EXMceuticals Inc. — Interim / Quarterly Report 2021

Mar 1, 2021

EXMCEUTICALS INC.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019

(Expressed in Canadian Dollars)

(Unaudited – Prepared by Management)

EXMCEUTICALS INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

Notes December 31, 2020	June 30, 2020
ASSETS Current Cash $ 200,589 Prepaids and deposits 16,072 Receivables 230,427 Share subscriptions receivable 6 1,255	$ 264,752 10,899 82,078 1,255
Total current assets 448,343 Non-current Property and equipment 4 646,207 Right of use asset 36,907 Due from related parties 7 -	358,984 801,326 44,816 46,520
Total assets $ 1,131,457	$ 1,251,646
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY) Current liabilities Accounts payable and accrued liabilities 7 $ 1,291,807 Due to related parties 7 620,198 Obligation to issue shares 5 - Lease liability 15,634 Loans payable 5, 7 577,325	$ 2,856,004 713,990 130,595 15,634 4,577,185
Total current liabilities 2,504,964 Long-term liabilities Lease liability 26,830 Loan payable 5 -	8,293,408 33,073 276,951
Total long-term liabilities 26,830	310,024
Total liabilities 2,531,794	8,603,432
Shareholders’ equity (deficiency) Share capital 6 19,920,752 Commitment to issue shares 6 1,221,062 Equity reserves 6 2,045,222 Shares subscribed 6 - Accumulated other comprehensive loss 19,738 Deficit (24,607,111)	12,183,334 591,680 928,604 94,500 (5,871) (20,676,417)
Shareholders’ equity (deficiency) before non-controlling interest (1,400,337) Non-controlling interest 8 -	(6,884,170) (467,616)
Total shareholders’equity (deficiency) (1,400,337)	(7,351,786)
Total liabilities and shareholders’ equity (deficiency) $ 1,131,457	$ 1,251,646

Nature and continuance of operations (Note 1) Contingency (Note 11)

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

EXMCEUTICALS INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

			Three Months Ended	Three Months Ended	Three Months Ended		Six Months Ended	Six Months Ended	Six Months Ended	Six Months Ended
			December 31,				December		31,
	Notes		2020		2019		2020			2019
EXPENSES
Accounting and audit			$ 18,599	$	184,869	$	18,599	$		221,383
Advertising and promotion			14,063		132,874		151,245			194,372
Consulting fees	7		409,384		556,685		915,257		1,321,125
Depreciation	4		35,695		64,216		71,324			64,216
Foreign exchange loss			(16)		7,910		32			18,691
Interest expense	5, 7		25,751		165,681		401,607			198,545
Legal			23,476		85,929		27,205			63,757
Office and administration			5,901		22,404		13,399			63,757
Operating expenses (recovery)			(32,054)		98,292		(18,371)			600,542
Professional fees			-		-		-			197,981
Project development costs			-		39,594		-			39,594
Share-based compensation	6		1,122,568		-		2,088,613			-
Transfer agent and filing fees			22,399		10,435		27,824			14,562
Travel			(9,913)		87,268		15,758			125,745
Wages and benefits			11,417		405,587		164,293			569,948
Loss before other items			(1,647,270)	(1,861,744)			(3,876,785)		(3,630,461)
Other items
Gain on settlement of loans payable	7		-		108,000		-			108,000
Loss on disposal of subsidiary	3, 10		(53,909)		-		(53,909)			-
Net loss for the period		$(1,701,179)		$ (1,753,744)		$(3,930,694)		$(3,522,461)
Other comprehensive loss
Currency translation adjustment			49,023		(2,891)		47,723			782
Net comprehensive loss for the period		$	(1,652,156)	$ (1,750,853)		$	(3,882,971)	$	(3,521,679)
Net loss attributable to:
Non-controlling interest		$	-	$	(166,113)	$	-	$	(389,893)
Shareholders of the Company			(1,701,179)	(1,587,631)			(3,930,694)		(3,132,568)
		$	(1,701,179)	$ (1,753,744)		$	(3,930,694)	$	(3,522,461)
Loss per common share– basic and diluted		$	(0.02)	$	(0.04)	$	(0.06)	$		(0.09)
Weighted average number of common shares outstanding– basic and diluted			75,167,510		36,669,310		69,072,019		36,600,042

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

EXMCEUTICALS INC. CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

Six months ended December 31, 2020 2019	Six months ended December 31, 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES Loss for the six months $ (3,930,694) Items not involving cash: Accretion of discount on loans payable 49,534 Accrued interest expense 375,856 Depreciation 79,233 Foreign exchange - Gain on settlement of loans payable - Loss on sale of subsidiary 53,909 Share-based compensation 2,088,613 Shares issued for services 145,999 Changes in non-cash working capital: Receivables (160,135) Prepaids and deposits (5,173) Share subscriptions receivable - Due to related parties 412,148 Accountspayable and accrued liabilities (102,794)	$ (3,522,461) - 191,525 64,216 - (108,000) - - - (72,888) (27,117) 5,000 567,453 792,508
Net cash used in operating activities (993,504)	(2,109,764)
CASH FLOWS FROM INVESTING ACTIVITIES Acquisition ofpropertyand equipment (25,139)	(446,455)
Net cash used in investing activities (25,139)	(446,455)
CASH FLOWS FROM FINANCING ACTIVITIES Issuance of shares 948,000 Share issuance costs (31,727) Warrants exercised - Proceeds from loan payable - Proceeds from related party - Leasepayments (9,516)	- - 80,700 820,000 2,135,879 -
Net cash provided by financing activities 906,757	3,036,579
Effect of currencytranslation adjustment 47,723	782
Change in cash (64,163) Cash, beginning of six months 264,752	481,142 139,865
Cash, end of six months $ 200,589	$ 621,007

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

EXMCEUTICALS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY) (Unaudited – Prepared by Management)

(Expressed in Canadian Dollars)

	Share Capital	Equity Reserves Accumulated Other Comprehensive Loss Deficit Amount Commitment to Issue Shares Shares Subscribed	Total Non-controlling Interest
	Number
Balance, June 30, 2019 39,230,186 $ 11,491,843 $ - $ 6,500 $ 107,965 $ (4,453) $ (11,075,366) $ (140,148) $ 386,341 Warrants exercised 163,570 80,700 - - - - - - 80,700 Shares issued for debt 275,554 358,058 - - - - - - 358,058 Fair value of special warrants (Note 7) - - - - 551,541 - - - 551,541 Loss and comprehensive loss - - - - - 782 (3,132,568) (389,893) (3,521,679)
Balance, December 31, 2019 39,669,310 11,930,601 - 6,500 659,506 (3,671) (14,207,934) (530,041) (2,145,039)
Balance, June 30, 2020 40,520,501 $ 12,183,334 $ 591,680 $ 94,500 $ 928,604 $ (5,871) $ (20,676,417) $ (467,616) $ (7,351,786) Shares issued for cash (Note 8) 5,180,000 1,036,000 - (88,000) - - - - 948,000 Shares issued for debt (Note 8) 27,165,016 5,983,223 - - - - - - 5,983,223 Shares issued for debt bonus (Note 8) 1,576,892 436,270 - - (393,566) - - - 42,704 Shares issued for debt interest (Note 8) 701,461 146,873 - - - - - - 146,873 Shares issued for services (Note 8) 462,954 145,999 - - - - - - 145,999 Shares issued for finders’ fees (Note 8) 71,400 14,280 - - - - - - 14,280 Shares subscribed (Note 8) 7,737 6,500 - (6,500) - - - - - Shares returned to treasury (Note 8) (518,451) - - - - - - - - Shares issuance costs (Note 8) - (31,727) - - - - - - (31,727) Commitment to issue shares (Note 8) - - 629,382 - - - - 629,382 Fair value of special warrants (Note 7) - - - - 35,533 - - - 35,533 Fair value of finders’ warrants (Note 8) - - - - 15,420 - - - 15,420 Share-based compensation (Note 8) - - - - 1,459,231 - - - 1,459,231 Loss and comprehensive loss - - - - - 47,723 (3,930,694) - (3,882,971) Disposal of subsidiary (Notes 3,10) - - - - - (22,114) - 467,616 445,502
Balance, December 31, 2020 75,167,510 $ 19,920,752 $ 1,221,062 $ - $ 2,045,222 $ 19,738 $ (24,607,111) $ - $ (1,400,337)

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

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

1. NATURE AND CONTINUANCE OF OPERATIONS

EXMceuticals Inc. (the “Company” or “EXMC”) was incorporated on October 9, 2008 under the laws of British Columbia. The Company’s common shares were listed on the TSX Venture Exchange (“TSX-V”) under the symbol “ORR”. During the three months ended September 30, 2019, the Company announced that effective at the close of business on November 6, 2018 its common shares were delisted from the TSX-V at the request of the Company. The Company submitted a listing application to list its shares on the Canadian Securities Exchange (the “CSE”) and the Company’s shares commenced trading on the CSE on January 31, 2019 under the trading symbol “EXM”.

The Company’s head office and principal address is located at 421 7th Avenue S.W. 30th Floor, Calgary, AB T2P 4K9

These condensed consolidated interim financial statements have been approved by the Board of Directors on February 27, 2021.

On September 5, 2018, the Company entered into a Share Exchange Agreement (the “Agreement”) with EXM Holdings Inc. (formerly EXMceuticals Inc. and formerly “Afri-Can Cannabis Holdings Ltd.”) (“EXM Holdings”), a private company incorporated under the Business Corporation Act (BC) and its wholly-owned subsidiary EXM Pharmaceutical and Therapeutical Farming Ltd. (“EXMP”), a company incorporated in Dominica. Pursuant to the Agreement, the Company consolidated its issued and outstanding common shares on a 1:7 basis and acquired all of the securities of EXM Holdings in consideration of 29,761,858 post-consolidated common shares of the Company. After the completion of the transaction, the Company changed its name to EXMceuticals Inc.

Upon completion of the transaction, the Company carried on the business of EXM Holdings which is to plan to operate a Pharmaceutical grade refining facility in Portugal to produce cannabinoid ingredients for the international market. The transaction resulted in the shareholders of EXM Holdings acquiring control of the Company. Therefore, the transaction was accounted for as a reverse take-over (“RTO”). The closing of the transaction was subject to the terms set forth in the Agreement, the completion of a proposed financing and certain conditions being satisfied by both parties and approval by the CSE, which was all completed on January 31, 2019. As EXM Holdings was deemed to be the acquirer for accounting purposes, its assets and liabilities are included in the consolidated financial statements at their historical carrying values.

On December 31, 2019, the Company formally dissolved EXM Holdings. On February 10, 2020, the Company sold its wholly owned subsidiary EXMP. Refer to Note 5.

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, which assumes that the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. Different bases of measurement may be appropriate if the Company is not expected to continue operations for the foreseeable future.

As at December 31, 2020, the Company had no income generating assets and is not able to finance day-to-day activities through operations. During the six months ended December 31, 2020, the Company incurred a net loss of $3,930,694 and as of this date had a working capital deficit of $2,056,621 and an accumulated deficit of $24,607,111. Management’s view is that the success of the Company is dependent upon successfully being able to obtain licensing to produce cannabis-based ingredients for the international market on a commercial basis which will allow it to finance its capital requirements and achieving profitable operations. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. Management intends to finance operating costs over the next twelve months with cash on hand, issuance of common shares in private placements and loans from related parties as required.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

1. NATURE AND CONTINUANCE OF OPERATIONS (Continued)

The outbreak of the novel strain of coronavirus, specifically identified as "COVID-19", has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Government and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company.

As a result of COVID-19, the Company has noted, or is expecting, the following impacts on the Company’s operations including an increase in the difficulty of raising funding, difficulties building out production facilities in Portugal, sourcing quality cannabis-based ingredients, and difficulties in attracting new customers due to inability to attend tradeshows and conferences.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Statement of Compliance

These interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in accordance with International Accounting Standards (“IAS”) 34, Interim Financial Reporting.

Basis of Preparation and Significant Accounting Policies

These interim condensed consolidated financial statements have been prepared on a historical basis and have been prepared using the accrual basis of accounting, except cash flow information. These interim condensed consolidated financial statements are presented in Canadian dollars unless otherwise noted.

Basis of Consolidation

These interim condensed consolidated financial statements include the accounts of the Company and its whollyowned subsidiaries. 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. The principal subsidiaries of the Company, their activities and their geographic locations as at December 31, 2020 were as follows:

	Country of	Ownership
Entity	Incorporation	Interest	Principal Activity
EXMceuticals Inc.	Canada	100%	Holding company
EMX Management Ltd.	England	100%	Dormant
EXMceuticals Holdings B.V.	Netherlands	100%	Holding company
Ceuticals Farming Limited	Malawi	100%	Dormant
EXMceuticals Portugal, LDA	Portugal	100%	Cannabis processing
EXMceuticals Portugal II, Unipessoal Lda.	Portugal	100%	Cannabis processing

Inter-company balances and transactions, and any unrealized income and expenses arising from inter-company transactions, are eliminated in preparing the consolidated financial statements.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Significant Estimates and Assumptions

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, profit 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.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if it affects both current and future periods.

Estimates and assumptions where there is significant risk of material adjustments to assets and liabilities in future accounting periods include the fair value measurements for financial instruments, the useful life of property and equipment, the recoverability and measurement of deferred tax assets and provisions for contingent liabilities.

Significant Judgments

The preparation of financial statements in accordance with IFRS requires the Company to make judgments, apart from those involving estimates, in applying accounting policies. The most significant judgments in applying the Company’s interim condensed consolidated financial statements include:

• The assessment of the Company’s ability to continue as a going concern and whether there are events or conditions that may give rise to significant uncertainty;

• The classification/allocation of expenditures as assets or operating expenses;

• Fair value measurements for financial instruments; and

• • The measurement and recoverability of deferred tax assets.

Foreign Currency Translation

The functional currency of the Company is measured using the currency of the primary economic environment in which the Company operates. The interim condensed consolidated financial statements are presented in Canadian dollars which is the Company’s functional and presentation currency.

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

Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in the statement of comprehensive loss in the period in which they arise, except where deferred in equity as a qualifying cash flow or net investment hedge.

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

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign Currency Translation (Continued)

The Company’s subsidiaries EXMceuticals Portugal, LDA and EXMceuticals Portugal II, Unipessoal Lda.’s functional currency is the Euro. The parent and the remaining subsidiaries’ functional currency is the Canadian Dollar.

3. SALE OF EXM PHARMACEUTICALS AND THERAPEUTICAL FARMING LTD.

On November 5, 2020, the Company sold its 70% interest in Prime Ranchers Limited (“PRL”) for proceeds of $197,672 (USD $150,000) to be paid in three equal installments. The final installment is contingent upon PRL being granted the License by Ministry of Health in Uganda to grow medical cannabis.

Calculation of Gain on Sale of Subsidiary
Amount owing from PRL on date of sale: Net liabilities of PRL on date of sale: Accounts payable Due to EXMceuticals Inc.	$ 1,122,568 (53,909) (1,122,568)
	(1,176,477)
Loss on Sale of Subsidiary:	$ (53,909)

On February 10, 2020, the Company sold its 100% interest in EXMP to a former director for nominal proceeds of $1.

Calculation of Gain on Sale of Subsidiary
Amount owing from EXMP on date of sale: Net liabilities of EXMP on date of sale: Accounts payable Due to related parties Due to EXMC	$ 655,208 (18,020) (133,028) (655,208)
	(806,256)
Gain on Sale of Subsidiary:	$ (151,048)

In addition to the sale of EXMP, the Company also sold the following dormant entities to the same former director for nominal proceeds of $1 each:

nominal proceeds of $1 each:
	Country of	Ownership
Entity	Incorporation	Interest	Principal Activity
EXM Ceuticals Financials B.V.	Sint Maarten	100%	Dormant
EXM Ceuticals Farming B.V.	Sint Maarten	100%	Dormant
EXMceuticals Holdings B.V.	Sint Maarten	100%	Holding company

All assets and liabilities relating to these entities were transferred to EXMC or one of its subsidiaries prior to the sale.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020

(Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

4. PROPERTY AND EQUIPMENT

Equipment $ Furniture and Fixtures $ Leasehold Improvements $	Total $
Cost: Balance, June 30, 2019 713,721 11,162 210,663 Additions 828,820 3,731 264,743 Impairment (632,769) - (475,406)	935,546 1,097,294 (1,108,175)
Balance, June 30, 2020 909,772 14,893 - Additions 25,139 - - Disposals (100,543) (8,391) -	924,665 25,139 (108,934)
Balance,December 31,2020 834,368 6,502 -	840,870
Accumulated Depreciation: Balance, June 30, 2019 - - - Additions 122,378 961 -	- 123,339
Balance, June 30, 2020 122,378 961 - Additions 70,844 480 -	123,339 71,324
Balance,December 31,2020 193,222 1,441 -	194,663
Net Book Value: As at June 30,2020 787,394 13,932 -	801,326
As at December 31,2020 641,146 5,061 -	646,207

During the six months ended December 31, 2020, the Company purchased certain property and equipment for a total of $25,139 (June 30, 2020 - $1,097,294).

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

5. LOANS PAYABLE

Balance, June 30, 2019	415,540
Settlement of loan payable	(108,000)
Principal of loans	4,523,598
Discount on loans payable	(393,208)
Interest expense	378,199
Accretion of discount on loans payable	168,602
Reallocation of accrued interest to obligation to issue shares (Note 9(h))	(130,595)
Balance, June 30, 2020	4,854,136
Settlement of loan payable	(4,605,171)
Principal of loans	25,671
Discount on loans payable	(35,533)
Interest expense	288,688
Accretion of discount on loans payable	49,534
Reallocation of accrued interest to obligation to issue shares(Note 9(h))	-
Balance, December 31, 2020 (Notes 5(d), 7)	577,325
Less: currentportion of loanspayable	(577,325)
Long-termportion of loanspayable	$ -

• a) During the year ended June 30, 2019, the Company received a loan from a third party for $100,000. The loan bears an interest charge of 8% to be paid in cash on the payment date, in addition to the principal. During the year ended December 31, 2019, the Company accrued $8,000 of interest on this loan. On July 12, 2019 the Company entered into a debt settlement agreement with the lender and recognized the full balance owing of $108,000 as gain on settlement of loan payable.

• b) During the year ended June 30, 2020, the Company received loan proceeds from the Chairman of the Company (the “Lender”) totalling $267,599 (2019 - $332,401) as partial proceeds from a loan agreement signed on June 7, 2019 for total proceeds of $600,000. The loan bears interest of 10% per annum and matured on December 6, 2019.

As additional consideration, the Company also agreed to issue special warrants (the “Special Warrants”) to the Lender to acquire up to 88,889 common shares (the “Special Warrant Shares”) equal in value to 20% of the principal amount at a conversion rate of $1.35 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lender subscribing for securities of the Company at an aggregate subscription price of no less than the principal amount of the loan (the “Qualifying Financing”). Upon closing of a Qualifying Financing, the Special Warrants automatically convert into Special Warrant Shares. The Special Warrants are otherwise not convertible, and as the Lender did not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants expired.

As at June 30, 2020, the Company had issued 39,647 Special Warrants (2019 – 49,242) to the Lender. The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of $9,236 (2019 - $29,050) which was accreted over the life of the loan. During the year ended June 30, 2020, the Company accrued $59,560 (2019 - $nil) in interest and accreted $34,097 (2019 - $4,189) of the discount which is included in interest expense. As at June 30, 2020, the June Loan was in default.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

5. LOANS PAYABLE (Continued)

On July 1, 2020, the Company and the Chairman of the Company signed a new loan agreement in the principal amount of $854,171, which includes the following amounts: (i) principal and interest due and owing under the September 7, 2019 loan agreement (Note 11(b)) in the amount of $664,500 as at July 1, 2020; (ii) accrued and unpaid expenses owing to the Lender in the amount of $25,671; and (iii) accrued and unpaid interest on the $1,400,000 July 5, 2019 loan agreement (Note 11(c)). This loan bears an interest rate of 10% per annum for a term of six months.

As additional consideration for the loan, the Company agreed to issue Special Warrants to the Lender to acquire up to 427,085 common shares of the Company equal to 20% of the principal amount of the loan at a conversion rate of $0.40 per Special Warrant Share. Conversion of the Special Warrants to Special Warrant Shares is subject to the closing of one or more private placements in which the Lender will have subscribed for securities of the Company at an aggregate subscription price of no less than the principal amount of the loan. Upon closing of a Qualifying Financing, the Special Warrants automatically convert into Special Warrant Shares. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

On July 24, 2020, the Company issued 4,270,855 common shares at a price of $0.20 per share to settle the loan.

During the six months ended December 31, 2020, the Company accrued $3,395 in interest on the loan and accreted the remainder of the discount to interest expense.

On August 6, 2020, the Company issued 427,085 Special Warrant Shares pursuant to the lender entering into a Qualifying Financing prior to the maturity of the loan for a subscription price of no less than the principal balance of the loan. The Company also issued 19,367 shares for accrued interest at $0.29 per share in connection with the loan.

• c) On July 5, 2019 the Company entered into a loan facility agreement with the Chairman of the Company (the “Lender”) with a maturity date of January 5, 2021, pursuant to which the Lender provided to the Company a loan for the principal amount of $1,400,000 which was received at June 30, 2020. The loan bears an interest rate of 12% per annum up to the maturity date, and 15% thereafter. The Company may elect to pay any outstanding principal amount and any interest accrued on the principal amount of the loan in cash or through the issuance of common shares of the Company.

As additional consideration for the loan, the Company agreed to issue Special Warrants to the Lender to acquire up to 207,407 common shares of the Company equal to 20% of the principal amount of the loan at a conversion rate of $1.35 per Special Warrant Share. Conversion of the Special Warrants to Special Warrant Shares is subject to the closing of one or more private placements in which the Lender will have subscribed for securities of the Company at an aggregate subscription price of no less than the principal amount of the loan. Upon closing of a Qualifying Financing, the Special Warrants automatically convert into Special Warrant Shares. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 207,407 Special Warrants (2019 – nil) to the Lender. The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of $125,731 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued $135,781 (2019 - $nil) in interest and accreted $66,530 (2019- $nil) of the discount which is included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was $59,201.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

5. LOANS PAYABLE (Continued)

The Loan Facility also provides for the grant of performance-based warrants (the “Bonus Warrants”), entitling the Lender to acquire a percentage of the principal amount funded under the loan in common shares of the Company at a price of $1.35 per share. The percentage of Bonus Warrants the Lender will receive will be determined based on the Company’s share price at the time the loan is fully repaid as follows:

• (i) equal to 10% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is between $1.35 and $2.00 per share;

• (ii) equal to 20% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is between $2.00 and $3.00 per share;

• (iii) equal to 30% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is between $3.00 and $4.00 per share;

• (iv) equal to 40% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is between $4.00 and $6.00 per share; and

• (v) equal to 50% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is above $6.00 per share.

As the value of these Bonus Warrants cannot be determined until the repayment date, no value has been recognized for the Bonus Warrants as at June 30, 2020.

On July 1, 2020, the parties renegotiated the accrued interest on this loan. Refer to Note 9.b

On July 24, 2020, the Company issued 7,000,000 common shares at a price of $0.20 per share to settle the loan.

During the six months ended December 31, 2020, the Company accrued $42,587 in interest and accreted the remaining $59,201 of the discount to interest expense.

On August 6, 2020, the Company issued 207,407 Special Warrant Shares pursuant to the Lender entering into a Qualifying Financing prior to the maturity of the loan for a subscription price of no less than the principal balance of the loan. The Company also issued 6,818 shares for accrued interest at a price of $1.35 per share in connection with the loan.

• d) On October 21, 2019, the Company entered into a loan facility agreement with the Chairman of the Company with a maturity date of December 31, 2020 with the Lender, pursuant to which the Lender provided to the Company a loan in the principal amount of $500,000 which was received at June 30, 2020. The loan bears an interest rate of 15% per annum up to the maturity date, and 20% thereafter. The loan is repayable in cash, and the accrued interest is convertible into common shares of the Company at the option of the Lender.

As additional consideration for the loan, the Company also agreed to issue Special Warrants to the Lender to acquire up to 74,074 common shares of the Company equal to 20% of the principal amount under the loan at a conversion rate of $1.35 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lender participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of the loan. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

5. LOANS PAYABLE (Continued)

As at June 30, 2020, the Company had issued 74,074 Special Warrants (2019 – nil) to the Lender. The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of $25,939 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued $52,192 (2019 - $nil) in interest and accreted $11,938 (2019- $nil) of the discount which is included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was $14,001.

During the six months ended December 31, 2020, the Company accrued $37,500 (June 30, 2020 - $52,192) in interest and accreted $14,001 (June 30, 2020 - $11,938) of the discount to interest expense. As at December 31, 2020, the unaccreted portion of the discount was $nil (June 30, 2020 - $14,001).

The loan also provides for the grant of performance-based Bonus Warrants entitling the Lender to acquire a percentage of the principal amount funded under the loan in common shares of the Company at a price of $1.35 per share. The percentage of Bonus Warrants the Lender will receive will be determined based on the Company’s share price at the time the loan is fully repaid as follows:

• (i) equal to 15% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is between $1.35 and $2.00 per share;

• (ii) equal to 25% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is between $2.00 and $3.00 per share;

• (iii) equal to 35% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is between $3.00 and $4.00 per share;

• (iv) equal to 45% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is between $4.00 and $6.00 per share; and

• (v) equal to 60% of the principal amount of the Loan Facility if the fair market value of the Company’s shares is above $6.00 per share.

As the value of these Bonus Warrants cannot be determined until the repayment date, no value has been recognized for the Bonus Warrants as at December 31, 2020.

• e) During the year ended June 30, 2020, the Company received loans from four third parties for a total of $820,000. The loans bear an interest rate of 12% per annum.

As additional consideration for the loans, the Company also agreed to issue Special Warrants to the Lenders to acquire up to 218,667 common shares of the Company equal to 20% of the principal amount under the loans at a conversion rate of $0.75 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lenders participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of their respective loans. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 218,667 Special Warrants (2019 – nil). The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of $83,606 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued $51,372 (2019 - $nil) in interest and accreted $22,166 (2019 - $nil) of the discount which is included in interest expense. As at December 31, 2020, the unaccreted portion of the discount was $61,440.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

5. LOANS PAYABLE (Continued)

On July 24, 2020, the Company issued 4,100,000 common shares at a price of $0.20 per share pursuant to settle the loans in the aggregate amount of $820,000.

During the six months ended December 31, 2020, the Company accrued $4,157 in interest and accreted the remaining $61,440 of the discount to interest expense.

On August 6, 2020, the Company issued 328,000 Special Warrant Shares pursuant to the Lenders entering into Qualifying Financing prior to the maturity of the loans for a subscription price of no less than the principal balance of the loans. The Company also issued 255,310 shares for accrued interest at $0.2175 per share, being the trading price on the date of issuance less the maximum discount allowed by the Canadian Securities Exchange.

• f) On January 24, 2020, the Company received a loan from a third party totalling $1,250,000. This loan bears interest of 12% per annum and matures on the earlier of June 20, 2021 and the closing of a Qualifying Financing.

As additional consideration for the loans, the Company also agreed to issue Special Warrants to the Lender to acquire up to 500,000 common shares of the Company equal to 20% of the principal amount under the loan at a conversion rate of $0.50 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lender participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of their respective loan. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 500,000 Special Warrants (2019 – nil). The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of $119,398 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued $64,932 in interest (2019 - $nil) and accreted $27,914 (2019 - $nil) of the discount (2019 - $nil) which has been included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was $91,484 (June 30, 2019 - $nil).

On July 24, 2020, the Company issued 6,250,000 common shares at a price of $0.20 per share pursuant to settle the loan.

During the six months ended December 31, 2020, the Company accrued $9,863 in interest and accreted the remaining $91,484 of the discount to interest expense.

On August 6, 2020, the Company issued 500,000 Special Warrant Shares pursuant to the Lender entering into Qualifying Financing prior to the maturity of the loans for a subscription price of no less than the principal balance of the loans. The Company also issued 343,882 shares for accrued interest at $0.2175 per share, being the trading price on the date of issuance less the maximum discount allowed by the Canadian Securities Exchange.

• g) During the year ended June 30, 2020, the Company received a loan from a third party totaling $286,000. The loan bears interest of 12% per annum and matures on the earlier of July 31, 2021 and the closing of a Qualifying Financing.

As additional consideration for the loans, the Company also agreed to issue Special Warrants to the Lender to acquire up to 114,400 common shares of the Company equal to 20% of the principal amount under the loan at a conversion rate of $0.50 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lender participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of their respective loan. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

5. LOANS PAYABLE (Continued)

As at June 30, 2020, the Company had issued 114,400 Special Warrants (2019 – nil). The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of $29,298 (June 30, 2019 - $nil) which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued $14,292 (2019 - $nil) in interest and accreted $5,957 (2019 - $nil) of the discount which has been included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was $23,341 (June 30, 2019 - $nil).

On July 24, 2020, the Company issued 1,430,000 common shares at a price of $0.20 per share to settle the loan.

During the six months ended December 31, 2020, the Company accrued $2,257 in interest and accreted the remaining $23,341 of the discount to interest expense.

On August 6, 2020, the Company issued 114,400 Special Warrant Shares pursuant to the Lender entering into Qualifying Financing prior to the maturity of the loans for a subscription price of no less than the principal balance of the loans. The Company also issued 76,086 shares for accrued interest at $0.2175 per share, being the trading price on the date of issuance less the maximum discount allowed by the Canadian Securities Exchange.

• h) In relation to the loans disclosed in Notes 7(e) to (g), as the terms of the loans stipulate that the interest accrued on the loans be paid through the issuance of shares, the Company issued 600,436 common shares at a price of $0.2175 per share to meet the obligation to issue shares.

6. SHARE CAPITAL

Authorized

100,000,000 common shares without par value.

Issued

During the six months ended December 31, 2020 the Company:

• a) Completed a private placement of 5,180,000 units at a price of $0.20 per unit for total gross proceeds of $1,036,000. Each unit consists of one common share of the Company and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the Company at an exercise price of $0.30 per share for a period of 18 months from closing of the private placement. The Company issued 71,400 units as finders' fees, with the units having the same terms as the private placement units.

• b) Issued 220,859 common shares at a price of $0.326 for financial services of $72,000 provided to the Company. The price was based on the fair value of the services provided.

• c) Issued 30,237 common shares for gross proceeds of $9,000.

• d) Issued 71,400 common shares as finders’ fees on a prior private placement.

• e) Issued 23,025,855 common shares pursuant to certain loan agreements previously entered into between the Company and certain lenders to settle loans in the aggregate amount of $4,605,171. Refer to Notes 7(b), 7(c) and 7(e) to 7(g).

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

6. SHARE CAPITAL (Continued)

• f) Issued 207,407 Special Warrant Shares pursuant to the July 5, 2019 loan with the Chairman of the Company on entering into a Qualifying Financing prior to the maturity of the loan for a subscription price of no less than the principal balance of the loan. The Company also issued 6,818 shares for accrued interest at a price of $1.35 per share in connection with the loan. Refer to Note 7(c).

• g) Issued 427,085 Special Warrant Shares pursuant to the July 1, 2020 amended loan with the Chairman of the Company on entering into a Qualifying Financing prior to the maturity of the loan for a subscription price of no less than the principal balance of the loan. The Company also issued 19,367 shares for accrued interest at $0.29 per share in connection with the loan. Refer to Note 7(b).

• h) Issued 942,400 Special Warrant Shares pursuant to third-party Lenders entering into Qualifying Financing prior to the maturity of the loans for a subscription price of no less than the principal balance of the loans. The Company also issued 675,276 shares for accrued interest at $0.2175 per share, being the trading price on the date of issuance less the maximum discount allowed by the Canadian Securities Exchange, pursuant to loan agreements with third-party Lenders. Refer to Notes 7(e) to (g).

• i) On August 13, 2020, the Company issued 219,595 common shares at a price of $0.296 per share for financial services of $65,000 provided to the Company. The price was based on the fair value of the services provided.

• j) On August 20, 2020, the Company issued 4,139,161 common shares for the settlement of $1,378,241 in debt along with cash payments of $79,559 for total amounts settled of $1,457,800 pursuant to debt settlement agreements with various creditors.

• k) On August 28, 2020, the Company cancelled 518,451 escrow shares.

During the year ended June 30, 2020 the Company:

• a) Issued 95,713 common shares of the Company at $0.595 per share for proceeds of $56,949 and 67,857 common shares of the Company at $0.35 per share for proceeds of $23,750 pursuant to the exercise of warrants.

• b) Issued 75,554 common shares of the Company at a price of $1.35 per share to its creditors for debt settlements in the aggregate amount of $101,998. The price per share was based on the trading price of the Company shares on the date of Board approval of the debt settlements and no gain or loss was realized in relation to the debt settlements.

• c) Issued 200,000 common shares of the Company at a price of $1.2803 per share for services in the aggregate amount of $256,060. The price was based on the fair value of the services provided.

• d) Issued 1,000,000 common shares of the Company with a fair value of $475,000 to an unrelated party for market related services.

• e) Returned 148,809 common shares to treasury which were originally subscribed for at a price of $0.84 per share for gross proceeds of $125,000.

• f) As at December 31, 2020, the Company had 16,176,193 shares held in escrow.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

6. SHARE CAPITAL (Continued)

Restricted Share Units

On September 26, 2019, the Company’s Board of Directors approved an equity compensation plan permitting the grant of stock options, Share Appreciation Rights, Deferred Share Units, Performance Share Units and Restricted Share Units (“RSUs”) as a mechanism to attract, retain and motivate highly qualified directors, officers, employees and consultants to enable and encourage them to participate in the long-term growth of the Company and align their interests with those of the shareholders. As at December 31, 2020, the Company has 23,018 RSU’s available to be issued (to a maximum of 3,923,018) under the Company’s plan.

Summary of the Company’s restricted share units:

			Weighted average
		Number	granted price
			$
June	30, 2019	_	_
	Granted	3,900,000	0.61
June	30 and December 31, 2020	3,900,000	0.61

The Company uses the fair value method to recognize the obligation and compensation expense associated with the RSU’s. The fair value of RSU’s issued is determined on the grant date based on the market price of the common shares on the grant date multiplied by the number of RSUs granted. The fair value is expensed over the vesting term. Upon conversion of the RSU, the carrying amount is recorded as an increase in common share capital and a reduction in the share-based payment reserve. The RSU’s granted during the year ended June 30, 2020 vest in annual installments over a six-year period. During the six months ended December 31, 2020, the Company recognized $629,382 (June 30, 2020 - $591,680) for the fair value of RSU’s vested which have been recognized in share-based compensation.

Stock Options

The Company has adopted a stock option plan whereby the Company may grant, to directors, officers, employees and consultants, options to purchase common shares of the Company provided that the number of options granted, including all options granted by the Company to date, does not exceed 10% of the Company’s common shares issued and outstanding at the time of granting stock options. Options may be exercised no later than 90 days following cessation of the optionee’s position with the Company or 30 days following cessation of an optionee conducting investor relations activities.

During the year ended June 30, 2020, the Company granted 10,966,931 stock options at a weighted average exercise price of $1.38 per share and during the six months ended December 31, 2020 recorded share-based payments of $1,459,231 (June 30, 2020 – $427,431) under the graded vesting method.

	Number of	Weighted Average
	Options	Exercise Price
Balance, June 30, 2019	-	$ -
Granted	10,966,931	1.38
Cancelled	(2,000,000)	2.63
Balance, June 30 and December 31, 2020-Outstanding	8,966,931	$ 1.11
Balance,June 30 and December 31,2020 - Exercisable	-	$-

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

6. SHARE CAPITAL (Continued)

The options outstanding as at December 31, 2020 vest as follows:

• 466,931 vest the earlier of i) 18 months from grant or ii) the date the Company’s share trade at or above $2.00 per share;

• 1,500,000 vest the earlier of i)18 months from grant, ii) the date the Company’s share trade at or above $2.00 per share or iii) the Company receives a written offer from a third party to acquire at least 35% of the voting shares of the Company;

• 2,000,000 vest once certain licenses have been obtained;

• 5,000,000 vest the earlier of i) December 24, 2021, ii) the date the Company’s share trade at or above $0.50 per share any time after September 25, 2020 or iii) the Company receives a written offer from a third party to acquire at least 35% of the voting shares of the Company.

At December 31, 2020, the following incentive stock options were outstanding to directors, officers and consultants:

Number of Options	Exercise		Number of Options
Outstanding	Price	Expiry Date	Exercisable
1,500,000	$ 2.00	January 1, 2030	-
466,931	2.00	January 22, 2030	-
2,000,000	2.00	February 5, 2023	-
5,000,000	0.40	September 25, 2025	-
8,966,931			-

The weighted average remaining life of the options at December 31, 2020 is 4.95.

The following weighted average assumptions were used for the Black-Scholes Option Pricing Model valuation of stock options granted during the year ended June 30, 2020:

	2020
Risk-fee interest rate	1.02%
Expected life of options	6.4 years
Expected annualized volatility	119%
Expected dividend rate	-
Fair valueper option	$0.27

Warrants

	Number of	Weighted
	Warrants	Average
		Exercise Price
Balance, June 30, 2019	2,902,846	0.56
Exercised	(163,570)	0.49
Expired	(1,115,845)	0.41
Balance,June 30,2020	1,623,431	$ 0.67
Expired	(159,690)	1.35
Balance, December 31, 2020	1,463,741	$ 0.595

The weighted average remaining contractual life of the outstanding warrants at December 31, 2020 was 2.07 years (2019 – 1.82 years).

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

6. SHARE CAPITAL (Continued)

Number of	Exercise	Expiry
Warrants	Price($)	Date
1,463,741	0.595	January24,2023
1,463,741

During the year ended June 30, 2020, the Company issued 1,154,194 (2019 – 49,242) Special Warrants in relation to the loans described in Note 7 (b) to (g) with a fair value of $393,208 (2019 - $29,050). Conversion of the Special Warrants is contingent on the Lenders participating in a Qualifying Financing for an aggregate subscription price of no less than the principal amount of their respective loans. The Special Warrants convert automatically into common shares of the Company on participation in a Qualifying Financing, as described above, and are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire. During the year ended June 30, 2020, 88,889 (2019 – nil) Special Warrants expired.

During the six months ended December 31, 2020, the Company issued 427,085 (2019 – 247,054) Special Warrants in relation to the loan described in Note 7 (b) with a fair value of $35,533 (2019 - $159,828). Conversion of the Special Warrants is contingent on the Lenders participating in a Qualifying Financing for an aggregate subscription price of no less than the principal amount of their respective loans. The Special Warrants convert automatically into common shares of the Company on participation in a Qualifying Financing, as described above, and are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire. During the six months ended December 31, 2020, 1,467,558 (2019 – nil) Special Warrants were converted. Refer to Notes 7(b), 7(c) and 7(e) to 7(g).

Equity Reserves

The equity reserve account records items recognized as stock-based compensation expense until such time that the stock options and warrants are exercised, at which time the corresponding amount will be transferred to share capital. Amounts recorded for forfeited or expired stock options are transferred to deficit in the period of forfeiture or expiry.

7. RELATED PARTY TRANSACTIONS

Related parties include the Board of Directors, officers, key management personnel, close family members and enterprises that are controlled by these individuals. Key management personnel are those having authority and responsibility for planning and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.

During the six months ended December 31, 2020, the Company incurred consulting fees of $400,007 (2019 - $773,814) to related parties.

As at December 31, 2020, the Company owed $620,197 (June 30, 2020 - $713,990) to related parties which has been included in accounts payable and accrued liabilities.

As at December 31, 2020, the Company advanced $nil (June 30, 2020 – $46,520) to officers of the Company.

During the year ended June 30, 2020, the Company entered into a debt settlement agreement with a former officer of the Company resulting in the Company recognizing a gain on settlement of related party debt of $117,594 (2019 - $nil).

The amounts due to and from related parties are unsecured, non-interest bearing, and have no fixed terms of repayment.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

7. RELATED PARTY TRANSACTIONS (Continued)

On June 7, 2019, the Company entered into a loan agreement with a related party for $600,000 (Note 7(b)). The loan bears interest at 10% per annum, was due on December 7, 2019, and was in default as at June 30, 2020. On July 1, 2020, the Company and the Chairman of the Company signed a new loan agreement in the principal amount of $854,171, which includes the following amounts: (i) principal and interest due and owing under the September 7, 2019 loan agreement (Note 7(b)) in the amount of $664,500 as at July 1, 2020; (ii) accrued and unpaid expenses owing to the Lender in the amount of $25,671; and (iii) accrued and unpaid interest on the $1,400,000 July 5, 2019 loan agreement (Note 7(c)). This loan bears an interest rate of 10% per annum for a term of six months. On July 24, 2020, the Company issued 4,270,855 common shares at a price of $0.20 per share to settle the loan.

On July 5, 2019, the Company entered into a loan agreement with a related party for $1,400,000 (Note 7(c)). On July 24, 2020, the Company issued 7,000,000 common shares at a price of $0.20 per share to settle the loan.

On October 21, 2019, the Company entered into a loan agreement with a related party for $500,000 (Note 11(d)). The loan bears interest at 15% per annum and is due on December 31, 2020. As at December 31, 2020, principal and interesting outstanding on this loan total $577,325 (June 30, 2020 - $534,825).

During the year ended June 30, 2020, the Company granted 6,966,931 (2019 – nil) stock options with a fair value of $265,916 (2019 -$nil) and 3,500,000 (2019 - nil) RSUs with a fair value $546,265 (2019 - $nil) to related parties.

8. NON-CONTROLLING INTEREST

On November 5, 2020, EXMceuticals Holdings B.V., a wholly-owned subsidiary of the Company, sold its 70% interest in PRL for proceeds of USD $150,000 at which time the non-controlling interest up to the date of acquisition of $471,848 was reallocated to deficit.

The following represents the summarized statement of financial position of PRL:

The following represents the summarized statement	of financial position of PRL:
At
	December 31,		June 30,
	2020		2020
Current Assets	$	-	$ 54,476
Current Liabilities		-	(1,766,696)
Total Current Net Assets		-	(1,712,220)
Non-Current Assets		-	117,045
Non-Current Liabilities		-	-
Balance, end of six months	$	-	$(1,595,175)

The following represents the summarized statement of comprehensive loss of PRL:

Forthe periods endedDecember31	2020 2019
Revenue	$ - $-
Net loss before income tax	- (502,250)
Income tax expense	- -
Net and comprehensive loss	$ -$(502,250)

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

8. NON-CONTROLLING INTEREST (Continued)

During the year ended June 30, 2020, the Company acquired the 30% non-controlling interest in EXMceuticals Portugal, LDA (Portugal) for a nominal value at which time the non-controlling interest up to the date of acquisition of $347,882 was reallocated to deficit.

The following represents the summarized statement of financial position of Portugal:

At
	December 31,		June30,
		2020	2020
Current Assets	$	-	$ -
Current Liabilities		**- **	-
Total Current Net Assets		-	-
Non-Current Assets		-	-
Non-Current Liabilities		-	-
Balance, end ofperiod/six months	$	-	$ -

The following represents the summarized statement of comprehensive loss of Portugal:

For the period ended	December 31,	June 30,
	2020	2020*
Revenue	$ -	$-
Net loss before income tax	-	(923,397)
Income tax expense	-	-
Net and comprehensive loss	$-	$(923,397)

• Net loss for Portugal up until January 31, 2020, date of acquisition of 30% non-controlling interest.

9. FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s primary exposure to credit risk is on its cash held in bank accounts and legal trust accounts and receivables. Cash is deposited in bank accounts held with major banks in Canada and Portugal. As most of the Company’s cash is held in trust there is a concentration of credit risk. As cash is held in legal trust and its receivable balance mainly consists of sale tax credits refundable from government bodies, the credit risk has been assessed as low.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

9. FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT (Continued)

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents.

Historically, the Company’s sole source of funding has been the issuance of equity securities for cash, primarily through private placements. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity funding. The Company has also received funding from loans from related and third parties, there is no assurance that additional loans will be available as needed or on terms acceptable to the Company. Liquidity risk is assessed as high.

Foreign Exchange Risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency.

Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company’s exposure to interest rate risk is minimal as rates on loans are at fixed terms.

Capital Management

The Company’s policy is to maintain a strong capital base so as to maintain investor and creditor confidence and to sustain future development of the business. The capital structure of the Company consists of share and working capital.

There was no change in the Company’s approach to capital management during the six months. The Company is not subject to any externally imposed capital requirements.

Financial instruments measured at fair value are classified into one of six levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The six levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and Level 3 – Inputs that are not based on observable market data.

Cash is measured at Level 1 of the fair value hierarchy. The fair value of accounts payable, amounts due to/from related parties and loans payable approximates fair value due to the short-term nature of the financial instruments.

Fair Value

The fair value of the Company’s financial assets and liabilities approximate the carrying amount.

EXMCEUTICALS INC. NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 (Unaudited – Prepared by Management) (Expressed in Canadian Dollars)

10. SEGMENT REPORTING

Geographic information relating to the Company’s activities are as follows:

Canada Portugal	Uganda Netherlands Total	Uganda Netherlands Total
$ $ December 31, 2020: Total assets 193,150 907,022 Total liabilities 1,996,006 384,740 Net loss 3,389,793 531,026	$ $ $ - 31,285 1,131,457 - 151,048 2,531,794 9,875 - 3,930,694
Canada Portugal	Uganda Dominica Total
$ $ June 30, 2020: Total assets 214,475 830,365 Total liabilities 7,696,339 361,675 Net loss 7,010,596 1,589,683	$ $ $ 175,521 31,285 1,251,646 545,418 - 8,603,432 1,327,769 - 9,928,048

11. CONTINGENT LIABILITY

• a) During the year ended June 30, 2019, the Company received a Notice of Claim from a former consultant for $35,236. Management is disputing this claim as they are contending the services have not been provided. The Company’s legal counsel has stated that the likelihood of any outcome cannot be assessed and, therefore, no amount has been accrued as at December 31, 2020.

• b) During the year ended June 30, 2020, the Company was notified that it, a former subsidiary and a former member of management were named in a claim filed by another former member of management in the amount of $129,088. A trial has not yet been scheduled. The Company’s legal counsel has stated the likelihood of the claim being upheld by the court is remote and, therefore, no amount has been accrued as at December 31, 2020.