Pond Technologies Holdings - Management Reports 2020

POND TECHNOLOGIES HOLDINGS INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2019

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Dated June 2, 2020

Pond Technologies Holdings Inc.

(the “Corporation”)

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Three and Twelve Months Ended December 31, 2019

All amounts are Canadian dollars in thousands, except share and per share amounts and where specified

This Management’s Discussion and Analysis (“ MD&A ”) of financial condition and results of operations of Pond Technologies Holdings Inc. (“ Pond ” or the “ Corporation ”) constitutes management’s review of the Corporation’s financial and operating performance for the three and twelve months ended December 31, 2019, financial condition and future prospects. Except as otherwise noted, this MD&A is dated June 2 , 2020 and should be read in conjunction with the audited consolidated annual financial statements of Pond Technologies Holdings Inc. for the years ended December 31, 2019 and 2018 and the related notes thereto.

Pond Technologies Holdings Inc. is incorporated under the Business Corporations Act of Alberta. Effective January 30, 2018 the Corporation completed a business combination and change of business transaction with Pond Technologies Inc. by way of a three-cornered amalgamation, that resulted in, amongst other things, the Corporation changing its name from Ironhorse Oil & Gas Inc. to Pond Technologies Holdings Inc.

As of February 6, 2018, the Corporation’s shares began trading on the TSX Venture Exchange (“ TSXV ”) under the new trading symbol “POND”.

This MD&A is prepared as at June 2, 2020 and is current to that date unless otherwise stated. The Financial Statements of the Corporation and extracts of those financial statements provided within this MD&A, have been prepared in Canadian dollars, in accordance with International Accounting Standard (“ IFRS ”).

Corporation’s Business Overview

The Corporation’s primary business is to pursue microalgal biomass cultivation using available sources of carbon dioxide (“ CO2 ”), including CO2 rich emission sources from industrial plants and the licensing of its technology. The resultant algae can be used in the production of nutraceuticals, commonly known as superfoods, aquaculture and animal feeds, and as feedstock in the production of biofoams and algae based biomaterials.

The Corporation has formed a nutraceutical business segment and is actively pursuing opportunities in the nutraceutical and, superfood marketplace. In addition, the Corporation is also working to extend its technology applications into related verticals, including the exploitation of its proprietary integrated growth platform for terrestrial plants, where it has sought additional intellectual property protection for these applications.

Commercialization Highlights – Q4

During the quarter ended December 31, 2019, Pond continued to enhance, market and deploy its technology through the following activities:

Pond Naturals – Revenue $908 – Q4 Revenues for Pond Naturals were derived from the sale of distributed ingredient products and astaxanthin related products produced from the acquisition of Regenurex Health Corporation (“Regenurex” or “RGX”). Q4 revenue decreased by $325 as compared to Q3.

Technology Services - Revenue was reduced $172 in the Q4 revenue relating primarily to an adjustment to revenues for the design, engineer, manufacture and installation of a 45,000L algae growing bioreactor for Stelco Algae Holdings Inc. (“ SAHI ”). The SAHI project was 58% completed by the end of Q4 (Q3: 65%). $16 of Q4 revenue arose from work 5 smaller growths study projects relating to preliminary work for possible future commercial algae facilities to be owned by a third parties.
Oil & Conventional Natural Gas Revenue $562 – Pembina – Pond continues to market the sale of its interest in the Pembina property and Pond will change the accounting treatment to discontinued operations when a firm contract of sale is agreed.
Growth Optimization Platform Revenue $8 - The Corporation continues to develop its growth optimization platform known as PaiGE including the integration of sensors, controls and artificial intelligence. This technology increases growth rates and decrease operating costs for algae and has applications in the terrestrial plant growth sectors.

COVID-19

Technologies and nutraceuticals

The Corporation is dependent on its workforce, distributors and project engineering service providers to sell and deliver its products and services. Developments such as social distancing and shelter-in-place directives have impacted the Corporation’s ability to deploy its workforce effectively. These same developments may affect the operations of the Corporation’s suppliers as their own workforces and operations are disrupted by efforts to curtail the spread of this virus. The effectiveness of remote work environments and hosted services may also be constrained due to unprecedented levels of internet usage stemming from the COVID-19 outbreak. The Corporation’s research and development activities may also be impacted by the COVID-19 outbreak as well as travel restrictions. While expected to be temporary, these disruptions may negatively impact the Corporation’s sales, its results of operations, financial condition, and liquidity in 2020.

Oil and conventional natural gas

Global commodity prices have declined significantly due to a collapse in demand in combination with an oversupply of oil due to disputes between major oil producing countries.

In response to weakening oil prices and the reluctance of third-party operators in the area to reduce processing/transportation fees in response to the current environment, on April 14, 2020 the operator of the Nisku Pool (“L2L Pool”) shut-in production from its Pembina wells because continued production is uneconomic under the current commodity price environment.

Commercialization – Targets, Assumptions and Risk Factors

Pond’s current and future business segments, excluding its Pembina property which is for sale, are expected to consist of four primary business activities:

Pond Naturals - This business activity will support the recurring production, procurement, distribution and sale of nutraceutical ingredient products including algae related products targeted for the human health industry;

Technology Services – This business activity will consist of the sale of engineering, technology and equipment for the development of algae production facilities or the terrestrial plant growth sector for facilities owned by 3[rd] parties;
Royalty and Licence Fees - Recurring licence fees and royalties that will result from the construction and operations of plants using Pond’s patented and growth technology; and
Operations and Management - Recurring algae facility operations and maintenance revenue that will accompany the commissioning of an algae plant, including the Stelco facility currently under development,

The following commercialization targets represent forward-looking information and users are cautioned that actual results may vary. The discussion in this section is qualified in its entirety by the cautionary language in the “Forward Looking Information” section of this MD&A.

The commercialization targets and associated assumptions and risks have been prepared by management using known product market information and estimated production data derived from Pond’s growth and processing technology data. The resulting forecasted revenue and gross margin arising from the key business segments as noted below, are believed to be currently reasonable however actual results may differ materially.

Pond Naturals – Business Segment

The Pond Naturals business is currently comprised of a nutraceutical and health related ingredient products distribution business and the Regenurex astaxanthin algae production facility located in British Columbia. The Regenurex facility is being upgraded and produces astaxanthin ingredients, astaxanthin consumer, and related products. A future astaxanthin production facility is planned at Markham District Energy .

(i) Ingredients Distribution

An exclusive Canadian distribution agreement was signed with RFI, LLC on November 30, 2018 and Pond Naturals revenue commenced in January 2019.

Estimated Annual Revenue 2020 - $3.5 to $3.9 million Estimated Gross Margin - 16% to 18% Key Assumptions

Revenue and margins achieved in 2019 will continue in 2020.
New products produced by Pond or sourced from third parties will be added to the distribution business.

Risk Factors

Increases in product volumes and/or prices are not achieved.
Additional risk factors as noted in the Risk Factors section below.

(ii) Regenurex Astaxanthin production and other products

The Regenurex business amalgamation with Pond Naturals Inc. was completed on January 30, 2019.

Estimated Fully Operational Annual Revenue - $3.5 to $4.5 million Estimated Fully Operational Gross Margin - 30% to 50%

Key Assumptions When Plant Fully Operational

Regenurex facility fully operational with process improvements by the end of Q4 2020.
Pure Astaxanthin produced and or processed per year – 300 to 400 Aata/kgs.
Consumer and pet product revenue as a percentage of annual revenue 10% to 20%.
Bulk ingredients revenue as a percentage of annual revenue 80% to 90%.
Blended retail and bulk pure astaxanthin CDN$ price per kg - $9 thousand.
Develop and commercially produce and release further bulk and consumer products.

Risk Factors

Pond Naturals expected process improvements to Regenurex operations are not substantially achieved.
Increases in retail product volumes and/or prices are not achieved.
Bulk ingredient price of Astaxanthin falls below the target price.
Sales pipeline takes longer to develop.
Additional risk factors as noted in the Risk Factors section below.

As at December 31, 2019 the Corporation booked an impairment charge of $2,490 against the goodwill which arose on the acquisition of Regenurex. Although the early growth in revenue expected from this business has yet to occur, management expects the customer base assumed with the RFI distribution business to begin to adopt astaxanthin into their future product developments.

- (iii) MDE Phase 1 Facility

A Collaborative Study Agreement was signed with Markham District Energy Inc. (“MDE”) on February 19, 2018. The purpose of the agreement is to conduct preliminary design and engineering and cost estimates and perform on-site gas and algae growth testing for the project. Pond’s goal is to create a commercial size operating facility located in Markham, Ontario to produce nutraceutical grade algae products.

Energy Services Lease Agreement

On May 2, 2019, the Corporation signed an Energy Services Lease Agreement (“Agreement”) with MDE for the construction of a 8,000 square foot building to house an algae production facility at the MDE site. The Corporation must provide evidence, satisfactory to MDE, of Pond’s ability to finance the construction and completion of the project as condition precedent before the Agreement can take effect. Pond has commenced design and engineering work for the construction of nutraceutical bioreactors for the MDE site. MDE received building site plan approval from the City of Markham on July 31, 2019.

The following sets out the estimated annual revenue, estimated gross margin and certain key assumptions and underlying risks associated with achieving a fully operating plant.

Estimated Fully Operational Annual Revenue - $8 to $10 million Estimated Fully Operational Gross Margin - 50% to 60%

Key Assumptions When Fully Operational

Fully operational Q2 2021.
Pure Astaxanthin produced per year – 1,200kg.
Bulk ingredients price of pure Astaxanthin content per kg – CDN$7-8 thousand.

Risk Factors

Delay in construction of facility.
Inability to negotiate binding site and services lease with MDE.
Project or other financing of between $11 million and $13 million is not obtained to build out the plant.
Bulk price of Astaxanthin falls significantly.
Additional risk factors as noted in the Risk Factors section below.

Technology Services – Business Segment

Algae Plant Sales – Excludes recurring royalties and plant operational fees.

Stelco Algae Holdings Inc (“SAHI”) – Phase 1

The first phase of the SAHI plant (as described under “Recent Developments” below) is a 45KL algae seed plant to be built at Stelco’s steel mill located in Nanticoke, Ontario. Pond has received a purchase order and is in the process of completing the 45KL algae seed system of the first phase of this project.

The completion of the first phase and second phase is expected to be a fully operational 1.5ML plant and is subject to the obtaining of project financing of between $20m and $22m. The balance of the project financing has been secured from the Ontario Centers of Excellence (OCE) and Pond. Pond would receive royalties, revenue from sale of proprietary equipment as well as an operating contract as these projects proceed.

Revenue 45KL Seed System - $3.6 million *Gross Margin** - 10%

*Revenues exclude royalties and plant operational fees for Phase 1.

Key Assumptions

Plant construction and designed processes remain as per current engineered plans.
Estimated costs are based on confirmed orders or estimated amounts to purchase.

Risk Factors

Purchase order is cancelled before completion or performance conditions cannot be met.
Unforeseen manufacturing, installation complications.
Cost escalations which cannot be passed on to the customers.

At year end December 31, 2019 the Corporation made an impairment charge of $674 against its contract receivable loan balance due to the uncertainty of the overall project receiving financing in the near term and the possibility of the purchase order being cancelled before completion. The Corporation’s contract receivable loan holds security over the property plant and equipment purchased by Stelco.

Recent Developments

Crystal Wealth Management System Ltd. (“ CW ” or “ Crystal Wealth ”)

On February 19, 2016, Pond entered into a secured loan agreement with CW with a maximum credit amounting to $4,500 bearing interest at 12% per annum. The loan is secured by a general security agreement with a first charge on the Corporation’s assets and a specific assignment of rights in all patents.

On August 11, 2017, Pond signed an amendment to its loan agreement with CW. The amended terms included a loan maturity extension to June 30, 2019, reduction of quarterly interest payable to 8%, deferral of quarterly interest payable of 4%, a $581 interest payment (“ First Interest Payment ”) payable on November 30, 2017 and a principal repayment of $1,000 on December 31, 2017. The amendment also requires Pond to make principal loan repayments if it raises in excess of $10,000 in financing during the term of the loan. In that event, the amount of the principal loan repayment will be 20% of the proceeds in excess of $10,000.

On November 16, 2017, Pond signed an amendment to its loan agreement with CW. The amended terms included an extension of the repayment to the First Interest Payment to December 21, 2017 and an extension fee of $10. On December 19, 2017, Pond signed a second amendment to its loan agreement with CW. The amended terms include an extension of the principal repayment of $1,000 and the First Interest Payment to January 31, 2018 and an extension fee of $10 payable in cash upon the execution of the loan amendment.

On December 29, 2017, Pond made an early payment of the First Interest Payment of $581 and the second interest payment of $31. On January 30, 2018 Pond paid $1,000 to CW to reduce the principal loan balance from $4,500 to $3,500.

On May 14, 2019, the Corporation signed an amendment to its loan agreement with CW. The amendments included an extension of the loan maturity date from June 30, 2019 to June 30, 2021, an “early redemption incentive” of a $500 reduction on all outstanding principal if the loan and outstanding interest was repaid in full by December 31, 2019 and no further changes to the existing interest terms. Pond made a principal repayment of $600 on June 28, 2019 reducing the outstanding principal balance from $3,500 to $2,900.

In addition, Pond will be required to make further principal repayments to CW amounting to 20% of any financings and proceeds from the sale of its Pembina oil and gas property which in total exceed $2,500. If the aggregate of the proceeds of any financing transactions and the sale of the Pembina asset are equal to or exceed $10,000 Pond will be required to repay the indebtedness in full including all principal, interest and other fees which may be outstanding at the time. If the total of such proceeds equaled or exceeded $10,000 before December 31, 2019, then the early redemption incentive would have applied to the loan repayment.

Markham MOU

Markham District and Pond entered into a memorandum of understanding (the “ Markham MOU ”) on June 16, 2017 to establish the framework for collaboration on a project to evaluate the potential environmental benefits and revenue streams from combining Markham District’s emissions technology and Pond’s algae growing platform. The Markham MOU contemplates the first phase of the project to include (i) the testing of MDE emissions for growth of different algae species, (ii) investigation of the market opportunity for offtakes of the selected algae species and quantity, and (iii) modeling of capital and operational expenses to finalize the business case for application of Pond technology. The original term of the MDE MOU expired on June 30, 2018, and the term was extended. At the present time MDE and Pond are negotiating the definitive agreement, and each party shall bear its own costs incurred until a definitive project agreement is signed and comes into effect.

A Collaborative Study Agreement was signed with MDE. on February 19, 2018. The purpose of the agreement is to conduct preliminary design and engineering and cost estimates and perform on-site gas and algae growth testing for the project. The project is a greenhouse gas abatement facility to be located at MDE’s Warden Energy Centre using Pond’s algal growing technology to grow high-value algae products.

On October 30, 2019 the Corporation signed a letter extending the conditions precedent relating to Pond’s ability to finance the construction of the Building, the Building Works and complete the Project as contemplated, to February 5, 2020. Subsequent letters of extension have extended the conditions precedent to October 2, 2020.

Brokered private placement (December 2017)

On December 28, 2017, Pond issued 1,000,000 Units at a price of $2.40 per Unit for total consideration of $2,400 (the “ December 2017 Brokered Private Placement ”). Each Unit was comprised of one Pond Share and one Pond Warrant. Pond also issued 80,000 Units (each, an “ Agent Unit ”) to the selling agents under the private placement, which may be exercised at a price of $2.40 per Agent Unit. Each Agent Unit entitles the holder thereof to one Pond Share and one Pond Warrant. The Pond Warrants issued under the December 2017 Brokered Private Placement may be exercised for one additional Pond Share at a price of $3.00 per Pond Share until December 28, 2019 (Warrant expiry date extended to January 30, 2021).

Completion of business combination (January 2018)

On January 30, 2018, the Corporation completed a business combination (the “ Transaction ”) with Pond Technologies Inc. by way of a “three-cornered amalgamation”. The Transaction was completed pursuant to an amalgamation agreement dated October 4, 2017, as amended November 16, 2017, December 15, 2017, and December 21, 2017, between the Corporation and its wholly-owned subsidiary, 2597905 Ontario Inc., and Pond Technologies Inc. Pursuant to the Transaction: (i) all of the issued and outstanding common shares in the capital of the Corporation were consolidated on the basis of a 6.9 pre-consolidation shares for one post-consolidation share; (ii) the Corporation changed its name from “Ironhorse Oil & Gas Inc.” to “Pond Technologies Holdings Inc.”; (iii) all of the issued and outstanding common shares in the capital of Pond Technologies Inc. were cancelled and exchanged on a one for one basis for 15,373,117 common shares of the Corporation; (iv) all of the outstanding stock options and warrants of Pond Technologies Inc. were cancelled and exchanged for equivalent stock options and warrants of the Corporation; and (v) 2597905 Ontario Inc. and Pond Technologies Inc. amalgamated and became a wholly-owned subsidiary of the Corporation.

Brokered concurrent equity financing (January 2018)

Concurrent with the completion of the Transaction on January 30, 2018, Pond Technologies Inc. completed a brokered equity financing by issuing 2,641,873 subscription receipts (“ Subscription Receipts ”) at a price of $2.40 per Subscription Receipt, for aggregate gross proceeds of $6,340. As part of the commission payable to the agents under the financing, the agents received 194,681 Units (an “ Agent Unit ”) as compensation. Each Agent Unit entitles the holder to purchase one Pond share and one Pond warrant at a price of $2.40 until January 30, 2020 (Warrant expiry date extended to January 30, 2021). The Agent Pond Warrants issued under the January 30, 2018 brokered placement may be exercised for one additional Pond Share at a price of $3.00 per Pond Share until January 30, 2020.

Satisfaction of conditions to close Transaction

As a result of the satisfaction of the conditions to closing the Transaction, the escrow release conditions in respect of the Subscription Receipts were satisfied and the net financing proceeds were released to Pond Technologies Inc. and each Subscription Receipt was automatically exchanged for one common share of Pond Technologies Inc. and one common share purchase warrant of Pond Technologies Inc., with each such warrant entitling the holder thereof to purchase one common share of Pond Technologies Inc. at a purchase price of $3.00 and expiring on January 30, 2020. In connection with the completion of the Transaction, such shares and warrants were subsequently cancelled and exchanged for equivalent common shares and warrants of the Corporation.

Change of trading symbol

The Corporation’s trading symbol was changed from “IOG” to “POND” upon issuance by the TSXV of its final bulletin in respect of the Transaction, which occurred on February 6, 2018.

Appointment of Directors

On January 30, 2018 Dr. Geraldine Kenney-Wallace, Steve Martin, J William Asselstine, Robert McLeese were elected and appointed as directors of the Corporation and Larry J. Parks, Michael A. Royan, Robert Desbarats and Wayne W. Chow resigned as directors of the Corporation.

St Marys Cement Inc. loan repayment in full (March 2018)

On March 2, 2018 Pond paid SMC $300 principal and $82 interest to settle in full the outstanding demand loan with SMC in full and discharge SMC’s security interest in Pond’s assets.

Exercise of Agent Warrants

On August 2, 2018 the Corporation issued 2,406 shares and 2,406 warrants for a total consideration of $6 upon the exercise of 2,406 Agent Warrants at $2.40.

Stelco Algae Holdings Inc. - Notice to Proceed, Purchase Order and Promissory Note

On September 25, 2018 SAHI and Pond signed a Notice To Proceed agreement which authorized Pond to proceed with the manufacture, and installation of a 45,000L bioreactor system at a steel mill located in Nanticoke, Ontario. The Notice to Proceed was followed by a purchase order in the amount of $3,597.

On September 25, 2018 Pond entered into a secured promissory note to lend SAHI up to $2,500 to support the development of an algae carbon abatement facility at a steel mill. The promissory note maturity date has been extended to June 30, 2020. As of September 30, 2019 Pond has advanced $2,797 to SAHI to support the payment of the invoices and Pond has received $1,443 in repayments from monies received by SAHI from the Ontario Centre of Excellence Target GHG funding program and HST.

Reporting Issuer in Ontario

On November 8, 2018, and as a result of Pond’s significant connection to Ontario as contemplated in the policies of the TSXV, the Corporation obtained an order from the Ontario Securities Commission to become a reporting issuer in Ontario.

Exclusive Distribution Agreement

On November 30, 2018 Pond acquired the exclusive Canadian distribution and sales rights for certain products of RFI, a U.S. based food ingredient and health nutrition blend supplier. RFI is a leading North American purchaser and re-seller of Spirulina and Chlorella, providing Pond with a vertical integration channel for its algae and related products.

Pond received the exclusive distribution rights for an initial term of 5 years with an exclusive right to renew for a further 5 years provided certain sales targets are met, which management believes will be attained. Pond Naturals will resell certain RFI products and promote algae derived products into growing high value markets, including nutraceuticals, food colorants, cosmetics, and animal and aquaculture feeds.

Consideration for the purchase by Pond of the exclusive distribution rights to the RFI products comprised of $320 in Pond shares issued from treasury based on the value of the shares at closing on November 29, 2018 and $320 in cash.

Extension of warrants

On January 4, 2019 the Corporation received approval from the TSXV to extend the expiry dates of five tranches of warrants.

The first tranche includes warrants exercisable to purchase 335,000 common shares of Pond at $2.50 per share, with an original expiry date of December 21, 2018; the second tranche includes warrants exercisable to purchase 450,000 common shares of Pond at $2.50 per share, with an original expiry date of February 23, 2019; the third tranche includes warrants exercisable to purchase 240,000 common shares of Pond at $2.50 per share, with an original expiry date of September 21, 2019; The fourth tranche includes warrants exercisable to purchase 1,000,000 common shares of Pond at $3.00 per share, with an original expiry date of December 28, 2019; and the fifth tranche includes warrants exercisable to purchase 2,644 common shares of Pond at $3.00 per share, with an original expiry date of January 30, 2020.

The expiry date of all five tranches of warrants has been extended to January 30, 2021. All other terms and conditions of each tranche of the warrants remain unchanged.

Acquisition of Regenurex Health Corporation

On January 30, 2019, the Corporation closed its acquisition of Regenurex Health Corporation (“ Regenurex ”). The acquisition was affected by way of a three-cornered amalgamation, under the provisions of the Business Corporations Act (British Columbia), pursuant to an Amalgamation Agreement. At closing, Regenurex and Pond Naturals Inc. amalgamated, with the resulting entity continuing to conduct Regenurex’ s operations under the name “Pond Naturals Inc.”

As consideration for their Regenurex shares, Regenurex shareholders will receive up to 6,250,000 Pond shares with such Pond shares valued by the parties, at the time of entering into the Amalgamation Agreement, at $0.80 per share, or $5,000 in the aggregate. The below summarizes the manner in which such Pond Shares shall be issued:

Upon amalgamation, former holders of the Class A preferred shares of Regenurex received 3,539,198 non-voting senior preferred shares of Pond Naturals Inc. The senior preferred shares are exchangeable at the election of the holders thereof until August 1, 2022, at which time they will be automatically exchanged, for an aggregate of 2,212,998 Pond shares.

Upon amalgamation, former holders of the common shares of Regenurex received 18,219,200 junior preferred shares of Pond Naturals. The junior preferred shares are exchangeable at the election of the holders thereof until August 1, 2022, at which time they will be automatically exchanged, for an aggregate of 4,038,002 Pond shares (subject to a downward adjustment in the event any undisclosed liabilities of Regenurex over $50 are discovered within six months of closing). No undisclosed liabilities were discovered after six months.

In connection with closing of the transaction, all of the outstanding stock options and warrants of Regenurex were cancelled or exchanged for Regenurex common shares (and then subsequently exchanged for junior preferred shares of Pond Naturals Inc. pursuant to the amalgamation). In addition, at closing the Corporation capitalized Pond Naturals Inc., by way of equity subscription, with $275 (in addition to $225 previously paid by the Corporation to Regenurex in respect of astaxanthin pre-orders made prior to closing) in order to assist Pond Naturals Inc. in pursuing its business objectives.

Non-Brokered private placement (June 2019)

On June 11 and 14, 2019, the Corporation issued a total of 2,742,504 units for total consideration of $2,057. One unit comprised of one common share and one warrant. The warrants may be exercised for one additional common share at a price of $1.00 per common share on the earlier of 30 days after the holder of the warrant receives notice from the Corporation that the Corporation’s shares had traded at $1.25 for at least 10 consecutive days or 2 years from date of issuance. A further 51 warrants were issued to brokers on the same terms and conditions as the warrant portion of the unit.

Convertible Promissory Note (November 2019)

On November 21, 2019, the Corporation issued a secured convertible promissory note to Georgian Villas Inc. (“ GV ” or “ Georgian Villas ”), an entity controlled by one of Pond’s directors, Mr. Robert McLeese, with respect to a $2,000 loan provided by GV. The promissory note matures on November 15, 2021 and bears interest at 12% per annum, payable quarterly. The promissory note is convertible, at the option of GV, into common shares of Pond after the first anniversary date of the promissory note at a conversion price of $1.00 per share, and is secured by a first priority interest over all of Pond Technologies Holdings Inc. present and after-acquired property and assets, excluding any equity interest from time to time held by Pond in PaiGE. As consideration for agreeing to provide the loan, Georgian Villas also received a cash fee equal to 4% ($80) of the principal amount of the loan.

Overview of the Corporation’s Business

The Corporation’s principal place of business is located at Unit 8, 250 Shields Court, Markham, Ontario with the primary purpose of pursuing microalgal biomass cultivation using available sources of carbon dioxide (CO2), including CO2 rich emission sources from industrial plants. The resultant algae is used in the supply of nutraceuticals, superfoods, aquaculture and animal feeds, as feedstock in the production of biofoams and algae based biomaterials, and to also supply other algae derived product markets.

The Corporation is actively pursuing opportunities in the nutraceutical and superfood marketplace. In addition, the Corporation is also working to extend its technology applications into related verticals, including the exploitation of its proprietary integrated growth platform for terrestrial plants, where it has sought additional intellectual property protection for these applications.

Commercial Revenue-Generating Bioreactors

Pond continues to make significant improvements in the development of its technology to be used in the production of high value products derived from the growth of specific strains of algae. Pond is seeking to demonstrate the technical advantage afforded by its bioreactor platform, through the production of high value algae, and will continue its efforts towards targeted end product licensing of its technology to existing or new algae producers, industrial emitters, and related industries including the “precision agriculture” vertical. If successful, this will result in a significantly improved revenue outlook for Pond over the near term. This should also provide support for additional license and royalty fees, and proprietary equipment sales.

In early 2015, Pond began to grow H. pluvialis , an example of high value algae. H. pluvialis contains astaxanthin which is both a powerful antioxidant, and necessary nutritional supplement for aquaculture feeds.

To date, H. pluvialis has proven difficult to cultivate industrially. Currently, much of the world's commercial supply is grown in very large outdoor ponds, where maintaining steady production levels, and achieving consistent quality, in addition to concern over contamination issues, are all significant operating difficulties.

Pond’s algae growth platform, based upon enclosed, controlled, and monitored photobioreactors, may provide a significant competitive advantage, and allow the Corporation to compete effectively on quality, consistency of supply, and price. Pond’s strategy is to demonstrate its technological advantage, with its lighting, illumination, and power control technology (Pond’s “ light engine” technology) as the cornerstone, establishing a presence in the market, which will allow Pond to approach entrenched producers with a view toward licensing its technology.

Overall Performance

The Corporation’s research and development work has positioned the Corporation to be able to deploy its technology on a commercial basis once further adoption of the technology by industry is achieved. Pond has completed a commercial sale of its bio-reactor technology and continues to expand the application of its technology. Pond is in discussions with industrial stack emitters and commercial feed and ingredient producers and processors to adopt its technology to grow microalgal. If successful this would result in the sale and adoption of commercial size Pond bioreactors and related technology. Pond will have working capital requirements arising from the commercial sale of its technology and the amount of working capital required will depend on the type and terms of any contract agreed to with a customer.

After signing the MDE memorandum of understanding, Pond during the first quarter in 2019 continued to negotiate the terms of a definitive project agreement to commercially grow nutraceutical type algae products at the MDE Warden facility. One of Pond’s goal is to build and own a commercial 200,000L nutraceutical algae facility located at MDE in Markham, Ontario to produce astaxanthin, phycocyanin, and other nutraceutical grade algae products. The amount of capital and working capital required to build an operating facility will be dependent upon the project’s sources of funding, building availability and time to construct and commission the facility.

Please see “ Discussion of Operations ” below for a comparison of the Corporation’s performance during the three and twelve months ended December 31, 2019 and 2018.

Discussion of Operations

A summary of selected annual information for the results of operations for the twelve months ended December 31, 2019, 2018 and 2017 is as follows:

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Selected Financial Information
The following table sets forth a summary of the Corporation's results of operations:
For the years ended December 31, 2019 2018 2017
Note 1: Restated Note 1: Restated
Revenue from operations 6,136 3,540 9
-
Direct costs and expenses (4,967) (2,742)
Operating expenses (2,644) (1,905) (1,073)
General and administrative expenses (2,234) (2,213) (761)
Impairment of goodwill (2,490)
- -
Impairment of capital asset (812)
- -
Imparment of contract receivable (674)
Stock-based compensation (329) (485) (67)
Interest income 10 49
Finance expenses (482) (592) (600)
Recovery of environmental cost 300 - -
Amortization and depletion (904) (863) (361)
-
Loss on disposal of capital assets (2) (162)
Net (loss) from operations (9,092) (5,373) (2,853)
Basic (loss) per common share from operations ($)(1) (0.42) (0.28) (0.25)
Diluted (loss) per common share from operations ($)(1) (0.42) (0.28) (0.25)
Total assets 9,781 10,865 4,478
Total current liabilities 2,455 5,311 2,732
Total non-current liabilities 4,761 267 3,808
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The results of operations for the three and twelve months ended December 31, 2019 as compared to the three and twelve months ended December 31, 2018 is as follows:

Selected Financial Information

Selected Financial Information	Selected Financial Information	Selected Financial Information	Selected Financial Information	Selected Financial Information
The following table sets forth a summary of the Corporation's results from operations: Note 1 Note 1 Restated Restated
For the periods ended Dec 31 ($000's)	2019 2018 3 Months Ended Dec. 31		2019 2018 Years Ended Dec. 31
Revenue from continued operations Direct costs and expenses Operating expenses Gereral and administrative expenses Amortization and depletion Impairment charge goodwill Impairment charge capital asset Impairment charge contract receiveble Stock-based compensation Finance expenses Recovery of environmental cost Interest income Loss on disposal of capital assets Net income (loss) from continuing operations for the period Basic (loss) per share common share continuing operations($)(1) Diluted (loss) per common share continuing operations ($)(1) Total assets Total current liabilities Total non-current liabilities	1,198 (914) (931) (691) (254) (2,490) - (674) (121) (131) 300 2 (2) (4,708) (0.22) (0.22) 9,781 2,455 4,761	2,512 (1,855) (514) (850) (598) - - - (194) (145) - 12 (68) (1,701) (0.09) (0.09) 10,865 5,311 267	6,136 (4,967) (2,644) (2,234) (904) (2,490) (812) (674) (329) (482) 300 10 (2) (9,092) (0.42) (0.42) 9,781 2,455 4,761	3,540 (2,742) (1,906) (2,213) (863) - - - (485) (592) - 49 (162) (5,374) (0.28) (0.28) 10,865 5,311 267

Note:

(1) Certain balances in 2018 have been reclassified to conform to the current year’s basis of presentation.

(2) Basic loss per share is calculated by dividing the net loss by the weighted average number of shares in issue and outstanding during the quarter. The dilutive loss per common share is calculated by dividing the net loss by the weighted average number of shares issued and outstanding and the shares to be issued from the acquisition of Regenurex and directors Deferred Share Units. The potential effect of exercising stock options and warrants, as applicable, have not been included in the calculation of loss per share because to do so would be anti-dilutive.

Three months ended December 31, 2019.

The Corporation reported a net loss from operations of $4,708 for the three months ended December 31, 2019 (2018: loss of $1,701). For the three months ended December 31, 2019 there was a $3,007 increase in net loss from operations, as compared to the three months ended December 31, 2018. This was principally due to:

Impairment of goodwill - $2,490

The Corporation recorded an impairment charge on December 31, 2019 of $2,490 (2018 – $Nil). The impairment loss is a result of a review of events or changes in circumstances that indicate that the carrying amount may not be recoverable as the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of the goodwill fair value less costs of disposal and value-in-use. The value-in-use is the present value of the estimated future cash flows relating to the assets using a pre-tax discounted rate.

Impairment of contract receivable - $674

The Corporation recorded a contract receivable impairment charge on December 31, 2019 of $674 (2018 - $Nil). This charge related to the Stelco Algae Holdings receivable arising from the purchase of a 45,000 litre bioreactor system. The impairment charge of $674 arose from the uncertainty relating to the possibility of future financing relating to the Stelco project. The impairment charge was calculated using the estimated replacement cost of property plant and equipment, less amortization.

Trading

1) Revenue - Decreased by of $1,314

During Q4 2018 the Corporation reclassified $1,751 of oil & natural gas revenue earned in Q1Q3 from discontinued operating activities to continued operating activities. Adjusting this from the reported 2018 revenue amount results in an adjusted revenue increase of $437 for Q4 2019 compared to Q4 2018 for actual earned revenue.

Revenue changes for Q4 by business segment is as follows:

Nutraceutical products - Increase in revenue of $908. Pond Naturals began operations in 2019 and all revenue increases relate to 2019;
Technology services – Decrease in revenue of $577. The majority of the decrease related to a decrease in revenues arising from the Stelco Algae project where activities were reduced significantly in 2019 pending project financing; and
Oil & natural gas – Increase of $106 due to an increase in realized prices.
2) Direct costs and expenses – Decreased by $941

During Q4 2018 the Corporation reclassified $1,280 of oil and gas direct costs and expenses incurred in Q1- Q3 from discontinued operating activities to continued operations. Adjusting direct costs and expenses for this reclassification, results in the direct costs and expenses increasing by $339 for Q4 2019, compared to Q4 2018.

The changes by business segment is as follows:

Nutraceutical products - Increase in direct costs of $775. Pond Naturals began operations in 2019 and all direct costs increases are related to 2019 activities.
Technology services – Decrease in direct costs of $546. The majority of the decrease related to a decrease in revenues arising from the Stelco Algae project where activities were curtailed in 2019 while project financing was being sought to move the project forward.
Oil & Natural Gas – Increase of $110.

The Q4 trading result after adjusting for the oil and gas segment reclassification noted above resulted in a $437 increase in revenue, less the increase in associated increase of $339 in direct costs and expenses is a net $134 increase during the three months ended December 31, 2019 as compared to 2018.

Operating, general and administrative expenses, stock-based compensation and amortization

Increase in operating expenses of $417 primarily due to:
$127 increase which related to the nutraceutical operating activities which only began in 2019;
$137 increase in salaries and contractors due to increased activities; and
$153 increase in project development supplies mainly the Markham District Energy project
Decrease in general and administrative expenses of $159 primarily due to:
There was a $134 increase which relates to nutraceutical activities which only began in 2019;

This was off-set by:

$144 decrease in third party consultant fees due to reduced marketing activities and shareholder relations activities;
$107 decrease in office and general administration fees; and
$42 decrease in shareholder relations fees.
Decrease in stock-based compensation of $73. The Corporation granted 537 share options in Q4 2018 but did not grant share options in 2019 and therefore the cost relating to the vesting of share options resulted in the decrease as compared to the same period in 2018. The balance of the difference relates to vesting periods.
Decrease in amortization and depletion expense of $344. During the 4[th] quarter 2018 the Corporation reclassified its oil and natural gas from discontinued to continued operations which resulted in a $458 increase adjustment in Q4 2018 which did not occur in 2019.

Finance expenses and interest income

Decrease in finance expenses of $14 is primarily a result of an interest reduction arising from a modification adjustment on the Crystal Wealth loan offset by the additional interest relating to the convertible which was issued in November 2019.
Decrease in interest income of $10 arising from a decrease in cash and term deposits.

Recovery of environmental cost

During the 4[th] quarter the Corporation received $300 from Grizzly Resources Ltd. (“GRL” or “Grizzly”). The receipt was a recovery of an environmental cost deposit advanced to GRL on January 30, 2018 to cover potential abandonment and reclamation obligations for properties which were transferred to Grizzly prior to the completion of the January 30, 2018 amalgamation.

Twelve months ended December 31, 2019

For the twelve months ended December 31, 2019 there was a $3,718 increase in net loss from operations, as compared to the twelve months ended December 31, 2018. This was principally due to:

Impairment of goodwill - $2,490

The Corporation recorded an impairment charge on December 31, 2019 of $2,490 (2018 – $Nil). Please see above.

Impairment of capital asset - $812

The Corporation recorded a capital asset impairment charge on December 31, 2019 of $812 (2018 - $Nil) related to the Corporation’s 15.625% working interest in 2 production wells located in the Pembina area of Alberta (“Pembina”). The impairment loss was due primarily to a reduction in the forecasted forward commodity prices for oil.

Impairment of contract receivable - $674

The Corporation recorded an impairment charge in Q4 against its contract receivable in the amount of $674 in 2019 (2018: Nil). Please see above.

Trading

Revenue increase by of $2,596. The increase was a result of $3,553 of revenue from the nutraceutical business segment which began trading in 2019. This increase was offset by a $376 decrease in oil and gas revenue and a decrease in technology service revenue of $581 due to lower project activity.
Increase in direct costs and expenses of $2,225. The increase was a result of an increase of 3,026 in direct costs from the nutraceutical business segment which began trading in 2019. This increase was offset by a $286 decrease in oil and gas revenue and a decrease in technology service revenue of $515 due to lower project activity.
The result of the increase in revenue, less the increase in the associated direct costs and expenses is a $371 net increase in trading margin as compared to 2018.

Operating, general and administrative expenses, stock-based compensation and amortization

Increase in operating expenses of $738 primarily due to:
$510 increase in nutraceutical operating activities which only began in 2019; and
The net changes for all other operating activities accounted for $218 which are a direct result of increased activities.
Increase in general and administrative expenses of $21 primarily due to:
$376 increase which related to nutraceutical activities which only began in 2019;
$127 increase in legal fees to support the business development:

This was off-set by:

$473 decrease in cost for the use of third party consultants; and
$9 decrease in office and general administration fees.
Decrease in stock-based compensation of $156. The Corporation did not issue share options in 2019 (2018: $538) and this accounted for the majority of the resulting reduction in stock-based compensation.
Increase in amortization and depletion expense of $41. The increase was due to a $136 decrease in oil and natural gas depletion which was offset by a $177 increase in depreciation arising from equipment acquired through the Regenurex acquisition and other acquisitions.

Finance expenses and interest income

The changes in finance expenses and interest income are as follows:

Decrease in finance expenses of $110 with such decrease primarily attributable to a $1,000 partial repayment of the $4,500 loan from CW in 2018 and $600 in 2019; and
Decrease in interest income of $39 arising from a decrease in cash deposits in 2019.

Project Development

Pond is working towards signing significant project contracts, including in respect of the signed Energy Services Lease Agreement with MDE as outlined above, as well as for other commercialization projects. Pond has advanced the design and engineering work for the construction of nutraceutical bioreactors for the first phase development at the MDE site. Permit documents and site plans were prepared and submitted. Pond will continue to report on project development as and when further such agreements are entered into and material advances have been made.

During 2018 the Corporation engaged Solaris, a full-service engineering consultancy, to design the full process-flow package for the first phase of a pollution abatement facility to be located within an existing building at Stelco’s Nanticoke operations. This first phase, the seed train, is intended to support a much larger commercial algae facility, allowing for large-scale commercial production of algae for markets that include sustainable proteins and ingredients for bio-foams. The Corporation is proceeding with the procurement and construction stage of the first phase, which includes equipment test and commissioning phase at SMC development site. The equipment is owned by Stelco Algae, a special purpose vehicle, as part of a $3.6 million project and is awaiting project financing to proceed.

The process-package that has been developed for the pollution abatement project at Stelco has been leveraged to assist in the design of the MDE nutraceutical plant. Solaris, together with in-house Pond engineering, were engaged during the quarters ended June 30, 2018, September 30, 2018 and December 31, 2018 to complete a nutraceutical process design package for a 200,000L algae facility to be located at the MDE Warden Energy Centre. The initial nutraceutical design package is complete for a facility with a cost estimation for the 200,000L nutraceutical plant – current estimate is $15.0m to complete the project.

Pond has been exploring the use of its technology to optimize the growth of terrestrial plants, including in particular cultivation of cannabis. Pond has been in discussions with a number of Licenced Producers to explore growth options and protocols and has begun filing for additional intellectual property to cover the use of its growth platform within the cannabis and other terrestrial verticals.

Plant Adaptive Intelligence Growth Engine

On April 17, 2019 the Corporation announced the incorporation of PaiGE Growth Technologies Inc., (“PaiGE”). PaiGE (Plant Adaptive Intelligence Growth Engine) is a wholly owned subsidiary focused on the global terrestrial plant and Cannabis Industry. PaiGE is designed to leverage Pond's extensive Intellectual Property portfolio and the data gathered over 10 years of growing complex organisms into comprehensive growth environment management systems. Driven by Artificial Intelligence, PaiGE's cloud-based solutions are expected to gather plant-centric data from cultivators and consumers in real time in order to optimize growth and user experience.

Administrative Expenses

General and administrative expenses are office expense, marketing and media expenses, director fees, legal fees, consultants, insurance, utilities and computer expenses. The $159 decrease and $21 increase in general and administrative expenses for the three and twelve months ended December 31, 2019 as compared to the three months and twelve months ended December 31, 2018 was primarily due to a reduction in the use of consultants which was off-set by new general and administration costs arising from the nutraceutical business.

Interest Income

The Corporation earned interest income from its cash balances and term deposits decreased by $10 and $39 during the three and twelve months ended December 31, 2019 as compared to December 31, 2018. The decrease in earned interest is directly related to lower cash balances in 2019.

Finance Expenses

Interest expense arises from interest incurred on the CW, the promissory note issued to GV, Regenurex loans and interest accretion on the FedDev loan, and bank charges. The primary reason for the $14 decrease and $110 decrease in finance expenses for the three and twelve months ended December 30, 2019 relates to the $600 principal repayment of the Crystal Wealth loan on June 28, 2019 and $1,000 principal repayment in January 2018.

Share Based Compensation

From time to time the Corporation grants staff and directors share options. No share options were granted during the three and twelve months ended December 31, 2019 whereas 538 were granted in 2018. During the year ended December 31, 2019 $196 of share-based compensation related to deferred share units issued to Board members with the balance of $106 relating to the vesting of share options.

Net Loss

As a result of the changes noted above, the Corporation recorded a net loss of $4,708 or $0.22 per share and net loss of $9,092 or $0.42 per share for the three and twelve months ended December 31, 2019 as compared to a net loss of $1,701 or $0.09 per share and a net loss of $5,374 or $0.28 per share for the three and twelve months ended December 31, 2018.

Pembina

The Company has a 15.625% working interest in 2 production wells located in the Pembina area of West Central Alberta. These wells are located at 09-05-050-06 W5M (9-5) and 3/14-05-50-06 W5M (14-5). These wells produce from a Devonian age Nisku Pool (L2L Pool) and are connected at the 07-05-050-06 W5M (7-5) satellite. Oil and solution gas from the L2L Pool flow from the 7-5 satellite to the Sinopec Daylight Energy Limited (SDEL) 13-2-50-06 W5M (13-2) Battery via a SDEL owned pipeline.

The gas production from the L2L Pool has a hydrogen sulfide (H2S) content of approximately 20%. The sweet oil is separated from the gas and is pipelined to a Pembina Pipelines’ oil sales point at 15-15-49-06 W5M. The remaining sour gas must then be pipelined to the SDEL battery and then compressed and transported via pipeline to the Keyera Minnehik-Buck Lake gas plant, where the sulphur is extracted and the remaining sweet gas can be sold to market.

Due to safety regulations related to the high H2S content and limitations to the various existing pipelines in place to transport the sour gas, sweet gas must be purchased and blended into the produced gas stream to reduce the H2S content to meet various pipeline specifications. The purchase and processing of this blending gas is a required operating expense in order to handle the eventual sale of the solution gas produced from the L2L pool.

The L2L pool has an enhanced recovery scheme for water injection to maximize oil recovery. A voidage replacement rate (VRR) of 1.0 must be maintained to ensure proper reservoir pressure whereby the same volume of production is replaced with water. In addition to the 2 producing wells, the Company has a 15.625% working interest in a water injection well at 2/10-05-50 W5M (10-5) that currently supports water injection for the 9-5 and 14-5 wells. Typical of a waterflood, with water injected into the reservoir, the percentage of water produced with the oil will increase over time. Currently, the 14-5 well is producing at an 86% water cut and the 9-5 well is producing at a 6% water cut. The 14-5 well is currently producing approximately 21% of the gross oil volume as compared with the 9-5 well.

FINANCIAL AND OPERATING REVIEW PETROLEUM AND NATURAL GAS OPERATIONS

Quarterly Financial Information

			2019			2018
($ per thousands except per unit
data)	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Volumes
Oil & NGLs (bbl/d)	80	66	76	84	98	125	72	125
Natural gas (mcf/d)	58	50	72	70	72	99	55	141
Total (boe/d)	90	74	88	95	110	142	81	148
Revenues	462	371	456	442	356	812	476	463
Royalties	189	155	182	163	136	313	196	191
Operating Costs	145	168	151	67	88	276	110	195
Operating Netback	15.60	7.16	15.29	24.84	13.03	17.15	22.87	8.90

Production

	Three months	ended December 31	ended December 31	Year	ended December 31	ended December 31
	2019	2018	% Change	2019	2018	% Change
Light oil & NGL (bbl/d)	80	98	(18)	76	103	(26)
Natural gas (mcf/d)	58	72	(19)	62	87	(29)
Total boe/d	90	110	(18)	87	118	(26)
Volumes by product
Oil & NGL	89%	89%	0	88%	88%	0
Naturalgas	11%	11%	0	12%	12%	0

Production is 18 percent lower in the three months ended December 31, 2019 as compared with the same period in 2018. For the year ended December 31, 2019 overall production is 26 percent lower as compared with the same period for 2018. Although 2018 only includes eleven months of production, as compared with twelve months for 2019, the production rates of the wells have been lower overall throughout 2019 due to issues with cold weather, limited supply of blend gas, repairs to subsurface equipment and normal production decline.

Commodity Prices

	Three months	ended December 31	ended December 31	Year ended	December	31
						%
	2019	2018	% Change	2019	2018	Change
Average benchmark prices
WTI (US$/bbl)	56.96	58.81	(3)	57.02	64.77	(12)
Canadian Light Sweet ($/bbl)	66.77	48.27	38	68.87	68.49	1
AECO spot ($/mmbtu)	2.48	1.62	53	1.80	1.53	18
Realized Prices
Light oil & NGLs ($/bbl)	60.90	38.18	60	60.59	59.76	1
Natural gas ($/mcf)	2.67	1.64	63	2.02	1.60	26
Total ($/boe)	56.09	35.11	60	54.79	52.41	5

Revenues

	Three months	ended December 31	ended December 31	Year	ended December 31	ended December 31
($ thousands)	2019	2018	% Change	2019	2018	% Change
Light oil & NGL	448	345	30	1,685	2,061	(18)
Natural gas	14	11	27	46	46	0
Total	462	356	30	1,731	2,107	(18)

Revenues and Commodity Prices

The Corporation’s realized natural gas and oil prices vary from benchmark prices due to transportation and location differentials. The Pembina oil quality is approximately 42 degree API which attracts a high market price compared with heavier density crude oil.

Combined realized prices for Q4 2019 were 60 percent higher as compared with Q4 2018, whereas year on year, overall oil prices remained flat, with natural gas prices higher by 26 percent. Total revenue was 30 percent higher in Q4 2019 as compared with Q4 2018. Higher prices in Q4 2019 offset the slightly lower production in Q4 2019, as compared with Q4 2018. For the year ended December 31, 2019, overall prices were flat and production was lower which resulted in 18 percent lower revenue, as compared with the year ended December 31, 2018.

Royalties

	Three months	ended December 31	ended December 31	Year ended December 31	Year ended December 31	Year ended December 31
($ thousands except boe)	2019	2018	% Change	2019	2018	% Change
Oil & NGL	196	148	32	724	898	(19)
Natural gas	(7)	(12)	(42)	(35)	(62)	(44)
Royalties	189	136	39	689	836	(18)
Royalties %	41%	38%	8	40%	40%	0
Royalties per boe	22.93	13.44	71	21.79	21.27	2

Royalties represent charges against production or revenue by governments and mineral right owners. From period to period royalties vary due to changes in the production mix, the components of which are subject to different royalty rates, production rates and sales prices. The Pembina wells are subject to crown royalties based on specific calculations per product type. Oil, being the predominate product, is calculated on a sliding scale basis with a maximum rate of 40%. In addition to the crown royalties, the properties are encumbered with a gross overriding royalty.

Royalties were 39 percent higher in Q4 2019 as compared with Q4 2018. Although production was lower in Q4 2019 as compared with Q4 2018, the stronger prices in Q4 2019, as compared with Q4 2018, resulted in overall higher royalties. On a year by year comparison, royalties were 18 percent lower in 2019 as compared with 2018 as a result of overall flat prices and lower annual production. Gas cost allowance credits are included in the natural gas royalty expense category, which reduces the overall royalty expense.

Operating Expenses

	Three months	ended December 31	ended December 31	Year ended December 31	Year ended December 31	Year ended December 31
($ thousands except boe)	2019	2018	% Change	2019	2018	% Change
Operating expenses	145	88	65	531	669	(21)
Operating expenses per boe	17.56	8.64	103	16.78	16.99	(1)

Operating expenses of $145 for the three months ended December 31, 2019 were 65 percent higher as compared with $88 for the three months ended December 31, 2018. Q4 2018 included a large reversal of over accrued prior months operating expenses which reduced the total Q4 2018 related operating expenses reported. On an annual basis operating expenses were 21 percent lower in 2019 as compared with 2018, as overall production volumes on a boe/day basis were 26 percent lower in 2019 as compared with 2018.

Operating Netbacks

	Three months	ended December 31	ended December 31	Year	ended December 31	ended December 31
	2019	2018	% Change	2019	2018	% Change
Average sale price:
Oil & NGL ($/bbl)	60.90	38.18	60	60.59	59.76	1
Natural gas ($/mcf)	2.67	1.64	63	2.02	1.60	26
Revenue ($/boe)	56.09	35.11	60	54.79	52.41	5
Royalties ($/boe)	(22.93)	(13.44)	71	(21.79)	(21.27)	2
Operating expenses ($/boe)	(17.56)	(8.64)	103	(16.78)	(16.99)	(1)
Operating netback ($/boe)	15.60	13.03	20	16.22	14.15	15

The Corporation’s oil and natural gas operating netbacks related to the Pembina wells were $15.60/boe for Q4 2019 as compared with $13.03/boe for Q4 2018, a 20% increase. This increase was mainly the result of higher oil and gas prices which offset higher royalties and operating expenses in Q4 2019, as compared with Q4 2018.

Depletion and Amortization

	Three months	ended December 31	ended December 31	Year ended	December 31	December 31
						%
($ thousands except boe)	2019	2018	% Change	2019	2018	Change
Depletion and amortization	81	131	(38)	381	517	(26)
Depletion and amortization ($/boe)	9.84	12.91	(24)	12.06	13.14	(8)

Depletion and amortization expense were lower for the three and twelve months ended December 31, 2019 as compared with the same periods in 2018 as the volumes produced were lower. Depletion variances as compared between periods are due to changes in production volumes and reserve volumes included in the depletion base.

Key Management Compensation

Key management includes key executive management and the Corporation’s Board of Directors. The Corporation provides a benefit plan and other allowances to executive officers. In additional, key executive officers are granted stock options at the discretion of the Board of Directors and directors may elect to receive a portion of their compensation in deferred share units.

Key management compensation for the three and twelve months ended December 31st is comprised of:

Three and twelve months ended Dec.31,		Three	months	months		Twelve	Twelve	months
		2019		2018		2019		2018
Stock based compensation	$	17	$	82	$	67	$	310
Director and committee fees - cash and DSU		52		52		197		176
Salaries and benefits	$	151	$	151	$	605	$	580

Summary of Quarterly Results

Financial results ($000's except shares)	Year ended 2019	Year Ended 2018
	Q4 Q3 Q2 Q1 31-Dec 30-Sep 30-Jun 31-Mar	Q4 Q3 Q2 Q1 31-Dec 30-Sep 30-Jun 31-Mar

Revenue from operations Earnings / (loss) from operations Net earnings / (loss)	1,198 1723 1,226 1,989 (4,876) (1,768) (1,330) (944) (4,709) (1,881) (1,449) (1,053)	728 1,805 509 498 (1,510) (634) (1,694) (830) (1,701) (908) (1,794) (970)

Earnings / (loss) per share from operations Net earnings / (loss) per share (1)	(0.22) (0.08) (0.07) (0.05) (0.22) (0.08) (0.07) (0.05)	(0.09) (0.05) (0.09) (0.05) (0.09) (0.05) (0.09) (0.05)

Cash from /(used in) provided by operating activities Capital expenditures Cash and cash equivalents net of short-term liabilities	(593) (776) (959) (1,899) (118) - (2) (55) (1,420) (2,618) 571 (3,351)	(2,113) 913 (1,460) (1,576) (15) (13) (16) (83) (874) 98 1,160 4,924

Note:

(1) Basic loss per share is calculated by dividing the net loss by the weighted average number of shares in issue and outstanding during the quarter. The dilutive loss per common share is calculated by dividing the net loss by the weighted average number of share issued and outstanding and the shares to be issued for the acquisition of Regenurex. The potential effect of exercising stock options and warrants, as applicable, have not been included in the calculation of loss per share because to do so would be anti-dilutive.

The Corporation’s revenue of $1,198 and $6,136 for the three and twelve months ended December 31, 2019 arose from the Corporation’s three business segments. The revenue for each business segment for the twelve months ended December 31, 2019 was $3,553 (2018: Nil) nutraceutical products, $852 (2018: $1,432) technology services and $1,731 (2108: 2,107) oil and conventional natural gas. The overall increase in revenue in 2019 is primarily due to the start-up of the nutraceutical products business in 2019.

The Corporation’s quarterly losses from operations fluctuate primarily by the amount nutraceutical revenue, percentage of completion of third party technology project work, amount of development work undertaken, the amount of government grants earned which are offset against the development costs incurred in a quarter and consultant and advisors used. The $3,008 increase in the loss from operations for the three months ended December 31, 2019, compared to the three months ended December 31, 2018 was primarily due to a goodwill impairment charge of $2,490 and a $674 contract receivable impairment charge. The increase in the loss from operations of $3,719 for the twelve months ended December 31, 2019, compared to the twelve months ended December 31, 2018 was primarily due a goodwill impairment charge of $2,490, a capital impairment charge of $812 and a contract receivable impairment charge of $674.

Net cash used in operations of $4,226 (2018: $4,237) in the 12 months ended December 31, 2019 is a result of:

Receipts from customers of $5,842;
Less contract receivable, net cash payments $378;
Less payments to suppliers and employees of $9,653;
Less interest payments of $347;
Plus recovery of environmental cost of $300; and
Plus interest received $10.

Cash, net of short-term debt decreased by $546 as compared to December 31, 2018. This was a result of net of $4,227 of cash used in operations, $1,268 repayment in loan, $70 of lease payments, $113 spent in investing activities which was off-set by net proceeds from the issuance of units of $1,969 and $1,920 of net proceeds from the issuance of the promissory note to Georgian Villas.

Liquidity and Capital Resources

For the twelve months ended December 31, 2019, the Corporation’s cash balance decreased by $1,788 as compared to a $1,542 increase in 2018. The decrease in cash was a result of net cash out flows of $4,227 for operating activities, net cash inflow arising from the Regenurex business combination of $61, capital and patent expenditures of $175 and net cash inflows of $2,552 from financing activities.

Net cash used in operating activities

Net cash used in operating activities in the twelve months ended December 31, 2019 was $4,227 (2018: $4,237). The Corporation received $5,842 from customers (2018: $4,951) and payments of $9,653 to suppliers and employees (2018: $7,872). The Corporation also paid interest on loans of $347 during the twelve months ended December 31, 2019 (2018: $361). The Corporation received interest income of $9 from cash and certificate of deposits for the twelve months ended December 31, 2019 (2018: $47).

Net cash used in investing activities

Net cash outflows in investing activities in the twelve months ended December 31, 2019 was $114 (2018: $1,686) of which $61 relates to cash received from the Regenurex business acquisition. The Corporation paid $175 for the purchase of capital assets net of disposals and patents for the twelve months ended December 31, 2019 (2018: $124).

Net cash provided by financing activities

During the twelve months ended December 31, 2019 the Corporation made $1,267 in loan repayments (2018: $1,405), proceeds from share issuances were $1969 (2018: $5,498), proceeds from the issuance of a convertible debenture (2018:Nil) and payment of lease liabilities of $70 (2018: Nil) .

Commitments and Contingencies

Loans Payable

As at December 31, 2019, $264 of the Corporation’s loan obligations were current and due within one year (2018: $3,698) and $2,843 is non-current. The non-current loan debt relates to the CW loan which matures on June 30, 2021. The Corporation’s current obligations of $264 relate to a $202 loan payable to the FedDev and a $62 of loans that were assumed at the time of the acquisition of Regenurex.

The loan obligations to CW are secured over all the assets, undertaking and property of Pond Technologies Inc. The Regenurex and FedDev loans are unsecured.

Promissory Note - Convertible Debenture

As at December 31, 2019 the Corporation’s promissory note obligation balance to GV was $2,000. The debenture matures on November 15, 2021, bears interest at 12% per annum, payable quarterly. The promissory note is convertible, at the option of GV, into common shares of Pond after the first anniversary date of the promissory note at a conversion price of $1.00 per share, and is secured by a first priority interest over all of the Corporation’s present and after-acquired property and assets, excluding any equity interests from time to time held by Pond, including specified subsidiaries. As consideration for agreeing to provide the loan, GV also received a cash fee equal to 4% ($80,000) of the principal amount of the loan.

On the issue of the convertible note, the fair value of the liability component was determined to be $1,664 using a 36% market rate for an equivalent non-convertible bond and this amount is carried as a non-current liability on the amortized cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognized as a finance cost as interest accretion.

Leases

The Corporation has entered into premise leases with total minimum annual payments outstanding as at December 31, 2019 of $137 (2018: $52).

Contingencies

The Corporation is contingently liable with respect to litigation claims and environmental matters that may arise from time to time, including those that could result in mandatory damages or other relief, which could result in significant expenditures. While the outcome of these matters cannot be predicted with certainty, in the opinion of management, any liability that may arise from such contingencies would not have a material adverse effect on the financial position or results of operations of the Corporation. Any expected settlement of claims in excess of amounts recorded will be charged to operations as and when such determination is made.

Litigation

Concurrent with the closing of the business combination Transaction noted above, the Corporation assigned all its rights and interest in all claims made by the Corporation in the existing litigation with Sinopec Daylight Energy Ltd (“ Sinopec ”) to Grizzly. Grizzly assumed the rights and interest and indemnified the Corporation from and against all of the Corporation’s liabilities in respect of the claim made by Sinopec in the Sinopec litigation and all future costs associated therewith.

Off-Balance Sheet Arrangements

The Corporation does not have any off-balance sheet arrangements.

Related Party Transactions

The Corporation enters into related transactions with management and agreements with its shareholders. Details of these transactions for the three and twelve months ended December 31, 2019 and 2018 and balances are as follows:

Three and twelve months ended Dec. 31,		Three months				Twelve	months	months
		2019		2018		2019		2018
*Transactions:*
Loan interest to shareholders CW and GV	$	139	$	127	$	414	$	523
Legal services rendered to the Corporation		5		59		72		84
Pembina property management fee		23		23		90		83
Salaries and employee benefits		151		116		605		581
*Balances*
Loan payable to CW		2,843		3,500		2,843		3,500
Debenture GV	$	1,843	$	-	$	1,843	$	-

The loans payable and interest amounts relate to loan amounts advanced by CW who are shareholders of the Corporation and convertible promissory note to Georgian Villas Inc. and entity controlled by Pond’s director Mr. Robert McLeese. Pond has engaged InHaus Legal to provide various guidance and counsel services to the Corporation. A member of Pond’s executive management is a partner of Inhaus Legal and share options have been granted to InHaus Legal as part of the executive’s compensation. After completing the amalgamation Transaction, the Corporation entered into an amended management agreement with Grizzly Resources Inc, for a monthly fee of $7.5 to manage the Pembina oil and gas property. One of the Corporation’s directors is a director of Grizzly Resources Inc. The management agreement will be terminated when the property is sold.

Subsequent Events

On January 8, 2020 Ms. Geraldine Kenney-Wallace resigned from the Corporation’s Board of Directors and Cameron A. Mingay was appointed to the Board of Directors.

On January 24, 2020 the Corporation issued 167,783 common shares as settlement for $79 of advisory fees owed to Cross Pond Ventures LLC (“ Cross Pond ”). The shares were issued at the TSXV closing trading price $0.47 per share on January 23, 2020 and were approved by the TSXV on March 2, 2020.

On January 29, 2020 the Financial Industry Regulatory Authority approved the change in the Corporation’s stock symbol on the OTC market. The Corporation's common shares began trading on the OTC market under the symbol PHNDF. The previous trading symbol was IOGIF.

On February 18, 2020 the Corporation appointed Mr. Cameron A. Mingay as Chairman of the Board and Mr. Gerald Quinn, Pond’s former Chairman, remained on the Board as a director.

On February 20, 2020 Pond received TSXV acceptance of the Directors Deferred Share Unit Plan (“ Plan ”). The Plan was previously approved at Pond’s Annual General and Special Meeting of shareholders. The number of shares reserved for issuance under the Plan at anytime shall not exceed 500,000 shares.

On March 23, 2020 the Corporation signed a non-exclusive licensing agreement with London based Remediiate (UK) Ltd. Under the terms of the licensing agreement, Remediiate will have the non-exclusive right to use Pond's patents and know how in the countries and principalities of continental Europe as well as the United Kingdom. As consideration for granting the license, Pond shall be paid a fee to be agreed upon, on a case by case basis, related to the separate agreements to be entered into between Remediiate and the end users. In no event will the fee be less than $500 per annum, payable quarterly, until December 31, 2021, and thereafter not less than $2,000 per annum.

On March 31, 2020 the Corporation signed an amendment to its loan agreement with Crystal Wealth to defer $57 of interest due on March 31, 2020 until the earlier of June 30, 2020 or the completion of a new share offering.

On April 15, 2020 the Corporation appointed Mr. Grant Smith as its Chief Executive Officer. Mr. Smith succeeds Steven Martin, who has retired from his position as Chief Executive Officer and remains as Pond’s Technical Advisor.

On April 29, 2020, the Corporation approved the grant of 795,000 stock options under its stock option plan to certain of its officers and employees. The options vest immediately, have an exercise price of $0.25 per share, and expire 5 years from the date of grant.

On May 12, 2020 the Corporation appointed Mr. Jacob Gamble to the Corporation’s Board of Directors.

On May 19, 2020 the Corporation announced that it had reached agreements with Cross Pond, Georgian Villas Inc., Mr. Steve Martin (a former director and officer of Pond) and ExCap Advisors Inc., (a company owned by Mr. Kevin Andrade, former officer of and consultant to Pond) to have certain amounts owing to them under contractual agreements with Pond to be satisfied through the issuance of common shares in the capital of Pond.

Under the terms of the agreements and subject to TSXV approval: (1) Cross Pond will be issued 386,902 shares as payment for $85 of advisory fees owing under its Master Project Development Agreement with Pond, representing a deemed price per share of $0.22; (2) Georgian Villas will be issued 259,152 shares to satisfy $57 of accrued interest on its $2,000 principal amount secured convertible loan to Pond, representing a deemed price per share of $0.22; (3) ExCap Advisors Inc. will be issued 149,277 shares in satisfaction of $35 of consulting fees owing, representing a deemed price per share of $0.235; and (4) Steven Martin will be issued 73,214 shares to satisfy $17 owing pursuant to past services rendered to Pond, representing a deemed price per share of $0.23.

Risk Factors

Many factors could cause the Corporation’s actual results, performance and achievements to differ materially from those expressed or implied by the forward-looking statements and forward-looking information, including without limitation, the following factors, which are discussed in greater detail in the joint management information circular of the Corporation and Pond in respect of the Transaction filed with securities regulators and available under the Corporation’s profile on www.sedar.com, which risk factors are incorporated by reference into this document, and should be reviewed in detail by all readers:

The Corporation has yet to generate significant revenues from the licensing of its technology or sale of microalgal biomass products. Investments in research and development in the field of microalgal biomass production are necessary to develop the technology required to generate future revenues. While the Corporation is confident in its technology, it cannot know with complete certainty if or when any of its technologies will be commercialized;
The Corporation has a history of net losses, may incur significant net losses in the future and may not achieve or maintain profitability;
There can be no assurance that the Corporation will be able to establish additional collaboration agreements on favourable terms, if at all, or that current or future collaborative arrangements will be successful;
The production of algae involves complex aquaculture systems with inherent risks including disease and contamination, and should the algae growth system fail to grow algae, or should the algae fail to consume the greenhouse gas introduced to the system, then the abatement will fail. While the Corporation has taken what it believes to be reasonable steps to mitigate risks associated with its processes, certain factors may arise beyond the Corporation’s control, therefore, the Corporation cannot, and does not attempt to, provide any form of assurance with regard to its systems, processes, or cost-effectiveness;
The Corporation will be highly dependent upon consumer perception of the safety and quality of its greenhouse gas abatement technology and algae products and the ingredients they contain, as well as that of similar systems and products developed and distributed by other companies;
The Corporation may fail to manage growth effectively;
Much of the Corporation’s strategy is based on the belief that the application of its proprietary photobioreactors and control systems to use carbon dioxide in the production of bio-products for the markets it is addressing may result in the creation of commercially viable products or technical applications; however, there can be no assurance that such beliefs will prove to be correct or that there will be market acceptance of technology developed by the Corporation;
The market price for the common shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Corporation’s control;
The Corporation’s operations will depend on continuous improvements in technology to meet customer demands in respect of performance and cost, and to explore additional business opportunities;
Commercial success will depend in part on obtaining and maintaining patent, confidential knowhow/trade secret and trade-mark protection of the Corporation’s technologies in Canada, the United States and other jurisdictions, as well as successfully enforcing this intellectual property and defending this intellectual property against third-party challenges;
The Corporation may become party to litigation, mediation and/or arbitration from time to time in the ordinary course of business which could adversely affect its business;
The Corporation may not be able to develop sufficient manufacturing capacity to meet demand in an economical manner or at all;

There is potential that the Corporation will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and manufacturing and marketing experience than the Corporation;
The Corporation may engage in acquisitions or other strategic transactions or make investments that could result in significant changes or management disruption;
The Corporation could fail to integrate subsidiaries and other interests into the business of the Corporation;
The Corporation’s production costs will be dependent on the costs of the energy sources used to run its production facilities. These costs are subject to fluctuations and variations in different locations where the Corporation may operate, and it may not be able to predict or control these costs;
The activities of the Corporation are subject to regulation by governmental authorities;
The Corporation’s operations are subject to environmental and safety laws and regulations concerning, among other things, emissions and discharges to water, air and land, the handling and disposal of hazardous and non-hazardous materials and wastes, and employee health and safety;
The Corporation cannot be certain that it will be able to secure additional government grants or subsidies. Any existing grants or new grants that the Corporation may obtain may be terminated, modified or recovered by the granting governmental body under certain conditions;
The Corporation’s ability to recruit and retain management, skilled labour and suppliers is crucial to the Corporation’s success;
The Corporation has a limited operating history;
Completed acquisitions, strategic transactions, or investments could fail to increase shareholder value;
Certain of the directors and officers of the Corporation are also directors and officers of other companies, and conflicts of interest may arise between their duties as officers and directors of the Corporation and as officers and directors of such other companies.
There can be no assurance that an active and liquid market for the common shares will be maintained and an investor may find it difficult to resell any securities of the Corporation;
In the event that the Corporation issues convertible debt or equity securities to raise additional funds, its existing shareholders may experience dilution, and the new convertible debt or equity securities may have advantageous rights, preferences and privileges when compared to those of the Corporation’s existing shareholders;
A substantial number of common shares are owned by a limited number of existing shareholders and as such these shareholders are in a position to exercise influence over matters requiring shareholder approval or cause delay or prevent a change in control of the Corporation that could otherwise be beneficial to the Corporation’s shareholders;
The Corporation does not anticipate paying any dividends on the common shares in the foreseeable future;

Oil and natural gas operations involve many risks that, even with a combination of experience, knowledge and careful evaluation, the Corporation may not be able to overcome;
Provincial programs related to the oil and natural gas industry may change in a manner that adversely impacts shareholders. The Corporation currently operates in Alberta and future amendments to royalty programs could result in a reduction of cash flows;
The oil and natural gas industry is subject to environmental regulation pursuant to local, provincial and federal legislation. A breach of such legislation may result in the imposition of fines or issuance of clean up orders in respect to the Corporation or its working interests. Such legislation may be changed to impose higher standards and potentially more costly obligations on the Corporation. Furthermore, management believes that the federal and Alberta governments appear to favour new programs for environmental laws and regulations, particularly in relation to the reduction of emissions, and there is no assurance that any such programs, laws or regulations, if proposed an enacted, will not contain emission reduction targets which the Corporation cannot meet;
In March 2020, members of OPEC failed to agree on oil production levels, which is expected to result in an increased supply of oil and has led to a substantial decline in oil prices and an increasingly volatile market. If the depressed pricing environment continues for an extended period, it may lead to i) a reduction in the borrowing base under our credit facility, which could negatively impact our liquidity, ii) a reduction in reserves, including the possible removal of proved undeveloped reserves, and iii) the potential impairment of proved and unproved oil & gas properties; and
The Corporation is dependent on its workforce, distributors and project engineering service providers to sell and deliver its products and services. Developments such as social distancing and shelter-inplace directives have impacted the Corporation’s ability to deploy its workforce effectively. These same developments may affect the operations of the Corporation’s suppliers as their own workforces and operations are disrupted by efforts to curtail the spread of this virus. The effectiveness of remote work environments and hosted services may also be constrained due to unprecedented levels of internet usage stemming from the COVID-19 outbreak. The Corporation’s research and development activities may also be impacted by the COVID-19 outbreak as well as travel restrictions. While expected to be temporary, these disruptions may negatively impact the Company’s sales, its results of operations, financial condition, and liquidity in 2020 .

Critical Accounting Estimates

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. These estimates and assumptions are affected by management’s application of accounting policies and historical experience and are believed by management to be reasonable under the circumstances. Such estimates and assumptions are, and will continue to be, evaluated on an ongoing basis. However, actual results could differ significantly from these estimates.

Management believes that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the Corporation’s financial statements. It is believed that there have been no significant changes in the critical accounting estimates for the periods presented in the financial statements:

Foreign Currency Translation

The consolidated financial statements are presented in Canadian dollars. Pond Naturals distribution business transacts in US dollars which are translated to Canadian dollars using average foreign exchange rates during the quarter and quarter end rates for ending balances.

Asset impairment

Assets are reviewed for an indication of impairment at each statement of financial position date. If an indication of impairment exists, the asset’s recoverable amount is estimated. Numerous factors can be used to trigger an impairment review and significant estimates and assumptions could be used to determine if impairment exists. These could include estimates of future cash flows, interest and discount rates, etc. As at December 31, 2019 the Corporation recorded a $2,490 impairment on the goodwill arising from the acquisition of Regenurex, a $812 capital impairment charge against its working interest in its Pembina oil and gas property due to a reduction in forward commodity prices and $674 against the contract receivable balance owed by Stelco due to the uncertainty to secure future project financing for the Stelco project.

Research & Development tax credits

The Corporation is entitled to government assistance in the form of research tax credit and grants. Grants are subject to compliance with terms and conditions of the related agreements. Government assistance is recognized when there is reasonable assurance that the Corporation has met the requirements of the approved grant program or, with regard to tax credits, when there is reasonable assurance that they will be realized.

Management monitors whether the recognition requirements for research and development tax credits receivable continue to be met. The Corporation has made estimates of the recoverable amounts but research and development tax credits must be examined and approved by the tax authorities and the amount allowed may be different from the amount recorded.

Pembina

The Corporation’s financial and operating results incorporate estimates relating to the Pembina oil and natural gas property including:

Estimated revenues, royalties, operating expenses on production;
Estimated depletion, depreciation and amortization expenses that are based on estimates of oil and gas proved and probable reserves that the Corporation expects to recover in the future;
Estimated value of decommissioning liabilities that are dependent on estimates of future costs and timing of expenditures;
Estimated future recoverable value of development and production assets within property, plant and equipment (“PP&E”) and exploration and evaluation assets;
Estimated deferred income tax assets and liabilities based on current tax interpretations, regulations and legislation that is subject to change;
Estimated loss probable based on judgement and interpretation of laws and regulations.

The recoverable amounts of PP&E asset by area have been determined as the greater of the asset by area’s value-in-use and fair value less costs to sell. These calculations require the use of estimates and assumptions and are subject to changes as new information becomes available including information on future commodity prices, expected production volumes, quantity of reserves and discount rates, as well as, future development and operating costs. Changes in the following assumptions used in determining the recoverable amount could affect the carrying value of the related asset.

Reserves: Assumptions that are valid at the time of reserve estimation may change significantly when new information becomes available. Changes in forward price estimates, production costs or recovery rates may change the economic status of reserves and may ultimately result in reserves being restated.
Oil and natural gas prices: Forward price estimates of the oil and natural gas prices are used in the cash flow model. Commodity prices have fluctuated widely in recent years due to global and regional factors including supply and demand fundamentals, inventory levels, exchange rates, weather, economic and geopolitical factors.
Discount rate: The discount rate used to calculate the net present value of cash flows is based on estimates of an approximate industry peer group weighted average cost of capital. Changes in the general economic environment could result in significant changes to this estimate.

Non-IFRS Measures

The Management’s Discussion and Analysis includes references to and uses measures and terms that are not specifically defined in IFRS and do not have any standardized meaning prescribed by IFRS. These measures and terms include working capital and gross margin. These non-IFRS measures may not be comparable to similar measures presented by other companies.

Non-GAAP Measures – Oil and Gas Industry

This MD&A contains terms commonly used in the oil and gas industry, such as operating netbacks (“ netbacks ”). These terms are not defined by the financial measures used by the Corporation to prepare its financial statements and are referred to herein as “ non-GAAP measures ”. These non-GAAP measures should not be considered an alternative to, or more meaningful than, other measures of financial performance calculated in accordance with GAAP. Management believes that in addition to net earnings/ (loss), netbacks is a useful financial measurement which assists in demonstrating the Corporation’s ability to make interest payments, fund capital expenditures necessary for future growth or repay debt. The nonGAAP measures presented may not be comparable to that reported by other companies.

Netback

The Corporation uses netback as a key performance indicator. Netback does not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable with the calculation of similar measures by other companies. Netback is calculated by deducting royalties and operating expenses from petroleum and natural gas revenues.

BOE Conversion

In this document, certain natural gas volumes have been converted to barrels of oil equivalent (" boe ") on the basis of one barrel (“ bbl ”) to six thousand cubic feet (“ mcf ”), unless otherwise stated. A conversion ratio of one bbl to six mcf is based on an energy equivalent conversion applicable at the burner tip and does not represent a value equivalency at the wellhead. Additionally, given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion ratio of 6:1 may be misleading as an indication of value .

Changes in Accounting Policies

The following revised standards are effective for annual periods beginning on January 1, 2018, and their adoption did not have an impact on these financial statements, but may affect the accounting for future transactions or arrangements:

Leases (“IFRS 16”)

Effective January 1, 2019, the Corporation adopted IFRS 16, which specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all major leases. IFRS 16 supersedes previous accounting standards for leases, including IAS 17, Leases and IFRIC 4 – Determining whether an arrangement contains a lease. As a result of adopting IFRS 16, the Corporation has recognized an increase to both assets and liabilities on the Consolidated Balance Sheet, as well as a decrease in rent expense, with a corresponding increase in amortization (due to depreciation of the right-of-use assets) and increase in finance costs (due to accretion of the lease liability).

The Corporation’s accounting policy under IFRS 16 is as follows:

At inception of a contract, the Corporation assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Corporation recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of useful life of the right-of-use asset or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Corporation is reasonably certain to exercise that option. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Corporation’s incremental borrowing rate. Generally, the Corporation uses its incremental borrowing rate as the discount rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Corporation’s estimate of the amount expected to be payable under a residual value guarantee, or if the Corporation changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Corporation has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases is recognized as an expense on a straight-line basis over the lease term.

Impact of Adoption of IFRS 16

On January 1, 2019, and during 2018 the Corporation had no leases with a term in excess of 12 months and accordingly the information presented in 2018 has not been restated. On January 30, 2019 the Corporation acquired Regenurex Health Corporation which had entered into a three year lease starting in February 1, 2019. The Corporation has elected to record right-of-use assets based on the corresponding lease liability. Right-of-use assets and lease obligations of $122 were recorded as of February 1, 2019, as part of the purchase price allocation with no net impact on deficit. During the quarter ended June 30, 2019 the Company extended an existing short-term lease and recorded a right-of-use asset and lease obligation of $72,000. From January 1, 2019, when measuring lease liabilities, the Company discounts lease payments using its incremental borrowing weighted-average rate applied of 12%.

IFRIC 23 Uncertainty over Income Tax Treatments

On June 7, 2017, the IASB issued IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (the “Interpretation”). The Interpretation is applicable for annual periods beginning on or after January 1, 2019. Early application is permitted. The interpretation clarifies the accounting for income tax treatments (current and deferred tax) that have yet to be accepted by tax authorities. The Corporation adopted the Interpretation in its financial statements effective January 1, 2019.

IFRS 3 Business Combinations

The IASB published amendments to IFRS 3 "Business Combinations". The amendment clarifies the definition of a business and outputs. The amendment also adds guidance that determines if substantive processes have been acquired or if an acquired set of activities and assets is a business. The amendments are effective for fiscal years beginning on or after January 1, 2020. The Company will apply these amendments and additions to IFRS 3 to applicable future acquisitions.

Financial Instruments and Other Instruments

As at December 31, 2019 the Corporation had loans outstanding totaling $3,107 (2018: 3,868).

Crystal Wealth Loan

On February 19, 2016, Pond entered into a secured loan agreement with CW with a maximum credit amounting to $4,500. The loan bears interest at the rate of 12% per annum, has no regularly scheduled repayment terms with a maturity date of February 19, 2018. The loan is secured by a general security agreement with a first charge on Pond Technologies Inc. assets and a specific assignment of rights in all patents during the year.

On August 11, 2017, Pond signed an amendment to its loan agreement with CW. The amended terms include a loan maturity extension to June 30, 2019, reduction of quarterly interest payable to 8%, deferral of quarterly interest payable of 4%, a (“ First Interest Payment ”) due of $581 payable on November 30, 2017 and a principal repayment of $1,000 on December 31, 2017. The amendment also requires Pond to make principal loan repayments if it raises in excess of $10,000 in financing during the term of the loan. In that event, the amount of the principal loan repayment will be 20% of the proceeds in excess of $10,000.

On November 16, 2017, Pond signed an amendment to its loan agreement with CW. The amended terms include an extension of the repayment to the First Interest Payment to December 21, 2017 and an extension fee of $10.

On December 19, 2017, Pond signed a second amendment to its loan agreement with CW. The amended terms include an extension of the principal repayment of $1,000 and the First Interest Payment to January 31, 2018 and an extension fee of $10 payable in cash upon the execution of the loan amendment.

On December 29, 2017, Pond made an early payment of the First Interest Payment of $581 and the second interest payment of $31.

On January 30, 2018 Pond paid $1,000 to CW to reduce the principal loan balance from $4,500 to $3,500.

On May 14, 2019, the Corporation signed an amendment to its $3,500 loan agreement. The amendments included and extension of the loan maturity date from June 30, 2019 to June 30, 2021, an Early Redemption Incentive of a $500 reduction on all outstanding principal provided the loan and outstanding interest is repaid in full by December 31, 2019 and no further changes to the existing interest terms. Pond made a principal repayment of $600 on June 28, 2019 reducing the outstanding principal balance from $3,500 to $2,900.

In addition, Pond will be required to make further principal repayments amounting to 20% of any financings and proceeds from the sale of its Pembina oil and gas property which in total exceed $2,500. If the aggregate of the proceeds of any financing transactions and the sale of the Pembina asset are equal to or exceed $10,000 Pond will be required to repay the indebtedness in full including all principal, interest and other fees which may be outstanding at the time.

FedDev Loan

Pursuant to the Federal Development Agency Agreement, Pond has received repayable loans from FedDev at a monthly rate of 33.33% of eligible costs as defined in the Federal Development Agency Agreement, subject to achievement of certain milestones. Under the terms of the loan agreement, the loan bears no

interest and is repayable in 60 equal monthly installments with a loan balance of $189 as at December 31, 2019.

The FedDev loan was fair valued at inception and interest accretion for the imputed interest rate as a finance expense each year. On January 1, 2019 the monthly installments were $17 and will continue at this monthly amount until the loan is fully repaid in December 2020.

During the twelve months ended December 31, 2019 the fair value adjustment recognized in the Statement of Loss and Comprehensive Loss was $20 (2018: $60).

Regenurex Loans

As a result of the Regenurex business combination on January 30, 2019 the Corporation assumed $531 in loans. As at December 31, 2019 one unsecured promissory note in the amount of $62 remained outstanding and an interest cost of $1 per month.

Outstanding Share Data

As at December 31, 2019 the Corporation has 22,675,469 common shares outstanding. In addition, Regenurex shareholders are entitled to receive up to 6,250,000 of the Corporation’s shares in exchange for their currently held Pond Naturals preference shares, by August 1, 2022. The Corporation has 1,592,500 stock options all of which are exercisable at $2.00 per share. The Warrants and Agent Warrants issued in the Corporation’s non-brokered private placements and brokered private placements are presented as equity on the statement of financial position. As at December 31, 2019, 7,463,130 warrants and 192,076 Agent Warrants were outstanding (2018 – 4,689,279 and 327,275), with an average exercise price of $2.18 and $2.40 (2018: $2.50 and $3.00) respectively, and an average estimated life of 1.2 and 0.3 years respectively.

As at December 31, 2019 there were 484,942 deferred share units outstanding.

Forward Looking Information

Certain statements in this MD&A that are not current or historical factual information may constitute “forward-looking” statements within the meaning of applicable securities laws, regarding, among other things, the beliefs, plans, objectives, strategies, estimates, intentions or expectations of the Corporation, including as they relate to its financial results and the ability to execute on its investing and business strategies. Inherent in these forward-looking statements are known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such statements can often be identified by the use of words such as “may”, “will”, “expect”, “believe”, “plan”, “intend”, “anticipate”, “estimate” and other similar terminology. These statements reflect current expectations regarding future events and performance and speak only as of the date of this MD&A.

Similarly, statements contained in, but not limited to, the sections titled “Commercialization Highlights”, “Commercialization – Targets, Assumptions and Risk Factors”, “Overview of the Corporation’s Business”, “Liquidity and Capital Resources”, “Commitments and Contingencies” and “Project Development” of this MD&A, including those with respect to the implementation of the Corporation’s business strategy, the development of the nutraceutical algae production, the development of the technology services business and expectations concerning the Corporation’s financial condition, results of operations, business, assets, prices, foreign exchange rates, earnings, market conditions, capital expenditures, risks, availability of

regulatory approvals, corporate objectives and plans or goals, are or may be forward-looking statements. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including, but not limited to, the factors discussed under “Risk Factors”. Although the forward-looking statements contained in this MD&A are based upon what management of the Corporation believes are reasonable assumptions, the Corporation cannot assure readers that actual results will be consistent with these forward-looking statements.

Investors and others should carefully consider risk factors including, without limitation, those set out under the heading “Risk Factors”, and not place undue reliance on forward-looking statements. The Corporation anticipates that subsequent events and circumstances may cause the Corporation’s views to change. Forward-looking statements are made as of the date of this MD&A and the Corporation assumes no obligation to update or revise any forward-looking statements to reflect new events or circumstances, except as required by law.

Additional Information

Additional Information concerning the Corporation is available on SEDAR at www.sedar.com under the Corporation’s profile.

AI assistant

Pond Technologies Holdings — Management Reports 2020

43824_rns_2020-06-04_8f4588e2-6370-4ca0-88ab-404de7d22227.pdf

POND TECHNOLOGIES HOLDINGS INC.

Pond Technologies Holdings Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations For the Three and Twelve Months Ended December 31, 2019

All amounts are Canadian dollars in thousands, except share and per share amounts and where specified

Corporation’s Business Overview

Commercialization Highlights – Q4

COVID-19

Technologies and nutraceuticals

Commercialization – Targets, Assumptions and Risk Factors

Pond Naturals – Business Segment

(i) Ingredients Distribution

Estimated Annual Revenue 2020 - $3.5 to $3.9 million Estimated Gross Margin - 16% to 18% Key Assumptions

Risk Factors

(ii) Regenurex Astaxanthin production and other products

Estimated Fully Operational Annual Revenue - $3.5 to $4.5 million Estimated Fully Operational Gross Margin - 30% to 50%

Key Assumptions When Plant Fully Operational

Risk Factors

- (iii) MDE Phase 1 Facility

Energy Services Lease Agreement

Estimated Fully Operational Annual Revenue - $8 to $10 million Estimated Fully Operational Gross Margin - 50% to 60%

Key Assumptions When Fully Operational

Risk Factors

Technology Services – Business Segment

Stelco Algae Holdings Inc (“SAHI”) – Phase 1

Revenue 45KL Seed System - $3.6 million Gross Margin* - 10%

Key Assumptions

Risk Factors

Recent Developments

Crystal Wealth Management System Ltd. (“ CW ” or “ Crystal Wealth ”)

Markham MOU

Brokered private placement (December 2017)

Completion of business combination (January 2018)

Brokered concurrent equity financing (January 2018)

Satisfaction of conditions to close Transaction

Change of trading symbol

Appointment of Directors

Exercise of Agent Warrants

Reporting Issuer in Ontario

Exclusive Distribution Agreement

Extension of warrants

Acquisition of Regenurex Health Corporation

Non-Brokered private placement (June 2019)

Convertible Promissory Note (November 2019)

Overview of the Corporation’s Business

Commercial Revenue-Generating Bioreactors

Overall Performance

Discussion of Operations

Selected Financial Information

Three months ended December 31, 2019.

Impairment of goodwill - $2,490

Twelve months ended December 31, 2019

Impairment of goodwill - $2,490

Impairment of capital asset - $812

Impairment of contract receivable - $674

Trading

Finance expenses and interest income

Project Development

Plant Adaptive Intelligence Growth Engine

Administrative Expenses

Interest Income

Finance Expenses

Share Based Compensation

Net Loss

Pembina

FINANCIAL AND OPERATING REVIEW PETROLEUM AND NATURAL GAS OPERATIONS

Quarterly Financial Information

Production

Commodity Prices

Revenues

Revenues and Commodity Prices

Royalties

Operating Expenses

Operating Netbacks

Depletion and Amortization

Key Management Compensation

Summary of Quarterly Results

Note:

Pond Technologies Holdings Management Reports 2020

Revenue 45KL Seed System - $3.6 million *Gross Margin** - 10%