Danavation Technologies Corp. — Audit Report / Information 2024

Jan 15, 2024

DANAVATION TECHNOLOGIES CORP.

CONSOLIDATED FINANCIAL STATEMENTS

July 31, 2023, and 2022

(EXPRESSED IN CANADIAN DOLLARS)

Note to Reader:

These consolidated financial statements are refiled so that the auditor's report accompanying the July 31, 2023 annual financial statements correctly include all financial periods presented for which the auditor has issued an audit report, including the comparative year ended July 31, 2022. No other changes were made.

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INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Danavation Technologies Corp.

Opinion

We have audited the accompanying consolidated financial statements of Danavation Technologies Corp. and its subsidiaries (together referred as the "Company"), which comprise the consolidated statements of financial position as at July 31, 2023 and 2022, and the consolidated statements of operations and comprehensive loss, changes in shareholders’ equity 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, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at July 31, 2023 and 2022, 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 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 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.

Material Uncertainty Related to Going Concern

We draw attention to Note 2 in the consolidated financial statements, which describe the events and conditions that indicate the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Key Audit Matter

Except for the matter described in the Material Uncertainty Related to Going Concern section, we have determined that there are no other key audit matters to communicate in our report.

Other Information

Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.

knowing you.

8953-8965 Woodbine Avenue An independent member of the Markham, Ontario, L3R 0J9 Kreston Global network 66 Wellington Street Aurora, Ontario, L4G 1H8

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Kreston GTA LLP is a partnership registered in Ontario, Canada.

krestongta.com

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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 audit 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 audit, 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 in this auditor’s report. 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 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 it 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 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.

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• 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 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 financial statements, including the disclosures, and whether the 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 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 Spence Walker.

Kreston GTA LLP

Chartered Professional Accountants Markham, Canada November 28, 2023

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Danavation Technologies Corp. Consolidated Statements of Financial Position

(Expressed in Canadian Dollars)

Danavation Technologies Corp. Consolidated Statements of Financial Position (Expressed in Canadian Dollars)
As at July 31,		2023		2022
Assets
Current assets
Cash	$	18,522	$	13,861
Amounts receivable (Note 4)		365,584		276,798
Inventory (Note 5)		254,181		454,058
Prepaid expenses and deposits		53,344		136,707
		691,631		881,424
Non-current assets
Property, plant, and equipment (Note 6)		507,347		647,198
Right-of-use assets (Note 7)		1,611,269		1,911,479
Other long-term assets		13,404		13,404
		2,132,020		2,572,081
Total assets	$	2,823,651	$	3,453,505
Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	1,570,894	$	1,089,030
Deferred revenue		155,068		219,226
Interest payable on debts (Note 10)		26,429		25,796
Current portion of lease liabilities (Note 8)		166,615		187,128
Due to related parties (Note 15)		732,198		501,784
Short-term debt(Note 9)		151,911		750,000
		2,803,115		2,772,964
Non-current liabilities
Long-term lease liabilities (Note 8)		1,631,053		1,828,337
Long-term debt(Note 10)		3,579,685		3,358,080
		5,210,738		5,186,417
Total liabilities		8,013,853		7,959,381
Shareholders' equity (deficit)
Share capital (Note 11)		9,480,043		6,718,019
Contributed surplus (Note 11)		3,778,415		2,669,161
Accumulated deficit		(18,448,660)		(13,893,056)
Total shareholders' equity (deficit)		(5,190,202)		(4,505,876)
Total liabilities and shareholders' equity (deficit)	$	2,823,651	$	3,453,505
Nature of business (Note 1)
Going concern (Note 2)
Subsequent events (Note 18)

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

On behalf of the Board of Directors:

/s/ John Ricci /s/ Frank Borges Director Director

Danavation Technologies Corp. Consolidated Statements of Loss and Comprehensive Loss (Expressed in Canadian Dollars)

For theyear ended July 31,		2023		2022
Revenue	$	2,080,394	$	1,154,466
Costs of sales		(1,195,509)		(813,423)
Grossprofit		884,885		341,043
Expenses
Office and general (Note 12)		1,542,450		1,694,973
Salaries and benefits		1,426,537		1,719,895
Advertising and sales promotion		861,239		1,262,656
Financing costs (Note 13)		813,897		757,661
Depreciation and amortization (Note 6 and 7)		443,594		436,397
Stock based compensation (Note 11)		352,772		649,077
Total expenses		5,440,489		6,520,659
Net loss and comprehensive loss	$	(4,555,604)	$	(6,179,616)
Basic and diluted loss per share	$	(0.04)	$	(0.06)
Weighted average number of shares outstanding, basic and diluted		114,968,702		103,586,235

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

Danavation Technologies Corp. Consolidated Statements of Cash Flows (Expressed in Canadian Dollars)

For theyear ended July 31,		2023		2022
Operating activities
Net loss for the period	$	(4,555,604)	$	(6,179,616)
Stock based compensation (Note 11)		352,772		649,077
Expected credit losses (Note 4)		(38,586)		81,229
Depreciation and amortization (Note 6 and 7)		443,594		436,397
Accretion expense (Note 13)		221,605		192,514
Changes in non-cash working capital items:
Decrease (Increase) in accounts receivable		(50,200)		236,749
Decrease (Increase) in inventory		199,877		(346,126)
Decrease (Increase) in prepaid expenses and deposits		83,363		241,545
Increase (decrease) in accounts payable and accrued liabilities		513,700		336,168
Increase (decrease) in deferred revenue		(64,158)		209,301
Increase(decrease)in interestpayable on debts		633		25,796
Cash used in operating activities	$	(2,893,004)	$	(4,116,966)
Investing activities
Purchases of property, plant and equipment (Note 6)	$	(3,533)	$	(102,817)
Purchases of other long-term assets		-		(13,404)
Cash from(used in) investing activities	$	(3,533)	$	(116,221)
Financing activities
Proceeds from the issuance of shares (Note 11)	$	2,768,506	$	147,500
Net advances from related parties (Note 15)		200,790		(98,184)
Proceeds from short-term debt (Note 9)		150,000		738,750
Net proceeds from long-term debts (Note 10)		-		3,481,348
Proceeds from exercise of stock options (Note 11)		-		140,000
Proceeds from exercise of warrants (Note 11)		-		11,853
Leaseprincipal repayments(Note 8)		(218,098)		(180,198)
Cash from financing activities	$	2,901,198	$	4,241,069
Increase (decrease) in cash	$	4,661	$	7,882
Cash,beginningofperiod	$	13,861	$	5,979
Cash, end of period	$	18,522	$	13,861

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

Danavation Technologies Corp. Consolidated Statements of Changes in Equity (Deficit) (Expressed in Canadian Dollars)

Number of common shares Common share capital	Reserves Warrants Accumulated deficit Total shareholders' deficit Contributed surplus
Balance July 31, 2022 104,282,850 6,718,019 $ Conversion of short-term debt (Note 9) 3,000,000 577,743 Issuance of shares (Note 11) 13,542,000 2,184,281 Stock based compensation (Note 11) - - Net loss for the period - -	1,873,348 $ 795,813 $ (13,893,056) $ (4,505,876) $ - 134,757 - 712,500 - 621,725 - 2,806,006 352,772 - - 352,772 - - (4,555,604) (4,555,604)
Balance July 31, 2023 120,824,850 9,480,043 $	2,226,120 $ 1,552,295 $ (18,448,660) $ (5,190,202) $
Number of common shares Common share capital	Reserves Warrants Accumulated deficit Total shareholders' deficit Contributed surplus
Balance August 1, 2021 103,200,987 6,361,256 $ Exercise of stock options (Note 11) 400,000 216,000 Exercise of warrants (Note 11) 91,863 35,043 Stock based compensation (Note 11) - - Issuance of convertible debts (Note 10) - - Issuance of shares (Note 11) 590,000 105,720 Net loss for the period - -	995,739 $ 777,223 $ (7,713,440) $ 420,778 $ (76,000) - - 140,000 - (23,190) - 11,853 649,077 - - 649,077 304,532 - - 304,532 - 41,780 - 147,500 - - (6,179,616) (6,179,616)
Balance July 31, 2022 104,282,850 6,718,019 $	1,873,348 $ 795,813 $ (13,893,056) $ (4,505,876) $

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

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

1. Nature of business

Danavation Technologies Corp. (“Danavation” or the “Company”) was incorporated on June 4, 2007, under the Business Corporations Act of British Columbia. On October 20, 2022, the Company moved jurisdictions to Ontario by articles of continuance. The registered office of the Company is located at 21 Roybridge Gate, Woodbridge, Ontario, Canada, L4H 1E6. The Company's principal activity relates to the sale of micro e-paper displays and software to retailers to automate labeling, price, product, and promotions in real-time.

These consolidated financial statements were authorized for issuance by the Board of Directors of the Company on November 28, 2023.

Danavation's common shares trade on the Canadian Securities Exchange (" CSE ") under the symbol "DVN" and on the OTCQB Venture Market in the US under the symbol “DVNCF”.

2. Going concern

In the preparation of these consolidated financial statements, the Danavation’s management is required to identify when events or conditions indicate that significant doubt may exist about the Company’s ability to continue as a going concern. Significant doubt about the Company’s ability to continue as a going concern would exist when relevant conditions and events indicate that the Company will not be able to meet its obligations as they become due for a period of at least, but not limited to, twelve months from the end of the reporting period. When the Company identifies conditions or events that raise potential for significant doubt about its ability to continue as a going concern, the Company considers whether its plans that are intended to mitigate those relevant conditions or events will alleviate the potential significant doubt.

Danavation has incurred a net loss of $4,555,604 during the year ended July 31, 2023, and as at that date has an accumulated deficit of $18,448,660. As a result, there is material uncertainty that may cast significant doubt as to whether the Company will have the ability to continue as a going concern.

Danavation's ability to continue as a going concern is dependent on its ability to successfully generate cash flows from operations or additional funding from external resources to continue operations. The Company has available cash of $18,522 as of July 31, 2023, and is currently seeking additional funding through multiple sources. Therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.

3. Basis of preparation

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS“) as issued by the International Accounting Standards Board (“IASB”).

Basis of measurement

The policies set out were consistently applied to all the periods presented unless otherwise noted below. The preparation of financial statements in accordance with International Accounting Standards (“IAS”) 1, Presentation of Financial Statements (“IAS 1”), requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the Company’s accounting policies.

These consolidated financial statements have been prepared in Canadian dollars on a historical cost basis except for certain financial instruments which are measured at fair value. Historical cost is generally based upon the fair value of consideration given in exchange for assets. Fair value is the price that would have been received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether the price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes in account the characteristics of the asset or liability that market participants would consider when pricing the asset or liability at the measurement date.

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

Subsidiaries

These consolidated financial statements include the accounts of Danavation and its subsidiaries. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are considered. All inter-company balances and transactions have been eliminated in preparing consolidated financial statements. The following wholly-owned subsidiaries have been consolidated within the consolidated financial statements:

		Place of business	Equity
Entity	Principle activity	and operations	percentage
Danavation Technologies Inc.	Operating Company	Canada	100%
0890810 BC Ltd.	OperatingCompany	Canada	100%

Functional and presentation currency

The consolidated financial statements are presented in Canadian dollars, which is also the Company’s functional currency. Each entity within the consolidated financial statements determines its own functional currency and items included in the consolidated financial statements of each entity are remeasured using the functional currency. The functional currency of the Company’s subsidiaries is the Canadian dollar.

Significant accounting policies

a) Cash

Cash in the statements of financial position is comprised of cash held with major financial institutions.

b) Inventory

Inventories of finished goods and packaging materials are initially valued at cost and subsequently at the lower of cost and net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Cost is determined using the average cost basis. The Company reviews inventory for obsolete, redundant, and slow-moving goods and any such inventory are written down to net realizable value.

c) Property, plant, and equipment

Property, plant, and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Gains and losses on disposal are determined by comparing the proceeds from disposal and the carrying amount of the asset and are recognized in the consolidated statements of loss and comprehensive loss.

Depreciation is calculated using the straight-line method over the useful life of each asset as follows:

• Computer equipment 3 - 5 years

• Furniture and Equipment 5 - 10 years  Leasehold improvements Over term of the lease  Right of use assets Over term of the lease

Depreciation methods, useful lives, and estimated residual values are reviewed at the end of each financial year.

d) Right-of-use assets

Right-of-use assets are recorded at the present value of future lease payments, alongside a corresponding lease liability. Lease payments are recognized on a straight-line basis over the term of the lease. The lease liability is initially

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, an incremental borrowing rate is used.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability using the effective interest method, and by reducing the carrying amount to reflect the lease amount incurred. Rightof-use assets are depreciated over the shorter period of the lease term and useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

e) Leases

Danavation recognizes a right-of-use asset and a lease obligation at the lease commencement date, in accordance with IFRS 16 Leases . The right-of-use asset is initially measured at cost and, subsequently, at cost less any accumulated depreciation and impairment, and adjusted for certain remeasurements of the lease obligation. The lease liability is initially measured at the present value of the lease payments at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, at the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. The lease obligation is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee or, as appropriate, a change in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.

f) Financial instruments

Financial assets and financial liabilities are recognized on the statements of financial position when the Company becomes a party to the financial instrument.

Classification

Danavation classifies its financial assets and financial liabilities in the following measurement categories: i) those to be measured subsequently at fair value through profit and loss (“FVTPL”); ii) those to be measured subsequently at fair value through other comprehensive income (“FVTOCI”); and iii) those to be measured at amortized cost. The classification of financial assets depends on the business model for managing the financial assets and the contractual terms of the cash flows. Financial liabilities are classified as those to be measured at amortized cost unless they are designated as those to be measured subsequently at FVTPL (irrevocable election at the time of recognition). For assets and liabilities measured at fair value, gains and losses are either recorded in profit or loss or other comprehensive income or loss.

Amortized cost

This category includes financial assets that are held within a business model with the objective to hold the financial assets to collect contractual cash flows that meet the solely payments of principal and interest criterion. Financial assets classified in this category are measured at amortized cost using the effective interest method.

Fair value through profit or loss

This category would include debt instruments whose cash flow characteristics fail the solely payments of principal and interest criterion or are not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. Financial assets in this category are recorded at fair value with changes recorded in profit or loss.

Fair value through other comprehensive income or loss

Equity instruments that are not held-for-trading cash be irrevocably designated to have their change in fair value recognized through other comprehensive income or loss instead of through profit or loss. This election can be made on individual instruments and is not required to be made for the entire class of instrument. Attributable transaction

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

costs are included in the carrying value of the instruments. Financial assets at FVTOCI are initially measured at fair value and changes therein are recognized in other comprehensive income or loss.

Measurement

All financial instruments are required to be measured at fair value on initial recognition, plus, in the case of a financial asset or financial liability not at FVTPL, transaction costs that are directly attributable to the acquisition or issuance of the financial asset or financial liability. Transaction costs of financial assets and financial liabilities carried at FVTPL are expensed in profit or loss.

Financial assets that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of the subsequent accounting periods. All other financial assets including equity investments are measured at their fair values at the end of subsequent accounting periods, with any changes taken through profit or loss or other comprehensive income or loss (irrevocable election at the time or recognition).

Summary of the Company’s classification and measurements of financial assets and liabilities

	IFRS 9
	Classification	Measurement
Cash	FVTPL	Fair value
Amounts receivable	Amortized Cost	Amortized Cost
Accounts payable and accrued liabilities	Amortized Cost	Amortized Cost
Short-term debt	FVTPL	Fair value
Interest payable on debts	Amortized Cost	Amortized Cost
Long-term debt	Amortized Cost	Amortized Cost

g) Compound financial instruments

Compound financial instruments issued by the Company comprises convertible debentures that can be converted into common shares of the Company. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of the computed financial instrument as whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition. On conversion or upon expiration, the carrying value of the equity portion is transferred to common shares or contributed surplus.

h) Impairment of long-lived assets

Long-lived assets are reviewed for impairment at each statement of financial position date or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cash-generating unit, or "CGU"). The recoverable amount of an asset or a CGU is the higher of its fair value, less costs to sell, and its value in use. If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognized immediately in profit or loss by the amount by which the carrying amount of the asset exceeds the recoverable amount.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognized previously.

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

i) Provisions

A provision is recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated. If the effect is material, provisions are determined by discounting the expected cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The Company had no material provisions as at July 31, 2023.

j) Income taxes

Income tax comprises the current and deferred tax. Income tax is recognized in the statements of loss expect to the extent that it relates to items recognized directly in shareholders’ equity, in which case the income tax is also recognized directly in shareholders’ equity.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted at the end of the reporting period, and any adjustments to tax payable in respect of previous years.

In general, deferred tax is recognized in respect of temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a non-discounted basis using the tax rates and laws that have been enacted or substantively enacted at the dates of the statements of financial position and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable the asset can be recovered.

Deferred tax assets and liabilities are presented as non-current.

k) Share capital and stock based compensation

The Company has a stock option plan for directors, officers and employees. Each tranche of an award is considered a separate award with its own vesting period and grant date fair value. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over each tranche’s vesting period, based on the number of awards expected to vest, with the offset credited to contributed surplus. When options are exercised, the amount received is credited to share capital and the fair value attributed to these options is transferred from contributed surplus to share capital. The impact of a revision of the original estimate is recognized in profit or loss such that the cumulative expense reflects the revised estimate.

Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares are recognized as a deduction from equity. Contributed surplus includes amounts in connection with conversion options embedded in compound financial instruments, stock-based compensation and the value of expired options and warrants. Deficit includes all current and in period income and losses.

l) Revenue recognition

Revenue from contracts with customers

Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. The Company recognizes revenue when it transfers control over a product or service to a customer.

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

Danavation follows the five-step model to recognize revenue:

• 1) Identify the contract with a customer

• 2) Identify the performance obligations in the contract

• 3) Determine the transaction price

• 4) Allocate the transaction price to performance obligations in the contract

• 5) Recognize revenue when the Company satisfies a performance obligation

Danavation generates revenue from three primary streams:

Hardware – revenue from the sale of Digital Smart Labels (“DSLs”) and other hardware is recognized when control is passed to the customer. This exchange is recognized once the product is shipped to the customer.

Installation and configuration – revenue from the installation of hardware and configuring software to customer’s networks is recorded when hardware is installed at the customer’s site and the software configuration is operational for the customer.

Software agreements – software agreements are fixed term usage and maintenance services. Revenue is recognized over the term of the agreement.

m) Loss per share

Danavation presents basic and diluted loss per share data for its common shares outstanding, calculated by dividing the loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted loss per share is determined by adjusting the loss attributable to common shareholders and the weighted average number of shares outstanding, adjusted for the effects of all dilutive potential common shares.

For the periods presented, all dilutive potential common shares were anti-dilutive.

n) Foreign currency transactions

Transactions in foreign currencies are translated into Canadian dollars at the exchange rates at the dates of the transactions. Most foreign currency transactions are in United States dollars even though the transactions may originate in other countries. The company has no non-monetary foreign transactions. Foreign currency differences are generally recognized in profit and loss.

o) Use of estimates and judgments

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenues, and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Inventory

The cost of inventories is written down to the net realizable value (“NRV”) when the cost of inventories is not recoverable. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. When the NRV of an item of inventory is less than the carrying amount, the excess is written off immediately in the profit or loss. The management’s review and estimation of the NRV is primarily based on the ageing, conditions and marketability of the inventories. The Company carried out

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

the inventory review at the end of the reporting period and made the necessary allowance on obsolete and slow-moving items so as to write off or write down inventories to their NRVs.

Estimated useful lives and depreciation and amortization of property, plant, and equipment

Depreciation and amortization of property, plant and equipment and intangible assets are dependent upon estimates of useful lives, which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that consider factors such as economic and market conditions and the useful lives of assets.

Fair value measurements

Certain of the Company’s assets and liabilities are measured at fair value. In estimating the fair value of Level 2 investments, the Company uses key inputs including the share price of underlying securities, annualized volatility, the risk-free interest rate, the dividend yield, and the expected life of the security.

Inputs when using Black-Scholes valuation model

Danavation uses the Black-Scholes valuation model to value its options and warrants. The model requires management to estimate input variables including volatility, forfeiture rates, estimated life and market rates.

Discount rates

The discount rates used to calculate net present value of the convertible debentures are based on management’s best estimates of an approximate industry peer group weighted average cost of capital and management’s best estimate of the Company’s risk levels.

Changes in the general economic environment could result in significant changes to this estimate.

Convertible instruments

Convertible debentures are compound financial instruments which are accounted for separately by their components: a financial liability and an equity instrument. The financial liability, which represents the obligation to pay coupon interest on the convertible debentures in the future, is initially measured at its fair value and subsequently measured at amortized cost. The residual amount is accounted for as an equity instrument at issuance.

The identification of convertible debenture components is based on interpretations of the substance of the contractual arrangement and therefore requires judgment from management. The separation of the components affects the initial recognition of the convertible debenture at issuance and the subsequent recognition of interest on the liability component. The determination of the fair value of the liability is also based on a number of assumptions, including contractual future cash flows, discount rates and the presence of any derivative financial instruments.

p) Future changes in accounting policies

There are currently no new accounting standards issued but not yet effective that impact the Company’s financial statements.

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

4. Amounts receivable

As at July 31,		2023		2022
Accounts receivable	$	348,063	$	321,674
Other receivable		56,107		40,293
Expected credit losses		(38,586)		(85,170)
Total amounts receivable	$	365,584	$	276,797

The movement in the expected credit loss provision can be reconciled as follows:

As at July 31,		2023		2022
Expected credit loss provision, beginning balance	$	85,170	$	3,941
Expected credit loss movement		(46,584)		81,229
Total expected credit losses	$	38,586	$	85,170

5. Inventory

The Company’s inventory consists of DSL equipment pending installation and spare equipment for miscellaneous client orders. The Company’s inventory is comprised of:

As at July 31,	2023	2022
Finishedgoods	254,181 $	454,058 $
Total inventory	254,181 $	454,058 $

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

6. Property, plant, and equipment

As of July 31, 2023, property, plant, and equipment consisted of the following:

		Leasehold		Furniture and		Computer
	improvements			equipment		equipment		Total
Cost:
August 1, 2021	$	279,103	$	357,005	$	87,238	$	723,346
Additions		609		48,886		53,322		102,817
July 31, 2022	$	279,712	$	405,891	$	140,560	$	826,163
Accumulated depreciation:
August 1, 2021	$	6,944	$	20,990	$	11,584	$	39,518
Depreciation		27,951		78,948		32,548		139,447
July 31, 2022 Carrying amounts July 31, 2022	$ $	34,895 244,817	$ $	99,938 305,953	$ $	44,132 96,428	$ $	178,965 647,198
		Leasehold	Furniture and			Computer
	improvements			equipment		equipment		Total
Cost:
July 31, 2022	$	279,712	$	405,891	$	140,560	$	826,163
Additions		-		450		3,083		3,533
July 31, 2023	$	279,712	$	406,341	$	143,643	$	829,696
Accumulated depreciation:
July 31, 2022	$	34,895	$	99,938	$	44,132	$	178,965
Depreciation		27,971		81,245		34,168		143,384
July 31, 2023 Carrying amounts July 31, 2023	$ $	62,866 216,846	$ $	181,183 225,158	$ $	78,300 65,343	$ $	322,349 507,347

7. Right-of-use assets

Danavation entered lease arrangements for a building, warehouse, office equipment, and other assets as part of its daily operations. Building and warehouse leases include the rental of office space and storage facilities. These leases vary in length and are typically over 5 years and may include several renewal options. Office equipment leases include the rental of machinery and computer hardware. These leases vary in duration and structure and typically do not exceed 10 years.

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

The following table reconciles changes in right-of-use assets for the years ended July 31, 2023, and 2022.

	Right-of-use assets	Right-of-use assets	Right-of-use assets
Balance, August 1, 2021	$	2,130,182
Additions		78,247
Depreciation		(296,950)
Balance, July 31, 2022		1,911,479
Depreciation		(300,210)
Balance, July 31, 2023	$	1,611,269

Lease liabilities associated with the Company’s right-of-use assets are described in Note 8.

8. Lease liabilities

Lease liabilities consist of the following:

As at August 1, 2021	$	2,117,416
Additions during the period		78,247
Payments during the period		(403,687)
Interest expense duringtheperiod		223,489
Balance,July31,2022	$	2,015,465
Current portion of lease liabilities Long-term lease liabilities	$ $	187,128 1,828,337
As at July 31, 2022	$	2,015,465
Payments during the period		(415,802)
Interest expense during theperiod		198,005
Balance, July 31, 2023	$	1,797,668
Current portion of lease liabilities Long-term lease liabilities	$ $	166,615 1,631,053

The Company’s future cash outflows may change due to variable lease payments, renewal options, termination options, residual value guarantees, and leases not yet commenced to which the Company is committed that are not reflected in the lease liabilities. The following is a maturity analysis for undiscounted lease payments that are reflected in the lease liabilities as at July 31, 2023 and 2022:

As at July 31,		2023
Maturity analysis - contractual undiscounted cash flows
Less than one year	$	338,302
One to five years		1,373,054
Greater than fiveyears		882,500
Total undiscounted lease obligations	$	2,593,856

Right-of-use assets associated with the Company’s lease liability are described in Note 7.

9. Short-term debt

On December 21, 2021, Danavation issued a convertible promissory note in the amount of $750,000. On August 26, 2022, concurrent with a share financing (see Note 11(b)(iv)), the note was converted at the option of the holder into 3,000,000 common shares and 1,500,000 common share purchase warrants. On conversion, the Company made payments to the holder of $34,664 for interest on the note and $37,500 for other conversion related fees.

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

On March 10, 2023, Danavation issued a promissory note in the amount of $150,000. The debt bears interest at a rate of 15%, will be repaid in twelve equal monthly payments starting July 31, 2023, and is guaranteed by two directors.

10. Long-term debt

Danavation entered into an agreement with Computershare Trust Company of Canada on August 17, 2021, in which the Company issued unsecured convertible subordinated debentures in the aggregate amount of $3,850,000. The debentures bear interest at 8.00% per annum, payable quarterly, and mature on August 17, 2024.

The principal amount of the debentures is convertible into common shares of the Company at a price of $0.45 per share, at the option of the holder. However, if the daily volume weighted average price of the common shares on the CSE for 20 consecutive days exceeds $0.75, the Company may force the conversion of the principal amount of the convertible debentures.

The debenture was recorded at its fair value of $3,176,816, discounted at a market interest rate of 12% and is net of debt issue costs. The accretion expense calculated using the effective interest method was $189,146. The effective interest rate used was 15.32% and the coupon rate on the debt is 8.00%. Interest expense for long-term convertible debentures was $294,499. The residual value of the gross proceeds was $336,780 and was allocated to the conversion feature.

Danavation incurred $321,645 for cash debenture issuance costs. In addition, the Company issued 421,111 compensation warrants as non-cash issuance costs. The fair value of the compensation warrants was estimated at $47,007 using the Black-Scholes option pricing model, with the following assumptions: dividend yield 0%, 0.81% annual risk-free interest rate, 100% volatility and a 2-year expected life. Of the total $368,652 issuance costs, $336,404 was allocated to the long-term debenture and $32,248 was allocated to the conversion feature.

		Long-term debt
Balance, August 1, 2021	$	-
Face value of debt upon issuance		3,850,000
Less: allocation to conversion feature		(336,780)
Less: debt issue costs		(336,404)
Fair value of debt on initial recognition		3,176,816
Accretion expense duringtheperiod		181,264
Balance, July 31, 2022	$	3,358,080
Accretion expense during theperiod		221,605
Balance, July 31, 2023	$	3,579,685
	Interestpayable on debts
Balance, August 1, 2021	$	-
Accured interest		294,499
Interestpayments		(268,703)
Balance, July 31, 2022	$	25,796
Accrued interest		308,633
Interestpayments		(308,000)
Balance, July 31, 2023	$	26,429
As at July 31,		2023
Maturity analysis - contractual undiscounted cash flows
Less than one year	$	308,000
One to fiveyears		3,889,347
Total	$	4,197,347

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

11. Share capital

a) Authorized

Danavation is authorized to issue an unlimited number of common shares.

b) Issued and outstanding

• i) During the 2022 fiscal year, 400,000 common shares were issued for the exercise of stock options, and 91,863 common shares were issued for the exercise of warrants.

• ii) On July 22, 2023, Danavation closed the first tranche of a non-brokered private placement through the issuance of 590,000 units at a price of $0.25 per unit, for aggregate gross proceeds of $147,500. Each unit is comprised of one common share and one-half of a common share purchase warrant, and in aggregate the Company issued 590,000 shares and 295,000 warrants. The warrants are exercisable at a price of $0.35 and expire on July 22, 2025. The Company recorded $105,720 for the issuance of shares and $41,780 for the issuance of warrants based on a relative fair value calculation. The warrant value was determined using the Black-Scholes option pricing model, with the following assumptions: share price $0.24, dividend yield 0%, 3.08% annual risk-free interest rate, 90.42% volatility and a 2-year expected life.

• iii) On August 26, 2022, Danavation closed the second tranche of a non-brokered private placement through the issuance of 3,120,000 units at a price of $0.25 per unit, for aggregate gross proceeds of $780,000. Each unit is comprised of one common share and one-half of a common share purchase warrant, and in aggregate the Company issued 3,120,000 shares and 1,560,000 warrants. The warrants are exercisable at a price of $0.35 and expire on August 26, 2024. In connection with the second tranche of the private placement, the Company paid cash commissions of $25,500, incurred other cash issuance costs of $25,000, and issued 102,000 broker warrants. Each broker warrant entitles the holder thereof to acquire one common share at an exercise price of $0.25 and expires on August 26, 2024. The Company recorded $582,958 for the issuance of shares, $135,974 for the issuance of warrants, and $10,568 for the issuance of broker warrants based on a relative fair value calculation. The warrant and broker warrant values were determined using the Black-Scholes option pricing model, with the following assumptions: share price $0.32, dividend yield 0%, 3.54% annual risk-free interest rate, 89.13% volatility and a 2-year expected life.

• iv) On August 26, 2022, concurrent with the second tranche financing above the holder of a convertible promissory note elected to convert the principal amount of $750,000 into units on the same terms as the concurrent financing, see Note 9. The Company issued 3,000,000 shares and 1,500,000 warrants and paid a conversion fee of $37,500 to the note holder. The Company recorded $577,743 for the issuance of shares and $143,757 for the issuance of warrants based on a relative fair value calculation using the same assumptions as the concurrent financing above.

• v) On September 22, 2022, Danavation closed the third tranche of a non-brokered private placement through the issuance of 1,452,000 units at a price of $0.25 per unit, for aggregate gross proceeds of $363,000. Each unit is comprised of one common share and one-half of a common share purchase warrant, and in aggregate the Company issued 1,452,000 shares and 726,000 warrants. The warrants are exercisable at a price of $0.35 and expire on September 24, 2024. In connection with the third tranche of the private placement, the Company paid cash commissions of $25,350, incurred other cash issuance costs of $30,000, and issued 101,400 broker warrants. Each broker warrant entitles the holder thereof to acquire one Common Share at an exercise price of $0.25 per common share and expires on September 22, 2024. The Company recorded $245,647 for the issuance of shares, $53,058 for the issuance of warrants, and $8,945 for the issuance of broker warrants based on a relative fair value calculation. The warrant and broker warrant values were determined using the Black-Scholes option pricing model, with the following assumptions: share price $0.29, dividend yield 0%, 3.78% annual risk-free interest rate, 88.08% volatility and a 2 expected life.

• vi) On October 7, 2022, Danavation closed the final tranche of a non-brokered private placement through the issuance of 2,320,000 units at a price of $0.25 per unit, for aggregate gross proceeds of $580,000. Each unit is comprised of one common share and one-half of a common share purchase warrant, and in

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

aggregate the Company issued 2,320,000 shares and 1,160,000 warrants. The warrants are exercisable at a price of $0.35 and expire on October 7, 2024. In connection with the final tranche of the private placement, the Company paid cash commissions of $39,750, incurred other cash issuance costs of $26,394, and issued 25,500 broker warrants. Each broker warrant entitles the holder thereof to acquire one share at an exercise price of $0.25 and expires on October 7, 2024. The Company recorded $422,808 for the issuance of shares, $88,679 for the issuance of warrants, and $2,369 for the issuance of broker warrants based on a relative fair value calculation. The warrant and broker warrant values were determined using the Black-Scholes option pricing model, with the following assumptions: share price $0.28, dividend yield 0%, 4.05% annual risk-free interest rate, 87.19% volatility and a 2-year expected life.

• vii) On April 14, 2023, Danavation closed the first tranche of a non-brokered private placement through the issuance of 5,000,000 units at a price of $0.20 per unit, for aggregate gross proceeds of $1,000,000. Each unit is comprised of one common share and one common share purchase warrant, and in aggregate the Company issued 5,000,000 shares and 5,000,000 warrants. The warrants are exercisable at a price of $0.30 and expire on April 14, 2025. In connection with the private placement the Company incurred cash issuance costs of $50,000. The Company recorded $702,525 for the issuance of shares and $247,475 for the issuance of warrants based on a relative fair value calculation. The warrant value was determined using the Black-Scholes option pricing model, with the following assumptions: share price $0.19, dividend yield 0%, 3.81% annual risk-free interest rate, 85.51% volatility and a 2-year expected life.

• viii) On May 15, 2023, Danavation closed the final tranche of a non-brokered private placement through the issuance of 1,650,000 units at a price of $0.20 per unit, for aggregate gross proceeds of $330,000. Each unit is comprised of one common share and one common share purchase warrant, and in aggregate the Company issued 1,650,000 shares and 1,650,000 warrants. The warrants are exercisable at a price of $0.30 and expire on May 15, 2025. In connection with the private placement the Company incurred cash issuance costs of $25,000. The Company recorded $230,343 for the issuance of shares and $74,657 for the issuance of warrants based on a relative fair value calculation. The warrant value was determined using the Black-Scholes option pricing model, with the following assumptions: share price $0.17, dividend yield 0%, 3.80% annual risk-free interest rate, 85.63% volatility and a 2-year expected life.

c) Stock options

Under Danavation’s current Stock Option Plan (the “Plan”), its directors may approve the issuance of stock options to directors, officers, employees and consultants of the Company. The aggregate number of shares reserved for issuance under the Plan is up to 10% of the number of outstanding common shares. As at July 31, 2023, 8,200,000 stock options remained outstanding at exercise prices ranging from $0.35 to $0.45 per share. All options vest immediately, have a life of five years and have expiry dates ranging from January 2026 to April 2028.

Danavation measures compensation costs associated with stock-based compensation using the fair value method and the cost is recognized when the options vest. Expected volatilities are based on Danavation’s historical market data. The fair value of each option was determined at the grant date using the Black-Scholes option valuation model with the following weighted average assumptions:

==> picture [519 x 103] intentionally omitted <==

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

For the year ended July 31, 2023 2022
Share price $ 0.20 $0.23 - $0.39
Exercise price $ 0.35 $0.40 - $0.45
Risk-free annual interest rate 3.21% 1.22% - 3.16%
Expected annual dividend yield 0% 0%
Expected annualized volatility 86.60% 90.38% - 90.74%
Expected life of options 5 years 5 years
Forfeiture rate 0% 0%
----- End of picture text -----

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

The following table summarizes information about stock options outstanding as at July 31, 2023:

	Weighted average	Weighted average
		exerciseprice	Number of options
Outstanding, August 1, 2021	$	0.35	5,045,000
Granted		0.41	2,825,000
Cancelled or forfeited		0.37	(1,770,000)
Exercised		0.35	(400,000)
Outstanding, July 31, 2022		0.38	5,700,000
Granted		0.35	2,975,000
Cancelled or forfeited		0.39	(475,000)
Outstanding, July 31, 2023	$	0.37	8,200,000

Total options exercisable at July 31, 2023 were 8,200,000 with a remaining average life of 3.5 years (2022 – 5,700,000 and 3.9 years).

d) Warrants

Each warrant entitles the holder to purchase one common share of the Company. The following table summarizes information about warrants outstanding as at July 31, 2023:

	Weighted average	Weighted average
		exerciseprice	Number of options
Outstanding, August 1, 2021	$	0.35	8,499,400
Compensation warrants issued on long term debt (Note 10)		0.45	421,111
Issued in private placement (Note 11(a)(ii))		0.35	295,000
Exercised		0.25	(91,863)
Outstanding, July 31, 2022		0.38	9,123,648
Issued in private placement (Note 11(a)(iii))		0.35	1,560,000
Broker warrants issued in private placement (Note 11(b)(iii))		0.25	102,000
Issued on short-term debt conversion (Note 9)		0.35	1,500,000
Issued in private placement (Note 11(a)(v))		0.35	726,000
Broker warrants issued in private placement (Note 11(b)(v))		0.25	101,400
Issued in private placement (Note 11(a)(vi))		0.35	1,160,000
Broker warrants issued in private placement (Note 11(b)(vi))		0.25	25,500
Issued in private placement (Note 11(a)(vii))		0.30	5,000,000
Issued in private placement (Note 11(a)(viii))		0.30	1,650,000
Expired		0.35	(8,241,750)
Expired		0.25	(165,787)
Outstanding, July 31, 2023	$	0.29	12,541,011

The warrants have a remaining average life of 1.4 years (2022 – 0.4 years).

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

12. Office and general

For theyear ended July 31,		2023		2022
Office expenses	$	716,720	$	976,232
Consulting fees		294,075		59,920
Accounting and legal fees		237,299		216,227
Travel expenses		149,001		54,328
Trade show		105,826		116,639
Insurance fees		88,943		100,241
Utilities		34,395		31,898
Vehicle expenses		33,484		27,004
Foreign exchange		12,247		31,256
Bad debts expense(recovery)		(129,541)		81,228
Total office and general	$	1,542,450	$	1,694,973

13. Financing costs

For theyear ended July 31,		2023		2022
Interest expense	$	592,292	$	565,147
Accretion expense		221,605		192,514
Total financing costs	$	813,897	$	757,661

14. Financial instruments

The carrying value of cash, amounts receivable, accounts payable and accrued liabilities, and due to related parties approximate their fair values due to the relatively short-term maturities of these financial instruments.

The Company is exposed to the following risks by virtue of its activities:

Credit risk

Cash is invested with one major bank in Canada. Management believes that the financial institution that holds the Company's cash is financially sound and, accordingly, minimal credit risk exists with respect to this asset. The accounts receivable balance is due from a few retailers which have been assessed for expected credit losses and no significant allowance has been determined. The maximum credit risk is the sum of its cash and accounts receivable.

None of the Company's financial assets are secured by collateral or other credit enhancements. The Company determined that there were no financial assets that were impaired.

Liquidity risk

In the management of liquidity risk, the Company monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Company’s operations and mitigate the effects of fluctuations in cash flows.

Market risk

Foreign currency risk

The parent company’s functional currency is the Canadian dollar. At July 31, 2023, the Company has no long-term liabilities that are in US funds. The Company’s foreign exchange risk is minimal.

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

15. Related party balances and transactions

Due to related parties:

Danavation had the following amounts due to companies controlled by an officer of the Company:

As at July 31,		2023		2022
Dana Industries	$	571,553	$	350,829
K Iccir Holdings Inc.		160,645		150,955
Total due to related parties	$	732,198	$	501,784

Amounts due to Dana Industries are unsecured, non-interest bearing, have no specific terms for repayment and are due on demand. Amounts due to K Iccir Holdings Inc. are unsecured, bear interest at 8%, have no specific terms for repayment and are due on demand.

Key management and director compensation

The Company's key management personnel have authority and responsibility for overseeing, planning, directing and controlling the activities of the Company. Key management personnel include members of the Board of Directors and executive officers. Compensation of key management personnel may include short-term and long-term benefits as applicable, including salaries, bonuses, stock options or post-employment benefits. Compensation provided to current and key management are as follows:

For theyear ended July 31,		2023		2022
Short-term benefits	$	569,569	$	580,265
Long-term benefits		141,581		433,323
Total key management and director compensation	$	711,150	$	1,013,588

16. Capital management

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and to maintain a flexible capital structure which optimizes the cost of capital within a framework of acceptable risk. The Company considers its capital structure to include debt and shareholders’ equity.

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. The Company may issue new shares or debt, acquire or dispose of assets to maintain or adjust its capital structure.

The Company is dependent on expected business growth, changes in the business environment and capital markets as its source of operating capital. The Company is not subject to any externally imposed capital requirements. There were no changes to the Company's approach to capital management in the period.

17. Income taxes

Income tax expense varies from the amount that would be computed by applying the basic federal and provincial tax rates to income (loss) from operations before income taxes, shown as follows:

	July 31, 2023		July31,2022
Loss for the year	(4,555,604) $	$	(6,179,616)
Statutoryincome tax rate	26.50%		26.50%
Expected income tax recovery	(1,207,235)		(1,637,598)
Non-deductible items	251,932		280,803
Change in unrecognized deferred tax assets	955,303		1,356,795
Income tax expense	- $	$	-

Danavation Technologies Corp. Notes to Consolidated Financial Statements July 31, 2023, and 2022 (Expressed in Canadian Dollars)

The significant components of the Company's deferred tax assets are as follows:

Deferred income tax assets:		July 31, 2023		July31,2022
Non-capital losses available for future periods	$	(3,889,439)	$	(1,936,892)
Undeducted financing fees		(51,142)		(68,189)
Property and equipment		(11,860)		(23,792)
Unrecognized deferred income tax assets		3,952,440		2,028,873
Net deferred income tax assets	$	-	$	-

Deferred tax assets are recognized to the extent that it is probable that the taxable income will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized.

The company has the following Canadian non-capital losses available to reduce future years' federal and provincial taxable income, which expire as follows:

		Total
2040	$	1,977,078
2041		3,975,155
2042		5,119,980
2043		3,604,915
	$	14,677,128

18. Subsequent events

There were no subsequent events to report.