YDX Innovation Corp. — Management Reports 2020

Jul 17, 2020

YDX INNOVATION CORP.

MANAGEMENT DISCUSSION AND ANALYSIS

For the three months ended March 31, 2020

GENERAL

This Management Discussion and Analysis ("MD&A") has been prepared by management as of July 16, 2020 and should be read in conjunction with the condensed consolidated interim financial statements of YDX Innovation Corp. (the "Company" or "YDX Innovation" or "YDX") as at March 31, 2020 and for the three months then ended and the audited consolidated financial statements as at December 31, 2019 and for the year ended, prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board.

All amounts are expressed in Canadian dollars ("CAD"), unless noted otherwise.

DISCLAIMER FOR FORWARD LOOKING STATEMENTS

This following MD&A contains "forward-looking statements" (also referred to as "forward-looking information") within the meaning of applicable Canadian securities legislation. All statements, other than statements of historical facts, included in this MD&A that address activities, events or developments that the Company expects or anticipate will or may occur in the future, including statements about the anticipated impact of the operations of the Company, as well as the benefits expected to result from capital expenditures, potential management contracts for ongoing services, and other such matters are forwardlooking statements. When used in this MD&A, the words "estimate", "plan", "anticipate", "expect", "intend", "believe" and similar expressions are intended to identify forward-looking statements. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur. Forward-looking statements are subject to risks, uncertainties and assumptions, including those discussed elsewhere in this MD&A. Although the Company believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Some of the risks that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include, but are not limited to, risks related to: general business operations; sales assumptions; limited operating history; development of the Company's brand; competition; need for continued improvement; intellectual property issues; interactive digital media; potential liability claims; litigation; insurance; economic downturns; currency; key personnel; conflicts of interest; changes in general applicable laws; compliance with advertising laws and regulations; foreign operations; operations in Brazil; no guaranteed return on investment; dilution; fluctuation of share price; access to capital; internal controls; accounting policies; and other factors beyond the control of the Company. These statements involve known and unknown risks, uncertainties and other factors that 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. Such factors include, among others, the risks as more particularly described under Risks and Uncertainties. Although the Company attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

For three months ended March 31, 2020

OVERVIEW

YDX Innovation was incorporated in the province of British Columbia on April 16, 2007, under the Business Corporations Act of British Columbia. The Company trades on the TSX Venture Exchange under the symbol "YDX".

YDX Innovation is a technology company with offices in Vancouver, São Paulo and Rio de Janeiro, which combines augmented and virtual reality ("VR") technology, design and intelligence to respond to the challenges and demands of today's users and consumers. YDX works as a partner for companies and brands to reframe their strategy through relevant human-centered ventures that integrates digital experience with the physical presence and venues. YDX has developed over 1,000 projects for clients all over the world, such as NBA, Adidas, Cisco, Nokia, Nike, Mercedes-Benz, Coca-Cola, Santander, AmBev, Qualcomm, Unilever, City of Rio and Fiat.

The Company's Canadian head office and principal business address is located at 2820 – 200 Granville Street, Vancouver, British Columbia, V6C 1S4. The registered and records office is located at 800 – 885 West Georgia Street, Vancouver, British Columbia, V6C 3H1.

The following discussion of the Company's financial performance is based on the condensed consolidated interim financial statements for the three months ended March 31, 2020.

OVERALL PERFORMANCE AND HIGHLIGHTS

• The Company's revenue increased by $53,039 from $359,292 in the three months ended March 31, 2019 to $412,331 in the three months ended March 31, 2020.
• Total operating expenses decreased by $19,138 from $732,558 in the three months ended March 31, 2019 to $713,420 in the three months ended March 31, 2020.
• During the three months ended March 31, 2020, the Company reported a net loss of $621,281 ($0.05 basic and diluted loss per share) compared to a net loss of $703,936 ($0.07 basic and diluted loss per share) during the three months ended March 31, 2019.
• On January 10, 2020, the Company issued 1,538,460 units for proceeds of $300,000. Each unit consists of one common share of the Company and one warrant. Each warrant is exercisable into one additional common share at a price of $0.285 per share for a period of two years from the date of issuance. The Company incurred $1,700 in share issuance costs related to the share issuance.
• On March 2, 2020, the Company issued 53,031 common shares to an officer for services valued at $12,000.
• On April 16, 2020, the Company entered into an unsecured convertible revolving loan agreement for up to $250,000 for a term of one year. The revolving loan can be drawn down by the Company in full or in tranches, with such amounts bearing interest at 10% per annum and compounded monthly. At any time before the maturity date, the lender may convert any of the outstanding principal amount into common shares of the Company at $0.085 per share. On June 17, 2020, the Company issued 1,483,286 common shares to extinguish debt of $126,079 related to the unsecured convertible revolving loan agreement.
• On May 6, 2020, the Company issued 4,000,000 common shares pursuant to a purchase agreement to acquire BEAT Gaming Corp., a gaming analytical company. In addition to the issued common shares, the Company will pay cash consideration of $400,000, which is payable on the date that is 13 months from the date of closing.

In connection with the acquisition, the Company issued 400,000 common shares, and will issue an additional 525,000 common shares to the finder on the date of the payment of the cash consideration.

For three months ended March 31, 2020

• On May 26, 2020, the Company issued convertible debentures of $181,000. The terms of the debentures include:
  • o a maturity date of 2 years from the date of issuance;
  • o repayment of the principal amount on the maturity date, unless earlier converted into common shares of the Company at the option of the holder at a conversion price of $0.085 per share;
  • o payment of interest to the holder at the rate of 10% per annum, which is payable quarterly only in cash; and
  • o the Company may prepay, without bonus or penalty, the outstanding principal amount, plus accrued but unpaid interest, with at least 60 business days' written notice to the holder.
• On June 15, 2020, the Company announced that it has completed a definitive arm's length share purchase agreement with Purple Mage Advisors Ltd. ("PMA") and the shareholders of PMA, pursuant to which YDX has agreed to acquire all of the issued and outstanding shares PMA.

The terms of the agreement include payment of consideration by the Company in the amount of $440,000, which amount is payable by the issuance of 4,000,000 shares in the capital of YDX on closing of the transaction at a deemed price of $0.11 per share. The Company issued the 4,000,000 common shares on June 12, 2020.

On July 9, 2020, the Company entered into a definitive share purchase agreement with Render.gg ("RENDER"), a private corporation existing under the laws of England and Wales, and the shareholders of RENDER, pursuant to which YDX has agreed to acquire all of the issued and outstanding RENDER shares.

The purchase price for RENDER is $850,000 consisting of: (i) cash consideration of $150,000 payable on the date that is 13 months from the closing of the transaction, and (ii) stock consideration of $700,000 payable by the issuance of 3,500,000 shares at a deemed price of $0.20 per share on closing. Closing of the transaction is subject to a number of conditions common to similar share purchase transactions, including YDX's completion of a satisfactory due diligence review of RENDER, approval from the TSX Venture Exchange, and RENDER having positive working capital and no long-term debt on closing.

In March 2020, the World Health Organization declared coronavirus (COVID-19) a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies and financial markets globally, potentially leading to an economic downturn. The Company has implemented safety and physical distancing procedures, including working from home where possible and has ceased all travel. The Company will continue to monitor the impact of the COVID-19 outbreak, the duration and impact, which is unknown at this time, as is the efficacy of any intervention. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operations in future periods.

During the three months ended March 31, 2020, the Company had the following project developments and significant announcements:

• On February 18, 2020, Mr. James Nelson resigned as a director of the Company.
• On June 1, 2020, the Company announced that it has entered into a joint venture relationship with VancouVR Ventures Corp. for the operation of a retail store in Gastown, Vancouver, British Columbia, which will showcase the Company's virtual reality gaming arena, and other interactive attractions. The store is set to open in July 2020.
• On June 2, 2020, the Company announced that the alumni University of British Columbia Virtual Reality Experience won Gold and Bronze awards at the Best of CASE VIII Canadian Awards.
• On July 6, 2020, the Company entered into a partnership agreement with Amuka Esports, a leading Canadian esports venue, league and tournament provider. Both companies will be developing a suite

For three months ended March 31, 2020

of tools that focus on building social gaming communities, online tournaments and live broadcasting technologies.

SELECTED QUARTERLY FINANCIAL INFORMATION

The following table presents selected financial information for each of the last eight quarters.

	March 31,	December 31,	September 30,	June 30,
	2020	2019	2019	2019
	$	$	$	$
Revenue	412,331	721,681	841,401	513,530
Net loss	(621,281)	(571,156)	(441,240)	(869,554)
Basic and diluted loss per share	(0.05)	(0.06)	(0.04)	(0.08)
Total assets	712,581	1,121,415	1,289,253	1,060,322
Working capital deficiency	(1,173,045)	(989,044)	(698,257)	(758,094)
	March 31,	December 31,	September 30,	June 30,
	2019	2018	2018	2018
	$	$	$	$
Revenue	359,292	664,457	416,802	526,678
Net loss	(703,936)	(190,826)	(771,874)	(441,828)
Basic and diluted loss per share	(0.07)	(0.02)	(0.07)	(0.04)
Total assets	942,763	1,134,460	1,578,037	1,316,535
Working capital (deficiency)	(1,021,201)	(494,599)	132,676	(77,628)

The Company noted the following changes between periods:

• Net loss decreased by $562,179 from the first quarter to the second quarter of 2018 due to cost reduction strategies to discontinue non-essential spending in consulting, personnel expense, and travel and promotion.
• Net loss increased by $330,046 from the second quarter to the third quarter of 2018 due a decrease in net sales revenue, as well as an increase in travel expenses and professional fees.
• Net loss decreased by $581,045 from the third quarter to the fourth quarter of 2018 mainly due to an increase in net sales revenue.
• Net loss increased by $513,110 from the fourth quarter of 2018 to the first quarter of 2019 mainly due to a decrease in revenues due to the timing of revenue recognition related to contracts.
• Net loss increased by $165,618 from the first quarter to the second quarter of 2019 mainly due to an increase in share-based payments.
• Net loss decreased by $428,314 from the second quarter to the third quarter of 2019 mainly due to a decrease in share-based payments and an increase in gross profit.
• Net loss increased by $129,916 from the third quarter to the fourth quarter of 2019 mainly due to an increase in research and development expenses as the Company continued work on upcoming VR games for Arkave Arenas.
• Net loss increased by $50,125 from the fourth quarter of 2019 to the first quarter of 2020 mainly due to an increase in professional fees related to the recently announced transactions. The Company expensed $98,894 in legal consultancy and due diligence for the recent acquisitions.

Overall, revenues have both increased and decreased during the previous 8 quarters, but have stayed relatively consistent. This is primarily due to the nature of large revenue contracts that can shift the timing and amount of revenues recognized in any given period. The Company has also shifted its focus to expand its new Arkave product offering. The Company expects its Arkave revenue stream to continue to increase during fiscal 2020. The Company is currently devoting most of its senior sales and marketing team to focus

For three months ended March 31, 2020

on international markets, such as Canada and the United States. The Company expects sales to stabilize after the transition period when the Company establishes itself in these new markets and the Company's larger projects begin to materialize.

DISCUSSION OF OPERATIONS

FINANCIAL RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2019

Revenue

Three months ended	March 31,2020	March 31,2019
Revenue	$412,331	$359,292
Total	$412,331	$359,292

During the three months ended March 31, 2020, the Company reported revenue of $412,331 as compared to revenue of $359,292 during the three months ended March 31, 2019. Overall revenues increased slightly in the three months ended March 31, 2020 due to the timing of product deliveries.

Cost of Services

Three months ended	March 31,2020	March 31,2019
Cost of services	$278,255	$246,572
Total	$278,255	$246,572

Total cost of services increased by $31,683 for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The increase in the cost of services is consistent with the increase in revenue.

Operating Expenses

Total operating expenses decreased by $19,138 for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, primarily due to the following:

• Personnel expenses decreased by $69,168 due to the Company shifting from using employees to consultants.
• Consulting expenses increased by $74,382 due to the Company relying more on external consultants instead of using internal employees.
• Office and miscellaneous expenses decreased by $57,023 due to a reduction in general expenses to cut costs.
• Travel and promotion increased by $47,651 from the prior period due to an increase in marketing activities to promote the Company.

For three months ended March 31, 2020

Net Loss

Three months ended	March 31,2020	March 31,2019
Net loss	$(621,281)	$(703,936)
Loss per share (basic anddiluted)	$(0.05)	$(0.07)

The net loss for the three months ended March 31, 2020 decreased by $82,655 compared to net loss for the three months ended March 31, 2019. Major contributing factors for the variance include:

• Gross profit increased by $21,356 due to increased cost of services rendered.
• Operating expenses decreased by $19,138 due to general cost cutting at the Company.
• Loss from other items decreased by $42,161 primarily due to a decrease in interest expense of $49,426 from the same period in the prior year.

FINANCING ACTIVITIES

LIQUIDITY AND CAPITAL RESOURCES

As at March 31, 2020, the Company's cash and cash equivalents were $68,292 (December 31, 2019 - $270,844) and the Company had a working capital deficit of $1,173,045 (December 31, 2019 - $989,044). As at March 31, 2020, the Company had share capital of $10,085,265 (December 31, 2019 - $9,774,965), 13,745,338 (December 31, 2019 - 12,153,847) common shares issued and outstanding, and an accumulated deficit of $15,054,949 (December 31, 2019 - $14,433,668).

	Three months ended March 31,
	2020		2019
Cash provided by (used in)
Operating Activities	$(674,757)	$	(402,133)
Investing Activities	(1,941)		(16,680)
Financing Activities	236,676		70,207
Effect of exchange rate on cash	237,470		61,080
Change in cash and cash equivalents	$(202,552)	$	(287,526)

Cash used in operating activities for the three months ended March 31, 2020 was primarily related to the net loss of $621,281, which relates to the Company working towards expanding into new markets and opening up new Arkave Arenas.

During the three months ended March 31, 2020, investing activities mainly related to equipment purchases of $1,941, which were used for setting up new Arkave Arenas.

Financing activities during the three months ended March 31, 2020, provided cash of $236,676 compared to $70,207 in the three months ended March 31, 2019. Cash from private placements totalled $300,000 and was offset by share issuance costs of $1,700. YDBR had loan and interest repayments totalling $41,773. All funds from financing are used to fund operational activities and the expansion of the Company's offerings, and are described in more detail below.

As of March 31, 2020, the Company had cash and cash equivalents of $68,292, trade receivables and prepaids of $101,794, accounts payable and accrued liabilities of $835,451, current loans of $71,066, current salaries and social charges payable of $94,048, current taxes and contributions payable of $175,021, and a current lease liability of $108,385. The Company's other payables and accounts payable and accrued liabilities are due within 90 days. The Company's loans have regular scheduled payments due within 12 months and are outlined in Note 10 of the condensed consolidated interim financial statements.

For three months ended March 31, 2020

Taxes and contributions payable are repayable in monthly installments, as outlined in Note 11 of the condensed consolidated interim financial statements. The Company addresses its liquidity through debt and equity financing obtained through the sale of common shares and the exercise of warrants and options. While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future.

Loans consists of the following:

	March 31, 2020		December 31, 2019
Balance, beginning	$352,250		695,989
Borrowing	-	$	508,891
Repayments	(41,773)		(974,380)
Accrued interest	21,192		179,294
Foreign exchange	(54,844)		(57,544)
Balance, ending	$276,825	$	352,250
Current	$71,066	$	108,548
Non-current	205,759		243,702
	$276,825	$	352,250

The following table summarizes information about the loans outstanding at each reporting period:

		December
	Number of	minimum	March 31,	31,
	payments	payment	2020	2019
Banco Bradesco S.A. -
maturing September 2022	33	R$ 23,464	$134,060	$169,145
Banco Itaú S.A. -
maturing July 2022	36	R$ 19,924	105,846	134,075
Banco Santander -
maturing December 2021	36	R$7,751	36,919	49,030
			$276,825	$352,250

The loans bear interest at rates between 20.7% and 37.4%. The borrowings are guaranteed by the Company's directors.

On April 16, 2020, the Company entered into an unsecured convertible revolving loan agreement for up to $250,000 for a term of one year. The revolving loan can be drawn down by the Company in full or in tranches, with such amounts bearing interest at 10% per annum and compounded monthly. At any time before the maturity date, the lender may convert any of the outstanding principal amount into common shares of the Company at $0.085 per share. On June 17, 2020, the Company issued 1,483,286 common shares to extinguish debt of $126,079 related to the unsecured convertible revolving loan agreement.

On May 26, 2020, the Company issued convertible debentures of $181,000. The terms of the debentures include:

• o a maturity date of 2 years from the date of issuance;
• o repayment of the principal amount on the maturity date, unless earlier converted into common shares of the Company at the option of the holder at a conversion price of $0.085 per share;
• o payment of interest to the holder at the rate of 10% per annum, which is payable quarterly only in cash; and
• o the Company may prepay, without bonus or penalty, the outstanding principal amount, plus accrued but unpaid interest, with at least 60 business days' written notice to the holder.

For three months ended March 31, 2020

While the Company currently does not have adequate cash on hand to meet its cash requirements for the coming year, the Company's future operations are dependent upon many factors, including the ability of the Company to generate sufficient profit and cash flows from operations, and the Company's ability to raise capital to fund its operations. The Company will have to continue to rely on equity and debt financing during such period. There can be no assurance that financing, whether debt or equity, will always be available to the Company in the amount required at any particular time or for any particular period or, if available, that it can be obtained on terms satisfactory to the Company. In the short term, the Company's business in Brazil continues to develop with its existing clients.

The accompanying condensed consolidated interim financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business. For the three months ended March 31, 2020, the Company incurred a net loss of $621,281 (2019 - $703,936). At March 31, 2020, the Company had an accumulated deficit of $15,054,949 (December 31, 2019 - $14,433,668) and working capital deficit of $1,173,045 (December 31, 2019 - $1,086,538). These factors indicate the existence of a material uncertainty that raises significant doubt about the Company's ability to continue as a going concern, which is dependent upon its ability to obtain and maintain an appropriate level of financing on a timely basis and to achieve sufficient cash flows to cover obligations and expenses. The outcome of these matters cannot be predicted. These condensed consolidated interim financial statements do not give effect to any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue its operations as a going concern.

OFF BALANCE SHEET ARRANGEMENTS

To the best of management's knowledge, there are no undisclosed off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the results of operations or financial condition of the Company.

TRANSACTIONS WITH RELATED PARTIES

Related parties include the Company's Board of Directors, officers, close family members and enterprises controlled by these individuals, as well as certain persons performing similar functions. Apart from those transactions detailed in this section, there were no other related party transactions.

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consists of executive and non-executive members of the Company's Board of Directors and senior officers. The following expenses were incurred with key management personnel.

For the three months ended March 31, 2020, the Company had the following related party transactions and balances:

• (a) management fees of $62,269 (2019 $62,646) were expensed to Daniel Japiassú, a director and CEO of the Company. At March 31, 2020, accounts payable and accrued liabilities included $119,433 (December 31, 2019 - $70,718) owing to Mr. Japiassú for management fees and expense reimbursements;
• (b) management fees of $28,988 (2019 $33,801) were expensed to Karina Israel, a director of the Company. At March 31, 2020, accounts payable included $6,409 (December 31, 2019 - $20,043) owing to Ms. Israel for management fees and expense reimbursements;
• (c) management fees of $12,000 (2019 $nil) were expensed to Jamil Garcia, CFO of the Company. At March 31, 2020, accounts payable and accrued liabilities included $13,985 (December 31, 2019 - $15,000) owing to Mr. Garcia for management fees; and

For three months ended March 31, 2020

• (d) management fees of $nil (2019 $7,500) were paid to a private company in which James Nelson, a former director, is president. At March 31, 2020, accounts payable included $nil (December 31, 2019 - $2,620) owing to a private company of which Mr. Nelson is president for management fees;
• (e) management fees of $nil (2019 $4,500) were expensed to a private company controlled by Miguel Remedio, a director of the Company. At March 31, 2020, accounts payable included $6,000 (December 31, 2019 - $6,000) owing to a private company controlled by Mr. Remedio for management fees;
• (f) consulting expenses of $nil (2019 $8,000) were paid to Eli Dusenbury, former CFO of the Company; and
• (g) the Company incurred share-based compensation expense of $nil (2019 $nil) to related parties.

The transactions noted above were measured at the exchange amounts, which were agreed upon by the transacting parties.

CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

Significant accounting estimates and judgments

The preparation of the condensed consolidated interim 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. The condensed consolidated interim financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the condensed consolidated interim 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. Actual outcomes could differ from these estimates.

Significant assumptions about the future that management has made and other sources of estimation uncertainty at the reporting date, which 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:

Critical accounting estimates

• i. The inputs used in valuing share-based payments;
• ii. The recoverability of accounts receivable;
• iii. The estimated life of depreciable assets;
• iv. The impairment and valuation of non-financial assets;
• v. The inputs used in the accounting for revenue recognition under the percentage of completion method for long-term contracts;
• vi. The valuation of deferred tax assets and liabilities; and
• vii. The fair value of intangible assets.

For three months ended March 31, 2020

Critical accounting judgments

• i. The determination of categories of financial assets and financial liabilities;
• ii. The determination of the functional currency of each entity within the Company;
• iii. The extent to which deferred tax assets or liabilities are recognized;
• iv. The application of the Company's accounting policy for research and development expenditures as research or development.
• v. The assessment of the Company as a going concern; and
• vi. The determination if the Company is reasonably certain to exercise its renewal options on its leases.

FINANCIAL INSTRUMENTS AND RISK

Fair value

As at March 31, 2020, the Company's financial instruments consist of cash and cash equivalents, trade receivables, deposits, accounts payable, loans and financing, salary and social charges payable, contract liability and lease liability. The fair values of its short-term financial assets and liabilities approximate their carrying values due to the relatively short periods to maturity and the low credit risk.

The carrying value of the Company's non-current financial liabilities approximate the fair value, as such liabilities were discounted using estimated market rates.

IFRS 13 Fair Value Measurement establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. IFRS 13 prioritizes the inputs into three levels that may be used to measure fair value:

• o Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.
• o Level 2 Inputs that are observable, either directly or indirectly, but do not qualify as Level 1 inputs (i.e., quoted prices for similar assets or liabilities).
• o Level 3 Prices or valuation techniques that are not based on observable market data and require inputs that are both significant to the fair value measurement and unobservable.

The Company is exposed to varying degrees to a variety of financial instrument related risks:

Foreign exchange risk

Foreign exchange risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. The functional currency of the Company is the CAD. The functional currency of YDBR is the R$. The reporting currency is the CAD.

As at March 31, 2020, the Company and YDBR are exposed to currency risks arising from fluctuations in foreign exchange rates between the CAD and R$. The Company raises funds from equity financings primarily in CAD. The Company and YDBR do not use derivative instruments to reduce their exposure to foreign exchange and currency risks. The Company and YDBR's exposure to foreign currency risks on cash balances held in foreign currencies is not expected to be significant.

For three months ended March 31, 2020

The foreign exchange risk exposure of the Company and YDBR's financial instruments as at March 31, 2020 is as below:

Financial instrument type		+/- 10% fluctuationCurrencyincrease (decrease)
Cash and cash equivalents	$253,194	R$	$6,894	$(6,894)
Trade accounts receivable	239,580	R$	6,524	(6,524)
Loans and financing	(1,016,637)	R$	(27,682)	27,682
Accounts payable	(315,094)	R$	(8,580)	8,580
Salaries and social charges payable	(345,390)	R$	(9,405)	9,405
Taxes and contributions payable	(3,013,545)	R$	(82,057)	82,057
Total	$ (4,197,892)		$ (114,306)	$ 114,306

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation. The Company's cash and cash equivalents and YDBR's receivables are exposed to credit risk. The Company reduces its credit risk on cash and cash equivalents by placing these instruments with institutions of high credit worthiness. YDBR closely monitors its receivables. At March 31, 2020, the Company has no amounts receivable that are past due. The maximum exposure to credit risk is the carrying amount of the Company's financial instruments.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Included in the loss for the period in the condensed consolidated interim financial statements is interest expense on loans and financing and interest income on Canadian dollar cash. The Company has debt instruments at fixed rates and is therefore not exposed to risk in the event of interest rate fluctuations. As at March 31, 2020, the Company is exposed to interest rate risk upon the renewal of debt instruments.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company manages liquidity risk by maintaining sufficient cash balances to enable settlement of transactions on the due date. The Company addresses its liquidity through equity financing obtained through the sale of common shares and the exercise of warrants and options. While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future.

As of March 31, 2020, the Company had cash and cash equivalents of $68,292, trade receivables and prepaids of $101,794, accounts payable and accrued liabilities of $835,451 current loans of $71,066, current salaries and social charges payable of $94,048, current taxes and contributions payable of $175,021, and a current lease liability of $108,385. The Company's other payables and accounts payable and accrued liabilities are due within 90 days. The Company's loans have regular scheduled payments due within 12 months and are outlined in Note 10. Taxes and contributions payable are repayable in monthly instalments as outlined in Note 11. The Company addresses its liquidity through debt and equity financing obtained through the sale of common shares and the exercise of warrants and options. While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future.

PROPOSED TRANSACTIONS

There are no undisclosed proposed transactions as of the date of this MD&A.

For three months ended March 31, 2020

ADDITIONAL DISCLOSURE FOR VENTURE ISSUERS

Our common shares are listed on the TSX Venture Exchange under the symbol "YDX", on the Frankfurt Stock Exchange under the symbol "A2PB03" and on the Pink Sheets under the symbol "YDRMF".

Authorized – Unlimited number of common shares without par value.

As at the date of this MD&A, there were 23,801,957 (March 31, 2020 - 13,745,338) common shares issued and outstanding. As at the date of this MD&A, there were nil (March 31, 2020 – 602,084) common shares held in escrow.

Subsequent to March 31, 2020, the following share issuance took place:

• i. On May 6, 2020, the Company issued 4,000,000 common shares pursuant to a purchase agreement to acquire BEAT Gaming Corp ("BEAT") and issued an additional 400,000 common shares in finders fees. Refer to highlights section.
• ii. On May 19, 2020, the Company issued 33,333 common shares to an officer for management services.
• iii. On June 3, 2020, the Company issued 140,000 common shares related to the conversion of convertible debentures.
• iv. On June 12, 2020, the Company issued 4,000,000 common shares pursuant to the acquisition of Purple Mage Advisors Ltd. ("PMA"), a research and data analysis firm that specializes in player recruitment and development in the gaming industry.
• v. On June 17, 2020, the Company issued 1,483,286 common shares to extinguish debt of $126,079 related to the unsecured convertible revolving loan agreement.

Stock options

As at the date of this MD&A, the Company had 1,800,000 (March 31, 2020 – 700,000) stock options outstanding and 1,662,500 (December 31, 2019 – 662,500) stock options exercisable.

Subsequent to March 31, 2020, the Company granted 1,100,000 stock options to directors, officers, advisors and consultants of the Company with an exercise price of $0.17 and a term of three years.

Share Purchase Warrants

As at the date of this MD&A, the Company had 6,076,455 (March 31, 2020 – 6,258,747) share purchase warrants outstanding. Each warrant entitles the holder the right to purchase one common share of the Company.

Subsequent to March 31, 2020, 182,292 warrants expired unexercised.

For three months ended March 31, 2020

RISKS AND UNCERTAINTIES

An investment in the Company is speculative and involves a high degree of risk. Accordingly, prospective investors should carefully consider the specific risk factors set out below, in addition to the other information contained in this MD&A, before making any decision to invest in the Company. The directors consider the following risks and other factors to be the most significant for potential investors in the Company, but the risks listed do not necessarily comprise all those associated with an investment in the Company and are not set out in any particular order of priority. Additional risks and uncertainties not currently known to the directors may also have an adverse effect on the Company's business.

General Business Risks

The Company will be subject to general business risks and to risks inherent in the interactive technology and design agency business. The Company's ability to achieve profitable operations may be adversely affected by various operating risks common to the interactive technology and design agency industry, many of which are beyond the Company's control, including among others, the following:

• (i) competition from other interactive technology and/or design agency companies;
• (ii) increases in operating costs due to inflation, increases in labour costs, marketing and promotional costs, and other factors;
• (iii) restrictions on the ability to respond to cost and market pressures;
• (iv) changes in governmental laws and regulations and fiscal policies, and the related costs of compliance with laws and regulations and fiscal policies;
• (v) adverse effects of international, national, regional and local economic and market conditions;
• (vi) unforeseen events beyond the Company's control, such as terrorist attacks, travel-related health concerns, including pandemics and epidemics, imposition of taxes or surcharges by regulatory authorities, and unusual weather patterns, including natural disasters, such as hurricanes, tsunamis or earthquakes; and
• (vii) general business risks, as discussed in detail herein.

Limited Operating History

The Company's business is still in its early stages (operating since 2007) and given that the Company has limited operating history, there is no assurance that the Company will be able to implement its business plans in the timeframes estimated by management or will be able to achieve or maintain profitable operations.

Ability to Continue as a Going Concern

The independent auditor has added an emphasis of matter to their audit report issued in connection with the Company's annual audited consolidated financial statements for the year ended December 31, 2019 which states that the accumulated deficit and the amount of working capital raise doubt about the Company's ability to continue as a going concern. This is dependent upon the Company's ability to obtain and maintain an appropriate level of financing on a timely basis and to achieve sufficient cash flows to cover obligations and expenses. The outcome of these matters cannot be predicted. The condensed consolidated interim financial statements for the three months ended March 31, 2020 do not give effect to any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue its operations as a going concern.

For three months ended March 31, 2020

Development of the Company's Brand

There can be no certainty as to the ability of the Company to successfully develop and increase awareness of the Company's brand. Any loss of trust in any of the Company's projects can harm the value of the Company's brand and may have a material adverse effect on the Company's business, cash flows, financial condition and results of operations, and ability to make distributions to shareholders.

Competition

The Company competes with many companies and individuals that have substantially greater financial and technical resources than the Company. The interactive technology and design agency industries are highly competitive, and the Company competes with other companies providing similar products and services. The Company will compete for customers, as well as for the recruitment and retention of qualified employees.

Need for Continued Improvement

The Company's competitors are constantly developing innovations in interactive technology and design agency services. As a result, the Company will be required to continuously invest significant resources in research and development in order to enhance its technologies. In addition, these new products and services may present new and difficult technology challenges, and the Company may be subject to claims if users of these offerings experience service disruptions or failures or other quality issues. The Company's operating results would also suffer if its innovations are not responsive to the needs of its users, advertisers and other network members; are not appropriately timed with market opportunities, or are not effectively brought to market. As interactive technology and design agency services continue to develop, the Company's competitors may be able to offer interactive technologies and/or design agency services that are, or that are seen to be, substantially similar to or better than those of the Company. This may force the Company to compete in different ways and expend significant resources in order to remain competitive.

Intellectual Property Issues

Although the Company is not aware of any potential violations of others' intellectual property rights, the Company may face claims, including from direct competitors or other companies, asserting that the Company's technology or the commercial use of such technology infringes or otherwise violates the intellectual property rights of others. The Company cannot be certain that its technologies and processes do not violate the intellectual property rights of others. If the Company's market profile grows, then it could become increasingly subject to such claims.

If the Company were found to be infringing or otherwise violating the intellectual property rights of others, then it could face significant costs to implement work-around methods, and there is no assurance that any such work-around would be available or technically equivalent to the Company's technology. In such cases, the Company might need to license a third party's intellectual property, although any required license might not be available on acceptable terms or at all.

If the Company is unable to work around such infringement or obtain a license on acceptable terms, then it might face substantial monetary judgments against it or an injunction against continuing to use or license such technology, which might cause the Company to cease operations.

In addition, even if the Company is not infringing or otherwise violating the intellectual property rights of others, it could nonetheless incur substantial costs in defending itself in suits brought against it for alleged infringement. Also, if the Company is able to enter into a license agreement in the future and it provides that the Company must defend and indemnify its customer licensees for claims against them relating to any alleged infringement of the intellectual property rights of third parties in connection with such customer licensees' use of such technologies, then the Company may incur substantial costs defending and indemnifying any customer licensees to the extent it is subject to these types of claims. Such suits, even if without merit, would likely require the Company's management team to dedicate substantial time to addressing the issues presented. Any party bringing claims might have greater resources than the

For three months ended March 31, 2020

Company, which could potentially lead to the Company settling claims against which it might otherwise prevail on the merits.

Interactive Digital Media

The market for interactive digital technology is relatively new and its potential is uncertain. The Company's success depends on the acceptance of its interactive digital technology by advertising clients and their continuing and increased interest in this medium as a component of their advertising strategies. If a substantial number of clients lose interest in advertising using the Company's interactive digital technology, the Company will be unable to generate sufficient revenues and cash flow to operate the Company's business, and the Company's revenues, prospects and results of operations could be negatively affected.

Potential Liability Claims

In addition to possible intellectual property claims, as described above, the Company is, as is the case with other participants in the industry, subject to lawsuits alleging claims that may involve large claims and significant legal costs. Further, the negative publicity that is likely to result from significant claims can cause material damage to the Company's reputation. Any claim against the Company not covered by, or in excess of, its insurance policies could have a material adverse effect on the Company's business, cash flows, financial condition and results of operations, and ability to make distributions to shareholders.

Litigation Risks

In addition to possible intellectual property claims, as described above, in the normal course of the Company's operations, whether directly or indirectly, it may become involved in, named as a party to or the subject of, various legal proceedings, including regulatory proceedings, tax proceedings and legal actions relating to personal injuries, property damage and contract disputes. The outcome with respect to outstanding, pending or future proceedings cannot be predicted with certainty and may be determined in a manner adverse to the Company and, as a result, could have a material adverse effect on the Company's assets, liabilities, business, financial condition and results of operations. Even if the Company prevails in any such legal proceeding, the proceedings could be costly and time-consuming and may divert the attention of management and key personnel from the Company's business operations, which could have a material adverse effect on the Company's business, cash flows, financial condition and results of operations, and ability to make distributions to shareholders.

Uninsured Risks

In the course of the development of interactive technologies and providing advertising services, certain unexpected risks may occur. There are certain types of risks, generally of a catastrophic nature, such as war, natural disasters or terrorism, which are either uninsurable or are not insurable on an economically viable basis. It is not always possible to fully insure against such risks as a result of high premiums or other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability, result in increasing costs, and have a material adverse effect on the Company's business operations and a decline in the value of the common shares of the Company. Claims against the Company, regardless of their merit or eventual outcome, may also have a material adverse effect on the Company's business operations.

Economic Downturns

The target market for the Company is large companies with resources for marketing and customer experience budgets. Future downturns could adversely affect the ability of such companies to afford the Company's products and services.

Currency Risks

The Company will have foreign currency exposure related to foreign denominated revenues and costs. Fluctuations in foreign currency exchange may adversely affect the Company's reported earnings and the comparability of period-to-period results of operations. Changes in currency exchange rates may also affect

For three months ended March 31, 2020

the relative prices at which the Company and our foreign competitors purchase and sell products in the same market and the cost of certain items required in the Company's operations.

Key Personnel

The Company is dependent on key personnel and the absence of any of these individuals could result in it having to cease operations. While engaged in the business of developing interactive technology and providing design agency services, the Company's ability to continue development and operations, and to develop a competitive edge in the marketplace, depends, in large part, on its ability to attract and maintain qualified key management personnel. Competition for such personnel is intense and the Company may not be able to attract and retain such personnel. The Company's growth will depend on the efforts of its senior management, particularly its Chief Executive Officer and director, Daniel Japiassú; and its Chief Operating Officer and director, Karina Israel.

Conflicts of Interest – Generally

The directors of the Company will, from time to time, in their individual capacities, deal with parties with whom the Company may be dealing or may seek investments similar to those desired by the Company. Certain of the Company's directors and officers may be or become directors and officers of other companies. Consequently, there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by any such directors and officers relating to the Company will be made in accordance with their duties and obligations to deal fairly and in good faith with the Company and such other companies.

Changes in General Applicable Laws

The Company's operations must comply with numerous federal, local laws and regulations in Brazil, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations may include those generally applicable to the development interactive technologies and design agency and business operations generally. Non-compliance with laws could expose the Company to liability. Lower revenue growth or significant unanticipated expenditures may result from the Company's need to comply with changes in applicable laws. The lower revenue growth and unanticipated expenditures that may result from such changes in the law may have a material adverse effect on the Company's business, cash flows, financial condition and results of operations and ability to make distributions to shareholders.

Compliance with Advertising Laws and Regulations

Advertising laws and regulations require advertisers, advertising operators and advertising distributors to ensure that the content of the advertisements they prepare or distribute are fair and accurate and are in full compliance with applicable laws. Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, applicable government agencies or bodies may revoke a violator's license for advertising business operations.

Foreign Operations

As a result of the international aspect of the Company's operations, future revenue, gross margin, expenses and financial condition could suffer due to a variety of international factors, including:

• ongoing instability or changes in a country's or region's economic or political conditions, including inflation, recession, interest rate fluctuations, and actual or anticipated military or political conflicts;
• longer collection cycles and financial instability among customers;
• trade regulations and procedures, and actions affecting production, pricing and marketing of products;
• local labour conditions and regulations;

For three months ended March 31, 2020

• managing a geographically dispersed workforce;
• changes in the regulatory or legal environment;
• differing technology standards or customer requirements;
• import, export or other business licensing requirements or requirements relating to making foreign direct investments, which could increase the Company's cost of doing business in certain jurisdictions, prevent the Company from shipping to particular countries or markets, affect the Company's ability to obtain favourable terms for components, increase the Company's operating costs, or lead to penalties or restrictions;
• difficulties associated with repatriating earnings generated or held abroad in a tax-efficient manner and changes in tax laws; and
• fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure at important geographic points of exit and entry for the Company's products and shipments.

The factors described above could also disrupt the Company's product and component manufacturing and key suppliers.

Risks Relating to Brazil

The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well as Brazil's political and economic conditions, could adversely affect the Company's business, financial condition, results of operations, cash flows and prospects, as well as the trading price of the Company's common shares.

The Brazilian government frequently exercises significant influence over the Brazilian economy and occasionally makes significant changes in policy and regulations. The Brazilian government's actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, foreign exchange rate controls, capital controls and limits on imports. The Company will have no control over and cannot predict what measures or policies the Brazilian government may take in the future. The Company and the market price of the Company's common shares may be adversely affected by changes in Brazilian government policies, as well as general economic factors, including, without limitation:

• growth or downturn of the Brazilian economy;
• interest rates;
• currency fluctuations;
• inflation;
• liquidity of the domestic capital and lending markets;
• import and export controls;
• exchange rates and exchange controls and restrictions on remittances abroad;
• modifications to laws and regulations according to political, social and economic interests;
• fiscal policy and changes in tax laws;
• economic and social instability; and
• other political, social and economic developments in or affecting Brazil.

Developments in Brazil's political landscape may also impact the Company. Nevertheless, possible political crises may affect the confidence of investors and the public in general, which may result in economic deceleration and affect the trading prices of securities issued by companies with connections to Brazil.

No Guaranteed Return on Investment

The Company's common shares are equity securities and are not fixed income securities. The Company will not have a fixed obligation to make payments to shareholders and does not promise to return the initial purchase price of a share on a certain date in the future, if at all.

For three months ended March 31, 2020

Dilution

The Company may, in its sole discretion, issue additional shares from time to time at prices and on terms at the discretion of the directors, and the interests of the Company's shareholders may be diluted thereby. Sales of substantial amounts of the Company's securities, or the availability of such securities for sale, could adversely affect the prevailing market price for the Company's securities.

Fluctuation of Share Price

The market price of the Company's common shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of the Company, divergence in financial results from analysts' expectations, changes in earnings estimates by stock market analysts, changes in the business prospects for the Company, general economic conditions, changes in the supply of or demand for interactive technologies, legislative changes, and other events and factors outside of the Company's control. In addition, stock markets have from time to time experienced extreme price and volume fluctuations, which, as well as general economic and political conditions, could adversely affect the market price for the Company's common shares. The Company is unable to predict whether substantial amounts of the Company's common shares will be sold in the open market or whether an active trading market in the Company's securities will be established and sustained. Any sales of substantial amounts of the Company's common shares in the public market, or perception that such sales might occur, could materially and adversely affect the market price of the Company's common shares and/or dilute the interests of shareholders.

Access to Capital

The interactive technology and design agency industries are capital-intensive. The Company may require access to capital to fund its growth strategy from time to time. There can be no assurance that the Company will have access to sufficient capital or access to capital on terms favourable to the Company for future developments, funding operating expenses or other purposes. In addition, global financial markets have experienced a sharp increase in volatility during recent years. This has been, in part, the result of the revaluation of assets on the balance sheets of international financial institutions and related securities. This has contributed to a reduction in liquidity among financial institutions and has reduced the availability of credit to those institutions and to the issuers who borrow from them. While central banks, as well as governments, continue attempts to restore liquidity to the global economy, no assurance can be given that the combined impact of the significant revaluations and constraints on the availability of credit will not continue to materially and adversely affect economies around the world in the near to medium term. These market conditions and unexpected volatility or illiquidity in financial markets may inhibit the Company's access to long-term financing in the capital markets. As a result, it is possible that the financing that the Company may require in order to grow and expand its operations may not be available or, if it is available, then it may not be available on terms favourable to the Company. Failure by the Company to access required capital could have a material adverse effect on the Company's business, cash flows, financial condition and results of operations, and ability to make distributions to shareholders.

Accounting Policies

The accounting policies and methods utilized by the Company determine how it reports its financial condition and results of operations, and they may require management of the Company to make estimates or rely on assumptions about matters that are inherently uncertain. The Company believes that the assumptions underlying its reports of its financial condition are reasonable. However, the reports of the Company's financial condition may not reflect what the Company's financial position, results of operations or cash flows will be in the future.

Coronavirus Pandemic

The current outbreak of COVID-19 and any future emergence and spread of similar pathogens could have an adverse impact on global economic conditions, which may adversely impact the Company's operations, and the operations of its suppliers, contractors and service providers, the ability to obtain financing and

For three months ended March 31, 2020

maintain necessary liquidity, and the ability to explore the Company's properties. The outbreak of COVID-19 and political upheavals in various countries have caused significant volatility in commodity prices. While these effects are expected to be temporary, the duration of the business disruptions internationally and related financial impact cannot be reasonably estimated at this time.

Similarly, the Company cannot estimate whether or to what extent this outbreak and the potential financial impact may extend to countries outside of those currently impacted. Travel bans and other government restrictions may also adversely impact the Company's operations and the ability of the Company to advance its projects. In particular, if any employees or consultants of the Company become infected with the coronavirus or similar pathogens and/or the Company is unable to source necessary consumables or supplies, due to government restrictions or otherwise, it could have a material negative impact on the Company's operations and prospects, including the complete shutdown of one or more of its exploration programs. The situation is dynamic and changing day-to-day. The Company is exploring several options to deal with any repercussions that may occur as a result of the COVID-19 outbreak.

ADDITIONAL INFORMATION

Additional information about the Company is available for viewing on SEDAR at www.sedar.com.