The accompanying unaudited condensed consolidated interim financial statements of Cell MedX Corp. as at February 29, 2020, have been prepared by the Company’s management in conformity with accounting principles generally accepted in the United States of America and in accordance with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' deficit in conformity with generally accepted accounting principles.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.

Operating results for the three and nine months ended February 29, 2020, are not necessarily indicative of the results that can be expected for the year ending May 31, 2020.

As used in this Quarterly Report, the terms “we,” “us,” “our,” “Cell MedX,” and the “Company” mean Cell MedX Corp. and its subsidiary, Cell MedX (Canada) Corp., unless otherwise indicated. All dollar amounts in this Quarterly Report are expressed in U.S. dollars.

1

CELL MEDX CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN US DOLLARS)

(Unaudited)

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

F-1

CELL MEDX CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(EXPRESSED IN US DOLLARS)

(Unaudited)

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

F-2

CELL MEDX CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

(EXPRESSED IN US DOLLARS)

(Unaudited)

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

F-3

CELL MEDX CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN US DOLLARS)

(Unaudited)

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

F-4

CELL MEDX CORP.

NOTES TO THE UNAUDITED INTERIM

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2020

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

Cell MedX Corp. (Cell MedX, or the “Company”) was incorporated under the laws of the State of Nevada. On April 26, 2016, the Company formed a subsidiary, Cell MedX (Canada) Corp. (“Cell MedX Canada”) under the laws of the province of British Columbia. Cell MedX is a biotech company focusing on the discovery, development, and commercialization of therapeutic and non-therapeutic products that promote general wellness.

Unaudited Interim Financial Statements

The unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”). They do not include all information and footnotes required by GAAP for complete financial statements. Except as disclosed herein, there have been no material changes in the information disclosed in the notes to the consolidated financial statements for the year ended May 31, 2019, included in the Company’s Annual Report on Form 10-K, filed with the SEC on September 6, 2019. The interim unaudited condensed consolidated financial statements should be read in conjunction with those audited consolidated financial statements included in Form 10-K. In the opinion of management, all adjustments considered necessary for fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three and nine months ended February 29, 2020, are not necessarily indicative of the results that may be expected for the year ending May 31, 2020.

Going concern

The accompanying unaudited interim condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of February 29, 2020, the Company has not achieved profitable operations and has accumulated a deficit of $7,866,505. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raises substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes, and/or private placement of common stock.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 changes current U.S. GAAP for lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods. Early application is permitted. The Company adopted the ASU 2016-02 on June 1, 2019. As of the date of these financial statements, the Company has no leasing arrangements. However, the Company is evaluating a possible impact ASU 2016-02 may have on the Company’s decision to introduce leasing options for its eBalance® devices.

F-5

NOTE 2 - RELATED PARTY TRANSACTIONS

Amounts due to related parties, other than notes payable to related parties (Note 8) at February 29, 2020, and at May 31, 2019:

(1)The amounts due to former CEO and former Chief Medical Officer have been reclassified to accounts payable, as both persons were not related to the Company as at February 29, 2020. 

The amounts due to related parties are unsecured, due on demand and bear no interest.

During the nine-month periods ended February 29, 2020 and February 28, 2019, the Company had the following transactions with related parties:

NOTE 3 - INVENTORY

As at February 29, 2020, the inventory consisted of eBalance® devices and accessories held for sale valued at $39,405 (May 31, 2019 - $24,505) and work in progress, that included unfinished eBalance® devices and supplies required for manufacturing valued at $26,950 (May 31, 2019 - $48,696). In addition, the inventory included a total of $3,685 (May 31, 2019 - $Nil) associated with the eBalance® devices and accessories the Company provided to certain customers under 90 to 120-day trial periods, during which time the customers have an option to return the eBalance® devices at no charge and without obligation to purchase them.

The cost of eBalance® devices used for further research and development and for in-house observational trials is recognized as part of research and development expense. During the nine-month period ended February 29, 2020, the Company recognized $3,955 as the cost of eBalance® devices used in research and development. During the three-month period ended February 29, 2020, the Company recognized $103 as part of research and development expenses. The cost of eBalance® devices used in marketing and advertising is recognized as part of general and administrative expenses. During the nine-month period ended February 29, 2020, the Company recognized $11,678 as the cost of eBalance® devices used for marketing and advertising purposes. During the three-month period ended February 29, 2020, the Company recognized $6,313 in marketing and advertising.

NOTE 4 - OTHER CURRENT ASSETS

As at February 29, 2020, other current assets consisted of $27,146 in prepaid expenses (May 31, 2019 - $50,331) and $11,922 in receivables associated with GST Cell MedX Canada paid on the taxable supplies (May 31, 2019 - $8,556).

F-6

NOTE 5 - EQUIPMENT

Changes in the net book value of the equipment at February 29, 2020 and May 31, 2019 are as follows:

NOTE 6 - UNEARNED REVENUE

Changes to the unearned revenue as at February 29, 2020, and May 31, 2019:

During the nine-month period ended February 29, 2020, the Company entered into a letter of intent for the wholesale distribution rights to all Mainland China, not including Hong Kong (the “LOI”). As part of the LOI, the potential distributor (the “Distributor”) paid a non-refundable fee of $25,000. As at February 29, 2020, the LOI has expired, and the Company did not enter into a definitive agreement with the Distributor.

The Company amortizes the non-refundable deposit received from the Distributor on a straight-line basis over the full length of the LOI. As at February 29, 2020, the deposit was fully amortized, and the Company recorded $25,000 as revenue from distribution rights (Note 7).

On January 29, 2020, the Company entered into buyback agreement (the “Buyback Agreement’) with its distributor operating under the distribution rights agreement dated March 21, 2019 (the “Underlying Agreement”). Pursuant to the Buyback Agreement, the Company agreed to reacquire the exclusive distribution rights granted under the Underlying Agreement in exchange for a royalty on all sales of the eBalance® device up to an aggregate $507,500, and warrants to acquire up to 2,000,000 shares of the Company’s common stock (the “Warrants”) as follows:

·A warrant to acquire up to 1,000,000 shares exercisable at $0.50 per share expiring on March 12, 2023 

·A warrant to acquire up to 1,000,000 shares exercisable at $1.00 per share expiring on March 12, 2023 

Both Warrants are subject to acceleration clauses whereby the expiry date of the $0.50-warrant can be accelerated in case where the weighted average closing price (the “WAP”) of the Company’s common shares over any 30-trading-day period is equal to or greater than $1.00 per share; the $1.00-warrant may be accelerated when WAP is equal to or greater than $1.75 per share (Note 9).

The Warrants were valued at $352,093 and were recorded as part of reserves. The fair value of the Warrants was valued using the Black-Scholes Option pricing model using the following assumptions:

F-7

The transaction resulted in a loss on reacquisition of the distribution rights of $102,093 which was calculated as follows:

NOTE 7 - REVENUE

During the three and nine-month periods ended February 29, 2020, the Company’s revenue consisted of sales of its eBalance^® devices to end-users and sale of rights to the wholesale distribution of eBalance^® devices.  Following are the details of revenue and associated costs:

NOTE 8 - NOTES AND ADVANCES PAYABLE

The tables below summarize the short-term loans and advances outstanding as at February 29, 2020, and May 31, 2019:

(1) Loans Payable

During the nine-month period ended February 29, 2020, in order to support its daily operations and to secure required working capital, the Company entered into several short-term convertible loan agreements with two lenders for a total of $252,650 in exchange for unsecured notes payable due on demand and accumulating interest at 6% annual interest compounded monthly.  Pursuant to the loan agreements, the lenders may convert any portion of principal and/or interest accrued thereon (the “Convertible Amount”) into restricted units of common stock in the capital of the Company on the terms and at a conversion price of the then-current private placement offering. The conversion rights were assessed to have $Nil value.

As at February 29, 2020, the Company owed a total of $291,028 (2019 - $30,678) under the 6% loan agreements and recorded $7,544 in interest on these loans (2019 - $946). During the three-month period, the Company recoded $3,924 in interest on these loans (2019 - $450).

F-8

(2) Related Party Loans Payable

On August 28, 2019, Mr. Jeffs, the Company’s major shareholder, exercised 2,482,960 warrants to acquire 2,482,960 shares of the Company granted in consideration for the funds Mr. Jeffs advanced to the Company during its fiscal 2019 and 2018 years.  To exercise the warrants, Mr. Jeffs chose to apply $124,148, the Company owed under the demand notes payable against the purchase price of the shares (Note 9). The exercise price was first applied to $15,051 (CAD$20,019) in interest accrued on the notes payable, with the remaining $109,097 (CAD$145,110) applied to the principal. The shares were issued on September 9, 2019. As at February 29, 2020, the Company owed Mr. Jeffs $7,012 under the remaining note payable (2019 - $126,560), which continues to accumulate interest at 6% per annum compounded monthly.

During the nine-month period ended February 29, 2020, the Company recorded $2,531 in interest on the loans with Mr. Jeffs. (2019 - $6,531). During the three-month period ended February 29, 2020, the Company recorded $105 in interest on the loans with Mr. Jeffs. (2019 - $2,238).

(3) Unsecured Line of Credit with Related Party

On August 28, 2019, Mr. Jeffs exercised 5,000,000 warrants to acquire 5,000,000 shares of the Company granted to Mr. Jeffs in consideration for an unsecured line of credit of up to $250,000 (the “Credit Line”) dated for reference December 27, 2018.  To exercise the warrants, Mr. Jeffs chose to apply $250,000, the Company owed under the Credit Line against the purchase price of the shares (Note 9). The exercise price was first applied to $10,606 in interest accrued on the balance due under the Credit Line, $25,000 was applied towards the Credit Line set-up fee, and the remaining $214,394 was applied to the principal. The shares were issued on September 9, 2019. As at February 29, 2020, the Company owed Mr. Jeffs $36,703 under the Credit Line (2019 - $281,468), which continues to accumulate interest at 6% per annum compounded monthly.

During the nine-month period ended February 29, 2020, the Company recorded $5,235 in interest on principal outstanding under the Credit Line (2019 - $2,253). During the three-month period ended February 29, 2020, the Company recorded $544 in interest on principal outstanding under the Credit Line (2019 - $2,253).

(4) Advances Payable

During the nine-month period ended February 29, 2020, the Company borrowed $15,000. The advances are non-interest bearing, unsecured, and payable on demand. As at February 29, 2020, a total of $88,156 (2019 - $73,048) was due and payable on account of the advances.

(5) Interest Expense

During the nine-month period ended February 29, 2020, the Company recorded a total of $15,310 (2019 - $9,731) in interest expense associated with its liabilities under the notes and advances payable.

During the three-month period ended February 29, 2020, the Company recorded a total of $4,575 (2019 - $4,941) in interest expense associated with its liabilities under the notes and advances payable.

NOTE 9 - SHARE CAPITAL

On May 30, 2019, the Company announced a non-brokered private placement offering (the “2019 Offering”) set at a price of $0.12 per Unit for up to 6,250,000 Units for total gross proceeds of up to $750,000. Each Unit sold under the 2019 Offering was to consist of one common share of the Company and one share purchase warrant (the “Warrant”) expiring on the second-year anniversary of the date of issuance of the Warrant. Each Warrant was to be exercisable into one share of the Company’s common stock at $0.20 per share.

On June 24, 2019, the Company closed the first tranche of its 2019 Offering by issuing 3,950,000 Units for total gross proceeds of $474,000. On July 22, 2019, the Company closed the second tranche of the 2019 Offering by issuing 100,000 Units for total gross proceeds of $12,000.

On September 9, 2019, the Company issued 7,482,960 common shares of the Company on exercise of 7,482,960 warrants the Company granted to Mr. Jeffs in consideration for the Credit Line and in recognition of $124,128 previously advanced to the Company by Mr. Jeffs in series of separate loan agreements (Note 8). To exercise the warrants, Mr. Jeffs chose to apply $374,148, the Company owed under the Credit Line and notes payable against the purchase price of the shares.

F-9

Options

The changes in the number of stock options outstanding during the nine-month period ended February 29, 2020, and for the year ended May 31, 2019, are as follows:

Details of options outstanding and exercisable as at February 29, 2020, are as follows:

At February 29, 2020, the weighted average remaining contractual life of the stock options outstanding was 1.05 years.

Warrants

The changes in the number of warrants outstanding during the nine-month period ended February 29, 2020, and for the year ended May 31, 2019, are as follows:

Details of warrants outstanding as at February 29, 2020, are as follows:

F-10

At February 29, 2020, the weighted average life and exercise price of the warrants was 1.54 years and $0.93, respectively.

NOTE 10 - SUBSEQUENT EVENT

Subsequent to February 29, 2020, the Company received $20,000 under convertible notes payable, which bear interest at 6% per annum compounded monthly. At the discretion of the lender, the balance of the notes payable may be converted to units of the Company’s common stock at the price of the then-current private placement financing.

Subsequent to February 29, 2020, the Company entered into a consulting agreement for investor relation services (the “IR Agreement”). Based on the IR Agreement the Company issued to the consultant 100,000 shares of its common stock and agreed to a monthly consulting fee of $2,000 commencing on April 1, 2020.

Risks related to the rapid expansion of the COVID-19 pandemic

The Company is cognizant of the rapid expansion of the COVID-19 pandemic and the resulting global implications. To date, there have been no disruptions to the Company’s day-to-day operations. However, the Company cautions that there continues to be a possibility for potential future implementation of certain restrictions. The impact of these restrictions on the Company’s operations, if implemented, is currently unknown but could be significant.

F-11

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited interim consolidated financial statements, the notes to those financial statements and other financial information appearing elsewhere in this document. In addition to historical information, the following discussion and other parts of this document contain forward-looking statements that reflect plans, estimates, intentions, expectations and beliefs. Actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those set forth in the "Risk Factors" in Part II, Item 1A of this Quarterly Report.

The discussion provided in this Quarterly Report should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 2019, filed with the United States Securities and Exchange Commission (the “SEC”) on September 6, 2019.

Overview

We were incorporated as Plandel Resources, Inc. under the laws of the State of Nevada on March 19, 2010. On March 24, 2014, we changed our name to Sports Asylum, Inc., and on September 30, 2014, we changed our name to Cell MedX Corp. to reflect our current business direction.

On November 25, 2014, we completed the acquisition of a proprietary method for the application of bioelectric signaling to treat diabetes and related ailments (the “eBalance^® Technology”).  With our acquisition of the eBalance^® Technology, we have shifted our business direction to the discovery, development, and commercialization of therapeutic and non-therapeutic products that promote general wellness and alleviate complications associated with medical conditions including, but not limited to, diabetes, Parkinson’s disease, and high blood pressure.

On April 26, 2016, we formed a subsidiary, Cell MedX (Canada) Corp., (the “Subsidiary”) under the laws of the Province of British Columbia, in anticipation of increased business activity in Canada. As of the day of this Quarterly Report on Form 10-Q the Subsidiary is engaged in manufacturing, distribution, and further development of eBalance^® Technology.

Recent Corporate Developments

The following corporate developments occurred during the quarter ended February 29, 2020, and up to the date of the filing of this report:

Convertible Loan Agreements

During the quarter ended February 29, 2020, in order to support our daily operations and to secure required working capital, we entered into several short-term convertible loan agreements with a lenders for a total of $55,000 in exchange for unsecured notes payable due on demand and accumulating 6% annual interest compounded monthly. At the discretion of the lender, the balance of the notes payable may be converted to units of the Company’s common stock at the price of the then-current private placement financing. Subsequent to February 29, 2020, we advanced further $20,000 from the same lender under substantially the same terms. Pursuant to the loan agreements, the lenders may convert  any portion of principal and/or interest accrued thereon into restricted units of our common stock on the terms and at a conversion price of the then-current private placement offering.

Consulting agreement for Investor Relations

On April 3, 2020, we entered into a consulting agreement for investor relation services (the “IR Agreement”). Based on the IR Agreement we issued to the consultant 100,000 shares of our common stock and agreed to a monthly consulting fee of $2,000 commencing on April 1, 2020.

2

Reacquisition of Worldwide Exclusive Distribution Rights for the eBalance^Ⓡ Device

On January 29, 2020, we entered into a buyback agreement (the “Buyback Agreement”) with Live Current Media Inc. (“LIVC”). Pursuant to the terms of the Buyback Agreement we agreed to reacquire the worldwide exclusive direct to consumer rights for distribution of our eBalance® devices (the “Direct Rights”), which we originally granted to LIVC under the distribution agreement (the “Underlying Agreement”) dated for reference, March 21, 2019. In order to reacquire the Direct Rights, we agreed to pay LIVC a royalty on all sales of the eBalance^® device up to an aggregate $507,500 calculated as follows:

1.$25 per eBalance^® device sold, not to exceed 3,500 eBalance^® devices; and 

2.$5 per month for each eBalance^® device generating recurring monthly revenue, up to an aggregate royalty of $420,000. 

Should we decided to cancel the recurring monthly fee due to a change in our distribution model, the royalty will be replaced by a one-time payment of $145 per eBalance^® device sold up to an aggregate of $507,500.

In addition to the royalty, we issued to LIVC share purchase warrants (the “Warrants”) entitling LIVC to purchase up to two million shares of our common stock as follows:

1.1,000,000 shares at $0.50 per share (the “$0.50 Warrant”) expiring on March 12, 2023 

2.1,000,000 shares at $1.00 per share (the “$1.00 Warrant”) expiring on March 12, 2023 

At our discretion we can accelerate expiry date of the warrants such that if the weighted average closing price (the “WAP”) of our shares over any 30 consecutive trading-day period is equal to or greater than $1.00 per share, the expiry date of the $0.50 Warrant can be accelerated to 30 days following the acceleration notice given by us to LIVC, and if the WAP is equal to or greater than $1.75 per share, the expiry date of the $1.00 Warrant may be accelerated to 30 days following the acceleration notice.

Update on eBalance^Ⓡ Research and Development Activities

At the end of February 2020, we completed an audit required for certification of our quality management systems (“QMS”) under Stage 2 Medical Device Single Audit Program (“MDSAP”) and under ISO 13485:2016 standard. The audit was carried out by BSI Group Canada Inc. (“BSI”) and included the following:

-The effectiveness of our QMS incorporating the applicable regulatory requirements outlined by ISO13485:2016 standard and as required under MDSAP; 

-Product/process-related technologies; 

-Adequate technical documentation for our eBalance^® device in relation to ISO13485:2016 standard and MDSAP; and  

-Our ability to comply with these requirements. 

The assessment report was finalized in mid-March 2020 with a recommendation for certification upon final report review. On March 31, 2020, we received Certificate No. FM 716345, certifying that the Company operates a Quality Management System which complies with the requirements of ISO 13485:2016 for design, development and manufacture of microcurrent therapeutic devices for wellness and pain relief.

We anticipate receiving the MDSAP certification within the next 60 days, at which time we will be eligible to apply to Health Canada for a Class II Medical Device License.

Current uncertainty with respect to rapid expansion of the COVID-19 pandemic

We are cognizant of the rapid expansion of the COVID-19 pandemic and the resulting global implications. To date, there has been no disruptions to our day-to-day operations. However, we caution that there continues to be a possibility for potential future implementation of certain restrictions. The impact of these restrictions on our operations, if implemented, is currently unknown but could be significant.

3

Results of Operations for the Three and Nine Months ended February 29, 2020 and February 28, 2019

Our operating results for the three- and nine-month periods ended February 29, 2020 and February 28, 2019, and the changes in the operating results between those periods are summarized in the table below.

Revenues

During the three-month period ended February 29, 2020, we recognized $2,380 (CAD$3,125) in revenue, which consisted of sales of our eBalance^® wellness devices to end-users and monthly recurrent revenue associated with operating eBalance^® wellness devices. The cost attributed to this revenue was $1,840 and included $266 in royalties we accrued on the sales.

During the nine-month period ended February 29, 2020, we recognized $14,480 (CAD$19,125) in revenue, which consisted of sales of our eBalance^® wellness devices to end-users and monthly recurrent revenue associated with operating eBalance^® wellness devices. The cost attributed to this revenue was $7,737 and included $1,679 in royalties we accrued on the sales.

On June 6, 2019, we entered into a letter of intent for the wholesale distribution rights to all Mainland China, not including Hong Kong (the “LOI”). As part of the LOI the potential distributor (the “Distributor”) paid a non-refundable fee of $25,000, which we amortized over the term of the LOI, and as of February 29, 2020, the full $25,000 deposit was recognized as revenue. During the three months ended February 29, 2020, we recognized $6,562 in revenue. As of February 29, 2020, the LOI expired, and we did not enter into a definitive agreement with the Distributor.

We did not generate any revenue during the three and nine-month periods ended February 28, 2019.

As of the date of this report on Form 10-Q, we continue research and further development of our eBalance^® Technology and devices based on this technology, we are also working towards certifying our device with Health Canada as Class II medical device, and compiling required documentation for a 510(K) premarket submission with FDA, which allows to demonstrate that the eBalance^® device is at least as safe and effective as a legally marketed device available on the market, which, if the submission is approved, will allow us to start our commercial activity in the USA. Until we receive Health Canada and FDA approvals, we will only be able to sell our devices as wellness devices in Canada, which will limit our potential revenue in a foreseeable future due to a smaller market share.

4

Operating Expenses

During the three-month period ended February 29, 2020, our operating expenses increased by 56.4% from $167,061 incurred during the three months ended February 28, 2019, to $261,342 we incurred during the three months ended February 29, 2020. The most significant expenses during this period included $109,115 we incurred in research and development fees (February 28, 2019 -  $64,033), $63,271 in consulting fees (February 28, 2019 - $66,732), $20,445 in corporate communication fees recorded as part of general and administrative expenses (“G&A”) (February 28, 2019 - $7,096), $18,968 we incurred in distribution expenses we paid or accrued to our sales representatives, and $9,794 in professional fees also recorded as part of G&A (February 28, 2019 - $Nil).

On a year-to-date basis, the most significant changes were as follows:

·During the nine-month period ended February 29, 2020, our consulting fees increased by $16,900, from $197,370 we incurred during the nine-month period ended February 28, 2019, to $214,270 we incurred during the nine months ended February 29, 2020. Larger consulting fees during the nine-month period ended February 29, 2020, were associated with $25,000 we paid for consultation on setting up our distribution channels in China. 

·Our research and development fees for the nine-month period ended February 29, 2020, increased by $18,322, from $247,400 we incurred during the nine-month period ended February 28, 2019, to $265,722 we incurred during the nine months ended February 29, 2020. The higher research and development fees during the nine-month period ended February 29, 2020, were associated with the MDSAP audit in February of 2020, as well as preparation of the QRM systems required under MDSAP and ISO 13485:2016 standard certification. During our second quarter of Fiscal 2020, our research and development efforts were associated with integration of automated billing module into the eBalance^® wellness device’s operating system, and various smaller upgrades to improve user experience. 

·During the nine-month period ended February 29, 2020, we incurred $54,588 in distribution expenses we paid or accrued to our sales representatives, who began working on distribution of our eBalance^® devices in British Columbia, Canada (February 28, 2019 - $Nil). Based on our agreements with the sales representatives, we agreed to pay CAD$350 as commission for each eBalance^® device they sell. In order to allow our sales representatives to establish their customer base, we agreed to a monthly fee of CAD$5,000 payable to each sales representative for an initial term of three months, which we extended on a month-to-month basis. 

·Our general and administrative fees for the nine-month period ended February 29, 2020, increased by $200,441, or 228.7%, from $87,643 we incurred during the nine-month period ended February 28, 2019, to $288,084 we incurred during the nine months ended February 29, 2020. The largest factor that contributed to this change was associated with our expenditures on corporate communications per our services agreement with Think Ink Marketing, which resulted in $159,964 we recorded during the nine-month period ended February 29, 2020, as compared to $8,874 we incurred during the nine-month period ended February 28, 2019. Other factors that affected our general and administrative fees were associated with a $19,367 increase to our accounting and audit fees, which increased from $7,574 during the nine-month period ended February 28, 2019, to $26,941 during the nine-month period ended February 29, 2020, marketing and advertising fees, which increased by $13,983 as opposed to not having any expenses of this type during the comparative period ended February 28, 2019, a $9,612 increase in professional fees from $182 we incurred during the nine months ended February 28, 2019, to $9,794 we incurred during the nine months ended February 29, 2020, and a $4,441 increase in office expenses from $4,685 we incurred during the nine months ended February 28, 2019, to $9,126 we incurred during the nine months ended February 29, 2020. These increases were in part offset by $7,800 decrease in management fees, which amounted to $33,600 during the nine months ended February 29, 2020, as opposed to $41,400 we incurred in the comparative period. 

5

Other Items

During the three and nine-month periods ended February 29, 2020 we recorded $218,665 and $219,052 in financing costs, respectively. These costs were associated with a one-time set-up fee of $25,000 we agreed to pay on Credit Line with Mr. Jeffs; and $193,665 being the fair market value of non-transferable share purchase warrants to acquire up to 7,482,960 common shares we issued to Mr. Jeffs for the Line of Credit  and for the funds we received from Mr. Jeffs prior to the Credit Line.

Liquidity and Capital Resources

Working Capital

As of February 29, 2020, we had a cash balance of $113,064, a working capital deficit of $1,469,135 and cash flows used in operations of $695,398 for the period then ended. During the nine-month period ended February 29, 2020, we funded our operations with $486,000 received from our private placement financing, $15,000 we borrowed under short-term non-interest bearing advances, and $252,650 we received under convertible loan agreements accumulating interest at 6% per annum, compounded monthly, and due on demand.

We did not generate sufficient cash flows from our operating activities to satisfy our cash requirements for the period ended February 29, 2020. The amount of cash we have generated from our operations to date is significantly less than our current debt obligations. There is no assurance that we will be able to generate sufficient cash from our operations to repay the amounts owing under the outstanding notes and advances payable, or to service our other debt obligations.  If we are unable to generate sufficient cash flow from our operations to repay the amounts owing when due, we may be required to raise additional financing from other sources. The outcome of these matters cannot be predicted with any certainty at this time and raises substantial doubt that we will be able to continue as a going concern.

Cash Flows

6

Net Cash Used in Operating Activities

Net cash used in operating activities during the nine months ended February 29, 2020, was $695,398. This cash was primarily used to cover our cash operating expenses of $785,600, to decrease our accrued liabilities by $20,255, unearned revenue by $6,814, and amounts due to related parties by $11,962. These uses of cash were offset by $19,810 decrease in other current assets, $3,757 decrease in inventory, and by $105,666 increases in our accounts payable.

Net cash used in operating activities during the nine months ended February 28, 2019, was $205,511. This cash was primarily used to cover our cash operating expenses of $537,048, to increase our inventory and work in progress by $53,607, and to decrease our accrued liabilities by $13,100. These uses of cash were offset by increases in our accounts payable and amounts due to related parties of $111,836 and $35,752, respectively, by $656 decrease to our current assets and $250,000 increase in unearned revenue associated with a deposit we received under the LOI with Live Current Media, Inc.

Non-cash transactions

During the nine-month period ended February 29, 2020, our net loss was affected by the following expenses that did not have any impact on cash used in operations:

·$102,093 (2019 - $Nil) we recognized as loss on reacquisition of distribution rights from LIVC pursuant to the Buyback Agreement dated January 29, 2020; 

·$15,310 (2019 - $9,731) in interest we accrued on the outstanding notes payable. Of this interest, $2,531 (2019 - $6,531) was accrued on the notes payable we issued to Mr. Jeffs, and $5,235 (2019 - $2,253) was accrued on the $250,000 Credit Line provided to us by Mr. Jeffs; 

·$Nil (2019 - $219,052) in financing fees associated with short-term loan agreements and the Credit Line with Mr. Jeffs;  

·$5,321 loss (2019 - $4,635 gain) in unrealized foreign exchange, which resulted from fluctuations of Canadian dollar in relation to US dollar, our functional and reporting currency ; and 

·$1,359 (2019 - $453) in amortization of equipment we acquired for our manufacturing operations and for our office. 

Net Cash Provided by Financing Activities

During the nine-month period ended February 29, 2020, we received $252,650 under convertible loan agreements, which are payable on demand and accumulate interest at 6% per annum. At discretion of the lenders, the full amount due under the loans can be converted into the units of our common stock at the then-current price of private placement financing. In addition, we received a total of $15,000 in non-interest-bearing advances which are payable on demand. In addition to the funds received as part of debt financing, we received $486,000 on issuance of 4,050,000 units of our common stock. We did not incur any share-issuance costs associated with the units issued as part of the private placement financing.

During the nine-months ended February 28, 2019, we received $250,000 under the Line of Credit provided to us by Mr. Jeffs. The balance borrowed under the Line of Credit together with a $25,000 set-up fee accumulated interest at a rate of 6% per annum and were payable on demand.

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Net Cash Used in Investing Activities

During the nine-month period ended February 29, 2020, we used $2,463 to acquire office equipment.

During the nine-month period ended February 28, 2019, we used $1,915 to acquire equipment required for the manufacturing and testing of our eBalance^® devices.

Going Concern

The notes to our unaudited interim condensed consolidated financial statements as at February 29, 2020, disclose our uncertain ability to continue as a going concern. Our current business operations are in an early development stage and as such, we were able to generate only minimal revenue from the operations. Our research and development as well as marketing plans for the near future will require large capital expenditures, which we are planning to mitigate through equity or debt financing, or combination of both. In addition, we anticipate continuing to require upfront deposits from our potential distributors, once additional geographical distribution zones are determined.

We have accumulated a deficit of $7,866,505 since inception and increased sales will be required to fund and support our operations. Our continuation as a going concern depends upon the continued financial support of our shareholders, our ability to obtain necessary debt or equity financing to continue operations, and the attainment of profitable operations. Our audited consolidated financial statements do not give effect to any adjustments that would be necessary should we be unable to continue as a going concern and therefore be required to realize our assets and discharge our liabilities in other than the normal course of business and at amounts different from those reflected in our financial statements.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

An appreciation of our critical accounting policies is necessary to understand our financial results. These policies may require management to make difficult and subjective judgments regarding uncertainties, and as a result, such estimates may significantly impact our financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes. We have applied our critical accounting policies and estimation methods consistently.

Changes in and Disagreements with Accountants on Accounting Procedures and Financial Disclosure

None.

None

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

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An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of February 29, 2020. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective in recording, processing, summarizing and reporting information required to be disclosed within the time periods specified in Securities and Exchange Commission’s rules and forms due to lack of segregation of duties.

During the quarter ended February 29, 2020, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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None.

There is a high degree of risk associated with investing in our securities.  Prospective investors should carefully read this Quarterly Report on Form 10-Q and consider the following risk factors when deciding whether to purchase our securities.

The risk factors outlined below are some of the known, substantial, material and potential risks that could adversely affect our business, financial condition, operating results and common share value. We cannot assure that we will successfully address these or any unknown risks and a failure to do so can have a negative impact on your investment. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may also impair or adversely affect our business, financial condition or results of operation.

Risks associated with the current uncertainty with respect to rapid expansion of the COVID-19 pandemic

We are cognizant of the rapid expansion of the COVID-19 pandemic and the resulting global implications. To date, there has been no disruptions to our day-to-day operations. However, we caution that there continues to be a possibility for potential future implementation of certain restrictions that would affect our operations, research and development and marketing plans.  The impact of these restrictions on the results of our business, if implemented, is currently unknown but could be significant.

Risks Associated with our Company and our Industry

We operate in a highly competitive market. We face competition from large, well established medical device manufacturers and pharmaceutical companies in the market for treating and managing diabetes and related ailments.  Many of these companies are very well accepted by health practitioners and have significant resources, and we may not be able to compete effectively.

The market for devices and therapies for treating and managing diabetes and related ailments is intensely competitive, subject to rapid change and significantly affected by new product introductions. We compete indirectly with large pharmaceutical and medical device companies, such as Bayer Corp., Becton Dickinson Corp., LifeScan Inc., a division of Johnson & Johnson, MediSense Inc. and TheraSense Inc. These competitors’ products are based on traditional healthcare model and are well accepted by health practitioners and patients. If these companies decide to penetrate our target market they could threaten our position in the market.

We are subject to numerous governmental regulations which can increase our costs of developing our eBalance^® Technology and products based on this technology.

Our products may be subject to rigorous regulation by the FDA, Health Canada and numerous international, supranational, federal, and state authorities. The process of obtaining regulatory approvals to market a medical device can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, our products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues, and in substantial additional costs. In addition, no assurance can be given that we will remain in compliance with applicable FDA, Health Canada and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and post-marketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns.

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Competitors' intellectual property may prevent us from selling our products or have a material adverse effect on our future profitability and financial condition.

Competitors may claim that our Technology infringes upon their intellectual property. Resolving an intellectual property infringement claim can be costly and time consuming and may require us to enter into license agreements. We cannot guarantee that we would be able to obtain license agreements on commercially reasonable terms. A successful claim of patent or other intellectual property infringement could subject us to significant damages or an injunction preventing the manufacture, sale or use of our product. Any of these events could have a material adverse effect on our profitability and financial condition.

Our research and development efforts may not result in the development of commercially successful products based on our eBalance^® Technology, which may hinder our profitability and future growth.

Our eBalance^® Technology is currently in the research and development stage as are our planned products incorporating this technology. In order to develop commercially marketable products, we will be required to commit substantial efforts, funds, and other resources to research and development. A high rate of failure is inherent in the research and development of new products and technologies. We must make ongoing substantial expenditures without any assurance that our efforts will be commercially successful. Failure can occur at any point in the process, including after significant funds have been invested. Planned products may fail to reach the market or may only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others.

Even if we successfully develop marketable products or commercially develop our current technology, we may be quickly rendered obsolete by changing customer preferences, changing industry standards, or competitors' innovations.

Innovations may not be accepted quickly in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party reimbursement. We cannot state with certainty when or whether our products under development will be launched, whether we will be able to develop, license, or otherwise acquire new products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause our products to become obsolete, causing our revenues and operating results to suffer.

New products and technological advances by our competitors may negatively affect our results of operations.

Our products face intense competition from our competitors. Competitors' products may be safer, more effective, more effectively marketed or sold, or have lower prices or superior performance features than our products. We cannot predict with certainty the timing or impact of the introduction of competitors' products.

Significant safety concerns could arise for our products, which could have a material adverse effect on our revenues and financial condition.

Healthcare products typically receive regulatory approval based on data obtained in controlled clinical trials of limited duration. Following regulatory approval, these products will be used over longer periods of time in many patients. Investigators may also conduct additional, and perhaps more extensive, studies. If new safety issues are reported, we may be required to amend the conditions of use for a product. For example, we may be required to provide additional warnings on a product's label or narrow its approved intended use, either of which could reduce the product's market acceptance. If serious safety issues arise with our product, sales of the product could be halted by us or by regulatory authorities. Safety issues affecting suppliers' or competitors' products also may reduce the market acceptance of our products.

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Inability to attract and maintain key personnel may cause our business to fail.

Success depends on the acquisition of key personnel. We will have to compete with other companies both within and outside the healthcare industry to recruit and retain competent employees and consultants. If we cannot maintain qualified personnel to meet the needs of our anticipated growth, we could face material adverse effects on our business and financial condition.

To date we have generated only minimal revenues. If we cannot increase our revenues to start generating profits, our investors may lose their entire investment.

To date we have generated only minimal revenues. No profits have been made to date and if we fail to make any then we may fail as a business and an investment in our common stock will be worth nothing. We have a very limited operating history and thus our progress as well as potential future success cannot be reasonably estimated. Success has yet to be proven and financial losses should be expected to continue in the near future and at least until such time that we enter commercial production of devices based on the eBalance^® Technology, of which there is no assurance. We continue to face all the risks of a ‘start-up’ venture including unforeseen costs, expenses, problems, and management limitations and difficulties.  Since inception, we have accumulated deficit of $7,766,505 and there is no guarantee, that we may ever be able to turn a profit or locate additional opportunities, hire additional management and other personnel.

We need to acquire additional financing or our business will fail.

We must obtain additional capital or our business will fail. In order to continue development of our eBalance^® Technology and to successfully carry out our planned clinical and observational trials, we must secure more funds. Currently, we have very limited resources and have already accumulated a net loss. Financing may be subject to numerous factors including investor sentiment, acceptance of our technology and so on. We currently have no arrangements for additional financing.  We may also have to borrow large sums of money that require substantial capital and interest payments.

Risks related to our stock

We expect to raise additional capital through the offering of more shares, which will result in dilution to our current shareholders.

Raising additional capital through future offerings of common stock is expected to be necessary for our Company to continue. However, there is no guarantee that we will be successful in raising additional capital. Issuance of additional stock will increase the total number of shares issued and outstanding resulting in decrease of the percentage interest held by each of our shareholders.

There is a limited market for our common stock meaning that our shareholders may not be able to resell their shares.

Our common stock currently has a limited market which may restrict shareholders’ ability to resell their stock or use their stock as collateral. Thus, the shareholders may have to sell their shares privately which may prove very difficult. Private sales are more difficult and often give lower than anticipated prices.

Should a larger public market develop for our stock, future sales of shares may negatively affect their market price.

Even if a larger market develops, the shares may be sparsely traded and have wide share price fluctuations. Liquidity may be low despite there being a market, making it difficult to get a return on the investment. The price also depends on potential investor’s feelings regarding the results of our operations, the competition of other companies’ shares, our ability to generate future revenues, and market perception about future of microcurrent technologies.

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Because our stock is a penny stock, stockholders will be more limited in their ability to sell their stock.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.

Because our securities constitute "penny stocks" within the meaning of the rules, the rules apply to us and to our securities. The rules may further affect the ability of owners of shares to sell our securities in any market that might develop for them. As long as the quotation price of our common stock is less than $5.00 per share, the common stock will be subject to Rule 15g-9 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that:

·contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; 

·contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities laws; 

·contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; 

·contains a toll-free telephone number for inquiries on disciplinary actions; 

·defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and 

·contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation. 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

We have not paid nor anticipate paying cash dividends on our common stock.

We have not declared any dividends on our common stock during the past two fiscal years or at any time in our history.  The Nevada Revised Statutes (the “NRS”), provide certain limitations on our ability to declare dividends. Section 78.288 of Chapter 78 of the NRS prohibits us from declaring dividends where, after giving effect to the distribution of the dividend:

(a)we would not be able to pay our debts as they become due in the usual course of business; or 

(b)except as may be allowed by our Articles of Incorporation, our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution. 

We do not expect to declare any dividends in the foreseeable future as we expect to spend any funds legally available for the payment of dividends on the development of our business.

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On April 3, 2020, we entered into a consulting agreement for investor relations services. As part of the agreement, we issued 100,000 shares of our common stock. The shares were issued pursuant to the provisions of Regulation D of the Act, based on the certification provided by the shareholder that he is an accredited investor.

None.

None.

None.

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15

(1)Filed as an exhibit to the Company’s Registration Statement on Form S-1 filed with SEC on July 13, 2010 

(2)Filed as an exhibit to the Company’s Amendment No. 1 to Registration Statement on Form S-1 filed with SEC on October 13, 2010 

(3)Filed as an exhibit to the Company’s Annual Report on Form 10-K filed with SEC on August 26, 2014 

(4)Reserved 

(5)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 9, 2014 

(6)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on October 17, 2014 

(7)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on November 3, 2014 

(8)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on November 18, 2014 

(9)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 3, 2014 

(10)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 13, 2015 

(11)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2015 

(12)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 14, 2016 

(13)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 15, 2015 

(14)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on March 9, 2016 

(15)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on April 14, 2016 

(16)Filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the SEC on September 13, 2016 

(17)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on September 29, 2016 

(18)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on April 14, 2017 

(19)Filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the SEC on August 29, 2017 

(20)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on October 17, 2017 

(21)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 16, 2018 

(22)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with SEC on December 5, 2017. 

(23)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 14, 2019 

(24)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on December 31, 2018 

(25)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2019 

(26)Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the SEC on January 14, 2020 

(27)Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2020 

16

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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