Avisa Diagnostics Inc. - Interim / Quarterly Report 2021

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.)

Condensed Interim Consolidated Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in US Dollars) - Unaudited

Notice of Disclosure of Non-auditor Review of the Condensed Interim Consolidated Financial Statements for the three and six months ended June 30, 2021 and 2020.

Pursuant to National Instrument 51-102, Part 4, subsection 4.3(3)(a) issued by the Canadian Securities administrators, if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements of Avisa Diagnostics Inc. (the “Company”) have been prepared by management and approved by the Board of Directors (the "Board") of the Company. They have been prepared in accordance with the International Accounting Standard 34 - Interim Financial Reporting as issued by the International Accounting Standards Board and are the responsibility of the Company’s management.

The Company’s independent auditors have not performed a review of these unaudited condensed interim consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of condensed interim consolidated financial statements by an entity’s auditors.

August 27, 2021

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.) Condensed Interim Consolidated Statements of Financial Position As at June 30, 2021 and December 31, 2020 (Expressed in United States Dollars) - Unaudited

As at	Notes	June 30, 2021 December31,2020
Assets Current Cash Restricted cash GST Receivable Prepaid expenses	15	$ $ 97,601 438,840 - 959,894 252 - 52,876 5,763
		150,729 1,404,497
Deferred financing costs Deposits Furniture and equipment Right-of-use assets	11 5 6	2,477,728 - 10,077 3,528 - 18,160 186,926 -
Total assets		2,825,460 1,426,185
Liabilities Current Accounts payable and accrued liabilities GEM Fee payable Current portion of lease liability Interest payable Convertible debt Convertible note derivative Senior notes Senior notes derivative Warrants liability Preferred shares liability Subscriptionsreceived	7 11 6 8,18 8 8 9 9 10 14 15	1,866,284 904,810 806,842 - 44,398 - - 2,401,629 - 4,518,062 - 523,570 - 1,360,667 - 1,362,371 - 330,622 - 13,704,342 - 1,109,123
Lease liability Promissory note Government loan Government grant	6 12 13 13	2,717,524 26,215,196 149,046 - 623,274 684,561 74,691 - 50,356 -
Total liabilities Shareholders’ deficiency Common shares Restricted voting common shares Series A preferred shares Series A-1 preferred shares Share premium Reserves Accumulated other comprehensive loss Deficit	15 15 14 14 14,15 16	3,614,891 26,899,757 20,325,044 1,333 7,346,913 - - 2,384 - 1,678 - 1,675,999 2,341,336 303,218 (170) - (30,802,554) (27,458,184)
Total shareholders’ deficiency		(789,431) (25,473,572)

Total liabilities and shareholders’ deficiency		2,825,460 1,426,185
Approved on behalf of the Board: “David Joseph” (signed) Director		“Brian Birk” (signed)
		Director

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.)

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

For the three and six months ended June 30, 2021 and 2020 (Expressed in United States Dollars, except shares outstanding) - Unaudited

		Three	months ended	Six	months ended
			June 30,		June 30,
	Notes	2021	2020	2021	2020
		$	$	$	$
Operating expenses
Salaries and benefits	13,18	279,679	106,093	444,049	202,555
Consulting fees		228,082	76,099	293,130	86,315
Professional fees	1,15	102,348	83,471	89,688	111,781
Research and development	17	53,039	11,888	64,221	12,284
Travel expense		31,182	89	33,700	7,823
Insurance expense		56,831	-	56,831	-
Share-based compensation	18	12,546	28,957	33,695	34,556
Rent expense		18,156	-	18,156	-
General and administration		6,189	37,942	35,912	70,604
Depreciation	5,6	6,361	2,800	9,669	5,599
Net loss from operations		794,413	347,339	1,079,051	531,517
Listing expense	4	3,904,000	-	3,904,000	-
Interest expense	8,12,13,15	67,309	356,607	454,256	708,884
Impairment	5	13,411	-	13,411	-
Foreign exchange		5,404	-	5,879	-
Accretion expense	8,9,12	5,048	212,635	5,048	410,424
(Gain) loss on revaluation of
derivatives	8,9	-	(432,799)	(1,885,941)	1,102,099
Government grant income	13	(167,008)	-	(167,008)	-
Other income		-	(3,000)	-	(3,000)
Gain on revaluation of warrants
liability	10	(20,985)	(10,983)	(34,630)	(25,875)
Gain on modification of debt	12	(70,291)	-	(29,696)	(237,706)
Gain on exchange of debt		-	-	-	(28,125)
Net loss		4,531,301	469,799	3,344,370	2,458,218
Other comprehensive loss
Cumulative translation adjustment		170	-	170	-
Loss and comprehensive loss for
theperiod		4,531,471	469,799	3,344,540	2,458,218
Basic and diluted loss per share		0.14	0.21	0.19	1.07
Weighted average number of
common shares outstanding –
basic and diluted		32,730,873	2,288,773	17,593,917	2,288,773

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.)

Condensed Interim Consolidated Statements of Changes in Shareholders’ Deficiency

For the six months ended June 30, 2021 and 2020

(Expressed in United States Dollars, except share numbers) - Unaudited

			Restricted voting	Restricted voting		Series A		Series A-1
	Common Shares		common shares		Preferred Shares		Preferred Shares
											Accumulated
											other
									Share		comprehensive
	Outstanding	Amount	Outstanding	Amount	Outstanding	Amount	Outstanding	Amount	Premium	Reserve	(loss) income	Deficit	Total
	#	$	#	$	#	$	#	$	$	$	$	$	$
Balance, December 31,
2019	2,288,773	1,333	-	-	4,172,905	2,384	2,937,001	1,678	1,675,999	202,458	-	(23,381,425)	(21,497,573)
Stock-based compensation	-	-	-	-	-	-	-	-	-	34,556	-	-	34,556
Netlossforthe period	-	-	-	-	-	-	-	-	-	-	-	(2,458,218)	(2,458,218)
Balance, June 30, 2020	2,288,773	1,333	-	-	4,172,905	2,384	2,937,001	1,678	1,675,999	237,014	-	(25,839,643)	(23,921,235)

Balance, December 31,
2020	2,288,773	1,333	-	-	4,172,905	2,384	2,937,001	1,678	1,675,999	303,218	-	(27,458,184)	(25,473,572)
Shares issued on
conversion of debt	21,559,892	7,159,186	-	-	-	-	-	-	-	-	-	-	7,159,186
Shares issued for
settlement of senior notes	6,184,843	1,360,667	-	-	-	-	-	-	-	-	-	-	1,360,667
Shares issued for
conversion of preferred
shares	19,526,387	14,676,084	-	-	(4,172,905)	(2,384)	(2,937,001)	(1,678)	(794,965)	-	-	-	13,877,057
Shares issued, private
placement	1,540,741	693,336	-	-	-	-	-	-	-	-	-	-	693,336
Share-based compensation	-	-	-	-	-	-	-	-	-	33,695	-	-	33,695
Exchange of Avisa shares
for FogChain shares	(15,208,674)	(6,843,903)	15,208,674	6,843,903	-	-	-	-	-	-	-	-	-
Issuance of common shares
to FogChain shareholders	5,327,348	3,278,341	-	-	-	-	-	-	(881,034)	(3,050)	-	-	2,394,257
Issuance of restricted
common shares to
FogChain shareholders	-	-	1,117,800	503,010	-	-	-	-	-	-	-	-	503,010
Issuance of warrants	-	-	-	-	-	-	-	-	-	1,711,481	-	-	1,711,481
Warrants reclassified from
warrant liability to equity	-	-	-	-	-	-	-	-	-	295,992	-	-	295,992
Cumulative translation
adjustment	-	-	-	-	-	-	-	-	-	-	(170)	-	(170)
Net loss for the period	-	-	-	-	-	-	-	-	-	-	-	(3,344,370)	(3,344,370)
Balance, June 30, 2021	41,219,310	20,325,044	16,326,474	7,346,913	-	-	-	-	-	2,341,336	(170)	(30,802,554)	(789,431)

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.) Condensed Interim Consolidated Statements of Cash Flows For the six months ended June 30, 2021 and 2020 (Expressed in United States Dollars) - Unaudited

For the period ended	June 30, 2021 June 30, 2020 Notes $ $
Operating activities Net loss for the period Items not affecting cash: Share-based compensation Depreciation Listing expense Interest expense Impairment Accretion expense (Gain) loss on revaluation of derivatives Government grant income Gain on revaluation of warrants liability Gain on exchange of debt Gain on modification of debt Changes to non-cash working capital items: Prepaid expenses Security deposits Accounts payable and accruedliabilities	(3,344,370) (2,458,218) 18 33,695 34,556 5 9,669 5,599 4 3,904,000 - 8,12,13,15 454,015 708,767 5 13,411 - 8,9,12 5,048 410,424 8,9 (1,885,941) 1,102,099 13 (167,008) - 10 (34,630) (25,875) - (28,125) 12 (29,696) (237,706) (47,113) 7,069 (6,549) - 224,878 75,381
Cash used inoperating activities	(870,591) (406,029)
Investing activities Cash acquired in reverse takeover transaction	4 124,605 -
Cash provided by investing activities	124,605 -
Financing activities Return of subscription receipts Issuance of senior notes Repayment of promissory notes Receipt of government loan proceeds Shares issued, private placement Interest paid	15 (1,109,123) - - 350,000 12 (139,430) - - 81,468 15 693,336 - 240 -
Cash (used in) provided by financing activities	(554,977) 431,468
Effect of foreign exchange on cash Net change in cash and restricted cash Cash and restricted cash, beginning of period	(170) - (1,300,963) 25,439 1,398,734 106,672
Cash and restricted cash, end ofperiod	97,601 132,111

Supplemental cash flow information:

There were no taxes paid in the three and six months ended June 30, 2021 and 2020
Changes in accounts payable and accrued liabilities includes the settlement of $109,430 via transfer to a promissory note.

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.) Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in United States Dollars, except where noted) - Unaudited

1. NATURE OF OPERATIONS AND GOING CONCERN

Avisa Diagnostics Inc. (formerly FogChain Corp.) (“Avisa” or the "Company") was incorporated on February 7, 1984 under the Business Corporations Act (Ontario). The Company’s head office, principal address and records office is Suite 20501055 West Georgia Street, PO Box 11121, Royal Centre, Vancouver, BC V6E 3P3. The registered office is Suite 4400-181 Bay Street, Toronto, Ontario M5J 2T3. The Company is listed on the Canadian Securities Exchange (“CSE”) under the symbol “AVBT”.

Reverse takeover

Avisa Pharma Inc. (“Avisa Pharma”) was incorporated under the laws of the State of New Mexico on September 23, 2010. Avisa Pharma is an innovation organization focused on commercializing pulmonary assays for the detection of infectious diseases. Avisa Pharma operates with a team of engineers and product development specialists to create and design diagnostic instruments to be manufactured and utilized by third parties.

On April 20, 2021, pursuant to a merger and reorganization agreement dated February 1, 2021 (the “Merger Agreement”), the Company acquired the issued and outstanding shares of Avisa Pharma in exchange for securities of the Company (the “Reverse Takeover”). Upon completion of the Reverse Takeover, the Company changed its name to Avisa Diagnostics Inc. and will continue the business of Avisa Pharma.

For accounting purposes, Avisa Pharma is treated as the accounting acquirer, and the Company (legal parent) is treated as the accounting acquiree in these condensed interim consolidated financial statements. As Avisa Pharma was deemed to be the acquirer for accounting purposes, its assets, liabilities, and operations since incorporation are included in these financial statements at their historical carrying values. The Company’s results of operations are included from the transaction date, April 20, 2021. The comparative figures are those of Avisa Pharma prior to the Reverse Takeover.

Going concern

These condensed interim consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. At present, the Company has no operating income. As at June 30, 2021, the Company has an accumulated deficit of $ 30,802,554 (December 31, 2020 - $27,458,184) and a working capital deficiency of $ 2,566,795 (December 31, 2020 - $24,810,699). Without additional financing, the Company may not be able to fund its ongoing operations and complete development activities. The Company intends to finance its future requirements through a combination of debt and/or equity issuances. There is no assurance that the Company will be able to obtain such financings or obtain them on favorable terms. These uncertainties may cast significant doubt on the Company’s ability to continue as a going concern. These condensed interim consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. While the impact of COVID-19 is expected to be temporary, the current circumstances are dynamic and the impacts of COVID-19 on business operations cannot be reasonably estimated at this time. There can be no assurance that the Company will not be impacted by adverse consequences that may be brought about by the pandemic’s impact on its business, results of operations, financial position and cash flows in the future.

These condensed interim consolidated financial statements were authorized for issue on August 27, 2021 by the directors of the Company.

2. BASIS OF PRESENTATION

(a) Statement of compliance

These condensed interim consolidated financial statements are prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting . These condensed interim consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 31, 2020.

(b) Basis of presentation

These condensed interim consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments classified as financial instruments at fair value through profit or loss, which are stated at fair value. In addition, these condensed interim consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

These condensed interim consolidated financial statements are presented in United States dollars, unless otherwise stated.

These condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances are eliminated on consolidation. Control exists where the parent entity has power over the investee and is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are included in the consolidated financial statements from the date control commences until the date control ceases.

3. SIGNIFICANT ACCOUNTING POLICIES

In preparing these condensed interim consolidated financial statements, the significant accounting policies and the significant judgments made by management in applying the Company’s significant accounting policies and key sources of estimation uncertainty were the same as those that applied to the Company’s audited financial statements for the year ended December 31, 2020.

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may vary from these estimates.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Accounting estimates will, by definition, seldom equal the actual results. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected. Critical accounting estimates and assumptions made by management include, but are not limited to, the following:

Interest rates

The Company estimated a market interest rate in determining the fair value of the liability component of its promissory note and lease liability. The determination of market interest rates is subjective and could materially affect the fair value estimate of the liability components and initial bifurcation of the promissory note and the fair value and future interest expense associated with the lease liability.

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Valuation of share-based compensation and derivatives

The Company uses the Black-Scholes model for valuation of share-based compensation and derivatives. Option pricing models require the input of subjective assumptions including expected price volatility, interest rate and forfeiture rate. Changes in the input assumptions can materially affect the fair value estimate and the Company’s earnings and reserve.

The expected volatility assumption is based on the historical and implied volatility of comparable companies. The risk-free interest rate assumption is based on yield curves on US government zero-coupon bonds with a remaining term equal to the options’ expected life. The Company has not paid and does not anticipate paying dividends on its common stock. Companies are required to utilize an estimated forfeiture rate when calculating the expense for the reporting period. Based on the best estimate, management applied the estimated forfeiture rate of 0%.

Recognition and valuation of deferred tax assets

The recognition of deferred tax assets is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future or whether taxable temporary differences will reverse such that deferred tax assets can be utilized. Recognition therefore involves a degree of estimation and judgement regarding the future financial performance or the timing of the reversed deferred tax liabilities where deferred tax assets have been recognized.

Comprehensive loss (income)

Comprehensive loss (income) is the change in the Company’s net assets that results from transactions, events and circumstances from sources other than the Company’s shareholders and includes items that are not included in the statement of loss. For the three and six months ended June 30, 2021, other comprehensive loss is related to the effects of currency translation adjustments.

Business combination

Considerable judgment is required to determine whether a set of assets acquired and liabilities assumed constitute a business and may require the Company to make certain judgments, taking into account all facts and circumstances. A business consists of inputs, including non-current assets and processes, including operational processes, that when applied to those inputs have the ability to create outputs and provide a return to the Company and its shareholders.

Management concluded that the Reverse Takeover (note 4) did not constitute a business combination as it did not qualify as a business in accordance with the definition in IFRS 3. The Reverse Takeover has been accounted for as a reverse acquisition transaction in accordance with the guidance provided in IFRS 2, Share-based Payments , and IFRS 3, Business Combinations . The Reverse Takeover was accounted for as the issuance of common shares by Avisa Pharma for the net assets of the Company and its public listing, with Avisa Pharma as the continuing entity. Accordingly, no goodwill or intangible assets were recorded with respect to the Reverse Takeover.

Management applied estimates in determining the fair value of the common shares provided in the Reverse Takeover. The fair value of the common shares issued was determined based on the fair value of the common shares issued by the Company based on the common shares subscribed for under the concurrent private placement (note 15). The fair value of the net assets of the FogChain Corp. were determined at the date of closing of the Reverse Takeover and the actual costs of acquisition.

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Estimates of useful lives of property and equipment

Management's judgment involves consideration of intended use, industry trends and other factors in determining the expected useful lives of depreciable assets and to determine depreciation methods.

Cash generating units and impairment of non-financial assets

Judgment is required to assess the Company’s determination of cash generating units (“CGU”) for the purpose of impairment testing. The process to calculate the recoverable amount of a cash generating unit requires use of valuation methods such as the discounted cash flow method which uses assumptions of key variables including future cash flows, discount rate and terminal growth rates.

Significant areas requiring the use of management’s judgments include:

Going concern

The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but not limited to, 12 months from the end of the reporting period. The Company is aware that material uncertainties exist related to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern.

Treatment of development costs

Costs to develop products are capitalized to the extent that the criteria for recognition as intangible assets in IAS 38 Intangible Assets are met. Those criteria require that the product is technically and economically feasible, which management assessed based on the attributes of the development project, perceived user needs, industry trends and expected future economic conditions. Management considers these factors in aggregate and applies significant judgment to determine whether the product is feasible. The Company has not capitalized any development costs as at June 30, 2021 or December 31, 2020.

Right of use assets/Lease liabilities

a) Identifying whether a contract includes a lease

IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract on the basis of whether the customer controls the asset. The Company had to apply judgment on certain factors, including whether the supplier has substantive substitution rights, whether the Company obtains substantially all of the economic benefits and who has the right to direct the use of that asset.

b) Incremental borrowing rate

When the Company recognizes a lease, the future lease payments are discounted using the Company’s incremental borrowing rate. This significant estimate impacts the carrying amount of the lease liabilities and the interest expense recorded on the consolidated statement of loss and comprehensive loss.

c) Estimate of lease term

When the Company recognizes a lease, it assesses the lease term based on the conditions of the lease and determines whether it will extend the lease at the end of the lease contract or exercise an early termination option. As it is not reasonably certain that the extension or early termination options will be exercised, the Company determined that the term of its leases are the lesser of original lease term or the life of the leased asset. This significant estimate could affect future results if the Company extends the lease or exercises an early termination option.

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Valuation of right-of-use asset and lease liabilities

The Company recognizes a right-of-use asset and a corresponding lease liability for all arrangements in which it is a lessee, except for leases with a term of 12 months or less (short-term leases) and low-value leases. Right-of-use assets are depreciated on a straight-line basis from the commencement date of the lease over the shorter of the useful life of the rightof-use asset or the end of the lease term. The lease liability is initially measured at the present value of the future lease payments as from the commencement date of the lease to the end of the lease term. The lease term includes the period of any lease extension that in management’s assessment is reasonably certain to be exercised by the Company. The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever there is a change to the lease terms or expected payments under the lease, or a modification that is not accounted for as a separate lease.

Modification versus extinguishment of financial liabilities

Judgment is required in determining whether amended terms of loan agreements represent a substantial modification of an existing financial liability and whether it should be accounted for as a modification or as an extinguishment of the original financial liability.

4. REVERSE TAKEOVER TRANSACTION

Upon closing of the Reverse Takeover on April 20, 2021, the following occurred:

Immediately prior to the completion of the merger, the Company consolidated its issued and outstanding share capital on the basis of 15:1 and issued the shareholders of Avisa Pharma 34,351,221 common shares and 15,208,674 restricted voting shares in the capital of the Company on a post-consolidation basis.
Avisa Pharma deemed to have issued 5,327,348 common shares and 1,117,800 restricted common shares to the Company’s shareholders with aggregate fair value of $2,900,317 ($0.45 per share).
The Company cancelled and reissued 105,500 stock options with a fair value of $4,948 to the shareholders of the Company with a fair value of $1,898. The difference in fair value has been taken to the consideration in the Reverse Takeover. The options have an exercise price of CAD $4.20 and expire on October 1, 2022. Key assumptions used in the Black-Scholes pricing model were volatility of 100%, risk free rate of 0.29% and dividend yield of 0.00%.
Avisa Pharma recorded $400,000 in listing expense prior to the closing of the Reverse Takeover and the amount is allocated as part of the consideration.
Avisa Pharma completed a private placement of 1,540,741 subscription receipts for aggregate proceeds of $693,336 at a price of $0.45 per subscription receipt. Each subscription receipt was converted into one common share of the Company upon closing of the Reverse Takeover.

As a result of the Reverse Takeover, Avisa Pharma obtained control of the Company and is considered to have acquired the Company. The Reverse Takeover has been accounted for as a reverse acquisition transaction in accordance with the guidance provided in IFRS 2, Share-based Payments , and IFRS 3, Business Combinations . As the Company did not qualify as a business in accordance with the definition of IFRS 3, the Reverse Takeover does not constitute a business combination. Rather, it is treated as an issuance of common shares by Avisa Pharma for the net assets of the Company and its public listing, with Avisa Pharma as the continuing business. Accordingly, no goodwill or intangible assets were recorded with respect to the Reverse Takeover.

For accounting purposes, Avisa Pharma is treated as the accounting parent (legal subsidiary) and the Company as the accounting subsidiary (legal parent). The fair value of the consideration paid by Avisa Pharma, net of transaction costs, less the fair value of net assets of the Company acquired by Avisa Pharma constitutes the listing expense and has been recorded in the statement of loss and comprehensive loss. These condensed interim consolidated financial statements reflect the assets, liabilities, and operations of Avisa Pharma since its incorporation and the Company from April 20, 2021.

4. REVERSE TAKEOVER TRANSACTION (continued)

Effective upon completion of the Reverse Takeover, the former directors and officers of the Company resigned.

	April 20, 2021
	$
Purchase price:
Fair value of Avisa common shares	2,397,307
Fair value of Avisa restricted common shares	503,010
Expected cash transaction fees	400,000
Difference in fair value of replacement options issued	(3,050)
Total consideration	3,297,267
Net liabilities acquired:
Cash	124,605
GST Receivable	1,240
Accounts payable and accrued liabilities	(127,611)
Due to former directors and officers of FogChain Corp.(1)	(319,162)
Government loan	(227,449)
Deferred government grant	(58,356)
Total net liabilities	(606,733)
Listing expense	3,904,000

Included in accounts payable and accrued liabilities at June 30, 2021.

Immediately prior to the completion of the Reverse Takeover, Avisa Pharma:

Settled convertible debt and accrued interest with a carrying amount $7,159,186 (note 8) for 21,559,892 common shares of Avisa Pharma based on a conversion price of $0.33 per share.
Settled senior notes with a carrying amount of $1,360,667 (note 9) for 6,184,843 common shares of Avisa Pharma based on a conversion price of $0.22 per share.
Converted Series A Convertible Preferred Shares and Series A-1 Convertible Preferred Shares of Avisa Pharma, accrued dividends and additional paid in capital (share premium) with aggregate carrying amount of $14,676,084 into 19,526,387 common shares of Avisa Pharma with an average conversion price of $0.7516 per share.

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.)

Notes to the Condensed Interim Consolidated Financial Statements For the three and six months ended June 30, 2021 and 2020 (Expressed in United States Dollars, except where noted) - Unaudited

5. FURNITURE AND EQUIPMENT

Cost	Furniture	Equipment	Total
	$	$	$
Balance, December 31, 2019	37,509	97,375	134,884
Additions	-	14,239	14,239
Balance, December 31, 2020	37,509	111,614	149,123
Impairment	-	(13,411)	(13,411)
Balance, June 30, 2021	37,509	98,203	135,712
Accumulated depreciation
Balance, December 31, 2019	35,849	83,068	118,917
Depreciation	1,660	10,386	12,046
Balance, December 31, 2020	37,509	93,454	130,963
Depreciation	-	4,749	4,749
Balance, June 30, 2021	37,509	98,203	135,712

Net book value,December31,2020	-	18,160	18,160
Net book value, June 30, 2021	-	-	-

6. RIGHT-OF-USE ASSET AND LEASE LIABILITY

The Company has one right-of-use asset comprised of an office lease.

Cost	$
Balance, December 31, 2020 and December 31, 2019	-
Additions	191,845
Balance, June 30, 2021	191,845
Accumulated depreciation
Balance, December 31, 2020 and December 31, 2019	-
Depreciation	4,919
Balance, June 30, 2021	4,919

Net book value, December 31, 2020	-
Net book value, June 30, 2021	186,926
Lease liability
Balance, December 31, 2020 and 2019	-
Additions	191,845
Lease payments	-
Interest expense	1,599
Balance, June 30, 2021	193,444
Less: current portion	(44,398)
Lease liability, June 30, 2021	149,046

6. RIGHT-OF-USE ASSET AND LEASE LIABILITY (continued)

Lease payments were $nil for the three and six months ended June 30, 2021 as the Company’s office lease contains has a three-month lease payment abatement. Low value and short-term lease expense for the three and six months ended June 30, 2021 was $18,156 (June 30, 2020 - $nil).

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following:

	June 30, 2021	December31,2020
	$	$
Trade payables	1,159,730	721,416
Due to former directors and officers of FogChain Corp.	319,162	-
Accruedliabilities	387,392	183,394
Accountspayable and accrued liabilities	1,866,284	904,810

8. CONVERTIBLE DEBT

During the three and six months ended June 30, 2021 and the year ended December 31, 2020, there were no issuances of convertible debt for cash consideration.

All of the Company’s convertible debt issuances are unsecured and mature at the earlier of:

(i) A Sales Transaction (defined below);
(ii) A complete liquidation of the Company;
(iii) Written demand by the Note Holder Committee (acting unanimously) made any time after January 31, 2021 (as amended below).

A Sales Transaction means the closing of (i) a merger of the Company or any other transaction in which at least 50% of the outstanding equity securities of the Company are not held by the equity security holders immediately prior to the transaction, or (ii) a sale or exclusive license of all or substantially all of the Company’s assets.

The outstanding convertible debt is convertible into Series A-1 Convertible Preferred Shares of the Company equal to a price of $1.3147 per share. The convertible debt is mandatorily convertible should the Company complete equity financing whereby the Company receives gross proceeds of at least $8,000,000 (the “Qualified Financing”). Should the Company complete a Qualified Financing or non-Qualified Financing, the holder may elect for the conversion price to be equal to 50% of the price per share paid by the cash purchasers in the Qualified Financing or non-Qualified Financing.

The convertible debt is non-transferrable and bears interest of 12% per annum. Interest is payable annually, commencing in arrears on the one-year anniversary of the issuance date.

For accounting purposes, the convertible debt is a hybrid financial instrument and was allocated into corresponding debt and derivative liability (conversion feature) components at the date of issue. Due to the varying conversion prices of the convertible debt, the conversion feature is accounted for as a derivative liability. The Company determined the fair value of the derivative liability using the Black-Scholes model and calculated the present value of the cash-flows, which consists of interest and principal payment, to calculate the total consideration paid for the debt component. The debt component is subsequently accreted to the face value of the convertible debenture at the effective interest rate of 18.5%. The derivative liability component is re-measured at fair value at each reporting period.

During the year ended December 31, 2020, the Company amended the terms of the convertible debt to change the maturity date to September 30, 2020. This amendment was determined to be a modification of the existing convertible debt and a gain of $162,732 was recorded for the modification. The Company also amended the terms of the convertible debt whereby the outstanding principal balance will automatically convert into common shares of the Company immediately prior to the closing of the Reverse Takeover at a price of $0.33 per share (note 4). The convertible debt and accrued interest was converted into common shares on April 20, 2021.

8. CONVERTIBLE DEBT (continued)

During the year ended December 31, 2020, the Company issued convertible senior notes (note 9) with a pull-through mechanic whereby the holders of convertible debt could exchange their convertible debt for senior notes and any interest accrued on the convertible debt would be forfeited. During the year ended December 31, 2020, $65,666 of convertible debt was exchanged for senior notes and a gain of $28,125 was recorded for the interest forfeited. No such exchanges occurred in the period from January 1, 2021 to the conversion to common shares on April 20, 2021.

			Derivative
	Liability	Accrued	Liability
	Portion	interest	Portion	Total
	$	$	$	$
Balance, December 31, 2019	4,583,730	1,714,545	-	6,298,275
Issuance of convertible debt	162,730	-	-	162,730
Accretion expense	(162,732)	-	-	(162,732)
Interest expense	-	687,084	-	687,084
Exchange of convertible debt	(65,666)	-	-	(65,666)
Loss on revaluation of derivative	-	-	523,570	523,570
Balance, December 31, 2020	4,518,062	2,401,629	523,570	7,443,261
Gain on revaluation of derivative	-	-	(523,570)	(523,570)
Interest expense	-	239,495	-	239,495
Converted to common shares upon Reverse
Takeover	(4,518,062)	(2,641,124)	-	(7,159,186)
Balance, June 30, 2021	-	-	-	-

The fair value of the convertible debt derivative liability is estimated at the reporting date using the Black-Scholes model with the following inputs:

	December 31,
	2020
Exercise price	$1.3147
Share price	$1.3147
Expected life (years)	0.08
Expected dividends	0%
Volatility rate	100%
Risk-free interest rate	0.08%
Fair valueper conversion right	$0.1523

For the three and six months ended June 30, 2021, the Company incurred interest expense of $44,404 and 239,495, respectively (2020 - $177,642 and $359,314, respectively). On April 20, 2021, concurrent with the Reverse Takeover, the convertible debt and accrued interest was converted to common shares of the Company.

As at the conversion date on April 20, 2021, the convertible debt was due on demand and as such, the convertible debt was fully accreted to its principal value and the derivative liability portion had a fair value of $nil.

9. SENIOR NOTES

During the year ended December 31, 2020, the Company completed a financing raising aggregate gross proceeds of $415,666 through the issuance of convertible senior notes. This amount consisted $350,000 of cash proceeds and $65,666 of convertible debt exchanged for senior notes (note 8).

The senior notes are unsecured and mature at the earlier of:

(i) A Sales Transaction;

(ii) A complete liquidation of the Company; (iii) Written demand by the Note Holder Committee (acting unanimously) made any time after January 31, 2021 (as amended below).

The outstanding senior notes are convertible into Series A-1 Convertible Preferred Shares of the Company equal to a price of $0.6573 per share. The senior notes are mandatorily convertible should the Company complete the Qualified Financing. Should the Company complete a Qualified Financing or non-Qualified Financing, the holder may elect for the conversion price to be equal to 50% of the price per share paid by the cash purchasers in the Qualified Financing or non-Qualified Financing.

The senior notes are non-transferrable and do not bear interest.

For accounting purposes, the senior notes are a hybrid financial instrument and were allocated into corresponding debt and derivative liability (conversion feature) components at the date of issue, as shown in the table below. Due to the varying conversion prices of the senior notes, the conversion feature is accounted for as a derivative liability. The Company determined the fair value of the derivative liability using the Black-Scholes model and calculated the present value of the cash-flows, which consists of interest and principal payment, to calculate the total consideration paid for the debt component. The debt component is subsequently accreted to the face value of the convertible debenture at the effective interest rate of 18.5%. The derivative liability component is re-measured at fair value at each reporting period.

In the first quarter of fiscal 2020, the Company amended the terms of the senior notes to change the maturity date to September 30, 2020. This amendment was determined to be a modification of the existing senior notes and a gain of $74,974 was recorded for the modification. The Company also amended the terms of the senior notes whereby the outstanding principal balance will automatically convert into common shares of the Company immediately prior to the closing of the Reverse Takeover at a price of $0.22 per share (note 4). The senior notes were converted to common shares upon the closing of the Reverse Takeover on April 20, 2021.

Liability Portion	Derivative Liability Portion Total
$ Balance, December 31, 2019 750,070 Issuance of senior notes 196,971 Accretion expense 488,600 Gain on modification of debt (74,974) Loss on revaluation of derivative -	$ $ 972,737 1,722,807 218,695 415,666 - 488,600 - (74,974) 170,939 170,939
Balance, December 31, 2020 1,360,667 Gain on revaluation of derivative - Converted to common shares upon Reverse Takeover (1,360,667)	1,362,371 2,723,038 (1,362,371) (1,362,371) - (1,360,667)
Balance, June 30, 2021 -	- -

The fair value of the senior notes derivative liability was estimated at December 31, 2020 using the Black-Scholes model with the following inputs: exercise price of $0.6573, share price of $1.3147, expected life of 0.08 years, dividend yield of 0.00%, volatility of 100%, risk free rate of 0.08%.

As at the conversion date on April 20, 2021, the senior notes were due on demand and as such had been fully accreted and the derivative liability portion had a fair value of $nil.

10. WARRANTS LIABILITY

During the year ended December 31, 2013, the Company issued warrants to purchase Series A Convertible Preferred Shares. These warrants were issued as part of a unit consisting of four Series A Convertible Preferred Shares and one warrant. All of the subscribers to the unit issuance were unrelated parties. These warrants were classified as a derivative liability and were revalued at each reporting date. Upon closing the Reverse Takeover transaction, the warrants were exchanged for 858,226 warrants of the Company and allow the holder to convert one warrant into one common share at an exercise price of $0.67 per share. As a result of the exchange, the fair value of the warrants on the date of the Reverse Takeover has been reclassified as equity and transferred to the reserves.

	Warrants Liability
	$
Balance, December 31, 2019	381,787
Gain on revaluation of derivative	(51,165)
Balance, December 31, 2020	330,622
Gain on revaluation of derivative	(13,645)
Gain on revaluation of derivative on Reverse Takeover	(20,985)
Transferred towarrantreserve uponcompletionof ReverseTakeover	(295,992)
Balance, June 30, 2021	-

The warrants were valued on April 20, 2021 using the Black Scholes option pricing model and the following range of inputs:

Exercise price	$0.67
Share price	$0.656
Expected life (years)	1.93 to 2.61
Expected dividends	0%
Volatility rate	100%
Risk-freeinterestrate	0.29%
Fair valueper warrant	$0.3343 to$0.3790

The following exchanged warrants are outstanding and exercisable as at June 30, 2021:

Expiry date	Exercise price	Number outstanding
March 27, 2023	$0.67	14,860
March 28, 2023	$0.67	375,244
April 2, 2023	$0.67	26,008
April 3, 2023	$0.67	44,583
April 4, 2023	$0.67	74,306
April 8, 2023	$0.67	7,432
April 9, 2023	$0.67	52,012
April 10, 2023	$0.67	14,864
April 16, 2023	$0.67	11,147
May 13, 2023	$0.67	14,860
July 11, 2023	$0.67	59,443
November 21, 2023	$0.67	156,036
November 27, 2023	$0.67	7,431
Total		858,226

Note 16 contains the total warrants outstanding and exercisable.

11. GEM FEE PAYABLE

On January 23, 2020, the Company entered a share subscription facility agreement (the “GEM Agreement”) with GEM Global Yield LLC SCS and GEM Yield Bahamas Ltd. (together “GEM”). The GEM Agreement grants the Company the right to require GEM to purchase common shares of the Company in an aggregate of approximately $40,000,000 (CAD$52,000,000) in the event that the Company becomes listed on any nationally recognized stock exchange or completes a reverse takeover transaction (the “Subscription Facility”). The agreement was revised on March 22, 2021 to conform to CSE requirements in connection with the Reverse Takeover.

The number of common shares of the Company to be issued to GEM Global (the “Subscription Shares”) upon a draw down of the Subscription Facility, on a “per draw down” basis (a “Draw Down”) is subject to the following conditions:

(i) the aggregate number of Subscription Shares shall not exceed 1,000% of the average daily trading volume of the listed Resulting Issuer Common Shares during the 15 trading days immediately preceding the relevant notice date of the Draw Down;

(ii) the number of Subscription Shares shall not exceed such number that, when multiplied by 90% of the closing trading price on the trading day immediately prior to the relevant Draw Down, and then added to the purchase prices for all the previously issued Subscription Shares, would exceed $40 million; and

(iii) the number of Subscription Shares shall not trigger any notification obligation by GEM Global under applicable stock exchange rules.

The subscription price of the Subscription Shares issued pursuant to each Draw Down will be equal to 90% of the average closing price of past 15 consecutive trading days of the listed common shares of the Company.

In accordance with the GEM Agreement, the Company is required to deliver common share purchase warrants exercisable within three (3) years of the date issued to purchase up to 9.9% of the issued and outstanding common shares, as calculated upon completion of the Reverse Takeover, with an exercise price of $0.45 per warrant (the “GEM Warrants”). On April 20, 2021, the Company issued 6,033,412 warrants to GEM with a fair value of $1,670,886 (note 16).

Further, the Company is required to pay to GEM a fee (the “GEM Fee”) in the amount of $806,842 (CAD$1,000,000). The GEM Fee is payable on the later of: (i) the completion of the Reverse Takeover; and (ii) the one-year anniversary of the GEM Agreement. The Company has recorded the amount payable to GEM as GEM Fee payable on the statement of financial position. The GEM Fee can be repaid via share issuances through the draw mechanism described in the GEM Agreement. The GEM Fee payable together with the fair value of the GEM warrants has been recorded as deferred financing costs of $2,477,728 on the statements of financial position as at June 30, 2021.

The GEM Agreement may be terminated by the mutual consent of Avisa and GEM. In addition, GEM can terminate the GEM Agreement if, and among other reasons:

(i) there has been a material breach of any representation, warranty, covenant or agreement contained in the GEM Agreement;

(ii) there has been any material adverse effect with respect to the Company; and

(iii) there is a material change in ownership of Avisa resulting in the officers or directors of Avisa owning less than 12.55% of the issued and outstanding Avisa Common Shares.

Pursuant to the GEM Agreement, GEM cannot hold in excess of 19.9% of the total issued share capital or total voting rights exercisable in the Company at any time.

12. PROMISSORY NOTES

During the year ended December 31, 2020, the Company raised aggregate gross proceeds of $675,000 through the issuance of promissory notes to third parties (the “2020 Promissory Notes”). The 2020 Promissory Notes are unsecured, non-transferable, bear interest at 12% per annum, and are due September 30, 2022. On January 28, 2021, $30,000 of the 2020 Promissory Notes were repaid.

On January 22, 2021, the terms of the 2020 Promissory Notes were amended to include a 10% warrant coverage whereby the Company has an obligation to issue warrants to purchase common stock of the Company immediately prior to the consummation of a reverse takeover transaction. The number of warrants to be issued will be equal to the principal amount of the 2020 Promissory Notes divided by price per share of the Company’s common stock issued in connection with the listing of the Company on the Canadian Securities Exchange (the “Listing Price”). As such, the Company issued 143,326 warrants to holders of the 2020 Promissory Notes at an exercise price of $0.45 per share. The warrants expire on July 20, 2024.

For the three and six months ended June 30, 2021, $70,291 and $29,696, respectively (2020 - $nil and $nil, respectively) was recognized as a gain on the modification of promissory notes associated the issued warrants.

On January 22, 2021, the Company issued a promissory note to a third party in consideration for the third-party settling legal expenses of CAD$139,398 ($109,430) on the Company’s behalf. The promissory note is unsecured, non-transferable, is non-interest bearing, and is due on the earlier of: (i) January 19, 2022; and (ii) 30 business days from the date the Company raises aggregate gross proceeds from financing of CAD$500,000. The note was repaid on April 26, 2021, following the Reverse Takeover and concurrent financing.

The following summarizes the promissory notes as of June 30, 2021:

	$
Balance, December 31, 2019	-
Issuance of promissory notes	675,000
Interest expense	9,561
Balance, December 31, 2020	684,561
Issuance of promissory notes	109,430
Repayment of promissory notes and accrued interest	(139,430)
Interest expense	33,956
Accretion expense	5,048
Gain on debt modification	(70,291)
Balance, June 30, 2021	623,274

13. GOVERNMENT LOAN AND GRANT

During the year ended December 31, 2020, the Company received $81,468 in financing in the form of a promissory note (the “Note”) from the United States Federal Government through the Paycheck Protection Program (the “PPP”). The repayment of interest of the Note shall be through monthly installments beginning on October 11, 2020 through April 11, 2022. The principal will become due April 11, 2022. The Note may be prepaid at any time without penalty. The Note carries interest at 1% per annum, which increases to a rate of 18% per annum in the event of default. The Note will be forgiven if at least 75% of the proceeds are used for payroll costs, and the remaining 25% are used for payroll costs, interest on mortgages, rent, or utilities.

During the three and six months ended June 30, 2021, the Company received approval from the lender of the Note to submit for loan forgiveness by the United States Federal Government. As at December 31, 2020, management determined that there was reasonable assurance the requirements for loan forgiveness had been met and recorded a loan forgiveness of $82,068, which includes accrued interest of $600. This amount was offset against salary and benefit expenses.

13. GOVERNMENT LOAN AND GRANT (continued)

As part of the Reverse Takeover, the Company acquired two government loans that were issued under the CARES Act program – Paycheck Protection Program (the “First PPP Loan” and the “Second PPP Loan”, respectively). The loans bear interest at 1% per annum and mature on April 21, 2022 and February 20, 2026, respectively. The aggregate fair value of the two loans was $227,449. The Company also acquired the fair value of the benefit received from the below-market interest rate of the Second PPP loan with a fair value of $50,356. Following the Reverse Takeover, the principal and accrued interest of the First PPP loan with a carrying amount of $159,008 was forgiven.

In addition, as part of the Reverse Takeover, the Company acquired a non-interest bearing advance of $8,000 under the Economic Injury Disaster Loan (EIDL) program. As the Company received an EIDL advance and a PPP loan, the EIDL advance portion will be applied against the PPP forgiveness amount as repayment to the SBA upon approval of the PPP forgiveness application. The advance of $8,000 has been treated as a government grant, given reasonable assurance that the Company will meet the terms for forgiveness of the loan. The $8,000 EIDL loan was recognized into income concurrent with the forgiveness of the First PPP loan.

	Government	Government
	loan	grant
	$	$
Balance, December 31, 2020 and 2019	-	-
Acquired in Reverse Takeover	227,449	58,356
Interest expense	6,250	-
Balanceforgivenandrecorded as government grantincome	(159,008)	(8,000)
Balance, June 30, 2021	74,691	50,356

14. PREFERRED SHARES

Series A Convertible Preferred Shares

The Series A Convertible Preferred Shares (“Series A Preferred Share”) are convertible into common shares of the Company at a conversion price of $1.237 per share. Each Series A Preferred Share is convertible at the option of the shareholder at any time. All Series A Preferred Shares are automatically convertible upon a majority vote from all Series A Preferred Shareholders and Series A-1 Convertible Preferred Shareholders (together the “Designated Preferred Shareholders”) or upon the closing of the sale of common shares in a public offering whereby the share price is at least five times the Series A Preferred Share original issue price of $1.237 per share (the “Public Offering”).

The Series A Preferred Shares are redeemable following a majority vote of the Designated Preferred Shareholders at any time after March 29, 2018 at a price equal to the greater of (i) the original issue price of $1.237, and (ii) the fair market value to be determined by a third-party appraiser.

Each Series A Preferred Share has the same voting right as common shares and entitle the holder to the number of votes equal to the number of common shares that would be received upon conversion.

Each issued and outstanding Series A Preferred Share entitles the holder of record to receive dividends at the annual rate of 8% of its original issue price. Such dividends are accrued day-to-day but shall only be payable when and if declared by the Board of Directors and the Company is under no obligation to pay such accrued dividends until declared.

Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the Designated Preferred Shareholders shall be entitled to receive an amount of cash equal to the sum of the original issuance price and any dividends declared but unpaid prior to any distribution of assets to common shareholders (the “Liquidation Amount”).

Following the payment of the Liquidation Amount, the remaining assets of the Company shall be distributed rateably among the common shareholders and Designated Preferred Shareholders.

Upon the close of the Reverse Takeover, all Series A Preferred Share capital and accrued interest was converted into common shares.

14. PREFERRED SHARES (continued)

Series A-1 Convertible Preferred Shares

The Series A-1 Convertible Preferred Shares (“Series A-1 Preferred Share”) are convertible into common shares of the Company at a conversion price of $1.3147 per share. Each Series A-1 Preferred Share is convertible at the option of the shareholder at any time. All Series A-1 Preferred Shares are automatically convertible upon a majority vote from the Designated Preferred Shareholders or upon the closing of the Public Offering.

The Series A-1 Preferred Shares are redeemable following a majority vote of the Designated Preferred Shareholders at any time after March 29, 2018 at a price equal to the greater of (i) the original issue price of $1.3147, and (ii) the fair market value to be determined by a third-party appraiser.

Each Series A-1 Preferred Share has the same voting right as common shares and shall entitle the holder to the number of votes equal to the number of common shares that would be received upon conversion.

Each issued and outstanding share of Series A-1 Preferred Share entitles the holder of record to receive dividends at the annual rate of 8% of its original issue price. Such dividends are accrued day-to-day but shall only be payable when and if declared by the Board of Directors and the Company is under no obligation to pay such accrued dividends until declared.

Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the Designated Preferred Shareholders shall be entitled to the Liquidation Amount.

Following the payment of the Liquidation Amount, the remaining assets of the Company shall be distributed rateably among the common shareholders and Designated Preferred Shareholders.

Upon the close of the Reverse Takeover, all Series A Preferred Share capital and accrued interest was converted into common shares.

In addition, a share premium of $794,965 associated with the preferred shares was converted to common share capital.

The following is a reconciliation of the Preferred Share Liability for both Series A and A-1 Preferred Share for the six months ended June 30, 2021, and the year ended December 31, 2020:

	Preferred Share Liability
	$
Balance, December 31, 2019	13,001,966
Interest expense	702,376
Balance, December 31, 2020	13,704,342
Interest expense	172,715
Converted to commonshares upon ReverseTakeover	(13,877,057)
Balance, June 30, 2021	-

15. SHARE CAPITAL

(a) Authorized

Unlimited common shares without par value.

(b) Issued - common shares

During the year ended December 31, 2020:

During the year ended December 31, 2020, the Company completed the first tranche of a private placement totaling 2,206,525 subscription receipts at a price of CAD$0.64 per subscription receipt for gross proceeds of $1,109,123 (CAD $1,412,176). Each subscription receipt entitled the holder to receive, at no additional consideration, one common share of the Company upon satisfaction of certain conditions.

15. SHARE CAPITAL (continued)

(b) Issued - common shares (continued)

As at December 31, 2020, the conditions were not met. As such, no subscription receipts were converted into common shares. Proceeds from the private placement were to be held in escrow until the closing of the proposed transaction and were recorded as restricted cash at December 31, 2020. On January 4, 2021, the proposed transaction was terminated, and the subscription receipts were returned to investors. The Company recovered $58,407 of related financing fees from the agent and the remaining $109,430 (CAD$139,398) was paid by the agent in exchange for a promissory note (note 12).

During the six months ended June 30, 2021:

Reverse Takeover

On April 20, 2021, in connection with the Reverse Takeover, the Company completed the following common share transactions:

i) Issued 21,559,892 common shares with a fair value of $7,159,186 pursuant to the settlement of convertible debt and accrued interest (note 8).

ii) Issued 6,184,843 common shares with a fair value of $1,360,667 pursuant to the settlement of senior notes (note 9).

iii) Issued 19,526,387 common shares with an aggregate fair value of $14,676,084 pursuant to the exchange of 4,172,905 Series A Preferred Shares with a par value of $2,384 and 2,937,001 Series A-1 Preferred Shares with a par value of $1,678. Included in the amount converted to common share capital was accrued dividends of $13,877,057 and a share premium of $794,965.

iv) Avisa Pharma completed a private placement of 1,540,741 subscription receipts for aggregate proceeds of $693,336 at a price of $0.45 per subscription receipt. Each subscription receipt was converted into one common share of the Company upon closing of the Reverse Takeover.

v) Pursuant to the Merger Agreement, the Company exchanged shares of Avisa Pharma for shares of FogChain Corp. on a one-to-one basis resulting in the classification of 15,208,674 shares of the Company with a value of $6,843,903 as restricted voting common shares.

vi) As part of the consideration in the Reverse Takeover (note 4), Avisa Pharma was deemed to have issued 5,327,348 common shares and 1,117,800 restricted voting common shares with an aggregate fair value of $2,900,317 to the shareholders of FogChain Corp.

16. RESERVES

The Company adopted a stock option plan (the “Plan”) to grant stock options to directors, employees and consultants of the Company. The aggregate number of shares of common share that may be issued pursuant to the Plan is limited to 10% of the number of outstanding shares. The stock option exercise price shall not be less than the fair market value per share of common share on the grant date of the option. No stock option shall have a term in excess of ten years.

A summary of the Company’s stock option activity is presented below:

	Number of	Weighted Average
	Options	Exercise Price
	$	$
Balance, December 31, 2019	1,465,896	0.40
Granted	757,750	0.32
Balance, December 31, 2020	2,223,646	0.37
Granted	105,500	3.28
Forfeited	(96,250)	(0.32)
Balance, June 30, 2021	2,232,896	0.51

During the six months ended June 30, 2021, 105,500 replacement stock options were granted to FogChain option holders as part of the Reverse Takeover. During the year ended December 31, 2020, the Company granted 757,750 stock options to directors, officers and consultants of the Company. The stock options permit each individual to purchase common shares of the Company at an exercise price of $0.32. The stock options vest at various rates between immediate vesting and four years. The stock options expire ten years after the date of grant.

The following are the outstanding stock options as of June 30, 2021:

			Contractual
	Number		remaining life in	Number
Expiry date	outstanding	Exercise price	years	exercisable
October 1, 2022	105,500	$3.28	1.25	105,500
July 24, 2023	2,896	$0.06	2.07	2,896
July 24, 2023	320,250	$0.43	2.07	320,250
July 25, 2023	52,500	$0.43	2.07	52,500
January 16, 2024	52,500	$0.43	2.55	52,500
May 14, 2024	70,000	$0.43	2.87	70,000
October 15, 2024	350,000	$0.43	3.30	350,000
January 22, 2025	109,375	$0.43	3.57	109,375
April 22, 2025	13,125	$0.43	3.81	13,125
October 25, 2025	5,250	$0.43	4.32	5,250
February 18, 2026	96,250	$0.43	4.64	96,250
September 6, 2026	131,250	$0.32	5.19	131,250
December 13, 2027	192,500	$0.32	6.46	172,448
November 12, 2029	70,000	$0.32	8.38	29,167
April 9, 2030	525,000	$0.32	8.78	215,347
April 15, 2030	14,000	$0.32	8.80	14,000
June 4, 2030	122,500	$0.32	8.93	-
Total	2,232,896			1,739,858

16. RESERVES (continued)

The following range of inputs were used in the Black-Scholes pricing model for options granted in the period:

Exercise price	$3.28
Share price	$0.45
Expected life (years)	1.45
Expected dividends	0%
Volatility rate	100%
Risk-free interest rate	0.29%
Fair valueper option	$0.0177

The following are the outstanding stock options as of December 31, 2020:

Expiry date Number outstanding Exercise price	Contractual remaining life in years Number exercisable
July 24, 2023 4,646 $0.06 July 24, 2023 318,500 $0.43 July 25, 2023 52,500 $0.43 January 16, 2024 52,500 $0.43 May 14, 2024 70,000 $0.43 October 15, 2024 350,000 $0.43 January 22, 2025 131,250 $0.32 January 22, 2025 109,375 $0.43 April 22, 2025 13,125 $0.43 October 25, 2025 5,250 $0.43 February 18, 2026 96,250 $0.43 December 13, 2027 192,500 $0.32 November 12, 2029 70,000 $0.32 April 10, 2030 525,000 $0.32 April 16, 2030 14,000 $0.32 June4,2030 218,750 $0.32	2.56 4,646 2.56 318,500 2.56 52,500 3.04 52,500 3.37 70,000 3.79 350,000 4.06 131,250 4.06 109,375 4.31 13,125 4.82 5,250 5.14 96,250 6.95 144,375 8.87 18,958 9.28 58,333 9.30 7,000 9.43 -
Total 2,223,646	1,432,062

Expiry date
Number
outstanding
Exercise price

Contractual
remaining life in
years
Number
exercisable

July 24, 2023
4,646
$0.06
July 24, 2023
318,500
$0.43
July 25, 2023
52,500
$0.43
January 16, 2024
52,500
$0.43
May 14, 2024
70,000
$0.43
October 15, 2024
350,000
$0.43
January 22, 2025
131,250
$0.32
January 22, 2025
109,375
$0.43
April 22, 2025
13,125
$0.43
October 25, 2025
5,250
$0.43
February 18, 2026
96,250
$0.43
December 13, 2027
192,500
$0.32
November 12, 2029
70,000
$0.32
April 10, 2030
525,000
$0.32
April 16, 2030
14,000
$0.32
June4,2030
218,750
$0.32

2.56
4,646
2.56
318,500
2.56
52,500
3.04
52,500
3.37
70,000
3.79
350,000
4.06
131,250
4.06
109,375
4.31
13,125
4.82
5,250
5.14
96,250
6.95
144,375
8.87
18,958
9.28
58,333
9.30
7,000
9.43
-

Total
2,223,646

1,432,062

The following range of inputs were used in the Black-Scholes pricing model for options granted in the period:

Exercise price	$0.32
Share price	$0.32
Expected life (years)	10
Expected dividends	0%
Volatility rate	100%
Risk-free interest rate	0.41%
Fair valueper option	$0.29

16. RESERVES (continued)

A summary of the Company’s common share purchase warrant activity is presented below:

	Number of warrants Weighted Average Exercise Price
	$ $
Balance, December 31, 2020 and 2019 Cancelled upon Reverse Takeover Replacement warrants granted (note 10) Warrants granted upon modification of promissory note (note 12) GEM Warrants granted (note 11)	466,848 1.237 (466,848) (1.237) 858,226 0.67 143,326 0.45 6,033,412 0.45
Balance, June 30, 2021	7,034,964 0.48

The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes model with the following range of inputs:

Exercise price	$0.45 to $0.67
Share price	$0.45
Expected life (years)	1.23 to 2.73
Expected dividends	0%
Volatility rate	100%
Risk-free interest rate	0.29%
Fair valueper warrant	$0.2769 to$0.3790

17. RESEARCH AND DEVELOPMENT

During the three and six months ended June 30, 2021 and 2020, research and development expense related to one product, the Avisa BreathTest.

18. RELATED PARTY TRANSACTIONS

The Company’s related parties consist of key management personnel and companies owned directly or indirectly by key management personnel.

Key management personnel include persons having the authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consist of executive and non-executive members of the Board of Directors and corporate officers.

During the three and six months ended June 30, 2021 and 2020, remuneration of key management was as follows:

	Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
	2021	2020	2021	2020
	$	$	$	$
Salary and consulting fees	121,778	105,693	221,511	202,155
Share-based compensation	2,872	19,855	19,486	22,458
Total	124,650	125,548	240,997	224,613

18. RELATED PARTY TRANSACTIONS (continued)

As at June 30, 2021 and December 31, 2020, the following were due to related parties:

	June 30, 2021 December 31, 2020
	$ $
Included in accounts payable and accrued liabilities Included in convertible debt Included in interest payable Included in promissory notes	18,021 76,036 - 199,026 - 109,072 60,000 25,000
Total	78,021 409,134

Amounts due to related parties included in accounts payable and accrued liabilities are unsecured, non-interest-bearing and are without fixed terms of repayment.

19. RISK MANAGEMENT

(a) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk for the Company is associated with its cash and restricted cash. The Company is not exposed to significant credit risk as its cash and restricted cash is placed with major financial institutions in Canada and the United States.

(b) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

As at June 30, 2021 the Company had a cash balance of $97,601 (December 31, 2020 - cash balance of $438,840) available to apply against short-term business requirements and current liabilities of $2,717,524 (December 31, 2020 - $26,215,196). All of the liabilities presented as accounts payable and accrued liabilities are due within 90 days of June 30, 2021. The Company expects that the GEM Fee payable will be repaid through future drawdowns pursuant to the GEM Agreement (note 11). The lease liability is payable in monthly instalments.

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk comprises three types of risk: foreign currency risk, interest rate risk and other price risk.

Foreign currency risk is the risk that future cash flows will fluctuate as a result of changes in foreign exchange rates. The Company is not exposed to significant foreign currency risk.

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. Interest earned on cash and restricted cash is at nominal interest rates. As at June 30, 2021 and December 31, 2020, the interest rates on the promissory notes and government loans are fixed and the GEM Fee payable is non-interest bearing. Therefore, the Company does not consider interest rate risk to be significant.

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk. The Company is not exposed to significant other price risk.

20. CAPITAL MANAGEMENT

The Company’s primary source of funds comes from the issuance of common shares, convertible debt, senior notes and promissory notes. The Company is not subject to any externally imposed capital requirements.

The Company’s objective when managing capital is to safeguard the Company’s ability to continue as a going concern.

The Company defines its capital as shareholders’ deficiency. Capital requirements are driven by the Company’s general operations. To effectively manage the Company’s capital requirements, the Company monitors expenses and overhead to ensure costs and commitments are being paid. The Company did not change its approach to capital management during the three and six months ended June 30, 2021 or 2020.

21. SEGMENTED INFORMATION

The Company has one operating segment, technology development. All assets of the Company are located in the United States of America.

22. EVENTS AFTER THE REPORTING DATE

On July 19, 2021, the Company closed a non-brokered private placement to issue 1,390,000 common shares of the Company for gross proceeds of $294,399 (CAD $375,300) at a price of CAD $0.27 per common share.

On August 25, 2021, the Company closed a non-brokered private placement to issue 632,000 common shares of the Company for gross proceeds of $100,000 (CAD $126,400) at a price of CAD $0.20 per common share.

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Avisa Diagnostics Inc. — Interim / Quarterly Report 2021

43614_rns_2021-08-27_7d7ebf17-06f0-4488-992e-81d684c02e3e.pdf

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.)

Notice of Disclosure of Non-auditor Review of the Condensed Interim Consolidated Financial Statements for the three and six months ended June 30, 2021 and 2020.

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.)

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.)

Condensed Interim Consolidated Statements of Changes in Shareholders’ Deficiency

For the six months ended June 30, 2021 and 2020

Supplemental cash flow information:

1. NATURE OF OPERATIONS AND GOING CONCERN

Reverse takeover

Going concern

2. BASIS OF PRESENTATION

(b) Basis of presentation

3. SIGNIFICANT ACCOUNTING POLICIES

Interest rates

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Valuation of share-based compensation and derivatives

Recognition and valuation of deferred tax assets

Comprehensive loss (income)

Business combination

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Estimates of useful lives of property and equipment

Cash generating units and impairment of non-financial assets

Going concern

Treatment of development costs

Right of use assets/Lease liabilities

a) Identifying whether a contract includes a lease

b) Incremental borrowing rate

c) Estimate of lease term

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Valuation of right-of-use asset and lease liabilities

Modification versus extinguishment of financial liabilities

4. REVERSE TAKEOVER TRANSACTION

4. REVERSE TAKEOVER TRANSACTION (continued)

AVISA DIAGNOSTICS INC. (formerly FogChain Corp.)

5. FURNITURE AND EQUIPMENT

6. RIGHT-OF-USE ASSET AND LEASE LIABILITY

6. RIGHT-OF-USE ASSET AND LEASE LIABILITY (continued)

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

8. CONVERTIBLE DEBT

8. CONVERTIBLE DEBT (continued)

9. SENIOR NOTES

10. WARRANTS LIABILITY

11. GEM FEE PAYABLE

12. PROMISSORY NOTES

13. GOVERNMENT LOAN AND GRANT

13. GOVERNMENT LOAN AND GRANT (continued)

14. PREFERRED SHARES

Series A Convertible Preferred Shares

14. PREFERRED SHARES (continued)

Series A-1 Convertible Preferred Shares

15. SHARE CAPITAL

(a) Authorized

(b) Issued - common shares

15. SHARE CAPITAL (continued)

16. RESERVES

16. RESERVES (continued)

16. RESERVES (continued)

17. RESEARCH AND DEVELOPMENT

18. RELATED PARTY TRANSACTIONS

18. RELATED PARTY TRANSACTIONS (continued)

19. RISK MANAGEMENT

(a) Credit risk

20. CAPITAL MANAGEMENT

21. SEGMENTED INFORMATION

22. EVENTS AFTER THE REPORTING DATE

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Avisa Diagnostics Inc. Interim / Quarterly Report 2021