Secure Blockchain Development Corp. — Audit Report / Information 2022

Apr 29, 2023

IDENTILLECT TECHNOLOGIES CORP.

Consolidated Financial Statements (Expressed in US Dollars)

As at and for the years ended December 31, 2022 and 2021

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of: Identillect Technologies Corp.

Opinion

We have audited the accompanying consolidated financial statements of Identillect Technologies Corp. (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2022 and 2021 and the consolidated statements of loss and comprehensive loss, changes in shareholders’ deficiency and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2022 and 2021, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis for Opinion

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

Material Uncertainty Related to Going Concern

We draw attention to Note 1 of the consolidated financial statements, which indicates that the Company incurred a net loss of $397,947 during the year ended December 31, 2022 and, as of that date, the Company’s current liabilities exceeded its current assets by $929,114. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2022. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, prepared under the conditions mentioned above, 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, we have determined the matters described below to be the key audit matters to be communicated in our auditor's report.

Revenue

As described in Note 2(i) to the consolidated financial statements, the Company has revenues of $635,951 related to the sale of software-as-a-service. We consider revenue to represent a key audit matter as it represents an area of significant risk of material misstatement given the material dollar value and fraud risk inherent in revenue. A high degree of auditor time and effort was required in performing procedures to evaluate the existence, completeness, and accuracy of revenues.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures included, among others:

• Reviewing invoices and vouching a sample of receipts;

• Obtaining lists of all customers and transactions and analyzing changes compared to prior year records;

• Recalculating annual license revenues by client to audit cut-off of revenue recognition; and

• Evaluating the appropriateness of the Company’s revenue recognition policy and the adequacy of the Company’s disclosures.

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Other Information

Management is responsible for the other information. The other information comprises the Management Discussion and Analysis. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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

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

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

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

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

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

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

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

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

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

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

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

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible

for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

The engagement partner on the audit resulting in this independent auditor’s report is Melyssa Charlton.

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CHARTERED PROFESSIONAL ACCOUNTANTS

Vancouver, BC April 28, 2023

Identillect Technologies Corp. Consolidated Statements of Financial Position (Expressed in US dollars)

		December 31,		December 31,
		2022		2021
Assets
Current Assets
Cash	$	100,957	$	41,595
GST receivable		84,681		81,117
Prepaid expenses		2,531		131
		188,169		122,843
Propertyand equipment(Note 4)		7,494		7,418
Total Assets	$	195,663	$	130,261
Liabilities and Shareholders’ Deficiency
Current Liabilities
Accounts payable and accrued liabilities (Note 5, 11)	$	387,416	$	699,101
Deferred revenue		273,475		282,628
Loans payable (Notes 5, 6)		345,012		791,318
Lease liabilities (Note 8)		5,571		5,235
Convertible debentures(Notes 5,7)		105,809		285,218
Total Liabilities		1,117,283		2,063,500
Shareholders’ Deficiency
Share capital (Note 10)		9,907,897		8,534,456
Share-based payment reserve (Note 10)		1,086,246		1,081,527
Warrants reserve (Note 10)		685,288		685,288
Equity component of convertible debt (Note 7)		4,605		9,324
Accumulated other comprehensive loss		(26,497)		(62,622)
Deficit		(12,579,159)		(12,181,212)
Total Shareholders’ Deficiency		(921,620)		(1,933,239)
Total Liabilities and Shareholders’ Deficiency	$	195,663	$	130,261

Nature and continuance of operations – Note 1 Commitment – Note 8

Approved on behalf of the Board on April 28, 2023:

” Jeff Durno”____	”Todd Sexton”____
Director	Director

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

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Consolidated Statements of Loss and Comprehensive Loss (Expressed in US dollars)

Identillect Technologies Corp.

Identillect Technologies Corp. Consolidated Statements of Loss and Comprehensive Loss (Expressed in US dollars)	Identillect Technologies Corp. Consolidated Statements of Loss and Comprehensive Loss (Expressed in US dollars)
For the years ended December 31, 2022 2021
Revenues $ 635,951 Cost of sales (27,452)	$ 611,721 (24,304)
Grossprofit 608,499	587,417
Expenses Consulting fees 69,970 Depreciation (Note 4) 16,096 Filing fees 29,986 Finance costs (Notes 6 and 7) 67,250 General and administrative 54,809 Operating costs 129,365 Professional fees (Note 5) 161,970 Rent (Note 5, 8) 19,424 Salaries and wages (Note 5) 551,966 Sales and marketing 23,864 Share-basedpayments(Note 5,10) -	- 11,370 14,462 81,605 28,976 107,837 162,223 19,588 499,725 2,898 371,719
(1,124,700)	(1,300,403)
Operating loss (516,201) Foreign exchange gain (loss) 21,244 Lease accretion (Note 8) (744) Gain on termination of lease (Note 8) - Forgiveness of loans payable (Note 6) 89,485 Forgiveness of accountspayable 8,269	(712,986) (1,863) (701) 24,028 - 10,456
Loss for the year (397,947) Translation adjustment 36,125	(681,066) 241
Comprehensive loss for theyear $ (361,822)	$ (680,825)
Weighted average number of shares outstanding – basic and diluted 206,835,138 Basic and diluted lossper share $ (0.00)	147,215,961 $ (0.00)

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

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Identillect Technologies Corp.

Consolidated Statements of Changes in Shareholders’ Deficiency

(Expressed in US dollars)

Number of Common Shares	Share Capital Amount Warrant reserve Share-based payment reserve Equity portion of convertible debt Accumulated other comprehensive loss	Deficit Shareholders’ deficiency
Balance, December 31, 2020 147,215,961 Share based payments - Currency translation adjustment - Loss for theyear -	$ 8,534,456 $ 685,288 $ 709,808 $ 9,324 $ (62,863) - - 371,719 - - - - - - 241 - - - - -	$ (11,500,146) $ (1,624,133) - 371,719 - 241 (681,066) (681,066)
Balance, December 31, 2021 147,215,961 Private placement 147,166,666 Share issuance costs - Settlement of convertible debentures - Currency translation adjustment - Loss for theyear -	8,534,456 685,288 1,081,527 9,324 (62,622) 1,379,238 - - - - (5,797) - - - - - - 4,719 (4,719) - - - - - 36,125 - - - - -	(12,181,212) (1,933,239) - 1,379,238 - (5,797) - - - 36,125 (397,947) (397,947)
Balance, December 31, 2022 294,382,627	$ 9,907,897 $ 685,288 $ 1,086,246 $ 4,605 $ (26,497)	$ (12,579,159) $ (921,620)

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

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Identillect Technologies Corp. Consolidated Statements of Cash Flows (Expressed in US dollars)

For the years ended December 31, 2022 2021	For the years ended December 31, 2022 2021
Cash provided by (used for): Operating Activities: Loss for the year $ (397,947) Items not affecting cash: Depreciation 16,096 Interest accrued 67,250 Share-based payments - Lease accretion 744 Gain on termination of lease - Foreign exchange (13,284) Forgiveness of loans payable (89,485) Forgiveness of accounts payable (8,269) Changes in non-cash working capital items: Accounts receivable - GST receivable (9,108) Accounts payable and accrued liabilities (285,444) Deferred revenue (9,153) Prepaid expenses (2,400)	$ (681,066) 11,370 81,605 371,719 701 (24,028) 1,143 - (10,456) 9,143 (8,234) 24,877 1,380 2,250
(731,000)	(219,596)
Investing Activity: ROU asset deposit -	(1,325)
-	(1,325)
Financing Activities: Proceeds from share issuance 1,379,238 Share issuance costs (5,797) Proceeds from loans payable 220,339 Repayment of convertible debentures (180,489) Repayment of loans payable (606,349) Payments towards lease liabilities (16,580)	- - 261,520 - (12,600) (11,262)
790,362	237,658
Change in cash for the year 59,362 Cash, beginning of the year 41,595	16,737 24,858
Cash, end of the year $ 100,957	$ 41,595
Cash paid for interest $ 277,186 Cashpaid for taxes $ -	$ - $ -

Significant non-cash transactions (Note 9)

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

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Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

1. NATURE AND CONTINUANCE OF OPERATIONS

Identillect Technologies Corp. (“Identillect” or the “Company”) is a Canadian public company that is listed on the TSX Venture Exchange (“Exchange”) under the symbol ID. The Company was incorporated under the Canada Corporations Business Act on December 27, 1985, registered extraprovincially under the British Columbia Company Act on July 9, 1987, and effective June 18, 2014, the Company was continued into British Columbia. The Company’s principal address is 1600 – 609 Granville Street, Vancouver, BC V7Y 1C3 and its registered and records office is 2200 – 885 West Georgia Street, Vancouver, BC, V6C 3E8.

Identillect Technologies Inc. is a wholly-owned subsidiary of the Company, which was incorporated under the Nevada Business Corporation Act on August 24, 2010. Identillect Technologies Inc. is a software company that has developed an email encryption software solution. The head office of Identillect Technologies Inc. is located at 34197 Pacific Coast Hwy, Suite 103, Dana Point, CA, 926293801.

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different bases of measurement may be appropriate if the Company was not expected to continue operations for the foreseeable future. During the year ended December 31, 2022, the Company incurred a loss of $397,947 (2021 - $681,066) and as at December 31, 2022, the Company has a working capital deficiency of $929,114 (2021 - $1,940,657) and has an accumulated deficit of $12,579,159 (2021 – $12,181,212) since inception and expects to incur further losses in the development of its business. This material uncertainty may cast significant doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to attain profitable operations to generate funds and/or its ability to raise equity capital or borrowings sufficient to meet its current and future obligations. Although the Company has been successful in the past in raising funds to continue operations, there is no assurance it will be able to do so in the future.

On March 11, 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or results of operations at this time.

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance with IFRS

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”) and interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”). The Company’s financial statements were authorized for issue by the Board of Directors on April 28, 2023.

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Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

b. Basis of measurement

These consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments classified as financial instruments at fair value through profit or loss, which are stated at their fair value. In addition, these consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

c. Basis of consolidation

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Identillect Technologies Inc. The Company consolidates subsidiaries when it can exercise control over the entity. Control is achieved when the Company is exposed to variable returns from involvement with an investee and can affect the returns through power over the investee. Control is normally achieved through ownership, directly or indirectly, of more than 50 percent of the voting power. Control can also be achieved through power over more than half of the voting rights by virtue of an agreement with other investors or through the exercise of de facto control. All intercompany balances, transactions, income and expenses, and profits or losses have been eliminated on consolidation.

Name of Subsidiary	Ownership	Place of Incorporation
Identillect Technologies Inc.	100%	Nevada, USA

d. Foreign currency translation

The functional currency of each entity is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in US dollars, which is the functional currency of the Company’s subsidiary, Identillect Technologies Inc. The functional currency of Identillect Technologies Corp. is the Canadian dollar.

Transactions and balances:

In preparing the financial results of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates if the transactions. At each reporting date, monetary assets and liabilities denominated in currencies other than the functional currency of the individual entities are translated using the period end foreign exchange rate. Non-monetary assets, liabilities and equity are translated using the rate of on the date of the transaction. Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the transactions. All gains and losses on translation of these foreign currency transactions are included in profit or loss.

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Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

d. Foreign currency translation (continued )

Foreign operations:

The financial results and position of foreign operations whose functional currency is different from the Company’s presentation currency are translated as follows: assets and liabilities using the exchange rate at period end; and income, expenses and cash flow items using the rate that approximates the exchange rates at the dates of transactions (i.e. the average rate for the period). All resulting exchange differences arising from the translation of the entities with a functional currency other than the United States dollar are reported within accumulated other comprehensive income (loss) as a separate component of equity.

e. Financial Instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Classification and measurement of financial assets and financial liabilities

Financial assets

Financial assets are classified into one of two categories on initial recognition:

• Financial assets measured at amortized cost; or

• Financial assets measured at fair value (either through other comprehensive income (“OCI”), or

• through profit of loss (“FVTPL”)).

The classification of financial assets is based on the business model in which a financial asset is managed on its contractual cash flow characteristics. A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition. For financial assets measured at amortized cost, these assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. For assets measured at fair value, gains or losses are recorded in profit or loss or OCI.

The Company’s cash is measured at FVTPL.

Impairment of financial assets at amortized cost

The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost.

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Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

e. Financial Instruments (continued)

At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the credit risk on the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve month expected credit losses. The Company shall recognize the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting as an impairment loss (or gain) through profit or loss.

Financial liabilities

Financial liabilities are classified into one of two categories on initial recognition:

• Financial liabilities measured at amortized cost; or

• Financial liabilities measured at fair value through profit or loss.

A financial liability is classified as FVTPL if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized costs are recognized in profit or loss as incurred. The fair value changes to financial liabilities at FVTPL are presented as follows: the amount of change in fair value that is attributable to changes in the credit risk of the liability is presented in OCI; and the remaining amount of the change in the fair value is presented in profit or loss. The Company does not designate any financial liabilities at FVTPL.

Other non-derivative financial liabilities are initially measured at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortized cost using the effective interest rate method.

The Company classifies its accounts payable and accrued liabilities, loans payable, lease liabilities, and convertible debentures as financial liabilities measured at amortized cost.

Financial liabilities are classified as current or non-current based on their maturity date.

f. Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the group entities are recorded at the proceeds received, net of direct issue costs.

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Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

g. Financial Instrument measurement and valuation

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 Inputs that are not based on observable market data.

The measurement of the Company’s financial instruments is disclosed in Note 11 to these financial statements.

h. Compound financial instruments

Compound financial instruments issued by the Company comprise convertible debentures that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition except on conversion or expiry.

i. Revenue recognition

The Company sells its technology on a software-as-a-service (“SaaS”) basis. Subscription revenue is recognized over time when the right to access the Company’s technology is transferred to the customer over the term of the subscription period. Purchase agreements are typically for a monthly or annual period and related fee. Contracts for subscriptions are sold to personal and corporate users and if billed upfront and prior to revenue recognition, results in deferred revenue. Customers may also be billed subsequent to revenue recognition which results in unbilled receivables. Revenue is recognized on these subscriptions when collection is probable and over the term of the contracts.

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Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

j. Property and equipment

Property and equipment are recorded at cost less accumulated depreciation and impairment losses. The Company provides for depreciation using the following methods at rates designed to depreciate the cost of the equipment over their period of expected use by the Company. A full year of depreciation is recorded in the year of acquisition. No depreciation is recorded in the year of disposal. The estimated useful lives of assets are reviewed by management and adjusted if necessary. The annual depreciation rates and methods are as follows:

• Furniture and equipment: 5 years straight line

• Computer hardware: 3 years straight line

• Right-of-use assets: straight line over term of lease

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 Company and the cost can be measured reliably.

The carrying amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs are charged to the statement of loss and comprehensive loss during the period they are incurred.

k. Impairment of non-financial assets

The carrying amounts of the Company’s non-financial assets, other than deferred tax assets if any, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit” or “CGU”). The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. A reversal of an impairment loss is recognized immediately in profit or loss.

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Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

l. 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. The Company does not have any provisions for the years presented.

m. Share capital

Common shares are classified as share capital. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects.

The Company has adopted a residual value method with respect to the measurement of shares and warrants issued as private placement units. The residual value method first allocates value to the more easily measurable component based on fair value and then the residual value, if any, to the less easily measurable component. The Company considers the fair value of common shares issued in a unit private placement to be the more easily measurable component. The balance, if any, is allocated to the attached warrants. Any fair value attributed to the warrants is recorded as reserves.

n. Preferred shares

Preferred shares are convertible to a fixed number of common shares upon certain milestones. Preferred shares are included in equity. The Company does not have any preferred shares issued or outstanding.

o. Deferred financing costs and share issuance costs

Financing costs incurred for the issuance of shares are deferred and are recognized as share issuance costs following the completion of the related share issuance. Share issuance costs, consisting of commissions and other fees paid to underwriters, finders’ fees, professional fees, regulatory fees and printing costs are allocated to share capital upon closing of the related share issuance.

p. Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

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Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

q. Loss per share

The Company presents basic and diluted earnings (loss) per share (“EPS”) data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period, adjusted for own shares held. Diluted loss per share is calculated by dividing the earnings (loss) by the weighted average number of common shares outstanding assuming that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. In the Company’s case, diluted loss per share is the same as basic loss per share, as the effect of outstanding share options and warrants on loss per share would be anti-dilutive.

r. Share-based payments

The Company has adopted a stock option plan which authorizes the grant of up to 10% of the issued and outstanding shares as incentive stock options to directors, officers, insiders, employees and other service providers to the Company. The stock option plan limits the number of incentive stock options which may be granted to any one individual to not more than 5% of the total issued shares of the Company in any 12-month period. The number of incentive stock options granted to any one consultant or a person employed to provide investor relations activities in any 12-month period must not exceed 2% of the total issued shares of the Company.

The fair value of options granted is recognized as a share-based payment expense with a corresponding increase in equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee. Consideration paid on the exercise of stock options is credited to share capital and the fair value of the options is reclassified from reserves to share capital.

In situations where equity instruments are issued to non-employees and some or all of the services received by the entity as consideration cannot be specifically identified, they are all measured at the fair value of the share-based payment; otherwise, share-based payment is measured at the fair value of the services received.

The fair value is measured at grant date and each tranche is recognized over the period during which the options vest. The fair value of the options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the options were granted. At each financial position reporting date, the amount recognized as an expense is adjusted to reflect the number of stock options that are expected to vest. Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment reserve transactions.

16

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

s. Income taxes

Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substanttively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purpose. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable operations, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

t. Leases

At inception of a contract, the Company assesses whether 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 over a period of time in exchange for consideration. The Company assesses whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all of the economic benefits from the use of the asset during the term of the contract and it has the right to direct the use of the asset.

The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. The right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

17

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

2. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)

t. Leases (continued)

A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date discounted by the interest rate implicit in the lease or, if that rate cannot be readily determined the incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest method. Lease payments included in the measurement of the lease liability comprise fixed payments, variable lease payments, and amounts expected to be payable at the end of the lease term.

The Company does not recognize the right-of-use assets and lease liabilities for short-term leases that have a lease term of twelve months or less. The lease payments associated with these leases are charged directly to income on a straight-line basis over the lease term.

u. Government assistance

The Company recognizes government grants and assistance when there is reasonable assurance that the grant will be received and any conditions associated with the grant have been met.

v. New accounting standards interpretations issued but not yet adopted

IAS 37–Provisions (“IAS 37”), has been amended to clarify (i) the meaning of “costs to fulfil a contract”, and (ii) that, before a separate provision for an onerous contract is established, an entity recognizes any impairment loss that has occurred on assets used in fulfilling the contract, rather than on assets dedicated to that contract. These amendments are effective for periods beginning on or after January 1, 2022. This amendment did not have any significant impact on these consolidated financial statements of the Company when the amendment was adopted on January 1, 2022.

IAS 1 –Presentation of Financial Statements (“IAS 1”), has been amended to clarify how to classify debt and other liabilities as either current or non-current. The amendment to IAS 1 is effective for the years beginning on or after January 1, 2023. This amendment is not expected to have a significant impact on the consolidated financial statements of the Company upon adoption.

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of financial statements in conformity with IFRS requires management to make estimates, judgements and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. 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.

18

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

a. Critical accounting estimates

Critical accounting estimates are estimates and assumptions made by management that may result in a material adjustment to the carrying amount of assets and liabilities within the next financial year and are, but are not limited to, the following:

• i. Share-based payments

• The fair value of stock options issued with Canadian dollar exercise prices are subject to the limitation of the Black-Scholes option pricing model that incorporates market data and involves uncertainty in estimates used by management in the assumptions. Because the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the volatility of share price, changes in the subjective input assumptions can materially affect the fair value estimate.

Valuation of financial instruments

• ii. Valuation of financial instruments The Company is required to determine the valuation of convertible debentures at inception. The convertible notes valuation required discounted cash flow analysis that involved various estimates and assumptions (Note 7).

iii. Deferred income taxes

• In assessing the probability of realizing income tax assets recognized, management makes estimates related to expectations of future taxable income, expected timing of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities. These factors may affect the final amount or the timing of tax payments.

• iv. Useful lives of property and equipment Management is required to assess the useful economic lives and residual values of the assets. These estimates are based on historical experience and are reviewed annually for changes.

b. Critical accounting judgements

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the statements are, but are not limited to, the following:

• i. Determination of functional currency The functional and reporting currency of the Company is the US dollar. The functional currency determination was conducted through an analysis of the consideration factors identified in IAS 21, The Effects of Changes in Foreign Exchange Rates. The determination of functional currency involves certain judgments to determine the primary economic environment and the Company reconsiders the functional currency if there are changes in events and conditions of the factors used in the determination of the primary economic environment.

19

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)

• ii. Going Concern

• The preparation of these financial statements requires management to make judgments regarding the going concern of the Company. As at December 31, 2022, the Company had a working capital deficit of $929,114 (2021 - $1,940,657). The Company likely has insufficient funds from which to finance its operating activities for the next 12 months; consequently, the Company remains dependent on external sources of financing until such time as it can internally generate sufficient income from software sales to service its on-going operating cost requirements.

4. PROPERTY AND EQUIPMENT

Costs

PROPERTY AND EQUIPMENT Costs
Furniture & Equipment Computer Equipment	Right-of- Use Asset Total
Balance, December 31, 2020 $ 15,855 $ 9,653 Additions - -	$ - $ 25,508 17,121 17,121
Balance, December 31, 2021 15,855 9,653 Additions(Note 8) - -	17,121 42,629 16,172 16,172
Balance, December 31, 2022 $ 15,855$ 9,653	$ 33,293$ 58,801

Accumulated Depreciation
Furniture & Equipment Computer Equipment	Right-of- Use Asset Total
Balance, December 31, 2020 $ 14,557 $ 9,284 Depreciation 260 369	$ - $ 23,841 10,741 11,370
Balance, December 31, 2021 14,817 9,653 Depreciation 260 -	10,741 35,211 15,836 16,096
Balance, December 31, 2022 $ 15,077$ 9,653	$ 26,577 $ 51,307
Net Book Value
Furniture Equipment Computer Equipment	Right-of- Use Asset Total
Net book value, December 31, 2021 $ 1,038 $ -	$ 6,380 $ 7,418
Net book value, December 31, 2022 $ 778 $ -	$ 6,716 $ 7,494

The right-of-use asset consists of leased office premises (Note 8).

5. RELATED PARTY TRANSACTIONS

Key management personnel are the persons responsible for the planning, directing and controlling the activities of the Company and include both executive and non-executive directors, and entities controlled by such persons. The Company defines key management personnel as directors and officers. The following table summarizes the Company’s activities with key management personnel:

20

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

5. RELATED PARTY TRANSACTIONS (continued)

Type of Service	Nature of Relationship		For the	years	ended
			December		31,
			2022		2021
Professional fees	Emprise Capital Corp, a company
	related to the CFO and a director of the	$	121,420	$	124,449
	Company
Salaries and wages	Todd Sexton, CEO, and Einar Mykletun, CTO		198,512		203,160
Rent	Todd Sexton, CEO		17,025		12,600
Legal and share	Cassels Brock & Blackwell LLP, a
issuance costs	law firm in which a director of the		14,300		2,456
	Company is a partner
Share-basedpayments	Officers/Directors		-		309,441
		$	351,257	$	652,106

The following represents amounts due to related parties included in liabilities:

Type of Service	Nature of Relationship		December 31,		December 31,
			2022		2021
Included in loans payable
Loan payable (Note 6)	The Emprise Special Opportunities
	Fund (2017) LP, a fund related to the	$	249,280	$	511,786
	CFO and a director of the Company
Loan payable (Note 6)	Natgar Capital Corp., a company related to a director of the Company		26,694		25,835
Loan payable (Note 6)	Todd Sexton, CEO		6,239		-
Included in convertible debentures
Convertible debenture	Natgar Capital Corp., a company
payable (Note 7)	related to a director of the Company		92,703		147,527
Included in accounts payable	and accrued liabilities
Other payables	Emprise Capital Corp, a company
	related to the CFO and a director of		163,024		241,836
	the Company
Legal Fees payable	Cassels Brock & Blackwell LLP, a law
	firm in which a director of the		7,717		7,159
	Company is a partner
Legal Fees payable	Anfield Sujir Kennedy & Durno, a law
	firm in which a director of the		11,352		12,128
	Company is a partner
Salaries and wages	Todd Sexton, CEO		46,703		256,322
		$	603,712	$	1,202,593

Unless otherwise specified, amounts payable to related parties referred to are non-interest bearing, unsecured, payable on demand, and have arisen from the provision of services and expense reimbursements.

21

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

6. LOANS PAYABLE

Loanspayable Principal Accumulated Interest	Total Debt
December 31, 2020 $ 372,304 $ 108,691 Proceeds 261,520 - Repayments (12,600) - Interest accrued - 62,158 Translation adjustment (485) (270)	$ 480,995 261,520 (12,600) 62,158 (755)
December 31, 2021 620,739 170,579	791,318
Proceeds 220,339 - Repayments (396,865) (209,484) Interest accrued - 54,411 Loan forgiven (89,485) - Translation adjustment (21,931) (3,291)	220,339 (606,349) 54,411 (89,485) (25,222)
December 31, 2022 $ 332,797$ 12,215	$ 345,012

Loans payable

As at December 31, 2022, the following loans were owed to related parties:

• $249,280 (2021 - $511,786) is owing to a Company related to the CFO and director of the Company (Note 5). The loans payables are unsecured, bear interest at 10% per annum, and are due on demand. During the year ended December 31, 2022, the Company received additional proceeds of $154,609 (2021 - $154,765), repaid $438,444 (2021 - $nil), recorded $44,447 (2021 - $45,614) in interest expense and ($23,118) (2021 – $928) in foreign exchange translation.

• $26,694 (2021 - $25,835) is owing to a Company related to a director (Note 5). The loans payable are unsecured, bear interest at 10% per annum, and are due on demand. During the year ended December 31, 2022, the Company recorded $2,615 (2021 - $2,457) in interest expense and ($1,755) (2021 – ($72)) in foreign exchange translation.

• $6,239 (2021 - $nil) is owing to a Company related to the CEO of the Company (Note 5). The loans payables payable are unsecured, non-interest bearing, and are due on demand. During the year ended December 31, 2022, the Company received $58,038 (2021 - $11,750) in additional proceeds and repaid $51,799 (2021 - $12,600).

As at December 31, 2022, the following loans were owed to third parties:

• The Company owed a third party $57,633 (2021 - $158,692). The loans payable are unsecured, bear interest at 10% per annum, and are due on demand. During the year ended December 31, 2022, the Company repaid $108,414 (2021 - $nil), recorded $7,349 (2021 - $14,087) in interest expense and $6 (2021 – ($101)) in foreign exchange translation.

22

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

6. LOANS PAYABLE (continued)

• The Company owed a third party $5,165 (2021 - $5,520). The loan is unsecured, non-interest bearing, and due on demand. During the year ended December 31, 2022, the Company received proceeds of $nil (2021 - $5,250) and recorded $355 (2021 - $nil) in foreign exchange translation.

• The Company received and repaid a loan in the amount of $7,692 (2021 - $nil) from a third party. The loan was non-interest bearing with no specific terms of repayment.

- Pay check protection plan

During the year ended December 31, 2020, the Company received a paycheck protection loan provided by the U.S. Small Business Administration in the amount of $89,995. The Company met the criteria for loan forgiveness and made an application to have the entire amount forgiven. The application was approved, and the Company wrote the balance of $89,995 off as a gain through the statement of loss and comprehensive loss. During the year ended December 31, 2021, the Company received another paycheck protection loan in the amount of $89,485 which was forgiven during the year ended December 31, 2022.

7. CONVERTIBLE DEBENTURES

Convertible Debenture		Total Debt
Balance, December 31, 2020	$	264,862
Finance expense		19,447
Translation adjustment		909
Balance, December 31, 2021	$	285,218
Finance expense		12,839
Repayments		(180,489)
Translation adjustment		(11,759)
Balance, December 31, 2022	$	105,809
Equity component of convertible debentures	$	4,605

During the year ended December 31, 2016, the Company issued CDN $580,000 ($429,319) in convertible debentures. The convertible debentures bear interest at 7% per annum and are convertible into common shares, at the option of the holders, at CDN $0.30 per share. The conversion feature was valued at the date of issuance as the residual value of the present value of the principal on the convertible debentures (CDN $580,000) at a discount rate of 10% which is the borrowing rate the Company has achieved for non-convertible instruments with similar terms. The convertible debentures were originally due on November 17, 2018 but the outstanding balances were extended to May 31, 2020. The convertible debentures are currently past due.

23

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

7. CONVERTIBLE DEBENTURES (continued)

During the year ended December 31, 2022, the Company made repayments in the amount of CDN $235,000 ($180,489), representing repayments of principal of CDN $146,766 ($112,787) and interest of CDN $88,234 ($67,702). On settlement, the Company reclassified $4,719 related to the equity component of convertible debentures to reserves.

8. LEASE LIABILITIES

As at December 31, 2020, the Company did not have any leases outstanding, but $24,028 was recognized as payable to a former lessor. During the year ended December 31, 2021, these payments were forgiven, and the Company recognize a gain of $24,028 to the statement of loss and comprehensive loss.

During the year ended December 31, 2021, the Company entered into a lease with a term of 12.5 months and total lease payments of $17,121. Using a discount rate of 10%, the Company recognized additions to lease liabilities of $15,796. The Company paid a deposit of $1,325 on the lease which will be returned at the end of the lease term. During the year ended December 31, 2022, the Company renewed the lease for a period of twelve months with total payments of $16,920. Using a discount rate of 10%, the Company recognized additions to lease liabilities of $16,172. As at December 31, 2022, the Company had $5,640 in undiscounted minimum lease payments remaining under the lease.

The following is a reconciliation of the changes in the lease liabilities:

Lease Liability
Balance, December 31, 2020	$	24,028
Additions		15,796
Lease accretion		701
Payments		(11,262)
Termination of office lease		(24,028)
Balance, December 31, 2021		5,235
Additions		16,172
Lease accretion		744
Payments		(16,580)
Balance, December 31, 2022	$	5,571

During the year ended December 31, 2022, the Company entered a short-term lease agreement to rent office premises. The lease payments are $1,000 per month plus maintenance fees from August 5, 2022 to July 4, 2023. As at December 31, 2022, the Company has $6,197 remaining on the lease term.

During the year ended December 31, 2022, the Company recognized rent expense of $19,424 (2021 - $19,588) in relation to short-term leases.

24

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

9. SIGNIFICANT NON-CASH TRANSACTIONS

During the year ended December 31, 2022, the Company renewed its lease and recognized an addition to the lease liability and corresponding right-of-use asset of $16,172 (Note 8).

During the year ended December 31, 2021, the Company entered a new lease and recognized a lease liability and a corresponding right-of-use asset of $15,796 (Note 8).

10. SHARE CAPITAL AND RESERVES

a. Authorized

Unlimited number of common shares without par value Unlimited number of preferred shares without par value

b. Issued and outstanding

For the year ended December 31, 2022:

During the year ended December 31, 2022, the Company:

• a) closed a private placement by issuing 66,666,666 common shares at a price of CDN $0.015 per common share for gross proceeds of CDN $1,000,000 ($788,165). In connection with the financing, the Company incurred share issuance costs of $5,797; and

• b) closed a private placement by issuing 80,500,000 common shares at a price of CDN $0.01 per common share for gross proceeds of CDN $805,000 ($591,073).

For the year ended December 31, 2021:

The Company did not issue any shares during the year ended December 31, 2021.

c. Stock options

A summary of the Company’s stock option activity is as follows:

		Weighted Average
		Exercise Price
	Number of Options	(Cdn$)
Balance, December 31, 2020	5,059,375	$ 0.17
Expired / Cancelled	(2,859,375)	0.18
Granted	9,550,000	0.05
Balance, December 31, 2021	11,750,000	$ 0.07
Expired/Cancelled	(2,200,000)	0.15
Balance, December 31, 2022	9,550,000	$ 0.05

25

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

10. SHARE CAPITAL AND RESERVES (continued)

c. Stock options (continued)

As at December 31, 2022, a summary of stock options outstanding and exercisable is as follows:

	Number of	Number of	Exercise		Remaining
	Options	Options	Price		contractual life
Grant Date	Outstanding	Exercisable	(Cdn$)	Expiry date	(years)
February12,2021	9,550,000	9,550,000	$0.05	February12,2026	3.12
	9,550,000	9,550,000			3.12

Share-based payments

During the year ended December 31, 2022, the Company granted nil (2021 - 9,550,000) stock options with a weighted average fair value per option of CDN$ nil (2021 - CDN$0.05 ). Total sharebased payments expensed for options granted and vested during the year was $nil (2021 - $371,719).

The following weighted average assumptions were used for the Black-Scholes option-pricing model valuation of stock options granted and vesting during the year:

	December 31, 2022	December 31, 2021
Risk-free interest rate	-	0.49%
Expected life of options	-	5 years
Expected annualized volatility	-	228.53%
Dividendyield	-	0%

d. Broker warrants

A summary of the Company’s broker warrant activity is as follows:

		Weighted average
	Number of warrants	exerciseprice(Cdn$)
Balance, December 31, 2020	900,000	$ 0.05
Expired/Cancelled	(900,000)	-
Balance, December 31, 2021 and 2022	-	$ -

26

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

a. Fair value of financial instruments

As at December 31, 2022, and 2021, the Company’s financial instruments consist of cash, accounts payable and accrued liabilities, loans payable, and convertible debentures.

Cash is measured at FVTPL using Level 1 fair value inputs.

The Company’s accounts payable and accrued liabilities, loans payable and convertible debentures approximate their carrying values because of their short-term nature and/or the existence of market related interest rates on the instruments.

The Company’s accounts payable and accrued liabilities are comprised of the following:

		December 31,		December 31,
		2022		2021
Trade payables	$	309,053	$	435,435
Payroll liabilities		78,363		263,666
Accountspayable and accrued liabilities	$	387,416	$	699,101

b. Financial Instrument risk

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

i. Credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Company places its cash with institutions of highcredit worthiness. Management has assessed there to be a low level of credit risk associated with its cash balances.

Subsequent to the year ended December 31, 2022, the Company was not subject to an increased risk as a result of holding cash in a major US financial institution.

ii. Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has not yet achieved profitable operations and expects to incur further losses in the development of its business. The Company’s objective in managing liquidity risk is to minimize operational costs and to maintain sufficient liquidity in order to meet its operational requirements at any point in time.

27

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

b. Financial Instrument risk (continued)

ii. Liquidity risk (continued)

The Company manages liquidity risk through the management of its capital structure as outlined in Note 12 of these consolidated financial statements.

Until such time as the Company’s operations are profitable and can internally generate sufficient funds to finance its operating costs, the Company remains dependent upon the financial support of its shareholders. If the Company is unable to finance itself through these means, it is possible that the Company will be unable to continue as a going concern.

As at December 31, 2022, the Company has a working capital deficiency of $929,114 (2021 – $1,940,657) and the Company has insufficient working capital to fund its operating requirements for the next 12 months.

The Company’s continued operations will remain dependent on external sources of financing until such time as it can internally generate sufficient income from software sales to service its on-going operating cost requirements. Future funding may be obtained by means of issuing share capital, the exercise of warrants, the exercise of stock options or debt financing. Based on these facts, the Company is significantly exposed to liquidity risk.

iii. Market risk

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

a. Interest rate risk

As at December 31, 2022, the Company did not have any investments in investment-grade short-term deposit certificates, and interest exposure with respect to its cash balances is minimal.

As at December 31, 2022, the Company had loans bearing interest at a fixed rate of 10% and convertible debentures bearing interest at a fixed rate of 7% per annum and as such is not significantly exposed to interest rate fluctuations.

b. Foreign currency risk

As at December 31, 2022, $132,502 (2021 - $362,564) of Identillect Technologies Inc.’s liabilities and $69,851 (2021 - $84,083) of its current assets are denominated in Canadian funds. A 10% change in the Canadian/US dollar exchange rate would result in a $4,288 net impact on the Company’s foreign exchange gain or loss. As at December 31, 2022, the Company is moderately exposed to foreign exchange fluctuations.

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

12. CAPITAL MANAGEMENT

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to fund existing operations and thereby provide returns to its shareholders. The Company does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain the future development of the business. The Company defines capital that it manages as the aggregate of its issued common shares, share-based payments reverses, warrants, and stock options and its cash balances.

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue debt, acquire or dispose of assets or adjust the amount of cash and investments. The Company requires capital to maintain its operating businesses, sustain corporate operations and repay existing obligations. The Company currently is not able to internally finance on-going operating costs of its businesses and therefore will require additional financing by means of issuing share capital, the sale of assets or debt financing.

There can be no certainty of the Company’s ability to raise any additional financing from any of these sources.

Management reviews its capital management approach on an ongoing basis and believes that this approach given the relative size of the Company is reasonable. The Company is not subject to any externally imposed capital requirements or debt covenants. There was no change to the Company’s approach to capital management during the year ended December 31, 2022.

13. INCOME TAXES

A reconciliation of income taxes at statutory rates with the reported taxes is as follows:

December 31, 2022	December 31, 2021
$ Loss for the year (397,947) Corporate statutoryrate 27% - 29.84%	$ (681,066) 27% - 29.84%
Expected tax recovery (107,000) Change in statutory, foreign tax, foreign exchange rates and other 80,000 Adjustment to prior year provision versus statutory return 8,000 Permanent differences 78,000 Change in unrecognized deferred tax assets (59,000)	(184,000) (8,000) (69,000) 100,000 161,000
Income tax expense(recovery) -	-

29

Identillect Technologies Corp. Notes to the Consolidated Financial Statements For the year ended December 31, 2022 and 2021 (Expressed in US dollars)

13. INCOME TAXES (continued)

The significant components of the Company’s unrecognized deferred income tax assets and liabilities are as follows:

	December 31,	December 31,
	2022	2021
	$	$
Share issue costs	2,000	1,000
Non-capital loss carry-forward	3,301,000	3,361,000
Unrecognized deferred tax assets	3,303,000	3,362,000

The company has incurred non-capital losses of approximately $11,487,000 (2021 - $11,696,000). If unutilized, the $4,477,000 of the losses in Canada will expire between 2038 and 2042. If unutilized, $5,638,000 of the losses in the US will expire in 2030 through 2037 and $1,372,000 will not expire. Future tax benefits may arise because of these losses and other tax assets have not been recognized in these financial statements.

Tax attributes are subject to review, and potential adjustment, by tax authorities.

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