EastWest Bioscience Inc. — Interim / Quarterly Report 2021

Jan 15, 2021

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EASTWEST BIOSCIENCE INC.

Condensed Consolidated Interim Financial Statements

For the three months ended October 31, 2020

(Unaudited - Expressed in Canadian dollars)

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

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

The accompanying unaudited condensed consolidated interim financial statements of Eastwest Bioscience Inc. have been prepared by and are the responsibility of management. These condensed consolidated interim financial statements for the three months ended October 31, 2020 have not been reviewed or audited by the Company’s independent auditors.

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EASTWEST BIOSCIENCE INC.

Condensed Consolidated Interim Statements of Financial Position (Expressed in Canadian dollars)

	October 31, 2020	July 31,	2020
	(unaudited)	(audited)
	$	$
ASSETS
Current
Cash	28,964		107,084
Accounts receivable	69,622		89,000
Inventory (Note 5)	308,752		211,112
Due from related parties (Note 17)	224,451		222,922
Prepaid expenses and deposits	38,274		60,442
	670,063		690,560
Property, plant and equipment (Note 6)	2,212,476		2,241,981
Investment in joint ventures (Note 8)	26,432		26,434
Intangible assets(Note 7)	207,782		224,782
Total Assets	3,116,753		3,183,757
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
LIABILITIES
Current
Accounts payables and accrued liabilities (Note 9)	813,914		769,780
Deposits	71,883		53,118
Deferred revenue	51,643		62,300
Due to related parties (Note 17)	137,802		75,778
Promissory note payable – current portion (Note 10)	109,832		112,689
Mortgage payable (Note 11)	1,795,200		1,795,200
Loanspayable – currentportion(Note 12)	217,720		140,829
	3,197,994		3,009,694
Promissory note payable (Note 10)	207,360		218,242
Loanspayable(Note 12)	-		1,498
Total Liabilities	3,405,354		3,229,434
SHAREHOLDERS’ DEFICIENCY
Share capital (Note 13)	8,700,000		8,673,419
Shares to be issued	19,800		-
Share subscription received (receivable), net (Note 13)	(5,081)		14,719
Reserves (Note 13)	624,631		582,741
Deficit	(9,627,951)		(9,316,556)
	(288,601)		(45,677)
Total Liabilities and Shareholders’ Deficiency	3,116,753		3,183,757

Nature and Continuance of Operations (Note 1) Commitments (Note 13)

Approved and authorized for issue by the Board of Directors on January 15, 2021:

“Jeffrey Bierman” “Rodney Gelineau” Jeffrey Bierman, Director Rodney Gelineau, Director

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

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EASTWEST BIOSCIENCE INC.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss For the three months ended October 31, 2020 and 2019 (Unaudited - Expressed in Canadian dollars)

For the three months ended	**October 31, **	2020	October 31, 2019
	$		$
SALES
Distribution (Note 20)		111,328	339,610
Manufacturing (Note 20)		60,876	48,246
Total Sales		172,204	387,856
COST OF GOODS SOLD
Distribution		104,806	225,651
Manufacturing		15,063	30,446
Total Cost of Goods Sold		119,869	256,097
Gross Profit		52,335	131,759
Other OperatingRevenue(Note 14,20)		102,279	118,355
Gross Profit and Other Operating Revenue		154,614	250,114
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising and promotion		2,449	25,735
Amortization (Note 6)		29,505	33,289
Bank charges and short-term interest		8,052	3,735
Business development		190	41,796
Consulting fees (Note 17)		98,673	166,179
Insurance		2,227	4,627
Office and miscellaneous		24,621	45,983
Professional fees		50,987	28,002
Property taxes		13,307	6,978
Rent and utilities		9,729	59,609
Repairs and maintenance		2,614	1,798
Share-based payments (Note 13)		41,890	12,793
Transfer agent		6,254	12,260
Travel		11,133	24,746
Wages and benefits (Note 19)		143,561	190,940
Website,software and internet		4,419	5,232
Total General and Administrative Expenses		449,611	663,702
Loss before Other Income (Expenses)		(294,997)	(413,588)
OTHER INCOME (EXPENSES)
Accretion expense (Note 10, 12)		(9,790)	-
Interest expense and finance fees (Note 11)		(35,417)	(40,459)
Gain on settlement of debt (Note 13)		32,834	-
Gain on disposal of equipment		-	29,822
Share of loss of joint ventures (Note 8)		(2)	-
Impairment of intangible assets (Note 7)		(17,000)	-
Governmentgrants(Note 19)		12,977	-
Net Loss and Comprehensive Loss		(311,395)	(424,225)
Basic and diluted lossper share		(0.00)	(0.01)
Weighted average number of common shares outstanding		92,805,341	81,561,777

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

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EASTWEST BIOSCIENCE INC.

Condensed Consolidated Interim Statements of Cash Flows For the three months ended October 31, 2020 and 2019 (Unaudited - Expressed in Canadian dollars)

For the three months ended	October 31, 2020	October 31, 2019
	$	$
Cash flows used in operating activities
Net loss for the period	(311,395)	(424,225)
Amounts not affecting cash
Amortization	29,505	33,289
Share-based payments	41,890	12,793
Accretion expense	9,789	-
Gain on disposal of equipment	-	(29,822)
Gain on settlement of debt	(32,715)	-
Share of loss from joint ventures	2	-
Impairment of intangible assets	17,000	-
Changes in non-cash working capital items
Accounts receivable	19,378	207,411
Prepaid expenses and deposits	22,168	30,837
Inventory	(97,640)	161,962
Accounts payable and accrued liabilities	103,444	(93,433)
Deposits	18,765	-
Deferred Revenue	(10,657)	1,918
	(190,466)	(99,270)
Cash flows from financing activities
Repayment of promissory note	(20,000)	-
Proceeds from loans payable	71,851	-
Repayment to related parties	62,024	(7,273)
Advances from related parties	(1,529)	54,663
Loanpayments	-	(1,021)
	112,346	46,369
Cash flows from investing activities
Repayment from related parties	-	7,120
Advances to related parties	-	(16,850)
Deposits on long-term operating leases	-	324
Proceeds of disposition ofproperty, plant and equipment	-	43,173
	-	33,767
Net change in cash	(78,120)	(19,134)
Cash, beginning ofperiod	107,084	54,808
Cash, end ofperiod	28,964	35,674
Supplemental cash flow information
Cash paid for interest	35,200	32,458

Non-cash transactions (Note 18)

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

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EASTWEST BIOSCIENCE INC.

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity (Deficiency) For the three months ended October 31, 2020 and 2019 (Unaudited - Expressed in Canadian dollars)

			Share			Total
			Subscription			Shareholders'
	Number of		Received			Equity
	Shares Issued	Share Capital	(Receivable)	Reserves	Deficit	(Deficiency)
		$	$	$	$	$
Balance at July 31, 2019	81,561,777	8,279,908	(5,081)	508,979	(8,184,397)	599,409
Share-based payments	-	-	-	12,793	-	12,793
Net loss for theperiod	-	-	-	-	(424,225)	(424,225)
Balance at October 31, 2019	81,561,777	8,279,908	**(5,081) **	521,772	(8,608,622)	187,977
Balance at July 31, 2020	92,605,775	8,673,419	14,719	582,741	(9,316,556)	(45,677)
Shares issued pursuant to debt settlement	1,185,937	26,581	-	-	-	26,581
Share-based payments	-	-	-	41,890	-	41,890
Net loss for theperiod	-	-	-	-	(311,395)	(311,395)
Balance at October 31, 2020	93,791,712	8,700,000	14,719	624,631	(9,627,951)	(288,601)

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

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

1. NATURE AND CONTINUANCE OF OPERATIONS

These condensed consolidated interim financial statements represent the accounts of Eastwest Bioscience Inc. (the “Company” or “Eastwest”), formerly Harbour Star Capital Inc., incorporated under the Business Corporations Act of Alberta on October 24, 2014 and its wholly-owned subsidiaries. On November 30, 2018, the Company changed its name to Eastwest Bioscience Inc. Its main business activity is developing premium quality hemp nutritional products for people and pets. The Company commenced trading on the TSX Venture Exchange on July 25, 2018 under the trading symbol “EAST”. The head office and principal office of the Company is located at 260 Okanagan Avenue East, Penticton BC, V2A 3J7.

These condensed consolidated interim financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business. However, the Company had not yet achieved profitable operations. For the three months ended October 31, 2020, the Company incurred a net loss of $311,395 (October 31, 2019 - $424,225) and had an accumulated deficit of $9,627,951 (July 31, 2020 - $9,316,556) and expects to incur further losses in the development of its business, all of which casts significant doubt about the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is dependent upon its success in developing and marketing its wellness products, introducing new revenue channels using its US and Canadian assets, increasing manufacturing at its Canadian facility, expanding its manufacturing and distribution operations, and reduction of debt through paydowns, debt settled with share consideration, and negotiation of debt reductions, and the ability of the Company to obtain capital financing through continued support from its shareholders and B2B arrangements. Management believes the Company will be able to provide sufficient working capital from these measures to satisfy its liabilities and commitments as they become due for the foreseeable future. However, the outcome of these matters cannot be predicted. If the Company is unable to obtain adequate additional financing, management might be required to curtail the Company’s operations. These condensed consolidated interim financial statements do not contain any adjustments to the amounts and classifications of assets and liabilities, which might be necessary should the Company be unable to continue in business.

The recent outbreak of the coronavirus, also known as "COVID-19", continues to impact worldwide economic activity. The extent to which the coronavirus may impact the Company’s business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time. COVID-19 has had a negative impact on the consolidated operation which has resulted in decrease in sales compared to the prior year.

2. BASIS OF PRESENTATION

Statement of Compliance and Basis of Measurement

These condensed consolidated interim financial statements, including comparatives, have been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting. They do not include all of the information required for full annual audited financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended July 31, 2020, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

2. BASIS OF PRESENTATION (continued)

These condensed consolidated interim financial statements have been prepared using the accrual basis of accounting except for cash flow information and are based on historical costs except for certain financial instruments which are measured at fair value. These condensed consolidated interim financial statements are presented in Canadian dollars, which is also the Company’s functional currency.

These condensed consolidated interim financial statements were authorized for issue by the Company’s Board of Directors on January 15, 2021.

Principles of Consolidation

These condensed consolidated interim financial statements include the accounts of the Company and its whollyowned subsidiaries. The results of the subsidiaries will continue to be included in the condensed consolidated interim financial statements of the Company until the date that the Company’s control over the subsidiaries 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.

Details of the Company’s principal subsidiaries are as follows:

		October 31, 2020	July 31, 2020
		Interest	Interest
Name	Place of Incorporation	%	%
1011705 B.C. Ltd. (“705”)	British Columbia	100%	100%
Eastwest Science Ltd. (“EWS”)	British Columbia	100%	100%
EastWest Science USA Inc. (“EWUS”)	Kentucky, USA	100%	100%
1123568 B.C. Ltd. (“568”)	British Columbia	100%	100%
1123573 B.C. Ltd. (“573”)	British Columbia	100%	100%
Orchard Valley Naturals Inc. (“Valley”)	British Columbia	100%	100%
Orchard Vale Naturals Inc. (“OVN”)	British Columbia	100%	100%
102064495 Saskatchewan Inc. (“495”)	Saskatchewan	100%	100%
102064509 Saskatchewan Inc. (“509”)	Saskatchewan	100%	100%
102064512 Saskatchewan Inc.(“512”)	Saskatchewan	100%	100%

3. SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial data is based on accounting principles and practices consistent with those used in the preparation of the audited consolidated financial statements as at July 31, 2020. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended July 31, 2020.

Recently Adopted Accounting Standards

Accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

3. SIGNIFICANT ACCOUNTING POLICIES (continued)

Comparative Information

Certain comparative figures in the condensed consolidated interim statements of loss and comprehensive loss have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

4. USE OF ESTIMATES AND JUDGMENTS

The preparation of condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue 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. The estimates and underlying assumptions are reviewed on an ongoing basis. Actual results may differ from these estimates.

Matters that require management to make significant judgments, estimates and assumptions in determining carrying values include, but are not limited:

Going concern

The assumption that the Company is a going concern and will continue in operation for the foreseeable future and for at least one year. Management uses judgment in determining assumptions for cash flow projections, such as anticipated financing, anticipated sales and future commitments to assess the Company’s ability to continue as a going concern. The factors considered by management are disclosed in Note 1.

Impairment of intangible assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts exceed their recoverable amounts and also at the end of each reporting period. The Company considers both internal and external sources of information when making the assessment of whether there are indications of impairment for the Company’s intangible asset. External sources of information considered are changes in the Company’s economic, legal and regulatory environment which it does not control but affect the recoverability of its asset. Internal sources of information the Company considers include the manner in which intangible asset are being used or are expected to be used and indications of economic performance of the assets.

Valuation of inventory

The Company determines its allowance for inventory obsolescence based upon expected inventory turnover, inventory aging, the expiry dates of the products, and current and future expectations with respect to product offerings. Assumptions underlying the allowance for inventory obsolescence include future sales trends and offerings and the expected inventory requirements and inventory composition necessary to support these future sales offerings. The estimate of the Company’s allowance for inventory obsolescence could materially change from period to period due to changes in product offerings, consumer acceptance of the products and the expiry dates of the products.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

4. USE OF ESTIMATES AND JUDGMENTS (continued)

Useful life and recovery of long-lived assets

Management estimates the useful life of long-lived assets based on the period during which the assets are expected to be available for use. The amounts and timing of recorded expenses for depreciation for any period are affected by these estimated useful lives. The estimates are reviewed at least annually and are updated if expectations change as a result of technical or commercial obsolescence, and legal or other limits to use. It is possible that changes in these factors may cause significant changes in the estimated useful lives of the Company’s long-lived assets in the future.

The assessment of any impairment of long-lived assets is dependent upon estimates of recoverable amounts that takes into account factors such as economic and market conditions, timing of cash flows, the useful lives of assets and their related salvage values.

Share-based payments

The Company measures the cost of equity‐settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share‐based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the stock option, volatility and dividend yield and making assumptions about them.

5. INVENTORY

	October 31, 2020	July 31, 2020
	$	$
Raw materials	155,800	41,638
Finishedgoods	152,952	169,474
	308,752	211,112

As at October 31, 2020, inventory with a carrying value totaling $137,944 (July 31, 2020 - $137,944) is used as collateral for the promissory note payable (Note 10).

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EASTWEST BIOSCIENCE INC.

Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

6. PROPERTY, PLANT, AND EQUIPMENT

Cost	Accumulated Amortization	Carrying Value
Balance, July 31, 2019 Additions Disposals Balance, July 31, 2020	Balance, July 31, 2019 Amortization Disposals Balance, July 31, 2020	At July 31, 2020
$ $ $ $ Land 435,870 - - 435,870 Buildings 1,815,116 1,252 - 1,816,368 Leasehold improvements 10,940 - (10,940) - Computers 33,232 - (1,368) 31,864 Furniture 60,824 - (39,681) 21,183 Manufacturing equipment 127,786 100,309 (31,071) 197,024 Heavy equipment 93,630 - (86,930) 6,700 Vehicle 21,496 - - 21,496	$ $ $ $ - - - - (133,832) (66,286) - (200,118) (1,396) (477) 1,873 - (7,571) (6,429) 2,017 (11,983) (7,678) (8,656) 11,157 (5,177) (43,555) (34,974) 21,123 (57,406) (49,760) (6,091) 53,138 (2,713) (7,333) (3,794) - (11,127)	$ 435,870 1,616,250 - 19,881 16,006 139,618 3,987 10,369
2,598,894 101,561 (169,950) 2,530,505	(251,125) (126,707) 89,308 (288,524)	2,241,981

Cost	Accumulated Amortization	Carrying Value
Balance, July 31, 2020 Additions Disposals Balance, October 31, 2020	Balance, July 31, 2020 Amortization Disposals Balance, October 31, 2020	At October 31, 2020
$ $ $ $ Land 435,870 - - 435,870 Buildings 1,816,368 - - 1,816,368 Leasehold improvements - - - - Computers 31,864 - - 31,864 Furniture 21,183 - - 21,183 Manufacturing equipment 197,024 - - 197,024 Heavy equipment 6,700 - - 6,700 Vehicle 21,496 - - 21,496	$ $ $ $ - - - - (200,118) (16,163) - (216,281) - - - - (11,983) (994) - (12,977) (5,177) (800) - (5,977) (57,406) (10,471) - (67,877) (2,713) (299) - (3,012) (11,127) (778) - (11,905)	$ 435,870 1,600,087 - 18,887 15,206 129,147 3,688 9,591
2,530,505 - - 2,530,505	(288,524) (29,505) - (318,029)	2,212,476

As at October 31, 2020, property, plant and equipment with a carrying value of $35,739 (July 31, 2020 - $35,739) is used as collateral for the promissory note payable (Note 10).

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

7. INTANGIBLE ASSETS

	October 31, 2020	July 31, 2020
	$	$
Trademarks	60,000	60,000
Natural Product Numbers(“NPNs”)	147,782	164,782
	207,782	224,782

Through the acquisition of 495, 509 and 512 completed on November 30, 2018, the Company acquired twelve trademarks for the Sangster’s and Sangster’s Health Centers brand and design, as well as certain product brands, brand names and marketing slogans. As at October 31, 2020, these trademarks are used as collateral for the promissory note payable (Note 10).

Included in the NPNs, there were 125 natural product numbers recognized at the acquired cost of $133,702 in total as a result of the acquisition of remaining net asset of 573 (Note 8).

During the three months ended October 31, 2020, the Company recorded an impairment of $17,000 related to the NPNs in the statement of loss.

8. INVESTMENT IN JOINT VENTURES

Investment in joint ventures is comprised of the following:

	573	Valley	Hand Sanitizer	Total
			Solution
	$	$	$	$
Balance, July 31, 2019	90,395	-	-	90,990
Investment	-	-	25,756	25,756
Share of net income (loss)	(23,745)	-	678	(23,067)
Reversal of impairment	-	21,373	-	21,373
	66,650	21,373	26,434	114,457
Transition from equity method to
consolidation method	(66,650)	(21,373)	-	(88,023)
Balance, July 31, 2020	-	-	26,434	26,434
Share of net loss	-	-	(2)	(2)
Balance,October 31,2020	-	-	26,432	26,432

573 and Valley

On February 11, 2020, the Company acquired the remaining 50% of 573 and Valley. The previously held 50% interest in Valley and 573 from acquisition on September 8, 2017 was remeasured at fair value due to the change in control in these entities. As a result, the Company recognized a $21,373 reversal on the impairment previously recorded on the investment in Valley, and an impairment of $23,745 on the investment of 573. In addition, the Company now accounts for Valley and 573 as wholly-owned subsidiaries using the consolidation method.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

8. INVESTMENT IN JOINT VENTURES (continued)

573 and Valley (continued)

The operating results of Valley and 573 prior to the acquisition of remaining interest by the Company are as follows:

	573		Valley	**February **	11, 2020
	$		$	$
Revenue		-	-		-
Expenses		-	(20,548)		(20,548)
Others		(45,967)	(33,836)		(79,803)
Net loss		(45,967)	(54,384)	(100,351)

Hand Sanitizer Solution

On May 20, 2020, the Company entered into a cooperation agreement with Thera-Plantes Inc. to produce hand sanitizer solution for wholesale and distribution (“Hand Sanitizer Solution”). Pursuant to the cooperation agreement, both parties are entitled to joint control over the operating arrangement and a 50% interest for each in the net assets. The arrangement is accounted for under IFRS 11 and IAS 28 as a joint venture using the equity method.

The joint venture of Hand Sanitizer Solution had the following operating results.

For the three months ended	October 31, 2020	October 31, 2019
	$	$
Revenue	147	-
Expenses	(151)	-
Net loss	(4)	-

During the three months ended October 31, 2020, 50% of the net loss was recognized by decreasing the carrying value of the investment in the joint venture.

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	October	31, 2020	**July **	31, 2020
	$		$
Accounts payable		584,632		549,945
Accrued liabilities		216,719		203,588
GSTpayable		12,563		16,247
Total		813,914		769,780

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

10. PROMISSORY NOTE PAYABLE

	October 31, 2020	July 31, 2020
	$	$
Balance, beginning of the period	330,931	300,000
Promissory note reclassified from other liabilities	-	130,000
Gain on settlement of debt	-	(48,031)
Repayments of promissory note	(20,000)	(70,000)
Amount representingaccretion expense	6,261	18,962
Balance, end of the period	317,192	330,931
Promissorynotepayable – currentportion	(109,832)	(112,689)
Promissorynotepayable – non-currentportion	207,360	218,242

Pursuant to a forbearance and settlement agreement executed on January 29, 2020, the Company and the seller of 495, 509 and 512 (“Seller”) agreed that:

• (i) Total debt and accrued interest owing to the Seller was reduced from $671,829 to $430,000, payable in cash;

• (ii) The legal and associated costs of the Seller totaling $55,000 are securitized by the $430,000 promissory note payable; and

• (iii) Share consideration of $125,000 was no longer payable.

The $430,000 payable in cash was secured by a promissory note, payable on a monthly basis in installments of $10,000 per month commencing January 22, 2020 for a period of two years, with any remaining balance due in a balloon payment on December 15, 2021. The Company also committed to divesting of its three corporate stores and using the net proceeds to pay a lump sum payment to the Seller to accelerate the payment for the promissory notes.

The promissory note is non-interest bearing (2019 – 8% per annum), secured by a first charge on by a general security agreement over the accounts receivable of $63,721, inventory (Note 6) and property, plant and equipment (Note 7) and intangible assets (note 8) of 495, 509 and 512 the subsidiaries of the Company, plus a $200,000 second mortgage charge on the real estate property owned by 568 another subsidiary of the Company.

The promissory note was accounted for using the amortized cost method discounted at the effective interest rate of 8%, with the accretion portion of $48,031 recorded as a gain on settlement of debt during the year ended July 31, 2020. During the three months ended October 31, 2020, payments of $20,000 were made against the promissory note and $6,261 accretion expense was recognized, resulting in a carrying amount of the promissory note at $317,192 as at October 31, 2020.

The minimum repayments for the promissory note over the next two fiscal years including interest are as follows:

ollows:
			$
Year ended July	31,	2021	100,000
Year ended July	31,	2022	240,000
			340,000

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

11. MORTGAGE PAYABLE

A summary of the mortgage payable for the three months ended October 31, 2020 and the year ended July 31, 2020 is as follows:

020 is as follows:
	October 31, 2020	July 31, 2020
	$	$
Balance, beginning of the period	1,795,200	1,600,000
Addition – mortgage payable	-	160,000
Addition – bridge loan	-	60,000
Interest expense	35,200	134,400
Repayments	(35,200)	(159,200)
Balance,endingof theperiod	1,795,200	1,795,200

On January 31, 2019, the Company obtained a $1,600,000 mortgage from New City Financial Group (“New City”). On February 1, 2020, the Company renewed the mortgage and was advanced an additional $160,000 under the terms of the renewal. The mortgage bears interest at 4.0% over royal bank prime interest subject to a minimum rate of 8.0% per annum. The loan requires only monthly interest payments and is secured by a first charge on the property of the Company. All amounts outstanding under the agreement shall be repaid on demand by the lender following an event of default of monthly interest payments. During the year ended July 31, 2020, New City allowed the Company to defer interest payments of $35,200 and add the amount to the principal of the loan which is due on January 31, 2021. The Company resumed interest payments to New City from July 2020.

12. LOANS PAYABLE

	October 31, 2020	**July 31, **	2020
	$	$
Balance, beginning of the period	142,327		36,287
Addition: CEBA loan	67,023	130,540
Addition: CECRA loan	4,828		9,523
Accretion expense	3,528		2,264
Repayment	-	(37,330)
Interest expense	14		1,043
Balance, ending of the period	217,720	142,327
Loanspayable - currentportion	(217,720)	(140,829)
Loanspayable	-		1,498

CEBA Loan:

In April and July 2020, the Company received loans of $160,000 under the Canada Emergency Business Account ("CEBA") program funded by the Government of Canada, of which $120,000 are non-forgivable and $40,000 are forgivable if the non-forgivable $120,000 is repaid prior to December 31, 2022. The CEBA loans are non-interest bearing, subject to restriction on disbursements for non-deferrable expenditures of the Company, and are repayable at any time without penalty, but amounts repaid cannot be readvanced.

The CEBA loans are initially due on December 31, 2020, and if not repaid by December 31, 2020, the loans will convert to non-interest-bearing term loans with a maturity date of December 31, 2022. If the term loans are not repaid by December 31, 2022, the term loans will automatically renew with a maturity date of December 31, 2025, subject to interest at 5% per annum, with payments of interest due on a monthly basis. In the event of default, the loan payable becomes due immediately.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

12. LOANS PAYABLE (continued)

CEBA Loan (continued):

The Company expects to utilize the conversion option which will extend the due date for these payments to December 31, 2022. The loans were accounted for using the amortized cost method discounted at an effective interest rate of 8%, with the discount portion recorded as government grants. (Note 19).

CECRA Loan:

In July 2020, the Company received a forgivable loan of $9,894 under the Canada Emergency Commercial Rent Assistance (“CECRA”) program. The Company abated 100% of gross rents due for April to June 2020 for CECRAeligible tenants. In exchange of the abatements granted, the Company received a forgivable loan amounting to 50% of gross rents due for the period, resulting in net abatements equaling to 25% of the gross rent. The principal amount of the CECRA loan will be forgiven if certain conditions are met. The loans are repayable at any time without penalty, but amounts repaid cannot be readvanced. If the loans are not forgiven and are not repaid by December 31, 2020, the CECRA loans will be due and will be subject to interest at 5% per annum, with payments of interest due on a monthly basis.

In August and September 2020, the Company received forgivable loans of $4,947 in total under CECRA. The Company abated 100% of gross rents due for August and September 2020 for CECRA-eligible tenants. In exchange of the abatements granted, the Company received a forgivable loan amounting to 50% of gross rents due for the period, resulting in net abatements equaling to 25% of the gross rent. The principal amount of the CECRA loan will be forgiven if certain conditions are met. The loans are repayable at any time without penalty, but amounts repaid cannot be readvanced. If the loans are not forgiven and are not repaid by December 31, 2020, the CECRA loans will be due and will be subject to interest at 5% per annum, with payments of interest due on a monthly basis.

The Company expects to utilize the conversion option which will extend the due date for these payments to December 31, 2022. The loans were accounted for using the amortized cost method discounted at an effective interest rate of 8%, with the discount portion recorded as government grants. (Note 19).

13. SHARE CAPITAL

• a) Authorized: Unlimited common shares without par value

• b) Issued and Outstanding:

During the three months ended October 31, 2020:

On September 30, 2020, the Company issued 572,470 common shares to settle debt of $28,623. The shares issued had a fair value of $14,312 and a gain on the settlement of debt of $14,311 related to the transaction was recorded on the statement of loss.

On October 30, 2020, the Company issued 613,467 common shares to settle debt of $30,673. The shares issued had a fair value of $12,269 and a gain on the settlement of debt of $18,404 related to the transaction was recorded on the statement of loss.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

13. SHARE CAPITAL (continued)

c) Stock Options

The Company has adopted an incentive stock option plan (the "Option Plan") which provides that the Board of Directors of the Company may from time to time, in its discretion, and in accordance with the applicable stock exchange’s requirements, grant to directors, officers, employees and consultants of the Company, non-transferable options to purchase common shares. Pursuant to the Option Plan, the number of common shares reserved for issuance shall not exceed 10% of the issued and outstanding common shares of the Company. Options granted under the Option Plan can have a maximum exercise term of 5 years from the date of grant. Vesting terms will be determined at the time of grant by the Board of Directors.

Stock options transactions during the three months ended October 31, 2020 and the year ended July 31, 2020 are as follows:

	Number of	Weighted Average
	Options	Exercise Price
Balance outstanding, July 31, 2019	4,442,696	$0.15
Forfeited/Cancelled	(345,000)	$0.15
Granted	5,020,000	$0.06
Balance outstanding, July 31, 2020 and October 31, 2020	9,117,696	$0.10
Balance outstanding, October 31, 2020	9,117,696	$0.10
Exercisable at October 31, 2020	4,915,197	$0.12

As at October 31, 2020, the Company had the following stock options outstanding:

		Outstanding	Exercisable
		Number of	Number of
Expiry Date	Exercise Price	Options	Options
February 28, 2022	$0.10	107,696	107,696
June 15, 2023	$0.05	4,707,500	1,569,167
July 16, 2023	$0.15	825,000	550,000
August 31, 2023	$0.15	300,000	300,000
June 15, 2024	$0.15	2,865,000	2,388,334
June 14,2025	$0.15	312,500	-
Total		9,117,696	4,915,197
Weighted average remaininglife of options outstandingas at October 31,2020			3.00
Weighted average remaininglife of options outstandingas at July31,2020			3.26

The weighted average fair value of the options issued was estimated at the grant date using the BlackScholes option pricing model with the following assumptions:

	October 31, 2020	July 31, 2020
Weighted average expected dividend yield	n/a	0%
Weighted average expected volatility	n/a	122%
Weighted average risk-free interest rate	n/a	0.54%
Weighted average expected term (in years)	n/a	3.20
Weighted average marketprice	n/a	$0.04

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

13. SHARE CAPITAL (CONTINUED)

d) Agent’s Warrants:

Agent’s warrant transactions for the three months ended October 31, 2020 and the year ended July 31, 2020 are as follows:

Number of	Warrants	Weighted Average Exercise Price
Balance, July 31, 2019	88,401	$0.21
Expired	(38,410)	$0.22
Balance,July31,2020 and October 31,2020	49,991	$0.20
Weighted average remaininglife of warrants outstandingas at October 31,2020		0.41
Weighted average remaininglife of warrants outstandingas at July31,2020		0.67

The following agent’s warrants are outstanding as at October 31, 2020:

Expiry	Date	Exercise Price	Number of Shares	Remaining Contractual Life(Years)
March	31,2021	$0.20	49,991	0.41

e) Share Purchase Warrants:

Share purchase warrant transactions for the three months ended October 31, 2020 and the year ended July 31, 2020 are as follows:

	Number of Warrants	Weighted Average Exercise Price
Balance, July 31, 2019	2,470,541	$0.36
Expired	(1,328,955)	$0.50
Balance,July31,2020 and October 31,2020	1,141,586	$0.20
Weighted average remaininglife of warrants outstandingas at October 31,2020		0.41
Weighted average remaininglife of warrants outstandingas at July31,2020		0.67

The following share purchase warrants are outstanding as at October 31, 2020:

Expiry	Date	Exercise Price	Number of Shares	Remaining Contractual Life (Years)
March	31,2021	$0.20	1,141,586	0.41

f) Escrow shares:

As at October 31, 2020, 14,107,000 (July 31, 2020 – 14,107,000) shares were subject to escrow conditions. Of the shares remaining in escrow, 5,473,500 will be released on January 23, 2021 and 9,533,500 will be released on July 23, 2021.

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Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

EASTWEST BIOSCIENCE INC.

14. OTHER OPERATING REVENUE

For the three months ended	October 31, 2020	October 31, 2019
	$	$
Sales royalties	67,981	81,375
Advertising royalties	30,047	36,980
Rental income	4,251	-
	102,279	118,355

15. CAPITAL DISCLOSURES

The Company’s objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other stakeholders. The Company considers the items included in shareholders’ equity and cash as capital. The Company manages the capital structure and makes adjustments in response to changes in economic conditions and the risk characteristics of the underlying assets. The Company’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to fund the development of and promotion of its nutritional hemp products. To secure the additional capital necessary to pursue these plans, the Company intends to raise additional funds through the equity or debt financing. The Company is not subject to any capital requirements imposed by a regulator.

16. FINANCIAL INSTRUMENTS

The Company’s financial instruments are exposed to certain financial risks which are in common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments. The following note describes the Company’s objectives, policies and processes for managing those risks and the methods used to measure them.

General Objectives, Policies and Processes

The Board of Directors have overall responsibility for the determination of the Company’s risk management objectives and policies and have delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance function. The Board of Directors are kept apprised on the process and would monitor the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board of Directors is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out below.

Rick Factors

The risk exposures and the impact on the Company’s financial instruments are summarized below.

Credit Risk

The Company’s credit risk was primarily attributable to bank balances. The Company limits its credit exposure on cash held in bank accounts firstly by holding its key transactional bank accounts with banks of international financial institutions. Management believes that the credit risk to be minimal.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

16. FINANCIAL INSTRUMENTS (continued)

Liquidity Risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at October 31, 2020, the Company had cash balance of $28,964 (July 31, 2020 - $107,084), total current assets of $670,063 (July 31, 2020 - $690,560) and current liabilities of $3,197,994 (July 31, 2020 - $3,009,694). Current liabilities include $2,012,920 in financing with renewable, extendable or forgivable terms. A substantial amount of the Company’s total financial liabilities has contractual maturities of less than 365 days, and are subject to normal trade terms.

Management has undertaken and is considering different alternatives to secure adequate debt or equity financing to meet the Company’s short term and long-term cash requirements. The Company will continue to pursue non-dilutive B2B financing options with shared working capital requirements and B2B based sales programs in both Canada and the US to mitigate its liquidity risk.

Interest Risk

Interest risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in market risk. At present the Company’s sensitivity to interest rates is immaterial as the mortgage is subject to a maximum interest rate of 8% per annum, which is currently being applied to the mortgage.

Currency Risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company holds no financial instruments that are denominated in a currency other than Canadian dollar. Therefore, the Company’s exposure to currency risk is minimal.

Fair value

The Company has classified fair value measurements of its financial instruments using a fair value hierarchy that reflects the significance of inputs used in making the measurements as follows:

• Level 1: Valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: Valuations based on directly or indirectly observable inputs in active markets for similar assets or liabilities, other than Level 1 prices, such as quoted interest or currency exchange rates; and

• Level 3: Valuations based on significant inputs that are not derived from observable market data, such as discounted cash flow methodologies based on internal cash flow forecasts.

As at October 31, 2020, the fair values of financial instruments measured on a recurring basis include cash, determined based on level 1 input and consisting of quoted prices in active markets for identical assets. The fair values of other financial instruments, which include accounts receivable, accounts payable and accrued liabilities, amounts due to or from related parties, other liabilities and mortgage payable approximate their carrying values due to the relatively short-term maturity of these instruments. The promissory note payable and loans payable are non-interest bearing and are accounted for at amortized cost using the effective interest method.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

17. DUE TO/FROM RELATED PARTIES AND RELATED PARTY TRANSACTIONS

Name	Relationship	October 31, 2020	**July 31, **	2020
		$	$
Due from related parties
1020650 BC LTD	Controlled by CEO	1,280		-
0999650 BC Ltd.	Controlled by CEO	184		-
Azema Sciences Inc. (“Azema”)	Controlled by common officers and	132,489	175,088
	directors
Continental Agro Trade Corporation	Controlled by common former director	23,995	23,995
Haltain Developments Inc.	Controlled by former director	23,794	23,839
KYBG Inc.	Controlled by common officers and directors	38,593		-
Rodney Gelineau	CEO of the Company	4,116		-
		224,451	222,922

Amounts due from related parties are non-interest bearing, unsecured and are due on demand.

Name	Relationship	October 31, 2020	**July 31, **	2020
		$	$
Due to related parties
Azema	Controlled by common officers and directors	850		-
Rodney Gelineau	CEO of the Company	870		6,923
0999650 B.C. Ltd.	Controlled by CEO	69,170	28,601
10620771 BC Ltd.	Controlled by CEO	-		6,824
1175218 BC Ltd.	Controlled by COO	33,438	12,875
Marjerrison Financial Management	Controlled by CFO	8,303	19,302
Ira Sudargo	Related to COO	1,201		1,201
Sigma Penta International	Controlled by COO	1,642		52
Due to Joint Venture	Equityaccountedjoint venture	22,328		-
		137,802	75,778

Amounts due to related parties are non-interest bearing, unsecured, and are due on demand, except for the amount due to Ira Sudargo which is subject to the same conditions but bears interest at 15% per annum.

Name	Relationship	**October 31, **	2020	July 31, 2020
		$		$
Consulting fees (recoveries)
0999650 B.C. Ltd.	Controlled by CEO	26,250		103,500
1175218 BC Ltd.	COO of the Company	26,250		71,552
Azema	Controlled by common officers and		-	43,333
	directors
Marjerrison Financial Management	Controlled by CFO	10,000		(3,333)
Nathan Lidder	Director of the Company		-	9,524
VigroupData Consulting	Controlled byformer IR Manager		-	(1,050)
		62,500		223,526

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

17. DUE TO/FROM RELATED PARTIES AND RELATED PARTY TRANSACTIONS (continued)

The Company incurred the following expenses and expense recoveries with related parties during the three months ended October 31, 2020 and 2019:

During the three months ended October 31, 2020, the Company charged Azema $2,625 (October 31, 2019 – $nil) for consulting fees and travel expense recoveries. The amounts recoverable from Azema have been recorded as a reduction against the related expenditures.

During the three months ended October 31, 2020, the Company purchased $nil (July 31, 2020 – $27,820) inventory from Azema, of which $nil (July 31, 2020 – $1,070) was used for research and development on a new product line. As at October 31, 2020, the Company has $14,980 (July 31, 2020 – $14,980) on deposit with Azema for inventory purchase which is recorded in prepaid expenses and deposits.

The above transactions are in the normal course of operations and are measured at the amounts of considerations established and agreed to by the related parties.

18. NON-CASH TRANSACTIONS

Investing and financing activities that do not have a direct impact on current cash flows are excluded from the consolidated statements of cash flows. The following transactions have been excluded:

For the three months ended	October	31, 2020	October 31, 2019
	$		$
Shares issued to settle debts(Note 13)		26,581	-

19. GOVERNMENT GRANTS

During the three months ended October 31, 2020, $12,977 (2019 – $nil) related to the interest-free CEBA loans discounted using effective interest rate method (Note 11) was recognized as government grants received in lieu.

During the three months ended October 31, 2020, wages and benefits expenses are presented net of $84,448 (2019 – $nil) in subsidies received from the Federal Canada Emergency Wage Subsidy program.

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EASTWEST BIOSCIENCE INC. Notes to the Condensed Consolidated Interim Financial Statements For the three months ended October 31, 2020 - (Unaudited Expressed in Canadian dollars)

20. SEGMENTED INFORMATION

During the three months ended October 31, 2020, the Company had reportable operating segments including (1) corporate, (2) manufacturing, (3) development, marketing and distribution, and (4) retailing for nutraceutical, sports nutrition, food, and body care products, as well as (5) property management.

The operating results and summarized financial position of the Company’s operating segments are as follows:

	Corporate	Retail	Distribution & Franchise	Property Management	Manufacturing	Total
	$	$	$	$	$	$
For the three months ended
October 31, 2020
Revenue	-	7,958	202,649	4,000	60,876	275,483
Net loss	(55,205)	(57,394)	(64,631)	(62,548)	(71,617)	(311,395)
For the three months ended
October 31, 2019
Revenue	-	163,188	294,777	-	48,246	506,211
Net loss	(131,512)	(90,326)	(128,279)	(15,284)	(58,824)	(424,225)

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