Sparq Systems Inc. — Audit Report / Information 2020

Oct 29, 2020

MJ Innovation Capital Corp. (A Capital Pool Company) Audited Financial Statements For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019

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Independent Auditor's Report

To the Shareholders of MJ Innovation Capital Corp.:

Opinion

We have audited the financial statements of MJ Innovation Capital Corp. (the "Corporation"), which comprise the statements of financial position as at June 30, 2020 and June 30, 2019, and the statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the year ended June 30, 2020 and for the period from November 13, 2018 (date of incorporation) to June 30, 2019, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Corporation as at June 30, 2020 and June 30, 2019, and its financial performance and its cash flows for the year ended June 30, 2020 and for the period from November 13, 2018 to June 30, 2019 in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audits of the 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.

Other Information

Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.

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

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

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

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

In preparing the financial statements, management is responsible for assessing the Corporation’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 Corporation or to cease operations, or has no realistic alternative but to do so.

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

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the 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 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 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 Corporation’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 Corporation’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 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 Corporation to cease to continue as a going concern.

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

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

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

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

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Toronto, Ontario October 28, 2020

Chartered Professional Accountants Licensed Public Accountants

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MJ Innovation Capital Corp.

(A Capital Pool Company)

For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

TABLE OF CONTENTS

Audited Statements of Financial Position	2
Audited Statements of Loss and Comprehensive Loss	3
Audited Statements of Changes in Shareholders’ Equity	4
Audited Statements of Cash Flows	5
Notes to the Audited Financial Statements	6-12

1

MJ Innovation Capital Corp.

(A Capital Pool Company) Audited Statements of Financial Position

(Expressed in Canadian Dollars)

June 30, As at 2020	June 30, 2019
Assets
Current Assets Cash $ 314,416 69,910 Deferred offeringcosts - 15,000
Total assets$ 314,416	84,910
Liabilities
Current liabilities Accountspayable and accrued liabilities$ 37,190 59,082
Total Liabilities$ 37,190	59,082
Shareholders’ Equity
Share capital (Note 3) $ 405,915 95,298 Contributed surplus (Note 3) 66,507 - Accumulated deficit (195,196) (69,470)
Total shareholders’ equity $ 277,226	25,828
Total liabilities and shareholders’ equity$ 314,416 84,910

Nature of operations (Note 1)

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

Approved by the Board	"Richard Kimel" Director	"Bryan Van Engelen"
		Director

2

MJ Innovation Capital Corp. (A Capital Pool Company) Audited Statements of Loss and Comprehensive Loss

For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars )

Year Ended June 30, 2020	Period from incorporation (November 13, 2018) to June 30, 2019
Expenses
Office and administrative expenses $ 35,534 Legal & professional fees (Note 5) 44,768 Stock-based compensation(Note 3) 45,424	15,090 54,380 -
Total Expenses $ 125,726	69,470
Net loss & Comprehensive Loss $ (125,726)	(69,470)
Net loss per share Basic and Diluted $ Weighted average of shares outstanding basic and diluted (0.07) 1,781,421	- -

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

3

MJ Innovation Capital Corp.

(A Capital Pool Company) Audited Statements of Changes in Shareholders’ Equity

For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

MJ Innovation Capital Corp. (A Capital Pool Company) Audited Statements of Changes in Shareholders’ Equity For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)	MJ Innovation Capital Corp. (A Capital Pool Company) Audited Statements of Changes in Shareholders’ Equity For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)	MJ Innovation Capital Corp. (A Capital Pool Company) Audited Statements of Changes in Shareholders’ Equity For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)
Number of Shares Share Capital Accumulated Deficit Contributed surplus Shareholders’ Equity Balance as atJuly 1, 2019 1,000,000 $ 95,298 $ (69,470) $ - $ 25,828 Shares issued for cash during the year (Note 3) 2,050,000 405,000 - - 405,000 Shares issuance costs (94,383) - - (94,383) Warrants issued to Agent (Note 3) - - 21,083 21,083 Stock based compensation (Note 3) - - 45,424 45,424 Net loss for theyear - (125,726) - (125,726) Balance as atJune 30, 2020 3,050,000 $ 405,915 $ (195,196) $ 66,507 $ 277,226
Balance as atJuly 1, 2019 1,000,000	$ 95,298 $ (69,470)
Shares issued for cash during the year (Note 3) 2,050,000 Shares issuance costs Warrants issued to Agent (Note 3) Stock based compensation (Note 3) Net loss for theyear	405,000 - (94,383) - - - - - - (125,726)
Balance as atJune 30, 2020 3,050,000	$ 405,915 $ (195,196)
Balance as at November 13, 2018 -	- -	- -
Issuance of shares on incorporation(Note 3) 1,000,000 Share issuance costs Net loss for theperiod	$100,000 $- $- $100,000 (4,702) - - (4,702) - (69,470) - (69,470)
Balance as atJune 30, 2019 1,000,000	$ 95,298 $ (69,470) $ - $ 25,828

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

4

MJ Innovation Capital Corp. (A Capital Pool Company)

Audited Statements of Cash flows

For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

	Year ended June 30, 2020 Period from incorporation (November 13, 2018) to June 30, 2019
Operating activities
Net loss Adjustments for: $ Stock based compensation (Note 3) Change in operating assets and liabilities Accountspayable	(125,726) (69,470) 45,424 (21,892) 59,082
Net cash used by operating activities $	(102,194) (10,388)
Financing activities
Shares issued (Note 3) $ Issuance costs Change in deferred offeringcosts	405,000 100,000 (73,300) 15,000 (4,702) (15,000)
Net cashprovided by financing activities $	346,700 80,298
Net change in cash flows $	244,506 69,910
Cash
Cash at beginning of year $ Change in cash duringtheyear	69,910 244,506 69,910
Cash at end ofyear $	314,416 69,910

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

5

MJ Innovation Capital Corp. (A Capital Pool Company) Notes to the Audited Financial Statements For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

1. Nature of Operations

MJ Innovation Capital Corp. (the " Corporation ") was incorporated under the Business Corporations Act (Ontario) on November 13, 2018 and is a Capital Pool Company (" CPC ") as defined in Policy 2.4 of the TSX Venture Exchange (the " Exchange "). The Corporation has no assets other than cash. The Corporation proposes to identify and evaluate potential acquisitions or businesses (for a " Qualifying Transaction "), and once identified and evaluated, to negotiate an acquisition or participation.

The Corporation’s continuing operations are dependent upon its ability to evaluate and negotiate an agreement to acquire an interest in a material asset or business within 24 months of listing on the Exchange. Where an acquisition or participation is warranted, additional funding may be required. The ability of the Corporation to fund its potential future operations and commitments is dependent upon its ability to obtain additional financing. There is no assurance that the Corporation will be able to complete a Qualifying Transaction within 24 months of being listed or that it will be able to secure the necessary financing to complete a Qualifying Transaction. The Exchange may suspend or de-list the Corporation’s common shares (the “ Common Shares ”) from trading should it not meet these requirements.

The proceeds raised from the issuance of share capital may only be used to identify and evaluate assets or businesses for future investment, with the exception that up to the lesser of 30% of the gross proceeds realized by the Corporation in respect of the sale of its securities or $210,000, may be used for purposes other than evaluating businesses or assets. These restrictions apply until completion of a Qualifying Transaction by the Corporation as defined under the policies of the Exchange. The Corporation is required to complete its Qualifying Transaction on or before 24 months from the date the Corporation receives regulatory approval.

The head office and the registered head office of the Corporation is located at 181 Bay Street, Suite 1800, Toronto, ON M5J 2T9.

The global outbreak of COVID-19 (coronavirus) has had a significant impact on businesses through the restrictions put in place by the Canadian, provincial and municipal governments regarding travel, business operations and isolation/quarantine orders. At this time, it is unknown the extent of the impact of the COVID-19 outbreak may have on the Corporation as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the disease, and the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place by Canada and other countries to fight the virus.

These financial statements were approved and authorized for issuance by the board of directors (the " Board ") of the Corporation on October 28, 2020.

2. Significant accounting policies

Statement of compliance

The financial statements have been prepared in accordance with the International Financial Reporting Standards (“ IFRS ”) issued by the International Accounting Standards Board and Interpretations of the International Financial Reporting Interpretations Committee.

Accounting standards issued but not yet applied

The Corporation has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. In the current circumstances, management of the Corporation does not expect any of these to have a material impact on the financial statements.

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MJ Innovation Capital Corp. (A Capital Pool Company) Notes to the Audited Financial Statements For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

New Accounting Standards Adopted

Issued in January 2016, IFRS 16, Leases (“ IFRS 16 ”) establishes principles for the recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessees and lessors provide relevant information that faithfully represents those transactions. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. IFRS 16 applies to annual reporting periods beginning on or after January 1, 2019. As at June 30, 2020, the Corporation does not have any significant lease obligations.

Basis of Presentation

The financial statements are presented in Canadian dollars ("CAD"), which is the Corporation’s functional and presentation currency. The financial statements are prepared on a historical cost basis except for certain financial instruments classified as fair value through profit or loss ("FVTPL" ), which are stated at their fair value. The accounting policies have been applied consistently throughout the entire period presented in these financial statements.

Share Capital

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

Basic and Diluted Loss per Share

Basic loss per share is computed by dividing the net loss applicable to Common Shares by the weighted average number of Common Shares outstanding for the relevant period. Common Shares escrowed pursuant to the requirements of the Exchange are excluded from the number of outstanding Common Shares.

Diluted loss per share is computed by dividing the net loss applicable to Common Shares by the sum of the weighted average number of Common Shares issued and outstanding and all additional Common Shares that would have been outstanding if potentially dilutive instruments were converted.

Share-based Compensation

Equity-settled share based payments for directors, officers, employees, and consultants are measured at fair value at the date of grant and recorded as compensation expense in the financial statements. Share options are measured at fair value of each tranche on the grant date and are recognized in their respective vesting period using the Corporation’s expected forfeiture rate. Any consideration paid by directors, officers, employees and consultants on exercise of equitysettled share based payments is credited to share capital. Shares are issued from treasury upon the exercise of equitysettled share-based instruments.

Financial Instruments

Recognition

The Corporation recognizes financial assets and financial liabilities on the date the Corporation becomes a party to the contractual provisions of the instruments.

7

MJ Innovation Capital Corp. (A Capital Pool Company) Notes to the Audited Financial Statements For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

Classification

The Corporation classifies its financial assets and financial liabilities in the following measurement categories: (i) those to be measured subsequently at fair value (either through other comprehensive income or through profit or loss), and (ii) those to be measured at amortized cost. The classification of financial assets depends on the business model for managing the financial assets and the contractual terms of the cash flows. Financial liabilities are classified as those to be measured subsequently at fair value through profit of loss (irrevocable election at the time of recognition). For assets and liabilities measured at fair value, gains and losses are either recorded in profit or loss or other comprehensive income.

The Corporation only reclassifies financial assets when its business model for managing those assets changes. Financial liabilities are not reclassified.

The Corporation has implemented the following classifications:

• cash is classified as fair value and any period change in fair value is recorded in profit or loss; and

• accounts payable and accrued liabilities are classified as other financial liabilities and measured at amortized cost using the effective interest rate method.

Measurement

All financial instruments are required to be measured at fair value on initial recognition, plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs of financial assets and financial liabilities carried at FVTPL are expensed in profit or loss.

Financial assets that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments or principal and interest on the principal outstanding are generally measured at amortized cost at the end of the subsequent accounting periods. All other financial assets including equity investments are measured at their fair values at the end of subsequent accounting periods, with any changes taken through profit and loss or other comprehensive income (irrevocable election at the time of recognition).

Additional fair value measurement disclosure includes classification of financial instrument fair values in a fair value hierarchy comprising three levels reflecting the significance of the inputs used in making the measurements which are as follows:

• Level 1: valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: valuations based on directly or indirectly observable inputs in active markets for similar assets or liabilities, other than level 1 prices, such a as quoted interest or currency exchange rates; and

• Level 3: valuations based on significant inputs that are not derived from observable market data, such as discounted cash flow methodologies based on internal cash flow forecasts.

Cash is a level 1 financial instrument measured at fair value on the statements of financial position.

Income Taxes

Income tax comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income, in which case the income tax is also recognized directly in equity or other comprehensive income.

8

MJ Innovation Capital Corp. (A Capital Pool Company) Notes to the Audited Financial Statements For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Current tax assets and current tax liabilities are only offset if a legally enforceable right exists to offset the amounts and the Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Deferred tax is recognized in respect of all qualifying temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a nondiscounted basis using tax rates and laws that have been enacted or substantively enacted at the end of the reporting period and are expensed 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 assets can be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.

Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.

Estimates

The preparation of financial statements in conformity with IFRS accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates used in the financial statements.

Provisions for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provision in the period in which such determination is made.

3. Share capital

Authorized Unlimited Common Shares

Issued	#	$
Balance, June 30, 2019	1,000,000	$ 95,298
50,000 Common Shares (i)	50,000	5,000
2,000,000 Common Shares (ii)	2,000,000	400,000
Issuance cost (cash)	-	(73,300)
Issuance cost (warrants)	-	(21,083)
Balance, June 30, 2020	3,050,000	$ 405,915

9

MJ Innovation Capital Corp. (A Capital Pool Company) Notes to the Audited Financial Statements For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

(i) Escrow Shares

On July 3, 2019, the Corporation issued 50,000 Common Shares at a price of $0.10 per share for total cash consideration of $5,000. During the period ended June 30, 2019, the Corporation issued 1,000,000 Common Shares at a price of $0.10 per share for total cash consideration of $100,000. Share issuance costs of $4,702 were associated with this offering.

All of the 1,050,000 Common Shares issued prior to the Corporation’s initial public offering (the “ IPO ”) at a price of $0.10 per Common Share, all Common Shares that may be acquired by Non Arm’s Length Parties of the Corporation (as defined by the policies of the Exchange) either under the IPO or otherwise prior to completion of the Qualifying Transaction, and all Common Shares acquired by members of the Aggregate Pro Group (as defined by the policies of the Exchange) prior to the IPO, will be deposited with the Corporation's escrow agent under the CPC Escrow Agreement (as defined by the policies of the Exchange).

All Common Shares acquired upon the exercise of stock options (“ Options ”) prior to the completion of a Qualifying Transaction must also be deposited in escrow until the final exchange bulletin is issued, following which the Common Shares will be released from escrow in accordance with the terms of the escrow agreement.

All Common Shares acquired in the secondary market prior to the completion of a Qualifying Transaction by a control person, as defined in the policies of the Exchange, are required to be deposited in escrow. Subject to certain permitted exemptions, all securities of the Corporation held by principals of the resulting issuer following the completion of Qualifying Transaction will also be escrowed.

(ii) IPO

On August 9, 2019, the Corporation completed its IPO of 2,000,000 Common Shares at a price of $0.20 per share for aggregate gross proceeds of $400,000. Share issuance costs of $94,383 were associated with the IPO.

Options

Options may be granted for a maximum term of 10 years from the date of the grant. They are non-transferable and are exercisable as determined by the Board when the option is granted. Options may be exercised until the greater of 12 months after the completion of the Qualifying Transaction and 90 days following the date the optionee ceases to be a director, officer or employee of the Corporation or its affiliates or a consultant or a management company employee, provided that if the cessation of such position or arrangement was by reason of death, the Option may be exercised within a maximum period of one year after such death, subject to the expiry date of such Option.

The following table reflects the continuity of Options and Agent’s Warrants:

	Number of	Weighted Average
	Options and Agent’s	Exercise Price ($)
	Warrants
Balance, January 1, 2019	-	-
Granted (i)	200,000	$0.20
Granted to directors and officers(ii)	305,000	$0.20
Balance, June 30, 2020	505,000	$0.20

(i) On August 9, 2019, in connection with the IPO, the Corporation issued Canaccord Genuity Corp. (the " Agent "), warrants (the “ Agent’s Warrants”) to purchase 200,000 Common Shares at a price of $0.20 per share. The Agent's Warrants expire 24 months from the date of closing the IPO. The Agent’s Warrants issued were allocated an estimated fair value using the Black-Scholes option pricing model to

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MJ Innovation Capital Corp. (A Capital Pool Company) Notes to the Audited Financial Statements For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

estimate the fair value using the weighted average assumptions of an expected forfeiture rate of 0%, a risk free interest rate of 1.38%, an expected dividend yield of 0%, an expected stock price volatility of 100%, and an expected life of two years. This resulted in a

calculated fair value per warrant of $0.105. During the financial year ended June 30, 2020, the Corporation recognized $21,083 in share issuance costs that were recorded as contributed surplus (June 30, 2019 - $NIL).

(ii) On August 9, 2019, in connection with the IPO, the Corporation granted Options to directors and officers to acquire an aggregate of 305,000 Common Shares at an exercise price of $0.20 per share for a period of 10 years from the date of grant.

Options issued were allocated an estimated fair value using the Black-Scholes option pricing model to estimate the fair value using the weighted average assumptions of an expected forfeiture rate of 0%, a risk free interest rate of 1.26%, an expected dividend yield of 0%, an expected stock price volatility of 100%, and an expected life of five years. This resulted in a calculated fair value per option of $0.149. During the year ended June 30, 2020, the Corporation recognized $45,424 in stock-based compensation costs that were recorded as contributed surplus (June 30, 2019 - $NIL).

As at June 30, 2020, there were 305,000 Options outstanding.

The following table reflects the actual Options and Agent’s Warrants issued and outstanding as of June 30, 2020.

		Weighted Average	Number of Options	Number of Options
		Remaining	and Agent’s	and Agent’s
		Contractual Life	Warrants	Warrants Vested
Expiry Date	Exercise Price	(Years)	Outstanding	(Exercisable)
August 9, 2021	$0.20	1.11	200,000	200,000
August 9,2029	$0.20	9.12	305,000	305,000
	$0.20	5.94	505,000	505,000

4. Capital management

The Corporation’s objective when managing capital is to maintain its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. The Corporation includes equity, comprised of share capital and deficit, in the definition of capital. The Corporation’s primary objective with respect to its capital management is to ensure that it has sufficient cash resources to fund the identification and evaluation of potential acquisitions. To secure the additional capital necessary to pursue these plans, the Corporation may attempt to raise additional funds through the issuance of equity or by securing strategic partners.

The proceeds raised from the issuance of Common Shares may only be used to identify and evaluate assets or businesses for future investment, with the exception that not more than the lesser of 30% of the gross proceeds from the issuance of Common Shares or $210,000 may be used for the purposes other than those in section 8.3 of Exchange Policy 2.4. These restrictions apply until completion of a Qualifying Transaction.

5. Related party transactions

During the financial year ended June 30, 2020, the Corporation incurred $20,629 in legal fees in respect of general corporate matters for services provided by a law firm which has two partners that are directors of the Corporation. At the end of the period, $12,167 in legal fees were contained in the Corporation’s accounts payable and accrued liabilities.

11

MJ Innovation Capital Corp. (A Capital Pool Company) Notes to the Audited Financial Statements For the financial year ended June 30, 2020 and the period from incorporation (November 13, 2018) to June 30, 2019 (Expressed in Canadian Dollars)

During the financial year ended June 30, 2020, the Corporation issued 305,000 Options to the directors of the Corporation. These Options had a value of $45,424 (Note 3). Except for the aforementioned Options, no remuneration was paid to key management personnel during the financial year ended June 30, 2020 ($NIL – June 30, 2019).

6. Risk Disclosures and Fair Values

The Corporation’s financial instruments, consisting of cash, and accrued liabilities approximate fair value due to the relatively short-term maturity of the instruments. It is management’s opinion that the Corporation is not exposed to significant interest, currency or credit risks arising from these financial instruments.

7. Income Taxes

The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% (2019 - 26.5%) to the effective tax rate is as follows:

		2020		2019
Net Income (Loss) before recovery of income taxes	$	(125,726)	$	(69,470)
Expected income tax (recovery) expense		(33,320)		(18,410)
Non-deductible expenses		12,040		-
Share issuance cost booked directly to equity		(25,010)		(1,250)
Change in tax benefits not recognized		46,290		19,660
Income tax(recovery)	$	-	$	-

Unrecognized deferred tax assets

Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

	2020	2019
Share issuance costs	75,330	760
Share issuance cost booked directly to equity	173,530	73,410
	248,860	74,170

The operating loss carry forwards expire as noted in the table below. Share issue and financing costs will be fully amortized in 2024. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.

The Company's operating losses expire as follows:

2039		73,410
2040		100,120
	$	74,170

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