Quest PharmaTech Inc. — Interim / Quarterly Report 2023

Sep 26, 2022

Consolidated Financial Statements

Quest PharmaTech Inc. Six months ended July 31, 2022 (Unaudited)

Quest PharmaTech Inc.

National Instrument 51 – 102 Continuous Disclosure Obligations

Notice

Pursuant to Part 4.3 (3) of National Instrument 51 – 102, these unaudited interim consolidated financial statements of Quest PharmaTech Inc. for the six-month period ended July 31, 2022 have not been reviewed by the Company’s auditors.

Quest PharmaTech Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(see note 1 – going concern uncertainty)

As at
	July 31	January 31
	2022	2022
	$	$
ASSETS
Current
Cash	518,765	264,340
Accounts receivable	6,383	320
Prepaid expenses	4,266	23,490
	529,414	288,150
Non current
Propertyand equipment_[note 4]_	3,594	16,457
Non-currentprepaid expenses	10,420	10,420
Investment in OQP Bio bonds_[note 13]_	80,218,210	80,218,210
Investment in OncoQuest_[note 13]_	9,220,829	10,495,335
	89,453,053	90,740,422
	89,982,467	91,028,572
LIABILITIES
Current
Accountspayable and accrued liabilities	16,730	108,599
Lease obligation_[note 4]_	—	13,998
Short term loan_[note 8]_	1,000,000	500,000
	1,016,730	622,597
SHAREHOLDERS' EQUITY
Common shares_[note 5]_	30,685,716	30,616,716
Contributed surplus	11,217,397	11,064,397
Accumulated other comprehensive loss_[note 13]_	(50,335)	(50,335)
Retained earnings	47,112,959	48,775,197
	88,965,737	90,405,975
	89,982,467	91,028,572

See accompanying notes

Quest PharmaTech Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the three months endedJuly 31 For the six months endedJuly 31	For the three months endedJuly 31 For the six months endedJuly 31	For the three months endedJuly 31 For the six months endedJuly 31	For the three months endedJuly 31 For the six months endedJuly 31	For the three months endedJuly 31 For the six months endedJuly 31
	2022	2021	2022	2021
	$	$	$	$
EXPENSES
General and administrative	277,261	328,120	388,772	398,095
Research and development	58,124	70,974	78,212	121,530
	335,385	399,094	466,984	519,625
Loss before the undernoted	(335,385)	(399,094)	(466,984)	(519,625)
Other income(expenses)
Financial expenses	(5,624)	(6,578)	(9,942)	(7,839)
Equityincome(loss)- OncoQuest_[note 13]_	(302,823)	794,139	(1,274,506)	269,793
Cost recoveries	30,000	60,001	90,000	121,256
Foreign exchangegain /(loss)	(202)	417	(806)	(628)
	(278,649)	847,979	(1,195,254)	382,582
Net and comprehensive income(loss) for theperiod	(614,034)	448,885	(1,662,238)	(137,043)
Basic income(loss) per share	(0.004) $	0.003 $	(0.010) $	(0.001) $
Fully diluted income(loss) per share	(0.004) $	0.003 $	(0.010) $	(0.001) $

See accompanying notes

Quest PharmaTech Inc.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

	Share capital - common shares	Contributed surplus	Accumulated other comprehensive income(loss)	Retained earnings	Total shareholders' equity
	$	$		$	$
Balance, January 31, 2022	30,616,716	11,064,397	(50,335)	48,775,197	90,405,975
Share issuance_[note 5]_	69,000	—	—	—	69,000
Share basedpayments_[note 7]_	—	153,000	—	—	153,000
Net loss for theperiod	—	—	—	(1,662,238)	(1,662,238)
Balance, July 31, 2022	30,685,716	11,217,397	(50,335)	47,112,959	88,965,737

See accompanying notes

Quest PharmaTech Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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For the 3 months ended For the 6 months ended Jul 31 Jul 31
2022 2021 2022 2021
$ $ $ $
CASH FLOWS FROM / (USED IN) OPERATING ACTIVITIES
Net income (loss) for the period (614,034) 448,885 (1,662,238) (137,043)
Items that do not involve cash
Amortization 3,371 9,677 12,863 19,354
Share-based payments [note 7] 126,000 270,500 153,000 270,500
Allocation of (income) loss from OncoQuest [note 13] 302,823 (794,139) 1,274,506 (269,793)
Net change in working capital [note 9] (60,820) (59,879) (78,708) 13,702
(242,660) (124,956) (300,577) (103,280)
CASH FLOWS FROM FINANCING ACTIVITIES
Share issuance - exercise of stock options [note 5] — — 69,000 —
Short term working capital loan [note 8] — — 500,000 —
NET CASH GENERATED FROM FINANCING ACTIVITES — — 569,000 —
CASH FLOWS FROM INVESTING ACTIVITIES
Lease obligation reduction (3,526) (10,017) (13,998) (19,886)
NET CASH GENERATED FROM INVESTING ACTIVITES (3,526) (10,017) (13,998) (19,886)
Net increase (decrease) in cash and cash equivalents (246,186) (134,973) 254,425 (123,166)
Cash and cash equivalents, beginning of period 764,951 210,921 264,340 199,114
Cash and cash equivalents, end of period 518,765 75,948 518,765 75,948
----- End of picture text -----

See accompanying notes

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

1. CORPORATE INFORMATION AND GOING CONCERN UNCERTAINTY

Corporate information

Quest PharmaTech Inc. (“Quest” or the “Company”) is a publicly traded, Canadian based pharmaceutical company developing products to improve the quality of life. The Company is developing targeted cancer therapy with its lead product (MAb AR9.6), under development for a novel target (truncated O-glycans on MUC16) discovered at University of Nebraska Medical Center.

The Company also holds an equity interest in several companies, including a 42.52% equity interest in OncoQuest Inc. (“OncoQuest”), a private Canadian biotechnology company developing next generation of combinatorial immunotherapy products for the treatment of cancer. OncoQuest’s technology platform included a panel of tumor antigen specific monoclonal antibodies of the immunoglobulin G (“IgG”) and E (“IgE”) class targeting CA125, MUC1, PSA, Her2/neu, CA 19.9 and TAG72; and the application of combinatorial immunotherapy to enhance tumor specific immunity and clinical outcome. On April 22, 2020, OncoQuest announced a definitive agreement to sell its drug portfolio to Dual Industrial Co., Ltd. (renamed as OncoQuest Pharmaceuticals, Inc or “OQP Korea” in May, 2020) in exchange for OQP Korea bonds and cash with a notional value of US$308.4 million and a commitment to fund the Oregovamab Phase 3 Clinical Trial. The asset transfer agreement (“ATA”) transaction completed its second closing in February 2021 and as a result all legal title and registrations for OncoQuest’s immunotherapy assets were transferred to OQP Korea. In return, OncoQuest received US$125 million of OQP Korea bonds convertible into OQP Korea shares, US$8.4 million in cash, and an OQP Korea unsecured 1% interest bearing corporate bond for USD$175 million, exchangeable into 65,229,709 shares of OQP Korea with an ascribed notional value of US$175 Million subject to regulatory approval. As the requisite approvals have not yet been received and the trading in the shares of OQP Korea has been suspended on the KOSDAQ Exchange in March 2021, OncoQuest management are working with OQP Korea management to resolve these issues as quickly as possible and monetize the consideration received in the transaction with OQP Korea. In May 2021, OQP Korea determined to spin out the biotechnology business, comprised of the immunotherapy assets, into a separate company that will pursue a public listing on a different exchange. In August 2021, the reorganization was implemented, and OQP Korea’s biotechnology business assets were transferred to OQP Bio, Inc. (Korea), a private Korean company. In January 2022, OncoQuest issued an in-kind dividend of OQP Bio bonds to its shareholders, including to Quest. The dividend received by Quest has a face value of KRW129.1 billion and an estimated fair value on July 31, 2022, of Cdn$80.2 million.

Other equity investments for Quest include an 10.67% interest in OncoVent Co., Ltd., a China-based global pharmaceutical company focusing on the development, manufacturing and commercialization of Cancer Immunotherapy Products within China with pancreatic cancer as its first target; and Bioceltran Co., Ltd. (“Bioceltran”), a Korean company developing skin penetrating active molecules for cosmetic and pharmaceutical use. Quest has worldwide (excluding South Korea) rights to Bioceltran PTD Technology and Products for certain indications and Bioceltran has an exclusive license to Quest’s Photodynamic Therapy Technology.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

1. CORPORATE INFORMATION AND GOING CONCERN UNCERTAINTY [CONTINUED]

The Company’s head office is located at 8123 Roper Road NW, Edmonton, Alberta, Canada T6E 6S4 and it is incorporated under the Business Corporations Act (Alberta). The Company’s functional currency is the Canadian dollar. The Company is publicly traded on the TSX Venture Exchange under the symbol “QPT”.

These consolidated financial statements have been authorized for issue by the Company’s Board of Directors on September 26, 2022.

Going concern uncertainty

The Company’s consolidated financial statements have been prepared on a going concern basis, which presumes the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future. The Company has experienced significant cash outflows from operations since its inception.

While the Company has reported a net loss of $1,662,238 for the six months ended July 31, 2022 (year ended January 31, 2022 - net loss of $85,088,910) and a shareholders’ equity of $88,965,737 (January 31, 2022 – shareholders’ equity of $90,405,975), the Company has consolidated cash reserves of only $518,765 at July 31, 2022 (January 31, 2022 - $264,340) and as at July 31, 2022 had a working capital deficiency of $491,582 (January 31, 2022 – working capital deficiency $357,937). In addition, in March 2021, trading in the shares of OQP Korea was suspended on the KOSDAQ exchange which impacts the ability of OncoQuest to monetize the OQP Korea bond consideration received by OncoQuest under the ATA, to pay for the costs of the ATA transaction including Canadian income tax and to distribute any ATA net proceeds to its shareholders, including Quest. Accordingly, there is a material uncertainty that may cast significant doubt regarding the Company’s ability to continue as a going concern.

The Company’s ability to continue as a going concern is uncertain and is dependent upon its ability to raise additional capital to successfully complete its research and development programs, commercialize its technologies, conduct clinical trials and receive regulatory approvals for its products, and upon the ability and timing to monetize the consideration received in the transaction with OQP Korea. It is not possible at this time to predict the outcome of these matters. The Company’s consolidated financial statements do not reflect any adjustments to the classifications and carrying values of assets and liabilities, or to the amounts reported as earnings per share, that may be required should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business. The Company intends to address this uncertainty through new share or debt issuances, licensing arrangements and/or strategic partnerships.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

2. BASIS OF PREPARATION

The unaudited consolidated financial statements of the Company were prepared following the same accounting policies as disclosed in note 3 in the audited consolidated financial statements for the years ended January 31, 2022 and 2021. These unaudited consolidated financial statements for the six months ended July 31, 2022 should be read in conjunction with the consolidated financial statements for the years ended January 31, 2022 and 2021 and the notes thereto. These unaudited consolidated financial statements for the six months ended July 31, 2022 do not include all of the required disclosures for annual consolidated financial statements.

Statement of Compliance

These consolidated financial statements have been prepared by management in accordance with IAS 34 “Interim Financial Reporting” using accounting principles consistent with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”).

Basis of measurement

The consolidated financial statements have been prepared under the historical cost convention.

3. INTANGIBLE ASSETS

All intangible assets have been fully amortized.

Targeted Cancer Therapy Technologies

The Company is developing a novel approach for cancer therapy using a combinatorial approach for optimal efficacy. Lead product (MAb AR9.6) under development is for a novel target (truncated O-glycans on MUC16) for cancer therapy discovered at University of Nebraska Medical Center. MAb AR 9.6 binds to MUC16 and blocks the activation of growth factor receptors and thereby inhibit phosphorylation of Akt, which leads to reduced cell proliferation, in vivo tumor growth and metastasis.

Protein Transduction Domain (PTD) Drug Delivery Technology

Quest, and Bioceltran are developing skin penetrating active molecules for cosmetic and pharmaceutical use based on Bioceltran’s PTD technology. Quest has the worldwide rights to certain products developed with Bioceltran’s PTD technologies for certain indications.

Out License of Sonolight Technology

In fiscal 2015, the Company out-licensed its Sonolight Technology for Dermatology and Oncology applications to Bioceltran in return for future royalty income. Bioceltran is working with Quest to develop the Sonolight Technology for various applications.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

4. PROPERTY AND EQUIPMENT

	Computer Equipment	Furniture and Fixtures	Office Equipment	Manufacturing and Research and Development Equipment	Leasehold Improvements	Leased Assets – 8123 Roper Road	Totals July 31, 2022
Cost, February 1, 2022	96,397	12,114	31,494	457,983	10,224	183,484	791,696
Additions	—	—	—	—	—	—	—
Deletions	—	—	—	—	—	—	—
Cost, July 31,2022	96,397	12,114	31,494	457,983	10,224	183,484	791,696
Accumulated amortization, February 1, 2022	94,495	12,114	31,494	455,662	10,224	171,250	775,239
Adjustments	—	—	—	—	—	—	—
Amortization	277	—	—	352	—	12,234	120,863
Accumulated amortization, July 31, 2022	94,772	12,114	31,494	456,014	10,224	183,484	788,102
Net book value	1,625	—	—	1,969	—	—	3,594

Right-of-Use Leased Assets

Effective February 1, 2019, the Company has recorded leased assets related to the Company’s rightof-use for its lease space at 8123 Roper Road NW Edmonton. The lease is effective until May 31, 2022 with no renewal provisions in the lease agreement. The Company has a minimum annual lease payment obligation of $42,516. Based on an estimated incremental borrowing rate of 5.95%, the Company has recorded leased assets of $183,484. At July 31, 2022, the lease obligation is estimated to be $nil.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

5. SHARE CAPITAL

Authorized

Unlimited number of common shares without nominal or par value Unlimited number of first preferred shares Unlimited number of second preferred shares

The first and second preferred shares may be issued in one or more series and the directors are authorized to fix the number of shares in each series and to determine the designation, rights, privileges, restrictions and conditions attached to the shares of each series.

Issued

Common shares At January 31, 2021 and 2022 Shares issued pursuant to the exercise of options At July 31, 2022	Number of Amount common shares $
	168,239,247 30,616,716 690,000 69,000
	168,929,247 30,616,716

The following options to purchase common shares were outstanding at July 31, 2022:

Exercise price	Options outstanding	Weighted average remaining life	Options exercisable
$	#	(years)	#
0.09	1,400,000	.72	1,400,000
0.10	6,750,000	.78	6,750,000
0.115	2,050,000	.93	2,050,000
0.15	3,225,000	.74	3,225,000
0.18	1,250,000	.42	1,250,000
0.23	1,720,000	.74	1,720,000
0.25	3,110,000	.54	3,110,000
	19,505,000	.72	19,505,000

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

5. SHARE CAPITAL [CONTINUED]

The following schedule details the warrants and share-based payment transactions granted and expired:

Balance, January 31, 2021 Granted Expired Exercised Balance, January 31, 2022 Granted Expired Exercised Balance, July 31, 2022	Shares issuable on exercise of Warrants Share options
	Number of shares # Weighted average exercise price $ Number of shares # Weighted average exercise price $
	— — 18,295,000 0.15 — — 2,500,000 0.11 — — — — (2,050,000) — 0.10 —
	— — 18,745,000 0.15 — — 1,700,000 0.09 — — — — (250,000) (690,000) 0.10 0.10
	— — 19,505,000 0.15

On April 11, 2022, the Company issued 690,000 common shares at $0.10 per share pursuant to the exercise of share options. The shares were issued to 2 officers and 2 consultants of the Company .

Share options

For the six months ended July 31, 2022, the Company granted 1,700,000 share options, as per the Company’s Share Option Plan to employees and non-employees at exercise prices ranging from $0.09 to $0.10 per share, vesting immediately on date of grant (see Note 7 – Share Based Payments).

For the six months ended July 31, 2021, the Company granted 2,500,000 share options under the Company’s Share Option Plan to employees and non-employees at exercise prices ranging from $0.10 to $0.115 per share, vesting immediately.

On November 27, 2015, the Company obtained shareholder approval to amend its Share Option Plan such that the aggregate number of common shares eligible for issuance under the Share Option Plan shall not exceed 25,000,000. At July 31, 2022, 5,495,000 options are available for issue.

Basic and diluted income / (loss) per share

Basic and diluted income / (loss) per share has been calculated using the weighted average number of common shares outstanding during the period (2022 – 168,662,396; 2021 – 168,239,247).

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

6. CAPITAL DISCLOSURES

The Company is a biotechnology company and consistent with other companies in the industry, the Company’s objectives when managing capital are to safeguard its accumulated capital in order to maintain its ability to operate as a going concern so that it can continue with its drug development program and strive to maximize shareholder value. Capital is defined by the Company as shareholders’ equity (primarily comprising of share capital, contributed surplus and retained earnings). The Company manages its capital structure and makes adjustments to it based on the needs of the Company’s operations and the requirement for funding to continue with the Company’s drug development program. The Company does this through new share or debt issuances, selling assets or licensing its technologies to third parties to fund operations. The Company is not subject to any externally imposed capital requirements.

7. SHARE-BASED PAYMENTS

For the six-month period ended July 31, 2022, the Company granted a total of 1,700,000 (2021 – 2,500,000) share options under the Company’s Share Option Plan. The fair value of options vesting in 2022 of $153,000 (2021 - $270,500) was recognized as a share-based payment expense and credited to contributed surplus for the six-month periods ended July 31, 2022, and 2021. There were no forfeitures of Company’s share options during the six-month periods ended July 31, 2022, and 2021.

The Company used the Black-Scholes option pricing model to estimate the fair value of these options. The Company considers historical volatility of its common shares in estimating future share price volatility. The following assumptions were used:

	2022	2021
Dividend yield	0.00%	0.00%
Volatility	272%	292%
Risk-free interest rate	2.70%	1.44%
Expected life (years)	10.0	10.0
Fair value per option	$0.09	$0.112

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

8. RELATED PARTY TRANSACTIONS

Cost Recovery - Executive Services Agreement - In July 2020, the Company entered into an Executive Services Agreement with OncoQuest whereby the Company’s officers render executive services to OncoQuest for a fee of $10,000 per month.

During the year ended January 31, 2022, the Company received 2% interest bearing debt funding of $250,000 from OncoQuest Inc. During the 6-month period ended July 31, 2022, the Company received a further $500,000 of 2% interest bearing debt funding from OncoQuest. In total, the Company has received $1,000,000 of 2% interest bearing debt funding from OncoQuest Inc. The funding is for drug development and operational purposes, is short term and repayable within 12 months. The Company has accrued $15,297 of interest on this debt funding to July 31, 2022. All of these transactions were recorded at the exchange amount which is the amount agreed to by the related parties.

On April 11, 2022, the Company issued 690,000 common shares at $0.10 per share pursuant to the exercise of share options. The shares were issued to 2 officers and 2 consultants of the Company .

9. SUPPLEMENTAL CASH FLOW INFORMATION

NET CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO OPERATING ACTIVITIES

Three and six months ended July 31

	Three Months	Three Months	Six Months	Six months
	2022	2021	2022	2021
	$	$	$	$
Accounts receivable	(2,438)	3,551	(6,063)	31,069
Prepaids	9,596	22,440	19,224	44,453
AP and accrued liabilities	(67,978)	(85,870)	(91,869)	(61,820)
	(60,820)	(59,879)	(78,708)	13,702

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Company’s financial instruments include cash, accounts receivable, the OQP Bio bonds, accounts payable and accrued liabilities and the short-term loan.

a) Carrying value and fair value

The carrying values of cash, accounts receivable, accounts payable and accrued liabilities and the short-term loan approximate their fair value due to the immediate or short-term maturity of these financial instruments.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT [CONTINUED]

Fair value

All financial instruments carried at fair value are categorized in one of three categories:

Level 1 – Quoted market price Level 2 – Market observable valuation technique Level 3 – Non-market observable valuation technique

During the six-month period ended July 31, 2022, there were no transfers between levels of the fair value hierarchy. The OQP Bio bonds are designated as fair value through profit or loss and are categorized as a Level 2 financial instrument.

b) Risks

i) Foreign currency risk

The Company has certain assets and liabilities that are denominated in foreign currencies and are exposed to risks from changes in foreign exchange rates and the degree of volatility of these rates.

At July 31, 2022 the Company’s exposure to foreign currency risk is US$2,187 in cash and KRW 129.1 billion in OQP Bio bonds. The period-end rate of conversion of U.S. to Canadian dollars is 1.2824 and KRW to Canadian dollars is 0.000982. Based on the foreign currency exposures noted above, a 10 percent strengthening of the Canadian dollar would have increased the net loss by $12,676,921, assuming that all other variables remain unchanged. A 10 percent weakening of the Canadian dollar would have an equal but opposite effect, assuming that all other variables remain unchanged.

At January 31, 2022 the Company’s exposure to foreign currency risk was US$5,023 in cash and KRW 129.1 billion in OQP Bio bonds. The year-end rate of conversion of U.S. to Canadian dollars is 1.2719 and KRW to Canadian dollars is 0.001054. Based on the foreign currency exposures noted above, a 10 percent strengthening of the Canadian dollar would have increased the net loss by $13,619,636, assuming that all other variables remain unchanged. A 10 percent weakening of the Canadian dollar would have an equal but opposite effect, assuming that all other variables remain unchanged.

The Company currently does not use derivative instruments to reduce its exposure to foreign currency risk.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT [CONTINUED]

ii) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s exposure to liquidity risk is dependent on its ability to raise funds to meet its commitments and sustain its operations. The Company controls liquidity risk by managing its working capital and by securing additional funds through equity, debt or partnering transactions (see Capital Disclosures, note 6). The Company only has cash reserves of $518,765 at July 31, 2022 (January 31, 2022 - $264,340). As such, there is a liquidity risk for the Company at July 31, 2022.

iii) Credit risk

Financial instruments that subject the Company to credit risk consist primarily of cash and shortterm investments and accounts receivable. To minimize its exposure to credit risk for cash and shortterm investments, the Company invests surplus cash in short-term deposits that are fully guaranteed by the Company’s financial banker, a major Canadian chartered bank. As the Company is a research and development company, the Company’s exposure to credit risk related to accounts receivable is not considered to be significant. At period end, 100% of accounts receivable was due from a federal government agency.

iv) 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. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company’s cash and short-term investments are comprised of highly liquid deposits that earn interest at market rates. Accounts receivable and accounts payable bear no interest. The Company manages its interest rate risk by maximizing the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis. The Company’s policy limits the investing of excess funds to liquid government guaranteed deposits or guaranteed investment certificates.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

11. COMPENSATION OF KEY MANAGEMENT

Key management includes directors and executives of the Company. The compensation paid or payable (including share-based payments) to key management for services during the three and six months ended July 31, 2022 and 2021 is shown below:

	Three months endedJuly 31	Three months endedJuly 31	Six months endedJuly 31	Six months endedJuly 31
	2022	2021	2022	2021
	$	$	$	$
Employee Compensation	135,250	165,000	207,667	192,500
Director Compensation	93,000	57,500	93,000	57,500
	228,250	222,500	300,667	250,000

12. INVESTMENT IN ONCOVENT CO., LTD.

On March 4, 2016, the Company’s equity investee, OncoQuest, signed a joint venture contract with Shenzhen Hepalink. The agreement resulted in the creation of a new company in China called OncoVent Co., Ltd. (“OncoVent”), to focus on the research and development of Cancer Immunotherapy Products for the Chinese market. Under the agreement, OncoQuest licensed the greater China rights to the Immunotherapy Technologies and provided US$1,000,000 for 46% of the shares of OncoVent. Shenzhen Hepalink contributed US$5,000,000 for 54% of the shares of OncoVent. As part of the agreement, OncoQuest transferred a portion of its shares in OncoVent to Quest and to another party such that Quest owns 10.67% and the other party owns 6%, respectively, of the shares of OncoVent. Management believes the creation of OncoVent will provide additional resources for product development that equity investee OncoQuest can access to accelerate its worldwide product registration strategy. OncoVent will focus on the development, manufacturing and commercialization of Cancer Immunotherapy Products within China with pancreatic cancer as its first target. On October 31, 2016, Shenzhen Hepalink contributed US$5,000,000 to OncoVent. On November 1, 2016, OncoQuest contributed $1,337,900 (US$1,000,000) to OncoVent.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

12. INVESTMENT IN ONCOVENT CO., LTD. [CONTINUED]

For financial statement purposes, Quest accounts for its investment in this affiliated entity under the Equity Method. OncoVent began operations in November 2016.

	$
Balance, January 31, 2016	-
Investment in joint venture, November 1, 2016	1,337,900
Equity method share of loss for the year ended January 31, 2017	(475,771)
Transfer of 6% interest to third party	(174,509)
Balance, January 31, 2017	687,620
Equity method loss for the year ended January 31, 2018	(331,442)
Balance, January 31, 2018	356,178
Equity method loss for the year ended January 31, 2019	(324,877)
Balance, January 31, 2019	31,301
Equity method loss for the three-month period ended April 30, 2019	(31,301)
Balance, April 30, 2019 and onwards to July 31, 2022	—

13. INVESTMENT IN ONCOQUEST INC.

The Company owns 42.52% of the common shares of OncoQuest Inc. The Company accounts for this investment using the Equity Method of accounting. OncoQuest recorded a net loss for the year ended January 31, 2022 of $135,828,030 (USD108,421,728). This loss resulted from OncoQuest writing down the value of the OQP Bio bonds by $133,277,067 (USD106,384,787) due to the lack of liquidity and marketability of the bonds. Quest, with a 42.52% ownership interest in OncoQuest at January 31, 2022, recorded an Equity Method loss of $57,754,078.

Quest reduced the value of its investment in OncoQuest at January 31, 2022 by recording a fair value adjustment of $26,748,980, and a foreign exchange adjustment in other comprehensive loss of $50,335 so that Quest’s investment in OncoQuest would not exceed $10,495,335, Quest’s percentage ownership interest in OncoQuest at year end of 42.52% multiplied by OncoQuest’s shareholders’ equity at January 31, 2022 of $24,683,289 (USD 19,406,627).

The January 2022 dividend received by Quest from OncoQuest reduced Quest’s investment in OncoQuest by a further $80,218,210. The dividend was an in-kind dividend of OQP Bio bonds with a face value of KRW129.1 billion and an estimated fair value of Cdn$80.2 million.

OncoQuest recorded a net loss for the 6-month period ended July 31, 2022 of $2,997,427 (USD2,357,501). Quest, with a 42.52% ownership interest in OncoQuest at July 31, 2022, recorded an Equity Method loss of $1,274,506.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

13. INVESTMENT IN ONCOQUEST INC. [CONTINUED]

The Company’s equity investment in OncoQuest is as follows for the year ended January 31, 2022 and for the six month period ended July 31, 2022:

	Year Ended
	January 31
	$
Investment in OncoQuest at January 31, 2021	175,266,938
Equity Method income (loss) for the year ended January 31, 2022	(57,754,078)
Fair value adjustment at January 31, 2022	(26,748,980)
Other comprehensive loss–foreign exchange	(50,335)
January 2022 in-kind dividend from OncoQuest	(80,218,210)
Investment in OncoQuest at January 31, 2022	10,495,335
Equity Method income (loss) for the 6-month period ended July 31, 2022	(1,274,506)
Investment in OncoQuest at July 31, 2022	9,220,829

OQP Bio Bonds received as a dividend by Quest:

Bond name	Face Value (KRW)	Applied discount	Fair value (KRW)	Fair value (Cdn)
OQP Bio bond # 10	20,415,802,312	0.00%	20,415,802,312	21,518,256
OQP Bio bond # 12/13	19,406,110,515	0.00%	19,406,110,515	20,454,040
OQP Bio corp bond	89,268,108,367	59.35%	36,286,445,823	38,245,914
	129,090,021,194		76,108,358,650	80,218,210

Quest, with advice from independent valuation advisors, used a discount rate of 59.35% to fair value the OQP Bio corporate bond, due to the uncertainty regarding the ability to redeem the OQP Bio corporate bond for cash or shares of OQP Bio. As well, Quest used an exchange rate of 948.767 KRW to 1 Canadian dollar, the exchange rate on January 14, 2022 when the dividend was issued, for all of the OQP Bio bonds, to arrive at an estimate of fair value in Canadian dollars. As the OQP Bio bonds are denominated in KRW, the value of the bonds in Canadian dollars may be subject to exchange rate fluctuations. Since OQP Bio is a private company, with limited liquidity, Quest is negotiating to exchange the OQP Bio bonds for bonds or shares of Canaria Bio M, a Korean KOTC traded company.

Quest PharmaTech Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended July 31, 2022

13. INVESTMENT IN ONCOQUEST INC. [CONTINUED]

OncoQuest Summarized Financial Information:

		As at July 31 2022	As at July 31 2022	As at January 31 2022	As at January 31 2022
		USD		USD
Current assets		$35,100,243		$58,019,060
Non-current assets		$nil		$521
Current liabilities		$19,881,316		$40,443,153
Non-current liabilities		$nil			$nil
	For the 3 months ended	For the 3 months ended		For the 6 months ended	For the 6 months ended
	July 31 2022	July 31 2021		July 31 2022	July 31 2021
	USD	USD		USD	USD
Revenue	$nil	$nil		$nil	$nil
Net income / (loss)	($553,414)	$1,435,172		($2,357,501)	$510,076
Other comprehensive income / (loss)	$nil	$nil		$nil	$nil

Summarized financial information for Quest’s other investments, OncoVent and Bioceltran, is not included in these financial statements because the information is not considered to be material at this time.

14. SUBSEQUENT EVENTS

As a result of the spread of the COVID-19 coronavirus, economic uncertainties have arisen which may impact operating activities and will depend on future developments, including the duration and spread of the outbreak, related travel advisories and restrictions, the recovery times of the disrupted supply chains, the consequential staff shortages, and production delays, or the uncertainty with respect to the accessibility of additional liquidity or capital markets, all of which are highly uncertain and cannot be predicted. There was no perceived impact for the Company for the six-month period ended July 31, 2022 and for the period of time subsequent thereto.