Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Annual Report on Form 10-K constitute "forward-looking statements". These statements, identified by words such as "plan," "anticipate," "believe," "estimate," "should," "expect" and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements.

Such risks and uncertainties include those set forth under this caption "Management's Discussion and Analysis" and elsewhere in this Form 10-K. We do not intend to update the forward-looking information to reflect actual results or

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changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the "SEC").





General

The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole. Actual results may vary from the estimates and assumptions we make.





Results of Operation



                                          Year Ended        Percentage
                                            May 31,         Increase /
                                       2022        2021     (Decrease)
Revenue                             $     6,065 $     6,762     (10.3)%
COGS                                      2,032       3,240     (37.3)%
Gross margin                              4,033       3,522       14.5%
Operating expenses
Amortization                              1,145       2,434    (53.0)%
Consulting fees                         189,649     268,056    (29.3)%
Distribution expenses                         -         261   (100.0)%

General and administrative expenses 334,223 185,777 79.9% Impairment of inventory

                       -      42,568   (100.0)%
Research and development costs          150,709     229,581    (34.4)%
Total operating expenses              (675,726)   (728,677)     (7.3)%
Other items
Loss on forgiveness of debt                   -   (153,661)   (100.0)%
Interest                               (25,686)    (32,020)    (19.8)%
Net loss                            $ (697,379) $ (910,836)    (23.4)%




Revenues

During the year ended May 31, 2022, we recognized $6,065 in revenue, which consisted of $2,387 in revenue from sales of eBalance® devices and $3,678 we received from monthly recurring revenue associated with the eBalance® treatment packages. The cost attributed to this revenue was $2,032.

During the year ended May 31, 2021, we recognized $6,762 in revenue we received from monthly recurring revenue associated with the eBalance® treatment packages. The cost attributed to this revenue was $3,240 and included $692 in royalties we accrued on the sales.

As of the date of this Annual Report on Form 10-K, we discontinued research and further development of our eBalance® Technology and devices based on this technology due to lack of available financing for this project, which will result in potential loss of revenue from operations.





Operating Expenses

During the year ended May 31, 2022, our operating expenses decreased by 7.3% from $728,677 incurred during the year ended May 31, 2021, to $675,726 incurred during the year ended May 31, 2022. The most significant changes were as follows:

·During the year ended May 31, 2022, our consulting fees decreased by $78,407, or 29.3%, from $268,056 we incurred during the year ended May 31, 2021, to $189,649 we incurred during the year ended May 31, 2022. The change resulted mainly from reduced consulting fees we negotiated with the company controlled by our COO in order to preserve our cash.

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·Our research and development costs for the year ended May 31, 2022, decreased by $78,872, or 34.4%, from $229,581 we incurred during the year ended May 31, 2021, to $150,709 we incurred during the year ended May 31, 2022. The lower research and development costs during the year ended May 31, 2022, were associated with our decision to suspend further development of the eBalance® devices until such time that our 510(K) notification to the FDA is finalized and approved.

·Our general and administrative expenses for the year ended May 31, 2022, increased by $148,446, or 79.9%, from $185,777 we incurred during the year ended May 31, 2021, to $334,223 we incurred during the year ended May 31, 2022. The largest factor that contributed to this change was associated with fluctuation in foreign exchange rates, which, during the year ended May 31, 2022, resulted in $53,765 loss, as compared to $112,206 gain during the comparative period. Other factors that affected our general and administrative expenses were associated with a $10,500 increase to our management fees, which increased from $40,500 we incurred during the year ended May 31, 2021, to $51,000 for the year ended May 31, 2022, and were associated with engagement of our new CEO; a $1,237 increase to our filing and regulatory fees, which increased from $30,463 we incurred during the year ended May 31, 2021, to $31,700 for the year ended May 31, 2022; a $5,330 increase to our office expenses, which increased from $9,813 we incurred during the year ended May 31, 2021, to $15,143 for the year ended May 31, 2022; and a $2,848 increase to our expenditures on corporate communications, which increased from $126,879 we incurred during the year ended May 31, 2021, to $129,727 we incurred during the year ended May 31, 2022.

·The increases in general and administrative expenses were in part offset by a $30,291 decrease to our professional fees, from $37,502 we incurred during the year ended May 31, 2021, to $7,211 we incurred during the year ended May 31, 2022; a $4,247 decrease to our marketing and advertising expenses, which for the year ended May 31, 2022, amounted to $1,291, as compared to $5,538 for the year ended May 31, 2021; a $2,094 decrease to our accounting and audit fees, which decreased from $42,308 we incurred during the year ended May 31, 2021, to $40,214 for the year ended May 31, 2022; and, to a smaller extent, decreases in bank fees, and travel and entertainment fees, which decreased to $1,320 and $2,852 respectively.





Other Items

During the year ended May 31, 2022, we accrued $25,686 (May 31, 2021 - $32,020) in interest associated with the outstanding notes payable, of which $15,720 (May 31, 2021 - $3,677) were accrued on the notes payable we issued to Mr. Jeffs, our major shareholder.

On May 3, 2021, we entered into letter agreements with certain of our debt holders to convert a total of $481,327 we owed them under 6% notes payable, including $32,677 in accrued interest on these notes payable, and $48,250 we owed under non-interest-bearing advances payable into 2,484,500 common shares of the Company at a deemed price of $0.20 per share. At the time of conversion, our common shares were valued at $0.275, therefore we recorded $153,661 as loss on conversion of debt. We did not have similar transactions during the year ended May 31, 2022.

Liquidity and Capital Resources





Working Capital



                                Year Ended          Percentage
                                  May 31,           Increase/
                            2022          2021      (Decrease)

Current assets $ 41,344 $ 51,047 (19.0)% Current liabilities 2,050,375 1,628,300 25.9% Working capital deficit $ (2,009,031) $ (1,577,253) 27.4%

As of May 31, 2022, we had a cash balance of $24,380 a working capital deficit of $2,009,031 and cash flows used in operations of $450,591 for the period then ended. During the year ended May 31, 2022, we funded our operations with $100,000 received from our private placement financing, $60,000 from exercise of warrants, $288,096 we borrowed under loan agreements with Mr. Jeffs, and $5,875 we borrowed from Mr. Hargreaves, or VP of Technology and Operations. The notes payable accumulate interest at 6% per annum, compounded monthly, and are due on demand.

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We did not generate sufficient cash flows from our operating activities to satisfy our cash requirements for the year ended May 31, 2022. 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



                                                      Year Ended
                                                        May 31,
                                                   2022        2021

Cash flows used in operating activities $ (450,591) $ (560,432) Cash flows used in investing activities

                   -     (1,574)

Cash flows provided by financing activities 453,971 535,096 Effects of foreign currency exchange on cash

            247       2,573

Net increase/(decrease) in cash during the year $ 3,627 $ (24,337)

Net Cash Used in Operating Activities

Net cash used in operating activities during the year ended May 31, 2022, was $450,591. This cash was primarily used to cover our cash operating expenses of $588,567, which were represented by net loss of $697,379 reduced by the non-cash items totaling $108,812, and to decrease accrued liabilities by $6,302. These uses of cash were offset by $112,115 increase in amounts due to related parties, $19,953 increase in our accounts payable, and by $12,210 decrease in our other current assets.

Net cash used in operating activities during the year ended May 31, 2021, was $560,432. This cash was primarily used to cover our cash operating expenses of $780,825, which were represented by net loss of $910,836 reduced by the non-cash items totaling $130,011. This use of cash was offset by $138,177 increase in amounts due to related parties, $54,080 increase in our accounts payable, and $25 increase in our accrued liabilities; our other current assets decreased by $15,397, and our inventory decreased by $12,714.





Non-cash transactions

During the years ended May 31, 2022 and 2021, our net loss was affected by the following expenses that did not have any impact on cash used in operations:

·$25,686 (May 31, 2021 - $32,020) in interest we accrued on the outstanding notes payable. Of this interest, $15,720 (2021 - $3,677) was accrued on the notes payable we issued to Mr. Jeffs;

·$44,906 in unrealized foreign exchange loss (May 31, 2021 - $119,005 gain), which resulted from fluctuations of Canadian dollar, the functional currency of Cell MedX Canada, in relation to US dollar, the functional currency of our parent company, being also our reporting currency;

·$1,145 (May 31, 2021 - $2,434) in amortization of equipment we acquired for our manufacturing operations and for our office; and

·$37,075 (May 31, 2021 - $18,333) in non-cash investor relations expenses which were associated with fair market value of the shares we issued to our consultants for investor relation services.

During the comparative year ended May 31, 2021, our net loss was further affected by $153,661 in loss on conversion of debt associated with letter agreements we entered into with certain of our debt holders, who agreed to convert a total of $481,327 we owed them under 6% notes payable, including $32,677 in accrued interest on these notes payable, and $48,250 we owed under non-interest-bearing advances payable into 2,484,500 common shares of the Company at a deemed price of $0.20 per share. At the time of conversion, our common shares were valued at $0.275, which resulted in a loss on conversion. In addition, during the year ended May 31, 2021, we recorded $42,568 in impairment of our inventory of eBalance® devices and additional supplies required for manufacturing as we were not certain that

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the costs will be recovered. During the year ended May 31, 2022, we did not have transactions that would have resulted in debt forgiveness or inventory impairment.

Net Cash Used in Investing Activities

During the year ended May 31, 2021, we used $1,574 to purchase additional office equipment. We did not have any investing activities during the year ended May 31, 2022.

Net Cash Provided by Financing Activities

During the year ended May 31, 2022, we received $288,096 under loan agreements with Mr. Jeffs, which are payable on demand and accumulate interest at 6% per annum, we received an additional $5,875 from Mr. Hargreaves, our VP of Technology and Operations; this loan is also payable on demand and accumulates interest at 6% per annum. In addition, we received $100,000 on closing of a non-brokered private placement for 400,000 shares of our common stock at $0.25 per share. We did not incur any share-issuance costs associated with the shares issued as part of the private placement financing. And we received further $60,000 on exercise of the warrants to acquire 300,000 shares of our common stock at $0.20 per share.

During the year ended May 31, 2021, we received $328,096 under loan agreements, which are payable on demand and accumulate interest at 6% per annum. In addition, we received $167,000 on closing of our non-brokered private placement for 988,000 units of our common stock at $0.25 per unit for total proceeds of $247,000, of which $80,000 was received during the year ended May 31, 2020, and $40,000 on closing of our non-brokered private placement for 200,000 shares of our common stock at $0.20 per share. We did not incur any share-issuance costs associated with the private placement financings we closed during the year ended May 31, 2021.





Going Concern

The notes to our audited consolidated financial statements at May 31, 2022, 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 plans for the near future will require large capital expenditures, which we are planning to mitigate through equity or debt financing, or by requiring upfront deposits from our potential distributors, once we begin commercial production of our eBalance® devices.

As at May 31, 2022, we had accumulated a deficit of $9,657,735 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.





Principals of consolidation

The consolidated financial statements include the accounts of Cell MedX Corp. and our Subsidiary. On consolidation we eliminate all intercompany balances and transactions.

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Foreign currency translations and transactions

Our functional and reporting currency is the United States dollar. We translate foreign denominated monetary assets and liabilities into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations.

The functional currency of our Subsidiary is the Canadian dollar. On consolidation, the Subsidiary translates the assets and liabilities to U.S. dollars using foreign exchange rates which prevailed at the balance sheet date, and translates revenues and expenses using average exchange rates during the period. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the other comprehensive income. As of the date of this Annual Report on Form 10-K we have not entered into derivative instruments to offset the impact of foreign currency fluctuations.





Revenue recognition

Revenue is measured based on the amount of consideration that is expected to be received by the Company for providing goods or services under a contract with a customer, which is initially estimated with pricing specified in the contract and adjusted primarily for sales returns, discounts and other credits at contract inception then updated each reporting period, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when persuasive evidence of a contract with a customer exists and a performance obligation is identified and satisfied as the customer obtains control of the goods or services. The Company recognizes revenue on the monthly eBalance® treatment packages in the month the packages are provided.

Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are in included in cost of revenues.





Inventory valuation

Inventories are valued at the lower of cost or net realizable value, net of trade discounts received, with costs being determined based on the weighted average cost basis.

Research and development costs

The Company expenses all in-house research and development costs in the period they were incurred. Acquired research and development costs are capitalized to the extent that the sum of the undiscounted cash flows expected to result from the asset can be reasonably estimated or may be verified by an appraisal in certain instances. In all other instances the costs are expensed in the period they were incurred. Acquired research and development costs for a particular research and development project that have no future economic values, are expensed as research and development costs at the time the costs are incurred.





Income taxes

Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or all of the deferred tax assets will not be realized.

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Loss per share

Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options and warrants to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options and warrants.





Long-lived assets

In accordance with ASC 360, "Property, Plant, and Equipment", the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.





Equipment

Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over two years.





Fair value measurements

The book value of cash, other current assets, accounts payable, accrued liabilities, notes and advances payable, and due to related parties approximate their fair values due to the short-term maturity of those instruments. The fair value hierarchy under GAAP is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

Level 1 -quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 -observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 -assets and liabilities whose significant value drivers are unobservable by little or no market activity and that are significant to the fair value of the assets or liabilities.

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). There were no assets or liabilities measured at fair value on a nonrecurring basis during the periods ended May 31, 2022 and 2021.

Stock options and other stock-based compensation

The Company accounts for the granting of share purchase options to employees using the fair value method whereby all awards to employees are recorded at fair value on the date of the grant. The fair value of all share purchase options is expensed over their vesting period with a corresponding increase to additional capital surplus. Upon exercise of share purchase options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to share capital.

The Company uses the Black-Scholes option pricing model to calculate the fair value of share purchase options. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.

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Recent accounting pronouncements

Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to the financial statements of the Company.

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