperative, and mobile MRI. Nanalysis also works on projects that apply MRI to non-human applications, such as the study of plants and other living things. These projects entail combining Nanalysis' innovative core competencies associated with MRI electronics and software with that of our research partner's expertise to develop next generation MRI technology. It is the Company's current vision to one day develop an FDA approved, application

specific, prevention centric MRI machine for human use, in partnership with companies experienced in the FDA approval process and system wide product knowledge. While this vision is many years away from becoming a reality, the Company's current commercial technology in the area of NMR spectroscopy, combined with MRI research activity and commercial console technology, is taking us towards our vision, while continuing to establish a solid business foundation.

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 applications. With high-pressure and high-temperature sampling as well as 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 manner.

Automated Industrial Analyzer

Benchtop NMR also lends itself to use in streamlining industrial quality control and quality assurance assays to get accurate, reliable, and quantitative information quickly without substantial expense or requiring a high level of technical expertise. Leveraging these inherent advantages, Nanalysis is developing an illicit drug analyzer to facilitate the rapid and accurate identification of known clandestine drugs and provide law enforcement officers a tool to aid rapid identification of new psychoactive substances.

Full High-Field NMR Systems

To offer traditional NMR users improved performance and innovative MR components, as well as improved product scalability, Nanalysis acquired a 43% equity stake in Quad and their team of experienced MR specialists, who have made significant contributions to the manufacture, integration, and development of NMR methods and components. In addition to using Nanalysis Cam4™ based consoles, Quad is entering the High-Field NMR market with full MR system upgrades and new installations in the academic, pharmaceutical, and chemical industry market. On April 18, 2023, Quad launched a full 400 MHz high-field NMR system in Monterrey, California, including the Company's High-Field NMR console.

Third Party Equipment Sales

The Company has a direct sales force in both Canada and United States that offers manufacturer representative sales services to a major chemistry equipment manufacturer in select sales territories in North America. The Company has a strong buyer network for these third-party sales and a long-standing relationship with its customer. The Company has begun efforts to combine its existing product offerings with its acquired equipment sales expertise to target new verticals.

nanalysis

SECURITY SERVICES SEGMENT

Airport Security Maintenance Services

The Company offers a variety of security service solutions, in particular specializing in the maintenance of large-scale and highly complex security systems, such as those used in airport security. In May 2022, the Company was awarded a six-year, $160 million contract to service and maintain airport security equipment in Canadian airports. This significantly expanded its existing footprint in the airport security market. The Company began to roll out the contract in the second quarter of 2022 and began providing services under that contract in the fourth quarter of that year. The Company continued to hire and train its workforce of over 130 employees throughout 2023, expanding services during the year. In January 2024, the Company completed its initial roll-out of the project and was providing all essential services under the contract in each required airport in Canada. Contracts such as this are commonly renewed for at least one additional five-year term, allowing for a potential long-term recurring business opportunity related to the Airport Security Maintenance Business.

Services provided by the security services group include scheduled preventative maintenance work, corrective maintenance work on both an on-call basis as well as by appointment, installation and upgrade projects related to both detection and general security equipment, and other technical maintenance services, as requested by its customer, on a wide variety of air passenger screening equipment.

Commercial Security Services

Through its security services business, the Company also provides installation and maintenance services for commercial security equipment such as scanning devices, metal detectors, detection equipment, and other general security equipment in Canada and the United States. Customers include companies in a variety of industries such as retail, property management, and agriculture.

NANALYSIS SCIENTIFIC CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED MARCH 31, 2025

AMOUNTS ARE STATED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS AND

CERTAIN OTHER EXCEPTIONS AS NOTED

nanalysis

FINANCE AND OPERATIONS

	Three months ended March 31
($000's)	2025	2024	($) Change
Product sales	3,687	4,216	(529)
Service revenue	6,907	6,946	(39)
Total sales and revenue	10,594	11,162	(568)
Cost of product sold	1,270	2,231	(961)
Cost of services	6,608	6,578	30
Total cost of sales	7,878	8,809	(931)
Gross profit	2,716	2,353	363
Expenses
Sales and marketing	1,089	1,055	34
General and administration	1,559	1,351	208
Research and development	143	309	(166)
Loss before other items	(75)	(362)	287
Other Items
Depreciation and amortization expense	859	1,084	(225)
Finance expense	327	354	(27)
Stock-based compensation	131	260	(129)
Other (income) expenses	(138)	254	(392)
Loss from associate	-	200	(200)
Loss before tax	(1,254)	(2,514)	1,260
Current income tax expense	27	32	(5)
Deferred income tax expense (recovery)	26	(24)	50
Net loss	(1,307)	(2,522)	1,215
Other comprehensive (loss) income	(139)	103	(242)
Total comprehensive loss	(1,446)	(2,419)	973
Share Information
Loss per share (basic and diluted)	(0.01)	(0.02)	0.01
Share price (March 31, 2025)	0.28	0.41	(0.13)
Other Information
Capitalized property plant and equipment	54	137	(83)
Capitalized intangible assets	535	529	6
($ 000's)	March 31, 2025	March 31, 2024
Financial Position
Total assets	38,531	53,979
Total loans, repayable contributions, notes and leases	16,013	18,053
Total liabilities	24,300	28,206
Shareholders' equity	14,231	25,773

See Footnote 2

1 Total loans, repayable contributions, notes, and leases include current and long-term portions of promissory notes, lease liabilities, and long-term debt/repayable contributions.

nanalysis

Overall Performance and Discussion of Operations

Scientific Equipment Outlook and Gross Margin

Revenue and Outlook – Scientific Equipment

Scientific Equipment segment revenue is generated from sales of Benchtop NMR equipment, MRI equipment and contracted MRI installation services, licenses and software sales, consulting services related to NMR, High Field NMR consoles, and commission revenue from third-party equipment sales.

($000's)	Three months ended March 31
	2025	2024	($) Change	Change
Product sales	3,687	4,216	(529)	-13%
Cost of products sold	1,270	2,231	(961)	-43%
Gross margin	2,417	1,985	432	22%
Gross margin percentage	66%	47%

Product sales

For the three months ended March 31, 2025, the Company reported consolidated product sales of $3,687. This is a 13% drop over the first quarter of 2024. During the first quarter of 2025, economic uncertainty and tariff risks had an impact on capital equipment sales as customers restricted budgets, particularly in the key US market for the Company. Benchtop NMR revenue was relatively flat, year over year, with a small drop of $49 over the three months ended March 31, 2024. The lack of growth was primarily due to customer uncertainty related to economic and tariff concerns in the US market. MRI and medical imaging product sales for the three months ended March 31, 2025, dropped by $341 due to the loss of the Company's contracts in France where it sold and maintained third-party MRI systems. Third-party equipment sales revenue dropped by $139 over the three months ended March 31, 2024, due primarily to reductions in the variety of services sold by the Company for its customer in this business unit.

As described above, in 2025, the Company is no longer be selling third-party MRI systems though its subsidiary RS2D. While this will impact revenue, margins were relatively small compared to the Company's margins on its own products. In addition, the Company is reducing the variety of products it sells for third parties in its third-party equipment sales lines in Canada and the United States. The Company is working to establish new partnerships and additional sales opportunities for its own products to back fill this revenue.

As 2025 continues, the Company has maintained a strong sales funnel into the second quarter and full year. While the Company is optimistic that sales for the full year will not be impacted by tariffs and economic uncertainty, it is possible that product sales growth in 2025 will be reduced. The Company is working to navigate these uncertainties and implementing risk mitigation strategies, including improving distributor relationships in markets outside the United States.

Cost of product sold

Cost of product sold for the Company includes the costs of manufacturing its products and costs of providing warranties and service for those products. Cost of sales for products is comprised of raw materials, direct costs, direct labor, an allocation of overhead, freight charges, warranty, depreciation, and in certain cases finished goods costs for third-party equipment sales. The Company completes all its manufacturing at its facility in Calgary, Alberta.

nanalysis

Cost of product sold for the three months ended March 31, 2025, was $1,270 or 34% of revenue compared to $2,231 or 53% of revenue for the same period in the prior year. Margins for Benchtop NMR were up year over year as the Company implemented efficiency planning and other cost reduction initiatives through 2024, resulting in cost of product sold dropping by $485 while revenues only dropped by $49, resulting in $436 of additional margin despite the drop in sales. Costs of product sold for MRI, High-Field NMR, and third-party equipment sales was down $474 over the three months ended March 31, 2024. While drops in revenue accounted for some of the drop in cost of product sold, much of it related to the cost reduction program as margins in these business units were flat despite the drop in sales.

Gross margin

For the three months ended March 31, 2025, scientific equipment sales gross margin was $2,417 compared to $1,985 for the same prior year periods. This represents an increase of $432 compared to the three months ended March 31, 2024, despite a drop in sales of $529. This is due to gross margin percentage increasing by 19% for the three months ended March 31, 2025, from 47% to 66%, as a result of cost reductions and efficiency programs in place since mid-2023.

Security Services Outlook and Gross Margin

Revenue and Outlook – Security Services

Upon completing the roll-out of its Airport Security Maintenance Business in early 2024, the Company has become a leading provider of airport security equipment maintenance services in Canada through its Security Services segment. In addition to generating revenue from airport security equipment maintenance services, revenue is also generated from the purchase and resale of parts for the Company's airport security customer in Canada and installing and servicing commercial and complex security equipment for a variety of industries. During 2024, the Company generated positive Adjusted EBITDA in its Security Services segment and, despite a setback in the first quarter of 2025, expects to continue improving efficiency and growing revenue throughout 2025.

Security services revenue

($000's)	Three months ended March 31
	2025	2024	($) Change	Change
Security services revenue	5,023	4,723	300	6%
Security services costs	4,724	4,355	369	8%
Gross margin	299	368	(69)	N/A
Gross margin percentage	6%	8%
($000's)	Three months ended March 31
	2025	2024	($) Change	Change
Flow-through inventory revenue	1,884	2,223	(339)	-15%
Flow-through inventory costs	1,884	2,223	(339)	-15%
Gross margin	-	-	-

For the three ended March 31, 2025, the Company reported $5,023 in security services revenue versus $4,723 for the same period in 2024. Revenue was up 6% over Q1 2024 as a result of increased project work related to the Airport Security Maintenance Business.

nanalysis

Cost of security services

Cost of security services include materials, direct labour, travel, and direct overhead related to existing airport security services provided in the Security Services segment, excluding flow-through parts costs.

During the three months ended March 31, 2025, the Company incurred $4,724 in cost of security services compared to $4,355 for the three months ended March 31, 2024. The increase in cost of $369 for the three months ended March 31, 2025, was primarily due to increases in wages related to services provided and training costs associated with providing services under the Airport Security Maintenance Business.

During 2022 and 2023, the Company deferred direct labour costs on the Airport Security Maintenance Business while employees were trained to take over a particular customer service location. Upon all airports receiving essential services in early 2024, deferred costs are amortized into income over the first five-year term of the airport security maintenance contract. For the three months ended March 31, 2025, the Company amortized $190 of deferred wages into cost of services (three months ended March 31, 2024 - $190). These represent non-cash charges to expenses, as the wages being amortized into income were paid in prior years.

The Company welcomes Marc Tomlinson as its new EVP of Services. With his extensive background in strategic operations management, the Company believes it will quickly return to its services growth trajectory seen in the first three quarters of 2024. This process will center around workload management, process improvement, and continuing to implement automation and tools to enhance service delivery and efficiency.

Flow-through inventory revenue and costs

The Company provides inventory management services for its Airport Security Maintenance Business customer, buying and reselling spare parts and other inventory to the customer. No margin is generated on these sales; however, the Company charges a fixed service fee, which is included in Security services revenue.

Gross margin

For the three months ended March 31, 2025, gross margin for security services decreased from $368 to $299 as a result of the higher costs of service in the quarter including overtime wages. Gross margin percentage for the same period decreased correspondingly from 8% to 6%.

As noted above, the Company has begun a specific program to improve efficiency and margins within this project given the setback seen in Q1 2025.

nanalysis

Sales and Marketing, General and Administration, Research and Development, and Other Items

Sales and marketing ("S&M")

S&M expenses include salaries, benefits, commissions, advertising, marketing expenses, and all related selling costs. S&M for the three months ended March 31, 2025, were $1,089 as compared to $1,055 for the same period in the prior year. This 3% increase in sales and marketing expenses for the three months ended March 31, 2025, compared to the same periods in prior year, is mainly due to higher marketing expenses related to the launch of the new 60MHz platform, higher commissions due to differing sales mix, offset by lower salaries and wages.

General and administration expenses ("G&A")

G&A includes the cost of maintaining a corporate office, all expenses related to being a publicly traded company, and administration costs incurred with respect to the day-to-day operations of each segment of the Company. For the three months ended March 31, 2025, G&A was $1,559 compared to $1,351 for the same period of the prior year.

The increase in G&A was primarily due to increased legal fees, audit fees, and investor relations services.

Research and development expenses ("R&D")

R&D expenses are research and development costs that do not meet IFRS criteria to be capitalized to intangible assets and, therefore, are expensed in the period in which they are incurred. These costs stem from research activities in the Scientific Equipment segment. These activities are essential to the R&D and product development strategy for the Company. For the three months ended March 31, 2025, R&D expenses were $143 compared to $309 for the three months ended March 31, 2024. The decrease for the three months ended relates primarily to headcount and overall R&D expenditure reductions taken through 2024.

Depreciation and amortization expense

For the three months ended March 31, 2025, depreciation and amortization was $859 versus $1,084 for the three months ended March 31, 2024. Depreciation and amortization expenses were down from the prior year due to the impairment of certain acquired intangible assets in Q4 2024 that are therefore no longer being depreciated in 2025.

Finance expense

For the three months ended March 31, 2025, finance expenses were $327 compared to $354 for the same period in 2024. Interest expenses decreased in 2025 due to drops in the bank prime rate in Canada which occurred during 2024.

Other expenses (income)

Other expenses include gains and losses related to contingent consideration, foreign exchange, disposal of assets, as well as costs related to restructuring.

	Three months ended March 31
($000's)	2025	2024
Contingent consideration (gain) loss	(38)	94
Foreign exchange (gain) loss	(134)	96
Restructuring costs	34	64
	(138)	254

Contingent consideration (gain) loss

For the three months ended March 31, 2025, and March 31, 2024, this account reflects the changes in valuation related to share-based contingent consideration from a past acquisition.

Foreign exchange (gain) loss

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 the invoice is paid. Nanalysis conducts significant portions of its business in US dollars and Euros, resulting in exposure to foreign exchange gains and losses.

The Company had a foreign exchange gain of $134 for the three months ended March 31, 2025, compared to a loss of $96 for the three months ended March 31, 2024.

Restructuring costs

During the three months ended March 31, 2025, the Company continued its cost reduction and headcount restructuring initiative begun in 2024, resulting in one-time restructuring costs incurred in Q1 2025.

Loss from associate

The Company accounts for its investment in Quad as an investment in an associate. Losses from Quad are included within the loss from the associate account in the consolidated statement of loss and comprehensive loss at the Company's proportionate share of ownership. During 2024, however, the Company fully impaired its investment in Quad resulting in the losses from its investment in this associate no longer being recognized in the consolidated statement of loss and comprehensive loss. As such, for the three months ended March 31, 2025, loss from associate was $Nil as compared to $200 for the three months ended March 31, 2024.

Adjusted EBITDA and Net Loss

Adjusted EBITDA

The Company recorded Adjusted EBITDA of $180 for the three months ended March 31, 2025. This represents an improvement of $284 over the Adjusted EBITDA loss of ($104) for the three months ended March 31, 2024. This was primarily a result of 19% improvements in margins for product sales, as well as the effects of cost reduction measures taken in 2024.

Net loss

The Company incurred a net loss of $1,307 for the first quarter of 2025, which is an improvement of $1,215 over the same period in 2024. The decrease in net loss was due to improvements in product sales gross margin, the effects of 2024 cost reductions taken, lower depreciation due to the impairment of an acquired intangible asset in 2024, and finally the fact that losses from associate are no longer recorded in the consolidated statement of loss and comprehensive loss due to the impairment of the Quad investment in 2024.

Investment in Capital Development Costs and Research and Development Expenditures

($000'S)	Three months ended March 31
	2025	2024
Gross research and development costs	680	846
Less: research expenses	(143)	(309)
Development costs	537	537
Less: government grants and assistance	(208)	(40)
Net development costs capitalized to intangible assets	329	497

The Company is engaged in R&D activities and has internally generated intangible assets. Total development costs that meet the criteria for capitalization are reduced by government grants, with the net difference being capitalized. Government grants consist of Canadian federal grants received under a variety of programs, Canadian provincial grants, as well as foreign grants related to work performed in RS2D S.A.S.

Capitalized development costs are development costs that meet the criteria listed under IFRS for capitalization and represent capital expenditures that the Company believes hold future benefits. Capitalized development costs for the three months ended March 31, 2025, were $329 (three months ended March 31, 2024 - $497). The primary reason for the decline in R&D for the three months ended March 31, 2025, is a reduction in R&D headcount and overall expenditure as part of the Company's cost reduction efforts.

Summary of Quarterly Results

The following table highlights revenue, cash generated from (used in) operating activities, net loss, and loss per share for the eight most recently completed quarters ended March 31, 2025.

($000's) (except per share information)	2025		2024			2023
	Q1	Q4	Q3	Q2	Q1	Q4	Q3	Q2
Revenue	10,594	12,289	10,570	11,474	11,162	9,800	7,036	6,956
Cash generated (used in) from operating activities	2,679	1,067	(323)	1,055	1,464	(2,551)	(1,354)	(3,368)
Net loss for the period	(1,307)	(7,452)	(1,644)	(1,995)	(2,522)	(2,123)	(6,287)	(4,054)
Loss per share, basic and diluted	(0.01)	(0.06)	(0.02)	(0.02)	(0.02)	(0.02)	(0.06)	(0.04)

In Q1 2025 sales were down by $1,695 from Q4 2024. This was due to Q1 being seasonally slower than Q4 in product sales generally, the negative effect of economic and tariff uncertainty on the Company's sales prospects in Q1, and slower activity in security services. Cash generated from operations, however, was up significantly over Q4 2024. The increase of $1,612 was due primarily to strong management of working capital, particularly accelerated collection of receivables, in Q1 2025. Net losses were down from $7,452 in Q4 2024 to $1,307 in Q11. This was primarily due to impairments of intangible assets, a loan to associate, and investment in associate in Q4 2024, as well as stronger margins and the results of the Company's cost cutting measures taken in 2024.

In Q4 2024, revenue was $1,719 higher compared to Q3 2024 due to higher sales in the Scientific Equipment segment and higher revenue from securities services. Cash generated from operations was up by $1,390 over Q3 2024, primarily due to higher product sales and security services in the fourth quarter. Net loss increased by $5,808 in Q4 2024 compared to Q3 2024 due to the impairment of an intangible asset and the impairment of assets, loan and investment in its associate.

nanalysis

In Q3 2024, revenue was down $904 over Q2 2024 due mostly to seasonality in the Scientific Equipment segment, as sales are typically slow during the summer months. Cash generated from operations was down by $1,378 over Q2 2024, primarily due to reduced sales in the third quarter as well as increased use of cash for working capital. Net loss decreased by $351 in Q3 2024 compared to Q2 2024, due to improved margins in both the Security Services and Scientific Equipment segments.

In Q2 2024, total revenues were up $312 compared to Q1 2024 despite flow-through inventory revenue being down $1,416. This was due to strong product sales driven by a sale and installation of a third-party medical imaging system that occurred in Q2 2024 and Security services revenue increasing $542 over the first six months of 2024. Combined, this led to revenue (excluding flow-through inventory revenue) increasing from $8,939 in Q1 2024 to $10,667 in Q2 2024, an increase of $1,728. The Company generated $1,055 of operating cash flow due to continued strong sales and improving margins in the Security Services segment, offset in part by increased use of cash in working capital compared to the first quarter of 2024. Net loss decreased from ($2,522) to ($1,995) on the back of increased revenues in the second quarter of 2024.

In Q1 2024, the Company completed the full transition of 100% of airports in the Airport Security Maintenance Business. This resulted in an increase in security services revenue, offset partially by lower product sales because of seasonality versus Q4 2023. As a result, cash generated from operations was $1,464, a significant improvement over the prior quarters. Despite positive results in revenue, net losses for Q1 were slightly higher than in Q4 2023 due to a one-off non-cash gain in the revaluation of contingent consideration in relation to business acquisitions in Q4 2023, partially offset by deferred tax expense in Q4 2023, and higher interest expense and foreign exchange loss in Q1 2024.

In Q4 2023, the Company has increased its revenue in the security services segment as it completed transition in 99% of airports in the Airport Security Maintenance Business by the end of Q4 2023, which was an increase over Q3 2023. In addition, scientific equipment sales were up by 38% in Q4 over Q3 as a result of Q4 seasonality as well as continuing recovery in the scientific equipment sales market. Cash used in operations was $2,551, up $1,197 from the previous quarter. This is due primarily to an increase in working capital offset in part by higher revenues in Q4. Net losses for the period are lower versus Q3 2023 due higher gross profit from product sales and lower G&A expenses from a full quarter of reduced expenses from headcount reductions and the absence of the loss on loss of control of Quad, which significantly increased net loss in Q3 2023.

In Q3 2023, the Company increased its revenue slightly over Q2 2023. Benchtop NMR revenue was up 61% in Q3 over Q2, but this was offset by lower revenue recognition in the RS2D segment related to its large pre-clinical MRI project, and the fact that Quad revenues are no longer included in the Company's revenues as of Q3 2023. Service revenue was also flat, as the Company slowed down its rollout of the Airport Security Maintenance Business for most of Q3 due to the busy summer travel season. Cash used in operating activities decreased in Q3 2023 because of cost reduction initiatives, Quad cash used in operating activities no longer being consolidated in the Company's results, and increased margins in the services business over Q2 2023. Net losses were larger in Q3 versus Q2 despite better margins, primarily as a result of the loss on loss of control of Quad and higher interest expenses due to the new bank loan.

In Q2 2023, the Company increased its revenue over Q2 2022 as the Company has rolled out its Airport Security Maintenance Business, which was not generating revenue in Q2 2022. In addition, RS2D has made progress on a large MRI project, resulting in 40% of the project's revenue being recognized into income for IFRS purposes during the quarter. This was offset by lower Benchtop NMR sales in Q2 2023 versus Q2 2022. Net loss increased in Q2 2023 versus Q2 2022 because of significant investment in training for Airport Security Maintenance Business staff, as well as lower Benchtop NMR sales and gross margins.

nanalysis

Selected Annual Financial Information

The following table illustrates selected annual information for the years ending December 31.

($000's) (except per share information)	31-Dec-24	31-Dec-23	31-Dec-22
Revenue	45,495	28,466	24,821
Net Loss	(13,613)	(16,784)	(9,915)
Loss per share, basic and diluted	(0.12)	(0.16)	(0.10)
Total assets	42,371	53,824	69,902
Total long-term liabilities	12,448	15,747	8,824

LIQUIDITY & CAPITAL RESOURCES

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, maintenance, and expansion of its operating segments. When managing the Company's capital and ability to continue as a going concern, the Company considers available information about the future, including the availability of financing, future cash flow projections including growth rates and forecasted margins, as well as the current working capital balance and future commitments of the Company.

The Company defines its capital as share capital, debt and contributed surplus. The Company manages the capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company's liquidity needs in the short and long term can be addressed in multiple ways, including funds from operations, available cash and working capital balances, available undrawn amounts on its operating line of credit, 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 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.

The condensed consolidated financial statements have been prepared in accordance with IFRS policies applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. At March 31, 2025, the Company's borrowings which are subject to financial covenants were $6,875 on the term loan and $1,186 borrowed on its line of credit (December 31, 2024 - $7,500 on the term loan and $2,797 on the line of credit). At the reporting date, March 31, 2025, the Company must maintain two additional covenants. The Company was not in compliance with either of the additional covenants as at March 31, 2025. While this created a right for the lender to accelerate the maturity of their indebtedness in relation to the line of credit and term loan described in Note 9C and Note 9D of the interim condensed consolidated financial statements, subsequent to March 31, 2025, the Company's lender has provided a waiver of covenants for the additional covenants tested at March 31, 2025. See the Subsequent Events section of this MD&A for more information.

As the covenant waiver was not obtained at the reporting date of March 31, 2025, under IFRS the Company was required to reclassify $4,375 of long-term debt to a current liability as at March 31, 2025. At the reporting date, the Company's lender has not issued a demand for repayment on this amount. See the Subsequent Events section of this MD&A for further information.

nanalysis

The Company's liquidity is dependent on its ability to continue generating positive cash flows from operations, to raise capital by selling additional equity, or by obtaining new or amended credit facilities. There can be no assurance that the Company will maintain sufficient cash flows to fund its ongoing operations. In addition, the Company may not be able to secure adequate debt or equity financing on desirable terms, or at all. Due to the above factors, there is material uncertainty that may cast doubt on the Company's ability to continue as a going concern.

Working Capital

($000's)	March 31, 2025	December 31, 2024	$ Change
Cash	707	1,376	(669)
Loans and leases	16,013	18,361	(2,348)
Working capital	(2,538)	3,881	(6,419)

As at March 31, 2025, the Company had ($2,538) of working capital (December 31, 2024 – $3,881) as a result of the reclassification of $4,375 long-term debt held with the Company's lender to a current liability. Excluding this debt reclassification, which is expected to be reclassified as long-term subsequent to March 31, 2025, the Company has working capital of $1,837. This includes $707 of cash (December 31, 2024 - $1,376). The decrease in working capital is due primarily to cash and cash generated from the collection of receivables being used to fund both repayment of long-term debt of $717 and repayment of the operating line of $1,611 during the first quarter of 2025.

The Company believes that it has sufficient working capital and access to capital to support its business initiatives, including ensuring sufficient resources to maintain the Company's intellectual property portfolio, as required, and expected capital expenditure requirements.

For further details, please see the Share Capital section of this MD&A.

Loans and Borrowings

($000's)	Note	March 31, 2025	December 31, 2024
Western Economic Diversification Canada interest-free loans	A	1,481	1,462
Prêt garanti par l'état Euro denominated loan	B	39	45
Regional Recovery Relief Fund interest-free loan	A	535	528
Business Scale-up interest-free loan	A	4,050	3,979
Line of credit	C	1,186	2,797
Term Bank loan	D	6,875	7,500
Other		27	30
Total loans and borrowings		14,193	16,341
Less: Deferred finance fees		(168)	(184)
Total loans and borrowings net of finance fees		14,025	16,157
Less: current portion		9,306	6,015
Non-current portion of loans and borrowings		4,719	10,142

Credit Facilities

nanalysis

Note A – Nanalysis

The Company has the following unsecured interest-free loans:

WINN #2: $2,773 initially repayable in monthly installments of $46 commencing February 1, 2022, and maturing on January 31, 2027. The obligation was recorded at its fair value at inception, estimated using a 6.0% discount rate. Any amounts in default will incur interest at the Bank of Canada minimum lending interest rate plus 3% compounded monthly. This loan is unsecured.
Regional Recovery Relief Fund (“RRRF”): $1,000 initially repayable in 35 monthly installments of $28 commencing January 1, 2023. The obligation was recorded at its fair value at inception, estimated using a 6.0% discount rate. Any amounts in default will incur interest at the Bank of Canada minimum lending interest rate plus 3% compounded monthly. This loan is unsecured.
Business Scale-up: In 2022, the Company received a funding contribution commitment of $5.0 million from Prairies Economic Development Canada’s Business Scale-up and Productivity program. The Company began drawing on the loan in 2022 and will continue to draw on the loan until the earlier of drawing the full available amount of the facility or the beginning of repayments on September 1, 2025. As at March 31, 2025, the Company had withdrawn 99.7% of the available funding (December 31, 2024 – 99.7%). The obligation was recorded at its fair value at inception estimated using a 6.0%-8.2% discount rate depending on the timing of each drawdown on the facility. Any amounts in default will incur interest at the Bank of Canada minimum lending interest rate plus 3% compounded monthly. This loan is unsecured and repayable over 60 months beginning September 1, 2025.

On March 13, 2024, the Company renegotiated its payments related to WINN #2 and RRRF as follows:

WINN #2 became repayable in monthly installments of one thousand dollars per month, effective April 1, 2024, and increasing to $71 effective April 1, 2025, until maturity on January 31, 2027. All other terms and conditions of the loan remain unchanged.
RRRF became repayable in monthly installments of one hundred dollars per month, effective April 1, 2024, and increasing to $18, effective April 1, 2025, with a revised maturity date of December 31, 2027. This reflects an extension to maturity of two years.

Note B – RS2D

RS2D has one Euro denominated loan - Prêt garanti par l’état – (“PGE”). This is an unsecured Euro denominated loan granted by the French state to RS2D. The loan bears interest at 0.7% and is repayable in monthly installments of $3, commencing on July 20, 2021, and maturing on June 20, 2026. The obligation was recorded as its fair value at inception estimated using a 2.5% discount rate.

Note C – Line of Credit

The Company has an operating line of credit with ATB Financial, under which the Company may borrow up to $5,000 at an interest rate of prime plus 1.0%. This facility also bears a standby fee of 0.4% per annum on the unused portion of the facility. On March 28, 2024, the Company negotiated a covenant holiday with its lender which resulting in an increase to the interest rate to prime plus 2.5%.

The borrowing base of the facility is based on the value of the Company’s accounts receivable and inventory, less any amounts outstanding on its $300 credit card facility, also advanced by ATB Financial. The available borrowing base for the Company at March 31, 2025, was $4,769.

nanalysis

Note D – Term Bank Loan

The Company has a term loan of $10,000 from ATB Financial which was advanced in one tranche on June 29, 2023, and bears interest at a rate of prime plus 2.50%. The loan originally amortized over 48 months, with repayments having begun in January 2024. Subsequent to March 31, 2025, the Company negotiated an extension to the amortization period to May 31, 2028. See the Subsequent Events section of this MD&A for more information.

Note E – Debt Covenants

Both the operating line of credit (Note C) and term loan facility (Note D) are secured by a general security agreement over the property of Nanalysis Scientific Corp. and its significant subsidiaries. As a condition of both the operating and term facilities, the Company must maintain a current ratio greater than or equal to 1.10:1.00, funded debt to Bank EBITDA must not exceed 3.50:1, and the Company must maintain a fixed charge coverage ratio of greater than or equal to 1.20:1. At March 31, 2025 the Company's applicable current ratio for its bank covenant was 1.78:1.00, but the Company is not in compliance with its funded debt to Bank EBITDA and fixed charge coverage ratio covenants. As such, this has created an unconditional right for ATB Financial to demand repayment of the term loan and the Company has therefore classified the full balance of the term loan as a current liability at March 31, 2025.

Subsequent to March 31, 2025, the Company obtained an amendment to its banking agreement which granted a waiver to covenant testing related to the funded debt to Bank EBITDA and fixed charge coverage ratio covenants at March 31, 2025. See the Subsequent Events section of this MD&A for more information.

Lease Liabilities

($000's)

Balance, January 1, 2024	2,921
Additions	78
Lease payments	(801)
Disposals	(45)
Foreign exchange	51
Balance, December 31, 2024	2,204
Additions	-
Lease payments	(215)
Disposals	-
Foreign exchange	(1)
Balance, March 31, 2025	1,988

($000's)

	March 31, 2025	December 31, 2024
Current portion	825	826
Long-term portion	1,163	1,378
Total	1,988	2,204

Three months ended March 31

($000's)	2025	2024
Interest expense related to leases	40	53

The Company and its subsidiaries have commitments under leases for buildings, office space, and vehicles, with varying terms that expire between 2025 and 2028. The Company has sub-leased one of its building facilities starting December 2024.

The Company also has contractual commitments for leases that are short-term or low-value and accounts for them as operating leases. These operating leases relate to airport spaces, and the leases are due as follows:

($000's)

Within one year	165
1-3 years	90
4-5 years	5
Total operating lease commitments	260

nanalysis

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet financing arrangements except for short-term or low-value leases, as disclosed above.

Financial Management

	Three months ended March 31
($000's)	2025	2024	$ Change
Cash generated from (used in):
Operating activities	2,679	1,464	1,215
Investing activities	(579)	(578)	(1)
Financing activities	(2,769)	49	(2,818)
Decrease in cash	(669)	935	(1,604)

Cash generated from operations was $2,679 for the period ended March 31, 2025, an increase of $1,215 from the same period in 2024. Positive cash generated from operating activities is mainly due to higher gross profit, the result of effective cost reduction programs begun in 2023 and continued through 2024 that have significantly improved product sales margins, as well as significant collection of accounts receivable in the quarter which were used to repay loans and operating lines of credit.

Cash flows used in investing activities for the period ending March 31, 2025, were in line with the same period in prior year.

Cash flows used in financing activities for the period ended March 31, 2025, increased by $2,818 compared to the same period in 2024. The increase in cash used in financing activities was due to a financing closed in the first quarter of 2024 resulting in an inflow of cash from financing activities, as opposed to Q1 2025 which consistent of normal repayments of the Company's line of credit, debt servicing, and regular lease payments.

Below is a reconciliation of the manner in which the net proceeds from the Company's best efforts public prospectus exempt offering (the "Offering") of units and concurrent brokered private offering of units were used by the Company compared to the disclosure in the Company's final prospectus exempt offering dated March 7, 2024. The expected proceeds from the Offering ranged from a minimum offering amount of $2,300 to a maximum amount of $5,462. The Company closed the financing for net proceeds of $4,337. The table reflects the actual use of net proceeds as of March 31, 2025.

NANALYSIS SCIENTIFIC CORP.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE THREE MONTHS ENDED MARCH 31, 2025

AMOUNTS ARE STATED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS AND

CERTAIN OTHER EXCEPTIONS AS NOTED

nanalysis

($000's)

Principal Purpose	Actual Use of Net Proceeds	Estimated Allocation of Net Proceeds (Assuming Minimum	Estimated Allocation of Net Proceeds (Assuming Maximum	Explanation of variances and the impact, if any, on the Company's ability to achieve its business objectives and milestones
Scheduled payments on operating and finance leases	908	829	829	At the reporting date, the Company had incurred the expected regular lease payments expected to be financed with the offering with the variance largely relating to additional operating lease expenses.
G&A expenses related to public listing, including exchange fees and annual audit fees	527	350	350	At the reporting date, the Company had incurred the expected public listing fees as of the date of the offering. The difference between the estimated amount and actual use of proceeds relates additional annual audit fees incurred and corporate insurance.
Expansion of Security Services business	-	-	1,217	At the reporting date, the Company had not incurred any expenses related to expansion of the Security Services business, but continues to make efforts to gain additional security service contracts, listing fees and public communication fees.
General working capital purposes including repayment of operating facility	2,902	1,121	3,066	Actual use of proceeds was slightly higher than estimated due to increased borrowing on the operating line at the close of the Offering.
Total	4,337	2,300	5,462

nanalysis

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 Common shares

Common Shares Issued	Number
Balance, December 31, 2023	101,915,910
Issuance of common shares	11,193,582
Exercise of stock options and RSUs	115,000
Balance, December 31, 2024	113,224,492
Issuance of common shares	-
Exercise of stock options and RSUs	-
Balance, March 31, 2025	113,224,492

On March 20, 2024, the Company announced and closed a public prospectus exempt offering of units and concurrent brokered private offering of units with each unit comprised of one common share and one half warrant exercisable at $0.65 and expiring on March 20, 2026. A total of 11,111,110 units were issued at a price of $0.45 per unit for gross proceeds of $5,000 and net proceeds of $4,337.

[c] Loss per share

($000's) except for number of shares	Three months ended March 31
	2025	2024
Numerator
Loss attributable to common shares ($)	(1,307)	(2,522)
Denominator
Weighted average number of shares for basic earning per share calculation (000's)	113,224	103,259
Weighted average number of shares for diluted earning per share calculation (000's)	113,224	103,259
Basic loss per common share ($/share)	(0.01)	(0.02)
Diluted loss per common share ($/share)	(0.01)	(0.02)

All potentially dilutive instruments were excluded from the diluted weighted-average share calculation as they were anti-dilutive to the loss for the period.

[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 five years, and the directors of the Company determine the vesting period, which is typically three years. The maximum number of outstanding

nanalysis

options must be no more than 10% of the issued and outstanding common shares at any point in time, with the 10% including both stock options and restricted share units. The maximum number of outstanding options issued for investor relations must be no more than 2% of the issued and outstanding shares, and options issued for 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. Stock options and RSUs are settled in shares of the Company.

Stock Options Outstanding	Number	Weighted Average Exercise Price ($)
Balance, December 31, 2023	7,678,867	0.99
Granted	2,297,000	0.50
Exercised	-	-
Expired	(1,147,500)	0.90
Forfeitures	(1,130,977)	0.63
Balance, December 31, 2024	7,697,390	0.91
Granted	33,000	0.50
Exercised	-	-
Expired	(686,667)	0.60
Forfeitures	(420,842)	0.92
Balance, March 31, 2025	6,622,881	0.94

The fair values of stock options granted were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions.

	2025	2024
Risk-free interest rate	2.63%	2.71% - 3.42%
Estimated annualized volatility based on historical performance	74%	74% - 76%
Expected life	5.0 years	5.0 years
Expected dividend yield	0%	0%
Exercise price	$0.50	$0.50

As at March 31, 2025, the Company had the following stock options outstanding and exercisable:

Exercise Price	Number of Options Outstanding	Weighted Average Life	Number of Options Exercisable
$0.50	2,278,000	4.13	975,000
$0.60	572,500	0.91	572,500
$1.10	1,461,881	2.86	924,921
$1.20	25,000	2.22	16,667
$1.24	50,000	1.54	50,000
$1.30	100,000	1.26	100,000
$1.32	1,685,500	1.92	1,685,500
$1.50	350,000	1.73	350,000
$1.70	100,000	1.63	100,000
	6,622,881		4,774,588

[e] Restricted Share Units ("RSUs")

The Company maintains an RSU plan as compensation for certain directors and employees of the Company. These RSUs vest over three years from the grant date and expire at the end of the third full calendar year subsequent to the grant date.

During the period ended December 31, 2024, 445,000 RSUs were granted, out of which 100,000 vested immediately and the remaining 345,000 vest over three years. As at December 31, 2024, all 1,000,000 RSUs available under the plan had been granted.

RSUs Outstanding	Number
Balance, December 31, 2023	295,000
Granted	445,000
Exercised	(115,000)
Balance, December 31, 2024	625,000
Granted	-
Exercised	-
Balance, March 31, 2025	625,000

[f] Stock-based compensation expense

($000's)	Three months ended March 31
	2025	2024
Stock-based compensation expenses related to stock options	114	178
Stock-based compensation expenses related to RSUs	17	82
Total	131	260

nanalysis

[g] Warrants

Warrants Outstanding	Number	Weighted Average Exercise Price ($)
Balance, December 31, 2023	8,166,042	0.89
Issued	6,407,724	0.65
Expired	(7,666,042)	0.89
Balance, December 31, 2024	6,907,724	0.66
Issued	-	-
Expired	-	-
Balance, March 31, 2025	6,907,724	0.66
Type of Warrant	Expiry Date	Exercise Price ($)
---	---	---
Warrant	June 29, 2025	0.80
Warrant	March 20, 2026	0.65
Broker warrant	March 20, 2026	0.65

On March 20, 2024, the Company completed a public prospectus exempt offering of units and concurrent brokered private offering of units discussed in Note 12[b]. The combined offering resulted in the Company issuing 5,555,555 warrants that expire on March 20, 2026. In addition, 852,169 broker warrants were issued in relation to the same combined offering, with an expiry date of March 20, 2026. The fair values of broker and lender warrants were estimated using the Black-Scholes option pricing model.

During the period ending December 31, 2024, 7,666,042 warrants expired, resulting in an increase in the contributed surplus of $298.

REVENUE AND SEGMENT INFORMATION

[a] Segment information

The Company's activities are carried out through three operating segments, within which are two reportable segments: Scientific Equipment and Security Services. 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 purpose of reporting segment information.

The Company's Scientific Equipment segment is comprised of its proprietary product sales as well as sales of third-party products and investment in associate. The Security Services segment is comprised of the Company's commercial and airport security equipment maintenance and installation services. Its Corporate operating segment includes the Company's costs related to general corporate overhead.

Inter-segment transactions are recorded at values that approximate third-party selling prices and are eliminated for segmented reporting.

($000's)

Three months ended March 31, 2025	Scientific Equipment	Security Services	Corporate	Total
Revenue	3,687	6,907	-	10,594
Income (loss) before other items	611	82	(768)	(75)
Net loss	(286)	(85)	(936)	(1,307)
Depreciation and amortization expense	723	136	-	859
Capital expenditures	427	162	-	589
Total assets as at March 31, 2025	21,736	15,810	985	38,531

($000's)

Three months ended March 31, 2024	Scientific Equipment	Security Services	Corporate	Total
Revenue	4,216	6,946	-	11,162
Income (loss) before other items	75	86	(523)	(362)
Net loss	(1,010)	(227)	(1,285)	(2,522)
Depreciation and amortization expense	834	250	-	1,084
Capital expenditures	556	22	-	578
Total assets as at March 31, 2024	35,173	16,331	2,475	53,979

[b] Geographic segments

The Company's revenues are allocated to geographic segments as follows:

($000's)	Three months ended March 31
	2025	2024
Canada	7,674	8,079
United States of America	2,572	1,851
Europe	151	744
Asia	87	350
Other	110	138
	10,594	11,162

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

[a] Fair value of financial instruments

The carrying values of cash, accounts receivable, other receivables, accounts payable and accrued liabilities, and the line of credit approximate fair value due to the short-term nature of these instruments. The loan to associate is measured at amortized cost and its fair value approximates its carrying value. The Company's bank loan, WINN loan, RRRF loan, Prêt garanti par l'état, and business scale-up loans are measured at amortized cost. The carrying value of these loans at March 31, 2025, was $12,980 and the fair value was $12,978. The carrying value of these loans at December 31, 2024, was $13,514 and the fair value was $13,434.

nanalysis

[b] Fair value of promissory notes

The Company accounts for its promissory note as a derivative financial liability and revalues the note using the Company's quoted market share price at the reporting period for unmatured portions of the liability, based on a specified formula within the note. During the three months ended March 31, 2025, all promissory notes had been settled so there was no unrealized loss or gain recorded. (three months ended March 31, 2024, the Company recognized an unrealized loss of $2).

[c] Fair value of contingent consideration

Contingent consideration related to the K'Prime acquisition is based on the K'Prime subsidiary reaching certain performance goals related to entity performance, to be settled in cash, as well as contingent consideration related to the performance on a specific contract to be settled in shares of the Company. The cash settled portion is based on revenue targets for the subsidiary for the year ended December 31, 2023, which were not met.

Contingent consideration has been valued using an income approach and discounted using a risk-adjusted discount rate estimated to best reflect the subsidiary's ongoing operations. The Company evaluates all inputs, including the risk-adjusted discount rate at each reporting period. The share settled portion of contingent consideration is based on a set percentage of revenue from a specific contract within the subsidiary.

The Company has determined, using internal forecasts, the estimated amount of share consideration and valued it using an income approach, discounted using a risk-adjusted discount rate specific to that contract. Forecast amounts of contingent consideration and the risk-adjusted discount rate are evaluated by the Company at each reporting period.

For the three months ended March 31, 2025, the Company recognized an unrealized gain of $37 (three months ended March 31, 2024 – unrealized loss of $87).

Contingent consideration payable related to the acquisition of One Moon Scientific ("OMS") is based on performance goals related to specific targets that OMS must meet through the end of 2026. The Company has used internal forecasts to estimate the amount of each component of contingent consideration and valued it using an income approach, discounted using a risk-adjusted discount rate.

The Company reassesses the forecast and estimated amount of contingent consideration and revises the risk-free discount rate based on available market data at each reporting period.

The Company has entered into an amendment to the purchase agreement, extending the period in which contingent consideration may be paid out on the acquisition to the end of 2026. For the three months ended March 31, 2025, the Company recognized an unrealized gain of $1 related to revaluation of contingent consideration related to the OMS acquisition within business acquisition costs (three months ended March 31, 2024 – unrealized loss of $5).

Significant assumptions used in valuation of contingent consideration include forecasted revenue and applicable discount rates.

[d] Fair value hierarchy

The three-level hierarchy reflects the significance of inputs used when determining fair value:

Level 1: Fair value is determined using readily observable inputs from public or active markets.

nanalysis

Level 2: Fair value is determined using inputs other than those quoted in public or active markets and may be both directly and indirectly observable.
Level 3: Fair value is derived using unobservable inputs for which there is little to no available market data, and therefore the Company must develop its own assumptions for valuation.

March 31, 2025

($000's)	Level 1	Level 2	Level 3	Total
Financial liabilities at fair value through profit or loss
Contingent consideration	-	-	418	418
Derivative liabilities not designated as hedging instruments
Promissory note	-	-	-	-
Total	-	-	418	418
Current portion	-	-	261	261
Long-term portion	-	-	157	157

December 31, 2024

($000's)	Level 1	Level 2	Level 3	Total
Financial liabilities at fair value through profit or loss
Contingent consideration	-	-	457	457
Derivative liabilities not designated as hedging instruments
Promissory note	-	-	-	-
Total	-	-	457	457
Current portion	-		299	299
Long-term portion	-		158	158

The Company did not transfer any financial instruments between valuation hierarchy levels between March 31, 2025, and December 31, 2024.

[e] Risk management

The following presents information about the Company's exposure to each of the above risks and the Company's objectives, policies, and processes for measuring and managing risk.

[i] 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.

nanalysis

[ii] 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, other receivables and loan to associate. The Company's maximum exposure to credit risk at March 31, 2025, is the carrying amount of cash, accounts receivable, other receivables, and loan to associate on the consolidated statement of financial position. The Company mitigates this risk by holding its cash in major Canadian financial institutions and performing credit inquiries 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.

Management assesses the expected risk of credit loss at each reporting period based on consideration of factors such as the history, creditworthiness and financial condition of each individual customer, economic factors, the age of the financial instrument, in particular instruments over 180 days past due, the willingness of the counterparty to engage in a payment plan, and any other criteria deemed material to the analysis. Trade accounts receivable are written off when there is no reasonable expectation of recovery. During the three months ended March 31, 2025, bad debts of $Nil were recognized as an expense (2024 - $Nil).

[iii] Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they come due. As of March 31, 2025, the Company had working capital of ($2,538) (December 31, 2024 - $3,881). 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, and the raising of funds to meet commitments, sustain operations, continue research and development, and service contracts. The Company manages liquidity risk through the management of working capital, cash flows, availability of borrowing facilities and share issuances. The Company has liabilities with varying maturities as disclosed in the interim condensed consolidated statement of financial position and Notes 9, 10, and 11.

[iv] Market risk

Market risk is the risk of loss that results from changes in market prices. Market risk is comprised of foreign currency risk and interest rate risk. The level of market risk to which the Company is exposed to depends on market conditions, 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.

[v] 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 Canadian dollars and U.S. dollars. The Company has not entered into foreign exchange derivative contracts.

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

| (000's) | March 31, 2025
US$ | December 31, 2024
US$ |
| --- | --- | --- |
| Cash | 338 | 430 |
| Accounts receivable | 1,012 | 1,616 |
| Prepayments and other receivables | 83 | 80 |
| Lease receivables | 341 | 369 |
| Inventory | 78 | 78 |
| Accounts payable & accrued liabilities | (613) | (528) |
| Unearned revenue | (627) | (779) |
| Debt and lease liabilities | (319) | (350) |
| Total | 293 | 916 |

The above assets and liabilities were translated using an exchange rate of 1.44 at March 31, 2025 (December 31, 2024 – 1.44). Based on the above net exposure, as at March 31, 2025, assuming 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 $42 in the Company's other comprehensive income (December 31, 2024 - $132). Total sales in U.S. dollars for the three months ended March 31, 2025, were $1,895 (three months ended March 31, 2024 - $2,550). A 10% appreciation or deterioration of the Canadian dollar against the U.S. dollar would result in a change of approximately $272 (three months ended March 31, 2024 - $344).

The Company had the following assets and liabilities denominated in Euros at the end of the period:

| (000's) | March 31, 2025
Euro (€) | December 31, 2024
Euro (€) |
| --- | --- | --- |
| Cash | 142 | 503 |
| Accounts receivable | 138 | 562 |
| Prepayments and other receivables | 455 | 416 |
| Inventory | 47 | 47 |
| Accounts payable and accrued liabilities | (342) | (1,104) |
| Unearned revenue | (296) | (393) |
| Debt and lease liabilities | (31) | (51) |
| Total | 113 | (20) |

The above assets and liabilities were translated at 1.55 at March 31, 2025 (December 31, 2024 – 1.49). Based on the above net exposure as at March 31, 2025, 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 $18 in the Company's other comprehensive income (December 31, 2024 - $3). Total sales in Euros for the three months ended March 31, 2025, were €192 (three months ended March 31, 2024 - €749). A 10% appreciation or deterioration of the Canadian dollar against the Euro would result in a change of approximately $29 (three months ended March 31, 2024 - $110).

nanalysis

[vi] 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 three months ended March 31, 2025, fluctuations in the bank prime interest rate had an insignificant impact on the Company's interest expense. At March 31, 2025, the Company had $6,875 of outstanding debt on its interest-bearing term loan. If the prime borrowing rate changed by 4%, it would have an impact of $275 on interest expense on an annualized basis (December 31, 2024 - $300).

[vii] Economic dependence

A portion of the Company's operations consist of providing airport security equipment maintenance services to a Crown Corporation of the Government of Canada. During the three months ended March 31, 2025, the Company was dependent on this service contract for 64% of its revenue (three months ended March 31, 2024 – 60%). The contract is due for renewal in May 2028. There were no other customers who accounted for more than 10% of the Company's revenue during the period.

Additional Risk Factors

In addition to the Risk Factors discussed in the Company's Annual Information Form dated December 31, 2023, and filed on www.sedar.com, the Company has identified the following additional risk factors:

Tariff Risk

The Company conducts significant portions of its business selling into foreign markets, largely from a Canadian manufacturing base. Changes to tariffs rates, or the imposition of tariffs or retaliatory tariffs by any nation the Company is selling into, or purchasing from, may have a significant, or material, adverse effect on the Company's gross margins.

In addition, competitors of the Company are, or may be, located in jurisdictions with no, or lower, tariffs than the Company. This may make it difficult or impossible for the Company to pass tariff costs through to its customers.

Finally, the economic uncertainty created by tariffs and the changing tariff environment may have a negative impact on the confidence of the Company's customers, reducing customer demand for the Company's products.

The timing, rate, or applicability of any tariffs is difficult to predict.

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, 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.

nanalysis

Related party transactions

Related party transactions are assessed for significance within the Company's normal process for transaction approval. Transactions determined to be significant by Management are approved by the Audit Committee of the Board of Directors.

During the three months ended March 31, 2025, the Company does not have any significant related party transactions. During the three months ended March 31, 2024, the Company has approved several transactions with directors of the Company or parties related to directors.

The Company leased its head office from a then director of the Company from January 1, 2024 until April 2024 when the director ceased to be a related party to the Company. During the period from January 1, 2024, to April 2024, when the then director was a related party, the Company incurred $37 for lease expenses. These amounts have been recorded at the amounts that have been agreed upon by the two parties.
In addition, amounts were paid to relatives of the same former director of the Company as employment compensation. During the period from January 1, 2024, to April 2024, expenses paid on wages were $87.

Related party transactions with associate

For the three months ended March 31, 2025, the Company provided $15 of consultancy services to Quad (three months ended March 31, 2024 - $82 of product sales and $59 of cost of product sold). These amounts are gross and subject to elimination of 43.48% related to the Company's share in associate.

At March 31, 2025, the Company had gross outstanding balances of $658 (December 31, 2024 - $762) in accounts receivable and $204 in accounts payable and accrued liabilities (December 31, 2024 - $218), due from and to its associate, respectively. During the twelve months ended December 31, 2024, the Company has recognized an impairment provision of $496 against certain outstanding balances due from its associate. No further impairment provision has been recognized for the three months ended March 31, 2025.

SUBSEQUENT EVENTS

Subsequent to March 31, 2025, the Company renewed its term and operating facilities with ATB Financial and has renegotiated its covenant terms with its lender to rectify its failure to meet covenants. Effective May 28, 2025, the Company obtained a covenant waiver for its funded debt to Bank EBITDA covenant as well as its fixed charge coverage ratio covenant.

Pursuant to the amending agreement, the Company will be subject to a funded debt to Bank EBITDA covenant of no greater than 4.00:1, tested for the quarters ending June 30, 2025, September 30, 2025, and December 31, 2025. Effective March 31, 2026, the Company will be required to maintain a Funded Debt to Bank EBITDA covenant of 3.50:1.

Additionally, the Company will be subject to a fixed charge coverage ratio covenant of no less than 1.00:1 for the quarters ending September 30, 2025, and December 31, 2025. No fixed charge coverage ratio covenant will be tested for the quarter ending June 30, 2025. Effective March 31, 2026, the Company will be required to maintain a fixed charge coverage ratio covenant of 1.20:1.

nanalysis

Further to the amending agreement, the Company has obtained a reduction in its loan principal payment from May 31, 2025, to April 30, 2026, as well as an extension of its loan amortization to May 31, 2028. The Company will repay its term loan on the following schedule:

May 31, 2025 - April 30, 2026, the Company will repay $100 per month;
May 31, 2026 – January 31, 2028, the Company will repay $208 per month;
February 29, 2028 – May 31, 2028, the Company will repay $325 per month.

Finally, the Company has agreed to set its interest rate at bank prime plus 2.5% on its term loan, as well as a financing fee of $200 with ATB Capital Markets.

AI assistant

Nanalysis Scientific — Management Reports 2025

47423_rns_2025-05-28_a455f4a0-12db-427f-a6f6-c7d03b669bf6.pdf

Q1 2025

Management's Discussion & Analysis

Contents

SCIENTIFIC EQUIPMENT SEGMENT...10

SECURITY SERVICES SEGMENT...15

FINANCE AND OPERATIONS...16

LIQUIDITY & CAPITAL RESOURCES...24

SHARE CAPITAL...31

REVENUE AND SEGMENT INFORMATION...34

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT...35

RELATED PARTY DISCLOSURE...40

SUBSEQUENT EVENTS...41

READER AND FORWARD-LOOKING STATEMENT ADVISORY

Forward Looking Statements

Business overview

Overview

Scientific Equipment Segment

Security Services Segment

Critical Accounting Policies and Estimates

Non-IFRS and Supplementary Financial Measures

Security Services Revenue

Loans and Leases

Supplementary Financial Measures

SCIENTIFIC EQUIPMENT SEGMENT

Product Overview

Magnetic Resonance Test, Measurement and Diagnostic Systems

Bridging the Gap in MR Accessibility

Technology Portfolio

Nanalysis 100-NMR

High-field NMR

QUAD NMR Console

MRI

Cameleon 4 Console

Software Portfolio

NMRGui

SPINit

NMRFx

Technology Under Development

MRI Technology Platform

Robust Industrial Detector

Automated Industrial Analyzer

Full High-Field NMR Systems

Third Party Equipment Sales

SECURITY SERVICES SEGMENT

Airport Security Maintenance Services

Commercial Security Services

FINANCE AND OPERATIONS

Overall Performance and Discussion of Operations

Scientific Equipment Outlook and Gross Margin

Revenue and Outlook – Scientific Equipment

Product sales

Cost of product sold

Gross margin

Security Services Outlook and Gross Margin

Revenue and Outlook – Security Services

Security services revenue

Cost of security services

Flow-through inventory revenue and costs

Gross margin

Sales and Marketing, General and Administration, Research and Development, and Other Items

Sales and marketing ("S&M")

General and administration expenses ("G&A")

Research and development expenses ("R&D")

Depreciation and amortization expense

Finance expense

Other expenses (income)

Contingent consideration (gain) loss

Foreign exchange (gain) loss

Restructuring costs

Loss from associate

Adjusted EBITDA and Net Loss

Adjusted EBITDA

Net loss

Investment in Capital Development Costs and Research and Development Expenditures

Summary of Quarterly Results

Selected Annual Financial Information

LIQUIDITY & CAPITAL RESOURCES

Nanalysis Scientific Management Reports 2025