Sunora Foods : Management Discussion and Analysis

Management Discussion and Analysis

For the Three-Month Period Ended March 31, 2021

This Management Discussion and Analysis ("MD&A") for the three-month period ended March 31, 2021 and for the three-month period ended March 31, 2020 is derived from and should be read in conjunction with the financial statements of Sunora Foods Inc. ("Sunora" or the "Company" or the "Company") for the three-month period ended March 31, 2021 with comparative figures for the three-month period ended March 31, 2020 or December 31, 2020 as applicable. This MD&A is effective May 25, 2021 and provides some information on the operating activities, performance and financial position of the Company and is intended to assist in understanding the dynamics of the Company's business and key factors underlying its financial results.

FORWARD-LOOKING STATEMENTS

This MD&A contains "forward-looking statements" which may include, but are not limited to, statements with respect to the future financial or operating performance of the Company. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "believes" or variations (including negative variations) of such words and phrases, or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or to be achieved. Forward- looking statements are based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and perception of trends, current conditions, expected developments and other factors that management believes to be relevant and reasonable at the date that such statements are made. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Although the Company has attempted to identify important factors that could cause actions, events or results to differ materiality from those described in the forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as at the date of the MD&A. There can be no assurance that forward-looking 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 the forward-looking statements. The Company does not undertake to update any forward-looking statements except as required by applicable securities laws.

DESCRIPTION OF BUSINESS

Sunora Foods Inc. ("Sunora") is a Calgary-based trader and supplier of canola oil and other food oils. Currently, the Company is a relatively modestly-sized player participating in an international business populated by some of the largest companies in the world. It has successfully maintained a niche position that has been achieved by building strong relationships with its suppliers and customers through a history of reliable and responsive service. While the Company regularly cooperates with many of these companies, it also occasionally competes with companies that have far greater resources. Sunora has achieved a measure of success for over thirty years and has weathered both economic upturns and downturns by remaining true to its commitment to its industry, its customers and suppliers, with a coherent long-term business vision. Sunora receives its orders from its customers in the food oil processing, retail and food services markets. The Company contracts with food oil processing facilities ("Seed Crushers") where food oil seeds are crushed to produce food oils including canola and other oils.

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Sunora sales are conducted through its experienced sales agents located across North America, South America, Africa, Asia, the Middle East, Eastern Russia, Australia and New Zealand. Sunora prides itself on its quality food oil products and intends to continue its global expansion as well as enhance its position as a supplier of food oil to the natural foods industry.

HIGHLIGHTS

The following highlights are from the statements of operations for the three-month periods ended March 31, 2021 and March 31, 2020 and the statements of financial position as at March 31, 2021 and as at December 31, 2020, respectively:

		Three-Month Period Ended
		March 31,			March 31,
		2021			2020
Sales	$	3,983,483	$	$	2,546,421
Net income and comprehensive income	$	89,223	$	$	74,491
Earnings per share - basic and diluted	$	0.002	$	$	0.002
		March 31,		December 31,
		2021			2020
Cash	$	3,846,496	$	$	3,317,475
Other assets	$	1,763,630	$	$	1,809,342
Total liabilities	$	1,610,460		$	1,216,374
Shareholders' equity	$	3,999,666		$	3,910,443

Sunora's sales for the three-month period ended March 31, 2021 increased by 56.4% over the same period of the previous year due to significantly increased demand for Sunora's products.

The net income and comprehensive income for the three-month period ended March 31, 2021 was $89,233 compared with to net income of $74,491 for the previous year. This increase resulted from significantly increased sales, an improvement in gross margin from 5.9% to 6.6%, and a lower provision for taxes for this period; offset by a foreign exchange loss compared to a large gain in the prior year and a decrease in interest income.

Total assets of Sunora as at March 31, 2021 are comprised of cash, accounts receivable, inventory, prepaid expenses and accrued interest, GST recoverable, right-of-use asset and a deferred tax asset. The increase in assets of $483,309 from December 31, 2020 to March 31, 2021 is primarily due to an increase in cash.

Sunora's liabilities consist of accounts payable and accrued liabilities, customer deposits, income taxes payable and a lease liability, relating to its office premises. Net current liabilities increased by $394,086 from December 31, 2019 due mainly to an increase in accounts payable and accrued liabilities, as well as an increase in customer deposits and income taxes payable.

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FINANCIAL POSITION

Sunora Foods Inc.

Statements of Financial Position

As at March 31, 2021 and December 31, 2020 (amounts in Canadian dollars)

		March 31,		December 31,
Assets		2021		2020
Current assets
Cash	$	3,846,496	$	3,317,475
Accounts receivable		1,543,571		1,504,080
Inventory		107,330		181,289
Prepaid expenses and accrued interest		18,741		25,853
GST recoverable		4,140		2,062
		5,520,278		5,030,759
Right-of-use asset		44,748		49,223
Deferred tax asset		45,100		46,835
	$	5,610,126	$	5,126,817
Current Liabilities
Accounts payable and accrued liabilities	$	1,293,191	$	1,052,051
Customer deposits		204,947		76,551
Income taxes payable		64,040		35,315
Lease liability		18,174		17,558
		1,580,352		1,181,475
Lease liability		30,108		34,899
Shareholders' Equity
Share capital		1,170,251		1,170,251
Contributed surplus		771,858		771,858
Retained earnings		2,057,557		1,968,334
		3,999,666		3,910,443
	$	5,610,126	$	5,126,817

Current assets

Sunora's current assets consist of cash, accounts receivable, inventory, prepaid expenses and accrued interest and GST recoverable. Cash increased by $529,021 in the first quarter of 2021. Cash is held for working capital requirements and to fund expansion costs for potential new opportunities, markets and customers. A policy of conserving cash is rigorously followed by management in order to sustain operations and to foster its marketing strategies. Accounts receivable increased and inventories decreased due to the timing of sales and customer orders.

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Current liabilities

Sunora's current liabilities consist of accounts payable and accrued liabilities, customer deposits, income taxes payable and lease liability. Accounts payable increased $241,140 due to the timing of payments for purchases and year-end accruals in the fourth quarter. Income taxes payable increased as a result of a provision for taxes of previous years. Sunora is committed to its policy of managing its trade payables and other liabilities on a timely basis and maintaining its excellent credit standing. Lease liability represents office lease payments due in the ensuing 12 months.

Working capital

The Company's target Working Capital Ratio (Current Assets divided by Current Liabilities, which is an indicator of its ability to finance its on-going operations) is 2:1. At March 31, 2021, the Company has exceeded its target Working Capital Ratio with a ratio of 3.5:1 as compared to 4.3 at December 31, 2020. The Company's business has been managed with a strong working capital position which has enabled the Company to operate without debt. Additionally, given the current nature of Sunora's operations, it has been able to maintain it business without making major capital investments. Therefore, the Company believes it is in a very favourable position to expand in the future.

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OPERATIONS

Sunora Foods Inc.

Statements of Income and Comprehensive Income

For the Three-Month Periods Ended March 31, 2021 and 2020 (amounts in Canadian dollars)

		Three-Month		Three-Month
		Period Ended		Period Ended
		March 31		March 31
		2021			2020
Sales	$	3,983,483		$	2,546,421
Cost of sales		3,719,833			2,395,571
Gross margin		263,650			150,850
Expenses
General and administrative		117,033			109,259
Marketing and promotion		7,822			4,139
Bad debts		(3,684)			-
Bank charges and interest		5,896			6,070
Amortization		4,475			4,475
Foreign exchange		14,144			(82,472)
Interest income		(1,719)			(10,714)
		143,967			30,757
Income from operations before income taxes		119,683			120,093
Income tax expense - current		28,725			44,497
Deferred income tax expense		1,735			1,105
		30,460			45,602
Net income and comprehensive income	$	89,223		$	74,491
Earnings per share
Basic and diluted	$	0.002		$
	0.002

DISCUSSION OF OPERATIONS

Sales

The Company operates in the single segment of food oil and related products. Competition is always a significant factor in the food oil industry. The Company determines the geographic location of revenues based on the location of its customers. The geographic categories presented are the United States, Canada and International; International comprises various regions in South America, Africa, Asia, the Middle East, Eastern Russia, Australia and New Zealand.

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