Earthworks Industries : Third Quarter Report 2023

EARTHWORKS INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

AUGUST 31, 2023, AUGUST 31, 2022 AND NOVEMBER 30, 2022

(Expressed in Canadian Dollars)

EARTHWORKS INDUSTRIES INC.

(the "Company")

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, "Continuous Disclosure Obligations", Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed consolidated interim financial statements of the Company have been prepared by management.

The Company's independent auditors have not performed a review of these condensed condensed consolidated interim financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditors.

EARTHWORKS INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF

FINANCIAL POSITION

	(Expressed in Canadian Dollars)
as at August 31, 2023, August 31 2022 and November 30, 2022
		August 31		November 30		August 31
		2023		2022		2022
ASSETS
Current Assets
Cash	$	251,762	$	209,206	$	34,567
Accounts receivable		2,617		6,260		11,792
Prepaid expenses		80,509		39,632		11,781
		334,888		255,098		58,140
Equipment		-		-		369
Cortina Landfill Project (note 5)		11,870,393		11,849,946		11,361,147
	$	12,205,281	$	12,105,044	$	11,419,656
LIABILITIES
Current Liabilities
Accounts payable and accrued
liabilities (note 10)	$	436,421	$	456,982	$	434,111
Notes payable (note 6)		775,202		754,690		948,468
Advances from Cortina Landfill
Company (note 5)		-		675,400		655,550
Accrued interest on convertible
loans (note 7)		455,685		418,355		409,500
Convertible debenture (note 7)		223,262		144,432		-
Convertible debenture - derivative
(note 7)		73,805		73,680		-
		1,964,375		2,523,539		2,447,629
Long Term Liabilities
Company (note 5)		7,815,546		7,198,402		6,892,048
		9,779,921		9,721,941		9,339,677
SHAREHOLDERS' EQUITY
Share capital (note 8)		24,233,473		23,333,473		22,622,944
Reserves (note 9)		4,173,441		4,107,441		3,995,015
Accumulated other comprehensive income	852,112		849,688		745,760
Deficit		( 26,833,666)		( 25,907,499)		( 25,283,740)
		2,425,360		2,383,103		2,079,979
	$	12,205,281	$	12,105,044	$	11,419,656
Nature of Business, Continued Operations and Going Concern (note 1)
Subsequent Events (note 15)
Approved on Behalf of the Board on October 24, 2023:
David Atkinson				Calvin Woroniak
Director				Director

3

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

statements

EARTHWORKS INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS

(Expressed in Canadian Dollars)

For the Nine and Three Months ended August 31, 2023 and 2022

		Nine months		Nine months		Three months		Three months
		ended		ended		ended		ended
		August 31, 2023		August 31, 2022		August 31, 2023		August 31, 2022
Administration Costs
Amortization	$	-	$	507	$	-	$	226
Bank charges and interest (note 8)		37,358		19,479		26,619		7,389
Consulting fees		126,524		30,000		117,643		13,500
Convertible loan interest (note 6)		95,554		25,552		16,298		8,761
Directors' fees (note 10)		27,000		27,000		18,000		12,000
Interest on advances from Cortina
Landfill Company		292,718		289,854		193,901		101,354
Management salaries (note 10)		101,079		98,829		68,135		54,903
Office and administrative costs		23,109		21,044		19,642		5,863
Professional fees (note 10)		70,040		45,037		61,940		18,200
Promotion		6,319		1,080		5,886		633
Rent and parking		18,304		16,889		12,721		11,042
Salaries and benefits		35,668		34,551		23,793		15,891
Stock based compensation		66,000		707,943				707,943
Stock exchange and filing fees		13,075		9,847		13,075		205
Telephone and internet		4,822		4,976		3,206		2,090
Transfer agent		7,272		7,933		5,711		4,667
Travel		1,325				1,325		3,471
Loss for the period		926,167		1,344,422		587,895		968,138
Other Comprehensive Loss (Income)
Exchange difference on translation
of foreign operations		( 2,424)		( 81,976)		24,220		( 120,540)
Comprehensive loss (gain) for the
period	$	923,743	$	1,262,446	$	612,115	$	847,598
Basic and diluted loss per share	$	0.01	$	0.01	$	-	$	0.01
Weighted average number of common
shares outstanding - basic and diluted		95,473,846		89,336,585		95,473,846		89,336,585

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

4

EARTHWORKS INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(Expressed in Canadian Dollars)

For the Nine Months Ended August 31, 2023, August 31, 2022 and the Year Ended November 30, 2022

	Nine months ended	Year ended		Nine months ended
		August 31, 2023	November 30, 2022	August 31, 2022
Operating Activities
Net income (loss) for the year	$	(926,167)	$	(1,841,181)	$	(1,344,422)
Adjust for non-cash items:
Amortization		-		877		508
Gain on extinguishment of debt
(note 7)		-		( 58,337)		-
Gain on fair value of derivative
(note 7)		-		( 75,656)		-
Interest on advances from
Cortina Landfill Company		292,718		379,580		289,338
Interest		37,330		30,199		27,511
Convertible loan int. and accretion		78,571		183,249		25,552
Share based compensation		66,000		917,943		707,943
Exchange gain		-		-		10,104
		474,619		( 463,326)		1,060,956
Change in non-cash working
capital accounts (note 14)		( 45,241)		86,634		97,376
		429,378		( 376,692)		1,158,332
Financing Activities
Share capital issued for cash		900,000		705,000		205,000
Share subscription advance		-		-		-
Share issue costs		-		( 14,280)		-
Interest payment - CLC		( 360,655)
Principal repayment - CLC		-		( 33,688)		( 187,688)
Demand loans received		-		65,302		204,647
Demand loans repaid		-		-		-
		539,345		722,334		221,959
Investing Activities
Landfill project deferred costs		-		( 424,522)		( 289,388)
		-		( 424,522)		( 289,388)
Increase (decrease) in cash		42,556		( 78,880)		( 253,519)
Cash, beginning of year		209,206		288,086		288,086
Cash, end of period	$	251,762	$	209,206	$	34,567
Interest paid (received)	$	-	$	-	$	-
Income taxes paid (received)	$	-	$	-	$	-

Supplemental Cash Flow Information (note 15)

5

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

statements

EARTHWORKS INDUSTRIES INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CORTINA LANDFILL PROJECT COSTS

(Expressed in Canadian Dollars)

For the Nine Months Ended August 31, 2023, August 31, 2022 and the Year Ended November 30, 2022

		Nine months ended	Year Ended		Nine months ended
		August 31, 2023	November 30, 2022	August 31, 2022
Cortina Landfill Project
Project engineering	$	-	$	409,591	$	289,338
Legal		-		14,931		-
Costs incurred during the year		-		424,522		289,338
Exchange Adjustment		20,447		622,999		269,384
Project Costs, beginning of the year		11,849,946		10,802,425		10,802,425
Project Costs, end of the period	$	11,870,393	$	11,849,946	$	11,361,147

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

6

EARTHWORKS INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Nine Months ended August 31, 2023 and 2022 and the Years Ended November 30, 2022 and 2021

											Accumulated
											Other
										Comprehensive
											Income -
					Share			Equity Portion		cumulative
	Number of			subscription		Contributed	of Convertible		translation
	Shares		Amount		advance		Surplus		Loans		adjustment		Deficit		Total
Balance, November 30, 2021	88,490,832	$	22,100,444	$	-	$	2,997,708	$	289,599	$	660,451	$	(23,939,318)	$	2,108,884
Options exercised	100,000		10,000		-		-		-		-		-		10,000
Shares issued for debt	1,270,000		317,500		-		-		-		-		-		317,500
Share issued for cash					-		-		-		-		-		-
Share issue costs	-				-		-		-		-		-		-
Options exercised	1,950,000		195,000		-		707,708		-		-		-		902,708
Other comprehensive income	-		-		-		-		-		85,309		-		85,309
Net loss for the period	-		-		-		-		-		-		(1,344,422)		(1,344,422)
Balance, August 31, 2022	91,810,832		22,622,944		-		3,705,416		289,599		745,760		(25,283,740)		2,079,979
Other comprehensive income	-		-		-		-		-		103,928		-		103,928
Share issued for cash	-		500,000		-		-		-		-		-		500,000
Share issue costs	-		(14,280)		-		-		-		-		-		(14,280)
Options exercised	-		97,809		-		(805,417)		-		-		-		(707,608)
Shares issued for debt	2,500,000		127,000		-		-		-		-		(127,000)		-
Stock based compensation	-		-		-		917,843		-		-		-		917,843
Net loss for the period	-		-		-		-		-		-		(496,759)		(496,759)
Balance, November 30, 2022	94,310,832		23,333,473		-		3,817,842		289,599		849,688		(25,907,499)		2,383,103
Share subscription advances	4,500,000		900,000		-		-		-		-		-		900,000
Shares issued for debt	-		-		-		-		-		-		-		-
Other comprehensive income	-		-		-		-		-		2,424		-		2,424
Share based compensation	-		-		-		66,000		-		-		-		66,000
Net loss for the quarter	-		-		-		-		-		-		(926,167)		(926,167)
Balance, August 31 2023	98,810,832	$	24,233,473	$	-	$	3,883,842	$	289,599	$	852,112	$	(26,833,666)	$	2,425,360

7

EARTHWORKS INDUSTRIES INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in Canadian Dollars)

August 31, 2023 and 2022 and November 30, 2022

• Nature of Business, Continued Operations and Going Concern
• 1. 
     Earthworks Industries Inc. (the "Company") is incorporated under the laws of British Columbia, Canada and management has determined that the Company is in the development stage based on the fact it has no operations, no significant revenues and has not completed the landfill project. Its office is located at Suite 615, 800 West Pender Street, Vancouver, BC V6C 2V6.
     The Company has completed an environmental impact study of a landfill project through its wholly-owned subsidiary, Cortina Integrated Waste Management Inc. ("CIWM") and received a Record of Decision to approve its lease to construct and operate the site from the United States Department of the Interior - Bureau of Indian Affairs ("BIA") in 2000. Final approval of the lease was issued in January 2007. Notice of termination of this lease was given by the BIA on August 19, 2013. The Company filed and, on October 29, 2015, succeeded in its Appeal to the Interior Board of Indian Affairs (IBIA). Another notice of termination of this lease was issued again by the BIA on March 1, 2019. The Company has filed an appeal to the BIA.
     These condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business rather than through a process of forced liquidation. The establishment of operations by the Company and the recoverability of the amount shown for the landfill project is dependent upon the ability of the Company to obtain necessary financing, and maintaining the lease to construct and operate its site in good standing to complete the development of the landfill operation and commence future profitable operations. Management will pursue future equity financings and continued loans from related and other parties. In March 2020, there was a global outbreak of a novel coronavirus identified as "COVID-19". The actual and threatened spread of the virus globally has had a material adverse effect on the global economy and specifically, the regional economies in which the Company operates. The pandemic could result in delays in the course of business and could have a negative impact on the Company's ability to raise new capital. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company's business or results of operations at this time. The Company's business financial condition and results of operations may be further negatively affected by economic and other consequences from Russia's military action against Ukraine and the sanctions imposed in response to that action in late February 2022. While the Company expects any direct impacts, of the pandemic and the war in the Ukraine, to the business to be limited, the indirect impacts on the economy and industries in general could negatively affect the business and may make it more difficult for it to raise equity or debt financing. There can be no assurance that the Company will not be impacted by adverse consequences that may be brought about on its business, results of operations, financial position and cash flows in the future. These material uncertainties may cast significant doubt on the Company's ability to continue as a going concern. Accordingly, the condensed consolidated interim financial statements do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities, contingent obligations and commitments other than in the normal course of business and at amounts different from those in the condensed consolidated interim financial statements.
     On February 4, 2022 the Company amended the previous North Bay agreement to settle the US$500,000 installment payment due to be paid by the Company on March 31, 2022 as follows:
  2. two payments of $12,500 with the first being payable upon execution of the amended agreement and the second payable by August 31, 2022 (both payments were made);
  3. US$250,000 will be satisfied by the issuance of 1.27 million units which consist of one fully paid voting share and one half share purchase warrant. One full warrant is exercisable at $0.35 until February 28, 2024 to purchase one fully paid voting common share of Earthworks (the units were issued in April 2022);
  4. the remaining US$225,000 will remain part of the balance amount as defined in the agreement; and
  5. the payout option amount is increased to US$2,500,000 and expires on March 31, 2023.

On March 13, 2023 North Bay and the Company have agreed to amend the Settlement Agreement and pursuant to that amendment the Company will exercise its option to buy out the existing US$5,900,000 loan from North Bay for US$2,500.000. The Company will also repay US$150,000 borrowed from North Bay under a separate loan agreement dated September 27, 2022 as part of the final payment. The total US$2,650,000 payment will be made on or before September 30, 2023. The Company has also agreed to pay North Bay a 10% loan fee of US$265,000 which will be paid from 50% of the proceeds of the Company's next fundraising campaign. North Bay in turn will waive the US$500,000 instalment payment due March 31, 2023, pursuant to the Settlement Agreement. Any failure by the Company to make payments under the option exercise will be deemed a breach of the Settlement Agreement, pursuant to which share certificates representing ownership of CIWM were transferred into an escrow account as security for the loan, and those share certificates will be irrevocably transferred to North Bay.

• Significant Accounting Policies
• 1. Basis of Presentation
     These condensed consolidated interim financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the IFRS Interpretation Committee ("IFRIC"). These condensed consolidated interim financial statements have been prepared on the basis of IFRS that are effective for the Company's reporting year ended November 30, 2022. The Company is compliant with IAS34.
     These condensed consolidated interim financial statements have been prepared on a historical basis except for certain financial instruments which are measured at fair value. In addition, these condensed consolidated interim financial statements have been prepared using the accrual basis of accounting, except for cash flow information.
  2. Consolidation of Financial Statements
     These condensed consolidated interim financial statements include the accounts of the Company and CIWM, a subsidiary incorporated in the State of California on July 19, 1994. A wholly- owned subsidiary is an entity in which the Company has control, directly or indirectly, where control is defined as the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. References to "the Company" include Cortina Integrated Waste Management, Inc. Intercompany balances and transactions have been eliminated upon consolidation.
  3. Financial Instruments
     Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 contains three primary measurement categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVTOCI), and fair value through profit and loss (FVTPL).
     Financial assets that meet the following conditions are subsequently measured at amortized cost:
  4. • the financial asset is held within a business model whose objective is to collect contractual cash flows; and
     • the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The Company measures its cash and accounts receivable at amortized cost.

Financial assets that meet the following conditions are subsequently measured at FVTOCI:

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling; and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

8

EARTHWORKS INDUSTRIES INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in Canadian Dollars)

August 31, 2023 and 2022 and November 30, 2022

• Significant Accounting Policies (continued) Financial Instruments (continued)

All other financial assets are subsequently measured at FVTPL, except that at the date of initial application/initial recognition of a financial asset the Company may irrevocably elect to present subsequent changes in fair value of an equity investment in OCI if that equity investment is neither held for trading nor contingent consideration recognized by an acquirer in a business combination to which IFRS 3 Business Combinations applies.

The Company does not have any financial assets measured at FVOCI or FVTPL.

Financial liabilities are measured at amortized cost, unless they are required to be measured at FVPL (such as instruments held-for-trading or derivatives) or if the Company has opted to measure them at FVTPL.

Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, notes payable, advances from Cortina Landfill Company and accrued interest on convertible debt are subsequently measured at amortized cost, using the effective interest method. The Company's derivative liability is carried at FVTPL.

International Financial Reporting Standard 7, Financial Instruments Disclosures, establishes a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

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).

The Company's financial instruments include: cash, accounts receivable, accounts payable and accrued liabilities, notes payable, derivative liabilities, interest on convertible loans, and advances from Cortina Landfill Company. The carrying value of the financial instruments approximates their fair values.

Impairment on Financial Assets

At each reporting date the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets.

Compound Financial Instruments

Compound financial instruments issued by the Company comprise convertible debentures that can be converted into shares of the Company at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to the initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition. Interest, dividends, losses and gains relating to the financial liability are recognized in profit or loss. When the conversion option is exercised, the consideration received is recorded as share capital and the equity component of the compound financial instrument is transferred to share capital.

When the Company extinguishes convertible debentures before maturity through early redemption or repurchase where the conversion option is unchanged, the Company allocates the consideration paid and any transaction costs for the repurchase or redemption to the liability and equity components of the instrument at the date of settlement. The method used in allocating the consideration paid and transaction costs to the separate components is consistent with the method used in the original allocation to the separate components of the proceeds received by the entity when the convertible instrument was issued. The amount of gain or loss relating to the early redemption or repurchase of the liability component is recognized in profit or loss. The amount of consideration relating to the equity component is recognized in equity.

In some instances, financial instruments may be determined to be hybrid instruments which can contain a liability and a derivative liability. In these scenarios, the derivative liability is measured first at inception at fair value with any residual amount assigned to the liability component. If the hybrid instrument also contains an equity component, the liability and derivative liability are both measured at inception at fair value with any residual assigned to the equity component. Transaction costs are allocated proportionately among the liability, derivative liability and equity components.

Derecognition of Financial Assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the final asset and substantially all the risks and rewards of ownership to another entity.

Derecognition of Financial Liabilities

The Company derecognizes financial liabilities when, an only when, the Company's obligations are discharged, cancelled, or they expire.

1. Cortina Landfill Project Costs
   The Company is proceeding with final federal approvals with respect to the development of the Cortina Landfill Project and accordingly follows the practice of capitalizing all costs related to the project until such time as the project is put into commercial use, sold or abandoned. If commercial use commences, the capitalized costs will be amortized on a units of production basis. If the project is abandoned, the related capitalized costs will be written-off to profit or loss.
   The amounts shown for the Cortina Landfill Project represent costs to date and are not intended to reflect present or future values. The actual amounts to be recovered from the project are uncertain and not determinable until the project is completed. Changes in future conditions could require a material change in the recognized amount.

9

EARTHWORKS INDUSTRIES INC.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Expressed in Canadian Dollars)

August 31, 2023 and 2022 and November 30, 2022

• Significant Accounting Policies (continued)
• 1. Equipment

Equipment is carried at cost less accumulated amortization. Amortization is provided using the declining balance method at the following annual rates:

Computer equipment	30%
Office equipment	20%
In the year of acquisition, amortization is recorded at one-half the normal rate.

1. Leases
2. • 
     At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. An identified asset may be implicitly or explicitly specified in a contract, but must be physically distinct, and must not have the ability for substitution by a lessor. The Company has the right to control an identified asset if it obtains substantially all of its economic benefits and either predetermines or directs how and for what purpose the asset is used.
     At lease commencement, the Company recognizes a right-of-use asset and a lease obligation. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
     The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise the following:
   • fixed payments, including in-substance fixed payments, less any lease incentives receivable;
   • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
   • amounts expected to be payable under a residual value guarantee; and
   • the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company's estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension, or termination option or if there is a revised in-substance fixed lease payment. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

1. Loss Per Share
   Basic loss per share is calculated by dividing the loss for the period by the weighted average number of shares outstanding during the period. Diluted loss per share is calculated using the treasury stock method. Under the treasury stock method, the weighted average number of shares outstanding used in the calculation of diluted loss per share assumes that the deemed proceeds received from the exercise of stock options, share purchase warrants and their equivalents would be used to repurchase common shares of the Company at the average market price during the period.
   Existing stock options, share purchase warrants and convertible loans have not been included in the computation of diluted loss per share as to do so would be anti-dilutive. Accordingly, basic and diluted loss per share are the same.
2. Foreign Currency Translation
   The reporting currency of the Company is the Canadian dollar.
   The functional currency of each of the parent company and its subsidiary is measured using the functional currency of the primary economic environment in which that entity operates. The condensed consolidated interim financial statements are presented in Canadian dollars, which is the parent company's functional and presentation currency. The functional currency of the subsidiary is the United States dollar.
   Transactions and balances:
   Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items valued at their fair value are reported at the exchange rate at the date when fair values were determined.
   Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in profit or loss in the statement of comprehensive loss in the period in which they arise.
   Exchange differences arising on the translation of non-monetary items are recognized in profit or loss. in the statement of comprehensive loss to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income.
   Where a non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.

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