WSM Ventures Corp. — Management Reports 2020

Apr 6, 2020

AVALON BLOCKCHAIN INC. Management Discussion and Analysis ("MD&A") for the year ended December 31, 2019

1. Date and Presentation

This management discussion and analysis of financial position and results of operations ("MD&A) is prepared as at March 31, 2020 and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2019 and 2018 and the related notes thereto. These consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and Interpretations of the IFRS Interpretations Committee.

Management is responsible for the preparation and integrity of the consolidated financial statements, including the maintenance of appropriate information systems, procedures and internal controls. Management is also responsible for ensuring that information disclosed externally, including the consolidated financial statements and Management Discussion and Analysis ("MD&A"), is complete and reliable.

All dollar amounts included therein and in the following MD&A are expressed in Canadian dollars except where noted. This discussion contains forward-looking statements that involve risks and uncertainties. Such information, although considered to be reasonable by the Company's management at the time of preparation, may prove to be inaccurate and actual results may differ materially from those anticipated in the statements made. Additional information on the Company is available for viewing on SEDAR at www.sedar.com.

2. History and Background

Avalon Blockchain Inc. (the "Company" or "Avalon") was incorporated in the Province of British Columbia on May 11, 1981. The Company's common shares are listed for trading on the Canadian Securities Exchange (the "CSE") and are presently halted from trading pending completion of a qualifying transaction ("WSM"). The Company's previous principal business activity was the development of mahjong tournaments throughout the Asia Pacific region and the Company is currently in the process of exploring various business opportunities. The head office of the Company is located at Suite 2200 – 885 West Georgia Street, Vancouver, British Columbia, V6C 3E8.

On May 12, 2017, the Company consolidated its issued and outstanding common shares, stock options and share purchase warrants on the basis of one (1) new share for every ten (10) existing shares. On November 22, 2017, the Company consolidated its share capital, stock options and warrants on the basis of one (1) new common share for up to one point three three four (1.3334) existing common shares. Unless otherwise indicated, all reference to share capital, stock options and share purchase warrants presented in this MD&A have been restated to reflect the two share consolidations.

On March 29, 2018, the Company changed its name from World Mahjong Limited to Avalon Blockchain Inc. following the completion of the reverse takeover transaction ("RTO") and amalgamation ("Amalgamation") of 1158716 B.C. Ltd. ("1158716") with the Company's newly incorporated wholly-owned subsidiary, 1146305 B.C. Ltd. ("1146305"). Pursuant to the amalgamation agreement and closing of the RTO, 1158716 and 1146305 amalgamated and the resulting entity ("Amalco") became a wholly-owned subsidiary of the Company. The principal activity of Amalco is to seek the acquisition of qualifying assets or a business pursuant to the policies of the CSE.

As a result of the completion of the RTO, Amalco is deemed as the accounting acquirer for accounting purposes, and therefore its assets and liabilities and operations are included in the consolidated financial statements at their historical carrying value. Amalco's operations were considered to be a continuance of the business and operations of Amalco. The Company's results of operations are those of Amalco, with the Company's operations being included from March 29, 2018 onwards, the closing date.

On December 6, 2019, Mr. Robert Cross resigned as a director and officer due to other commitments. Subsequent to the year end, on February 3, 2020, Mr Aleem Nathwani was appointed as a director and interim CEO of the company.

3. Selected Annual Information

	December 31,2019	December 31,2018	December 31,2017	December 31,2016
Total interest incomeLoss and comprehensive lossBasic and diluted loss per shareTotal assetsTotal liabilities	$-87,9460.00338,64413,443	$-2,116,8780.02428,83715,690	$-23,8720.471,300,0171,200,021	$-1,7151,715-1,714
Cash dividends	-	-	-	-

During the year ended December 31, 2019, the Company had a loss of $87,946 as a result of the Company operations.

During the year ended December 31, 2018, the Company had a loss of $2,116,878 as a result of the Company completing a RTO during the year. Incremental costs in the year ended December 31, 2018, compared to December 31, 2019, were largely due to the listing fee on the RTO in the amount of $1,463,373 and $381,180 as a project investigation fee.

During the year ended December 31, 2017, the Company had a loss of $23,872 as a result of the Company operations.

The loss for the year ended December 31, 2016, was significantly lower due to the Company incorporating on May 20, 2016.

4. Summary of Quarterly Results

The following selected financial data has been prepared in accordance with IFRS and should be read in conjunction with the Company's financial statements. All dollar amounts are in Canadian dollars.

	December 31,2019	September30,2019	June 30,2019	March 31,2019
Total assetsWorking capital (deficiency)Shareholders' equity	$338,644325,201	$356,193346,222	$372,204364,700	$410,376389,715
(deficiency)	325,201	346,222	364,700	389,715
Income (loss) for the period	(21,021)	(18,478)	(25,015)	(23,432)
Basic and diluted income
(loss) per share	(0.00)	(0.00)	(0.00)	(0.00)
	December 31,2018	September30,2018	June 30,2018	March 31,2018
Total assetsWorking capital (deficiency)	$428,837413,147	$443,361409,050	$17,925,113452,044	$18,731,53418,494,291
Shareholders' equity(deficiency)	413,147	409,050	452,044	18,494,291
Income (loss) for the periodBasic and diluted income	4,097	(42,994)	(147,059)	(1,930,922)

5. Results of Operations

For the year ended December 31, 2019, the Company incurred a net loss of $87,946 compared to a loss of $2,116,878 for the year ended December 31, 2018. The year ended December 31, 2018 had incremental expenses largely related to the RTO of a non-refundable fee of $381,180 (noted as project investigation fees), legal fees of $122,411, consulting and management fees of $29,182, filing fees of $13,637, office expenses of $12,409, and a listing fee in relation to the RTO and accretion on convertible debentures of $1,506,113.

For the three-month period ended December 31, 2019, the Company incurred a net loss of $21,021 compared to a gain of $4,097 for the three-month period ended December 31, 2018. The three-month year ended December 31, 2018 had lower filing fee expenses of $7,257 largely related to a timing difference of recognizing a prepaid amount which reduced the expense in the given quarter as well as an adjustment to reduce the listing fee by $17,937.

6. Liquidity and Capital Resources

Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company's objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements.

Working capital

The net working capital, defined as current assets less current liabilities, decreased from working capital of $413,147 as at December 31, 2018 to working capital of $325,201 as at December 31, 2019 largely due to operational expenses in the year of $87,946.

Cash

As at December 31, 2019, the Company had cash of $338,626 compared with $423,779 as at December 31, 2018. The decrease in cash is largely due to $72,041 of professional fees and consulting fees as well as $15,783 of filing fees.

Cash Used in Operating Activities

Cash used in operating activities during the year ended December 31, 2019 was $85,153 compared with $877,255 of cash used in operating activities during the year ended December 31, 2018.

Cash used in operating activities in the year ended December 31, 2019 was mainly for consulting fees, filing fees and professional fees.

Cash used in operating activities in the year ended December 31, 2018 was mainly for a non-refundable fee relation to the Purchase Agreement with Avalon Life S.A., consulting fees, office expenses and professional fees.

Cash Used in Investing Activities

The Company incurred costs of $NIL for investing activities during the year ended December 31, 2019 and received $1,017 cash as a result of the RTO transaction in the year ended December 31, 2018.

Cash Generated by Financing Activities

No cash was used in financing activities during the year ended December 31, 2019, as the company was inactive.

During the year ended December 31, 2018, the Company issued 37,154,502 common shares at a price of $0.50 per share for gross proceeds of $17,895,188. The Company offered the subscribers the opportunity to rescind their subscription agreements and having received all requests to rescind their agreements, the Company returned the proceeds of the private placement to all subscribers. This was completed on July 19, 2018. Refer to note 7 of the accompanying financial statements for details.

Requirement of Additional Equity or Debt Financing

The Company relies primarily on debt and equity financings for all funds raised to date for its operations. Until the Company starts generating profitable operations, the Company intends to continue relying upon the issuance of securities or debt financing to finance its operations.

7. Capital Resources

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the identification and evaluation of a business and continue as a going concern. The Company considers capital to be all accounts in equity. The Company is not subject to any external capital requirements therefore the Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business. Additional funds may be required to finance any business. Funds will also be used to investigate current business opportunities.

8. Off-Balance Sheet Arrangements

The Company currently has no off-balance sheet arrangements.

9. Transactions with Related Parties

Key management personnel consist of officers and directors of the Company. During the twelve months ended December 31, 2019, the Company paid management and consulting fees to a company controlled by a current officer totaling $21,000 (2018 - $28,875). There was no other remuneration paid to key management personnel during the twelve months ended December 31, 2019. As at December 31, 2019, there were no amounts due (December 31, 2018 - $Nil) within accrued liabilities and accounts payable to key management personnel or directors.

10. New accounting standards issued and effective

In June 2016 the IASB issued IFRS 16 which introduces new or amended requirements with respect to lease accounting. IFRS 16 introduced significant changes to the lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of right-of-use assets and lease liabilities at the lease commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. IFRS 16 was issued in January 2016 and applies to annual financial reporting periods beginning on or after January 1, 2019.

IFRS 16 has changed how the Company accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet. Applying IFRS 16 for all except for short term leases and leases of low-value assets, the Company will (i) recognize 'right-of-use' assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of future lease payments discounted at the incremental borrowing rate; (ii) recognize depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of loss; and (iii) separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. The adoption of IRFS 16 did not have an effect on the consolidated financial statements.

In June 2017, the IASB issued IFRIC Interpretation 23 Uncertainty over Income Tax Treatments. The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation is applicable for annual periods beginning on or after January 1, 2019. At January 1, 2019, the Company adopted this standard and there was no material impact on the Company's unaudited consolidated financial statements.

11. Financial Instruments

The Company is exposed to various financial instrument risks and assesses the impact and likelihood of this exposure. These risks include credit risk, market risk, interest rate risk, foreign currency risk and liquidity risk. Where material, these risks are reviewed and monitored by the Board of Directors.

Please refer to Note 9 of the accompanying consolidated financial statements for further details.

12. Significant accounting estimates and judgments

The preparation of these financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the financial position reporting date, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

Significant accounting estimates includes the measurement of deferred income tax assets and liabilities. Significant accounting judgments include:

• i. The evaluation of the Company's ability to continue as a going concern.
• ii. The determination of control in business acquisitions.

13. Issued and Outstanding Common Shares

As at December 31, 2019 and the date of the MD&A, there were 67,328,936 common shares outstanding and no new shares were issued during the year.

As at December 31, 2019 and December 31, 2018: 67,328,936 common shares were outstanding.

As at December 31, 2019 and the date of this MD&A, there were no outstanding stock options.

As at December 31, 2019 and the date of this MD&A, there were no share purchase warrants outstanding.

During the year ended December 31, 2018, the Company issued 37,154,502 common shares at a price of $0.50 per share for gross proceeds of $17,895,188. As a result of the Settlement Agreement, the Company offered the subscribers the opportunity to rescind their subscription agreements and having received all requests to rescind, the Company returned the proceeds of the private placement to all subscribers and the common shares were cancelled. This was completed on July 19, 2018.

During the year ended December 31, 2018, the Company issued 26,000,000 common shares and share purchase warrants in relation to conversion of convertible debentures values at $1,173,175.

During the year ended December 30, 2018, the Company issued 22,877,958 common shares valued at $1,143,898 in relating to the RTO.

14. Proposed Transactions

The Company does not have any proposed transactions as at December 31, 2019 other than as disclosed elsewhere in this document.

15. Disclosure Controls and Procedures and Internal Controls Over Financial Reporting

The Company has exercised reasonable diligence, the filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, for the period covered by the filings.

The Company has exercised reasonable diligence, the financial statements together with the other financial information included in the filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date of and for the periods presented in the filings.

Forward Looking Information

Certain statements contained in this MD&A constitute forward-looking statements within the meaning of applicable securities laws including, among others, statements made or implied relating to the Company's objectives including but not limited to, strategies to achieve those objectives, management's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking statements generally can be identified by words such as "objective", "may", "will", "expect", "likely", "intend", "estimate", "anticipate", "believe", "should", "plans" or similar expressions suggesting future outcomes or events. Such forward-looking statements are not guarantees of future performance and reflect management's current beliefs based on information currently available.

Such statements involve estimates and assumptions that are subject to a number of known and unknown risks, uncertainties and other factors inherent in the business of the Company, and other materials filed with the securities regulatory authorities from time to time which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Those risks and uncertainties include but are not limited to: the ability of the Company to fund the capital and operating expenses necessary to achieve the business objectives of the Company; the dependence on key personnel; and the ability to access capital markets.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements were made and readers are advised to consider such forward-looking statements in light of the risks set forth above. Except as required by law, the Company assumes no obligation to update or revise any forward-looking statements to reflect new information or the occurrence of future events or circumstances.

CORPORATE DIRECTORY

Avalon Blockchain Inc. Cassels Brock & Blackwell LLP Vancouver, BC, V6C 3E8 Vancouver, BC, V6C 3E8

Officers and Directors Auditors

Aleem Nathwani (Chief Executive Officer & Director) Manning Elliott LLP David Ebert (Chief Financial Officer) 1700 – 1030 West Georgia Street Anthony Alvaro (VP Business Development & Director) Vancouver, BC, V6E 2Y3 Darren Devine (Director) Jon Malach (Director)

Members of the Audit Committee Computershare Trust Company

Anthony Alvaro

Head Office Legal Counsel

Suite 2200, 885 West Georgia Street Suite 2200 - 885 West Georgia Street

Transfer Agent

Darren Devine (Chair) 3rd Floor – 510 Burrard Street Jon Malach Vancouver, BC, V6C 3B9