Luca Mining Corp. — Interim / Quarterly Report 2020

Dec 1, 2020

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the nine months ended September 30, 2020 and 2019

(Expressed in United States dollars) (Unaudited)

NOTICE OF NO AUDITOR REVIEW OF CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated interim financial statements for VSBLTY Groupe Technologies Corp. (the "Company") have been prepared by management in accordance with International Financing Reporting Standards ("IFRS"). These condensed consolidated interim financial statements, which are the responsibility of management, are unaudited and have not been reviewed by the Company's auditors. The Company's Audit Committee and Board of Directors have reviewed and approved these condensed consolidated interim financial statements. In accordance with the disclosure requirements of National Instrument 51-102 released by the Canadian Securities Administrators, the Company's independent auditors have not performed a review of these condensed consolidated interim financial statements.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION (Expressed in United States dollars)

	Notes	September30,2020	December 31,2019
ASSETS		(Unaudited)
Current assets
Cash		$2,714,567	$499,435
Trade and other receivables		567,566	44,191
Prepaid expenses		429,418	428,497
		3,711,551	972,123
Equipment	6	26,825	59,450
Lease assets	10	191,378	229,085
Deposits		10,916	10,916
Total assets		$3,940,670	$1,271,574
LIABILITIESCurrent liabilities
Accounts payable and accrued liabilities	7	$1,322,489	$566,180
Deferred revenue		20,500	3,825
Notes payable	8	203,509	-
Current portion of lease liabilities	10	66,262	61,982
		1,612,760	631,987
Lease liabilities	10	148,588	181,073
Convertible debentures	9	3,456,483	2,357,980
Total liabilities		5,217,831	3,171,040
SHAREHOLDERS' DEFICIENCY
Share capital	11	14,339,233	9,948,497
Reserves	11	2,826,341	2,357,422
Obligation to issue warrants		19,127	19,127
Accumulated deficit		(18,374,880)	(14,173,281)
Accumulated other comprehensive income (loss)		(86,982)	(51,231)
Total shareholders' deficiency		(1,277,161)	(1,899,466)
Total liabilities and shareholders' deficiency		$3,940,670	$1,271,574
Nature of operations and going concernSubsequent events	118
APPROVED BY THE BOARD OF DIRECTORS:
"Jay Hutton"	Director	"Alnesh Mohan"	Director

The accompanying notes are an integral part of these Consolidated Interim Financial Statements.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Expressed in United States dollars)

(Unaudited)

		Three months ended September30,		Ninemonths ended September30,
	Notes	2020		2019		2020		2019
Revenue
License fees		$40,950	$	12,070	$	122,643	$	40,370
Connectivity		-		(6,800)		-		200
Professional services		7,000		-		21,000		13,450
Software license
development		-		-		815,000		-
Hardware and other		47,551		(7,769)		54,261		36,564
		95,501		(2,499)		1,012,904		90,584
Cost of sales	12	(37,548)		(9,215)		(868,096)		(24,166)
Gross profit		57,953		(11,714)		144,808		66,418
Sales and marketing	13, 15
expenses		(278,177)		(401,168)		(972,123)		(916,418)
General and administrative	13, 15
expenses		(588,809)		(639,359)		(1,929,568)		(2,126,557)
Research and development	13, 15
expenses		(219,603)		(299,997)		(623,682)		(852,071)
Share-based payments	11(c)	8,191		(42,794)		(104,216)		(1,175,634)
Loss on disposal of
equipment		-		-		(28,609)		-
Operating loss		(1,020,445)		(1,395,032)		(3,513,390)		(5,004,262)
Listing expense	5	-		-		-		(491,568)
Finance costs	9, 10	(258,031)		(49,666)		(672,125)		(77,930)
Change in fair value of
derivative liability	9	-		-		-		60,162
Loss on settlement of debt	9, 10	-		-		-		(12,063)
Interest income		1		711		98		5,170
Foreign exchange loss	9	(13,358)		(31)		(46,182)		(25,284)
Net loss for the period		(1,291,833)		(1,444,018)		(4,201,599)		(5,545,775)
Foreign currency
translation		(122,206)		(4,177)		(35,751)		(21,109)
Comprehensive loss for
the period		$(1,414,039)	$	(1,448,195)	$	(4,237,350)	$	(5,566,884)
Loss per share –Basic and
diluted		$(0.01)	$	(0.02)	$	(0.05)	$	(0.08)
Weighted average shares
outstanding –Basic and
diluted		99,855,861		77,746,381		81,551,693		70,557,152

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN DEFICIENCY

(Expressed in United States dollars) (Unaudited)

		Number ofcommon	Share		Obligation toissue	Accumulated	Accumulatedothercomprehensive	Totalshareholders'
	Notes	shares	capital	Reserves	warrants	deficit	income(loss)	deficiency
Balance, December 31, 2018		37,307,078	$4,335,914	$87,996	$-	$(6,806,257)	$-	$(2,382,347)
Shares issued pursuant to reverse	11(a)	24,546,881	15,863,364	(21,353)	-		-	15,842,011
takeover acquisitionConversion of special warrants	11(a)	14,600,000	1,634,496	-	-		-	1,634,496
Exercise of warrants	11(b)	900,917	270,306	(701)	-		-	269,605
Share-based payments	11(c)	174,996	76,715	1,175,634	-		-	1,252,349
Convertible debt issuance	8	-	-	395,237	-		-	395,237
Convertible debt issuance costs	8	244,799	58,550	33,761	-		-	92,311
Convertible debt conversion	8	1,500,000	287,529	(39,935)	-		-	247,594
Foreign currency translation		-	-	-	-		(21,109)	(21,109)
Loss for the period		-	-	-	-	(17,830,943)	-	(17,830,943)
Balance, September 30, 2019		79,274,671	$22,526,874	$1,630,639	$-	$(24,637,200)	$(21,109)	$(500,796)
Balance, December 31, 2019		80,313,071	$9,948,497	$2,357,422	$19,127	$(14,173,281)	$(51,231)	$(1,899,466)
Units issued for cash	11(a)	52,180,741	3,935,838	377,293	-	-	-	4,313,131
Convertible debt issuance	9	-	-	193,011	-	-	-	193,011
Convertible debt issuance costs	11(a)	107,000	17,198	(2,755)	-	-	-	14,443
Convertible debt conversion	9, 11(a)	1,210,951	210,432	24,422	-	-	-	234,854
Performance shares issuance	11(d)	1,000,002	227,268	(227,268)	-	-	-	-
Share-based payments	11(c)	-	-	104,216	-	-	-	104,216
Foreign currency translation		-	-	-	-	-	(35,751)	(35,751)
Loss for the period		-	-	-	-	(4,201,599)	-	(4,201,599)
Balance, September 30, 2020		134,811,765	$14,339,233	$2,826,341	$19,127	$(18,374,880)	$(86,982)	$(1,277,161)

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Expressed in United States dollars) (Unaudited)

	Ninemonths ended September30
		2020		2019
Cash flows from operating activities
Loss for the period	$	(4,201,599)	$	(4,101,757)
Adjustments for non-cash items:
Depreciation		46,783		20,031
Accretion expense		332,812		10,020
Share-based payments		104,216		1,132,840
Consulting fees paid in shares		-		38,032
Listing expense		-		491,568
Change in fair value of derivative liability		-		(60,162)
Loss on settlement of debt		-		12,063
Loss on disposal of equipment		28,609		-
Foreign exchange gain		(80,782)		(844)
Changes in non-cash working capital items:
Trade and other receivables		(523,375)		(59,443)
Prepaid expenses and deposits		(921)		(80,503)
Accounts payable and accrued liabilities		758,723		(136,397)
Deferred revenue		16,675		8,160
Net cash used in operating activities		(3,518,859)		(2,726,392)
Cash flows from investing activities
Acquisition of equipment		(5,058)		(41,165)
Cash acquired in reverse takeover		-		1,854,451
Net cash provided by (used in) investing activities		(5,058)		1,813,286
Cash flows from financing activities
Units issued for cash		4,670,419		-
Share issuance costs		(459,704)		-
Principal portion of lease payments		(28,205)		(6,915)
Proceeds from issuance of convertible debentures		1,389,667		2,845,865
Convertible debenture transaction costs		(136,637)		(377,830)
Proceeds from exercise of warrants		-		269,605
Repayment of promissory notes		(200,000)		-
Proceeds from issuance of promissory notes		503,509		-
Net cash provided by financing activities		5,739,049		2,730,545
Net increase in cash		2,215,132		1,858,604
Cash, beginning of period		499,435		832,827
Cash, end of period	$	2,714,567	$	2,691,431
Supplemental cash flow disclosures:
Interest paid	$	278,167	$	7,990
Promissory notes and accrued interest settled for shares	$	102,416	$	656,410
Convertible debt converted into shares	$	210,432	$	1,418,833
Non-cash exercise of warrants	$	-	$	87,996
Settlement of intercompany loans and advances on
acquisition	$	-	$	948,590
Initial recognition of lease assets and liabilities	$	-	$	107,838
Equipment disposed for settling accounts payable	$		$	20,000

The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.

1. NATURE OF OPERATIONS AND GOING CONCERN

VSBLTY Groupe Technologies Corp. (the "Company") was incorporated under the Business Corporations Act (British Columbia) on August 1, 2018. The Company's head office is located at Suite 206, 595 Howe Street, Vancouver, British Columbia, V6C 2T5 and its registered office is located at The Corporation Trust Center, 1201 Orange Street, City of Wilmington, New Castle County, DE 19801. The Company is a retail technology and marketing company with a variety of applications to drive brand engagement and puts insights in motion to drive sales. The Company's shares trade on the Canadian Securities Exchange under the symbol "VSBY" and the Frankfurt stock exchange under the symbol "5VS".

These condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business. As at September 30, 2020, the Company had not yet achieved profitable operations and has an accumulated deficit of $18,374,880 since its inception. The continuing operations of the Company are dependent upon its ability to develop a viable business and to attain profitable operations and generate funds there from. This indicates the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. Management intends to finance operating costs with capital market equity financings. If the Company is unable to continue as a going concern, the net realizable value of its assets may be materially less than the amounts on its statement of financial position.

COVID-19

The recent outbreak of the coronavirus, also known as "COVID-19", has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures may have an adverse impact on global economic conditions as well as on the Company's business activities. The extent to which the coronavirus may impact the Company's business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in Canada and other countries to contain and treat the disease. These events are highly uncertain and as such, the Company cannot determine their financial impact at this time.

Reverse takeover

On December 12, 2018, the Company, VSBLTY, Inc. and VSBLTY Merger Co., a wholly-owned subsidiary of the Company incorporated in Delaware, U.S. entered into a Merger Agreement (the "Agreement") pursuant to which the Company acquired all of the issued and outstanding common shares of VSBLTY, Inc. (the "Acquisition" or the "RTO") for 7.21228396 common shares of the Company for each VSBLTY, Inc. outstanding. The Acquisition closed on February 15, 2019 and VSBLTY, Inc. became a wholly-owned subsidiary.

2. BASIS OF PRESENTATION

a) Statement of compliance

These amended condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of interim financial statements, including International Accounting Standards ("IAS") 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

These amended condensed consolidated interim financial statements were authorized for issue by the Board of Directors on November 30, 2020.

b) Basis of measurement

These amended condensed consolidated interim financial statements have been prepared on a historical cost basis, modified where applicable. In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting except for cash flow information. The amended condensed consolidated interim financial statements are presented in United States dollars, unless otherwise noted.

The preparation of these amended condensed consolidated interim financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the amended condensed consolidated interim financial statements and the reported amount of expenses during the period. Actual results could differ from these estimates.

These amended condensed consolidated interim financial statements include estimates which, by their nature, are uncertain. The impact of such estimates is pervasive throughout these amended condensed consolidated interim financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

c) Basis of consolidation

These amended condensed consolidated interim financial statements include the accounts of the Company and its wholly-owned subsidiary, VSBLTY, Inc. All inter-company balances, transactions, income and expenses have been eliminated upon consolidation.

Subsidiaries are entities controlled by the Company. Control exists when the Company has power over an entity, when the Company is exposed, or has rights, to variable returns from the entity and when the Company has the ability to affect those returns through its power over the entity. Subsidiaries are included in the condensed consolidated interim financial results of the Company from the effective date of acquisition up to the effective date of disposition or loss of control. Where necessary, adjustments are made to the amended condensed consolidated interim financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the preparation of these amended condensed consolidated interim financial statements are consistent with the accounting policies disclosed in Note 3 of the audited financial statements for the year ended December 31, 2019, except for those summarized below. These condensed consolidated interim statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2019.

a) Revenue recognition

Revenue represents the amount the Company expects to receive for products and services in its contracts with customers, net of discounts and sales taxes. The Company reports revenue under five revenue categories being, software license fees, software license development, connectivity, professional services, and hardware and other. Software license revenue is comprised of license fees charged for the use of software, licensed under fixed-term arrangements. Software development is comprised of contracted software development services. Connectivity revenue is comprised of connectivity fees charged for hardware unit access to cellular data. Professional service revenue consists of fees charged for creative services provided to develop and execute brand messaging used in hardware units as well as installation and support for hardware units. Hardware and other revenue includes sale and delivery of hardware units.

Contracts with multiple products or services

The Company's contracts with customers often include multiple products and services such as software licenses, software license development, connectivity, creative development and hardware. The Company evaluates these arrangements to determine the appropriate unit of accounting (performance obligation) for revenue recognition purposes based on whether the product or service is distinct from some or all of the other products or services in the arrangement. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and the Company's promise to transfer the good or service is separately identifiable from other promises in the contractual arrangement with the customer. Non-distinct products and services are combined with other goods or services until they are distinct as a bundle and therefore form a single performance obligation. Where a contract consists of more than one performance obligation, revenue is allocated to each based on their estimated stand-alone selling price.

Nature of products and services

Revenue from software licensing arrangements, which allows customers to use software over a term, are provided on a subscription basis and is recognized rateably over the term of the subscription. Where software licensing arrangements includes connectivity services, the connectivity services are non-distinct and recognized over the same term.

Revenue from software license development is evaluated to determine whether performance obligations are satisfied at point in time or over time based on whether the software does not have an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date:

• For software license development license where performance obligations are satisfied at a point in time, revenue is recognized when control of the software has transferred to the customer; and
• For software license development where performance obligations are satisfied over time, revenue is recognized using a method of transfer that depicts the Company's performance or using the "as-invoiced" practical expedient, when applicable.

During the nine months ended September 30, 2020, the Company entered into a software license development arrangement which is being recognized over time using the as-invoiced practical expedient based on achievement of development milestones.

Professional services revenue for creative services provided to develop and execute brand messaging used in hardware units as well as installation and support for hardware units is recognized by the stage of completion of the performance obligation determined using the percentage of completion method or as such services are performed as appropriate in the circumstances. The Company uses the ratio of incurred labour hours to estimated total labour hours as the measure of its progress to completion on each performance obligation and the revenue and profit of fixed price contracts is recognized only when the outcome of a contract can be estimated reliably.

Hardware and other revenue is accounted for as product revenue. Product revenue is recognized when control of the product has transferred under the terms of an enforceable contract.

Amounts are billed as defined by individual contracts. Billings rendered in advance of performance under contracts are recorded as deferred revenue.

b) Accounting standards issued but not yet effective

The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. The Company has not early adopted any new standards and determined that there are no standards that are relevant to the Company.

4. USE OF JUDGMENTS AND ESTIMATES

In preparing these amended condensed consolidated interim financial statements, management has made judgments, estimates and assumptions that affect the applicable of the Company's accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates. Management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised.

In preparing these amended condensed consolidated interim financial statements, the significant estimates and critical judgments were the same as those applied to the financial statements as at and for the year ended December 31, 2019, except for the following:

Revenue

The Company's software license development arrangements often include multiple goods and services. The Company exercises judgement in the determination of whether individual performance obligations related to software license development goods and services are distinct. Non-distinct products and services are combined with other goods or services until they are distinct as a bundle and therefore form a single performance obligation.

The Company exercises judgment over whether software license development performance obligations are satisfied at a point in time or recognized over time. Software license development arrangements are reviewed for specific criteria, including whether the developed software will have an alternative use to the Company. It is the judgment of management that where the software is highly specialized and has no alternative use in its completed state due to practical limitations, revenue will be recognized over time.

5. REVERSE TAKEOVER

As described in note 1, on February 15, 2019, the Company completed the RTO with VSBLTY, Inc. whereby each share of VSBLTY, Inc. was exchanged, on a 7.21228396 for one basis, for the issued and outstanding common shares of the Company, with VSBLTY, Inc. becoming a wholly-owned subsidiary of the Company.

At the time of the RTO, the Company did not constitute a business as defined under IFRS 3; therefore, the RTO is accounted under IFRS 2, where the difference between the consideration given to acquire the Company and the net asset value of the Company is recorded as a listing expense to net loss. As VSBLTY, Inc. is deemed to be the accounting acquirer for accounting purposes, these consolidated financial statements present the historical financial information of VSBLTY, Inc. up to the date of the RTO.

Consideration: Fair value of shares issued (14,600,001 shares at $0.19) $ 2,751,370 Fair value of share purchase warrants and special warrants 652,255 Settlement of debt (948,590) Total consideration 2,455,035 Fair value of net assets of the Company: Cash 1,854,451 Trade and other receivables 7,114 Prepaid expenses 118,685 Accounts payable (16,783) Total net assets 1,963,467 Listing expense $ 491,568

The fair value of the consideration issued for the net assets of the Company is as follows:

In connection with the completion of the RTO, the Company issued the following:

• 14,600,000 units. Each unit consist of one common share and one-half of a warrant. Each warrant is exercisable into one share at a price of CAD$0.40 per share for a period equal to the shorter of (i) one year after the date that the shares are listed on the Canadian Stock Exchange, and (ii) five years after the issue date of the special warrants.
• 760,426 warrants, each of which is exercisable to purchase one common share at a price of CAD$0.40 per share for a period of 12 months from October 17, 2018.

The fair value of warrants and special warrants assumed in the Acquisition was determined to be $652,255 and estimated using the Black-Scholes Option Pricing Model with the following assumptions:

Assumptions
Risk-free interest rate	2.50 -2.55%
Expected volatility	150%
Dividend yield	0%
Expected life	0.67 -1.03years

6. EQUIPMENT

	Computer equipment		Equipment	Total
Cost
Balance,December 31, 2018	$	9,998	$37,214	$	47,212
Additions		12,690	37,070		49,760
Disposal		(1,511)	(10,000)		(11,511)
Balance, December 31, 2019		21,177	64,284		85,461
Additions		4,035	1,023		5,058
Disposal		(9,998)	(32,583)		(42,581)
Balance, September 30, 2020	$	15,214	$32,724	$	47,938
	Computer equipment		Equipment		Total
Accumulated depreciation
Balance, December 31, 2018	$	8,164	$9,701	$	17,865
Additions		5,790	15,119		20,909
Disposal		(484)	(12,279)		(12,763)
Balance, December 31, 2019		13,470	12,541		26,011
Additions		1,523	7,553		9,076
Disposal		(9,998)	(3,976)		(13,974)
Balance, September30, 2020	$	4,995	$16,118	$	21,113
	Computer equipment		Equipment		Total
Net book value
Balance, December 31, 2019	$	7,707	$51,743	$	59,450
Balance, September30, 2020	$	10,219	$16,606	$	26,825

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	September	30, 2020	December 31, 2019
Accounts payable	$	849,927	$307,994
Accrued liabilities		371,684	161,877
Accrued interest		100,878	96,309
	$	1,322,489	$566,180

8. NOTES PAYABLE

a) On May 1, 2020, the Company issued two promissory notes for $100,000 each ("Note 1" and "Note 2"). Each note is interest bearing at 36% per annum and due on July 31, 2020. The notes are secured against the Company's trade accounts receivable.

On July 31, 2020, the Company entered into agreements to modify the terms of the two promissory notes as follows:

• The maturity date for Note 1 was extended to September 1, 2020 and bears interest at 66% per annum on the principal balance of $100,000 plus interest accrued to date of $9,000.
• The maturity date for Note 2, of which $50,000 of principal and $4,500 in accrued interest had been repaid as at July 31, 2020, was extended to September 1, 2020 and bears interest at 48% per annum on the remaining principal balance of $50,000 plus interest accrued to date of $4,500.

As at September 30, 2020, both promissory notes and all interest accrued hereunder were repaid in full.

b) In March 2020, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security Act, ("CARES ACT") to provide financial assistance to individuals and businesses. A major component of the CARES ACT is the Paycheck Protection Program ("PPP"). The principal aim of the PPP is to provide loans to small businesses so that they have sufficient funds to keep employees on the payroll. The loans are available through the U.S. government's Small Business Administration, ("SBA"). PPP loans are obtained by applying through an SBA approved lender. Borrowers are required to certify that the current economic uncertainty necessitates the loan request.

The amount of a PPP loan is the lesser of $10.0 million or 2.5 times a company's average monthly payroll, including salaries, lease/mortgage interest and utilities. The Company received $203,509 in loan proceeds in May of 2020. The loan proceeds are only to be used for payroll and other allowable expenses. The loan term is for two years and has a fixed interest rate of 1% per annum. There are no repayments of principal and interest required for the first six months of the loan. If employers maintain their payroll for eight weeks, then 100% of the loan can be forgiven. The amount forgiven depends upon the number of employees retained in the eight-week period following loan funding.

c) On July 7, 2020, the Company issued a promissory note for $100,000. The note bears interest at 18% per annum and is due on October 15, 2020. The note is secured against the Company's trade accounts receivable. On August 28, 2020, the principal balance of $100,000 and accrued interest of $2,416 were offset against proceeds from the issuance of units in connection with a private placement (note 12).

9. CONVERTIBLE DEBENTURES

2020 Debentures

During the nine months ended September 30, 2020, the Company closed the following private placement offerings of convertible debentures (collectively, the "2020 Debentures"):

• February 26, 2020 - unsecured, brokered convertible debentures for gross proceeds of $613,989 (CAD$870,000) and unsecured, non-brokered convertible debentures for gross proceeds of $526,626 (CAD$760,380).

• April 9, 2020 - unsecured, brokered convertible debentures for gross proceeds of $142,522 (CAD$200,000) and unsecured, non-brokered convertible debentures for gross proceeds of $21,378 (CAD$30,000). Of the proceeds raised, $21,378 was paid to certain subscribers for consulting expenses.

The 2020 Debentures are denominated in Canadian dollars, bear interest at a rate of 10% per annum, payable semi-annually and will mature two years from the date of issuance. The principal amount of the debentures may be converted, in whole or in part, at any time before the maturity date, into units at CAD$0.30 per unit, if converted at any time before one year from the closing date, or otherwise convertible at CAD$0.60 per unit if converted after one year from the closing date but before the maturity date. Each unit issued upon conversion consists of one common share in the capital of the Company and one share purchase warrant. Each warrant will be exercisable at a price of CAD$0.60 per warrant share for a period of 24 months from the closing date, subject to certain acceleration rights of the Company.

The 2020 Debentures were determined to be a financial instrument comprising an equity classified conversion feature with a host debt component. On initial recognition, the Company used the residual value method to allocate the principal amount of the debentures between the two components. The host debt component was valued first, based on similar debt securities without an embedded conversion feature and the residual was allocated to the equity-classified conversion feature.

In connection with the issuance of the debentures the Company:

• Issued 285,333 broker warrants, valued at CAD$27,537 based on their grant date fair value determined using Black-Scholes Option Pricing Model with the following weighted average assumptions: expected dividend yield - 0%, expected volatility - 100%, risk-free interest rate – 1.15% and an expected life - 2 years. Each broker warrant issued in connection with the debentures entitles the holder to purchase one share at a price of CAD$0.30 per Share for a period of 24 months from the closing date;
• issued 107,000 broker shares, valued at CAD$23,105 based on their grant date fair value; and
• incurred CAD$165,615 in directly attributable cash transaction costs for consulting fees, agent commissions, legal fees and out-of-pocket expenses.

Transaction costs were allocated between the debt and equity components of the debentures on a relative fair value basis.

2019 Debentures

During the year ended December 31, 2019, the Company closed the following private placement offerings of convertible debentures (collectively, the "2019 Debentures"):

• July 18, 2019 unsecured convertible debentures for gross proceeds of $570,956 (CAD$745,500) (the "July 18, 2019 Debentures") of which $269,969 (CAD$352,500) was issued to related parties;
• August 29, 2019 unsecured, brokered convertible debentures for $875,952 (CAD$1,165,000);
• September 19, 2019 unsecured convertible debentures for gross proceeds of $1,398,777 (CAD$1,857,120); and

• October 22, 2019 unsecured convertible debentures for gross proceeds of $836,927 (CAD$1,095,598), of the proceeds received, $250,000 was paid to subscribers for consulting and marketing fees expenses and $204,500 is outstanding in prepaid expenses for service to be received.

The 2019 Debentures are denominated in Canadian dollars, bear interest at a rate of 10% per annum, payable semi-annually and will mature two years from the date of issuance. The principal amount of the 2019 Debentures may be converted, in whole or in part, at any time before the maturity date, into units at CAD$0.35 per unit, except for the July 18, 2019 Debentures which can be converted at CAD$0.45 per unit, if converted at any time before one year from the closing date, or otherwise convertible at CAD$0.60 per unit if converted after one year from the closing date but before the maturity date. Each unit issued upon conversion consists of one common share in the capital of the Company and one-half of a share purchase warrant. Each whole warrant will be exercisable at a price of CAD$0.60 per warrant share for a period of 24 months from the closing date, subject to certain acceleration rights of the Company.

The 2019 Debentures were determined to be a financial instrument comprising an equity classified conversion feature with a host debt component. On initial recognition, the Company used the residual value method to allocate the principal amount of the 2019 Debentures between the two components. The host debt component was valued first, based on similar debt securities without an embedded conversion feature and the residual was allocated to the equity-classified conversion feature.

In connection with the issuance of the 2019 Debentures the Company:

• Issued 748,342 broker warrants, valued at CAD$160,334 based on their grant date fair value determined using Black-Scholes Option Pricing Model with the following weighted average assumptions: expected dividend yield - 0%, expected volatility - 150%, risk-free interest rate – 1.51% and an expected life - 2 years. Each broker warrant issued in connection with the 2019 Debentures entitles the holder to purchase one share at a price of CAD$0.35 per Share for a period of 24 months from the closing date;
• issued 283,199 broker shares, valued at CAD$87,004 based on their grant date fair value; and
• incurred CAD$539,825 in directly attributable cash transaction costs for consulting fees, agent commissions, legal fees and out-of-pocket expenses.

Transaction costs were allocated between the debt and equity components of the 2019 Debentures on a relative fair value basis.

	2020	2019	2018
	Debentures	Debentures	Debentures	Total
Balance, December 31, 2018	$-	$-	$1,079,606	$1,079,606
Issued during the period	-	3,682,612	-	3,682,612
Allocated to conversion	-
feature		(511,478)	-	(511,478)
Transaction costs	-	(510,836)	-	(510,836)
Accretion	-	111,653	6,526	118,179
Foreign exchange loss	-	32,060	14,430	46,490
Converted to common	-
shares		(446,031)	(1,100,562)	(1,546,593)
Balance, December 31, 2019	$-	2,357,980	$-	$2,357,980
Issued during the period	1,389,667	-	-	1,389,667
Allocated to conversion
feature	(193,011)	-	-	(193,011)
Transaction costs	(140,350)	-	-	(140,350)
Accretion	83,681	249,131	-	332,812
Foreign exchange loss	2,136	(57,897)	-	(55,761)
Converted to common
shares	-	(234,854)	-	(234,854)
Balance, September30,
2020	$1,142,123	$2,314,360	$-	$3,456,483

A continuity of the Company's convertible debt is as follows:

During the nine months ended September 30, 2020, $315,182 (CAD$423,835) in principal of 2019 Debentures were converted in 1,210,951 common shares and 604,473 warrants of the Company. The fair value of the warrants was determined to be $58,950. Upon conversion, the carrying value of debt $210,432 and equity conversion feature of $34,529 were transferred to share capital and warrant reserves with no gain or loss recorded.

The following is a schedule of future minimum repayments of convertible debentures as of September 30, 2020:

2020	$-
2021	2,666,889
2022	1,391,946
	$4,058,835

10. LEASES

The Company leases certain assets under lease agreements. The lease liability consists of a single lease for office space. The leases have an imputed interest rate of 10% per annum and expire in 2024.

Lease assets	Property
At January 1, 2019	$107,838
Additions	147,020
Depreciation expense	(25,773)
At December 31, 2019	229,085
Depreciation expense	(37,707)
At September30,2020	$191,378

The Company's lease liability related to office leases is as follows:

Lease liability	September	30, 2020	December 31, 2019
Current portion	$	66,262	$	61,982
Long-term portion		148,588		181,073
Total lease liability	$	214,850	$	243,055

At September 30, 2020, the Company is committed to minimum lease payments as follows:

Maturity analysis	September30, 2020
Less than one year	$	66,262
One to five years		193,898
Total undiscounted lease liabilities	$	260,160

The adoption of IFRS 16 had the following impact for the nine months ended September 30, 2020 and 2019:

Amounts recognized in profit or loss	September	30, 2020	September	30, 2019
Interest on lease liabilities	$	17,393	$	7,990

Amounts recognized in the statement of cash
flows	September	30, 2020	September	30, 2019
Interest paid	$	17,393	$	7,990
Principal payments on lease liabilities		28,206		6,915
Total cash outflows for leases	$	45,599	$	14,905

11. SHAREHOLDERS' EQUITY

a) Share capital

Authorized share capital of the Company consists of an unlimited number of common shares with no par value.

During the nine months ended September 30, 2020, the Company issued an aggregate of:

• 42,619,345 units in a short-term prospectus filing for gross proceeds of $3,896,776 (CAD$5,114,321). Each unit consists of one common share and one share purchase warrant. Each warrant is exercisable into one common share at CAD$0.17 per share for a period of 24 months. The warrants were allocated a fair value of $183,247 (CAD$240,892) using the residual method. In connection with the issuance the Company:
  • o Issued 2,983,354 broker warrants, valued at $157,544 (CAD$206,747) based on their grant date fair value determined using Black-Scholes Option Pricing Model with the following weighted average assumptions: expected dividend yield - 0%, expected volatility - 100%, risk-free interest rate – 0.32% and an expected life - 3 years. Each broker warrant issued entitles the holder to purchase one share at a price of CAD$0.12 per share for a period of 24 months from the closing date; and
  • o Incurred $454,473 (CAD$596,447) in directly attributable cash transaction costs for consulting fees, agent commissions, legal fees and out-of-pocket expenses.
• 9,561,396 units in a non-brokered private placement for gross proceeds of $876,059 (CAD$1,147,368). Each unit consists of one common share and one share purchase warrant. Each warrant is exercisable into one common share at CAD$0.17 per share for a period of 24 months. The warrants were allocated a fair value of $36,502 (CAD$47,897) using the residual method. In connection with the issuance the Company incurred $5,231 (CAD$6,851) in legal fees and out-of-pocket expenses;
• 1,210,951 common shares on conversion of the Company's Debentures (see note 9);
• 107,000 common shares granted to brokers as transaction costs for the Company's debentures at fair value of $17,198 (see note 9); and
• 1,000,002 common shares upon the completion of certain bonus related to the issuance of performance shares (see note 11, d).

During the year ended December 31, 2019, the Company issued:

• 20,000,000 common shares on conversion of the Company's 2018 Debentures;

• 2,853,956 common shares for settlement of the Notes and related accrued interest (see note 11);

• 1,692,925 common shares pursuant to the exercise of warrants;

• 14,600,000 common shares, pursuant to the automatic conversion of special warrants to one share and one-half share purchase warrant upon receipt of a final prospectus qualifying the distribution of the shares and warrants;

• 900,917 common shares for cash proceeds of $269,605 (CAD$360,367), pursuant to the exercise of warrants;

• 174,996 common shares granted to a non-employee in exchange for services with a fair value of $76,715 (CAD$$101,500);

• 283,199 common shares granted to brokers as transaction costs for the Company's 2019 Debentures (see note 9); and

• 2,500,000 common shares on conversion of the Company's 2019 Debentures (see note 9).

b) Warrants

Continuity of the Company's U.S. dollar denominated warrants is as follows:

	Number of warrants	Weighted averageexercise price
Outstanding, December 31, 2018	1,692,925	$0.18
Exercised	(1,692,925)	0.18
Outstanding, December 31, 2019 and
September 30, 2020	-	$-

Continuity of the Company's Canadian dollar denominated warrants is as follows:

	Number ofwarrants	Weighted averageexercise price($CAD)	Weighted averageexercise price($USD)
Outstanding, December 31, 2018	-	$-	$-
Acquired upon Acquisition	8,060,426	0.40	0.31
Granted	1,998,342	0.51	0.39
Exercised	(900,917)	0.40	0.31
Expired	(752,426)	0.40	0.31
Outstanding, December 31, 2019	8,405,425	$0.43	$0.33
Granted	56,054,901	0.17	0.13
Expired	(6,407,083)	0.40	0.30
Outstanding, September30,
2020	58,053,243	$0.18	$0.14

Number ofwarrantsoutstanding	Exerciseprice ($CAD)	Exerciseprice ($USD)	Expiry date	Number ofwarrantsexercisable
266,286	0.35	0.26	August 29, 2021	266,286
386,513	0.35	0.26	September 19, 2021	386,513
1,261,595	0.60	0.45	September 20, 2021	1,261,595
95,543	0.35	0.26	October 22,2022	95,543
593,878	0.60	0.45	October 22, 2022	593,878
232,000	0.30	0.22	February 26, 2022	232,000
464,281	0.60	0.45	September 20, 2021	464,281
53,333	0.30	0.22	April 9, 2022	53,333
2,594,221	0.12	0.09	August 28, 2023	2,594,221
46,621,696	0.17	0.13	August 28, 2023	46,621,696
389,133	0.12	0.09	September 23, 2023	389,133
5,559,045	0.17	0.13	September 23, 2023	5,559,045
58,053,243	$0.18	0.14		58,053,243

As at September 30, 2020, the following warrants were outstanding and exercisable:

As at September 30, 2020, the weighted average remaining contractual life of outstanding warrants is 2.82 years.

c) Options

The Company has adopted an incentive stock option plan (the "Plan") under which the aggregate number of securities reserved for issuance will be 10% of the number of common shares of the Company issued and outstanding. The Plan is administered by the Board of Directors (the "Board"), which has full and final authority with respect to the granting of all options thereunder. Options may be granted under the Plan to such service providers of the Company and its affiliates, if any, as the Board may from time to time designate. The exercise prices will be determined by the Board, but will, in no event, be less than the closing market price of Common Shares on (a) the trading day prior to the date of grant of the stock options; and (b) the date of grant of the stock options. All options granted under the Plan will expire not later than the date that is ten years from the date that such options are granted. Options granted under the Plan are not transferable or assignable other than by testamentary instrument or pursuant to the laws of succession.

	Number ofoptions	Weighted averageexercise price($CAD)	Weighted averageexercise price($USD)
Outstanding, December 31, 2018	-	$-	$-
Granted	6,555,000	0.31	0.24
Forfeited	(500,000)	0.30	0.23
Outstanding, December 31, 2019	6,055,000	$0.31	$0.24
Granted	250,000	0.30	0.22
Expired/Forfeited	(225,000)	0.59	0.44
Outstanding, September 30,
2020	6,080,000	$0.30	$0.23
Exercisable, September 30,
2020	5,873,750	$0.30	$0.23

Continuity of the Company's stock options is as follows:

As at September 30, 2020, the following stock options were outstanding and exercisable:

Number of				Number of
options	Exercise price	Exercise price		options
outstanding	($CAD)	($USD)	Expiry date	exercisable
5,230,000	0.30	0.22	February 15, 2023	5,230,000
75,000	0.41	0.30	August 8, 2022	37,500
300,000	0.33	0.24	August 20, 2022	300,000
125,000	0.30	0.22	November 02, 2021	93,750
50,000	0.30	0.22	November 07, 2021	50,000
50,000	0.30	0.22	December 15, 2024	37,500
250,000	0.30	0.22	January 1, 2025	125,000
6,080,000	$0.31	$0.23		5,873,750

As at September 30, 2020, the weighted average remaining contractual life of outstanding options is 2.41 years.

On January 12, 2020, the Company granted 250,000 options to purchase common shares to an advisory board member. The options are exercisable for five years from the grant date at an exercise price of CAD$0.30 per share. The options vest in tranches of 25% every three months until fully vested.

Employee options were measured at fair value on the grant date and recognized over the vesting period from the date of grant. Nonemployee options were measured indirectly with reference to the fair value of the equity instruments granted as the fair value of goods and services received cannot be measured reliably. Nonemployee options are measured at the end of each reporting period over the term that goods and services are received. For the nine months ended September 30, 2020, the Company recognized share-based payments of $104,216 (2019 - $1,175,634) related to the fair value vested in the current period.

The fair value of stock options granted during the nine months ended September 30, 2020 and the year ended December 31, 2019 was estimated using the Black-Scholes Option Pricing Model with the following assumptions:

Assumptions	September30, 2020	December 31, 2019
Risk-free interest rate	1.62%	1.38-2.50%
Expected volatility	100%	150%
Dividend yield	0%	0%
Expected life	5.00years	1.00-5.00 years

d) Performance shares

On February 15, 2019, the Board agreed to issue to six executives, up to a total of 3,000,000 common shares of the Company with a grant date fair value of $0.23 per share (CAD$0.30 per share) upon the Company meeting certain bonus criteria.

The performance conditions are not related to the market price of the equity instruments of the Company and, as a result, they are non-market performance conditions. At September 30, 2020:

• Bonus criteria for 1,000,000 performance shares have been met and common shares were issued on June 19, 2020 at a fair value of $227,268 (CAD$300,000).
• 1,000,000 performance shares are no longer eligible for vesting as the as the bonus criteria timeline has expired; and
• Management does not anticipate achieving the established bonus criteria for the remaining 1,000,000 performance shares, therefore the instruments are not expected to vest and nothing has been recorded for their fair value. Management will re-evaluate its assessment every reporting period and changes, if any, will be reflected in future periods.

On October 10, 2019, the Company executed a market software as a service agreement. Per the agreement, the Company shall issue 1,000,000 share purchase warrants when certain milestones are met:

• 100,000 warrants issued at execution;
• 300,000 warrants issued upon the achievement of $250,000 of cumulative license revenue to VSBLTY, Inc.;
• 300,000 warrants issued upon the achievement of $500,000 of cumulative license revenue to VSBLTY, Inc.; and
• 300,000 warrants issued upon the achievement of $1,000,000 of cumulative license revenue.

The performance conditions are not related to the market price of the equity instruments of the Company and, as a result, they are non-market performance conditions. At December 31, 2019, management estimated that certain bonus criteria will be met, and there is an obligation to issue 100,000 warrants. Each warrant is exercisable at the lowest price permitted by the policies of the CSE at the time of issuance for a period of three years from issuance. As a result, $19,127 was recorded to share-based payments expense during the year ended December 31, 2019. Management will reevaluate its assessment every reporting period and changes, if any, will be reflected in future periods. As at September 30, 2020, there were no changes to the assessment.

12. COST OF SALES

	Three months endedSeptember30			Ninemonths endedSeptember30
	2020		2019		2020		2019
Professional services	$-	$	4,671	$	1,867	$	18,168
Connectivity	-		(3,404)		-		(3,404)
Equipment	37,548		4,544		43,771		9,402
Software licensing	-		-		13,125		-
Software license development	-		-		809,333		-
Total Cost of Sales	$37,548	$	9,215	$	868,096	$	24,166

13. EXPENSES BY NATURE

	Three months ended				Ninemonths ended
				September30				September30
		2020		2019		2020		2019
Marketing expenses	$	193,096	$	296,055	$	639,305	$	612,147
Meals and entertainment		706		12,289		16,115		43,544
Tradeshow expenses		-		10,321		44,091		63,849
General and administrative expenses		104,014		36,464		278,543		132,019
Professional fees		45,785		31,432		174,163		298,107
Consulting fees		180,852		207,231		554,287		695,106
Management fees		134,737		134,188		431,871		368,188
Rent		(3,117)		4,000		7,159		17,315
Salaries and wages		238,893		210,158		689,331		561,556
Travel		1,661		38,958		50,940		172,938
Depreciation (note 6)		3,701		5,871		9,076		15,466
Lease-related depreciation (note 10)		12,569		5,218		37,707		15,654
Utilities		10,562		13,825		35,318		32,555
Investor relations		248		10,181		32,061		28,219
Transfer agent and filing fees		15,360		54,336		41,036		76,312
Research and development contract
labour and materials		147,522		269,997		484,370		762,071
Total sales and marketing, general and
administrative expense, and research and
development expenses	$	1,086,589	$	1,340,524	$	3,525,373	$	3,895,046

14. RELATED PARTY TRANSACTIONS

Key management compensation

During the nine months ended September 30, 2020, remuneration of the Company's key management personnel consisted of management fees of $435,667 (2019 - $339,000) and share-based payments of $24,756 (2019 - $812,737). Management fees are included in general and administrative expenses and sales and marketing expense.

Other related party transactions

During the nine months ended September 30, 2020 and 2019, other related party transactions consisted of the following:

	Ninemonths endedSeptember30, 2020	Ninemonths endedSeptember30, 2019
Marketing expenses paid to a related entity, included
in sales and marketing expenses	$235,474	$10,093
Accounting and administrative fees paid to related
entities, included in general and administrative
expenses	40,804	129,748
Contract project development labour paid to a related
entity, included in research and development expenses	15,000	108,345
Contract project development labour paid to a related
entity, cost of sales	809,999	281,736
Interest expense for notes payable to related parties,
excluding discount accretion	$26,462	$6,882

Related party balances

As at September 30, 2020, $nil (December 31, 2019 - $4,768) was due from related parties and is included in trade and other receivables. The amounts were non-interest bearing and due on demand.

As at September 30, 2020, $588,423 (December 31, 2019 - $53,030) was due to related parties and is included in accounts payable and accrued liabilities. The amounts were non-interest bearing and due on demand.

As at September 30, 2020, $263,742 (December 31, 2019 - $270,781) in convertible debentures were due to related parties, excluding discounts.

15. CAPITAL MANAGEMENT

The Company's objectives when managing capital are to safeguard its ability to continue as a going concern in order to pursue its operations and to maintain a flexible capital structure, which optimizes the costs of capital at an acceptable risk. The Company considers its capital for this purpose to be its equity, promissory notes and convertible debt.

The Company's primary source of capital is through the issuance of common shares. The Company manages and adjusts its capital structure when changes in economic conditions occur. To maintain or adjust the capital structure, the Company may seek additional funding. The Company may require additional capital resources to meet its administrative overhead expenses in the long term. The Company believes it will be able to raise capital as required in the long term but recognizes there will be risks involved that may be beyond its control. There are no external restrictions on the management of capital.

16. FINANCIAL RISK MANAGEMENT

The Company is exposed to varying degrees to a variety of financial instrument related risks:

Foreign exchange risk

Foreign exchange risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. Foreign exchange risks are closely monitored, and attempts are made to match foreign cash inflows and outflows. As at September 30, 2020, the Company is primarily exposed to foreign exchange risk through its cash and cash equivalents denominated in Canadian dollars. The Company mitigates foreign exchange risk by monitoring foreign exchange rate trends and evaluating reinvestment opportunities when possible. The Company does not currently hedge its foreign exchange risk. Based on current exposures as at September 30, 2020 and assuming that all other variables remain constant, a 10% appreciation or depreciation of the Canadian dollar against the United States dollar would result in a gain or loss of approximately $2,000 in the Company's condensed consolidated statements of loss and comprehensive loss.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company's cash, cash equivalents and trade and other receivables are exposed to credit risk. The Company reduces its credit risk on cash by placing these instruments with institutions of high credit worthiness and mitigate its credit risk on receivables by actively managing and monitoring its receivables. Trade and other receivables also includes refundable goods and services tax which bears minimal credit risk as it is receivable from the Canadian government. The Company has been determined that no allowance is required, as all amounts outstanding are considered collectible. During the nine months ended September 30, 2020, the Company incurred $nil in bad debt expense (2019 - $nil). The Company mitigates credit risk by evaluating the creditworthiness of customers prior to conducting business with them and monitoring its exposure for credit losses with existing customers.

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. As at September 30, 2020, the Company is not exposed to significant interest rate risk.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company manages liquidity risk by maintaining sufficient cash balances to enable settlement of transactions on the due date. The Company addresses its liquidity through equity financing obtained through the issuance of equity and common shares. While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future.

17. BASIS OF FAIR VALUE

Financial instruments that are measured subsequent to initial recognition at fair value are grouped in Levels 1 to 3 based on the degree to which the fair value is observable:

Level 1 - fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 - fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable marker data (unobservable inputs).

The Company's financial instruments consist of cash and cash equivalents, trade and other receivables, accounts payable and accrued liabilities, lease liabilities and convertible debentures. With the exception of lease liabilities and convertible debentures, the carrying value of the Company's financial instruments approximate their fair values due to their short-term maturities. The fair value of lease liabilities and convertible debentures approximate their carrying value due to minimal changes in interest rates and the Company's credit risk since initial recognition.

18. SUBSEQUENT EVENTS

• a) Subsequent to September 30, 2020, 41,775 warrants were exercised for gross proceeds of $5,063.
• b) On October 8, 2020, $44,892 (CAD$60,000) in principal of 2019 Debentures were converted into 171,428 common shares and 85,714 warrants of the Company.