RenoWorks Software Inc. — Management Reports 2023

Apr 19, 2023

RenoWorks Software Inc. Management's Financial Discussion and Analysis (April 19, 2023)

This management discussion and analysis of RenoWorks Software Inc.'s (referred to in this discussion as "RenoWorks" or the "Company") financial condition and results of operations focuses on key statistics from its financial statements for the year ended December 31, 2022 and pertains to known risks and uncertainties relating to its business. The following discussion and analysis should be read in conjunction with the year ended December 31, 2022 financial statements and accompanying notes thereto. Additional information about the Company can be obtained at www.sedar.com.

Special Note Regarding Forward-Looking Information and Statements

This MD&A offers our assessment of RenoWorks' future plans and operations and contains forward-looking statements as defined under applicable Canadian securities legislation including our sensitivity to technological obsolescence referred to under Research and Development on page 3, our sensitivity to the change in the value of the Canadian dollar versus the US dollar referred to under Foreign Exchange on page 4, capital expenditure projections included in investing activities on page 7, our sensitivity to changes in building products industry market conditions referred to under Cyclicality in the Construction and Renovation Industries on page 11, and our dependence upon adoption of technology in the building products industry referred to under Dependence on the Adoption of Computers in the Construction Industry on page 11. These forward-looking statements typically contain the words "anticipate," "believe," "estimate," "intend," "expect," "may," "will," "should," "potential", "plan" or other similar terms.

Readers are cautioned that our expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. With respect to forward-looking statements contained within this MD&A, we have made the following key assumptions:

• x our sensitivity to the change in the value of the Canadian dollar versus the US dollar was based on our forecast of sales in US dollars as well as the exchange rate for the Canadian dollar similar to the current market rate;
• x our reliance on positive market conditions in both the remodelling and new home construction industries in both the US and Canada was based on our current strategic plan;
• x our reliance on positive adoption of technology was based on our current strategic plan.

Certain statements, other than statements of historical fact, are forward-looking information that involves various risks and uncertainties. Such statements relating to, among other things, the prospects for the Company to enhance operating results, the ability of the Company to find customers for its 3D model and measurement solutions, the ability of the Company to find suppliers of aerial measurement data and its ability to successfully integrate such data into the Company's technology platform, are necessarily subject to risks and uncertainties, which are significant in scope and nature*.*

Our actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. We can give no assurance that any of the events anticipated will transpire or occur or, if any of these events do occur, what benefits or costs we will derive from these events. By their nature, forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the impact of general economic conditions, changing domestic industry conditions, currency fluctuations, interest rates, competition from other industry participants (including new entrants), stock-market volatility, the ability to access sufficient capital from internal and external sources and additional risk factors discussed in other documents we file from time to time with securities regulatory authorities, which are available through the Internet on SEDAR at www.sedar.com or, upon request, without charge from us.

The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement. Our assumptions relating to the forward-looking statements referred to above are updated quarterly and, except as required by law, we do not undertake to update any other forward-looking statements.

Throughout this document, reference is made to "working capital" and "Adjusted EBITDA", which are non-IFRS measures. Management believes that working capital, defined as current assets less current liabilities, is an indicator of the Company's liquidity and its ability to meet its current obligations. Management believes that Adjusted EBITDA, which normalizes earnings to exclude certain amounts, is a useful measure for comparing results from one period to another. Readers are cautioned that these non-IFRS measures may not be comparable to similar measures used by other companies. Readers are also cautioned not to view these non-IFRS measures as an alternative to financial measures calculated in accordance with International Financial Reporting Standards ("IFRS").

Company Overview

RenoWorks has developed and distributes digital visualization software for the renovation and new home construction industry. Its sales and marketing efforts are presently focused on the United States and Canada.

Selected Annual Information

	2022	2021	2020
Revenue	$5,941,830	$5,553,379	$5,132,109
Net Income/(Loss)	($1,320,786)	($608,960)	$123,582
Net Income/(Loss) per share	($0.03)	($0.02)	$0.00
Total Assets	$1,788,806	$2,214,085	$1,534,171

For the year ending December 31, 2022, the revenue increased from the previous years ending in 2021 and 2020. This is mainly a result of a 11% increase in design service revenue and a 13% increase in implementation revenues as compared to 2021. The increase in net loss in 2022 compared to the net loss in 2021 is primarily attributable to increased research and development costs incurred building a contractor software platform; to facilitate software and content as a service to the North American remodel industry. The Company continues to invest in areas including Renoworks AI Gen2.0, Data Science and Analytics, Renoworks PRO and PRO Portal for remodel contractors, and general platform functionality to facilitate our vision. Additional investment in 2022 included infrastructure to better manage the Manufacturer Product libraries and create opportunities to further monetize this asset. The Company also experienced an overall increase in selling, general and administrative expenses – with increased personnel, marketing and professional services costs. Finally, total assets have decreased in 2022 which is primarily due to decreased cash and equivalents.

Results of Operations for the Year ended December 31, 2022

	2022	2021
Revenue	$5,941,830	$5,553,379
Net Loss	$1,320,786	$608,960

Revenue

For the year ended December 31, 2022 the Company earned aggregate revenues of $5,941,830 comprised of $3,012,121 from design services, $1,896,674 from licensing and hosting, $620,924 for libraries, and $439,111 from implementation fees. This is an increase of $388,451 from the $5,553,379 revenues earned in the year ended December 31, 2021 comprised of $2,705,229 from design services, $1,813,971 from licensing and hosting, $645,694 from libraries and $388,485 from implementation fees. The increased revenue is primarily attributable to an increase in design service revenue of 11% in 2022 compared to 2021. For the twelve months ended December 31, 2022, 34%, (2021 - 36%) of the revenue was from one customer.

Net Income/Loss

The Company's net loss for the year ended Dec 31, 2022 was $1,320,786, an increased loss of $711,826 compared to net loss of $608,960 for the year ended December 31, 2021. The increased loss is primarily attributable to increased research and development expenses of $747,060 as the Company continues to add additional resources to further its Data Science and Analytics, AI Gen2.0 offering, Renoworks PRO and PRO Portal for remodel contractors, Manufacturer Product Library Database, and platform functionality. Selling general and administrative costs increased $409,723 primarily due to increased personnel costs and sales and marketing costs. The Company has invested in activities to capitalize on opportunities to market its AI solutions, data science and Analytics, and Contractor offerings to the North American remodel industry.

Adjusted EBITDA

This non-GAAP measure does not have a standardized meaning which may limit comparability. The Company calculates adjusted EBITDA as follows:

	2022	2021
Net Loss	($1,320,786)	($608,960)
Add:
Depreciation	$81,438	$96,569
Net finance (income) expense	($2,384)	$29,824
Stock-based compensation	$177,123	$114,308
Adjusted EBITDA	($1,064,609)	($368,259)

The Company's Adjusted EBITDA for the year ended December 31, 2022 was a negative $1,064,609 a decrease of $696,350 compared to a negative Adjusted EBITDA of $368,259 for the year ended in 2021 primarily attributable to increased net loss.

Expenditures

Cost of sales and gross margin

	2022	2021
Salaries	$1,266,284	$1,271,807
External third-party costs	$887,020	$795,795
Total cost of sales	$2,153,304	$2,067,602

Cost of sales for the year ended December 31, 2022 totaled $2,153,304 yielding a gross margin of 64% on revenues compared to a total of $2,067,602 yielding a gross margin of 63% in the year ended December 31, 2021. The increase in gross margin percentage can be primarily attributed to the increased strength in the United States dollar which contributed to higher gross margins as a high proportion of design service revenue is denominated in the United States dollar. Cost of sales includes costs of photography of exterior building products, commissions, credit card processing fees, contractor fees, production costs of retail software, and an allocation of certain internal employees' direct time incurred on provision of implementation services.

Research and development

Research and development costs of $1,682,579 for the year ended December 31, 2022 increased $747,060 compared to $935,519 incurred in the year ended December 31, 2021. Actual research and development costs for 2022 are $1,715,538, which were reduced by $5,643 which reflects the amount of costs allocated from the Alberta Innovates Technology grant during the fiscal year. Actual research and development costs for 2021 were $1,052,560 which were reduced by $117,041, which reflects the amount of costs allocated from the Alberta Innovates Technology grant during the fiscal year. The increase in research and development investment in 2022 is attributable to building a contractor software platform that can facilitate software and content as a service to the North American remodel industry. We continue to invest in areas including AI solutions, data science and analytics, contractor offerings, manufacturer product library database, and general platform functionality to facilitate our vision. The Company maintains its commitment to invest into its software development activities in the 2022 fiscal year. The Company's management believes that significant expenditures will be required long-term on an ongoing basis in order to minimize technological obsolescence risk and to accelerate customer acceptance and adoption of the digital visualization products. It is management's belief that as revenues are earned from existing commercially-available products, that such revenues will be a significant source of funding for incremental product research and development expenditures.

Selling, general and administration

	2022	2021
Salaries and wages	$1,631,341	$1,445,299
Government grants	(47,833)	(15,000)
Office and rent	$632,617	$590,308
Sales and marketing	$567,873	$462,779
Professional fees	$249,740	$161,303
Other general and administrative	$144,044	$125,790
Share-based compensation	$177,123	$114,308
Training and development	$47,076	$84,415
Depreciation	$81,438	$96,569
Bad debt expense	$13,702	$21,627
Total general and administration	$3,497,121	3,087,398

Selling, general and administration costs of $3,497,121 for the year ended December 31, 2022 increased $409,723 compared to $3,087,398 incurred in the year ended December 31, 2021, primarily attributable to increased sales and marketing expenditures, personnel costs and professional fees. During the year ended December 31, 2022, the Company received $37,500 (2021 - $7,500) of funding from the Industry Commercialization Associates program funded by Alberta Innovates. The Company also received $10,333 (2021 – $7,500) from the Southern Alberta Technology Employee Practicum Agreement. The Company is facing increased competition for talent and could potentially experience higher labor, recruiting or training costs in order to attract and retain necessary employees.

Foreign exchange

The Company experienced foreign exchange gains of $68,004 in the year ended December 31, 2022 compared to exchange losses of $41,996 for the comparable period in 2021 as a result of the exchange movement between the Canadian and United States dollars. Expenses for the year ended December 31, 2022 and 2021 include both United States and Canadian dollar-denominated expenditures. To the extent that the Canadian dollar strengthens against the United States dollar, expenses incurred in United States dollars will be recorded at a lower Canadian dollar equivalent on translation. The majority of the 2022 and 2021 revenues were received in United States dollars. As the Canadian dollar strengthens against the United States dollar, sales made in United States dollars are recorded at a lower Canadian dollar amount upon translation. It is anticipated that a substantial amount of the Company's future revenues will continue to be denominated in United States dollars. Movements in exchange rates may have a significant impact on financial results. The Company bills its United States customers in United States dollars, collects in United States dollars, holds deposits in United States dollars and converts cash into Canadian dollars as it deems appropriate. Timing differences on recording and collection of United States dollars versus conversion to Canadian dollars can result in exchange gains or losses on all monetary items including accounts receivable. To the extent the Company maintains United States dollar cash and other working capital balances, it is exposed to foreign exchange risk.

The Company has direct exposure to foreign currency exchange rate risk as many of the Company's customers are invoiced in US currency. As at December 31, 2022, if the Canadian dollar strengthened by 1% with all other variables held constant, it would result in an increase in net income by $6,332 (December 31, 2021 - $6,547). An equal and opposite impact would have occurred to net loss had foreign exchange rates weakened by 1%.

Results of Operations for the Quarter ended December 31, 2022

	Q4 2022	Q4 2021
Revenue	$1,201,509	$1,258,956
Net Loss	$705,601	$360,626

Revenue

For the three months ended December 31, 2022 the Company earned aggregate revenues of $1,201,509 compared to $1,258,956 revenues earned in the three-months ended December 31, 2021. The decreased revenue is primarily attributable to decreased libraries revenues which was partially offset by increased design services revenue. Design service revenues are impacted by seasonality in the construction industry generally resulting in higher revenues in the spring and summer quarters.

Net Income/Loss

The Company's net loss for the three-months ended December 31, 2022 was $705,601, an increased loss of $344,975 compared to net loss of $360,626 for the three-months ended December 31, 2021. The increased loss is primarily attributable to both increased research and development and increased personnel costs as the Company added additional resources to further its data science, contractor offering and AI offerings.

Adjusted EBITDA

This non-GAAP measure does not have a standardized meaning which may limit comparability. The Company calculates adjusted EBITDA as follows:

	Q4 2022	Q4 2021
Net Loss	($705,601)	($360,626)
Add:
Depreciation	$10,931	$24,467
Net finance expense	($3,532)	$4,990
Stock-based compensation	$47,155	$67,540
Adjusted EBITDA	($651,047)	($263,630)

The Company's Adjusted EBITDA for the three-months ended December 31, 2022 was a negative $651,047, an increase of $387,417 compared to a negative Adjusted EBITDA of $263,630 for the three-months ended in 2021, primarily attributable to increased net loss.

Expenditures

Cost of sales and gross margin

	Q4 2022	Q4 2021
Salaries	$387,158	$328,680
External third-party costs	$73,464	$147,210
Total cost of sales	$460,622	$475,890

Cost of sales for the three-months ended December 31, 2022 totaled $460,622 yielding a gross margin of 62% on revenues compared to a total of $475,890 yielding a gross margin of 62% in the three-months ended December 31, 2021. Cost of sales includes costs of photography of exterior building products, commissions, credit card processing fees, contractor fees, production costs of retail software, and an allocation of certain internal employees' direct time incurred on provision of implementation services.

Research and development

Research and development costs of $510,904 for the three-months ended December 31, 2022 increased $298,242 compared to $225,410 incurred in the three-months ended December 31, 2021. The increase in research and development investment is attributable to personnel resources to build our software platform that can facilitate software and content as a service to the North American remodel industry. We continue to see opportunities to make significant impacts in facilitating changes in how the industry operates and as such are investing in areas including AI, data science and analytics, contractor offering, manufacturer product library database, and general platform functionality to facilitate our vision. The Company maintains its commitment to invest in software development activities for the foreseeable future. The Company's management believes that significant expenditures will be required long-term on an ongoing basis in order to minimize technological obsolescence risk and to accelerate customer acceptance and adoption of the digital visualization products. It is management's belief that as revenues are earned from existing commercially-available products, that such revenues will be a significant source of funding for incremental product research and development expenditures.

Selling, general and administration

	Q4 2022	Q4 2021
Salaries and wages	$475,506	$400,250
Government grants	($8,083)	($7,500)
Office and rent	$175,388	$155,982
Sales and marketing	$109,123	$126,572
Professional fees	$49,532	$40,255
Other general and administrative	$84,561	$43,984
Share-based compensation	$47,155	$67,540
Training and development	$3,105	$39,661
Depreciation	$10,931	$24,466
Bad debt expense	$13,702	$13,879
Total general and administration	$960,920	$905,089

Selling, general and administration costs of $960,920 for the three-months ended December 31, 2022 increased $55,831 compared to $905,089 incurred in the three-months ended December 31, 2021, primarily attributable to increased personnel costs. During the three months ended December 31, 2022 the Company received $3,750 (2021 - $7,500) of funding from the Industry Commercialization Associates program funded by Alberta Innovates and $4,333 (2021 – nil) from the Alberta Jobs Now Program. The Company is facing increased competition for talent and could potentially experience higher labor, recruiting or training costs in order to attract and retain necessary employees.

Foreign exchange

The Company experienced foreign exchange gains of $21,804 in the three-months ended December 31, 2022 compared to exchange losses of $8,203 for the three-months ended December 31, 2021 as a result of the exchange movement between the Canadian and United States dollars. Expenses for the three-months ended December 31, 2022 and 2021 include both United States and Canadian dollar-denominated expenditures. To the extent that the Canadian dollar strengthens against the United States dollar, expenses incurred in United States dollars will be recorded at a lower Canadian dollar equivalent on translation. The majority of the 2022 and 2021 revenues were received in United States dollars. As the Canadian dollar strengthens against the United States dollar, sales made in United States dollars are recorded at a lower Canadian dollar amount upon translation. It is anticipated that a substantial amount of the Company's future revenues will continue to be denominated in United States dollars. Movements in exchange rates may have a significant impact on financial results. The Company bills its United States customers in United States dollars, collects in United States dollars, holds deposits in United States dollars and converts cash into Canadian dollars as it deems appropriate. Timing differences on recording and collection of United States dollars versus conversion to Canadian dollars can result in exchange gains or losses on all monetary items including accounts receivable. To the extent the Company maintains United States dollar cash and other working capital balances, it is exposed to foreign exchange risk.

Liquidity and Capital Resources

	December 31, 2022	December 31, 2021
Total Assets	$1,788,806	$2,214,085
Total Long-Term Liabilities	$161,875	$212,053

Total Assets

Total Assets were $1,788,806 as at December 31, 2022, a decrease of $425,279 compared to $2,214,085 as at December 31, 2021. The decrease is primarily due to reduced cash and cash equivalents of $485,266.

Total Long-Term Liabilities

The Company's long-term liabilities decreased to $161,875 as at December 31, 2022 compared to $212,053 at December 31, 2021. The decrease is attributable to decreases in deferred revenue balances.

Cash and Working Capital

The Company's cash at December 31, 2022 was $704,080 compared to cash of $1,189,346 at December 31, 2021, a decrease of $485,266.

The Company's working capital at December 31, 2022 was $207,163 compared to a working capital of $470,642 at December 31, 2021 a decrease of $263,479 primarily due to decreased cash and cash equivalents. Current assets decreased by $299,519 due primarily to decreased cash and cash equivalents. Current liabilities decreased by $36,040 primarily due to a decrease in lease liability balance.

	Dec 31, 2022	Dec 31, 2021
Total Current Assets	$ 1,601,379	$ 1,900,898
Total Current Liabilities	$ 1,394,216	$ 1,430,256
Working Capital	$ 207,163	$ 470,642

Cash Flow From Operations

During the year ended December 31, 2022 the Company realized a cash outflow from operations of $1,184,487, a decrease of $1,278,417 from the $93,930 of cash inflow from operations in the year ended December 31, 2021. The decrease in cash inflow from operations is primarily attributable to increased net loss and changes in deferred revenue balances as well as changes in trade and other receivable balances.

Financing Activities

During the year ended December 31, 2022 the Company had cash inflow from financing activities of $730,786, a $18,494 increase from the cash inflow from financing activities of $712,292 for the year ended December 31, 2021.

On April 20, 2022 the Company closed a non-brokered private placement issuing 1,610,000 units at a price of $0.50 per unit for aggregate gross proceeds of $805,000. Finance costs totaled $20,398 for net proceeds of $784,602. Each unit is comprised of one common share and one half of one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share at a price of $0.60 per common share up to eighteen months following the closing date of the Private Placement.

During the year ended December 31, 2021 a total of 1,458,795 warrants were exercised and the Company received proceeds of $583,518.

The Company received proceeds of $20,000 from the exercise of share options by employees and directors during the year ended December 31, 2022 (2021 - $279,333).

Investing Activities

During the year ended December 31, 2022 the Company purchased capital assets of $31,565, a decrease of $13,866 compared to purchases of $45,431 during the same period ending December 31, 2021. The Company estimates it will have capital expenditures of approximately $50,000 during 2022, with any requirement for expenditures dependent upon customer requirements and revenue generation as well as personnel staffing and software development needs. Without additional financing or increased revenues, the Company may defer or limit its purchase of capital assets.

Outstanding Shares

At December 31, 2022, there were 40,662,635 common shares outstanding. In addition, 3,063,500 stock options and 805,000 warrants were outstanding at December 31, 2022. Each whole warrant entitles the holder to purchase one common share up to eighteen months following the closing date of the Private Placement.

Related-Party Transactions

During the year ended December 31, 2021 the company entered into non-interest bearing loan agreements totaling $95,000 with one officer and one director and officer of the company. During the year ended December 31, 2022 no additional loan agreements were entered into by the company. The loans were initially measured at their fair values, totaling $86,408 using an effective interest rate of 5% per annum.

During the year ended December 31, 2022 one of the non-interest bearing loans was repaid in full for $20,000. On September 1, 2022 the remaining unsecured $75,000 loan agreement was amended. The loan was re-measured at fair value using an effective interest rate of 7% per annum. The fair value of the amended loan is $64,474. A total of $10,526 (2020 - $8,592) is included in prepaid expenses representing the employee benefit portion of the loan amount.

The new terms of the amended unsecured loan agreement are repayments via 30 equal payments of $2,500 beginning on April 1, 2023.

Income tax expense

As at December 31, 2022, no recognition for the benefit of unutilized tax losses or unutilized research and development expenses carry forward for tax purposes has been recognized in the financial statements.

Summary of Quarterly Results

	Q4 2022	Q3 2022	Q2 2022	Q1 2022	Q4 2021	Q3 2021	Q2 2021	Q1 2021
Revenue	$1,201,509	$1,653,445	$1,770,960	$1,315,917	$1,258,956	$1,394,987	$1,478,095	$1,421,342
Net Loss	(705,601)	(225,110)	($57,529)	($332,546)	($360,626)	($157,434)	($47,976)	($42,924)
Loss per share(Basic anddiluted)	($0.02)	($0.01)	($0.00)	($0.01)	($0.00)	($0.00)	($0.00)	($0.00)

The table above is a summary of the last 8 quarters of results up to December 31, 2022.

The product mix of the Company is diverse and different revenue recognition criteria exist for each product. Recurring revenues, including hosting and licensing, are relatively consistent in nature and consistent quarter to quarter. However, the timing of revenue recognition due to implementation services has an impact on the variability of revenues each quarter. The product has to be completed, delivered to and accepted by the client prior to recognition of the revenues. If an anticipated delivery is delayed, this may have a material impact on the revenues recorded for the quarter.

Use of Estimates and Judgements

The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical estimates that have the most significant effect on the amounts recognized in the financial statements is included in the December 31, 2022 financial statements Note 4: Determination of fair values.

Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the December 31, 2022 Financial Statements Note 3: Significant accounting policies. Determination of the separately identifiable performance obligations and the relative fair value and revenue recognition timing of the performance obligations is subject to critical judgements. Critical judgements are required to assess whether or not a deferred tax asset should be recognized for temporary tax differences.

Future changes to accounting standards:

Accounting standards issued, but not yet effective.

IAS 1: Presentation of Financial Statements:

In February 2021, the International Accounting Standards Board issued amendments to IAS 1, Presentation of Financial Statements. The amendments will require the disclosure of material accounting policy information rather than disclosing significant accounting policies and clarifies how to distinguish changes in accounting policies from changes in accounting estimates. The amendments are effective for annual periods beginning on or after January 1, 2023 although earlier application is permitted. The Company has completed their assessment and anticipates there will be no material impact of these amendments on the disclosure of our accounting policies.

Financial Instruments

Financial instruments are measured at fair value on initial recognition, which is typically the transaction price unless a significant financing component is present. Subsequent measurement is dependent on whether the instrument is classified as "amortized cost", "fair value through profit or loss" or "fair value through other comprehensive income". The classification of financial assets is determined by their characteristics and their context in the Company's business model.

The Company classifies financial assets and liabilities as follows:

Amortized cost: Cash and cash equivalents, trade and other receivables, loans receivable, trade and other payables, and lease liabilities are held by the Company to collect or pay contractual cash flows and are measured at amortized cost. Financial instruments measured at amortized cost are recognized initially at fair value adjusted for any directly attributable transaction costs. Subsequent to initial recognition, these financial instruments are measured at amortized cost using the effective interest rate method, less any impairment losses.

Fair value through profit or loss: The Company has no financial instruments held to both collect contractual cash flows and to sell the asset, and accordingly, no financial instruments are measured at fair value through profit or loss.

Fair value through other comprehensive income: The Company has no financial instruments that do not meet the criteria to be measured at amortized cost or fair value through profit or loss and, accordingly, no financial instruments are measured at fair value through other comprehensive income.

The Company derecognizes a financial asset when the contractual right to the cash flow expires, or the right to receive the contractual cash flows from the financial asset and substantially all the risks and rewards of ownership of the financial asset are transferred. The Company derecognizes a financial liability when the contractual obligations are discharged, cancelled, or expired.

Risks and Uncertainties

The Company is subject to each of, and the cumulative effect of all, the risk factors outlined below.

Not Receiving An Adequate Or Any Return On Invested Capital

The exact effect of these risk factors cannot be accurately predicted, but they may result in the Company not receiving an adequate or any return on invested capital.

Recoup The Investment Or Pay Dividends

There is no assurance that the Company will produce sufficient revenues to allow the Company to recoup the investment or pay dividends to the investors. The Company has never paid any dividends on its securities and does not anticipate the payment of dividends in the foreseeable future. Any decisions regarding the payment of dividends will depend on the Company's earnings, financial position and such other factors, as the Board of Directors of the Company deems relevant.

RenoWorks Is Not Fully Insured

RenoWorks' operations are subject to the risks normally incident to the high technology, Internet and computer industries. In accordance with customary industry practice, RenoWorks is not, and it is not anticipated that the Company will be, fully insured against all of these risks, nor are all such risks fully insurable.

Marketability And Price

The marketability and price of the Company's products and services will be affected by numerous factors beyond the control of the Company.

Competition

RenoWorks is subject to competition from companies with different products, greater financial resources, and larger marketing capabilities. There can be no assurance that the Company will be able to continue to compete successfully with existing competitors or will be able to compete successfully with new competition. The digital visualization software imaging industry is currently in its infancy and there are very few independent participants. The industry is characterized by rapid technological change. Many of the companies, both domestic and foreign, with which the Company competes are well established, substantially larger and have substantially greater resources than will be available to the Company. Although management of RenoWorks believes that it will compete successfully, there can be no assurance that the Company will be able to maintain a high level of name recognition and prestige within the marketplace. Moreover, the Company's success will depend on maintaining strong promotion, increasing visibility within the construction and renovation industry and on the Internet, and providing informative content. Management of RenoWorks believes that sales and marketing are key to the Company's success. The lack of availability of talented, creative sales and marketing personnel or the Company's inability to attract and retain such key employees could adversely affect the business of the Company.

Fluctuations In Monetary Exchange

Fluctuations in the United States and Canadian monetary exchange rates could negatively affect the Company's profits.

No Assurances That The Company Will Become Profitable or Maintain Profitability

RenoWorks has been primarily engaged in research and development activities for market penetration in the past and has historically incurred losses. There can be no assurances that the Company will achieve profitability.

Uncertain Cash Flow to Meet Obligations

Whether and when the Corporation can generate sufficient operating cash flows to pay for its expenditures and settle its obligations due after December 31, 2021 as obligations fall due subsequent to December 31, 2021 is uncertain. Until this time, management will have to raise funds by way of debt or equity issuances or improve profitability.

Industry Subject To Technological Advancement And Obsolescence

RenoWorks is operating within an industry subject to a very rapid pace of technological advancement and obsolescence. The ability of the Company to establish and maintain a position at the leading edge of technological innovation in the industry cannot be assured. Failure to do so may compromise the attainment of the Company's commercial objectives.

Limited Professional Liability Insurance

RenoWorks has limited commercial general liability insurance. There is no assurance that such insurance will be sufficient to protect itself against claims connected with the provision of its services or that the Company will continue to carry this insurance.

Reliance Upon Third-Party Agents

To the extent that the Company also relies upon third-party agents to sell its services on the Company's behalf, the Company will be subject to risks associated with the performance of these third parties, in addition to their security arrangement, insurance, reputations, and professionalism in the provision of services.

Dependence Upon, and Need for, Key Personnel

RenoWorks is, and will be, dependent upon the performance and a limited number of key personnel. The loss of a key individual or a reduction in the time devoted by such person to the Company's business could have a material adverse effect on the Company's business. The Company's future success will depend in part upon its ability to attract and retain highly qualified personnel. The Company faces competition for such personnel from other companies, academic institutions and other organizations, many of which have significantly greater resources that the Company. There can be no assurance that the Company will be able to attract and retain the necessary personnel on acceptable terms or at all.

Management of Expanding Operations

The Company's ability to manage any future expansion effectively will require it to attract, train, motivate, and manage new employees successfully, to integrate new management and employees into its overall operations and to continue to improve its operational, financial and management systems. The Company's failure to manage any expansion effectively, including any failure to integrate management and employees or failure to implement and improve financial, operational and management controls, systems and procedures could have a material adverse effect on the Company's business, operating results and financial condition. For the Company to expand its business operations, it must continue to improve and expand the expertise of its personnel and must attract, train, and manage qualified managers and employees to oversee and manage its contemplated expanded operations. As the Company realizes revenue growth, it is the intention of the Company to significantly expand its existing business operations. Current management of RenoWorks anticipates that significant expansion of its operations will continue to be required in order to address potential market opportunities. Such expansion will subject the Company to a variety of risks associated with rapidly growing companies. In particular, the Company's growth may place a significant strain on its accounting systems, internal controls, and oversight of its day-to-day operations. To manage its growth, the Company must implement, improve, and effectively utilize its operational, management, marketing and financial systems and train and manage its future employees. These individuals will not have previously worked together and would be required to integrate as a management team. There can be no assurance that the Company will be able to manage effectively the expansion of its operations or that RenoWorks' current personnel, systems, procedures and controls will be adequate to support the Company's operations. Any failure of management to manage effectively the Company's growth could have a material adverse effect on the Company's business, results of operations, and financial condition. Although management of RenoWorks intends to ensure that its internal controls remain adequate to meet the demands of further growth, there can be no assurance that its systems, controls, or personnel will be sufficient to meet these demands. Inadequacies in these areas could have a material adverse effect on the Company's business, financial condition, and results of operations.

Fluctuations in Operating Results

The Company may experience significant fluctuations in operating results. These fluctuations may be caused by several factors, many of which are beyond the control of the Company. These include: the cost of acquiring and the availability of content; the overall level of demand for content and product implementation services; seasonal trends and advertising placements; the amount of increased expenditures for expansion of operations, including the hiring of new employees, capital expenditures and related costs; the Company's ability to continue to enhance, maintain and support its technology; the introduction of new or enhanced services by the Company; price competition or pricing changes in products and services such as the Company's technical difficulties, system downtime, system failures; political or economic events and governmental actions affecting operations; and general economic conditions and economic conditions specific to the industry. If one or more of these factors or other factors occur, the Company's business could suffer. In addition, the market for services such as those which RenoWorks provides is volatile making it very difficult to predict future financial results.

Cyclicality in the Construction and Renovation Industries

The residential construction and renovation industries are cyclical. The industry tends to be sensitive to economic conditions. When economic conditions are prosperous, construction and renovation industry revenues increase; conversely, when economic conditions are unfavorable, construction and renovation industry revenues decline. The Company will continuously monitor trends in its clients' tastes and preferences so that, if necessary, it can change operations and services to accommodate the changes in such trends. Any significant decline in general corporate conditions or the economy that affect consumer spending could have a material adverse effect on the Company's business.

Subscription licensing revenues of RenoWorks are anticipated to be cyclical and dependent upon general economic conditions. However, management of RenoWorks believes that RenoWorks' pricing strategies, distribution, production cost structure, marketing strategy, and management's experience mitigate, to some degree, the effects of an economic downturn to the extent such downturn is regional.

Dependence on the Adoption of Computers in the Construction Industry

The Company's future success is substantially dependent upon continued growth in the adoption of computers in the construction industry and, as it relates to the Company, in the acceptance of digital visualization software usage. There can be no assurance that the number of computers used in the construction industry will continue to grow or that adoption of digital visualization software will occur. The construction industry may not prove to be a viable commercial marketplace for a number of reasons, including lack of computer use and ease of software use.

Risk Of Technological Change

The market for computer and software usage is characterized by rapid technological developments, frequent new product introductions, and evolving industry standards. The emerging character of these products and services and their rapid evolution will require the Company to effectively use leading technologies, continue to develop its technological expertise, enhance its current services, and continue to improve the performance, features and reliability of its visualization software and Internet destination (www.RenoWorks.com). Changes in network infrastructure, transmission and content delivery methods and underlying software platforms and the emergence of new broadband technologies, could dramatically change the structure and competitive dynamic of the market. In particular, technological developments or strategic partnerships that accelerate the adoption of broadband access technologies may require the Company to expend resources to address these developments. There can be no assurance that the Company will be successful in responding quickly, cost-effectively, and sufficiently to these or other such developments. A failure by the Company to rapidly respond to technological developments could have a material adverse effect on the Company's business, results of operations and financial condition.

Intellectual Property Risks

RenoWorks regards its copyright, trademarks, and similar intellectual property as critical to its success. In that context, the Company relies on a combination of copyright and trademark laws, trade secret protection, confidentiality and non-disclosure agreements and contractual provisions. There is no guarantee that these efforts will be adequate; that the Company will be able to secure trademark registrations for all of its trademarks in the United States or other countries; or that third parties will not infringe upon or misappropriate the Company's copyrights, trademarks, service marks and similar proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or limited in certain countries, and the global nature of the Internet makes it impossible to control the ultimate destination of the Company's website. Since trademark and copyright protections are not "self-enforcing", future litigation may be necessary to enforce and protect the Company's trademarks, copyrights and other intellectual property rights.

The Company may also be subject to litigation to defend against claims of infringement of the rights of others or to determine the scope and validity of the intellectual property rights of others. If competitors of the Company prepare and file applications in the United States or Canada that claim trademarks used or registered by the Company are infringing on their rights, the Company may oppose those applications and be required to participate in the proceedings before the United States Patent and Trademark Office or Canadian Intellectual Property Office to determine the priority and scope of rights to the trademark, which could result in substantial costs to the Company. An adverse outcome could require the Company to license disputed rights from third parties or to cease using such trademark. Any litigation regarding the Company's proprietary rights could be costly and divert management's attention, result in the loss of certain of the Company's proprietary rights, require the Company to seek licenses from third parties and prevent the Company from selling its services, any one of which could have a material adverse effect on the Company's business, results of operations, and financial condition.

The Company pursues the registration of trademarks based upon anticipated use internationally. There can be no assurance that the Company will be able to secure adequate protection for these trademarks in foreign countries. Many countries have a "first-to-file" trademark registration system and thus the Company may be prevented from registering its marks in certain countries if third parties have previously filed applications to register or have registered the same or similar marks. It is possible that competitors of the Company or others will adopt service names similar to the Company's, thereby impeding the Company's ability to build brand identity and possibly leading to customer confusion. In addition, there could be potential trademark or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the Company's trademarks. The inability of the Company to protect its marks adequately could have a material adverse effect on the Company's business, results of operations and financial condition.

April 19, 2023