The following Management's Discussion and Analysis ("MD&A") is prepared as of June 30, 2021, and should be read together with the HTC Purenergy Inc. dba HTC Extraction SystemsTM ("HTC" or the "Corporation") unaudited, condensed, consolidated, interim financial statements for the six-month period ending June 30, 2021 (the "Period") and related notes attached thereto (collectively referred to as the "Financial Statements"), which are prepared in accordance with International Financial Reporting Standards ("IFRS"). All amounts are stated in Canadian dollars unless otherwise indicated. The Corporation has adopted National Instrument 51-102F1 as the guideline in representing the MD&A. Terms used but not defined in this MD&A shall bear the meaning as set out in Part 1 of National Instruments ("NI") 51-102 and NI 14-101Definitions and accounting terms that are not defined herein shall bear the meaning as described or used in IFRS applicable to publicly accountable enterprises.
This MD&A is dated August 27, 2021.
FORWARD-LOOKING STATEMENTS DISCLAIMER
Statements in this MD&A that are not historical facts are forward-looking statements involving known and unknown risks and uncertainties that may cause the Corporation's actual results or outcomes to be materially different from those anticipated and discussed herein. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this MD&A and accompanying Financial Statements, and in those other filings with the Corporation's Canadian regulatory authorities as found at 'www.sedar.com' and to not put undue reliance on such forward-looking statements. Forward- looking statements in this MD&A include statements with respect to: the expected performance of the Corporation's business and operations and the Corporation's intentions to expand its business and operations; the Corporation's expectations regarding revenue, expenses and anticipated cash needs; the Corporation's plans to expand its extraction capabilities; the ability of the Corporation to meet consumer demand; the ability of the Corporation to execute on its strategic priorities and objectives; the size of the market that the Corporation operates in; the Corporation's business strategy for the extraction and purification of hemp biomass; the receipt of all necessary regulatory and other third-party approvals to conduct its CBD extraction operations; future processing expectations; the Corporation's ability to enter into new hemp biomass tolling agreements; and the Corporation's expectations regarding the future operations and objectives of KF Hemp Corp. and Kase Farma Inc. Although HTC's management ("Management") believes that the expectations reflected in the forward-looking statements are reasonable, Management cannot guarantee future results, levels of activity, performance or achievements, or other future events. Forward-looking statements in this MD&A speak only as of the date on which they are made, and Management is under no duty to update any of its forward-looking statements after the date of this MD&A, other than as required and governed by applicable securities laws.
Additional information related to the Corporation is available for view on SEDAR at www.sedar.com.
HTC Extraction Systems™ Group has developed proprietary extraction and purification systems, that have been designed to extract from biomass, liquids, and gas, as well as for the distillation and purification of ethanol and ethanol solvents, used for this extraction in the Hemp- Biofibre/Protein/CBD business sector.
HTC's Hemp - Biofibre/Protein/Cannabinoid - Business Unit
HTC's business strategy includes the production contracting of broad acre industrial hemp for: Biofibre for Bioplastics, Biochar and Cellulose, Hemp Seeds for Protein and Hemp Seed Oil, and cannabinoid extraction.
By implementing its historical skillsets, process design and standard operating procedures ("SOPs"), HTC wishes to develop into a large hemp biofibre supplier, hemp seed seller and oil processor and cannabinoid extractor and refiner. In order to accomplish its objectives, the Corporation intends to leverage its relationships with successful farming leaders and draw on SOPs, best practices in genetics, fertility, fibre processing, seed cleaning and processing including experience required in ingredient sales with multi-year contracts.
HTC // Management's Discussion & Analysis
KF Hemp Corp.
Effective June 30, 2020, HTC acquired KF Hemp Corp. ("HempCo"), a company that is qualified to cultivate, process, dry, store and sell hemp under the Industrial Hemp Regulations of the Cannabis Act (Canada) ("Hemp License").
HempCo owns hemp shredding, handling, drying, sizing and sorting equipment, which have been installed in its hemp processing facility, located in Lajord, Saskatchewan, and boasts agreements with local growers pursuant to which these growers will produce IPGrowTM (identity preserved) Industrial Hemp. The growers will select ideal ground for hemp production and implement the optimal fertility package and crop protection program for high yielding biofibre, hemp seeds and high cannabinoid hemp flower biomass.
HTC has completed the construction of its approximately 27,000 square foot hemp biofibre processing and storage facility, which will be utilized for the processing of biofibre into bioplastic pellets and biochar/hemp soil fertility pellets, as well as the storing and packaging of extraction- ready biomass.
Hemp Biomass Tolling Agreements
HTC is currently engaged in tolling contracts with US-based hemp biomass producers and providers. Extraction, at the Kase Farma Inc. ("Kase Farma") location in Ceres, California has moved into commercial production. HTC will look to ensure tolling and processing volumes by selecting qualified harvest contractors, utilizing diversified growing locations and high- performance regulated genetics, and through irrigation that can provide growing locations with an opportunity for 2 to 3 annual crop rotations with new CBD, CBG, CBN and other cannabinoid genetic varieties.
On January 28, 2020, HTC completed a share and purchase agreement ("SPA") with Starling Brands Inc. ("Starling"), whereby HTC acquired all the issued and outstanding shares of California based Kase Farma. Kase Farma is authorized to operate in the areas of hemp extraction, refining, formulation, and distribution in the State of California.
An intrinsic part of the acquisition is a management services agreement with Starling, led by Mike Reynolds, chief executive officer, and Drew Ford, chief science officer, both of whom are highly regarded experts in the cannabinoid extraction, formulation and refining industry.
Kase Farma has received and commissioned equipment that is capable of processing and distilling 10,000 lbs. per day of dried biomass at its extraction operation in California. Kase Farma's extraction operations are part of the Starling-owned 22,000- square-foot overall facility. Kase Farma has launched its Identity Preserved, or IPGrow™, initiative, for the wholesale and retail markets, under the brand of "Kase One - One Life; One Plant". In addition, Kase Farma has aligned itself with highly regarded hemp growers in California's Central Valley who will provide high performance, IPGrow™, superior, genetic specific production for its custom designed cannabinoid formulations.
Starling owned Kase Manufacturing Inc., is one of the first volatile and non-volatile cannabinoid extraction manufacturing labs approved in the State of California. As part of the acquisition, Kase Farma has entered into an intellectual property licensing agreement with Starling that allows for a technology transfer whereby Starling's intellectual property and technology licensed under this agreement can be utilized and deployed at the HTC facilities in Saskatchewan.
Looking to the Future
On January 27, 2021, HTC received approval from its Board of Directors ("Board") and the TSX Venture Exchange and completed the spinout of HTC's Delta CleanTech business unit into a standalone entity, named Delta CleanTech Inc. ("Delta"). Delta became a reporting issuer on August 13, 2021, and was listed on the Canadian Securities Exchange on August 19, 2021, under the symbol DELT.
HTC // Management's Discussion & Analysis
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