BIGG Digital Assets : Q3 2021 MD&A

MANAGEMENT DISCUSSION AND ANALYSIS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021

This Management Discussion and Analysis (“MD&A”) of BIGG Digital Assets Inc. (the “Company” or “BIGG”) provides analysis of the Company’s financial results for the three and nine months ended September 30, 2021 and should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements and the notes thereto for the three month and nine period ended September 30, 2021 and the audited consolidated financial statements and notes thereto for the year ended December 31, 2020, which are available on SEDAR at www.sedar.com.

The September 30, 2021 financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) applicable to the preparation of interim financial statements. The Company’s significant accounting policies are the same as those applied in the Company’s annual financial statements as at and for the year ended December 31, 2020, unless as otherwise provided for in the financial statements. All amounts are expressed in Canadian dollars, unless otherwise stated.

This MD&A is current as at November 29, 2021, the date of preparation, and includes certain statements that may be deemed “forward-looking statements”. We direct investors to the sections “Forward-Looking Statements” and “Risk and Uncertainties” included within this MD&A.

Additional information relating to BIGG is available on the SEDAR website at www.sedar.com and on the Company’s website at www.biggdigitalassets.com.

NATURE OF BUSINESS

BIGG Digital Assets Inc. is dedicated to the digital assets and blockchain technology industry. It has two operating business segments: blockchain technology development and digital currency sales brokerage.

The Company’s global blockchain search and analytics operations focus specifically on crypto investigations and managing financial risk. With the exponential growth of digital currency, the global marketplace must navigate increased risks and regulatory compliance. BIGG’s mission is to bring digital currency mainstream – by providing trust and real-time risk evaluation through its language agnostic proprietary platforms. The Company offers business, government and law enforcement clients a suite of forensic solutions, advanced analytics and risk-scoring capabilities to meet security needs and the growth of the digital currency marketplace.

On August 1, 2019, BIGG acquired Netcoins Inc., NTC Holdings Corp. and NTC Holdings USA Corp. (together referred to as “Netcoins”) in exchange for 37,500,000 common shares issued from its treasury. (see “Netcoins Acquisition” below). Netcoins is in the business of developing software to make the purchase and sale of digital currency easily accessible to the mass consumer and investor through brokerage services. Netcoins enables crypto transactions a self-serve crypto purchase portal and an Over-The-Counter (OTC) trading desk. The business of BIGG and Netcoins are highly complementary, and this acquisition is expected to create value for shareholders in both the near and long-term. It has offered BIGG an opportunity to step into the world of digital currency trading, in an immediately operational capacity.

BIGG Digital Assets Inc. was incorporated under the Business Corporations Act (British Columbia) on October 17, 2014 under the name Ameri-can Agri Co. Inc., which was subsequently changed to Acana Capital Corp. (“Acana”). On November 30, 2017, the Company acquired Blockchain Technology Group Inc. (“BTGI”) through a reverse acquisition transaction (“RTO” or “Transaction”) through the closing of a Share Exchange Agreement (the “SEA”) dated September 14, 2017. BTGI, now along with Netcoins, is the continuing business of the Company.

On September 26, 2019, the Company changed its name to BIGG Digital Assets Inc. to better reflect its planned future growth and existing businesses.

At September 30, 2021, the Company had not yet achieved profitable operations, had experienced significant losses and negative cash flows from operations since inception, and has a deficit of $40,005,069 (December 31, 2020 – $36,999,656). It may incur further losses in the development of its business. The continued operations of the Company are dependent on continued support from its directors, and its ability to achieve and maintain profitable operations and positive cash flows from operations in the future.

Management Discussion & Analysis

For the Nine Months Ended September 30, 2021

BUSINESS OVERVIEW

BIGG Digital Assets Inc. believes the future of crypto is a safe, compliant, and regulated environment. BIGG invests in products and companies to support this vision.

BTGI’s has developed a blockchain-agnostic search and analytics engine, QLUETM, enabling Law Enforcement, RegTech, Regulators and Government Agencies to visually track, trace and monitor digital currencies transactions at a forensic level. Our commercial product, BitRank Verified®, offers a “risk score” for digital currencies, enabling RegTech, banks, ATMs, exchanges, and retailers to meet traditional regulatory/compliance requirements. Both utilize the blockchain, which is fundamentally a digital ledger of transactions with unique characteristics designed to create records that are secure, reliable, transparent, and accessible. In late 2018, BTGI launched its Certified Cryptocurrency Investigator (CCI) designation program (https://www.cryptoinvestigatortraining.com/). Students are taught how to track, trace and investigate cryptocurrency transactions and/or crimes through a 5-module program, taking 8 hours of study.

QLUETM enables Law Enforcement, RegTech, regulators and government agencies to literally “follow the virtual money”. Investigators are able to quickly and visually trace, track and monitor transactions in their fight against terrorist financing, human trafficking, drug trafficking, weapons trafficking, child pornography, corruption, bribery, money laundering, and other cyber crimes. Initially built around Bitcoin, BTGI has more recently incorporated Ethereum, Bitcoin Cash, ERC20, and Litecoin.

Netcoins was acquired in August 2019, expanding the Company’s footprint in the digital assets industry. Netcoins develops brokerage and exchange software to make the purchase and sale of digital currency easily accessible to the mass consumer and investor with a focus on compliance and safety.

Netcoins Acquisition

On August 1, 2019, the Company acquired 100% ownership of Netcoins Inc., NTC Holdings Corp. and NTC Holdings USA Corp. (together referred to as “Netcoins”) by issuing 37,500,000 of its common shares. The acquisition was recognized as a business combination, under IFRS 3 Business Combinations (“IFRS 3”), as the assets acquired and liabilities assumed constitute a business. The transaction was accounted for using the acquisition method of accounting whereby the assets acquired and the liabilities assumed were recorded at their estimated fair value at the acquisition date.

Details of the purchase consideration, the fair value of the net assets acquired and goodwill are as follows:

The Company applied a cost approach, specifically a historical cost approach, for measuring the fair value of the Netcoins App. This valuation method used historical costs of development related to the development and enhancement of the Netcoins App.

The goodwill is attributable to the workforce and the highly specialized nature of the acquired business and is not deductible for tax purposes.

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Management Discussion & Analysis

For the Nine Months Ended September 30, 2021

RESULTS OF OPERATIONS

We are continuing to build out our core businesses – resulting in greater customer traction and higher on-boarding numbers.

Both business segments continue to make significant strides during 2021, with a focus on excelling at delivering quality products and services. We are seeking to meet the needs of customers today, as well as anticipating their future needs in the ever-changing landscape of the digital assets industry.

Q3 2021 Highlights

Netcoins operations:

• Obtained its Restricted Dealer License from Canadian regulators – see “Restricted Dealer License Application” section below
• Launched its Android and Apple iOS native crypto trading apps on the Google Play store and Apple Store
• Netcoins revenues decreased by 47% during the quarter, in comparison to the prior quarter which saw a record level of transactional activity, as Bitcoin and other cryptocurrencies traded sideways below recent highs throughout the Summer and into Fall. The Q3 2021 margin rate was 1.32%, up from the Q2 2021 margin rate of 1.2%. Overall, the year-over-year (YoY) growth rate, for the first nine months, remained strong at 1205%
• Active Users totaled approximately 11,300 during Q3 2021, up 395% YoY but down 40% quarter-over-quarter (QoQ) from the Q2 2021 high
• Continued to grow the team -including the hire of Kim Dwyer as Chief Operating Officer
• Continued to ramp up marketing across all channels, including radio and television
• Continued its review of licensing requirements for expansion into the United States

BTGI operations:

• BTGI revenues increased by 11% during the quarter with a margin rate of 85%, resulting in a 70% increase over revenues for Q3 2020. Overall, the year-over-year (YoY) growth rate was 48%
• Secured a contract with the XDC Network valued at $213,800, to support XDC addresses and transactions on its crypto investigation platform, QLUE™. Customers will have the ability to query for address and transaction scores, flags and entities using BitRank Verified®, monitor addresses for suspicious behavior using Address Watch and perform in-depth investigations using QLUE™
• Continued performance enhancements were made to BTGI’s products, including:
• • Introduced an enhanced BitRank API product that delivers new functionality and enables access to our extensive database to partners
  • Launched several enhancements of the i-graph (investigation graph) including full support for the Ethereum chain and multi-chains. We also enabled a significant level of user customization of the graph
  • Launched a case management system in BitRank
• Continued improvements made to our data management software with an emphasis placed on data integrity and auditing

Restricted Dealer License Application

BIGG strongly believes the future of crypto is a safe, compliant, and regulated environment.

On September 30, 2020, the Company applied for registration with the British Columbia Securities Commission (the “BCSC”) and other provincial and territorial securities regulators and the Canadian Securities Administrators (the “CSA”) regulatory sandbox to allow Netcoins to operate as a regulated open-loop crypto asset trading platform.

On September 29, 2021, Netcoins obtained its registration as a restricted dealer in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Prince Edward Island, and Nova Scotia. Shortly thereafter, Netcoins was also registered in Newfoundland.

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Management Discussion & Analysis

For the Nine Months Ended September 30, 2021

BIGG continues to be at the forefront of regulation in the Canadian crypto space and, notably, is the first publicly traded company in the country to own and operate a registered crypto trading platform. This marks a significant milestone for BIGG, Netcoins, and the crypto trading industry, with a new regulatory regime for an emerging industry that is growing exponentially.

Netcoins is now one of the first crypto trading platforms (CTPs) to be registered as a restricted dealer in Canada, which will provide a distinct early mover advantage as the industry continues to mature and evolve into a regulated framework. Under this framework, Netcoins will continue to operate and market to new customers across Canada, including Ontario. Netcoins anticipates continued growth on its platform through:

• the addition of new coins;
• the launch of Netcoins Pay and other new products
• expansion into the United States, and
• expanding advertising campaigns to new channels to reach new audiences.

Custody and Safeguarding of Digital Currencies

Netcoins has made safeguarding and custody of customer assets a priority, and has dedicated significant time and resources to evaluating third-party custody providers to ensure the solution offered through Netcoins provides the most integrity and security to its customers.

Netcoins does not maintain custody of (or otherwise hold) crypto assets owned by customers. BitGo Trust Company, Inc. (“BitGo”) acts as the third-party custodian for customer crypto assets (including providing cold wallet custodian services). BitGo is solely responsible for holding and safeguarding these crypto assets. BitGo does not act as a payment processor in connection with their custodian service arrangements with Netcoins.

BitGo is a trust company organized under the laws of the State of South Dakota and regulated as a trust company by the Division of Banking in South Dakota. BitGo has not appointed any sub-custodian to hold any of the crypto assets. All of the Company’s long-term Bitcoin investment holdings are also held in cold storage with BitGo.

BitGo provides insured wallet management and custody solutions for a variety of digital assets. BitGo maintains a comprehensive insurance policy for digital assets covering $100 million in losses for crypto assets held in cold storage and in hot wallets, including the assets owned by Netcoins’ customers. BitGo is not responsible for any losses resulting from inaccurate instructions and the Company is responsible for maintaining adequate security and control of any and all keys, IDs, passwords, hints, personal identification numbers, non-custodial wallet keys, API keys, yubikeys, 2-factor authentication devices or backups, or any other codes that the Company uses to access BitGo. Furthermore, BitGo is not responsible for any damage or interruptions caused by any computer viruses, spyware, scareware, Trojan horses, worms or other malware that may affect the Company’s computer or other equipment, or any phishing, spoofing or other attack, unless such damage or interruption directly resulted from BitGo’s gross negligence, fraud, or willful misconduct. There are no limitations on liability if BitGo breaches its confidentiality obligations or if any damage or interruptions directly result from BitGo’s gross negligence, fraud, or willful misconduct. All other damages are limited to the fees paid to BitGo within the twelve-month period preceding the incident giving rise to such liability.

The due diligence process for BitGo included the following:

• Review of BitGo Inc’s (which licenses technology to BitGo Trust Company, Inc.) SOC 2 Type 2 report and certification (System and Organization Controls Report Relevant to Security conducted by Deloitte for the periods from December 1, 2018 to November 30, 2019 and December 1, 2019 to September 30, 2020).
• Review of BitGo’s comprehensive insurance policy for digital assets which currently covers $100 million in losses for funds held in cold storage, includes a set of corporate insurance policies, and optional hot wallet insurance.
• Confirmation that BitGo will hold all crypto assets in trust for customers of Netcoins in an omnibus account in the name of Netcoins, and separate and distinct from the assets of Netcoins and all of BitGo’s other clients.
• Review of BitGo systems that permit Netcoins to generate a unique address for each customer account so it can track who sent the funds in, and which account to credit. When a customer sends funds, it creates a new BitGo sub-account, which feeds into one main account which is in the name of Netcoins. Once a customer account is funded with the

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Management Discussion & Analysis

For the Nine Months Ended September 30, 2021

relevant crypto asset, BitGo custodies the crypto asset. BitGo utilizes 100% multi-signature technology to remove single points of failure, user and wallet controls to establish and enforce internal policies and procedures, and two-factor authentication for all accounts.

• Review of BitGo’s policies and procedures which it has established and applied that manage and mitigate the custodial risks, including, but not limited to, an effective system of controls and supervision to safeguard the crypto assets for which it acts as custodian.
• Confirmation that BitGo has an independent internal audit performed by Eide Bailly LLP, a public accounting firm.

Netcoins has conducted due diligence on BitGo and has not identified any material concerns. The Company is not aware of anything with regards to BitGo’s operations that would adversely affect the Company’s ability to obtain an unqualified audit opinion on its audited financial statements. The Company is not aware of any security breaches or other similar incidents involving BitGo as a result of which crypto assets have been lost or stolen. There are no restrictions on the Company’s ability to move crypto assets from the custodianship of BitGo, and these transfers can occur immediately, subject to the control processes, such as two video conferences to authorize cold storage transfers.

Netcoins has assessed the risks and benefits of using BitGo and has determined that in comparison to a Canadian custodian it is more beneficial to use BitGo, a U.S. custodian, to hold client assets than using a Canadian custodian, as there is not a suitable Canadian custodian option at this time.

In addition to the initial due diligence on BitGo, Netcoins continues to conduct ongoing due diligence on BitGo. As part of an annual review, Netcoins will require BitGo to:

• provide copies of any completed SOC reports and reviewing same for any increase risk to Netcoins;
• confirm from BitGo that it maintains adequate insurance coverage;
• verify the amount of BitGo’s equity and other financial metrics to address counterparty risk; and
• verify that BitGo maintains any requisite licenses including licenses issued by the Division of Banking in South Dakota or any other regulator.

The Company currently uses both hot and cold wallet systems within BitGo. A warm wallet may be added during 2021 in connection with a larger operational float.

• The cold wallet is completely segregated, is not connected to the internet and is used for long term storage of crypto assets. The cold wallet requires two of four authorized signatories, as representatives of the Company, to verify any transfers from the cold wallet via video conference.
• The warm wallet will be connected to the internet, but not connected to the Netcoins web application via API and does not require video verification to initiate transactions. The warm wallet is whitelisted directly to the hot wallet, meaning funds can only be transferred from the warm wallet to the hot wallet. The warm wallet will require manual review and verification from two of four authorized signatories.
• The hot wallet is connected through the internet, is connected to the Netcoins web application via API and all customer deposits and withdrawals are processed through the hot wallet. As thresholds are met, transfers are reviewed and signed manually by one of four authorized signatories. The relevant thresholds include limits of 4 BTC per transaction, 30 BTC per hour, or 100 BTC per day. Additional thresholds will be put in place for other crypto assets during 2021.

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Disclaimer

BIGG Digital Assets Inc. published this content on 30 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 November 2021 01:20:04 UTC.