Nexe Innovations Inc. - Management Reports 2021

NEXE INNOVATIONS INC. (FORMERLY WHATCOM CAPITAL CORP.)

MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED OCTOBER 31, 2020

(Expressed in Canadian dollars unless otherwise stated)

Introduction

The following management discussion and analysis (“MD&A”), prepared as at March 2, 2021, should be read in conjunction with NEXE Innovations Inc. (formerly Whatcom Capital Corp.’s (the “Company”, “Whatcom”) audited consolidated financial statements and the accompanying notes for the year ended October 31, 2020 and was reviewed and approved by the Board of Directors of the Company. The consolidated financial statements for the year ended October 31, 2020 have been prepared in accordance with IAS 34 and International Financial Reporting Standards (“IFRS”). Except as otherwise disclosed, all dollar figures included therein and in the following MD&A are quoted in Canadian dollars. For further information on the Company reference should be made to the Company’s public filings which are available on SEDAR.

This discussion covers the year ended October 31, 2020, and the subsequent period up to the date of issue of this MD&A.

Description of Business

The Company was incorporated under the Business Corporations Act (British Columbia) on September 19, 2019 and is classified as a capital pool company as defined in Policy 2.4 of the TSX Venture Exchange Inc. (the “TSX-V”). On December 15, 2020, the Company completed a Qualifying Transaction with NEXE Innovations Inc. (“NEXE”), a private British Columbia-based advanced materials company which has developed a fully compostable (plant-based) single-serve coffee pod for use in Keurig Brewing Systems. The Company’s registered and head office address is 7501095 West Pender Street, Vancouver, B.C. V6E 2M6.

During the year ended October 31, 2020, the Company filed a prospectus dated January 17, 2020, an amended and restated prospectus dated April 3, 2020 and an amended and restated prospectus dated April 29, 2020 with the securities regulatory authorities in the provinces of British Columbia, Alberta, Saskatchewan and Ontario. On June 2, 2020, the Company completed its initial public offering (“IPO”) of 1,500,000 common shares of the Company (“Shares”) at a price of $0.25 per Share for aggregate gross proceeds of $375,000. The Shares were listed on June 2, 2020 on the TSX Venture Exchange (the “Exchange”) and commenced trading on the Exchange under the trading symbol “WHAT.P”. Industrial Alliance Securities Inc. (the “Agent”) acted as exclusive agent in respect of the IPO on a best efforts basis. Pursuant to the IPO, the Agent received a cash commission of $37,500 and an aggregate of 150,000 non-transferable warrants (“Agent Warrants”) entitling the Agent and members of its selling group to purchase 150,000 Shares at $0.25 per Share at any time until June 2, 2022. The Agent also received a corporate finance fee of $22,123. Concurrently with the closing of the IPO, the Company completed a non-brokered private placement offering of 1,500,000 common shares at a price of $0.25 per common share for aggregate gross proceeds of $375,000 (the “Private Placement”). No commission or other fee was paid to the Agent in connection with the Private Placement. The Company will use the net proceeds of the IPO and the Private Placement to identify and evaluate potential Qualifying Transactions pursuant to the policies of the Exchange.

Effective December 15, 2020, the Company completed its announced RTO with Nexe Innovations Inc. and its common shares, common share purchase warrants and share purchase options were consolidated on a 2.5 for 1 basis. This consolidation has been reflected in the reporting period and comparable period share amounts of this MD&A and the audited consolidated financial statements for the year ended October 31, 2020. See Subsequent Events section of this MD&A.

Letter of Intent

On July 28, 2020, the Company announced that it has entered into a letter of intent (the “LOI”) with NEXE Innovations Inc. (“NEXE”, formerly known as G-PAK Technology Inc.), regarding a proposed transaction to acquire all of the issued and outstanding securities of NEXE (the “Transaction”). The Transaction is intended to constitute the “Qualifying Transaction” of Whatcom, as such a term is defined in Policy 2.4 – “Capital Pool Companies” of the TSX Venture Exchange (the “Exchange”). NEXE Innovations Inc. is a private British Columbia-based advanced materials

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company which has developed a fully compostable (plant-based) single-serve coffee pod for use in Keurig Brewing Systems and was incorporated on April 27, 2015.

Definitive Agreement & Concurrent Financing

On August 11, 2020, the Company announced that it entered into a three-cornered amalgamation agreement (the "Definitive Agreement") with NEXE Innovations Inc. ("NEXE") and 1260350 B.C. Ltd., a wholly-owned subsidiary of Whatcom, superseding the LOI. Pursuant to the Definitive Agreement, the Company will acquire all of the issued and outstanding securities of NEXE from NEXE's securityholders. Each holder of NEXE common shares will receive one common share of the Resulting Issuer (hereinafter defined) ("Resulting Issuer Share") for each NEXE Share held, each holder of NEXE Class A Preferred Shares, Series A ("Series A Share") will receive one Resulting Issuer Share for each Series A Share held, each holder of NEXE Class A Preferred Shares, Series A Preferred ("Series A Preferred Share") will receive one Resulting Issuer Share for each Series A Preferred Share held, and each holder of NEXE Class A Preferred Shares, Series 1 ("Series 1 Share") will receive one and one-half Resulting Issuer Shares for each Series 1 Share held. All outstanding convertible securities of NEXE, including NEXE common share purchase warrants and NEXE stock options will be exchanged or replaced with convertible securities of the Resulting Issuer based on a one-to-one basis and on the same economic terms and conditions as previously issued. Upon completion of the Transaction, NEXE will become a wholly-owned subsidiary of the Company and the Company will change its name to "NEXE Innovations Inc.", or such other name as the parties may reasonably agree upon. The combined entity (the "Resulting Issuer") will continue the business of NEXE as a Tier 1 “technology” issuer on the Exchange. The Transaction is conditional upon, among other things: (i) the parties receiving all requisite regulatory approval, including the approval of the Exchang and any third party approvals and authorizations; (ii) NEXE obtaining the requisite shareholder approval for the Transaction; (iii) completion by Whatcom of a consolidation of the Whatcom securities on a 2.5 for 1 basis and (iv) completion of the Concurrent Financing discussed below.

Whatcom and Nexe have engaged Canaccord Genuity Corp. (the "Canaccord") to act as lead agent and sole bookrunner, on its own behalf and on behalf of a syndicate of agents, who have agreed to sell on a commercially reasonable efforts basis a financing of subscription receipts (each, a "Subscription Receipt") at a price of $0.80 per Subscription Receipt, subject to the approval by the Exchange, for gross proceeds of a minimum of $5,000,000 and a maximum of $7,000,000 (the "Offering"). The Offering is being completed in connection with the Transaction. The Company and NEXE have also granted Canaccord an option to increase the Offering by up to an additional fifteen percent (15%) at any time up to forty-eight (48) hours prior to the closing of the Offering. Each Subscription Receipt will, prior to the effective time of the Transaction, automatically convert into one NEXE common share and one-half of one NEXE common share purchase warrant (each a "Financing Warrant"), with each whole Financing Warrant exercisable into a NEXE common share at an exercise price of $1.00 for a period of twelve months, for no additional consideration upon the satisfaction of certain escrow release conditions, including the conditional approval of the Exchange for the Transaction and satisfaction or waiver of all of the conditions precedent to the Transaction as set out in the Definitive Agreement.

Subsequent Events

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Issuer Shares for each Series 1 Share held. All outstanding convertible securities of NEXE, including NEXE common share purchase warrants and NEXE stock options will be exchanged or replaced with convertible securities of the Resulting Issuer based on a one-to-one basis and on the same economic terms and conditions as previously issued. Upon completion of the Transaction, NEXE will become a wholly-owned subsidiary of the Company and the Company will change its name to "NEXE Innovations Inc.", or such other name as the parties may reasonably agree upon. The combined entity (the "Resulting Issuer") will continue the business of NEXE as a Tier 1 “technology” issuer on the Exchange.

The Transaction was closed on December 15, 2020 with the parties receiving (i) all requisite regulatory approval, including the approval of the Exchange and any third party approvals and authorizations; (ii) NEXE obtaining the requisite shareholder approval for the Transaction; (iii) completion by Whatcom of a consolidation of the Whatcom securities on a 2.5 for 1 basis and (iv) completion of the Concurrent Financing discussed below.

On December 15, 2020, the Company closed a brokered private placement by issuing 11,437,500 units of NEXE at a price of $0.80 per unit and received gross proceeds of $9,150,000. Additionally, the Company closed on December 15, 2020, NEXE completed a non-brokered private placement financing of 6,273,203 Units at a price of $0.80 per Unit for total proceeds of $5,018,562 (the "Non-Brokered Financing"). This represents an oversubscription of $518,562 from the previously announced Non-Brokered Financing of $4,500,000.

Each Unit consists of one common share of NEXE and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase a common share of NEXE at a price of $1.00 per share until December 15, 2021.

Under the Concurrent Private Placement, the Agent received a cash commission of up to 7% of the total proceeds of the Concurrent Private Placement except for subscribers of the president’s list in which case the Agent received a cash commission of up to 3%. The Agent was also issued a total 692,585 non-transferable common share purchase warrants (each an “Agent’s Warrant”). Each Agent’s Warrant will be exercisable into one Resulting Issuer Share at a price of $0.80 until December 15, 2021. The Agent also received a corporate finance fee consisting of $75,000 in cash and 93,750 Resulting Issuer Shares. NEXE also paid the Agent’s reasonable out-of-pocket expenses, including legal fees, plus disbursements and taxes.

From December 2020 to February 2021, the Company issued 9,888,569 common shares upon exercise of share purchase warrants.

Selected Financial Data[(1)]

Summary Annual Information

The financial statements have been prepared in accordance with IFRS for year ended October 31, 2020 and the period ended October 31, 2019[(1, 2)] :

ended October 31, 2019(1, 2):
	2020	2019(2)
Total Revenues	-	-
Net and Comprehensive Loss	(212,187)	(6,542)
Basic and diluted loss per share	(0.09)	-
Total Assets	640,825	124,383
Non-current Liabilities	-	-
Dividends Declared	-	-

(1) Amounts and share information have been updated to reflection share consolidation of 2.5 to 1 new share per the closing of the transaction with Nexe Innovations Inc.

(2) From incorporation September 19, 2019 to October 31, 2019

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Results of Operations and Summary of Quarterly Results

	October 31, 2020 $	July 31, 2020 $	April 30, 2020 $	January 31, 2020 $	From the Date of Incorporation Sep 19, 2019 to October 31, 2019 $
Total revenues	-	-	-	-	-
General and administrative expenses	(94,461)	(74,901)	(9,456)	(33,369)	(6,542)
Net and comprehensive loss	(94,461)	(74,901)	(9,456)	(33,369)	(6,542)
Basic and diluted lossper share	(0.09)	-	-	-	-
Workingcapital	610,550	705,011	75,633	85,089	118,458
Totalassets	640,825	734,482	81,833	93,531	124,383
Non-current liabilities	-	-	-	-	-

Year Ended October 31, 2020 compared to the period from incorporation (September 19, 2019) to October 31, 2019

During the year ended October 31, 2020, (the “2020 Period”) the Company incurred net and comprehensive loss of $212,187 compared to a net and comprehensive loss of $6,542 for the 2019 Period. During the 2020 Period, general and administration expense included the following: $39,633 (2019 Period - $Nil) for filing fees, $127,596 (2019 Period - $5,925) for professional fees, $286 (2019 Period - $134) for bank fees and interest, $10,000 (2019 Period - $Nil) for rent, $29,560 (2019 Period - $Nil) for share-based compensation, $2,822 (2019 Period - $Nil) for transfer agent and listing fees and $2,290 (2019 Period - $483) for office expenses.

The net and comprehensive loss was higher in the quarters ended October 31, 2020 and July 31, 2020, respectively, compared with other quarters due to increased costs with the Company being listed on the TSXV. This including Filing fees for listing and sustaining fees, as well as filing statement fees related to the NEXE transaction totaling $20,000 and increased Professional fees related to the NEXE transaction totaling $81,803. The net and comprehensive loss was lower in the quarter ended April 30, 2020 compared with the quarter ended January 31, 2020 due to incurring initial regulatory and Sedar Filing fees of $16,102 and Professional fees of $9,630 for legal work related to the incorporation of the Company. Total assets for the quarters ended October 31, 2020 and July 31, 2020, respectively, were higher compared with other quarters due to increased Cash from the closing of the IPO and concurrent private placement in June 2020 raising gross proceeds of $750,000. Total assets for the quarter ended October 31, 2020 decreased from the quarter ended July 31, 2020 due to a decrease in cash used during the quarter ended October 31, 2020 in the normal course of business operations.

Three Months Ended October 31, 2020 compared to the period from incorporation (September 19, 2019) to October 31, 2019

During the three months ended October 31, 2020, (the “2020 Quarter”) the Company incurred net and comprehensive loss of $94,461 compared to a net and comprehensive loss of $6,542 for the period from incorporation (September 19, 2019) to October 31, 2019 (the “2019 Period”). During the 2020 Quarter, general and administration expense included the following: $7,850 (2019 Period - $Nil) for filing fees, $76,394 (2019 Period - $5,925) for professional fees, $63 (2019 Period - $134) for bank fees and interest, $6,000 (2019 Period - $Nil) for rent, $1,864 (2019 Period - $Nil) for transfer agent and listing fees, $29,560 (2019 Period - $Nil) for share-based compensation, and $2,290 (2019 Period - $483) for office expenses.

Financial Condition / Capital Resources

At October 31, 2020, the Company had a net working capital of $610,550 (October 31, 2019 – $118,458), cash of $633,008 (October 31, 2019 – $124,383), amounts receivable of $7,667 (October 31, 2019 – $Nil), accounts payable and accrued liabilities of $17,150 (October 31, 2019 – $5,925), due to related party of $13,125 (October 31, 2019 – $Nil) and had a deficit of $218,729 (October 31, 2019 – $6,542).

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Cash Flows

Net cash used in operating activities in the 2020 Period was $166,094 (2019 Period – $617). The cash used in operating activities for the current period consists primarily of the operating loss, share-based compensation and changes in noncash working capital accounts.

During the 2020 Period, financing activities provided $674,719 (2019 Period – $125,000) relating to net proceeds from the issuance of common shares.

During the 2020 and 2019 Period, investing activities did not provide any cash inflows or outflows.

Financings and Related

On September 19, 2019, the Company issued 800,000 common shares at $0.125 per share to the directors of the Company for proceeds of $100,000.

On September 30, 2019, the Company completed a financing by issuing 200,000 common shares at $0.125 per share for proceeds of $25,000.

On June 2, 2020, the Company completed its initial public offering (“IPO”) and issued 1,500,000 common shares (“Shares”) at a price of $0.25 per Share for aggregate gross proceeds of $375,000. Industrial Alliance Securities Inc. (the “Agent”) acted as exclusive agent in respect of the IPO on a best efforts basis. Pursuant to the IPO, the Agent received a cash commission of $37,500 and an aggregate of 150,000 non-transferable warrants (“Agent Warrants”) entitling the Agent and members of its selling group to purchase 150,000 Shares at $0.25 per Share at any time until June 2, 2022. The Agent also received a corporate finance fee of $22,123.

The fair value of the 150,000 Agent Warrants was $19,585 and was estimated using the Black-Scholes pricing model with the following assumptions:

Risk free interest rate	0.372%
Expected life	2 years
Expected volatility	100%
Expected dividends	0%

Concurrently with the closing of the IPO, the Company completed a non-brokered private placement and issued 1,500,000 common shares at a price of $0.25 per common share for aggregate gross proceeds of $375,000.

Stock Options

On November 12, 2019, the Company adopted an incentive stock option plan (the “Option Plan”) which allows the Company’s Board of Directors, at its discretion and in accordance with TSX Venture Exchange requirements, to grant non-transferable options to purchase common shares to its directors, officers, employees and technical consultants to the Company. The number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares. Such options will be exercisable for a period of up to ten years from the date of grant and vesting terms will be determined at the time of grant by the Board of Directors.

On June 2, 2020, the Company granted 160,000 stock options to a director and officer of the Company. The stock options are exercisable at $0.25 per share and expire on June 2, 2025. The fair value of the 160,000 stock options was $29,560 and was estimated using the Black-Scholes pricing model with the following assumptions:

Risk free interest rate	0.372%
Expected life	5 years
Expected volatility	100%
Expected dividends	0%

CPC Escrow Agreement

1,000,000 of the Company’s issued and outstanding common shares of the Company are subject to a CPC Escrow Agreement. Under the CPC Escrow Agreement, 10% of the escrowed common shares will be released from escrow on the issuance of the Final Exchange Bulletin (the “Initial Release”) and an additional 15% will be released on the dates 6, 12, 18, 24, 30 and 36 months following the Initial Release. All common shares acquired on the exercise of

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stock options granted to directors, officers and non-employees prior to the completion of a QT must also be deposited in escrow until the Final Exchange Bulletin is issued. In addition, all common shares of the Company acquired in the secondary market prior to the completion of a qualifying transaction by any person or company who becomes a control person are required to be deposited in escrow. Subject to certain exemptions permitted by the Exchange, all securities of the Company held by principals of the resulting issuer will also be escrowed.

Related Party Transactions

Related parties include the Board of Directors and officers of the Company, including close family members and enterprises which are controlled by these individuals as well as persons performing similar functions.

During the year ended October 31, 2020, the Company accrued accounting fees of $12,500 to a former officer and director of the Company.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

i) Financial assets

The Company adopted IFRS 9, Financial Instruments, on its incorporation. IFRS 9 replaces International Accounting Standards (IAS) 39, Financial Instruments: Recognition and Measurement. Classification

The Company classifies its financial assets in the following measurement categories:

those to be measured subsequently at fair value (either through other comprehensive income (OCI) or through profit or loss); and
those to be measured at amortized cost.

The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses are either recorded in profit or loss or OCI.

At present, the Company classifies all financial assets as held at amortized cost. Cash is classified as a financial asset.

Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at FVTPL are expensed in profit or loss. Financial assets are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

Subsequent measurement of financial assets depends on their classification. There are three measurement categories under which the Company classifies its financial assets:

Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included as finance income using the effective interest rate method.

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Fair value through OCI (FVOCI): Debt instruments that are held for collection of contractual cash flows and for selling the debt instruments, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains and losses, interest revenue, and foreign exchange gains and losses which are recognized in profit or loss. When the debt instrument is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in other gains (losses). Interest income from these debt instruments is included as finance income using the effective interest rate method.
Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or FVOCI are measured at FVTPL. A gain or loss on an investment that is subsequently measured at FVTPL is recognized in profit or loss and presented net as revenue in the statement of loss and comprehensive loss in the period in which it arises.

ii) Financial liabilities

A financial liability is classified as at FVTPL if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. The fair value changes to financial liabilities at FVTPL are presented as follows: where the Company optionally designates financial liabilities at FVTPL the amount of change in the fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and the remaining amount of the change in the fair value is presented in profit or loss. The Company does not designate any financial liabilities at FVTPL.

Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest method.

At present, the Company classifies all of its financial liabilities as held at amortized cost. These financial liabilities are classified as current liabilities as the payment is due within 12 months.

Financial Risk Management

Capital Management

The Company's objective when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders.

The Company includes share capital in the definition of capital.

The Company's primary objective with respect to its capital management is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to pursue these plans, the Company may attempt to raise additional funds through the issuance of equity or by securing strategic partners.

Cash Restrictions

The proceeds raised from the issuance of common shares may only be used to identify and evaluate assets or businesses for future investment, with the exception that not more than the lesser of 30% of the gross proceeds from the issuance of shares or $210,000 may be used to cover prescribed costs of issuing the common shares or administrative and general expenses of the Company. These restrictions apply until completion of a Qualifying Transaction by the Company as defined under the Exchange Policy 2.4.

Risk Disclosures and Fair Values

The Company's financial instruments, consisting of cash and accounts payable and accrued liabilities, approximate fair values due to the relatively short-term maturities of the instruments. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

As at October 31, 2020, the Company had accounts payable and accrued liabilities of $17,150 (October 31, 2019 - $5,925) due within 12 months, $13,125 (October 31, 2019 - $Nil) due to a related party and had cash of $633,008 (October 31, 2019 - $124,383) to meet its current obligations. As a result the Company has minimal liquidity risk.

Credit Risk

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Credit risk is the risk of loss associated with the counterparty's inability to fulfill its payment obligations. The Company believes it has no significant credit risk.

Significant Accounting Judgments, Estimates and Assumptions

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities. The estimates and associated assumptions are based on anticipations and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods. There have been no significant judgments made by management in the application of IFRS that have a significant effect on these financial statements.

Investor Relations Activities

The Company does not have any investor relations arrangements.

Outstanding Share Data

The Company’s authorized share capital is unlimited Class A Common Shares without par value and unlimited Class B Preferred Shares without par value.

As at October 31, 2020, there were 4,000,000 (October 31, 2019 – 1,000,000) issued common shares, 160,000 (October 31, 2019 – Nil) stock options outstanding with an exercise price of $0.25 per share and expiring on June 2, 2025 and 150,000 (October 31, 2019 – Nil) warrants outstanding with an exercise price of $0.25 per share and expiring on June 2, 2022. As at the date of this report there were 75,820,422 (October 31, 2019 – 1,000,000) issued common shares, 160,000 (October 31, 2019 – Nil) stock options outstanding with an exercise price of $0.25 per share and expiring on June 2, 2025 and 150,000 (October 31, 2019 – Nil) warrants outstanding with an exercise price of $0.25 per share and expiring on June 2, 2022.

Risks and Uncertainties

The following are certain factors relating to the business of the Company and NEXE, post RTO. If any such risks actually occur, the financial condition, liquidity and results of operations of the Company could be materially adversely affected and the ability of the Company to implement its growth plans could be adversely affected. The Company will face a number of challenges in the development of its business.

Prospects for companies in the technology industry generally may be regarded as uncertain given the nature of the industry and, accordingly, investments in technology companies should be regarded as highly speculative. Technology research and development involves a significant degree of risk. An investor should carefully consider the risks and uncertainties described below. The risks and uncertainties described below are not an exhaustive list. Additional risks and uncertainties not presently known to NEXE or that NEXE believes to be immaterial may also adversely affect NEXE’s business. If any one or more of the following risks occur, the Company's business, financial condition and results of operations could be seriously harmed. Further, if the Company fails to meet the expectations of the public market in any given period, the market price of the Company's Shares could decline.

If any such risks actually occur, shareholders could lose all or part of their investment and the financial condition, liquidity and results of operations of the Company could be materially adversely affected and the ability of the Company to implement its growth plans could be adversely affected. Potential investors should consult with their professional advisors to assess an investment in the Company.

The risks and uncertainties described in this section are not inclusive of all the risks and uncertainties to which the Company may be subject.

Limited operating history.

The Company has limited operating history. NEXE was incorporated on April 27, 2015. The Company will be subject to all of the business risks and uncertainties associated with any new business enterprise, including the risk that it will not achieve its growth objectives. To the extent that such expenses do not result in revenue gains that are adequate to sustain and expand its business, the Company’s long-term viability may be materially and adversely affected. To date, NEXE has not generated any revenues.

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Negative Cash Flow from Operating Activities

NEXE has had negative cash flow from operating activities since inception. Significant capital investment will be required to achieve NEXE’s existing plans. There is no assurance that the Company’s business will generate earnings, operate profitably or provide a return on investment in the near future. Accordingly, the Company may be required to obtain additional financing in order to meet its future cash commitments.

Further, NEXE has a history of operating losses and may not sustain profitability. The Company cannot guarantee investors that it will become profitable, and even if the Company achieves profitability, given the competitive and evolving nature of industry in it operates, the Company may not be able to sustain or increase profitability and its failure to do so could adversely affect its business, including its ability to raise additional funds.

Going-concern risks.

The financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. The Company’s future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that the Company will be successful in completing an equity or debt financing or in achieving profitability.

The financial statements do not give effect to any adjustments relating to the carrying values and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.

Commercialization of the NEXE PODs

Although NEXE is able to manufacture and produce a NEXE POD for the soluble market, NEXE has not commercialized the NEXE PODs for the coffee markets. In order to commercialize the NEXE PODs for these markets, NEXE will be required to acquire certain customized automation equipment that permits the commercial production (ie. sufficient number) of these NEXE PODs. Further, certain customers will require NEXE to obtain SQFL Certification prior to delivering any purchase orders to NEXE. If NEXE is unable to acquire this automation equipment or SQFL Certification, it may not be able to properly commercialize the NEXE PODS for the coffee markets.

Future performance is highly dependent upon the sales of Keurig® and Nespresso® beverage systems.

Continued acceptance and adoption of Keurig® and Nespresso ® beverage systems are significant factors in the Company’s growth plans. Any substantial or sustained decline in the sale of Keurig® and Nespresso ® hot system brewers, failure of consumers to adopt those beverage system, would materially adversely affect the Company’s business.

The research and development of the single-serve beverage pods has required and will continue to require a significant investment and commitment of resources, is subject to numerous risks and uncertainties, and ultimately may not prove successful.

NEXE has invested and expects to continue to invest significantly in the research and development of its NEXE POD technology. Such endeavor involves significant risks and uncertainties, including, insufficient revenues to offset liabilities and expenses associated with developing and launching the single-serve beverage pods, not accurately predicting consumer tastes and the market opportunity for a beverage platform, inability to respond in a timely manner to consumer desires and demands, and unidentified issues not discovered in NEXE due diligence and planning.

The Company cannot be certain that the Keurig® and Nespresso ® hot system brewers will be widely accepted by consumers or that they will be willing to pay a higher price for these products. In addition, the Company may not be able to sufficiently scale or find other ways to reduce the costs of manufacturing the pods. Because the introduction of and investment in a new pod is inherently risky, no assurance can be given that the NEXE PODs will ultimately be successful or that it will not materially adversely affect the Company’s reputation, financial condition, and operating results.

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Continued innovation and the successful development and timely launch of new platforms, products and product extensions are critical to the Company’s financial results and achievement of its growth strategy.

The Company may not be successful in developing innovative new products or the new products may not be commercially successful. Additionally, new product introductions are often time sensitive, and thus failure to deliver innovations on schedule could be detrimental to the Company’s ability to successfully launch such new products and retain partners, in addition to potentially harming the Company’s reputation and customer loyalty. The Company’s financial results and its ability to maintain or improve its competitive position will depend on its ability to effectively gauge the direction of its key marketplaces and successfully identify, develop, manufacture, market and sell new or improved products in these changing marketplaces. As the Company and its industry evolve, the Company expects to face new challenges with respect to the introduction of innovative products and the changing competitive landscape within the single-serve category and the beverage industry. These challenges can occur at various stages, including design, supply chain and sales cycle.

Future financial results are difficult to predict, and failure to meet market expectations for the Company’s financial performance or its publicly announced guidance may cause the price of its securities to decline.

The Company’s public forecasts regarding the expected performance of the business and future operating results are forward-looking statements subject to risks and uncertainties, including the risks and uncertainties described in other public statements, and necessarily reflect current assumptions and judgments that may prove incorrect. As a result, there can be no assurance that the Company’s performance will be consistent with any public forecasts or that any variation from such forecasts will not be material and adverse.

Changes in the beverage environment and retail landscape could impact the Company’s financial results.

The beverage environment is rapidly evolving as a result of, among other things, changes in consumer preferences; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures. In addition, the beverage retail landscape is dynamic and constantly evolving, not only in emerging and developing marketplaces, where modern trade is growing at a faster pace than traditional trade outlets, but also in developed marketplaces, where discounters and value stores, as well as the volume of transactions through e-commerce, are growing at a rapid pace. If the Company is unable to successfully adapt to the rapidly changing environment its and overall financial results could be negatively affected.

Failure to maintain strategic relationships with well-recognized brands/brand owners and private label brands could adversely impact the Company’s future growth and business.

Any of the Company’s strategic partners may make their own business decisions which may not align with the Company’s interests. If the Company’s is unable to provide an appropriate mix of incentives to its strategic partners through a combination of pricing and marketing and advertising support, or if its strategic partners are not satisfied with its brand innovation and technological or other development efforts, they may take actions, including entering into agreements with competing pod contract manufacturers or vertically integrating to manufacture their own pods. Increasing competition among pod manufacturers and the move to vertical integration may result in price compression, which could have an adverse effect on the Company’s gross margins. The loss of strategic partners could also adversely impact the Company’s future profitability and growth, its ability to attract additional branded or private label parties to do business with the Company or its ability to attract new customers.

In order to grow its business, the Company anticipates that it will continue to depend on its relationships with third parties, such as alliance partners, distributors, equipment supplies, and manufacturers. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. The Company’s competitors may be effective in providing incentives to third parties to favor their products or services, or to prevent or reduce the Company’s products and services. In addition, acquisitions of the Company’s partners by its competitors could result in a decrease in the number of current and potential customers, as its partners may no longer facilitate the adoption of the Company’s products and services by potential customers.

If the Company is unsuccessful in establishing or maintaining its relationships with third parties, its ability to compete

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in the marketplace or to grow its revenue could be impaired, and its operating results may suffer. Even if the Company is successful, the Company cannot assure investors that these relationships will result in increased customer usage of the Company’s services or increased revenue and/or profitability. Furthermore, if the Company’s partners fail to perform as expected, the Company’s reputation may be harmed, and its business and operating results could be adversely affected.

Product safety and quality concerns could negatively affect the Company’s business.

The Company’s success depends in part on its ability to maintain consumer confidence in the safety and quality of all of its products. Product safety or quality issues, or mislabeling, actual or perceived, or allegations of product contamination or quality or safety issues, even when false or unfounded, could subject the Company to product liability and consumer claims, negative publicity, a loss of consumer confidence and trust, may require the Company from time to time to conduct costly recalls from some or all of the channels in which the affected product was distributed, could damage the goodwill associated with its brands, and may cause consumers to choose other products. Such issues could result in the destruction of product inventory, lost sales due to the unavailability of product for a period of time, and higher than anticipated rates of warranty returns and other returns of goods, all of which could cause the Company’s business to suffer and affect its results of operations.

The Company’s long-term purchase commitments for certain strategic materials critical for the manufacture of pods could impair its ability to be flexible in its business without penalty.

In order to ensure a continuous supply of high-quality materials some of the Company’s inventory purchase obligations may long-term purchase commitments for certain strategic materials critical for the manufacture of pods. The timing of these may not always coincide with the period in which the Company needs the supplies to fulfill customer demand. This could lead to higher and more variable inventory levels and/or higher material costs.

Risk related to technological obsolescence and difficulty in obtaining equipment.

To remain competitive, the Company will continue to invest in equipment at its facilities required for maintaining the Company’s activities. Should competitors introduce new technologies, the Company recognizes its equipment and its underlying technology may become obsolete and require substantial capital to replace such equipment, which could adversely affect an investment in the Company.

Risks related to insurance of the Company’s operations.

The Company maintains insurance coverage including directors’ and officers’ insurance and commercial insurance covering the facility and the equipment within the facility. Nevertheless, given the novelty of development of biodegradable pods and associated businesses, such insurance may become unavailable, uneconomical for the Company, or the nature or level may be insufficient to provide adequate insurance cover. The occurrence of an event that is not covered or fully covered by insurance could have a material adverse effect on the Company. While the Company believes its insurance coverage will address all material risks to which it is exposed and could be adequate and customary in its current state of operations, such insurance will be subject to coverage limits and exclusions and may not be available for the risks and hazards to which the Company is exposed. In addition, no assurance can be given that such insurance will be adequate to cover the Company’s liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. If the Company were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if the Company were to incur such liability at a time when it is not able to obtain liability insurance, its business, results of operations and financial condition could be materially adversely affected.

Risks related to product development and technology change.

The Company’s success could be seriously affected by a competitor’s ability to develop and market technologies that compete with the Company’s technologies. To remain competitive, the Company must continue to enhance and improve the responsiveness, functionality and features of its technology. The single-serve beverage industry are characterized by rapid technological change, changes in user and customer requirements and preferences, frequent

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new product and service introductions embodying new technologies and the emergence of new industry standards and practices that could render the Company’s existing operations and proprietary technology and systems obsolete. There can be no assurance the Company will successfully implement new technologies and systems to meet industry standards and if unable to adapt in a timely matter, the business of the Company could be materially affected.

Risks related slow acceptance of products.

The marketplace may be slow to accept or understand the significance of the Company’s technology due to its unique nature and the competitive landscape. If the Company is unable to promote, market and sell its products and secure relationships with partners and purchasers, the Company’s business and financial condition will be adversely affected, which could adversely affect an investment in the Company.

Company has an evolving business model and thus its services and products could change.

To stay current with the industry, the Company’s business model may need to evolve as well. From time to time, it may modify aspects of the Company’s business model relating to Company’s product mix and service offerings. The Company cannot offer any assurance that these or any other modifications will be successful or will not result in harm to the business. The Company may not be able to manage growth effectively, which could damage the Company’s reputation, limit the Company’s growth and negatively affect its operating results.

If the Company’s revenue is primarily derived from a limited number of customers, the loss of such customer could have an adverse impact on the Company.

Although the Company intends to seek a broad base of customers, if the Company’s revenue is concentrated in one or a few larger customers, and such customers become dissatisfied with the Company’s products and services, or the Company’s pricing, or ceases to do business with the Company for any other reason, the operating results of the Company would be negatively and substantially impacted.

Interruptions or delays in service from the Company’s facilities could impair the delivery of the Company’s services and harm its business.

The facilities may be vulnerable to damage or interruption due to floods, fires, power loss, telecommunications failures, and similar events. The facilities may also be subject to destruction, break-ins, sabotage, intentional acts of vandalism and similar misconduct. Any damage to, or failure of, the Company’s systems generally could result in stoppage interruptions in its service. Interruptions in its service may reduce its revenue, cause the Company to issue credits or pay penalties, cause customers to terminate their contracts and adversely affect the Company’s renewal rate and its ability to attract new customers. The Company’s business will also be harmed if its customers and potential customers believe the Company’s service and product is unreliable. Despite precautions taken such as disaster recovery plans at these facilities, the occurrence of a natural disaster, an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in the Company’s services. Even with the disaster recovery arrangements and precautions taken at its facilities, the Company’s services could be interrupted. Further, as the Company continues to grow and scale its business to meet the needs of its customers, additional burdens may be placed on its facilities. These interruptions, stoppages and burdens could adversely affect an investment in the Company.

The Company depends on highly skilled personnel to grow and operate its business, and if the Company is unable to hire, retain and motivate its personnel, the Company may not be able to grow effectively.

The Company’s future success will depend upon its continued ability to identify, hire, develop, motivate and retain highly skilled personnel, including senior management, engineers, designers, product managers, sales representatives, and customer support representatives. The Company’s ability to execute efficiently is dependent upon contributions from its employees, including its senior management team. In addition, there may occasionally be changes in the Company’s senior management team that may be disruptive to its business. If the Company’s senior management team, including any new hires that the Company may make, fails to work together effectively and to execute on its plans and strategies on a timely basis, its business could be harmed.

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The Company’s growth strategy also depends on its ability to expand its organization with highly skilled personnel. Identifying, recruiting, training and integrating qualified individuals will require significant time, expense and attention. In addition to hiring new employees, the Company must continue to focus on retaining its best employees. The Company may need to invest significant additional amounts of cash and equity to attract and retain new employees, and the Company may never realize returns on these investments. If the Company is not able to effectively add and retain employees, its ability to achieve its strategic objectives could be adversely impacted, and its business could be harmed.

If the Company is unable to maintain and promote its brand, its business and operating results may be harmed.

The Company believes that maintaining and promoting its brand is critical to expanding its customer base. Maintaining and promoting its brand will depend largely on its ability to continue to provide useful, reliable and innovative services, which the Company may not do successfully. The Company may introduce new features, products, services or terms of service that its customers do not like, which may negatively affect its brand and reputation. Maintaining and enhancing the Company’s brand may require it to make substantial investments, and these investments may not achieve the desired goals. If the Company fails to successfully promote and maintain its brand or if the Company incurs excessive expenses in this effort, its business and operating results could be adversely affected.

Risks associated with acquisitions.

If appropriate opportunities present themselves, the Company intends to acquire businesses, technologies, services or products that the Company believes are strategic. There can be no assurance that the Company will be able to identify, negotiate or finance future acquisitions successfully, or to integrate such acquisitions with its current business. The process of integrating an acquired business, technology, service or product into the Company may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of the Company’ business. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the Company’s business, results of operations and financial condition. Any such future acquisitions of other businesses, technologies, services or products might require the Company to obtain additional equity or debt financing, which might not be available on terms favourable to the Company, or at all, and such financing, if available, might be dilutive.

The Company in the future may invest, in new business strategies, acquisitions and/or joint ventures. New ventures are inherently risky and may not be successful. In evaluating such endeavors, the Company is required to make difficult judgments regarding the value of business strategies, opportunities, technologies and other assets, and the risks and cost of potential liabilities. Furthermore, acquisitions and investments involve certain other risks and uncertainties, including the risks involved with entering new competitive categories or regions, the difficulty in integrating newly-acquired businesses, the challenges in achieving strategic objectives and other benefits expected from acquisitions, investments or joint ventures, the diversion of the Company’s attention and resources from its operations and other initiatives, the potential impairment of acquired assets and liabilities, the performance of underlying products, capabilities or technologies and the potential loss of key employees and customers of the acquired businesses.

The expansion or development of the business, including through acquisitions, increased product offerings or other strategic growth opportunities, may cause disruptions in the Company’s business, which may have an adverse effect on the Company’s business, operations or financial results.

The Company may seek to expand and develop its business, including through acquisitions, increased product offerings, or other strategic growth opportunities. In the ordinary course of business, the Company may review, analyze, and evaluate various potential transactions or other activities in which it may engage. Such transactions or activities could cause disruptions in, increase risk or otherwise negatively impact its business. Among other things, such transactions and activities may:

disrupt the Company’s business relationships with its customers, depending on the nature of or counterparty to such transactions and activities;

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direct the time or attention of management away from other business operations;
fail to achieve revenue or margin targets, operational synergies or other benefits contemplated;
increase operational risk or volatility in the Company’s business; and/or
result in current or prospective employees experiencing uncertainty about their future roles with the Company, which might adversely affect the Company’s ability to retain or attract key managers or other employees.

The Company may be vulnerable to security breaches that could adversely affect its operations, business, operations, and reputation.

The Company’s infrastructure may be vulnerable to damage, disruptions, or shutdowns due to unauthorized access, computer viruses, cyber-attacks, and other security breaches. An attack attempt or security breach could potentially result in interruption or cessation of certain of the Company’s services to its customers or the Company’s inability to meet expected levels of service. The Company cannot guarantee that its security measures will not be circumvented, resulting in production interruptions and have a material adverse effect on its business, financial condition, or operational results. The Company may be required to expend significant resources to protect against or recover from such threats. If an actual or perceived breach of its security occurs, the market perception of the effectiveness of its security measures could be harmed, and the Company could lose customers. Further, the perpetrators of cyber-attacks are not restricted to particular groups or persons. These attacks may be committed by the Company’s employees, contractors or external actors operating from any geography. Any such events could result in legal claims or penalties, disruption in operations, misappropriation of sensitive data, damage to the Company’s reputation, negative market perception, or costly response measures, which could adversely affect its business.

Risks related to regulation by governmental authorities.

The activities of the Company may be subject to regulation by governmental authorities wherever its business is conducted. Achievement of the Company’s business objectives are contingent, in part, upon compliance with regulatory requirements enacted by these governmental authorities and obtaining all regulatory approvals. The Company cannot predict the time required to secure all appropriate regulatory approvals for its products, or the extent of testing and documentation that may be required by governmental authorities. Any delays in obtaining, or failure to obtain regulatory approvals could have a material adverse effect on the business, results of operations and financial condition of the Company.

The business of the Company is subject to rapid regulatory changes. Failure to keep up with such changes may adversely affect the business of the Company. Failure to follow regulatory requirements will have a detrimental impact on the business. Timing and nature of changes in legislation cannot be predicted and could irreparably harm the business.

Risks related to protection of intellectual property rights.

The future success of the Company’s business is dependent upon the intellectual property rights surrounding the technology, including trade secrets, know-how and continuing technological innovation. Although the Company will seek to protect its proprietary rights through trademark registrations and patent applications, its actions may be inadequate to protect any proprietary rights or to prevent others from claiming violations of their proprietary rights. As of the date of this MD&A, NEXE has one (1) U.S. patent, one (1) pending PCT application (PCT/CA2020/050015), ten (10) US provisional patent applications and one (1) pending Canadian trademark application for “NEXE INNOVATIONS” There can be no assurance that other companies are not investigating or developing other technologies that are similar to the technology. In addition, effective intellectual property protection may be unenforceable or limited in certain countries, and the global nature of the Internet makes it impossible to control the ultimate designation of the Company’s technology. Any of these claims, with or without merit, could subject the Company to costly litigation. If the protection of proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of the Resulting Issuer’s brand and other intangible assets may be diminished. Any of these events could have an adverse effect on the Company’s business and financial results.

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If third party patents or patent applications contain claims infringed by the Company’s technology and these claims are valid, the Company may be unable to obtain licenses to these patents at a reasonable cost, if at all, and may also be unable to develop or obtain alternative technology. If such licenses cannot be obtained at a reasonable cost, the business could be significantly impacted. Further, the enforceability of the patents owned by the Company may be challenged and the Company’s patents could be partially or wholly invalidated following challenges by third parties.

If a third party accuses the Company of infringing its intellectual property rights or if a third party commences litigation against the Company for the infringement of patent or other intellectual property rights, the Company may incur significant costs in defending such action, whether or not it ultimately prevails. Typically, patent litigation in the technology industry is expensive. Costs that the Company incurs in defending third party infringement actions would also include diversion of management’s and technical personnel’s time. In addition, parties making claims against the Company may be able to obtain injunctive or other equitable relief that could prevent the Company from further developing discoveries or commercializing its technology. In the event of a successful claim of infringement against the Company, it may be required to pay damages and obtain one or more licenses from the prevailing third party. If it is not able to obtain these licenses at a reasonable cost, if at all, it could encounter delays in product introductions and loss of substantial resources while it attempts to develop alternative technology. Defense of any lawsuit or failure to obtain any of these licenses could prevent the Company or its partners from commercializing available technology and could cause it to incur substantial expenditure.

The Company also relies on its trade secrets, which include information relating to the manufacture, development and administration of its technology. The protective measures that the Company employs may not provide adequate protection for its trade secrets. This could erode the Company’s competitive advantage and materially harm its business. The Company cannot be certain that others will not independently develop the same or similar technologies on their own or gain access to trade secrets or disclose such technology, or that the Company will be able to meaningfully protect its trade secrets and unpatented know-how and keep them secret.

Risks related to competition.

To remain competitive, the Company will require a continued high level of investment in research and development, marketing, sales and client support. The Company may not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive basis which could materially and adversely affect the business, financial condition and results of operations of the Company.

The beverage industry is intensely competitive with respect to product, quality, convenience and price. NEXE faces significant competition in each of its channels and marketplaces. NEXE competes with major international beverage and appliance companies that operate in multiple geographic areas, as well as numerous companies that are primarily local in operation. The Company’s ability to gain a share of sales in the global marketplace or in various local marketplaces or maintain or enhance its relationships with its partners and customers may be limited as a result of actions by competitors, including as a result of increased consolidation in the food and beverage industry and an increase in the number of competitive pod contract manufacturers.

Many of the Company’s competitors and potential competitors are larger and have greater name recognition, longer operating histories, larger marketing budgets and significantly greater resources than the Company does. With the introduction of new technologies and market entrants, the Company expects competition to continue to intensify in the future. If the Company fails to compete effectively, its business will be harmed. For these reasons, the Company may not be able to compete successfully against its current and future competitors.

Some of the Company’s current and potential competitors have significantly greater resources and better competitive positions in certain markets than the Company does. These factors may allow the Company’s competitors to respond more effectively than the Issuer to new or emerging technologies and changes in market requirements. The Company’s competitors may develop products, features, or services that are similar to the Company or that achieve greater market acceptance, may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. Certain competitors could use strong or dominant positions in one or more markets to gain a competitive advantage against the Company. As a result, the Company’s competitors may acquire and engage users at the expense of the growth or engagement of its user base, which may negatively affect the Company’s business and financial results.

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The Company believes that its ability to compete effectively depends upon many factors both within and beyond the Company’s control, including:

the usefulness, ease of use, performance, and reliability of the Company’s products and services compared to its competitors;
customer service and support efforts;
marketing and selling efforts;
the Company’s financial condition and results of operations;
changes mandated by legislation, regulatory authorities, or litigation, some of which may have a disproportionate effect on the Company;
acquisitions or consolidation within the Company’s industry, which may result in more formidable competitors;
the Company’s ability to attract, retain, and motivate talented employees and consultants;
the Company’s ability to cost-effectively manage and grow its operations; and
• the Company’s reputation and brand strength relative to that of its competitors.

Risks related to management of growth.

The Company may in the future, experience rapid growth and development in a relatively short period of time by aggressively marketing its products and services. The Company may be subject to growth related risks including capacity constraints and pressure on its internal systems and controls. The ability of the Company to manage growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The inability of the Company to deal with this growth may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects.

Risks related to conflicts of interest.

Certain of the directors and officers of the Company are also directors and officers of other companies, and conflicts of interest may arise between their duties as officers and directors of the Company and as officers and directors of such other companies. In addition, as applicable, such directors and officers will refrain from voting on any matter in which they have a conflict of interest.

Additional financing requirements and access to capital.

The Company may require additional funds for further research and development, sales and marketing, operations, working capital, and general corporate purposes. The Company may attempt to raise additional funds for these purposes through public or private equity or debt financing, collaborations with other companies, government grants and/or from other sources. There can be no assurance that additional funding or partnership will be available on terms acceptable to the Company. If additional funds are raised through further issuances of equity or convertible debt securities, existing shareholders could suffer significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to those of holders of Company Shares. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital or to pursue business opportunities, including potential acquisitions. If adequate funds are not obtained, the Company may be required to reduce, curtail, or discontinue operations.

Product recalls and/or product liability may adversely impact the Company.

The Company will be subject to regulation by a variety of regulatory authorities. In the event that the Company, does not adhere to product safety requirements or its quality control standards, it might not identify a deficiency before its ships its products to customers. The failure to produce products that adhere to the Company’s quality control standards could damage its reputation and brands and lead to customer litigation against the Company and the Company may be required to remove or recall those products at a substantial cost. The Company may be unable to recover costs related to product recalls.

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The Company’s business will be highly dependent on sales of coffee, and if demand for coffee decreases, its business would suffer.

Because the Company is highly dependent on consumer demand for coffee, a shift in consumer preferences away from coffee or its product offerings would harm the business more than if it had more diversified product offerings. If customer demand for coffee decreases, its sales would decrease and the Company would be materially adversely affected.

Future revenues are dependent on demand for coffee. Demand for coffee and demand for single-cup brewing systems is affected by many factors, including:

Changes in consumer tastes and preferences;
Changes in consumer lifestyles;
National, regional and local economic conditions;
Perceptions or concerns about the environmental impact of the products;
Demographic trends; and
Perceived or actual health benefits or risks.

Risks related to volatility of share price, absence of dividends and fluctuation of operating results.

Market prices for the securities of technology companies have historically been highly volatile. Factors such as fluctuation of the Company’s operating results, announcements of technological innovations, patents or new commercial products by the Company or competitors, and other factors could have a significant effect on the share price or trading volumes for the Company Shares. The Company has not paid dividends to date and the Company does not expect to pay dividends in the foreseeable future.

Risks related to no assurance of active trading market.

There can be no assurances that an active trading market in the Company Shares on the Exchange will be sustained.

Risks related to equity dilution to shareholders.

The issuance of any equity securities could, and the issuance of any additional shares will, cause the Company’s existing shareholders to experience dilution of their ownership interests.

Any additional issuance of shares or a decision to acquire other businesses through the sale of equity securities may dilute investors’ interests, and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. Such issuance may cause a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the price of the Company’s Shares.

Risks related to value of securities.

The value of the Company’s Shares may be reduced for a number of reasons, many of which are outside the control of the Company, including:

general economic and political conditions in Canada, the United States and globally;
governmental regulation of the beverage industry including coffee pods;
failure to achieve desired outcomes by the Company;
failure to obtain industry partner and other third-party consents and approvals, when required;
• stock market volatility and market conditions;
competition for, among other things, capital, and skilled personnel;
the need to obtain required approvals from regulatory authorities;
revenue and operating results failing to meet expectations in any particular period;
• investor perception of the beverage, coffee and single-serve coffee industries;

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limited trading volume of the Company’s Shares;
announcements relating to the Company’s business or the businesses of the Company’s competitor’s; and
the Company’s ability or inability to raise additional funds.

Risks related to use of proceeds.

Although the Company has set out its intended use of proceeds in this MD&A, these intended uses are estimates only and subject to change. While management does not contemplate any material variation, management does retain broad discretion in the application of such proceeds. The failure by the Company to apply these funds effectively could have a material adverse effect on the Issuer’s business, including the Company’s ability to achieve its stated business objectives.

Risks related to global economic and financial deterioration impeding access to capital or increasing the cost of capital.

Market events and conditions, including disruption in the Canadian, U.S. and international financial markets and other financial systems and the deterioration of Canadian, U.S. and global economic and financial market conditions, could, among other things, impact currency trading and impede access to capital or increase the cost of capital, which would have an adverse effect on the Company’s ability to fund its working capital and other capital requirements. Current and future conditions in the domestic and global economies remain uncertain. As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including the market area in which the Company will participate.

Risks related to litigation.

The Company and/or its directors and officers may be subject to a variety of civil or other legal proceedings, with or without merit. From time to time in the ordinary course of its business, the Company may become involved in various legal proceedings, including commercial, employment and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. Such matters can be time-consuming, divert management’s attention and resources and cause the Company to incur significant expenses. Furthermore, because litigation is inherently unpredictable, the results of any such actions may have a material adverse effect on the Company’s business, operating results or financial condition.

Risks related to reporting issuer status.

As a reporting issuer, the Company will be subject to reporting requirements under applicable securities law and stock exchange policies. Compliance with these requirements will increase legal and financial compliance costs, make some activities more difficult, time consuming or costly, and increase demand on existing systems and resources. Among other things, the Company will be required to file annual, quarterly and current reports with respect to its business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if required, improve disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm the Company’s business and results of operations. The Company may need to hire additional employees to comply with these requirements in the future, which would increase its costs and expenses.

Management of the Company expects that being a reporting issuer will make it more expensive to maintain director and officer liability insurance. This factor could also make it more difficult for the Company to retain qualified directors and executive officers.

Economic environment and global economic risk.

The Company’s operations could be affected by the economic context should the unemployment level, interest rates or inflation reach levels that influence consumer trends and consequently, impact the Company’s sales and profitability.

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Any economic slowdown and downturn of global capital markets could make the raising of capital by equity or debt financing more difficult. Access to financing has been negatively impacted by the ongoing global economic risks. These factors may impact the Company’s ability to raise equity or obtain loans and other credit facilities in the future and on terms favourable to the Company. If uncertain market conditions persist, the Company’s ability to raise capital could be jeopardized, which could have an adverse impact on the Company’s operations and the trading price of the Company’s Shares on the stock exchange.

Climate change may have a long-term adverse impact on the Company’s business and results of operations.

There is increasing concern that a gradual increase in global average temperatures due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere will cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Decreased agricultural productivity in certain regions of the world as a result of changing weather patterns may limit availability or increase the cost of key agricultural commodities, such as coffee, which are important sources of ingredients for the Company’s business and products, and could impact the food security of communities around the world. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt the Company’s supply chain or impact demand for its products. As a result, the effects of climate change could have a long-term adverse impact on the business and results of operations.

Business interruptions resulting from the COVID-19 outbreak or similar public health crises could cause a disruption to the development and distribution of products and adversely impact business.

Public health crises such as pandemics or similar outbreaks could adversely impact the Company’s business. In December 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes COVID-19 surfaced in Wuhan, China and has reached multiple other regions and countries, including Surrey, British Columbia, Canada where NEXE’s primary office and facility is located. The coronavirus pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which the coronavirus impacts the demand for the Company’s products and the Company’s operations or those of third-party partners, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that will emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. The continued spread of COVID-19 globally could adversely impact the Company’s product distribution, business relationships and sales, both locally and internationally. COVID-19 may also affect the Company’s management personnel and employees as well as employees of third-parties located in affected geographies that it relies upon.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this MD&A are forward-looking statements or forward-looking information (collectively “forward-looking statements”) within the meaning of applicable securities legislation. We are hereby providing cautionary statements identifying important factors that could cause the actual results to differ materially from those projected in the forward-looking statements. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forwardlooking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. 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 the negatives thereof or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements are based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. The Company believes that the assumptions and expectations reflected in such forward-looking information are reasonable.

While the Company considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predicted outcomes may not

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occur or may be delayed.

Readers are cautioned that the foregoing lists of factors are not exhaustive.

The forward-looking statements in this MD&A are based on the reasonable beliefs, expectations and opinions of management on the date of this MD&A. Although we have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There is 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, readers should not place undue reliance on forward-looking information.

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