BioSyent Inc. — Annual Report 2020

Mar 17, 2021

BioSyent Inc.

Audited Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

Expressed in Canadian Dollars

Corporate Office 2476 Argentia Road Suite 402 Mississauga, Ontario, L5N 6M1 Canada Telephone 905.206.0013 Facsimile 905.206.1413 Email: info@biosyent.com Web: www.biosyent.com

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Management’s Responsibility for Financial Reporting

To the Shareholders of BioSyent Inc.:

Management is responsible for the preparation and presentation of the accompanying consolidated financial statements for BioSyent Inc. (the “ Company ”), including significant accounting judgments and estimates in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required. The consolidated financial statements for the years ended December 31, 2020 and 2019 are compliant with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

In discharging its responsibilities for the integrity and fairness of the consolidated financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of consolidated financial statements.

The Board of Directors and the Audit Committee are composed primarily of Directors who are neither management nor employees of the Company. The Board is responsible for overseeing management in the performance of its financial reporting responsibilities. The Board fulfils these responsibilities by reviewing the financial information prepared by management and discussing relevant matters with management and external auditors. The Board and Audit Committee are also responsible for recommending the appointment of the Company’s external auditors. The Board of Directors has approved the information contained in the accompanying consolidated financial statements.

MNP LLP, an independent firm of Chartered Professional Accountants, is appointed by the shareholders to audit the consolidated financial statements and report directly to them; their report follows. The external auditors have full and free access, and meet periodically and separately with the Board, Audit Committee and management to discuss their audit findings.

Robert March

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Vice-President and Chief Financial Officer, BioSyent Inc. March 16, 2021

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

1

Independent Auditor’s Report

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To the Shareholders of BioSyent Inc.:

Opinion

We have audited the consolidated financial statements of BioSyent Inc. and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as at December 31, 2020 and December 31, 2019, and the consolidated statements of comprehensive income, cash flows and changes in shareholders' equity for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2020 and December 31, 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. The other information comprises:

• Management's Discussion and Analysis

• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report.

Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated.

We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor's report is Pierrette Dosanjh.

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Toronto, Ontario March 16, 2021

Chartered Professional Accountants Licensed Public Accountants

BioSyent Inc.

Consolidated Statements of Financial Position

(Expressed in Canadian Dollars)

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AS AT December 31, 2020 December 31, 2019
ASSETS
Cash and cash equivalents (Note 6) $20,291,421 $13,441,817
Short-term investments (Note 7) 5,286,285 8,531,660
Trade and other receivables (Note 8) 1,815,015 2,083,723
Inventory (Note 9) 2,073,561 2,139,127
Prepaid expenses and deposits 307,599 648,781
CURRENT ASSETS 29,773,881 26,845,108
Property and equipment (Note 11) 2,161,698 2,482,266
Intangible assets (Note 12) 1,007,822 1,023,378
Loans receivable (Note 13) 597,332 588,467
Deferred tax asset (Note 25) 30,481 26,095
TOTAL NON CURRENT ASSETS 3,797,333 4,120,206
TOTAL ASSETS $33,571,214 $30,965,314
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities $3,723,486 $2,916,834
Contract liability (Note 14) 246,124 99,141
Customer advances (Note 15) 688,312 -
Lease liability - current (Note 16) 151,949 144,253
Derivative liability (Note 10) 78,608 43,861
Income tax payable (Note 25) 250,195 154,952
CURRENT LIABILITIES 5,138,674 3,359,041
Deferred tax liability (Note 25) 79,672 102,902
Lease liability - non current (Note 16) 1,556,912 1,708,861
TOTAL NON CURRENT LIABILITIES 1,636,584 1,811,763
Share capital (Note 17) 6,392,428 7,179,617
Contributed surplus 1,494,419 1,235,549
Cumulative translation adjustment (166,705) (105,300)
Retained earnings 19,075,814 17,484,644
Total Equity 26,795,956 25,794,510
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $33,571,214 $30,965,314
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Contingencies (Note 20) Commitments (Note 21) Related party transactions (Note 22) Subsequent event (Note 27)

APPROVED ON BEHALF OF THE BOARD

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René Goehrum Peter Lockhard DIRECTOR DIRECTOR March 16, 2021 March 16, 2021

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

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

2

BioSyent Inc.

Consolidated Statements of Comprehensive Income

(Expressed in Canadian Dollars)

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For the years ended December 31
2020 2019
Net revenues from contracts with customers (Note 26) $22,332,168 $21,424,324
Cost of goods sold (Notes 9, 18) 4,908,321 4,778,069
Gross profit 17,423,847 16,646,255
Selling, general and administration expenses (Note 18) 12,328,501 11,168,000
New business development costs (Note 18) 65,322 90,114
Operating profit 5,030,024 5,388,141
Finance costs (Notes 16, 18) 92,942 32,456
Finance income (Note 18) (299,897) (514,846)
NET INCOME BEFORE TAXES 5,236,979 5,870,531
Current income tax (Note 25) 1,469,260 1,748,337
Deferred tax recovery (Note 25) (27,616) (247,101)
NET INCOME AFTER TAXES 3,795,335 4,369,295
OTHER COMPREHENSIVE INCOME
Currency translation losses (61,405) (90,566)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR $3,733,930 $4,278,729
Basic weighted average number of shares outstanding (Note 19) 12,997,456 13,945,147
Basic earnings per share (Note 19) $0.29 $0.31
Diluted weighted average number of shares outstanding (Note 19) 13,094,300 13,945,222
Diluted earnings per share (Note 19) $0.29 $0.31
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The accompanying notes are an integral part of these consolidated financial statements.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

3

BioSyent Inc.

Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

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For the years ended December 31,
2020 2019
OPERATING ACTIVITIES
Net income after taxes $3,795,335 $4,369,295
Items not affecting cash:
Depreciation - property and equipment (Notes 11, 18) 334,186 193,578
Amortization - intangible assets (Notes 12, 18) 176,236 98,152
Impairment loss on intangible assets - 1,050,947
Expected credit losses 37,174 36,591
Share-based payments (Note 17) 266,173 263,245
Change in derivative liability (Note 10) 34,747 71,205
Net finance income (206,955) (482,390)
Loan Interest receivable (Note 13) (8,865) (11,538)
Deferred tax recovery (Note 25) (27,616) (247,101)
Net change in non-cash working capital items:
Trade and other receivables 214,132 119,596
Inventory 65,566 (655,735)
Prepaid expenses and deposits 341,182 (347,960)
Accounts payable and accrued liabilities 942,592 123,840
Contract liability 146,983 (13,212)
Customer advances (Note 15) 688,312 -
Income tax payable (Note 25) 95,243 (166,800)
Cash provided by operating activities 6,894,425 4,401,713
INVESTING ACTIVITIES
Additions to property and equipment (Note 11) (13,618) (504,336)
Additions to intangible assets (Note 12) (160,680) (229,795)
Decrease (Increase) in short term investments (Note 7) 3,245,375 (939,328)
Interest received 317,299 357,772
Cash provided by (used in) investing activities 3,388,376 (1,315,687)
FINANCING ACTIVITIES
Payments - lease liability principal (Note 16) (144,253) (23,278)
Payments - lease liability interest (Note 16) (92,942) (16,255)
Repurchase of common shares - NCIB (Note 17) (2,648,194) (6,351,603)
Purchase of RSU Plan shares - held in trust (Note 17) (493,818) -
Proceeds from stock options exercised 7,415 4,724
Cash used in financing activities (3,371,792) (6,386,412)
Effect of foreign currency translation adjustment (61,405) (90,566)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,849,604 (3,390,952)
Cash and cash equivalents, beginning of year 13,441,817 16,832,769
CASH AND CASH EQUIVALENTS - END OF YEAR $20,291,421 $13,441,817
SUPPLEMENTARY DISCLOSURE:
NET CHANGE IN CASH AND SHORT TERM INVESTMENTS
Cash and short term investments, beginning of year $21,973,477 $24,425,101
Increase (decrease) in short term investments (3,245,375) 939,328
Increase (decrease) in cash and cash equivalents 6,849,604 (3,390,952)
CASH AND SHORT TERM INVESTMENTS - END OF YEAR $25,577,706 $21,973,477
CASH PAID FOR TAXES $(1,374,017) $(1,915,137)
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The accompanying notes are an integral part of these consolidated financial statements.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

4

BioSyent Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(Expressed in Canadian Dollars)

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Cumulative Currency
Contributed Retained Total Shareholders’
Share Capital Translation
Surplus Earnings Equity
Adjustment
Balance as of January 1, 2020 $ 7,179,617 $ 1,235,549 $ (105,300) $ 17,484,644 $ 25,794,510
Comprehensive Income for the year - - (61,405) 3,795,335 3,733,930
Common shares repurchased under (308,089) - - (2,204,165) (2,512,254)
Normal Course Issuer Bid (Note 17)
Common shares purchased and held in (493,818) - - - (493,818)
RSU Plan Trust (Note 17)
Effect of Share-based payments: - 154,387 - - 154,387
Options vested (Note 17)
Effect of Share-based payments: 14,718 (7,303) - - 7,415
Options exercised (Note 17)
Effect of Share-based payments: - 111,786 - - 111,786
RSU expense (Note 17)
Balance as of December 31, 2020 $ 6,392,428 $ 1,494,419 $ (166,705) $ 19,075,814 $ 26,795,956
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Cumulative Currency
Contributed Retained Total Shareholders’
Share Capital Translation
Surplus Earnings Equity
Adjustment
Balance as of January 1, 2019 $ 7,654,993 $ 976,957 $ (14,734) $ 18,988,446 $ 27,605,662
Comprehensive Income for the year - - (90,566) 4,369,295 4,278,729
Common shares repurchased under (484,753) - - (5,873,097) (6,357,850)
Normal Course Issuer Bid (Note 17)
Effect of Share-based payments: - 263,245 - - 263,245
Options granted / vested (Note 17)
Effect of Share-based payments: 9,377 (4,653) - - 4,724
Options exercised (Note 17)
Balance as of December 31, 2019 $ 7,179,617 $ 1,235,549 $ (105,300) $ 17,484,644 $ 25,794,510
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The accompanying notes are an integral part of these consolidated financial statements.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

5

BioSyent Inc. Notes to Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

(Expressed in Canadian Dollars)

1. General Information

BioSyent Inc. (“ BioSyent ” or the “ Company ”), is a publicly traded specialty pharmaceutical company which, through its wholly-owned subsidiaries, BioSyent Pharma Inc. (“ BioSyent Pharma ”) and BioSyent Pharma International Inc., acquires or licences and further develops pharmaceutical and other healthcare products for sale in Canada and certain international markets. Hedley Technologies Ltd., a wholly owned subsidiary of BioSyent, operates the Company’s legacy business marketing biologically and health friendly non-chemical insecticides. BioSyent’s issued and outstanding common shares (the “ Common Shares ”) are listed for trading on the TSX Venture Exchange under the symbol “RX”.

The accompanying consolidated financial statements (the “ Financial Statements ”) of BioSyent include the accounts of BioSyent Inc. and its four wholly owned subsidiaries: BioSyent Pharma Inc., BioSyent Pharma International Inc., Hedley Technologies Ltd., and Hedley Technologies (USA) Inc. (“ Hedley USA ”).

The Company changed its name from “Hedley Technologies Inc.” to “BioSyent Inc.” on June 13, 2006 to reflect the Company’s forward focus on the pharmaceutical market. BioSyent Pharma was incorporated on April 6, 2006 under the Canada Business Corporations Act and commenced operations in 2006. Hedley Technologies Ltd. was incorporated on January 30, 1996 in the province of British Columbia, Canada. Hedley USA was incorporated on May 13, 1994 in the state of Washington, USA. BioSyent Pharma International Inc. was incorporated on April 18, 2016 in Barbados.

BioSyent’s principal place of business is located at 2476 Argentia Road, Suite 402, Mississauga, Ontario, Canada L5N 6M1.

These Financial Statements were approved by the Board of Directors on March 16, 2021.

2. Basis of Presentation

The principal accounting policies adopted in the preparation of these Financial Statements on a historical cost basis, with the exception of those financial assets and liabilities at fair value through profit or loss (FVTPL), are set out below. The policies have been consistently applied to all the years presented.

Certain amounts in the prior period have been reclassified to conform with the presentation of the current period financial statements. These reclassifications had no effect on the reported results of operations.

Statement of Compliance

These consolidated financial statements for the years ended December 31, 2020 and 2019 have been prepared and are in compliance with International Financial Reporting Standards (“ IFRS ”) as issued by the International Accounting Standards Board (“ IASB ”).

Basis of Consolidation

All inter-company transactions have been eliminated in these Financial Statements.

Functional and Presentation Currency

The presentation currency of these Financial Statements is the Canadian dollar (“ CAD ”). The functional currency of the Company and two of its subsidiaries, BioSyent Pharma and Hedley Technologies Ltd., is the Canadian dollar. The functional currency of Hedley USA and BioSyent Pharma International Inc. is the U.S. dollar (“ USD ”).

All financial information has been rounded to the nearest dollar except where otherwise indicated.

3. Summary of Significant Accounting Policies

Financial Instruments

All financial assets and financial liabilities, in respect of financial instruments, are recognized on the Company’s statements of financial position when the Company becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are incremental and are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities measured at fair value through profit or loss) are added to

or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets and liabilities are offset and the net amount presented in the statements of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

6

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.

The classification of financial instruments dictates how these assets and liabilities are measured subsequently in the Company’s consolidated financial statements.

Financial Instruments Measured at Fair Value Through Profit or Loss (FVTPL)

Financial instruments are classified as FVTPL when they are held for trading. A financial instrument is held for trading if it was acquired for the purpose of sale in the near term. Derivative financial instruments that are not designated and effective as hedging instruments are classified as FVTPL. Financial instruments classified as FVTPL are stated at fair value with any changes in fair value recognized in earnings for the year. Financial assets in this category include certain short-term investments and derivatives. The Company may enter into derivative financial instruments to manage exposure to foreign exchange fluctuations and to improve the returns on its cash assets. These instruments are non-hedge derivative instruments.

Financial Assets Measured at Amortized Cost

Financial assets measured at amortized cost are financial assets whereby the business model objective is to collect contractual cash flows and the cash flows represent SPPI (Solely Payments of Principal and Interest). Such assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial assets are measured at amortized cost using the effective interest method, less any impairment losses. Financial assets in this category include cash and cash equivalents, short-term investments, trade receivables, other receivables, and loans receivable.

Loans receivable consist of full recourse loans issued to employees, as described in Note 12. As the loans are full recourse, they are not recorded as share-based payments, but instead as loans, which fall within the scope of IFRS 9 Financial Instruments .

Impairment of Financial Assets

The Company assesses at each statement of financial position date whether there is objective evidence that a financial asset or group of financial assets is impaired.

The Company recognizes expected credit losses (“ ECLs ”) for trade receivables based on the simplified approach under IFRS 9. The simplified approach to the recognition of expected losses does not require the Company to track the changes in credit risk; rather, the Company recognizes a loss allowance based on lifetime expected credit losses at each reporting date from the date of the trade receivable.

Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial

reorganization and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Trade receivables are reviewed qualitatively on a case-bycase basis to determine whether they need to be written off.

The Company recognizes loss allowances for ECLs on its financial assets measured at amortized cost, including loans receivable. ECLs are a probability-weighted estimate of credit losses. The Company applies a three-stage approach to measure ECLs. The Company measures an ECL:

• at an amount equal to 12 months of expected losses for performing loans receivable if the credit risk at the reporting date has not increased significantly since initial recognition (Stage 1);

• at an amount equal to lifetime expected losses on loans receivable that have experienced a significant increase in credit risk since origination (Stage 2); and

• at an amount equal to lifetime expected losses which are credit impaired (Stage 3).

The Company considers a significant increase in credit risk to have occurred if contractual payments are more than 30 days past due and considers the loans receivable to be in default if they are 90 days past due. A significant increase in credit risk or default may have also occurred if there are other qualitative factors (including forward looking information) to consider; such as borrower specific information (i.e. change in credit assessment). Such factors include consideration relating to whether the counterparty is experiencing significant financial difficulty, there is a breach of contract, concessions are granted to the counterparty that would not normally be granted, or it is probable the counterparty will enter into bankruptcy or a financial reorganization.

Financial Liabilities Measured at Amortized Cost

Financial liabilities measured at amortized cost are recognized initially at fair value net of any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Other financial liabilities are de-recognized when the obligations are discharged, cancelled or expired. Financial liabilities in this category include accounts payable and accrued liabilities.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value, by reference to the reliability of the inputs used to estimate the fair values.

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

7

Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Company’s forward foreign exchange contract derivatives are measured at fair value through profit or loss using Level 2 inputs. The Company’s cash and cash equivalents are measured at fair value through profit or loss using Level 1 inputs. There were no transfers between Levels 1 or 2 during the year.

Revenue Recognition

In accordance with IFRS 15 Revenue , The Company applies the following 5-step revenue recognition model based on the principle that an entity should recognize revenue as performance obligations are satisfied based on the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled:

• Step 1: Identify the contract(s) with a customer;

• Step 2: Identify the performance obligations in the contract;

• Step 3: Determine the transaction price;

• Step 4: Allocate the transaction price to the performance obligations in the contract; and

• Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

Revenue from the sale of goods is recognized at the point when the Company has satisfied its performance obligations in the contract and control is transferred to the customer, generally upon shipment or delivery of the goods to the customer. Revenue is recognized at an amount that reflects the consideration to which the Company ultimately expects to be entitled in exchange for those goods. In the Company’s Canadian Pharmaceutical Business, promised consideration from a wholesaler customer can vary due to product returns, discounts, volume rebates, refunds, credits, price concessions, incentives, or similar items. Revenue is recorded net of these amounts. Where the consideration promised in a contract with a customer includes a variable amount, the Company estimates the amount of consideration to which it ultimately expects to be entitled in exchange for transferring the promised goods or services to the customer and the amount of revenue recognized is adjusted accordingly.

The Company may also offer other discount programs, including retail coupons and copay discount cards for the purchase of certain of its products by end-consumers. The Company estimates the amount of such discounts based on historical experience and the specific terms of each program. Revenue is recorded net of these amounts. The estimated amounts of such discounts are recorded as these retail coupons and copay discount cards are distributed.

The total of all variable consideration amounted to $1,154,781 in the year ($1,214,057 in 2019).

The Company recognizes a contract liability based on its estimate of the amount of consideration it expects to refund to its customers. This contract liability is updated at the end of each year for any changes in circumstances.

Property and Equipment

Property and equipment are recorded at historical cost less accumulated depreciation. The cost of property and equipment is its purchase price, together with any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The Company records depreciation of property and equipment at the following rates and methods based on the assets’ estimated useful economic lives:

Furniture and fxtures	20%	decliningbalance method
Equipment	20%	decliningbalance method
Computer equipment	30%	decliningbalance method
Computer software	30%	decliningbalance method
Lease right-of-use asset		Straight-line over 10-year term of lease
Leasehold improvements		Straight-line over 10-year term of lease

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within the Statements of Comprehensive Income.

Cash and Cash Equivalents and Short-term Investments

Cash and cash equivalents include cash held at financial institutions and highly liquid deposits with the ability to be converted into cash within 90 days or less of their acquisition date.

Short term investments are comprised of deposits with Chartered Canadian banks with original maturities of more than 90 days. These investments are held in Canadian dollars or in foreign currencies and are interest bearing.

Inventory

Inventory is measured on a first-in, first-out basis at the lower of cost and net realizable value. When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized.

Intangible Assets

Intangible assets with definite useful lives consist of:

• new product dossier and filing costs, which represent professional, consulting, and regulatory fees incurred in obtaining regulatory approvals of products for marketing and manufacturing purposes;

• product licenses and rights, which represent contractual milestone payments and professional fees incurred in acquiring product licenses and distribution rights;

• new product development, which represents expenditure on materials and services in the development of new products;

• trademarks and patents, which represent legal and application fees incurred in registering trademarks and patents in various jurisdictions; and

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

8

• trade certifications, which represent legal and registration fees incurred in obtaining international trade certifications of products.

Following initial recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. Amortization commences when the intangible asset is available for use. The amortization period and the amortization method for an intangible asset with a definite useful life are reviewed at least annually at the end of each financial reporting year. Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives (see Note 12 ). New product dossier and filing costs are amortized over the estimated economic lives of the underlying products commencing upon their availability for use. Product licenses and rights are amortized over the expected useful life. New product development costs are amortized over the estimated economic useful life of the product commencing upon its availability for use. Trademarks and patents are amortized over the period covered by the registration period, ranging between 10 and 15 years, unless the economic life is shorter.

Development Costs

Research costs are expensed as incurred. Development costs are also expensed unless the Company can demonstrate the following:

• the technical feasibility of completing the intangible asset so that it will be available for use or sale;

• its intention to complete the intangible asset and use or sell it;

variability in cash flows, as well as other factors, are considered when making assumptions with regard to future cash flows and the appropriate discount rate. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. A change in any of the significant assumptions or estimates used to evaluate non-financial assets could result in a material change to the results of operations.

Foreign Currency Translation

Items included in the financial records of each consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities not denominated in the functional currency of an entity are recognized in net income.

Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the year-end rates of exchange, and the results of their operations are translated at average rates of exchange for the year. The resulting translation adjustments are included in cumulative translation adjustment in shareholders’ equity. Additionally, foreign exchange gains and losses related to certain intercompany loans that are net investments in a foreign operation are included in cumulative translation adjustment account, as part of other comprehensive income.

• its ability to use or sell the intangible asset;

• how the intangible asset will generate probable future economic benefits;

• the availability of resources to complete the development of the asset; and

• the ability to measure reliably the expenditure during development.

Impairment of Non-Financial Assets

Equipment and intangible assets are reviewed for impairment at the end of each annual reporting period for events or circumstances that indicate that the carrying value of an asset may not be recoverable. In such cases where an indicator of impairment exists, the recoverable amount of the asset is estimated to determine whether there is an impairment loss. The recoverable amount of an asset is first tested on an individual basis.

Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available market data less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. These calculations require the use of estimates and forecasts of future cash flows. Qualitative factors, including market presence and trends, strength of customer relationships, strength of local management, strength of debt and capital markets, and degree of

Taxation

Tax expense comprises current and deferred tax. Tax is recognized in the Consolidated Statements of Comprehensive Income except to the extent it relates to items recognized in other comprehensive income or directly in equity.

Current Tax:

Current tax expense is based on the results for the year as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that are enacted or substantively enacted at the end of the year. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred Tax:

Deferred tax assets and liabilities are recognized for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

9

of goodwill and temporary differences arising from investments in subsidiaries that are not expected to reverse in the foreseeable future.

Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Share-Based Payments

The Company has equity-settled share-based payment plans, including a Restricted Share Unit (“RSU”) Plan, an Incentive Stock Option Plan, and an Employee Share Purchase Plan (“ESPP”) which are described in Note 17 . The Company accounts for share-based payments under these plans in accordance with IFRS 2, Share-based payment .

RSU Plan

For RSUs granted to employees and directors, the Company recognizes an expense over the vesting period of the RSUs equal to the fair value at the grant date based on the closing market price of the Company’s common shares on the TSX Venture Exchange and an estimate of the number of RSUs expected to vest.

The Company classifies outstanding RSUs as equity instruments in accordance with IAS 32, Financial instruments: presentation. Over the vesting period of RSUs, as the Company recognizes an expense, it also recognizes a corresponding increase in contributed surplus for the fair value of such RSUs.

RSUs are settled with the issuance to RSU holders of common shares of the Company, either newly issued or purchased by the Company in the open market. Common shares purchased in the open market by the Company for future RSU settlements are held in an RSU Trust until the time of settlement when they are released to RSU holders. These common shares held in the RSU Trust are classified as equity and accounted for as Treasury Shares in accordance with IAS 32 and are measured at the price paid in the open market. Upon settlement of the RSUs and the release of the common shares to RSU holders, these common shares are reclassified to share capital.

ESPP

Any Company matching of employee contributions to the ESPP is accounted for as an expense at the time of the cash contribution.

Repurchase of Shares under Normal Course Issuer Bid (“NCIB”) Repurchases by the Company of its own common shares under a NCIB are accounted for in accordance with IAS 32, Financial Instruments: Presentation . Upon reacquiring shares under a NCIB, the Company deducts from equity the purchase price of these shares and any costs to acquire such shares. Any such shares held by the Company are considered treasury shares until they are cancelled.

Earnings per Share

Basic earnings per share is computed by dividing the net income after taxes by the weighted average number of common shares outstanding during the year. Diluted earnings per share information is calculated assuming the deemed exercise of all in-the-money stock options and that all deemed proceeds to the Company are used to repurchase the Company’s stock at the average market price during the year. No adjustment to diluted earnings per share is made if the result of this calculation is antidilutive.

Leases

The Company accounts for its leases in accordance with IFRS 16, Leases. All contracts that meet the definition of a lease are recorded in the statement of financial position with a “right of use” asset and a corresponding liability. The asset is accounted for as property, plant and equipment and is depreciated on a straight-line basis over the term of the lease contract. The liability is unwound using the interest rate inherent in the lease. The Company has recognized a right-of-use asset and a lease liability in respect of its lease for head office space (see Notes 11 and 16 ). The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of 12 months or less and for leases of low-value assets.

Accounting Pronouncements Issued but not yet Effective

The Company has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

Incentive Stock Option Plan

Compensation costs attributable to all stock options granted to employees and directors are measured at fair value, using the Black-Scholes option pricing model, at the grant date and expensed over the vesting period with a corresponding increase to contributed surplus. For options with graded vesting, the fair value of each tranche is recognized over its respective vesting period.

Any consideration paid by employees upon the exercise of any stock options increases share capital. The Company does not repurchase stock options from option holders.

Options granted to non-employees are measured at the fair value of the goods and services received or to be received.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

10

4. Use of Estimates and Accounting Judgments by Management

The preparation of these Financial Statements requires management to make critical judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. On an ongoing basis, management evaluates its judgments, estimates and assumptions using historical experience and various other factors it believes to be reasonable under the given circumstances. In the future, actual experience may differ from these estimates and assumptions.

Judgments

a. Recoverability of asset carrying values

The Company assesses its equipment and intangible assets for impairment if there are events or changes in circumstances that indicate that carrying values may not be recoverable at each statement of financial position date. Such indicators include changes in the Company’s business plans, changes in the market and evidence of physical damage.

Determination as to whether and how much an asset is impaired involves management’s judgment on highly uncertain matters such as future selling and purchasing prices, the effects of inflation on operating expenses, discount rates, and economics of different pharmaceutical or medical products.

b. Impairment of trade and other receivables

The Company performs ongoing credit evaluations of its customers and grants credit based on a review of historical collection experience, current aging status, financial condition of the customer, and anticipated industry conditions. Customer payments are regularly monitored and ECLs are established in accordance with IFRS 9.

c. Income taxes

The Company is subject to income tax assessment in multiple jurisdictions. Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken in the ordinary course of business for which the ultimate tax determination is uncertain.

The Company recognizes liabilities based on the Company’s current understanding of tax laws as applied to the Company’s circumstances. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

The Company computes an income tax provision in each of the jurisdictions in which it operates. Actual amounts of income tax expense only become final upon filing and acceptance of the tax return by the relevant authorities, which occur subsequent to the issuance of these Financial Statements. Additionally, estimating income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the ability to use the underlying future tax deductions against future taxable income before such deductions expire. The assessment is based upon existing tax laws

and estimates of future taxable income. To the extent estimates differ from the final tax return, earnings would be affected in a subsequent period.

Estimates

The most significant estimates made by management include the following:

a. Depreciation

Depreciation of the Company’s equipment involves estimates of future useful lives and residual values. These estimates may change as more experience is obtained or as general market conditions change, thereby impacting the value of the Company’s equipment.

b. Amortization of intangible assets

The amortization of the Company’s intangible assets involves estimates of their useful lives. Such estimates may change as more experience is obtained or as general market conditions change, thereby impacting the value of the Company’s intangible assets.

c. Share-based payments

Grants of RSUs and stock options are measured at their fair value on the grant date.

Management estimates the fair value of RSUs by reference to the closing price of the Company’s common shares on the TSX Venture Exchange at the grant date. Management uses the Black-Scholes option pricing model to estimate the fair value of stock options determined at the grant date for options granted to employees and directors. Significant assumptions affecting the valuation of options include the term allowed for option exercise, a volatility factor relating to the Company’s historical share price, dividend yield, forfeiture rate and risk-free interest rate.

The estimated forfeiture rate also affects the valuation of RSUs.

d. Inventory

Management has estimated the value of inventory based upon its assessment of the net realizable value. All slow-moving merchandise has been provided for by management.

e. Determination of transaction price

As a result of the existence of elements of variable consideration in the Company’s contracts with customers arising from returns, discounts, rebates, retail coupons, copay discount cards, and other price incentives, the Company is required to estimate the amount of variable consideration from the customer to which it ultimately expects to be entitled and to adjust the transaction price and amount of revenue recognized accordingly.

The Company estimates the extent of future product returns, retail coupon and copay discount card redemptions, discounts and volume rebates to be awarded to customers based on historical, current and forecast information available, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

f. Determination of incremental borrowing rate

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

11

When the Company enters into leases as lessee and where the interest rate implicit in a lease cannot be readily determined, the Company determines its incremental borrowing rate in order to measure its lease liability. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow over a similar term, and with similar security, the funds necessary to obtain an asset of a similar value to the right-to-use asset in a similar economic environment. In determining its incremental borrowing rate, the Company considers the term of the lease, the nature of the leased asset, and its level of indebtedness with reference to market risk-free interest rates.

g. Determination of lease term

When the Company enters into leases as lessee, it determines the lease term as the non-cancellable period of the lease together with periods covered by an option to extend the lease if it reasonably expects to exercise such option and periods covered by an option to terminate the lease if it reasonably expects not to exercise such option. In assessing whether it is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, the Company considers: the contractual terms and conditions for the optional periods compared with market rates; whether any significant leasehold improvements have been undertaken; the costs of terminating the lease; the importance of the underlying asset to the Company’s operations; and any conditionality associated with exercising the option (see Note 16 ).

5. COVID-19

On March 11, 2020, the World Health Organization characterized COVID-19 (Coronavirus) as a pandemic. The COVID-19 pandemic has impacted and is likely to continue to impact the Company’s operations in the following key areas:

a. Workforce:

The Company will continue to follow the recommendations of public health and government authorities and to take all necessary precautions, including remote work arrangements, the ongoing practice of physical distancing, making personal protective equipment available to employees, and ensuring employees’ understanding of good hygiene practices and infection risks, in order to protect the health and safety of its workforce, both in its head office and in the field.

b. Access to Healthcare Professionals:

COVID-19 restrictions have affected the ability of the Company’s field salesforce to access healthcare professionals in the community and in hospitals for the purposes of product detailing. While the extent and duration of such access restrictions varies by region in Canada, such restrictions may have an impact on the Company’s Canadian pharmaceutical sales during the time they are in place.

c. Demand for Products:

To the extent that the COVID-19 pandemic affects patient volumes (both in community clinics and in hospitals) and the nature of procedures performed in Canadian hospitals, this will affect the consumption of the Company’s urgent care products as well as its hospital products used in elective procedures.

Additionally, to the extent that the COVID-19 pandemic and safety restrictions affect consumer buying behaviour, this will affect demand for the Company’s pharmaceutical products in the community. The extent of the impact of COVID-19 on consumer demand for the Company’s products in the short-term and longterm is uncertain.

Finally, given the global scale of COVID-19, demand for the Company’s products in international markets may also be affected, depending on the extent of local infection rates, the measures implemented by local governments in response, and the overall impact of the pandemic on business activity in these international markets.

d. Supply Chain:

The Company sources its products globally. Given the global impact of the COVID-19 pandemic and varying localized impacts, this could result in interruptions to the Company’s supply chains, including the manufacturing, transportation, and delivery of products to customers.

6. Cash and Cash Equivalents

Cash and cash equivalents consist of the following:

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December 31, 2020 December 31, 2019
Cash on deposit in banks $10,326,877 $10,887,130
Redeemable GICs 9,964,544 2,554,687
Total cash and cash equivalents $20,291,421 $13,441,817
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BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

12

7. Short-term Investments

Short term investments consist of the following:

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December 31, 2020 December 31, 2019
Non-redeemable GICs $4,043,968 $6,543,728
Dual Currency Deposits (Note 10) 1,242,317 1,987,932
Total short term investments $5,286,285 $8,531,660
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8. Trade and Other Receivables

Trade and other receivables are summarized as follows:

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December 31, 2020 December 31, 2019
Trade accounts receivable (Note 10) $1,599,028 $1,814,914
Other receivables 215,987 268,809
Total trade and other receivables $1,815,015 $2,083,723
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9. Inventory

Inventory is comprised of the following:

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December 31, 2020 December 31, 2019
Raw and Packaging Materials $366,757 $273,942
Finished Goods 1,706,804 1,865,185
Total inventory $2,073,561 $2,139,127
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Cost of goods sold is comprised of the following:

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December 31, 2020 December 31, 2019
Raw and Packaging Materials and Finished Goods $4,772,303 $4,649,956
Freight 136,018 128,113
Total cost of goods sold $4,908,321 $4,778,069
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10. Financial Instruments and Financial Risk Management

Fair Value Measurement

Fair Value Estimation of Financial Instruments

The carrying value of the Company’s cash and cash equivalents, short term investments, derivative assets/liabilities, trade and other receivables, loans receivable, and accounts payable and accrued liabilities approximate their fair values.

Risks

The Company is exposed to a variety of financial risks by virtue of its activities: market risk (including foreign exchange risk, interest rate risk, and credit risk) and liquidity risk. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on financial performance. Risk management is carried out under the policies described below. Management is charged with the responsibility of establishing controls and procedures to ensure that financial risks are mitigated with the approved policies.

¾ Foreign Exchange Instruments:

The Company periodically enters into foreign exchange options and forward contracts with financial institutions with investment grade credit ratings to manage its foreign exchange risk on contracts denominated in U.S. dollars and Euros. Such instruments are classified as derivative financial instruments and measured at fair value through profit and loss.

Options:

As at December 31, 2020, the Company entered into foreign exchange options to purchase up to a total of USD 900,000 and USD 1,350,000 (December 31, 2019 – USD 2,550,000 and USD 3,825,000) at an exchange rate expressed in CAD per USD of 1.3100 which will be settled on various dates from January 2021 to June 2021. The Company’s right to buy USD 900,000 on the respective settlement dates is subject to the spot exchange rate on the settlement dates being below a rate of 1.3900 CAD per USD. The Company’s obligation to buy USD 1,350,000 on the respective settlement dates is subject to the spot exchange rate on the settlement dates being below a rate of 1.2775 CAD per USD.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

13

Forward Contracts:

As at December 31, 2020, the Company entered into foreign exchange forward contracts to purchase a total of USD 650,000 (December 31, 2019 – USD Nil) at exchange rates expressed in CAD per USD ranging from 1.3084 to 1.3215 which will be settled on various dates from April 2021 to October 2021.

As at December 31, 2020, the Company also entered into foreign exchange forward contracts to purchase a total of EUR 450,000 (December 31, 2019 – EUR Nil) at exchange rates expressed in CAD per EUR ranging from 1.5532 to 1.5578 which will be settled on various dates from January 2021 to March 2021.

The fair value of foreign exchange instruments is estimated based on quoted values from financial institutions. The Company’s foreign exchange instruments resulted in a derivative liability of $78,608 as at December 31, 2020 (December 31, 2019 – $43,861).

The following table illustrates the Company’s investment in foreign exchange instruments that are measured at fair value through profit and loss (“ FVTPL ”):

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December 31, 2020 Level 1 Level 2 Level 3
Foreign Exchange Instruments - ($78,608) -
December 31, 2019 Level 1 Level 2 Level 3
Foreign Exchange Instruments - ($43,861) -
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¾ Dual Currency Deposits:

The Company also invests in dual currency deposits (“ DCD ”). A DCD is a CAD or foreign currency denominated transaction that provides an enhanced guaranteed interest payment at maturity. However, the original denominated currency is converted to another specified currency at a specified exchange rate depending

on whether the spot rate on the maturity date is above or below a specified fixed exchange rate. The fair value of DCDs is estimated based on quoted values from financial institutions.

The following table illustrates the Company’s investment in DCDs measured at fair value through profit and loss:

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December 31, 2020 Level 1 Level 2 Level 3
DCDs - $1,242,317 -
December 31, 2019 Level 1 Level 2 Level 3
DCDs - $1,987,932 -
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At December 31, 2020, the Company had the following CAD denominated DCD that was convertible into USD:

Type of Financial Instrument	Spot Rate on Transaction Date	Principal (CAD)	Net Fair Value (CAD)	Guaranteed Interest Rate	Maturity Date	Fixed Maturity Conversion Rate
DCD 1.2965 $1,250,000 $1,242,317 3.26% January4,2021 1.2850

At December 31, 2019, the Company had the following CAD denominated DCD that was convertible into USD:

Type of Financial Instrument	Spot Rate on Transaction Date	Principal (CAD)	Net Fair Value (CAD)	Guaranteed Interest Rate	Maturity Date	Fixed Maturity Conversion Rate
DCD 1.3160 $2,000,000 $1,987,932 3.01% February3,2020 1.3000

The fair value of dual currency deposits is estimated based on quoted values from financial institutions.

¾ Foreign Exchange Risk:

The Company currently earns revenue in Canadian dollars, U.S. dollars and Euros and incurs costs in Canadian dollars, U.S. dollars and Euros. Management monitors the foreign currency net liability position on an ongoing basis during the year and adjusts the total net monetary liability balance accordingly. When it is appropriate to de-risk future foreign exchange transactions, the Company uses foreign exchange options, forward contracts, and DCDs to manage foreign exchange transaction exposure.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

14

The following tables present foreign exchange sensitivity analyses for the assets and liabilities of the Company denominated in foreign currencies:

Foreign Exchange Sensitivity Analysis - USD

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December 31, 2020 December 31, 2019
Description of Asset/(Liability) USD USD
Cash and cash equivalents 1,551,272 418,262
Short term investments 975,744 1,529,178
Trade receivables 17,292 78,254
Less: Accounts payable (591,928) (698,811)
Net Total 1,952,380 1,326,883
Foreign Exchange Rate CAD per USD at the end of the year 1.2732 1.2988
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At December 31, 2020, if the U.S. dollar had been stronger or weaker by 10% against the Canadian dollar with all other variables held constant, comprehensive income would have been $182,704 higher or lower on an after-tax basis, respectively (December 31, 2019 - $126,667 higher or lower, respectively).

Foreign Exchange Sensitivity Analysis - EUR

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December 31, 2020 December 31, 2019
Description of Asset/(Liability) EUR EUR
Cash and cash equivalents 743,512 673,066
Less: Customer deposits (441,000)
Less: Accounts payable (85,563) (84,048)
Net Total 216,949 589,018
Foreign Exchange Rate CAD per EUR at the end of the year 1.5608 1.4583
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At December 31, 2020, if the Euro had been stronger or weaker by 10% against the Canadian dollar with all other variables held constant, comprehensive income would have been $25,877 higher or lower on an after-tax basis, respectively (December 31, 2019 - $63,134 higher or lower, respectively).

¾ Interest Rate Risk:

Cash flow interest rate risk is the risk that the future cash flow of a financial instrument will fluctuate because of changes in interest rates. Some of the Company’s cash and cash equivalents as at the date of the Company’s Consolidated Statements of Financial Position are invested in redeemable guaranteed investment certificates (each, a “GIC”), which earn interest at fixed rates during their tenure. The Company’s short-term investments consist of non-redeemable GICs which also earn interest at fixed rates during their tenure. These GICs all have terms of one year or less.

The Company manages its interest rate risk by maximizing the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. Fluctuations in market rates of interest when these GICs are renewed may have an impact on the Company’s Finance Income for the period.

¾ Credit Risk:

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s cash and cash equivalents, short term investments, trade and other receivables, and loans receivable. The carrying amount of financial assets represents maximum credit exposure. As the Company invests in GICs with Canadian Chartered Banks, its credit risk on this account is negligible. The Company’s loans receivable ( see Note 13 ) are full recourse and secured by a pledge of common shares of the Company purchased by the Borrowers, who are key management personnel. Based on these factors, the Company considers the credit risk associated with these loans receivable to be low. There are no factors at the end of the period to indicate a significant increase in credit risk has occurred and there are no defaults on the loans receivable.

The majority of the Company’s current customers are corporations with whom the Company has transacted for several years. In assessing the credit risk of its trade accounts receivable, the Company considers historical default rates and payment patterns, the nature of its customer base, and forward-looking information including any anticipated changes to its customer base, credit terms, and pricing.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

15

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Aged Trade Accounts Receivable December 31, 2020 December 31, 2019
Current $1,444,432 $1,328,854
Past due 1-30 days 110,964 329,815
Past due 31-60 days 22,783 80,438
Over 60 days 87,559 111,218
Expected Credit Losses (66,710) (35,411)
Closing Balance $1,599,028 $1,814,914
Maximum Credit Risk 1,665,738 1,850,325
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As of December 31, 2020, one customer represents 43% of trade receivables (December 31, 2019 - 19%) while another customer represents 19% of trade receivables (December 31, 2019 - 31%), a third customer represents 15% of trade receivables (December 31, 2019 - 18%), and a fourth customer represents 4% of trade receivables (December 31, 2019 – 13%). There have been no past credit losses from these four customers.

The Company’s expected credit loss of $66,710 (December 31, 2019 - $35,411) is related to trade receivables from Canadian pharmaceutical wholesale customers for which collection was uncertain.

Cash, cash equivalents and short-term investments are maintained with Canadian financial institutions and the wholly owned subsidiaries of these financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and therefore bear minimal credit risk.

¾ Liquidity Risk:

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. Senior management is actively involved in the review and approval of planned expenditures. All contractual maturities of accounts payable and accrued liabilities are due within one year. The Company has no other financial liabilities not carried at fair value.

The Company generates sufficient cash from operating activities to fund its operations and fulfill its obligations as they become due. The Company has credit facilities available with Royal Bank of Canada totalling $3,090,000, including a revolving demand credit facility of $1,500,000 which it has not drawn down as at the date hereof, a foreign exchange facility of $1,500,000, and credit card facilities totalling $90,000. The Company has available additional foreign exchange facilities of $2,500,000 with other Canadian financial institutions.

There were no changes to the Company’s exposure to liquidity risk, credit risk, or interest rate risk or to its approach to managing these risks during the year ended December 31, 2020.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

16

11. Property and equipment

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Right-of-Use
Furniture and Computer Computer Leasehold
Equipment Asset Total
Fixtures Equipment Software Improvements
(see Note 16)
COST:
December 31, 2018 $104,149 $89,028 $231,225 $290,472 $- $- $714,874
2019 Additions 161,546 131,050 35,539 80,593 1,330,455 680,511 2,419,694
2019 Disposals (15,635) - - - - - (15,635)
December 31, 2019 $250,060 $220,078 $266,764 $371,065 $1,330,455 $680,511 $3,118,933
2020 Additions 4,879 - 8,739 - - - 13,618
December 31, 2020 $254,939 $220,078 $275,503 $371,065 $1,330,455 $680,511 $3,132,551
ACCUMULATED DEPRECIATION:
December 31, 2018 $(67,703) $(37,324) $(141,089) $(196,973) $- $- $(443,089)
Changes in 2019 (20,317) (24,572) (32,372) (49,610) (44,349) (22,358) (193,578)
December 31, 2019 $(88,020) $(61,896) $(173,461) $(246,583) $(44,349) $(22,358) $(636,667)
Changes in 2020 (32,896) (33,546) (29,302) (37,345) (133,046) (68,051) (334,186)
December 31, 2020 $(120,916) $(95,442) $(202,763) $(283,928) $(177,395) $(90,409) $(970,853)
CARRYING AMOUNT
December 31, 2018 $36,446 $51,704 $90,136 $93,499 $- $- $271,785
December 31, 2019 $162,040 $158,182 $93,303 $124,482 $1,286,106 $658,153 $2,482,266
December 31, 2020 $134,023 $124,636 $72,740 $87,137 $1,153,060 $590,102 $2,161,698
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BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

17

12. Intangible Assets

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New Product
Product Licenses New Product Trademarks and
Dossier and Filing and Rights Development Patents Trade Certifications Total
Costs
COST:
December 31, 2018 $1,282,757 $893,020 $69,065 $85,326 $3,936 $2,334,104
2019 Additions 219,450 - 2,885 7,460 - 229,795
December 31, 2019 $1,502,207 $893,020 $71,950 $92,786 $3,936 $2,563,899
2020 Additions 29,851 60,000 60,549 10,280 - 160,680
December 31, 2020 $1,532,058 $953,020 $132,499 $103,066 $3,936 $2,724,579
ACCUMULATED AMORTIZATION:
December 31, 2018 $(41,042) $(218,052) $- $(8,568) $- $(267,662)
Changes in 2019 (13,061) (79,742) - (4,553) (796) (98,152)
December 31, 2019 $(54,103) $(297,794) $- $(13,121) $(796) $(365,814)
Changes in 2020 (87,395) (81,513) (1,504) (5,031) (793) (176,236)
December 31, 2020 $(141,498) $(379,307) $(1,504) $(18,152) $(1,589) $(542,050)
ACCUMULATED IMPAIRMENT LOSSES:
December 31, 2018 $(123,760) $- $- $- $- $(123,760)
Changes in 2019 (589,581) (461,366) - - - (1,050,947)
December 31, 2019 $(713,341) $(461,366) $- $- $- $(1,174,707)
Changes in 2020 - - - - - -
December 31, 2020 $(713,341) $(461,366) $- $- $- $(1,174,707)
CARRYING AMOUNT
December 31, 2018 $1,117,955 $674,968 $69,065 $76,758 $3,936 $1,942,682
December 31, 2019 $734,763 $133,860 $71,950 $79,665 $3,140 $1,023,378
December 31, 2020 $677,219 $112,347 $130,995 $84,914 $2,347 $1,007,822
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New Product Dossier and Filing Costs

Cumulatively, the Company has incurred product dossier and filing costs of $1,532,058 (December 31, 2019 – $1,502,207) to date on several products. The filing costs incurred in respect of launched products are being amortized on a straight-line basis over their estimated finite useful lives based on marketability, ranging from 1 to 15 years.

On November 7, 2016, the Company entered into a License and Supply Agreement with a European partner to acquire the exclusive Canadian rights to use the product registration documentation of a women’s health pharmaceutical product and a license to sell, market and distribute this product in Canada under the brand name Tibella[®] . On May 10, 2019, the Company received regulatory approval from Health Canada for the Tibella[®] product which was subsequently launched in Canada in July 2020. The Company has incurred $466,123 in development costs related to this product. Such costs are included in intangible assets as New Product Dossier and Filing Costs and are being amortized on a straight-line basis over the 8-year estimated useful life of the product. In addition to an initial EUR 20,000 license fee upon

signing this agreement, the Company is committed to certain annual license fee payments to its European partner contingent upon the future sales of the product (see Note 20 ).

In November 2019, the Company entered into a License and Exclusive Supply Agreement with AFT Pharmaceuticals Ltd (“ AFT ”) to acquire a license to market, sell and distribute a portfolio of pain management products in Canada. The Company launched the Combogesic[®] product in Canada in December 2020. The Company has directly incurred $202,367 in development costs related to these products. Such costs are included in intangible assets as New Product Dossier and Filing Costs and are being amortized over the 15-year estimated useful life of the Combogesic[®] product. During the 15-year term of the License and Exclusive Supply Agreement, the Company is committed to purchase certain minimum quantities from AFT as well as certain royalty payments based on the net sales of the products in Canada (see Note 20 ).

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

18

For the year ended December 31, 2020, $87,395 of amortization expense on New Product Dossier and Filing Costs (2019 - $13,061) has been included in selling, general and administration expenses in the Company’s Consolidated Statements of Comprehensive Income in respect of these assets ( see Note 18 ).

In June 2019, the Company withdrew regulatory filings submitted to Health Canada for two cardiovascular pharmaceutical products for which the Company acquired exclusive Canadian distribution rights in 2016. Subsequent to receiving a Notice of Deficiency from Health Canada, the Company and its European partner decided to withdraw the regulatory filings for these two products and not to further pursue regulatory approval. As such, the Company recognized an impairment loss of $424,941 related to these products in 2019, representing regulatory filing costs incurred. Subsequent to the withdrawal of regulatory filings for these two products, the Company recovered $180,000 from its European partner as reimbursement for certain regulatory filing costs incurred by the Company. The net impairment loss related to these products of $244,941 was included in selling, general and administration expenses in the Company’s 2019 Consolidated Statement of Comprehensive Income.

In December 2019, due to uncertainty in obtaining approval for new product dossier and filing costs in a certain international market from the local regulatory authority, the Company recognized an impairment loss of $164,640 representing the excess of the carrying amount of costs incurred in developing this asset over its estimated recoverable amount which is its value in use. This impairment loss was included in selling, general and administration expenses in the Company’s 2019 Consolidated Statement of Comprehensive Income.

Product Licenses and Rights

Cumulatively, the Company has incurred costs related to the acquisition of product licenses and rights totalling $953,020 (December 31, 2019 – $893,020).

On August 18, 2015, the Company entered into a Distribution and Supply Agreement with Photocure ASA (the “Distribution and Supply Agreement”) to acquire the exclusive rights to market, promote, distribute and sell the Cysview[®] product in Canada including an exclusive right to use the Cysview[®] trademark and a license to use the patents associated with the product in Canada. The Company incurred costs totalling $859,400 (December 31, 2019 - $859,400) related to the acquisition and commercialization of Cysview[®] , which was launched in the Canadian market in November 2015. This asset has a finite life and is being amortized on a straight-line basis over the remaining eighteen-month estimated economic life.

In addition to the upfront payment made by the Company to Photocure ASA, certain future payments are also required by the Company under the Distribution and Supply Agreement contingent on the achievement of specific milestones (see Note 20 ).

to the Cysview[®] product license representing the excess of the carrying amount of this asset over its estimated recoverable amount which is the asset’s value in use. This impairment loss was included in selling, general and administration expenses in the Company’s 2019 Consolidated Statement of Comprehensive Income.

On October 1, 2020, the Company entered into an exclusive License and Supply Agreement to acquire the exclusive rights to distribute a women’s health product in Canada and a license of certain trademarks and technology related thereto. The product has not yet been launched by the Company and amortization of the asset has not yet commenced.

For the year ended December 31, 2020, $81,513 of amortization expense on product licenses and rights (2019 - $79,742) has been included in selling, general and administration expenses in the Company’s Consolidated Statements of Comprehensive Income in respect of this asset ( see Note 18 ).

New Product Development

The Company has incurred cumulative new product development costs consisting of labour, laboratory and professional fees to date totalling $132,499 (December 31, 2019 - $71,950) relating to the development of new products. The Company has commenced amortization of certain of these costs upon the completion of development. For the year ended December 31, 2020, $1,504 of amortization expense (2019 - $nil) has been included in selling, general and administration expenses in the Company’s Consolidated Statements of Comprehensive Income in respect of these development costs ( see Note 18 ).

Trademarks and Patents

The Company has incurred cumulative trademark and patent application and filing costs of $103,066 (December 31, 2019 - $92,786) relating to product registration application costs in various jurisdictions. These assets have finite lives and are being amortized on a straight-line basis over the terms of the respective trademarks and patents (ranging from 10 to 15 years). For the year ended December 31, 2020, $5,031 of amortization expense (2019 - $4,553) has been included in selling, general and administration expenses in the Company’s Consolidated Statements of Comprehensive Income in respect of these assets ( see Note 18 ).

Trade Certifications

The Company has incurred legal and other costs in obtaining certain international trade certifications and permits totalling $3,936 (2019 - $3,936). This asset is being amortized over its 5-year estimated useful life. For the year ended December 31, 2020, $793 of amortization expense (2019 - $796) has been included in selling, general and administration expenses in the Company’s Consolidated Statements of Comprehensive Income in respect of these development costs ( see Note 18 ).

In 2019, due to the underperformance of sales growth of the Cysview[®] product against management’s expectations, the Company recognized an impairment loss of $461,366 related

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

19

13. Loans Receivable

On December 8, 2016, the Board of Directors approved a Management Share Loan Program (“MSLP”) under which the Company offered one-time, secured loans to certain management personnel employed by the Company (each a “Borrower”) up to a maximum of fifty percent of each Borrower’s base annual salary for the sole purpose of their purchase of the Company’s issued and outstanding common shares at prevailing market prices through the facilities of the TSX Venture Exchange.

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Loans Receivable ($)
Balance, December 31, 2018 576,929
Accrued Interest 11,538
Balance, December 31, 2019 588,467
Accrued Interest 8,865
Balance, December 31, 2020 597,332
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The Company advanced loan proceeds totalling $391,500 on May 26, 2017, and a further $175,000 on December 11, 2018, in accordance with the terms of the MSLP for the purchase of the Company’s common shares by the Borrowers.

Each MSLP participant’s loan (collectively, the “MSLP Participant Loans”) bears interest at a rate of 1% - 2% per annum and is secured by a pledge of the common shares purchased under

the MSLP by the Borrowers. Interest receivable of $8,865 was accrued on the loans for the year ended December 31, 2020 (2019 - $11,538) and has been included in finance income on the Company’s Consolidated Statements of Comprehensive Income.

The MSLP Participant Loans are repayable by the Borrowers upon any sale of pledged shares by the Borrower in proportion to the then outstanding loan principal balance plus accrued interest. The remaining MSLP Participant Loan principal plus accrued interest must be fully repaid by the Borrowers within five years from the date the loan proceeds were advanced (the “Maturity Date”), specifically, May 26, 2022 for loans advanced on May 26, 2017 and December 11, 2023 for loans advanced on December 11, 2018.

If a Borrower ceases to be employed by the Company prior to the end of the five-year Maturity Date, all outstanding loan obligations shall become due and payable on the 30th day following the date of termination. In addition, in the event of a default by the Borrower of the terms of the loan, the loan obligations will become due and payable immediately.

As the loans are full recourse loans, they have not been accounted for as stock-based compensation, but as financial instruments within the scope of IFRS 9, Financial Instruments.

14. Contract Liability

The Company recognizes a contract liability based on its estimate of the amount of consideration it expects to refund to its customers, including consideration payable resulting from coupons and volume rebates. This contract liability is updated at the end of each year for any changes in circumstances.

The table below summarizes changes in the contract liability for the years ended December 31, 2020 and December 31, 2019:

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Contract Liability ($)
Balance, January 1, 2019 112,353
Estimated variable consideration 484,436
Settlement of variable consideration (497,648)
Balance, December 31, 2019 99,141
Estimated variable consideration 680,797
Settlement of variable consideration (533,814)
Balance, December 31, 2020 246,124
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15. Customer Advances

The customer advance of $688,312 as of December 31, 2020 (December 31, 2019 - $Nil) represents a prepayment made by a customer for a future shipment of product. Upon shipment of the product, this customer advance will be recognized as revenue.

16. Lease Liability

The Company leases its head office space in Mississauga, Ontario, Canada. The Company’s current office lease commenced on September 1, 2019 and extends to August 31, 2029. The Company has an option to extend this lease beyond the 10-year noncancellable term for a further term of 5 years. As per IFRS 16 Leases , adopted by the Company effective January 1, 2019, the Company has recognized a right-of-use asset in respect of this office lease based on a 10-year lease term ( see Note 11 ).

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

20

The Company has also recognized a lease liability for this office lease based on a weighted average incremental borrowing rate of 5.20%. The carrying amount of the Company’s lease liability for this office lease is summarized in the table below:

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Lease Liability ($)
Opening lease liability – office lease 1,860,191
Interest expense 32,456
Payments (39,533)
Balance, December 31, 2019 1,853,114
Interest expense 92,942
Payments (237,195)
Balance, December 31, 2020 1,708,861
Current portion, December 31, 2020 151,949
Long-term portion, December 31, 2020 1,556,912
Current portion, December 31, 2019 144,253
Long-term portion, December 31, 2019 1,708,861
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The Company’s future undiscounted lease payments under this lease agreement are as follows:

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Fiscal Year Lease Payments
2021 $ 237,195
2022 $ 238,952
2023 $ 242,466
2024 $ 242,466
2025 $ 245,980
Beyond next 5 fiscal years $ 927,696
Total $ 2,134,755
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Not included in the lease liability, the Company incurred occupancy costs related to its office leases of $123,504 for the year ended December 31, 2020 (2019 - $118,376) which have been included in selling, general and administration expenses in the Company’s Consolidated Statements of Comprehensive Income.

17. Share Capital

a. Authorized

The authorized share capital of the Company consists of 100,000,000 common shares without par value and 25,000,000 preferred shares without par value. The holders of the preferred shares as a class shall not be entitled to receive notice of, to attend or to vote at any meeting of the shareholders of the Company.

b. Issued and outstanding common shares

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Number of
Amount
Common Shares
Balance, Outstanding Shares, December 31, 2018 14,458,583 $7,665,644
Shares repurchased under NCIB and held in Treasury at (20,068) (10,651)
December 31, 2018 (d)
Balance, Excluding Treasury Shares, December 31, 2018 14,438,515 $7,654,993
Options exercised (c) 762 9,377
Shares repurchased under NCIB and cancelled (d) (878,832) (468,828)
Balance, Outstanding Shares, December 31, 2019 13,560,445 $7,195,542
Shares repurchased under NCIB and held in Treasury at (30,000) (15,925)
December 31, 2019 (d)
Balance, Excluding Treasury Shares, December 31, 2019 13,530,445 $7,179,617
Options exercised (c) 1,196 14,718
Shares repurchased under NCIB and cancelled (d) (594,275) (308,089)
Balance, Issued Shares, December 31, 2020 12,937,366 $6,886,246
Share purchased for RSU Plan Trust and held in Treasury at (132,200) (493,818)
December 31, 2020 (e)
Balance, Outstanding Shares, December 31, 2020 12,805,166 $6,392,428
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c. Options exercised

During the year ended December 31, 2020, 1,196 common shares were issued against options exercised (2019 – 762 common shares) for total proceeds of $7,415 (2019 - $4,724) and $7,303 in fair value was transferred from contributed surplus to share capital (2019 - $4,653).

d. Normal Course Issuer Bid (NCIB)

Pursuant to the policies of the TSX Venture Exchange, the Company may be permitted from time to time to repurchase its own common shares for cancellation under a NCIB. The policies of the TSX Venture Exchange permit an issuer, upon the approval of the TSX Venture Exchange, to purchase by normal market

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

21

purchases up to 2% of a class of its own shares in a given 30-day period up to a maximum, in a 12 month period, of the greater of 5% of the outstanding shares or 10% of the Public Float, as such term is defined in the policies of the TSX Venture Exchange.

On December 4, 2018, the Company announced that the TSX Venture Exchange had accepted its Notice of Intention to Make a NCIB, pursuant to which the Company was permitted to purchase up to 950,000 of its own common shares for cancellation over a 12-month period commencing on December 10, 2018 and ending on December 9, 2019.

On December 11, 2019, the Company announced that the TSX Venture Exchange had accepted its renewal of the NCIB, pursuant to which the Company would be permitted to purchase up to 800,000 of its own common shares for cancellation over a further 12-month period commencing on December 17, 2019 and ending on December 16, 2020. Purchases of shares by the Company under the NCIB were made through the facilities of the TSX Venture Exchange or alternative Canadian trading systems at the market price of the shares at the time of acquisition.

During the year ended December 31, 2019, the Company repurchased 908,832 of its common shares for an aggregate price of $6,346,262 and incurred costs of $11,588 related to the repurchase of these shares. 878,832 of these repurchased shares were cancelled as of December 31, 2019, with the remaining 30,000 shares held in Treasury pending cancellation. These 30,000 shares were subsequently cancelled upon payment of $153,507 for settlement in January, 2020. The Company’s retained earnings were reduced by $5,873,097 upon the repurchase of these shares, representing the excess of the aggregate repurchase price over the reduction in share capital of $484,753.

On December 11, 2020, the Company announced that the TSX Venture Exchange had accepted its renewal of the NCIB, pursuant to which the Company would be permitted to purchase up to 950,000 of its own common shares for cancellation over a further 12-month period commencing on December 17, 2020 and ending on December 16, 2021. Purchases of shares by the Company under the NCIB are made through the facilities of the TSX Venture Exchange or alternative Canadian trading systems at the market price of the shares at the time of acquisition.

During the year ended December 31, 2020, the Company repurchased 594,275 of its common shares for an aggregate price of $2,503,810 and incurred costs of $8,444 related to the

repurchase of these shares. The Company’s retained earnings were reduced by $2,204,165 upon the repurchase of these shares, representing the excess of the aggregate repurchase price over the reduction in share capital of $308,089.

• e. During the year ended December 31, 2020, the Company purchased 132,200 of its common shares pursuant to its Restricted Share Unit (“RSU”) Plan (see Note 17(g) ) for an aggregate purchase price of $493,818. 132,200 shares are held in trust as of December 31, 2020 for future settlement of vested RSUs granted to employees, senior management, and directors of the Company.

• f. There are nil preferred shares outstanding as of December 31, 2020 (December 31, 2019 – nil).

• g. Share-Based Payments

Restricted Share Unit (“RSU”) Plan

The Board adopted a Restricted Share Unit Plan on March 4, 2020, which was approved by shareholders on May 27, 2020 and subsequently approved by the TSX Venture Exchange. The RSU Plan was established as a vehicle by which equity-based incentives may be granted to eligible employees, consultants, directors and officers of the Company to recognize and reward their contributions to the long-term success of the Company including aligning their interests more closely with the interests of the Company’s shareholders. The RSU Plan is a fixed plan which reserves for issuance a maximum of 800,000 common shares of the Company.

On March 31, 2020, a total of 129,125 RSUs were granted to certain employees, senior management, and directors of the Company with a fair value of $3.61 per unit, being the grant date closing (TSX Venture Exchange) market price per share. Certain of these units shall vest fully in three years’ time on March 31, 2023 and certain of these units shall vest quarterly in three years’ time on March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023.

During the year ended December 31, 2020, the Company recorded net share-based payment expense of $111,786 (2019 - $nil) relating to RSUs granted.

As at December 31, 2020, there were 129,125 RSUs outstanding (December 31, 2019 – nil), as shown below:

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December 31, 2020 December 31, 2019
Weighted average Weighted average
Number of RSUs Number of RSUs
grant price grant price
Outstanding, beginning of year - - - -
Granted 129,125 $3.61 - -
Outstanding, end of year 129,125 $3.61 - -
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The weighted-average remaining contractual life of the 129,125 RSUs outstanding is 2.68 years.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

22

Incentive Stock Option Plan

On March 11, 2014, the Board approved an incentive stock option plan (the “ SOP ”) which was adopted by the shareholders of the Company on June 13, 2014. The Board approved an amended SOP on March 4, 2020 which was approved by shareholders on May 27, 2020. The purpose of the SOP is to assist the Company in attracting, retaining and motivating directors, officers, employees and other persons who provide ongoing services to the Company and its affiliates and to closely align the personal interests of such participants with those of the Company’s shareholders, by providing them with the opportunity to acquire common shares of the Company, and thereby a proprietary interest in the Company and its subsidiaries, through the exercise of share purchase options.

On March 20, 2019, options totalling 34,211 were granted by the Company to senior management and officers of the Company under the SOP. These options shall vest in annual increments over four years to March 20, 2023. The fair value of these options granted with an exercise price of $8.22 per option, has been determined using the Black-Scholes option pricing model using the following assumptions:

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Share price at the date of grant $8.22
Risk-free interest rate 1.75%
Dividend yield 0%
Volatility factor of expected market price of 111.59%
Company’s shares
Average expected option life (years) 9.26
Weighted-average grant date fair value of $7.54
options granted
Forfeiture rate 2.20%
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The volatility factor used by the Company is based on its historical share prices.

No options were granted by the Company during the year ended December 31, 2020.

During the year ended December 31, 2020, the Company recorded net share-based payment expense of $154,387 (2019 - $263,245) relating to previous option grants to employees, directors, officers and advisors under the SOP, which are included in selling, general and administration expenses in the Consolidated Statements of Comprehensive Income.

As at December 31, 2020, there were 173,839 options outstanding (December 31, 2019 – 177,512), as shown below:

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December 31, 2020 December 31, 2019
Weighted average Weighted average
Number of options Number of options
exercise price exercise price
Outstanding, beginning of year 177,512 $8.30 144,624 $8.30
Granted - - 34,211 $8.22
Expired or forfeited (2,477) $7.78 (561) $7.18
Exercised (1,196) $6.20 (762) $6.20
Outstanding, end of year 173,839 $8.32 177,512 $8.30
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Of the total number of options outstanding as of December 31, 2020, options totalling 124,120 have vested and are exercisable by the option holders (December 31, 2019 – 103,770). These exercisable options have a weighted average exercise price of $8.21 (December 31, 2019 - $8.12).

The weighted-average remaining contractual life of the 173,839 (December 31, 2019 – 177,512) options outstanding is 6.26 years (December 31, 2019 – 7.22 years) and the range of exercise prices for these options is $6.20 - $10.97 (December 31, 2019 - $6.20 - $10.97).

1,196 options were exercised during the year ended December 31, 2020 (2019 – 762). The weighted average share price on the date of exercise of options exercised during the year ended December 31, 2020 was $7.22 (2019 - $6.62).

Exchange. The contributions are matched by the Company up to a maximum of 2.5 percent of the applicable employee’s gross base salary.

During the year ended December 31, 2020, the Company recorded share-based payment expense of $19,908 (2019 - $78,681) relating to the Company’s contributions to the ESPP for the purchase of common shares on behalf of participating employees. Company and employee contributions to the ESPP were temporarily suspended during the year. This expense is included in selling, general and administration expenses in the Consolidated Statements of Comprehensive Income.

Employee Share Purchase Plan

On January 1, 2017, the Company introduced an Employee Share Purchase Plan (“ESPP”). Under the ESPP, eligible BioSyent employees, including certain key management personnel, are permitted to contribute up to a maximum of 10 per cent of their gross base salary to purchase the Company’s common shares in the open market through the facilities of the TSX Venture

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

23

18. Expenses by Nature

The expenses on the Consolidated Statements of Comprehensive Income have been grouped by function to focus reader attention on the macro movements in cost from period to period while giving the reader an option to see the detail of expenses according to their nature, which are included below:

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Year ended December 31,
2020 2019
Cost of goods sold $4,908,321 $4,778,069
Selling and marketing $7,423,311 $5,750,624
Advertising, Promotion and Selling Costs 4,077,082 2,825,146
Employee Costs 2,759,299 2,598,158
Logistics, Quality Control & Regulatory 571,802 289,115
Share-based Payments 15,128 38,205
General and administration $4,905,190 $5,417,376
Employee Costs 2,842,532 2,553,059
Corporate Expenses 501,070 857,520
Depreciation - Property and Equipment (Note 11) 334,186 193,578
Share-based Payments 270,954 303,721
Research and Development 222,361 -
Amortization - Intangible Assets (Note 12) 176,236 98,152
Professional Fees 165,883 162,603
Information Technology 154,570 134,671
Insurance 104,635 98,207
Net Foreign Exchange (Gains) Losses 95,589 108,327
Expected credit losses 37,174 36,591
Impairment Losses: Intangible Assets - 870,947
New business development costs $65,322 $90,114
Finance costs $92,942 $32,456
Interest expense - lease liability (Note 16) 92,942 32,456
Finance income $ (299,897) $ (514,846)
Interest Income (263,137) (447,011)
Foreign Exchange Gains - Investing (36,760) (67,835)
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BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

24

19. Earnings per Share

The following table reconciles the numerator and denominator for the calculation of basic and diluted earnings per share:

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Year ended December 31,
2020 2019
Numerator
Net income attributable to common shareholders $3,795,335 $4,369,295
Denominator
Basic
Weighted average number of shares outstanding 12,997,456 13,945,147
Effect of dilutive securities 96,844 75
Diluted
Weighted average number of shares outstanding 13,094,300 13,945,222
Basic earnings per share $0.29 $0.31
Diluted earnings per share $0.29 $0.31
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20. Contingencies

Litigations

From time to time, the Company may be exposed to claims and legal actions in the normal course of business. As at December 31, 2020, the Company was not aware of any litigation or threatened claims either outstanding or pending.

( see Note 12 ), the Company will make annual license fee payments to its European partner in each of the first four years of the Agreement equal to 1% of the Company’s net sales of the product in Canada. For the year ended December 31, 2020, such fees have been accrued and included in accounts payable and accrued liabilities on the Consolidated Statements of Financial Position.

Cysview[®] Distribution and Supply Agreement

Under the terms of the August 18, 2015 Distribution and Supply Agreement between the Company and Photocure ASA in respect of the Cysview® product ( see Note 12 ), milestone payments averaging $213,968(USD 168,055) per year for three consecutive years are potentially required to be made by the Company to Photocure ASA between December 31, 2020 and December 31, 2022 dependent upon the achievement of certain events. The Company will record these amounts as the events occur. Management believes no such payment was required as of December 31, 2020.

Women’s Health Product License and Supply Agreement

Under the terms of the November 7, 2016 License and Supply Agreement between the Company and its European partner in respect of the Tibella[®] women’s health pharmaceutical product

Pain Management Products License and Exclusive Supply Agreement

Under the terms of the November 25, 2019 License and Exclusive Supply Agreement, the Company is required to make royalty payments to AFT Pharmaceuticals based on net sales of the pain management products in Canada and contingent on the market share of competing products in Canada over the 15-year term of the agreement. The royalty rates range from 0% to 6.5% on net sales of one product formulation and from 0% to 12.5% on net sales of another product formulation. For the year ended December 31, 2020, such royalties have been accrued and included in accounts payable and accrued liabilities on the Consolidated Statements of Financial Position.

21. Commitments

Office Lease

The Company’s current office lease agreement commenced on September 1, 2019 and extends to August 31, 2029 ( see Note 16 ).

The Company’s undiscounted minimum future rental payments and estimated occupancy costs (including certain operating costs and realty taxes) for the next five fiscal years under this lease agreement are approximately as follows:

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Annual Rent and Estimated
Fiscal Year
Occupancy Costs
2021 $ 358,785
2022 $ 360,542
2023 $ 364,056
2024 $ 364,056
2025 $ 367,570
Beyond Next 5 Fiscal Years $ 1,414,055
Total $ 3,229,064
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BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

25

Purchase Commitments

In the normal course of business, the Company has minimum purchase commitments with certain suppliers.

22. Related Party Transactions

Key Management Personnel Compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company and/or its subsidiaries, directly or indirectly.

The table below summarizes compensation for key management personnel of the Company for the years ended December 31, 2020 and 2019:

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Year ended December 31,
2020 2019
Number of Key Management Personnel 6 6
Salary, Benefits, and Bonus $1,635,408 $1,360,493
Share-Based Payments $207,785 $233,138
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During the year ended December 31, 2020, the Company recorded share-based payment expense of $207,785 (2019 - $233,138) related to the amortization of RSUs and the vesting of options granted to key management personnel under the Company’s RSU Plan and SOP, respectively, as well as the Company’s contributions to the ESPP for the purchase of common shares on behalf of participating key management personnel.

As at December 31, 2020, there were loans receivable under the MSLP from key management personnel of $546,335 (December 31, 2019 – $538,227). Interest accrued on these MSLP loans during the year totalled $8,108 (2019 – $10,553).

Transactions with Directors

During the year ended December 31, 2020, the Company paid cash fees to its directors in the amount of $54,376 (2019 - $142,600) and share-based payments of $22,022 (2019 - $15,899).

23. Capital Disclosures

For capital management purposes, the Company defines capital as its shareholders’ equity that includes share capital, contributed surplus, cumulative translation adjustment and retained earnings.

The amounts included in the Company’s capital for the relevant years are as follows:

December	31,	2020	$26,795,956
December	31,	2019	$25,794,510

The Company’s principal objectives in managing capital are:

• to ensure that it will continue to operate as a going concern;

• to be flexible in order to take advantage of contract and growth opportunities that are expected to provide satisfactory returns to its shareholders;

• to maintain a strong capital base in order to maintain customers, investors, creditors and market confidence; and

� to provide an adequate rate of return to its shareholders. The Company manages and adjusts its capital structure in light of changes in economic conditions.

In order to maintain or adjust its capital structure, the Company may issue debt or new shares. Financing decisions are generally made on a specific transaction basis and depend on such things as the Company’s needs, capital markets and economic conditions at the time of the transaction. Management reviews its capital management approach on an ongoing basis and believes that this approach is reasonable, given the size of the Company.

The Company does not have any externally imposed capital compliance requirements at December 31, 2020. There were no changes in the Company’s approach to capital management during the year.

24. Credit Facilities

The Company has credit facilities available with Royal Bank of Canada totalling $3,090,000, including a revolving demand credit facility of $1,500,000, which has not been utilized as of December 31, 2020, a foreign exchange facility of $1,500,000, and credit card facilities totalling $90,000. The revolving demand credit facility bears interest at a variable rate of Royal Bank prime plus 0.75% and has been secured with a General Security Agreement constituting a first ranking security interest of the Bank in the Company’s property. The Company is subject to maintaining

certain financial covenants if the demand credit facility is drawn upon. The Company has available additional foreign exchange facilities of $2,500,000 with other Canadian financial institutions which have not been utilized as of December 31, 2020.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

26

25. Taxes

The Company computes an income tax provision in each of the jurisdictions in which it operates. Actual amounts of income tax expense only become final upon filing and acceptance of the tax return by the relevant authorities, which occur subsequent to the issuance of the financial statements.

Additionally, estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the ability to use the underlying future tax deductions before they expire against future taxable income.

The assessment is based upon existing tax laws and estimates of future taxable income. To the extent estimates differ from the final tax return, earnings would be affected in a subsequent period. The operations are subject to income tax rates of 26.5% (2019 – 26.5%) in the Canadian jurisdiction, 21.0% (2019 – 21.0%) in the U.S. jurisdiction, and 2.5% (2019 – 2.5%) in the Barbados jurisdiction.

The reconciliation of the combined Canadian federal and provincial statutory tax rate of 26.5% (2019 – 26.5%) to the effective tax rate is as follows:

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2020 2019
Net Income Before Taxes 5,236,979 5,870,531
Combined statutory income tax rate 26.50% 26.50%
Expected income tax expense at current rate 1,387,799 1,555,691
Foreign tax differential 21,719 (87,827)
-
Change in exchange rates (3,148)
Non-deductible expenses 47,708 86,707
Non-taxable portion of capital gains (4,871) (18,959)
Prior year tax income tax recovery 42,866 -
Investment tax credits (53,577) -
Tax rate changes and other adjustments - (31,228)
Provision for tax 1,441,644 1,501,236
Current income tax expense 1,469,260 1,748,337
Deferred tax recovery (27,616) (247,101)
1,441,644 1,501,236
Current income tax payable (250,195) (154,952)
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Deferred tax:

Deferred tax assets have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.

Movement in net deferred tax assets (liabilities):

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2020 2019
Balance at the beginning of the year (76,807) (323,908)
Recognized in profit/loss 27,616 247,101
Balance at the end of the year (4 9 ,191) (76,807)
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Deferred tax balances:

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2020 2019
Net operating losses carried forward 20,040 26,095
Contract liability 47,704 -
RSU shares in trust 29,623 -
Lease liability 452,847 -
Deferred tax assets 550,214 26,095
Equipment and intangibles (293,844) (102,902)
Right of Use Asset (305,561) -
Deferred tax liabilities (599,405) (102,902)
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BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

27

The potential benefit of the carry-forward net operating losses in the United States have been recognized in these financial statements as it is probable that sufficient future tax profit will allow the deferred tax assets to be recovered.

The Company’s United States net operating losses expire as follows:

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Expiry United States (in CAD)
2024 42,387
2026 28,997
2031 187
$ 71,571
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26. Segment Reporting

A segment is a component of the Company:

• i. that engages in business activities from which it may earn revenue and incur expenses;

• ii. whose operating results are reviewed by the board of directors; and

iii. for which discrete financial information available.

Though the Company has a legacy business in biologically and health friendly insecticides, management of the Company is primarily focused on growing the pharmaceutical business and does not account for administrative overhead separately for the insecticide business. Consequently, the Company recognizes one business segment for all of its operations.

The revenue breakdown by business is provided below:

a. for both the pharmaceutical and insecticide business; and

b. for both Canadian and international jurisdictions

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Year ended December 31,
2020 2019
Canada
Pharmaceutical Business $21,237,461 $18,946,758
Insecticide Business 644,668 866,615
Total Canada $21,882,129 $19,813,373
International Jurisdictions
Pharmaceutical Business - Middle East $225,139 $1,441,691
Insecticide Business - United States 224,900 169,260
Total International Jurisdictions $450,039 $1,610,951
Total Revenue $22,332,168 $21,424,324
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For the year ended December 31, 2020, in the Canadian Pharmaceutical Business, revenue from transactions with three major customers individually amounted to 10% or more the Company’s total revenues. The amount of revenues from each of these three customers totalled $7,460,344, $5,691,433, and $3,936,461, respectively, during 2020 (2019 - $8,068,686, $4,759,588, and $4,295,741, respectively).

Non-Current Assets consist of equipment, intangible assets, loans receivable, and deferred tax asset. As indicated in the table below, Non-Current Assets are located in Canada and international jurisdictions.

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December 31, 2020 December 31, 2019
Canada $3,703,260 $4,029,824
United States 20,040 26,095
Barbados 74,033 64,287
Total Non-current Assets $3,797,333 $4,120,206
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27. Subsequent Event

In January 2021, the Company shipped an order to an international customer valued at $1,140,279 against which the customer’s advance of $688,312 ( Note 15 ) was applied in full.

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

28

Corporate Information

Registered Office

Suite 402 2476 Argentia Road Mississauga, Ontario, Canada L5N 6M1

Telephone 905.206.0013 Facsimile 905.206.1413 Email info@biosyent.com Website www.biosyent.com

Registrar and Transfer Agent

Computershare Trust Company Canada

100 University Avenue, Toronto, Ontario, M5J 2Y1 Canada

Auditors

MNP LLP Toronto, Ontario, Canada

Board of Directors

Larry Andrews Ontario, Canada

Joseph Arcuri Ontario, Canada

Sara Elford British Columbia, Canada

René C. Goehrum (Chair) Ontario, Canada Peter D. Lockhard (Lead Director) Ontario, Canada

Stephen Wilton Ontario, Canada

Officers

René C. Goehrum President and Chief Executive Officer

Robert J. March Vice-President and Chief Financial Officer

Solicitors

Wildeboer Dellelce LLP Toronto, Ontario, Canada Caravel Law Toronto, Ontario, Canada Harridyal Sodha & Associates St. Michael, Barbados

Banks

Royal Bank of Canada Toronto, Ontario, Canada

Canadian Imperial Bank of Commerce Toronto, Ontario, Canada

City National Bank Los Angeles, California, USA

Stock Listing

TSX Venture Exchange Trading symbol: RX Mississauga, Ontario

BioSyent

Consolidated Financial Statements – For the years ended December 31, 2020 and 2019

29