Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
1. NATURE OF OPERATIONS AND GOING CONCERN
Avricore
Health Inc. (the “Company”) was incorporated under the Company Act of British Columbia on May 30, 2000. The Company’s
common shares trade on the TSX Venture Exchange (the “Exchange”) under the symbol “AVCR” and are quoted on the
OTCIQ Market as “NUVPF”. The Company’s registered office is at 700 – 1199 West Hastings Street, Vancouver, British
Columbia, V6E 3T5.
The
Company is involved in the business of health data and point-of-care technologies (“POCT”).
The
consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes
that the Company will continue in operations for the foreseeable future and be able to realize assets and satisfy liabilities in the
normal course of business. The Company has always experienced operating losses and negative operating cash flows. Operations have historically
been funded by the issuance of share capital but there is no guarantee that such funding will be available in the future. These conditions
indicate the existence of material uncertainty that may cast substantial doubt on the Company’s ability to continue as a going
concern
The
continuation of the Company as a going concern is dependent upon its ability to generate revenue from its operations, or raise additional
financing to cover ongoing cash requirements. The consolidated financial statements do not reflect any adjustments, which could be material,
to the carrying values of assets and liabilities, which may be required should the Company be unable to continue as a going concern.
SCHEDULE
OF DEFICIT
| | |
December 31, 2022 | | |
December 31, 2021 | | |
December 31, 2020 | |
| | |
$ | | |
$ | | |
$ | |
| Deficit | |
| (31,034,345 | ) | |
| (30,216,117 | ) | |
| (28,507,985 | ) |
2. BASIS OF PRESENTATION
a) Statement of Compliance
The
consolidated financial statements for the year ended December 31, 2022 have been prepared in accordance with International Financial
Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).
b) Basis of preparation
The
consolidated financial statements of the Company have been prepared on an accrual basis and are based on historical costs, modified where
applicable. The significant accounting policies are presented in Note 3 and have been consistently applied in each of the periods presented.
The consolidated financial statements are presented in Canadian dollars, which is also the Company’s and its subsidiary’s
functional currency, unless other indicated.
The
preparation of consolidated financial statements in accordance with IFRS requires the Company’s management to make estimates, judgments
and assumptions that affect amounts reported in the consolidated financial statements and accompanying notes. The areas involving a higher
degree of judgment and complexity, or areas where assumptions and estimates are significant to the consolidated financial statements
are disclosed below. Actual results might differ from these estimates. The Company’s management reviews these estimates and underlying
judgments on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the year in which the estimates are revised.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
| 2. | BASIS
OF PRESENTATION (continued) |
c) Basis of consolidation
Consolidated
financial statements include the assets, liabilities and results of operations of all entities controlled by the Company. Inter-company
balances and transactions, including unrealized income and expenses arising from inter-company transactions, are eliminated in preparing
the Company’s the consolidated financial statements. Where control of an entity is obtained during a financial year, its results
are included in the consolidated statements of operations and comprehensive loss from the date on which control commences. Where control
of an entity ceases during a financial year, its results are included for that part of the year during which control exists.
These
consolidated financial statements include the accounts of the Company and its controlled wholly owned Canadian subsidiary HealthTab™
Inc.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Revenue recognition
The
Company’s revenues are generated from operating leases of the POCT system and sale of testing panels. Revenue comprises the fair
value of the consideration received or receivable and it is shown net of tax and discounts.
The
Company recognizes revenue to depict the transfer of goods and services to clients in an amount that reflects the consideration to which
the Company expects to be entitled in exchange for those goods and services by applying the following steps:
| ● |
Identify the contract with
a customer; |
| ● |
Identify the performance
obligations in the contract; |
| ● |
Determine the transaction
price; |
| ● |
Allocate the transaction
price to the performance obligations; and |
| ● |
Recognize revenue when, or
as, the Company satisfies a performance obligation. |
Revenue
may be earned over time as the performance obligations are satisfied or at a point in time which is when the entity has earned a right
to payment, the customer has possession of the asset and the related significant risks and rewards of ownership, and the customer has
accepted the asset.
The
Company’s arrangements with customers can include multiple performance obligations. When contracts involve various performance
obligations, the Company evaluates whether each performance obligation is distinct and should be accounted for as a separate unit of
accounting under IFRS 15, Revenue from Contracts with Customers.
The
Company determines the standalone selling price by considering its overall pricing objectives and market conditions. Significant pricing
practices taken into consideration include discounting practices, the size and volume of our transactions, our marketing strategy, historical
sales and contract prices. The determination of standalone selling prices is made through consultation with and approval by management,
taking into consideration our go-to-market strategy. As the Company’s go-to-market strategies evolve, the Company may modify its
pricing practices in the future, which could result in changes in relative standalone selling prices.
The
Company generally receives payment from its customers after invoicing within the normal 28-day commercial terms. If a customer is specifically
identified as a credit risk, recognition of revenue is stopped except to the extent of fees that have already been collected
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
| 3. | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
b) Leases
A
contract is, or contains, a lease if the contract conveys a lessee the right to control the use of lessor’s identified asset for
a period of time in exchange for consideration.
The
Company as a lessee
A
lease liability is recognized at the commencement of the lease term at the present value of the lease payments that are not paid at that
date. At the commencement date, a corresponding right-of-use asset is recognized at the amount of the lease liability, adjusted for lease
incentives received, retirement costs and initial direct costs. Depreciation is recognized on the right-of-use asset over the lease term.
Interest expense is recognized on the lease liabilities using the effective interest rate method and payments are applied against the
lease liability.
Key
areas where management has made judgments, estimates, and assumptions related to the application of IFRS 16 include:
| - | The
incremental borrowing rates are based on judgments including economic environment, term,
currency, and the underlying risk inherent to the asset. The carrying balance of the right-of-use
assets, lease liabilities, and the resulting interest expense and depreciation expense, may
differ due to changes in the market conditions and lease term. |
| - | Lease
terms are based on assumptions regarding extension terms that allow for operational flexibility
and future market conditions. |
The
Company as a lessor
A
lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of
an underlying asset. All other leases are classified as finance leases.
Leases
of the Company’s POCT systems to customers are classified as operating leases. Lease payments from operating leases are recognized
as income on a straight-line basis. All costs, including depreciation, incurred in earning the operating lease income are recognized
as cost of sales. Initial direct costs incurred in obtaining an operating lease are added to the carrying amount of the underlying asset
and recognized as an expense over the lease term on the same basis as the lease income. The depreciation for depreciable underlying assets
subject to operating leases is in accordance with depreciation policy for the Company’s equipment.
c) Foreign currency
Foreign
currency transactions are translated into the functional currency of the respective entity, using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the remeasurement
of monetary items at year-end exchange rates are recognized in profit or loss.
Non-monetary
items measured at historical cost are translated using the exchange rates at the date of the transaction and are not retranslated. Non-monetary
items measured at fair value are translated using the exchange rates at the date when fair value was determined.
d) Cash and cash equivalents
Cash
equivalents include short-term guaranteed investment certificates readily convertible into a known amount of cash, which is subject to
insignificant change in value.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e) Intangible assets
All
intangible assets acquired separately by the Company are recorded at cost on the date of acquisition. Intangible assets that have indefinite
lives are measured at cost less accumulated impairment losses. Intangible assets that have finite useful lives are measured at cost less
accumulated amortization and accumulated impairment losses. Intangible assets comprise of software, intellectual property, trademarks
and web domains and distribution rights, which are amortized on a straight-line basis over 3 years. Amortization rates are reviewed annually
to ensure they are aligned with estimates of remaining economic useful lives of the associated intangible assets.
f) Equipment
Equipment
acquired by the Company is recorded at cost on the date of acquisition. Equipment is stated at historical cost less accumulated amortization
and accumulated impairment losses. Amortization is calculated on a declining balance method over their estimated useful lives. The Company’s
system hardware is amortized at 55% and system analyzers and software at 20%.
g) Share-based payments
The
Company operates an incentive share purchase option plan. Share-based payments to employees are measured at the fair value of the instruments
issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services
received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably
measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to the option reserve.
The fair value of options is determined using the Black-Scholes option pricing model, which incorporates all market vesting conditions.
The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized
for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually
vest.
h) Share capital
Proceeds
from the exercise of stock options and warrants are recorded as share capital in the amount for which the option or warrant enabled the
holder to purchase a share in the Company. Any previously recorded share-based payment included in the reserves account is transferred
to share capital on exercise of options. Share capital issued for non-monetary consideration is valued at the closing market price at
the date of issuance. The proceeds from issuance of units are allocated between common shares and warrants based on the residual method.
Under this method, the proceeds are allocated first to share capital based on the fair value of the common shares at the time the units
are priced and any residual value is allocated to the warrants reserve. Consideration received for the exercise of warrants is recorded
in share capital, and any related amount recorded in warrants reserve is transferred to share capital.
i) Loss per share
Basic
loss per share is calculated by dividing the net loss available to common shareholders by the weighted average number of shares outstanding
during the year. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity. In
a loss year, potentially dilutive common shares are excluded from the loss per share calculation as the effect would be anti-dilutive.
Basic and diluted loss per share are the same for the periods presented.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
j) Income taxes
Income
tax expense, consisting of current and deferred tax expense, is recognized in the statements of operations. Current tax expense is the
expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at period-end, adjusted for
amendments to tax payable with regard to previous years.
Deferred
tax assets and liabilities and the related deferred income tax expense or recovery are recognized for deferred tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred
tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized
or the liability settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in
the period that substantive enactment occurs.
A
deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the asset
can be utilized. To the extent that the Company does not consider it probable that a deferred tax asset will be recovered, the deferred
tax asset is reduced. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends
to settle its current tax assets and liabilities on a net basis.
k) Financial Instruments
Classification
The
Company classifies its financial instruments in the following categories: at fair value through profit and loss (“FVTPL”),
at fair value through other comprehensive income (loss) (“FVTOCI”), or at amortized cost. The Company determines the classification
of financial assets at initial recognition. The classification of debt instruments is driven by the Company’s business model for
managing the financial assets and their contractual cash flow characteristics. Equity instruments that are held for trading are classified
as FVTPL. For other equity instruments, on the day of acquisition the Company can make an irrevocable election (on an instrument-by-instrument
basis) to designate them as at FVTOCI. Financial liabilities are measured at amortized cost, unless they are required to be measured
at FVTPL (such as instruments held for trading or derivatives) or the Company has opted to measure them at FVTPL.
The
Company has classified its cash and cash equivalents as FVTPL and term deposit, accounts receivable, accounts payable and loans payable
as amortized cost.
Measurement
Financial
assets and liabilities at amortized cost
Financial
assets and liabilities at amortized cost are initially recognized at fair value plus or minus transaction costs, respectively, and subsequently
carried at amortized cost less any impairment.
Financial
assets and liabilities at FVTPL
Financial
assets and liabilities carried at FVTPL are initially recorded at fair value and transaction costs are expensed in profit or loss. Realized
and unrealized gains and losses arising from changes in the fair value of the financial assets and liabilities held at FVTPL are included
in the profit or loss in the period in which they arise.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
k) Financial Instruments (continued)
Financial
assets at FVTOCI
Investments
in equity instruments at FVTOCI are initially recognized at fair value plus transaction costs. Subsequently they are measured at fair
value, with gains and losses arising from changes in fair value recognized in other comprehensive income (loss) as they arise.
Impairment
of financial assets at amortized cost
An
‘expected credit loss’ impairment model applies which requires a loss allowance to be recognized based on expected credit
losses. The estimated present value of future cash flows associated with the asset is determined and an impairment loss is recognized
for the difference between this amount and the carrying amount as follows: the carrying amount of the asset is reduced to estimated present
value of the future cash flows associated with the asset, discounted at the financial asset’s original effective interest rate,
either directly or through the use of an allowance account and the resulting loss is recognized in profit or loss for the period. In
a subsequent period, if the amount of the impairment loss related to financial assets measured at amortized cost decreases, the previously
recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the
impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
Derecognition
Financial
assets
The
Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when it transfers
the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains and losses on derecognition
are generally recognized in profit or loss.
The
Company provides information about its financial instruments measured at fair value at one of three levels according to the relative
reliability of the inputs used to estimate the fair value:
Level
1 – quoted prices (unadjusted) 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., derived from prices); and
Level
3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs)
l) Impairment of equipment and intangible assets
At
the end of each reporting period, if there are indicators of impairment, the Company reviews the carrying amounts of its equipment and
intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. Individual assets
are grouped together as a cash generating unit for impairment assessment purposes at the lowest level at which there are identifiable
cash flows that are independent from other group assets.
If
any such indication of impairment exists, the Company makes an estimate of its recoverable amount. The recoverable amount is the higher
of fair value less costs to sell and value in use. Where the carrying amount of a cash generating unit exceeds its recoverable amount,
the cash generating unit is considered impaired and is written down to its recoverable amount. In assessing the value in use, the estimated
future cash flows are adjusted for the risks specific to the cash generating unit and are discounted to their present value with a discount
rate that reflects the current market indicators. The recoverable amount of intangible assets with an indefinite useful life, intangible
assets not available for use, or goodwill acquired in a business combination are measured annually whether or not there are any indications
that impairment exists.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
I) Impairment of equipment and intangible assets (continued)
Where
an impairment loss subsequently reverses, the carrying amount of the cash generating unit is increased to the revised estimate of its
recoverable amount, to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognized for the cash generating unit in prior years. A reversal of an impairment loss is recognized as
income immediately.
m) Significant accounting estimates and judgments
Estimates
Significant
estimates used in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements
are as follows:
Share-based
payments
The
Company grants share-based awards to certain directors, officers, employees, consultants and other eligible persons. For equity-settled
awards, the fair value is charged to the statement of operations and comprehensive loss and credited to the reserves over the vesting
period using the graded vesting method, after adjusting for the estimated number of awards that are expected to vest.
The
fair value of equity-settled awards is determined at the date of the grant using the Black-Scholes option pricing model. For equity-settled
awards to non-employees, the fair value is measured at each vesting date. The estimate of warrant and option valuation also requires
determining the most appropriate inputs to the valuation model, including the volatility, expected life of warrants and options, risk
free interest rate and dividend yield. Changes in these assumptions can materially affect the fair value estimate, and therefore the
existing models do not necessarily provide a reliable measure of the fair value of the Company’s options and warrants issued. Management
must also make significant judgments or assessments as to how financial assets and liabilities are categorized.
Estimation
of useful lives of equipment and software
Amortization
of equipment and software is dependent upon estimates of their useful lives. The actual lives of the assets are assessed annually and
may vary depending on a number of factors. In reassessing asset lives, factors such as technological innovation, product lifecycles,
and maintenance are taken into account.
Judgements
Significant
judgments used in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements
are as follows:
Revenue
recognition
Revenue
is recognized when the revenue recognition criteria expressed in the accounting policy stated above for Revenue Recognition have been
met. Judgment may be required when allocating revenue or discounts on sales amongst the various elements in a sale involving multiple
deliverables.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
m)
Significant accounting estimates and judgments (continued)
Deferred
income taxes
Tax
interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to change. The determination
of income tax expense and deferred tax involves judgment and estimates as to the future taxable earnings, expected timing of reversals
of deferred tax assets and liabilities, and interpretations of laws in the countries in which the Company operates. The Company is subject
to assessments by tax authorities who may interpret the tax law differently. Changes in these estimates may materially affect the final
amount of deferred taxes or the timing of tax payments. If a positive forecast of taxable income indicates the probable use of a deferred
tax asset, especially when it can be utilized without a time limit, that deferred tax asset is usually recognized in full.
Going
concern
Management
has applied judgements in the assessment of the Company’s ability to continue as a going concern when preparing its financial statements
for the year ended December 31, 2022. In assessing whether the going concern assumption is appropriate, management takes into account
all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period.
The factors considered by management are disclosed in Note 1.
n) Accounting standards issued but not yet effective
There
are no accounting pronouncements with future effective dates that are applicable or are expected to have a material impact on the Company’s
consolidated financial statements.
4. ACCOUNTS RECEIVABLE
The
Company’s accounts receivable consists of the following:
SCHEDULE
OF ACCOUNTS RECEIVABLE
| | |
December 31, 2022 | | |
December 31, 2021 | |
| | |
$ | | |
$ | |
| Trade receivables | |
| 748,097 | | |
| 83,847 | |
| GST receivable | |
| 22,276 | | |
| 7,701 | |
| Total
trade receivables | |
| 770,373 | | |
| 91,548 | |
5. PREPAID EXPENSES AND DEPOSITS
The
balance consists of prepaid expenses to vendors of $6,932 (2021 - $35,949), prepaid business insurance of $11,299 (2021 - $6,518) and
security deposits of $12,000 (2021 - $12,000).
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
6. EQUIPMENT
SCHEDULE
OF EQUIPMENT
| | |
Equipment | |
| | |
$ | |
| Cost | |
| | |
| Balance, December 31, 2020 | |
| - | |
| Additions | |
| 105,358 | |
| Balance, December 31, 2021 | |
| 105,358 | |
| Beginning balance | |
| 105,358 | |
| Additions | |
| 1,193,345 | |
| Balance, December 31, 2022 | |
| 1,298,703 | |
| | |
| | |
| Accumulated Amortization | |
| | |
| Balance, December 31, 2020 | |
| - | |
| Amortization | |
| 14,483 | |
| Balance, December 31, 2021 | |
| 14,483 | |
| Beginning balance | |
| 14,483 | |
| Amortization | |
| 176,229 | |
| Balance, December 31, 2022 | |
| 190,712 | |
| Ending balance | |
| 190,712 | |
| | |
| | |
| Carrying value | |
| | |
| As at December 31, 2021 | |
| 90,875 | |
| As at December 31, 2022 | |
| 1,107,991 | |
| Ending balance | |
| 1,107,991 | |
Equipment
is comprised primarily of assets deployed to earn revenues.
7. INTANGIBLE ASSETS
SCHEDULE
OF INTANGIBLE ASSETS
| | |
Software | | |
HealthTab™ | | |
Corozon | | |
Emerald | | |
Total | |
| | |
$ | | |
$ | | |
$ | | |
$ | | |
$ | |
| Cost | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2020 | |
| - | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 3 | |
| Additions | |
| 35,006 | | |
| - | | |
| - | | |
| - | | |
| 35,006 | |
| Balance, December 31, 2021 | |
| 35,006 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 35,009 | |
| Additions | |
| 5,171 | | |
| - | | |
| - | | |
| - | | |
| 5,171 | |
| Balance, December 31, 2022 | |
| 40,177 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 40,180 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Accumulated Amortization | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2020 | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Amortization | |
| 3,501 | | |
| - | | |
| - | | |
| - | | |
| 3,501 | |
| Balance, December 31, 2021 | |
| 3,501 | | |
| - | | |
| - | | |
| - | | |
| 3,501 | |
| Amortization | |
| 6,818 | | |
| - | | |
| - | | |
| - | | |
| 6,818 | |
| Balance, December 31, 2022 | |
| 10,319 | | |
| - | | |
| - | | |
| - | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Carrying value | |
| | | |
| | | |
| | | |
| | | |
| | |
| As at December 31, 2021 | |
| 31,505 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 31,508 | |
| As at December 31, 2022 | |
| 29,858 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 29,861 | |
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The
Company’s accounts payable and accrued costs consist of the following:
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED COSTS
| | |
December 31, 2022 | | |
December 31, 2021 | |
| | |
$ | | |
$ | |
| Trade accounts payable | |
| 261,493 | | |
| 44,477 | |
| GST payable | |
| 51,400 | | |
| - | |
| Accounts
payable and accrued liabilities | |
| 312,893 | | |
| 44,477 | |
9. LOANS PAYABLE
During
the year ended December 31, 2020, the Company entered into a loan agreement with a third party for a secured loan in the amount of $1,000,000
(the “Loan”). The Loan was for a term of one year from the date of receipt of the funds, bore interest at a rate of 10% per
annum and was secured with all of the present and after-acquired property of the Company. The loan was subject to an interest reserve
of $100,000 held back from the loan advance. The Company paid a loan application fee in the amount of $30,000 and issued 3,480,000 bonus
shares with a fair value of $52,500, which was recorded against the carrying value of the Loan.
During
the year ended December 31, 2022, the Company recorded $Nil (2021 - $21,096) as interest expense and recorded $Nil (2021 - $17,342) as
accretion expense on the loan which was been included in finance cost in the consolidated statements of operations and comprehensive
loss. During the year ended December 31, 2021, the Company repaid the outstanding loan balance of $1,000,000 at the end of the term.
During
the year ended December 31, 2020, the Company received a Canada Emergency Business Account loan of $40,000 to be repaid on or before
December 31, 2025. The loan is interest-free until December 31, 2023. Thereafter, the outstanding loan balance will bear interest at
the rate of 5% per annum.
10. SHARE CAPITAL
Authorized
share capital
Authorized:
Unlimited number of common shares without par value.
Issued
share capital
During
the year ended December 31, 2022:
The
Company issued 909,400 common shares upon exercise of warrants for gross proceeds of $173,880.
The
Company issued 800,000 common shares upon exercise of stock options for gross proceeds of $80,000.
During
the year ended December 31, 2021:
The
Company issued 10,058,660 common shares upon exercise of warrants for gross proceeds of $1,653,737.
The
Company issued 1,666,020 common shares upon exercise of stock options for gross proceeds of $125,657.
The
Company issued 275,000 common shares valued at $38,500 to a consultant in exchange for services received.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
| 10. |
SHARE CAPITAL
(continued) |
On
February 12, 2021, the Company completed a non-brokered private placement and issued 7,000,000 units at a price of $0.22 per unit for
gross proceeds of $1,540,000. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to
acquire an additional common share of the Company at a price of $0.30 per share for a period of 12 months from the date of closing subject
to an accelerated expiry condition. The Company’s directors and officers participated in the private placement. The Company paid
finder’s fee totaling $56,320 and issued 256,000 finder’s warrants valued at $39,206.
On
January 28, 2021, the Company closed the final tranche of a non-brokered private placement and issued 8,740,000 units at a price of $0.10
per unit for gross proceeds of $874,000. Each unit consisted of one common share and one share purchase warrant entitling the holder
thereof to acquire an additional common share of the Company at a price of $0.15 per share for a period of 12 months from the date of
closing subject to an accelerated expiry condition. The Company’s directors and officers participated in the private placement.
The Company paid finder’s fee totaling $27,800 and issued 278,000 finder’s warrants valued at $100,419.
During
the year ended December 31, 2020:
The
Company closed a tranche of a non-brokered private placement and issued 6,260,000 units at a price of $0.10 per unit for gross proceeds
of $626,000. Each unit consisted of one common share and one share purchase warrant entitling the holder thereof to acquire an additional
common share of the Company at a price of $0.15 per share for a period of 12 months from the date of closing subject to an accelerated
expiry condition. The Company paid finder’s fee totaling $22,500 and issued 225,000 finder’s warrants valued at $9,833. The
Company’s directors and officers participated in the private placement.
The
Company issued 5,477,965 common shares in exchange for services received and to settle accounts payables of $136,949. An aggregate of
1,900,000 shares were issued in settlement of $47,500 in amounts owing to certain directors and officers of the Company. The common shares
issued to the related parties are subject to a four month plus one day hold period.
The
Company issued 105,000 common shares pursuant to the exercise of stock options for gross proceeds of $5,250. $1,422 was reclassified
from reserves to share capital on exercise of the options.
The
Company issued 2,000,000 common shares valued at $100,000 related to the acquisition of HealthTab™.
The
Company issued 3,480,000 common shares valued at $52,200 as bonus shares pursuant to a loan agreement.
Stock
options
The
Company has adopted an incentive share purchase option plan under the rules of the Exchange pursuant to which it is authorized to grant
options to executive officers, directors, employees and consultants, enabling them to acquire up to 10% of the issued and outstanding
common shares of the Company. The options can be granted for a maximum term of ten years and generally vest either immediately or in
specified increments of up to 25% in any three-month period.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
| 10. |
SHARE CAPITAL
(continued) |
The
changes in stock options including those granted to directors, officers, employees and consultants are summarized as follows:
SCHEDULE OF SUMMARIZES THE SHARE OPTION ACTIVITY
| | |
Year ended December 31, 2022 | | |
Year ended December 31, 2021 | | |
Year ended December 31, 2020 | |
| | |
Number of Options | | |
Weighted Average Exercise Price | | |
Number of Options | | |
Weighted Average Exercise Price | | |
Number of Options | | |
Weighted Average Exercise Price | |
| Beginning Balance | |
| 7,880,052 | | |
$ | 0.13 | | |
| 6,706,072 | | |
$ | 0.08 | | |
| 5,241,072 | | |
$ | 0.13 | |
| Options granted | |
| 3,125,000 | | |
$ | 0.15 | | |
| 2,840,000 | | |
$ | 0.22 | | |
| 1,730,000 | | |
$ | 0.08 | |
| Expired/Cancelled | |
| (1,570,052 | ) | |
$ | 0.13 | | |
| - | | |
| - | | |
| (160,000 | ) | |
$ | 0.07 | |
| Exercised | |
| (800,000 | ) | |
$ | 0.10 | | |
| (1,666,020 | ) | |
$ | 0.08 | | |
| (105,000 | ) | |
$ | 0.05 | |
| Ending Balance | |
| 8,635,000 | | |
$ | 0.14 | | |
| 7,880,052 | | |
$ | 0.13 | | |
| 6,706,072 | | |
$ | 0.08 | |
| Exercisable | |
| 6,216,250 | | |
$ | 0.14 | | |
| 7,692,552 | | |
$ | 0.13 | | |
| 6,706,072 | | |
$ | 0.08 | |
The
following table summarizes information about stock options outstanding and exercisable as at December 31, 2022:
SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE
| Exercise Price | | |
Expiry date | |
Options | |
| | | |
| |
Outstanding | | |
Exercisable | |
| $ | 0.17 | | |
March 13, 2023 | |
| 250,000 | | |
| 250,000 | |
| $ | 0.10 | (1) | |
March 27, 2023 | |
| 200,000 | | |
| 200,000 | |
| $ | 0.10 | (2) | |
April 11, 2023 | |
| 150,000 | | |
| 150,000 | |
| $ | 0.075 | | |
January 24, 2024 | |
| 140,000 | | |
| 140,000 | |
| $ | 0.06 | | |
April 1, 2024 | |
| 140,000 | | |
| 140,000 | |
| $ | 0.05 | | |
October 15, 2024 | |
| 1,470,000 | | |
| 1,470,000 | |
| $ | 0.08 | | |
November 18, 2025 | |
| 500,000 | | |
| 500,000 | |
| $ | 0.08 | | |
December 8, 2025 | |
| 710,000 | | |
| 710,000 | |
| $ | 0.19 | | |
January 28, 2026 | |
| 150,000 | | |
| 150,000 | |
| $ | 0.25 | | |
March 22, 2026 | |
| 1,800,000 | | |
| 1,800,000 | |
| $ | 0.15 | | |
August 10, 2027 | |
| 2,725,000 | | |
| 681,250 | |
| $ | 0.15 | | |
August 12, 2027 | |
| 100,000 | | |
| 25,000 | |
| $ | 0.16 | | |
October 12, 2027 | |
| 300,000 | | |
| - | |
| | | | |
| |
| 8,635,000 | | |
| 6,216,250 | |
| (1) | Options repriced
from $0.24 to $0.10 during the year ended December 31, 2020 |
| (2) | Options repriced
from $0.21 to $0.10 during the year ended December 31, 2020 |
The
weighted average remaining life of the stock options outstanding at December 31, 2022 is 3.17 years. The weighted average fair value
of options granted during the year ended December 31, 2022 is $0.13 per option.
Share-based
compensation
Share-based
compensation of $331,522 was recognized during the year ended December 31, 2022 (2021 - $495,791) respectively, for stock options granted,
and vested during the year. Options issued to directors and officers of the Company vested immediately, while those issued to consultants
vest over one year, however, the Board may change such provisions at its discretion or as required on a grant-by-grant basis.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
| 10. |
SHARE CAPITAL
(continued) |
Share-based
payments for options granted and repriced was measured using the Black-Scholes option pricing model with the following assumptions:
SCHEDULE OF SHARE BASED COMPENSATION FOR OPTIONS GRANTED
| | |
2022 | | |
2021 | | |
2020 | |
| Expected life | |
| 0.8 – 2.65 years | | |
| 1 – 5 years | | |
| 2 – 5 years | |
| Volatility | |
| 94% - 193 | % | |
| 134% - 211 | % | |
| 141%
- 180 | % |
| Dividend yield | |
| 0 | % | |
| 0 | % | |
| 0 | % |
| Risk-free interest rate | |
| 1.46% - 3.71 | % | |
| 0.32%
- 0.99 | % | |
| 0.23%
- 0.47 | % |
Option
pricing models require the use of highly subjective estimates and assumptions, including the expected stock price volatility. Changes
in the underlying assumptions can materially affect the fair value estimates.
Warrants
The
Company has issued warrants entitling the holders to acquire common shares of the Company. The summary of changes in warrants is presented
below.
SUMMARY
OF CHANGES IN WARRANTS
| | |
Year ended
December 31, 2022 | | |
Year ended
December 31, 2021 | | |
Year ended
December 31, 2020 | |
| | |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Number of Warrants | | |
Weighted Average Exercise Price | | |
Number of Warrants | | |
Weighted Average Exercise Price | |
| Beginning Balance | |
| 18,781,066 | | |
$ | 0.21 | | |
| 18,743,226 | | |
$ | 0.16 | | |
| 20,704,664 | | |
$ | 0.24 | |
| Warrants issued | |
| - | | |
| - | | |
| 16,274,000 | | |
$ | 0.22 | | |
| 6,485,000 | | |
$ | 0.15 | |
| Warrants exercised | |
| (909,400 | ) | |
$ | 0.19 | | |
| (10,058,660 | ) | |
$ | 0.16 | | |
| - | | |
| - | |
| Warrants expired | |
| (17,871,666 | ) | |
$ | 0.22 | | |
| (6,177,500 | ) | |
$ | 0.15 | | |
| (8,446,438 | ) | |
$ | 0.33 | |
| Outstanding | |
| - | | |
| - | | |
| 18,781,066 | | |
$ | 0.21 | | |
| 18,743,226 | | |
$ | 0.16 | |
Fair
value of the finder’s warrants granted was measured using the Black-Scholes pricing model with the following assumptions:
SUMMARY
OF FAIR VALUE OF WARRANTS GRANTED
| | |
2022 | | |
2021 | | |
2020 | |
| Expected life | |
| - | | |
| 1 year | | |
| 1 year | |
| Volatility | |
| - | | |
| 195%
- 200 | % | |
| 190 | % |
| Dividend yield | |
| - | | |
| 0 | % | |
| 0 | % |
| Risk-free interest rate | |
| - | | |
| 0.15% - 0.17 | % | |
| 0.26 | % |
Black-Scholes
pricing models require the use of highly subjective estimates and assumptions, including the expected stock price volatility. Changes
in the underlying assumptions can materially affect the fair value estimates.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
11. GENERAL AND ADMINISTRATIVE EXPENSES
SUMMARY OF GENERAL AND ADMINISTRATIVE EXPENSES
| | |
2022 | | |
2021 | | |
2020 | |
| | |
Years ended December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| | |
$ | | |
$ | | |
$ | |
| Bad debt | |
| - | | |
| - | | |
| 2,977 | |
| Bank service charges | |
| 5,421 | | |
| 6,806 | | |
| 5,910 | |
| Filing and registration fees | |
| 40,563 | | |
| 59,635 | | |
| 37,715 | |
| Insurance | |
| 60,251 | | |
| 44,784 | | |
| 38,283 | |
| Investor relations | |
| - | | |
| 5,312 | | |
| 1,265 | |
| Office maintenance | |
| 31,888 | | |
| 30,738 | | |
| 17,550 | |
| Payroll | |
| 34,813 | | |
| - | | |
| - | |
| Regulatory fees | |
| 5,238 | | |
| 8,380 | | |
| - | |
| Rent | |
| 16,800 | | |
| 12,810 | | |
| 5,268 | |
| Travel | |
| 55,170 | | |
| 14,382 | | |
| 5,259 | |
| General and administrative expenses | |
| 250,144 | | |
| 182,847 | | |
| 114,227 | |
12. RELATED PARTY TRANSACTIONS
For
the years ended December 31, 2022, 2021 and 2020, the Company recorded the following transactions with related parties:
| a) | $168,000
in management fees (2021 - $150,000; 2020 - $150,000) to the Chief Executive Officer of the
Company along with a bonus award of $nil (2021 - $35,000, 2020 - $nil). |
| | |
| b) | $nil
in management fees to the former President and Chief Executive Officer of the Company (2021
- $20,000, 2020 - $120,000). |
| | |
| c) | $124,200
in professional fees (2021 - $120,000; 2020 - $120,000) to a company controlled by the Chief
Financial Officer of the Company along with a bonus award of $nil (2021 - $30,000, 2020 -
$nil). |
| | |
| d) | $168,000
in consulting fees (2021 - $127,500; 2020 - $120,000) to the Chief Technology Officer of
the Company along with a bonus award $nil (2021 - $35,000 and 2020 - $nil). |
| | |
| e) | In
2020 the Company issued an aggregate of 1,900,000 shares in settlement of $47,500 in amounts
owing to certain directors and officers of the Company for services received in 2019. The
shares issued to the related parties are subject to a four month plus one day hold period.
There was no gain or loss on settlement. |
Related
party transactions not otherwise described in the consolidated financial statements are shown below. The remuneration of the Company’s
directors and other members of key management, who have the authority and responsibility for planning, directing and controlling the
activities of the Company directly or indirectly, consist of the following:
SCHEDULE OF RELATED PARTY TRANSACTIONS
| | |
2022 | | |
2021 | | |
2020 | |
| | |
Years ended December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| | |
$ | | |
$ | | |
$ | |
| Consulting fees | |
| 168,000 | | |
| 162,500 | | |
| 120,000 | |
| Management fees | |
| 168,000 | | |
| 205,000 | | |
| 270,000 | |
| Professional fees | |
| 124,200 | | |
| 150,000 | | |
| 120,000 | |
| Share-based compensation | |
| 151,088 | | |
| 264,393 | | |
| 58,159 | |
| Related
party transactions | |
| 611,288 | | |
| 781,893 | | |
| 568,159 | |
There
were no amounts due to related parties as at December 31, 2022, 2021 and 2020.
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
13. CAPITAL DISCLOSURES
The
Company includes shareholders’ equity in the definition of capital. The Company’s objective when managing capital is to maintain
sufficient cash resources to support its day-to-day operations. The availability of capital is solely through the issuance of the Company’s
common shares. The Company will not issue additional equity until such time when funds are needed and the market conditions become favorable
to the Company. There are no assurances that funds will be made available to the Company when required. The Company makes every effort
to safeguard its capital and minimize its dilution to its shareholders.
The
Company is not subject to any externally imposed capital requirements. There were no changes in the Company’s approach to capital
management during the year ended December 31, 2022.
14. SEGMENTED INFORMATION
At
December 31, 2022 2021 and 2020, the Company has only one segment, being the HealthTab™ - Point of Care Business in Canada.
15. SUPPLEMENTAL CASH FLOW INFORMATION
There
were no non-cash transactions during the year ended December 31, 2022.
During
the year ended December 31, 2021, the Company:
-
Issued common shares against subscriptions of $10,000 received in prior year.
-
Issued 275,000 common shares valued at $38,500 for services received
During
the year ended December 31, 2020, the Company:
-
Issued in total 2,000,000 common shares valued at $100,000 related to the acquisition of HealthTab™.
-
Issued in total 3,480,000 common shares valued at $52,200 as bonus shares under a loan.
-
Issued 5,477,965 common shares at a price of $0.025 per share to settle an outstanding debt of $136,949.
16. INCOME TAXES
The
following table reconciles the expected income tax expense (recovery) at the Canadian statutory income tax rates to the amounts recognized
in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022, 2021 and 2020:
SCHEDULE OF RECONCILIATION OF EXPECTED INCOME TAX EXPENSES (RECOVERY)
| | |
2022 | | |
2021 | | |
2020 | |
| | |
$ | | |
$ | | |
$ | |
| Loss for the year | |
$ | (818,228 | ) | |
$ | (1,708,132 | ) | |
$ | (1,173,966 | ) |
| | |
| | | |
| | | |
| | |
| Expected income tax recovery (27%) | |
| (221,000 | ) | |
| (461,000 | ) | |
| (317,000 | ) |
| Change in statutory, foreign tax, foreign exchange rates and other | |
| (2,000 | ) | |
| (24,000 | ) | |
| (3,000 | ) |
| Permanent differences and other | |
| 91,000 | | |
| 134,000 | | |
| 35,000 | |
| Share issue cost | |
| (5,000 | ) | |
| (5,000 | ) | |
| (5,000 | ) |
| Adjustment to prior years provision versus statutory tax returns and expiry of non-capital losses | |
| - | | |
| - | | |
| 1,000 | |
| Change in unrecognized deductible temporary differences | |
| 137,000 | | |
| 356,000 | | |
| 289,000 | |
| Total income tax expense (recovery) | |
| - | | |
| - | | |
| - | |
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
| 16. | INCOME
TAXES (continued) |
The
significant components of the Company’s deferred tax assets and liabilities are as follows:
SCHEDULE OF SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSET AND LIABILITIES
| | |
2022 | | |
2021 | |
| | |
$ | | |
$ | |
| Share issue costs | |
| 26,000 | | |
| 29,000 | |
| Property and equipment | |
| 219,000 | | |
| 164,000 | |
| Intangible asset | |
| 157,000 | | |
| 157,000 | |
| Non-capital losses | |
| 5,719,000 | | |
| 5,636,000 | |
| Total | |
| 6,121,000 | | |
| 5,986,000 | |
| Unrecognized deferred tax assets | |
| (6,121,000 | ) | |
| (5,986,000 | ) |
| Deferred income tax asset (liability) | |
| - | | |
| - | |
The
Company has approximately $21,261,000 in non-capital losses for Canadian tax purposes which begin expiring in 2026.
17. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
The
Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable and loans payable. The
Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to market conditions and the Company’s activities. The Company has exposure
to credit risk, liquidity risk and market risk as a result of its use of financial instruments.
This
note presents information about the Company’s exposure to each of the above risks and the Company’s objectives, policies
and processes for measuring and managing these risks. Further quantitative disclosures are included throughout the consolidated financial
statements. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management
framework. The Board has implemented and monitors compliance with risk management policies.
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 primarily from the Company’s cash and cash equivalents and accounts receivable. The Company’s cash
and cash equivalents are held through a large Canadian financial institution. The cash equivalent is composed of a guaranteed investment
certificate and is issued by a Canadian bank with high investment-grade ratings. The Company does not have financial assets that are
invested in asset-backed commercial paper.
The
Company performs ongoing credit evaluations of its accounts receivable but does not require collateral. The Company establishes an allowance
for doubtful accounts based on the credit risk applicable to particular customers and historical data.
Approximately
99% of trade receivables are due from one customer at December 31, 2022 (2021 – 76% from one customer).
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
| 17. | FINANCIAL
INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) |
Liquidity
risk is the risk that the Company will incur difficulties meeting its financial obligations as they are due. The Company’s approach
to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions without incurring unacceptable losses or risking harm to the Company’s reputation. Due to the
ongoing COVID-19 pandemic, liquidity risk has been assessed as high.
The
Company monitors its spending plans, repayment obligations and cash resources, and takes actions with the objective of ensuring that
there is sufficient capital in order to meet short-term business requirements. To facilitate its expenditure program, the Company raises
funds primarily through public equity financing. The Company anticipates it will have adequate liquidity to fund its financial liabilities
through future equity contributions, however, there can be no guarantees that sufficient funds will be raised.
Contractual
undiscounted cash flow requirements for financial liabilities as at December 31, 2022 are as follows:
SUMMARY
OF CONTRACTUAL UNDISCOUNTED CASH FLOW FINANCIAL LIABILITIES
| | |
Carrying value | | |
Contractual Cash flows | | |
Within 1 year | | |
1 - 5 Years | |
| | |
$ | | |
$ | | |
$ | | |
$ | |
| Accounts payable and accrued liabilities | |
| 312,893 | | |
| 312,893 | | |
| 312,893 | | |
| - | |
| Deferred revenue | |
| 252,000 | | |
| 252,000 | | |
| 252,000 | | |
| - | |
| Loan payable | |
| 40,000 | | |
| 40,000 | | |
| - | | |
| 40,000 | |
| | |
| 604,893 | | |
| 604,893 | | |
| 564,893 | | |
| 40,000 | |
Market
risk for the Company consists of currency risk and interest rate risk. The objective of market risk management is to manage and control
market risk exposure within acceptable limits, while maximizing returns.
Currency
risk
Foreign
currency risk is the risk that the fair value or future cash flows will fluctuate as a result of changes in foreign exchange rates. As
all of the Company’s purchases and sales are denominated in Canadian dollars, and it has no significant cash balances denominated
in foreign currencies, the Company is not exposed to foreign currency risk at this time.
Interest
rate risk
Interest
rate risk is the risk that fair values or future cash flows will fluctuate as a result of changes in market interest rates. In respect
of financial assets, the Company’s policy is to invest cash at floating interest rates and cash reserves are to be maintained in
cash equivalents in order to maintain liquidity, while achieving a satisfactory return for shareholders. The Company is not exposed to
significant interest rate risk.
| d) | Fair
values of financial instruments |
The
fair values of financial assets and financial liabilities are determined as follows:
Cash
and cash equivalents are measured at fair value. For accounts receivable, accounts payable, and loans payable carrying amounts approximate
fair value due to their short-term maturity;
Avricore
Health Inc.
Notes
to the Consolidated Financial Statements
For
the years ended December 31, 2022, 2021 and 2020
(Expressed
in Canadian Dollars)
| 17. | FINANCIAL
INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (continued) |
| d) | Fair
values of financial instruments (continued) |
The
fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. The three levels
of the fair value hierarchy are described below:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities and amounts
resulting from direct arm’s length transactions.
Cash
and cash equivalents are valued using quoted market prices or from amounts resulting from direct arm’s length transactions. As
a result, these financial assets have been included in Level 1 of the fair value hierarchy.
Level
2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly,
for substantially the full contractual term. Derivatives are included in Level 2 of the fair value hierarchy as they are valued using
price models. These models require a variety of inputs, including, but not limited to, contractual terms, market prices, forward price
curves, yield curves and credit spreads.
Level
3: Inputs for the asset or liability are not based on observable market data. Currently, the Company has no financial instruments at
this level.
18. REVENUE
Revenues
earned comprise lease and service $222,406 (2021 – $nil, 2020 – $nil) and sale of products $1,545,968 (2021 – $122,808,
2020 - $33,030). For the years ended December 31, 2022, 2021 and 2020, the Company had one major customer from whom revenues are earned.
The loss of this major customer would have an adverse effect on the overall operations of the company. Revenue from the major customer
was $1,768,374 for the year ended December 31, 2022 (2021 – $122,808, 2020 - $33,030).
19. SUBSEQUENT EVENTS
The
Company issued 400,000 common shares upon exercise of stock options for gross proceeds of $42,500.