Harrys Manufacturing : Quarterly Ending April 30 2022

HARRYS MANUFACTURING INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE NINE MONTHS ENDED APRIL 30, 2022

The following Management's Discussion and Analysis ("MD&A") is dated June 29, 2022 and should be read in conjunction with the condensed interim consolidated financial statements of Harrys Manufacturing Inc. ("Harrys" or the "Company") for the nine months ended April 30, 2022.

FORWARD-LOOKING INFORMATION

Statements herein that are not historical facts and are forward-looking statements that are subject to risks and uncertainties. Words such as "expects", "intends", "may", "could", "should", "anticipates", "likely", "believes" and words of similar import also identify forward-looking statements. Forward-looking statements are based on current facts and analyses and other information that are based on forecasts of future results, estimates of amounts not yet determined and assumptions of management, including, but not limited to, the Company's ability to raise additional debt and/or equity financing to fund operations and working capital requirements. Actual results may differ materially from those currently anticipated due to a number of factors including, but not limited to, general economic conditions, the Company's ability to generate sufficient cash flows from operations and from financing to support general operating activities and capital expansion plans, and laws and regulations and changes thereto that may affect operations, and other factors beyond the reasonable control of the Company.

Management periodically reviews information reflected in forward-looking statements. The Company has and continues to disclose in its Management's Discussion and Analysis and other publicly filed documents, changes to material factors or assumptions underlying the forward-looking statements and to the validity of the statements themselves, in the period the changes occur.

Historical results of operations and trends that may be inferred from the above discussions and analysis may not necessarily indicate future results from operations.

BUSINESS DESCRIPTION AND READER GUIDANCE

Harrys was incorporated under the laws of the Province of British Columbia in 2007, formerly under the name of Westridge Resources Inc. The Company had previously focused on the acquisition, evaluation and exploration of mineral resource properties.

On December 22, 2017, the Company entered into a Letter of Intent with Harrys International Manufacturing Inc. ("HIMI") to acquire all of the issued and outstanding common shares of HIMI (the "HIMI Shares") in exchange for the common shares of the Company. HIMI initially focused on international sales but is now entirely focused on establishing a presence in the Canadian tobacco market.

On January 22, 2018, the Company entered into a Share Exchange Agreement with HIMI. Pursuant to the agreement, the Company agreed to acquire all of the issued and outstanding shares of HIMI in exchange for the issuance of 28,500,100 shares of common stock of the Company to the shareholders of HIMI. The Acquisition closed on October 4, 2018. On October 4, 2018, the Company also changed its name from Westridge Resources Inc. to Harrys Manufacturing Inc. On October 17, 2018, the Company shares commenced trading on the CSE under the symbol "HARY".

Tobacco Cigarette Sales

Over the past nine months management continued to focus on exploring market opportunities, building a robust downstream supply network, as well as the acquisition of licensing from provincial regulatory bodies. Despite significant delays and shutdowns related to the pandemic and remote work, several provinces were able to satisfy our licensing requirements, namely, British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and Newfoundland and Labrador.

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During this same period our manufacturing partners faced challenges causing further delays, as the conversion to slide and shell packaging brought significant hurdles to overcome. First, the packaging type has been abandoned by most countries in the world, so there was little global supply of slide and shell packaging machinery and parts. Secondly, the limited supply of slide and shell parts and machinery were quickly spoken for by the large multinational cigarette companies who dominate the market. This was exacerbated by a global pandemic and serious supply chain issues.

With equipment now in place, final modifications and testing of slide and shell packaging are underway, and management anticipates first orders to be shipped to Western Provinces in the very near term. We hope to provide sufficient margin return to our wholesale and retail partners to make our offering attractive, and one that the retail community will support, coupled with a tobacco blend that we expect will appeal to adult tobacco consumers.

Reader Guidance

The Company's condensed interim consolidated financial statements were prepared in accordance with IFRS that are applicable to a going concern, which contemplate the realization of assets and the settlement of liabilities and commitments in the normal course of business. During the nine months ended April 30, 2022, the Company had no revenues, incurred a net loss of $834,060 (2021 - $932,317), and used $440,519 (2021 - $500,055) of cash for operating activities. At April 30, 2022, the Company had an accumulated deficit of $25,032,373 (July 31, 2021 - $24,198,313) since inception and net working capital of $382,742 (July 31, 2021 - $413,618).

The Company's continuation as a going concern is dependent upon its ability to attain profitable operations and generate funds there from and/or raise equity capital or borrowings sufficient to meet current and future obligations. Management intends to finance operating costs over the next twelve months from working capital, cash flow from operations and, if necessary, from loans from directors and companies controlled by directors and/or exercise of outstanding options and warrants and private placement of common shares. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that the Company's capital resources should be adequate to continue operating and maintaining its business strategy. However, if the Company is unable to raise additional capital or achieve profitability in the near term, management expects that the Company may need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. The condensed interim consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Impact of COVID-19 on the Financial Position of the Company

In December 2019, a strain of novel coronavirus (now commonly known as "COVID-19") was reported to have surfaced in Wuhan, China. COVID-19 has since spread rapidly throughout many countries, and, on March 11, 2020, the World Health Organization declared COVID-19 to be a pandemic. In an effort to contain and mitigate the spread of COVID-19, many countries, including the United States and Canada, imposed unprecedented restrictions on travel, including some business closures and a substantial reduction in economic activity in countries that have had significant outbreaks of COVID-19.

At this time the Company remains open for business, however significant uncertainty remains as to the potential impact of the COVID-19 pandemic on our operations, and on the global economy as a whole. Government-imposed restrictions on travel and other "social-distancing" measures such restrictions on assembly of groups of persons, have the potential to disrupt supply chains for parts and sales channels for our products, and may result in labor shortages. It is currently not possible to predict how long the pandemic will last or the time that it will take for economic activity to return to prior levels. We will continue to monitor the COVID-19 situation closely and intend to follow health and safety guidelines as they evolve.

SELECTED QUARTERLY FINANCIAL INFORMATION

The following information is derived from the Company's quarterly financial statements for the past eight quarters and has been prepared using IFRS:

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	Three Months	Three Months	Three Months	Three Months
		Ended		Ended		Ended		Ended
	April 30, 2022	January 31, 2022	October 31, 2021	July 31, 2021
Revenue	$	Nil	$	Nil	$	Nil	$	Nil
Loss for the period		(165,200)		(466,732)		(202,128)		(267,679)
Loss per share - basic and diluted		(0.00)		(0.01)		(0.00)		(0.00)
Total assets		539,954		576,536		1,095,677		1,136,797
	Three Months	Three Months	Three Months	Three Months
		Ended		Ended		Ended		Ended
	April 30, 2021	January 31, 2021	October 31, 2020	July 31, 2020
Revenue	$	Nil	$	Nil	$	Nil	$	Nil
Loss for the period		(471,793)		(338,464)		(122,060)		(660,839)
Loss per share - basic and diluted		(0.01)		(0.00)		(0.00)		(0.01)
Total assets		1,219,066		787,672		991,659		655,725

Fluctuations in the Company's expenditures reflect the variations in the timing of general operations, and the ability of the Company to raise capital for its projects, including share-based payments during certain quarters. For future tobacco cigarette sales in Canada the Company will rely on existing funds to cover the cost of manufacturing and the cost of the required Federal Excise Tax stamps, prior to receiving payment from its Canadian wholesale distributor.

Net loss decreased during the three-month period ended April 30, 2022 over the three months January 31, 2022, as a result of a decrease in share-based payments.

Net loss decreased during the three-month period ended April 30, 2022 over the three months April 30, 2021, as a result of a decrease in share-based payments and interest expenses.

Net loss increased during the three-month period ended January 31, 2022 over the three months October 31, 2021, as a result of an increase in share-based payments.

Net loss increased during the three-month period ended January 31, 2022 over the three months January 31, 2021, as a result of increase in office and administrative and management fees.

Net loss decreased during the three-month period ended October 31, 2021 over the three months July 31, 2021, as a result of a decrease in professional fees and an impairment of note receivables recorded during the three months ended July 31, 2021.

Net loss increased during the three-month period ended October 31, 2021 over the three months October 31, 2020, as a result of an increase in management fees and office and administrative expenses.

Net loss decreased during the three-month period ended July 31, 2021 over the three months April 30, 2021, as a result of a decrease in share-based payments.

Net loss decreased during the three-month period ended July 31, 2021 over the three months July 31, 2020, as a result of a decrease in consulting expenses and an impairment of equipment recorded during the three months ended July 31, 2020.

Net loss increased during the three-month period ended April 30, 2021 over the three months January 31, 2021, as a result of an increase in interest expense primarily relating to a discount on a loan receivable.

Net loss increased during the three-month period ended January 31, 2021 over the three months October 31, 2020, as a result of an increase in share-based payments.

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Net loss decreased during the three-month period ended October 31, 2020 over the three months July 31, 2020, as a result of an impairment of equipment recorded during the three months ended July 31, 2020.

RESULTS OF OPERATIONS

During the nine months ended April 30, 2022, the Company incurred operating expenses of $702,132 compared to operating expenses of $764,915 during the nine months ended April 30, 2021. The decrease in operating expenses were due mainly to a decrease in share-based payments of $146,843, consulting fees of $60,750 and professional fees of $30,142, partially offset by an increase in office and administrative of $133,988 and management fees of $59,100.

For the nine months ended April 30, 2022, the Company recorded net loss of $834,060 ($0.01 loss per share) compared to a net loss of $932,317 ($0.01 loss per share) for the nine months ended April 30, 2021. The loss is mainly comprised of termination of lease liability of $58,843 (2021 - $nil), management fees of $202,500 (2021 - $143,400), office and administrative expenses of $232,864 (2021 - $98,876), interest expense of $73,085 (2021 - $170,244), and share-based payments of $164,230 (2021 - $311,073).

LIQUIDITY AND CAPITAL RESOURCES

As at April 30, 2022, the Company had cash of $212,344 and total assets of $539,954 compared to cash of $363,796 and total assets of $1,045,579 at July 31, 2021. The decrease in cash was due to cash used in operating activities of $440,519 during the nine months ended April 30, 2022, partially offset by proceeds from financing activities of $289,067, as the Company continues to work towards obtaining federal and provincial licenses in order to commence sales and distribution of tobacco cigarettes. The decrease in total assets was primarily due to the termination of a lease and the disposal of the related right-of-use asset and property and equipment, as well as the overall decrease of $151,452 of cash.

The Company had a working capital of $382,742 at April 30, 2022 compared to working capital of $489,391 at April 30, 2021. The decrease in working capital was primarily due to a decrease in cash, which was partially offset by an increase in the prepaid amounts for future purchase orders of inventory and security for tobacco taxes that were made as part of our license approvals to commence our planned strategic operations.

Our liabilities at April 30, 2022 included a convertible debenture of $189,753, which included debentures with a face value of $200,000 less discount of $24,187, which is being accreted over the life of the debenture, plus accrued interest of $13,940. The debenture is unsecured, bears interest at 6% per annum, and is due on or before March 2, 2023. The debenture is also convertible into units of the Company at $0.10 per unit up to March 2, 2022, and increasing to $0.12 per unit after March 2, 2022. Each unit is comprised of one common share of the Company and one share purchase warrant where each share purchase warrant is exercisable into one additional common share of the Company at $0.12 per share for a period of two years from the conversion date.

Our liabilities at April 30, 2022 also included a convertible debenture of $99,551, which included debentures with a face value of $100,000 less discount of $2,355, which is being accreted over the life of the debenture, plus accrued interest of $1,906. The debenture is unsecured, bears interest at 12% per annum, and is due on or before September 5, 2022. The debenture is also convertible into common shares of the Company at $0.08 per share up to September 5, 2022.

For the nine months ended April 30, 2022, the Company's cash flow activity was as follows:

Operating Cash Flows

During the nine months ended April 30, 2022, net cash used in operations was $440,519 (2021 - $500,055) and net cash provided by financing activities was $289,067 (2021 - $1,135,797).

Financing Cash Flows

Financing activities during the nine months ended April 30, 2022 includes repayment of loans payable of $200,000, proceeds from convertible debenture of $100,000, proceeds received from share issuances of $451,190 less share issuance costs of $26,873, and lease repayments of $35,250. Financing activities during the nine months ended April 30, 2021 includes proceeds from loan payable of $200,000, proceeds from convertible debenture of $200,000,

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proceeds received from share issuances of $472,040, share subscriptions received of $321,400, debt issue costs of $4,768 and lease repayments of $52,875.

Historically, the Company's sole source of funding has been the issuance of equity securities for cash, primarily through private placements and exercise of stock options and warrants, and loans from related parties. The Company's access to financing is always uncertain. There can be no assurance of continued access to significant equity funding.

The following is an analysis of the contractual maturities of the Company's non-derivative financial liabilities as at April 30, 2022:

	Within one	Between one and	More than five
	year	five years	years
	$	$	$
Accounts payable and accrued liabilities	99,532	-	-
Wages payable	53,016	-	-
Convertible debenture	300,000	-	-
	452,548	-	-

BUSINESS RISKS

In the normal course of business, the Company is exposed to a variety of risks and uncertainties. In addition to the risks associated with liquidity and capital resources, critical accounting estimates, financial instruments, credit risk and market risk described in this MD&A, the Company is exposed to various operational, technical, financial and regulatory risks and uncertainties, many of which are beyond its control and may significantly affect future results. Operations may be unsuccessful or delayed as a result of competition for products and services, supplies and equipment, mechanical and technical difficulties, the ability to attract and retain employees and contractors on a cost- effective basis, commodity and marketing risk and seasonality.

The Company is exposed to considerable risks and uncertainties including, but not limited to;

• financial risks including access to debt or equity markets which the Company is dependent upon in order to meet obligations and liabilities as they falldue;
• obtaining timely regulatory and license approvals;
• fluctuations in commodity prices;
• adverse factors including climate, geographical and weather conditions, pandemics and labor disputes;
• timing of future debt and other obligations;
• regulatory legislation and policies, including the fulfilment of contractual minimum work programs, the compliance with which may require significant expenditures and non-compliance with which may result in fines, penalties, production restrictions, suspensions or revocations of contracts;
• changes to taxation policies, laws and interpretations thereof; and,
• obtaining comprehensive and appropriate insurance coverage at reasonable rates;

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of the Company's condensed interim consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results could differ from these estimates by a material amount. Matters that require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited to assumptions used in estimating share-based payments; the recoverability of deferred tax assets; the going concern assumption; the useful lives of long-lived assets; inputs used to determine the present value of right-of-use asset, and the recoverability of long-lived assets.

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