StageZero Life Sciences Ltd. - Interim / Quarterly Report 2020

NOTICE TO READER

The Audit Committee, in consultation with management of the Company, has determined that the Company’s previously filed unaudited and restated condensed consolidated interim financial statements and management’s discussion and analysis for the three and nine months ended September 30, 2020 and 2019 needed to be amended to correct for various errors and disclosure deficiency.

Details of the changes are fully described in Note 17 to the Amended and Restated Unaudited Condensed Consolidated Interim Financial Statements as filed on SEDAR on November 25, 2020.

The previously filed unaudited condensed consolidated financial statements and management’s discussion and analysis for the financial periods were originally filed by the Company on SEDAR on November 20, 2020. Each of the Amended and Restated Unaudited Condensed Consolidated Interim Financial Statements and Revised Management’s Discussion and Analysis (“MD&A”) replaces and supersedes the respective previously filed original unaudited condensed consolidated financial statements and related MD&A. This notice supersedes the previously filed version.

StageZero Life Sciences, Ltd.

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StageZero Life Sciences, Ltd.

Three and nine-month periods ended September 30, 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, Ltd.

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AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

[Unaudited, Expressed in US dollars]

*Notes*	September 30, 2020 December 31, 2019 as amended Note 17
	$ $
ASSETS
Current
Cash	1,792,971 71,124
Other receivables, net 4, 13[b]	77,278 21,700
Inventory	620,625 87,739
Short-term portion of prepaid expenses and deposits	152,886 463,210
Short-termportion rent receivable	166,026 149,073
Total current assets	2,809,786 375,957
Non-current assets
Property, plant and equipment, net	712,853 899,012
Right of Use Property, net Long-term portion rent receivable	116,028 145,040
	393,980 519,751
Long-term portion of prepaid expenses and deposits	25,000 25,000
Total non-current assets	1,247,861 1,588,803
Total assets	4,057,647 1,964,760
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
Current
Trade and other payables 5	2,553,654 2,842,015 28,543
Short-term loan
Short-term portion of right of use liability	160,362 153,180
Fair value of convertible debenture 6[c]	2,139,196
Short-term portion of Warrant Liability 7	729,357 -
Conversion liability 6[c]	- 90,000
Short-termportion of notespayable 6	403,712 1,133,524
Total current liabilities	6,014,824 4,218,719
Non-current liabilities
Long-term portion of warrant liability 7	3,011,932 997,233
Long-term portion of right of use liability	483,516 600,229
Long-term portion of notes payable 6	564,290 572,526
Long-term liabilities	67,340 67,340
Total non-current liabilities	4,127,078 2,237,327
Total liabilities	10,141,902 6,456,048
Shareholders’ deficiency
Share capital 8[b]	83,271,683 80,283,079
Contributed surplus 8[d]	11,957,245 11,196,763
Accumulated other comprehensive income	1,304,968 1,304,968
Deficit	(102,618,152) (97,276,097)
Total shareholders’ deficiency	(6,084,255) (4,491,287)
Total liabilities and shareholders’ deficiency	4,057,647 1,964,760
Commitments and contingencies 11	- -
Basis of presentation and going concern uncertainties 2
Share consolidation 18

See accompanying notes to the amended and restated condensed consolidated interim financial statements Approved by the Company’s board of directors and authorized for issue on November 25, 2020: (signed) James R. Howard-Tripp, Director (signed) Garth MacRae, Director

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StageZero Life Sciences, Ltd.

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

[Unaudited, Expressed in US dollars]

*Notes*	Three-month period ended Nine-month period ended
	September 30 September 30 2020 amended note 17 2019 as restated - Note 16 2020 amended note 17 2019 as restated - Note 16 $ $
REVENUES	1,464,155 22,968 1,558,974 88,729
Total revenues	1,464,155 22,968 1,558,974 88,729
EXPENSES Cost of goods sold 9 General and administrative 9	973,502 376,936 1,411,751 847,003 1,181,580 1,496,718 2,386,349 3,417,323
	2,155,082 1,873,654 3,798,100 4,264,326
Loss before the undernoted	(690,927) (1,850,686) (2,239,126) (4,175,597)
Loss/(Gain) from revaluation of warrants Change in fair value of conversion liabilities Change in fair value of conversion debenture Finance costs 15	229,641 (2,859,233) 574,268 (823,358) - (109,312) - (109,351) 1,325,574 - 1,624,857 - 103,468 (20,604) 903,803 405,625
	1,658,683 (2,989,149) 3,102,928 (527,084)

Total loss and comprehensive loss for the period	(2,349,609) 1,138,463 (5,342,054) (3,648,513)

Basic and diluted loss per common share 9[c]	(0.05) 0.02 (0.08) (0.15)

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

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StageZero Life Sciences, Ltd.

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

[Unaudited, Expressed in US dollars]

Amended note 17	Accumulated other comprehensive income Contributed surplus Share capital Deficit Total
	Shares Amount # $ $ $ $ $
	[note 8[b] [note 8]
Balance at January 1, 2020	33,986,373 80,283,079 11,196,763 1,304,968 (97,276,097) (4,491,287)
Net loss for the period	- - - - (5,342,054) (5,342,054)
Share-based compensation	- - 760,482 - - 760,482
Issuance of common shares with unit financing	3,058,649 509,933 - - - 509,933
Issuance of common shares with warrant exercise	2,133,239 792,430 - - - 792,430
Issuance of common shares with option exercise	18,750 3,334 - - - 3,334
Issuance of common shares with public offering	8,272,012 1,311,024 - - - 1,311,024
Conversion of structured note payable and convertible liability	2,744,283 607,567 - - - 607,567
Share issuance costs	- (235,684) - - - (235,684)
Balance at September 30, 2020	50,213,306 83,271,683 11,957,245 1,304,968 (102,618,151) (6,084,256)

	Share capital Contributed surplus Shares Amount # $ $	Accumulated other comprehensive income Deficit Total
		$ $ $
As restated – Note 16	[note 8[b]] [note 8]
Balance at January 1, 2019 As restated (Note 16)	19,204,860 76,819,572 10,455,311	1,304,968 (93,794,295) (5,214,444)
Net loss for the period	- - -	- ( 3,648,512) (3,648,512)
Share-based compensation	- - 668,960	- - 668,960
Issuance of common shares with Unit financing	7,327,818 1,602,747 -	- - 1,602,747
Conversion of convertible note payable	441,594 125,858 -	- - 125,858
Conversion of structured note payable and convertible liability	3,327,040 929,414 -	- - 929,414
Balance at September 30, 2019	30,301,312 79,477,591 11,124,271	1,304,968 (97,442,807) (5,535,977)

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

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StageZero Life Sciences, Ltd.

StageZero Life Sciences, Ltd.

AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

[Unaudited, Expressed in US dollars]

*Notes*	Three-month periods ended Nine-month periods ended September 30 September 30
	2020 amended- note 17 2019 as restated - Note 16 2020 amended- note 17 2019 as restated - Note 16 $ $ $ $
OPERATING ACTIVITIES Net profit (loss) for the period Non-cash adjustments Share-based compensation 8[d] Warrants Depreciation 9 Loss on disposal of property, plant and equipment Change in fair value of conversion liability Change in fair value of convertible debenture Non-cash interest expense Non-cash change in interest on lease liability Foreign exchange (Gain)/loss on revaluation of warrants
	(2,349,608) 1,138,463 (5,342,054) (3,648,513)

	502,343 617,999 760,482 668,960
	- - 192,547 -
	72,537 77,956 228,282 228,456
	- - - 29,869
	- (111,091) - (109,351)
	1,325,574 - 1,624,857 -
	13,366 3,227 132,089 469,362
	24,047 52,133 76,170 111,145
	71,957 176,262 (249,216) -
	229,641 (2,859,233) 574,268 (823,358)
Changes in non-cash working capital balances related to operations Trade and other receivables Prepaid expenses and deposits Inventory Trade and other payables Rent receivable	(110,145) (904,284) (2,002,575) (3,073,430)

	(21,928) 33,668 (55,578) (4,655)
	(152,866) 13,537 (106,566) (34,390)
	(400,408) 52,964 (532,887) (51,387)
	(637,960) (2,009,540) (435,289) (985,027)
	37,924 26,662 108,818 90,748
Cash used in operating activities	(1,285,383) (2,786,993) (3,024,077) (4,058,141)
FINANCING ACTIVITIES Short-term loan proceeds 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 Proceeds from stock option exercise Proceeds from warrant exercise Proceeds frompublic offering
	- - 28,543 -
	(20,000) (30,000) (80,000) (90,000)
	(63,766) (49,901) (194,927) (146,682)
	- - 888,065 641,139
	- 2,523,453 516,949 3,972,733
	3,334 - 3,334 -
	174,655 - 492,342 -
	- - 3,097,365 -
Cashprovided by financing activities	94,223 2,443,552 4,751,671 4,377,190
INVESTING ACTIVITIES Purchase of property, plant and equipment
	- - (5,747) (13,832)
Cash used in investing activities	- - (5,747) (13,832)
Net decrease in cash during the period Cash, beginning of period	(1,191,160) (343,441) 1,721,847 305,217
	2,984,131 754,886 71,124 106,228
Cash, end of period	1,792,971 411,445 1,792,971 411,445

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

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StageZero Life Sciences, Ltd.

NOTES TO AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

[Unaudited, Expressed in US dollars unless otherwise noted]

September 30, 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- and nine-month periods ended September 30, 2020 and 2019, were authorized for issue by the Company’s Board of Directors (the “Board”) on November 24, 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 $2.3 million for the three-month period ended September 30, 2020 [September 30, 2019 – gain of $1.3 million] and a loss of $5.3 million for the nine-month period ended September 30, 2020 [2019 – loss of $3.6 million]. As at September 30, 2020, the Company had a working capital deficiency of $3.2 million [December 31, 2019– $3.8 million] and a deficit of $102.6 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.

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 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 audited 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.

Revenue recognition

Under IFRS 15, Revenue from Contracts with Customers ("IFRS 15"), revenue is recognized at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for transferring goods or services to a customer.

The principles in IFRS 15 are applied using the following five steps:

Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when (or as) the entity satisfies a performance obligation

As detailed below, revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made.

Cancer Testing

The Company performs diagnostic blood-based biomarker tests to screen for early cancer detection and risk assessment. Upon completion of the diagnostic tests, the results of the tests are made available to the caregiver or patient. The amount of revenue from billings is adjusted with certain third-party payers, taking into account contractually defined terms of payment and excluding taxes or duty and ultimate settlements cannot be reliably estimated until the cash is collected.

COVID Testing

As the COVID-19 pandemic transpired during early fiscal 2020, the Company pivoted to providing COVID-19 assessments using Polymerese Chain Reaction (“PCR”) testing and antigen testing, which have been approved on an Emergency Use Authorization (EUA) by the FDA. The Company also entered into some agreements under which they would provide mobile testing facilities for customers.

In assessing the performance obligations the Company has determined that there are two separate performance obligations in these services, providing a test result from performing the PCR or antigen testing and providing mobile testing facilities.

The Company recognizes the revenues from these services when the performance obligation has been fulfilled and collection is reasonably assured.

Disaggregation of Revenue:

Disaggregation of Revenue:
Cancer Testing COVID Testing Total Revenue	Three-month period ended Nine-month period ended
	September 30 September 30 2020 2019 2020 2019 $ $ $ $
	4,601 22,968 49,659 88,729 1,459,554 - 1,509,315 - 1,464,155 22,968 1,558,974 88,729

With the advent of the COVID Testing revenue stream the Company invested in adding related inventory, which accounts for the increase in the balance at September 30, 2020, and accordingly additional cost of sales, which accounts for the increase in cost of sales for the three and nine months periods ended September 30, 2020 as compared to the same period in 2019, which cost of sales pertain exclusively to cancer testing.

Of the COVID testing revenues 7 customers contributed the majority of the revenues for the three and nine months ended September 30, 2020.

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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 have a material impact on the reported loss or gain and comprehensive loss or gain 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 or gain and comprehensive loss or gain 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 is 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 its fair value less costs to sell, an impairment loss is recognized.

4. OTHER RECEIVABLES

4. OTHER RECEIVABLES
	At September	30, 2020	At December 31, 2019
		$	$
Sales tax receivables		77,278	21,700
		77,278	21,700

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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 September 30, 2020	At December 31, 2019
	$	$
Trade payables	1,165,279	1,352,900
Accrued liabilities	1,388,376	1,489,115
	2,553,655	2,842,015

6. NOTES PAYABLE

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.

was 16% at initial recognition.
Notes payable consists of:
	At September 30, 2020	At December 31, 2019
Note payable to HDL [a]	684,290	692,525
Note payable to shareholders and a director [b]	283,712	684,897
Convertible debenture [c]	-	328,628
Total	968,002	1,706,050

[a]Note payable to HDL

The note is owed to Health Diagnostic Laboratories Inc. (HDL) and the Company is required to make monthly payments of $10,000 until the outstanding debt has been paid in full. The balance of the note is expected to be repaid in full by 2034.

[b] Notes payable to shareholders and director

On May 3, 2018, 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 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$0.76 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$0.96 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 Holders if they choose the conversion option as payment upon demand. The Note Unit pricing of Cdn$0.76 is at a 5% premium to the market price of Cdn$0.72 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, 443,867 common shares and 221,933 Warrants. In total for both Holders, the maximum number of common shares issuable upon the conversion of the Notes is 1,331,601 common shares, consisting of 887,734 common shares underlying the Notes and 443,867 common shares underlying the Warrants. The Warrants will only be issued upon the conversion of the Notes.

On April 23, 2019, one Holder converted his convertible note for 441,594 common shares and 220,797 warrants.

On October 25, 2018, the Company entered into agreements with the above shareholders of the Company, who loaned $200,000 and $50,000 respectively to the Company and were issued convertible notes (the “Notes”) in consideration. These Notes have a term of twenty-four months with simple interest earned at 5% per annum. The Lenders have the right to convert the accrued interest and principal into common shares of the Company through the Term. The conversion rate is calculated as the 5 day volume weighted average price of the common shares of the Corporation (each a “Common Share”) for the period ending October 24, 2018 of Cdn$ 0.42544 plus Cdn$ 0.04 premium, totaling Cdn$ 0.46544. 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$.

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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.

On June 29, 2020, $390,766 of the notes payable was converted to 951,120 common shares.

As at September 30, the convertible notes payable balance is $250,000. 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 had a term of three years and bore interest at a rate of 8% per annum. The interest was payable semi-annually in arrears, in cash. Payment of principal was 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 elected to pay the principal in common shares, the number of Common Shares issued would 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 was due. Each Debenture would be convertible, at the option of the holder, into common shares at a conversion price of Cdn$4.00, beginning six months after the initial closing date. Each Debenture would be convertible, at the option of the Company, at a conversion price of Cdn$4.00, beginning twelve months after the closing date, provided the price of the common shares has been at or above Cdn$6.00 for 20 consecutive trading days. On July 18, 2017, a holder converted $79,190 (Cdn$100,000) into 25,000 common shares.

On December 23, 2019, 2,134,901 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 “Conversion Shares”)., fixed the price of Cdn $0.29088 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 could increase the funding under the First CSFA by an additional Cdn$1,000,000 during its thirty-month term.

The Agreement also provided 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 could fund up to another Cdn$3,000,000 (the “Second Tranche”). Similar to the First CSFA, Lind could also increase the funding under the Second CSFA by up to Cdn$1,500,000. If the Second CSFA occurred, the Company would pay Lind a closing fee equal to 5% of the amount advanced in the Second CSFA.

Each CSFA had a thirty-month term from the date of issuance and bore 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 were 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 could 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 contained restrictions on how much may be converted in any particular month and how many common shares Lind may hold at any given time. Lind was 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 may not have been converted at maturity, the balance of the face value was to be paid in cash at the end of the thirty-month term.

The Company had 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 was payable if the Company elects to buy back the First Convertible Security within the Lock-Up Period.

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The Agreement and the issuance of securities thereunder were conditionally approved by the TSX, with up to 756,112 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 5,000,000 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 1,691,475 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 319,094 warrants exercisable for 36 months at an exercise price of Cdn$0.1.5272 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 2,361,163 warrants exercisable for 36 months at an exercise price of Cdn$1.5272 per share. Warrants calculated in the same manner would also be issued to Lind if it elected to increase the size of any convertible security as described above. All subsequent warrants issued to Lind pursuant to the Agreement were 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 provided for cashless exercise by the holder in the event that the Company ceased to be a foreign private issuer, as that term is defined under the United States Securities Act of 1933.

In addition in June 2019, face value Cdn$600,000 of outstanding debt and interest, in connection with the Second CSFA, were converted by Lind to 972,029 common shares, which completed the conversion of the Second CSFA.

Each convertible security had a thirty-month term from the date of issuance and bore interest of 8% per annum on the amount funded that was attributed to its face value upon the issuance of each convertible security. The Company's obligations under the Agreement were 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 had 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:

	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

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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
15-Apr-20	7/12/2020	130%	0.66%	15%	1.4086
8-May-20	7/12/2020	141%	0.66%	15%	1.3934

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

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

In total, face value Cdn$3,272,619 of First CSFA was converted to common shares to Lind in connection with a Convertible Security Funding Agreement and the balance Cdn$27,381 was used to participate in warrant exercise. As at September 30, 2020, the balance of the CSFA is Nil.

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 $0.32 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$0.56 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.

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	$
At January 1, 2020	-
Issuance during the period	1,180,000
Revaluation during the period	1,673,473
Less: Conversion	(294,106)
Foreign exchange	(420,172)
At September 30, 2020	2,139,196

[e] Short-term debt

During the quarter, the Company received a loan for Cdn$40,000. The loan does not charge interest until after December 31, 2020. After which point it will charge 5% per annum with a maturity date of December 31, 2020.

7. WARRANT LIABILITY

7. WARRANT LIABILITY
	#	$
At January 1, 2019	3,431,004	419,905
January 09, 2019 to Lind_[ [b]]_	2,361,164	207,321
March 25, 2019 to Unitholders_[ [b]]_	1,250,000	745,200
April 23, 2019 to Lind_[ [b]]_	319,094	169,042
April 23, 2019 to Unitholders_[ [b]]_	619,233	392,518
July 10, 2019 to Unitholders_[ [b]]_	1,448,596	1,056,810
July 24, 2019 to Unitholders_[ [b]]_	566,874	298,469
Foreign exchange adjustment during the period		142,315
Revaluation		(2,434,347)
At December 31, 2019	9,995,965	997,233
January 16, 2020 to Unitholders_[ [b]]_	1,053,764	166,470
January 16, 2020 to Hampton Security Company[ [b]]	27,738	-
February 19, 2020 to Hampton Security Company_[ [b]]_	202,343	-
June 29, 2020 to Public Offering_[ [b]]_	8,272,010	2,012,078
June 29, 2020 to Unitholders_[ [b]]_	951,120	231,350
June 29, 2020 to National Bank Financial_[ [b]]_	297,645	-
June 29, 2020 to Fidelity Clearing Canada ULC_[ [b]]_	297,645	-
Warrant Exercise during the period	(2,133,239)	(300,088)
Warrant issued due to the conversion for convertible debentures	218,751	31,054
Foreign exchange adjustment during the period		22,084
Revaluation		581,108
At September 30, 2020 (post-consolidation)	19,183,742	3,741,289
Short-term portion of warrant liability		729,357
Long-term portion of warrant liability		3,011,932

The following warrants were issued and outstanding at September 30, 2020:

	Warrants Exercisable into common shares	Exercise Price	Expiry date
	# #	Cdn$

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Date issued:
August 11, 2016 [GEM]	42,337	42,337	1.6	11-Aug-21
September 30, 2016 [GEM]	205,958	205,958	1.6	30-Sep-21
November 4, 2016 [GEM]	125,000	125,000	1.6	4-Nov-21
December 30, 2016 [GEM]	162,500	162,500	1.6	30-Dec-21
February 17, 2017 [GEM]	201,250	201,250	1.6	17-Feb-22
May 9, 2017 [GEM]	12,952	12,952	1.6	9-May-22
May 22, 2018 [Unitholders]	970,782	970,782	0.96	22-May-21
June 7, 2018 [Lind]	1,691,475	1,691,475	0.768	7-Jun-21
August 24, 2018 [Unitholders]	18,750	18,750	0.96	24-Aug-21
January 09, 2019 [Lind]	461,163	461,163	0.272	9-Jan-22
March 25, 2019 [Unitholders]	1,062,500	1,062,500	0.72	25-Mar-22
April 23, 2019 [Lind]	319,094	319,094	1.528	23-Apr-22
April 23, 2019 [Unitholders]	220,797	220,797	0.96	23-Apr-22
April 23, 2019 [Unitholders]	398,436	398,436	0.8	23-Apr-22
July 10, 2019 [Unitholders]	1,448,596	1,448,596	1.48	10-Jul-22
July 24, 2019 [Unitholders]	566,874	566,874	1.48	24-Jul-22
January 16, 2020 [Unitholders]	1,010,884	1,010,884	0.48	16-Jan-23
January 16, 2020 [Hampton Security Company]	25,003	25,003	0.48	16-Jan-23
February 19, 2020 [Hampton Security Company]	202,343	202,343	0.56	19-Aug-21
June 29, 2020 [Unitholders]	951,120	951,120	0.72	29-Jun-23
June 29, 2020 [Public Offering]	8,271,887	8,271,887	0.72	29-Jun-23
June 29, 2020 [National Bank Financial Inc.]	297,645	297,645	0.68	29-Jun-23
June 29, 2020 [Fidelity Clearing Canada ULC ]	297,645	297,645	0.68	29-Jun-23
July 8, 2020 [Unitholder ]	31,250	31,250	0.56	18-Feb-22
July 9, 2020 [Unitholder ]	78,125	78,125	0.56	18-Feb-22
September 28, 2020 [Unitholder ]	54,688	54,688	0.56	18-Feb-22
September 29, 2020 [Unitholder ]	54,688	54,688	0.56	18-Feb-22
	19,183,742	19,183,742	0.56	18-Feb-22

The weighted average exercise price for total outstanding warrants as at September 30, 2020 is Cdn$ 1.33

[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] ], 970,782 warrants were issued and are exercisable at a price of Cdn$0.96 per common share expiring on May 22, 2021.

(ii) Warrants issued on June 7, 2018

On June 7, 2018, the Company issued 1,691,475 warrants to Lind in respect of the First CSFA, exercisable until June 7, 2021 at an exercise price of Cdn$0.768 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 CSFA (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

Page 15

StageZero Life Sciences, Ltd.

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.

The Corporation will be entitled, in its sole discretion, to exercise its Acceleration Right, permitting it to accelerate the exercise of the warrants, upon the occurrence of an Acceleration Event, which is defined as thirty (30) consecutive trading days during which the Common Shares traded on the Exchange at a VWAP that is at least 300% of the Exercise Price, by delivering an Acceleration Notice to the Holder. An Acceleration Notice must include the following information: (i) identifying the thirty (30) consecutive trading days during which the Common Shares traded on the Exchange at a VWAP that is at least 300% of the Exercise Price, (ii) details of the VWAP calculation, and (iii) the new Expiry Date. An Acceleration Notice will be delivered by the Corporation to the Holder in the manner provided in section 9 on the date of the Acceleration Notice. The Corporation shall not deliver an Acceleration Notice if any Face Value amount on the Convertible Security remains outstanding, and any Acceleration Notice delivered in such circumstances shall be null and void.

(iii) Warrants issued to GEM

In conjunction with the 2016 financing in note 8[b][ii] , 750 thousand warrants, re-priced at $1.60 on June 7, 2017, were issued to GEM with expiry dates between August 2021 and May 2022.

(iv) Warrants issued in Unit Private Placement on August 24, 2018

In connection with the Unit Private Placement [ note 8[b][i] ], 18,750 warrants were issued and are exercisable at a price of Cdn$0.96 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, 1,250,000 warrants were issued, exercisable at a price of Cdn$0.72 per common share, expiring on March 25, 2022.

In connection with the Unit Private Placement, on April 23, 2019, 398,437 warrants were issued and are exercisable at a price of Cdn$0.80 per common share, expiring on April 23, 2022.

In connection with convertible note payable extinguishment on April 23, 2019 [Note 6(b)], 220,797 Warrants were issued and are exercisable at a price of Cdn$0.96 per common share, expiring on April 23, 2022.

In connection with the Unit Private Placement, on July 10, 2019, 1,444,846 warrants were issued and are exercisable at a price of Cdn$1.48 per common share, expiring on July 10, 2022.

In connection with the Unit Private Placement, on July 24, 2019, 566,874 warrants were issued and are exercisable at a price of Cdn$1.48 per common share, expiring on July 24, 2022.

Warrants issued to Lind on January 9, 2019

The Company issued 2,361,163 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 $0.2752 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 319,094 warrants to Lind in respect of the Additional Funding with an exercise price of CDN$1.5272, which is 130% of the 5-day VWAP at April 10, 2019, and exercisable for 36 months. The number of warrants issued in

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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.

Warrants issued for Unit Private Placement on January 16, 2020

In connection with the Unit Private Placement, January 16, 2020, 1,053,763 warrants were issued and are exercisable at a price of Cdn$0.48 per common share, expiring on January 16, 2023.

Warrants issued to Hampton Security Company on January 16, 2020

The Company issued 27,737 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$0.48, exercisable for 36 months. As these warrants were issued to a broker for financing services, the issuance was accounted for as 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 202,343 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$0.56, and exercisable for 18 months. As these warrants were issued to a broker for financing services, the issuance was accounted for as share-based compensation and the fair value on issuance was recorded in contributed surplus.

Warrants issued for Unit Private Placement on June 29, 2020

In connection with the Unit Private Placement, June 29, 2020, 951,120 warrants were issued and are exercisable at a price of Cdn$0.72 per common share, expiring on June 29, 2023.

Warrants issued for Public Offering on June 29, 2020

In connection with the Public Offering, June 29, 2020, 8,272,012 warrants were issued and are exercisable at a price of Cdn$0.72 per common share, expiring on June 29, 2023.

Warrants issued to National Bank Financial Inc. on June 29, 2020

The Company issued 297,645 warrants to National Bank Financial Inc . in respect of the broker warrants for the Public Offering on June 29, 2020 with an exercise price of Cdn$0.68, and exercisable for 36 months. As these warrants were issued to a broker for financing services, the issuance was accounted for as share-based compensation and share issuance costs and the fair value on issuance was recorded in contributed surplus.

Warrants issued to Fidelity Clearing Canada ULC on June 29, 2020

The Company issued 297,645 warrants to Fidelity Clearing Canada ULC in respect of the broker warrants for Public Offering on June 29, 2020 with an exercise price of Cdn$0.68, and exercisable for 36 months. As these warrants were issued to a broker for financing services, the issuance was accounted for as share-based compensation and share issuance costs and the fair value on issuance was recorded in contributed surplus.

Warrants issued due to the conversions for convertible debentures

The Company issued 218,751warrants to unitholders in respect of the conversion of convertible debentures with the exercise price of Cdn$0.56, and exercisable till February 18, 2022.

[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/y	Expected volatility	Risk-free interest	Expected life	Weighted- average fair

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	y) rate value at measurement date (in Cdn$)

Date issued:
January 09, 2019 to Lind	1/9/2022 155% 0.28% 3.0 years 0.405
March 25, 2019 to Unitholders	3/25/2022 148% 0.28% 3.0 years 0.0322
April 23, 2019 to Lind	4/23/2022 144% 0.28% 3.0 years 0.0244
April 23, 2019 to Unitholders	4/23/2022 144% 0.28% 3.0 years 0.0311
July 10, 2019 to Unitholders	7/10/2022 138% 0.28% 3.0 years 0.0251
July 24, 2019 to Unitholders	7/24/2022 136% 0.28% 3.0 years 0.0252
	Expected volatility Risk-free interest rate Expected life Weighted- average fair value at measurement date(in Cdn$) Expirydate (mm/dd/yy)

Date issued:
January 16, 2020 to Unitholders	1/16/2023 132% 0.28% 3.0 years 0.0382
January 16, 2020 to Hampton Security Company	1/16/2023 132% 0.28% 3.0 years 0.0382
February 19, 2020 to Hampton Security Company	8/19/2021 139% 0.28% 1.5 years 0.0268
June 29, 2020 to Unitholders	6/29/2023 131% 0.28% 3.0 years 0.0373
June 29, 2020 for Public Offering	6/29/2023 131% 0.28% 3.0 years 0.0373
June 29, 2020 to National Bank Financial Inc.	6/29/2023 131% 0.28% 3.0 years 0.0378
June 29, 2020 to Fidelity Clearing Canada ULC	6/29/2023 131% 0.28% 3.0 years 0.0378

The fair values of the warrants, except for broker warrants issued to Hampton Security Company, National Bank Financial Inc. and Fidelity Clearing Canada ULC, were revalued at September 30, 2020 using the Black-Scholes option pricing model 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:
August 11, 2016 to GEM – Tranche 1	8/11/2021	164%	0.26%	10.4 months	0.3602
September 30, 2016 to GEM – Tranche 2	9/30/2021	161%	0.26%	1.0 years	0.3491
November 4, 2016 to GEM – Tranche 3	11/4/2021	158%	0.26%	1.0 years and 1.0 months	0.3639
December 30, 2016 to GEM – Tranche 4	12/30/2021	153%	0.26%	1.0 years and 3 months	0.3794
February 17, 2017 to GEM – Tranche 5	2/17/2022	154%	0.26%	1.0 years and 4.5 months	0.4100
May 9, 2017 to GEM – Tranche 6	5/9/2022	159%	0.26%	1.0 years and 7.3 months	0..4651
May 22, 2018 to Unitholders	5/22/2021	171%	0.26%	7.7 months	0.3763
June 7, 2018 to Lind *	6/7/2021	171%	0.26%	8.8 months	0.3024
August24, 2018 to Unitholders	8/24/2021	162%	0.26%	10.8 months	0.4227
January 09, 2019 to Lind *	1/9/2022	155%	0.26%	1.0 years and 3 months	0.436

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March 25, 2019 to Unitholders	3/25/2022	151%	0.26%	1 years and 6 months	0.5362
April 23, 2019 to Lind *	4/23/2022	150%	0.26%	1.0 years and 6.8 months	0.3536
April 23, 2019 to Unitholders	4/23/2022	149%	0.26%	1.0 years and 9.8 months	0.5284
July 10, 2019 to Unitholders	7/10/2022	166%	0.26%	1.0 years and 9.3 months	0.5240
July 24, 2019 to Unitholders	7/24/2022	167%	0.26%	1.0 years and 9.8 months	0.5294
January 16, 2020 to Unitholders	1/16/2023	160%	0.26%	2.0 years and 3 months	0.6720
January 16, 2020 to Hampton Security Company	1/16/2023	160%	0.26%	2.0 years and 0.8 months	0.6720
July 8, 2020 to Unitholder	2/18/2022	154%	0.26%	1.0 years and 5.5 months	0.5684
July 9, 2020 to Unitholder	2/18/2022	154%	0.26%	1.0 years and 5.5 months	0.5684
September 28, 2020 to Unitholder	2/18/2022	154%	0.26%	1.0 years and 5.5 months	0.5684
September 29, 2020 to Unitholder	2/18/2022	154%	0.26%	1.0 years and 5.5 months	0.5684

The indicated warrants were valued using a Barrier Option Pricing Model in order to reflect the Acceleration clause noted in the related warrant agreements in addition to the usual inputs used in the Black Scholes Model. The exchange rate used at September 30, 2020 for revaluation was Cdn$ 1.33.

8. SHARE CAPITAL

[a] Authorized

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

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 1,941,564 units for gross proceeds of $979,935 (Cdn$1,242,601). Each Unit (“Unit”) consists of one common share plus one-half of one warrant at a price of Cdn$0.64 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.96 for a period of thirty-six months from issuance, until May 22, 2021. Unit pricing of Cdn$0.64 occurring at an approximately 12% discount to the market price of Cdn$0.72 at April 10, 2018 and the warrant pricing of Cdn$0.96 occurring at a 33% premium to the market price of Cdn$0.72 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 877,765 common shares and 438,882 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 614,685 Units, representing 922,028 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$0.64 per Unit. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.96 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 37,500 shares and 18,750 warrants.

[ii] 2019 Unit Private placements in March and April

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On March 25, 2019 the Company closed the first tranche (the “First Tranche”) of a unit financing (the “Unit Financing”) and issued 2,500,000 units for gross proceeds of $748,300 (Cdn$1,000,000). Each Unit (“Unit”), issued at a price of Cdn$0.40 per Unit, consists of one common share plus one-half of one warrant. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.72 for a period of thirty-six months from issuance, until March 25, 2022. The Unit pricing of Cdn$0.40 is at an approximately 16% discount to the 5-day VWAP of Cdn$0.48 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 796,875 units for gross proceeds of $389,691 (Cdn$510,000). Each Unit (“Unit”), issued at a price of Cdn$0.64 per Unit, consists of one common share plus one-half of one warrant. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.80 for a period of thirty-six months from issuance, until April 23, 2022. The Unit pricing of Cdn$0.64 is at an approximately 15% discount to the 5-day VWAP of Cdn$0.76 at February 27, 2019

[iii] 2019 Unit Private placements in July

On July 10, 2019 the Company closed the first tranche (the “First Tranche”) of a unit financing (the “Unit Financing”) and issued 2,897,193 units for gross proceeds of $2,009,405 (Cdn$2,665,418). Each Unit (“Unit”), issued at a price of Cdn$0.92 per Unit, consists of one common share plus one-half of one warrant. Each whole warrant is exercisable into one common share at an exercise price of Cdn$1.48 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 1,133,749 units for gross proceeds of $797,304 (Cdn$1,043,050). Each Unit (“Unit”), issued at a price of Cdn$0.92 per Unit, consists of one common share plus one-half of one warrant. Each whole warrant is exercisable into one common share at an exercise price of Cdn$1.48 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 2,107,527 units for gross proceeds of $508,234 (Cdn$$674,409). Each Unit (“Unit”), issued at a price of Cdn$0.32 per Unit, consists of one common share plus one-half of one warrant. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.48 for a period of thirty-six months from issuance, until January 24, 2023.

[v] 2020 Unit Private placement in June

On June 29, 2020 the Company closed a unit financing (the “Unit Financing”) and issued 951,120 units for gross proceeds of $390,766 (Cdn$532,628). Each Unit (“Unit”), issued at a price of Cdn$0.56 per Unit, consists of one common share plus one warrant. Each whole warrant is exercisable into one common share at an exercise price of Cdn$0.72 for a period of thirty-six months from issuance, until June 29, 2023.

[vi] 2020 Public Offering in June

On June 29, 2020 the Company closed a public offering of 8,272,012 units of the Company (the “Units”) at a price of $0.56 per Unit (the “Offering Price”) for aggregate gross proceeds of Cdn$4,632,327 (the “Offering”). The Offering was made pursuant to an agency agreement effective June 22, 2020 with Echelon Wealth Partners Inc. and Clarus Securities Inc. (collectively, the “Agents”). Each Unit was comprised of one common share of the Company and one warrant. Each Warrant is exercisable to purchase one Common Share at any time prior to June 29, 2023 at a price of Cdn $0.72 per Common Share.

[c] Weighted-average number of shares

On September 18, 2020 the Corporation announced that trading of the common shares on the TSX on a post-Consolidation basis commences at market open on September 18, 2020. The Corporation’s warrants, including its TSX-listed warrants, and convertible debentures have also proportionately adjusted in accordance with their terms effective September 18, 2020.

As a consequence of the consolidation, on September 18, the Corporation’s 391,521,071 pre-consolidation common shares are reduced to approximately 48,940,134 common shares on a post-Consolidation basis. No fractional common shares of the Corporation were issued in connection with the Consolidation.

The weighted-average number of shares outstanding for nine-month ended September 30, 2020, is 41,843,028 (postconsolidation) [September 30, 2019 – 24,516,753] and for the three-month period ended September 30, 2020 is 49,307,595 (post-consolidation) [September 30, 2019 – 30,003,090]. 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 September 30, 2020 of 5,379,404 [September 30, 2019 – 3,802,842] and warrants of 19,183,742 (post-consolidation) [September 30, 2019 – 9,775,174] 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

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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 preceding the date the option is granted. As at As at September 30, 2020, there were 5,379,404 [September 30, 2019 – 3,802,842] options outstanding, representing 11% [2019 – 12%] 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 nine-month ended September 30, 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:

calculate the weighted-average fair values at:
	September 30, 2020	September 30, 2019
Expected dividends	—	—
Average option life in years	4.2	4.2
Expected volatility	142%	161%
Risk-free interest rate	0.26%	1.49%
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 ninemonth ended September 30, 2020 and 2019:

		Grant date
	Number	weighted-average
		fair value
	of options granted	(In Cdn$)
	#
Nine-month period ended September 30, 2020	1,887,500	0.44
Nine-month period ended September 30, 2019	1,940,524	0.8

The following is a summary of the status of the Plan at September 30, 2020 and 2019, and changes during the periods then ended:

	Nine-month period ended September 30, 2019	Nine-month period ended September 30, 2019
	Weighted-	Number of options Weighted- average exercise price
	Number f i average i
	o optons exercse price
	# Cdn$	# Cdn$
Outstanding, beginning of period	3,733,779 0.896	2,178,881 1.44
Granted	1,887,500 0.44	1,940,524 0.8
Exercised	(18,750) 0.24	- -
Expired or forfeited	(223,125) 1.96	(311,875) 3.44

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Outstanding, end of period 5,379,404 0.80		3,807,529 0.96
Exercisable, end of period 4,441,904 0.8		2,812,268 1.04

The following table summarizes information about stock options outstanding at September 30, 2020:

Range of exercise prices per share	Number outstanding	Weighted- average exercise price	Weighted-average remaining contractual life
Cdn$	#	Cdn$	years
0.08 to 0.80	4,142,634	$0.64	3.348
0.88 to 1.20	857,396	$0.96	1.9357
1.28 to 2.40	341,875	$1.52	1.4988
2.48 to 7.20	37,500	$2.80	0.4932
	5,379,404	$0.80	3.2763

9. EXPENSES BY NATURE

Expenses included in the consolidated statements of loss and comprehensive loss for the three and nine-month periods ended September 30, 2020 and 2019, are as follows:

		September	30, 2020	September 30, 2019Restated - Note 16	September 30, 2019Restated - Note 16	September 30, 2019Restated - Note 16
	Cost of	General and		Cost of	General and
	goods sold	administrative	Total	goods sold	administrative	Total
	$	$	$	$	$	$
Salaries and benefits	332,744	1,185,463	1,518,207	230,651	1,086,866	1,317,517
Share-based compensation	82,882	677,600	760,482	39,692	629,268	668,960
Rent	37,359	10,754	48,113	78,099	27,646	105,745
Depreciation	166,752	61,530	228,282	185,457	42,999	228,456
Other	792,014	700,218	1,492,232	313,104	1,630,544	1,943,648
Foreign exchange loss (gain)	-	(249,216)	(249,216)	-	-	-
	1,411,751	2,386,349	3,798,100	847,003	3,417,323	4,264,326
		September	30, 2020	September 30, 2019Restated - Note 16
	Cost of	General and		Cost of	General and
	goods sold	administrative	Total	goods sold	administrative	Total
	$	$	$	$	$	$
Salaries and benefits	206,206	419,374	625,580	80,972	306,847	387,819
Share-based compensation	82,926	432,360	515,286	38,483	579,516	617,999
Rent	13,524	4,795	18,319	61,875	20,270	82,145
Depreciation	59,438	13,099	72,537	62,250	15,706	77,956
Other	611,408	239,995	851,403	133,356	574,379	707,735
Foreign exchange loss(gain)	-	71,957	71,957	-	-	-
	973,502	1,181,580	2,155,082	376,936	1,496,718	1,873,654

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10. RELATED-PARTY TRANSACTIONS

The key management personnel of the Company at September 30, 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 877,765 common shares and 438,882 warrants. In a 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 446,937 common shares and 223,469 warrants. In a 2020 Unit Private Placement [see note 8/[b][v] ], this director participated for $390,766 (Cdn$532,628). in lieu of debt repayment in cash and received 951,120 common shares and 951,120 warrants.

A director and shareholder of the Company provided interim financing in 2019 [ see note 6[b] ].

Compensation for key management personnel of the Company is detailed below for periods ended September 30, 2020 and 2019:

	Nine Months Ended September 30	Nine Months Ended September 30
	2020	2019
	$	$
Salaries, fees and short-term benefits	393,518	385,256
Share-based compensation	404,560	510,579
	798,078	895,835

As at September 30, 2020, key management personnel controlled 6.4% (2019-10.3%) of the issued and outstanding common shares of the Company and $649,200 (2019-$571,113) 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:

prices:	prices:
Number outstanding
Year issued Year of expiry Range of exercise prices per share At At September 30, 2020 September 30, 2019
$ #
2015 2020 0.16 to 3.60 172,240	270,860
2016 2021 1.08 to 1.52 88,750	159,167
2017 2022 1.00 to 2.84 250,000	298,125
2018 2023 0.64 to 0.88 381,250	531,250
2019 2024 0.64 to 0.80 1,380,728	1,483,024
2020 2025 0.40 to0.48 1,200,000 -
3,472,968	2,742,426

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 September 30, 2020 is $643,878 (December 31, 2019 – 753,409). 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 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. Some of these matters may include intellectual property disputes, professional liability, employee related matters and inquiries, including subpoenas and other civil investigative demands. The inquiries may relate to the Company or other healthcare providers and may come from

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governmental bodies, Medicare or Medicaid payers and managed care payers who are reviewing billing practices or requesting comment on allegations of billing irregularities brought to their attention through billing audits or third parties.

12. SEGMENT INFORMATION

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

Geographic information

As at September 30, 2020, $0.7 million of property, plant and equipment $0.1 of right of use asset, net, were held in the US [December 31, 2019 – $1.0 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 nine-month ended September 30, 2020 was $1.6 million [2019 – $0.09 million], all 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 7 ]. 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 September 30, 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 and 2020, 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 September 30, 2020 and December 31, 2019:

At September 30, 2020	Financial instrument maturation periods
	1 year or less 1 to 5 years 5 years or more Total $ $ $ $
Financial assets Cash Other receivable Financial liabilities Trade and other payable Convertible debenture

	1,792,971 - - 1,792,971
	77,278 - - 77,278


	2,553,655 - - 2,553,655
	- 779,688 - 779,688

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Note payable Long-term liabilities	432,256 480,000 1,100,000 2,012,256
	- 67,340 - 67,340
At December 31, 2019	Financial instrument maturation periods
	1 year or less 1 to 5 years 5 years or more Total $ $ $ $
Financial assets Cash Other receivable Financial liabilities Trade and other payable Note payable Long-term liabilities

	71,124 - - 71,124
	21,700 - - 21,700

	2,842,015 - - 2,842,015 1,357,799 480,000 1,105,884 2,943,683 - 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 is comprised of 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 September 30, 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 ($121,325) [December 31, 2019 – $81,217]. 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 and the impact 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 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 $94.3 million as at September 30, 2020 [December 31, 2019 – notes payable, warrants and common shares of $80.4 million].

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StageZero Life Sciences, Ltd.

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

	Three-month period ended Nine-month period ended
	September 30 September 30 2020 2019 2020 2019 as restated - Note 18 as restated - Note 18 $ $ $ $
Interest on note payable to HDL Interest on note payable to shareholder and director Interest on convertible debenture Interest costs on lease liability Broker warrants relating to convertible debenture financing Commitment fee Transaction costs relating to issuance of debt
	27,051 29,253 81,764 82,713
	3,125 5,480 19,144 32,411
	26,488 (139,925) 82,875 60,668
	24,047 28,441 76,170 88,117
	- - 134,147 -
	- - - 53,650
	22,757 56,147 509,703 88,066
	103,468 (20,604) 903,803 405,625

16. PRIOR PERIOD RESTATEMENTS

The Company identified the following restatements relating to its September 30, 2019 unaudited, condensed consolidated interim financial statements. Descriptions of each restatement and a summary of changes in each financial statement line item for the nine-month period ended September 30, 2019 are as follows.

Intangible Asset

As part of the Purchase Agreement with Cobalt (see note 6(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 right to its lead product ColonSentry. The allocation of the consideration paid should have included the fair value of the reacquired rights in the amount of $1,039,349, which had a useful life of 2 years. 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 6(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 to interest expense.

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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 rightof-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 six months period ended September 30, 2019.

Inventory

The Company has identified a cutoff error relating to inventory, which resulted in an understatement of Cost of good sold for the nine-month period ended September 30, 2019.

Condensed Consolidated Interim Statement of Changes in Shareholders’ Deficiency for the nine- month period ended September 30, 2019

		Impact of	Impact of
	Prior to restatement	convertible debenture and	right of use asset and lease	Impact of share-based compensation	Impact of goodwill	Impact of inventory		Subsequent to restatement
		warrants	liability
	$	$	$	$	$	$		$
Share capital	80,550,699	(1,073,108)	-	-	-		-	79,477,591
Contributed surplus	11,099,011	-	-	25,260	-		-	11,124,271
Accumulated other comprehensive income	1,304,968	-	-	-	-		-	1,304,968
Deficit	(97,927,882)	1,157,876	391,808	(25,260)	(1,039,349)		-	(97,442,807)
Total shareholders’ deficiency	(4,973,203)	84,768	391,808	-	(1,039,349)		-	(5,535,9757

Condensed Consolidated Interim Statement of Changes in Shareholders’ Deficiency for the nine- month period ended September 30, 2019

	Prior to restatement	Impact of convertible debenture and warrants	Impact of right of use asset and lease liability	Impact of share-based compensation	Impact of Inventory	Subsequent to restatement
	$	$	$	$	$	$
Cost of goods sold	832,558	-	(87,949)	-	102,394	847,003
General and administrative	3,056,707	-	335,356	25,260	-	3,417,323
Loss (gain) from revaluation of warrants	(769,507)	(53,851)	-	-	-	(823,358)
Change in fair value of conversion liabilities	78,240	(187,591)	-	-	-	(109,351)
Finance costs	1,215,612	(898,104)	88,117	-	-	405,625
Total gain (loss) and comprehensive loss	(4,324,880)	1,139,546	(335,524)	(25,260)	(102,394)	(3,648,513)
Basic and diluted loss per common share	(0.16)					(0.15)

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss for the three- month period ended September 30, 2019

Prior to restatement	Impact of convertible debenture and warrants	Impact of right of use asset and lease liability	Impact of Inventory	Subsequent to restatement

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	$	$	$	$	$
Cost of goods sold	275,750	-	46,203	54,983	376,936
General and administrative	1,192,862	(19,524)	323,380		1,496,718
Loss (gain) from revaluation of warrants	(3,638,025)	778,792		-	(2,859,233)
			-
Change in fair value of conversion liabilities	(169,883)	60,571	-	-	(109,312)
Finance costs	155,345	(204,390)	28,441	-	(20,604)
Total gain (loss) and comprehensive loss	2,206,919	(615,449)	(398,024)	(54,983)	1,138,463
Basic and diluted loss per common share	0.04				0.09

Condensed Consolidated Interim Statement of Cash Flows for the nine- month period ended September 30, 2019

	Prior to restatement		Impact of right of use asset and lease liability	Subsequent to restatement
	$	$	$	$
Cash used in operating activities	(4,204,823)	-	146,682	(4,058,141)
Cash provided in financing activities	4,523,871	-	(146,682)	4,377,190
Cash used in investing activities	(13,832)	-	-	(13,832)

Condensed Consolidated Interim Statement of Cash Flows for the three- month period ended September 30, 2019

	Prior to restatement		Impact of right of use asset and lease liability	Subsequent to restatement
	$	$	$	$
Cash used in operating activities	(2,836,874)	-	49,881	(2,786,993)
Cash used in financing activities	2,493,453	-	(49,901)	2,443,552
Cash used in investing activities	-	-	-	-

17. AMENDMENT

Subsequent to the approval of the condensed consolidated interim financial statements for the period ended September 30, 2020, on November 20, 2020, it came to the Company’s attention that in calculating the remeasurement of the warrant liability for the period then ended that some inputs were not correctly valued by the Company’s software and a few other factors were not correctly reflected in the valuations.

Management utilizes an external option tracking software for measures of volatility, it came to the Company’s attention that the stock consolidated in September was causing much higher historical volatility measures in this software than actually realized over the period. The result was to overstate the valuation of the warrants measured using the external option tracking software.

In valuing the warrants, the Company mistakenly included broker warrants in their revaluation; however, these warrants are accounted for under IFRS 2 and are accordingly not remeasured at FVTPL. The inclusion of these warrants in the remeasurement of the warrant liability served to overstate the warrant liability.

Further, in performing the remeasurement of the warrant liability, there were several exercises of the January 9, 2019, Lind warrants that had not been derecognized from the warrant liability, which resulted in an overstatement of the warrant liability and understatement of equity for the corresponding amount of the liability that was exercised, as remeasured at the exercise date.

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In valuing the Convertible Debenture Private Placement in February 2020, the valuation model utilizes a discount for lack of marketability to account for the hold period contained in the agreements. The assumption related to the hold period used in the original valuation methodology was that the restriction would apply after conversion; however, it was subsequently determined that the restriction is for four months from the issuance date of the convertible debenture itself. The resulting impact is to overstate the fair value of the convertible debenture and understate the value of share capital and warrants issued on conversion as well as the loss on remeasurement at FVTPL. The revaluation also impacts the results of previously reported quarterly financial information for three months ended June 30, 2020 and March 31, 2020, in the amount of $252,500 and $30,000, respectively, and $282,500 for the six months ended June 30, 2020, as increases to the fair value of the convertible debenture liability and a corresponding increase in loss as a result of the remeasurement to FVTPL.

Lastly, there was a clerical error that resulted in adjustments to the warrant liability pertaining to the period ended June 30, 2020, being booked again in the period ended September 30, 2020, which further overstated the warrant liability.

The impact of the foregoing are reflected in the following tables:

Condensed Consolidated Interim Statement of Financial Position as at September 30, 2020

		Impact of
	Prior to amendment	convertible debenture and	Other	Impact of reclassification	Subsequent to amendment
		warrants
	$	$	$	$	$
Assets
Current
Cash	1,792,971	-	-	-	1,792,971
Other receivables, net	77,278	-	-	-	77,278
Inventory	620,625	-	-	-	620,625
Short-term portion of prepaid expenses and deposits	152,886	-	-	-	152,886
Rent receivable	166,026	-	-	-	166,026
Total current assets	2,809,786	-	-	-	2,809,786
Non-current assets
Property, plant and equipment, net	712,853	-	-	-	712,853
Right of use property, net	116,028	-	-	-	116,028
Long-term portion rent receivable	393,980	-	-	-	393,980
Long-term portion of prepaid expenses deposits	25,000	-	-	-	25,000
Total non-current assets	1,247,861	-	-	-	1,247,861
Total assets	4,057,647	-	-	-	4,057,647
Liabilities and shareholders’ deficiency
Current
Trade and other payables	2,553,655	-	-	-	2,553,655
Short-term loan	28,543	-	-	-	28,543
Short-term portion of right of use liability	160,362	-	-	-	160,362
Fair value of convertible debenture	1,754,966	384,230	-	-	2,139,196
Short-term portion of warrant liability	1,170,946	(441,589)	-	-	729,357

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Short-term portion of notes payable	403,712	-	-	-	403,712
Total current liabilities	6,072,183	(57,358)	-	-	6,014,825
Non-current liabilities
Long-term portion of warrant liability	5,164,653	(2,152,721)	-	-	3,011,932
Long-term portion of right of use liability	483,516	-	-	-	483,516
Long-term portion of notes payable	564,290	-	-	-	564,290
Long-term liabilities	67,340	-	-	-	67,340
Total non-current liabilities	6,279,799	(2,152,721)	-	-	4,127,078
Total liabilities	12,351,983	(2,210,080)	-	-	10,141,903
Shareholders’ deficiency
Share capital	83,074,437	197,246	-	-	83,271,683
Contributed surplus	11,957,245	-	-	-	11,957,245
Accumulated other comprehensive income	1,304,968	-	-	-	1,304,968
Deficit	(104,630,986)	2,012,834	-	-	(102,618,152)
Total shareholders’ deficiency	(8,294,335)	2,210,080	-	-	(6,084,256)
Total liabilities and shareholders’ deficiency	4,057,647	-	-	-	4,057,647

Condensed Consolidated Interim Statement of Changes in Shareholders’ Deficiency for the period ended September 30, 2020

September 30, 2020
		Convertible
	Prior to amendment	debenture and	Other		Impact of reclassification	Subsequent to amendment
		warrants
	$	$	$		$	$
Share capital	83,074,437	197,246		-	-	83,271,683
Contributed surplus	11,957,245	-		-	-	11,957,245
Accumulated other comprehensive income	1,304,968	-		-	-	1,304,968
Deficit	(104,630,985)	2,012,834		-	-	(102,618,151)
	(8,294,335)	2,210,080		-	-	(6,084,256)

Condensed Consolidated Interim Statement of Loss and Comprehensive Loss for the nine-month period ended September 30, 2020

		Impact of
	Prior to amendment	convertible debenture and	Other		Impact of reclassification	Subsequent to amendment
		warrants
	$	$	$		$	$
Revenue	1,558,974	-		-	-	1,558,974
Cost of goods sold	1,411,751	-		-	-	1,411,751

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General and administrative	2,386,349	-	-	-	2,386,349
	3,798,101	-	-	-	3,798,101
Loss before the undernoted	(2,239,126)	-	-	-	(2,239,126)
Loss (Gain) from revaluations of warrants	3,016,449	(2,442,181)	-	-	574,268
Change in fair value of conversion debentures	1,195,510	429,347	-	-	1,624,857
Finance costs	903,803	-	-	-	903,803
	5,115,762	(2,012,834)	-	-	3,102,928

Total (loss) and comprehensive loss for the period	(7,354,888)	2,012,834	-	-	(5,342,054)
Condensed Consolidated Interim Statement of Loss and Comprehensive Loss for the				three-month period ended
September 30, 2020
		Impact of
	Prior to amendment	convertible debenture and	Other	Impact of reclassification	Subsequent to amendment
		warrants
	$	$	$	$	$
Revenue	1,464,155	-	-	-	1,464,155
Cost of goods sold	973,502	-	-	-	973,502
General and administrative	1,181,580	-	-	-	1,181,580
	2,155,082	-	-	-	2,155,082
Loss before the undernoted	(690,927)	-	-	-	(690,927)
Loss (Gain) from revaluations of warrants	2,671,823	(2,442,181)	-	-	229,641
Change in fair value of conversion debentures	1,178,726	146,847	-	-	1,325,574
Finance costs	103,468	-	-	-	103,468
	3,954,016	(2,295,334)	-	-	1,658,683

Total loss and comprehensive loss for the period	(4,644,943)	2,295,334	-	-	(2,349,609)

18. SHARE CONSOLIDATION

On September 18, 2020, a share consolidation of 8:1 was completed. All references to the common shares, warrants stock options, and earnings per share have been updated in the notes to reflect the 8:1 share consolidation.

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AI assistant

StageZero Life Sciences Ltd. — Interim / Quarterly Report 2020

44586_rns_2020-11-25_9c271fda-5995-4a81-becc-5a9738ffbf5c.pdf

NOTICE TO READER

StageZero Life Sciences, Ltd.

AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

StageZero Life Sciences, Ltd.

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

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

StageZero Life Sciences, Ltd.

AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

NOTES TO AMENDED AND RESTATED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

2. BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTIES

Going concern uncertainties

Statement of compliance

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

Cancer Testing

COVID Testing

Disaggregation of Revenue:

Significant accounting estimates and assumptions

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

4. OTHER RECEIVABLES

5. TRADE AND OTHER PAYABLES

6. NOTES PAYABLE

[a]Note payable to HDL

[b] Notes payable to shareholders and director

[c] Convertible debentures

[i] 2016 debenture

[ii] 2018 debenture

Convertible Debenture Private Placement in February 2020

[e] Short-term debt

7. WARRANT LIABILITY

[a] Warrants issued 2018

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

(ii) Warrants issued on June 7, 2018

(iii) Warrants issued to GEM

(iv) Warrants issued in Unit Private Placement on August 24, 2018

[b] Warrants issued 2019 and 2020

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

Warrants issued to Lind on January 9, 2019

Warrants issued to Lind on April 22, 2019

Warrants issued for Unit Private Placement on January 16, 2020

Warrants issued to Hampton Security Company on January 16, 2020

Warrants issued to Hampton Security Company on February 19, 2020

Warrants issued for Unit Private Placement on June 29, 2020

Warrants issued for Public Offering on June 29, 2020

Warrants issued to National Bank Financial Inc. on June 29, 2020

Warrants issued to Fidelity Clearing Canada ULC on June 29, 2020

Warrants issued due to the conversions for convertible debentures

[c] Financial liability accounting

8. SHARE CAPITAL

[a] Authorized

[b] Financings

[i] 2018 Unit Private placement

[ii] 2019 Unit Private placements in March and April

[iii] 2019 Unit Private placements in July

[iv] 2020 Unit Private placement in January

[v] 2020 Unit Private placement in June

[vi] 2020 Public Offering in June

[c] Weighted-average number of shares

[d] Employee stock option plan

9. EXPENSES BY NATURE

10. RELATED-PARTY TRANSACTIONS

11. COMMITMENTS AND CONTINGENCIES

12. SEGMENT INFORMATION

Geographic information

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

[a] Financial instruments

[b] Liquidity risk

[c] Credit risk

[d] Market risk

Foreign exchange rate risk

Interest rate risk

COVID-19 Pandemic in 2020

14. CAPITAL RISK MANAGEMENT

15. FINANCE COSTS

16. PRIOR PERIOD RESTATEMENTS

Intangible Asset

StageZero Life Sciences Ltd. Interim / Quarterly Report 2020