Forward-Looking Statements

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help you understand its historical results of operations during the periods presented and its financial condition. This MD&A should be read in conjunction with its financial statements and the accompanying notes and contains forward-looking statements that involve risks and uncertainties and assumptions that could cause its actual results to differ materially from management's expectations. See the sections entitled "Forward-Looking Statements" and "Risk Factors" above.











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OVERVIEW

Results of operations for the period ended April 30, 2020, and years ended December 31, 2019 and 2018 were as follows:





Revenues

For the period ended April 30, 2020, its revenues were $218,963. For the year ended December 31, 2019, its revenues were $976,971 and for the year ended December 31, 2018 the Company had $1,164,304 in revenue.

The decrease in revenue was primarily attributable to a delay in orders from customers during COVID-19 and seasonality changes.





Cost of Goods Sold

For the period ended April 30, 2020, cost of goods sold was $329,666. These primarily consisted of cost of goods sold expenses of $41,940, raw materials of $127,044, freight of $29,205, truck operating expenses of $31,004, direct labor and payroll of $92,106, packaging materials of $1,841, and blending costs of $6,526.

For the year ended December 31, 2019, cost of goods sold was $932,032. There primarily consisted of cost of goods sold expenses of $606,596, raw materials of $74,004, freight of $177,023, and direct labor and payroll of $74,409.

For the year ended December 31, 2018, cost of goods sold was $772,656. There primarily consisted of cost of goods sold expenses of $511,789, raw materials of $29,292, freight of $168,633, direct labor and payroll of $59,000, and packaging materials of $3,942.





Operating Expenses

For the period ended April 30, 2020, operating expenses were $1,010,694. These primarily consisted of general and administrative costs of $838,966, selling expenses of $72,148, and $99,580 of depreciation/amortization expenses.

For the period ended April 30, 2020 the general and administrative expenses of $838,966 can be broken down into five major categories: 1) fees related to being a reporting entity, 2) start-up costs, 3) business development, 4) wages, and 5) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total $630,336. These fees are comprised of audit fees of $43,247, accounting fees of $8,426, filing and legal fees of $63,332, consulting fees of $223,163, and officer's compensation paid of $206,292. Non-cash expenses recorded also included are $79,001 of stock compensation expense and $6,875 of accrued officer's compensation. Business development expenses were $66,538, wages were $77,074, and other/miscellaneous expenses of $65,018.

For the year ended December 31, 2019, its operating expenses totaled $3,681,479. These primarily consisted of general and administrative costs of $3,358,631, selling expenses of $150,602 and $172,246 of depreciation/amortization expense.

For the year ended December 31, 2019, the general and administrative costs of $3,358,631 can be broken down into four major categories: 1) fees related to being a reporting entity, 2) business development, 3) wages, and 4) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total $2,371,816. These fees comprise audit fees of $45,532, accounting fees of $95,334, filing and legal fees of $36,887, consulting fees of $174,374, and officer's compensation paid of $177,500. Non-cash expenses recorded also include $1,650,145 of stock compensation expense and accrued officer's compensation of $192,044. Business development expenses were $294,875, wages were $395,733, and other/miscellaneous expenses of $296,207.











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For the year ended December 31, 2018, its operating expenses totaled $3,421,806. These consisted of general and administrative costs of $3,031,201; selling expenses of $279,739; and $110,866 of depreciation/amortization expense. The increase in overall operating expenses is negligible overall when compared to the total operating expense for 2019.

For the year ended December 31, 2018, the general and administrative costs of $3,031,201 can be broken down into five major categories: 1) fees related to being a reporting entity, 2) start-up costs, 3) business development, 4) wages, and 5) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total $1,958,467. These fees comprise audit fees of $153,001, accounting fees of $93,045, filing and legal fees of $65,197, consulting fees of $154,644, and officer's compensation paid of $258,427. Non-cash expenses recorded also included are $1,171,503 of stock compensation expense and $62,650 of accrued officer's compensation. Start-up costs were $29,460, business development expenses were $739,432, wages were $110,024, and other/miscellaneous expenses of $193,818.





                      General and Administrative Expenses

                          Period Ended April 30, 2020



                                        LAC
                                     Formerly
                                       "WSC"         ICS          SPE        PCNM        Total
Reporting Issuer Relating Expenses
Audit Fees                           $  35,785     $  7,462     $      0     $   0     $   43,247
Accounting Fees                          8,426            -            -         -          8,426
Filing Fees                                  -            -            -         -              -
Legal Fees                              63,008          324            -         -         63,332
Consulting Fees                        212,262       10,241          660         -        223,163
Stock Compensation                      79,001            -            -         -         79,001
Officer's Compensation Paid            206,292            -            -         -        206,292
Officer's Compensation Accrued           6,875            -            -         -          6,875
Business Development                    66,538            -            -         -         66,538
Wages                                   48,883          590       27,601         -         77,074
Other/Misc.                             11,934       47,761        5,111       212         65,018
                                     $ 739,004     $ 66,378     $ 33,372     $ 212     $ 838,9666






                      General and Administrative Expenses

                          Year Ended December 31, 2019



                           WSC            ICS            SPE            PCNM           Total
Reporting Issuer
Relating Expenses
Audit Fees             $    45,532     $        0     $        0     $        0     $    45,532
Accounting Fees             95,334              -              -              -          95,334
Filing Fees                  4,197              -              -              -           4,197
Legal Fees                  32,690              -              -              -          32,690
Consulting Fees            120,180         54,194              -              -         174,374
Stock Compensation       1,650,145              -              -              -       1,650,145
Officer's
Compensation Paid          177,500              -              -              -         177,500
Officer's
Compensation Accrued       192,044              -              -              -         192,044
Business Development       216,935         45,991         31,159            790         294,875
Wages                      116,838        204,688         74,207              -         395,733
Other/Misc.                 98,824        195,487             (6 )        1,902         296,207
                       $ 2,750,219     $  500,360     $  105,360     $    2,692     $ 3,358,631










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                      General and Administrative Expenses

                          Year Ended December 31, 2018



                           WSC            ICS            SPE            PCNM           Total
Reporting Issuer
Relating Expenses
Audit Fees             $   152,687     $      314     $        0     $        0     $   153,001
Accounting Fees             93,045              -              -              -          93,045
Filing Fees                 11,720              -              -              -          11,720
Legal Fees                  32,764              -              -         20,713          53,477
Consulting Fees            154,644              -              -              -         154,644
Stock Compensation       1,171,503              -              -              -       1,171,503
Officer's
Compensation Paid          258,427              -              -              -         258,427
Officer's
Compensation Accrued        62,650              -              -              -          62,650
Start-Up Costs                   -              -         27,018          2,442          29,460
Business Development       695,716         10,716              -         33,000         739,432
Wages                       24,000         86,024              -              -         110,024
Other/Misc.                114,807         72,710              -          6,301         193,818
                       $ 2,771,963     $  169,764     $   27,018     $   62,456     $ 3,031,201

Liquidity and Capital Resources

During the period ended April 30, 2020 the primary sources of liquidity were cash flows from financing activities, and in particular, proceeds from issuance of convertible notes payable and the sale of common stock.

The Company had total assets of $3,612,474 as of April 30, 2020. Its current assets at April 30, 2020, consisted of $49,185 in cash, $106,876 in receivables, $131,205 in inventory and $9,481 in prepaid expenses and other current assets and its long-term assets were $3,315,727.

As of December 31, 2019, included $408,338 in cash, $85,359 in receivables, $145,747 in inventory and $92,068 in prepaid expenses and other current assets and its long-term assets were $3,313,423. Its current assets at December 31, 2018, consisted of $104,812 in cash, $51,997 in receivables, $69,197 in inventory and $30,077 in prepaid expenses and other current assets and its long-term assets were $2,811,947.

As of April 30, 2020, the Company had total liabilities of $2,390,480, including $288,864 in accounts payable, $798,495 of accrued expenses and $790,474 in notes payable, and $512,647 in other accrued and lease liabilities. At December 31, 2019, the Company had total liabilities totaling $1,899,935 including $167,539 in accounts payable, $646,410 of accrued expenses, $548,549 in notes payable, $108,058 in related party payables, and $429,379 in lease liabilities. As of December 31, 2018, the Company had total liabilities totaling $849,482 including $757,813 in accounts payable and other expenses and $91,669 in notes payable.

At April 30, 2020, the Company had stockholders' equity of $1,221,994. At December 31, 2019, the Company had stockholders' equity of $2,145,000 and $2,218,548 at December 31, 2018.

The Company has incurred net losses since inception. Its cash position is insufficient to meet its anticipated continuing operating expenses, and its independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that it can continue as an ongoing business unless it alters its business model and/or obtain additional capital, so it can pay its ongoing operational costs. The Company has significantly altered its business model to the point where it believes these changes alone will make the Company self-sustaining, although there is no assurance that this will happen. In addition, it continues to seek investment capital in the belief that this will allow more rapid growth and make its ability to continue operations less doubtful.











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The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition and results of operations. Moreover, the sale of additional equity securities plus derivative securities to raise financing will result in additional dilution to the Company's stockholders and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company's cash requirements and to finance specific business initiatives.





Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's financial statements. These policies are contained in Note 1 to the consolidated financial statements.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and notes payable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management at April 30, 2020, December 31, 2019 and 2018. The carrying value of the financial instruments included in the Company's consolidated financial statements approximated their fair values.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.

The carrying value of the notes payable approximates fair value as they bear market rates of interest.





Revenue Recognition

On January 1, 2018, we adopted Accounting Standards Committee 606 ("ASC 606"), Revenue from Contracts with Customers, which provides guidance on how revenue with customers should be recognized.

Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Revenue from product sold is recognized when obligations with the customer are satisfied, which generally occurs with the transfer or delivery of the product, signifying the point in time when the customer obtains control of the promised goods. Our performance obligation is delivering the product to the customer; and therefore, the transaction price, which is stated on the invoice, is allocated 100% to the sole performance obligation of product delivery. Revenue from service, if applicable, would be recognized when the services are provided, or the customer receives the benefit, which is over time.

Our sales policies do not provide for general rights of return, and payment is due net of 60 days. We do not record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time of the sale. We also do not record estimated reserves for product returns and credits at the time of sale and anticipated uncollectible accounts.











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Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company's portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company's customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. At December 31, 2019 and 2018, the allowance for doubtful accounts was $0. Also, at April 30, 2020, the allowance for doubtful accounts was $0.





Stock-Based Compensation

The Company recognizes the fair value of the stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting period based on the Black-Scholes option pricing model based on a risk-free interest rate from 1.60-2.56% in 2019, dividend yield of 0%, expected life of 3.25 - 5 years and volatility of 71.70%; and 2.55-2.85% in 2018, dividend yield of 0%, expected life of 3.25 - 10 years and volatility of 71.70%. For the period ending April 30, 2020, no stock-based compensation has been issued.

Off Balance Sheet Transactions and Related Matters

There are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

Disclosure of Contractual Obligations

Effective December 31, 2016, the Company entered into an Exclusive Patent Licenses Agreement with CBI Polymers, Inc. ("CBI"), pursuant to which the Company would sell DeconGel™ and pay 10% of the net selling price to CBI, as a license fee.

As discussed in Note 3 of the consolidated financial statements, the Company is party to certain debt instruments related to its vehicles and equipment.





Material Events

On March 26, 2020, WSC merged with Lux Amber, Corp. and WSC is now a wholly owned subsidiary of Lux Amber, Corp. "LAC". Its principal executive offices are located at 145 Rose Lane, Suite 102, Frisco, Texas 75036. LAC's corporate telephone number is 214-729-4003. LAC does have a stock symbol, which is LXAM.

Effective May 18, 2018, Mr. Paul Williams was appointed to the Board of Directors of the Company. Contemporaneously with such appointment, the Board of Directors of the Company appointed Mr. Williams to assume the role of Chief Financial Officer and Vice Chairman. Subsequently, on February 3, 2020 Mr. Williams was also elected as the President of the company.

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