Vitalist - Management Reports 2021

EBUYNOW ECOMMERCE LTD.

MANAGEMENT’S DISCUSSION & ANALYSIS

FOR THE YEAR ENDED MARCH 31, 2021

Introduction

The following management’s discussion and analysis (“ MD&A ”) of the financial condition and results of the operations of eBuyNow eCommerce Ltd. (the “ Company ” or “ EBN ”) constitutes management’s review of the factors that affected the Company’s financial and operating performance for the years ended March 31, 2021, and March 31, 2020. This MD&A was written to comply with the requirements of National Instrument 51-102 – Continuous Disclosure Obligations. This discussion should be read in conjunction with the audited financial statements of the Company for the years ended March 31, 2021, and March 31, 2020, together with the notes thereto. Results are reported in Canadian dollars, unless otherwise noted. The audited financial statements of the Company for the years ended March 31, 2021, and March 31, 2020, have been prepared in accordance with International Financial Reporting Standards (“ IFRS ”) as issued by the International Accounting Standards Board (“ IASB ”).

For the purposes of preparing this MD&A, management, in conjunction with the Board of Directors, of the Company (the “ Board ”) considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the class “A” common voting shares in the capital of the Company (the “ Common Shares ”); or (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) if it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board, evaluates materiality with reference to all relevant circumstances, including potential market sensitivity. The date of this MD&A is July 29, 2021.

All dollar amounts in this MD&A are in Canadian dollars unless otherwise indicated.

Forward-Looking Information

This MD&A contains “forward-looking information”, as that term is defined by Canadian securities legislation. In general, forward-looking information is disclosure about future conditions, courses of action, and events, including information about prospective financial performance or financial position. The use of any of the words “anticipates”, “expects”, “intends”, “will”, “would”, and similar expressions are intended to identify forward-looking information.

The Company has based these statements on estimates and assumptions that we believed were reasonable when the statements were prepared. Actual results could be substantially different because of the risks and uncertainties associated with its business. Important risks that could cause such differences include, but are not limited to, the length of sales cycles, rapid technological advancement, competition, the availability of critical inputs, foreign exchange rate occurrences and doing business in foreign countries. Additionally, differences could arise because of events that are announced or completed after the date of this report, including mergers, acquisitions, other business combinations and divestitures.

Although the Company has attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of the Company. Accordingly, readers should not place undue reliance on forward-looking statements or information. The Company undertakes no obligation to reissue or update any forward-looking statements or information as a result of new information or events after the date hereof except as may be required by law. All forward-looking statements and information herein are qualified by this cautionary statement. Actual results, performance or achievements could differ materially from those expressed in, or implied in, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this document are made as of the date of this document and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Basis of Presentation

In this MD&A all references to: (a) “Q4 2021” are to the three month period ended March 31, 2021; (b) “Q4 2020” are to the three month period ended March 31, 2020; (c) “Fiscal 2021” are to the fiscal year ended March 31, 2021; and (d) “Fiscal 2020” are to the fiscal year ended March 31, 2020.

The annual audited consolidated financial statements and the accompanying notes for Fiscal 2021 and this MD&A were reviewed and approved by the Board on July 29, 2021.

Going concern

These consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the payment of liabilities in the ordinary course of business. Future operations are dependent on the Company being able to raise capital through share issuance or alternative financing and continued support from the Company’s existing creditors; the generation of profitability from operations and the ability to discharge obligations as they come due. Should the Company be unable to continue as a going concern, it may be unable to realize the carrying value of its assets and to meet its liabilities as they become due. The Company had a net loss of $14,048,843 for the year ended March 31, 2021 (year ended March 31, 2020 - $10,458,337), working capital deficiency of $12,849,031 at March 31, 2021 (March 31, 2020 - $8,478,258) and has an accumulated deficit of $28,335,419 at March 31, 2021 (March 31, 2020 – $14,286,576).

On January 30, 2020, the World Health Organization declared the coronavirus outbreak (COVID-19) a “Public Health Emergency of International Concern” and on March 11, 2020, declared COVID-19 a pandemic. The Company’s operations have been negatively impacted by the regional and global outbreak of COVID-19, and the continued length of time of this impact is unknown. Any quarantines, supply chain and labor shortages or other disruptions to the Company’s operations, or those of their customers, did adversely impact the Company’s revenues, ability to provide its products and services and operating results in fiscal 2020 and fiscal 2021, and may continue to adversely impact the Company. In addition, a significant outbreak of epidemic, pandemic or contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries,

including the geographical area in their services. The extent to which the coronavirus impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and actions taken to contain the coronavirus or its impact, among others.

In order to settle its existing liabilities and continue operations, the Company will require additional financing. The amount of capital required cannot be quantified until additional transactions are identified and completed. Failure to obtain such financing on a timely basis could cause the Company to not be able to pay its liabilities and/or reduce or terminate its operations. The Company has a number of debt obligations with interest and principal repayment requirements which the Company has failed to meet on a timely basis. As a result, the holders of these notes are able to demand repayment with little or no notice. As such, the debt and related warrant obligations have been classified as current liabilities on the statement of financial position.

Whether and when the Company can generate sufficient operating cash flows to pay for its expenditures and settle its obligations as they fall due subsequent to March 31, 2021 is uncertain. Until this time, management will have to raise funds by way of debt or equity issuances or improve profitability. The Company has completed a reverse takeover transaction with CE Brands Inc. subsequent to March 31, 2021.

There can be no assurance that debt or equity financing will continue to be available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is available, that it will be on the terms acceptable to the Company. Moreover, future activities may require the Company to alter its capitalization significantly. The inability of the Company to access sufficient capital for its operations could have a material adverse effect on the Company’s financial condition, results of operations or prospects. These conditions create a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern. These consolidated financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different than those reflected in the consolidated financial statements. Such adjustments could be material.

Description of the Business

The Company was incorporated under the Business Corporation Act (British Columbia) on April 19, 2012. Through sales data analytics, the Company selects growth consumer electronics products for sale through their direct to consumer e-commerce platforms via global retail channels in multiple countries. The Company is domiciled in Canada and the address of its registered office is 301-1321 Blanshard Street, Victoria, BC V8W 0B6.

The Company is an independent, data-driven consumer electronics company ; arguably the first of its kind in the world. It works with proprietary tools to identify precise gaps in the consumer electronics industry, and then proceeds to build , market , and distribute promising consumer electronics goods with a strictly results-oriented approach .

The Company produces consumer electronics in multiple product categories under multiple licensed brands, and considers the brand of the product to simply be an additional feature. For this reason, the Company enters into multiple trademark brand licensing agreements, where it pairs a brand with a product line that is under development. Typical arrangements are based on royalty agreements, where it pays a

royalty to the trademark holder for the authorization to produce, market, and sell products under the licensed trademark brand.

The Company has developed a proprietary software platform named ProductLoop, which is a market research and market intelligence platform that aggregates publicly available consumer reviews from multiple global third-party e-commerce platforms, with the intention of identifying trends in consumer sentiment and activity.

Using ProductLoop as a driver, the Company continually aims to identify product categories that show signs of growth, and identify the product features within each product category that lead to the growth of the product category. The Company uses the ProductLoop aggregated review data to identify changes in consumer patterns over time, in order to estimate sales trends, and to get insight into market conditions by product category and country.

Subsequent to March 31, 2021, the Company completed a reverse takeover transaction with CE Brands Inc.

Qualifying Transaction

On June 17, 2019, the Company entered into a non-binding letter of intent with CE Brands Inc. (“CE Brands”), whereby a wholly-owned subsidiary of CE Brands and the Company will amalgamate under the laws of British Columbia and continue as one corporation (the “Amalgamation”). Pursuant to the terms of the Amalgamation, CE Brands will acquire all issued and outstanding Common Shares of the Company.

On January 28, 2021, CE Brands and the Company entered into an Amended and Restated Amalgamation Agreement (the “Amalgamation Agreement”) in connection with the Amalgamation. Pursuant to the Amalgamation Agreement:

a) The common shares of CE Brands will be consolidated on a 20.75-for-one basis; and
b) The Common Shares will be consolidated on a five-for-one basis;
c) The wholly-owned subsidiary of CE Brands and the Company will consummate the Amalgamation;
d) Pursuant to the Amalgamation, the holders of the Common Shares will exchange those Common Shares for post-consolidation common shares of CE Brands on a one-for-one basis.

‐ Although the Amalgamation will result in the Company becoming a wholly owned subsidiary of CE Brands (the “Resulting Issuer”), it will constitute a reverse takeover (“RTO”) for accounting purposes as the former shareholders of the Company will own a substantial majority of the common shares of the Resulting Issuer and all members of the board of directors and management of the Resulting Issuer will be designees of the Company. Upon completion of the Amalgamation, the business of the Resulting Issuer will be the business of the Company. Completion of the Amalgamation is subject to various conditions, including, but not limited to, receipt of approval of the TSX Venture Exchange.

On June 18, 2021, the Company completed a reverse takeover transaction with CE Brands Inc. (the “Corporation”) which constituted a qualifying transaction (as defined in the policies of the TSX Venture Exchange) for the Corporation (the “Qualifying Transaction”) involving the Company.

In addition, the Corporation completed the escrow release conditions under its previously-announced oversubscribed C$17,250,000 public offering (the “Offering”) of 4,156,626 subscription receipts (the “Subscription Receipts”). Following the satisfaction of the escrow release conditions, Odyssey Trust Company, the trustee of the subscription receipts, released the net proceeds of the Offering to the Corporation, and the Corporation converted the Subscription Receipts into a total 4,156,626 common shares of the Corporation (the “Underlying Shares”) and 4,156,626 common share purchase warrants of the Corporation (the “Underlying Warrants”), each of which entitles the holder to purchase one common share of the Corporation (a “Warrant Share”), for a purchase of price of C$7.50 per Warrant Share, for a period of 24 months following the date on which the Underlying Warrant was issued.

Immediately before the Qualifying Transaction, the Corporation consolidated its common shares “Common Shares”) on a 20.75-for-one basis. Pursuant to the Qualifying Transaction, which was structured as a threecornered amalgamation of the Company and a wholly-owned subsidiary of the Corporation, the Corporation issued 18,141,970 Common Shares, options to purchase 1,395,000 Common Shares, 3,230,342 warrants to purchase Common Shares, and US$1,388,888 aggregate principal amount of unsecured notes that are convertible into an aggregate of 624,721 Common Shares, and C$1,174,785 aggregate principal amount of unsecured notes that are convertible into an aggregate of 313,277 Common Shares to former security holders of the Company.

Immediately after the completion of the Qualifying Transaction and conversion of the Subscription Receipts, the issued and outstanding share capital of the Corporation consisted of 22,713,054 Common Shares, options to purchase 1,793,073 Common Shares, 7,386,969 warrants to purchase Common Shares, and US$1,388,888 aggregate principal amount of unsecured notes that are convertible into an aggregate of 624,721 Common Shares, and C$1,174,785 aggregate principal amount of unsecured notes that are convertible into an aggregate of 313,277 Common Shares to former security holders of the Company. A total of 173,494 Common Shares are subject to escrow to be released over a 36-month period in accordance with TSX Venture Exchange Form 2F – CPC Escrow Agreement, and a total of 4,695,263 Common Shares are subject to escrow to be released over a 36-month period in accordance with TSX Venture Exchange Form 5D – Escrow Agreement (Surplus Security).

The TSX Venture Exchange has granted final acceptance to list the Common Shares of the Corporation (including the Underlying Shares and Warrant Shares) (collectively, the “Listing”). The Common Shares began trading under the symbol “CEBI” on Tuesday, June 22, 2021.

As part of the Qualifying Transaction, outstanding shares of the Company were consolidated on a five-forone basis. If the share consolidation were to be retroactively applied to the Company’s financial statements at March 31, 2021, it will result in 17,941,490 common shares outstanding (March 31, 2020 – 15,478,955). The resulting basic and diluted net loss per share would have been $0.85 for the year-ended March 31, 2021 (March 31, 2020 - $0.72), calculated using a weighted average number of shares outstanding at March 31, 2021 of 16,499,244 (2020 – 14,552,960).

Overall Performance

Select financial highlights for Fiscal 2021, include the following:

Total revenue increased 28%, or by $2.0 million, to $9.3 million in Fiscal 2021 compared to $7.3 million in Fiscal 2020. The increase was primarily due to the revenue contribution from the continued volume growth in sales on the Moto 360 line.
Gross profit decreased by 32% or $0.6 million to $1.2 million in Fiscal 2021 compared to $1.9 million in Fiscal 2020. This was due to a lowering of the MSRP on the Moto 360 in response to the pricing strategy due to oversupply by a major competitor, the impact began to be realized in Q2 2021
Net loss increased by 34% to $14.0 million in Fiscal 2021 from $10.5 million in Fiscal 2020. The increase in net loss was primarily attributable to increased selling and distribution expenses, increased wages, and consulting expenses, increased professional fees, increased general and administrative expenses and increased finance costs associated with debt instruments issued in YTD 2021.
Comprehensive loss of $14.9 million in Fiscal from $9.8 million in Fiscal 2020. The increase in comprehensive loss was primarily attributable to increased selling and distribution expenses, increased wages, and consulting expenses, increased professional fees, increased general and administrative expenses, increased finance costs associated with debt instruments issued in YTD 2021 and a loss on the translation of foreign operations that may be subsequently reclassified to profit and loss net of tax.
The Company notes that global supply constraints on semiconductor chip manufacturing will have an impact on the operations and profitability of the Company in the future, the impact of which is not known at this time.
In order to continue to meet customer demand and fulfill projected growing order backlog, the Company will need and continue to pursue ongoing financing to facilitate growth and working capital, primarily for purchasing of inventory and allowing a reasonable time for collection of accounts receivables. The Company is confident that production can be ramped up to meet expected demand.
Subsequent to March 31, 2021, the Company has completed the previously disclosed Qualifying Transaction for gross proceeds of $17,250,000 which will be used to repay outstanding debt obligations and finance operations of the Company. The Qualifying Transaction will enable the Company to continue operations as a going concern and focus efforts on the growth of the Company.

Fourth Quarter

The following table summarizes certain financial data derived from the financial statements of the Company for the three months ended March 31, 2021 and three months ended March 31, 2020:

	Q4 2021	Q4 2020	$ Change	% Change
Total revenue	1,309,586	1,739,601	(430,015)	-25%
Gross Profit	(320,996)	(27,683)	(293,313)	-1060%
Operating Loss	(2,358,689)	(3,395,967)	1,037,278	-31%
Net loss	(3,119,339)	(3,936,436)	817,097	-21%

Decrease in total revenue was due to a lowering of the MSRP on Moto 360 watches in late 2021 to attempt to increase the sale of inventory. Gross profit decreased due to the recognition of a provision within COGs, offset by a maturity in the Moto 360 line leading to higher product procurement efficiencies. During Q4 2021, operations of the Company were constrained by working capital deficiencies which further contributed to the decrease in total revenue, operating loss and net loss as the Company was unable to procure inventory to meet demand.

Selected Annual Information

The following table summarizes certain financial data derived from the financial statements of the Company for Fiscal 2021, Fiscal 2020, and the financial year ended March 31, 2019:

	Year ended March 31,	Year ended March 31,	Year ended March 31,
	2021	2020	2019
Total assets	13,139,765	18,915,238	15,453,122
Total liabilities	17,072,413	14,672,718	8,669,239
Total revenue	9,270,470	7,299,077	2,625,761
Net loss	(14,048,843)	(10,458,337)	(3,104,301)
Total comprehensive loss	(14,922,534)	(9,849,127)	(2,972,836)
Loss per share	(0.17)	(0.14)	(0.08)

Decreases in total assets is attributable to decreases in prepaid expenses due to the significant realization of prepayments made in the prior period, the full amortization of right of use assets, and a decrease in accounts receivable due to factoring arrangements entered during fiscal 2021 to increase liquidity for operations. Total liabilities increased due to various financing arrangements entered into during fiscal 2021 to increase liquidity for operations. Increase in net loss for the year was primarily attributable to the events described in “Fourth Quarter” above.

Results of Operations

The following section provides an overview of the Company’s financial performance during Fiscal 2021 compared to Fiscal 2020.

	2021	2020	$ Change	% Change
Total revenue	9,270,470	7,299,077	1,971,393	27%
Cost of products and services	8,022,667	5,455,576	2,567,091	47%
Gross Profit	1,247,803	1,843,501	(595,698)	-32%
Expenses
Marketing	1,649,690	2,369,738	(720,048)	-30%
Selling and distribution	1,186,794	778,663	408,131	52%
Wages and contractors	3,290,982	3,009,488	281,494	9%
Royalties and license fees	918,663	967,592	(48,929)	-5%
Technology and related	282,743	269,538	13,205	5%
Professional fees	1,354,023	1,243,902	110,121	9%
General and administrative	433,742	605,476	(171,734)	-28%
Depreciation	259,007	270,775	(11,768)	-4%
Amortization	1,045,206	1,204,358	(159,152)	-13%
Stock-based compensation	390,314	694,627	(304,313)	-44%
Gain on foreign exchange	163,956	(307,921)	471,877	-153%
Operating loss	(9,727,317)	(9,262,735)	(464,582)	5%
Finance costs	(4,088,335)	(1,195,602)	(2,892,733)	242%
Loss on warrant obligation settlement	(273,084)	-	273,084	100%
Other Income	39,893	-	39,893	100%
Loss before income tax	(14,048,843)	(10,458,337)	(3,044,338)	29%
Income tax expense (recovery)	-	-	-	0%
Net loss	(14,048,843)	(10,458,337)	(3,044,338)	29%

Revenues

Revenue increased 27%, or by $2.0 million, to $9.3 million in Fiscal 2021 compared to $7.3 million in Fiscal 2020. The increase was primarily due to the revenue contribution from the continued volume growth in sales on the Moto 360 product line.

Cost of sales

Cost of sales increased by 47%, or $2.6 million, to $8.0 million in Fiscal 2021 from $5.5 million in Fiscal 2020. Cost of sales, as a percentage of sales were 86% for Fiscal 2021 from 75% for Fiscal 2020. The increase was due to lower margins from the Moto360 product line.

Gross profit

Gross profit decreased by 32%, or $0.5 million, with gross profit of $1.2 million in Fiscal 2021 compared to $1.8 million in Fiscal 2020. Gross profit margin decreased to 13% in Fiscal 2021 from 25% in Fiscal 2020. This decrease was due to increase in sales volumes of the Moto 360 product line.

Marketing

Marketing expenses decreased $0.7 million or 30% over the same period last year. This was due mostly to decreases in advertising and associated cancellation of trade shows and travel costs due to the ongoing pandemic.

Selling and distribution

Selling and distribution expenses increased $0.4 million or 52% over the same period last year. This was due primarily to increased Amazon marketplace fees associated with increased sales.

Wages and consulting

Wages and consulting increased by 9% or $0.3 million to $3.3 million in Fiscal 2021 compared to $3.0 million in Fiscal 2020. This slight increase was due to additional staffing needed for the build out into the Smartwatch category and continued development of new product lines.

Royalties and license fees

Royalties and license fees decreased $0.05 million or 5% over the same period last year. The decrease in royalties is primarily a result of a reduction in Kodak royalties associated with the Company negotiating a modification to the agreement for Kodak royalty payments in 2021 to reduce royalty expenses as a result of the COVID-19 pandemic.

Technology and related expenses

Technology and related expenses increased by $0.01 million or 5% to $0.3 millions in Fiscal 2021 from $0.3 million in Fiscal 2020. This slight increase was due to incremental software, server and IT services fees incurred to accommodate the growth of the Company.

Professional fees

Professional fees increased 9% or $0.1 million to $1.4 million in Fiscal 2021 compared to $1.2 million in Fiscal 2020. The increase was due to increased costs incurred in relation to the previously disclosed Proposed Transaction.

General and administrative

General and administrative expenses decreased by 28%, or $0.2 million, to $0.4 million in Fiscal 2021 compared to $0.6 million in Fiscal 2020. The decrease was due to recognition of a provision in COGs that was formerly in G&A, offset by an increase that was primarily the result of increased bad debt expense in the period and an increase in the general and administrative expenses in relation to an underutilized manufacturing obligation of the Company.

Depreciation and amortization

Depreciation and amortization expenses decreased $0.01 million and $0.2 million period over period, respectively. The decrease in depreciation expenses was primarily attributable to the decreasing depreciable base of the Company’s PP&E in the current year as opposed to the prior year. The decrease in amortization expenses was primarily a result of the absence of right of use asset amortization and lower intangible asset additions in the current year.

Stock-based compensation

Stock-based compensation expense decreased 44% or $0.3 million to $0.4 million in Fiscal 2021 compared to $0.7 million in Fiscal 2020. The decrease in stock-based compensation was primarily due to staff added in the 2021 period receiving comparatively less options than in the prior period and adjustments to stockbased compensation expense for forfeitures in the period.

Foreign exchange

Gain on foreign exchange decreased 153% or $0.5 million to a loss of $0.2 million in Fiscal 2021 from a gain of $0.3 million in Fiscal 2020. The decrease on foreign exchange was primarily attributable to increased sales year over year in markets outside of Canada.

Finance costs and loss on warrant obligation settlement

Finance costs increased 242% or $2.9 million to $4.1 million in Fiscal 2021 from $1.2 million in Fiscal 2020. The increase in Finance costs was primarily attributable to incremental interest and accretion expense pertaining to the issuance of convertible debentures in the current year, incremental interest expense on warrants issued during YTD 2021 and the associated incremental amortization of deferred financing costs in the YTD 2021 period as compared to the YTD 2020 period.

Loss on warrant obligation settlement primarily related to the August 2020 amendment to the existing senior secured debenture loan agreement.

Summary of Quarterly Results

Quarterly information is not provided because quarterly financial statements were not previously prepared for each of the eight most recently completed quarters.

Liquidity and Capital Resources

The Company’s liquidity and capital resources are as follows:

	March 31, 2021	March 31, 2020
Cash	397,337	521,060
Total current assets	2,834,632	6,065,500
Total current liabilities	15,683,663	14,543,758
Working Capital	(12,849,031)	(8,478,258)

The Company’s capital management policy is to maintain a capital base that optimizes its ability to grow, maintain investor and creditor confidence and to provide a platform to create value for its shareholders. The Company intends to maintain a flexible capital structure to maximize its ability to pursue additional investment opportunities, which considers the Company’s early stage of development and the requirement to sustain future development of the business.

The Company will manage its capital structure and make changes to it in the light of changes to economic conditions and the risk characteristics of the nature of the business. In order to maintain or adjust the capital structure, the Company may from time-to-time issue shares, seek debt financing and adjust its spending to manage its current and projected capital structure.

There can be no assurance that the Company will be able to obtain adequate financing in the future so that the terms of such financing will be favorable. If adequate financing is not available when required, the company may be unable to continue operating. The Company may seek such additional financing through debt or equity offerings, but there can be no assurance that such financing will be available on the terms acceptable to the Company or at all. Any equity offering will result in dilution to the ownership interest of the Company’s shareholders and may result in dilution to the value of such interests.

As at March 31, 2021, certain debt amounts are classified as current debt obligations as the Company has failed to comply with certain debt covenants by not making timely interest payments and as a result the lenders have the right to demand repayment with minimal or no notice.

The Company intends to generate sufficient amounts of cash and cash equivalents in order to finance short term and long term business objectives and settle existing liabilities through debt financing and equity offerings. Subsequent to March 31, 2021, the Company completed the Qualifying Transaction as discussed previously in this MD&A, the funding from which will provide the Company with the liquidity that is required to fund business development activities and satisfy certain debt covenants that the Company has failed to comply with.

The Company does not expect significant trends or fluctuations in liquidity as a result of seasonality. Fluctuations in liquidity and the Company’s working capital requirements are primarily related to the capital needs required to purchase inventory to meet demand for sales. The Company does not currently have any inventory commitments which require a maintenance of inventory in order to meet customer delivery requirements.

The Company does not anticipate liquidity risks associated with the financial instruments of the Company.

The Company currently has a working capital deficiency and future operations are dependent on the Company being able to raise capital through share issuance or alternative financing and continued support from the Company’s existing creditors; the generation of profitability from operations and the ability to discharge obligations as they come due. The Company anticipates that the proceeds of the Qualifying Transaction will allow the Company discharge certain obligations and generate profitability from future operations as the Company will be sufficiently capitalized to meet demand for sales.

The Company intends to use a portion of the proceeds from the Proposed Transaction to develop several new products in the next fiscal year. The new products are expected to include air purifiers, smart lighting, home security, new watch models, new baby monitor models, air conditioning and dehumidifiers. The Company anticipates the capital spending plans will require $2.5 million in inventory expenditures and $0.2 million in research and development expenditures to launch these products.

Cash Flows

	Year ended	Year ended
	March 31, 2021	March 31, 2020
Cash flow from (used) in:
Operating activities	(4,621,904)	(7,874,317)
Investing activities	(89,526)	(833,680)
Financing activities	4,384,624	8,723,124
Effect of change in foreign exchange rates on cash	203,083	(237,633)
Net increase (decrease) in cash	(123,723)	(222,506)
Cash, beginning of period	521,060	743,566
Cash, end of period	397,337	521,060

The consolidated financial statements have been prepared using IFRS that are applicable to a going concern, which contemplates the realization of asset and settlement of liabilities in the normal course of business for the foreseeable future. The Company has experienced operating losses from operations as a result of sales, marketing and business development. Although the Company is in a position where sales channels have grown and more opportunity exists, there is no assurance those opportunities will materialize and it may require ongoing financing. Management cannot provide any assurance that the Company will ultimately achieve profitable operations, become cash flow positive or will be able to raise additional debt and/or equity capital.

Operating Activities

During Fiscal 2021, cash used in operating activities was $4.6 million, compared to $7.9 million for Fiscal 2020. The change in cash flow used in operating activities year over year was due primarily to increased net loss and changes in non-cash working capital.

Investing Activities

During Fiscal 2021, cash used in investing activities was $0.1 million, compared to cash from investing activities of $0.8 million in Fiscal 2020. The change in cash used in investing activities was a result of a decrease in capital expenditures year over year.

Financing Activities

During Fiscal 2021, cash from financing activities was $4.4 million, compared to $8.7 million in Fiscal 2020. The change year over year was primarily a result of decreased equity sales and a decrease in the issuance of long-term debt.

Commitments

The Company does not have any commitments for capital expenditures as of March 31, 2021. The Company has entered into key licensing contracts on its products. Under these arrangements, the Company is required to pay sales-based royalties of 5%. The Company is required to make future minimum royalty payments, excluding any optional renewal period

	Less than 1 year	1-3 years	3-5 years	Total
Royalty payments	1,682,496	4,723,484	1,859,725	8,265,705

Off-Balance Sheet Arrangements

As at the date of this MD&A, the Company has not entered into any off-balance sheet arrangements.

Transactions Between Related Parties

The amounts due to related parties include amounts due to shareholders, directors and a company controlled by directors and are non-interest bearing, unsecured and have no fixed terms of repayment.

Due to current/former shareholders and officers Due from Karma Ventures Limited	2021 2020
	318,684 365,705 - (66,970)
	318,684 298,735

Karma Ventures Limited is related by common ownership. In 2018, the Company advanced funds to assist in business operations. The loan is non-interest bearing, unsecured and has no fixed terms of repayment. On December 31, 2020, the full receivable balance was forgiven.

During the year ended March 31, 2021, the Company received loans from a group of founding shareholders for $574,660 including proceeds of $301,500 and the settlement of an existing loan for $273,160. The loans mature between August 31, 2022 and September 29, 2022 and bear an interest rate of 4.5% per annum. The loans have a conversion option at the discretion of the lenders to convert the loan into the Company’s equity share capital. The outstanding balance related to these loans is included in convertible debentures.

During the year ended March 31, 2021, the Company received loans from a group of founding shareholders for proceeds of $600,125. The loans mature between October 26, 2022 and December 30, 2022 and bear an interest rate of 4.5% per annum. The loans have a conversion option at the discretion of the lenders to convert the loan into the Company’s equity share capital. The outstanding balance related to these loans is included in convertible debentures.

During the year ended March 31, 2021, the Company received loans from a group of founding shareholders for proceeds of $425,487. The loans mature on March 9, 2023 and bear an interest rate of 4.5% per annum. The outstanding balance related to these loans is included in other long-term debt and promissory notes.

At March 31, 2021, accounts payable and accrued liabilities includes $418,608 of amounts owed to directors and officers of the Company (March 31, 2020 – $192,812).

Outstanding Share Data

At March 31, 2021, the following equity or voting securities, and securities are convertible into, or exercisable or exchangeable for, voting or equity securities, of the Company are outstanding:

89,707,450 Common Shares;
There are 15,907,479 warrants to purchase an additional Common Share; and
There are 6,974,995 options to purchase an additional Common Share;

Financial Instruments and Other Instruments

The Company classifies all financial instruments as financial assets, financial liabilities or equity instruments at fair value through profit and loss or at amortized cost (“Amortized Cost”). The Company has classified cash, accounts receivable and amounts due from related parties as financial assets carried at Amortized Cost. The Company has classified operating line of credit, accounts payable and accrued liabilities, due to related parties, promissory notes, long-term debt and convertible debentures as financial liabilities carried at Amortized Cost. The Company has classified warrant obligations as financial liabilities measured at fair value through profit and loss at the end of each reporting period.

Financial Risk Management

The Company’s operations expose it to credit risk, liquidity risk and market risk which are all financial risks that arise as a result of its operating and financing activities. The Company employs risk management strategies and policies to ensure that any exposure to risk is in compliance with the Company’s business objectives and risk tolerance levels. While the Board has the overall responsibility for the establishment and oversight of the Company’s risk management framework, management has the responsibility to administer and monitor these risks.

Credit Risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company provides credit to its customers in the normal course of its operations, the maximum exposure to credit risk at March 31, 2021 and March 31, 2020, is as follows:

	31, 2021	March 31, 2020
Cash	397,337	521,060
Accounts receivable	243,490	879,114
Total	640,827	1,400,174

There is no concentration of credit risk with respect to accounts receivables, as the Company has a large number of customers, internationally dispersed. The Company considers accounts greater than 60 days old overdue. Accounts receivable includes $214,151 and $111,430 of accounts that are greater than 60 days old as at March 31, 2021 and March 31, 2020, respectively. The Company has recognized an expected credit loss of $2,359 and $11,337 on the accounts receivable at March 31, 2021 and March 31, 2020, respectively.

Liquidity Risk

Liquidity risk includes the risk that, as a result of the Company’s operational liquidity requirements: (a) The Company will not have sufficient funds to settle a transaction on the due date; (b) The Company will be forced to sell financial assets at a value which is less than the fair value; or, (c) The Company may be unable to settle or recover a financial asset at all.

The Company’s operating cash requirements are continuously monitored and adjusted as input variables change. The Company continuously monitors its actual and forecast cash flows to review whether there are adequate reserves to meet the maturing profiles of its liabilities. The Company will closely monitor its cash and will take the necessary measures to manage its liquidity risk, such as reducing spending, improving profitability and raising funds as required. As these variables change, liquidity risks may necessitate the Company to conduct equity issues or obtain debt financing.

Market risk

Market risk is the risk that changes in market prices, such as interest rates, will affect the Company’s net income or the value of financial instruments. The objective of the Company is to manage and mitigate market risk exposures within acceptable limits, while maximizing returns.

Interest rate risk - Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Company is exposed to interest rate risk on the operating line of credit and long-term debt that bear interest at variable rates of interest. A 1% increase in the interest rate would have a $90,491 increase on the net loss and accumulated deficit of the Company.

Foreign exchange risk - The Company’s financial performance is closely linked to foreign exchange currency. While the Company may employ the use of various financial instruments in the future to manage these price exposures, the Company is not currently using any such instruments. The Company currently has not obtained any hedging instruments to mitigate the potential effects of price fluctuations. A 1% increase in the exchange rate would have a $40,273 increase on the net loss and accumulated deficit of the Company.

Other Risk Factors

Planned operations will expose the Company to a variety of financial risks that arise as a result of its operating and financing activities:

Scaling the sales and marketing team – The Company’s ability to achieve significant growth in future revenue will largely depend upon the effectiveness of its sales and marketing efforts, both domestically and internationally. The Company has invested and intends to continue to invest in expanding its sales force but there is no assurance that the intended expansion will occur or will be successful.

Key Employees - The success of the Company is largely dependent on the performance of its key employees and directors. The failure to retain key employees and directors and to attract and retain additional key employees with the necessary skills could have a material adverse impact upon the Company’s growth and profitability. There can be no assurance that the Company will be successful in attracting and retaining such personnel and the departure of any of the members of the Company's executive team or key directors could have a material adverse effect on the Company's business, results of operations and financial condition.

Capitalization - The Company will require additional funds to continue operations. The Company has limited financial resources, and there is no assurance that additional funding will be available to the Company to carry out the completion of all proposed activities. Although the Company has been successful in the past in obtaining financing through the sale of equity securities, there can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could result in the curtailment of operations, liquidation of assets, seeking additional capital on less favorable terms and/or other remedial measures.

Economic Conditions - The Company has global operations and sales and, as such has exposure to global credit and financial factors on consumers in its areas of operations. General economic conditions may result in reduced consumer and government spending and may have an impact on the Company’s financial results.

International sales – Global demand for the Company’s products may continue to increase as it continues to see the adoption of internet of things related consumer electronics into the home and workplace. Accordingly, the Company believes there is a significant opportunity to grow its international business in markets such as Asia, South America and Eastern Europe. Demand for international sales may not grow as expected or at all, and that there is no assurance that the Company will succeed in expanding into new markets.

History of Operating Losses - The Company has an accumulated deficit through March 31, 2020. The deficit may increase in the near term, as the Company continues its product development, establishes sales channels for its new products and business expansion.

Product Defect – The Company relies on third party manufacturing and from time to time there may be product defects caused by the manufacturing process, assembly or engineering. Product defect can cause significant risk.

Tariffs – The Company relies heavily on manufacturing out of China, as such products may be subject to changing tariffs applied by selling countries to the countries of origin with little or no warning. This can effect product margins and competitiveness of sales with local manufacturers.

Seasonality – The Company believes its transaction-based revenues will begin to represent an increasing proportion of its overall revenue mix over time, and expects seasonality of its quarterly results to vary. The Company may experience seasonal fluctuations for a variety of reasons, many of which are outside the Company’s control.

Supply Chain - The Company relies on major components to be manufactured on an Original Equipment Manufacturer (“OEM”) basis. Reliance on OEMs, as well as industry supply conditions generally involves several risks, including the possibility of defective products, a shortage of components and delays in delivery schedules, and increases in component costs. The Company has single-sourced manufacturer relationships, if these sources are unable or unwilling to manufacture its products in a timely and reliable manner, the Company could experience temporary distribution interruptions, delays, or inefficiencies, adversely affecting its results of operations. Even where alternative OEMs are available, qualification of the alternative manufacturers and establishment of reliable suppliers could result in delays affecting operating results adversely.

New Market Risk - The ability of the Company to successfully enter new markets is subject to uncertainties, there are no guarantees that it can establish new distribution channels or continue to develop new strategic partnerships.

Profitability and Growth - There can be no assurance that the Company’s business and growth strategy will enable the Company to be profitable in the future. The Company’s future operating results will depend on a number of factors, including; Marketing, product development, customer service and response to changing markets. There can be no assurance that the Company will be able to effectively manage its growth, and any failure to do so could have a material adverse effect on the Company’s business, financial condition, liquidity and operations.

Third Party Licenses – The Company relies on licenses from third parties. There can be no assurance that these third-party licenses will continue to be available to the Company on commercially reasonable terms. The loss of, or inability to maintain, any of these licenses, may result in delays or reductions in products, which could materially adversely affect the Company's business, results of operations and financial condition.

Sales and Marketing Expenditures - The Company’s future growth and profitability will be dependent in part on the effectiveness and efficiency of the Company’s sales and marketing expenditures. There can be no assurance that the Company will experience benefits from sales and marketing expenditures in the future. In addition, no assurance can be given that the Company’s planned sales and marketing expenditures will result in increased sales, will generate sufficient levels of product and service awareness or that the Company will be able to manage such sales and marketing expenditures on a cost-effective basis.

Product Liability – The Company may be exposed to product liability claims in the use of its products. Although it takes precautions, there can be no assurance that the Company will avoid significant product liability exposure.

Critical Accounting Estimates and Assumptions

The preparation of the Company’s consolidated financial statements, in accordance with IFRS, requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Significant estimates, judgments and assumptions in these financial statements are discussed below. Actual results may differ from the estimates made by management.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Accounting estimates will, by definition, seldom equal the actual results. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected.

The following are the significant judgments, estimates and assumptions that management has made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognized in these consolidated financial statements:

(a) Functional currency

Management considers the functional currency applied to each entity to be the currency that most faithfully represent the economic effect of the underlying transactions, events and conditions of that entity. This determination factors in the currency in which the entities measure their performance and report results, as well as the currency in which they receive equity injections from investors and obtain credit facilities. This determination also considers the competitive environment in which the entities operate.

(b) Going concern

Determining if the Company has the ability to continue as a going concern is dependent on its ability to raise additional financing and to achieve profitable operations. Certain judgments are made when determining if the Company will be able to continue as a going concern.

(c) CGU determination

For the purposes of assessing impairment, the Company has determined a single cash-generating unit (“CGU”) as defined under IAS 36, which consists of all of its assets. The Company’s intangible assets, property plant and equipment and goodwill, do not generate cash inflows that are largely independent of those from other assets. As a result, the smallest group of assets that generates independent inflows, in accordance with IAS 36, is all of the Company’s assets including goodwill. The goodwill is not monitored at a lower level for internal management purposes and the single cash generating unit is not larger than an operating segment as defined within IFRS 8.

(d) Reportable segments

The chief operating decision maker reviews financial information at a consolidated level and uses the consolidated results to assess and allocate resources. Accordingly, management has concluded that there is only one reportable segment.

(e) Financial instrument valuations

The financial liabilities that the Company has entered require management to make estimates for significant inputs into the formulae and methodologies employed, as well and making judgements regarding the likelihood of future events.

Key sources of estimation uncertainty

The following are the key estimates and related assumptions concerning the sources of estimation uncertainty that have a significant risk of causing adjustments to the carrying amounts of assets and liabilities:

(a) Deferred taxes

Deferred tax assets and liabilities are recognized for temporary differences and for tax loss carry forwards. The valuation of deferred tax assets is based on management's estimates of future taxable profits in different tax jurisdictions against which the temporary differences and loss carryforwards may be utilized. Income taxes comprise current and deferred tax. Current tax represents the expected tax payable on taxable income for the year using enacted or substantively enacted tax rates at the end of the reporting year, and any adjustments to tax payable related to prior years. Deferred tax financial reporting purposes and tax bases of assets and liabilities and are measured using the substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred income tax assets are recognized to the extent that realization is considered probable. The ultimate realization of deferred income tax assets is dependent on the generation of future taxable income during the years in which those temporary differences become deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates and income tax planning strategies in making this assessment.

(b) Estimate of useful lives of intangible assets

Useful lives over which intangible assets are depreciated or amortized are based on management's judgment of future use and performance. Expected useful lives are reviewed annually for any change to estimates and assumptions.

(c) Goodwill valuation

The Company uses estimates in determining the recoverable amount of its cash-generating unit (“CGU”) in performing annual impairment testing of goodwill. The determination of the recoverable amount for the purpose of impairment testing requires the use of significant estimates. For the fiscal 2021, the recoverable amount was determined using a fair value less cost of disposal (“FVLCD”) methodology using a market approach. Specifically, management determined the market value of the CGU, based on the reverse takeover transaction that was disclosed in the preliminary long form prospectus filed on February 9, 2021. The transaction subsequently closed on June 18, 2021. The FVLCD calculation relies on arm’s length

transactions between unrelated, knowledgeable and willing parties that are under no compulsion to act, and therefore would qualify as Level 2 inputs. No reasonably possible change of any of the key assumptions would result in a carrying amount higher than the recoverable amount.

(d) Stock-based compensation

The amounts recognized relating to the fair value of stock options and warrants are based on estimates of future volatility in the Company’s share prices, the expected lives of options and warrants, the risk-free interest rate, and other relevant assumptions. Volatility is estimated based on the average price volatility of common shares of a comparative group of public companies over the preceding period equaling the expected lives of the Company’s options.

(e) Compound financial instruments

Certain financial instruments are comprised of a liability and an equity component. The determination of the amount allocated to the liability and equity components requires management to estimate various components and characteristics of present value calculations used in determining the fair value of the instrument, including the market interest rates of non-convertible debentures.

(f) Business combinations

The purchase price on business combinations is allocated to the fair value of the assets and liabilities acquired. The determination of fair values requires management to estimate the fair value of intangibles acquired based on estimated future cash flows.

Changes in Accounting Policies

As at the date of this MD&A, there were no changes to accounting policies. Refer to the accounting policies disclosed in the Company’s consolidated financial statements for the year ended March 31, 2021.

Subsequent Events

Reverse Takeover with CE Brands Inc.

Debt

On June 30, 2021, the Company settled the outstanding US$1,388,888 convertible note and associated accrued interest for a cash payment of $1,964,629 (US$1,569,443).

Equity

Subsequent to March 31, 2021, the Company issued an additional 1,002,405 common shares on the exercise of warrants.