Canada Jetlines Operations Ltd. — Annual Report 2021

Mar 30, 2022

CANADA JETLINES OPERATIONS LTD.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021

(Expressed in Canadian Dollars)

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Canada Jetlines Operations Ltd.

Opinion

We have audited the accompanying consolidated financial statements of Canada Jetlines Operations Ltd. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2021 and 2020, and the consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders’ equity (deficiency), and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audit 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 audit 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 in our audit is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 of the consolidated financial statements, which indicates that the Company had a working capital of $4,071,206 and accumulated deficit of $7,015,227 as at December 31, 2021 and has no current operating income or cash flows. Without additional financing, the Company will be unable to fund general and administrative expenses and working capital requirements for the next twelve months. As stated in Note 1, these events and conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Information

Management is responsible for the other information. The other information obtained at the date of this auditor's report includes Management’s Discussion and Analysis.

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

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

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We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, 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.

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 IFRS, 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 audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to 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 Carmen Newnham.

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Vancouver, Canada March 28, 2022

Chartered Professional Accountants

CANADA JETLINES OPERATIONS LTD.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS AT

(Expressed in Canadian Dollars)

	DECEMBER 31, 2021 DECEMBER 31,2020
ASSETS Current assets Cash Receivables (notes 4 and 9) Prepaid expenses and deposits (note 5) Property and equipment(note 6) Right-of-use asset(note 7)	$ 3,579,709 $ 3,170 159,987 - 1,152,869 11,400
	4,892,565 14,570
	130,123 - 214,226 -
	$ 5,236,914 $ 14,570
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) Current liabilities Accounts payable and accrued liabilities (notes 8 and 9) $ 758,722 $ 351,374 Lease liability (note 7) 62,637 - 821,359 351,374 Lease liability(note 7) 207,240 - Long-term loan payable(note 10) 40,000 40,000 1,068,599 391,374 Shareholders’ equity (deficiency) Share capital (note 11) 9,097,990 2,879,895 Reserves (note 11) 2,085,552 10,932,488 Deficit (7,015,227) (14,189,187) 4,168,315 (376,804) $ 5,236,914 $ 14,570
	821,359 351,374
	207,240 - 40,000 40,000
	1,068,599 391,374
	9,097,990 2,879,895 2,085,552 10,932,488 (7,015,227) (14,189,187)
	4,168,315 (376,804)
	$ 5,236,914 $ 14,570

Nature of operations and going concern (note 1) Commitments (note 17) Subsequent events (notes 5, 18)

Approved on March 28, 2022 on behalf of the Board of Directors by:

“Ken McKenzie” Chairman “Margaret Gilmour” Director Ken McKenzie Margaret Gilmour

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

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CANADA JETLINES OPERATIONS LTD.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS) (Expressed in Canadian Dollars)

		YEAR ENDED		YEAR ENDED
		DECEMBER 31,	DECEMBER 31,
		2021		2020
OPERATING EXPENSES
Aircraft launch, licensing and route network	$	112,410	$	2,166
Consulting (note 9)		787,211		-
Crew training		35,206		-
Depreciation (notes 6 and 7)		6,046		-
Director fees (note 9)		114,000		-
Interest income		(15,182)		(792)
Foreign exchange loss		12,941		221
Investor relations and marketing		159,019		9,234
Office and administration		246,353		11,659
Professional fees		395,335		41,118
Rent		7,195		-
Share-based payments (notes 9 and 11)		1,206,727		-
Transaction costs – spin-out		270,581		-
Travel		49,553		-
Salaries and benefits		16,893		760
		(3,404,288)		(64,366)
Gain on sale of computer equipment		-		195
Gain on extinguishment of debt		303,571		222,004
Income (loss) and comprehensive income (loss)
for the year	$	(3,100,717)	$	157,833
Basic and diluted income (loss) per share	$	(0.07)	$	0.00
Weighted average number of shares outstanding		43,652,104		33,403,145

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

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CANADA JETLINES OPERATIONS LTD. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY) (Expressed in Canadian Dollars)

Balance – December 31, 2019 Distributions to former parent company Income for the year Balance – December 31 2020	Share Capital Number of Shares Amount Reserves Deficit Total
	33,403,145 $ 2,879,895 $ 10,947,575 $ (14,347,020) $ (519,550) - - (15,087) - (15,087) - - - 157,833 157,833
	33,403,145 2,879,895 10,932,488 (14,189,187) (376,804)
Private placement (note 11) Share issuance costs (note 11) Contributions from former parent company Reclassification of investment by former parent company (note 11) Share-based payments (note 11) Loss for the year Balance – December 31, 2021	17,060,329 6,767,865 - - 6,767,865 - (549,770) 99,639 - (450,131) - - 121,375 - 121,375 - - (10,274,677) 10,274,677 - - - 1,206,727 - 1,206,727 - - - (3,100,717) (3,100,717)
	50,463,474 $ 9,097,990 $ 2,085,552 $ (7,015,227) $ 4,168,315

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

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CANADA JETLINES OPERATIONS LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (Expressed in Canadian Dollars)

	2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) for the year Items not affecting cash: Depreciation Gain on sale of computer equipment Gain on extinguishment of debt Foreign exchange gain Share-based payments Non-cash working capital item changes: Receivables Prepaid expenses and deposits Accounts payable and accrued liabilities Net cash provided by (used in) operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment Proceeds on sale of computer equipment Proceeds on sale of spare parts of aircraft Net cash provided by (used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from private placement Share issuance costs Contributions from (distributions to) former parent company Proceeds from loan payable Net cash provided by (used in) financing activities Net change in cash during the year Cash, beginning of the year Cash, end of the year	$ (3,100,717) $ 157,833 6,046 - - (195) (303,571) (222,004) - (610) 1,206,727 - 8,813 2,713 (1,141,469) 69,469 656,698 31,613
	(2,667,473) 38,819
	(26,297) - - 910 - 27,885
	(26,297) 28,795
	6,599,065 - (450,131) - 121,375 (209,267) - 40,000
	6,270,309 (169,267)
	3,576,539 (101,653) 3,170 104,823 $ 3,579,709 $ 3,170

Supplemental disclosures with respect to cash flows (Note 12).

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

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

1. NATURE OF OPERATIONS AND GOING CONCERN

Canada Jetlines Operations Ltd. (the “Company” or “Jetlines”) was amalgamated under the laws of British Columbia pursuant to the Canada Business Corporations Act (“CBCA”) effective February 28, 2017. The Company’s principal business activity is the start-up of a Canadian Low cost carrier airline that intends to begin operations, pending Canadian Transportation Agency approval, as a tour operator with flights into popular sun destinations in the USA, Mexico and the Caribbean. The address of the Company’s registered office is #2400 – 1055 West Georgia Street, Vancouver, British Columbia, Canada V6E 3P3. The Company’s shares trade on the NEO Exchange (the “Exchange” or “NEO”) under the symbol “CJET”. Until June 28, 2021, the Company was a wholly owned subsidiary of Global Crossing Airlines Group Inc. (“GlobalX”), whose shares trade on the NEO under the symbols “JET” and “JET.B”.

On May 19, 2021, the Company entered into a Second Amended and Restatement Agreement with GlobalX to complete a plan of arrangement under the CBCA (the “Plan of Arrangement”), which was finalized on June 28, 2021. Pursuant to the Plan of Arrangement, the Company subdivided its issued and outstanding voting shares on a 1 to 2.1877 basis (the “Share Split”) and distributed 25,052,359 voting shares to GlobalX shareholders, with the remaining 8,350,786 voting shares being retained by GlobalX. Upon completion of the Plan of Arrangement, the Company had 11,070,675 common voting shares and 22,332,470 variable voting shares issued and outstanding. All share and per share information within these consolidated financial statements reflect the Share Split.

These consolidated financial statements have been prepared by management on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of operations for the foreseeable future. The continuing operations of the Company are dependent upon the Company’s ability to raise adequate financing and to commence profitable operations in the future. The Company is evaluating financing its future requirements through a combination of debt, equity and/or other facilities. There is no assurance that the Company will be able to obtain such financings or obtain them on favorable terms.

As at December 31, 2021, the Company had a working capital $4,071,206 and accumulated deficit of $7,015,227. At present, the Company has no current operating income or cash flows. Without additional financing, the Company will be unable to fund general and administrative expenses and working capital requirements for the next twelve months. In addition, the Company does not have the required financing to meet domestic licensing financial capability requirements, to complete the build-out of the airline and to secure aircraft. These material uncertainties may cast significant doubt upon the Company’s ability to continue as a going concern.

These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption deemed to be inappropriate. Changes in future conditions or anticipated future conditions could require material write-downs to the carrying values of the Company’s assets. These adjustments could be material.

2. BASIS OF PRESENTATION

Statement of compliance

These consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).

These consolidated financial statements for the year ended December 31, 2021 were authorized by the Board of Directors for issuance on March 28, 2022.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

2. BASIS OF PRESENTATION (continued)

Basis of presentation

These consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company and have been prepared using the accrual basis of accounting, except for certain cash flow information.

Basis of consolidation

These consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, Canada Jetlines Vacations Ltd. (“CJV”). CJV was incorporated during the year ended December 31, 2021 under the Canada Business Corporations Act, with the purpose to act as a tour operator and travel agency. All intercompany transactions and balances have been eliminated on consolidation.

Significant accounting judgments and estimates

The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting year. Actual outcomes could differ from these estimates. These consolidated financial statements include estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

During the year ended December 31, 2020, the World Health Organization declared a global pandemic related to the virus known as COVID-19. The Covid-19 pandemic continues, and while some jurisdictions have eased restrictions recently, various governments have previously enacted restrictions on the movement of people and goods during periods of increasing positive infection rates. Although multiple vaccines have been released and are being administered to the public, there have been coincidental mutations to the virus known as COVID-19 and which have been reported to be more virulent. Should vaccines prove less effective against the new virus strains resulting in a resurgence of COVID-19 during the year, it is anticipated that additional governments would again issue public health orders which might include restricting the movement of people and goods.

These public health orders have had a significant impact on the airline industry, as many include travel restrictions in response to COVID-19. The Company is not yet operating as an airline, so the primary current implication of COVID19 is the potential to disrupt the Company’s ability to obtain additional financing to fund ongoing operations. As the Company has no material operating income or cash flows, it is reliant on additional financing to fund ongoing operations. Once the Company begins airline operations, future disruptions from COVID-19 would impact the Company’s financial position, results of operations and cash flows in future periods.

Critical accounting estimates

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, relate to, but are not limited to the following:

Valuation of restricted share units

The value of the restricted share units was based on the fair value of the of the Company’s shares on the date of grant. The determination of the fair value of the Company’s shares involved significant estimate as the Company’s shares were not publicly traded on the date the restricted shares units were granted.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

2. BASIS OF PRESENTATION (continued)

Significant accounting judgments and estimates (continued)

Critical accounting estimates (continued)

Share-based payments

Share-based payments are determined using the Black‐Scholes option pricing model based on estimated fair values of all share‐based awards at the date of grant and is expensed to profit or loss over each award’s vesting period. The Black‐ Scholes option pricing model utilizes subjective assumptions such as expected price volatility and expected life of the option. Changes in these input assumptions can significantly affect the fair value estimate.

Critical accounting judgments

Critical accounting judgments are accounting policies that have been identified as being complex or involving subjective judgments or assessments. There are currently no critical accounting judgements.

3. SIGNIFICANT ACCOUNTING POLICIES

Financial instruments

Classification

The Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”), at fair value through other comprehensive (loss) income (“FVTOCI”) or at amortized cost. The Company determines the classification of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument basis) to designate them as FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured at FVTPL (such as instruments held for trading or derivatives) or the Company has opted to measure them at FVTPL.

The Company classifies its financial instruments as follows:

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Financial assets/ liabilities IFRS 9 Classification
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Financial assets/ liabilities	IFRS 9 Classification
Cash	FVTPL
Receivables	Amortized cost
Accounts payable and accrued liabilities	Amortized cost
Lease liability	Amortized cost
Long-term loan payable	Amortized cost

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)

Measurement

Financial assets at FVTOCI

Elected investments in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair value, with gains and losses recognized in other comprehensive income (loss).

Financial assets and liabilities at amortized cost

Financial assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently carried at amortized cost less any impairment.

Financial assets and liabilities at FVTPL

Financial assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in the statements of income (loss) and comprehensive income (loss). Realized and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included in the statements of income (loss) and comprehensive income (loss) in the period in which they arise. Where management has opted to recognize a financial liability at FVTPL, any changes associated with the Company’s own credit risk will be recognized in other comprehensive income (loss).

Impairment of financial assets at amortized cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost.

At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize in the statements of income (loss) and comprehensive income (loss), as an impairment gain or loss, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.

Derecognition

Financial assets

The Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition are generally recognized in the statements of income (loss) and comprehensive income (loss). However, gains and losses on derecognition of financial assets classified as FVTOCI remain within accumulated other comprehensive income (loss).

Financial liabilities

The Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the statements of income (loss) and comprehensive income (loss).

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Impairment of non-financial assets

At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the assets belong. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no prior impairment loss been recognized for the asset.

Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in profit or loss in the period in which they arise.

Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.

Share capital

Instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company’s shares are classified as equity instruments.

Incremental costs directly attributable to the issue of new equity instruments are shown in equity as a deduction, net of tax, from the proceeds.

The Company has adopted a residual value method with respect to the measurement of shares and share purchase warrants issued as private placement units. The residual value method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component.

The fair value of the shares issued in private placements is determined to be the more easily measurable component and are valued using the closing share price at the date of issuance. The remaining balance between the unit price and fair value of shares, if any, is allocated to the attached share purchase warrants.

In situations where shares are issued or received as non-monetary consideration and the fair value of the asset or services received or given up is not readily determinable, the fair market value of the shares is used to record the transaction. The fair market value of the shares issued or received is based on the trading price of those shares on the appropriate security exchange on the date of the agreement to issue or receive such shares.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Share-based payments

Where equity-settled compensation arrangements are awarded to employees, the fair value of the equity instruments at the date of grant is charged to profit or loss over the vesting period. Where equity instruments are awarded to employees, the fair value of the benefit (fair value of the equity instrument less consideration received) at the date of grant is charged to profit or loss over the vesting period. Performance vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognized over the vesting period is based on the number of equity instruments that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the equity instruments granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether these vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Where the terms and conditions of the equity instruments are modified before they vest, the increase in the fair value of the equity instruments, measured immediately before and after the modification, is also charged to the statement of income (loss) and comprehensive income (loss) over the remaining vesting period.

When equity instruments are granted to non-employees, they are recorded at the fair value of the goods and services received, unless the fair value of the goods and services received cannot be reasonably measured, in which case they are measured using the fair value of the equity instruments issued. Expenses are recorded in the statement of income (loss) and comprehensive income (loss). Amounts related to the cost of issuing shares are recorded as a reduction of share capital.

When the value of goods or services received in exchange for the share-based compensation cannot be reliably estimated, the fair value is measured by use of a valuation model. The expected life used in the model is adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

All equity-settled share-based compensation are reflected in reserves, until exercised. Upon exercise, shares are issued from treasury and the amount reflected in reserves is credited to share capital, adjusted for any consideration paid.

Where a grant of equity-settled share-based compensation is cancelled or settled during the vesting period, excluding forfeitures when vesting conditions are not satisfied, the Company immediately accounts for the cancellation as an acceleration of vesting and recognizes the amount that otherwise would have been recognized for services received over the remainder of the vesting period. Any payment made to the employee on the cancellation is accounted for as the repurchase of an equity interest except to the extent the payment exceeds the fair value of the equity instrument granted, measured at the repurchase date. Any such excess is recognized as an expense.

Restricted share units

The Company has established a restricted share plan under which restricted share units are granted to eligible directors, employees and contractors of the Company. The restricted share units are considered equity-settled and are measured using the quoted market price of the Company’s common shares at the grant date and recognized as share-based payments over the vesting period, with a corresponding amount recognized as equity.

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing the net income or loss applicable to shares of the Company by the weighted average number of shares outstanding for the relevant period.

For diluted per share computations, assumptions are made regarding potential shares outstanding during the period. The weighted average number of shares is increased to include the number of additional shares that would be outstanding if, at the beginning of the period, or at time of issuance, if later, all options and warrants are exercised. Proceeds from exercise are used to purchase the Company’s shares at their average market price during the period, thereby reducing the weighted average number of shares outstanding. If these computations prove to be anti-dilutive, diluted loss per share is the same as basic loss per share. For the periods presented, the calculations provided to be anti-dilutive.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and equipment

Property and equipment are carried at cost, less accumulated depreciation and impairment losses. The cost of an item consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Depreciation is provided for at the following rates using the straight-line method:

Assets	Rate
Computer software	3 years
Computer equipment	3 years
Cabin interior and improvements	Lesser of useful life and lease term
Leasehold improvements	Lease term

The useful life of cabin interior and improvements is defined to be the period over which the assets are expected to be available for use by the Company. An item is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss.

Where an item of property and equipment is comprised of major components with different useful lives, the components are accounted for as separate items of property and equipment. Expenditures incurred to replace a component of an item of property and equipment that is accounted for separately, including major inspection and overhaul expenditures, are capitalized.

The residual values, useful lives, and methods of depreciation are reviewed at each reporting period and adjusted prospectively if appropriate.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Income taxes

Current income tax

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.

Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations where applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax

Deferred tax is recognized using the asset and liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax assets are recognized for all deductible temporary differences, the carry-forward of unused tax credits and any unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:

 Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

 In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available, against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances arises. The adjustment is either treated as a reduction to goodwill (as long as it does not exceed goodwill) if it occurred during the measurement period or recognized in profit or loss thereafter.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Leases

At the inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset of the site on which it is located, less any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the straight line method as this most closely reflects the expected pattern consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that cannot be readily determined, the Company's incremental borrowing rate. The incremental borrowing rate is a function of the Company’s incremental borrowing rate, the nature of the underlying asset, the location of the asset and the length of the lease. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in the future lease payments arising from a change in an index or rate, if there is a change in the Company's estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right of use asset has been reduced to zero.

The Company has elected to apply the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of twelve months or less and leases of low-value assets. The lease payments associated with these leases are recognized as expenses on a straight line basis over the lease term.

4. RECEIVABLES

	December 31, 2021 December 31, 2020
Share subscriptions receivable (note 9) Leasehold improvements costs recovery Sales and other tax credits	$ 69,175 $ - 58,783 - 32,029 - $ 159,987 $ -

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

5. PREPAID EXPENSES AND DEPOSITS

	December 31, 2021 December 31, 2020
Aircraft related deposits Insurance Professional fees Rent Other	$ 879,801 $ - 176,446 11,400 47,600 - 28,397 - 20,625 - $ 1,152,869 $ 11,400

On February 25, 2022, the Company received a refund of a deposit of US$230,000 ($293,088), which was held by GlobalX due to the termination of a letter of intent related to the lease of a future delivery of an aircraft.

6. PROPERTY AND EQUIPMENT

		Computer Software Computer Equipment Leasehold Improvements Cabin Interior and Improvements Total
	Cost Balance – December 31, 2019 and 2020 Additions Balance – December 31, 2021 Accumulated Depreciation Balance – December 31, 2019 and 2020 Depreciation Balance – December 31, 2021 Net Book Value As at December 31, 2020 As at December 31, 2021	$ - $ - $ - $ - $ - 38,000 62,633 29,534 2,371 132,538
		$ 38,000 $ 62,633 $ 29,534 $ 2,371 $ 132,538
		$ - $ - $ - $ - $ - - 2,068 347 - 2,415
		$ - $ 2,068 $ 347 $ - $ 2,415
		$ - $ - $ - $ - $ - $ 38,000 $ 60,565 $ 29,187 $ 2,371 $ 130,123

Computer software includes proprietary travel booking and payment management software (the “Travel Software”) for when airline operations become active. As at December 31, 2021, the Travel Software was not available for use as the airline operations were not active, thus no amortization has been recorded during the year.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

7. RIGHT-OF-USE ASSET AND LEASE LIABILITY

The Company has entered into a lease agreement with Airway Centre Inc., with respect to its office premises in Mississauga, Ontario. The lease commenced on December 1, 2021, with monthly lease payments of $5,420 until November 30, 2026.

A continuity of the carrying amount of the right-of-use asset for the years ended December 31, 2021 and 2020 is as follows:

	December 31, 2021
Balance – December 31, 2019 and 2020 Additions Depreciation Balance – December 31, 2021	$ - 217,857 (3,631) $ 214,226

A reconciliation of the carrying amount of the lease liability for the years ended December 31, 2021 and 2020 is as follows:

	December 31, 2021
Balance – December 31, 2019 and 2020 Additions Balance – December 31, 2021 Less: current portion	$ - 269,877
	$ 269,877
	$ 62,637 $ 207,240
Non-current portion

Future minimum lease payments are as follows:

		December 31,
		2021
Less than 1 year	$	65,037
1 to 5 years		254,730
More than 5 years		-
Total	$	319,767

Short-term leases are leases with a lease term of twelve months or less. As at December 31, 2021, the Company did not have any short-term leases. As at December 31, 2021, the Company did not have any leases of low-value assets.

The right-of-use asset and corresponding lease liability were initially measured at the present value of the remaining lease payments, discounted using the Company’s incremental borrowing rate of 7% per annum.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	As at December 31, 2021 As at December 31, 2020
Trade payables Accrued liabilities	$ 379,960 $ 311,374 378,762 40,000 $ 758,722 $ 351,374

9. RELATED PARTY TRANSACTIONS AND BALANCES

Related parties and related party transactions impacting the consolidated financial statements not disclosed elsewhere in these consolidated financial statements are summarized below and include transactions with the following individuals or entities:

Key management personnel

Key management personnel include those persons having authority and responsibility for planning, directing and controlling the activities of the Company as a whole. The Company has determined that key management personnel consists of members of the Company’s Board of Directors and corporate officers, including the Company’s Chief Executive Officer, Chief Financial Officer, Chief Commercial Officer, and Vice Presidents.

Remuneration attributed to key management personnel for the years ended December 31, 2021 and 2020 is summarized as follows:

	December 31, 2021 December 31, 2020
Consulting Director fees Share-based payments	$ 529,452 $ - 114,000 - 443,343 -
	$ 1,086,795 $ -

Related party balances

Receivables

As at December 31, 2021, receivables include the following amounts due from related parties:

Related Party	Role		December 31, 2021		December 31, 2020
Eddy Doyle	CEO and President	$	13,500	$		-
Barbara Syrek	CFO		4,000			-
Brad Warren	VP Maintenance		13,500			-
Victor Charlebois	VP Flight Operations		12,225			-
		$	43,225	$		-

The nature of these receivables relates to share subscriptions receivable as part of a share purchase plan for executives, for shares these related parties subscribed to.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

9. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Accounts payable and accrued liabilities

As at December 31, 2021, accounts payable and accrued liabilities include the following amounts due to related parties:

Related Party	Role		Remuneration Paid		December 31,		December	31,
			During The Year		2021		2020
Beth Horowitz	Director	$	18,000	$	9,000	$		-
Margaret Gilmour	Director		18,000		9,000			-
Ken McKenzie	Director		18,000		9,000			-
David Kruschell	Director		18,000		9,000			-
Ravinder Minhas	Director		18,000		9,000			-
Jean Charest	Director		18,000		9,000			-
Ryan Goepel	Director		6,000		6,000			-
Sheila Paine	Corporate Secretary		18,990		-			-
Eddy Doyle	CEO and President		112,500		13,003			-
Duncan Bureau	CCO		105,000		15,000			-
Barbara Syrek	CFO		60,000		14,950			-
Brad Warren	VP Maintenance		138,462		12,706			-
Victor Charlebois	VP Flight Operations		94,500		9,425			-
		$	643,452	$	125,084	$		-

The nature of these accounts payable and accrued liabilities relates to director fees and consulting fees payable as at December 31, 2021. The amounts due to related parties are unsecured, non-interest bearing and have no stated terms of repayment.

10. LONG-TERM LOAN PAYABLE

On May 28, 2020, the Company received an interest-free Canada Emergency Business Account (“CEBA”) loan in the amount of $40,000 to help cover the Company's operating expenses, payroll and other non-deferrable expenses which are critical to sustain business continuity. The program has been implemented by the Government of Canada as part of the COVID-19 relief initiatives. If the Company repays 75% of the principal amount on or before December 31, 2023, the repayment of the remaining 25% of the principal amount will be forgiven. In the event that the Company does not repay the principal amount by December 31, 2023, the principal amount and all accrued and unpaid interest at the rate of 5% per annum from January 1, 2024 will be due and payable on December 31, 2025.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

11. SHARE CAPITAL AND RESERVES

Authorized

The Company has authorized an unlimited number of common voting shares and variable voting shares without par value (the “Voting Shares”). The common voting shares and variable voting shares rank equally as to dividends on a sharefor-share basis, and all dividends declared in any fiscal year shall be declared in equal or equivalent amounts per share on all Voting Shares then outstanding, without preference or distinction.

As at December 31, 2021, the Company had 26,149,281 (2020 – 33,403,145) common voting shares and 24,314,193 (2020 – nil) variable voting shares outstanding.

Common voting shares

A common voting share carries one vote per common voting share.

Variable voting shares

Under the Company’s Articles, the variable voting shares carry one vote per variable voting share held, subject to an automatic reduction of the voting rights attached to variable voting shares in the event any of the applicable limits are exceeded. In such event, the votes attributable to variable voting shares will be affected as follows:

• first, if required, a reduction of the voting rights of any single non-Canadian owner (inclusive of any single nonCanadian owner authorized to provide air service) carrying more than 25% of the votes (the “Stage 1 Reduction”) to ensure that such non-Canadian owners never carry more than 25% of the votes that holders of voting shares cast at any meeting of shareholders;

• second, if required and after giving effect to the Stage 1 Reduction, a further proportional reduction of the voting rights of all non-Canadian owners authorized to provide an air service to ensure that such non-Canadian owners authorized to provide an air service (the “Stage 2 Reduction”), in the aggregate, never carry more than 25% of the votes that holders of voting shares cast at any meeting of shareholders; and

• third, if required and after giving effect to the Stage 1 Reduction and the Stage 2 Reduction if any, a proportional reduction of the voting rights for all non-Canadian owners as a class (the “Stage 3 Reduction”) to ensure that nonCanadians never carry, in aggregate, more than 49% of the votes that owners of voting shares cast at any meeting of shareholders.

Share issuances

In addition to the share transactions in Note 1, the following additional share issuances occurred during the year ended December 31, 2021:

• On August 6, 2021, the Company closed a non-brokered private placement (the “Offering”). The Offering consisted of 16,497,662 units issued at $0.40 per unit (each a “Unit”) for total gross proceeds of $6,599,065. Each Unit consists of one Voting Share and one half of one warrant (each whole warrant a “Warrant”). Each Warrant entitles the holder thereof to purchase an additional Voting Share for $0.70 until August 6, 2023. In connection with the Offering, the Company paid $450,131 in cash and issued 1,125,328 Warrants, with the same terms, as finder’s fees for certain subscribers who participated in the Offering.

• On September 10, 2021, the Company issued 487,667 Voting Shares at $0.30 for gross proceeds of $146,300 as part of a share purchase plan for executives and consultants of the Company. As per terms of the plan, the security holders agreed to have the subscription amount deducted against their base fees payable. There were no proceeds received.

• On October 7, 2021, the Company issued 75,000 Voting Shares at $0.30 for gross proceeds of $22,500 as part of a share purchase plan for executives and consultants of the Company. As per terms of the plan, the security holders agreed to have the subscription amount deducted against their base fees payable. There were no proceeds received.

There were no share issuances during the year ended December 31, 2020.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

11. SHARE CAPITAL AND RESERVES (continued)

Reserves

Net investment of former parent company

The net investment of former parent company represents the accumulated net contributions from GlobalX.

Upon the completion of the Plan of Arrangement, the accumulated net contributions by GlobalX was extinguished during the year ended December 31, 2021. Accordingly, the investment of former parent company of $10,274,677 was reclassified from reserves to accumulated deficit during the year ended December 31, 2021.

Warrants

In connection with the Offering, the Company issued 9,374,159 warrants, of which 1,125,328 warrants (“agent warrants”) were issued as finder’s fees for certain subscribers who participated in the Offering.

	Number of warrants Weighted Average Exercise Price
Outstanding, December 31, 2019 and 2020 Issued Outstanding, December 31, 2021	- $ - 9,374,159 0.70 9,374,159 $0.70

The fair value of agent warrants is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s shares, forfeiture rate, and expected life of the agent warrants. The following weight average assumptions were used to estimate the fair value of agent warrants issued:

	For the year ended	For the year ended
	December 31, 2021	December 31, 2020
Risk-free interest rate	0.45%	-
Expected life (years)	2	-
Annualized volatility	70%	-
Dividend yield	0%	-
Weighted average fair value per warrant granted	$0.09	-

The fair value of agent warrants of $99,639 was estimated at the issue date of the Offering and recorded in reserves.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

11. SHARE CAPITAL AND RESERVES (continued)

Reserves (continued)

Stock options

The Company grants stock options to directors, officers, employees and consultants as compensation for services, pursuant to its Incentive Stock Option Plan (the “Stock Option Plan”). The maximum exercise price of stock options granted shall not be less than the closing price of the common shares on the last trading day preceding the date on which the grant of options is approved by the Board of Directors. Options have a maximum expiry period of ten years from the grant date. The maximum number of common shares issuable pursuant to the exercise of outstanding stock options granted is 6,680,000. Pursuant to the Stock Option Plan, options granted in respect of investor relations activities are subject to vesting restrictions, such that one-quarter of the options vest three months from the grant date and in each subsequent three-month period thereafter such that the entire option will have vested twelve months after the award date. Vesting restrictions may also be applied to certain other option grants, at the discretion of the directors.

The following is a summary of stock option activities during the years ended December 31, 2021 and 2020:

	Number of stock options Weighted average exercise price
Outstanding, December 31, 2019 and 2020 Issued Outstanding, December 31, 2021	- $ - 250,000 0.40 250,000 $0.40

As at December 31, 2021, the following stock options were outstanding and exercisable:

								Remaining life
Outstanding			Exercisable			Exercise Price		(years)	Expiry Date
250,000			62,500			$0.40		2.67	August 31, 2024
250,000			62,500

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

11. SHARE CAPITAL AND RESERVES (continued)

Reserves (continued)

Stock options (continued)

The Company recognizes share-based payments expense for all stock options granted using the fair value based method of accounting. The fair value of stock options is determined by the Black-Scholes Option Pricing Model with assumptions for risk-free interest rates, dividend yields, volatility factors of the expected market price of the Company’s shares, forfeiture rate, and expected life of the options.

During the year ended December 31, 2021, the Company recognized a share-based payment expense with respect to stock options in the amount of $24,253 (2020 – $Nil).

The following weighted average assumptions were used to estimate the weighted average grant date fair value of stock options granted during the years ended December 31, 2021 and 2020:

	For the year ended	For the year ended
	December 31, 2021	December 31, 2020
Risk-free interest rate	0.53%	-
Expected life (years)	3	-
Annualized volatility	70%	-
Dividend yield	0%	-
Weighted average fair valueper stock optiongranted	$0.18	-

Restricted share units

The Company may grant restricted share units (“RSUs”) to directors, officers, employees and consultants as compensation for services, pursuant to its RSU Plan (the “RSU Plan”). The number of RSUs awarded and underlying vesting conditions are determined by the Board of Directors in its discretion. RSUs are required to be settled by December 15 in the third year following the year of grant. At the election of the Board of Directors, upon each vesting date, participants receive (a) Voting Shares equal to the number of RSUs that vested; (b) a cash payment equal to the number of vested RSUs multiplied by the fair market value of a Voting Share; or (c) a combination of (a) and (b). The maximum number of common shares issuable pursuant to the exercise of outstanding RSUs together with all other security based compensation arrangements is 9,980,000.

On the grant date of RSUs, the Company determines whether it has a present obligation to settle in cash. If the Company has a present obligation to settle in cash, the RSUs are accounted for as liabilities, with the fair value remeasured at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period. The Company has a present obligation to settle in cash if the choice of settlement in shares has no commercial substance, or the Company has a past practice or a stated policy of setting in cash, or generally settles in cash whenever the counterparty asks for cash settlement. If no such obligation exists, RSUs are accounted for as equity settled sharebased payments and are valued using the share price on grant date. Since the Company controls the settlement, the RSUs are considered equity settled.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

11. SHARE CAPITAL AND RESERVES (continued)

Reserves (continued)

Restricted share units (continued)

During the year ended December 31, 2021, the Company granted 9,060,000 RSUs (2020 – Nil) to various officers, directors, and consultants of the Company, whereby 50% of the RSUs vest at the first anniversary of the grant date and the remaining 50% vest on the second anniversary of the grant date.

During the year ended December 31, 2021, the Company cancelled 100,000 RSUs related to an individual who left the Company during the year.

The following is a summary of RSU activities during the year ended December 31, 2021:

	Number of RSUs Weighted average grant date fair value per RSU
Outstanding, December 31, 2019 and 2020 Issued Cancelled Outstanding, December 31, 2021	- - 9,060,000 $0.40 (100,000) $0.40 8,960,000 $0.40

As at December 31, 2021, the following RSUs were outstanding and exercisable:

==> picture [483 x 62] intentionally omitted <==

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

Remaining life
Outstanding Exercisable (years) Expiry Date
8,960,000 - 1.96 December 15, 2023
8,960,000 -
----- End of picture text -----

The value of the RSUs granted was based on the fair value of the Company’s common shares on the date of grant. Accordingly, the RSUs were granted at a fair value of $0.40 each for a total value of $3,624,000 which is recognized within share-based payment expense as the RSUs vest.

During the year ended December 31, 2021, the Company recorded share-based payments expense with respect to RSUs of $1,182,474 (2020 - $Nil).

Performance share units

The Company may grant Performance Share Units (“PSUs”) to directors, officers, employees and consultants as compensation for services, pursuant to its Performance Share Unit Plan (“PSU Plan”). The number of PSUs awarded and underlying performance-based vesting conditions are determined by the Board of Directors in its discretion. PSUs are required to be settled by December 31 in the third year following the year of grant. The maximum number of common shares issuable pursuant to the exercise of outstanding PSUs together with all other security based compensation arrangements is 9,980,000. No PSUs shall be issuable to individuals or companies providing investor relations activities. At the election of the Board of Directors, upon each vesting date, participants receive (a) Voting Shares equal to the number of PSUs that vested; (b) a cash payment equal to the number of vested PSUs multiplied by the fair market value of a Voting Share; or (c) a combination of (a) and (b).

There were no PSUs granted during the years ended December 31, 2021 and 2020.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

12. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS

Significant non-cash investing and financing activities during the year ended December 31, 2021 included:

• Reclassification of the investment by GlobalX of $10,274,677 from reserves to deficit on closing of the Plan of Arrangement.

• Finder’s fee warrants recognized as share issuance costs of $99,639.

• The initial recognition of the Company’s lease liability of $269,877.

• Share subscriptions receivable of $168,800.

• Property and equipment additions included in accounts payable and accrued liabilities of $54,221.

Significant non-cash investing and financing activities during the year ended December 31, 2020 included:

• Expenditures paid by GlobalX on behalf of the Company amounted to $2,526.

• GlobalX settled a severance payable of $32,833 to an employee on behalf of the Company by issuing 94,559 GlobalX shares valued at $47,279, resulting in a loss on extinguishment of debt of $14,446. In addition, GlobalX assumed withholding taxes of $9,233 relating to the severance payment.

• GlobalX settled a payable of $313,035 to a third party vendor on behalf of the Company by paying $104,345 and issuing 48,809 GlobalX shares valued at $24,405, resulting in a gain on extinguishment of debt of $184,285.

• GlobalX settled a payable of $6,000 to a third party vendor on behalf of the Company issuing 18,900 GlobalX shares valued at $9,450, resulting in a loss on extinguishment of debt of $3,450.

• The Company entered into a settlement agreement with a third party vendor that extinguished all outstanding liabilities for no consideration, resulting in a gain on extinguishment of debt of $55,615.

13. INCOME TAXES

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

	2021 2020
Income (loss) before income taxes Expected income tax expense (recovery) at statutory rate Change in statutory, foreign tax, foreign exchange rates and other Permanent differences Share issue costs Adjustment to prior years provision versus statutory tax rates Change in unrecognized deductible temporary differences Total income tax expense (recovery)	$ (3,100,717) $ 157,833
	(837,000) 43,000 9,000 (9,000) 327,000 - (122,000) - (55,000) 174,000 678,000 (208,000) $ - $ -

No deferred tax asset has been recognized in respect of the losses and temporary differences as it is not considered probable that sufficient future taxable profits will allow for these deferred tax assets to be recovered.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

13. INCOME TAXES (continued)

The significant components of the Company’s unrecognized temporary, unused tax credits and unused tax losses giving rise to the unrecognized tax assets are as follows:

	December 31, 2021 Expiry Date Range December 31, 2020
	Temporary Differences Non-capital losses available for future periods $ 12,955,000 2033 to 2041 $ 10,778,000 Property and equipment $ 1,676,000 No expiry date $ 1,703,000 Share issue costs $ 360,000 2045 $ -

Tax attributes are subject to review and potential adjustment by tax authorities.

14. CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to advance its strategic investments, and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk. In the management of capital, the Company includes its components of shareholders’ equity (deficiency).

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue debt, acquire assets or dispose of assets. In order to maximize ongoing development efforts, the Company does not pay out dividends. Management reviews its capital management approach on an ongoing basis and believes that this approach is reasonable given the relative size of the Company.

The Company currently is not subject to externally imposed capital requirements; however, there are certain capital requirements associated with the airline licensing process that the Company is currently engaged in and such amounts have not yet been determined. There were no material changes in the Company’s approach to capital management during the year ended December 31, 2021

15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Fair value

Financial instruments that are measured at fair value subsequent to initial recognition are grouped into a hierarchy based on the degree to which the fair value is observable as follows:

• Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities;

• Level 2: Inputs other than quoted prices that are observable for the asset or liability directly or indirectly; and

• Level 3: Inputs that are not based on observable market data.

The fair value of cash is measured based on level 1 inputs of the fair value hierarchy. The estimated fair value of receivables, accounts payable and accrued liabilities approximates their carrying values due to the short-term to maturity. The fair value of long-term liabilities are initially recorded at fair value and subsequently carried at amortized cost using rates comparable to market interest rates.

The Company’s financial instruments are exposed to certain financial risks as detailed below.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

15. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.

The Company is subject to credit risk on its cash and receivables. The Company limits its exposure to credit loss by placing its cash with major financial institutions. The Company has no investments in asset-backed commercial paper. The Company’s receivables consist mainly of goods and services tax receivable due from the Government of Canada. As a result, the Company does not believe it is exposed to significant credit risk.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company manages liquidity risk by maintaining sufficient cash balances to enable settlement of transactions on the due date. The Company addresses its liquidity through equity and debt financing. While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future. The Company is exposed to liquidity risk.

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.

As at December 31, 2021, the Company had a working capital of $4,071,206 and accumulated deficit of $7,015,227. At present, the Company has no current operating income or cash flows. In addition, the Company does not have the required financing to meet domestic licensing financial capability requirements, to complete the build-out of the airline and to secure aircraft.

Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates and equity prices.

(a) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As at December 31, 2021, the Company is not exposed to any significant interest rate risk.

(b) Currency risk

Foreign exchange risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. At present, the Company’s expenditures are predominantly in Canadian dollars. Future equity raised may be in either Canadian or US dollars. At this time, the Company does not have any currency hedges in place for fluctuations in the exchange rate between the Canadian dollar and the US dollar. As at December 31, 2021, the Company is not exposed to currency risk.

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CANADA JETLINES OPERATIONS LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 (Expressed in Canadian Dollars)

16. SEGMENTED INFORMATION

The Company operates in one reportable segment, which is the development of a Canadian low cost carrier airline and its operations and head office are in Canada.

17. COMMITMENTS

Flight Booking System

On November 12, 2021, the Company entered into a five year license agreement with a vendor to license a flight booking software system, which expires on November 11, 2026. The Company may terminate the agreement for convenience by providing ninety days written notice and paying a termination fee calculated as the number of months remaining on the contract by the minimum monthly fee. As at December 31, 2021, the termination fee of the contract would be $359,600.

Supplier Agreement

On November 23, 2021, the Company entered into a ten year agreement with a vendor to be its sole supplier of main wheel and carbon brakes for its A319/A320 aircraft fleet. Under the terms of the agreement, if at any time the Company operates an aircraft with wheels and brakes other than the vendor’s or the Company uses assemblies or subassemblies or parts not manufactured by the vendor for one or more of its aircrafts the Company agrees to pay the vendor US$200,000 for each aircraft.

Airbus Lease Agreement

On December 15, 2021, the Company entered into definitive aircraft lease agreement for one Airbus A320 aircraft scheduled for delivery in fiscal 2022 (the “Airbus Lease Agreement”) with a third party (the “Lessor”). The lease payments are to begin starting February 28, 2022.

Security deposits paid by the Company in the amount of US$315,000 were retained by the Lessor (note 5). The maximum monthly lease payments will be US$110,208 per month, for a term of eight years.

18. SUBSEQUENT EVENTS

The following events occurred subsequent to the year ended December 31, 2021:

1. On January 1, 2022, the Company granted 50,000 RSUs to a director of the Company, whereby 100% of the RSUs vest at the first anniversary of the grant date.

2. The Company received delivery and possession of the Airbus A320 aircraft on February 28, 2022 (Note 17).

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