Resverlogix Corp. — Annual Report 2020

Apr 1, 2021

==> picture [294 x 149] intentionally omitted <==

Consolidated Financial Statements For the eight month period ended December 31, 2020 and year ended April 30, 2020

Change in Fiscal Year-End

During the eight months ended December 31, 2020, Resverlogix Corp. changed its fiscal year end to December 31 (from April 30) to adopt more common reporting periods. The transition period is the eight months ended December 31, 2020 and the comparative period is the year ended April 30, 2020.

==> picture [39 x 36] intentionally omitted <==

Management’s Responsibility for Financial Reporting

The accompanying consolidated financial statements of Resverlogix Corp. (the “Company”) have been approved by the Board of Directors and have been prepared in accordance with International Financial Reporting Standards, which recognize the necessity of relying on some best estimates and informed judgements. The financial information contained in the management’s discussion and analysis is consistent with the consolidated financial statements. The Company undertakes steps to ensure the information presented is accurate and conforms to applicable laws and standards, including:

• Management maintains accounting systems and related internal controls and supporting procedures to provide reasonable assurance that assets are safeguarded, transactions are properly authorized, and complete and accurate financial records are maintained to provide reliable information for the preparation of the consolidated financial statements in a timely manner.

• The Board of Directors oversees the management of the business and the affairs for the Company including ensuring management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board of Directors carries out this responsibility principally through its Audit Committee.

• The Audit Committee of the Board of Directors, comprised of three members considered to be independent directors, has reviewed the consolidated financial statements with management and the external auditors.

KPMG LLP Chartered Professional Accountants, the Company’s external auditors, who are appointed by the Company’s shareholders, audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards to enable them to express to the shareholders their opinion on the consolidated financial statements. Their report is set out on the following page.

(signed) (signed) Donald J. McCaffrey A. Brad Cann President and Chief Executive Officer Chief Financial Officer

March 30, 2021

==> picture [62 x 13] intentionally omitted <==

2

==> picture [78 x 32] intentionally omitted <==

KPMG LLP 205 5th Avenue SW Suite 3100 Calgary AB T2P 4B9 Tel (403) 691-8000 Fax (403) 691-8008 www.kpmg.ca

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Resverlogix Corp.

Opinion

We have audited the consolidated financial statements of Resverlogix Corp. (the “Company”), which comprise:

• the consolidated statements of financial position as at December 31, 2020 and April 30, 2020

• the consolidated statements of comprehensive income for the 8-month period ended December 31, 2020 and the year ended April 30, 2020

• the consolidated statements of changes in shareholders’ equity (deficiency) for the 8- month period ended December 31, 2020 and the year ended April 30, 2020

• the consolidated statements of cash flows for the 8-month period ended December 31, 2020 and the year ended April 30, 2020

• and notes to the consolidated financial statements, including a summary of significant accounting policies

(Hereinafter referred to as the “financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2020 and April 30, 2020, and its consolidated financial performance and its consolidated cash flows for the 8- month period ended December 31, 2020 and the year ended April 30 2020 in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “ Auditors’ Responsibilities for the Audit of the Financial Statements ” section of our auditors’ report.

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

© 2020 KPMG LLP, an Ontario limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

==> picture [78 x 32] intentionally omitted <==

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 3 in the financial statements, which indicates that the Company has incurred significant losses to date, and with no assumption of revenues, is dependent on its ability to raise additional financial capital by continuing to demonstrate the successful progression of its research and development activities if it is to remain as a going concern.

As stated in Note 3 in the financial statements, these events or conditions, along with other matters as set forth in Note 3 in the financial statements, 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.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the “ Material Uncertainty related to Going Concern” section of the auditors’ report, we have determined the matter described below to be the key audit matter to be communicated in our auditors’ report.

Evaluation of the fair value of royalty preferred shares

Description of the matter

We draw attention to Notes 4, 5 and 12 to the financial statements. The Company records royalty preferred shares at fair value. The fair value of royalty preferred shares is $38.0 million as at December 31, 2020. Significant assumptions in determining the fair value of royalty preferred shares include the timing and amount of the Company’s future cash flows generated from the sale of potential new products currently in clinical trials and the discount rate applied to these cash flows.

Why the matter is a key audit matter

We identified the evaluation of the fair value of royalty preferred shares as a key audit matter. This matter represented an area of significant risk of material misstatement given the magnitude of royalty preferred shares and the high degree of estimation uncertainty in determining the fair value of royalty preferred shares. In addition, significant auditor judgment and the involvement of professionals with specialized skills and knowledge were

2

==> picture [78 x 32] intentionally omitted <==

required in evaluating the results of our audit procedures due to the sensitivity of the fair value of royalty preferred shares to minor changes to certain significant assumptions.

How the matter was addressed in the audit

The following are the primary procedures we performed to address this key audit matter.

We evaluated the appropriateness of the timing and amount of future cash flows used within the royalty preferred shares valuation model by comparing them to publicly available data for comparable entities and certain published reports of national health organizations.

We assessed the status of the Company’s clinical trials by interviewing the Company’s clinical personnel and inspecting the Company’s clinical trials submissions to regulatory authorities.

We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the appropriateness of the discount rate by comparing inputs into the discount rate to publicly available data for comparable entities.

Other Information

Management is responsible for the other information. Other information comprises:

• the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions.

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

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

We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ 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 in the auditors’ report. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance

for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, 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.

3

==> picture [78 x 32] intentionally omitted <==

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

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

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the 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,

4

==> picture [78 x 32] intentionally omitted <==

we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

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

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

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

• Determine, from the matters communicated with those charged with governance, those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our auditors’ report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this auditors’ report is Richard John Mussenden.

==> picture [105 x 38] intentionally omitted <==

Chartered Professional Accountants

Calgary, Canada March 30, 2021

==> picture [38 x 36] intentionally omitted <==

Consolidated Statements of Financial Position

As at:
			December 31,			April 30,
In thousands of US dollars		Notes		2020		2020
Assets
Current assets:
Cash			$	87	$	4
Prepaid expenses and deposits				121		342
Investment tax credit receivable				70		64
Other assets				297		365
Clinical supplies				584		1,553
Due from relatedparties		16		778		856
Total current assets				1,937		3,184
Non-current assets:
Property and equipment		7		220		274
Right-of-use assets		9		1,238		1,686
Intangible assets		8		2,896		2,786
Prepaid expenses and deposits				55		51
Deferred financing costs				57		-
Clinical supplies				4,303		3,397
Total non-current assets				8,769		8,194
Total assets			$	10,706	$	11,378
Liabilities
Current liabilities:
Trade and other payables			$	6,939	$	7,880
Accrued interest				-		717
Promissory notes		10		157		223
Lease liabilities		9		554		711
Warrant liability		13 (e)		4,112		7,010
Debt		11		-		11,225
Derivative liability		11		-		927
Total current liabilities				11,762		28,693
Non-current liabilities:
Lease liabilities		9		839		997
Royalty preferred shares		12		38,000		45,800
Total liabilities				50,601		75,490
Shareholders' deficiency:
Share capital		13 (a)		322,409		305,637
Contributed surplus				53,951		47,709
Warrants		13 (f)		1,050		1,490
Deficit			(417,305)			(418,948)
Total shareholders' deficiency				(39,895)		(64,112)
Total liabilities and shareholders'	deficiency		$	10,706	$	11,378
Going concern (note 3)	Commitments and contingencies (note 15)
Signed on behalf of the Board:
Signed: "Kenneth Zuerblis"	Director	Signed:	"KellyMcNeill"		Director

==> picture [62 x 13] intentionally omitted <==

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

3

==> picture [38 x 36] intentionally omitted <==

Consolidated Statements of Comprehensive Income

For the eight months ended December 31, 2020 and the year ended April 30, 2020

	Eight	months ended	months ended	Year ended	Year ended
		December 31,			April 30,
In thousands of US dollars, except per share information	Notes		2020		2020
Expenses:
Research and development, net of recoveries	14	$	4,127	$	15,869
Investment tax credits			-		(68)
Net research and development			4,127		15,801
General and administrative, net of recoveries	14		5,281		6,776
			9,408		22,577
Finance (income) costs:
Gain on change in fair value of warrant liability	13 (e)		(4,050)		(52,401)
Gain on change in fair value of royalty preferred shares	12		(7,800)		(91,600)
Gain on change in fair value of derivative liability	11		(1,082)		(68)
Loss on debt extinguishment			248		-
Interest and accretion			1,353		3,194
Financing costs			(9)		378
Foreign exchange loss(gain)			268		(132)
Net finance (income) costs			(11,072)		(140,629)
Income before income taxes			(1,664)		(118,052)
Income taxes	17		21		27
Net and total comprehensive income		$	(1,643)	$	(118,025)
Net earnings per share (note 13 (g))
Basic		$	(0.01)	$	(0.57)
Diluted			(0.01)		(0.54)

==> picture [62 x 13] intentionally omitted <==

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

4

==> picture [38 x 36] intentionally omitted <==

Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

For the eight months ended December 31, 2020 and the year ended April 30, 2020

												Total
		Share	Contributed								Shareholders'
In thousands of US dollars		Capital		Surplus		Warrants				Deficit	Deficiency
Balance, April 30, 2019	$	284,905	$	43,117		$	1,229		$	(536,973)	$	(207,722)
Common shares issued in connection		9,241			-		139			-		9,380
with public offering
Common shares issued in connection		845			-			-		-		845
with private placements
Common shares issued in connection		707		(487)				-		-		220
with stock option and long term
incentive plans
Share issue cost		(798)			-			-		-		(798)
Common shares issued in connection		10,737			-		(2)			-		10,735
with exercise of warrants
Revaluation of warrants for temporary		-			-		124			-		124
exercise price adjustment
Share-based payment transactions		-		5,079				-		-		5,079
Net and total comprehensive income		-			-			-		118,025		118,025
Balance, April 30, 2020	$	305,637	$	47,709		$	1,490		$	(418,948)	$	(64,112)
Common shares issued in connection		2,734			-			-		-		2,734
with private placements
Common shares issued in connection		13,024			-			-		-		13,024
with debenture conversion and
settlement of accrued interest
Common shares issued in connection		1,074		(699)				-		-		375
with stock option, deferred share
unit and long term incentive plans
Share issue cost		(60)			-			-		-		(60)
Expiry of equity-classified warrants		-		440			(440)			-		-
Share-based payment transactions		-		6,501				-		-		6,501
Net and total comprehensive income		-			-			-		1,643		1,643
Balance,December 31,2020	$	322,409	$	53,951		$	1,050		$	(417,305)	$	(39,895)

==> picture [62 x 13] intentionally omitted <==

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

5

==> picture [38 x 36] intentionally omitted <==

Consolidated Statements of Cash Flows

For the eight months ended December 31, 2020 and the year ended April 30, 2020

	Eight months ended	Eight months ended		Year ended
	December 31,			April 30,
In thousands of US dollars		2020		2020
Cash provided by (used in):
Cash flows provided by (used in) operating activities:
Net income	$	1,643	$	118,025
Items not involving cash:
Equity-settled share-based payment transactions		5,135		5,079
Depreciation and amortization		694		1,026
Impairment of clinical supplies		(72)		(619)
Gain on change in fair value of warrant liability		(4,050)		(52,401)
Gain on change in fair value of royalty preferred shares		(7,800)		(91,600)
Gain on change in fair value of derivative liability		(1,082)		(68)
Loss on debt extinguishment		248		-
Unrealized foreign exchange		136		(56)
Interest, fees and accretion		1,353		3,194
Net current income taxes		21		27
Financing costs		(9)		378
Changes in non-cash working capital:
Prepaid expenses and deposits		217		313
Investment tax credit receivable		(6)		49
Other assets		68		(152)
Clinical supplies		135		(569)
Due from related parties		78		9
Trade and otherpayables		373		18
		(2,918)		(17,347)
Interest received		-		24
Income taxpaid		(16)		(20)
Net cash used in operatingactivities		(2,934)		(17,343)
Cash flows provided by (used in) financing activities:
Proceeds from equity units issued in connection with private placements		3,665		1,894
Proceeds from equity units issued in connection with prospectus offering		-		11,444
Share issuance costs and deferred financing costs		(118)		(634)
Proceeds from convertible debenture and warrants		-		12,000
Debt issuance costs		(14)		(396)
Financing costs		(49)		(227)
Interest and fees paid		-		(670)
Repayment of debt		-		(15,137)
Repayment of lease liabilities		(502)		(745)
Proceeds from exercise of stock options		374		220
Proceeds from exercise of warrants		-		2,843
Repayment of promissory note		(83)		(75)
Changes in non-cash financingworkingcapital		27		(343)
Net cashprovided byfinancingactivities		3,300		10,174
Cash flows used in investing activities:
Property and equipment additions		-		(13)
Intangible asset additions		(302)		(487)
Changes in non-cash investingworkingcapital		18		(76)
Net cash used in investingactivities		(284)		(576)
Effect of foreign currencytranslation on cash		1		60
Increase (decrease) in cash		83		(7,685)
Cash, beginningof period		4		7,689
Cash,end ofperiod	$	87	$	4

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

==> picture [62 x 13] intentionally omitted <==

6

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

1. General information

Resverlogix Corp. (the “Company”) is a company domiciled in Canada. The annual consolidated financial statements comprise the Company and its wholly-owned subsidiary Resverlogix Inc. (together referred to as “Resverlogix” or the “Group”). Resverlogix Corp. is incorporated under the laws of Alberta. Resverlogix Inc. is incorporated under the laws of Delaware. The Company’s head office is located at Suite 300, 4820 Richard Road S.W., Calgary, Alberta, T3E 6L1. The registered and records office is located at Suite 600, 815 - 8th Avenue S.W., Calgary, Alberta, T2P 3P2.

Resverlogix is developing apabetalone (RVX-208), a first-in-class, small molecule that is a selective BET (bromodomain and extraterminal) inhibitor. BET bromodomain inhibition is an epigenetic mechanism that can regulate disease-causing genes. Apabetalone is a BET inhibitor selective for the second bromodomain (“BD2”) within the BET proteins. This selective inhibition of apabetalone on BD2 produces a specific set of biological effects with potentially important benefits for patients with high-risk cardiovascular disease (“CVD”), diabetes mellitus (“DM”), chronic kidney disease, end-stage renal disease treated with hemodialysis, neurodegenerative disease, Fabry disease, peripheral artery disease, and other orphan diseases while maintaining a well described safety profile. Apabetalone is the only selective BET bromodomain inhibitor in human clinical trials. Apabetalone was recently studied in a Phase 3 trial, BETonMACE, in 13 countries worldwide, in high-risk CVD patients with type 2 DM and low high-density lipoprotein (HDL). The Company’s Phase 3 trial, BETonMACE, did not meet its primary endpoint but generated encouraging positive results in key secondary endpoints and the Company intends to continue the development of apabetalone if the requisite funding can be secured. Based on the results of the BETonMACE study, the U.S. Food and Drug Administration (“FDA”) granted Breakthrough Therapy Designation (“BTD”) for apabetalone in combination with top standard of care, including high-intensity statins, for the secondary prevention of MACE in patients with type 2 DM and recent acute coronary syndrome (“ACS”). The achievement of BTD has the potential to expedite apabetalone’s clinical development program through more intensive FDA guidance. The Company is considered to be in the development stage, as most of its efforts have been devoted to research and development and it has not earned any revenue to date.

2. Basis of preparation

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). These consolidated financial statements were approved and authorized for issue by the Board of Directors on March 30, 2021.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for liability classified warrants, liability classified royalty preferred shares and derivative liability, which are measured at fair value each reporting period.

(c) Measurement uncertainty

There is estimation uncertainty with regards to the possible impact of the COVID-19 outbreak on the financial results and condition of the Company over the next twelve months.

The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The introduction of vaccines has led to optimism; however, the situation continues to evolve (including the prevalence of virus variants). The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions. It is not possible to reliably estimate the length and severity of these developments and the impact on the financial results and condition of the Company and its operating subsidiaries in future periods. The COVID-19 outbreak may impact the Company’s ability to raise additional capital and/or impact the Company’s ability to continue its clinical trials.

(d) Functional and presentation currency

The functional currency of all entities within the Group is the US dollar, which is also the presentation currency. All financial information presented in dollars has been rounded to the nearest thousand except for per share amounts.

==> picture [62 x 13] intentionally omitted <==

7

Notes to the Consolidated Financial Statements For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

==> picture [38 x 36] intentionally omitted <==

3. Going concern

The success of the Company is dependent on the continuation of its research and development activities, progressing the core technologies through clinical trials to commercialization or a strategic partnership, and its ability to obtain additional financing. It is not possible to predict the outcome of future research and development programs, the Company’s ability to fund these programs in the future, or to secure a strategic partnership, or the commercialization of products by the Company. To date, the Company has not generated any product revenue.

The consolidated financial statements have been prepared pursuant to International Financial Reporting Standards applicable to a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business as they come due. The Company has incurred significant losses to date, and with no assumption of revenues, is dependent on its ability to raise additional financial capital by continuing to demonstrate the successful progression of its research and development activities if it is to remain as a going concern.

As at December 31, 2020, the Company had $0.1 million of cash. The Company needs to raise additional capital to fund research, development and corporate activities over the next year or it may be forced to cease operations. As at December 31, 2020, the Company was committed to pay $6.9 million of trade and other payables, $0.7 million for research and development over the next twelve months, and $0.6 million of lease liabilities over the next twelve months. The Company also has other commitments as outlined in Note 15.

The Company’s cash as at December 31, 2020 is not sufficient to fund the Company’s contractual commitments or the Company’s planned business operations over the next year. As a result of the conversion of the Company’s convertible debenture and related accrued interest into common shares during the period, the Company no longer has any secured debt. Nevertheless, the Company will have to raise additional capital to fund its contractual commitments and its planned business operations. The Company continues to pursue and/or examine several sources of additional capital including co-development, licensing, rights or other partnering arrangements, private placements and/or public offerings (equity and/or debt). However, there is no assurance that any of these measures will be successfully completed.

These conditions result in a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern. If the Company is not able to raise capital, the Company may be forced to cease operations.

The Company will also require additional capital to fund research, development and corporate activities beyond the next year. The Company will continue to explore alternatives to generate additional cash including raising additional equity and/or debt and/or partnering; however, there is no assurance that these initiatives will be successful.

These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities, and the reported expenses that might be necessary should the Company be unable to continue as a going concern. The COVID-19 outbreak may impact the Company’s ability to raise additional capital and/or impact the Company’s ability to continue its clinical trials.

4. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated. The accounting policies have been applied consistently by the Company’s subsidiary.

Consolidation

The consolidated financial statements include the accounts of Resverlogix Corp. and its wholly-owned subsidiary. All intercompany transactions, balances and unrealized gains and losses from intercompany transactions are eliminated on consolidation.

Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. The Company achieves control when it is exposed to, or has rights to, variable returns from its involvement with an entity and has the ability to affect those returns through its power over the entity. The Company considers its voting and contractual rights and all other relevant facts and circumstances in assessing whether it has the power to direct the relevant activities of an entity.

==> picture [62 x 13] intentionally omitted <==

8

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

4. Significant accounting policies (continued)

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on translation are recognized in profit or loss.

Financial instruments

Classification and measurement of financial assets and financial liabilities

Financial assets

Financial assets are initially measured at fair value. In the case of a financial asset not at fair value through profit or loss, the financial asset is initially measured at fair value plus or minus transaction costs.

Under IFRS 9 Financial Instruments (“IFRS 9”), financial assets are subsequently measured at amortized cost, fair value through profit or loss (“FVTPL”), or fair value through other comprehensive income (“FVOCI”). The classification is based on two criteria: the Group’s business model for managing the assets; and whether the financial asset’s contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the ‘SPPI criterion’).

The Group’s financial assets include cash, investment tax credit receivable, due from related parties, and deposits. The classification and measurement of these financial assets are at amortized cost, as these assets are held within the Group’s business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the SPPI criterion.

Financial liabilities

Financial liabilities are initially measured at fair value and are subsequently measured at amortized cost, except as noted in the table below. The Group’s financials liabilities are classified and measured as follows:

Financial Liability	Classification	Measurement
Trade and other payables	Other liabilities	Amortized cost
Promissory notes	Other liabilities	Amortized cost
Warrant liability	FVTPL	Fair value
Debt	Other liabilities	Amortized cost
Derivative liability	FVTPL	Fair value
Royalty preferred shares	FVTPL	Fair value

Impairment

Under IFRS 9, accounting for impairment losses for financial assets uses a forward-looking expected credit loss (“ECL”) approach.

IFRS 9 requires that a loss allowance is recorded for ECLs on all financial assets not held at FVPL. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. In determining the fair value measurement of the Group’s financial instruments, the related inputs used in measuring fair value are prioritized according to the following hierarchy:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities;

==> picture [62 x 13] intentionally omitted <==

9

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

4. Significant accounting policies (continued)

Financial instruments (continued)

Level 2 – Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

The fair value of the warrant liability and the derivative liability is based on level 2 (significant observable) and level 3 (unobservable) inputs. The fair value of the royalty preferred shares is based on level 3 inputs.

Convertible Debenture

The secured convertible debenture (refer to Note 11) is a hybrid instrument consisting of a financial instrument and an embedded derivative, being the conversion option (derivative liability). The embedded derivative is bifurcated from the host contract and accounted for separately as the economic characteristics and risks of the host contract and the embedded derivative are not closely related. The conversion option (derivative liability) contains a variable conversion price and the conversion price is denominated in a foreign currency. As a result, conversion will result in a variable number of shares of the Company being issued at conversion; as such, the conversion feature has been classified as a derivative liability at fair value through profit or loss.

Impairment

The Group assesses at each reporting date whether there is any indication that an asset or a group of assets is impaired.

Clinical supplies, property and equipment, right-of-use assets and intangible assets may be impaired when events or changes in circumstances indicate that the carrying amount may not be recoverable. For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels (cash-generating units or “CGU”) for which there are separately identifiable cash flows that are largely independent of the cash flows of other assets or CGUs. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant assets or CGU). An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.

The Group re-evaluates impairment losses for potential reversals when events or circumstances warrant such consideration. 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 any depreciation or amortization, if no impairment loss had been recognized.

Clinical supplies

Clinical supplies consist of apabetalone (drug substance or capsules) and certain concomitant medications (statins) for use primarily in our clinical trials. Expenditures on clinical supplies are initially capitalized when incurred, and the expense is recognized at a future date when the supplies are used. They are carried at cost, and these costs are recognized as the clinical supplies are consumed in research and development activities in the statement of comprehensive (income) loss or when the clinical supplies are no longer expected to be used in clinical trials.

Property and equipment

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost can be measured reliably. Purchased software that is integral to the functionality of the related computer hardware is capitalized as part of that computer hardware. The carrying amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs are expensed as incurred.

The major categories of property and equipment are depreciated as follows:

Asset	Method	Rate
Office furniture and equipment	Straight line	5 years
Computer hardware and software	Straight line	3 years
Leasehold improvements	Straight line	Term of lease

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Residual values, method of depreciation and useful lives of the assets are reviewed

==> picture [62 x 13] intentionally omitted <==

10

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

4. Significant accounting policies (continued)

Property and equipment (continued)

annually and adjusted if appropriate. Items of property and equipment are depreciated on a straight-line basis in profit or loss over the estimated useful lives of each component, and are depreciated from the date they are installed and ready for use.

Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included in the statement of comprehensive (income) loss.

Intangible assets

(i) Research and development

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are charged as an expense in the period in which they are incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset.

(ii) Other intangible assets, subsequent expenditures, and amortization

Separately acquired patents and non-integrated software have a finite useful life and are measured at cost less accumulated amortization and accumulated impairment losses.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures are recognized in profit or loss as incurred.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The major categories of intangibles assets are depreciated as follows:

Asset	Method	Rate
Patents and intellectual property	Straight line	20-24 years
Non-integrated software	Straight line	3 years
Leases

At inception of a contract, the Company assesses whether such a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:

• The contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;

• The Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and

• The Company has the right to direct the use of the asset. The Company has this right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. A right-of-use asset is initially measured at cost, which comprises 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 assets or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment.

==> picture [62 x 13] intentionally omitted <==

11

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

4. Significant accounting policies (continued)

Leases (continued)

The lease liability is initially measured at the present value of the lease payments at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in a rate, if there is a change in the Company’s estimate or the amount expected to be payable under the residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination period.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in the statement of comprehensive (income) loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Company presents right-of-use assets and lease liabilities separately in the statement of financial position.

As a Lessor

When the Company acts as a lessor, it determines at inception whether each lease is a finance lease or an operating lease.

The Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incremental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

If the contract contains lease and non-lease components, the Company applies IFRS 15 to allocate the consideration in the contract.

Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term incentive plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reasonably.

Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees, officers, and directors is recognized as an expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and nonmarket vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.

The fair value of the Company’s share-based payment awards is measured using the Black-Scholes option pricing model. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility (based on an evaluation of the Company’s historic volatility, particularly over the historic period commensurate with the expected term), expected term of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.

Any consideration received upon exercise of the options and similar instruments together with the amount of non-cash compensation cost recognized in contributed surplus is recorded as an increase in common shares. Restricted stock units that are settled net of required tax withholdings are classified entirely as equity-settled transactions.

Government grants

Grants resulting from government assistance programs, including investment tax credits for research and development expenditures, are reflected as reductions of the cost of the assets or expenditures to which they relate at the time the assistance becomes receivable.

==> picture [62 x 13] intentionally omitted <==

12

Notes to the Consolidated Financial Statements For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

==> picture [38 x 36] intentionally omitted <==

4. Significant accounting policies (continued)

Finance income and costs

Finance income and costs is comprised of interest income on funds invested, accretion and interest expense on loans outstanding, and fair value gains (losses) on financial liabilities at fair value through profit or loss. Interest is recognized as it accrues in profit or loss, using the effective interest rate method. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

Income tax

Income tax comprises current and deferred tax. Income tax is recognized in the statement of income except to the extent that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantially enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the future taxable profits will be available against which they can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries except, where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.

Share capital

Common shares are classified as equity. Incremental costs directly attributable to the issuance of shares or options are recognized as a deduction from equity.

Earnings per share

Basic (earnings) loss per share (“EPS”) is calculated by dividing the net (earnings) loss for the period attributable to equity owners of the Company by the weighted average number of common shares outstanding during the period.

Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments. The Company uses the treasury stock method to determine the dilutive effect of issued instruments (stock options, restricted stock units and warrants). This method assumes that proceeds received from the exercise of in-the-money instruments are used to repurchase common shares at the average market price for the period.

Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

New standards and interpretations adopted

The Company has adopted the following new standard, with a date of initial application of May 1, 2020:

IFRS 3 – Business Combinations

The IASB issued an amended definition of the term ‘business’ within IFRS 3 – Business Combinations. Resverlogix adopted IFRS 3 for the annual period beginning on May 1, 2020. The Company has analyzed the impact of the change in definition of the term ‘business’ in IFRS 3. The amendment did not have a material impact on the consolidated financial statements.

==> picture [62 x 13] intentionally omitted <==

13

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

5. Significant judgments, estimates and assumptions

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reported in these consolidated financial statements and notes. Accordingly, actual results may differ from estimated amounts as future confirming events occur.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Significant judgements and estimates made by management affecting the consolidated financial statements include:

Royalty preferred shares

The Company uses significant judgments related to the fair value measurement of the royalty preferred shares. The fair value measurement requires management to exercise judgment concerning discount rates and estimates of future cash flows, including the timing and amounts of discounted future net cash flows. The assumptions and model used for estimating fair value for the royalty preferred shares are disclosed in Note 12.

Share-based payment transactions

The Company measures share-based payment transactions by reference to the fair value of the stock options at the date at which they are granted. Estimating fair value for granted stock options requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model, including the expected life of the option, volatility and forfeitures. The assumptions and model used for estimating fair value for share-based payment transactions are disclosed in Note 13.

Warrant liability

The Company measures the initial warrant liability and subsequent revaluations of the warrant liability by reference to the fair value of the warrants at the date at which they were issued and subsequently revalues them at each reporting date. Estimating fair value for these warrants requires management to determine the most appropriate valuation model. This estimate also requires management to make significant judgments about the capacity in which warrant holders receive warrants, and to make assumptions about the most appropriate inputs to the valuation model including the expected life of the warrants, volatility and dividend yield. The assumptions and model used for estimating fair value for the warrant liability are disclosed in Note 13 (e).

Derivative liability

The Company’s secured convertible debenture is a hybrid instrument consisting of a financial instrument and an embedded derivative, being the conversion option. The embedded derivative is separated from the host contract and accounted for separately as the economic characteristics and risks of the host contract and the embedded derivative are not closely related. The conversion option contains a variable conversion price and the conversion price is denominated in a foreign currency. As a result, conversion will result in a variable number of shares of the Company being issued at conversion; as such, the conversion feature has been classified as a derivative liability at fair value through profit or loss. The embedded conversion option was measured at fair value by third party valuation specialists using an industry standard methodology. The methodology requires management and its third party valuation specialists to make significant judgments about the value of the redemptive feature within the convertible debenture including the appropriate credit spread and volatility for the Company at each valuation date.

6. Financial risk management

Overview

The Group has exposure to the following risks from its use of financial instruments:

• liquidity risk;

• market risk; and

• credit risk.

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework, including the development and monitoring of the Group’s risk management policies. The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.

==> picture [62 x 13] intentionally omitted <==

14

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

6. Financial risk management (continued)

(a) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s objective in managing liquidity is to ensure, to the greatest extent possible, that it will have sufficient liquidity to meet its liabilities when due.

The future cash requirements of the Group are estimated by preparing a budget annually which is reviewed and approved by the Company’s Board of Directors. The budget establishes the approved activities for the upcoming year and estimates the costs associated with these activities. Actual spending relative to budgeted expenditures is monitored regularly by management and reviewed by the Company’s Board of Directors quarterly.

The Group’s exposure to liquidity risk is dependent on its research and development programs and associated commitments and obligations, and the raising of capital. The Group relies on external financing to support its operations. To date, the programs have been funded primarily through the sale of common shares, term loans, convertible debentures and the exercise of common share purchase warrants. Management constantly monitors capital markets. There are no assurances that funds will be available to the Group when required (also see Note 3). The Group holds cash on deposit; as at December 31, 2020, the Group’s cash is not subject to any external restrictions. The Group also continuously monitors actual and projected expenditures and cash flows. The Company’s commitments are disclosed in Note 15.

The table below presents a maturity analysis of the Company’s financial liabilities on the expected cash flows from December 31, 2020 to the contractual maturity date. The amounts are equivalent to the following contractual undiscounted cash flows.

		2021		2022		2023		Total
Trade and other payables	$	6,939	$	-	$	-	$	6,939
Promissory notes		157		-		-		157
Lease liabilities		571		469		478		1,518
	$	7,667	$	469	$	478	$	8,614

(b) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures.

Currency risk

The Group is exposed to currency risk on transactions that are denominated in a currency other than the functional currency of the Group’s entities. The currency in which these foreign transactions primarily are denominated in is the Canadian dollar. The Group is also exposed to foreign exchange risk on its Canadian dollar denominated cash. The Group manages its exposure to currency fluctuations by holding cash denominated in Canadian dollars in a certain ratio equivalent to current and anticipated Canadian dollar financial liabilities.

The Group has no forward exchange contract to manage its foreign currency risk. As at December 31, 2020, the Group had Canadian denominated assets and liabilities of: cash in the amount of CAD$43 thousand (April 30, 2020 – CAD$1 thousand), accounts receivable in the amount of CAD$0.1 million (April 30, 2020 – CAD$0.03 million), accounts payable in the amount of CAD$1.4 million (April 30, 2020 – CAD$2.6 million), and promissory notes in the amount of CAD$0.2 million (April 30, 2020 – CAD$0.3 million). An increase of $0.01 in the CAD to USD exchange rate as measured on December 31, 2020 would result in a foreign currency loss of $0.02 million (April 30, 2020 – $0.04 million loss).

Interest rate risk

Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group was not exposed to fluctuating market interest rates on its debt as there was a fixed interest rate on the debenture prior to its full conversion in the current period.

==> picture [62 x 13] intentionally omitted <==

15

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

6. Financial risk management (continued)

(c) Credit risk

Credit risk is the risk of financial loss to the Group if the counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Group to credit risk consist primarily of cash and amounts receivable from Zenith Capital Corp. (“Zenith”), which is a related entity (refer to Note 16).

The Group manages its cash in accordance with an investment policy that established guidelines for investment eligibility, credit quality, liquidity and foreign currency exposure. The Group manages its exposure to credit loss by holding cash on deposit with major financial institutions.

As at December 31, 2020, the carrying amounts of the Group’s cash and trade and other receivables approximate their fair value due to their short-term nature.

7. Property and equipment

	Office furniture	Office furniture	Office furniture	Computer	Computer	Leasehold	Leasehold		Total
	and equipment			hardware and		improvements
				software
Cost
Balance at April 30, 2019		$	274	$	110	$	693	$	1,077
Additions			-		13		-		13
Disposals			-		(2)		-		(2)
Balance at April 30, 2020			274		121		693		1,088
Additions			-		-		-		-
Balance at December 31,2020		$	274	$	121	$	693	$	1,088
Accumulated depreciation
Balance at April 30, 2019		$	264	$	102	$	361	$	727
Depreciation			8		9		72		89
Disposals			-		(2)		-		(2)
Balance at April 30, 2020			272		109		433		814
Depreciation			1		5		48		54
Balance at December 31,2020		$	273	$	114	$	481	$	868
Net book value
As at April 30, 2020		$	2	$	12	$	260	$	274
As at December 31,2020			1		7		212		220

==> picture [62 x 13] intentionally omitted <==

16

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

8. Intangible assets

Intangible assets
	Patents and		Non-integrated			Total
	intellectual	property		software
Cost
Balance at April 30, 2019	$	3,283	$	126	$	3,409
Additions		487		-		487
Balance at April 30, 2020		3,770		126		3,896
Additions		302		-		302
Disposals		-		(12)		(12)
Balance at December 31,2020	$	4,072	$	114	$	4,186
Accumulated amortization and	impairment losses
Balance at April 30, 2019	$	729	$	116	$	845
Amortization		255		10		265
Balance at April 30, 2020		984		126		1,110
Amortization		192		-		192
Disposals		-		(12)		(12)
Balance at December 31,2020	$	1,176	$	114	$	1,290
Net book value
As at April 30, 2020	$	2,786	$	-	$	2,786
As at December 31,2020		2,896		-		2,896

9. Leases

(a) As a lessee

(i) Right-of-use asset

ses s a lessee Right-of-use asset
	Office	leases		Total
Cost
Balance at April 30, 2019	$	-	$	-
Impact of IFRS 16 adoption		2,358		2,358
Balance at April 30,2020		2,358		2,358
Balance at December 31,2020	$	2,358	$	2,358
Accumulated depreciation
Balance at April 30, 2019	$	-	$	-
Depreciation		672		672
Balance at April 30, 2020		672		672
Depreciation		448		448
Balance at December 31,2020	$	1,120	$	1,120
Net book value
As at April 30, 2020	$	1,686	$	1,686
As at December 31,2020	$	1,238	$	1,238

The right-of-use asset recognized at May 1, 2019 includes a provision of $43 thousand for the potential removal of certain leasehold improvements at the end of the lease (November 2023). The corresponding liability is disclosed as part of non-current lease liabilities.

==> picture [62 x 13] intentionally omitted <==

17

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

9. Leases (continued)

(a) As a lessee (continued)

(ii) Lease liabilities

The following is the Group’s maturity analysis for office and laboratory premises contractual undiscounted cash flows and a summary of the discounted cash flows disclosed on the statement of financial position:

summary of the discounted cash flows disclosed on the statement of financial position:	summary of the discounted cash flows disclosed on the statement of financial position:
December		31,2020
Less than 1 year	$	571
Between 1 and 5 years		947
More than 5 years		-
Total undiscounted leasepayments as at December 31,2020	$	1,518
Lease liabilities in the statement of financialposition at December 31,2020	$	1,393
Current		554
Non-current		839

During the eight months ended December 31, 2020, total interest on lease liabilities recognized in finance costs was $0.1 million (year ended April 30, 2020 – $0.1 million).

(b) As a lessor

Resverlogix has a license agreement and a sublease in place with Zenith Capital Corp. (“Zenith”) for a laboratory and offices that Resverlogix shares with Zenith. The agreements have been classified as operating leases as Zenith does not have substantially all of the risks and rewards of the underlying assets. Zenith agreed to pay Resverlogix for its proportionate share of associated rent payments and operating costs of an estimated $0.2 million and $0.1 million, respectively, for the next twelve months. The cost recovery on rent payments has been recognized as recoveries to research and development and general and administrative expenses.

10. Promissory notes

The following table summarizes the changes in promissory notes outstanding.

	Liability	amount
Outstanding,April 30,2019	$	306
Repayment of CAD$0.1 million promissory note		(75)
Revaluation of CAD denominated promissory notes		(8)
Outstanding,April 30,2020		223
Repayment of CAD$0.1 million promissory note		(83)
Revaluation of CAD denominated promissory note		17
Outstanding,December 31,2020	$	157

During the year ended April 30, 2018, the Chairman of the Company and an officer of the Company lent CAD$0.2 million and CAD$0.2 million, respectively, to the Company. These promissory notes are unsecured and payable on demand. The promissory note due to the Chairman of the Company bore interest at 7% per annum and the promissory note due to an officer of the Company is non-interest-bearing. CAD$0.1 million of the promissory note due to the Chairman of the Company was repaid in May 2019. A combined CAD$0.3 million of promissory notes remained outstanding as at April 30, 2020. The remaining CAD$0.1 million of the promissory note due to the Chairman of the Company was repaid in November 2020. The CAD$0.2 million promissory note owed to an officer of the Company remained outstanding as at December 31, 2020.

==> picture [62 x 13] intentionally omitted <==

18

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020

(Tabular amounts in thousands of US dollars, except for number of shares)

11. Debt and derivative liability

The following table summarizes the changes in debt during the eight months ended December 31, 2020.

	Vision Leader Limited Convertible	Debenture
Balance,April 30,2020	$	11,225
Accretion of transaction costs on Convertible Debenture, prior to amendment		411
Derecognition of remaining unamortized transaction costs at debt extinguishment, at amendment		364
Initial fair value of new derivative liability, at amendment		(1,897)
Accretion of transaction costs on Convertible Debenture, subsequent to amendment		324
Conversion of full principal amount of Convertible Debenture		(10,427)
Balance,December 31,2020	$	-
Vision Leader Limited Convertible Debenture

Vision Leader Limited Convertible Debenture
	December 31,			April 30,
		2020		2020
US$12.0 million (initial principal), 10% due September 26, 2021	$	-	$	12,000
Unamortized transaction costs, net of accretion		-		(109)
Discount on warrant liability derivative, net of accretion		-		(230)
Discount on conversion option derivative, net of accretion		-		(436)
Carryingvalue of debt	$	-	$	11,225

On September 26, 2019, the Company closed a US$12.0 million secured convertible debenture (the “Debenture”) with Vision Leader Limited (“Vision Leader”), a wholly-owned subsidiary of ORI Star Fund LP (“ORI”). The Debenture bore interest at 10% per annum, and initially matured on September 26, 2020. Prior to conversion, as described below, ORI was able to elect to convert the Debenture into common shares of the Company at a conversion price equal to the lesser of CAD$2.54 per share and the 5- day volume weighted average trading price of the common shares on the date of conversion. The Company granted Vision Leader a security interest in all of its assets, including its patents and other intellectual property, as security for its obligations under the Debenture. In connection with the Debenture, ORI was entitled to nominate a director to the Company’s Board of Directors for so long as any amount remained outstanding pursuant to the Debenture; on December 19, 2019, a nominee of ORI was appointed to the Board of Directors and remains on the Board of Directors notwithstanding full repayment of the Debenture.

On October 13, 2020, the full principal amount of the $12.0 million Debenture and $1.2 million of accrued interest was converted to common shares, as described in Note 13 (a); the conversion price was CAD$1.08 per share. Accordingly, Vision Leader’s security interest in the Company’s assets was released and discharged. The carrying value of the Debenture and the fair value of the derivative liability were reclassified to equity at the conversion date.

The Debenture was a hybrid instrument consisting of a financial instrument, an embedded derivative, being the conversion option and attached liability-classified warrants. The embedded derivative was bifurcated from the host contract and accounted for separately as the economic characteristics and risks of the host contract and the embedded derivative were not closely related.

The Company also issued 600,000 warrants to Vision Leader in connection with the Debenture. Each warrant is exercisable at a price of CAD$2.54 per underlying common share with an expiry date of December 31, 2023. An exercise of warrants with an exercise price denominated in a foreign currency will result in a variable amount of cash for a fixed number of shares; as such, the warrants are presented as a current liability. On initial recognition, the warrants were valued at $0.5 million; this initial value of the warrant liability, deducted from the face value of the Debenture, is accreted over the term of the Debenture. Subsequent to initial recognition, any change in fair value was recognized in profit or loss at each reporting date.

The conversion option contained a variable conversion price and the conversion price was denominated in a foreign currency. As a result, conversion would result in a variable number of shares of the Company being issued at conversion; as such, the conversion feature was classified as a derivative liability at fair value through profit or loss. It was valued at $1.0 million at the date of issuance; this initial value of the conversion option derivative, deducted from the face value of the Debenture, was accreted over the term of the Debenture. Subsequent to initial recognition, any change in fair value was recognized in profit or loss at each reporting date.

==> picture [62 x 13] intentionally omitted <==

19

Notes to the Consolidated Financial Statements For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

==> picture [38 x 36] intentionally omitted <==

11. Debt and derivative liability (continued)

Amendment/extension of Debenture

On July 21, 2020, the maturity date of the Debenture, and the corresponding payment date of interest thereon, were both extended by one year from September 26, 2020 to September 26, 2021. The amendment was accounted for as a debt extinguishment and recognition of a new liability. The $0.2 million of transaction fees related to the amendment (including $0.2 million for the initial value of additional warrants described below), along with the derecognition of the remaining $0.4 million unamortized transaction costs at the July 21, 2020 amendment date, offset by the derecognition of the $0.4 million fair value of the derivative liability at the July 21, 2020 amendment date (prior to incorporating the extended maturity date) resulted in a net $0.2 million loss on debt extinguishment being recorded on the statement of comprehensive loss.

In connection with the extension of the maturity date of the Debenture, Vision Leader was issued an additional 600,000 warrants, exercisable until December 31, 2024 at a price of CAD$0.74 per underlying common share, as described in Note 13 (e). The initial $0.2 million value of the warrant liability at the July 21, 2020 amendment date was expensed (to loss on debt extinguishment recorded on the statement of comprehensive income).

The conversion option incorporating the extended maturity date was valued at $1.9 million at the July 21, 2020 amendment date. On initial recognition at the July 21, 2020 amendment date and on the October 13, 2020 conversion date discussed above, the embedded conversion option was measured at fair value by third party valuation specialists using an industry standard methodology. During the eight months ended December 31, 2020, a $1.1 million gain was recognized for revaluing the derivative liability (including the periods prior to and after the amendment).

The following table summarizes the changes in derivative liability during the eight months ended December 31, 2020.

	Derivative liability	amount
Balance,April 30,2020	$	927
Change in fair value of derivative liability, prior to amendment		(576)
Derecognition of derivative liability for debt extinguishment, at amendment		(351)
Initial fair value of new derivative liability, at amendment		1,897
Change in fair value of derivative liability, subsequent to amendment		(506)
Conversion of full amount of Convertible Debenture		(1,391)
Balance,December 31,2020	$	-

12. Royalty preferred shares

(i) Authorized:

Unlimited number of royalty preferred shares issuable in series with rights as determined by the Board of Directors at the time of issue.

(ii) Issued and outstanding:

(ii) Issued and outstanding:
Preferred shares	Number ofpreferred shares		Amount
Balance,April 30,2019	75,202,620	$	137,400
Revaluation of royalty preferred shares	-		(91,600)
Balance,April 30,2020	75,202,620		45,800
Revaluation of royalty preferred shares	-		(7,800)
Balance,December 31,2020	75,202,620	$	38,000

The holder of the royalty preferred shares is entitled to dividends in the amount of 6-12% of the Company’s Net Revenue, as defined in the Company’s articles. As at December 31, 2020, the Company had 75,202,620 royalty preferred shares outstanding, all of which were held by Zenith Capital Corp. (“Zenith”). Resverlogix and Zenith have a majority of their directors in common, and thus are considered related parties. For fair value measurement purposes, the royalty preferred shares liability has been categorized within level 3 of the fair value measurement hierarchy. The fair value of the royalty preferred shares is based on management’s judgments, estimates and assumptions which include significant unobservable inputs including the timing and amounts of the Company’s discounted future net cash flows. The estimate incorporates the following assumptions: a cumulative

==> picture [62 x 13] intentionally omitted <==

20

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

12. Royalty preferred shares (continued)

probability rate of generating forecasted future cash flows of 42% as at December 31, 2020 (April 30, 2020 – 42%) reflecting in each case, among other factors, the Company’s clinical results, in particular the results of BETonMACE, and communication with the U.S. Food and Drug Administration (“FDA”) and other regulatory bodies; a discount rate of 23.3% as at December 31, 2020 (April 30, 2020 – 23.2%); projected commencement of revenue beginning between mid 2025 and early 2026 (based on projected clinical development paths across various jurisdictions, which is based in part on securing the requisite funding from a partnership with a pharmaceutical company or other source(s) of capital by mid 2021) as at December 31, 2020 (April 30, 2020 – between early 2024 and late 2024); and projected apabetalone market share percentages and projected product pricing. The fair value of our royalty preferred shares in the current period was affected by the change in the projected commencement of revenue, offset by the passage of time during the eight months ended December 31, 2020 (to future cash flows based on the estimated timing and commencement of revenue).

The fair value of the royalty preferred shares is subject to significant volatility. Small changes in the aforementioned assumptions may have a significant impact on the fair value of the royalty preferred shares. For instance, holding all other assumptions constant: a 1% increase in the discount rate would result in a $3.1 million decrease in the fair value of the royalty preferred shares; assuming commencement of revenue one year later would result in a $9.6 million decrease in the fair value of the royalty preferred shares; and a 1% increase in the probability rate of generating forecasted future cash flows would result in a $1.0 million increase in the fair value of the royalty preferred shares.

13. Shareholders’ equity (deficiency)

(a) Common shares

• (i) Authorized:

Unlimited number of common shares

• (ii) Issued and outstanding:

Shareholders’ equity (deficiency) (a) Common shares (i) Authorized: Unlimited number of common shares (ii) Issued and outstanding:
Common shares	Number of shares			Amount
Balance,April 30,2019		200,327,919	$	284,905
Issued in connection with public offering		3,798,936		9,241
Issued in connection with private placement		2,110,744		845
Issued in connection with warrant exercises		5,007,125		10,737
Issued in connection with stock option plan		382,230		400
Issued in connection with long term incentive plan		143,168		307
Share issue cost		-		(798)
Balance,April 30,2020		211,770,122		305,637
Issued in connection with private placements		5,930,027		2,734
Issued in connection with Debenture conversion and settlement	of accrued interest	16,137,311		13,024
Issued in connection with stock option plan		644,066		505
Issued in connection with deferred share units plan		64,459		146
Issued in connection with long term incentive plan		416,467		423
Share issue cost		-		(60)
Balance,December 31,2020		234,962,452	$	322,409

Private placements, prospectus offering and debenture conversion

In June 2019, the Company issued 3,798,936 equity units at CAD$4.00 per unit pursuant to a prospectus offering for gross proceeds of $11.4 million (CAD$15.2 million). Each equity unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable at a price of CAD$4.60 per underlying common share for a period of four years from the closing of the offering. All of the 3,798,936 warrants issued were listed for trading.

==> picture [62 x 13] intentionally omitted <==

21

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

13. Shareholders’ equity (deficiency) (continued)

(a) Common shares (continued)

In November 2019, the Company issued 1,252,006 equity units at CAD$1.33 per unit pursuant to a private placement for gross proceeds of $1.3 million (CAD$1.7 million). Each equity unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable at a price of CAD$1.40 per underlying common share for a period of three years from the closing of the private placement.

In March 2020, the Company issued 134,100 equity units at CAD$1.30 per unit pursuant to a private placement for gross proceeds of $0.1 million (CAD$0.2 million). Each equity unit consisted of one common share and one-half of a common share purchase warrant. Each warrant is exercisable at a price of CAD$1.75 per underlying common share for a period of one year from the closing of the private placement.

In March 2020, the Company also issued 724,638 equity units at CAD$1.00 per unit pursuant to a private placement for gross proceeds of $0.5 million (CAD$0.7 million). Each equity unit consisted of one common share and one-half of a common share purchase warrant. Each warrant is exercisable at a price of CAD$1.25 per underlying common share for a period of two years from the closing of the private placement.

In May 2020, the Company issued 490,410 equity units at CAD$0.85 per unit pursuant to a private placement for gross proceeds of $0.3 million (CAD$0.4 million). Each equity unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable at a price of CAD$1.00 per underlying common share for a period of two years from the closing of the private placement. The Company also issued 87,222 shares at CAD$0.72 per share pursuant to a private placement for gross proceeds of $0.05 million (CAD$0.1 million).

In August 2020, the Company issued 3,573,333 equity units at CAD$0.75 per unit pursuant to a private placement for gross proceeds of $2.0 million (CAD$2.7 million). Shenzhen Hepalink Pharmaceutical Co., Ltd. ("Hepalink") subscribed for all 3,573,333 units. Each equity unit consisted of one common share and one-half common share purchase warrant. Each warrant is exercisable at a price of CAD$1.00 per underlying common share for a period of one year from the closing of the private placement.

In September 2020, the Company issued 982,000 equity units at CAD$0.80 per unit pursuant to a private placement for gross proceeds of $0.6 million (CAD$0.8 million). Each equity unit consisted of one common share and one-half common share purchase warrant. Each warrant is exercisable at a price of CAD$1.00 per underlying common share for a period of one year from the closing of the private placement. In September 2020, the Company also issued 134,000 shares at CAD$1.00 per share for settlement of a $0.1 million debt (CAD$0.1 million).

On October 13, 2020, the full principal amount of the $12.0 million Debenture and $1.2 million of accrued interest was converted into 14,598,983 common shares and 1,538,328 common shares, respectively. The $10.4 million carrying value of the Debenture, the $1.4 million fair value of the derivative liability, and the $1.2 million value of accrued interest settled were reclassified to equity at the conversion date.

In November 2020, the Company issued 663,062 equity units at a price of CAD$1.20 per unit for gross proceeds of $0.6 million (CAD$0.8 million). Each equity unit consisted of one common share and one-half common share purchase warrant. Each warrant is exercisable at a price of CAD$1.35 per underlying common share for a period of one year from the closing of the private placement.

Share issue costs

During the year ended April 30, 2020, the Company recognized total share issue costs of $0.8 million, including $0.1 million associated with warrants issued to the financial advisors involved with the June 2019 public offering, as described in Note 13 (f).

(b) Stock options

The Company’s amended stock option plan has been approved as a rolling 10% plan that allows for reservation of a number of common shares under the plan equal to 10% of the Company’s issued and outstanding common shares on an undiluted basis. Additionally, the plan is a reloading plan, which allows for the number of common shares reserved for issuance related to the options under the plan to automatically become eligible to be reallocated pursuant to stock option based grants upon option expiry, cancellation or exercise. The Company may grant options to its directors, officers, employees and consultants.

The majority of options fully vest over one to three years and have a five year term. The options are settled by way of the issuance of equity instruments of the Company (“equity-settled”).

==> picture [62 x 13] intentionally omitted <==

22

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

13. Shareholders’ equity (deficiency) (continued)

• (b) Stock options (continued)

(b) Stock options(continued)
	Number of	Weighted average
	options	exerciseprice(CAD)
Outstanding,April 30,2019	1,623,466	$	1.42
Granted	375,000		1.32
Exercised	(382,230)		0.78
Expired	(375,870)		1.02
Forfeited	(75,000)		2.13
Outstanding,April 30,2020	1,165,366		1.69
Granted	775,000		0.78
Exercised	(644,066)		0.78
Expired	(307,934)		2.13
Outstanding,December 31,2020	988,366	$	1.43

The fair value of each option granted is estimated as of the grant date using the Black-Scholes option pricing model. The following weighted average assumptions were used in arriving at the weighted average fair values of $0.21 per option associated with stock options granted during the eight months ended December 31, 2020 (year ended April 30, 2020 – $0.50 per option).

Eight months ended December 31,2020	Eight months ended December 31,2020	Year ended April 30,2020
Risk-free interest rate	0.5%	1.2%
Expected life	1.2 years	2.9 years
Expected volatility	141%	117%
Share price at grant date	CAD$0.79	CAD$1.23
Expected dividends	Nil	Nil

The following table summarizes information about the options outstanding and exercisable at December 31, 2020.

		Weighted		Weighted
		Average		Average
Range of	Number	Remaining		Exercise	Number
Exercise Prices(CAD)	Outstanding	Life(years)	Price(CAD)		Exercisable
$0.79	50,000	4.33	$	0.79	50,000
$1.28 - $1.73	913,366	1.21		1.43	888,366
$3.01	25,000	3.16		3.01	8,334
	988,366	1.42	$	1.43	946,700

The number of options exercisable at December 31, 2020 was 946,700 (April 30, 2020 – 948,700) with a weighted average exercise price of CAD$1.40 (April 30, 2020 – CAD$1.70). For stock options exercised in the eight months ended December 31, 2020, the weighted average share price on exercise date was CAD$0.81/share (year ended April 30, 2020 – CAD$2.19/share).

(c) Restricted stock units

The Company’s long term incentive plan allows for the reservation of a number of common shares not to exceed 10% of the Company’s issued and outstanding common shares on an undiluted basis less the number of common shares reserved under the Company’s amended stock option plan. The Company may grant restricted stock units (“RSUs”) to directors, officers, employees, and consultants. RSUs are settled on exercise through the issuance of common shares.

==> picture [62 x 13] intentionally omitted <==

23

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

13. Shareholders’ equity (deficiency) (continued)

(c) Restricted stock units (continued)

During the eight months ended December 31, 2020, 7,285,789 RSUs were granted (year ended April 30, 2020 – 3,019,400 RSUs), including 2,364,284 RSUs that were granted to settle payroll obligations of $1.4 million. The RSUs vest over a period of zero to three years. The Company estimates the fair value of RSUs based on the market price of the underlying stock on the date of grant.

of grant.
	Number of	Weighted average
	restricted stock units	grant date fair value (USD)
Outstanding,April 30,2019	2,409,547	$	2.26
Granted	3,019,400		2.04
Exercised	(143,168)		2.15
Forfeited	(338,465)		2.24
Outstanding,April 30,2020	4,947,314		2.13
Granted	7,285,789		0.61
Exercised	(416,467)		1.01
Outstanding,December 31,2020	11,816,636	$	1.23

The number of RSUs exercisable at December 31, 2020 was 8,935,623 (April 30, 2020 – 2,308,344).

(d) Deferred share units

The Company’s deferred share unit plan limits the maximum number of Common Shares issuable pursuant to outstanding deferred share units (“DSUs”) at any time to 5% of the aggregate number of issued and outstanding Common Shares, provided that the combined maximum number of Common Shares issuable by the Company pursuant to outstanding DSUs and all of its other security based compensation arrangements may not exceed 10% of the Common Shares outstanding from time to time. The Company may grant DSUs to directors. DSUs are settled on exercise through the issuance of common shares.

During the eight months ended December 31, 2020, 287,280 DSUs were granted (year ended April 30, 2020 – 139,085). The DSUs fully vest at grant date. The Company estimates the fair value of DSUs based on the market price of the underlying stock on the date of grant.

on the date of grant.
	Number of	Weighted average
	deferred share units	grant date fair value(USD)
Outstandingand exercisable,April 30,2019	155,001	$	2.52
Granted	139,085		0.83
Outstandingand exercisable,April 30,2020	294,086		1.72
Granted	287,280		0.72
Exercised	(64,459)		2.27
Outstandingand exercisable,December 31,2020	516,907	$	1.10

==> picture [62 x 13] intentionally omitted <==

24

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

13. Shareholders’ equity (deficiency) (continued)

(e) Warrant liability

The following table summarizes the changes in liability-classified common share purchase warrants outstanding.

	Number of	Weighted average	Weighted average		Liability
	warrants	exerciseprice(CAD)			amount
Outstanding,April 30,2019	33,395,486	$	2.07	$	63,526
Issued in connection with public offering	3,798,936		4.60		2,203
Issued in connection with private placements	1,681,375		1.38		1,049
Issued in connection with convertible debenture	600,000		2.54		525
Exercised	(5,000,000)		0.75		(7,892)
Expired	(182,457)		2.00		-
Revaluation of warrant liability	-		-		(52,401)
Outstanding,April 30,2020	34,293,340		2.52		7,010
Issued in connection with private placements	3,099,608		1.02		931
Issued in connection with convertible debenture amendment	600,000		0.74		221
Expired	(1,422,005)		2.67		-
Revaluation of warrant liability	-		-		(4,050)
Outstanding,December 31,2020	36,570,943	$	2.35	$	4,112

The following table summarizes information about liability-classified warrants outstanding and exercisable at December 31, 2020.

	Number Outstanding	Weighted Average	Weighted Average	Weighted Average
Exercise Price(CAD)	and Exercisable	RemainingLife(years)	Exercise Price(CAD)
$0.74	600,000	4.00	$	0.74
$1.00 - $1.75	14,990,378	0.81		1.41
$2.05 - $2.54	6,103,702	0.72		2.10
$3.00 - $3.21	11,077,927	0.87		3.09
$4.60	3,798,936	2.43		4.60
	36,570,943	1.03	$	2.35

Under IFRS, the prescribed accounting treatment for warrants, with an exercise price denominated in a foreign currency, is to treat these warrants as a liability measured at fair value with subsequent changes in fair value each reporting period accounted for through profit or loss. The initial fair value of these warrants is determined using the Black Scholes option pricing model.

The Company’s warrants are presented as a current liability on the consolidated statements of financial position. Each full warrant entitles the holder to purchase one common share of the Company. As these warrants are exercised, the fair value of the recorded warrant liability on the date of exercise is included in share capital along with the proceeds from the exercise. If these warrants expire, the related decrease in warrant liability is recognized in profit or loss, as part of the change in fair value of warrant liability. For liability-classified warrants exercised in the year ended April 30, 2020, the weighted average share price on exercise date was CAD$2.84/share.

The fair value of the warrants not listed is determined using the Black Scholes option pricing model at initial issue date and at each reporting period, unless the warrants are listed, in which case the initial trading value is used.

The changes in fair value of the unlisted liability-classified warrants were based on several factors including changes in the market price of our shares to CAD$0.94 on December 31, 2020 from CAD$0.83 on April 30, 2020 and CAD$4.01 on April 30, 2019, the revaluation of 3.7 million new liability classified warrants issued in the current period, as well as decreases in the remaining terms of the various series of warrants, and changes in estimated future volatility of our common shares which represents a level 3 input in the fair value hierarchy. The fair value of the warrants is subject to significant volatility. Gains and losses resulting from the revaluation of warrant liability are non-cash and do not impact the Company’s cash flows.

==> picture [62 x 13] intentionally omitted <==

25

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

13. Shareholders’ equity (deficiency) (continued)

(e) Warrant liability (continued)

During the year ended April 30, 2020, 3,798,936 liability-classified warrants were issued (and listed for trading) in connection with the prospectus offering (see Note 13(a)). The market value of these listed warrants represents a Level 1 input in the fair value hierarchy, and is used to value these warrants at each reporting period. As at December 31, 2020, the fair value of these listed warrants was CAD$0.21 per warrant for a total value of $0.6 million (April 30, 2020 – CAD$0.30 per warrant for a total value of $0.8 million).

The weighted average fair value of the warrants issued during the eight months ended December 31, 2020 was $0.34 per warrant (year ended April 30, 2020 – $0.74 per warrant, excluding the listed warrants described above), using the Black-Scholes option pricing model and the following weighted average assumptions for the separate issuances:

	Eight months	ended December 31,2020	Year ended	April 30,2020
Issued in connection		Issued in connection	Issued in connection	Issued in connection
withprivateplacements		with debenture amendment	withprivateplacements	with debenture
Number of warrants issued	3,099,608	600,000	1,681,375	600,000
Risk-free interest rate	0.2%	0.7%	1.3%	1.7%
Expected life	1.2 years	4.5 years	2.7 years	4.3 years
Expected volatility	138%	87%	112%	80%
Shareprice atgrant date(CAD)	$0.89	$0.76	$1.34	$2.30

(f) Equity-classified warrants

These warrants are classified as an equity instrument and accounted for under IFRS 2 – Share-Based Payments as they are a form of compensation for services rendered. Due to the equity classification, the warrants are not revalued each reporting period.

The following table summarizes the changes in equity classified warrants outstanding.

	Number of	Weighted average	Weighted average		Equity
	warrants	exerciseprice(CAD)			amount
Outstanding,April 30,2019	1,681,468	$	1.83	$	1,229
Issued in connection with prospectus offering	195,925		4.00		139
Exercised	(7,125)		2.05		(2)
Revaluation of warrants for temporary exercise price adjustment	-		-		124
Outstanding,April 30,2020	1,870,268		2.06		1,490
Expired	(331,750)		2.67		(440)
Outstanding,December 31,2020	1,538,518	$	1.92	$	1,050

For equity-classified warrants exercised in the year ended April 30, 2020, the weighted average share price on exercise date was CAD$2.98/share.

The following table summarizes information about the equity classified warrants outstanding and exercisable at December 31, 2020.

2020.
	Number Outstanding	Weighted Average
Exercise Price(CAD)	and Exercisable	RemainingLife(years)
$1.62	1,342,593	0.92
$4.00	195,925	0.43
	1,538,518	0.86

==> picture [62 x 13] intentionally omitted <==

26

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020

(Tabular amounts in thousands of US dollars, except for number of shares)

13. Shareholders’ equity (deficiency) (continued)

(g) Per share amounts

The basic and diluted earnings (loss) per share have been calculated based on the weighted average shares outstanding:

the eight months ended December 31, 2020 and the year ended April 30, 2020 ular amounts in thousands of US dollars, except for number of shares) Shareholders’ equity (deficiency)(continued) (g) Per share amounts The basic and diluted earnings (loss) per share have been calculated based on the weighted	the eight months ended December 31, 2020 and the year ended April 30, 2020 ular amounts in thousands of US dollars, except for number of shares) Shareholders’ equity (deficiency)(continued) (g) Per share amounts The basic and diluted earnings (loss) per share have been calculated based on the weighted	average shares outstanding:
Eight months ended December 31,2020		Year ended April 30,2020
Weighted average common shares outstanding- basic	220,332,101	208,246,361
Effect of convertible debenture, warrants, stock options, RSUs and DSUs	11,517,780	13,183,963
Weighted average common shares outstanding- diluted	231,849,881	221,430,324

The effect of any potential exercise of convertible debenture, warrants, stock options, restricted stock units, and deferred share units outstanding is excluded from the calculation of diluted loss per share in periods where the effect would be anti-dilutive.

14. Expenses by nature

Presentation of expenses is based on the function of each expense. The following details provide a breakdown of the components of the research and development and general and administrative expenses classified by nature.

	Eight months ended December 31,	Eight months ended December 31,	Year ended	April 30,
		2020		2020
Research and development expenses:
Operating expenses	$	1,020	$	11,022
Personnel costs (short-term employee benefits)		1,052		1,724
Government assistance (COVID-19 payroll subsidy)		(137)		-
Impairment of clinical supplies		72		619
Share-based payment transactions		1,616		1,762
Amortization and depreciation		504		742
Total research and development expenses	$	4,127	$	15,869
General and administrative expenses:
General expenses	$	587	$	1,329
Personnel costs (short-term employee benefits)		1,225		1,846
Government assistance (COVID-19 payroll subsidy)		(240)		-
Share-based payment transactions		3,519		3,317
Amortization and depreciation		190		284
Totalgeneral and administrative expenses	$	5,281	$	6,776

During the eight months ended December 31, 2020, the Company received $0.4 million (CAD$0.5 million) of COVID-19 payroll subsidy government assistance from the Government of Canada (through the Industrial Research Assistance Program). The payroll subsidy was recognized as an offset to salary expense (allocated to research and development expenses and general and administrative expenses). There are no unfulfilled conditions attached to this government assistance.

During the eight months ended December 31, 2020, the Company recognized a $0.1 million impairment loss on clinical supplies (drug capsules) that were no longer able to be utilized in the Company’s research and development programs (year ended April 30, 2020 – $0.6 million).

==> picture [62 x 13] intentionally omitted <==

27

Notes to the Consolidated Financial Statements For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

==> picture [38 x 36] intentionally omitted <==

15. Commitments and contingencies

As at December 31, 2020, the Group is committed to expenditures over the next twelve months of $0.7 million (April 30, 2020 – $1.2 million) under various research and development contracts.

The July 2015 License Agreement between Resverlogix and Hepalink was amended effective May 1, 2020 such that Resverlogix agreed to pay up to CAD$8.0 million of clinical development costs associated with apabetalone, including a global Phase 3 clinical trial (which Resverlogix intends to perform in any event), in China, Hong Kong, Taiwan and Macau, and if the costs incurred by Resverlogix up to December 31, 2021 total less than CAD$8 million, then Resverlogix and Hepalink shall negotiate a mutuallyagreeable timeframe regarding any difference, in principle by not later than June 30, 2022.

In July 2020, the Company entered into an agreement with a supplier to settle amounts owing by the Company, whereby the Company agreed to pay a reduced amount in three instalments of $200,000, $550,000 and $550,000 on August 1, 2020, September 1, 2020 and October 1, 2020 respectively. The Company paid the August 1, 2020 instalment, but has not yet made the two remaining instalment payments. Until the Company pays the remaining two payments, thereby satisfying its obligations pursuant to the agreement, it is possible that the supplier could assert that the Company is in default and could pursue any remedies that may be available to them.

In December 2020, the Company entered into an agreement to acquire certain intellectual property for a total of $1 million of upfront and milestone payments. The transaction is expected to close in April 2021.

16. Related party transactions

Balances and transactions between the Company and its wholly-owned subsidiary have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and other related parties consist of key management personnel compensation and transactions, as well as transactions with Zenith.

Key management personnel

Key management personnel of the Group consist of its executive management and Board of Directors (as the Directors are considered to have control of the Company). In addition to the salaries and fees paid to key management, the Group also provides compensation to both groups under its share-based compensation plans. Compensation expenses paid to key management personnel were as follows:

personnel were as follows:
	Eight months ended December 31,		Year ended	April 30,
		2020		2020
Short-term benefits	$	914	$	1,420
Equity-settled share-based payments		4,382		3,372
Keymanagementpersonnel compensation	$	5,296	$	4,792

The promissory notes transactions the Company entered into with related parties are described in Note 10. There were no new promissory notes issued in the year ended April 30, 2020 or the eight months ended December 31, 2020.

Related party transactions with Zenith

The Company and Zenith have several directors in common, and thus are considered related parties. The Company provides management and administrative services to Zenith pursuant to a Management Services Agreement dated June 3, 2013 between the Company and Zenith. The purpose of the agreement is to enable the Company to achieve greater utilization of its resources. As consideration for the services, Zenith pays the Company a service fee, consisting of salary and other compensation costs attributable to the services and reimbursable expenses incurred by Resverlogix in connection with the services.

During the eight months ended December 31, 2020, the Company provided an aggregate of $0.5 million (year ended April 30, 2020 – $1.0 million) of services and reimbursable expenses, comprised of $0.2 million (year ended April 30, 2020 - $0.6 million) for management and administrative services, and $0.3 million (year ended April 30, 2020 – $0.5 million) of reimbursable expenses, less $0.02 million (year ended April 30, 2020 – $0.1 million) for services provided to Resverlogix by Zenith. The reimbursable expenses include proportionate share of rental payments and operating costs (for a laboratory and offices that Resverlogix shares with Zenith) pursuant to subleases that Resverlogix has in place with Zenith. As at December 31, 2020, Zenith owes the Company $0.8 million (April 30, 2020 – $0.9 million). This balance is unsecured, payable on demand and non-interest bearing.

==> picture [62 x 13] intentionally omitted <==

28

Notes to the Consolidated Financial Statements For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

==> picture [38 x 36] intentionally omitted <==

16. Related party transactions (continued)

Effective January 1, 2015 the Company entered into a Services Agreement whereby Zenith supplies research services to the Company. The purpose of the agreement is to enable the Company to obtain access to specialized research services on a more cost-effective basis than other alternatives. During the eight months ended December 31, 2020, Zenith provided $0.02 million of research services (year ended April 30, 2020 - $0.1 million). At December 31, 2020 the Company owed Zenith $2 thousand related to work performed under the agreement (April 30, 2020 – $0.1 million).

Hepalink

During the eight months ended December 31, 2020, the Company completed a private placement with Hepalink for $2.0 million (CAD$2.7 million). As at December 31, 2020, Hepalink held 36.3% (April 30, 2020 – 38.6%) of the Company’s outstanding common shares and is considered to have significant influence over Resverlogix.

On July 8, 2015, the Company closed a license of apabetalone for China, Hong Kong, Taiwan and Macau (the "Territories") for all indications with Hepalink. The license between the Company and Hepalink stipulates that Hepalink is responsible for certain clinical and development costs in the Territories, including a patient population that was included in the Company’s Phase 3 BETonMACE trial. Accordingly, during the year ended April 30, 2020, the Company charged Hepalink $0.03 million as a recovery to research and development expenses on the consolidated statements of comprehensive (income) loss, related to costs incurred for patients in the Territories participating in BETonMACE. As described in Note 15, the July 2015 License Agreement was amended effective May 1, 2020 such that Resverlogix agreed to pay up to CAD$8.0 million of clinical development costs associated with apabetalone, including a global Phase 3 clinical trial (which Resverlogix intends to perform in any event), in the Territories and if the costs incurred by Resverlogix up to December 31, 2021 total less than CAD$8 million, then Resverlogix and Hepalink shall negotiate a mutually-agreeable timeframe regarding any difference, in principle by not later than June 30, 2022.

17. Income taxes

The provision for income taxes differs from the amount which would be obtained by applying the combined statutory federal and provincial income tax rate to the net loss in the year. A reconciliation of the expected tax and the actual provision for income taxes is as follows:

is as follows:	is as follows:	is as follows:
Eight months ended December 31,			Year ended April 30,
		2020		2020
Expected tax recovery - 23.5% (year ended April 30, 2020 - 25.8%)	$	391	$	30,496
Revaluation of the royalty preferred shares		(1,833)		(23,663)
Revaluation of the fair value of the warrant liability		(952)		(13,537)
Revaluation of the fair value of the derivative liability		(254)		-
Share-based payments		1,528		1,312
Long term debt including accretion		173		468
Change in enacted rates		9,434		3,653
Other		(370)		(233)
Deferred tax assets not recognized		(8,096)		1,531
Income tax expense	$	21	$	27

On May 28, 2019, the Government of Alberta tabled legislation to reduce the corporate tax rate from 12% to 8% by January 1, 2022. On June 29, 2020, the Government of Alberta further announced a proposal to accelerate the previous corporate tax rate reduction and reduce the corporate tax rate in 2020 from 10% to 8%, effective July 1, 2020, which was enacted in the fourth quarter of 2020.

==> picture [62 x 13] intentionally omitted <==

29

Notes to the Consolidated Financial Statements

==> picture [38 x 36] intentionally omitted <==

For the eight months ended December 31, 2020 and the year ended April 30, 2020 (Tabular amounts in thousands of US dollars, except for number of shares)

17. Income taxes (continued)

Deferred tax assets are recognized to the extent that it is probable that taxable income will be available, against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized. The components of the unrecognized net deferred tax asset are as follows:

	Eight months ended December 31,	Eight months ended December 31,	Year ended	April 30,
		2020		2020
Non-capital losses	$	69,403	$	76,656
Scientific research and experimental development	expenditures	8,008		8,995
Share issue costs and debt issuance costs		697		527
Other		(175)		(149)
Unrecognized deferred tax	$	77,933	$	86,029

The Group has non-capital losses of approximately $301.8 million (April 30, 2020 – $296.7 million) available to reduce future years’ taxable income expiring at various times until 2040. As at December 31, 2020, the Group has non-refundable federal investment tax credits of approximately $7.8 million (April 30, 2020 – $7.8 million) which are available to reduce future taxes payable, subject to approval by Canada Revenue Agency and expiring at various times until 2040. The Group has unclaimed scientific research and development expenditures available to reduce future years’ taxable income of approximately $34.8 million (April 30, 2020 – $34.8 million) over an indefinite future period. The potential benefits of these tax pools have not been recorded in the consolidated financial statements.

==> picture [62 x 13] intentionally omitted <==

30