NetCents Technology Inc. — Management Reports 2020

Jun 11, 2020

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MANAGEMENT’S DISCUSSION AND ANALYSIS

YEAR ENDED 31 OCTOBER 2019

Stated in Canadian Funds

DATE: 10 JUNE 2020

NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

TO OUR SHAREHOLDERS

This management’s discussion and analysis of the financial condition and results of operation (“MD&A”) of NetCents Technology Inc. (“NetCents” or the “Company”) should be read in conjunction with NetCents’s annual audited consolidated financial statements and notes thereto for the year ended 31 October 2019.

Except as otherwise indicated, all financial data in this MD&A have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

The Company’s functional and reporting currency is the Canadian dollar and all dollar amounts are in Canadian dollars, unless otherwise indicated.

Discussion of the Company, its operations and associated risks is further described in the Company’s filings, available for viewing at www.sedar.com. A copy of this MD&A will be provided to any applicant upon request.

FORWARD LOOKING STATEMENTS

Certain statements contained in the following MD&A and elsewhere constitute forward-looking statements. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made, and readers are advised to consider such forward-looking statements in light of the risks set forth in the Company’s filings and herein. Additional information regarding the Company, including copies of the Company’s continuous disclosure materials is available through the SEDAR website at www.sedar.com.

The table below sets forth the significant forward-looking information included in this MD&A:

Forward-Looking Information	Key Assumptions	Most Relevant Risk Factors
The ability to raise capital in the	Company will be able to realize its	The ability of the Company to
future to continue on-going	assets and discharge its liabilities in	continue as a going concern is
operations	the normal course of business in	dependent upon obtaining ongoing
	the foreseeable future.	financing and there can be no
		assurance that the Company will be
		able to raise any capital through
		any type of offering or similar
		financial arrangement.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

GENERAL

About the Company

The Company is an electronic digital Payment Service Provider. The Company’s processing platform allows clients and merchants to manage electronic payments through a variety of devices and currencies.

The Company has developed its own proprietary payment processing software. The Company holds intellectual property which consists of copyright in the development of its technology, as well as trade secrets and marks associated with the company. The Company protects its intellectual property using confidentiality provisions in its agreements with employees and contractors, and the assignment of all work products created by the employees and contractors to the Company.

After reviewing the competitive environment and operational results throughout Q2 2017 and Q3 2017, the Company made the decision to discontinue “traditional payment” processing and focus exclusively on the processing of digitally based transactions. By making this strategic decision, the company is being able to operate without third party processors thereby substantially reduces the Company’s operating overhead.

Based on above decision is dedicating significant resources to the further development and enhancement of the processing platform, to allow for the settlement of cryptocurrencies between consumers and merchants.

During the year ended 31 October 2019, the Company has added a number of enhancements to the processing platform.

• The Company launched an Android and IOS version of a mobile app

• Improvements were made to the merchant gateway to address merchant’s usability requests

• The Company added Bitcoin Cash and NEM to the portal and gateway to allow users to buy/sell/trade and merchants to accept Bitcoin Cash and NEM in their platforms

• Improvements were made to the “crypto nodes” to increase processing capabilities

• Company developed and launched its Crypto Banking Stack which will enable Financial Institutions to use their existing hardware and software to offer their clients access to a fully integrated cryptocurrency processing and transaction solution. The implementation will require only minor modifications to their legacy systems eliminating the need to develop and maintain their own inhouse proprietary cryptocurrency processing technology. This allows for a low-cost crypto ready processing solution to be quickly implemented without the requirement for an extended and costly development cycle.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

NetCents Control Fundamentals

The Company platform facilitates the movement of funds between parties, the storing of funds in a NetCents wallet and interaction with user and merchant bank accounts. To this end the Company has in place the following security protocols:

The Platform protects the account holders from fraud and ID Theft. When using the platform, the consumer’s bank account number/credit card numbers or any personal information are not transmitted over the Internet.

No Transmission of Personal Data - When a transaction occurs, there is no personal ID or account information attached to the transaction. This lack of personal information prevents online fraud and ID theft.

All customer data (personal and/or account related) remains protected and secure behind multiple firewall and encryption. Mail fraud is also eliminated as no paper statements are issued.

The Company platform logs all transaction activity and the system maintains a complete audit trail of all transactions, financial and otherwise.

There is a daily reconciliation of all consumer and merchant activity is conducted at the close of each business day.

The Company is also able to place thresholds on user’s accounts so as to monitor transactions by type, location and volume so as to ensure compliance with, Know Your Customer (KYC) Anti-money Laundering (AML) and Anti-terrorism guidelines.

Digital Authorization Required - Users are further protected as the Company cannot reach into a user’s bank account without the user’s authorization. The user’s account is a separate and secure entity to which the user deposits funds for payment. Payments made to a merchant after completion of a transaction is authorized by the account holder for that amount and that amount only. Additional funds cannot be removed from the user’s account without the account holder’s digital authorization.

The Company holds users and merchant funds in external exchanges and with a major Canadian Bank. The system and processes are required to safeguard these assets for both parties. To that end the Company has in place the following:

Holding of User and Merchant Assets

The Company holds both user and merchant cash and cryptocurrency balances. At this time the risk of any fluctuations in currency balances held for these parties is the sole risk of the user or merchant. The Company does not have a risk on the holding of these accounts for a currency risk fluctuation. The Company has the obligation of stewardship of both user and merchant accounts, and as such access to these accounts is restricted. Funds reside within and behind the security protocols of a major Canadian Bank.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

Risk Overview

The Company is aware of the risks associated with operating in the payment space and in particular the digital payment/currency space. Wherever possible, the Company has taken the prerequisite steps to implement the appropriate guidelines and processes to mitigate these risks. Some of the risks may include:

Cybersecurity Risk

The Company is aware of the potential for cybersecurity risks herein defined as threats or vulnerabilities in networks, computers, programs and data, flowing from or enabled by connection to digital infrastructure, information systems, or industrial control systems, including but not limited to, information. The Company has worked to mitigate these risks by using industry best practices for server deployment and firewall protection.

Operational Risks

The success of the Company is dependent upon the ability, expertise, judgment, discretion and good faith of its senior management. While employment agreements are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of such employees. Any loss of the services of such individuals could have a material adverse effect on the Resulting Issuer’s business, operating results or financial condition.

Crypto Currency Risks

The cryptocurrency market is unregulated and in its infancy. Accordingly, there are certain risks related to cryptocurrencies, including the risk of regulatory reforms which may prohibit payment processing transactions related to the business of the Resulting Issuer. Additionally, financial institutions may impose restrictions on persons that engage in business that is based on cryptocurrency transactions. Risks related to the acceptance and use of cryptocurrencies will have a significant impact on the volume of cryptocurrency transactions. Such acceptance or lack thereof, and reforms in regulation could adversely affect the Company's assets, liabilities, business, financial condition, prospects and results of operations.

Pandemic Risks

The Company cautions that current global uncertainty with respect to the spread of the COVID-19 virus (the “COVID-19”) and its effect on the broader global economy may have a significant negative effect on the Company. While the precise impact of the COVID-19 on the Company remain unknown, rapid spread of the COVID-19 may have a material adverse effect on global economic activity, and can result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Company.

Regulatory Environment

From time-to-time, governments and regulatory bodies may review the legislation and regulations applied to the crypto currency financial services industry and the payment processing industry in which the Resulting Issuer operates. Such reviews could result in the enactment of new laws and/or the adoption of

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

new regulations in Canada, the United States of America, Europe or elsewhere, which might adversely impact the business. The Company has mitigated much of this risk to the extent it is a fully reporting public company and reports to the Canadian Stock Exchange (CSE), British Columbia Securities exchange (BCSC), Alberta Securities Exchange (ASC), Ontario Securities Commission (OSC), as well as Fintrac.

AML/KYC

The Company has implemented internal proprietary AML/KYC protocols as well as utilizing third-party identification authentication to meet current regulations regarding this matter. Though regulation is extensive and designed to protect consumers and the public, are complex and sometimes ambiguous, at this time the Company believes that at this time it is in compliance with all current laws and regulations.

On August 21, 2018, the halt on the trading of the Company's shares was lifted and trading on the CSE resumed on August 24, 2018. The lifting of the halt has allowed the Company to raise funds through common share offerings and the Company has been in contact with all merchants (existing and prospective), customers and suppliers to discuss the halt lift and the steps the Company has put into place to reduce the risk of any future halts.

The Company has increased the staff levels in the accounting and information services departments to facilitate more timely and relevant data to the management team. The Company had previously outsourced the accounting and financial reporting to a third party. The Company has put additional compliance procedures in place to reduce the risk of any compliance issues.

On April 20, 2018 trading of the Company’s shares on the CSE was halted. The Company was notified by the CSE that the halt was due to the Company not being compliant in regard to Continuous Disclosure Requirements. The British Columbia Securities Commission (BCSC) had notified the CSE that it had requested clarification and additional information regarding our Q4 October 31, 2017 year end filings and our Q1 January 31, 2018 filings, as well as information on the status of the not for profit organization to be established to manage the NetCents coin (NCCO), the status of the NCCO sales, and the proceeds of the sale of the NCCO.

The Company has experienced significant financial stress as a result of the halt due to prospective new merchants, customers, and suppliers being reluctant to enter into agreements while the halt is in place. The halt has also hindered the Company’s ability to raise funds through the sale of common shares, leaving the Company with limited sources of capital to continue to advance and develop its business.

NetCents Currency

Introduction and Prelaunch

In or around the middle of September 2017, the Company introduced the concept of the NetCents cryptocurrency (referred to as the “NetCents Currency” or “NCCO”) to the public. The currency was designed to be a transactional currency that was more stable in value (price) than other cryptocurrencies which were currently available in the marketplace the stability of the coin would facilitate the use of the coin as a transactional medium. The whitepaper for the NetCents Currency was released on October 10, 2017 (the “Whitepaper”). The Whitepaper includes the outline of the currency release mechanism. It also detailed the anticipated reserve fund account balances after each tranche had been sold.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

The intention was to have a foundation set up with independent directors at arms length to the Company. The foundation was not set up prior to the initial release of the coins.

The currency was made available in a prelaunch offering to shareholders of the Company at a 25% discount from the $1 price of the initial release of the NCCO.

From presale initiation to the end of October 2017, 95,888 coins were sold for cash proceeds of $78,306.

From presale initiation to the end of January 2018, 3,381,036 coins were sold for cash proceeds of $3,341,041.

As at 31 October 2019, the Company has received proceeds of $3,341,041 (31 October 2018 - $3,341,041) in connection with the sale of NCCO coins.

For the coin sale transactions, the Company received funds from the client’s user accounts in both fiat currencies (CAD, USD and Euro), and, cryptocurrencies (BTC and ETH). The Company converted the funds received into Canadian dollars using the spot closing rate of the currency from https://cryptocoincharts.info, and the closing exchange rate between Canadian dollars, US dollars and Euros as at period end.

The Company originally recorded the proceeds from the sale of the coin as a liability being the amount required to fulfil a constructive obligation to the coin holders to set up the NCCO Foundation and transfer all proceeds from the sale of the treasury coins the NCCO Foundation whereby the NCCO foundation will use the funds to back the value of the NCCO coin for the benefit of the coin holders.

During the year ended October 31 2018, the Company transferred all proceeds from the coin sale from the Company bank account to a trust account managed by the Company’s legal counsel.

As at October 31, 2019, the funds are being held in trust subject to an investigation by the British Columbia Securities Commission (“BCSC”). The outcome of this investigation is unknown and the funds are to remain in trust until the investigation by the BCSC is complete.

During the year ended October 31, 2018, the Company incurred expenses of $135,434 on the transfer of funds into the wallets and the related exchange differences were expensed by the Company. The Company also incurred expenses of $165,691 in connection with the set-up of the NCCO coin which the Company is entitled to be reimbursed by the NCCO Foundation. However, because there is uncertainty as to the collectability of this balance, the Company wrote down the receivable of $165,691 for the year ended October 31, 2018.

HIGHLIGHTS, SIGNIFICANT EVENTS AND TRANSACTIONS

Recent Developments

On 5 November 2018, the Company announced pleased to announce that its integration with SoftPoint LLC (SoftPoint) was completed and was pushed live in the SoftPoint ecosystem.

On 7 November 2018, the Company announced it had been nominated by the Digital Finance Institute as a nominee for Blockchain Company of the Year at the 4th Annual Canadian FinTech & AI Awards.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

On 13 November 2018, the Company announced that it had entered into a five-year ISO Reseller Agreement with Kubera Payments (“Kubera”) and a reciprocal Kubera Referral agreement.

On 13 November 2018, the Company announced that in October 2018, it had settled an outstanding claim owed to Equities Media Inc. (“Equities”). The claim related to a dispute over the issuance of 135,552 common shares and 135,552 warrants by Netcents to Equities.

On 19 November 2018, the Company announced the white label enterprise integration for High Risk Commerce LLC (HRC) had been completed.

On 21 November 2018, the Company announced it will be expanding its merchant reach to over 60 countries and will support merchant payouts in over 30 fiat currencies. Once implemented, Merchants will be able to settle funds directly into their bank accounts without intermediaries to provide a timely and cost-effective solution.

On 23 November 2018, the Company announced that it has entered into consulting agreements with Market IQ Media Group Incorporated (“Market”) and Axe Communications Inc. (“Axe”) (each, a “Consulting Agreement”), for media consulting, digital media campaigns, and multimedia services.

On 28 November 2018, the Company announced it has entered into a five-year ISO Reseller Agreement with OBANC.

On 28 November 2018, the Issuer filed Notice of AGM. Date of AGM is 21 December 2018, at 8:30 AM held at 1500 – 1055 West Georgia Street.

On 3 December 2018, the Company announced the release of the first SaaS-based cryptocurrency processing platform. The move to the SaaS platform will enable the Company’s anticipated growth in both the card present and card not present environments. Through this upgrade, the Company has developed four robust API documents for ease of integrations with merchants, partners, and POS and terminal environments.

On 4 December 2018, the Company announced it realized a 206% increase in direct merchant sign-ups in the last quarter. In addition to the merchants signed up through the Company’s Partnership Programs, the Company has now had 387 direct merchant sign-ups.

On 19 December 2018, the Company granted incentive stock options to directors and employees of the Company to purchase 500,000 common shares of the Company at an exercise price of $0.76 with an expiry date of 19 December 2023. The Company also granted incentive stock options to employees to purchase 178,500 common shares of the Company at an exercise price of $0.76 with an expiry date of 19 December 2021.

The Company AGM was 21 December 2018, at 8:30 AM held at 1500 – 1055 West Georgia Street.

On 7 January 2019, the Company cancelled 890,000 options.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

On 7 January 2019, the Company release a corporate update listing the milestones and objectives which the Company accomplished in 2018.

On 10 January 2019, the Company announced that it had opened up applications to the beta for its upcoming Cryptocurrency Credit Card program.

On 15 January 2019, the Company announced the addition of Eric Turille and Don Sieb to the Company’s Board of Advisors. Mr Turille and Mr. Sieb have over 30 years experience in payment industry. The addition of Mr. Turille and Mr. Sieb to the Board of Advisors adds decades of payment industry knowledge, experience, and relationships to the NetCents management team.

On 17 January 2019, the Company announced that it initiated the formal application process to trade on the OTCQB. The OTCQB listing is a partnership offered through CSE. The Company is now listed in Canada with the CSE, Germany with the Frankfurt Stock Exchange, and soon to the United States with the OTCQB.

On 22 January 2019, the Company announced that it had entered into a five-year ISO Reseller Agreement with SalesSource LLC. SalesSource specializes in merchant acquiring, prepaid card issuance, mobile wallet, payments facilitation and funds management.

On 29 January 2019, the Company announced that the direct integration into the PAX Global Technology, LTD. (PAX) A920 Smart Terminal has been completed. PAX has been serving the global retail marketplace for over 17 years, has distribution in over 100 countries shipping over 26 million terminals worldwide and is one of the fastest-growing POS terminal providers in the world.

On 6 February 2019, the Company announced that the integration into the ExaDigm, Inc. N5 smart terminal has been completed.

On 12 February 2019, the Company announced it had entered into an agreement with Zomongo. ZOMONGO is one of the fastest growing digital networks in North America and is currently in 90,000+ ZOMONGO merchant locations, 3.5 million hotel rooms, and 22 major airports, as well as having a strong social presence with over 600,000 followers.

On 14 February 2019, the Company announced that it has released its Zero Confirmation and Risk Analysis technology that guarantees cryptocurrency transactions before they are confirmed on the blockchain.

On 21 February 2019, the Company that it has entered into a five-year ISO/Reseller Agreement with Results by Design, LLC (“RBD”). RBD is now partnered with NetCents to begin deploying the NetCents cryptocurrency payment platform to financial institutions, merchant acquirers and card issuers globally.

On 28 February 2019, the Company announced it signed its 20th Partner Agreement.

On 4 March 2019, the Company announced that the filing of its audited annual financial statements for the year ended October 31, 2018, including the related management discussion and analysis, and CEO and CFO certifications (collectively, the “Annual Financial Filings”) will not be filed by the required filing deadline of 28 February 2019 (the “Filing Deadline”).

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

On 4 March 2019, the Company announced it had been approved for trading on the OTCQB.

On 5 March 2019, the Company is pleased to announce that it has completed the previously announced expansion of its merchant reach and Gateway integrations to now support merchants in over 55 countries and 36 fiat currencies.

On 7 March 2019, the Company announced that it has launched its Crypto Banking Stack (CBS), which are the rails that facilitate cryptocurrency accounts, transactions, and functionality into existing platforms for banks, financial institutions, and money service businesses.

On 13 March 2019, the Company announced that it had entered into an agreement allowing processing of cryptocurrency payments for ILO Crypto (“ILOCX”, part of ILOCX Limited, London, England.) ILOCX is a platform which raises non-equity capital for companies in a unique way by selling Initial License Offerings.

On 21 March 2019, the Company announced that it had entered into a merchant agreement with Surge365 LLC (“Surge365”), a direct sales travel industry company with global reach. With the integration of the NetCents Merchant Gateway into the Surge365 platform, Surge365 is able to accept and process international membership subscription transactions in cryptocurrency and will work towards offering cryptocurrency as a payout option for company residuals and bonuses, ranging between $1,000 to $1 million dollars.

On 10 April 2019, the Company announced that it had completed its integration into the NetCents Merchant Gateway and has begun processing with Surge365 LLC (“Surge365”). NetCents will also be entering into a referral agreement with Surge365, following last month’s announcement.

On 18 April 2019, the Company announced that it has begun processing cryptocurrency transactions for its first charity partner, HS Aware.

On 24 April 2019, the Company issued a letter from the CEO to Shareholders as a Company update.

On 1 May 2019, the Company issued 129,532 common shares of the Company with a fair value of $116,579 for services.

On 29 May 2019, the Company granted incentive stock options to employees of the Company to purchase 155,000 common shares of the Company vesting every quarter start the six-month anniversary of employment at an exercise price of $0.61 per share with an expiry date of 29 May 2022. 40,000 of these stock options were cancelled as a result of termination. The grant date fair value was estimated to be $59,677 on a Black-Scholes calculation using a volatility of 187.2%, an expected life of 3 years, a risk-free rate of 1.50% and dividend yield of Nil%.

On 30 May 2019, the Company granted incentive stock options to an officer of the Company to purchase 200,000 common shares of the Company vesting immediately at an exercise price of $0.58 per share with an expiry date of 9 January 2022. The grant date fair value was estimated to be $98,003 on a Black-Scholes calculation using a volatility of 174.4%, an expected life of 2.62 years, a risk-free rate of 1.56% and dividend yield of Nil%.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

On 5 June 2019, the Company issued 28,571 common shares of the Company for proceeds of $14,286 for the exercise of warrants.

On 6 June 2019, the Company issued 142,994 common shares of the Company with a fair value of $82,507 for services.

On 24 June 2019, the Company granted incentive stock options to employees of the Company to purchase 100,000 common shares of the Company vesting every quarter start the six-month anniversary of employment at an exercise price of $0.56 per share with an expiry date of 24 June 2022. The grant date fair value was estimated to be $56,895 on a Black-Scholes calculation using a volatility of 187.2%, an expected life of 3 years, a risk-free rate of 1.37% and dividend yield of Nil%.

On 2 July 2019, the Company issued 35,000 common shares of the Company with a fair value of $20,650 for settlement of debt.

On 4 July 2019, the Company completed a non-brokered private placement issuing 4,163,099 units of the Company for gross proceeds of $2,497,859 of which $1,805,359 is recorded as subscription receivable. Each Unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to acquire an additional common share of the Company at an exercise price of $0.70 for a period of three years from the date of issuance. The residual value assigned to the warrants is $351,346.

On 4 July 2019, the Company issued 646,552 common shares of the Company with a fair value of $375,000 for settlement of debt with a director of the Company.

On 22 July 2019, the Company issued 25,000 common shares for proceeds of $8,750 on the exercise of stock options.

On 5 September 2019, the Company issued 250,000 common shares of the Company for gross proceeds of $150,000 received on 29 May 2019.

On 13 September 2019, the Company issued 461,538 common shares of the Company for the settlement of debt with the President and director of the Company.

On September 24, 2019, the Company issued 500,000 Units for gross proceeds of $225,000. Each Unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to acquire an additional common share of the Company at an exercise price of $0.55 for a period of five years from the date of issuance. The residual value assigned to the warrants is $nil.

On 25 September 2019, the Company received gross proceeds of $150,000 in relation to a non-brokered private placement resulting in an obligation to issue 250,000 Units. Each Unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to acquire an additional common share of the Company at an exercise price of $0.70 for a period of three years from the date of issuance. The residual value assigned to the warrants is $nil.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

SIGNIFICANT EVENTS AND TRANSACTIONS SUBSEQUENT TO THE PERIOD

Subsequent to October 31, 2019, the Company:

• a) entered into debt settlement agreements with consultants to settle amounts owing by issuing 8,582,867 common shares of the Company;

• b) issued 5,263,497 units for gross proceeds of $1,473,779. Each unit consists of one common share of the Company and one common share purchase warrant. Each warrant entitles the holder to acquire an additional common share of the Company at an exercise price of $0.70 for a period of two years from the date of issuance;

• c) issued 3,000,000 common shares of the Company for services provided by consultants;

• d) issued 200,000 common shares of the Company for exercise of stock options; and

• e) issued 50,000 common shares of the Company as severance payment to a former employee of the Company.

SELECTED ANNUAL INFORMATION

The following table summarizes selected financial date for the Company for each of the four most recently completed financial years. The information set forth below should be read in conjunction with the consolidated audited financial statements, prepared in accordance and related notes.

	IFRS	IFRS	IFRS	IFRS
Fiscal Year Ended	Oct 2019	Oct 2018	Oct 2017	Oct 2016
Revenues	89,082	120,578	94,105	Nil
Net Loss from Operations	(5,575,879)	(10,565,991)	(2,177,921)	(1,938,988)
Net Loss	(6,665,702)	(13,193,394)	(2,780,945)	(1,908,741)
Basic and Diluted Loss Per Share	(0.12)	(0.32)	(0.09)	(0.06)
Total Assets	4,077,710	6,985,244	619,869	123,948
Cash Dividends Declared	Nil	Nil	Nil	Nil

RESULTS OF OPERATIONS

The comprehensive loss for the year ended 31 October 2019 was $6,665,702 which compares to a comprehensive loss of $13,193,394 incurred in the comparative period. The main fluctuations in costs are as follows:

as follows:
		12	months		12	months
Revenue
			2019			2018
	$		89,082	$		120,578
Variance decrease	$		(31,496)

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

During the year ended 31 October 2019, the Company continued to enter into multiple merchant agreements and continued to generate revenue with its payment processing platform. The variance is attributable to timing of certain transactions.

attributable to timing of certain transactions.
		12 months		12 months
Share based compensation		2019		2018
	$	1,416,939	$	6,232,577
Variance decrease	$	(4,815,638)

During the year ended 31 October 2019, the Company issued 514,422 shares for services and 1,433,500 stock options to directors, officers, consultants, and employees. The variance is attributed to the decrease in options and shares for services issued by the Company.

Consulting fees	12 months 2019 12 months 2018
Variance increase	$ 514,706$ 384,174
	$ 130,532
Salaries	12 months 2019 12 months 2018
Variance increase	$ 1,258,611$ 1,069,457
	$ 189,154

During the year ended 31 October 2019, the increase in payroll is a result of the Company converting several consultants into employees in 2018. The Company’s employees have also increased since then as a result of increase in the Company’s market capitalization and operation.

Professional fees		12 months		12 months
		2019		2018
	$	241,789	$	519,399
Variance decrease	$	(277,610)

During the year ended 31 October 2019, the variance is attributed to the significant legal fees incurred in the previous period in connection with regulatory matters as a result of the trading halt in the CSE.

Marketing and investor relations	12 months 2019 12 months 2018
Variance decrease	$ 748,388$ 959,785
	$ (211,397)

During the year ended 31 October 2019, the Company has reduced services related to marketing and investor relations consultants to focus on merchant acquisition. In the previous year, the Company incurred higher marketing and investor relations as a result of launching specific ad campaigns for brand

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

awareness in the marketplace. The result of the prior period investment is the result of the Company becoming operational in the cryptocurrency payment space.

FINANCIAL DATA FOR LAST EIGHT QUARTERS

The following table sets out selected quarterly financial information of the Company and is derived from the unaudited condensed interim consolidated financial statements prepared by management. The Company’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards and are expressed in Canadian dollars.

Three Months Ended	Oct 19	Jul 19	Apr 19	Jan 19	Oct 18	Jul 18	Apr 18	Jan 18
Total Revenues	2,401	63,178	12,677	10,826	52,933	8,923	-	-
Loss from continuing
operations	(1,190,528)	(1,372,683)	(1,306,359)	(1,706,309)	(2,303,877)	(1,284,616)	(2,523,794)	(4,453,704)
Loss for the period	(1,869,185)	(1,518,122)	(1,577,377)	(1,701,018)	(2,791,198)	(1,338,355)	(2,637,098)	(6,426,743)
Basic loss per share	(0.03)	(0.03)	(0.03)	(0.04)	(0.04)	(0.03)	(0.09)	(0.16)
Diluted loss per share	(0.03)	(0.03)	(0.03)	(0.04)	(0.04)	(0.03)	(0.09)	(0.16)

OUTSTANDING SHARES

As at 31 October 2019, the Company had 54,107,502 common shares issued and outstanding. As at 31 October 2019, the fully diluted amount of 67,536,973 includes common share purchase warrants of 9,100,911 and 4,328,560 options outstanding.

As at 10 June 2020, the Company had 71,203,866 common shares issued and outstanding, 14,364,408 common share purchase warrants and 4,128,560 options outstanding.

LIQUIDITY AND CAPITAL RESOURCES

The consolidated financial statements were prepared on a “going concern” basis, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses, including the Company’s. This outbreak could decrease spending, adversely affect demand for the Company’s product and harm the Company’s business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

Cash used in operating activities during the year ended 31 October 2019 totalled $2,861,741 (comparative period $4,390,691).

Cash used in investing activities during the year ended 31 October 2019 totalled $Nil (comparative period $363,362).

Cash provided by financing activities during the year ended 31 October 2019 totalled $1,985,536 (comparative period cash raised of $5,808,097).

The Company had a working capital deficiency $5,839,684 as of 31 October 2019 compared to working capital deficiency of $4,016,542 as of 31 October 2018.

The Company maintained unrestricted cash of $205,088 as of 31 October 2019 (31 October 2018 - $1,081,293) to meet short-term business requirements. At 31 October 2019, the Company had financial obligations to unrelated parties as follows:

• Accounts payable and accrued liabilities of $1,141,537 and $180,752 respectively (31 October 2018 - $1,079,158 and $41,413 respectively);

• Loans payable of $31,281 (31 October 2018 - $98,181); and

• Funds due to merchants of $292,499 (31 October 2018 - $429,497).

PROPOSED TRANSACTIONS

The Company does not have any new or proposed transactions contemplated as of the date of this report.

OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements as at 31 October 2019 and as at the date hereof.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

RELATED PARTY TRANSACTIONS

a) Related party transactions

Transactions with related parties for the year ended 31 October 2019 and 2018 are as follows:

KEY MANAGEMENT COMPENSATION

KEYMANAGEMENTCOMPENSATION
Principal Position	Fiscal		Remuneration		Share based
	Period		or Fees		payments
Clayton Moore, CEO and director –(i)salary and	2019	$	257,000	$	79,712
consulting fees	2018	$	311,000	$	997,503
Gord Jessop, President and director –(i)salary and	2019	$	186,500	$	79,712
consulting fees	2018	$	221,400	$	997,503
Jennifer Lowther, CRO and director – consulting fees	2019	$	151,200	$	251,284
	2018	$	110,200	$	734,632
Christopher Cherry, CFO – consulting fees	2019	$	95,875	$	-
	2018	$	7,500	$	-
Mehdi Mehrtash, CTO – consulting fees	2019	$	119,946	$
	2018	$	115,500	$	78,747
					-
Jean-Marc Bougie, former director – shares for services	2019	$	-	$	-
	2018	$	-	$	897,173
Michael Laitinen, former CFO –(i)salary and consulting	2019	$	-	$	-
fees	2018	$	104,500	$	404,369

(i) All payments to January 31, 2018 were in the form of consulting fees; February 1, 2018 forward all payments in the form of salary.

b) Related party balances

Included in due from related parties as at 31 October 2019 is $100,008 (31 October 2018: $nil) from a company controlled by the President of the Company. The amount will be non-interest bearing for the first 12 months and 1.5% interest for the following 12 months with no fixed terms of repayment.

Included in due to related parties as at 31 October 2019 is $114,118 (31 October 2018: $78,125) owing to the CEO of the Company. These amounts are non-interest bearing with no fixed terms of repayment.

Included in accounts payable as at 31 October 2019 is $233,248 (31 October 2018: $311,232) owing to key management. These amounts are unsecured, non-interest bearing with no fixed terms of repayment.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

Included in accrued liabilities as at 31 October 2019 is $140,750 (31 October 2019: $Nil) of salaries payable owing to key management. These amounts are unsecured, non-interest bearing with no fixed terms of repayment.

COMMITMENTS

a) Commitments with related parties

Pursuant to the employment agreement, effective 1 January 2018, the Company will remunerate the Chief Executive Officer of the Company $18,500 per month. In the event that the CEO is terminated without cause, the Company must continue paying the salary for a period of 18 months.

b) Other commitments

On 1 March 2018, the Company entered into a premises lease agreement for a period of seven years, expiring on 28 February 2025. Minimum annual lease payments of base rent for the term of the lease is as follows:

LEASEPERIOD	Amount
1 November 2019 to 31 October 2020 1 November 2020 to 31 October 2021 1 November 2021 to 31 October 2022 1 November 2022 to 31 October 2023 1 November 2023 to 31 October 2024 1 November 2024 to 28 February 2025	258,144 258,144 258,144 258,144 258,144 86,048
	$ 1,376,768

FINANCIAL INSTRUMENTS

a) Financial instrument classification and measurement

Financial instruments of the Company carried on the statement of financial position are carried at amortized cost. There are no significant differences between the carrying value of financial instruments and their estimated fair values as at 31 October 2019 and 2018. There have been no changes in levels during the period.

The Company classifies the fair value of these transactions according to the following hierarchy:

• Level 1 – quoted prices in active markets for identical financial instruments.

• Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

• Level 3 – valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

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b) Fair values of financial assets and liabilities

The Company’s financial instruments include cash, restricted cash and funds due from processors, cash included in assets held for clients, due to related parties, accounts payable and accrued liabilities, client deposits, loans payable and funds due to merchants. As at 31 October 2019 and 2018, the carrying value of cash and certain assets held for clients and client deposits are at fair value. The remaining financial instruments approximate their fair value due to their short-term nature.

c) Market risk

Market risk is the risk that changes in market prices will affect the Company’s earnings or the value of its financial instruments. Market risk is comprised of commodity price risk and interest rate risk. The objective of market risk management is to manage and control exposures within acceptable limits, while maximizing returns. The Company is not exposed to significant market risk.

d) Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into, causing the other party to incur a financial loss. The Company’s cash, digital currencies, due from related parties and proceeds of coin sale are exposed to credit risk. The Company limits its credit risk by placing its cash with high credit quality financial institutions and with cryptocurrency exchanges on which the Company has performed internal due diligence procedures. The Company deems these procedures necessary as some exchanges are unregulated and not subject to regulatory oversight. Furthermore, crypto-exchanges engage in the practice of commingling their clients’ assets in exchange wallets. When crypto-assets are commingled, transactions are not recorded on the applicable blockchain ledger but are only recorded by the exchange. Therefore, there is risk around the occurrence of transactions or the existence of period end balances represented by exchanges. As at October 31, 2019, the Company held approximately $205,088 (2018 - $1,081,293) in cash and $100,221 (2018 - $146,255) in digital assets at exchanges that do not have system or organization control reporting available. As of each reporting period, the Company assesses if there may be expected credit losses requiring recognition of a loss allowance. As of October 31, 2019, the Company recorded an allowance of $NIL (2018 - $Nil). While the Company intends to only transact with counterparties or exchanges that it believes to be creditworthy, there can be no assurance that a counterparty will not default and that the Company will not sustain a material loss on a transaction as a result.

e) Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s liabilities are either non-interest bearing or pay interest at fixed rates. Therefore, interest rate risk is not considered significant.

f) Foreign currency risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

currency. As at 31 October 2019, the Company held financial liabilities denominated in foreign currencies totalling $453,000 (31 October 2018 - $144,155), as well as financial assets denominated in foreign currencies totalling $175,000 (31 October 2018 - $287,498). A 5% shift in exchange rates would result in a foreign exchange gain or loss of approximately $7,000. Accordingly, the Company is moderately exposed to foreign currency risk.

g) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company controls liquidity risk by ensuring that it has sufficient cash resources to pay for its financial obligations. The Company manages liquidity risk by restricting cash reserves to offset client deposits and funds due to merchants. As at 31 October 2019, the Company had an unrestricted cash balance of $205,088 to settle current liabilities, other than provision for coin sale for which cash reserves have been restricted, totalling $3,015,780 which are due within one year. Accordingly, the Company is significantly exposed to liquidity risk.

h) Digital asset risk

Digital assets are measured at fair value less cost to sell. Digital currency or cryptocurrency prices are affected by various forces including global supply and demand, interest rates, exchanges rates, inflation or deflation and the political and economic conditions. Further, cryptocurrencies have no underlying backing or contracts to enforce recovery of invested amounts.

The Company may not be able to liquidate its inventory of cryptocurrencies at its desired price if necessary. Prices of cryptocurrencies are volatile and market movements are difficult to predict. Supply and demand for such currencies change rapidly and are affected by a variety of factors, including regulation and general economic trends.

Cryptocurrencies have a limited history, their fair values have historically been volatile and the value of cryptocurrencies held by the Company could decline rapidly. A decline in the market prices of cryptocurrencies could negatively impact the Company's future operations. Historical performance of cryptocurrencies is not indicative of their future performance.

Many cryptocurrency networks are online end-user-to-end-user networks that host a public transaction ledger (blockchain) and the source code that comprises the basis for the cryptographic and algorithmic protocols governing such networks. In many cryptocurrency transactions, the recipient or the buyer must provide its public key, which serves as an address for a digital wallet, to the seller. In the data packets distributed from cryptocurrency software programs to confirm transaction activity, each party to the transaction user must sign transactions with a data code derived from entering the private key into a hashing algorithm, which signature serves as validation that the transaction has been authorized by the owner of the cryptocurrency.

This process is vulnerable to hacking and malware, and could lead to theft of the Company’s digital wallets and the loss of the Company’s cryptocurrency.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019 Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

Cryptocurrencies are loosely regulated and there is no central marketplace for exchange. Supply is determined by a computer code, not a central bank. Additionally, exchanges may suffer from operational issues, such as delayed execution, that could have an adverse effect on the Company.

The cryptocurrency exchanges on which the Company uses are relatively new and, in many cases, largely unregulated, and therefore may be more exposed to fraud and failure than regulated exchanges for other assets.

Any financial, security, or operational difficulties experienced by such exchanges may result in an inability of the Company to recover money or digital assets being held on the exchange. Further, the Company may be unable to recover digital assets awaiting transmission into or out of the Company, all of which could adversely affect an investment of the Company.

i) Loss of access risk

The loss of access to the private keys associated with the Company's cryptocurrency holdings may be irreversible and could adversely affect an investment. Cryptocurrencies are controllable only by an individual that possesses both the unique public key and private key or keys relating to the "digital wallet" in which the cryptocurrency is held. To the extent a private key is lost, destroyed or otherwise compromised and no backup is accessible the Company may be unable to access the cryptocurrency.

j) Irrevocability of transactions

Cryptocurrency transactions are irrevocable and stolen or incorrectly transferred cryptocurrencies may be irretrievable. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer or theft generally will not be reversible, and the Company may not be capable of seeking compensation.

k) Hard fork and air drop risks

Hard forks may occur for a variety of reasons including, but not limited to, disputes over proposed changes to the protocol, significant security breach, or an unanticipated software flaw in the multiple versions of otherwise compatible software. In the event of a hard fork in a cryptocurrency held by the Company, it is expected that the Company would hold an equivalent amount of the old and new cryptocurrency following the hard fork.

Air drops occur when the promoters of a new cryptocurrency send amounts of the new cryptocurrency to holders of another cryptocurrency that they will be able to claim a certain amount of the new cryptocurrency for free.

The Company may not be able to realize the economic benefit of a hard fork or air drop, either immediately or ever, for various reasons. For instance, the Company may not have any systems in place to monitor or participate in hard forks or airdrops. Therefore, the Company may not receive any new cryptocurrencies created as a result of a hard fork or airdrop, thus losing any potential value from such cryptocurrencies.

l) Regulatory oversight risk

Regulatory changes or actions may restrict the use of cryptocurrencies or the operation of cryptocurrency networks or exchanges in a manner that adversely affects investments held by the Company.

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NETCENTS TECHNOLOGY INC. YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

CAPITAL MANAGEMENT

The Company’s capital structure consists of all components of shareholders’ equity. The Company’s objective when managing capital is to maintain adequate levels of funding to support the current operations and the necessary corporate and administrative functions to facilitate these activities. This is done primarily through equity and debt financing. Future financings are dependent on market conditions and there can be no assurance the Company will be able to raise funds in the future.

The Company invests all capital that is surplus to its immediate operational needs in short-term, highlyliquid, high-grade financial instruments. There were no changes to the Company’s approach to capital management during the year. The Company is not subject to externally imposed capital requirements.

APPROVAL

The Board of Directors of the Company have approved the disclosure contained in this MD&A. A copy of this MD&A will be provided to anyone who requests it.

A CAUTIONARY TALE

This document contains “forward-looking information” which may include, but is not limited to, statements with respect to the future financial or operating performance of the Corporation, its subsidiaries and its projects, the future supply, demand, inventory, production and price of minerals, the estimation of reserves and resources, the realization of reserve estimates, the timing and amount of estimated future production, costs of production, capital, operating and exploration expenditures, costs and timing of the development of new deposits, costs and timing of future exploration, requirements for additional capital, government regulation operations, environmental risks, reclamation expenses, title disputes or claims, limitations of insurance coverage and the timing and possible outcome of pending litigation and regulatory matters.

Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes” or variations (including negative variations) of such words and phrases, or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation and/or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, general business, economic, competitive, political and social uncertainties; the actual results of current exploration activities; actual results of reclamation activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future prices of resources; possible variations of ore grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the resource industry; political instability, insurrection or war; delays in obtaining governmental approvals or financing or in the completion of development or construction activities. Although the

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NETCENTS TECHNOLOGY INC.

YEAR ENDED 31 OCTOBER 2019

Canadian Funds

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REPORT TO SHAREHOLDERS AND MANAGEMENT DISCUSSION AND ANALYSIS

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

Respectfully submitted

On Behalf of the Board of Directors

“Clayton Moore”

Clayton Moore, CEO

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