Theralase Technologies Inc. — Interim / Quarterly Report 2021

Aug 31, 2021

Theralase Technologies Inc. Condensed Interim Consolidated Financial Statements - Unaudited As at June 30, 2021 and for the six-month period ended June 30, 2021 and 2020

THERALASE® TECHNOLOGIES INC.

Consolidated Statements of Financial Position

As at June 30, 2021 and December 31, 2020

Stated in Canadian Dollars

As at June 30, 2021 and December 31, 2020 Stated in Canadian Dollars THERALASE® TECHNOLOGIES INC. Consolidated Statements of Financial Position	As at June 30, 2021 and December 31, 2020 Stated in Canadian Dollars THERALASE® TECHNOLOGIES INC. Consolidated Statements of Financial Position
Note 2021 2020
Assets Current assets Cash and cash equivalents 5,898,912 $ 7,880,243 $ Trade and other receivables 3 213,599 485,238 Inventories 4 625,489 452,238 Prepaid expenses and other assets 424,822 97,900
Total current assets 7,162,822 8,915,619
Non-current assets Trade receivables 3 32,325 55,325 Property and equipment 5 914,665 951,258 Right-of-use-assets 6 64,366 89,993 Rent deposit 8,587 8,587
Total non-current assets 1,019,943 1,105,163
Total Assets 8,182,765 $ 10,020,782 $
Liabilities Current liabilities Payables and accruals 7 797,251 $ 764,790 $ Currentportion of lease liabilities 6 58,922 56,619
Total current liabilities 856,173 821,409
Non-current liabilities Lease liabilities 6 5,675 35,724
Total non-current liabilities 5,675 35,724
Total Liabilities 861,848 857,133
Equity attributable to shareholders Share capital 10 42,120,421 42,120,421 Contributed surplus 8,9 10,474,734 10,254,440 Common share purchase warrants 9 5,469,275 5,295,255 Accumulated deficit (50,743,513) (48,506,467)
Total Equity 7,320,917 9,163,649
Total Shareholders' Equity and Liabilities 8,182,765 $ 10,020,782 $
Commitments (Note 18)
Approved on Behalf of the Board [Randy Bruder] Director [Matthew Perraton] Director

Approved on Behalf of the Board
[Randy Bruder]	Director
[Matthew Perraton]	Director

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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THERALASE® TECHNOLOGIES INC.

Consolidated Statements of Operations

For the six-month periods ended June 30 Stated in Canadian Dollars

Consolidated Statements of Operations For the six-month periods ended June 30 Stated in Canadian Dollars
		Three Months Ended		June 30		Six	Months Ended June		30
	Note		2021		2020		2021		2020
Sales		$	305,216	$	181,910	$	429,999	$	293,453
Cost of sales			155,907		130,648		230,370		230,095
Gross margin			149,309		51,262		199,629		63,358
Operating expenses
Selling expenses	12		101,620		93,104		197,400		229,998
Administrative expenses	13		383,817		432,495		802,271		965,824
Research and development expenses	14		804,011		1,171,775		1,393,578		2,219,057
(Gain) from legal settlement			38		-		(131,903)		-
(Gain) loss on foreign exchange			8,153		(1,489)		10,953		(3,261)
Interest accretion on lease liabilities	6		1,479		2,553		3,235		5,361
Interest income			(6,625)		(23,406)		(13,629)		(85,997)
			1,292,493		1,675,032		2,261,905		3,330,982
Net loss and comprehensive loss for theperiod		$	(1,143,184)		(1,623,770)	$	(2,062,276)	$	(3,267,624)
Basic and diluted lossper common share	11		(0.006)		(0.008)		(0.010)		(0.016)
Weighted average number of common shares		204,275,875		204,276,375		204,275,875		204,276,375

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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THERALASE® TECHNOLOGIES INC.

Consolidated Statements of Cash Flows

For the six-month periods ended June 30

Stated in Canadian Dollars

THERALASE® TECHNOLOGIES INC. Consolidated Statements of Cash Flows For the six-month periods ended June 30 Stated in Canadian Dollars	THERALASE® TECHNOLOGIES INC. Consolidated Statements of Cash Flows For the six-month periods ended June 30 Stated in Canadian Dollars
2021 2020
Cash flows from operating activities Net loss for the period (2,062,276) $ (3,267,624) $ Items not involving cash: Amortization of property and equipment 105,581 97,946 Amortization of right-of-use assets 25,627 25,627 Amortization of intangibles - 2,668 Stock-based compensation expense 220,294 514,368 (Gain) loss on foreign exchange 10,953 (3,261) Interest accretion from lease liabilities 3,235 5,361
(1,696,586) (2,624,915) Change in operating assets and liabilities other than cash: Current trade and other receivables 260,685 272,583 Non-current trade receivables 23,000 24,715 Inventories (173,251) 168,874 Prepaid expenses and other assets (326,922) 24,116 Payables and accruals 29,227 (727,380)
(1,883,847) (2,862,007)
Cash flows from investing activity Purchase ofpropertyand equipment (68,988) (46,464)
(68,988) (46,464)
Cash flows from financing activities Payment of lease liabilities (27,746) (25,619) Warrant extension costs (750) (3,721)
	Proceeds from the exercise of share warrants - 175
(28,496) (29,165) (1,981,331) (2,937,636) Cash and cash equivalents,beginningofperiod 7,880,243 12,548,550 Increase (decrease) in cash and cash equivalents during the period	(28,496) (29,165)
Cash and cash equivalents,end ofperiod 5,898,912 $ 9,610,914 $
Supplementary Information Interest Paid - $ - $ Interest Received 13,629 $ 85,997 $

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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THERALASE® TECHNOLOGIES INC.

Consolidated Statements of Changes in Equity For the six-month periods ended June 30

Stated in Canadian Dollars

For the six-month periods ended June 30 Stated in Canadian Dollars Consolidated Statements of Changes in Equity
Note	Number of Shares Share Capital Contributed Surplus Common Share Purchase Warrants Deficit Total Shareholders' Equity
	# $ $ $ $ $
Balance, December 31, 2019 Stock-based compensation expense 8 Expired Warrants 9 Exercised share purchase warrants 9 Extension of warrants 9 Warrants extension costs 9 Loss for theperiod	204,275,375 42,120,213 6,990,821 7,396,563 (42,652,154) 13,855,443 - - 514,368 - - 514,368 - - 2,351,587 (2,351,587) - - 500 208 - (33) - 175 - - - 187,697 (187,697) - - - - (3,721) - (3,721) - - - - (3,267,624) (3,267,624)
Balance, June 30, 2020	204,275,875 42,120,421 9,856,776 5,228,919 (46,107,475) 11,098,641
Balance, December 31, 2020	204,275,875 42,120,421 10,254,440 5,295,255 (48,506,467) 9,163,649
Stock-based compensation expense 8 Extension of warrants 9 Warrants extension costs 9 Loss for theperiod	- - 220,294 - - 220,294 - - 174,770 (174,770) - - - (750) - (750) - - - - (2,062,276) (2,062,276)
Balance, June 30, 2021	204,275,875 42,120,421 10,474,734 5,469,275 (50,743,513) 7,320,917

The accompanying notes are an integral part of these unaudited condensed consolidated interim financial statements.

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

1. Nature of Operations

Theralase Technologies Inc. (the “ Company ” or “ Theralase ”) has two main divisions.

The Anti-Cancer Therapy (“ ACT ”) division develops patented and patent pending drugs, called Photo Dynamic Compounds (“ PDCs ”) and activates them with proprietary and patent pending laser technology to destroy specifically targeted cancers, bacteria and viruses. The Cool Laser Therapy (“ CLT ”) division designs, develops, manufactures and markets patented and 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. The technology has been used off-label for healing numerous nerve, muscle and joint conditions.

The Company develops products both internally and using the assistance of specialist external resources. Successful financing enables the commercialization of the Company’s current and future product offerings, which is further supported through the Company’s established network of direct sales and indirect distribution networks.

Theralase was incorporated by articles of incorporation in the province of Ontario in September 2004. The Company’s common shares trade on the Toronto Stock Venture Exchange under the symbol TLT. The registered office is 41 Hollinger Road, Toronto, Ontario, Canada M4B 3G4.

Going Concern, Capital Disclosures and Statement of Compliance

These interim condensed consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“ IFRS ”) as issued by the International Accounting Standards Board (“ IASB ”), effective for the reporting period ended June 30, 2021, and have been prepared in accordance with International Accounting Standard (" IAS ") 34 "Interim Financial Reporting". The interim condensed consolidated financial statements follow the same accounting policies and methods of application as those disclosed in the annual consolidated financial statements for the year ended December 31, 2020, but do not include all the information and disclosures required in the Company’s annual financial statements. The preparation of interim condensed consolidated financial statements in accordance with IAS 34 requires the use of certain accounting estimates, and also requires management to use judgement in applying the Company’s accounting policies. The areas that involve judgement and estimates have been disclosed in Note 2 of the Company’s 2020 annual consolidated financial statements. These interim condensed consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended December 31, 2020.

The interim condensed consolidated financial statements have been prepared by management in accordance with IFRS as issued by the IASB and including interpretations of the IFRS Interpretations Committee (“ IFRIC ”) on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

For the six-month period ended June 30, 2021, the Company had a net loss of $2,062,276 (2020 - $3,267,624), an accumulated deficit of $50,743,514 (December 31, 2020 - $48,506,467) and has historically used net cash in operations. These conditions indicate the existence of material uncertainties that casts 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 raise capital to continue to market its products and continues to develop sales opportunities that could result in additional sales of its products in the future. These condensed interim consolidated financial statements do not give effect to any adjustments which may

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

be necessary should the Company be unable to continue as a going concern and be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying condensed interim consolidated financial statements. These adjustments could be material.

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. Sales of the TLC-2000, the Company’s existing product line have not met expectations and have not been sufficient in and of themselves to enable the Company to fund all its continuing development and commercialization efforts and, accordingly, management is pursuing alternate financing sources to fund the Company’s development and commercialization efforts. The Company has successfully raised capital through equity offerings in 2019 however, there is no guarantee that the Company will be able to raise additional capital on terms and conditions agreeable to the Company.

The Company is not subject to any externally imposed capital requirements and the Company does not use financial ratios to manage capital. There were no changes in the Company’s approach to capital management during the years presented.

Approval of Financial Statements

The condensed interim consolidated financial statements for the six-month period ended June 30, 2021 (including comparatives) were approved and authorized for issue by the board of directors on August 30, 2021.

2. Summary of Significant Accounting Policies

Basis of presentation

These condensed interim consolidated financial statements, which are presented in Canadian Dollars (unless otherwise stated), have been prepared under the historical cost convention, as modified by the measurement at fair value of certain financial assets and financial liabilities. These condensed interim consolidated financial statements have been prepared using the same accounting policies and methods of computation followed in the Company’s annual consolidated financial statements for the year ended December 31, 2020.

Basis of consolidation

The condensed interim consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries; Theralase Inc. and Theralase Biotech Inc., over which the Company exercises control. Inter-company balances and transactions are eliminated in preparing the condensed interim consolidated financial statements.

Reclassification

Certain reclassifications have been made to the prior-period financial statements to conform to the currentperiod presentation.

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

3. Trade and Other Receivables

Trade and Other Receivables
Trade receivable (net amount) Government tax credits receivable	As at June 30, 2021 As at December 31, 2020
	$ 108,947$ 230,283 136,977 310,280
Total Less: Non-current trade receivables	245,924 540,563 (32,325) (55,325)
Total	$ 213,599 $485,238

Write offs of trade receivables for the six-month period ended June 30, 2021 amounted to $nil which was previously provided for (2020 - $nil). Refer to note 15 (i) for the continuity schedule of allowance for trade receivables.

Government tax credits receivable comprise of research and development investment tax credits and the Canada Emergency Wage Subsidy from the federal government which relate to qualifiable research and development expenditures under the applicable tax laws. Research and development tax credits receivable total $82,214 for (2020 - $240,000) and has been allocated against research and development expenses in 2021. The Canada Emergency Wage Subsidy receivable totals $33,726 (2020- $50,890) and is accounted for as a reduction of operating expenses and has been recognized as follows, $4,394 (2020 - $8,032) against selling expenses, $6,852 (2020- $10,248) against administrative expenses, $7,964 (2020 - $9,188) against cost of goods sold and $14,516 (2020 - $23,422) against research and development expenses in 2021.

Non-current trade receivables represent receivables from customers to whom the Company sold products under payment plans with payment terms ranging from 24 to 72 months. Receivables under payment plans are recorded at time of origination or purchase at fair value of products sold and are subsequently reported at amortized cost, net of any allowance for credit losses.

The Company’s exposure to credit and currency risks related to trade and other receivables is presented in note 15.

4. Inventories

Inventories
	As	at June 30,	As	at December
		2021		31,2020
Raw materials	$	468,848	$	229,063
Work-in-process		16,979		1,135
Finishedgoods		139,662		222,040
Total	$	625,489	$	452,238

During the six-month period, inventories amounting to $62,161 (2020 - $61,843) were incurred as expense in cost of sales in the Statements of Operations.

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

5. Property and Equipment

Property and Equipment
Cost
	Tools and Dies		Computer Equipment		Furniture and Fixtures		Rental units1			Equipment	Leasehold Improvements			Total
Balance at January 1, 2020	$	208,649	$	407,458	$	149,031	$	133,929	$	862,353	$	242,206	$	2,003,626
Additions		5,144		-		12,745		-		138,285		8,402		164,576
Reclassification		-		-		-		3,313		(3,313)		-		-
Disposals		(39,653)	(129,313)			(90,552)		(2,900)		(54,258)		-		(316,676)
Balance at December 31,2020	$	174,140	$	278,145	$	71,224	$	134,342	$	943,067	$	250,608	$	1,851,526
Balance at January 1, 2021	$	174,140	$	278,145	$	71,224	$	134,342	$	943,067	$	250,608	$	1,851,526
Additions		22,264		-				1,500		34,125		11,099		68,988
Balance at June 30, 2021	$	196,404	$	278,145	$	71,224	$	135,842	$	977,192	$	261,707	$	1,920,514
Depreciation
Balance at January 1, 2020	$	158,065	$	267,174	$	115,289	$	78,472	$	281,268	$	89,977	$	990,245
Depreciation for the year		13,731		42,190		9,167		27,357		64,409		57,659		214,513
Reclassification		-		-		-		(826)		826		-		-
Disposals		(39,606)	(122,002)			(86,457)		(2,901)		(53,524)		-		(304,490)
Balance at December 31,2020	$	132,190	$	187,362	$	37,999	$	102,102	$	292,979	$	147,636	$	900,268
Balance at January 1, 2021	$	132,190	$	187,362	$	37,999	$	102,102	$	292,979	$	147,636	$	900,268
Depreciation for theperiod		7,579		13,506		3,295		12,713		43,249		25,239		105,581
Balance at June 30, 2021	$	139,769	$	200,868	$	41,294	$	114,815	$	336,228	$	172,875	$	1,005,849
Carrying Amounts
At December 31,2020	$	41,950	$	90,783	$	33,225	$	32,240	$	650,088	$	102,972	$	951,258
At June 30, 2021	$	56,635	$	77,277	$	29,930	$	21,027	$	640,964	$	88,832	$	914,665

1) Rental units consist of TLC-1000 systems used in customer rentals, demonstrations and service loaner

For the six-month period ended June 30, 2021 , there was amortization included in cost of sales amounting to $13,603 (2020 - $13,824). As at June 30, 2021 , research and development equipment included assets not available for use with a cost of $207,596.

6. Lease Liabilities and Right-of-use-Assets

	Property	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

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

	Property	Property	Office	Equipment		Total
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 does not include variable property lease payments of $19,775 (2020 - $18,803).

		As	at June 30, 2021	at June 30, 2021	at June 30, 2021			As at	December 30,	December 30,	2020	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

7. Payables and Accruals

Payables and Accruals
	As at June 30,	As at December
	2021	31,2020
Trade payables	$ 400,210	$ 408,211
Salaries, employment taxes, and benefits	254,464	162,191
Accrued liabilities	142,577	194,388
Total	$ 797,251	$764,790

8. Stock Options

The Company has a rolling stock option plan reserving for issue under this plan up to 10% (20,427,588 common shares) of the outstanding common shares at a purchase price not less than the fair market value of the Company`s stock at the grant date. Under the Company’s stock option plan, the board of directors may grant, at its discretion, stock options to purchase common shares to certain employees, officers, directors and consultants of the Company. Terms and conditions of the stock option and vesting provisions are at the discretion of the Board of Directors.

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

A summary of stock options issued under the stock option plan for the six-month period ended June 30, 2021 is provided below.

is provided below.
	Common shares under	Weighted average
	option	exercised price $
Outstanding,December 31,2020	14,415,000	0.33
Forfeited during period1	(285,000)	0.50
Expired during period	(10,000)	0.50
Outstanding, June 30, 2021	14,120,000	0.33

1) During 2021, certain employees were terminated and/or resigned from the employment of the Company and forfeited all nonvested options and non-exercised totaling 285,000.

The following table summarizes information on the stock options outstanding as at June 30, 2021 :

Stock	Options Outstanding	Options Outstanding		Stock Options Exercisable	Stock Options Exercisable
Stock Options Outstanding	Weighted Average Remaining Life (years)	Weighted Exercise	Average Price $	Stock Options Exercisable	Weighted Average Exercise Price$
3,020,000	0.8		0.50	3,020,000	0.50
11,100,000	3.2		0.28	3,700,000	0.28
14,120,000				6,720,000

Under the stock option plan, the stock options vest over a three year period, commencing one year after the grant. As at June 30, 2021 6,720,000 of the stock options were vested. All outstanding stock options as at June 30, 2021 will be fully vested by September 11, 2022.

Options to employees are measured at the fair value of the equity instruments granted on the grant date were measured using the following weighted average assumptions:

	2019
Risk-free interest rate	1.43%
Expected volatility*	86.28%
Expected life	5 years
Expected dividends	Nil
Weighted average grant date fair value	$0.14
Weighted average exercise price	$0.30
Weighted average forfeiture rate	15%

• Based on historical volatility

For the six-month period ended June 30, 2021 , the Company recognized stock-based compensation expense of $220,294 (2020 - $514,368) for stock options issued to directors, officers, employees and consultants, of which $129,573 (2020 - $279,024) is included in administrative expenses, $582 (2020 - $999) in selling expenses and $90,139 (2020 - $234,345) is included in research and development expenses. The remaining stock based compensation amount to be expensed on non-vested options, net of forfeiture, is $353,860.

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

9. Common Share Purchase Warrants

Common share purchase warrants consisted of the following:

	Number	Weighted average	Fair value at
	outstanding	exercisedprice$	date ofgrant$
Outstanding December 31, 2020	72,473,431		5,295,255
Extended	-		174,770
Extension Costs	-		(750)
Outstanding June 30, 2021	72,473,431		5,469,275

The following table summarizes information on the common share purchase warrants outstanding for the year ended and as of June 30, 2021 :

year ended and as of June 30, 2021 :
Exercise Price Outstanding Beginning of the year Expired During the period Exercised During the period	Granted During the period Outstanding End of Period Weighted Average Remaining Contractual Life (years)
$0.375 4,555,266 - - $0.300 3,159,000 - - $0.500 3,165,008 - -	- 4,555,266 0.36 - 3,159,000 0.87 - 3,165,008 1.26
$0.500 4,095,157 - -	- 4,095,157 1.53
$0.350 57,499,000 - -	- 57,499,000 3.14
72,473,431 - -	- 72,473,431 -

On January 8, 2021, the Board of Directors of the Company extended the expiry date of 4,095,157 share purchase warrants issued on January 8, 2019 by two years to January 8, 2023. The estimated fair value of the warrant extension is $174,770 which has been recognized under common share purchase warrants and the deficit. The fair value was estimated using the Black-Scholes model calculated for the difference between the extended period and the remaining period when the decision was taken to extend the warrants. The assumptions used were as follows for the two periods respectively: no expected dividend yield, 90.96% and 96.04% expected volatility, 0.19% and 0.19% risk-free interest rate and 2 and 0.005 years warrant expected life. Warrant extension expenses totaling $750 were allocated to these common share purchase warrants.

10. Share Capital

The Company is authorized to issue an unlimited number of common shares.

11. Loss Per Common Share

Basic loss per common share has been calculated based on the weighted average number of common shares outstanding during each of the six-month periods presented in the condensed interim consolidated financial statements.

Stock options to purchase 14,120,000 (2020 – 14,500,000) common shares and common share purchase warrants totaling 72,473,431 (2020 – 72,473,931) were not included in the computation of diluted loss and comprehensive loss per common share due to their anti-dilutive nature.

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

12. Selling Expenses

The following are expenses classified as selling expenses on the condensed consolidated interim financial statements:

		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

13. Administrative Expenses

The following are expenses classified as administrative expenses on the condensed consolidated interim financial statements:

		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

14. Research and Development Expenses

The following are expenses classified as research and development expenses on the condensed consolidated interim financial statements:

	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

15. Financial Instruments – Fair Value and Risks

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

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

• 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, trade and other receivable and payables 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 at June 30, 2021 and December 31, 2020, the Company’s financial instruments 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 expected 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 expected 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.

The following table reflects the balance and age of trade receivables as at June 30, 2021 and December 31, 2020:

Trade receivables (net amount) Percentage outstanding more than 30 days Percentage outstanding more than 120 days	As at June 30, 2021 As at December 31,2020
	$ 108,947 $ 230,283 16% 1% 0% 1%

The following table reflects the changes in the allowance for trade receivables during the six-month period ended June 30, 2021 and the year ended December 31, 2020:

Allowance for trade receivables - beginning of period Adjustment based on collection experience Amounts written off Allowance for trade receivables - end of period	As at June30, 2021 As at December 31, 2020
	41,685 $ 70,436 $ - 1,274 - (30,025)
	41,685 $ 41,685 $

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

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.

The table below reflects the contractual obligations of the Company’s undiscounted cash flows for its financial liabilities:

financial liabilities:	financial liabilities:
Contractual Obligations Total 2021 2022 2023 2024 2025 2026 2027 Payments Due by Period		2028 2029 2030 2031 2032
Lease liabilities 64,597 $ 28,873 $ 35,724 $ - $ - $ - $ Payables and accruals 797,251 797,251 - - - - Commitments(note 20) 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
Total contractual obligations 1,638,899 $ 1,075,283 $ 476,316 $ 8,800 $ 8,800 $ 8,800 $	8,800 $ 8,800 $	8,800 $ 8,800 $ 8,800 $ 8,800 $ 8,100

The Company also has contractual obligations (note 18) in the form of research and development commitments.

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 fixed and variable interest rate Short-term investments Short-term fixed interest rate Financed trade receivables Short-term and long-term fixed interest rate

Based on the carrying amount of the Company’s variable interest-bearing financial instruments as at June 30, 2021 , an assumed 0.5% increase or 0.5% decrease in interest rates during such period would have resulted in an increase/decrease of $16,000 in income, with all other variables held constant.

Management believes that the risk that the Company will realize a loss as a result of the decline in the fair value of its cash equivalents and short-term investments is limited because these investments have shortterm maturities and are generally held to maturity.

The capacity of the Company to reinvest the short-term amounts with equivalent returns will be impacted by variations in short-term fixed interest rates available in the market.

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

Interest income presented in the consolidated statement of loss represents interest income on financial assets.

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.

Accounts exposed to foreign currency exchange risk as at June 30, 2021 and December 31, 2020 are as follows:

Cash Trade and other receivables Payables and accruals	Canadian U.S. Canadian U.S. As at June 30, 2021 As at December 31, 2020
	12 $ 10 $ 40,822 $ 32,062 $ 51,374 41,451 56,110 44,070 (224,281) (180,959) (185,317) (145,552)
Total	(172,895) $ (139,498) $ (88,385) $ (69,420) $

v Foreign currency exchange risk sensitivity analysis

The following table details the Company’s sensitivity analysis to a 10% strengthening in the US dollar on foreign currency denominated monetary items and adjusts its translation at the consolidated balance sheet dates for a 10% change in foreign currency exchange rates. For a 10% weakening of the US dollar against the Canadian dollar, there would be an equal and opposite impact on loss and comprehensive loss for the year.

Cash Trade and other receivables Payables and accruals	As at June 30, 2021 As at December 31,2020
	1 $ 4,082 $ 4,145 5,611 (18,096) (18,532)
Total	(13,951) $ (8,839) $

16. Related Party Disclosure

The compensation of the directors and other key management of the Company is included in the summary table below. Key management includes those persons having authority and responsibility for planning, directing and controlling the activities, directly or indirectly, of the Company.

	2021	2020
Short-term compensation	$600,000	$600,000
Stock-based compensation	213,048	241,142
Total	$813,048	$841,142

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

Key management personnel were not paid post-employment benefits, termination benefits or other long term benefits during the six-month periods ended June 30, 2021 and 2020. Fees paid to directors have been disclosed in note 13.

Stock-based compensation paid to key management personnel is the fair value of options that vested to key management personnel during the year. Stock based compensation paid to directors have been disclosed in note 13.

17. Segmented Information

For management purposes, the Company is organized into two separate reportable operating divisions; (1) Photo Dynamic Therapy (PDT) division and (2) Medical Laser Technology (MLT) division. The PDT division is responsible for the research and development of Photo Dynamic Compounds (PDCs) for the treatment of cancer. The MLT division is responsible for all aspects of the Company’s therapeutic laser business, which manufactures products used by healthcare practitioners predominantly for the healing of pain.

The following table displays revenue and direct expenses from the MLT and PDT division for the six-month periods ended June 30:

CLT ACT Total Sales 429,999 $ - $ 429,999 $ Cost of sales 230,370 - 230,370 Gross margin 199,629 - 199,629 Operating Expenses Selling expenses 197,400 - 197,400 Administrative expenses 488,351 313,920 802,271 Research and development expenses 88,141 1,305,437 1,393,578 (Gain) from legal settlement (131,903) - (131,903) (Gain) loss on foreign exchange 5,477 5,476 10,953 Interest accretion on lease liabilities 1,618 1,617 3,235 Interest income (6,815) (6,814) (13,629) 642,269 1,619,636 2,261,905 Loss for the period (442,640) $ (1,619,636) $ (2,062,276) $ Total Assets 2,441,029 $ 5,741,736 $ 8,182,765 $ Total Liabilities 487,250 374,598 861,848 2021	CLT ACT Total 2021	CLT ACT Total 2020
	429,999 $ - $ 429,999 $ 230,370 - 230,370	293,453 $ - $ 293,453 $ 230,095 - 230,095
	199,629 - 199,629	63,358 - 63,358
		229,998 - 229,998 590,902 374,922 965,824 209,154 2,009,903 2,219,057 - - - (1,631) (1,630) (3,261) 2,681 2,681 5,361 (85,997) - (85,997)
	642,269 1,619,636 2,261,905	945,107 2,385,876 3,330,982
	(442,640) $ (1,619,636) $ (2,062,276) $	(881,748) $ (2,385,876) $ (3,267,624) $
	2,441,029 $ 5,741,736 $ 8,182,765 $ 487,250 374,598 861,848	3,552,358 $ 8,413,293 $ 11,965,651 $ 637,726 229,283 867,009

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

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

geographic area for the	six-month periods ended June 30:
Sales by Product Line TLC-1000 TLC-2000 Expenses Cost of Sales Selling Expenses	Canada USA International Canada USA International 165,206 $ 14,811 $ - $ 161,073 $ 12,267 $ 7,347 $ 218,948 17,845 13,189 94,073 - 18,694 384,154 32,656 13,189 255,146 12,267 26,041 2021 2020
	205,809 17,495 7,066 200,058 9,619 20,418 175,017 14,490 7,893 195,081 23,745 11,172 380,826 31,985 14,959 395,139 33,364 31,590 3,328 $ 671 $ (1,770) $ (139,993) $ (21,097) $ (5,549) $

As at 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.

18. Commitments

The Company’s commitments consist of the following:

Research Commitments (a) Research Agreement (b) Research Agreement(c) Total	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 8,800 8,800 8,800 8,800 8,800 8,800 8,100 490,059 110,307 379,752 - - - - - - - - - -
	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.

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THERALASE[] TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

Six-Month periods ended June 30, 2021 and 2020

Stated in Canadian Dollars

19. 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 the report date, the Company is aware of significant changes in its business as a result of COVID-19, notably: unavailability of personnel, personnel working remotely or virtually, significant delays / cancellations in customer purchase decisions and delays in the Company’s Phase II Non-Muscle Invasive Bladder Cancer clinical study specifically; patient enrollment, patient treatment and the on-boarding of new clinical study sites. 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 as of the date of this report.

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