Hapbee Technologies, Inc. — Annual Report 2021

May 1, 2021

Consolidated Financial Statements of

HAPBEE TECHNOLOGIES, INC. (FORMERLY ELEVATION TECHNOLOGIES, INC.)

For the years ended December 31, 2020 and 2019

(Expressed in U.S. dollars)

Management’s Report

The accompanying consolidated financial statements of Hapbee Technologies, Inc. (the “Company”) have been prepared by the Company’s management. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and contain estimates based on management’s judgment. Internal control systems are maintained by management to provide reasonable assurances that assets are safeguarded and financial information is reliable.

The Board of Directors of the Company is responsible for ensuring that management fulfils its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements and the accompanying management discussion and analysis. The Board carries out this responsibility principally through its Audit Committee.

The Audit Committee is appointed by the Board of Directors and a majority of its members are independent directors. It meets with the Company’s management and auditors and reviews internal control and financial reporting matters to ensure that management is properly discharging its responsibilities before submitting the consolidated financial statements to the Board of Directors for approval.

Manning Elliott LLP, appointed as the Company’s auditors by the shareholders, has examined these consolidated financial statements and their report follows.

(signed) “Scott Donnell” Chief Executive Officer

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INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Directors of Hapbee Technologies, Inc.

Opinion

We have audited the consolidated financial statements of Hapbee Technologies, Inc. (the “Company”) which comprise the consolidated statements of financial position as at December 31, 2020 and 2019 and the consolidated statements of comprehensive loss, changes in equity and cash flows for the years then ended, and the related notes comprising a summary of significant accounting policies and other explanatory information (collectively referred to as the “consolidated financial statements”).

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

Basis for Opinion

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

Other Information

Management is responsible for the other information, which comprises the information included in the Company’s Management Discussion & Analysis to be filed with the relevant Canadian securities commissions.

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

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

If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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

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

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

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

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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

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

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and

• related disclosures made by management.

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

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

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

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

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

The engagement partner on the audit resulting in this independent auditors’ report is Fernando J. Costa.

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CHARTERED PROFESSIONAL ACCOUNTANTS Vancouver, Canada

April 29, 2021

Hapbee Technologies, Inc. Consolidated Statements of Financial Position As at December 31, 2020 and 2019

As at December 31, 2020 and 2019
Expressed in U.S. dollars Assets Current assets Cash Receivables Inventory (note 4) Prepaid expenses Intangible assets (note 5) Total assets Liabilities Current liabilities Accounts payable and accrued liabilities (note 7) Unearned revenue Total current liabilities Warrant liability (note 13) Total liabilities Equity Share capital (note 9) Reserves Accumulated other comprehensive income Accumulated deficit Total shareholders’ equity Total liabilities and shareholders’ equity Nature of operations (note 1) Basis of presentation (note 2) Commitments and contingencies (note 19) Subsequent events (note 20)	2020 2019 $ $ 3,414,952 879,702 92,164 - 29,829 - 227,661 59,663
	3,764,606 939,365 2,475,356 2,294,997
	6,239,962 3,234,362
	606,756 760,212 188,391 -
	795,147 760,212 3,235,642 -
	4,030,789 760,212
	10,294,915 2,875,693 2,621,825 - 29,520 - (10,737,087) (401,543)
	2,209,173 2,474,150
	6,239,962 3,234,362

Approved on behalf of the Board of Directors on April 29, 2021.

“Michael Matysik” “ Robert Dzisiak ” Director Director

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

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Hapbee Technologies, Inc. Consolidated Statements of Loss and Comprehensive Loss For the years ended December 31, 2020 and 2019

Expressed in U.S. dollars

Revenues Sales Cost of goods sold Expenses Amortization of intangible assets Consulting General and administrative (note 18) Interest accretion and expense on convertible debentures Product development costs Professional fees Royalty fees Share-based compensation (note 10) Share-based - Zander acquisition (note 6) Total operating expenses Operating loss before other item Other item: Change in fair value of warrants liability (note 13) Net loss for the year Other comprehensive income Net loss and comprehensive loss for the year Loss per share– basic and diluted (note 12) Weighted-average number of shares outstanding – basic and diluted	2020 2019 $ $ 661,882 - (403,282) -
	258,600 - 134,624 - 1,364,757 179,732 821,542 144,768 168,621 - 388,663 - 275,531 77,043 113,362 - 2,513,183 - 1,466,434 -
	(7,246,717) (401,543)
	(6,988,117) (401,543) (3,347,427) -
	(10,335,544) (401,543) 29,520 -
	(10,306,024) (401,543) ($0.23) ($0.01)
	45,356,219 46,661,095

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

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Hapbee Technologies, Inc. Consolidated Statements of Changes in Equity For the years ended December 31, 2020 and 2019

Expressed in U.S. dollars Balance, Date of Incorporation Issuance of shares for non-brokered private placement (note 9) Share issuance cost Net loss and comprehensive loss for the year Balance, December 31, 2019 Issuance of shares for non-brokered private placement (note 9) Conversion to multiple voting shares Issuance of shares as compensation Issuance of shares for amalgamation (note 6) Issuance of shares for finder’s fee (note 9) Share issuance cost (note 9) Share-based compensation (note 10) Conversion of convertible debentures (note 8) Exercise of warrants (note 9) Fair value of finder’s warrants (note 11) Net loss and comprehensive loss for the year Balance, December 31, 2020	Number of Subordinated Voting Shares Subordinated Voting Shares Number of Multiple Voting Shares Multiple Voting Shares Accumulated Other Comprehensive Income Reserves Deficit Total
	$ $ $ $ $ $ 28,125,000 1 - - - - - 1 29,925,000 2,900,038 - - - - - 2,900,038 - (24,346) - - - - - (24,346) - - - - - - (401,543) (401,543)
	58,050,000 2,875,693 - - - - (401,543) 2,474,150 2,497,500 555,000 - - - - - 555,000 (45,000,000) (39) 450,000 39 - - - - 200,000 44,256 - - - - - 44,256 8,724,401 1,938,755 - - - - - 1,938,755 716,357 157,527 - - - - - 157,527 - (75,903) - - - - - (75,903) - - - - - 2,468,927 - 2,468,927 21,655,882 4,763,692 - - - - - 4,763,692 93,916 35,895 - - - - - 35,895 - - - - - 152,898 - 152,898 - - - - 29,520 - (10,335,544) (10,306,024)
	46,938,056 10,294,876 450,000 39 29,520 2,621,825 (10,737,087) 2,209,173

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

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Hapbee Technologies, Inc. Consolidated Statements of Changes in Cash Flows For the years ended December 31, 2020 and 2019

Expressed in U.S. dollars Operating activities Net loss for the year Items not involving cash: Amortization of intangible assets Finders’ warrants Finders’ shares Share-based compensation Share-based - Zander acquisition Change in fair value of warrant liability Changes in non-cash working capital balances: Decrease in receivables Increase in prepaid expenses Increase in inventory Increase in accounts payable and accrued liabilities Increase in unearned revenue Net cash used in operating activities Investing activities License fees paid Development costs incurred Net cash used in investing activities Financing activities Proceeds from subordinated voting shares issuances Proceeds from convertible debenture issuances Exercise of warrants Share issuance costs Net cash provided by financing activities Effect of foreign exchange on cash Increase in cash during the year Cash acquired on amalgamation (note 6) Cash, beginning of the year Cash, end of the year	2020 2019 $ $ (10,335,544) (401,543) 134,624 - 152,898 - 157,527 - 2,513,183 - 1,466,434 - 3,347,427 - (92,163) - (167,999) (59,663) (29,829) - 544,500 36,063 188,391 -
	(2,120,551) (425,143)
	(697,495) (832,505) (314,983) (738,343)
	(1,012,478) (1,570,848)
	555,000 2,900,039 4,651,907 - 35,895 - (75,903) (24,346)
	5,166,899 2,875,693
	29,520 - 2,063,390 879,702 471,860 - 879,702 -
	3,414,952 879,702

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

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

1. NATURE OF OPERATIONS

Hapbee Technologies, Inc. (formerly known as Elevation Technologies, Inc.) (the “Company”) was incorporated on January 3, 2019 under the Business Corporations Act (British Columbia). Its registered and record office and corporate office is located at 700 West Georgia Street, Suite 2500, Vancouver, BC V7Y 1B3. The Company’s principal business activity is to commercialize consumer digital products that will deliver one or more ultra-low radio frequency energy signals to produce mood-altering effects. On June 15, 2020, the Company completed a forward stock split of its common shares on a 1 for 4.5 basis. The Company had 13,455,000 common shares issued and outstanding and the resulting post stock split common shares outstanding are 60,547,500. The number of common shares issuable pursuant to all share capital have been retrospectively adjusted in accordance with the stock split ratio. On the same day, the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinated Voting Shares, and created a new class of unlimited number of Multiple Voting Shares, all without par value. On June 16, 2020, the Company completed an amalgamation with Zander Capital Ltd. (“Zander”), refer to Note 6 for details. During the year ended December 31, 2020 60,547,500 common shares previously issued were cancelled and replaced by 60,547,500 Subordinated Voting Shares. During the year ended December 31, 2020, 45,000,000 Subordinated Voting Shares owned by EMulate Therapeutics Inc. and Scott Donnell were exchanged for 450,000 Multiple Voting Shares.

The Company’s operations have been financed through the sale of Subordinated Voting Shares, Multiple Voting Shares and issuance of debt. The Company has incurred a significant operating loss since inception and has an accumulated deficit of $10,737,087 as at December 31, 2020.

The outbreak and spread of a novel coronavirus (COVID-19), declared a pandemic by the World Health Organization, has already had significant human, political, and economic consequences around the world. The coronavirus is still evolving, and its full impact remains to be determined. However, its wide-ranging effects include financial market volatility, interest rate cuts, disrupted movement of people and goods, and diminished consumer confidence. The effects of the coronavirus may be difficult to assess or predict with meaningful precision both generally and as an industry-or issuer-specific basis. This is an uncertain issue where actual effects will depend on many factors beyond the control and knowledge of the Company.

2. BASIS OF PRESENTATION

a) Statement of Compliance

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

b) Basis of Preparation

These consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments measured at fair value through profit or loss, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for certain cash flow information. The consolidated financial statements, unless otherwise specified, are presented in US dollars, which is the functional currency of the Company.

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

2. BASIS OF PRESENTATION (CONTINUED)

c) Functional and presentation currency

These consolidated financial statements are presented in US dollars, unless otherwise noted, which is the functional currency of the parent and its wholly owned subsidiaries, 1253596 B.C. Ltd, which was incorporated in British Columbia, Canada, and Hapbee Technologies USA, Inc., which was incorporated in the State of Washington, USA.

d) Basis of consolidation

These consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements.

e) Approval of the Consolidated Financial Statements

The consolidated financial statements of the Company for the year ended December 31, 2020 were approved and authorized for issue by the Board of Directors on April 29, 2021.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

a) Critical accounting judgments and estimates

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments and estimates that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from these estimates. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical accounting judgments and estimates in applying accounting policies that have the most significant impact on the amounts recognized in the consolidated financial statements are outlined below.

Share-based payments and warrant liability

The Company makes certain estimates and assumptions when calculating the estimated fair values of stock options granted and warrants issued. The significant assumptions used include estimates of expected volatility, expected life, expected dividend rate and expected risk-free rate of return. Changes in these assumptions may result in a material change to the expense recorded for grants of stock options and the issuance of warrants. Certain warrants issued during the year are accounted for as derivate liabilities (see Note 13).

Deferred income taxes

The Company is periodically required to estimate the tax base of assets and liabilities. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded in the consolidated financial statements. Changes in deferred tax assets and liabilities generally have a direct impact on earnings in the period of changes.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

a) Critical accounting judgments and estimates (continued)

Each period, the Company evaluates the likelihood of whether some portion or all of each deferred tax asset will not be realized. This evaluation is based on historic and future expected levels of taxable income, the pattern and timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax planning initiatives. Levels of future taxable income are affected by, among other things, the market price for commodities, production costs, quantities of proven and probable reserves, interest rates, and foreign currency exchange rates.

Going concern

The determination of the Company’s ability to continue as a going concern requires the Company to make certain judgements about whether the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

Intangible assets

Management is required to use judgement in determining the economic useful lives of identifiable intangible assets and the capitalization of costs for internally generated intangible assets is subject to judgment including the technical feasibility, timeframe to commercialization, assessment of availability of resources to complete the project, and if economic benefits will be generated form its use. Management is required to use judgement in determining the economic useful lives of identifiable intangible assets. Judgement is also required in identifying indicators of impairment of the Company’s intangible assets.

At each financial position reporting date, the carrying amounts of the Company’s intangible assets, are reviewed to determine whether there is any indication that those assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the CGU to which the asset belongs. This requires management to make certain estimates and judgements which could be materiality different than actual results.

Revenue recognition

The Company’s revenue is comprised of sales of its products which consists of its wearable device and annual/monthly subscription. As a result, the Company is required to allocate the transaction prices amongst the multiple elements of its packaged products. This requires that management make judgements and estimates related to the allocation which are subjective and could result in material differences if changed.

b) Financial Instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of a financial instrument. Financial assets and financial liabilities are initially measured at fair value. Financial assets are classified into one of the following specified categories: amortized cost, fair value through profit or loss (“FVTPL”) or fair value through other comprehensive income (“FVOCI”). Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities classified as FVTPL) are added to, or deducted from, the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

b) Financial Instruments (continued)

assets or financial liabilities classified as FVTPL are recognized immediately in the statement of loss and comprehensive loss.

The Company’s financial instruments are classified as follows:

Financial instrument Measurement Cash FVTPL Receivables Amortized cost Accounts payable Amortized cost Unearned revenue Amortized cost

Financial Assets

Subsequent to initial recognition, financial assets classified and measured at amortized cost using the effective interest method.

Financial assets classified as FVTPL are recognized initially at fair values less transaction costs and are subsequently carried at fair value, with changes in the fair value recorded in comprehensive income. The fair value measurements are based on level 1 inputs, being quoted prices in active markets for identical instruments.

• c) Impairment of financial assets at amortized cost

The Company recognizes an allowance using the ECL model on financial assets classified as amortized cost. The Company has elected to use the simplified approach for measuring ECL by using a lifetime expected loss allowance for all accounts receivable. Under this model, impairment provisions are based on credit risk characteristics and days past due. When there is no reasonable expectation of collection, financial assets classified as amortized cost are written off. Indications of credit risk arise based on failure to pay and other factors. Should objective events occur after an impairment loss is recognized, a reversal of impairment is recognized in the statement of loss and comprehensive loss.

Financial Liabilities

Financial liabilities are classified as and are measured at amortized cost subsequent to initial measurement at fair value.

Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported on the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

d) Cash

Cash is comprised of cash held in current operating bank accounts.

e) Inventory

Inventory includes products held for resale in the ordinary course of business (finished goods) and is measured at the lower of cost and net realizable value. The cost of inventory is determined generally on a first-in and first-out basis.

f) Revenue recognition

The Company’s revenues are derived from both the sale of hardware as well as subscriptions fees related to the use of its products.

Sales of hardware is recognized upon the transfer of control of the promised product to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products.

Subscription fees are comprised of fees that provide customers with access to its software and application over the contract term without taking possession of the software. Revenue from subscription fees are recognized over the term of the contract.

The Company also collects advance payments from its customers which are recorded as unearned revenue. Recognition of the unearned revenue for subscription fees is over the term of the contract. For sale of hardware, recognition of unearned revenue is based on control of products transferring to customers.

g) Research and development expenditures

Research expenditures are recorded in the period incurred. Product development expenditures are expensed in the period incurred unless the product candidate meets specific criteria related to technical, market and financial feasibility for deferral and amortization. The Company’s policy is to amortize deferred product development expenditures over the expected future life of the product once product revenues are recorded. The future life of the product is estimated to be 8 years.

h) Share-based payments

The Company has a share-based compensation plan. Awards of options under this plan are expensed or recorded as additions to resource properties based on the estimated fair value of the options at the grant date, with a corresponding credit to contributed surplus in shareholders’ equity. Fair value is estimated using the Black-Scholes pricing model. If the options are subject to a vesting period, the estimated fair value is recognized over this period on a graded vesting basis, based on the Company’s estimate of the shares that will eventually vest.

Equity-settled share-based payment transactions with parties other than employees and those providing similar services are measured at the fair value of the goods or services received, except where that fair value cannot be estimated reliably, in which case they are measured at the estimated fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders the service.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

h) Share-based payments (continued)

Cash consideration received on exercise of options is credited to share capital together with the amounts originally recorded as share-based compensation related to the exercised options.

i) Income taxes

Current income taxes

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

Income tax is recognized in the statements of loss and comprehensive loss except to the extent that it relates to items recognized directly in equity. Current income tax relating to items recognized directly in equity is recognized in the statements of changes in equity and not in the statements of loss and comprehensive loss.

Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense.

Deferred income taxes

Deferred income taxes are calculated using the liability method on temporary differences between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except:

• when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

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

Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted, or substantively enacted, at the reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

i) Income taxes (continued)

Deferred tax relating to items recognized outside of profit or loss is recognized outside of profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive loss or directly in equity.

j) Loss per share

Loss per share is calculated based on the weighted average number of shares outstanding during the year. The Company follows the treasury method of calculating diluted earnings per share. This method assumes that any proceeds from the exercise of stock options and other dilutive instruments would be used to purchase common shares at the average market price during the year. Diluted loss per share is equal to loss per share since the exercise of all options and warrants is anti-dilutive.

k) Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the end of the reporting period and are discounted to present value where the effect is material. There were no material provisions recorded within the consolidated financial statements as at December 31, 2020.

l) Foreign currency translation

Foreign currency transactions are translated as follows:

• (i) monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the exchange rate prevailing at the statement of financial position date; and

• (ii) non-monetary assets and liabilities denominated in foreign currencies and measured in terms of historic costs are translated using exchange rates at the transaction dates.

m) Related party transactions

Unless otherwise disclosed herein, all transactions with related parties are in the normal course of business and are measured at the exchange amount (note 15).

n) Intangible assets - Licenses

Upon acquisition, intangible assets with finite useful lives are recorded at fair value and are carried at cost less accumulated amortization and impairment losses. Amortization is calculated over the cost of the asset, or revalued amount, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives of the Company’s licenses is 20 years.

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

o) Intangible assets – Development costs

Development expenditures can be capitalized only where a development project meets certain conditions, including technical feasibility of the intangible asset, intention to complete the project, ability to sell the intangible asset, probability that the intangible asset can produce future economic benefits, availability of resources to complete the project, and ability to reliably measure the expenditure attributable to the intangible asset. Development projects are reviewed as they arise and on an on-going basis to assess whether all conditions have been met. Amortization is calculated over the cost of the asset, or revalued amount, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

p) Adoption of new pronouncements

A number of amendments to standards and interpretations applicable to the Company are not yet effective for the year ended December 31, 2020 and have not been applied in preparing these consolidated financial statements nor does the Company expect these amendments to have a significant effect on its consolidated financial statements.

4. INVENTORY

Finished goods	2020 2019
	$ $ 29,829 -

5. INTANGIBLE ASSETS

The Company capitalized the acquisition costs of licenses and development costs related to the design and development of the device prototype.

a) Licenses

License Agreement for certain sensory technologies

On March 29, 2019, the Company acquired a license from EMulate Therapeutics Inc. (“EMulate"). The Company paid an up-front fee of USD $1,500,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate’s technology. The license has a term of 20 years from the effective date.

On October 30, 2019, an amended and restated exclusive license agreement with EMulate was signed by the Company. The effective date of the original licensing agreement was changed to October 30, 2019. All other terms remained the same. On January 24, 2020, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was changed to January 24, 2020, all other terms remained the same. On June 1, 2020, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and

15

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

5. INTANGIBLE ASSETS (CONTINUED)

a) Licenses (continued)

restated exclusive license agreement, the effective date of the original licensing agreement was changed to June 1, 2020. All other terms remained the same. On October 26, 2020, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was changed to October 26, 2020. All other terms remained the same.

License Agreement for certain sensory technologies

On October 30, 2019, the Company acquired another license from EMulate. The Company paid an upfront fee of USD $30,000 for this license. The Company will pay EMulate, on a quarterly basis, 20% royalties on the net income from sales, lease or rental of the authorized product containing cognate signals. The royalty rate on the first USD $10,000,000 will be 25%. In exchange, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate’s technology. The license has a term of 20 years from the effective date.

On October 31, 2019, an amended and restated exclusive license agreement with EMulate was signed by the Company. The effective date of the original licensing agreement was amended to October 31, 2019. All other terms remained the same. On January 24, 2020, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was amended to January 24, 2020. All other terms remained the same. On June 1, 2020, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was amended to June 1, 2020. All other terms remained the same. On October 26, 2020, another amended and restated exclusive license agreement with EMulate was signed by the Company. As per the amended and restated exclusive license agreement, the effective date of the original licensing agreement was amended to October 26, 2020. All other terms remained the same.

Sensory technologies include the human senses of happiness, sleepiness, focus, alertness, calmness and relaxation.

b) Development Costs

During the year, the Company incurred development costs of $314,983 related to the developing an augmentative wearable device that emulates normal molecular interactions in the body through small, specific magnetic fields. These costs have met the criteria for capitalization under IAS 38.

The following table outlines the Company’s intangible assets as at December 31, 2020:

License Agreement for certain sensory technologies License Agreement for certain sensory technologies Development costs capitalized Amortization of intangible assets - license fees Amortization of intangible assets - development costs	2020 2019
	$ $ 1,500,000 1,500,000 30,000 30,000 1,079,980 764,997
	(44,625) - (89,999) -
	2,475,356 2,294,997

16

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

6. ACQUISITION TRANSACTION

During May 2020, the Company entered into a definitive agreement with Zander to complete a transaction structured as a three-cornered amalgamation (“Amalgamation” or “Transaction”) with Zander and the Company’s wholly-owned subsidiary, 1245802 B.C. Ltd ("802"). As consideration for the Amalgamation, each outstanding common share of the Zander was exchanged for one Subordinated Voting Share of the Company. Pursuant to the amalgamation agreement, an aggregate of 8,724,401 of the Company's Subordinated Voting Shares have been issued to the shareholders of Zander. The Transaction resulted in Zander becoming a wholly-owned subsidiary of the Company on June 16, 2020. The company after the amalgamation of 802 and Zander was renamed 1253596 B.C. Ltd.

The Transaction was accounted for using the acquisition method of accounting whereby the assets acquired, and liabilities assumed were recorded at their estimated fair value at the acquisition date. The acquisition was not assessed to be a business combination and is therefore treated as an asset acquisition under the scope of IFRS 2 – Share Based Payments. The Company valued the subordinated voting shares using share prices used in recent equity and debt financings which were considered to be the fair value of the shares issued. The allocation of the purchase price is as follows:

sued. The allocation of the purchase price is as follows:
	$
Subordinated Voting shares of the Company issued	8,724,401
Fair value of consideration received($0.22per share)	1,938,755
Identifiable assets acquired	474,273
Identifiable liabilities assumed	(1,952)
Net	472,321
Share-based compensation related to services, knowledge and expertise of the Zander team	1,466,434
Totalpurchaseprice	1,938,755

In exchange for 8,724,401 Subordinated Voting Shares of the Company, the Company received $472,321 in net assets and the remaining consideration was allocated to share-based payments. The share-based payments represent the services and knowledge related to the expertise that the Zander team brings to the Company. The Zander team will be able to assist the Company in understanding the Canadian marketplace and will be able to introduce strategic partners to assist with future financings and business negotiations. The Company recorded the shared based-compensation in the year on the consolidated statement of loss and comprehensive loss.

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Trade accounts payable and accrued liabilities Amounts payable to related parties (note 15)	2020 2019
	$ $ 387,012 23,062 219,744 737,150
	606,756 760,212

17

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

8. CONVERTIBLE DEBENTURES

On June 25, 2020, the Company closed a non-brokered private placement of secured convertible debentures (“Convertible Debentures”), in the principal amount of $4,483,594 (C$6,116,773). The Convertible Debentures will mature on June 25, 2022. The Company filed a listing application for its Subordinated Voting Shares to be listed on TSX Venture Exchange (the “Listing”). If the Listing was completed on or before October 30, 2020, there would not be any interest to be paid or accrued on the Convertible Debenture. If the Listing was completed after October 30, 2020, there would be eight percent (8%) coupon interest rate to be paid and accrued retroactively from the day of issuance of the Convertible Debentures. The total amount of the principal and the total amount of accrued and unpaid interest, if any, would be automatically converted into units (the “Convertible Debenture Units”) of the Company prior to or concurrent to the receipt of the final receipt of the Final Prospectus, at a conversion price of $0.22 (C$0.30) per Unit (the “Conversion Price”). Each Convertible Debenture Unit consists one (1) Subordinated Voting Shares (the “Convertible Debenture Share”) and one half of one (1/2) Subordinated Voting Share purchase warrant (each a “Convertible Debenture Warrant”). Each whole Convertible Debenture Warrant will entitle the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.37 (C$0.50) per share for a period of two (2) years from the issuance date of the Convertible Debenture Warrant.

For accounting purposes, the Convertible Debentures are separated into their components using the residual method. The fair value of the liability component at the time of issue was determined to be $3,331,378. This is based on an estimated market interest rate of 20% for Convertible Debentures without the conversion feature. After initial recognition the liability component is carried on an amortized cost basis and will be accreted to its face value over the term to maturity of the Convertible Debenture at an effective interest rate of approximately 25.1%.

On October 27, 2020, the principal amount of Convertible Debentures was automatically converted into 20,389,216 units (the “Convertible Debenture Units”) of the Company, at a conversion price of $0.22 (C$0.30) per Unit (the “Conversion Price”) with the warrant rights mentioned above. The balance of the Convertible Debentures as at October 26, 2020 was converted into Share Capital and the interest accrued up to October 26, 2020 was forfeited accordingly.

On July 13, 2020, the Company closed a non-brokered private placement of secured convertible debentures (“Convertible Debentures”), in the principal amount of $280,098 (C$380,000). The Convertible Debentures will mature on July 13, 2022. The Company filed a listing application for its Subordinated Voting Shares to be listed on TSX Venture Exchange (the “Listing”). If the Listing was completed on or before October 30, 2020, there would not be any interest to be paid or accrued on the Convertible Debenture. If the Listing was completed after October 30, 2020, there would be eight percent (8%) coupon interest rate to be paid and accrued retroactively from the day of issuance of the Convertible Debentures. The total amount of the principal and the total amount of accrued and unpaid interest, if any, would be automatically converted into units (the “Convertible Debenture Units”) of the Company prior to or concurrent to the receipt of the final receipt of the Final Prospectus, at a conversion price of $0.22 (C$0.30) per Unit (the “Conversion Price”). Each Convertible Debenture Unit consists one (1) Subordinated Voting Shares (the “Convertible Debenture Share”) and one half of one (1/2) Subordinated Voting Share purchase warrant (each a “Convertible Debenture Warrant”). Each whole Convertible Debenture Warrant will entitle the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.37 (C$0.50) per share for a period of two (2) years from the issuance date of the Convertible Debenture Warrant.

18

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

8. CONVERTIBLE DEBENTURES (CONTINUED)

For accounting purposes, the Convertible Debentures are separated into their liability components using the residual method. The fair value of the liability component at the time of issue was determined to be $225,635. This is based on an estimated market interest rate of 20% for Convertible Debentures without the conversion feature. After initial recognition the liability component is carried on an amortized cost basis and will be accreted to its face value over the term to maturity of the Convertible Debenture at an effective interest rate of approximately 20.17%.

On October 27, 2020, the principal amount of Convertible Debentures was automatically converted into 1,266,666 units (the “Convertible Debenture Units”) of the Company, at a conversion price of $0.22 (C$0.30) per Unit (the “Conversion Price”) with the warrant rights mentioned above. The balance of the Convertible Debentures as at October 26, 2020 was converted into Share Capital and the interest accrued up to October 26, 2020 was forfeited accordingly.

9. SHARE CAPITAL

On June 15, 2020, the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinated Voting Shares, and created a new class of unlimited number of Multiple Voting Shares, all without par value.

Authorized

The Company’s authorized capital consists of (i) an unlimited number of Subordinated Voting Shares, and (ii) an unlimited number of Multiple Voting Shares. The holders of Subordinated Voting Shares are entitled to one vote for each Subordinated Voting share held. The holders of Multiple Voting Shares are entitled to 100 votes for each Multiple Voting Share held.

Voting Rights

All holders of Subordinated Voting Shares and Multiple Voting Shares are entitled to receive notice of any meeting of shareholders of the Company, and to attend, vote and speak at such meetings, except those meetings at which only holders of a specific class of shares are entitled to vote separately as a class under the Business Corporations Act (British Columbia). A quorum for the transaction of business at any meeting of shareholders is two persons present at the meeting, each of whom is entitled to vote at the meeting, and who hold or represent by proxy in the aggregate not less than 5% of the outstanding shares of the Company entitled to vote at the meeting.

• On all matters upon which shareholders the Company are entitled to vote:

• each Subordinated Voting Share is entitled to one vote per Subordinated Voting Share; and

• each Multiple Voting Share is entitled to 100 votes per Multiple Voting Share.

• Unless a different majority is required by law or the articles of the Company, resolutions to be approved by shareholders require approval by a simple majority of shareholders.

Conversion Rights and Conditions

The issued and outstanding Multiple Voting Shares, including fractions thereof, may at any time, subject to the FPI Condition (as defined below), at the option of the holder, be converted into Subordinated Voting Shares at a ratio of 100 Subordinated Voting Shares per Multiple Voting Share. Further, the board of directors of the Company may determine in the future that it is no longer advisable to maintain the Multiple

19

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

9. SHARE CAPITAL (CONTINUED)

Conversion Rights and Conditions (continued)

Voting Shares as a separate class of shares and may cause all of the issued and outstanding Multiple Voting Shares to be converted into Subordinated Voting Shares at a ratio of 100 Subordinated Voting Shares per Multiple Voting Share. The right of the Multiple Voting Shares to convert into Subordinated Voting Shares is subject to certain conditions in order to maintain the status of the Company as a “foreign private issuer” under United States securities laws (the “FPI Condition”).

At December 31, 2020, the Company has 46,938,056 Subordinated Voting Shares issued and outstanding and 450,000 Multiple Voting Shares issued and outstanding.

Shares Issuance

Fiscal Year 2019

• On January 3, 2019, the Company issued 5 common shares at a price of $0.22 upon incorporation.

• On March 13, 2019, the Company forward split its 5 issued and outstanding shares on the basis of 28,125,000 post-split shares for 1 pre-split common share.

• On March 14, 2019, the Company completed a private placement of 16,875,000 common shares at a price of $0.0000022 per share for aggregate gross proceeds of $38. The shares were issued to an officer of the Company.

• During the period from April 3, 2019 to December 31, 2019, the Company completed a private placement of an aggregate of 13,050,000 common shares at a price of $0.22 per share for aggregate gross proceeds of $2,900,000.

Fiscal Year 2020

• During the period from January 1, 2020 to June 4, 2020, the Company completed a private placement of an aggregate of 2,497,500 common shares at a price of $0.22 per share for aggregate gross proceeds of $555,000.

• On June 15, 2020, the Company completed a forward stock split of its shares on a 1 for 4.5 basis. Particulars of the share split were approved by the shareholders at the Company’s AGM on June 15, 2020. The Company had 13,455,000 common shares issued and outstanding and the resulting post share split shares outstanding are 60,547,500. All share information was updated to reflect this stock split. The exercise price and number of common shares issuable pursuant to all share capital have been adjusted in accordance with the stock split ratio.

• On June 15, 2020, the Company amended its articles in order to change its authorized capital from an unlimited number of common shares, without par value, to an unlimited number of Subordinated Voting Shares, and created a new class of unlimited number of Multiple Voting Shares, all without par value. 60,547,500 common shares previously issued were cancelled and replaced by 60,547,500 Subordinated Voting Shares.

• On June 15, 2020, the Company exchanged 45,000,000 Subordinated Voting Shares owned by EMulate Therapeutics Inc. and Scott Donnell for 450,000 Multiple Voting Shares.

• On June 16, 2020, the Company issued 8,724,401 Subordinated Voting Shares upon the completion of the amalgamation with Zander, refer to Note 6 for details.

• On June 16, 2020, the Company issued 200,000 Subordinated Voting Shares to a director of the Company at a deemed price of $0.22 per share.

20

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

9. SHARE CAPITAL (CONTINUED)

• On June 25, 2020, the Company issued 716,357 Subordinated Voting Shares to a finder of the Convertible Debentures (Note 8).

• On October 27, 2020, the principal amounts of Convertible Debentures, which were issued on June 25, 2020 and July 13, 2020, have automatically converted into 21,655,882 units (the “Convertible Debenture Units”) of the Company, at a conversion price of $0.22 (C$0.30) per Unit (the “Conversion Price”). Each Convertible Debenture Unit consists one (1) Subordinated Voting Shares (the “Convertible Debenture Share”) and one half of one (1/2) Subordinated Voting Share purchase warrant (each a “Convertible Debenture Warrant”) (Note 8).

• On October 30, 2020, the Company’s Subordinate Voting Shares were listed on the TSX Venture Exchange.

10. STOCK OPTIONS

The Company has adopted a stock option plan (the “Old Plan”) on November 6, 2019, providing the Board of Directors with the discretion to issue an equivalent number of options of up to 7,515,000 Subordinated Voting Shares of the Company. Stock options are granted with an exercise price of not less than the closing share price the date preceding the date of grant.

During the year, Company granted 7,866,875 (2019 – nil) stock options to its directors, officers and consultants with a value of $2,332,752 (2019 - $Nil) or $0.33 (2019 - $Nil) per option. The details are as follows:

On January 20, 2020, the Company granted 3,600,000 incentive stock options to officers, directors and consultants of the Company. The options are exercisable at the price of $0.22 per share until January 20, 2028.

On August 12, 2020, the Company replace its Old Plan with a new 10% rolling stock option plan (the “New Plan”) and adopted a 10% fixed restricted share unit plan (the "RSU Plan"), which were subsequently approved by the TSX Venture Exchange upon the Listing.

On November 12, 2020, the Company granted 4,266,875 incentive stock options to officers, directors and consultants of the Company pursuant to the Company's New Plan. The options are all exercisable at the price of $0.56 (C$0.73) per share until November 12, 2028, subject to earlier termination in accordance with the New Plan.

The fair value of share options awarded to officers, directors and consultants was estimated on the dates of award using the Black-Scholes option pricing model with the following assumptions:

ward using the Black-Scholes option	pricing model with the following	assumptions:
	Options granted on	Options granted on
	November 12,2020	January20,2020
Dividend yield	0%	0%
Risk-free interest rate	0.63%	1.57%
Estimated volatility	100%	100%
Expected life in years	8	8
Fairvalue atgrant date	$0.61	$0.19

21

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

10. STOCK OPTIONS (CONTINUED)

The stock options outstanding and exercisable as at December 31, 2020 is as follows:

	Expiry date Number of options	Expiry date Number of options	Exercise price ($)
Outstanding at December 31, 2019		-	-
Granted on January 20, 2020	January 20, 2028	3,600,000	0.22
Granted on November 12, 2020	November 12, 2028	4,266,875	0.56
Outstanding at December 31, 2020		7,866,875	0.40
Exercisable at December 31, 2020		7,030,625	0.39

The number of options exercisable as at December 31, 2020 was 7,030,625 (2019 – Nil). The weighted average life remaining for these options were 7.45 years and weighted average exercise price was $0.39 per option.

The Company has granted an aggregate of 5,466,875 (2019: Nil) restricted stock units (the “RSU”) to officers, directors, key employees and consultants pursuant to the Company's RSU Plan with a value of $248,400 (2019 - $Nil) or $0.45 (2019 - $Nil) per option. The RSUs will be subject to vesting provisions. Each vested RSU entitles the holder to receive one Subordinated Voting Share in the capital of the Company. The grant of RSUs is subject to regulatory approval. As at December 31, 2020, none of RSUs is exercisable.

The fair value of RSUs awarded to officers, directors, key employees and consultants was estimated on the dates of award using the Black-Scholes option pricing model with the following assumptions:

	RSUs
Dividend yield	0%
Risk-free interest rate	0.25%
Estimated volatility	100%
Expected life in years	2

11. WARRANTS

On June 25, 2020, the Company issued 976,523 non-transferrable finder’s warrants. Each finder’s warrant will entitle the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.22 (C$0.30) per share for a period of two (2) years from the issuance date. The broker’s warrants were valued at $152,876 using the Black-Scholes Option Pricing Model with the following assumption at the issue date: risk free interest rate of 0.30%; dividend yield of 0%; expected volatility of 100% and expected life of 2 years (Note 8).

On July 31, 2020, the Company issued 223,073 (2019 – nil) warrants to a consultant (the Consultant”) pursuant to the consulting agreement with the Consultant. Each Consultant’s warrant will entitle the holder to purchase one (1) additional Subordinated Voting Share from the Company at an exercise price of $0.22 (C$0.30) per share for a period of two (2) years from the issuance date. The Consultant’s warrants were valued at $35,541 using the Black-Scholes Option Pricing Model with the following assumption at the issue

22

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

11. WARRANTS (CONTINUED)

date: risk free interest rate of 0.23%; dividend yield of 0%; expected volatility of 100% and expected life of 2 years.

On October 27, 2020, the Company issued 10,827,938 Convertible Debenture Warrants upon conversion of the Convertible Debentures (Note 8). Out of these issued Convertible Debenture Warrants, a total of 93,916 warrants were exercised during the fiscal year.

The warrants outstanding and exercisable as at December 31, 2020 are as follows:

	Expiry date	Number of	Number of	Exercise
		warrants	warrants	Price ($)
		outstanding	exercisable
Balance December31,2019		-	-	-
Granted	June 25,2022	976,523	976,523	0.22
Granted	July 31,2022	223,073	223,073	0.22
Granted	October 27,2022	10,827,938	10,827,938	0.37
Exercised	October 27,2022	(93,916)	(93,916)	0.37
Balance December 31, 2020		11,933,618	11,933,618	0.36

12. LOSS PER SHARE

The weighted average number of shares outstanding for the year ended December 31, 2020 was 45,356,219. The Company included both weighted average subordinated common shares outstanding and weighted average multiple voting shares outstanding to the loss per share calculation.

13. WARRANT LIABILITY

The Company’s warrant liability arises as a result of the issuance of warrants exercisable in Canadian dollars (“CAD”). As the denomination currency is different from the US dollar functional currency of the entity issuing the underlying warrants, the Company recognizes a derivative liability for these warrants and re-measures the liability at the end of each reporting period using the Black-Scholes model. Changes in respect of the Company’s warrant liability are as follows:

respect of the Company’s warrant liability are as follows:
	December 31,
	2020
Balance at beginning of the period	$ -
Fair value adjustment	3,347,427
Other	(111,785)
Balance at end of theperiod	$3,235,642

Continuity of warrants during the periods is as follows:

			Underlying	Weighted Average
			warrants	Exercise Price
Warrants outstanding and exercisable, December	31,	2019	-	-
Granted			10,827,938	$0.37
Expired			-	-
Warrants outstandingand exercisable,December	31,	2020	10,827,938	$0.37

23

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

13. WARRANT LIABILITY (CONTINUED)

As at December 31, 2020, the weighted average remaining contractual life of warrants outstanding was 1.82 years.

Valuation of the warrant liability requires the use of highly subjective estimates and assumptions including the expected stock price volatility. The expected volatility used in valuing warrants is based on volatility observed in historical periods and comparative companies historical information. Changes in the underlying assumptions can materially affect the fair value estimates. The fair value of the warrant liability was calculated using the Black-Scholes model with the following weighted average assumptions and resulting fair values:

	December 31,
	2020
Weighted average assumptions:
Risk-free interest rate	0.20%
Expected dividend yield	0%
Expected warrant life (years)	1.82
Expected stock price volatility	100%
Fair value	$0.31

14. INCOME TAXES

The provision for income taxes reported differs from the amounts computed by applying the applicable income tax rates to the net loss before tax provision due to the following:

Loss before income taxes Statutory rate Tax recovery at statutory rate Change in unrecognized deductible temporary differences Permanent differences Income tax recovery Deferred income tax assets Losses carried forward Share issuance costs Intangible assets Capitalized development cost Deferred income tax liabilities Unrecognized deferred income tax assets Net deferred income tax assets	2020 2019
	$ $ (10,335,544) (401,543) 27% 27%
	(2,790,597) (108,417) 575,949 108,058 2,214,648 359
	- -
	2020 2019
	$ $ 643,374 108,058 - 6,573 12,049 - 24,300 -
	679,723 114,631
	(679,723) (114,631)
	- -

Non-capital losses

As at December 31, 2020, the Company has estimated non-capital losses for Canadian income tax purposes of $2,378,000 that may be carried forward to reduce taxable income derived in future years. These losses expire in 2040.

24

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

15. RELATED PARTY TRANSACTIONS

The aggregate value of transactions recorded relating to key management personnel and entities which they have control or significant influence were as follows:

		2020	2019
	Notes	($)	($)
EMulate Therapeutics Inc. – License Fees	(a)	697,496	1,530,000
EMulate Therapeutics Inc. – Development Costs	(b)	111,701	-
EMulate Therapeutics Inc. – Royalty Fees	(c)	113,362	-
Shares issued to Emulate Therapeutics Inc.	(d)	1	1
Scott Donnell	(e)	176,000	48,000
Shares issued to Scott Donnell	(f)	38	38
Shares issued to Robert Dzisiak	(g)	44,256	-

• (a) EMulate Therapeutics Inc., an entity which has significant influence on the Company charged license fees. See note 5.

• (b) EMulate Therapeutics Inc., an entity which has significant influence on the Company charged development costs. See note 5.

• (c) EMulate Therapeutics Inc., an entity which has significant influence on the Company charged royalty fees. See note 5.

• (d) During the year ended December 31, 2019, 28,125,000 common shares were issued to Emulate Therapeutics Inc. for gross proceeds of $1. During June 2020, these 28,125,000 common shares were cancelled and replaced by 281,250 Multiple Voting Shares.

• (e) Scott Donnell, the CEO charged consulting fees to the Company.

• (f) During the year ended December 31, 2019, 16,875,000 common shares were issued to Scott Donnell for gross proceeds of $38. During June 2020, these 16,875,000 common shares were cancelled and replaced by 168,750 Multiple Voting Shares.

• (g) During June 2020, 200,000 Subordinated Voting Shares were issued to Robert Dzisiak, a director of the Company as compensation.

The following table outlines the Company’s related party payables:

	2020	2019
	$	$
Scott Donnell	54,069	13,000
EMulate Therapeutics Inc.	165,675	724,150
	219,744	737,150

16. CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can provide returns for shareholders and benefits for other shareholders. The Company considers the items included in shareholders’ equity as capital. The Company manages the capital structure and makes adjustments to it 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 identification and evaluation of potential acquisitions. To secure the additional capital necessary to pursue these plans, the Company intends to raise additional funds through equity or debt financing. The Company is not subject to any externally imposed capital requirements. There were no changes in the Company’s approach to capital management.

25

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

17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company’s financial instruments consist of cash, receivables, accounts payable and convertible debentures. The fair values of the Company’s cash and accounts payable approximate their carrying values, due to their short-term natures. The Company’s cash is measured at fair value under the fair value hierarchy based on level one quoted prices in active markets for identical assets or liabilities. The Company’s financial instruments are exposed to certain financial risks, including currency risk, credit risk, liquidity risk, interest rate risk and price risk.

Credit risk

Credit risk is the risk of loss due to the counterparty's inability to meet its obligations. The Company’s exposure to credit risk is on its cash. Risk associated with cash is managed through the use of major banks which are high credit quality financial institutions as determined by rating agencies. Credit risk is assessed as low.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting obligations when they become due. The Company aims to ensure that there is sufficient capital in order to meet short-term operating requirements, after taking into account the Company’s holdings of cash. The Company believes that the capital sources will be sufficient to cover the expected cash requirements by obtaining financing through the issuance of debt or shares. Liquidity risk is assessed as high.

Market risk

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

a) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not currently exposed to interest rate risk.

b) Price risk

The Company is exposed to price risk with respect to equity prices. Equity price risk is defined as the potentially adverse impact on the Company’s ability to obtain equity financing due to movements in individual equity prices or general movements in the level of the stock market. The Company is not exposed to price risk as it has no instruments in publicly held securities.

c) Foreign currency 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. The Company is not exposed to foreign exchange risk as all of its operations are in the United States of America, except of cash held in Canadian Dollars which amounted to $3,803,311 Canadian Dollars as at December 31, 2020 (2019: $64,225 – December 31, 2019), accounts receivable which amounted to $3,619 Canadian Dollars at December 31, 2020 (2019: $Nil) and accounts payable which amounted to $8,770 Canadian Dollars at December 31, 2020 (2019: $Nil).

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

18. GENERAL AND ADMINISTRATIVE EXPENSES

	2020	2019
	$	$
Foreign exchange recovery	(243,708)	(612)
Marketing and selling	670,765	102,795
Office	383,917	17,645
Travel and entertainment	10,568	24,940
	821,542	144,768

19. COMMITMENTS AND CONTINGENCIES

• a) On March 29, 2019, the Company entered into an exclusive license agreement with EMulate Therapeutics Inc. (“EMulate”), which is subsequently amended and restated on October 30, 2019, January 24, 2020, June 1, 2020 and October 26, 2020. The agreement will be in effect for 20 years. Based on the agreement, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate’s technology. In exchange, the Company will pay EMulate an upfront non-refundable, non-creditable payment of $1,500,000 by the earlier of April 30, 2020 or the date by which the Company has raised aggregated amounts of $5 million or more by equity financing. The Company will also pay to EMulate royalties on the quarterly net income from sales, lease or rental of the authorized product in the territory multiplied by a percentage royalty rate of 20%. During the year ended December 31, 2020, the Company has paid license fees of $697,496.

• b) On October 30, 2019, the Company entered into an exclusive license agreement with EMulate, which is subsequently amended and restated on January 24, 2020 and June 1, 2020 and October 26, 2020. The agreement will be in effect for 20 years. Based on the agreement, the Company will obtain from EMulate certain exclusive rights and licenses to develop, use, import, and commercialize a consumer digital products using EMulate’s technology. In exchange, the Company will pay EMulate an upfront non-refundable, non-creditable payment of $10,000 for each cognate designated by and provided to the Company. The Company will also pay to EMulate royalties on the quarterly new income from sales, lease or rental of the authorized product in the territory multiplied by a percentage royalty rate of 20%. During the year ended December 31, 2020, the royalty fees payable to Emulate of $113,362.

20. SUBSEQUENT EVENTS

• a) Subsequent to the year end, a total of 1,439,665 warrants were exercised and converted into Subordinated Voting Shares.

• b) On February 16, 2021, the Company signed an agreement with Octagon Media Corp. (“Octagon”) where Octagon is engaged to provide marketing services to the Company for a period of 6 months ending August 16, 2021. The Company agreed to pay $125,000 upfront and to grant 600,000 options at an exercise price of $0.80 to Octagon in return for marketing services.

• c) On March 5, 2021, the Company has granted stock options exercisable to purchase up to an aggregate of 40,000 shares and restricted stock units exercisable to purchase up to an aggregate of 100,000 shares to consultants. The options are exercisable at the price of C$0.67 per share until March 5, 2029; the restricted stock units are exercisable until March 5, 2024.

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