LeoNovus Inc — Annual Report 2020

May 1, 2021

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Consolidated Financial Statements

Leonovus Inc.

Years ended December 31, 2020 and 2019

(Expressed in Canadian Dollars)

Leonovus Inc. Consolidated Financial Statements December 31, 2020 and 2019

TABLE OF CONTENTS Independent Auditor’s Report Consolidated statements of net loss and comprehensive loss Consolidated statements of financial position Consolidated statements of changes in shareholders’ equity Consolidated statements of cash flows Notes to the consolidated financial statements	PAGE 3 4 5 6 7 - 24

2

Independent Auditor's Report

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To the Shareholders of Leonovus Inc.:

Opinion

We have audited the consolidated financial statements of Leonovus Inc. and its subsidiary (the "Company"), which comprise the consolidated statements of financial position as at December 31, 2020, December 31, 2019 and January 1, 2019, and the consolidated statements of net loss and comprehensive loss, changes in shareholders' equity and cash flows for the years ended December 31, 2020 and December 31, 2019, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2020, December 31, 2019 and January 1, 2019 and its consolidated financial performance and its consolidated cash flows for the years ended December 31, 2020 and December 31, 2019 in accordance with International Financial Reporting Standards.

Basis for Opinion

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

Material Uncertainty Related to Going Concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a net loss during the year ended December 31, 2020 and, as of that date, the Company had a deficit. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Change in Accounting Policy

As discussed in Note 1(c) to the consolidated financial statements, the Company has elected to change its presentation currency from U.S. dollar to Canadian dollar. The change is as of January 1, 2020, and has been retrospectively applied, and the statement of financial position as of January 1, 2019, has been included in pursuant to the requirements of International Financial Reporting Standards.

Other Information

Management is responsible for the other information. The other information comprises Management's Discussion and Analysis and Annual Information Form.

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 audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated. We obtained Management's Discussion and Analysis and Annual Information Form prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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

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

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

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

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

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

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

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

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

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

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

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

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

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

The engagement partner on the audit resulting in this independent auditor's report is Shawn Mincoff.

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Ottawa, Ontario April 30, 2021

Chartered Professional Accountants

Licensed Public Accountants

Leonovus Inc.

Consolidated statements of net loss and comprehensive loss Years ended December 31, 2020 and 2019

(in thousands of Canadian dollars)

	Note		2020		2019
					(Note 1.c.)
Revenue	3	$	327	$	32
Expenses
General and administrative	4		1,011		1,945
Research and development	4		748		2,593
Sales and marketing	4		259		1,466
			2,018		6,004
Loss from operating activities			(1,691)		(5,972)
Non-operating income (expense)
Foreign exchange gain (loss)			(24)		(62)
Finance costs			(199)		(99)
Other income	17		132		-
Amortization of borrowing costs			(20)
Loss due to fraud	5		-		(750)
Net loss			(1,802)		(6,883)
Other comprehensive income (loss)
Foreign currency translation gain (loss)			27		38
Total comprehensive loss		$	(1,775)	$	(6,845)
Net loss per share	6
Basic and diluted		$	(0.19)	$	(0.74)
Weighted average number of outstanding shares			9,560,995		9,287,979

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

3

Leonovus Inc.

Consolidated statements of financial position

As at December 31, 2020 and 2019 and January 1, 2019

(in thousands of Canadian Dollars)

(in thousands of Canadian Dollars)
Note	December 31, December 31, January 1, 2020 2019 2019
	(Note 1.c.) (Note 1.c.)
Assets Current Assets Cash Short term investment Subscription receivable 15 Trade and other receivables 7 Prepaid expenses	834 $ 705 $ 4,922 $ - 50 50 501 - - 182 211 659 11 33 118
Propertyand equipment 8	1,528 999 5,749 1,606 1,788 1,224
Total assets	3,134 $ 2,787 $ 6,973 $
Liabilities and Shareholders' Equity Current Liabilities Trade and other liabilities 9 Contract liability 10 Loan payable 11 Deferred compensation 12	548 $ 357 $ 1,334 $ 43 - - 296 - - 623 595 201
Rent inducement Longterm lease liability 13	1,510 952 1,535 - - 95 826 805 -
Total liabilities Shareholders' Equity Share capital 15 Warrants 15 Contributed surplus 15 Accumulated other comprehensive income (loss) Deficit	2,336 1,757 1,630 36,110 35,241 31,587 708 - 5,346 7,273 7,307 3,083 7,123 7,096 7,058 (50,416) (48,614) (41,731)
Total shareholders' equity	798 1,030 5,343
Total liabilities and shareholders' equity	3,134 $ 2,787 $ 6,973 $
Commitments 13

ON BEHALF OF THE BOARD

Original signed by:

Denis archabault, Director

Original signed by:

Michael Gaffney, Director

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

4

Leonovus Inc.

Consolidated statements of changes in shareholders' equity

Years ended December 31, 2020 and 2019

(in thousands of Canadian dollars)

Notes 1.c. and 15	Number of		Share			Contributed	Contributed	Accumulated	Accumulated				Total
common shares			capital	Warrants			surplus	comprehensive			Deficit		equity
	outstanding(1)								income
Balance as at January 1, 2019	8,583,756	$	31,587	$	5,346	$	3,083	$	7,058	$	(41,731)	$	5,343
Share capital released from escrow	43,925		486				(215)						271
Issuance of share capital related
to the exercise of warrants	882,867		3,160		(1,059)		-		-		-		2,101
Issuance of share capital related to
the exercise of stock options	4,340		8		-		-		-		-		8
Expiry of warrants			-		(4,287)		4,287		-		-		-
Share-based compensation			-		-		152		-		-		152
Transactions with shareholders	9,514,888	$	35,241	$	-	$	7,307	$	7,058	$	(41,731)	$	7,875
Net loss			-		-		-		-		(6,883)		(6,883)
Foreign currency translation gain			-		-		-		38		-		38
Balance as at December 31,2019	9,514,888	$	35,241	$	-	$	7,307	$	7,096	$	(48,614)	$	1,030
Issuance of bonus shares related to
loan	105,333		79		-		-		-		-		79
Issuance of share capital related to
private placement	5,137,203		1,580		-		-		-		-		1,580
Share issue costs			(82)		-		-		-		-		(82)
Issuance of warrants related to private
placement			(708)		708		-		-		-		-
Share-based compensation			-		-		(34)		-		-		(34)
Transactions with shareholders	14,757,424		36,110		708		7,273		7,096		(48,614)		2,573
Net loss			-		-		-		-		(1,802)		(1,802)
Foreign currency translation gain			-		-		-		27		-		27
Balance as at December 31,2020	14,757,424	$	36,110	$	708	$	7,273	$	7,123	$	(50,416)	$	798

(1) Amounts reflect retrospective application of the October 26, 2020 share consolidation (see Note 14)

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

5

Leonovus Inc.

Consolidated statements of cash flows

Years ended December 31, 2020 and 2019

(in thousands of Canadian dollars)

Leonovus Inc. Consolidated statements of cash flows Years ended December 31, 2020 and 2019 (in thousands of Canadian dollars)
Note Cash provided by (used in) the following activities: Operating activities Net loss Adjustments to net loss: Amortization of property and equipment 4 Share-based compensation 15 Gain on settlement of deferred compensation 12 Accretion of lease liability 13 Accretion of loan payable 11 Amortization of borrowing costs 11 Net change in non-cash operatingworkingcapital 16	2020 2019 (Note 1.c.) (1,802) $ (6,883) $ 182 180 (34) 152 - (123) 126 111 24 - 20 292 371
Net cash flows from(used in)operatingactivities	(1,192) (6,192)
Financing activities Issuance of loan payable Borrowing costs paid Repayment of lease liability Issuance of units, net of issuance costs 15 Issuance of share capital from exercise of options	395 $ - $ (27) - (105) 996 2,101 - 8
Cash flows from(used in)financingactivities	1,259 2,109
Investing activities Redemption of short term investment Purchase ofpropertyand equipment 8	50 - - (122)
Cash flows from(used in)investingactivities	50 (122)
Effects of currency translation on cash Cash, beginning of the year Net increase (decrease) in cash	117 (4,205) 12 (12) 705 4,922
Cash,end of theyear	834 $ 705 $
Additional Information Interest received included in operating activities Income tax paid included in operating activities	2 $ 12 $ - $ - $

6

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

1. a. Corporate information

Leonovus Inc. (“Leonovus” or the "Company”) is a publicly listed Company and is incorporated under the Province of Ontario Business Corporations Act. The Company’s shares are listed on the TSX Venture Exchange (“TSX-V”) under the symbol LTV. The address of the Company’s registered office and its principal place of business is 2611 Queensview Drive, Suite 125, Ottawa, ON K2B 8K2.

Leonovus is a secure data management software company. The Leonovus suite of data management tools offers customers a complete end-to-end data-centric solution. This solution can stand on its own, or it can be integrated with the organization's zerotrust strategy and architecture. It takes seamless advantage of the organization's existing storage infrastructure and network architecture, working on-premises, in the cloud, or both and extends the data-centric controls across the entire architecture, including cloud resources.

Going concern

The preparation of consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) contemplates the continuation of the Company as a going concern. During the year ended December 31, 2020, the Company has not generated sufficient revenues to achieve and sustain profitability, has a net loss of $1,802 and as of December 31, 2020 had a deficit of $50,416. In the absence of raising additional debt or equity financing or generating sufficient revenues to achieve and sustain profitability, there is a material uncertainty that may cast significant doubt regarding the Company’s ability to continue as a going concern.

The Company will require revenue from its products and new financing to continue as a going concern in its present form. However, there can be no assurance that the Company will achieve such results. These consolidated financial statements do not include any adjustments related to recoverability and classification of recorded asset amounts, or the amounts and classification of liabilities that might be necessary should the Company be unable to continue its operations. The Company’s ability to realize its assets and discharge its liabilities is dependent on its ability to obtain additional financing.

In assessing whether this assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. If the going concern assumption was not appropriate for these financial statements, then adjustments would likely be necessary in the carrying amounts of assets and liabilities, expenses, the accumulated deficit and the classification used in the consolidated statement of financial position. These adjustments could be material.

b. Impact of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization categorized COVID-19 as a pandemic. The potential economic effects within the Company’s environment and measures being introduced at various levels of government to curtail the spread of the virus such as travel restrictions, closures of non-essential municipal and private operations, imposition of quarantines and social distancing, may have a material impact on the Company’s operations. Furthermore, our employees and contractors could be affected by COVID-19 that could result in a reduction in our workforce due to illness or quarantine which could result in the disruption of our operations or hinder the Company’s ability to secure financing. Revenues in 2020 were affected as certain contracts expected to have been completed by year-end, were extended and completed in the first quarter of 2021. Current measures may continue and increase depending on developments in the outbreak making it uncertain for the Company to determine the ultimate severity and the extent of the impact on its operations.

c. Change in accounting policy

Change in presentation currency

Effective December 31, 2020, the Company changed its presentation currency from U.S. dollars to Canadian dollars to better reflect the Company’s business activities, given the significance of our increased revenues in 2020 denominated in Canadian dollars.

The Company followed the guidance of IAS 21 Effects of Changes in Foreign Exchange Rates ("IAS 21") and have applied the change retroactively. As a result, the Company has restated prior year comparatives, including the January 1 opening Statement of financial position as required by IFRS 1 First-Time Adoption of International Financial Reporting Standards ("IFRS 1"). The change in presentation currency had the following effect:

• Assets and liabilities have been translated at the exchange rate on the respective reporting dates;

• Equity transactions have been translated at the historical exchange rate at the date of the transaction;

• The statements of net loss and comprehensive loss have been translated at the average exchange rate on the respective reporting dates;

• The results of the wholly owned subsidiary, Leonovus USA Inc., which has a functional currency of United States dollars, reported on the statements of net loss and comprehensive loss have been translated at the average exchange rate on the respective reporting dates;

• The results of Leonovus Inc., which has a functional currency of Canadian dollars, did not require translation; and

• Exchange differences arising on translation are presented in the accumulated other comprehensive loss line in shareholders' equity on the Statement of financial position.

7

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019

(In thousands of Canadian dollars)

The exchange rates used for prior periods were as follows:

nge rates used for prior periods were as follows:
As at reporting date	December 31, Janaury 1, 2019 2019
	1.3269 1.2988

2. Summary of significant accounting policies

The following accounting policies have been used throughout all periods presented in the consolidated financial statements.

(a) Statement of compliance

These consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and the Interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”) and in effect at the closing date of December 31, 2020.

On April 30, 2021, the Company’s Board of Directors approved these consolidated financial statements and authorized them for issue.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments that are measured at fair value, as explained in the accounting policies set out in Note 2(r).

(c) Basis of consolidation

The consolidated financial statements include the accounts of Leonovus Inc., the ultimate parent, and its wholly owned subsidiary Leonovus USA Inc. (a company incorporated in the United States of America). Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company until the date on which control ceases. All intercompany transactions and balances have been eliminated. All subsidiaries have a reporting date of December 31st.

(d) Functional currency and foreign currency translation

The functional currency of Leonovus Inc. is the Canadian dollar (CAD). The functional currency of the wholly owned subsidiary is the United States dollar (USD).

Items included in the consolidated financial statements of the Company and its subsidiary are measured using the currency of the primary economic environment in which the entity operates (the functional currency). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement of monetary assets and liabilities not denominated in the functional currency of an entity are at period end recognized in net loss for the period.

Non-monetary items are not retranslated at the period-end. They are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

(e) Foreign operations

Assets and liabilities of entities with functional currencies other than the CAD are translated at the period end rates of exchange, and the results of their operations are translated at the average exchange rates over the reporting period. The resulting translation adjustments are included in accumulated other comprehensive loss in equity.

(f) Cash

Cash represents cash deposits held at financial institutions. Cash is held at a major financial institution and is subject to credit risk to the extent they exceed federal deposit insurance limits.

(g) Short term investment

Short term investments are comprised of liquid investments with maturities between 3 and 12 months. Short term investments are recognized initially at fair value and subsequently measured at amortized cost.

(h) Impairment testing of property and equipment

Property and equipment assets are reviewed at each reporting date to determine whether events or changes in circumstances indicate that the carrying amount of the asset or related cash generating unit (“CGU”) may not be recoverable. If any such indication exists, then the assets or CGU’s recoverable amount is estimated.

8

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate. The discount factors are determined individually for each CGU and reflect their respective risk profiles as assessed by management. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in net earnings. Impairment losses recognized in respect of CGUs are allocated to reduce the carrying amounts of assets in the CGU on a pro rata basis.

In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss had been recognized.

There have been no impairment losses recognized in any of the periods presented.

• (i) Revenue recognition

The Company recognizes revenue in a manner that depicts the transfer of promised goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for transferring those goods and services, applying the following five steps:

• identify the contract with a customer;

• identify the performance obligations in the contract;

• determine the transaction price;

• allocate the transaction price to the performance obligations in the contract; and

• recognize revenue when (or as) the entity satisfies the performance obligation.

The Company recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Company satisfies a performance obligation before it receives the consideration, the Company recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due.

Revenue is recognized upon transfer of control of promised software or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for the products or services. The Company's contracts may include multiple software and services, which are generally capable of being distinct and accounted for as separate performance obligations.

Nature of products and services

The Company’s hosted software application, which allows customers to license their products over the contract period without taking possession of the software, is provided on a subscription basis, and recognized rateably over the contract period, commencing on the date an executed contract exists and the customer has the right-to-use and access to the platform.

Professional services are provided for implementation and configuration of hosted software as well as ongoing technical services and training. For professional services contracts billed on a fixed price basis, revenue is recognized over time based on the proportion of services performed. Any one-time professional fees billed for implementation are billed once the services have been provided in full.

The Company applies the practical expedient available under IFRS 15.63 and does not capitalize incremental costs of obtaining contracts if the amortization period is one year or less. The Company further elects to apply the practical expedient to not adjust the total consideration over the contract term for the effect of a financing component if the period between the transfer of services to the client and the client’s payment for these services is expected to be one year or less.

In obtaining these contracts, the Company incurs a number of incremental costs, such as commissions paid to sales staff. As the amortization period of these costs, if capitalized, would be less than one year, the Company makes use of the practical expedient in IFRS 15.94 and expenses them as they incur.

• (j) Research and development

Research costs are expensed as incurred. Development costs are deferred and amortized when the criteria for intangible assets are met, or otherwise, are expensed as incurred. To date, no development costs have been deferred.

• (k) Investment tax credit

The Company is entitled to certain Canadian investment tax credits for qualifying research and development activities performed in Canada. These credits can be applied against future income taxes payable and are subject to a 20 year carry

9

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

forward period. An estimate of the refundable investment tax credit on scientific research and development expenditures is recorded in the year the expenditures are incurred provided there is reasonable assurance that the credits will be received. The expenditures are reduced by the amount of the estimated investment tax credit.

(l) Government grants

The Company recognizes government grants when there is reasonable assurance that the Company will comply with the conditions of the grant and the grant will be received. Government grants receivable are recorded in accounts receivable on the consolidated statements of financial position. The Company recognizes government grants in the consolidated statements of loss and comprehensive loss as a reduction in expenses in the same period as the expenses for which the grant is intended to compensate. In cases where a government grant becomes receivable as compensation for expenses already incurred in prior periods, the grant is recognized in the consolidated statements of loss and comprehensive loss in the period in which it becomes receivable.

(m) Property and equipment

Property and equipment are stated at acquisition cost less accumulated amortization and impairment losses. Amortization is provided over the estimated useful lives of the assets using the following annual rates and term:

Office equipment	20%	Declining balance
Computer equipment	33%	Declining balance
Furniture and Fittings	10 years	Straight-line
Leasehold improvements	Term of the lease	Straight-line
Right of Use assets	Term of the lease	Straight-line

An item of property and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the general and administrative expenses. An asset’s residual value, useful life and amortization method are reviewed at each reporting period and adjusted prospectively if appropriate.

Capital expenditure on the leasehold improvement is recorded at cost less accumulated amortization and impairment losses. Depreciation is calculated using the straight-line method over the lower of lease period or estimated useful lives of the assets.

(n) Leases

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

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

The Company initially measures the lease liability at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company uses the incremental borrowing rate. At each reporting period, the Company adjusts the balance using the effective interest method. The lease liability may also be remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in management’s estimate of the amount expected to be payable under a residual value guarantee, or if management changes its assessment of whether it will exercise a purchase, extension, or termination option. If remeasured, a corresponding adjustment is also made to the carrying amount of the right-of-use asset or is recorded in the statement of net income (loss) (“P&L”) if the carrying amount of the right-of-use asset has been reduced to zero.

As permitted under IFRS 16, the Company has elected to not recognize right-of-use assets and lease liabilities for shortterm leases that have a lease term of 12 months or less and leases of low-value assets. For these short-term leases, the Company recognizes the lease payments as an expense on a straight-line basis over the lease term.

Management has estimated the Company’s incremental borrowing rate at 15% per annum for discounting purposes.

The right of use assets and lease obligations recognized relate to the Company’s office lease in Ottawa, Ontario, Canada.

10

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

The Company as lessor

When the Company enters into a sublease arrangement as an intermediate lessor, the Company accounts for the head lease and the sublease as two separate contracts. The Company is required to classify the sublease as a finance or operating lease by reference to the right-of-use asset arising from the head lease. For finance subleases, the Company derecognizes the right-of-use asset relating to the head lease that is transferred to the sublessee and recognizes a finance lease receivable in the sublease. As the intermediate lessor, the Company retains the lease liability on the head lease in its consolidated statement of financial position. During the term of the sublease, the Company recognizes both finance income on the sublease and interest expense on the head lease.

For the year ended December 31, 2020, leases were classified as operating leases as the terms of the lease did not transferred substantially all the risks and rewards of ownership to the lessee.

The Company as lessor

Rental income from operating leases was recognized on a straight-line basis over the term of the relevant lease.

• (o) Equity

Share capital represents the amount received for shares that have been issued less transaction costs directly attributable to the issuance of common shares net of any related income tax benefits.

Valuation of equity instruments in private placements

The Company has adopted a residual method with respect to the measurement of common shares and warrants issued as private placement units. Warrants attached to units are valued based on the fair value of the warrants using the BlackScholes option pricing model and the share price at the time of financing, and the difference between the proceeds raised and the value assigned to the warrants is the residual fair value of the shares. The proceeds from the issue of units are allocated between share capital and warrants. In situations when the warrants are categorized as FVTPL the value associated with the warrants is presented as a liability. If and when the warrants are exercised, the applicable amounts of warrants or liability are transferred to share capital. Any consideration paid on the exercise of the warrants is credited to share capital.

Broker Warrants

The Company uses the fair value method based on the Black-Scholes pricing model to determine the fair value of the warrants issued to brokers and records a debit to share issue costs with a corresponding credit to warrants. Warrants within equity included the warrants outstanding.

(p) Share-based compensation

The Company accounts for share-based compensation arrangements using the fair value method of accounting. When employees are rewarded using share-based payments, the fair value of employees' services is determined indirectly by reference to the fair value of the equity instruments granted. This fair value is measured at the grant date.

The share-based compensation cost is recorded as an expense in net earnings and credited to contributed surplus.

If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of awards expected to vest. Estimates are subsequently revised if there is any indication that the number expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense recognized in prior periods if awards ultimately exercised are different to that estimated on vesting.

An award with different vesting dates is considered a separate grant for the calculation of fair value and the resulting fair value is amortized over the vesting period of the respective grants.

When share options are exercised, any consideration paid by employees is credited to share capital in addition to the amount previously recorded in contributed surplus.

The Company’s plan does not feature any options for cash settlement.

(q) Earnings per share

The Company presents basic and diluted earnings per share (“EPS”) data. Basic EPS is calculated by dividing the net earnings attributable to the shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the net earnings attributable to shareholders and the weighted average number of shares outstanding, for the effects of all potential dilutive shares. The diluted loss per share is equal to the basic loss per share where the effect of stock options and warrants are antidilutive as it would decrease the loss per share.

(r) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net earnings except for items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or

11

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized using the liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future and provided that the Company can control the reversal of those differences. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the expected tax rates applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis, or their tax assets and liabilities will be realized simultaneously.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable income against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. This is assessed based on the Company’s forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any tax loss or credit. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable income will be available.

Changes in deferred tax assets or liabilities are recognized as a component of tax recovery or expense in net earnings, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively.

(s) Critical accounting estimates and judgments

The Company’s consolidated financial statements are prepared in accordance with IFRS recognition and measurement principles that often require management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts presented and disclosed in the consolidated financial statements. Management reviews these estimates and assumptions on an ongoing basis based on historical experience, changes in business conditions and other relevant factors as it believes to be reasonable under the circumstances. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Estimation uncertainty

Contracts with clients

Contracts with clients often include promises to deliver multiple products and services. Determining whether such bundled products and services are considered, i) distinct performance obligations that should be separately recognized, or ii) nondistinct and therefore should be combined with another good or service and recognized as a combined unit of accounting may require significant judgment. In general, the Company’s professional services are capable of being distinct as they could be performed by third party service providers and do not involve significant customization of the licensed software.

Useful lives of depreciable assets

The useful lives of depreciable assets have been determined based on management estimated utility of the assets. Uncertainties in these estimates relate to technological obsolescence that may change the utility of certain software and IT equipment.

Share-based compensation

The estimation of share-based compensation requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The Company has made estimates as to the volatility of its own share, the forfeiture rate of share options granted and the time of exercise of those share options. The model used by the Company is the Black-Scholes valuation model.

Warrants

In calculating the value of the warrants, key estimates such as the value of the common share, the expected life of the warrant, the volatility of the Company’s stock price and the risk-free interest rate are used.

12

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019

(In thousands of Canadian dollars)

Incremental borrowing rate

In calculating the discounted contractual cash flow on the host debt component of the loan payable, an estimate of the market interest rate of a similar debt instrument with no bonus shares issued.

Significant management judgments

Assessing the stage of completion of revenue

The stage of completion of revenue is assessed by Management by taking into consideration all information available at the reporting date. In this process, management estimates for each project’s milestones, actual work performed, the costs to complete the work and the value of the work completed. Further information on the Company’s accounting policy for revenue recognition is provided in Note 2(j).

Recognition of deferred tax assets

Deferred tax assets are recognized for unused tax losses and credits to the extent that it is probable that taxable income will be available against which the losses can be utilized. These estimates are reviewed at every reporting date. Information about assumptions and estimation based upon the likely timing and the level of the reversal of existing timing differences, future taxable income and future tax planning strategies, is included in Note 13. The tax rules in the numerous jurisdictions in which the Company operates are also taken into consideration.

Research and development

Research costs are expensed as incurred. Development costs are deferred and amortized when the criteria for intangible assets are met, or otherwise, are expensed as incurred. To date, no development costs have been deferred.

Investment tax credits

The Company is entitled to certain Canadian investment tax credits for qualifying research and development activities performed in Canada. These credits can be applied against future income taxes payable and are subject to a twenty-year carry forward period. If the Company is not in a taxable position a portion of these credits, are cash refundable.

Investment tax credits are accounted for as a reduction of operating expenses and are accrued as qualifying expenditures are made provided it is probable that the credits will be realized. To date the Company has only accrued the amount of tax credits that are refundable as an offset to research and development expense.

Functional currency

In assessing the functional currency, each entity within the Company determines its own functional currency, and the items included in the financial statements of each entity are measured using that functional currency. The functional currency determination involves certain judgments in evaluating the primary economic environment, and the Company reconsiders the functional currencies of each entity if there is a change in the underlying transactions, events and conditions which determine the primary economic environment.

Going concern risk assessment

Management considers whether there exists any event(s) or condition(s) that may cast significant doubt on the Company’s ability to continue as a going concern. Considerations take into account all available information about the future including the availability of debt and equity financing as well as the Company’s working capital balance and future commitments.

Contingencies

Management uses judgment to assess the existence of contingencies. By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. Management also uses judgment to assess the likelihood of the occurrence of one or more future events. When contingencies exist, Management estimates the related financial impact to the Company based on the possible outcomes of one or more future events.

(t) Financial instruments

Classification

On initial recognition, the Company determines the classification of financial instruments based on the following categories:

1. Measured at amortized cost

2. Measured at fair value through profit or loss (FVTPL)

3. Measured at fair value through other comprehensive income (FVOCI)

The classification under IFRS 9 is based on the business model under which a financial asset is managed and on its contractual cash flow characteristics. Assets held for the collection of contractual cash flows and for which those cash flows correspond solely to principal repayments and interest payments are measured at amortized cost. Contracts with embedded derivatives where the host is a financial instrument in the scope of the standard will be assessed as a whole for classification.

13

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

A financial asset is measured at amortized cost if both of the following criteria are met:

1. Held within a business model whose objective is to hold assets to collect contractual cash flows; and,

2. Contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Equity investments held for trading are classified as FVTPL. For all other equity investments that are not held for trading, the Company may irrevocably elect, on initial recognition, to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an investment-by-investment basis.

Financial liabilities are measured at amortized cost unless they must be measured at FVTPL (such as derivatives), or if the Company has chosen to evaluate them at FVTPL.

Management has classified and measurement of our financial instruments as follows:

Financial Instrument	Classification
Cash	Amortized cost
Short term investments	Amortized cost
Subscription receivable	Amortized cost
Trade receivables	Amortized cost
Trade and other liabilities	Amortized cost
Deferred compensation	Amortized cost
Loan payable	Amortized cost
Lease liability	Amortized cost

Measurement

Initial recognition – A financial asset or financial liability is initially recorded at its fair value, which is typically the transaction price, plus or minus transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. In the event that fair value is determined to be different from the transaction price, and that fair value is evidenced by a quoted price in an active market for an identical asset or liability or is based on a valuation technique that uses only data from observable markets, then the difference between fair value and transaction price is recognized as a gain or loss at the time of initial recognition.

Amortized cost – The amount at which a financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit losses. The effective interest method is a method of calculating the amortized cost of a financial asset or liability and of allocating interest and any transaction costs over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability to the net carrying amount on initial recognition.

Fair value through profit or loss – Changes in fair value after initial recognition, whether realized or not, are recognized through the consolidated statements of net loss and comprehensive loss. Income arising in the form of interest, dividends, or similar, is recognized through the consolidated statements of net loss and comprehensive loss when the right to receive payment is established, the economic benefits will flow to the Company, and the amount can be measured reliably.

Fair value through other comprehensive income – Changes in fair value after initial recognition, whether realized or not, are recognized through other comprehensive income. Income arising in the form of interest, dividends, or similar, is recognized through the consolidated statements of net loss and comprehensive loss when the right to receive payment is established, the economic benefits will flow to the Company, and the amount can be measured reliably.

Impairment

In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition.

The Company has applied the simplified approach to recognize lifetime expected credit losses for its trade receivable. In general, the Company anticipates that the application of the expected credit loss model of IFRS 9 results in earlier recognition of credit losses for the respective items.

Derecognition

Financial assets – The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset have expired or when contractual rights to the cash flows have been transferred. Gains and losses from the derecognition are recognized in the consolidated statements of net loss and comprehensive loss.

14

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

Financial liabilities – The Company derecognizes a financial liability when the obligation specified in the contract is discharged, canceled or expired. The difference between the carrying amount of the derecognized financial liability and the consideration paid or payable, including non-cash assets transferred or liabilities assumed, is recognized in the consolidated statements of net loss and comprehensive loss.

(u) Operating segments

Operating segments are reported in a manner consistent with the internal reporting used for the consolidated financial statements. The Company has determined that it only has one operation segment. The Company's property and equipment are held exclusively in Canada as at December 31, 2020 and December 31, 2019.

3. Revenue

The Company receives revenue from software license fees and related services to its customers in a market referred to as data management with enhanced security, integrity, and durability.

The following chart shows the breakdown of software license fees and services revenue for the year ended December 30, 2020:

Softw are license fees Service revenues	2020 2019 Year ended December 31,
	304 $ - $ 23 $ 32 $
	327 $ 32 $

4. Expenses by nature

Expenses incurred by the Company are broken down as follows:

Salaries expense Benefits Stock-based compensation Consultancy expenses Selling and marketing Legal and professional Travel Deprecieation and amortization Rent and other facilities expense Software, subscriptions and license Other operating expenses Other administrative costs	2020 2019
	690 $ 2,777 $ 30 $ 324 $ (34) $ 152 $ 372 $ 516 $ 138 $ 248 $ 231 $ 816 $ 8 $ 150 $ 182 $ 180 $ 169 $ 246 $ 61 $ 167 $ 171 $ 378 $ - $ 49 $
	2,018 $ 6,004 $

5. Loss due to fraud

The Company discovered on February 24, 2019 that it had been the victim of a sophisticated fraud suffering a loss of $750. The fraud was orchestrated by various external parties in Singapore, Switzerland and Italy. The losses suffered as a result of this fraud has nothing to do with the Company products or core technology. Because of a cryptocurrency exclusion in its insurance policy, the Company will not recover these funds from an insurance claim.

6. Loss per share

The calculation of basic and diluted loss per share for the relevant periods is based on the following information:

Weighted average number of common shares - basic Additions to reflect the dilutive effect Weighted average number of common shares - diluted	2020 2019(1)
	9,560,995 9,287,979 - -
	9,560,995 9,287,979

Options and warrants that are anti-dilutive were not included in the compilation of diluted common shares for the year ended December 31, 2020. Excluded from the calculations are 961,817 stock options (December 31, 2019 – 651,700[(1)] ) agent options, stock options and 5,137,203 warrants (December 31, 2019 – nil) were excluded.

15

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

On October 8, 2020, the Company consolidated its common shares on the basis of thirty (30) pre-Consolidation common shares for one (1) post-Consolidation common share. The Company received TSXV approval for the share consolidation on October 22, 2020, with the consolidation becoming effective on October 26, 2020. New share certificates were issued under a new CUSIP number, which is 526681309, and continues to trade on the TSXV under its symbol, “LTV”. Pre-consolidation there were 288,606,639 total common shares issued and outstanding and as at October 26, 2020, there were 9,620,221 post-consolidation total common shares issued and outstanding.

• (1) Amounts reflect retrospective application of the October 26, 2020, share consolidation (Note 14)

7. Trade and other receivables

Trade and other receivables consist primarily of trade receivable from billings of software applications and services, as well as taxes and government funding recoverable. There are no expected credit losses associated with these receivables (December 31, 2019 - $Nil).

Trade receivables HST receivable Scientific research and experimental development recoverable Government Agency grant	2020 2019 As at December 31,
	5 $ 4 $ 41 $ 15 $ 75 $ 192 $ 61 $ - $
	182 $ 211 $

8. Property and equipment

The following table summarizes the changes in the carrying amount of property and equipment:

Cost: At December 31, 2018 Additions Disposals At December 31, 2019 Additions Disposals At December 31, 2020 Accumulated Amortization: At December 31, 2018 Amortization Disposals At December 31, 2019 Amortization Disposals At December 31, 2020 Carrying amounts: At December 31, 2019 At December 31, 2020	Furniture and Real Leasehold Total Equipment Estate Improvements
	432 $ - $ 858 $ 1,290 $ 38 $ 676 $ 30 $ 744 $ - $ - $ - $ - $
	470 $ 676 $ 888 $ 2,034 $ - $ - $ - $ - $ - $ - $ - $ - $
	470 $ 676 $ 888 $ 2,034 $
	29 $ - $ 37 $ 66 $ 21 $ 83 $ 76 $ 180 $ - $ - $ - $ - $
	50 $ 83 $ 113 $ 246 $
	47 $ 58 $ 77 $ 182 $ - $
	97 $ 141 $ 190 $ 428 $
	420 $ 593 $ 775 $ 1,788 $
	373 $ 535 $ 698 $ 1,606 $

There were no impairment indicators as at the end of December 2020. Amortization is included in general and administrative expenses.

Included in the net carrying amount of property and equipment are right-of-use assets of $535, classified as real estate related to corporate office space lease agreement.

9. Trade and accrued liabilities

Trade payables and accrued liabilities for the Company are broken down as follows:

16

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019

(In thousands of Canadian dollars)

Leonovus Inc. Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 In thousands of Canadian dollars)
Trade payables Accrued liabilities	2020 2019 As at December 31,
	290 $ 60 $ 258 $ 297 $
	548 $ 357 $

10. Contract liability

The Company invoices its customers the full amount of software license fees for the contracted period or one year in advance on multiple year contracts. Customers generally pay for software license fees in advance of implementation and the prepayment is recorded by the Company as a contract liability. At the end of December 31, 2020, the amount remaining in contract liability, $43 (2019 - $Nil) represents the balance remaining on the two government contracts.

11. Loan payable

On August 30, 2020, the Company entered into a loan agreement in the amount of $395 with various borrowers. Terms of the loan included simple interest to be paid at a rate of 8% per annum as well as bonus shares to be issued at 20% of the total dollar amount of the loan divided by the market price using the closing trading price of the common shares of Leonovus on the TSXV on the day immediately prior to the date on which Leonovus announces the terms of the agreement. The Company incurred legal fees in the amount of $64 which were capitalized and amortized over the life of the loan. On September 11, 2020, 3,160,000 common shares were issued at a price of $0.025 per common share amounting to $79 attributed to share capital. The present value of the loan on September 11, 2020 was $252 and on December 31, 2020 was $296 using an effective interest rate of 42%. Accreted interest for 2020 was $24 and accrued interest on the loan as at December 31, 2020 was $29.Amortization of borrowing costs related to the loan payable was $20 (2019 - $Nil).

12. Deferred compensation

Total deferred compensation at December 31, 2020 is $623 (December 31, 2019 - $595). Of the balance, $558, is payable to one former employee with whom a settlement and payment plan has been reached.

In 2019, a mutual release was agreed to where the Company forgave the share purchase loan to a former Director in the amount of $360. The former Director forgave the Company unpaid wages of $484. The result of this transaction was a net gain of $123 to the Company, included in operating expenses, with post-consolidation of 43,925 (pre-consolidation 1,317,744) shares held in escrow against the share purchase loan released. Despite their legal form, the share purchase loans were accounted for similar to the grant of an option. In 2013, share based compensation of $285 was recorded to contributed surplus relating to this transaction. Accordingly, such amount is transferred to share capital upon release of the shares held in escrow.

13. Commitments

Right-of-use asset and lease liability

During the year ended December 31, 2018, the Company entered into a lease agreement for corporate office space with an effective date of April 1, 2020. The Company was provided with an early occupancy period from when it moved into the space until the end of March 2020 where the Company paid operating costs only. The lease term ends March 31, 2030 with minimal lease payments of $1,553. As at December 31, 2020, there are 9.25 years remaining on the lease. In accordance with IFRS 16, the Company recognized a right-of-use asset and corresponding lease liability.

The following table shows the movement in the right-of-use asset related to corporate office space lease agreement for the year ended December 31, 2020:

Balance, beginning of year Adjustment on transition to IFRS 16 Depreciation expense	2020 2019 As at December 31,
	593 $ - $ - $ 676 $ (58) $ (83) $
	535 $ 593 $

The right-of-use assets are included in the same line item as where the corresponding underlying assets would be presented if they were owned. The right-of-use asset was measured as the amount equal to the lease liability of $509, adjusted by prepaid rent of $38 and rent inducement of $70, which were related to this lease recognized in the statement of financial position as at December 31, 2018.

17

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019

(In thousands of Canadian dollars)

The following table shows the movement in the lease liability related to corporate office space lease agreement for the year ended December 31, 2020:

December 31, 2020:
Balance, beginning of year Adjustment on transition to IFRS 16 Accretion of lease liability Lease payments	2020 2019 As at December 31,
	805 $ - $ - $ 694 $ 126 $ 111 $ (105) $ - $
	826 $ 805 $

The lease liability is secured by the related underlying assets. Future minimum lease payments are as follows:

December 31, 2020: Lease payments Total Discounted finance charge	Within one year One to five years After five years Total
	157 $ 655 $ 741 $ 1,553 $ (122) $ (412) $ (193) $ (727) $
	35 $ 243 $ 548 $ 826 $

Consulting agreement

On December 31, 2020, the Company entered into a one-year consulting agreement to provide Leonovus with market research, market insight and analysis services. The Company is committed to pay $150,000 plus a monthly fee of $1,500 USD for a period of 12 months. The first six months of the monthly fee (January to June 2021) to be paid in advance.

14. Investment tax credits and income taxes

Income tax expense recognized in comprehensive loss consists of the following components:

Components of current income tax expense Current tax for the year Adjustments of previous years	2020 2019 Period ending December 31,
	- $ - $ - $ - $
	- $ - $

Components of deferred income tax expense (recovery) Origination and reversal of temporary differences Difference betw een statutory tax rate and deferred tax rate Change in temporary difference for w hich no deferred tax assets are recorded	2020 2019 Period ending December 31,
	(486) $ (1,854) $ (1) $ (207) $ 487 $ 2,061 $
	- $ - $

18

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019

(In thousands of Canadian dollars)

Leonovus Inc. Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)
The Company's expected tax rate is dfferent from the combined federal and provincial income tax rate in Canada. This difference results from the following elements: Earnings before income taxes Expected tax recovery calculated using the combined federal and provincial tax rate in Canada of 26.5% (26.5% at December 31, 2019 Adjustments for the following items: Tax rate differences Permanent differences and others Change in temporary differences for which no tax assets are recorded Other	2020 2019 Period ending December 31,
	(1,802) $ (6,883) $ (477) $ (1,824) $ (1) $ 17 $ (9) $ 58 $ 487 $ 1,756 $ - $ (7) $
	- $ - $

The effect of temporary differences and loss carry forwards that give rise to significant portions of the deferred tax liability, which has been recognized during the year are as follows:

been recognized during the year are as follows:
Deferred tax asset Share issue costs SRED expenditures Deferred tax liability Loan payable Net deferred tax liability	Opening Recognized Recognized Ending December 31,2019 in earnings and loss in equity December 31,2020
	- $ - $ 21 $ 21 $ - $ 5 $ - $ 5 $
	- $ 5 $ 21 $ 26 $
	- $ (5) $ (21) $ (26) $
	- $ - $ - $ - $

As at December 31, 2020, the Company has the following temporary differences for which no deferred tax asset was recognized:

Fixed assets Right-of-use asset/liability Non-capital losses Share issuance costs R&D credits SRED expenditures Accruals	2020 2019
	303 $ 178 $ 291 $ 213 $ 43,257 $ 42,218 $ 474 $ 887 $ 2,306 $ 2,161 $ 6,337 $ 5,802 $ 836 $ 851 $
	53,804 $ 52,310 $

As at December 31, 2020, the Company has the following non-capital losses which are available to reduce taxable income in future periods, for which no deferred tax asset has been recognized in the consolidated statement of financial position, that can be carried forward to the following years:

19

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

December 31, 2028 December 31, 2029 December 31, 2030 December 31, 2031 December 31, 2032 December 31, 2033 December 31, 2034 December 31, 2035 December 31, 2036 December 31, 2037 December 31, 2038 December 31, 2039 December 31, 2040	United States Canada
	5,003 $ 8 $ 3,448 $ 69 $ 1,757 $ 259 $ 2,765 $ 432 $ 1,565 $ 400 $ 2,424 $ 508 $ 3,080 $ 866 $ 1,778 $ 423 $ 45 $ 839 $ 499 $ 2,840 $ 1,271 $ 5,942 $ 501 $ 5,114 $ - $ 1,423 $
	24,136 $ 19,123 $

The Company also has Research and Development expenditures of approximately $6,392 (2019 - $5,895) available to reduce taxable income in Canada. These expenditures are available without expiry.

The Company also has Investment Tax Credits of $1,868 (2019 - $1,726) available to offset future Canadian federal tax obligations. These tax credits commence to expire in 2030.

The Company also has Research Credits of $438 (2019 - $435) available to offset future US federal tax obligations. These tax credits commence to expire in 2029.

Included in other receivables is an amount of $75 (2019 - $199) related to scientific research and development investment tax credits. This amount has been included in research and development expenses on the statement of net loss and comprehensive loss.

The Company’s subsidiary which operates in California has a combined federal and state tax rate of 27.98%. The US federal tax rate is 21.0%.

15. Share capital

The Company has an unlimited number of no-par common shares authorized for issuance with 14,757,424 (December 31, 2019 – 9,514,888[(1)] ) shares outstanding.

2020 Issuances

On September 11, 2020, the Company issued 105,333 common shares resulting from a bridge loan in which investors also received bonus shares (see Note 11).

On October 8, 2020, at a Special Meeting of Shareholders, the Shareholders of the Company approved a resolution to consolidate the Company’s common shares on the basis of thirty (30) pre-Consolidation common shares for one (1) postConsolidation common share. The Company received TSXV approval for the share consolidation on October 22, 2020, with the consolidation becoming effective on October 26, 2020. New share certificates were issued under a new CUSIP number, which is 526681309, and continues to trade on the TSXV under its symbol, “LTV”. As at October 26, 2020, there were 9,620,221 total common shares issued and outstanding.

On December 31, 2020, the Company completed a private placement offering of 5,137,203 units (each unit comprising one common share and one warrant) for gross proceeds of $1,580. Each warrant is exercisable for one common share at $0.60 per share for a period of twelve (12) months from the date of issuance. The fair value of these warrants was calculated at $708 using a Black-Scholes computation with the assumptions of a volatility of 164%, risk free interest rate of 0.27%, expected life of the warrants of 1 year with no expected dividend yield. The Company has the option to force conversion if at any time after four (4) months and one (1) day following issuance the fifteen (15) day volume weighted average price of the common shares on the TSXV is equal to or exceeds $1.00. The Company had not received the full amount of the gross proceeds as at December 31, 2020. An amount of $501, subscription receivable, was held in trust to the Company by their corporate lawyers. All gross proceeds were received by the Company on January 8, 2021.

2019 Issuances

During period to March 31, 2019, 810,467[(1)] warrants and 72,400[(1)] broker warrants were converted in to shares for gross proceeds of $2,089. The fair value of the warrants exercised and converted into share capital was $1,088.

On January 22, 2019, a settlement was reached with Mr. Gordon Campbell, a former CEO and director of the Company, calling for 43,925[(1)] shares to be released from escrow. There are currently no shares held in escrow.

On August 8, 2019, options in the amount of 4,340[(1)] were exercised and converted into shares for gross proceeds of $8.

20

Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

During fiscal year 2019, 495,917[(1)] warrants expired. The fair value of $3,279 was offset against contributed surplus.

(1) Amounts reflect retrospective application of the October 26, 2020, share consolidation (Note 14)

Warrants

As at December 31, 2020 and 2019, the Company has the following warrants with average exercise prices and expiry dates outstanding:

Balance, December 31, 2019 Issued Exercised Expired Balance, December 31, 2020	Number of whole Average share warrants exercise in CND
	- - $ 5,137,203 0.60 $ - - $ - - $
	5,137,203 0.60 $

Stock option plan

The Board of Directors of the Company has approved and implemented a stock option plan (the “Plan”). Pursuant to the Plan, the board may from time to time at its discretion, and in accordance with regulatory requirements, grant non-transferable options to purchase shares to directors, officers, employees and consultants of the Company, provided that the number of common shares reserved for issuance will not exceed 10% of the issued and outstanding common shares at the time of the grant. Pursuant to the Plan, the maximum number of common shares reserved for issuance in any twelve-month period to any one employee other than a consultant may not exceed 5% of the issued and outstanding common shares at the date of the grant.

As at December 31, 2020 and 2019, the Company has the following options with weighted average exercise prices outstanding:

outstanding:
Outstanding at December 31, 2018 Granted Forfeited Expired Exercised	Weighte average Stock options (1) exercise price in CND
	641,214 3.90 $ 129,167 2.10 $ (62,396) 4.80 $ (51,944) 9.30 $ (4,341) 1.80 $
Outstanding at December 31, 2019	651,700 3.30 $
Granted Forfeited Expired Exercised	500,000 0.48 $ (70,664) 3.08 $ (119,219) 2.70 $ - - $
Outstanding at December 31, 2020	961,817 1.91 $

The fair value of options granted is determined using the Black-Scholes option pricing model. The underlying expected volatility was determined by reference to historical data of the Company’s shares over the expected life of the options. The following weighted average assumptions were used for options granted during the year ended December 31:

		2020	2019
Risk-free	interest rate	0.48%	1.74%
Expected	life of options (years)	5.00	5.00
Expected	annualized volatility	137%	112%
Expected	dividend yield	N/A	N/A
Weighted	average fair value of each option	$ 0.475	$ 2.10

For the year ended December 31, 2020, the exercise price and the share price used for options granted was $0.475. Grant date fair value of options granted during the fiscal year ended December 31, 2020 was $117 (December 31, 2019 - $99).

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Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019

(In thousands of Canadian dollars)

Share-based compensation is recorded as an increase to contributed surplus and is transferred to share capital when the underlying options are exercised. Total share-based compensation expense during the year ending December 31, 2020, was negative $34 (2019 - $152).

The following table summarizes the options outstanding and exercisable as on December 31, 2020:

Exercise price in $CND 0.00 - 0.50 1.50 - 2.00 4.00 - 5.00 9.00 - 12.00 15.00	Options outstanding Options exercisable
	Number outstanding at Weighted average Number exercisable at Weighted average December 31, 2020(1) remaining life (years) December 31, 2020(1) remaining life (years) 500,000 4.92 7,639 4.92 378,983 1.15 344,180 1.15 14,334 2.45 9,208 2.45 13,500 1.85 10,810 1.85 55,000 1.92 42,740 1.92
	961,817 2.50 414,577 2.46

In comparison following table summarizes the options outstanding and exercisable as on December 31, 2019:

Exercise price in $CND 0.00 - 3.00 3.01 - 6.00 6.01 - 9.00 9.01 - 12.00 15.00	Options outstanding Options exercisable
	Number outstanding at Weighted average Number exercisable at Weighted average December 31, 2019(1) remaining life (years) December 31, 2019(1) remaining life (years) 526,700 2.26 346,106 1.77 44,333 3.59 15,825 3.51 18,000 2.93 9,430 2.92 7,667 2.98 3,935 2.98 55,000 2.94 28,760 2.94
	651,700 3.43 404,057 1.96

(1) Amounts reflect retrospective application of the October 26, 2020 share consolidation (see Note 14)

16. Cash flow information

Net change in non-cash working capital items is comprised of:

Trade and other receivables Prepaid expenses Trade and other liabilities Contract liability Deferred compensation Related party balances	2020 2019
	29 $ 448 $ 22 $ 33 $ 155 $ (763) $ 43 $ - $ 43 $ 608 $ - $ 45 $
	292 $ 371 $

Included in subscription receivable are proceeds related to unit issuances of $501 which had not been receipted by the Company as at December 31, 2020 (2019 - $Nil).

Include in trade and other liabilities are borrowing costs not yet paid in the amount of $37 (2019 – $Nil).

17. Other income

The Company has leased a portion of its unused office space to a sub tenant beginning in March 2020. The sub tenant holds a sub lease with the Company until February 2022. During the year ended December 31, 2020, the sub tenant had made payments of $132 to the Company. Either party may terminate the sub lease with 180 days of notice.

18. Key management personnel compensation

The key management personnel have been identified as the directors and officers of the Company based on their authority and responsibility for planning and directing the activities of the Company. By title, these are the independent directors, Chief Executive Officer, Chief Technology Officer, Chief Financial Officer, VP Product Management, VP Engineering, and Senior VP Sales. The remuneration of key management personnel who held these positions during the year was as follows:

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Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019 (In thousands of Canadian dollars)

Salaries Benefits Share-based compensation	For the year ended For the year ended December 31,2020 December 31,2019
	668 $ 1,002 $ 38 $ 84 $ 2 $ 34 $
Total keymanagement compensation	708 $ 1,120 $

Salaries include cash payments for base salaries. Director’s fees include meeting fees and any Leonovus specific travel expenses incurred. Share-based compensation includes the compensation expense recognized during the year for key management personnel. There were no stock options and no warrants exercised by key management personnel in 2020 (2019 – 4,340 stock options and 39,866 warrants). The 2019 stock option and warrant amounts reflect retrospective application of the October 26, 2020 share consolidation (see Note 14).

19. Related party transactions

During the fiscal year ended December 31, 2020, the Company incurred $120 (2019 - $197) of consultant expenses to a Company controlled by the Chief Executive Officer.

During the fiscal year ended December 31, 2020, no warrants were exercised (2019 - 39,866 warrants were exercised for $41 with a fair value of $74) by a Company controlled by the Chief Executive Officer. The 2019 warrant amounts reflect retrospective application of the October 26, 2020 share consolidation (see Note 14).

During the fiscal year ended December 31, 2020, the Company incurred $85 (2019 - $45) of consultant expenses by the Chief Financial Officer.

During the fiscal year ended December 31, 2020, the Company incurred $90 (2019 - $Nil) of consultant expenses by the Chief Technology Officer.

Included in trade and other liabilities are amounts owed to directors of $50 (2019 - $Nil) and key management of $29 (2019 - $Nil).

On September 11, 2020, two of the directors participated in the bridge loan in the amount of $70. As a result the directors were issued 18,667 bonus shares by the Company.

20. Financial instruments

The Company’s financial instruments and the nature of the risks which they may be subject to are set out in the following table.

	Risks
			Market
			Foreign	Interest
	Credit	Liquidity	Exchange	Rate
Cash	Yes		Yes
Short term investments	Yes			Yes
Subscription receivable	Yes
Trade receivables	Yes
Trade and other liabilities		Yes	Yes
Lease liability		Yes
Loan payable		Yes		Yes
Deferred compensation		Yes	Yes

The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate and foreign exchange rate risk). The Company’s management team carries out risk management with guidance from the Audit Committee under the direction of the Board of Directors. The Board of Directors also provides regular guidance for overall risk management. Management’s assessment of the Company’s exposure, objectives and processes for managing financial risks, as noted below, has not changed from the prior year, unless otherwise disclosed.

Credit risk

Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations. The Company's credit risk is primarily attributable to cash, subscription receivable and short-term investment. The Company's maximum credit risk at December 31, 2020 is $1,341 (December 31, 2019 - $774). Of that total, $Nil is aged in excess of 60 days. Management does not believe the Company is exposed to significant credit risk.

Cash

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Leonovus Inc.

Notes to the consolidated financial statements Years ended December 31, 2020 and 2019

(In thousands of Canadian dollars)

Cash consists of bank balances. Credit risk associated with cash is minimized substantially by ensuring that these financial assets are invested in Schedule 1 chartered Canadian Banks.

Subscription receivable

Subscription receivable consists of private placement funds deposited into the trust fund of corporate council to the Company. All subscription receivable amounts were paid to Leonovus Inc. on January 8, 2021.

Short term investments

Short term investments are comprised of liquid investments with maturities between 3 and 12 months. Credit risk associated with short term investments is minimized substantially by ensuring that these financial assets are invested in Schedule 1 chartered Canadian Banks.

Liquidity risk

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. Management has significantly reduced expenses over the last 18 months and continues to monitor the Company’s expenses carefully. As at December 31, 2020, the Company had cash, short-term investments, subscription receivable and trade receivables of $1,341 (December 31, 2019 - $774) and accounts payable, accrued liabilities and loan payable of $1,555 (December 31, 2019 - $365) providing a current ratio of just under 1:1. Management does not believe the Company is exposed to significant liquidity risk.

The following are the contractual maturities of the undiscounted cash flows of financial liabilities as at December 31, 2020.

The amounts presented in the below maturity analysis represent the undiscounted future cash flows and as a result, they may differ from the net book value.

differ from the net book value.
	Future value	2021	2022	2023 and after
	$	$	$	$
Trade and other liabilities	592	592	-	-
Loan payable	395	395	-	-
Deferred compensation	623	623	-	-
Long term lease liability	1,553	157	160	1,236
Total financial liabilities	3,163	1,767	160	1,236

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the fair value of a financial instrument or its future cash flows. The Company is currently not subject to market risk.

21. Capital management

The Company’s objective is to maintain sufficient capital base so as to maintain investor, creditor and customer confidence and to sustain future development of the business and provide the ability to continue as a going concern. Management defines capital as the Company’s shareholders’ equity. The Board of Directors does not establish quantitative return on capital criteria for management; but rather promotes year over year sustainable liquidity. The Company currently has not paid any dividends to its shareholders.

The Company is not subject to any statutory capital requirements and has no commitments, other than its office space lease and options, to sell or otherwise issue common shares.

There were no changes in the Company’s approach to capital management during the period.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

22. Subsequent events

Loan payable

On January 11, 2021, the Company repaid 80%, or $326 of its gross loan payable amount of $395,000 plus interest calculated at 8% annually, using funds acquired through its private placement which closed December 31, 2020.

Public offering

On April 29, 2021, the Company announced that it has filed and obtained a receipt for a final short form prospectus in connection with a previously announced public offering for minimum gross proceeds of $2,500,000 and maximum gross proceeds of $4,000,000. The Offering is being led by Mackie Research Capital Corporation as lead agent, on behalf of a syndicate of agents, including Canaccord Genuity Corp.

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