Appili Therapeutics Inc. — Management Reports 2021

Jun 24, 2021

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MANAGEMENT’S DISCUSSION AND ANALYSIS

For the Fiscal Year Ended March 31, 2021

Dear Appili Shareholders,

We founded Appili Therapeutics because we thought more needed to be done to prepare and protect the world from dangerous emerging viruses, bacteria, and fungi. We were certainly in the minority. Where bigger, more established companies saw infectious diseases as a low priority, we saw an opportunity to do good - and build a successful business in the process.

2021 has been a year of significant progress and exciting new opportunities for Appili Therapeutics. I want to update you on these developments and reflect on some of the events that have shaped our business and industry during the first half of this year.

The COVID-19 pandemic has continued to ravage countries and disrupt lives in every corner of the world. With the introduction of several vaccines, we are witnessing a slow return to a normal way of life. However, the progress has been uneven around the world, with infection rates plummeting in some countries, such as the U.S., and soaring in others.

I believe we are entering a new stage with COVID-19; one in which the virus will continue to mutate and spread opportunistically -- a problem that will be compounded by disparities between those who have access to vaccines and adequate medicines and those that don’t. As such, accessible and easy to produce therapeutics will be critical to containing outbreaks and hotspots that will continue to emerge for the foreseeable future.

Although our efforts to combat COVID-19 have dominated our focus, our mission is broader. We recognize that we have a critical role to play by advancing our work to solve this and other critical unmet needs in infectious diseases, which will continue to be our core mission to improving public health.

Our work in the anti-infective treatment landscape that we approach with adherence to sound financial and scientific standards is healthy and diverse. This brings me to share with you highlights on some of our advancements in the past several months:

• We have made rapid progress on our favipiravir program and pivotal Phase 3 trial PRESECO (PReventing SEvere COvid-19). This is a complicated clinical trial that will answer a very simple question: does this oral antiviral medicine help COVID-19 patients recover faster? The study will also allow us to assess if favipiravir may help decrease hospitalizations and death. The trial, which has enrolled over 730 patients and is nearing completion, is investigating the safety and efficacy of Avigan/Reeqonus (favipiravir) in the early treatment outpatient setting for adults infected with COVID-19. Last month, we announced that an independent Data and Safety Monitoring Board (DSMB) recommended continuation of the ongoing trial without modification. More recently, we announced expansion of the trial to new sites in Mexico and Brazil to help expedite completion of the study by September 2021.

Currently, there are no approved oral antivirals for COVID-19 in North America or Europe, underscoring the unmet need for this part of the market which we hope to answer along with some of our partners. Appili is not alone in studying antivirals as a treatment for COVID-19, but favipiravir is among the most advanced oral antiviral candidates in development. We remain hopeful that our clinical trial will validate the safety and effectiveness of favipiravir and pave the way, pending government approvals, for market entry around the world.

• There are many other infectious pathogens circulating amongst us that need to be addressed sooner rather than later, and we continue to advance our broader pipeline to do just that. Thanks to the efforts of our team behind the scenes, we are on track to initiate Phase 2 study on our novel broadspectrum antifungal ATI-2307 in 2022. In addition to completing necessary preclinical and

manufacturing development activities over the last year, we held two KOL advisory meetings in early 2021 to inform our clinical development strategy and Phase 2 trial designs. With this work completed, we are well-positioned to pursue our two target indications: cryptococcal meningitis and invasive candidiasis. Both are opportunistic and life-threatening invasive diseases of high unmet need. Cryptococcal meningitis is a disease with few therapeutic options and a toxic first-line therapy. More drugs exist for invasive candidiasis, but treatment outcomes are still suboptimal for many patients. Resistance is also a constant threat, especially from the newly emerged and highly drugresistant Candida auris , a new fungal species that is spreading globally and a top priority for the CDC. As a novel, broad-spectrum antifungal with a differentiated mechanism of action, ATI-2307 is well suited to tackle both of these challenges.

We see a durable need for new antifungals as immunosuppression from medical interventions and aging becomes more common, and we view Pfizer’s recent acquisition of Amplyx and its lead Phase 2 antifungal fosmanogepix as a positive signal that others are seeing the value as well.

• We also continue to strengthen ties with our government partners to advance our programs. With the help of our partners, Appili secured a $6.3 million (USD) research grant from the Defense Threat and Reduction Agency (DTRA) to fund the regulatory, manufacturing, and pre-IND studies for our experimental tularemia vaccine, ATI-1701. Tularemia is a top priority biothreat for which there is no FDA-approved vaccine. The DTRA grant is further evidence of Appili’s strong working relationships with government partners who, like us, see infectious diseases as a public health priority.

• Looking beyond the current crisis, COVID-19 has put pandemic preparedness on the agenda for lawmakers in the US, Europe, and elsewhere. The crippling shortage of personal protective equipment and therapeutics, such as antivirals, and the lack of medicines to prevent the spread of the virus has prompted government leaders to begin discussions on how to build stockpiles for the next pandemic, putting a premium on supplies and medicines, such as antivirals, that have a long shelf life. COVID-19 also highlighted to governments that they need to be more proactive in their pandemic preparedness policies by supporting the development of new agents as well as stockpiling for a variety of discovered and undiscovered infectious diseases like drug-resistant bacteria, fungus, and of course emerging viruses. This global development aligns well with our founding strategy to acquire, develop and commercialize novel therapeutics in the area of infectious disease.

Looking ahead, we will be focusing our attention on several priorities; near term, our team will be completing the Phase 3 PRESECO clinical trial that if successful will mean that we can move ahead to seek regulatory approval for the use of favipiravir in early treatment of patients infected with COVID-19 in an outpatient setting. In parallel, we are rapidly approaching our Phase 2 antifungal trials on ATI-2307 to investigate the agent’s efficacy for the treatment of two life-threatening diseases, cryptococcal meningitis, and invasive candidiasis. Last but certainly not least, we will be working to expand our pipeline with new opportunities to complement our existing portfolio of novel therapeutics in the area of infectious diseases.

Let me end in saying that we are excited for what the future has in store for us as we head into the second half of 2021 and would like to thank you for your continued support of our mission and the valuable work we’re doing to improve and save the lives of patients worldwide.

Armand Balboni Chief Executive Officer, Appili Therapeutics Inc.

APPILI THERAPEUTICS INC.

The following Management’s Discussion and Analysis (“ MD&A ”) of Appili Therapeutics Inc. (“ Appili ”, the “ Company ”, “ we ”, “ us ” or “ our ”) is prepared as of June 23, 2021, provides information concerning the Company’s financial condition and results of operations. This MD&A should be read in conjunction with our audited annual financial statements for the fiscal years ended March 31, 2021 and 2020, including the related notes thereto. The preparation of financial information included in the MD&A has been prepared in accordance with International Financial Reporting Standards (“ IFRS ”) as issued by the International Accounting Standards Board, unless otherwise noted. Unless stated otherwise, all references to “$” are to Canadian dollars.

FORWARD-LOOKING STATEMENTS

This MD&A (which for purposes of this section includes the attached letter to shareholders) contains forward-looking statements or forward-looking information (collectively, “ forward-looking statements ”) under applicable Canadian securities legislation including, without limitation, statements containing the words “believe,” “may,” “plan,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative or grammatical variations of these terms or other comparable terminology, although not all forwardlooking statements contain these words and similar expressions. Forward-looking statements are necessarily based on estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as the factors we believe are appropriate. Forward-looking statements in this MD&A include, but are not limited to, statements relating to:

• our ability to maintain the listing of the Company’s Class A common shares (the “Common Shares”) on the Toronto Stock Exchange (the “ TSX ”);

• our strategy;

• our ability to continue as a going concern;

• the sufficiency of our financial resources to support our activities;

• potential sources of funding;

• the effect of the coronavirus disease 2019 (“ COVID-19 ”) on the Company’s business and operations;

• our deployment of resources;

• our ability to obtain necessary funding on favourable terms or at all;

• our expected expenditures and accumulated deficit level;

• our outcomes from ongoing and future research and research collaborations;

• our exploration of opportunities through collaborations, strategic partnerships, and other transactions with third parties;

• our plans for the research and development (“ R&D ”) of certain product candidates;

• our strategy for protecting our intellectual property;

• our ability to identify licensable products or research suitable for licensing and commercialization;

• our ability to obtain licenses on commercially reasonable terms;

• our plans for generating revenue;

• our plans for future clinical trials;

• our ability to hire and retain skilled staff; and

• our intention with respect to updating any forward-looking statements after the date on which such statement is made or to reflect the occurrence of unanticipated events;

Such statements reflect our current views with respect to future events, are subject to risks and uncertainties and are necessarily based upon a number of estimates and assumptions that, while considered reasonable by Appili as of the date of such statements, are inherently subject to significant medical, scientific, business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements. In making the forward-looking statements included in this MD&A, the Company has made various material assumptions, including but not limited to (i) the Company’s ability to initiate and complete its proposed clinical trials in a timely manner; (ii) the ability of the Company to secure the requisite level of patient and site enrollment; (iii) the Company’s ability to enter into the requisite clinical trial agreements

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relating to any proposed clinical trials; (iv) obtaining positive results of clinical trials; (v) obtaining regulatory approvals; (vi) general business and economic conditions; (vii) the Company’s ability to successfully out-license or sell its current products and in-license and develop new products; (viii) the availability of financing on reasonable terms; (ix) the Company’s ability to attract and retain skilled staff; (x) market competition; (xi) the products and technology offered by the Company’s competitors; (xii) the Company’s ability to protect patents and proprietary rights; and (xiii) the effect of COVID-19 infections (“ COVID-19 ”) on the Company’s business and operations.

In evaluating forward-looking statements, current and prospective shareholders should specifically consider various factors, including risks related to:

• limited operating history and early stage of development;

• identifying, developing and commercializing product candidates;

• regulatory risks;

• market competition;

• the Company’s dependence on third parties;

• clinical trial risks;

• third party manufacturing and supplier risks;

• the effect of COVID-19 on the Company’s business and operations;

• the Company’s potential redeployment of resources;

• the ownership and protection of intellectual property;

• litigation and product liability risks;

• employee matters and managing growth;

• ownership of the Company’s securities;

• working capital and capital resources

• ability to retain key personnel;

• implementation and development delays;

• product deficiencies

• volatility of share price; and

• the other risks discussed under the heading “ Risk Factors ” in the Company’s annual information form dated June 23, 2021.

Should one or more of these risks or uncertainties, or a risk that is not currently known to us, materialize, or should assumptions underlying those forward-looking statements prove incorrect, actual results may vary materially from those described herein. These forward-looking statements are made as of the date of this MD&A and we do not intend, and do not assume any obligation, to update these forward-looking statements, except as required by applicable securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance and are inherently uncertain. Accordingly, investors are cautioned not to put undue reliance on forward-looking statements.

MARKET DATA

Certain market and industry data (including study results) used in this MD&A were obtained from market research, publicly available information and industry publications. Appili believes that these sources are generally reliable, but the accuracy and completeness of this information is not guaranteed. Appili has not independently verified this information, and does not make any representation or warranty as to the accuracy of this information.

BUSINESS OVERVIEW

Appili is a pharmaceutical company focused on the acquisition and development of novel medicines targeting unmet needs in infectious disease. Since incorporation in 2015, the Company has been focused on building and advancing a diverse portfolio of anti-infective programs. Key activities have included the acquisition and development of novel technologies, the development of strategic partnerships, targeted hiring and building out drug development capabilities, securing intellectual property, and raising funds through equity capital raises and non-dilutive funding mechanisms.

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The Company’s anti-infective portfolio currently includes five programs, described below: ATI-2307, ATI-1701, ATI-1503, ATI-1501, and a global partnership on the COVID-19 antiviral candidate REEQONUS[TM] / Avigan[®] / favipiravir (“ favipiravir ”).

Favipiravir

On October 30, 2020, Appili announced a collaboration, development, and supply agreement (the “ Collaboration Agreement ”) with Dr. Reddy’s Laboratories Ltd. (“ DRL ”) and Global Response Aid (“ GRA ”) for the oral COVID19 antiviral candidate favipiravir. This agreement follows on and is harmonized with the previously announced global licensing transaction (excluding Japan, Russia, and China) between DRL, GRA and FUJIFILM Toyama Chemical Co., Ltd. (“ FFTC ”), the originator of favipiravir tablets. The agreements work together to coordinate and accelerate the worldwide development, commercialization, and distribution of favipiravir tablets for the potential treatment and prevention of COVID-19. Under the terms of the agreement and in collaboration with its partners, Appili is designing, overseeing, and funding pivotal clinical trials to support global regulatory submissions. Partners DRL, GRA, and FFTC will be responsible for manufacturing, distribution, and commercialization worldwide outside of Japan, China and Russia. Appili will receive a profit share on Canadian and US commercial sales for a specified term and is eligible to receive royalties on rest of world sales realized by DRL and GRA, including in Europe and Latin America for a specified term.

COVID-19 remains an urgent public health threat worldwide. Although several vaccines have been developed and authorized for emergency use, the Company believes the need for other COVID-19 therapies, including oral antivirals, will continue, both to protect those unable to receive access to the vaccines, as well as to contain outbreaks of future variants of the virus. Easy-to-use oral therapeutics, available as a pill that could be taken at home or outside of the hospital, would allow earlier treatment of patients, before they progress to more severe disease and hospitalization. Early intervention could also help limit the spread of disease, and oral therapeutics may also enable step-down from intravenous therapy in hospitals, reducing costs and freeing up beds. Oseltamivir, sold under the brand name of Tamiflu[®] , is an oral antiviral for influenza, which is regularly prescribed despite widespread influenza vaccine availability, underscoring the importance of oral agents for the treatment and containment of acute respiratory viral infections.

Favipiravir is an orally delivered novel broad-spectrum antiviral drug originally developed by FFTC and approved in 2014 in Japan for use against pandemic influenza (flu) (PMDA 2014). Favipiravir is active against a wide range of RNA viruses, including many for which there are limited or no approved therapies (Furuta 2017). Favipiravir has been extensively studied and has a well-established safety profile. Over 3,000 subjects had received at least one dose of favipiravir prior to the COVID-19 pandemic, with additional trials initiated and completed since (Pilkington 2020). The drug is available in an oral tablet format, stable at room temperature, and amenable to use in a wide range of care settings (PMDA 2014; Furata 2017).

Multiple clinical studies suggest favipiravir may be effective in treating COVID-19. As of March 15, 2021, there were over 30 clinical studies listed on clinicaltrials.gov evaluating favipiravir for COVID-19. Researchers in China were the first to report in February 2020 that favipiravir exhibited antiviral activity in vitro against SARS-CoV-2, the virus that causes COVID-19 (Wang 2020). Other small-scale clinical trials conducted in China, Russia, and India provided early indications of clinical benefit to patients with COVID-19, although some studies were also inconclusive (Cai 2020; Chen 2020; Glenmark Jul 22 2020 PR; Doi 2020; Ivashchenko 2020, Udwadia 2020). Based on initial data, Russia and India have approved favipiravir for the emergency treatment of COVID-19. Researchers are currently conducting trials evaluating favipiravir for COVID-19 in various countries, including the United States, China, and the United Kingdom. However, robust randomized controlled Phase 3 trials are needed to support regulatory approvals globally.

Appili and its consortium partners are engaged in a comprehensive clinical development program to evaluate the potential efficacy of favipiravir for the treatment of COVID-19. Appili partners DRL and FFTC have each reported on trials conducted in the hospital setting, while Appili continues to focus on evaluation of favipiravir in community and outpatient settings.

In September 2020, FFTC announced the results of its Phase 3 study evaluating favipiravir for the treatment of hospitalized COVID-19 patients with non-severe pneumonia. The study met its composite primary endpoint, with

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favipiravir showing a statistically significant improvement in time to elimination of COVID-19-related symptoms (defined as no fever, SpO2[1] >95%, and improvement on chest imaging) and undetectable SARS COV-2 by PCR testing. This randomized, placebo-controlled study was conducted in 156 COVID-19 patients (n=107 on favipiravir; n=49 on placebo). The median time to achieving the endpoint with favipiravir was reduced by 2.8 days compared to the control group (p= 0.0136) (FFFTC PR Sept 23 2020).

In January 2021, DRL announced interim results from its Phase 3 trial conducted in Kuwait evaluating favipiravir for the treatment of hospitalized patients with moderate-to-severe COVID-19. The primary endpoint analyzed was sustained resolution of hypoxia, a condition where not enough oxygen makes it to the cells and tissues in the body. Length of hospitalization was analyzed as a secondary endpoint. The study’s primary endpoint met the pre-specified definition of futility and the trial was stopped. A subgroup analysis, however, of subjects with a low National Early Warning Risk Score, a system for predicting severe COVID-19 outcomes, revealed that the patients were discharged 3 days earlier than the control group (median time to discharge; 8 days vs. 11 days; p < 0.05).

The data generated by DRL and FFTC suggests that favipiravir may provide important clinical benefits when given early to COVID-19 patients and has little or no effect when given to later-stage hospitalized patients. This observation is consistent with earlier trials conducted on favipiravir in India and China (Chen 2020; Glenmark Jul 22 2020) and in-line with findings reported by both Gilead and Eli Lilly showing greater clinical benefit with Veklury® (remdesivir) and bamlalnivimab when administered to patients with milder, earlier-stage disease (Beigel 2020; ACTIV-3/TICO LY-CoV555 Study Group 2020; Chen 2020). Previous clinical experience with other acute viral infections such as influenza also suggests that the potential clinical benefit of antivirals is highest when administered either prior to or early during infection, before widespread tissue damage and progression to severe illness has occurred (Fiore 2011, Welliver 2001, Romagnoli 2020).

Appili’s announced clinical trials are summarized below:

 PRESECO: Phase 3 Early Treatment of Mild-to-Moderate COVID-19

PRESECO is a double-blinded, randomized, placebo-controlled Phase 3 trial designed to evaluate the efficacy of favipiravir for the early treatment of mild-to-moderate COVID-19 in the outpatient setting. The study is actively enrolling and expected to enroll approximately 826 patients at COVID-19 treating sites in the US, Brazil and Mexico. The primary endpoint will be time to resolution of symptoms, with additional secondary endpoints assessing impact on hospitalization rates and more severe outcomes. PRESECO also includes a viral shedding sub-study involving a subset of study participants.

PRESECO enrollment commenced in November 2020. The Company subsequently announced that the DSMB recommended the continuation of the study in May 2021. Enrollment is expected to be completed in Q3 2021, with final data readout anticipated in Q3 2021.

 PEPCO: Phase 3 Early Treatment of Mild-to-Moderate COVID-19

PEPCO will be a double-blinded, randomized, placebo-controlled Phase 3 trial designed to evaluate the efficacy of favipiravir for COVID-19 post-exposure prophylaxis in the outpatient setting. The study is expected to enroll 1,156 COVID-19 household contacts in Canada and the US. The primary endpoint will be the proportion of subjects who develop symptomatic COVID-19, with additional secondary endpoints assessing asymptomatic infections rates, as well as impact on hospitalization rates and more severe outcomes.

The Phase 3 protocol has been submitted to the FDA and initiation of the study is subject to the Company receiving support to fund the clinical trial.

1 Oxygen saturation (SpO2) is a measurement of how much oxygen your blood is carrying as a percentage of the maximum it could carry. For a healthy individual, the normal SpO2 should be between 96% to 99%.

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 CONTROL-COVID: Phase 2 COVID-19 Outbreak Control in Long-Term Care Facilities (“LTCs”)

CONTROL-COVID was a partially-blinded, placebo-controlled, cluster randomized controlled trial evaluating the utility of favipiravir as a preventative measure against COVID-19 outbreaks in LTCs. Under the trial protocol, upon confirmation of a COVID-19 outbreak in a long-term care unit, all consenting residents in that unit, including those with confirmed COVID-19, received either favipiravir or placebo. The study design called for enrollment of 16 longterm care units across Canada and the US, however due to the decline in cases of COVID-19 in LTC’s, the Company announced it was stopping the trial due to lack of enrolment in June 2021.

Along with partners DRL, FFTC, and GRA, Appili continues to monitor the clinical and commercial landscape for COVID-19 therapies and may elect to initiate additional trials or development activities to accelerate or expand market access for favipiravir in the US, Canada, and globally.

ATI-2307

Appili acquired novel antifungal ATI-2307 (formerly T-2307) from FFTC in November 2019. Appili holds worldwide rights to the program with the exception of Japan, which was licensed back to FFTC as part of the Asset Purchase Agreement (as defined herein).

ATI-2307 is a novel small molecule antifungal with a highly differentiated mechanism of action and broad-spectrum activity against fungal pathogens, including Candida , Aspergillus , and Cryptococcus (Mitsuyama et al., 2008). ATI2307 interferes with fungal mitochondria, making it cidal (deadly) against Cryptococcus (Mitsuyama et al., 2008; Nishikawa et al., 2017; Shibata et al., 2012). The compound has demonstrated in vivo efficacy in multiple animal models of fungal infection, including 100% survival in a lethal mouse lung Cryptococcus infection model. The Company is planning on evaluating the potential effectiveness of ATI-2307 for the treatment of a variety of invasive fungal infections, including those caused by Cryptococcus and Candida species. The target patient population is proposed to consist of severely ill and hospitalized, highly comorbid patients with suspected or confirmed invasive fungal infection, in which ATI-2307 will be administered via intravenous infusion.

The safety and pharmacokinetics of ATI-2307 have been evaluated in 80 human subjects as part of three Phase 1 Single Ascending Dose (“ SAD ”) and/or Multiple Ascending Dose (“ MAD ”) clinical studies conducted in the United States. ATI-2307 has been safe and well tolerated at all doses tested in humans.

The Company is developing ATI-2307 for the treatment of invasive fungal infections with a near-term focus on those caused by Cryptococcus and Candida. Generally regarded as an opportunistic infection, Cryptococcus infections occur most commonly in immunosuppressed patients, such as those undergoing chemotherapy for cancer treatment, immunosuppression for transplant, or HIV-positive patients (May 2016). Cryptococcus is often invasive and infections frequently progress to the central nervous system, resulting in a disease known as cryptococcal meningitis. Cryptococcal meningitis is a life-threatening disease despite current therapies (Pyrgos 2013, Pappas 2013). The current standard of care for cryptococcal meningitis, which is amphotericin B in combination with flucytosine (Perfect 2010), is also associated with significant toxicity, including the potential for kidney failure (Saliba 2008, Hamill 2013, AmBisome® FDA Label 2012).

The Company is conducting proof of concept, nonclinical studies evaluating the therapeutic effect of ATI-2307 in rabbit and mouse intracranial Cryptococcus infection models. These studies are being conducted in collaboration with leading Cryptococcus researchers, including Dr. John Perfect at Duke University and Drs. Thomas Patterson and Nathan Wiederhold at the University of Texas Health Science Center at San Antonio. The Company is also evaluating ATI-2307 activity in vitro against a panel of clinical isolates, including drug-resistant Cryptococcus strains. The proposed and ongoing nonclinical studies will guide the Company’s development strategy. A portion of the work described above is being supported by the U.S. National Institute of Allergy and Infectious Diseases (“ NIAID ”). The Company held advisory meetings with key opinion leaders to discuss potential development pathways and Phase 2 trial designs for Cryptococcus . The Company has also initiated manufacturing, clinical, and regulatory activities to support initiation of a Phase 2 clinical trial expected to commence in 2022.

The Company is also currently evaluating options to advance ATI-2307 as a therapeutic for invasive Candida infections through discussions with key opinion leaders and is exploring potential government grant sources to fund

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such activities. Multiple Candida species are capable of human infection, including the most commonly observed Candida albicans and the newly emerging pathogen Candida auris (Jeffery-Smith 2017). Candida species are generally treated with an echinocandin or an azole (Pappas 2015), but growing antifungal resistance is threatening the existing antifungal drugs on the market (Pristov 2019). Physicians often rely on toxic amphotericin B in cases of refractory and highly resistant Candida infections (Pappas 2015). In the case of C. auris , infections resistant to all three major classes have been reported (Ostrowsky 2020, Ostrowsky 2018, Lockhart 2017). Drug-resistant Candida and C. auris in particular are now priority pathogens for the CDC (CDC 2019). The Company has also held advisory meetings with key opinion leaders to discuss potential development strategy and regulatory pathways for Candida .

Depending on the indication(s) pursued in the clinic, ATI-2307 may be eligible for registration under the Limited Population Pathway for Antibacterial and Antifungal Drugs (“ LPAD ”). Introduced in 2016 as part of the 21st Century Cures Act, the LPAD provides a mechanism for accelerated clinical development and registration for antibiotics and antifungals that treat serious or life-threatening conditions in a limited population, by potentially allowing for smaller, shorter, or fewer clinical trials (FDA, 2018). Additional conditions may need to be met in order to be eligible for development and approval under the LPAD. The Company is evaluating the eligibility and appropriateness of applying the LPAD to ATI-2307 development.

The Company believes that ATI-2307 would be eligible for an Orphan Drug Designation (“ ODD ”) from the FDA if developed for either the treatment of cryptococcal meningitis or certain forms of invasive candidiasis. This would qualify ATI-2307 for seven years of regulatory exclusivity upon FDA approval of the ODD. Candida and Cryptococcus are also both qualifying pathogens for the Qualified Infectious Disease Product (“ QIDP ”) designation and the Company believes ATI-2307 would be eligible for an additional five-year exclusivity extension if approved for the treatment of either pathogen.

ATI-1701

Appili licensed the exclusive worldwide rights to biodefense vaccine candidate ATI-1701 from the National Research Council of Canada ( “NRC” ) in December 2017.

ATI-1701 is a novel, live-attenuated vaccine for Francisella tularensis (“ F. tularensis ”). F. tularensis , which causes tularemia, is a Category A pathogen which can be aerosolized and is over 1,000 times more infectious than anthrax when inhaled (PHAC PSDS Anthrax 2011, PHAC PSDS Tularemia 2011). Category A pathogens are organisms or biological agents that, according to the National Institutes of Health (“ NIH ”), pose the highest risk to National Security and public health (NIH website). The signs, symptoms, and prognosis of tularemia depends on the route of infection. Pneumonic tularemia, caused by inhalation of F. tularensis , is among the most severe forms of tularemia, causing respiratory issues and difficulty breathing in patients and can be fatal if untreated, (CDC 2018, WHO 2007). Since it is a highly infectious pathogen capable of causing severe illness, medical counter measures for F. tularensis are a top biodefense priority for the United States and governments around the world. There is currently no approved vaccine for the prevention of tularemia in the United States or other major global markets.

Preliminary studies in mice conducted by the NRC and colleagues have demonstrated 100% survival of ATI-1701immunized mice compared to no survival in unvaccinated mice (Conlan 2010, Shen 2010). Drug manufacturing activities have been initiated and animal work commenced in 2019. Preliminary data from ongoing non-human primate study showed a protective effect from ATI-1701 when animals were challenged with a lethal dose of F. tularensis 28 days after vaccination, and complete (100% survival) protection from lethal challenge 90 days after vaccination. Analysis of data is ongoing from an additional experiment where non-human primates were challenged at 365 days post-vaccination. Once complete, this will be followed by pivotal animal studies as well as a human safety Phase 1 study targeted to start in 2023.

ATI-1701 activities have been, and are continuing to be, funded with Appili’s current resources and grant funding received from the US Defense Threat Reduction Agency (“ DTRA ”), including an award which was announced in October 2020 of $6.3M USD in additional funding to support advanced development and manufacturing of the vaccine.

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ATI-1503

The ATI-1503 program objectives include the development of a new class of Gram-negative targeting antibiotic. The ATI-1503 program builds off the molecular structure of negamycin, a naturally-occurring compound that can kill Gram-negative bacteria, with multiple attractive drug-like properties that support its development. Negamycin has a novel, well-characterized mechanism of action. The molecule has activity against a wide range of Gram-negative bacteria, has a low frequency of resistance, high solubility, and favourable pharmacokinetic properties (Guo 2015, McKinney 2015, Olivier 2014, Polikanov 2014) that support further development of the ATI-1503 program.

The ATI-1503 development team has identified two novel and structurally-distinct lead series based on the negamycin scaffold, each of which has exhibited over 10-fold increases in antibiotic activity compared to the parent negamycin compound. These lead compounds now have low, single-digit minimum inhibitory concentrations (“ MICs ”) against many Gram-negative bacteria, including carbapenem-resistant Enterobactericiae and Acinetobacter , both of which are top priorities for the CDC. These analogues have demonstrated in vivo proof-of-concept against Klebsiella and Escherichia . These most promising compounds continue to advance through Appili’s structured preclinical screening and evaluation, including multiple in vivo efficacy animal models, safety screening, and pharmacokinetic evaluations.

Characterization of in vivo toxicology is currently ongoing. Compounds that successfully complete this preclinical development process may be nominated as clinical candidates for investigational new drug (“ IND ”) enabling studies. In order to support IND enabling studies, the manufacturing route had to be optimized as the original synthetic route was only capable of generating milligram to gram quantities of material. The newly developed manufacturing process is now amenable to scale up to 100-gram amounts. While Appili aims to identify a preclinical lead in 2021, the Company recognizes that the negamycin molecular structure could potentially yield multiple derivative compounds with distinct efficacy, safety, and pharmacokinetic profiles suitable for parallel development. The Company may elect to continue pursuing additional optimization activities to produce follow-on compounds with additional clinical potential and value.

ATI-1503 activities are continuing to be, funded with Appili’s current resources and grant funding received from the NRC Industrial Research Assistance Program and the U.S. government’s Peer Reviewed Medical Research Program (“ PRMRP ”).

ATI-1501

ATI-1501 is a taste-masked liquid oral suspension formulation of the antibiotic metronidazole. Metronidazole is a front-line antibiotic for the treatment of anaerobic bacterial and parasitic infections (Quintiles 2016, Solomkin 2010, Flagyl® FDA Label 2018). In many jurisdictions, including the United States and Canada, the only approved oral metronidazole products are in solid dose formats. Elderly and pediatric patients with difficulty swallowing typically have to crush the tablets to ingest them. Metronidazole also has a strong bitter and metallic taste that is exacerbated by crushing and can reduce patient adherence to treatment. ATI-1501 is aimed at making it easier for patients with difficulties swallowing and sensitivity to taste to take metronidazole, supporting adherence and clinical outcomes.

The primary commercialization focus for ATI-1501 is the United States market. To be marketed in the United States, ATI-1501 must be approved by the FDA. Since ATI-1501 is a reformulation of an approved pharmaceutical product, the Company expects it to qualify for FDA approval pursuant to Section 505(b)(2) of the FDA Act. The 505(b)(2) regulatory pathway allows companies to use previously published clinical data about the approved active ingredient as part of its application package, a feature that reduces clinical costs and time to approval. The quantity of new clinical data required for a 505(b)(2) application is dependent on the reformulation in question and is determined in consultation with the FDA. If the application via the 505(b)(2) pathway is successful, ATI-1501 is expected to be approved for the same approved indications for which metronidazole is currently approved.

In December 2019, Appili entered into a development and commercialization agreement with Saptalis Pharmaceuticals LLC (“ Saptalis ”) for the manufacturing development and commercialization of ATI-1501. Under the terms of the agreement, Appili is eligible to receive multiple milestone and royalty payments on the development and sale of ATI-1501 in the United States. In addition, Saptalis will be responsible for overseeing the regulatory review, manufacturing and preparation for the filing of an NDA with the FDA expected in 2022, as well as the anticipated commercialization of ATI-1501 in the United States, which are the next major development milestones

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for ATI-1501. Upon signing the commercialization agreement with Saptalis, the Company received the initial upfront payment of USD$150,000 that was recognized as revenue in December 2019. In November 2020, Saptalis requested and obtained a Type C meeting with the FDA to discuss potential adjustments to the formulation. The continued development of the drug product will be adapted to the feedback received from the regulatory agency.

COVID-19

The World Health Organization declared the outbreak of COVID-19, a global pandemic and a result, governmental authorities had to introduce measures to limit the impact of the pandemic, which resulted in a disruption and collapse of business activities for many organizations. As a result of COVID-19, currently, some of the development activities in Appili’s product candidates have been delayed (including as a result of Appili’s decision to prioritize its resources towards the development of favipiravir).

We continue to monitor the COVID-19 situation, which is rapidly evolving. In addition to adhering to directives from public health officials, we have implemented a pandemic contingency plan to guide our employees, contractors, visitors, facilities and operations. Our plan includes identifying essential business activities to help ensure continuity of business, restricting access to our offices and operation sites and encouraging all employees to work from home to the extent possible, asking business partners to engage us by telephone or video conference where possible, eliminating business travel and requiring self-isolation for employees travelling outside of Canada and increasing the frequency and emphasis on cleaning and sanitizing. As the COVID-19 health crisis further develops, we will continue to rely on guidance and recommendations from local health authorities and the Centers for Disease Control and Prevention to update our policies.

The extent to which COVID-19 will continue to impact the Company’s operations will depend on future developments which are highly uncertain and cannot be predicted with confidence. The continued spread of COVID-19 globally could adversely impact the Company’s operations, including among others, manufacturing supply chain and clinical trial activities and timelines, which could have an impact on business and financial results.

The milestones set out in this document are based on management’s current expectations with respect to the development and advancement of the Company’s products and are subject to certain underlying assumptions and general risks. Due to the nature of the Company’s business and stage of operations, there is no assurance that these objective will be achieved, and there can be no assurance with respect to the time or resources that may be required.

Our Business Strategy

The Company was founded to acquire, develop and commercialize novel therapeutics in the area of infectious disease. The strategic decision to focus on infectious disease was driven by the large unmet clinical need in the therapeutic area, as well as the increasing number of regulatory and financial incentives available to support anti-infective R&D. The Company has recruited a team of experienced drug development and commercialization professionals to, among other things: (i) identify high value commercial and R&D anti-infective assets, (ii) leverage available incentive programs to accelerate development, and (iii) maximize market access, reimbursement, and partnerships and alliances to realize stakeholder value. The Appili team has built a portfolio of anti-infective assets through internal innovation and acquisition from partners, and is actively evaluating additional antiviral, antibacterial, antifungal, antiparasitic and vaccine assets for acquisition or partnership.

RECENT DEVELOPMENTS

Overall Performance

The Company has limited revenues, so its ability to ensure continuing operations is dependent on obtaining necessary financing to complete the development of the Company’s anti-infective portfolio, which includes five major programs: favipiravir, ATI-2307, ATI-1701, ATI-1503 and ATI-1501.

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The Company had the following recent key developments and achievements over the last 12 months:

• On May 17, 2021, the Company announced that an independent Data and Safety Monitoring Board (“ DSMB ”) has recommended continuation without modification of Appili’s ongoing Phase 3 PRESECO trial, which enrolled its first patient on December 2, 2020, evaluating favipiravir as a potential oral therapy for patients with mild-to-moderate COVID-19.

• On March 3, 2021, the Company hosted its first webinar series examining major trends in the global infectious disease landscape. The first event was an engaging discussion featuring Dr. Scott Gottlieb and other speakers to address the ongoing challenges in preventing and treating COVID-19.

• On February 2, 2021, the Company announced the appointment of Rochelle Stenzler to serve on its Board of Directors.

• On December 22, 2020, the Company announced that Dr. Reddy’s Canada has filed an application on behalf of the consortium for favipiravir tablets for the acute treatment of mild to moderate COVID-19 adult patients under the Interim Order in Canada.

• On November 24, 2020, the Company announced initiation of its Phase 3 PEPCO study to evaluate favipiravir tablets in the prevention of COVID-19. Health Canada has provided a ‘No Objection Letter (NOL)’ for Appili’s proposed study; the FDA accepted a submission of protocol amendment to conduct the trial in the United States.

• On October 30, 2020, the Company announced that it has signed the Collaboration Agreement with DRL and GRA.

• On October 29, 2020, the Company announced that it has recruited Don Cilla, PharmD, MBA, to serve as the Company’s new Chief Development Officer (CDO), effective November 1, 2020.

• On October 27, 2020, the Company announced it had entered into an agreement with Ology, a biologics contract development and manufacturing organization (CDMO), under which Ology will manufacture the Company’s ATI-1701 vaccine candidate. The U.S. Department of Defense (DOD), through the Joint Science and Technology Office of the DTRA, awarded Ology $6.3MM USD for ATI-1701 manufacturing and development work under contract # MCDC18-04-13-006. DTRA-funded manufacturing work will be used to provide vaccine supply for future development of Appili’s ATI-1701 program.

• On October 20, 2020, the Company announced that investigators enrolled and dosed the first cluster of participants in Appili’s CONTROL COVID-19 clinical trial.

• On September 16, 2020, the Common Shares began trading on the TSX under the trading symbol “APLI”.

• On August 10, 2020, the Company announced that the FDA had granted the Company clearance to proceed after Appili’s filing of an IND application for broad-spectrum antiviral favipiravir. Appili is expanding its Phase 2 clinical trial into the U.S. to evaluate the safety and efficacy of favipiravir tablets in controlling outbreaks following exposure to COVID-19 in long-term care (“ LTC ”) facilities.

• On July 30, 2020, the Company announced that it had initiated site screening of LTC facilities in Ontario for its Phase 2 study evaluating favipiravir as a post-exposure outbreak control measure against COVID-19. Residents at screened sites will be eligible for enrollment and randomization into the trial upon confirmation of a COVID-19 outbreak. The trial is expected to ultimately enroll approximately 760 participants at 16 LTC facilities. Appili may increase the number of LTC facilities screened depending on the trajectory of the COVID-19 pandemic.

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• On June 15, 2020, the Common Shares began trading on the OTCQX Best Market®. The OTCQX Market offers companies efficient, cost-effective access to the U.S. capital markets. The Common Shares on the OTCQB Market trade under the ticker symbol “APLIF.”

• On June 10, 2020 the Company completed a prospectus offering (“ June 2020 Offering ”) of 12,937,500 units (the “ June 2020 Units ”), at a price of $1.20 per June 2020 Unit, for aggregate proceeds of $15,525,000. Each June 2020 Unit consisted of one Class A common share of the Company (each a “ Common Share ”) and one-half of one Class A common share purchase warrant (each whole warrant, a “ June 2020 Warrant ”). Each June 2020 Warrant entitles the holder to acquire one additional Common Share at an exercise price of $1.50 for a period of 3 years, expiring on June 10, 2023. Total costs associated with the June 2020 Offering were $1,904,248, including cash costs for commissions of $1,083,390, professional fees and regulatory costs of $285,951, and 902,825 compensation warrants (the “ June 2020 Broker Warrants ”) issued as commission to certain agents valued at approximately $534,907. Each June 2020 Broker Warrant entitles the holder to acquire one Common Share at an exercise price of $1.20 for a period of 2 years, expiring on June 10, 2022.

• On June 10, 2020, concurrently with the closing of the June 2020 Offering, the Company closed a nonbrokered private placement of 1,200,000 June 2020 Units for gross proceeds of $1,440,000 (the “ Concurrent Private Placement ”). No finder’s fees or commissions were payable to any persons in connection with the Concurrent Private Placement. Total costs associated with the Concurrent Private Placement were $16,062, consisting of professional fees and regulatory costs.

• On May 21, 2020, the Company announced that it had received a No Objection Letter from Health Canada approving a Phase 2 clinical trial evaluating FFTC’s drug favipiravir for the prevention of COVID-19.

• On May 11, 2020, the Company announced that it will sponsor the first clinical trial evaluating FFTC’s favipiravir for the prevention of COVID-19, a respiratory infection caused the novel SARS-CoV-2 coronavirus. Favipiravir is approved in Japan as the anti-influenza drug Avigan. With FFTC providing support through donated drug product, the phase 2 study will be conducted at LTC facilities in Ontario. Appili has filed the clinical trial application with Health Canada and expects to initiate the trial as soon as possible following receipt of regulatory clearance.

• On April 21, 2020, the Company appointed Yoav Golan, MD, to serve as its first Chief Medical Officer (“CMO”).

SELECTED FINANCIAL INFORMATION

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----- Start of picture text -----

Year ended Year ended Year ended
March 31, 2021 March 31, 2020 March 31, 2019
($) ($) ($)
Net loss and comprehensive loss for the period (14,325,112) (5,416,496) (4,330,984)
Basic and diluted loss per share (0.24) (0.16) (0.14)
Cash and short-term investments 16,124,791 10,540,165 5,451,578
Total assets 18,316,955 11,173,963 6,835,017
Long-term debt 1,032,600 1,005,000 1,118,600
----- End of picture text -----

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RESULTS FOR THE YEAR ENDED MARCH 31, 2021 (“FY 2021”), COMPARED TO THE YEAR ENDED MARCH 31, 2020 (“FY 2020”)

Income License revenue Interest income Expenses Research and development (“R&D”) General and administration (“G&A”) Business development (“BD”) Accreted interest Government assistance Net loss and comprehensive loss	Year ended March 31, 2021 ($)	Year ended March 31, 2020 ($)
	- 116,953	199,106 40,165
	116,953 10,221,965 4,787,777 650,193 69,836 (1,287,706) 14,442,065 (14,325,112)	239,271 2,078,223 3,310,437 942,398 12,109 (687,400)
		5,655,767
		(5,416,496)

Income

i. License revenue

License revenue decreased by $199,106 in FY 2021 in comparison to FY 2020. This is attributable to the out-licensing of ATI-1501 to Saptalis Pharmaceuticals LLC in FY 2020 and no revenues in FY 2021.

ii. Interest income

Interest income increased by $76,788 to $116,953 during FY 2021 compared to $40,165 in FY 2021, due to a higher cash and short term investments balance during FY 2021.

Operating expenses

Overall operating expenses increased by $8,786,298 to $14,442,065 during FY 2021 compared to $5,655,767 in FY 2020 due mainly to an increase of $8,143,742 in R&D activities, an increase of $1,477,340 in G&A costs and an increase in accreted interest of $57,727. This was offset by a decrease of $292,205 in BD costs, and an increase in government assistance of $600,306. Explanations of the nature of costs incurred, along with explanations for those changes in costs are discussed below.

i. R&D expenses

The Company’s R&D expenses have related primarily to costs incurred in performing research and development activities that include non-clinical, clinical manufacturing, regulatory and clinical trial expenses of its product candidates. The R&D expenses for the period relate to costs incurred for the development of all four product candidates, including favipiravir, ATI-1501, ATI-1503, ATI-1701, ATI-2307, and general R&D.

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Specifically, the Company’s R&D expenses for favipiravir include clinical site expenses, fees paid to CROs associated with the ongoing clinical trials, clinical manufacturing, consulting costs, clinical trial insurance and regulatory fees. ATI-2307 expenses include pre-clinical animal studies, manufacturing technology transfer costs, clinical manufacturing costs, clinical consultants and Phase 2 clinical trial preparation activities. For ATI-1701, expenses include license fees, patent costs, stability testing and regulatory costs. For ATI-1503, R&D expenses include nonclinical costs which include laboratory materials, chemicals and supplies, pre-clinical biological studies, out-sourced manufacturing, and costs to optimizing the pre-clinical manufacturing process. Finally, the ATI-1501 R&D activities include clinical manufacturing costs, technology transfer and supporting regulatory activities. R&D costs also include the salaries and benefits and stock-based compensation expenses of the CDO, CMO and the regulatory, clinical, preclinical, manufacturing and research staff. General R&D includes consulting fees paid to various independent contractors with specific research and development expertise required by the Company, as well as rental of laboratory facilities, insurance, and non-material research projects.

R&D expenses consist of the following:

Favipiravir expenses ATI-2307 expenses ATI-1701 expenses ATI-1503 expenses ATI-1501 expenses General R&D expenses Amortization of property and equipment Salaries and benefits Stock-based compensation Total	Year ended March 31, 2021 ($) 7,276,046 875,414 90,424 228,683 65,838 85,262 9,134 1,387,338 203,826 10,221,965	Year ended March 31, 2020 ($)
		- 251,418 111,242 402,199 214,987 338,923 11,473 660,311 87,670 2,078,223

The increase in R&D expenses of $8,143,742 from $2,708,223 in FY 2020 to $10,221,965 in FY 2021 is mainly attributable to a $7,276,046 increase in the favipiravir clinical trials, a $727,027 increase in salaries and benefits, a $623,996 increase in the ATI-2307 program, and a $116,156 increase in stock-based compensation. This was offset by a $253,661 decrease in general R&D expenses, a $173,516 decrease in the ATI-1503 program, a $149,149 decrease in the ATI-1501 program, a $20,818 decrease in the ATI-1701 program and immaterial fluctuations in amortization.

Favipiravir

Favipiravir expenses for the three clinical trials described under the Business Overview section for FY 2021 include clinical site start up expenses, including the protocol development and initiation of site screening, fees paid to the CROs for project management, clinical operations, monitoring and data management. Expenses also include clinical manufacturing of the placebo, as well as bottling and labelling of the favipiravir pills required for the clinical trials, consulting costs and regulatory costs in association with filing the Clinical Trial Application with Health Canada and the IND with the FDA.

ATI-2307

The expenses related to the ATI-2307 program are mainly patent fees in various jurisdictions, biological testing performed, clinical manufacturing costs and technology transfer costs and analysis in FY 2021. The expenses in FY

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2020 consisted of pre-clinical research, clinical manufacturing and Phase 2 clinical trial preparation following the acquisition of the product.

ATI-1701

The decrease in the ATI-1701 costs is due to a decrease in regulatory expenses and royalty fees in FY 2021 in comparison to FY 2020, offset by an increase in intellectual property management and pre-clinical manufacturing.

ATI-1503

The decrease in the ATI-1701 costs is due to a decrease in biological testing, consulting costs and chemistry costs in FY 2021 in comparison to FY 2020.

ATI-1501

The decreased costs in the ATI-1501 program are a result of the Company out-licensing the development and commercialization rights to Saptalis in December 2019. During FY 2021, the Company sold the remaining inventory related to ATI-1501 to Saptalis and as a result recorded a cost recovery to the extent Saptalis reimbursed the Company for the costs of the inventory. Costs for FY 2021 consisted mainly of intellectual property management, while costs in FY 2020 consisted mainly of formulation development and pre-commercial manufacturing.

General R&D Expenses

The decrease in general R&D expenses is mainly related to the decrease of consulting fees paid to the Chief Development Officer once he became the full time CEO in December 2019, as well as a decrease in consulting fees paid to the Chief Medical Officer once he became an employee of the Company in January 2021.

Salaries and Benefits and Stock-based compensation

Salaries and benefits increased in FY 2021 due mainly due to staff changes. The increase in stock-based compensation expenses is due to stock options being issued since FY 2020.

ii. G&A expenses

The Company’s G&A expenses include salaries and benefits of the CEO, CFO and the finance and administrative staff, stock-based compensation expenses, professional fees including legal, auditing and tax, costs associated with the public listing on the TSX Venture Exchange (“ TSX-V ”) and the subsequent graduation to the TSX, the creation of the US subsidiary, regulatory, investor relations and public relations, travel expenses, office rent, operating and information technology costs, director compensation, and directors’ and officers’ insurance premiums.

G&A expenses consist of the following:

&A expenses consist of the following:
G&A expenses, excluding salaries Salaries and benefits Stock-based compensation Amortization of property and equipment Total	Year ended March 31, 2021 ($) 2,730,779 1,147,846 903,450 5,702 4,787,777	Year ended March 31, 2020 ($)
		1,619,466 1,280,033 404,657 6,281 3,310,437

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G&A expenses increased by $1,477,340 from $3,310,437 in FY 2020 to $4,787,777 in FY 2021 due to an increase of $1,111,313 in G&A expenses excluding salaries and benefits, a $498,793 increase in stock-based compensation offset by a $132,187 decrease in salaries and benefits, and an immaterial decrease in amortization.

G&A expenses, excluding salaries

G&A expenses, excluding salaries, for FY 2021 increased by $1,111,313 mainly due to an increase in public and media relations due to the new favipiravir program, an increase in business advisory fees as a result of financial advisory services and recruiting fees, an increase in public filings as a result of listing the Company on the OTCQX and graduating to the TSX from the TSX-V, an increase in investor relations and government grant and relations consulting and an increase in insurance costs, offset by a decrease in audit and legal fees in FY2021 versus FY2020.

Salaries and Benefits and Stock-based compensation

Salaries and benefits decreased in FY 2021 by $132,187 due mainly to staffing changes. The increase in stock-based compensation by $498,793 is due to stock options granted since FY 2020.

iii. BD expenses

BD expenses consist of business development travel expenses, office rent, legal, and consulting and services fees paid to various independent contractors with specific business development expertise required by the Company.

BD expenses decreased by $292,205 in FY 2021 in comparison to FY 2020, when the Company focused significant BD efforts into acquiring ATI-2307 and out-licensing ATI-1501. In FY 2021, BD costs consisted mainly of legal costs associated with the partnership agreement for favipiravir. FY 2021 also had a decrease in salaries and benefits and stock-based compensation as a result changes in staff and a reallocation of salaries and a decrease in BD advisory services.

iv. Accreted Interest

Accreted interest relates entirely to the valuation of zero interest bearing government loans which are repayable based on a percentage of future gross revenue or are repayable over 84 or 120 months. Under IFRS, these zero-interest bearing government loans from the Atlantic Canada Opportunities Agency must be initially valued at fair value and the difference between the fair value of the loans and the contribution received must be treated as government assistance. These loans are then accreted to their original value over time. For the loan repayable on a percentage of future gross revenue from ATI-1501, management is required to revise the estimated cash flows whenever new information related to ATI-1501 and its potential market, including time of entry, market size, etc., is made available. Management recalculates the carrying amount by computing the present value of the estimated future cash flows at the original effective interest rate and any adjustments are recognized in the statements of loss and comprehensive loss as accreted interest after initial recognition. The increase of accreted interest by $57,727 from $12,109 in FY 2020 to $69,836 in FY 2021 is due mainly to the accreted interest associated with the revaluations of the zero interest bearing government loans that are repayable over 84 or 120 months as a result of a 9 month payment deferral granted in response to COVID-19, along with accreted interest associated with payments resuming January 1, 2021.

v. Government assistance

Government assistance consists of investment tax credits, conditionally repayable government loans, repayable government loans and government grants.

Government assistance increased by $600,306 from $687,400 in FY 2020 to $1,287,706 in FY 2021. This is due mainly to different government grants and loans the Company had in FY 2020 versus FY 2021, including the new DTRA grant for ATI-1701.

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vi. Net loss and comprehensive loss

The net loss and comprehensive loss was $14,325,112 for FY 2021, a difference of $8,908,616 compared to the net loss and comprehensive loss of $5,416,496 for FY 2020.

SUMMARY OF QUARTERLY RESULTS

The following consolidated quarterly data was drawn from the audited annual financial statements and the unaudited interim condensed consolidated financial statements. The information is reported on an IFRS basis.

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Quarterly Ended In Total Income Total Expenses ($) Loss Basic and
($) ($) Diluted Loss
Per Share
($)
Q4 – March 31, 2021 19,140 5,004,239 (4,985,099) (0.08)
Q3 – December 31, 2020 30,146 4,296,488 (4,266,342) (0.07)
Q2 – September 30, 2020 46,116 2,521,649 (2,475,533) (0.04)
Q1 – June 30, 2020 21,551 2,619,689 (2,598,138) (0.05)
Q4 - March 31, 2020 7,394 1,294,467 (1,287,073) (0.04)
Q3 – December 31, 2019 206,079 1,386,670 (1,180,591) (0.04)
Q2 – September 30, 2019 13,380 1,163,200 (1,149,820) (0.03)
Q1 – June 30, 2019 12,419 1,811,431 (1,799,012) (0.06)
----- End of picture text -----

Certain reclassifications have been made to the prior quarter’s financial results to enhance comparability with the current year’s financial statements. As a result, interest income and general and administrative expenses have been amended to remove interest income from general and administrative expenses to be presented as income.

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RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2021 (“Q4 FISCAL 2021”), COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2020 (“Q4 FISCAL 2020”)

Income Interest income Expenses R&D G&A BD Accreted interest Government assistance Net loss and comprehensive loss	Q4 Fiscal 2021 ($) 19,140	Q4 Fiscal 2020 ($)
		7,394
	19,140 4,176,881 1,218,361 204,085 36,136 (631,224) 5,004,239 4,985,099	7,394 411,276 889,653 87,362 27,616 (121,440)
		1,294,467 1,287,073

Income

i. Interest income

Interest income increased by $11,746 to $19,140 during Q4 Fiscal 2021 compared to $7,394 in Q4 Fiscal 2020 due to a higher cash and short term investments balance during the three months ended March 31, 2021.

Operating expenses

Overall operating expenses increased by $3,709,772 to $5,004,239 during Q4 Fiscal 2021 compared to $1,294,467 in Q4 Fiscal 2020 due to an increase in R&D expenses by $3,765,605, an increase in G&A expenses by $328,708, an increase of $116,723 in BD costs and an increase in accreted interest of $8,520. These increases were offset by an increase of government assistance of $509,784. Explanations of the nature of costs incurred, along with explanations for those changes in costs are discussed below.

i. R&D expenses

The Company’s R&D expenses have related primarily to costs incurred in performing R&D activities that include non-clinical, clinical manufacturing, regulatory and clinical trial preparation of its product candidates. The R&D expenses for the period relate to costs incurred for the development of all four product candidates, including ATI1501, ATI-1503, ATI-1701, ATI-2307, as well as costs incurred to sponsor the clinical trials of favipiravir, and general R&D.

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R&D expenses consist of the following:

Favipiravir expenses ATI-2307 expenses ATI-1701 expenses ATI-1503 expenses ATI-1501 expenses General R&D expenses Amortization of property and equipment Salaries and benefits Stock-based compensation Total	Q4 Fiscal 2021 ($) 3,401,593 126,004 (2,872) 36,511 3,574 37,435 2,295 542,620 29,721 4,176,881	Q4 Fiscal 2020 ($)
		- 169,748 41,941 26,427 14,262 32,698 2,868 105,888 17,444 411,276

The increase in R&D expenses by $3,765,605 from $411,276 in Q4 Fiscal 2021 to $4,176,881 in Q4 Fiscal 2020 is mainly attributable to a $3,401,593 increase in the favipiravir program, a $436,732 increase in salaries and benefits, a $12,277 increase in stock-based compensation, a $10,084 increase in the ATI-1503 program and a $4,737 increase in general R&D expenses. These increases were offset by a $44,813 decrease in the ATI-1701 program, a $43,744 decrease in the ATI-2307 program, and a $10,688 decrease in the ATI-1501 program as well as immaterial fluctuations in amortization.

Favipiravir

Favipiravir expenses for the three clinical trials for Q4 Fiscal 2021 as described under the Business Overview section include clinical expenses fees paid to the CROs for investigator grants, project management, clinical operations, monitoring and data management. Expenses also include clinical manufacturing, consulting costs, clinical trial insurance and regulatory costs.

ATI-2307

The expenses related to the ATI-2307 program are mainly clinical manufacturing costs and patent fees in various jurisdictions in Q4 Fiscal 2021. The expenses in Q4 Fiscal 2020 consisted of pre-clinical research, clinical manufacturing and Phase 2 clinical trial preparation.

ATI-1701

The decrease in expenses related to the ATI-1701 program is due to the decrease in intellectual property management costs in Q4 Fiscal 2021 in comparison to Q4 Fiscal 2020, as well as the adjustment for conservative accruals in prior quarters that were higher than actual costs.

ATI 1503

The increased costs in the ATI-1503 program are due to increased pre-clinical manufacturing work in comparison to Q4 Fiscal 2020.

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ATI-1501

The decreased costs in the ATI-1501 program are a result of the Company out-licensing the development and commercialization rights to Saptalis in December 2019. During Q4 Fiscal 2021, the Company incurred expenses for intellectual property management in comparison to formulation development costs in Q4 Fiscal 2020.

General R&D Expenses

The increase in general R&D expenses is mainly related to the increase in other R&D research projects the Company is exploring and consulting fees, offset by a a decrease of consulting fees paid to the Chief Medical Officer once he became a full time employee in January 2021.

Salaries and Benefits and Stock-based compensation

Salaries and benefits increased in Q4 Fiscal 2021 due mainly due to staff changes. The increase in stock-based compensation expense is due to stock options vesting that were granted prior to Q4 Fiscal 2021.

ii. G&A expenses

The Company’s G&A expenses include salaries and benefits, stock-based compensation expenses, professional fees including legal, auditing and tax, costs associated with the public listing on the TSX and TSX-V, the creation of the US subsidiary, regulatory, investor relations and public relations, travel expenses, office rent, operating and information technology costs, director compensation, and directors’ and officers’ insurance premiums.

G&A expenses consist of the following:

General and administrative expenses, excluding salaries Salaries and benefits Stock-based compensation Amortization of property and equipment Total	Q4 Fiscal 2021 ($) 784,549 277,714 154,612 1,486 1,218,361	Q4 Fiscal 2020 ($)
		315,232 401,203 171,646 1,572 889,653

G&A expenses increased by $328,708 from $889,653 in Q4 Fiscal 2020 to $1,218,361 in Q4 Fiscal 2021 due to a $469,317 increase in G&A expenses, excluding salaries, offset by a $123,489 decrease in salaries and benefits, a $17,034 decrease in stock-based compensation and an immaterial fluctuation in amortization.

G&A expenses, excluding salaries

G&A expenses, excluding salaries, for Q4 Fiscal 2021 increased by $469,317 mainly due to increased insurance costs, investor relations costs, public relations costs, and regulatory fees associated with the graduation to the TSX, as well as increases in audit and legal fees. These increases were offset by decreases in travel costs due to travel restrictions in place as a result of COVID-19.

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Salaries and Benefits and Stock-based compensation

Salaries and benefits decreased in Q4 Fiscal 2021 by $123,489 due to changes in staff, offset by an increase in salaries. The decrease in stock-based compensation in Q4 Fiscal 2021 in comparison to Q4 Fiscal 2020 by $17,034 is due an adjustment to the vesting of options in prior quarters.

iii. BD expenses

BD expenses consist of business development travel expenses, office rent, and consulting and services fees paid to various independent contractors with specific business development expertise required by the Company.

BD expenses increased by $121,872 due to increased legal costs associated in evaluating strategic partnership opportunities in Q4 Fiscal 2021, compared to Q4 Fiscal 2020.

iv. Accreted Interest

Accreted interest relates entirely to the valuation of zero interest bearing government loans which are repayable based on a percentage of future gross revenue or are repayable over 84 or 120 months. Under IFRS, these zero-interest bearing government loans from ACOA must be initially valued at fair value and the difference between the fair value of the loans and the contribution received must be treated as government assistance. These loans then are then accreted to their original value over time. For the loan repayable on a percentage of future gross revenue from ATI-1501, management is required to revise the estimated cash flows whenever new information related to ATI-1501 and its potential market is made available. Management recalculates the carrying amount by computing the present value of the estimated future cash flows at the original effective interest rate and any adjustments are recognized in the statements of loss and comprehensive loss as accreted interest after initial recognition. The increase in accreted interest of $8,520 from $27,616 in Q4 Fiscal 2020 to $36,136 in Q4 Fiscal 2021is due to the accreted interest associated with the payments of the loans.

v. Government assistance

Government assistance consists of investment tax credits, conditionally repayable government loans, repayable government loans and government grants.

Government assistance increased by $509,784 from $121,440 in Q4 Fiscal 2020 to $631,224 in Q4 Fiscal 2021. This is due mainly to different government grants and loans the Company had in Q4 Fiscal 2020 versus Q4 Fiscal 2021. In Q4 Fiscal 2021, the Company claimed the PRMRP grant, the DTRA grant, as well as investment tax credits and government subsidy programs, compared to Q4 Fiscal 2020, when the Company claimed only the PRMRP grant and investment tax credits.

vi. Net loss and comprehensive loss

The net loss and comprehensive loss was $4,985,099 for Q4 Fiscal 2021 which was $3,698,026 higher than the net loss and comprehensive loss of $1,287,073 for Q4 Fiscal 2020.

CASH FLOWS

At March 31, 2021, the Company had cash and short-term investments of $16,124,791 and working capital of $13,645,167, compared to $10,540,165 and $9,732,658, respectively as at March 31, 2020.

To date, operations have been financed through the issuance of equity securities, interest income on funds available for investment, government loans and assistance and tax credits.

Operating activities

During the year ended March 31, 2021, $11,450,650 was used in operating activities, including a reported net loss of $14,325,112 prior to being decreased by $1,171,900, $69,836, $20,770, $14,836, and $1,929 for non-cash items

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including stock-based compensation, accreted interest, unrealized loss from changes in foreign currency, amortization, and loss on disposal of property and equipment. This was offset by a net increase of cash of $1,642,005 as a result of changes in working capital and an increase of $46,814 for accrued interest on short-term investments. Financing activities

The Company raised $15,525,000 in connection with the June 2020 Offering and the Concurrent Private Placement of $1,440,000, less share and warrant issuance costs of $1,400,210. The Company also received proceeds of $1,297,680 through the exercise of warrants, and $198,133 through the exercise of stock options. This was offset by $24,626 and $17,610 for the payment of accreted interest involving cash and the repayment of long-term debt, respectively, in FY 2021.

Investing activities

During FY 2021, the Company invested $20,010,000 in multiple guaranteed investment certificates with maturities of one year or less, offset by the proceeds received when the investments matured of $15,025,496. The Company also purchased $8,448 of property and equipment in FY 2021.

LIQUIDITY AND CAPITAL RESOURCES

The Company prepares and updates the cash flow forecasts on a regular basis to manage the Company’s liquidity, ensuring that the Company has sufficient cash to meet operational needs.

The Company aims to maintain adequate cash and cash resources to support planned activities which include: clinical trial costs, including regulatory, third-party CRO’s and manufacturing for the clinical trials for favipiravir; regulatory, clinical manufacturing, non-clinical studies and Phase 2 clinical trial preparation for ATI-2307; supportive activities for pre-IND and IND-enabling activity costs for ATI-1701 including regulatory, manufacturing and non-clinical activities; chemistry and biological testing expenses to identify a clinical candidate for ATI-1503; other early-stage R&D activities on other exploratory programs; business development costs incurred relating to assessing and evaluating new drug product candidates that fit within the Company’s strategic focus; administration costs, and intellectual property maintenance and expansion.

It is common for early-stage biotechnology companies to require additional funding to further develop product candidates until successful commercialization of at least one product candidate. Appili’s product candidates are still in the development stage of the product cycle and therefore are not generating revenue to fund operations. The Company continuously monitors its liquidity position, the status of its development programs, including those of its partners, cash forecasts for completing various stages of development, the potential to license or co-develop each product candidate, and continues to actively pursue alternatives to raise capital, including the sale of its equity securities, debt and non-dilutive funding.

At March 31, 2021, the Company had approximately $17.81 million of existing and identified potential sources of cash including:

• cash and short-term investments of $16.12 million; and

• amounts receivable and investment tax credits receivable of $1.69 million.

The Company completed the February 2020 Offering (as defined herein), the June 2020 Offering and the Concurrent Private Placement for aggregate gross proceeds of $27,215,000 and net proceeds of $24,767,260. Additionally, the Company also has been granted an U.S. PRMRP award for up to USD$3.0 million over the next two years to fund the Company’s ATI-1503 program, of which the Company had only drawn down approximately USD$0.67 million as of March 31, 2021. The Company also has a USD$6.3 million DTRA grant, however while this grant is funding part of the development costs for the ATI-1701 program, only USD$1.7 million will be received directly by the Company. As of March 31, 2021, the Company had drawn down USD$0.05 million of this funding.

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Going Concern

While the Company has sources of cash of $17.69 million as well as access to the $2.33 million USD remaining PRMRP government grant and the $1.65 million USD remaining DTRA grant, management does not believe it will be sufficient to fund operations, including the clinical trial costs for favipiravir, for the next twelve months, while maintaining adequate working capital unless significant reduction of the Company’s discretionary expenditures are made and further financing is obtained. The ability of the Company to continue as a going concern is dependent upon raising additional capital to fund the Company’s current clinical trials for favipiravir, R&D activities for the other programs, general and administration expenses and any expansion of operations through equity financings, nondilutive funding and partnerships. As there can be no assurance that the Company will be successful in its efforts to raise additional financing on terms satisfactory to the Company, there is substantial doubt about the Company’s ability to continue as a going concern. The Company is currently analyzing financing alternatives that could include equity and/or debt financings, and/or new strategic partnership agreements to fund some or all costs of development. There can be no assurance that the Company will be able to obtain the capital sufficient to meet any or all of the Company needs. The availability of equity or debt financing will be affected by, among other things, the results of the clinical trials and other R&D activity, the Company’s ability to obtain regulatory approvals, the market acceptance of the Company’s products, the state of the capital markets generally, strategic alliance agreements and other relevant commercial considerations. In addition, if the Company raises additional funds by issuing equity securities or convertible debt, the existing security holders will likely experience dilution, and any incurring of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that would restrict the Company’s operations. There can be no assurance that the Company will have sufficient capital to fund its ongoing operations, develop or commercialize any products without future financings. Any failure on Appili’s part to raise additional funds on terms favorable or at all may require the Company to significantly change or curtail the current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in the Company not taking advantage of business opportunities, in the termination or delay of clinical trials for our products, in curtailment of the product development programs designed. Such adjustments or delays could be material.

FEBRUARY 2020 EQUITY OFFERING AND USE OF PROCEEDS

On February 20, 2020, the Company completed an offering of 12,812,500 units (each a “ February 2020 Unit ”) at a price of $0.80 per February 2020 Unit, for aggregate proceeds of $10,250,000 (the “ February 2020 Offering ”). The Company intended to use the net proceeds of the February 2020 Offering to fund planned R&D activities for the Company’s product candidates including ATI-2307, ATI-1701 and ATI-1503, as well as for working capital and general corporate purposes.

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Intended Use of Proceeds Estimated Approximate Variance
amount Amount to
March 31, 2021
($) ($) ($)
ATI-2307 expenses 4,783,000 1,151,000 3,632,000
ATI-1701 expenses 202,000 190,000 12,000
ATI-1503 expenses 706,000 354,000 352,000
Other R&D expenses 649,000 649,000 -
Business Development 756,000 676,000 80,000
G&A 2,009,000 2,009,000 -
Working Capital 182,500 182,500 -
Total 9,287,500 5,211,500 4,076,000
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JUNE 2020 EQUITY OFFERING AND USE OF PROCEEDS

On June 10, 2020, the Company completed an offering of 12,937,500 units of the Company (each, a “ June 2020 Unit ”) at a price of $1.20 per June 2020 Unit, for aggregate proceeds of $15,525,000 (the “ June 2020 Offering ”). The Company intended to use the net proceeds of the June 2020 Offering to fund the sponsoring of favipiravir clinical trials for COVID-19 and R&D activities for the Company’s other product candidates including ATI-2307, ATI-1701, and ATI-1503 program, as well as for working capital and general corporate purposes.

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Intended Use of Proceeds Estimated Approximate Variance
amount Amount to
March 31, 2021
($) ($) ($)
Favipiravir expenses 7,445,000 7,641,000 (196,000)
ATI-2307 expenses 999,000 - 999,000
ATI-1701 expenses 599,000 - 599,000
ATI-1503 expenses 175,000 - 175,000
Other R&D expenses 840,000 70,000 770,000
Business Development 160,000 - 160,000
G&A 1,947,000 409,500 1,537,500
Working Capital 125,000 - 125,000
Total 12,290,000 8,120,500 4,169,500
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RELATED PARTY TRANSACTIONS

The Company’s Chief Executive Officer is a partner of Bloom Burton & Co., which is a principal shareholder of the Company. At March 31, 2021, the Company owed $nil (March 31, 2020 - $nil) to the Chief Executive Officer and during the year ended March 31, 2021, the Company was charged $364,922 (March 31, 2020 - $211,005) for services performed by the Chief Executive Officer.

During the year ended March 31, 2021, the Company was charged $15,000 (March 31, 2020 - $120,000) for consulting services in relation to business development activities by Bloom Burton Securities Inc. Also, during the year ended March 31, 2021, the Company issued 280,777 compensation warrants valued at $166,625 (March 31, 2020 – 256,545) valued at $166,625 (March 31, 2020 - $112,255) and paid $294,395 (March 31, 2020 - $191,053) in cash commissions to Bloom Burton Securities Inc. resulting from the Public Offerings.

At March 31, 2021, the Company owed $13,084 (March 31, 2021 - $nil) to a member of the Board of Directors and during the year ended March 31, 2021, the Company was charged $13,084 (March 31, 2020 - $nil) for consulting services by the Board member in relation to research and development activities.

CONTRACTUAL OBLIGATIONS

On November 21, 2019, the Company signed an asset purchase agreement (the “ Asset Purchase Agreement ”) with FFTC. receiving exclusive worldwide rights, excluding Japan, to acquire and develop a novel broad-spectrum antifungal drug candidate, ATI-2307. If a payment of USD$500,000 associated with the Asset Purchase Agreement is not made by January 2022, the seller has the right to terminate the Asset Purchase Agreement. Additional payments are due upon the achievement of additional milestones, including FDA approval and other various performance thresholds. If the Company meets all of the contractual FDA approval requirements, a total of USD$1,300,000 would be due under the contract prior to commercialization of the product. No payments have been accrued or made to date.

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On October 30, 2020, the Company signed the Collaboration Agreement with DRL and GRA. Under the terms of the Collaboration Agreement, Appili is designing, overseeing, and funding pivotal clinical trials to support global regulatory submissions. Partners DRL, GRA, and FFTC will be responsible for manufacturing, distribution, and commercialization worldwide outside of Japan, China and Russia. The Company will receive a profit share on Canadian and US commercial sales and is eligible to receive royalties on rest of world sales realized by DRL and GRA, including in Europe and Latin America.

There is no other material change in the contractual obligations of the Company since the beginning of the 2021 fiscal year. Details on the contractual obligations of the Company can be found in the audited financial statements and related notes in the audited annual financial statements for the year ended March 31, 20201.

OFF-BALANCE SHEET ARRANGEMENTS

The Company was not party to any off-balance sheet arrangements as of March 31, 2021.

OUTSTANDING SECURITIES

As of June 23, 2021, the Company had 62,832,120 issued and outstanding Common Shares, 6,796,869 stock options and 14,625,993 warrants outstanding.

RISKS AND UNCERTAINTIES

The Company is a clinical-stage company that operates in an industry that is dependent on a number of factors that include the capacity to raise additional capital on reasonable terms, obtain positive results of clinical trials without serious adverse or inappropriate side effects, and obtain market acceptance of its product by physicians, patients, healthcare payers and others in the medical community for commercial success, etc. An investment in the Common Shares is subject to a number of risks and uncertainties. In addition to the risks set out herein (including with respect to the COVID-19 pandemic), an investor should carefully consider the risks described under the heading “ Risk Factors ” in the Company’s annual information form dated June 23, 2021 filed in respect of the fiscal year ended March 31, 2021. If any of such described risks occur, or if others occur, the Company’s business, operating results and financial condition could be seriously harmed and investors may lose a significant proportion of their investment. There are important risks which management believes could impact the Company’s business.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

The Company has adopted disclosure controls and procedures (“ DC&P ”) and the internal controls over financial reporting (“ ICFR ”). DC&P are intended to provide reasonable assurance that material information is gathered and reported to senior management to permit timely decisions regarding public disclosure and ICFR are intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with Canadian generally accepted accounting principles.

Disclosure Controls and Procedures

The Company maintains DC&P designed to ensure that information required to be disclosed in reports filed under applicable securities laws, is recorded, processed, summarized and reported within the appropriate time periods and that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, to allow for timely decisions regarding required disclosure.

The CEO and the CFO of the Company are responsible for establishing and maintaining the Company’s DC&P, including adherence to the Disclosure Policy adopted by the Company. The CEO and CFO have evaluated the effectiveness of the Company’s DC&P as at March 31, 2021 and, based on such evaluation, they have concluded that the Company’s DC&P was effective as at March 31, 2021 and that there were no material weaknesses relating to the design or operation of the Company’s DC&P.

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In designing and evaluating its DC&P, the Company recognizes that any DC&P, no matter how well conceived or operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met, and management is required to exercise its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Internal Control over Financial Reporting

The Company’s management, including the CEO and the CFO, are responsible for establishing and maintaining adequate ICFR. The control framework used by the CEO and CFO of the Company to design the Company’s ICFR is the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The CEO and CFO have evaluated the effectiveness of the Company’s ICFR as at March 31, 2021 and, based on such evaluation, have concluded that the Company’s ICFR was effective as at March 31, 2021 and that there were no material weaknesses relating to the design or the operation of the Company’s ICFR. The CEO and CFO have also evaluated whether there were changes to ICFR during the year ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, ICFR. No such changes were identified through their evaluation. In response to the COVID-19 pandemic, the Company asked its employees to work from home to the extent possible. This change requires certain processes and controls that were previously done or documented manually to be completed and retained in electronic form. Despite the changes required by the current environment, there have been no significant changes in the Company’s internal controls during the year ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, ICFR.

The Company’s ICFR may not prevent or detect all misstatements because of inherent limitations. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because changes in conditions or deterioration in the degree of compliance with the Corporation’s policies and procedures.

BASIS OF PRESENTATION OF FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with the IFRS as issued by the IASB. The accounting policies, methods of computation and presentation applied in the financial statements are consistent with those of previous financial years except for the presentation of government assistance now presented as a separate item in the statements of loss and comprehensive loss. The Company’s significant accounting policies are detailed in the notes to the audited financial statements for March 31, 2021.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The Company makes estimates and assumptions concerning the future that will, by definition, seldom equal actual results. The following are the estimates and judgments applied by management that most significantly affect the Company’s consolidated financial statements. The following estimates and judgments have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Ability to continue as a going concern

In order to assess whether it is appropriate for the Company to continue as a going concern, management is required to apply judgment and make estimates with respect to future cash flow projections. In arriving at this judgment, there are a number of assumptions and estimates involved in calculating these future cash flow projections. This includes making estimates regarding the timing and amounts of future expenditures and the ability and timing of raising additional financing.

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Calculation of initial fair value and carrying amounts of long-term debt

Atlantic Canada Opportunities Agency (“ACOA”) Atlantic Innovation Fund (“AIF”) loan

The Company has an interest-free AIF government loan from ACOA with a maximum contribution of $2,803,148. The annual repayments, commencing December 1, 2021, are calculated as 5% of gross revenue from a specific product for the preceding fiscal year.

The initial fair value of the ACOA AIF loan is determined by using a discounted cash flow analysis for the loan, which requires a number of assumptions. The difference between the face value and the initial fair value of the ACOA AIF loan is recorded in the consolidated statements of loss and comprehensive loss as government assistance. The carrying amount of the ACOA AIF loan requires management to adjust the long-term debt to reflect actual and revised estimated cash flows whenever revised cash flow estimates are made or new information related to market conditions is made available. Management recalculates the carrying amount by computing the present value of the estimated future cash flows at the original effective interest rate. Any adjustments are recognized in the consolidated statements of loss and comprehensive loss as accreted interest after initial recognition.

The significant assumptions used in determining the discounted cash flows include estimating the amount and timing of future revenue for the Company and the discount rate. The Company’s estimates of future revenues are derived from several significant assumptions including estimated time to market, expected future selling price, potential target market, estimated market penetration, the product’s shelf-life, returns provision, number of years of exclusivity and estimated royalty rate.

As the ACOA AIF loan is repayable based on a percentage of gross revenue from the Company’s product, ATI-1501, if any, the determination of the amount and timing of future revenue significantly impacts the initial fair value of the loan, as well as the carrying value of the ACOA AIF loan at each reporting date. The Company is still in development stage for this infectious disease product and accordingly, determination of the amount and timing of revenue, if any, requires significant judgment by management. Management’s estimates of future revenues assume revenue in the next five years.

The discount rate determined on initial recognition of the ACOA AIF loan is used to determine the present value of estimated future cash flows expected to be required to settle the debt. In determining the appropriate discount rates, the Company considered the weighted average cost of capital for the Company, risk adjusted based on the development risks of the Company’s product. The ACOA AIF loan is repayable based on a percentage of gross revenue from the Company’s product, ATI-1501, if any; accordingly, finding financing arrangements with similar terms is difficult. Management used a discount rate of 26.7% to discount the ACOA AIF loans.

The Company signed a license agreement for the US development and commercialization rights for ATI-1501, with pharmaceutical company Saptalis Pharmaceuticals Inc. (“Saptalis”) in December 2019, which included an upfront payment, future milestone payments and future royalty payments. The Company performed the following sensitivity analysis on the basis that each change in the assumption being analyzed is made assuming the other assumptions remain the same. If the forecasted revenue was 10% higher or lower, the carrying value of the long-term debt would be $15,200 higher or $15,200 lower, respectively. If the total forecasted revenue were reduced to $nil, no amounts would be forecast to be repaid on the ACOA AIF loans and the ACOA AIF loans payable at March 31, 2021 would be recorded at $nil, which would be a reduction in the ACOA AIF loan payable of $223,500. If the timing of the receipt of forecasted future revenue was earlier or later by one year, the carrying value of the long-term debt at March 31, 2021 would have been an estimated $57,400 higher or $47,200 lower, respectively.

Any changes in the amounts recorded on the consolidated statement of financial position for the ACOA AIF loan result in an offsetting charge to accreted interest after initial recognition in the consolidated statement of loss and comprehensive loss.

Equity-settled share-based compensation

The Company estimates the cost of equity-settled share-based compensation using the Black-Scholes valuation model. The model takes into account the estimate of the expected life of the option, the current price of the

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underlying share, the expected volatility, an estimate of future dividends on the underlying common share, the riskfree rate of return expected for an instrument with a term equal to the expected life of the option, and the expected forfeiture rate.

FINANCIAL INSTRUMENTS

Financial instruments are defined as a contractual right or obligation to receive or deliver cash on another financial asset. The following table sets out the approximate fair values of financial instruments as at the statement of financial position date with relevant comparatives:

Cash Short-term investments Amounts receivable Accounts payable and accrued liabilities Long-term debt	March 31, 2021 Carrying value $ Fair value $ 11,062,938 11,062,938 5,061,853 5,061,853 347,588 347,588 4,531,495 4,531,495 1,032,600 1,032,600	March 31, 2020
		Carrying value $ Fair value $ 10,509,630 10,509,630 30,535 30,535 96,018 96,018 1,323,495 1,323,495 1,005,000 1,005,000

Assets and liabilities, such as commodity taxes, that are not contractual and arise as a result of statutory requirements imposed by governments, do not meet the definition of financial assets or financial liabilities and are, therefore, excluded from amounts receivable and accounts payable and accrued liabilities in this table.

Fair value of items, which are short-term in nature, have been deemed to approximate their carrying value. The above noted fair values, presented for information only, reflect conditions that existed only at March 31, 2021, and do not necessarily reflect future value or amounts, which the Company might receive if it were to sell some or all of its assets to a willing buyer in a free and open market.

The following table outlines the contractual maturities for long-term debt which includes loans with a set repayment schedule, as well as loans that are repayable based on a percentage of revenues, for the Company’s financial liabilities. The long-term debt is comprised of the contributions received described in note 10 of the audited consolidated financial statements as at March 31, 2021:

Accounts payable and accrued liabilities Long-term debt	Total Year 1 Years 2 to 3 Years 4 to 5 After 5 years 4,531,495 4,531,495 - - - 3,902,354 178,402 344,193 404,706 2,975,053
	8,433,849 4,709,897 344,193 404,706 2,975,053

ADDITIONAL INFORMATION

Additional information relating to the Company, including the Company’s annual information form dated June 23, 2021 filed in respect of the fiscal year ended March 31, 2021, is available under the Company’s profile on SEDAR at www.sedar.com.

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