StageZero Life Sciences Ltd. — Interim / Quarterly Report 2020

Jun 19, 2020

NOTICE TO READER

The Audit Committee, in consultation with management of the Company, has determined that the Company’s previously filed unaudited condensed consolidated interim financial statements and management’s discussion and analysis for the three months ended March 31, 2020 and 2019 needed to be amended to correct for various content and disclosure deficiency.

Details of the changes are fully described in Note 19 to the Amended and Restated Unaudited Condensed Consolidated Interim Financial Statements as filed on SEDAR on June 18, 2020.

The previously filed financial statements and management’s discussion and analysis for the financial periods were originally filed by the Company on SEDAR on June 1, 2020. Each of the Amended and Restated Unaudited Condensed Consolidated Interim Financial Statements and Revised MD&A replaces and supersedes the respective previously filed original financial statements and related management’s discussion and analysis. There have been no other changes. This notice supersedes the previously filed version.

StageZero Life Sciences, Limited

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StageZero Life Sciences, Ltd.

Three month periods ended March 31, 2020 and 2019

Unaudited, amended and restated condensed consolidated interim financial statements and associated notes

[Expressed in US dollars, unless otherwise noted]

StageZero Life Sciences, Limited

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StageZero Life Sciences, Ltd.

AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

[Unaudited, Expressed in US dollars]

		Notes	At	At
			March 31, 2020	December 31, 2019
			as amended Note 19
			$	$
ASSETS
Current
Cash			121,513	71,124
Other receivables, net		4	42,112	21,700
Inventory			94,690	87,739
Short-term portion of prepaid expenses and deposits			112,112	46,321
Rent receivable			154,558	149,073
Total current assets			524,985	375,957
Non-current assets
Property, plant and equipment, net			840,971	899,012
Right of use property, net			135,367	145,040
Long-term portion rent receivable			478,962	519,751
Long-termportion ofprepaid expenses and deposits			25,000	25,000
Total non-current assets			1,480,300	1,588,803
Total assets			2,005,285	1,964,760
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
Current
Trade and other payables		5	2,649,909	2,842,015
Short-term portion of right of use liability			154,289	153,180
Fair value of convertible debenture		6[d]	942,370	-
Conversion liability		6[c]	14,706	90,000
Short-termportion of notespayable		6	874,715	1,133,524
Total current liabilities			4,635,989	4,218,719
Non-current liabilities
Long-term portion of warrant liability		7	2,217,469	997,233
Long-term portion of right of use liability			563,923	600,229
Long-term portion of notes payable		6	560,072	572,526
Long-term liabilities			67,340	67,340
Total non-current liabilities			3,408,804	2,237,328
Total liabilities			8,044,793	6,456,047
Shareholders’ deficiency
Share capital		8[b]	80,989,127	80,283,079
Contributed surplus		8[d]	11,378,889	11,196,763
Accumulated other comprehensive income			1,304,968	1,304,968
Deficit			(99,712,492)	(97,276,097)
Total shareholders’ deficiency			(6,039,508)	(4,491,287)
Total liabilities and shareholders’ deficiency			2,005,285	1,964,760
Commitments and contingencies		11	-	-
Basis of presentation and going concern uncertainties		2
Subsequent events		18

See accompanying notes to the amended and restated condensed consolidated interim financial statement.

Approved by the Company’s board of directors and authorized for issue on June 18, 2020: (signed) James R. Howard-Tripp, Director (signed) Garth MacRae, Director

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StageZero Life Sciences, Limited

AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

[Unaudited, Expressed in US dollars]

Notes	Three-month period ended March 31,
	2020 as amended – Note 19 2019 as restated - Note 18 $ $
REVENUES	31,368 53,181
Total revenues	31,368 53,181
EXPENSES Cost of goods sold 9 General and administrative 9	219,993 246,926 585,647 931,444
	805,640 1,178,370
Loss before the undernoted	(774,272) (1,125,189)
Loss from revaluation of warrants Change in fair value of conversion liabilities Change in fair value of convertible debenture Finance costs 15	1,294,312 3,072,264 - 3,519 118,113 - 249,698 229,077
	1,662,123 3,304,860
Total loss and comprehensive loss for the period	(2,436,395) (4,430,049)
Basic and diluted loss per common share 8[c]	(0.01) (0.03)

See accompanying notes to the amended and restated condensed consolidated interim financial statements.

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StageZero Life Sciences, Limited

AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY

[Unaudited, Expressed in US dollars]

	Share capital Contributed surplus Accumulated other comprehensive income Deficit Total
	Shares Amount # $ $ $ $ $
As amended – Note 19	[note 9[b] [note 9]
Balance at January 1, 2020	271,890,984 80,283,079 11,196,763 1,304,968 (97,276,097) (4,491,287)
Net loss for the period	- - - - (2,436,395) (2,436,395)
Share-based compensation	- - 182,126 - - 182,126
Issuance of common shares with Unit financing	16,797,720 350,517 - - - 350,517
Conversion of structured note payable and convertible liability	16,785,975 355,531 - - - 355,531
Balance at March 31, 2020	305,474,679 80,989,127 11,378,889 1,304,968 (99,712,492) (6,039,508)

	Share capital Contributed surplus Accumulated other comprehensive income Deficit Total
	Shares Amount # $ $ $ $ $
As restated – Note 18	[note 9[b]] [note 9]
Balance at January 1, 2019 As restated (Note 18)	153,638,880 76,819,572 10,455,311 1,304,968 (93,794,295) (5,214,444)
Net loss for the period	- - - - (4,430,049) (4,430,049)
Share-based compensation	- - 38,876 - - 38,876 20,000,000 - - - - - 10,002,004 216,158 - - - 216,158
Issuance of common shares with Unit financing
Conversion of structured note payable and convertible liability
Balance at March 31, 2019	183,640,884 77,035,730 10,494,187 1,304,968 (98,224,344) (9,389,459)

See accompanying notes to the amended and restated condensed consolidated interim financial statements.

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StageZero Life Sciences, Limited

StageZero Life Sciences, Limited

AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

[Unaudited, Expressed in US dollars]

Notes	Three-month period ended March 31,
	2020 as amended – Note 19 2019 as restated - Note 18 $ $
OPERATING ACTIVITIES Net loss for the period Non-cash adjustments Share-based compensation 9[d] Depreciation 9 Change in fair value of convertible debenture Change in fair value of conversion liabilities Non-cash interest expense Non-cash change in interest on lease liability Foreign exchange Loss from revaluation of warrants
	(2,436,395) (4,430,047)
	182,126 38,876
	73,461 60,999
	118,113 -
	- 3,519 74,641 128,952 25,983 29,839 (321,268) 72,062 1,294,312 3,072,264
Changes in non-cash working capital balances related to operations Other receivables, net Inventory Prepaid expenses and deposits Rent receivable Trade and other payables	(989,027) (1,023,536)
	(20,412) (12,919)
	(6,951) (74,157)
	(65,791) (24,265)
	35,303 30,596
	(192,106) 200,289
Cash used in operating activities	(1,238,983) (903,992)
FINANCING ACTIVITIES Payment of principal to Health Diagnostic Laboratories Inc. 6[a] Repayment of lease liability Proceeds from issuance of structured/convertible notes payable 6[c] Proceeds from issuance of units
	(40,000) (30,000)
	(61,180) (48,088)
	888,065 340,845 508,234 745,200
Cash used in financing activities	1,295,119 1,007,957
INVESTING ACTIVITIES Purchase of property, plant and equipment
	(5,747) -
Cash used in investing activities	(5,747) -
Net increase (decrease) in cash during the period Cash, beginning of period	50,389 103,965
	71,124 106,228
Cash, end of period	121,513 210,193

See note 16 for supplemental non-cash information

See accompanying notes to the amended and restated condensed consolidated interim financial statements.

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StageZero Life Sciences, Limited

NOTES TO AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

[Unaudited, Expressed in US dollars unless otherwise noted]

March 31, 2020 and 2019

1. CORPORATE INFORMATION

StageZero Life Sciences, Limited (“StageZero Life Sciences” or the “Company”) is focused on developing and commercializing proprietary molecular diagnostic tests for early detection of diseases and personalized health management, with a primary focus on cancer-related indications. The Company has developed a proprietary platform technology, the Sentinel Principle®, to identify novel biomarkers from whole blood. The Company’s lead product, ColonSentry®, is a blood test to determine an individual’s current risk for having colorectal cancer.

The consolidated financial statements for the three month periods ended March 31, 2020 and 2019, were authorized for issue by the Company’s Board of Directors (the “Board”) on June 15, 2020 and are expressed in US dollars, with Canadian dollar figures identified as “Cdn$”.

The Company is incorporated under the laws of the Province of Ontario and is domiciled in Ontario, Canada; its shares are publicly traded under the stock symbol SZLS on the Toronto Stock Exchange. The Company’s registered office is located at Unit 30, 70 East Beaver Creek Road, Richmond Hill, Ontario, L4B 3B2.

StageZero Life Sciences, Ltd. has wholly-owned subsidiary companies, StageZero Life Sciences Holdings, which owns 100% of StageZero Life Sciences Inc. (“Inc.”) in the United States.

2. BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTIES

The Company reported a consolidated net loss of $2.7 million for the period March 31, 2020 [March 31, 2019 – $5.2 million] . As at March 31, 2020, the Company had a working capital deficiency of $4.1 million [December 31, 2019– $4.0 million] and a deficit of $100.0 million [December 31, 2019 – $97.3 million].

Going concern uncertainties

We have experienced recurring losses and are dependent on our ability to raise additional funds to continue operations. These circumstances create material uncertainties that cast significant doubt as to the ability of the Company to continue as a going concern and, hence, the appropriateness of the use of accounting principles applicable to a going concern. The Company is actively pursuing additional financing to further develop certain of the Company’s scientific initiatives, but there is no assurance these initiatives will be successful, timely or sufficient.

The Company has received notices of missed payments with vendors and is in discussion with these vendors to address payment arrangements. These negotiations are ongoing and there can be no assurance that we will be successful in reaching agreements. The Company addresses payment plans with all affected vendors when sufficient funding is received.

There is material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern. These consolidated financial statements have been prepared on a going concern basis, which assumes that the future operations will allow for the realization of assets and the discharge of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the carrying value and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern, and such adjustments could be material.

Statement of compliance

These unaudited amended and restated condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”), as issued by the International Accounting Standards Board (“IASB”).

These financial statements are presented in United States dollars (U.S.), which is the Company’s functional and presentation currency.

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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These interim financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended December 31, 2019. These interim financial statements have been prepared using the same accounting policies that were described in Note 3 to the annual financial statements.

Significant accounting estimates and assumptions

The preparation of the consolidated financial statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. The estimates and related assumptions are based on previous experiences and other factors considered reasonable under the circumstances, the results of which form the basis for making the assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Significant accounts that require estimates as the basis for determining the stated amounts include share-based compensation, impairment analysis and fair value of warrants, structured notes, convertible debt and conversion liabilities.

[i] Share-based compensation

The Company measures the cost of equity-settled transactions with employees by reference to the fair value of equity instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of such instruments, which is dependent on the terms and conditions of the grant. The estimate also requires determining the most appropriate inputs to the Black-Scholes option pricing model, including the expected life of the instrument, risk-free rate, volatility and dividend yield.

[ii] Fair value of warrants

In determining the fair value of the warrant liability, the Company used the Black-Scholes option pricing model with the following assumptions: volatility rate, dividend yield, risk-free rate and the remaining expected life of the warrant. The inputs used in the Black-Scholes model are taken from observable markets. In particular, changes in the fair value of the warrants can have a material impact on the reported loss and comprehensive loss for the applicable reporting period.

[iii] Fair value of structured notes, convertible debt and conversion liabilities

In determining the fair values of the structured notes, convertible debt and conversion liabilities, the Company used a binomial lattice model with the following assumptions: volatility rate, risk-free rate and the remaining expected life. The inputs used in the binomial lattice model are taken from observable markets. In particular, changes in the fair value of the structured notes and conversion liabilities can have a material impact on the reported loss and comprehensive loss for the applicable reporting period. For certain convertible debentures, the Company designates the entire convertible instrument as a financial liability at fair value through profit and loss. The fair value of such instruments are determined using a combination of discounted cash flow, option pricing models and reference to recent transactions.

[iv] Impairment Analysis

The Company assesses its intangible assets for recoverability whenever indicators of impairment exist. When the carrying value of an asset is greater than its recoverable amount, which is higher than its fair value less costs to sell, an impairment loss is recognized.

4. OTHER RECEIVABLES

. OTHER RECEIVABLES
	At March	31, 2020	At December 31, 2019
		$	$
Sales tax receivables		42,112	21,700
		42,112	21,700

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As at March 31, 2020 and 2019, the Company had no accounts receivable associated with test or royalty revenue as both are recognized when cash is received. The Company’s exposure to credit risks related to other receivables is discussed in note 13.

5. TRADE AND OTHER PAYABLES

The Company’s exposure to liquidity and currency risks related to trade and other payables is presented in note 13.

	At March 31, 2020	At December 31, 2019
	$	$
Trade payables	1,419,958	1,352,900
Accrued liabilities	1,229,951	1,489,115
	2,649,909	2,842,015

6. NOTES PAYABLE

. NOTES PAYABLE
		Note payable to
		shareholders
	Note payable	and a director	Convertible
	to HDL[a]	[b]	debenture[c]	Total
	$	$	$	$
At January 1, 2019 As restated (Note 18)	692,308	1,160,734	1,005,957	2,858,999
Issuance of new notes payable	-	60,000	334,373	394,373
Imputed interest	110,219	39,895	396,277	546,391
Payment of principal	(110,000)	-	-	(110,000)
Payment of interest	-	-	(38,649)	(38,649)
Extinguishment of principal from issuance of Units	-	(314,576)	-	(314,576)
Conversion of structured notes upon issuance of common shares	-	(261,156)	(1,419,189)	(1,680,345)
Foreign exchange	-	-	49,859	49,859
At December 31, 2019	692,527	684,897	328,628	1,706,052
Imputed interest	27,548	8,010	39,083	74,641
Payment of principal	(40,000)	-	-	(40,000)
Conversion of structured notes upon issuance of common shares	-	-	(284,757)	(284,757)
Foreign exchange	-	-	(21,148)	(21,148)
At March 31, 2020	680,075	692,907	61,806	1,434,788

The notes payable were initially recognized at fair value, and subsequently they were measured at amortized cost using the effective interest rate method. The initial fair values were calculated with a valuation technique that uses parameters obtained from observable markets, including credit spread and interest rate volatility. The prevailing interest rate used in the valuations was 16% at initial recognition.

[a] Note payable to HDL

The note is owed to Health Diagnostic Laboratories (HDL) and the Company is required to make monthly payments of $10,000 until the outstanding debt has been paid in full.

[b] Notes payable to shareholders and director

Two shareholders of the Company, one of whom is also a director of the Company, each loaned $250,000 to the Company and were issued convertible notes (the “Notes”) in consideration therefor. Each Note has a term of twelve months with simple interest

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earned at 5% per annum and is convertible at the Holder’s discretion into units of the Company (“Note Units”) at a subscription price of Cdn$0.095 per Note Unit. Each Note Unit consists of one common share and one-half of a Warrant, each whole Warrant exercisable for one common share at a price of Cdn$0.12 per common share for a period of three years from conversion of the Notes into common shares. The Note Units are only issuable to the Holder if he chooses the conversion option as payment upon demand. The Note Unit pricing of Cdn$0.095 is at a 5% premium to the market price of Cdn$0.09 at May 10, 2018.

If the Notes are outstanding for the full twelve months, each Holder would be entitled to principal and interest totaling $262,500 (Cdn$358,117) or, if converted into Note Units, 3,550,936 common shares and 1,775,468 Warrants. In total for both Holders, the maximum number of common shares issuable upon the conversion of the Notes is 10,652,808 common shares, consisting of 7,101,872 common shares underlying the Notes and 3,550,936 common shares underlying the Warrants. The Warrants will only be issued upon the conversion of the Notes.

On April 23, 2019, one Holder converted above convertible notes for 3,532,752 common shares and 1,766,376 Warrants.

On October 25, 2018, the Company entered into agreements with the above shareholders of the Company, who loaned $200,000 and $50,000 respectively to the Company and were issued convertible notes (the “Notes”) in consideration. These Notes have a term of twenty-four months with simple interest earned at 5% per annum. The Lenders have the right to convert the accrued interest and principal into common shares of the Company through the Term. The conversion rate is calculated as the 5 day volume weighted average price of the common shares of the Corporation (each a “Common Share”) for the period ending October 24, 2018 of Cdn$ 0.053180 plus Cdn$ 0.005 premium, totaling Cdn$ 0.05818. The number of Common Shares issuable by the Company upon conversion is calculated as the total accrued balance of principal and interest owing on the date of demand for conversion, converted from USD to Cdn$ at the Bank of Canada’s exchange rate on October 24, 2018 of 1.3029 and divided by the common share price in Cdn$.

During the period from October 3, 2018 until December 31, 2019, the Company has additional demand note agreements with the above director for loans totaling $440,000 to the Company. The Notes are payable on demand with simple interest earned at 5% per annum and are secured by a security interest in the Company’s patents and trademarks.

Date Principal $	Interest Rate
	%
31-Oct-18 110,000	5%
19-Nov-18 120,000	5%
18-Dec-18 80,000	5%
18-Dec-18 70,000	5%
31-Dec-19 60,000	5%
Total 440,000

The notes are secured by a security interest in the Company’s patents and trademarks.

[c] Convertible debentures

[i] 2016 debenture

On December 23, 2016, the Company closed debentures, for gross proceeds of $536,462 (Cdn$721,000) (the "Debentures"). The Debentures have a term of three years and bear interest at a rate of 8% per annum. The interest is payable semi-annually in arrears, in cash. Payment of principal is payable in cash or common shares of the Company at the discretion of the Company, subject to the approval of the TSX. If the Company elects to pay the principal in common shares, the number of Common Shares issued will be determined based on a 10% discount to the 5-day volume weighted average trading price ending on the trading day immediately preceding the date that the principal amount is due. Each Debenture will be convertible, at the option of the holder, into common shares at a conversion price of Cdn$0.50, beginning six months after the initial closing date. Each Debenture will be convertible, at the option of the Company, at a conversion price of Cdn$0.50, beginning twelve months after the closing date, provided the price of the common shares has been at or above Cdn$0.75 for 20 consecutive trading days. On July 18, 2017, a holder converted $79,190 (Cdn$100,000) into 200,000 common shares.

On December 23, 2019, 17,079,208 common shares of the Corporation were issued, to holders of 2019 Debentures, for a consideration of $464,766 (Cdn$621,000), pursuant to the conversion of the principal amount of the 2019 Debentures (the

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“Conversion Shares”)., fixed the price of Cdn $0.03636 per share, being 90% of the VWAP of the Common Shares on the Toronto Stock Exchange for the five consecutive trading days immediately preceding (but not including) December 23, 2019.

[ii] 2018 debenture

On June 8, 2018, the Company entered into the Convertible Security Funding Agreement (the “CSFA”) with Lind Asset Management XI, LLC (“Lind”) for up to Cdn$7.5 million in convertible securities. Under the terms of the Agreement, Lind advanced $1,541,800, less a closing fee of Cdn$100,000, in consideration for the issuance of a convertible security with a face value of Cdn$2.4 million (the “First CSFA”). Lind can increase the funding under the First CSFA by an additional Cdn$1,000,000 during its thirty-month term.

The Agreement also provides for the issuance of a second CSFA on mutual agreement of the Company and Lind and satisfaction of conditions including that 75% of the face amount of the First CSFA has been repaid or converted, in which case Lind may fund up to another Cdn$3,000,000 (the “Second Tranche”). Similar to the First CSFA, Lind can also increase the funding under the Second CSFA by up to Cdn$1,500,000. If the Second CSFA occurs, the Company would pay Lind a closing fee equal to 5% of the amount advanced in the Second CSFA.

Each CSFA has a thirty-month term from the date of issuance and bears interest of 8% per annum on the amount funded that is attributed to its face value upon the issuance of each CSFA. The Company's obligations under the Agreement are secured by all of the Company's present and after-acquired property other than intellectual property, including a pledge of its equity interests in its subsidiaries.

Shares underlying each CSFA are restricted from trading for a period of four months and one day from the time of issuance of the applicable CSFA (the "Lock-up Period"). Lind may convert the CSFA’s in monthly installments over the term at a conversion price equal to 85% of the 5-day trailing volume-weighted average price (“VWAP”) of the Company's common shares prior to the date that notice of conversion is provided by Lind. The Agreement contains restrictions on how much may be converted in any particular month and how many common shares Lind may hold at any given time. Lind is entitled to accelerate its conversion right to the full amount of the face value or demand repayment of the face value in cash upon a default and other specified events. To the extent that the full, face value of a convertible security has not been converted at maturity, the balance of the face value is to be paid in cash at the end of the thirty-month term.

The Company has the option to buy-back the CSFA’s in cash at any time by paying a buy-back premium equal to 5% of the outstanding balance of the applicable convertible security, except that no such premium is payable if the Company elects to buy back the First Convertible Security within the Lock-Up Period.

The Agreement and the issuance of securities thereunder were conditionally approved by the TSX, with up to 6,048,902 common shares issuable under the Agreement or Warrants. At the Company’s June 28, 2018 shareholder meeting, the company received shareholder approval to issue up to an additional 40,000,000 common shares to Lind under the Agreement. Any additional issuances of common shares under the Agreement will be subject to further shareholder approval.

Lind increased the funding under the First CSFA by an additional Cdn$750,000 on April 9, 2019. Lind advanced Cdn$750,000, less a closing fee of Cdn$37,500, in consideration for the issuance of a CSFA with a face value of Cdn$900,000 (the “First CSFA”).

In addition, the Company issued 13,531,800 warrants to Lind in respect of the First CSFA, exercisable for 36 months at an exercise price of Cdn$0.096 per share. The number of warrants issued in connection with the First CSFA are equal to 50% of the amount advanced by Lind (Cdn$2,000,000) divided by the VWAP of the common shares of the Company on the TSX for the five trading days immediately preceding the closing date. On April 23, 2019, in respect of the Additional Funding Cdn$750,000, the Company issued 2,552,756 warrants exercisable for 36 months at an exercise price of Cdn$0.1909 per share.

In January, 2019, the Company announced the closing of the Second Convertible Security Funding Agreement (the “Second CSFA”) with Lind for up to Cdn$0.5 million in convertible securities. Under the terms of the Second CSFA, Lind advanced Cdn$500,000, less a closing fee of Cdn$35,000, in consideration for the issuance of a convertible security with a face value of Cdn$0.6 million (the “Second CSFA”). In respect of the Second CSFA, the Company issued 18,889,308 warrants exercisable for 36 months at an exercise price of Cdn$0.0344 per share.

In respect of the Second CSFA, the Company issued 18,889,308 warrants exercisable for 36 months at an exercise price of Cdn$0.0344 per share Warrants calculated in the same manner will also be issued to Lind if it elects to increase the size of any convertible security as described above. All subsequent warrants issued to Lind pursuant to the Agreement will be exercisable for 36 months from the date of issuance at an exercise price equal to 130% of the five-day VWAP of the common shares immediately

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prior to the applicable closing date. The Warrants provide for cashless exercise by the holder in the event that the Company ceases to be a foreign private issuer, as that term is defined under the United States Securities Act of 1933.

In addition, face value Cdn$600,000 of outstanding debt and interest, in connection with the Second CSFA, were converted by Lind to 7,776,234 common shares, which is completed the conversion of the Second CSFA.

Each convertible security has a thirty-month term from the date of issuance and bears interest of 8% per annum on the amount funded that is attributed to its face value upon the issuance of each convertible security. The Company's obligations under the Agreement are secured by all of the Company's present and after-acquired property other than intellectual property, including a pledge of its equity interests in its subsidiaries.

The Company has the option to buy-back the convertible securities in cash at any time by paying a buy-back premium equal to 5% of the outstanding balance of the applicable convertible security.

The fair values of the First CSFA and the conversion liability were determined at the date of grant, and at quarter end using a binomial lattice model with the following assumptions:

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	Expiry date Expected volatility Risk-free interest rate Conversion price discount Foreign exchange rate (mm/dd/yyyy)
Issued on:
7-Jun-18	7/12/2020 162% 1.71% 15% 1.2972
9-Oct-18	7/12/2020 108% 2.10% 15% 1.2936
5-Nov-18	7/12/2020 98% 2.14% 15% 1.3096
31-Dec-18	7/12/2020 103% 1.87% 15% 1.3642
29-Jan-19	7/12/2020 109% 1.84% 15% 1.3266
22-Feb-19	7/12/2020 113% 1.78% 15% 1.3173
11-Mar-19	7/12/2020 132% 1.66% 15% 1.3414
11-Apr-19	7/12/2020 131% 1.63% 15% 1.3378
9-May-19	7/12/2020 132% 1.61% 15% 1.3483
4-Jun-19	7/12/2020 126% 1.42% 15% 1.3414
26-Jun-19	7/12/2020 123% 1.51% 15% 1.313
30-Jun-19	7/12/2020 123% 1.52% 15% 1.3087
13-Aug-19	7/12/2020 125% 1.58% 15% 1.3236
5-Sep-19	7/12/2020 130% 1.62% 15% 1.3228
30-Sep-19	7/12/2020 134% 1.72% 15% 1.3243
10-Oct-19	7/12/2020 137% 1.68% 15% 1.3294
20-Nov-19	7/12/2020 152% 1.65% 15% 1.3304
10-Dec-19	7/12/2020 158% 1.74% 15% 1.3233
31-Dec-19	7/12/2020 148% 1.74% 15% 1.2988
13-Jan-20	7/12/2020 141% 1.69% 15% 1.3048
5-Feb-20	7/12/2020 141% 1.51% 15% 1.3289
11-Mar-20	7/12/2020 113% 1.37% 15% 1.3745
31-Mar-20	7/12/2020 118% 1.37% 15% 1.4187

The fair values of the Second CSFA and the conversion liability was determined at the date of grant, and at quarter end using a binomial lattice model with the following assumptions:

	Expiry date Expected volatility Risk-free interest rate Conversion price discount Foreign exchange rate (mm/dd/yyyy)
9-Jan-19	7/9/2021 109% 1.89% 15% 1.3221
10-Jan-19	7/9/2021 109% 1.90% 15% 1.3234
22-Feb-19	7/9/2021 111% 1.78% 15% 1.3173
11-Mar-19	7/9/2021 122% 1.66% 15% 1.3414
1-Apr-19	7/9/2021 121% 1.61% 15% 1.3337
22-May-19	7/9/2021 123% 1.69% 15% 1.3410
4-Jun-19	7/9/2021 125% 1.42% 15% 1.3414
26-Jun-19	7/9/2021 128% 1.51% 15% 1.3130
30-Jun-19	7/9/2021 128% 1.52% 15% 1.3087

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The expected volatility is based on the trading of the Company’s common shares on the Toronto Stock Exchange and the risk-free rate is 1-year Canada Government Bond Yield.

In total, face value Cdn$3,175,000 of First CSFA was converted to common shares to Lind in connection with a Convertible Security Funding Agreement and the balance is Cdn$125,000 pending conversion.

The continuity of the conversion liability is following:

	$
At December 31, 2018	252,000
Conversion in 2019	-316,475
Issued in, 2019	151,653
Revaluation	2,822
At December 31, 2019	90,000
Conversion in Q1 2020	(70,776)
Revaluation	(4,518)
At March 31, 2020	14,706

Convertible Debenture Private Placement in February 2020

The company closed a private placement of convertible debentures (each a “Debenture”) for gross proceeds of Cdn$1,180,000 on February 19, 2020 (the “Offering”). The Debentures, issued in increments of $1,000, bear interest at a rate of 6% per annum, have a term of 18 months from the date of issue and are convertible in units (“Units”) at a conversion price of $0.04 per Unit. Each Unit consists of one (1) common share (“Common Share”) of the Company and one-half (1/2) of a Common Share purchase warrant. Each whole warrant (a “Warrant”) is exercisable into one Common Share of the Company at an exercise price of CAD$0.07 per Common Share for a period of twenty-four (24) months from the date of issuance of the Debentures. Securities issued pursuant to the Offering are subject to a statutory hold period lasting four (4) months and a day after the issuance of the securities.

As the conversion price is variable due to currency differences, resulting in the recognition of an embedded derivative, the Company designated the entire convertible instrument as a financial liability at fair value through profit or loss and recognized any changes in the fair value in the consolidated statement of loss and comprehensive loss. The fair value of the convertible debenture was calculated using a combination of discounted cash flows, option pricing models and reference to recent transactions.

	Fair value of
	convertible
	debenture[d]
	$
At January1,2020	-
Issuance during the period	888,065
Revaluation during the period	118,113
Foreign exchange	(63,808)
At March 31,2020	942,370

7. WARRANT LIABILITY

. WARRANT LIABILITY
	#	$
At January 1, 2019	27,448,056	419,905
January 09, 2019 to Lind_[ [b]]_	18,889,308	207,321
March 25, 2019 to Unitholders_[ [b]]_	10,000,000	745,200
April 23, 2019 to Lind_[ [b]]_	2,552,756	169,042
April 23, 2019 to Unitholders_[ [b]]_	4,953,876	392,518
July 10, 2019 to Unitholders_[ [b]]_	11,588,773	1,056,810

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July 24, 2019 to Unitholders_[ [b]]_	4,534,999	298,469
Foreign exchange adjustment during the period		142,315
Revaluation		(2,434,347)
At December 31, 2019	79,967,768	997,233
January 16, 2020 to Unitholders_[ [b]]_	8,430,110	166,470
January 16, 2020 to Hampton Security Company_[ [b]]_	221,900	-
February 19, 2020 to Hampton Security Company_[ [b]]_	1,618,750	-
Foreign exchange adjustment during the period		(240,546)
Revaluation		1,294,312
At March 31, 2020	90,238,528	2,217,469
Short-term portion of warrant liability		-
Long-term portion of warrant liability		2,217,469

The following warrants were issued and outstanding at March 31, 2020:

	Warrants	Exercisable into common shares	Exercise Price	Expiry date
	#	#	Cdn$
Date issued:
August 11, 2016 [GEM]	338,702	338,702	0.2	11-Aug-21
September 30, 2016 [GEM]	1,647,677	1,647,677	0.2	30-Sep-21
November 4, 2016 [GEM]	1,000,000	1,000,000	0.2	4-Nov-21
December 30, 2016 [GEM]	1,300,000	1,300,000	0.2	30-Dec-21
February 17, 2017 [GEM]	1,610,000	1,610,000	0.2	17-Feb-22
May 9, 2017 [GEM]	103,621	103,621	0.2	9-May-22
May 22, 2018 [Unitholders]	7,766,256	7,766,256	0.12	22-May-21
June 7, 2018 [Lind]	13,531,800	13,531,800	0.096	7-Jun-21
August 24, 2018 [Unitholders]	150,000	150,000	0.12	24-Aug-21
January 09, 2019 [Lind]	18,889,308	18,889,308	0.034	9-Jan-22
March 25, 2019 [Unitholders]	10,000,000	10,000,000	0.09	25-Mar-22
April 23, 2019 [Lind]	2,552,756	2,552,756	0.191	23-Apr-22
April 23, 2019 [Unitholders]	1,766,376	1,766,376	0.12	23-Apr-22
April 23, 2019 [Unitholders]	3,187,500	3,187,500	0.1	23-Apr-22
July 10, 2019 [Unitholders]	11,588,773	11,588,773	0.185	10-Jul-22
July 24, 2019 [Unitholders]	4,534,999	4,534,999	0.185	24-Jul-22
January 16, 2020 [Unitholders]	8,430,110	8,430,110	0.06	16-Jan-23
January 16, 2020 [Hampton Security Company]	221,900	221,900	0.06	16-Jan-23
February 19, 2020 [Hampton Security Company]	1,618,750	1,618,750	0.07	19-Aug-21
	90,238,528	90,238,528

The weighted average exercise price for total outstanding warrant as at March 31, 2020 is Cdn$ 0.13.

Page 15

StageZero Life Sciences, Limited

[a] Warrants issued 2018

(i) Warrants issued in Unit Private Placement on May 22, 2018

In connection with the Unit Private Placement [ note 8[b][i] ], 7,766,256 warrants were issued and are exercisable at a price of Cdn$0.12 per common share expiring on May 22, 2021.

(ii) Warrants issued on June 7, 2018

On June 7, 2018, the Company issued 13,531,800 warrants to Lind in respect of the First CSFA, exercisable until June 7, 2021 at an exercise price of Cdn$0.096 per share. The number of warrants issued in connection with the First CSFA are equal to 50% of the amount advanced by Lind (Cdn$2,000,000) divided by the VWAP of the common shares of the Company on the TSX for the five trading days immediately preceding the closing date. In respect of the Second Tranche (if any), the Company has agreed to issue such number of warrants equal to 50% of the amount advanced by Lind in respect of the Second CSFA divided by the VWAP of the common shares for the five trading days immediately preceding the issuance of the Second Convertible Security. Warrants calculated in the same manner will also be issued to Lind if it elects to increase the size of any CSFA as described above. All subsequent warrants issued to Lind pursuant to the Agreement will be exercisable for 36 months from the date of issuance at an exercise price equal to 130% of the five-day VWAP of the common shares immediately prior to the applicable closing date. The Warrants provide for cashless exercise by the holder in the event that the Company ceases to be a foreign private issuer, as that term is defined under the United States Securities Act of 1933.

(iii) Warrants issued to GEM

In conjunction with the 2016 financing in note 8[b][ii] , 6 million warrants, re-priced at $0.20 on June 7, 2017, were issued to GEM with expiry dates between August 2021 and May 2022.

(iv) Warrants issued in Second Tranche of Unit Private Placement on August 24, 2018 In connection with the Unit Private Placement [ note 9[b][i] ], 150,000 warrants were issued and are exercisable at a price of Cdn$0.12 per common share expiring on August 24, 2021.

[b] Warrants issued 2019 and 2020

Warrants issued in First Tranche of Unit Private Placement on March 25, 2019

In connection with the Unit Private Placement, on March 25, 2019, 10,000,000 warrants were issued and are exercisable at a price of Cdn$0.09 per common share, expiring on March 25, 2022.

In connection with the Unit Private Placement, on April 23, 2019, 3,187,500 warrants were issued and are exercisable at a price of Cdn$0.10 per common share, expiring on April 23, 2022.

In connection with convertible note payable extinguishment on April 23, 2019, 1,766,376 Warrants were issued and are exercisable at a price of Cdn$0.12 per common share, expiring on April 23, 2022.

In connection with the Unit Private Placement, on July 10, 2019, 11,588,773 warrants were issued and are exercisable at a price of Cdn$0.185 per common share, expiring on July 10, 2022.

In connection with the Unit Private Placement, on July 24, 2019, 4,534,999 warrants were issued and are exercisable at a price of Cdn$0.185 per common share, expiring on July 24, 2022.

Warrants issued to Lind on January 9, 2019

The Company issued 18,889,308 Common Share purchase warrants (“Warrants”) to Lind in respect of the Convertible Security on January 9, 2019. Each Warrant is exercisable for one Common Shares for 36 months at an exercise price of $0.0344 per Common Share. The number of Warrants issued in connection with the Convertible Security are equal to 100% of the amount advanced by Lind (CDN$500,000) divided by the VWAP of the Common Shares on the TSX for the five trading days immediately preceding the execution date of the Agreement. The Warrants provide for cashless exercise by the holder in the event that the Company ceases to be a foreign private issuer, as such term is defined under the United States Securities Act of 1933.

Warrants issued to Lind on April 22, 2019

The Company issued 2,552,756 warrants to Lind in respect of the Additional Funding with an exercise price of CDN$0.1909, which is 130% of the 5-day VWAP at April 10, 2019, and exercisable for 36 months. The number of warrants issued in connection with the Additional Funding is equal to 50% of the CDN$750,000 advanced by Lind divided by the VWAP of the common shares of the company on the TSX for the five trading days immediately preceding the closing date.

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Warrants issued for Unit Private Placement on January 16, 2020

In connection with the Unit Private Placement, January 16, 2020, 8,430,110 warrants were issued and are exercisable at a price of Cdn$0.06 per common share, expiring on January 16, 2023.

Warrants issued to Hampton Security Company on January 16, 2020

The Company issued 221,900 warrants to Hampton Security Company in respect of the broker warrants for Unit Private Placement on January 16, 2020 with an exercise price of Cdn$0.06, and exercisable for 36 months. As these warrants were issued to a broker for financing services, the issuance was accounted for a share-based compensation and the fair value on issuance was recorded in contributed surplus.

Warrants issued to Hampton Security Company on February 19, 2020

The Company issued 1,618,750 warrants to Hampton Security Company in respect of the broker warrants for Convertible Debentures closed on February 19, 2020 with an exercise price of Cdn$0.07, and exercisable for 18 months. As these warrants were issued to a broker for financing services, the issuance was accounted for a share-based compensation and the fair value on issuance was recorded in contributed surplus

[c] Financial liability accounting

Because such warrants were denominated in Cdn$ [a currency different from the Company’s functional currency], they were recognized as a financial liability at fair value through profit or loss, except for broker warrants issued to Hampton Security Company. The fair value of each warrant is estimated on the date of grant and on the revaluation date using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires four subjective assumptions, including future stock price volatility of the Company’s common shares which trade on the TSX (“Expected volatility”), the risk-free interest rate (sourced to Government of Canada Bond Yields for the noted term) and expected time until exercise (“Expected life”), which greatly affect the calculated values.

The fair values of the warrants issued during 2019 and 2020 were determined at the date of grant with the following assumptions (all with dividend yield of nil):

	Expiry date(mm/dd/yy) Expected volatility Risk-free interest rate Expected life Weighted- average fair value at measurement date (in Cdn$)
Date issued:
January 09, 2019 to Lind	1/9/2022 130% 1.37% 3.0 years 0.0476
March 25, 2019 to Unitholders	3/25/2022 124% 1.37% 3.0 years 0.0364
April 23, 2019 to Lind	4/23/2022 124% 1.37% 3.0 years 0.0273
April 23, 2019 to Unitholders	4/23/2022 124% 1.37% 3.0 years 0.0357
July 10, 2019 to Unitholders	7/10/2022 125% 1.37% 3.0 years 0.0303
July 24, 2019 to Unitholders	7/24/2022 125% 1.37% 3.0 years 0.0304
	Expected volatility Risk-free interest rate Expected life Weighted- average fair value at measurement date(in Cdn$) Expiry date (mm/dd/yy)
Date issued:
January 16, 2020 to Unitholders	1/16/2023 126% 1.37% 3.0 years 0.0470
January 16, 2020 to Hampton Security Company	1/16/2023 126% 1.37% 3.0 years 0.0470
February 19, 2020 to Hampton Security Company	8/19/2021 126% 1.37% 1.5 years 0.0386

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The fair values of the warrants, except for broker warrants issued to Hampton Security Company, were revalued at March 31, 2020 using the Black-Scholes option pricing model with the following assumptions (all with dividend yield of nil):

					Weighted-
	Expiry date (mm/dd/yy)	Expected volatility	Risk-free interest rate	Expected life	average fair value at measurement date (in
					Cdn$)
Date issued:
August 11, 2016 to GEM – Tranche 1	8/11/2021	145%	1.37%	1.0 years and 4.4 months	0.0244
September 30, 2016 to GEM – Tranche 2	9/30/2021	140%	1.37%	1.0 years and 6.0 months	0.0251
November 4, 2016 to GEM – Tranche 3	11/4/2021	137%	1.37%	1.0 years and 7.0 months	0.0254
December 30, 2016 to GEM – Tranche 4	12/30/2021	131%	1.37%	1.0 years and 9 months	0.0256
February 17, 2017 to GEM – Tranche 5	2/17/2022	127%	1.37%	1.0 years and 10.5 months	0.0258
May 9, 2017 to GEM – Tranche 6	5/9/2022	123%	1.37%	2.0 years and 1.3 months	0.0269
May 22, 2018 to Unitholders	5/22/2021	143%	1.37%	1.0 years and 1.7 months	0.0273
June 7, 2018 to Lind	6/7/2021	141%	1.37%	1.0 years and 2.8 months	0.0307
August24, 2018 to Unitholders	8/24/2021	144%	1.37%	1.0 years and 4.8 months	0.0314
January 09, 2019 to Lind	1/9/2022	130%	1.37%	1.0 years and 9 months	0.0476
March 25, 2019 to Unitholders	3/25/2022	124%	1.37%	2 years	0.0364
April 23, 2019 to Lind	4/23/2022	124%	1.37%	2.0 years and 0.8 months	0.0273
April 23, 2019 to Unitholders	4/23/2022	124%	1.37%	2.0 years and 3.8 months	0.0357
July 10, 2019 to Unitholders	7/10/2022	125%	1.37%	2.0 years and 3.3 months	0.0303
July 24, 2019 to Unitholders	7/24/2022	125%	1.37%	2.0 years and 3.8 months	0.0304
January 16, 2020 to Unitholders	1/16/2023	126%	1.37%	2.0 years and 9 months	0.0470
January 16, 2020 to Hampton Security Company	1/16/2023	126%	1.37%	2.0 years and 6.8 months	0.0470
February 19, 2020 to Hampton Security Company	8/19/2021	125%	1.37%	1.0 years and 7 months	0.0386

The exchange rate used at March 31, 2020 for revaluation was 0.7049.

8. SHARE CAPITAL

[a] Authorized

An unlimited number of non-voting preference shares, issuable in one or more series.

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An unlimited number of voting special shares, entitling the holder to a dividend if and when declared by the Board in parity with the common shares and convertible into common shares.

An unlimited number of voting common shares.

[b] Financings

[i] 2018 Unit Private placement

On May 22, 2018, the Company closed the first tranche (the “First Tranche”) of a unit financing (the “Unit Financing”) and issued 15,532,513 units for gross proceeds of $979,935 (Cdn$1,242,601). Each Unit (“Unit”) consists of one common share plus onehalf of one warrant at a price of Cdn$0.08 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.12 for a period of thirty-six months from issuance, until May 22, 2021. Unit pricing of Cdn$0.08 occurring at an approximately 12% discount to the market price of Cdn$0.09 at April 10, 2018 and the warrant pricing of Cdn$0.12 occurring at a 33% premium to the market price of Cdn$0.09 at April 10, 2018. In lieu of making a cash payment by the Company, certain unrelated noteholders accepted Units for an aggregate of $300,980 (Cdn$380,831), and a director, who is also a shareholder, participated for $445,213 (Cdn$561,770) in lieu of debt repayment in cash [ note 7[b] ] and received 7,022,126 common shares and 3,511,063 warrants.

On August 24, 2018, the Company announced a second tranche closing (the “Second Tranche”) of the Unit Financing, subject to shareholder approval. At its annual and special meeting of shareholders on June 28, 2018, shareholders voted for the issuance of up to 4,917,487 Units, representing 7,376,231 common shares. Insiders would not participate in the Second Tranche of the Unit Financing and it is not expected that the transaction will result in a change of control. Each Unit consists of one common share plus one-half of one warrant at a price of Cdn$0.08 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.12 for a period of thirty-six months after the closing date of the Second Tranche of the Unit Financing. $18,502 cash received for issuing 300,000 shares and 150,000 warrants.

[ii] 2019 Unit Private placement in March and April

On March 25, 2019 the Company closed the first tranche (the “First Tranche”) of a unit financing (the “Unit Financing”) and issued 20,000,000 units for gross proceeds of $748,300 (Cdn$1,000,000). Each Unit (“Unit”) consists of one common share plus one-half of one warrant at a price of Cdn$0.05 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.09 for a period of thirty-six months from issuance, until March 25, 2022. The Unit pricing of Cdn$0.05 is at an approximately 16% discount to the 5-day VWAP of Cdn$0.06 at February 8, 2019.

On April 23, 2019, the Company closed the second tranche (the “Second Tranche”) of a unit financing (the “Unit Financing”) and issued 6,375,000 units for gross proceeds of $389,691 (Cdn$510,000). Each Unit (“Unit”) consists of one common share plus one-half of one warrant at a price of Cdn$0.08 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.10 for a period of thirty-six months from issuance, until April 23, 2022. The Unit pricing of Cdn$0.08 is at an approximately 15% discount to the 5-day VWAP of Cdn$0.095 at February 27, 2019

[iii] 2019 Unit Private placement in July

On July 10, 2019 the Company closed the first tranche (the “First Tranche”) of a unit financing (the “Unit Financing”) and issued 23,177,546 units for gross proceeds of $2,009,405 (Cdn$2,665,418). Each Unit (“Unit”) consists of one common share plus onehalf of one warrant at a price of Cdn$0.115 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.185 for a period of thirty-six months from issuance, until July 10, 2022.

On July 24, 2019, the Company closed the second tranche (the “Second Tranche”) of a unit financing (the “Unit Financing”) and issued 9,069,999 units for gross proceeds of $797,304 (Cdn$1,043,050). Each Unit (“Unit”) consists of one common share plus one-half of one warrant at a price of Cdn$0.115 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.185 for a period of thirty-six months from issuance, until July 24, 2022.

[iv] 2020 Unit Private placement in January

On January 24, 2020 the Company closed a unit financing (the “Unit Financing”) and issued 16,860,220 units for gross proceeds of $508,234 (Cdn$$674,409). Each Unit (“Unit”) consists of one common share plus one-half of one warrant at a price of Cdn$0.04 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.06 for a period of thirty-six months from issuance, until January 24, 2023.

[c] Weighted-average number of shares

The weighted-average number of shares outstanding for year ended March 31, 2020, is 294,299,699 [March 31, 2019 – 120,930,167]. The Company has not adjusted its weighted-average number of shares outstanding for the purpose of calculating the diluted loss per share, as any adjustment would be antidilutive. All issued and outstanding stock options at March 31, 2020 of

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28,535,235 [March 31, 2019 – 15,436,046] and warrants of 90,238,528 [March 31, 2019 – 56,337,364] are deemed anti-dilutive such that the basic and net loss per share are equal.

[d] Employee stock option plan

On May 25, 2000, the Company adopted a stock option plan (the “Plan”) pursuant to which the Board may grant stock options to directors, officers, employees or consultants of the Company. The current terms of the Plan, approved by the Company’s shareholders on June 30, 2016, provide that the maximum number of common shares available for issuance under the Plan does not exceed 15% of the Company’s issued and outstanding shares at any time. All options granted have a term of five years from the date of grant. The vesting schedule of all granted options is determined at the discretion of the Board. The exercise price of an option must be not less than the closing price of the Company’s common shares on the Toronto Stock Exchange on the trading day immediately proceeding the date the option is granted. As at March 31, 2020, there were 28,535,235 [March 31, 2019 – 15,436,046] options outstanding, representing 11.40% [2019 – 8.41%] of the Company’s issued and outstanding common shares. All options are settled by the issuance of the Company’s common shares.

There were no option cancellations or modifications to the Plan during the during the years ended March 31, 2020 and 2019.

In compliance with current accounting standards, the fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes model requires four subjective assumptions, including future stock price volatility and expected time until exercise, which greatly affect the calculated values. The following assumptions were used to calculate the weighted-average fair values at:

alculate the weighted-average fair values at:
	March 31, 2020	March 31, 2019
Expected dividends	—	—
Average option life in years	4.2	2.5
Expected volatility	147%	136%
Risk-free interest rate	1.38%	2.00%
Vesting period in years	0.5	0.5

The risk-free interest rate is based on the implied yield on a Canadian government zero-coupon issue with a remaining term equal to the expected term of the option. The life of the options is estimated with consideration of the vesting period at the grant date, the term of the option and the average length of time similar grants have remained outstanding in the past. The expected volatility is estimated based on the historical volatility over a period similar to the life of the option. The dividend yield was nil because it is the present policy of the Company to retain all earnings to finance operations and future growth.

The following table summarizes the measurement date weighted-average fair value of stock options granted during the years ended March 31, 2020 and 2019:

		Grant date
	Number	weighted-average
		fair value
	of options granted	(In Cdn$)
	#
Three Month Period ended March 31, 2020	300,000	0.055
Three Month Period ended March 31, 2019	-	-

The following is a summary of the status of the Plan at March 31, 2020 and 2019, and changes during the periods then ended:

Three-month period ended	Three-month period ended	Three-month	period ended
	March 31, 2020	March 31, 2019
Number of options	Weighted- average exercise price	Number of options	Weighted- average exercise price

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Page 20

# Cdn$	# Cdn$
Outstanding, beginning of period 29,870,235 0.114	17,431,046 0.18
Granted 300,000 0.055	- -
Expired or forfeited (1,285,000) 0.334	(1,995,000) 0.38
Outstanding, end of period 28,885,235 0.114	15,436,046 0.18
Exercisable, end of period 20,773,140 0.114	15,436,046 0.18

The following table summarizes information about stock options outstanding at March 31, 2020:

Range of exercise prices per share	Number outstanding	Weighted-average exercise price	Weighted-average remaining contractual life
Cdn$	#	Cdn$	years
0.01 to 0.10	18,541,069	$0.09	3.4412
0.11 to 0.15	6,859,166	$0.12	2.2809
0.16 to 0.30	2,735,000	$0.19	1.844
0.31 to 0.90	400,000	$0.35	0.6815
	29,870,235	$0.112	2.795

9. EXPENSES BY NATURE

Expenses included in the consolidated statements of loss and comprehensive loss for the periods ended March 31, 2020 and 2019, are as follows:

March 31, 2020 March 31, 2019 Restated - Note 18

	Cost of			Cost of
	goods	General and		goods	General and
	sold	administrative	Total	sold	administrative	Total
	$	$	$	$	$	$
Salaries and short-term	46,797	396,576	443,373	60,860	382,746	443,606
benefits
Share-based compensation	7,549	128,499	136,048	1,209	37,668	38,877
Additional rent	12,615	3,154	15,769	10,567	2,642	13,209
Depreciation	53,706	19,755	73,461	61,263	13,568	74,831
Other	99,326	331,840	431,166	113,027	462,605	575,632
Foreign exchange loss(gain)	-	(294,177)	(294,177)	-	32,215	32,215
	219,993	585,648	805,640	246,926	931,444	1,178,370

10. RELATED-PARTY TRANSACTIONS

The key management personnel of the Company at March 31, 2020 are the directors, including the Chairman and Chief Executive Officer and the interim Chief Financial Officer. A former director, who retired from the Board of Directors of the Company in September, 2019, is the Chairman of the Board for the Company’s former third-party billing company and this same director has provided interim financing to the Company between December 2015 and December 2019 [ see note 6[b] ] . With the 2018 Unit Private Placement [see note 8[b][i] ], this director participated for $445,213 (Cdn$561,770) in lieu of debt repayment in cash and received 7,022,126 common shares and 3,511,063 warrants. In 2019 Unit Private Placement [see note 8/[b][iii] ], this director participated for $314,576 (Cdn$411,183) in lieu of debt repayment in cash and received 3,575,503 common shares and 1,787,752 warrants.

A director and shareholder of the Company provided interim financing in 2019 [ see note 7[b] ].

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Page 21

Compensation for key management personnel of the Company is detailed below for periods ended March 31, 2020 and 2019:

	Three Months Ended March 31	Three Months Ended March 31
	2020	2019
	$	$
Salaries, fees and short-term benefits	136,988	133,597
Share-based compensation	122,508	16,950
	259,496	150,547

As at March 31, 2020, key management personnel controlled 5.8% (2019-13.4%) of the issued and outstanding common shares of the Company and $622,500 (2019-$646,418) of compensation remains unpaid to current and former key management personnel.

Stock options held by key management personnel to purchase common shares have the following expiry dates and exercise prices:

Number outstanding	Number outstanding
Year issued Year of expiry Range of exercise prices per share At At March 31, 2020 March 31, 2019
$ #
2014 2019 0.75 to 1.20 - 400,000
2015 2020 0.02 to 0.45 1,677,920 2,166,880
2016 2021 0.135 to 0.19 710,000 1,273,333
2017 2022 0.125 to 0.355 2,000,000 2,385,000
2018 2023 0.08 to 0.11 3,050,000 4,250,000
2019 2024 0.08 to 0.10 11,045,826 -
18,483,746	10,475,213

11. COMMITMENTS AND CONTINGENCIES

The Company adopted IFRS 16 on January 1, 2019, which requires the recognition of assets and liabilities for all leases, unless the lease term is less than 12 months or the underlying asset has a low value.

On December 5, 2017, the Company renegotiated the lease of its premises effective January 1, 2018 to September 30, 2023. The property and office space lease bears interest at an estimated rate of 14.4%. The lease liability as at March 31, 2020 is $718,212 (March 31, 2019 – 816,633). Effective August 1, 2018, the Company subleased 74.46% of its leased space for a commensurate share of the rental cost for the remaining term of its lease.

The Company has received notices of missed payments with vendors and has set up payment plans with certain vendors.

The Company may be involved from time to time in various legal claims and regulatory proceedings arising in the ordinary course of business, including arbitrations, class actions, civil litigation and investigations (including those described in more detail below). Some of these matters may include, but are not limited to, intellectual property disputes, professional liability, employee related matters and inquiries, including subpoenas and other civil investigative demands from governmental bodies and Medicare or Medicaid payers and managed care payers reviewing billing practices or requesting comment on allegations of billing irregularities that are brought to their attention through billing audits or third parties. Such inquiries may relate to the Company or other healthcare providers.

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12. SEGMENT INFORMATION

The Company is organized in and operates as a single reportable segment for management purposes.

Geographic information

As at March 31, 2020, $0.8 million of property, plant and equipment $0.1 of right of use asset, net, were held in the US [December 31, 2019 – $0.9 million of property, plant and equipment and $0.1 million of right of use asset net, were held in the US]. The Company’s total revenue for the three months ended March 31, 2020 was $0.01 million [2018 – $0.05 million], and all was earned from operations in the United States.

13. FINANCIAL INSTRUMENTS AND FINANCIAL RISK-MANAGEMENT OBJECTIVES AND POLICIES

The Company is exposed to liquidity, credit and market risk, the management of which is overseen by the Company’s senior management.

[a] Financial instruments

The fair value of warrants is estimated using the Black-Scholes option pricing model incorporating various inputs including the underlying price volatility and discount rate, see note 8 . All other notes payable were initially recognized at fair value, and subsequently they were measured at amortized cost using the effective interest rate method, whereby the fair value of the notes payable approximates their carrying value As at March 31, 2020, the Company’s warrant liability, conversion liability and notes payable, are carried on the consolidated statements of financial position at fair value and have been classified as Level 3, in the fair value hierarchy.

[b] Liquidity risk

Liquidity risk represents the contingency that the Company is unable to gather the funds required with respect to its financial obligations at the appropriate time and under reasonable conditions. The Company attempts to manage this risk in order to ensure that it has sufficient liquidity at all times to be able to honor its current and future financial obligations under normal conditions and in exceptional circumstances. Financing strategies to ensure the management of this risk include resorting to the capital markets through the issuance of equity or debt securities.

The Company’s ability to continue as a going concern depends upon its ability to achieve profitable operations and raise additional capital; in the past three years, the Company has earned limited revenue. During 2019, the Company completed a series of common share, structured notes payable, capital commitment, common share and warrant and convertible debenture financings. The Company expects to continue to pursue further financings as or until operations become profitable.

The table below summarize the maturity profile of the Company’s financial instruments as at March 31, 2020 and December 31, 2019:

Financial instrument maturation periods

			5 years or
	1 year or less	1 to 5 years	more	Total
At March 31, 2020	$	$	$	$
Financial assets
Cash	121,513	-	-	121,513
Other receivable	42,112	-	-	42,112
Financial liabilities
Trade and other payable	2,649,911	-	-	2,649,911
Convertible debenture	-	831,747	-	831,747
Note payable	901,016	480,000	1,100,000	2,481,016
Long-term liabilities	-	67,340	-	67,340

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Financial instrument maturation periods

			5 years or
	1 year or less	1 to 5 years	more	Total
At December 31, 2019	$	$	$	$
Financial assets
Cash	71,124	-	-	71,124
Other receivable	21,700	-	-	21,700
Financial liabilities
Trade and other payable	2,842,015	-	-	2,842,015
Note payable	1,357,799	480,000	1,105,884	2,943,683
Long-term liabilities	-	67,340	-	67,340

[c] Credit risk

The Company’s financial assets that are exposed to credit risk consist primarily of cash and other receivables. Cash consists of deposits with major commercial banks and is therefore subject to minimal credit risk.

[d] Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises foreign exchange rate risk and interest rate risk.

Foreign exchange rate risk

The Company operates in Canada and the United States and transacts business primarily with US partners and suppliers. During the year ended March 31, 2020, a 5% appreciation (depreciation) in the Cdn$ to US dollar foreign exchange rate, with all else being equal, would have affected net income by approximately $110,901 [2019 – $265,000]. The Company’s exposure to foreign currency changes for all other currencies is not material.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The interest rate for the Company’s notes payable to HDL was renegotiated during the first quarter of 2016 and interest began to be accrued at Wall Street Journal Prime Rate plus 4.00% per annum effective April 1, 2016, while the note payable to a shareholder and director as was issued in 2016 is fixed at 2% per annum, the notes payable to shareholders and director, issued after 2017 are fixed at 5% per annum, and the convertible debentures are fixed at 8%. Accordingly, there have been no significant impacts on the Company’s consolidated statements of loss and comprehensive loss from changes in interest rates.

COVID-19 Pandemic in 2020

In March 2020, the World Health Organization (“WHO”) classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain what the full magnitude of the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity at this time.

14. CAPITAL RISK MANAGEMENT

The Company’s objective when managing capital is to safeguard its accumulated capital in order to maintain the ability to continue as a going concern and provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of issues of notes payable, conversion liability, common shares and warrants; it totaled $85.6 million as at March 31, 2020 [December 31, 2019 – notes payable, warrants and common shares of $80.4 million].

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To address this risk, the Company manages its capital structure and makes adjustments to it in light of economic conditions. Upon approval of the Board, the Company balances its overall capital structure through new share or debt issuances, or by undertaking other activities as deemed appropriate in the circumstances. The Board does not establish quantitative return on capital criteria for management but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company is not subject to externally imposed capital requirements.

The Company’s ability to continue as a going concern depends upon its ability to achieve profitable operations and raise additional capital; in the past two years, the Company has had limited revenue. During 2018 and into 2019, the Company completed a series of common share, structured notes payable, capital commitment, common share and warrant and convertible debenture financings. We expect to continue to pursue further financings as or until operations become profitable.

The Company’s overall strategy with respect to capital risk management remains unchanged from the year ended December 31, 2019.

15. FINANCE COSTS

5. FINANCE COSTS
	Three Months Ended
	March 31, 2020	March 31, 2019
		As Restated(Note 18)
	$	$
Interest on note payable to HDL	27,548	27,667
Interest on note payable to shareholders and director	8,010	14,151
Interest on convertible debenture	39,803	119,407
Interest costs on lease liability	25,983	29,839
Broker warrants relating to convertible debenture financing	46,078	-
Commitment fee	-	26,057
Transaction costs relating to issuance of debt	102,276	11,956
	249,698	229,077

16. SUPPLEMENTAL NON-CASH INFORMATION

6. SUPPLEMENTAL NON-CASH INFORMATION
	Three-month period	Three-month period
	ended	ended
	March 31, 2020	March 31, 2019
	$	$
Conversion of convertible debenture and conversion liability into common shares	(355,351)	(216,158)

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StageZero Life Sciences, Limited

17. SUBSEQUENT EVENT

Warrant Exercise in April 2020

In April, 2020 four warrant holders exercised a total of 10,530,537 warrant certificates for an equivalent number of common shares at exercise prices from $0.0344 to $0.09. The total consideration received was Cdn$446,432.

18. PRIOR PERIOD RESTATEMENTS

The Company identified the following restatements relating to its March 31, 2019 unaudited, condensed consolidated interim financial statements. A description of each restatements and a summary of changes in each financial statement line item for the three months period ended March 31, 2019 are as follows.

Intangible Asset

As part of the Purchase Agreement with Cobalt (see note 7(a)), to acquire the remaining 50% of StageZero Life Sciences Inc. (formerly IDL) on March 4, 2016, the Company did not allocate any portion of the purchase price to the fair value of identifiable intangible assets representing reacquired rights to its lead product ColonSentry. The allocation of the consideration paid should have included 50% of the fair value of the reacquired rights in the amount of $1,039,349 in each of the agreement’s two year remaining life. The impact of this adjustment is an increase in deficit of $1,039,349 as the reacquired rights would have been fully amortized by December 31, 2018.

Convertible Debenture and Warrants

On June 8, 2018, the Company entered into the convertible securities funding agreement (CSFA) (see note 7(c)) with Lind for up to Cdn$7.5 million in convertible securities. The First CSFA also included the issuance of 13,531,800 warrants. As part of the allocation of the initial advance of $1,541,800 less a closing fee of Cdn$100,000, the Company incorrectly recorded the fair value of the associated warranty liability as a financing cost rather than as a reduction of the host debt instrument. The allocation of the components of the debenture also resulted in an incorrect allocation to share capital on partial settlements as well as interest expense.

Right of Use Asset and Lease Liability

On January 1, 2019, the Company adopted IFRS 16 and recognized right of use asset and lease liability. The Company incorrectly classified its sublease arrangement with the subtenant as an operating lease, which resulted in overstatement of right-of-use asset, understatement of rent receivable and misstatements in the related subsequent measurement of amortization and interest charges.

Share-based Compensation

The Company has identified an error relating to the vesting of stock options, which resulted in an understatement of share-based compensation for the three months period ended March 31, 2019.

Accrual

The Company has identified a cutoff error relating to certain unpaid invoices, which resulted in an understatement of expenses for the three months period ended March 31, 2019.

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss for the period ended March 31, 2019

		Impact of
		convertible		Impact of right of
		debenture and		use asset and lease		Impact of share-			Subsequent to
	Prior to restatement	warrants		liability	based compensation		Impact of accrual		restatement
	$		$		$	$		$		$
Cost of goods sold	284,932	-		(41,327)		-	3,321		246,926
General and administrative	861,275	33,846		5,988		25,260	72,767		931,444

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Loss from revaluation of warrants	4,035,678	(963,414)	-	-	-	3,072,264
Change in fair value of conversion	138,771	(135,252)	-	-	-	3,519
liabilities
Finance costs	710,310	(511,071)	29,838	-	-	229,077
Total loss and comprehensive loss	(5,977,785)	1,643,583	5,501	(25,260)	(76,088)	(4,530,049)
Basic and diluted loss per common	(0.05)					(0.03)
share

Condensed Consolidated Interim Statement of Changes in Shareholders’ Deficiency for the period ended March 31, 2019

		Impact of	Impact of
		convertible	right of use	Impact of
	Prior to	debenture and	asset and	share-based	Impact of	Impact of	Subsequent to
	restatement	warrants	lease liability	compensation	goodwill	accrual	restatement
	$	$	$	$	$	$	$
Share capital	77,443,816	(408,086)	-	-	-	-	77,035,730
Contributed surplus	10,468,927	-	-	25,260	-	-	10,494,187
Accumulated other	1,304,968	-	-	-	-	-	1,304,968
comprehensive income
Deficit	(99,580,787)	2,194,380	302,758	(25,260)	(1,039,349)	(76,084)	(98,224,342)
Total shareholders’ deficiency	(10,363,076)	1,786,294	302,758	-	(1,039,349)	(76,084)	(9,389,457)

Condensed Consolidated Interim Statement of Cash Flows for the period ended March 31, 2019

		Impact of	Impact of right
		convertible	of use asset
	Prior to	debenture and	and lease	Subsequent to
	restatement	warrants	liability	restatement
	$	$	$	$
Cash used in operating	(946,692)	42,700	-	(903,992)
activities
Cash used in financing	1,064,489	(56,532)	-	1,007,957
activities
Cash used in investing	(13,832)	-	13,832	-
activities

19. AMENDMENT

Subsequent to the issuance of the Company’s unaudited, condensed consolidated interim financial statements for the three months periods ended March 31, 2020 and 2019, management had determined that these financial statements needed to be amended to correct for various content and disclosure deficiency. A description of each amendment and a summary of changes in each financial statement line item as at March 31, 2020 are as follows.

Convertible Debenture and Warrants

The Company has determined that an adjustment is required to the fair value of certain convertible debentures and warrant liabilities as at March 31, 2020 based on its additional review of its valuation process. Additionally, the Company subsequently designated certain convertible debenture at fair value through profit or loss in its entirety, instead of bifurcating the embedded conversion feature, which resulted in reclassification adjustments on the balance sheet as at March 31, 2020.

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Rent Receivable

The Company determined that a portion of the rent receivable should be classified as current asset based on its review of the timing of rent payment.

Inventory

The Company identified certain inventory relating to sales made during the three months period ended March 31, 2020 that were not recognized as cost of goods sold. Adjustment was made to recognize the appropriate cost of goods sold.

Reclassification

The Company identified certain expenses that were incorrectly recorded against revenue. Adjustments were made to reclassify the expenses to appropriate financial statement line items.

Condensed Consolidated Interim Statement of Financial Position for the period ended March 31, 2020

		Impact of
		convertible
	Prior to	debenture and	Impact of rent	Impact of	Impact of	Subsequent to
	amendment	warrants	receivable	inventory	reclassification	amendment
	$	$	$	$	$	$
Assets
Current
Cash	121,513	-	-	-	-	121,513
Other receivables, net	42,112	-	-	-	-	42,112
Inventory	121,725	-	-	(27,035)	-	94,690
Short-term portion of prepaid	112,112	-	-	-	-	112,112
expenses and deposits
Rent receivable	-	-	154,558	-	-	154,558
Total current assets	397,462	-	154,558	(27,035)	-	524,985
Non-current assets
Property, plant and	840,971	-	-	-	-	840,971
equipment, net
Right of use property, net	135,367	-	-	-	-	135,367
Long-term portion rent	636,515	-	(157,553)	-	-	478,962
receivable
Long-term portion of prepaid	25,000	-	-	-	-	25,000
expenses deposits
Total non-current assets	1,637,853	-	(157,553)	-	-	1,480,300
Total asset	2,035,315	-	(2,995)	(27,035)	-	2,005,285
Liabilities and
shareholders’
deficiency
Current
Trade and other payables	2,649,909	-	-	-	-	2,649,909
Short-term portion of right of	154,289	-	-	-	-	154,289
use liability
Fair value of convertible	-	942,370	-	-	-	942,370
debenture
Conversion liability	360,090	(345,384)	-	-	-	14,706
Short-term portion of notes	1,373,928	(499,213)	-	-	-	874,715
payable
Total current liabilities	4,538,216	97,773	-	-	-	4,635,989
Non-current liabilities
Long-term portion of warrant	2,654,217	(436,748)	-	-	-	2,217,469
liability

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Long-term portion of right of	563,923	-	-	-	-	563,923
use liability
Long-term portion of notes	560,072	-	-	-	-	560,072
payable
Long-term liabilities	67,340	-	-	-	-	67,340
Total non-current liabilities	3,845,552	(436,748)	-	-	-	3,408,804
Total liabilities	8,383,768	(338,975)	-	-	-	8,044,793
Shareholders’ deficiency
Share capital	80,989,127	-	-	-	-	80,989,127
Contributed surplus	11,332,810	46,079	-	-	-	11,378,889
Accumulated other	1,304,968	-	-	-	-	1,304,968
comprehensive income
Deficit	(99,975,358)	292,896	(2,995)	(27,035)	-	(99,712,492)
Total shareholders’	(6,348,453)	338,975	(2,995)	(27,035)	-	(6,039,508)
deficiency
Total liabilities and	2,035,315	-	(2,995)	(27,035)	-	2,005,285
shareholders’ deficiency

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss for the period ended March 31, 2020

		Impact of
		convertible
	Prior to	debenture and	Impact of rent	Impact of	Impact of	Subsequent to
	amendment	warrants	receivable	inventory	reclassification	amendment
	$	$	$	$	$	$
Revenue	11,368	-	-	-	20,000	31,368
Cost of goods sold	177,673	-	-	27,035	15,285	219,993
General and administrative	663,561	(85,624)	2,995	-	4,715	585,647
	841,234	(85,624)	2,995	27,035	20,000	805,640
Loss before the undernoted	(829,866)	85,624	(2,995)	(27,035)	-	(774,272)
Loss from revaluations of	1,688,831	(394,519)	-	-	-	1,294,312
warrants
Change in fair value of	(69,134)	69,134	-	-	-	-
conversion liabilities
Change in fair value of	-	118,113	-	-	-	118,113
conversion debentures
Finance costs	249,698	-	-	-	-	249,698
	1,869,395	(207,272)	-	-	-	1,662,123
Total loss and comprehensive	(2,699,261)	292,896	(2,995)	(27,035)	-	(2,436,395)
loss for theperiod

Condensed Consolidated Interim Statement of Changes in Shareholders’ Deficiency for the period ended March 31, 2020

		Convertible
	Prior to	debenture and					Impact of	Subsequent to
	amendment	warrants		Rent receivable	Inventory		reclassification	amendment
	$	$		$	$		$	$
Share capital	80,989,127		-	-		-	-	80,989,127

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Contributed surplus	11,332,810	46,079	-	-	-	11,378,889
Accumulated other	1,304,968	-	-	-	-	1,304,968
comprehensive income
Deficit	(99,975,358)	292,896	(2,995)	(27,035)	-	(99,712,492)
	(6,348,453)	338,975	(2,995)	(27,035)	-	(6,039,508)

Condensed Consolidated Interim Statement of Cash Flows for the period ended March 31, 2020

		Convertible
	Prior to	debenture and					Subsequent to
	amendment	warrants	Rent receivable Inventory			Reclassification	amendment
	$	$	$	$		$	$
Cash used in operating	(1,080,288)	(158,695)		-	-	-	(1,238,983)
activities
Cash used in financing	1,086,310	210,103	(1,294)		-	-	1,295,119
activities
Cash used in investingactivities	(7,041)	-		1,294	-	-	(5,747)
	(1,019)	51,408		-	-	-	50,389

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