StageZero Life Sciences Ltd. — Audit Report / Information 2021

Apr 2, 2021

StageZero Life Sciences Ltd.

Years ended December 31, 2020 and 2019

Consolidated Financial Statements

[Expressed in US dollars, unless otherwise noted]

Independent Auditor's Report

To the Shareholders of StageZero Life Sciences Ltd.

Opinion

We have audited the consolidated financial statements of StageZero Life Sciences Ltd. and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as at December 31, 2020, and the consolidated statements of loss and comprehensive loss, consolidated statements of changes in shareholders' equity (deficiency) and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2020, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRS").

Basis for opinion

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

Other matter

The consolidated financial statements of the Company for the year ended December 31, 2019 were audited by another auditor who expressed an unmodified opinion on those statements on May 19, 2020.

Material uncertainty related to going concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a net loss during the year ended December 31, 2020 and had a cumulative deficit at December 31, 2020. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that material uncertainties exist that cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matter described below to be the key audit matter to be communicated in our report.

Key audit matter	How our audit addressed the key audit matter
Fair value measurement of derivatives The Company has derivatives of \$2,041,720 relating to convertible debentures recorded at fair value through profit or loss. The fair value of the debt component is considered level 3 for which quoted prices or observable inputs were are not available. Management uses valuation techniques that require significant non-observable inputs, requiring management's estimation and judgment. The fair value measurement of derivatives was a key audit matter because the valuation required the application of significant judgment and involvement of valuation	In this regard, our audit procedures included: - Evaluating the methodologies and significant inputs used by the Company and assessing their reasonableness. - Performing an independent valuation through the use of a valuation specialist, to assess the modelling assumptions and significant inputs used to estimate the fair value, which included independently corroborating significant inputs from external sources. - Tested the underlying data used in the valuation techniques
specialists in assessing the non-observable inputs used, including significant valuation adjustments. The audit effort involved the use

Other information

of professionals with specialized skill and knowledge in the field of valuation.

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

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

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially

inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis prior to the date of this auditor's report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

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

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

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

Auditor's responsibilities for the audit of the consolidated financial statements

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

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

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

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

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

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

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

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

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

The engagement partner of the audit resulting in this independent auditor's report is Soheil Talebi.

McGovern Hurley LLP

Chartered Professional Accountants Licensed Public Accountants

Toronto, Ontario April 1, 2021

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

[Expressed in US dollars]

	Notes	December 31, 2020	December 31, 2019
		\$	\$
ASSETS
Current
Cash		6,597,187	71,124
Other receivables, net		73,955	21,700
Inventory	4	354,995	87,739
Short-term portion of prepaid expenses and deposits		100,112	46,321
Short-term portion rent receivable		96,113	149,073
Total current assets		7,222,362	375,957
Non-current assets
Property, plant and equipment, net	5	716,322	899,012
Right of use property, net	5	544,018	145,040
Long-term portion rent receivable		-	519,751
Long-term portion of prepaid expenses and deposits		25,000	25,000
Total non-current assets		1,285,340	1,588,803
Total assets		8,507,702	1,964,760
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current
Trade and other payables	6, 11	2,522,141	2,842,015
Contract liability		224,847	-
Short-term loan	7[e]	28,543	-
Short-term portion of right of use liability Fair value convertible debenture	20 7[d]	184,854 2,041,720	153,180 -
Short-term portion of warrant liability	8	234,514	-
Conversion liability		-	90,000
Short-term portion of notes payable	7	348,390	1,133,524
Total current liabilities		5,585,009	4,218,719
Non-current liabilities
Long-term portion of warrant liability	8	3,121,970	997,233
Long-term portion of right of use liability	20	415,370	600,229
Long-term portion of notes payable	7	551,489	572,526
Long-term liabilities		67,340	67,340
Total non-current liabilities		4,156,169	2,237,328
Total liabilities		9,741,178	6,456,047
Shareholders' deficiency
Share capital	9[b]	89,332,865	80,283,079
Contributed surplus	9[d]	12,268,731	11,196,763
Accumulated other comprehensive income		1,304,968	1,304,968
Deficit		(104,140,040)	(97,276,097)
Total shareholders' deficiency		(1,233,476)	(4,491,287)
Total liabilities and shareholders' deficiency		8,507,702	1,964,760
Commitments and contingencies	12
Basis of presentation and going concern uncertainties	2
Subsequent event	21

See accompanying notes to the consolidated financial statements.

Approved by the Company's board of directors and authorized for issue on April 1, 2021: (signed) James R. Howard-Tripp, Director (signed) Garth MacRae, Director

CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

[Expressed in US dollars]

		Year ended
		2020	2019
	Notes
REVENUES	19	4,151,810	138,704
Cost of goods sold	10	3,456,255	1,099,615
Gross profit		695,555	(960,911)
EXPENSES
General and administrative	10	4,432,075	4,179,328
Loss before the undernoted		(3,736,520)	(5,140,239)
Loss/(gain) from revaluation of warrants	8	1,395,837	(2,434,347)
Change in fair value of conversion liabilities		-	(27,288)
Change in fair value of conversion debenture	7[c]	1,067,284	-
Finance costs	17	664,302	803,198
		3,127,423	(1,658,437)
Total loss and comprehensive loss for the period		(6,863,943)	(3,481,802)
Basic and diluted loss per common share	9[c]	(0.15)	(0.16)

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)

[Expressed in US dollars]

			Contributed surplus	Accumulated other comprehensive income
	Share capital				Deficit	Total
	Shares	Amount
	#	\$	\$	\$	\$	\$
	[note 9]		[note 9]
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	-	-	-	-	(6,863,943)	(6,863,943)
Share-based compensation	-	-	636,740	-	-	636,740
Issuance of broker warrants	-	-	467,690	-	-	467,690
Issuance of common shares with unit financing	3,384,104	859,643	-	-	-	859,643
Issuance of common shares with warrant exercise	2,660,809	1,013,868	-	-	-	1,013,868
Issuance of common shares with option exercise	237,865	78,420	(32,462)	-	-	45,958
Issuance of common shares with public offering	17,515,576	7,956,787	-	-	-	7,956,787
Conversion of structured note payable and convertible liability	2,931,868	676,580	-	-	-	676,580
Share issuance costs	-	(1,535,512)	-	-	-	(1,535,512)
Balance at December 31, 2020	60,716,595	89,332,865	12,268,731	1,304,968	(104,140,040)	(1,233,476)

	Share capital		Contributed surplus		Deficit	Total
	Shares	Amount
	#	\$	\$	\$	\$	\$
	[note 9]		[note 9]
Balance at January 1, 2019	19,204,860	76,819,572	10,455,311	1,304,968	(93,794,295)	(5,214,444)
Net loss for the period	-	-	-	-	(3,481,802)	(3,481,802)
Share-based compensation	-	-	741,452	-	-	741,452
Issuance of common shares with Unit financing	7,327,818	1,602,752	-	-	-	1,602,752
Conversion of convertible note payable	4,877,200	1,270,131	-	-	-	1,270,131
Conversion of structured note payable and convertible liability	2,576,495	590,624	-	-	-	590,624
Balance at December 31, 2019	33,986,373	80,283,079	11,196,763	1,304,968	(97,276,097)	(4,491,287)

See accompanying notes to the consolidated financial statements.

CONSOLIDATED STATEMENTS OF

CASH FLOWS

[Expressed in US dollars]

		Year ended December 31
		2020	2019
	Notes	\$	\$
OPERATING ACTIVITIES
Net (loss) for the period		(6,863,943)	(3,481,902)
Non-cash adjustments
Share-based compensation	9[d]	636,740	741,452
Depreciation	10	255,009	298,087
Amortization of right of use property		(38,678)	-
Loss on disposal of property, plant and equipment Change in fair value of conversion liability		- -	28,114 (27,288)
Change in fair value of convertible debenture		1,067,284	-
Non-cash interest expense		110,460	546,391
Non-cash change in interest on lease liability		98,770	115,112
Foreign exchange		354,573	-
(Gain)/loss on revaluation of warrants		1,395,837	(2,434,247)
		(2,983,948)	(4,214,281)
Changes in non-cash working capital balances related to operations
Other receivables		(52,255)	23,402
Contract Liability		224,847	-
Prepaid expenses and deposits		(53,791)	44,291
Inventory		(267,256)	23,219
Trade and other payables		(144,427)	(467,500)
Rent receivable		212,411	-
Cash used in operating activities		(3,064,419)	(4,590,869)
FINANCING ACTIVITIES
Short-term loan proceeds		28,543	-
Payment of principal to Health Diagnostic Laboratories Inc.	7[a]	(120,000)	(110,000)
Repayment of lease liability		(251,955)	(196,582)
Proceeds from issuance of structured/convertible notes payable	7[c]	891,845	931,699
Proceeds from issuance of units		533,182	3,940,574
Proceeds from issuance of notes payable		-	60,000
Proceeds from stock option exercise		45,955	-
Proceeds from warrant exercise		614,366	-
Proceeds from public offering		9,018,149	-
Payment of notes payable and interest		(29,464)	(36,550)
Cash share issue costs		(1,067,820)	-
Cash provided by financing activities		9,662,801	4,589,141
INVESTING ACTIVITIES
Purchase of property, plant and equipment		(72,319)	(44,376)
Proceeds from disposal of property, plant and equipment		-	11,000
Cash used in investing activities		(72,319)	(33,376)
Net decrease in cash during the period		6,526,063	(35,104)
Cash, beginning of period		71,124	106,228
Cash, end of period		6,597,187	71,124

See accompanying notes to the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in US dollars unless otherwise noted]

December 31, 2020 and 2019

1. NATURE OF OPERATIONS AND GOING CONCERN

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. During the year-ended 2020, the Company offered various COVID-19 tests, such as polymerase chain reaction ("PCR") tests and antibody tests. PCR tests can detect COVID-19 nucleic acid from patient nasopharyngeal swab specimens or saliva, and are used to diagnose an active COVID-19 infection. Antibody tests detect whether or not the patient has developed COVID-19 antibodies, indicating that have had the virus in the past.

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.

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. The Company reported a consolidated net loss of \$6.9 million for the year ended December 31, 2020 [December 31, 2019 – 3.5 million]. As at December 31, 2020, the Company had working capital of \$1.6 million [December 31, 2019 – (\$3.8) million] and a deficit of \$104 million [December 31, 2019 – \$97.3 million].

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. As at December 31, 2020 and 2019 the financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

2. BASIS OF PRESENTATION

These consolidated financial statements have been prepared on a historical cost basis, except for the revaluation of certain financial instruments. The Company's principal accounting policies outlined below have been applied consistently to all years presented in these consolidated financial statements.

Statement of compliance

These consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB) in effect on December 31, 2020.

The consolidated financial statements for the years ended December 31, 2020 and 2019, were authorized for issue by the Company's Board of Directors (the "Board") on March 31, 2021 and are expressed in US dollars, with Canadian dollar figures identified as "Cdn\$".

Functional and Presentation Currency

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

These consolidated financial statements incorporate the financial statements of the Company and its wholly owned subsidiary companies, StageZero Life Sciences Holdings and, effective March 15, 2016, StageZero Life Sciences Inc. Subsidiaries are those entities over which the Company has control. Control is achieved when the Company is exposed to or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries, including entities that the Company controls, are included in the consolidated financial statements from the date that control commences until the date that control ceases. The financial statements of the subsidiaries are prepared for the same reporting periods as the Company, using consistent accounting policies. Intercompany transactions and balances have been eliminated in full.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, deposits in banks and highly liquid investments with an original maturity at acquisition of three months or less.

Inventory

Inventory, consisting primarily of purchased laboratory supplies, are stated at the lower of cost (first-in, first-out) and net realizable value. Cost includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to its present condition. An assessment is made of the net realizable value of inventory at each reporting period. Net realizable value is the estimated selling price less the estimated cost of completion and the estimated costs necessary to make the sale.

Property, plant and equipment

Property, plant and equipment are stated at cost, net of any accumulated depreciation and any impairment losses determined. Cost includes the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary and, where relevant, the present value of all dismantling and removal costs.

An item classified as property, plant or equipment (including any significant part initially recognized) is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the consolidated statements of loss and comprehensive loss when the asset is derecognized.

[i] Depreciation

The estimated useful lives and the methods of depreciation are as follows:

Asset	Method	Period
Office furniture, equipment and
software	Straight-line	1 to 7 years
Laboratory equipment	Straight-line	10 years
Leasehold improvements	Straight-line	Shorter of useful life or remaining lease term
Right of use assets	Straight-line	Shorter of useful life or remaining lease term

The estimated useful lives most closely reflect the expected pattern of consumption of the future economic benefits embodied in the asset. Where major components of property, plant and equipment have different useful lives, the components are recognized and depreciated separately.

Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting period end and adjusted, if appropriate.

[ii] Subsequent costs

The cost of replacing part of an item classified as property, plant and equipment is recognized when the cost is incurred if it is probable that the future economic benefits will flow to the Company and the cost of the part can be measured reliably. All other repair and maintenance costs are recognized as an expense when incurred.

[iii] Impairment

The Company's property, plant and equipment are reviewed for an indication of impairment at the date of each consolidated statement of financial position. If indication of impairment exists, the asset's recoverable amount is estimated.

An impairment loss is recognized when the carrying amount of an asset or its cash-generating unit ("CGU") exceeds its recoverable amount. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The recoverable amount is the greater of the asset's fair value less costs to sell or value in use. In assessing fair value less costs to sell for the CGU, recent market transactions are taken into account. Value in use is determined by discounting estimated future cash flows using a pre-tax discount rate that reflects the current market assessment of the time value of money and the specific risks of the asset.

Provisions

Provisions are recorded when a present legal or constructive obligation exists as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

The amount recognized as a provision is management's best estimate of the consideration required to settle the present obligation at the dates of the consolidated statements of financial position, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using an estimate of the cash flows required to settle the present obligation and the effect is material, its carrying amount is calculated from the present value of those cash flows.

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:

• 1. Identify the contract(s) with a customer
• 1. Identify the performance obligations in the contract
• 1. Determine the transaction price
• 1. Allocate the transaction price to the performance obligations in the contract
• 1. 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 which 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.

Leases

At the inception of a contract, we assess whether a contract is, or contains a lease by determining whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we assess whether:

• the contract involves the use of an identified asset;

• we have the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use; and

• we have the right to direct the use of the identified asset.

A right-of-use asset and corresponding lease liability are recognized on the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The rightof-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use asset is reduced by impairment losses and adjusted for certain remeasurements of the lease liabilities, if any.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date. The lease payments are discounted using the implicit interest rate in the lease. If the rate cannot be readily determined, our incremental rate of borrowing is used. The lease liability is subsequently measured at amortized cost using the effective interest method. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in our estimate of the amount expected to be payable under a residual value guarantee, if we change our assessment of whether we will exercise a purchase, extension or termination option, or if the underlying lease contract is amended.

We have elected not to separate fixed non-lease components from lease components and instead account for each lease component and associated fixed non-lease components as a single lease component.

We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less. We recognize the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recorded if it is more likely than not that the asset will be realized.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of loss and comprehensive loss in the period that includes the enactment date. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions, where appropriate.

Foreign currency transactions

Foreign currency transactions are translated into US dollars using exchange rates in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into US dollars using the exchange rate in effect at the measurement date. Non-monetary assets and liabilities denominated in foreign currencies are translated into US dollars using the historical exchange rate or the exchange rate in effect at the measurement date for items recognized at fair value through foreign exchange gain or loss. Gains and losses arising from foreign exchange are included in the consolidated statements of loss.

Loss per share

Basic loss per share is computed by dividing loss attributable to common shareholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share are computed by dividing the net income attributable to common shareholders (after adjusting for interest on the convertible debentures) by the weighted-average number of common shares outstanding during the year plus the weighted-average number of common shares that would be issued on conversion of all the dilutive potential shares into common shares. When there is a loss, inclusion of the Company's stock options, convertible debentures and the warrants in the computation of diluted loss per share would have an antidilutive effect on the loss per share. Consequently, the Company has excluded these from the calculation of diluted loss per share. Consequently, there is no difference between basic loss per share and diluted loss per share.

Common shares

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

Share-based payment transactions

Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured and are recorded at the date the goods or services are received.

The Company has established a stock option plan to grant non-transferable equity settled options to purchase Common Shares to directors, officers, employees of and consultants to the Company. The number of Common Shares reserved for issuance will not exceed 10% of the total issued and outstanding Common Shares of the Company. The Company has the ability to grant for a maximum period of ten years from the date of grant.

Stock options vest over periods ranging from immediate to two years. The fair value of each option is measured at the date of grant using the Black-Scholes option pricing model and recorded as a compensation expense in the period the options are vested, or the performance is complete. The number of awards expected to vest is reviewed at least annually, with any impact being recognized immediately.

Any consideration paid on exercise of stock options is credited to share capital. On expiry, any amount related to the initial value of the stock option remains in contributed surplus.

Other comprehensive loss

Other comprehensive loss is the change in the Company's net assets that results from transactions, events and circumstances from sources other than the Company's shareholders and includes items that would not normally be included in loss.

Financial instrument

Recognition and initial measurement

The Company recognizes a financial asset or financial liability on the consolidated statement of financial position when it becomes party to the contractual provisions of the financial instrument. Financial assets are initially measured at fair value, and are derecognized either when the Company has transferred substantially all the risks and rewards of ownership of the financial asset, or when cash flows expire. Financial liabilities are initially measured at fair value and are derecognized when the obligation specified in the contract is discharged, cancelled or expired.

A write-off of a financial asset (or a portion thereof) constitutes a derecognition event. Write-off occurs when the Company has no reasonable expectations of recovering the contractual cash flows on a financial asset.

Classification and measurement

The Company determines the classification of its financial instruments at initial recognition. Financial assets are classified according to the following measurement categories:

• i) amortized cost; or
• ii) those to be measured subsequently at fair value, either through profit or loss ("FVTPL") or through other comprehensive income ("FVTOCI").

The classification and measurement of financial assets after initial recognition at fair value depends on the business model for managing the financial asset and the contractual terms of the cash flows. Financial assets that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding, are generally measured at amortized cost at each subsequent reporting period. All other financial assets are measured at their fair values at each subsequent reporting period, with any changes recorded through profit or loss or through other comprehensive income (which designation is made as an irrevocable election at the time of recognition).

After initial recognition at fair value, financial liabilities are classified and measured at either:

• i) amortized cost; or
• ii) FVTPL, if the Company has made an irrevocable election at the time of recognition, or when required (for items such as instruments held for trading or derivatives).

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

Transaction costs that are directly attributable to the acquisition or issuance of a financial asset or financial liability subsequently measured at amortized cost or FVTOCI are included in the fair value of the instrument on initial recognition. Transaction costs for financial assets and financial liabilities classified at fair value through profit or loss are expensed in profit or loss.

The Company classifies its financial instruments by category according to their nature and their characteristics. Management determines the classification when the instruments are initially recognized, which is normally the date of the transaction. The Company classifies its financial assets and financial liabilities as outlined below:

Assets / liabilities	Category	Measurement
Assets
Cash	FVTPL	Amortized cost
Other receivables	AMC	Amortized cost
Rent receivable	FVTPL	Amortized cost
Liabilities
Trade and other liabilities	Other financial liabilities	Amortized cost
Warrants liability	FVTPL	Fair value
Due to related parties	Other financial liabilities	Amortized cost
Short-term loan payable	Other financial liabilities	Amortized cost
Convertible debenture	FVTPL	Fair value

Impairment of financial assets

The Company assesses all information available, including on a forward-looking basis the expected credit losses associated with any financial assets carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. To assess whether there is a significant increase in credit risk, the Company compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition based on all information available, and reasonable and supportive forward-looking information.

Derivative financial instruments

An embedded derivative is separated from the host contract and recognized separately if the economic characteristics and risks of the embedded derivative are not closely related to those of the host, if a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and if the combined instrument is not measured at fair value, with changes in fair value recognized in profit or loss.

The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm's-length transaction between knowledgeable, willing parties who are under no compulsion to act. Fair values are determined based on prevailing market rates for instruments with similar characteristics and risk profiles.

The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company's valuation techniques. A level is assigned to each fair value measurement based on the lowest-level input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

Level 1 – unadjusted quoted prices as at the measurement date for identical assets or liabilities in active markets.

Level 2 – observable inputs other than quoted prices included in level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 – significant unobservable inputs that are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Warrant liability

The Company's common share warrants other than warrants issued as compensation are recorded in accordance with IFRS 2, Share-Based Payments, are considered to be derivative liabilities due to the warrants being exercisable in a currency (Cdn\$) other than the functional currency of the Company (US dollar). Accordingly, the warrants are measured at fair value at each reporting date, with changes in fair value included in the consolidated statements of loss and comprehensive loss for the applicable reporting period.

Significant accounting estimates and assumptions

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

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

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

[i] Share-based compensation

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

[ii] Fair value of warrants

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

[iii] Fair value of convertible debt and conversion liabilities

In determining the fair values of the structured notes, convertible debt and conversion liabilities, the Company used a Black-Scholes model with the following assumptions: volatility rate, risk-free rate and the remaining expected life. The inputs used in the binomial lattice model are taken from observable markets. In particular, changes in the fair value of the structured notes and conversion liabilities can have a material impact on the reported loss and comprehensive loss for the applicable reporting period.

[iv] Functional currency

Determining the appropriate functional currencies for entities in the Company requires analysis of various factors, including the currencies and country-specific factors that mainly influence sales prices, and the currencies that mainly influence labour, materials, and other costs of providing goods or services.

[v] Useful life of property, plant and equipment and intangible assets with finite useful lives

The Company employs significant estimates to determine the estimated useful lives of property, plant and equipment and intangible assets with finite useful lives, considering industry trends such as technological advancements, past experience, expected use and review of asset useful lives. Components of an item of property, plant and equipment may have different useful lives. The Company makes estimates when determining depreciation methods, depreciation rates and asset useful lives, which requires taking into account industry trends and company-specific factors. The Company reviews depreciation methods, useful lives and residual values annually or when circumstances change and adjusts its depreciation methods and assumptions prospectively.

[vi] Provisions

Provisions are recognized when the Company has a present obligation, legal or constructive as a result of a previous event, if it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the obligation. The amount recognized is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligations. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate of the expected future cash flows.

[vii] Contingencies

Contingencies can be either possible assets or possible liabilities arising from past events, which, by their nature, will be resolved only when one or more uncertain future events occur or fail to occur. The assessment of the existence and potential impact of contingencies inherently involves the exercise of significant judgment and the use of estimates regarding the outcome of future events.

[viii] Inventory obsolescence

Inventories are stated at the lower of cost and estimated net realizable value. The Company estimates net realizable value as the amount at which inventories are expected to be sold, taking into consideration fluctuations in retail prices less estimated costs necessary to make the sale. Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage or declining selling prices.

[ix] Income and other taxes

The calculation of current and deferred income taxes requires the Company to make estimates and assumptions and to exercise judgment regarding the carrying values of assets and liabilities which are subject to accounting estimates inherent in those balances, the interpretation of income tax legislation across various jurisdictions, expectations about future operating results, the timing of reversal of temporary differences and possible audits of income tax filings by the tax authorities. In addition, when the Company incurs losses for income tax purposes, it assesses the probability of taxable income being available in the future based on its budgeted forecasts. These forecasts are adjusted to take into account certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses.

When the forecasts indicate that sufficient future taxable income will be available to deduct the temporary differences, a deferred tax asset is recognized for all deductible temporary differences. Changes or differences in underlying estimates or assumptions may result in changes to the current or deferred income tax balances on the consolidated statements of financial position, a charge or credit to income tax expense included as part of net income (loss) and may result in cash payments or receipts. Judgment includes consideration of the Company's future cash requirements in its tax jurisdictions. All income, capital and commodity tax filings are subject to audits and reassessments. Changes in interpretations or judgments may result in a change in the Company's income, capital or commodity tax provisions in the future. The amount of such a change cannot be reasonably estimated.

[x] Discount rate used in adoption of IFRS 16

The determination of the Company's lease liabilities, right-of-use assets, and net investment in leases depends on certain assumptions, which include the selection of the discount rate. The discount rate is set by reference to the Company's incremental borrowing rate. Significant assumptions are required to be made when determining which borrowing rates to apply in this determination. Changes in the assumptions used may have a significant effect on the Company's consolidated financial statements.

[ix] COVID 19

The Company's operations could be significantly adversely affected by the effects of a widespread global outbreak of a contagious disease, including the recent outbreak of respiratory illness caused by COVID-19. The Company cannot accurately predict the impact COVID-19 will have on its operations and the ability of others to meet their obligations with the Company, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and the length of travel and quarantine restrictions imposed by governments of affected countries. In addition, a significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could further affect the Company's operations and ability to finance its operations. During 2020, the Company did experience an increase in revenues related to expanded service offerings related to COVID-19 and is no guarantee of future financial performance.

Accounting standards, amendments and interpretations not yet adopted or effective

Certain new standards, amendments and interpretations have been issued but are not yet effective for the Company's consolidated financial statements for the periods presented. The Company has not early adopted any standards, amendments, or interpretations, which are issued but not yet effective.

IAS 1 Presentation of Financial Statements ("IAS 1") was amended in January 2020 to address inconsistences with how entities apply the standard over classification of current and non-current liabilities. The amendment serves to address whether, in the statement of financial position, debt and other liabilities with an uncertain settlement should be classified as current or non-current. This amendment is effective on January 1, 2023. Earlier adoption is permitted. The Company will adopt this amendment as of the effective date and is currently assessing the impact of adoption.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets was amended in May 2020 to clarify the costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. The amendment is effective January 1, 2022. Early adoption is permitted. The Company will adopt this amendment as of the effective date and is currently assessing the impact of adoption.

IAS 16 Property, Plant and Equipment was amended in May 2020 to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss. The amendment is effective January 1, 2022. Early adoption is permitted. The Company will adopt this amendment as of their effective date and expects the impact will not be material to the financial statements.

Newly adopted standards

The Company has adopted amendments to IAS 1 and IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") on January 1, 2020. Other recently adopted standards effective on January 1, 2020 that do not have a material effect on the Company's consolidated financial statements have been omitted.

IAS 1 and IAS 8

In October 2018, the IASB refined the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The Company has applied IAS 1 and IAS 8 with an initial application date of January 1, 2020, in accordance with the transitional provisions specified in IAS 1 and IAS 8. This adoption does not have a material effect on the Company's consolidated financial statements.

4. INVENTORY

Inventory comprises of lab supplies and test kits. During the year the Company expensed \$1,315,120 (2019 - \$2,192) of inventory.

5. PROPERTY, PLANT AND EQUIPMENT AND RIGHT OF USE ASSET

	Office, Furniture, Equipment,	Laboratory Equipment	Leasehold Improvements	Right of Use Asset	Total
	And Software \$	\$	\$	\$	\$
COST
Balance at January 1, 2019	373,075	1,538,037	146,284	-	2,057,396
Additions	17,641	7,118	119,618	183,721	328,098
Sold and abandoned assets	(1,823)	(52,650)	-	-	(54,473)
Balance at December 31, 2019	388,893	1,492,505	265,902	183,721	2,331,021
Additions	1,783	63,495	7,041	437,659	509,978
Balance at December 31, 2020	390,676	1,556,000	272,943	621,380	2,840,999
ACCUMULATED DEPRECIATION
Balance at January 1, 2019	367,143	593,710	28,029	-	988,882
Depreciation for the year	1,440	229,257	28,709	38,681	298,087
Balance at December 31, 2019	368,583	822,967	56,738	38,681	1,286,969
Depreciation for the year	1,416	225,371	28,222	38,681	293,690
Balance at December 31, 2020	369,999	1,048,338	84,960	77,362	1,580,659
NET CARRYING AMOUNTS
At January 1, 2019	5,932	944,327	118,255	-	1,068,514
At December 31, 2019	20,310	669,538	209,164	145,040	1,044,052
At December 31, 2020	20,677	507,662	187,983	544,018	1,260,340

6. TRADE AND OTHER PAYABLES

The Company's exposure to liquidity and currency risks related to trade and other payables is presented in note 14.

	At December 31, 2020	At December 31, 2019
	\$	\$
Trade payables	1,253,471	1,352,900
Accrued liabilities	1,268,670	1,489,115
	2,522,141	2,842,015

7. NOTES PAYABLE AND CONVERTIBLE DEBENTURES

Notes payable consists of:

	At December 31, 2020 \$	At December 31, 2019 \$
Note payable to HDL [a]	671,489	692,525
Note payable to shareholders and a director [b]	228,390	684,897
Convertible debenture [c]	-	328,628
Total	899,879	1,706,050
Less current portion of notes payable	(348,390)	(1,133,524)
Long-term portion of notes payable	551,489	572,526
Convertible debentures held at fair value consists of:	At December 31, 2020 \$	At December 31, 2019 \$
Convertible debenture [d]	2,041,720	-
Short-term loans consists of:
	At December 31, 2020 \$	At December 31, 2019 \$

[a] Note payable to HDL

In May 2015, StageZero Life Sciences Holdings issued a note payable in the amount of \$1.0 million to Health Diagnostic Laboratorijes (HDL) to purchase additional shares of StageZero Life Sciences Inc. increasing its share from 33⅓% to 50% and in March 2016, StageZero Life Sciences Holding assumed an additional \$1.0 million note payable to HDL to own 100% of StageZero Life Sciences Inc. Effective March 1, 2017, the Company agreed to pay principal of \$2,095,843.

On May 4, 2016, StageZero Life Sciences Holding received a notice of default from HDL for missing two monthly payments under the terms of the Notes that were renegotiated in March 2016. On August 15, 2016, Richard Arrowsmith, as Liquidating Trustee of the HDL Liquidating Trust (the "Liquidating Trust"), filed a Complaint against StageZero Life Sciences Holding, in the United States Bankruptcy Court, Eastern District of Virginia, Richmond Division (the "Bankruptcy Court"). The parties entered into negotiations and on March 1, 2017 reached a settlement agreement pursuant to which StageZero Life Sciences Holding would pay the Liquidating Trust an aggregate settlement amount of \$2,095,843, to be paid in a \$25,000 upfront payment and monthly payments of \$15,000 beginning March 1, 2017 to July 1, 2017, followed by monthly payments of \$10,000 until the outstanding debt has been paid in full. The Bankruptcy Court granted the Liquidating Trust's motion to approve the settlement agreement and, on April 27, 2017, the action against StageZero Life Sciences Holding was dismissed with prejudice by the Bankruptcy Court.

During the year ended December 31, 2020, the Company paid \$120,000 [2019 - \$110,000]. The note payable was initially recognized at fair value, and subsequently 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. The loan is unsecured and 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 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 remained 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.

Each Holder converted their convertible notes for 441,594 common shares and 220,797 warrants during the year ended December 31, 2019.

On October 25, 2018, the Company entered into agreements with the same two 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 are due on demand 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 Company (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\$.

During the period from October 3, 2018 until December 31, 2019, the Company issued additional demand note agreements with the above director for loans totaling \$440,000 to the Company. The Notes were payable on demand with simple interest earned at 5% per annum and were 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 (note 9(b) [iv]). On October 28, 2020, \$50,000 of the notes payable were converted to 156,335 common shares. As at December 31, 2020, the convertible notes payable balance is \$228,390 including accrued interest payable, which approximates the fair value. The notes are secured by a security interest in the Company's patents and trademarks

[c] Convertible debentures

[i] 2016 Debentures

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 Company were issued, to holders of the 2016 Debentures, on conversion of \$464,766 (Cdn\$621,000), fixed the price of Cdn \$0.29088 per share, being 90% of the VWAP of the Common Shares on the TSX for the five consecutive trading days immediately preceding (but not including) December 23, 2019.

[ii] 2018 Debentures

On June 8, 2018, the Company entered into a 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 Cdn\$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.

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. 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\$0.768 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. 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\$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\$0.2752 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, as of June 30, 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	Risk-free	Conversion price	Foreign exchange rate
	(mm/dd/yyyy)	interest rate	discount
Issued on:
7-Jun-18	7/12/2020	1.71%	15%	1.2972
9-Oct-18	7/12/2020	2.10%	15%	1.2936
5-Nov-18	7/12/2020	2.14%	15%	1.3096
31-Dec-18	7/12/2020	1.87%	15%	1.3642
29-Jan-19	7/12/2020	1.84%	15%	1.3266
22-Feb-19	7/12/2020	1.78%	15%	1.3173
11-Mar-19	7/12/2020	1.66%	15%	1.3414
11-Apr-19	7/12/2020	1.63%	15%	1.3378
9-May-19	7/12/2020	1.61%	15%	1.3483
4-Jun-19	7/12/2020	1.42%	15%	1.3414
26-Jun-19	7/12/2020	1.51%	15%	1.313
30-Jun-19	7/12/2020	1.52%	15%	1.3087
13-Aug-19	7/12/2020	1.58%	15%	1.3236
5-Sep-19	7/12/2020	1.62%	15%	1.3228
30-Sep-19	7/12/2020	1.72%	15%	1.3243
10-Oct-19	7/12/2020	1.68%	15%	1.3294
20-Nov-19	7/12/2020	1.65%	15%	1.3304
10-Dec-19	7/12/2020	1.74%	15%	1.3233
31-Dec-19	7/12/2020	1.74%	15%	1.2988
13-Jan-20	7/12/2020	1.66%	15%	1.3048
5-Feb-20	7/12/2020	1.66%	15%	1.3289
11-Mar-20	7/12/2020	1.66%	15%	1.3745
31-Mar-20	7/12/2020	0.18%	15%	1.4187
15-Apr-20	7/12/2020	0.18%	15%	1.4086
8-May-20	7/12/2020	0.18%	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	Risk-free	Conversion price
	(mm/dd/yyyy)	interest rate	discount	Foreign exchange rate
9-Jan-19	7/9/2021	1.65%	15%	1.3221
10-Jan-19	7/9/2021	1.65%	15%	1.3234
22-Feb-19	7/9/2021	1.65%	15%	1.3173
11-Mar-19	7/9/2021	1.65%	15%	1.3414
1-Apr-19	7/9/2021	1.67%	15%	1.3337
22-May-19	7/9/2021	1.67%	15%	1.3410
4-Jun-19	7/9/2021	1.67%	15%	1.3414
26-Jun-19	7/9/2021	1.67%	15%	1.3130
30-Jun-19	7/9/2021	1.67%	15%	1.3087

The risk-free is based on rates from the Bank of Canada for Bonds with term to maturity comparable to the expected term of the instruments.

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 December 31, 2020, the balance of the CSFA is Nil [2019 - 328,628].

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 into 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 Cdn\$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. \$1,030,000 of principal amount of the Convertible Debentures are outstanding as at December 31, 2020.

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. The fair value of the convertible debenture was calculated using a combination of discounted cash flows using a discount rate of 35% and option pricing models using the following inputs:

Measurement Date	Expected volatility Conversion Option/Unit Warrant*	Risk-free interest rate Conversion Option/Unit Warrant
19-Feb-20**	160%/146%	1.56%/1.48%
6-Jul-20	158%/171%	0.28%/0.26%
9-Jul-20	158%/170%	0.28%/0.26%
28-Sep-20	164%/154%	0.19%/0.24%
29-Sep-20	163%/154%	0.20%/0.23%
27-Oct-20	163%/150%	0.15%/0.19%
31-Dec-20	115%/148%	0.11%/0.16%

* Where the transaction price is fair value and the valuation model uses unobservable inputs the valuation model is calibrated such that the result of the valuation technique equals the transaction price. The indicated volatility is prior to the calibration adjustment.

** On initial recognition there is a discount for lack of marketability ("DLOM") as a result of a four month statutory hold period was determined using a Finnerty Model with initial term of 4 mos. and volatility of 130%, in subsequent measurement periods, the hold period is expired and accordingly no DLOM is applied.

7. NOTES PAYABLE AND CONVERTIBLE DEBENTURES (continued) [d] Convertible debentures

Fair value of convertible debenture

	\$
At January 1, 2020	-
Issuance during the period	891,845
Revaluation during the period	1,067,284
Less: Conversion	(236,665)
Foreign exchange	319,257
At December 31, 2020	2,041,720

[d] Short-term debt

During 2020, the Company received a Cdn\$40,000 Canada Emergency business Account ("CEBA") loan from the Government of Canada via its commercial bank. The loan is interest free until December 31, 2022, with a maturity date of December 31, 2025.

If Cdn\$30,000 of the loan has been repaid by December 31, 2022, the remaining balance (maximum Cdn\$10,000) will be forgiven. Should the loan not be repaid by December 31, 2022, interest at 5% will be charged per annum commencing on January 1, 2023 until maturity on December 31, 2025. The loan is unsecured.

8. WARRANT LIABILITY

	#	\$
At January 1, 2019	3,431,004	419,905
January 09, 2019 [a]	2,361,164	207,321
March 25, 2019 [a]	1,250,000	745,200
April 23, 2019 [a]	319,094	169,042
April 23, 2019 [a]	619,233	392,518
July 10, 2019 [a]	1,448,596	1,056,810
July 24, 2019 [a]	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 [b]	1,053,775	166,470
January 16, 2020 [b]	27,738	-
February 19, 2020 [b]	202,343	-
June 29, 2020 [b]	8,272,010	483,676
June 29, 2020 [b]	951,120	55,613
June 29, 2020 [b]	297,645	-
June 29, 2020 [b]	297,645	-
November 27, 2020 [b]	162,728	17,671
December 04, 2020 [b]	4,621,850	577,686
December 04, 2020 [b]	323,530	-
December 04, 2020 [b]	323,530	-
Warrant Exercise during the period	(2,660,809)	(342,035)
Warrant issued due to the conversion for convertible debentures	234,375	40,617
Foreign exchange adjustment during the period		21,186
Revaluation		1,395,837
At December 31, 2020 (post-consolidation)	24,103,444	3,356,484

Short-term portion of warrant liability	234,514
Long-term portion of warrant liability	3,121,970

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

	Warrants	Exercisable into common shares	Exercise Price	Expiry date
	#	#	Cdn\$
Date issued:
August 11, 2016	42,337	42,337	1.6	11-Aug-21
September 30, 2016	205,959	205,959	1.6	30-Sep-21
November 4, 2016	125,000	125,000	1.6	4-Nov-21
December 30, 2016	162,500	162,500	1.6	30-Dec-21
February 17, 2017	201,250	201,250	1.6	17-Feb-22
May 9, 2017	12,952	12,952	1.6	9-May-22
May 22, 2018	970,780	970,780	0.96	22-May-21
June 7, 2018	1,691,475	1,691,475	0.768	7-Jun-21
August 24, 2018	18,750	18,750	0.96	24-Aug-21
March 25, 2019	1,059,766	1,059,766	0.72	25-Mar-22
April 23, 2019	319,094	319,094	1.528	23-Apr-22
April 23, 2019	220,797	220,797	0.96	23-Apr-22
April 23, 2019	398,437	398,437	0.8	23-Apr-22
July 10, 2019	1,448,596	1,448,596	1.48	10-Jul-22
July 24, 2019	566,874	566,874	1.48	24-Jul-22
January 16, 2020	944,477	944,477	0.48	16-Jan-23
January 16, 2020	27,746	27,746	0.48	16-Jan-23
February 19, 2020	202,343	202,343	0.56	19-Aug-21
June 29, 2020	951,120	951,120	0.72	29-Jun-23
June 29, 2020	8,271,887	8,271,887	0.72	29-Jun-23
June 29, 2020	297,645	297,645	0.68	29-Jun-23
June 29, 2020	297,645	297,645	0.68	29-Jun-23
July 8, 2020	31,250	31,250	0.56	18-Feb-22
July 9, 2020	78,125	78,125	0.56	18-Feb-22
October 15, 2020	54,688	54,688	0.56	22-Feb-22
October 15, 2020	54,688	54,688	0.56	22-Feb-22
October 27, 2020	15,625	15,625	0.56	18-Feb-22
November 27, 2020	162,728	162,728	1.10	27-Nov-23
December 04, 2020	4,621,850	4,621,850	1.10	4-Dec-23
December 04, 2020	323,530	323,530	1.10	4-Dec-23
December 04, 2020	323,530	323,530	1.10	4-Dec-23
	24,103,444	24,103,444	1.10	4-Dec-23

The weighted average exercise price for total outstanding warrants as at December 31, 2020 is Cdn\$ 1.00

[a] Warrants issued 2019

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 7(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, 1,448,586 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.

The Company 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 Company to the Holder in the manner provided in section 9 on the date of the Acceleration Notice. The Company 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.

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 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.

[b] Warrants issued 2020

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, 8,272,010 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 for Unit Private Placement on November 27, 2020

In connection with the Unit Private Placement, November 27, 2020, 162,728 warrants were issued and are exercisable at a price of Cdn\$1.10 per common share, expiring on November 27, 2023.

Warrants issued for Public Offering on December 04, 2020

In connection with the Public Offering, December 04, 2020, 4,621,850 warrants were issued and are exercisable at a price of Cdn\$1.10 per common share, expiring on December 04, 2023.

Warrants issued to National Bank Financial Inc. on December 04, 2020

The Company issued 323,530 warrants to National Bank Financial Inc. in respect of the broker warrants for the Public Offering on December 04, 2020 with an exercise price of Cdn\$1.10, 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 December 04, 2020

The Company issued 323,530 warrants to Fidelity Clearing Canada ULC in respect of the broker warrants for Public Offering on December 04, 2020 with an exercise price of Cdn\$1.10, 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 of convertible debentures

The Company issued 234,375 warrants 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, National Bank Financial Inc. and Fidelity Clearing Canada ULC, which were compensation warrants and were recorded in accordance with IFRS 2, Share-based payments, to contributed surplus. 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); expected dividend yield 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 an expected dividend yield of nil):

	Expiry date (mm/dd/yy)	Expected volatility	Risk free interest rate	Expected life	Weighted average fair value at measurement date (in Cdn\$)
Date issued:
January 09, 2019	1/9/2022	150%	1.90%	3.0 years	0.3016
March 25, 2019	03/25/2022	128%	1.78%	3.0 years	0.8888
April 23, 2019	4/23/2022	121%	1.47%	3.0 years	0.7128
April 23, 2019	4/23/2022	121%	1.47%	3.0 years	0.8688
July 10, 2019	7/10/2022	122%	1.51%	3.0 years	0.9544
July 24, 2019	7/24/2022	122%	1.51%	3.0 years	0.6888
January 16, 2020	1/16/2023	120%	1.63%	3.0 years	1.2056
January 16, 2020	1/16/2023	120%	1.63%	3.0 years	1.2056
February 19, 2020	8/19/2021	120%	1.63%	1.5 years	1.2056
June 29, 2020 (i)	6/29/2023	n/a	n/a	n/a	0.01
June 29, 2020 g (i)	6/29/2023	n/a	n/a	n/a	0.01
June 29, 2020	6/29/2023	132%	0.31%	3.0 years	0.3368
June 29, 2020	6/29/2023	132%	0.31%	3.0 years	0.3368
July 8, 2020	2/18/2022	158%	0.26%	1.5 years	0.0320
July 9, 2020	2/18/2022	170%	0.26%	1.5 years	0.0800
September 28, 2020	2/18/2022	154%	0.24%	1.5 years	0.264
September 29, 2020	2/18/2022	163%	0.23%	1.5 years	0.264
October 27, 2020	2/18/2022	150%	0.19%	1.5 years	0.162
December 04, 2020 (ii)	12/4/2023	n/a	n/a	n/a	0.16
December 04, 2020 (ii)	12/4/2023	n/a	n/a	n/a	0.16
December 04, 2020	12/4/2023	147%	0.26%	3.0 years	0.5444
December 04, 2020	12/4/2023	147%	0.26%	3.0 years	0.5444

(i) warrants valued based on public warrant price (TSX: SZLS-WT-T)

(ii) warrants valued based on public warrant price (TSX: SZLS-WS-T)

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 December 31, 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	8/11/2021	108%	0.26%	7.4 months	0.1566
September 30, 2016	9/30/2021	129%	0.26%	9 months	0.1676
November 4, 2016	11/4/2021	151%	0.26%	10 months	0.2476
December 30, 2016	12/30/2021	150%	0.26%	1.0 years	0.2809
February 17, 2017	2/17/2022	147%	0.26%	1.0 years and 1.5 months	0.2999
May 9, 2017	5/9/2022	145%	0.26%	1.0 years and 4.3 months	0.3333
May 22, 2018	5/22/2021	111%	0.26%	4.7 months	0.1413
June 7, 2018 *	6/7/2021	109%	0.26%	5.8 months	0.0235
August 24, 2018	8/24/2021	114%	0.26%	7.8 months	0.2089
March 25, 2019	3/25/2022	146%	0.26%	1 years and 3 months	0.4441
April 23, 2019 *	4/23/2022	146%	0.26%	1.0 years and 3.8 months	0.0383
April 23, 2019	4/23/2022	145%	0.26%	1.0 years and 6.8 months	0.4368
July 10, 2019	7/10/2022	144%	0.26%	1.0 years and 6.3 months	0.3703
July 24, 2019	7/24/2022	144%	0.26%	1.0 years and 6.8 months	0.3740
January 16, 2020	1/16/2023	159%	0.26%	2.0 years and 3 months	0.5979
June 29, 2020 (i)	6/29/2023	n/a	n/a	n/a	0.0600
June 29, 2020 (i)	6/29/2023	n/a	n/a	n/a 1.0 years and	0.0600
July 8, 2020	2/18/2022	148%	0.16%	2.5 months	0.4718
July 9, 2020	2/18/2022	148%	0.16%	1.0 years and 2.5 months	0. 4718
September 28, 2020	2/18/2022	148%	0.16%	1.0 years and 2.5 months	0. 4718
September 29, 2020	2/18/2022	148%	0.16%	1.0 years and 2.5 months	0. 4718
October 27, 2020	2/18/2022	147%	0.26%	1.0 years and 2.5 months	0.6196
December 4, 2020 (ii)	12/4/2023	n/a	n/a	n/a	0.2500
December 04, 2020 (ii)	12/4/2023	n/a	n/a	n/a	0.2500

* 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.

(i) warrants valued based on public warrant price (TSX: SZLS-WT-T)

(ii) warrants valued based on public warrant price (TSX: SZLS-WS-T)

The exchange rate used at December 31, 2020 for revaluation was Cdn\$ 1.27.

9. SHARE CAPITAL

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.

[a] Authorized

An unlimited number of non-voting preference shares, issuable in one or more series. Issued: none (2019: none)

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. Issued: none (2019: none)

An unlimited number of voting common shares. Issued: see statements of changes in shareholders' equity (deficiency).

[b] Financings

[i] 2019 Unit Private placements in March and April

On March 25, 2019, the Company closed the first tranche (the "First Tranche") of a unit financing (the "Unit Financing") and issued 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.

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.

[ii] 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.

[iii] 2020 Unit Private placement in January

On January 24, 2020, the Company closed a unit financing (the "Unit Financing") and issued 2,107,526 units for gross proceeds of \$516,987 (Cdn\$\$674,409). Each Unit ("Unit"), issued at a price of Cdn\$0.32 per Unit, consists of one common share plus onehalf 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.

In connection with the private placement, 27,377 broker warrants to acquire shares at \$0.48 per common share until January 16, 2023 valued at \$4,382 using the Black- Scholes option pricing model (Note 8). In connection with financing the Company incurred cash finders' fees, legal expenses and other financing costs of \$14,811.

[iv] 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 \$389,291 (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.

[v] 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 \$3,385,709 (Cdn\$4,632,327) (the "Offering"). 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.

9. SHARE CAPITAL (continued)

In connection with the public offering 595,290 broker warrants to acquire shares at \$0.68 per common share until June 29, 2023 valued at \$146,469 using the Black-Scholes option pricing model (Note 8). In connection with financing the Company incurred cash finders' fees, legal expenses and other financing costs of \$582,913.

[vi] 2020 Public Offering in December

On December 04, 2020 the Company closed a public offering of 9,243,700 units of the Company (the "Units") at a price of \$0.78 per Unit (the "Offering Price") for aggregate gross proceeds of \$5,632,440 (Cdn\$7,210,086) (the "Offering"). Each Unit was comprised of one common share of the Company and one half warrant. Each Warrant is exercisable to purchase one Common Share at any time prior to December 04, 2023 at a price of Cdn \$1.10 per Common Share.

In connection with the public offering 647,060 broker warrants to acquire shares at Cdn \$0.85 per common share until December 4, 2023 valued at \$275,143 using the Black-Scholes option pricing model (Note 8). In connection with financing the Company incurred cash finders' fees, legal expenses and other financing costs of \$724,716.

[vii] Unit Private Placement

On December 04, 2020 the Company entered into an agreement to settle outstanding debt in the amount of \$198,309 (Cdn \$253,855) on the same terms as the 2020 Public Offering. As a result, the debtholder was issued 325,456 common shares and 162,728 common share purchase warrants see note 8(b). As the transaction was completed at market terms there was no gain or loss on the transaction.

[c] Weighted-average number of shares

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

All shares and purchase amounts in these consolidated financial statements have been retroactively restated to reflect the 1 for 8 consolidation.

The weighted-average number of shares outstanding (post-consolidation) for year ended December 31, 2020, is 44,820,966 [December 31, 2019 – 26,498,824]. 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 December 31, 2020 of 5,076,357 [December 31, 2019 –3,733,779] and warrants of 24,103,444 (post-consolidation) [December 31, 2019 – 9,995,965] are deemed anti-dilutive such that the basic and net loss per share are equal.

[d] Employee stock option plan

On May 25, 2000, the Company adopted a stock option plan (the "Plan") pursuant to which the Board may grant stock options to directors, officers, employees or consultants of the Company. The current terms of the Plan, approved by the Company's shareholders on June 30, 2016, provide that the maximum number of common shares available for issuance under the Plan does not exceed 15% of the Company's issued and outstanding shares at any time. All options granted have a term of five years from the date of grant. The vesting schedule of all granted options is determined at the discretion of the Board. The exercise price of an option must be not less than the closing price of the Company's common shares on the TSX on the trading day immediately preceding the date the option is granted. As at As at December 31, 2020, there were 5,076,357 [December 31, 2019 –3,733,779] options outstanding, representing 8.4% [2019 – 10.9%] of the Company's issued and outstanding common shares. All exercised 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 years ended December 31, 2020 and 2019.

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

9. SHARE CAPITAL (continued)

	December 31, 2020	December 31, 2019
Expected dividends	—	—
Expected option life in years	4.2	4.2
Expected volatility	124%	161%
Risk-free interest rate	0.32%	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 years ended December 31, 2020 and 2019:

	Number	Grant date weighted-average fair value
	of options granted	(In Cdn\$)
	#
Year ended December 31, 2020	1,912,500	0.34
Year ended December 31, 2019	1,965,523	0.72

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

	Year ended December 31, 2020			Year ended December 31, 2019
	Number of options	Weighted average exercise	Number of options	Weighted average
		price		exercise price
	#	Cdn\$	#	Cdn\$
Outstanding, beginning of period	3,733,779	0.98	2,178,881	1.44
Granted	1,912,500	0.44	1,965,523	0.80
Exercised	(237,865)	0.25	-	-
Expired or forfeited	(332,058)	1.74	(410,625)	2.64
Outstanding, end of period	5,076,357	0.76	3,733,779	0.96
Exercisable, end of period	4,157,607	0.83	2,768,205	1.04

9. SHARE CAPITAL (continued)

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

Range of exercise prices per share	Number outstanding	Number exercisable	Weighted-average exercise price	Weighted-average remaining contractual life
Cdn\$	#	#	Cdn\$	years
0.08 to 0.80	3,849,899	2,931,149	\$0.68	3.89
0.88 to 1.20	847,083	847,083	\$0.99	1.68
1.28 to 2.40	341,875	341,875	\$1.55	1.11
2.48 to 3.00	37,500	37,500	\$2.84	0.24
	5,076,357	4,157,607	\$0.76	3.43

10. EXPENSES BY NATURE

Expenses included in the consolidated statements of loss for the years ended December 31, 2020 and 2019, are as follows:

	December 31, 2020			December 31, 2019
		General and			General and
	Cost of goods sold	administrativ	Total	Cost of goods sold	administrativ	Total
		e			e
	\$	\$	\$	\$	\$	\$
Salaries and benefits	592,214	1,681,186	2,273,400	306,943	1,428,012	1,734,955
Share-based compensation	69,856	566,884	636,740	46,822	694,631	741,453
Rent	45,718	14,423	60,141	32,511	11,488	43,999
Depreciation	225,343	29,666	255,009	238,470	59,617	298,087
Other	2,523,124	1,758,552	4,281,676	474,869	1,793,524	2,268,393
Foreign exchange loss (gain)		381,364	381,364	-	192,056	192,056
	3,456,255	4,432,075	7,888,329	1,099,615	4,179,328	5,278,943

11. RELATED-PARTY TRANSACTIONS

The key management personnel of the Company at December 31, 2020 and 2019 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 provided interim financing to the Company between December 2015 and December 2019 [see note 7[b]]. With the 2018 Unit Private Placement [see note 9[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 9/[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 9/[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 7[b]].

11. RELATED-PARTY TRANSACTIONS (continued)

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

	Year Ended December 31
	2020	2019
	\$	\$
Salaries, fees and short-term benefits	524,283	505,533
Share-based compensation	431,058	602,074
	955,341	1,107,607

As at December 31, 2020, key management personnel controlled 5.4% (2019-6.2%) of the issued and outstanding common shares of the Company and \$612,021 (2019-\$649,446) of compensation remains unpaid to current and former key management personnel and is included in trade and other payables. Such amounts are unsecured, non-interest bearing with no fixed terms of repayment.

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

				Number outstanding
Year		Range of	At	At
issued	Year of expiry	exercise prices per share	December 31, 2020	December 31, 2019
		\$	#
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	-
			3,300,728	2,471,566

12. COMMITMENTS AND CONTINGENCIES

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 December 31, 2020 is \$600,224 (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 governmental bodies, Medicare or Medicaid payers and managed care payers who review billing practices or request comments on allegations of billing irregularities brought to their attention through billing audits or third parties.

13. SEGMENT INFORMATION

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

Geographic information

As at December 31, 2020, \$0.7 million of property, plant and equipment \$0.5 million of right of use asset, net, were held in the US [December 31, 2019 – \$0.9 million of property, plant and equipment and \$0.1 million of right of use asset net, were held in the US]. The Company's total revenue for the year ended December 31, 2020 was \$4.1 million [2019 – \$0.14 million], all earned from operations in the United States.

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

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

[a] Financial instruments

The fair value of warrants is estimated using the Black-Scholes option pricing model incorporating various inputs including the underlying price volatility and discount rate, [see note 8]. All other notes payable were initially recognized at fair value, and subsequently they were measured at amortized cost using the effective interest rate method, whereby the fair value of the notes payable approximates their carrying value. As at December 31, 2020, the Company's warrant liability, conversion liability and notes payable, are carried on the consolidated statements of financial position at fair value, warrant liability has been classified as Level 2, conversion liability and notes payable 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 tables below summarize the maturity profile of the Company's financial instruments as at December 31, 2020 and 2019: Financial instrument maturation periods

	1 year or less	1 to 5 years	5 years or more	Total
At December 31, 2020	\$	\$	\$	\$
Financial assets
Cash	6,597,187	-	-	6,597,187
Other receivable	73,955	-	-	73,955
Financial liabilities
Trade and other payable	1,870,140	-	-	1,870,140
Convertible debenture	-	808,985	-	808,985
Note payable	348,390	480,000	1,100,000	1,928,390
Long-term liabilities	-	67,340	-	67,340

14. FINANCIAL INSTRUMENTS AND FINANCIAL RISK-MANAGEMENT OBJECTIVES AND POLICIES (continued)

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

[c] Credit risk

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

[d] Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk 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 December 31, 2020, a 5% appreciation (depreciation) in the Cdn\$ to US dollar foreign exchange rate, with all else being equal, would have affected net income by approximately \$47,425 [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 6%.

The remeasurement of the February 2020 Convertible Debentures (note 7) requires reassessment of the appropriate discount rate at each reporting period in determining the fair value. That discount rate could fluctuate depending on changes in interest rates as well as changes in the Company's credit risk. A 2% increase or decrease in the discount rate would have had an immaterial impact on the fair value of the instrument as at December 31, 2020.

Accordingly, there have been no significant impacts on the Company's consolidated statements of loss and comprehensive loss from changes in interest rates.

15. 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 \$95.6 million as at December 31, 2020 [December 31, 2019 – notes payable, conversion liability, warrants and common shares of \$83.1 million].

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 any capital requirements imposed by a lending institution or regulatory body, other than of the Toronto Stock Exchange ("TSX") which requires adequate working capital or financial resources such that, in the opinion of TSX, the listed issuer will be able to continue as a going concern. TSX will consider, among other things, the listed issuer's ability to meet its obligations as they come due, as well as its working capital position, quick asset position, total assets, capitalization, cash flow and earnings as well as disclosures in the consolidated financial statements regarding the listed issuer's ability to continue as a going concern.

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 2019 and into 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 Company's overall strategy with respect to capital risk management remains unchanged from the year ended December 31, 2020.

16. INCOME TAXES

The following table reconciles the expected income tax expense (recovery) at the Canadian statutory income tax rates to the amounts recognized in the statement of loss and comprehensive loss for the years ended December 31, 2020 and December 31, 2019:

	December 31	December 31
	2020	2019
	\$	\$
Net loss before tax	(6,296,485)	(3,481,802)
Statutory tax rate	26.5%	26.5%
Expected income tax (recovery)	(1,668,569)	(922,678)
Share-based compensation expense and non-deductible provisions	821,525	226,165
Impact of different foreign statutory tax rates on earnings of subsidiaries	11,260	(96,732)
Tax impact of foreign exchange	(196,031)	(442,539)
Change in estimates	(323,435)	(577,648)
Change in deferred tax assets not recognized	1,355,250	1,813,432

Deferred taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax values.

The unrecognized deductible temporary differences as at December 31, 2020 and December 31, 2019 is comprised of the following:

	December 31	December 31
	2020	2019
	\$	\$
Non-capital losses carryforwards - Canada	33,854,986	34,061,147
Net operating losses - US	19,718,100	16,582,603
Capital losses	1,298,407	1,246,497
Research and development expenditures	20,848,806	20,015,278
Unamortized share issue
costs	773,667	1,129,255
Property, plant and
equipment	3,836,366	3,682,990
Federal investment tax credits carried forward	4,518,611	4,419,990
Accrued interest on intercompany balances	179,182	-
Ontario research and development tax credits carried forward	131,679	126,414
Total unrecognized deductible temporary differences	85,159,805	81,264,174

As at December 31, 2020, the Company and its subsidiaries have tax credits available to reduce future federal taxes payable and federal and Ontario non-capital losses available for carryforwards, whereby all losses incurred in Cdn\$ have been converted to USD at an exchange rate of 0.7854.

	Federal investment tax credits	Federal and Ontario loss carryforwards	Ontario research & development tax credits	Capital Losses	US Losses
Expiry
2020	74,246
2021	37,197
2022	14,619
2023	52,186
2024	517,294
2025	597,223
2026	837,657
2027	869,211	2,437,329
2028	960,080	3,654,210
2029	141,132	2,485,670	33,251
2030	121,065	2,108,474	28,523
2031	117,556	2,157,990	27,696
2032	107,037	2,775,902	25,218
2033	72,109	4,097,864	16,989		970,797
2034		1,292,931			4,499,078
2035		2,622,497			4,076,102
2036		1,924,233			1,011,156

Total	4,518,611	33,854,986	131,679	1,298,407	19,718,100
No expiry				1,298,407	3,135,497
2040		1,728,475
2039		2,948,377
2038		2,263,000			2,954,846
2037		1,358,033			3,070,624

17. FINANCE COSTS

	Year ended
	2020 2019
	\$	\$
Interest on note payable to HDL	108,963	110,219
Interest on note payable to shareholder and director	18,332	39,870
Interest on convertible debenture	94,357	396,275
Interest costs on lease liability	98,770	115,112
Commitment fee	-	53,650
Transaction costs relating to issuance of debt (FVTPL)	343,880	88,072
	664,302	803,198

18. SUPPLEMENTAL NON-CASH INFORMATION

	Year ended
	December 31, 2020	December 31, 2019
	\$	\$
Conversion of convertible debenture and conversion liability into common shares	(425.470)	(1,270,131)
Conversion of convertible note payable	(247,129)	(590,624)
Issuance of units with private placement financing	(389,291)	(1,602,752)
Settlement of accounts payable through issuance of units	(193,119)	-
Warrants issued to Lind	-	(75,726)
Broker compensation warrants issued	(245,989)	-

19. REVENUE

Disaggregation of Revenue:

		Year ended December 31
	2020	2019
	\$	\$
Cancer Testing	473,063	138,704
COVID Testing	3,678,747	-
Total	4,151,810	138,704

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 December 31, 2020. Accordingly, additional cost of sales, which accounts for the increase in cost of sales for the three and year ended December 31, 2020 as compared to the same period in 2019, which cost of sales pertained exclusively to cancer testing.

For the COVID testing revenue stream, 7 customers contributed the majority of the revenues for the year ended December 31, 2020. 1 customer in particular contributes to 92% of all COVID testing revenues or 81% of all revenue.

20. LEASES

The Company's portfolio of leases consists of office spaces with lease terms generally between 3 to 5 years. We currently do not have leases with variable lease payments, residual value guarantees, extension or termination options, or leases not yet commenced to which we are committed. Lease liabilities have been measured by discounting future lease payments using our incremental borrowing rate as rates implicit in the leases were not readily determinable. The weighted-average rate applied was 14%.

Lease liabilities

Accounting of affecting the lease liabilities during the year ended December 31, 2020 were as follows:

	Year ended December 31, 2020	Year ended December 31, 2019
	\$	\$
Lease liability as at January 1	753,409	834,883
Interest expense	98,770	115,112
Lease payments	(251,955)	(196,586)
Lease liabilities as at December 31	600,224	753,409
Less current portion of lease liabilities	184,854	153,180
Long-term portion of lease liabilities	415,376	575,089

The maturity of the contractual undiscounted lease obligation payments as at December 31, 2020 is as follows:

	\$
2021	259,535
2022	267,323
2023	205,646
Total undiscounted payments	732,504
Less: imputed interest	132,275
Lease liability	600,224

20. LEASES (continued)

The Company subleases a portion of its office space, which results in a rent receivable asset. Additions to the right-of-use asset related to a modification in the sublease, whereby the sublease term was shortened and therefore, a portion of the rent receivable was derecognized and allocated to the right-of-use asset. A \$13,071 gain on modification was recognized in income. Accounting of the rent receivable during the year ended December 31, 2020 is as follows:

	Year ended	Year ended
	December 31, 2020	December 31, 2019
	\$	\$
Rent receivable as at January 1	681,354	798,061
Disposals	(437,659)	-
Interest income	88,626	106,611
Payments	(236,207)	(235,848)
Rent receivable as at December 31	96,113	668,824
Less current portion of rent receivable	96,113	149,073
Long-term portion of rent receivable	-	519,751

The maturity of the contractual undiscounted sublease payments as at December 31, 2020 is as follows:

	\$
2021	98,420
Less: imputed interest	2,307
Rent receivable	96,113

21. SUBSEQUENT EVENTS

On March 31, 2021, the Company entered into a letter of intent to purchase substantially all of the business of Health Clinics Limited and Health Clinics USA Corp. The letter of intent commits the HC Companies to negotiate exclusively with StageZero for one hundred and twenty (120) days, and is binding as to payment terms. The payment terms contemplate that StageZero will issue 15,000,000 common shares (the "Closing Consideration") to the vendors on the closing of the Transaction, with an additional 8,000,0000 common shares (the "Contingent Consideration") potentially issuable to the vendors post-closing, contingent upon the achievement of certain performance milestones.