Theralase Technologies Inc. - Interim / Quarterly Report 2021

Management's Discussion and Analysis of Financial Condition and Operations

The following Management’s Discussion and Analysis (" MD&A "), of Theralase® Technologies Inc . (“ Theralase® ” or the " Company ") should be read in conjunction should be read in conjunction with the unaudited condensed interim consolidated financial statements for the six-month period ended June 30, 2021.

This MD&A has been filed in accordance with the provisions of National Instrument 51-102 ( Continuous Disclosure Obligations ). Additional information relating to the Company can be found on Sedar at www.sedar.com . This MD&A is prepared as of August 30, 2021.

The Company's common shares are listed for trading on the TSX Venture Exchange ( Symbol: TLT ) and trade on the OTCQB marketplace ( Symbol: TLTFF).

Forward Looking Statements

The information provided herein is intended to provide a general outline of the operations of the Company . This document contains certain forward-looking statements and information (collectively, “F orward-Looking Statements ” or “ FLS” ) within the meaning of applicable securities laws. FLS are statements and information that are not historical facts, but instead include financial projections and estimates; statements regarding plans, goals, objectives, intentions and expectations with respect to Theralase®’s future business, operations, research and development; including: anticipated timelines for the commencement or completion of certain activities, enrolment of patients in clinical studies or other information in future periods. FLS, which may be identified by words including, without limitation, “ believe ”, “ anticipate ”, “ should ”, “ could ”, “ would ”, “ estimate ”, “ expect ”, “ plan ”, “ will ”, “ intend ”, “ may ”, “ pending ”, “ objective ”, “ exploring ”, “ potential ”, “ project ”, “ possible ” and other similar expressions, and the negative of such expressions, are intended to provide information about management’s current plans and expectations regarding future operations.

FLS in this MD&A include, but are not limited to, statements with respect to: future revenue projections, business initiatives and the timing of them; competitive environment; business strategic objectives; research, development and/or commercialization plans, acquisition and disposition of assets; preclinical and/or clinical studies: status, timing and/or strategies; supply and demand of products or services; ability to meet current and future financial obligations; ability to execute on business and/or growth strategies; management’s assessment of business strategies and/or operations; the intention and/or ability to pay dividends on the common shares of the Company.

Readers are cautioned not to place undue reliance on FLS since there can be no assurance that the plans, intentions or expectations, upon which they are based will occur. By their nature, FLS involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other things contemplated by the FLS will not occur. Such FLS or information are based on a number of assumptions, which may prove to be incorrect, including those assumptions listed below and those discussed elsewhere in this MD&A. Some of the assumptions made by Theralase®, upon which such FLS are based, include; but are not limited to, assumptions about: the ability to continue as a going concern, the business operations continuing on a basis consistent with prior years; the ability to access financing from time to time on favourable terms or at all; the continuation of executive management, operating management, key personnel or key consultants or the non-disruptive replacement of them on reasonable terms; the ability of Theralase® to maintain reasonably stable operating and general administrative expenses; current and future success of research, development, and/or commercialization initiatives; the ability to achieve development and/or commercialization milestones; market competition; the ability to secure all required regulatory, government and/or certification approvals; geographic protection over the intellectual property in the markets in which Theralase® does business; market acceptance and/or revenue generation of products under development; the stability of current economic and business conditions, the strength of the economy in Canada, the United States and elsewhere; currency, exchange and/or interest rates and commodity prices being reasonably stable at current rates.

FLS reflect current expectations of management regarding future events and operating performance as of the date of this MD&A. Such information: involves significant risks and uncertainties; should not be read as guarantees of future performance and/or results; and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the FLS, including, but not limited to, the risks related to: limited operating history; working capital and capital resources; ability to retain key personnel; protection of intellectual property; competition; implementation delays; strategic alliances; trade secret protection; product deficiencies; dependence on third party suppliers; volatility of share price; regulatory risks; early stage of product development; reliance on third parties; clinical study risk; clinical study timing delays; patient enrolment; failure to achieve milestones; currency risk; material weakness in internal controls over financial reporting; credit risk; product liability, clinical study liability and patentrelated rights of the United States government in Photo Dynamic Therapy (“ PDT ”) technology. See “Risk and Uncertainties”.

ALTHOUGH THE FLS CONTAINED IN THIS MD&A ARE BASED UPON WHAT THERALASE®’S MANAGEMENT BELIEVES TO BE REASONABLE ASSUMPTIONS, THERALASE® CANNOT ASSURE READERS THAT ACTUAL RESULTS WILL BE CONSISTENT WITH SUCH INFORMATION. FLS REFLECT MANAGEMENT’S CURRENT BELIEFS AND ARE BASED ON INFORMATION CURRENTLY AVAILABLE TO THERALASE®. READERS OF THIS MD&A ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THERALASE®’S FLS BECAUSE A NUMBER OF FACTORS, SUCH AS THOSE REFERRED TO IN THE PARAGRAPHS ABOVE, COULD CAUSE ACTUAL FUTURE RESULTS, CONDITIONS, ACTIONS OR EVENTS TO DIFFER MATERIALLY FROM THE TARGETS, EXPECTATIONS, ESTIMATES AND/OR INTENTIONS EXPRESSED IN THE FLS CONTAINED IN THIS MD&A. THE FLS ARE MADE AS OF THE DATE OF THIS MD&A AND THERALASE® ASSUMES NO OBLIGATION TO UPDATE OR REVISE SUCH INFORMATION TO REFLECT NEW EVENTS OR CIRCUMSTANCES, EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW.

Company Profile

Theralase® is a clinical stage pharmaceutical company dedicated to the research and development of light activated compounds and their associated drug formulations with a primary objective of efficacy and a secondary objective of safety in the destruction of various cancers, bacteria and viruses. The Company in its Anti-Cancer Therapy (“ ACT ”) division conducts preclinical and clinical research and development for PDCs, primarily in the treatment of cancer, with assistance from the CLT division to develop medical lasers to activate them. The Company in its Cool Laser Technology (“ CLT ”) division designs, develops, manufactures and markets proprietary super-pulsed laser technology indicated and cleared by Health Canada and the Food and Drug Administration (“ FDA ”) for the healing of chronic knee pain and when used off-label for healing numerous nerve, muscle and joint conditions.

Leadership Transition

Effective August 20, 2021, Shawn Shirazi, Chief Executive Officer (“ CEO ”), left the employ of the Company.

Effective August 23, 2021, John Trikola assumed the role of Chief Operating Officer (“ COO ”) and Interim CEO for the Company. John brings over 25 years of technology experience working with companies ranging from startups to Global 500. Most recently, John was the president of Gardner Ross Corp., where he provided turnaround and restructuring engagements to various organizations in the technology, manufacturing, and retail sectors. In addition to his senior management roles, John currently serves as a Board Director for Waypoint Centre for Mental Health Care and has served on the Board of Directors and as Chair of the Fundraising Committee for The Sandbox Project, the Board of Directors and Governance Committee for the Lougheed House Conservation Society.

Effective August 23, 2021, Arkady Mandel, M.D., Ph.D., D.Sc., Chief Scientific Officer, Theralase® has assumed the lead for the Phase II NonMuscle Invasive Bladder Cancer (“ NMIBC ”) clinical study (“ Study II ”), in addition to all current preclinical and future clinical research, development and commercialization initiatives of the Company.

COVID - 19 Pandemic

On March 11, 2020, the World Health Organization (“ WHO ”) declared the outbreak of a novel coronavirus (“ COVID-19 ”) as a global pandemic, which continues to spread throughout Canada and around the world, through various waves and variants. As of the MD&A date, the Company is aware of significant changes in its business as a result of COVID-19, notably: the reduction / unavailability of personnel, personnel working remotely or virtually, significant delays in clinical research studies and significant delays / cancellations in customer purchasing decisions. Management is uncertain of the full extent of theses impacts on its financial statements and believes that the business disruption caused by COVID-19 could be transient; however, there is uncertainty around its duration and hence the potential impact on the business cannot be fully estimated as of the date of this MD&A.

Theralase® continues to experience variations in sales and the timing of these sales due to the ongoing COVID19 pandemic and had taken actions to minimize expenses by eliminating non-essential personnel and imposing a temporary hiring freeze commencing in March 2020. The Company has recently lifted the temporary hiring freeze now that the Canadian and United States economies have started to demonstrate a sustainable business and economic recovery from COVID-19.

Theralase® continues to experience delays in patient enrollment and treatment rates in the Phase II NMIBC clinical study due to the ongoing COVID-19 pandemic; however, these rates have started to improve as Canada and the US commence their recovery from the business and economic impacts of the COVID-19 pandemic.

Advancing the Theralase ® Technology Platform

The Company’s primary focus is the Anti-Cancer Therapy (“ ACT ”) division, with strategic objectives of: preclinical research, clinical studies, research and development of PDCs and the laser light systems that activate them, intended primarily for the destruction of various cancers, bacteria and viruses.

Theralase®’s patented lead study drug, TLD-1433, is currently under investigation in a Phase II clinical study intended for the treatment of NMIBC.

TLD-1433, has been demonstrated preclinically to bind with transferrin, a human glycoprotein, forming the Company named compound, Rutherrin®. Various cancer cells in peer-reviewed publications have demonstrated significantly more transferrin receptors versus healthy cells, allowing the deposition of the TLD1433 payload inside the cancer cell, versus a healthy cell, through endocytosis. When laser light activated, TLD1433 has been demonstrated to destroy cancer cells through the production of singlet oxygen and/or Reactive Oxygen Species (“ ROS ”), from the inside out, inducing oxidative stress, leading to Immunogenic Cell Death (“ ICD ”), known as apoptosis.

The ACT division is currently in the pre-clinical research and development of Rutherrin® to be utilized as an injectable form of TLD-1433, intended for the treatment of Glio Blastoma Multiforme (“ GBM ”) and Non-Small Cell Lung Cancer (“ NSCLC ”) and in the clinical study evaluation phase of TLD-1433 for NMIBC; hence, there are no commercial and/or financial benefits associated with this division at the present time, resulting in zero revenue, sales or commercial distribution of this technology.

Theralase® conducts its own research and development into the ACT technology, as well as enlisting the support of external scientific, research, regulatory and clinical research organizations.

Phase Ib NMIBC Clinical Study

Theralase® successfully completed a Phase Ib clinical study (“ Study ”) for Bacillus Calmette-Guerin (“ BCG ”) - Unresponsive patients diagnosed with NMIBC; whereby, patients were treated with a Study Drug (TLD-1433) and a Study Device (TLC-3200 Medical Laser System or TLC-3200) (collectively the “ Study Treatment ”).

Under the Study, entitled “ A Phase Ib Trial of Intravesical Photo Dynamic Therapy in Patients with NMIBC at High Risk of Progression, Who are Refractory to Therapy with Bacillus Calmette-Guerin and Who are Medically Unfit for or Refuse a Cystectomy ”, treatment of patients commenced in March 2017. Three patients were treated at the Maximum Recommended Starting Dose (“ MRSD ”) (0.35 mg/cm[2] ) and three patients were treated at the Therapeutic Dose (0.70 mg/cm[2] ) of TLD-1433; whereby, both doses of the PDC was activated by laser light (520 nm, 90 J/cm[2] ) delivered by the TLC-3200.

Theralase®’s Study successfully achieved the primary objective of safety and tolerability, secondary objective of pharmacokinetics and exploratory objective of efficacy. The Study results demonstrate a strong efficacy signal with a 67% Complete Response (“ CR ”) rate in the Therapeutic Dose group (0.70 mg/cm[2] ) after only a single Photo Dynamic Therapy (“ PDT ”) treatment, with patients five and six demonstrating CR with no presence, recurrence or progression of the disease at up to 24 months post treatment.

Based on the encouraging data from patients treated at the Therapeutic Dose, the Medical and Scientific Board (“ MSAB ”) recommended unanimously that the Company undertake a registration Phase II NMIBC clinical study with a primary objective of CR at any point in time, secondary objective of duration of CR at one year post initial CR and a tertiary objective of safety, as measured by Adverse Events (“ AEs ”), with a larger patient sample size.

Phase II NMIBC Clinical Study

Based on the recommendation of the MSAB, Theralase® designed the Phase II NMIBC clinical study (“ Study II ”) to utilize the Therapeutic Dose (0.70 mg/cm[2] ) of TLD-1433 and focus on the treatment of approximately 100 to 125 BCG-Unresponsive NMIBC patients presenting with Carcinoma In-Situ (“ CIS ”) in approximately 15 clinical study sites located in Canada and the US.

To date, Theralase® has successfully launched 12 Clinical Study Sites (“ CSSs ”), 5 in Canada and 7 in the United States.

Study TLD-1433-2 (NCT03945162) is an ongoing, phase II, open-label, single-arm, multi-center study conducted in Canada and the United States evaluating the safety and efficacy of the Study Treatment.

The patient population is approximately 100 to 125 patients with persistent or recurrent NMIBC CIS alone or with or without recurrent Ta/T1 (non-invasive/resected papillary disease/tumour that invades the subepithelial connective tissue) disease within 12 months of completion of BCG therapy (BCG-Unresponsive) or who are intolerant to BCG therapy.

Study II objectives are as follows:

Primary : Efficacy, evaluated by the Complete Response (“ CR ”) rate at any time point in patients with Carcinoma InSitu (“ CIS ”) with completely resected papillary disease. CR is defined as at least one of the following:

Negative cystoscopy and negative (including atypical) urine cytology
Positive cystoscopy with biopsy-proven benign or low-grade NMIBC and negative cytology
Negative cystoscopy with malignant urine cytology, if urothelial cancer is present in the upper tract or prostatic urethra and random bladder biopsies are negative

Secondary : Duration of CR at 12 months post initial CR.

Tertiary: Safety, evaluated by the incidence and severity of Adverse Events (“ AEs ”), Grade 4 or higher that do not resolve within 450 days post treatment (Grade 1 = Mild, Grade 2 = Moderate, Grade 3 = Severe, Grade 4 = Life-threatening or disabling, Grade 5 = Death).

The Study Treatment consists of a Study Drug at the Therapeutic Dose (0.70 mg/cm[2] ) (equivalent to 0.65 mg/cm[2] of active drug moiety) instilled into the patient’s bladder intravesically for 60 minutes and subsequently activated by the Study Device (TLC-3200) to deliver an intended energy density of 90 J/cm[2] .

Patients will be enrolled into Study II based upon review of inclusion and exclusion criteria during the screening period, which may last up to 45 days, prior to primary Study Treatment. The enrolled patient will be administered a primary Study Treatment on day 0 and a maintenance Study Treatment on day 180. All patients enrolled and treated by the Study Treatment will be followed until the end of Study II, defined as completion of all required assessments after 15 months of follow-up post primary Study Treatment or earlier due to discontinuation or withdrawal of informed consent.

During the follow-up assessments, information on efficacy (i.e.: urine cytology, cystoscopy and where indicated Computerized Tomography (“ CT ”) scans and bladder and/or prostate biopsies) and safety (i.e.: AEs) will be collected. Primary assessments will be conducted on day 0, 7, 90, 180, 187, 270, 360 and 450.

In 2018, Health Canada granted the Company both a Clinical Trial Application (“ CTA ”) for the Study Drug and an Investigational Testing Authorization (“ ITA ”) for the Study Device to allow clinical use of TLD-1433, in conjunction with the TLC-3200, to commence enrolling and treating patients in Study II.

As of August 30, 2021, Theralase® has the following CSSs open for patient enrollment and treatment:

Clinical Study Sites(Canada)	Location	Commenced
UniversityHealth Network(“UHN”)	Toronto,Ontario	April 25,2019
McGill UniversityHealth Centre(“MUHC”)	Montreal, Quebec	July30,2019
London Health Sciences Centre(“LHSC”)	London,Ontario	October 7,2019
Nova Scotia Health Authority (“NSHA”)	Halifax,Nova Scotia	February25,2020
Universityof British Columbia(“UBC”)	Vancouver,British Columbia	December 7,2020

Clinical Study Sites(United States)	Location	Commenced
Virginia Urology (“VU”)	Richmond,Virginia	January19,2021
UrologyAssociates P.C.(“UAPC”)	Nashville,Tennessee	January20,2021
MidLantic Urology (“MLU”)	Bala Cynwyd,Pennsylvania	January25,2021
Carolina Urologic Research Center(“CURC”)	Myrtle Beach,South Carolina	January27,2021
Universityof Wisconsin-Madison(“UWM”)	Madison,Wisconsin	February24,2021
UrologySan Antonio P. A.(“USAPA”)	San Antonio,Texas	March 25,2021
Universityof Chicago("UC")	Chicago,Illinois	June 11,2021

In 2020, the Company received FDA Investigational New Drug (“ IND ”) authorization (Study Drug and Study Device) to commence enrolling and treating patients in Study II in the United States. Theralase® has received study level approval through a central Institutional Review Board (“ IRB ”) to launch Study II in 7 US CSSs, subject to site level IRB approval.

In 2020, the FDA granted Theralase® Fast Track Designation (“ FTD ”) for Study II. As a FastTrack designee, Theralase® will have access to early and frequent communications with the FDA to discuss Theralase®’s development plans and ensure timely collection of the appropriate clinical data to support the approval process. The accelerated communication with the FDA potentially allows, the Study Treatment, to be the first intravesical, patient-specific, light-activated, Ruthenium-based PDC for the treatment of patients diagnosed with BCG-Unresponsive NMIBC CIS, with or without papillary Ta or T1 tumors. FTD can lead to an Accelerated Approval (“ AA ”), Break Through Designation (“ BTD ”) and Priority Review, if certain criteria are met, which the FDA has previously defined to the Company for BTD to represent approximately 20 to 25 patients enrolled and treated, who demonstrate significant safety and efficacy clinical outcomes.

Study II commenced in April 2019 with an estimated completion time of approximately 3 to 4 years and an estimated cost of approximately $9 to $11 million. The timing and cost may vary significantly depending on numerous factors including; number of CSSs enrolling and treating patients, patient enrollment rates in total and at each CSS, patient compliance, successful achievement of Study II primary, secondary and tertiary objectives and the ability of participating CSSs to enroll and treat patients considering challenges caused by current COVID-19 pandemic restrictions.

Study II Clinical Study Site Update

As previously mentioned, patient enrollment and treatment rates have been significantly delayed due to the COVID-19 pandemic restrictions in place at various CSSs; however, they are improving as Canada and the US recover from the COVID-19 pandemic. Canadian CSSs placed themselves on temporary hold commencing March 20, 2020 and resumed normal operations between August 12, 2020 and September 24, 2020. Although Canadian CSSs recruiting activities were re-commenced in 4Q2020; patient recruitment and treatment activities have been significantly limited due to the second, third and fourth waves of COVID-19. With the addition of 7 additional US-based CSSs in 1Q2021 and 2Q2021, Theralase® is hopeful that patient recruitment and treatment activities will increase throughout the remainder of 2021 to help achieve the Company’s strategic objectives.

Theralase® has enrolled and treated 24 patients in Study II (including three patients from the Phase Ib NMIBC clinical study (“ Study ”) treated at the Therapeutic Dose) for a total of 27 patients.

Theralase® plans to complete enrolling and treating 25 patients in Study II in 3Q2021 (28 in total), marking the first significant milestone of Study II.

Once achieved, Theralase® plans to compile progressive interim clinical data at the 90, 180, 270, 360 and 450 day assessment dates (urine cytology and cystoscopy) for submission to the Food and Drug Administration (“ FDA ”) for consideration of Breakthrough Designation (“ BTD ”) approval.

Study II Preliminary Clinical Data

As of August 30, 2021, Study II has enrolled and provided the primary study treatment for 24 patients (including three patients from the Study treated at the Therapeutic Dose) for a total of 27 patients, demonstrating the following interim results, with significant clinical data still pending:

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*Includes three (3) patients treated at the Therapeutic Dose form Phase Ib NMIBC Clinical Study (2-CR and 1- NR at 90, 180, 270, 360, 450 days)

The Company implemented a Study Treatment optimization, as communicated via press release on July 30, 2020, specifically:

a) Bladder volume calculation
b) Study drug volume calculation
c) Study device volume calculation
d) Study device treatment time

which occurred in patients enrolled and treated by the CSSs, for either the primary or maintenance Study Treatment on or after August 1, 2020, demonstrating the following interim results, with significant clinical data still pending:

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** Preliminary clinical data on 15 patients who received a primary or maintenance treatment on or after August 1, 2020.

Objective	Interim clinical data for Study II(27patients)	Interim clinical data for Study II(15patients)
Primary	33.3%	33.3%
Secondary	11.1% (48.1% of data still pending - Insufficient data to analyze)	0.0% (80% of data still pending - Insufficient data to analyze)
Tertiary	All patients have experienced some transient grade 1 or grade 2 AEs (i.e.: bladder spasms, constipation, urge incontinence, fatigue, urinary frequency, hematuria, penile discomfort, urinary urgency, pain, urinary tract infections and other) where > 80% have completely resolved with 180 days. Out of 27 patients treated to date, one patient unfortunately passed away from causes unlikely related to the Study Drug, Study Device or StudyTreatment	All patients have experienced some transient grade 1 or grade 2 AEs (i.e.: bladder spasms, constipation, urge incontinence, fatigue, urinary frequency, hematuria, penile discomfort, urinary urgency, pain, urinary tract infections and other) where > 80% have completely resolved with 180 days. Out of 15 patients treated to date, one patient unfortunately passed away from causes unlikely related to the Study Drug, Study Device or StudyTreatment

The current interim analysis of the clinical data (with significant clinical data still pending and based on only 27 patients) demonstrates that Study II’s primary (33.3%) and tertiary objectives (1 Severe AE) demonstrate a strong initial efficacy, strong durable efficacy and a high safety profile. There is insufficient data to comment on the Study II secondary objective.

In accordance with the FDA’s 2018 guidelines to industry, the patients who have achieved a Partial Response (“ PR ”) are being further assessed via Computerized Tomography (“ CT ”) scan and/or biopsy of the prostatic urethra to determine if upper tract Urothelial Cell Carcinoma (“ UCC ”) or prostatic urethra UCC can be detected to allow these patients to be re-categorized as CR.

The Study Treatment optimization has shown a trend to higher primary and secondary objectives, as the incidence of No Response (“ NR ”) has reduced from 37.0% of patients treated to 20.0%.

The interim clinical data is early in its analysis with significant clinical data still pending that may improve the reported status to the primary and secondary objectives.

Additional Oncology Targets:

Theralase® has diligently pursued the research and development of its Intellectual Property (“ IP ”) platform for PDCs, through scientific and preclinical research to fine-tune the photophysical and photochemical properties of the PDCs, by the inventor, while demonstrating Type I (oxygen independent) and II (oxygen dependent) photoreactions and activation in hypoxia.

By combining these PDCs with transferrin (human glycoprotein), as a delivery system it has been pre-clinically demonstrated that transferrin is able to significantly:

Increase the resistance of TLD-1433, the lead drug candidate, to photobleaching (loss of potency of the PDC over time)
Increase ROS production (ability to destroy cancer cells quickly and effectively)
Increase selective tumour uptake (destruction of cancer cells, while sparing healthy cells) through the Transferrin Receptor (“ TfR ”)
Increase anti-cancer efficacy (efficiency in cancer cell destruction)
Decrease systemic toxicity (damage to healthy cells and/or organs)

This allows Rutherrin® (TLD-1433 + transferrin) to be a strong candidate for systemic treatment of recurrent, deep seated and/or progressive cancers. The Company continues to conduct extensive scientific and preclinical research towards new oncology indications and has developed significant expertise and IP assets regarding its patented PDCs, in pursuit of this goal.

Once Rutherrin®’s Maximum Tolerated Dose (“ MTD ”) and hence Human Equivalent Dose (“ HED ”) limits have been determined through non-Good Laboratory Practices (“ GLP ”) and GLP toxicology studies, Theralase® plans to inject Rutherrin® systemically into patients via a Phase Ib clinical study, planned for 2022, to allow localization to various cancer cells, including GBM and NSCLC and then activate Rutherrin® with radiation to safely and effectively, destroy the cancer of interest.

Rutherrin®, if proven successful, would thus be able to “hunt” and “localize” into cancer cells and when activated by radiation “destroy” them; wherever, they may reside in the body.

The Company has demonstrated a significant anti-cancer efficacy of Rutherrin®, when activated by laser light or radiation treatment across, numerous preclinical in-vitro (cell lines) and in-vivo (animal) models focused primarily on GBM and NSCLC.

Due to the limitations of using laser light to activate Rutherrin® in deep oncological targets, Theralase®’s research strongly suggests that Rutherrin® may be activated with radiation therapy, which is able to increase the ‘tumour’s damage zone’ and the effectiveness of Theralase®’s Anti-Cancer Therapy (“ ACT ”) beyond the reach of light in the body.

Additional Virus Targets*

Theralase® executed a Sponsored Research Agreement (“ SRA ”) with the University of Manitoba (“ UM ”) Medical Microbiology department in 3Q2020 to commence development of a coronavirus vaccine utilizing Theralase®’s patented and proprietary PDCs. The primary objective of the SRA was to investigate the efficacy of Theralase®’s lead PDC to destroy a variety of viruses; including: H1N1 Influenza, Zika and coronaviruses (Biological Safety Level (“ BSL ”) 2). The secondary objective was to optimize the concentration of PDC required, the activation methodology and how to potentially administer the treatment to humans to be used as a vaccine (prevention of a patient from contracting COVID-19) (BSL-3).

The Company’s PDC technology was effective in the destruction of Influenza and Zika viruses at low nanomolar concentrations and were expanded to include coronavirus (BSL-2). - - - As a cautionary note, COVID 19 is caused by coronavirus (BSL 3), not coronavirus (BSL 2).

A rapid test was established to measure coronavirus destruction and using this new assay the Theralase® PDC technology was able to destroy coronavirus (BSL-2) with drug doses 5 times lower than what was used to kill Influenza H1N1 virus and Zika virus. These drug doses are significantly lower than those used by the Company to treat cancers and are considered safe for human use.

All coronaviruses are highly similar in their structure and these new results strongly suggest that Theralase®’s proposed vaccine could be highly effective against the SARS-CoV-2 virus responsible for COVID-19. Further studies have shown that the human coronavirus (“ CoV ”) appears to be much more sensitive to the action of the activated Theralase® PDC vaccine, with as low a dose of 3.3 nM required to inactivate 50%, whereas; 9.2nM was required to inactivate the same amount of Influenza H1N1 and 12 nM was required inactivate the same amount of Zika Virus. Similarly, the amount of PDC required to inactivate 99.9% of each virus are 61 nM for CoV, 322 nM for Zika Virus and 497 nM for Influenza H1N1; thus, the Theralase® PDC is 3 to 5 times more effective against CoV compared to the other tested viruses.

The Theralase® compound is also effective without activation, but on average, its activation results in a 4.2 fold enhancement of Zika Virus inactivation, a 12 fold enhancement of Influenza H1N1 inactivation and an 18.7 fold enhancement of CoV inactivation.

==> picture [364 x 272] intentionally omitted <==

Human coronavirus OC-43 stocks were treated with 32 μg/mL (PDC)- activator and with indicated concentrations of Theralase® PDC incubated 30 minutes, either activated or not as indicated, and residual virus infectivity determined by immunofocus assay. Horizontal dashed line indicates 50% effective inhibitory dose n=3; error bars are Standard Error of Means

In April 2021, Theralase® executed a Collaborative Research Agreement (“ CRA ”) with the National Microbiology Laboratory, Public Health Agency of Canada (“ PHAC” ) for the research and development of a Canadian-based SARS-CoV-2 (“ COVID-19” ) vaccine. Under the terms of the agreement, Theralase® and PHAC are collaborating on the development and optimization of a COVID-19 vaccine by treating the SARS-CoV-2 virus grown on cell lines with Theralase®’s patented PDC and then light activating it with Theralase®’s proprietary TLC-3000A light technology to inactivate the virus and create the fundamental building blocks of a COVID-19 vaccine. This inactivated virus would then be purified and used to inoculate naive animals followed by challenge with the SARS-CoV-2 virus, to ascertain the efficacy of the vaccine. The project is entitled, “ Photo Dynamic Compound Inactivation of SARS-CoV-2 Vaccine ” and commenced in mid-April 2021.

The Company does not claim or profess that they have the ability to treat, cure or prevent the contraction of the COVID-19 coronavirus.

ACT Research Centre

In April 2021, the Company launched the Theralase® Anti-Cancer Therapy (“ ACT ”) research center located within the Li Ka Shing Knowledge Institute of St. Michael’s Hospital, Unity Health Toronto, relocating its research team from University Health Network (“ UHN ”).

The ACT research center is a fully equipped laboratory dedicated exclusively to Theralase® ACT research and development, as Theralase® advances towards commercialization with its lead PDC, TLD-1433, as well as its systemic and targeted formulation – Rutherrin®. A partnership with the Li Ka Shing Knowledge Institute of Unity Health provides access to additional expertise, advisory networks and opportunities to accelerate product development and commercialization.

Intellectual Property Portfolio Growth

Theralase® received the following decisions to grant a patent in 2Q2021:

Country	Patent Title
China	Apparatus and Method for Multiwavelength Photo Dynamic Therapy
India	Metal-Glycoprotein Complexes and Their use as Chemotherapeutic Compounds
Russia	Metal-Glycoprotein Complexes and Their use as Chemotherapeutic Compounds
Europe	Metal-Glycoprotein Complexes and Their use as Chemotherapeutic Compounds
Canada	Metal-Based Coordination Complexes as Photodynamic Compounds and their Use

Apparatus and Method for Multiwavelength Photo Dynamic Therapy

This patent allows the treatment of new oncological applications, including targeting cancers that are able to be reached through an orifice in the body, but are too deep in tissue to have the instilled PDC adequately activated by low wavelength visible laser light, for example, esophageal cancer. The multiwavelength PDT system advances the clinical utility of Photo Dynamic Therapy (“ PDT ”) by expanding the volume of tissue able to be treated. By using various laser light sources to activate the PDCs at differing depths in the target tissue simultaneously or sequentially, Theralase® may be able to significantly increase the overall destruction of the cancerous tissue.

Metal-Glycoprotein Complexes and Their use as Chemotherapeutic Compounds

This patent is critical to providing IP protection of Theralase®’s systemic and targeted ACT, which allow PDCs and their associated drug formulations to be systemically injected to “hunt” and “localize” into cancer cells of interest for various cancer conditions and effectively “destroy” them when activated by laser light or radiation, safely and effectively.

Metal-Based Coordination Complexes as Photodynamic Compounds and their Use.

This invention relates to metal-based coordination complexes that are useful as therapeutic and diagnostic agents. The invention further relates to photodynamic compounds that can be activated with UltraViolet (“ UV ”) to Near Infrared Light (“ NIR ”), that are useful as therapeutic and diagnostic agents. In particular, the invention provides tunable metal-based PDCs that are coordination complexes derived from organic ligands. The PDCs can be activated by light to destroy unwanted cells, for example hyperproliferative cells and microbial cells. The PDCs can also be activated by light to destroy viruses.

Theralase® received the following trademarks in 2Q2021:

Country	Trademark
China	Rutherrin®

Research Publications

Theralase® published the following research publications in 2Q2021:

Optimizing Interstitial Photodynamic Therapy Planning with Reinforcement Learning-Based Diffuser Placement (Peer reviewed and published on ResearchGate.net)

ResearchGate is a professional network for scientists and researchers used to share, discover, and discuss research.

Interstitial Photo Dynamic Therapy (“ iPDT ”) has shown promising results recently as a minimally invasive standalone or intraoperative cancer treatment. The development of non-toxic photosensitizing drugs with improved target selectivity has increased its efficacy; however, personalized treatment planning that determines the number of photon emitters, their positions and their input powers while taking into account tissue anatomy and treatment response are lacking to further improve outcomes. New algorithms that generate high-quality plans by optimizing over the light source positions, along with their powers, to minimize the damage to organsat-risk while eradicating the tumor were developed by using simulated-annealing as a baseline algorithm to place the sources. Algorithms were simulated on virtual brain tumors modeling real glioblastoma multiforme cases, assuming a 5- ALA PPIX induced photosensitizer that is activated at 635 nm wavelength. The algorithm generated plans that achieved an average of 46% less damage to organs-as-risk compared to the manual placement used in current clinical studies. Having a general and high-quality planning system makes iPDT more effective and applicable to a wider variety of oncological indications paving the way for more clinical trials.

This work was supported by Ontario Research Fund, Theralase®, Intel Inc. and International Business Machines (“ IBM ”).

Overview of Financial Performance

During the six-month period ended June 30, 2021, the Company's financial performance and its operating results reflected the continued investment by the Company into its future prosperity through research, development and clinical initiatives culminating in the successful completion of the Phase Ib NMIBC clinical study and the launch of Study II.

Summary of Selected Audited Annual Information

(Canadian Dollars)

For the twelve-month periods ended December 31:

Total revenues Net loss Basic and diluted loss per share Total assets Total liabilities Deficit Shareholders' Equity	2020 2019
	929,122 $ 964,051 $ (5,598,540) (7,413,914) (0.027) $ (0.051) $
	10,020,782 $ 15,470,090 $ 857,133 1,614,647 (48,506,467) (42,652,154) 9,163,649 $ 13,855,443 $

Summary of Quarterly Results

(Canadian Dollars)

Summary of Quarterly Results (Canadian Dollars)
For the period ending: Total revenues Net loss Basic and diluted loss per share As at: Total assets Total liabilities Deficit Shareholders' Equity	2021
	March 31 June 30
	124,783 $ 305,216 $ (919,093) (1,143,184) (0.004) $ (0.006) $
	March 31 June 30
	9,114,958 8,182,765 $ 756,842 861,848 (49,600,330) (50,743,513) 8,358,116 7,320,917 $

For the period ending: Total revenues Net loss Basic and diluted loss per share As at: Total assets Total liabilities Deficit Shareholders' Equity	2020
	March 31 June 30 September 30 December 31
	111,543 $ 181,910 $ 234,021 $ 401,648 $ (1,643,856) (1,623,770) (1,448,147) (882,767) (0.008) $ (0.008) $ (0.007) $ (0.004) $
	March 31 June 30 September 30 December 31
	13,755,006 $ 11,965,651 $ 10,803,457 $ 10,020,782 $ 1,279,104 867,009 944,419 857,133 (44,296,010) (46,107,474) (47,623,698) (48,506,467) 12,475,902 $ 11,098,642 $ 10,803,457 $ 9,163,649 $

Liquidity and Capital Resources

As of June 30, 2021, current assets aggregated $7,162,822 compared with current liabilities of $856,173 netting working capital of $6,306,649 and a current ratio (current assets versus current liabilities) of approximately 8:1.

The Company’s objective is to maintain a sufficient capital base to support future research, development and strategic business initiatives allowing the Company to invest in its future and maintain investor, creditor and market confidence. The capital structure of the Company consists of cash, cash equivalents and shareholders’ equity.

Sales of the TLC-2000, the Company’s existing product line, have not been sufficient in and of themselves to enable the Company to fund its continuing research, development and commercialization efforts.

The Company's ability to continue as a going concern is dependent upon achieving a profitable level of operations and obtaining additional financing, neither of which is assured. The Company has successfully raised capital through previous equity offerings; however, there is no guarantee that the Company will be able to raise additional capital on terms and conditions agreeable to the Company or at all.

On August 22, 2019, the Company closed a public offering of Units for gross proceeds of $17,250,000.

As of June 30, 2021, the Company has cash and cash equivalents of $5,898,912 and as a result the Company believes that it will be able to continue as a going concern for at least 12 months from the date of these unaudited condensed interim consolidated financial statements.

Results of Operations

For the six-month period ended June 30, 2021, total revenue increased to $429,999 from $293,453 for the same period in 2020, a 47% increase.

same period in 2020, a 47% increase.
Sales Revenue Service Revenue Other Revenue	2021 2020
	382,520 $ 266,895 $ 38,236 20,995 9,243 5,563
	429,999 $ 293,453 $

The TLC-2000 represented 58% of sales for the six-month period ended June 30, 2021 and 38% of sales for the same period in 2020.

In Canada, revenue increased 51% to $384,154 in 2021 from $255,146 in 2020.

In the US, revenue increased 166% to $32,656 in 2021 from $12,267 in 2020.

International sales decreased 49% to $13,189 from $26,041 in 2020.

The increase in total revenue in 2021 is primarily attributed to the COVID-19 pandemic as most health care practitioners in 2020 elected to temporarily close their practices and place any purchasing decisions on temporary or permanent hold.

Cost of Sales

Cost of sales for the six-month period ended June 30, 2021 was $230,370 or 54% of revenue resulting in a gross margin of $199,629 or 46% of revenue. In comparison cost of sales for the same period in 2020 was $230,095 or 78% of revenue resulting in a gross margin of $63,358 or 22% of revenue. Cost of sales is represented by the following costs: raw materials, subcontracting, direct and indirect labour and the applicable share of manufacturing overhead.

The gross margin increase, as a percentage of sales, year over year, is attributed to a decrease in labour and material costs.

Operating Expenses

For the six-month period ended June 30, 2021, selling expenses decreased to $197,400, from $229,998 in 2020, a 14% decrease and consisted of the following items:

		2021	2020
Sales salaries	$	129,410$ 132,156
Advertising		25,453	50,787
Commission		19,265	13,021
Travel		2,730	7,819
Stock based compensation		582	999
Amortization and depreciation allocation		19,960	25,216
Total selling expenses	$	197,400 $229,998

The decrease in selling expenses is primarily due to the COVID-19 pandemic, resulting in reduced advertising and travel expenditures.

Administrative expenses for the six-month period ended June 30, 2021, decreased to $802,271 from $956,824 in 2020, a 17% decrease and consisted of the following items:

		2021	2020
Insurance	$	29,940	$ 19,598
Professional fees		196,812	253,834
Rent		19,775	18,803
General and administrative expenses		144,732	141,640
Administrative salaries		242,316	190,974
Director and advisory fees		19,163	36,840
Stock based compensation		129,573	279,024
Amortization and depreciation allocation		19,960	25,111
Total administrative expenses	$	802,271	$965,824

The decrease in administrative expenses is primarily attributed to decreased spending on director and advisory fees (48%) and professional fees (22%).

Stock based compensation expense decreased 54% in the six-month period ended June 30, 2021 due to a reduction in stock options granted.

Research and Development Expense

Net research and development expenses for the six-month period ended June 30, 2021 decreased to $1,393,578 from $2,219,057 in 2020, a 37% decrease, and consisted of the following items:

	2021 2020
Research and development (net of investment tax credit) $ 1,225,754$ 1,922,623
Stock based compensation	90,139234,345
Amortization and depreciation allocation	77,68562,089
Total research and development expenses	$ 1,393,578 $2,219,057

The decrease in research and development expenses for the six-month period ended June 30, 2021 is attributed primarily to the significant delay in patient enrollment and treatment in Study II due to the COVID19 pandemic. Research and development expenses represented 62% of the Company’s operating expenses and represents investment into the research and development of the Company’s ACT technology.

Net Profit (Loss)

The net loss for the six-month period ended June 30, 2021 was $2,062,276 which included $365,690 of net non-cash expenses (i.e.: amortization, stock-based compensation expense and foreign exchange gain/loss). This compared to a net loss in 2020 of $3,267,624 which included $642,709 of net non-cash expenses. The ACT division represented $1,619,636 of this loss (79%) for the six-month period ended June 30, 2021.

The decrease in net loss is primarily attributed to the following:

1) Significant delay in patient enrollment and treatment due to the COVID-19 pandemic, resulting in decreased research and development expenses in Study II.
2) Decreased salaries due to the COVID-19 pandemic, resulting in the resignation or termination of certain non-essential administrative, research and production personnel.

Cash Flows

Funds used in operating activities, prior to net changes in other operating items, amounted to $1,696,586 for the six-month period ended June 30, 2021, compared to funds used in operating activities of $2,624,915, in 2020. Funds used in operating activities, after taking into account net changes in other non-cash operating items were $1,883,847 for the six-month period ended June 30, 2021, compared to funds used of $2,862,007 for the same period in 2020. The decrease is a result of decreased research and development expenses in Study II and reduced administrative, research and production salaries due to the COVID-19 pandemic.

Funds used in investing for the six-month period ended June 30, 2021 amounted to $68,988 compared to $46,464 for 2020. The increase is primarily a result of increased spending on equipment related to Study II.

Funds used in financing activities amounted to $28,496 for the six-month period ended June 30, 2021, compared to $29,165 for 2020.

Assets (other than Cash)

The Company holds essential and valuable intellectual property rights and assets; including: patents, trademarks, development and other related costs.

Commitments

As of June 30, 2021, the Company’s commitments consisted of the following:

Research Commitments (a) Research Agreement (b) Research Agreement(c)	Total 2021 2022 2023 2024 2025	2026 2027	2028 2029 2030 2031 2032
	24,969 $ 24,969 $ - $ - $ - $ - $ 262,023 113,883 60,840 8,800 8,800 8,800 490,059 110,307 379,752 - - -	- $ - $ 8,800 8,800 - -	- $ - $ - $ - $ - $ 8,800 8,800 8,800 8,800 8,100 - - - - -
Total	777,051 $ 249,159 $ 440,592 $ 8,800 $ 8,800 $ 8,800 $	8,800 $ 8,800 $	8,800 $ 8,800 $ 8,800 $ 8,800 $ 8,100 $

a) Research Commitments under a research agreement with a Trial Management Organization for the TLC-3000 cancer therapy project. Under the terms of this agreement, the Company is required to pay $126,324 (USD $96,800) for the period from July 23, 2019 through to December 31, 2022. The Company has paid $101,355 (USD $76,400) relating to this commitment, of which $24,969 (USD $20,400) is the remaining commitment.
b) Research Commitments under a research agreement with Alphora Research Inc. for the TLC-3000 cancer therapy project. Under the terms of this agreement, the Company is required to pay

$405,000 for the period from April 29, 2021 through to November 15, 2032. The Company has paid $142,977 relating to this commitment, of which $262,023 is the remaining commitment.

c) Research Commitments under a research agreement with a Contract Development and Manufacturing Organization for the TLC-3000 cancer therapy project. Under the terms of this agreement, the Company is required to pay $802,721 (USD $635,500) for the period from April 29, 2021 through to April 29, 2022. The Company has paid $312,662 (USD $258,100) relating to this commitment, of which $490,059 (USD $395,400) is the remaining commitment.

The Company indemnifies its directors and officers against any and all costs, charges and expenses, including settlement of claims in respect of any civil, criminal or administrative action incurred in the performance of their service to the Company to the extent permitted by law. The Company maintains liability insurance for its officers and directors.

Lease Liabilities and Right-of-Use-Assets

		Property	Office	Equipment		Total
Right-of-use Assets
Balance at January 1, 2020	$	136,018	$	5,229	$	141,247
Depreciation charge for theperiod		24,731		896		25,627
Balance at June 30,2020	$	111,287	$	4,333	$	115,620
Balance at January 1, 2021	$	86,557	$	3,436	$	89,993
Depreciation charge for theperiod		24,731		896		25,627
Balance at June 30, 2021	$	61,826	$	2,540	$	64,366
Lease Liabilities
Balance at January 1, 2020	$	139,309	$	5,313	$	144,622
Interest charge for the period		5,163		198		5,361
Leasepayments for theperiod(1)		(29,900)		(1,080)		(30,980)
Balance at June 30,2020	$	114,572	$	4,431	$	119,003
Balance at January 1, 2021	$	88,830	$	3,513	$	92,343
Interest charge for the period		3,110		125		3,235
Leasepayments for theperiod(1)		(29,900)		(1,081)		(30,981)
Balance at June 30, 2021	$	62,040	$	2,557	$	64,597

(1) Lease payments are discounted using an incremental borrowing rate of 8%.

(2) Lease payments do not include variable property lease payments of $19,775 (2020 - $18,803).

(3)

(3)
		As	at June 30, 2021					As at	December 30,		2020
				Office						Office
	Property		Equipment			Total	Property		Equipment			Total
Current portion of lease liabilities	$	56,893	$	2,029	$	58,922	$	54,669	$	1,950	$	56,619
Non-currentportion of lease liabilities		5,147		528		5,675		34,161		1,563		35,724
	$	62,040	$	2,557	$	64,597	$	88,830	$	3,513	$	92,343

Principal repayments of the Company’s leased premises and office equipment until maturity are as follows:

	Property	Property	Office Equipment	Office Equipment		Total
2021		27,879		994		28,873
2022		34,161		1,563		35,724
	$	62,040	$	2,557	$	64,597

Share Capital Analysis

As of August 30, 2021, the share capital of the Company consisted of 204,275,875 common shares. Each common share entitles the holder to one vote per share.

As of August 30, 2021, there were 14,120,000 options outstanding, of which 6,720,000 were vested and exercisable into an equivalent number of the Company’s common shares.

As of August 30, 2021, there were 72,473,931 warrants outstanding. Each whole warrant entitles the holder thereof to purchase one additional common share. The warrants are exercisable as follows: 4,555,266 at a price of $0.375 until November 10, 2021, 3,165,009 at a price of $0.50 until October 3, 2022, 4,095,157 at a price of $0.50 until January 9, 2023, 3,159,000 at a price of $0.30 until May 14, 2022 and 57,499,000 at a price of $0.35 until August 22, 2024.

As of August 30, 2021, there were 2,023,077 broker compensation units that were issued in connection with the August 22, 2019 public offering. Each broker compensation unit entitles the holder thereof to acquire one common share and one common share purchase warrant at a price of $0.35 per unit until August 22, 2024.

Segmented Information

For management purposes, the Company is organized into two separate reportable operating divisions; the Anti-Cancer Therapy (“ ACT ”) division and the Cool Laser Therapy (“ CLT ”) division. The ACT division is responsible for the research and development of PDCs for the treatment of cancer with assistance from the CLT division to develop medical lasers to activate them. The CLT division is responsible for the Company’s medical laser business, which researches, develops, manufactures and distributes cool laser systems to healthcare practitioners predominantly for the healing of pain.

The following table displays revenue and direct expenses from the ACT and CLT division for the six-month period ended June 30:

				2021						2020
		CLT		ACT		Total		CLT		ACT		Total
Sales	$	429,999	$	-	$	429,999	$	293,453	$	-	$	293,453
Cost of sales		230,370		-		230,370		230,095		-		230,095
Gross margin		199,629		-		199,629		63,358		-		63,358
Operating Expenses
Selling expenses		197,400		-		197,400		229,998		-		229,998
Administrative expenses		488,351		313,920		802,271		590,902		374,922		965,824
Research and development expenses		88,141		1,305,437		1,393,578		209,154		2,009,903		2,219,057
(Gain) from legal settlement		(131,903)		-		(131,903)		-		-		-
(Gain) loss on foreign exchange		5,477		5,476		10,953		(1,631)		(1,630)		(3,261)
Interest accretion on lease liabilities		1,618		1,617		3,235		2,681		2,681		5,361
Interest income		(6,815)		(6,814)		(13,629)		(85,997)		-		(85,997)
		642,269		1,619,636		2,261,905		945,107		2,385,876		3,330,982
Loss for the period	$	(442,640)	$	(1,619,636)	$	(2,062,276)	$	(881,748)	$	(2,385,876)	$	(3,267,624)

Total Assets	$	2,441,029	$	5,741,736	$	8,182,765	$	3,552,358	$	8,413,293	$	11,965,651
Total Liabilities		487,250		374,598		861,848		637,726		229,283		867,009

The following table displays revenue and direct expenses from TLT division product sales by product line and geographic area for the six-month period ended June 30:

Sales by Product Line TLC-1000 TLC-2000 Expenses Cost of Sales Selling Expenses	Canada	USA International Canada USA International 14,811 $ - $ 161,073 $ 12,267 $ 7,347 $ 17,845 13,189 94,073 - 18,694 32,656 13,189 255,146 12,267 26,041 2021 2020
	165,206 $ 218,948
	384,154
	205,809 175,017	17,495 7,066 200,058 9,619 20,418 14,490 7,893 195,081 23,745 11,172 31,985 14,959 395,139 33,364 31,590 671 $ (1,770) $ (139,993) $ (21,097) $ (5,549) $
	380,826
	3,328 $

As of June 30, 2021 and 2020, the Company’s long-lived assets used in operations are all located in Canada. Timing of revenue is recognized at a point in time.

Selected Financial Information and Accounting Policies

The unaudited condensed interim consolidated financial statements for the six-month period ended June 30, 2021, and all other financial statements referred to herein, have been prepared in accordance with International Financial Reporting Standards (“ IFRS ”), consistently applied, and all amounts and currencies reported therein, and in this MD&A, are in Canadian dollars, unless otherwise noted. The ongoing accounting policies are more particularly described in the Notes to the Audited Consolidated Financial Statements for the six-month period ended June 30, 2021. Please refer to the Company's annual and quarterly financial statement filings, including material interim press releases, on Sedar at www.sedar.com.

Use of Financial Instruments

The Company’s financial instruments consists of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities. The fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate carrying value because of the short-term nature of these instruments.

IFRS 7 Financial Instruments Disclosures establishes a fair value hierarchy that reflects the significance of inputs used in making fair value measurements as follows:

Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. from derived prices); and
Level 3: inputs for the asset or liability that are not based upon observable market data.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate fair value due to the short-term maturities of these instruments.

Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of June 30, 2021 and 2020, the Company’s cash and cash equivalents are categorized as Level 1. There were no financial instruments categorized as Level 2 or 3.

(i) Credit risk:

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s trade and other receivable. The amounts reported in the consolidated balance sheets are net of allowances for credit losses, estimated by the Company’s management based on prior experience and its assessment of the current economic environment. The Company reviews its trade receivable accounts regularly and reduces amounts to their expected realizable values by adjusting the allowance for credit losses when management determines that the account may not be fully collectible. The Company has adopted credit policies in an effort to minimize those risks. The carrying value of trade and other receivables represent the Company’s maximum exposure to credit risk.

(ii) Liquidity risk:

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continuously monitoring forecasted and actual cash flows, as well as anticipated investing and financing activities. The Company does not have material long-term financial liabilities.

(iii) Interest rate risk:

Interest rate risk is the risk that changes in interest rates will affect the Company’s income or the value of the financial instruments held. 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 Company’s exposure to interest rate risk is as follows:

Cash and cash equivalents Short-term investments

Short-term fixed and variable interest rate Short-term fixed interest rate

Short-term and long-term fixed interest rate

Financed trade receivables

(iv) Foreign currency exchange risk:

The Company is exposed to foreign currency exchange risk. This risk arises from the Company’s holdings of US dollar denominated cash, trade and other receivables and payables and accrued liabilities. Changes arising from this risk could impact the Company’s reported foreign currency exchange gains or losses.

The Company has not entered into any conventional or other financial instruments designed to minimize its investment risk, currency risk or commodity risk. No off-balance sheet arrangements have been established nor are there any pending proposals or indicated business requirements to this effect.

Critical Accounting Policies, Estimates and Judgments

As noted above, the Company’s condensed interim consolidated financial statements as of June 30, 2021 and December 31, 2020 and for the six-month periods ended June 30, 2021 and 2020 have been prepared in accordance with IFRS. The policies applied are based on IFRS issued and outstanding as of August 30, 2021 which is the date at which the Company’s Board of Directors approved the audited consolidated financial statements.

Additionally, the preparation of consolidated financial statements in accordance with IFRS often requires management to make estimates about and apply assumptions or subjective judgment to future events and other matters that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Assumptions, estimates and judgments are based on historical experience, expectations, current trends and other factors that management believes to be relevant at the time at which the audited consolidated financial statements are prepared. Management reviews, on a regular basis, the Company’s accounting policies, assumptions, estimates and judgments, in order to ensure that the audited consolidated financial statements are presented fairly and in accordance with IFRS.

Critical accounting estimates and judgments are those that have a significant risk of causing material adjustment and are often applied to matters or outcomes that are inherently uncertain and subject to change. As such, management cautions that future events often vary from forecasts and expectations and that estimates routinely require adjustment. A summary of those areas where the Company’s management believe critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements can be found in note 2 to the audited consolidated financial statements of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019.

Disclosure of Internal Controls

Management has established processes, which are in place to provide them sufficient knowledge to support management representations that they have exercised reasonable diligence that:

(i) the financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of and for the periods presented by the financial statements; and

(ii) the financial statements fairly present in all material respects the financial condition, financial performance and cash flows of the Company, as of the date of and for the periods presented by the financial statements.

In contrast to the certificate required under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), the Company utilizes the Venture Issuer Basic Certificate, which does not include representations relating to the establishment and maintenance of Disclosure Controls and Procedures (“ DC&P ”) and Internal Control over Financial Reporting (“ ICFR ”), as defined in NI 52-109.

In particular, the certifying officers filing the Certificate are not making any representations relating to the establishment and maintenance of:

(i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
(ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP. The Company’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in the certificate.

Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost-effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

In connection with the audits of the Company’s consolidated financial statements for the years’ ended December 31, 2020 and 2019, the Company’s independent registered public accountants identified certain material weaknesses in the Company’s internal control over financial reporting. Such material weaknesses continue to exist as of June 30, 2021. A “material weaknesses” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses relate to not having a full segregation of duties within members of its accounting staff dedicated to financial reporting functions so that all journal entries and account reconciliations are reviewed by someone other than the preparer, heightening the risk of error or fraud, and a proper system for updating inventory values as of the end of each reporting period. If the Company is unable to remediate the material weakness, or other control deficiencies are identified, the Company may not be able to report its financial results accurately, prevent fraud or file its periodic reports as a public company in a timely manner.

Risks and Uncertainties

The Company’s operations involve certain risks and uncertainties that are inherent to the Company’s industry. The most significant known risks and uncertainties faced by the Company are described below.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“ COVID-19 ”) as a global pandemic, which continues to spread throughout Canada and around the world. As of August 30, 2021, the Company is aware of significant changes in its business, as a result of the COVID-19 pandemic, resulting in the resignation and/or termination of certain non-essential personnel, personnel working remotely

or virtually, delayed patient enrollment and treatment in Study II and significant delays / cancellations in customer purchase decisions. Management is uncertain of the full extent of theses impacts on its financial statements and believes that the business disruption caused by COVID-19 could be temporary; however, there is uncertainty around its duration and hence the potential impact on the business cannot be fully estimated.

Limited Operating History

The Company is still in the development and commercialization stages of its businesses and therefore will be subject to the risks associated with early stage companies, including uncertainty of the success and acceptance of its products, uncertainty of revenues, markets and profitability and the continuing need to raise additional capital. The Company’s business prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in this stage of development. Such risks include the evolving and unpredictable nature of the Company’s business, the Company’s ability to anticipate and adapt to a developing market, acceptance by consumers of the Company’s products, the ability to identify, attract and retain qualified personnel and the ability to generate sufficient revenue or raise sufficient capital to carry out its business plans. There can be no assurance that the Company will be successful in adequately mitigating these risks.

Working Capital and Capital Resources

The Company has not been able to consistently generate sufficient profits from its revenue to provide the financial resources necessary to continue to have sufficient working capital for the development of its products and marketing activities. There is no assurance that future revenues will be sufficient to generate the required funds to continue product development, business development and marketing activities or that additional funds required for such working capital will be available from financings.

These conditions indicate the existence of material uncertainties that cast substantial doubt about the Company’s ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon achieving a profitable level of operations and obtaining additional financing, neither of which is assured. The Company has been able, to date, to raise capital to continue to market its products and continues to develop sales opportunities which could result in additional sales of its products in the future.

In order to achieve its long term development and commercialization strategy for the Company’s range of therapeutic laser systems and PDC anti-cancer technology, the Company may need to raise additional capital through the issuance of shares, collaboration agreements or strategic partnerships that would allow the Company to finance its activities. There is no assurance that additional funds will be available as required or that they may be available on acceptable terms and conditions. Additional financing may also result in dilution of shareholder value.

Key Personnel

The Company’s success is dependent upon its ability to attract and retain a highly qualified work force, and to establish and maintain close relationships with research centers. Competition is intense and the Company’s success will depend, to a great extent, on its senior and executive managers, scientific personnel and academic partners. The loss of one or more of its key employees or the inability to attract and retain highly skilled personnel could have a material adverse effect on the Company’s development of its products, operations or business prospects.

Protection of Intellectual Property

The Company’s success will depend in part on its ability to obtain patents, protect its trade secrets and operate without infringing the exclusive rights of other parties. There is no guarantee that any patent that will be granted to the Company will bring any competitive advantage to the Company, that its patent protection will not be contested by third parties, or that the patents of competitors will not be detrimental to the Company’s

commercial activities. It cannot be assured that competitors will not independently develop products similar to the Company’s products, that they will not imitate the Company’s products or that they will not circumvent or invalidate patents granted to the Company.

Although the Company does not believe that its products infringe the proprietary rights of any third parties, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against the Company or that any such assertions or prosecutions, valid or otherwise, will not materially adversely affect the Company’s business, financial condition or results of operations. Irrespective of the validity of the successful assertion of such claims, the Company could incur significant costs and diversion of resources with respect to the defense thereof, which could have a material adverse effect on the Company. The Company’s performance and ability to develop markets and compete effectively are dependent to a significant degree on its proprietary and patented technology. The Company relies on its patents and trade secrets, as well as confidentiality agreements and technical measures, to establish and protect its proprietary right. While the Company will endeavor to protect its intellectual property, there can be no assurance that the steps taken will prevent misappropriation or that agreements entered into for that purpose will be enforceable. The laws of certain other countries may afford the Company little or no effective protection of its intellectual property.

Competition

Many of the Company’s current and potential competitors have longer operating histories, larger customer bases, greater name and brand recognition and significantly greater financial, sales, marketing, engineering, scientific, technical and other resources than the Company. These competitors have research and development capabilities that may allow them to develop new or improved products that may compete with the Company’s products. New technologies and the expansion of existing technologies may also increase competitive pressures on the Company. Increased competition may result in reduced operating margins as well as loss of market share and could result in decreased usage in the Company’s products and may have a material adverse affect on the Company.

Implementation Delays

Many of the Company’s products will be in development, testing or preliminary stage and there may be delays or other problems in the introduction of the Company’s products. The Company cannot predict when customers that are in a testing or preliminary use phase of the Company’s products will adopt a broader use of the products. The market for the Company’s products is relatively new and continues to evolve. The Company’s products will involve changes in the manner in which businesses have traditionally used such products. In some cases, the Company’s customers will have little experience with products offered by the Company. The Company will have to spend considerable resources educating potential customers about the value of the Company’s products. It is difficult to assess, or predict with any assurance, the present and future size of the potential market for the Company’s products or its growth rate, if any. The Company cannot predict whether or not its products will achieve market acceptance.

Strategic Alliances

The Company’s ability to successfully complete the research and development of its products and its growth and marketing strategies are based, in significant part, in the strategic alliances it has in place and the licenses and agreements securing those strategic alliances. The Company’s success will depend upon the ability to seek out and establish new strategic alliances and working relationships. There can be no assurance that existing strategic alliances and working relationships will not be terminated or adversely modified in the future, nor can there be any assurance that new relationships, if any, will afford the Company the same benefits as those currently in place.

Trade Secret Protection

Because the Company relies on third parties to develop its products, the Company must share trade secrets with them. The Company seeks to protect its proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research agreements, consulting agreements or other similar agreements with its collaborators, advisors, employees and consultants prior to beginning research or disclosing proprietary information. These agreements typically restrict the ability of its collaborators, advisors, employees and consultants to publish data potentially relating to its trade secrets. The Company’s academic collaborators typically have rights to publish data, provided that the Company is notified in advance and may delay publication for a specified time in order to secure its intellectual property rights arising from the collaboration. In other cases, publication rights are controlled exclusively by the Company, although in some cases the Company may share these rights with other parties. The Company also conducts joint research and development programs which may require the Company to share trade secrets under the terms of research and development collaboration or similar agreements. Despite the Company’s efforts to protect its trade secrets, the Company’s competitors may discover the Company’s trade secrets, either through breach of these agreements, independent development or publication of information including the Company’s trade secrets in cases where the Company does not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of the Company’s trade secrets may impair the Company’s competitive position and could have a material adverse effect on the Company’s business and financial condition.

Product Deficiencies

Given that the Company’s products are either fairly new, or are in various stages of development, there may be difficulties in product design, performance and reliability which could result in lost revenue, delays in customer acceptance of the Company’s products and legal claims against the Company, which would be detrimental, perhaps materially to the Company’s market reputation and ability to generate further sales. Serious defects are frequently found during the period immediately following the introduction of new products or enhancements to existing products and undetected errors or performance problems may be discovered in the future. Product defects may expose the Company to liability claims, for which the Company may not have sufficient liability insurance.

Dependence on Third Party Suppliers

The Company has established relationships with certain third-party suppliers upon whom, it relies to provide key materials and components for completion of its products. In the event of the inability of these third parties to supply such materials and components in a timely manner or to supply materials and components that continue to meet the Company’s quality, quantity or cost requirements, the Company would be required to purchase these materials and components from other suppliers. There is no assurance that other suppliers can be found in such circumstances who can supply the materials and components in a timely manner or that meet the Company’s quality, quantity or cost requirements.

Volatility of Share Price

The market price of the Company’s common shares is subject to volatility. General market conditions as well as differences between the Company’s financial, scientific and clinical results, and the expectations of investors, as well as securities analysts can have a significant impact on the trading price of the Company’s common shares.

Regulatory Approvals

The Company is directly and indirectly engaged in the design, manufacture, sale and international marketing of therapeutic and medical laser equipment, as well as the research and development of light activated PDCs, all of which are subject to regulatory oversights, audits and controls by various national regulatory agencies (i.e.: FDA, Health Canada, CE) and authoritative quality standards bodies (i.e.: UL, CSA, ISO and TUV), which all possess strict quality certification procedures. The Company is in full compliance with all the governing

regulatory and quality standards and approval requirements pertaining to the medical laser devices it currently designs, manufactures and markets and the PDCs it researches and develops. No assurance can be given that current regulations relating to regulatory approval will not change or become more stringent and product approvals may be withdrawn if compliance with regulatory standards is not maintained.

Early Stage of Product Development

Given the early stage of the Company’s product development, the Company can make no assurance that its research and development programs will result in regulatory approval or commercially viable products. To achieve profitable operations, the Company alone or with others, must successfully develop, gain regulatory approval and market its future products. To obtain regulatory approvals for its product candidates being developed and to achieve commercial success, clinical studies must demonstrate that the product candidates are safe and tolerable for human use and that they demonstrate efficacy equal to or greater than standard of care.

Many product candidates never reach the stage of clinical testing and even than those that do have only a small chance of successfully completing clinical development and gaining regulatory approval. Product candidates may fail for a number of reasons, including, but not limited to: being unsafe for human use or due to the failure to provide therapeutic benefits equal to or better than the standard of treatment at the time of testing. Unsatisfactory results obtained from a particular study relating to a research and development program may cause the Company or its collaborators to abandon commitments to that program. Positive results of early preclinical research may not be indicative of the results that may be obtained in later stages of preclinical or clinical research. Similarly, positive results from early-stage clinical studies may not be indicative of favorable outcomes in later-stage clinical studies. The Company can make no assurance that any future studies, if undertaken, will yield favorable results.

Reliance on Third Parties

The Company relies and will continue to rely on third parties to conduct a significant portion of its preclinical and clinical development activities. Preclinical activities include: in-vivo studies providing access to specific disease models, pharmacology and toxicology studies and assay development. Clinical development activities include: trial design, regulatory submissions, clinical patient recruitment, clinical trial monitoring, clinical data management and analysis, safety monitoring and project management. If there is any dispute or disruption in the Company’s relationship with third parties, or if they are unable to provide quality services in a timely manner and at a feasible cost, the Company’s active development programs may face delays. Further, if any of these third parties fails to perform as the Company expects or if their work fails to meet regulatory requirements, the Company’s testing could be delayed, cancelled or rendered ineffective.

Clinical Study Risk

Before obtaining marketing approval from regulatory authorities for the sale of the Company’s product candidates, the Company must conduct preclinical studies in animals and extensive clinical studies in humans to demonstrate the safety, tolerability and efficacy of the product candidates. Clinical testing is expensive and difficult to design and implement, can take many years to complete and has uncertain outcomes. The outcome of preclinical experiments and early clinical studies may not predict the success of later clinical studies, and interim results of a clinical study do not necessarily predict final results. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical studies due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in earlier studies. The Company does not know whether the clinical studies it may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market any of the Company’s product candidates in any jurisdiction. A product candidate may fail for safety, tolerability or efficacy reasons at any stage of the testing process. A major risk the Company faces is the possibility that none of the Company’s product candidates under development will successfully gain market approval from Health Canada, the FDA or other regulatory

authorities, resulting in the Company being unable to derive any commercial revenue from them after investing significant amounts of capital in multiple stages of preclinical and clinical testing.

From time to time, scientific studies or clinical studies on various aspects of biopharmaceutical products are conducted by academic researchers, competitors or others. The results of these studies, when published, may have a significant effect on the market for the biopharmaceutical product that is the subject of the study. The publication of negative results of scientific studies or clinical studies or adverse safety events related to the Company’s product candidates, or the therapeutic areas in which the Company’s product candidates compete, could adversely affect the Company’s share price and the Company’s ability to finance future development of its product candidates; hence, the Company’s business and financial results could be materially and adversely affected.

Clinical Study Timing Delays

The Company cannot predict whether any clinical studies will begin as planned, will need to be restructured, or will be completed on schedule, or at all. The Company’s product development costs may increase significantly if the Company experiences delays in clinical testing. Significant clinical study delays could shorten any periods during which the Company may have the exclusive right to commercialize its product candidates or allow the Company’s competitors to bring products to market before the Company, which would impair the Company’s ability to successfully commercialize its product candidates and may harm the Company’s financial condition, results of operations and / or prospects. The commencement and completion of clinical studies for the Company’s products may be delayed for a number of reasons, including delays related, but not limited, to:

failure by regulatory authorities to grant permission to proceed or placing the clinical study on hold;
patients failing to enroll or remain in the Company’s studies at the rate the Company expects;
suspension or termination of clinical studies by regulators for many reasons, including concerns about patient safety or tolerability
any changes to the Company’s manufacturing process that may be necessary or desired;
delays or failure to obtain clinical supply from contract manufacturers of the Company’s products necessary to conduct clinical studies;
product candidates demonstrating a lack of safety, tolerability or efficacy during clinical studies;
patients choosing an alternative treatment for the indications for which the Company is developing any of its product candidates or participating in competing clinical studies;
patients failing to complete clinical studies due to dissatisfaction with the treatment, side effects or other reasons;
reports of clinical testing on similar technologies and products raising safety, tolerability and/or efficacy concerns;
competing clinical studies and scheduling conflicts with participating clinicians;
clinical investigators not performing the Company’s clinical studies on their anticipated schedule, dropping out of a study, or employing methods not consistent with the clinical study protocol, regulatory requirements or other third parties not performing data collection and analysis in a timely or accurate manner;
failure of the Company’s Contract Research Organizations, to satisfy their contractual duties or meet expected deadlines;
inspections of clinical study sites by regulatory authorities, Review Ethics Boards (“ REB ”), or Institutional Review Boards (“ IRBs ”) or ethics committees finding regulatory violations that require the Company to undertake corrective action, resulting in suspension or termination of one or more sites or the imposition of a clinical hold on the entire study;

one or more IRBs or ethics committees rejecting, suspending or terminating the study at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the study; or
failure to reach agreement on acceptable terms with prospective clinical study sites.

The Company’s product development costs may increase if the Company experiences delays in testing or approval or if the Company needs to perform more or larger clinical studies than planned. Additionally, changes in regulatory requirements and policies may occur, and the Company may need to amend study protocols to reflect these changes. Amendments may require the Company to resubmit its study protocols to regulatory authorities or IRBs or ethics committees for re-examination, which may impact the cost, timing or successful completion of that study. Delays or increased product development costs may have a material adverse effect on the Company’s business, financial condition and prospects.

Patient Enrollment

As the Company’s product candidates advance from preclinical testing to clinical testing, and then through progressively larger and more complex clinical studies, the Company may need to enroll an increasing number of patients that meet the Company’s eligibility criteria. There is significant competition for recruiting cancer patients in clinical studies, and the Company may be unable to enroll the patients it needs to complete clinical studies on a timely basis or at all. The factors that affect the Company’s ability to enroll patients are largely uncontrollable and include, but are not limited to, the following:

size and nature of the patient population;
eligibility, inclusion and exclusion criteria for the study;
design of the clinical study protocol;
competition with other companies for clinical sites or patients;
the perceived risks and benefits of the product candidate under study;
the patient referral practices of physicians; or
the number, availability, location and accessibility of clinical study sites

Failure to Achieve Milestones

From time to time, the Company may announce the timing of certain events it expects to occur, such as the anticipated timing of results from the Company’s clinical studies or product sales. These statements are forward-looking and are based on the best estimates of management at the time relating to the occurrence of such events; however, the actual timing of such events may differ from what has been publicly disclosed. The timing of events such as initiation or completion of a clinical study, filing of an application to obtain regulatory approval or announcement of additional clinical studies for a product candidate or adoption / sales of the Company’s products may ultimately vary from what is publicly disclosed. These variations in timing may occur as a result of different events, including the nature of the results obtained during a clinical study or during a research phase or any other event having the effect of delaying the publicly announced timeline. The Company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as otherwise required by law. Any variation in the timing of previously announced milestones could have a material adverse effect on the Company’s business plan, financial condition or operating results and the trading price of common shares.

Currency Risk

The Company’s primary risks are exposure to foreign currency exchange risk. These risks arise from the Company’s holdings of US and Canadian dollar denominated cash, accounts receivable and accounts payable. Changes arising from these risks could impact the Company’s reported foreign exchange gains or losses. The Company limits its exposure to foreign currency risk by holding US denominated cash in amounts of up to 100%

of forecasted twelve month US dollar expenditures; thereby, creating a natural hedge against foreign currency fluctuations and limiting foreign currency risk to translation of US dollar balances at the balance sheet date.

Credit Risk

Credit risk is the risk of financial loss to the Company, if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s accounts receivable. The amounts reported in the balance sheet are net of allowances for bad debts, estimated by the Company’s management based on prior experience and their assessment of the current economic environment. The Company reviews its trade receivable accounts regularly and reduces amounts to their expected realizable values by adjusting the allowance for doubtful accounts as soon as the account is determined not to be fully collectible. The Company has adopted credit policies in an effort to minimize these risks.

Product Liability

The Company has obtained product liability insurance coverage in the aggregate of $5,000,000. This coverage is limited, and a product liability claim could potentially be greater than this coverage. The Company’s profitability would be adversely affected by any successful product liability claim in excess of its insurance coverage.

Clinical Trial Liability

The Company has obtained clinical trial liability insurance coverage in the aggregate of $5,000,000. This coverage is limited, and a clinical trial liability claim could potentially be greater than this coverage. The Company’s profitability would be adversely affected by any successful product liability claim in excess of its insurance coverage.

Patent-Related Rights of the U.S. Government in PDT Technology

Some of Theralase®’s licensed patented PDT technology was developed with US federal government funding. When new technologies are developed with US government funding, the government obtains certain rights in any resulting patents, including a nonexclusive license authorizing the government to use the invention for noncommercial purposes. These rights may permit the government to disclose Theralase®’s confidential information to third parties and to exercise “march-in” rights to use or allow third parties to use Theralase®’s patented technology. The government can exercise its march-in rights if it determines that action is necessary because Theralase® fails to achieve practical application of the US government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to US industry. In addition, US government-funded inventions must be reported to the government and US government funding must be disclosed in any resulting patent applications. Furthermore, Theralase®’s rights in such inventions are subject to government license rights and certain restrictions on manufacturing products outside the United States.

August 30, 2021

Kristina Hachey, CPA Chief Financial Officer