INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2016 AND 2015

(UNAUDITED)

2488 Dunwin Drive
Mississauga, Ontario L5L 1J9
www.trilliumtherapeutics.com

TRILLIUM THERAPEUTICS INC.

Interim Condensed Consolidated Statements of Financial Position

Amounts in Canadian Dollars

(Unaudited)

		As at		As at
	Note	September 30, 2016		December 31, 2015
		$		$
ASSETS
Current
Cash and cash equivalents		55,550,249		86,770,542
Amounts receivable	5	448,488		974,822
Prepaid expenses		846,826		1,181,481
Total current assets		56,845,563		88,926,845
Property and equipment	6	3,229,391		897,390
Intangible assets	4,7	12,814,582		93,585
Other assets		110,931		121,648
Total non-current assets		16,154,904		1,112,623
Total assets		73,000,467		90,039,468
LIABILITIES
Current
Accounts payable and accrued liabilities	8	4,486,373		3,233,749
Other current liabilities	9	374,952		323,151
Total current liabilities		4,861,325		3,556,900
Loan payable	9	211,655		270,386
Deferred lease inducement	9	439,985		348,205
Long-term liability	9	-		60,109
Other liabilities	9	1,750,000		-
Total non-current liabilities		2,401,640		678,700
Total liabilities		7,262,965		4,235,600
EQUITY
Common shares	10	103,461,298		103,340,072
Series I preferred shares	10	7,716,243		7,797,773
Series II preferred shares	10	24,369,384		24,369,384
Warrants	10	6,922,323		6,926,019
Contributed surplus		11,267,636		8,660,355
Deficit		(87,999,382	)	(65,289,735	)
Total equity		65,737,502		85,803,868
Total liabilities and equity		73,000,467		90,039,468

Commitments and contingencies [note 13]

Approved by the Board and authorized for issue on November 9, 2016:

(signed) Luke Beshar, Director (signed) Henry Friesen, Director

See accompanying notes to the interim condensed consolidated financial statements

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TRILLIUM THERAPEUTICS INC.

Interim Condensed Consolidated Statements of Loss and Comprehensive Loss

Amounts in Canadian Dollars

(Unaudited)

		Three months ended		Three months ended		Nine months ended		Nine months ended
	Note	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
		$		$		$		$
EXPENSES
Research and development	11	7,719,567		4,954,811		20,526,753		13,684,508
General and administrative	12	1,031,309		721,549		3,015,718		2,292,806
Operating expenses		8,750,876		5,676,360		23,542,471		15,977,314
Finance income		(105,200	)	(172,896	)	(305,671	)	(352,558	)
Finance costs		19,554		21,766		62,673		63,374
Net foreign currency loss (gain)		(766,686	)	(4,019,251	)	3,090,474		(3,943,274	)
Net finance (income) costs		(852,332	)	(4,170,381	)	2,847,476		(4,232,458	)
Loss before income taxes		7,898,544		1,505,979		26,389,947		11,744,856
Current income tax expense		3,091		-		9,374		-
Deferred income tax recovery	4	-		-		(3,689,674	)	-
Total income taxes		3,091		-		(3,680,300	)	-
Net loss and comprehensive loss for the period		7,901,635		1,505,979		22,709,647		11,744,856
Basic and diluted loss per common share	10 (c)	1.01		0.21		2.91		1.84

See accompanying notes to the interim condensed consolidated financial statements

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TRILLIUM THERAPEUTICS INC.
Interim Condensed Consolidated Statements of Changes in Equity
Amounts in Canadian Dollars
(Unaudited)

	Common shares			Series I preferred shares				Series II preferred shares			Warrants				Contributed
	Number	Amount		Number		Amount		Number	Amount		Number		Amount		surplus	Deficit		Total
	#	$		#		$		#	$		#		$		$	$		$
		(note 10	)			(note 10	)		(note 10	)			(note 10	)
Balance, December 31, 2015	7,796,137	103,340,072		53,788,579		7,797,773		1,077,605	24,369,384		106,096,356		6,926,019		8,660,355	(65,289,735	)	85,803,868
Net loss and comprehensive loss for the period	-	-		-		-		-	-		-		-		-	(22,709,647	)	(22,709,647	)
Transactions with owners of the Company, recognized directly in equity
Exercise of warrants	3,000	39,696		-		-		-	-		(90,000	)	(3,696	)	-	-		36,000
Conversion of preferred shares	18,746	81,530		(562,388	)	(81,530	)	-	-		-		-		-	-		-
Share-based compensation	-	-		-		-		-	-		-		-		2,607,281	-		2,607,281
Total transactions with owners of the Company	21,746	121,226		(562,388	)	(81,530	)	-	-		(90,000	)	(3,696	)	2,607,281	-		2,643,281
Balance, September 30, 2016	7,817,883	103,461,298		53,226,191		7,716,243		1,077,605	24,369,384		106,006,356		6,922,323		11,267,636	(87,999,382	)	65,737,502

	Common shares			Series I preferred shares				Series II preferred shares			Warrants				Contributed
	Number	Amount		Number		Amount		Number	Amount		Number		Amount		surplus		Deficit		Total
	#	$		#		$		#	$		#		$		$		$		$
		(note 10	)			(note 10	)		(note 10	)			(note 10	)
Balance, December 31, 2014	4,427,244	49,505,792		69,504,689		10,076,151		-	-		138,724,781		9,283,332		5,995,055		(50,556,036	)	24,304,294
Net loss and comprehensive loss for the period	-	-		-		-		-	-		-		-		-		(11,744,856	)	(11,744,856	)
Transactions with owners of the Company, recognized directly in equity
Shares issued, net of issue costs	1,750,754	39,592,240		-		-		1,077,605	24,369,384		-		-		-		-		63,961,624
Exercise of warrants	1,008,928	11,057,295		-		-		-	-		(30,268,151	)	(2,061,637	)	-		-		8,995,658
Exercise of stock options	6,666	91,195		-		-		-	-		-		-		(41,200	)	-		49,995
Conversion of preferred shares	153,333	666,867		(4,600,000	)	(666,867	)	-	-		-		-		-		-		-
Share-based compensation	-	-		-		-		-	-		-		-		1,874,308		-		1,874,308
Total transactions with owners of the Company	2,919,681	51,407,597		(4,600,000	)	(666,867	)	1,077,605	24,369,384		(30,268,151	)	(2,061,637	)	1,833,108		-		74,881,585
Balance, September 30, 2015	7,346,925	100,913,389		64,904,689		9,409,284		1,077,605	24,369,384		108,456,630		7,221,695		7,828,163		(62,300,892	)	87,441,023

See accompanying notes to the interim condensed consolidated financial statements

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TRILLIUM THERAPEUTICS INC.

Interim Condensed Consolidated Statements of Cash Flows

Amounts in Canadian Dollars

(Unaudited)

		Nine months ended		Nine months ended
	Note	September 30, 2016		September 30, 2015
		$		$
OPERATING ACTIVITIES
Net loss for the period		(22,709,647	)	(11,744,856	)
Adjustments for items not affecting cash
Share-based compensation	10	2,607,281		1,874,308
Interest accretion	9	49,739		55,490
Amortization of intangible assets	7,11	2,718,762		254,511
Depreciation of property and equipment	6,11	408,275		85,881
Non-cash change in deferred lease inducement	9	1,935		57,684
Deferred income tax recovery	4	(3,689,674	)	-
Unrealized foreign exchange loss (gain)		2,649,396		(3,982,986	)
		(17,963,933	)	(13,399,968	)
Changes in non-cash working capital balances
Amounts receivable		563,220		(472,099	)
Prepaid expenses		334,655		463,700
Accounts payable and accrued liabilities		790,486		(188,825	)
Other current liabilities		31,914		14,338
Decrease (increase) in other assets		10,717		(116,450	)
Cash used in operating activities		(16,232,941	)	(13,699,304	)
INVESTING ACTIVITIES
Purchase of property and equipment	6	(2,740,276	)	(522,133	)
Acquisition of Fluorinov, net of cash acquired	4	(9,574,833	)	-
Cash used in investing activities		(12,315,109	)	(522,133	)
FINANCING ACTIVITIES
Change in loan payable	9	(86,273	)	(37,487	)
Receipt of deferred lease inducement	9	89,845		212,400
Change in long-term liability	9	(62,419	)	(25,943	)
Issue of share capital, net of issuance costs	10	36,000		73,007,277
Cash provided by (used in) financing activities		(22,847	)	73,156,247
Impact of foreign exchange rate on cash and cash equivalents		(2,649,396	)	3,982,986
Net increase (decrease) in cash and cash equivalents during the period		(31,220,293	)	62,917,796
Cash and cash equivalents, beginning of period		86,770,542		26,165,056
Cash and cash equivalents, end of period		55,550,249		89,082,852
Supplemental cash flow information
Preferred shares converted to common shares (note 10)		81,530		666,867

See accompanying notes to the interim condensed consolidated financial statements

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

1.	Corporate information
	Trillium Therapeutics Inc. (the “Company” or “Trillium”) is a Canadian public oncology company developing innovative therapies for the treatment of cancer. The Company was incorporated under the laws of the Province of Alberta on March 31, 2004 with nominal share capital and filed Articles of Continuance to change its jurisdiction to Ontario on November 7, 2013. On June 1, 2014, the Company amalgamated with its wholly-owned subsidiary and changed its name from Stem Cell Therapeutics Corp. to Trillium Therapeutics Inc.
	The Company’s head office is located at 2488 Dunwin Drive, Mississauga, Ontario, L5L 1J9, and it is listed on the Toronto Stock Exchange and on the NASDAQ Stock Market.
2.	Basis of presentation

(a)	Statement of compliance
	These unaudited interim condensed consolidated financial statements have been prepared in compliance with International Accounting Standard 34, Interim Financial Reporting (“IAS 34”). The notes presented in these unaudited interim condensed consolidated financial statements include only significant events and transactions occurring since the Company’s last fiscal year end and are not fully inclusive of all matters required to be disclosed in its annual audited consolidated financial statements.
	The policies applied in these unaudited interim condensed consolidated financial statements are based on International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The board of directors approved the unaudited interim condensed consolidated financial statements on November 9, 2016. Any subsequent changes to IFRS or their interpretation, that are given effect in the Company’s annual audited consolidated financial statements for the year ending December 31, 2016, could result in a restatement of these unaudited interim condensed consolidated financial statements.
(b)	Basis of measurement
	These unaudited interim condensed consolidated financial statements have been prepared on the historical cost basis, except for held-for-trading financial assets, which are measured at fair value.
(c)	Functional and presentation currency
	These unaudited interim condensed consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency.
(d)	Use of significant estimates and assumptions
	The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities and the determination of the Company’s ability to continue as a going concern. Actual results could differ materially from these estimates and assumptions. The Company reviews its estimates and underlying assumptions on an ongoing basis. Revisions are recognized in the period in which the estimates are revised and may impact future periods.
	The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, have been set out in Note 2 of the Company’s annual audited consolidated financial statements for the year ended December 31, 2015.

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

2.	Basis of presentation (continued)
	Management has applied significant estimates and assumptions to the following:
	Valuation of share-based compensation and warrants
	Management measures the costs for share-based compensation and warrants using market-based option valuation techniques. Assumptions are made and estimates are used in applying the valuation techniques. These include estimating the future volatility of the share price, expected dividend yield, expected risk-free interest rate, future employee turnover rates, future exercise behaviours and corporate performance. Such estimates and assumptions are inherently uncertain. Changes in these assumptions affect the fair value estimates of share-based payments and warrants.
	Intangible assets
	The Company estimates the useful lives of intangible assets from the date they are available for use in the manner intended by management and periodically reviews the useful lives to reflect management’s intent about developing and commercializing the assets. The Company has determined to amortize the intangible assets acquired on the acquisition of Fluorinov Pharma Inc. (“Fluorinov”) over four years.
	Valuation of contingent obligations
	The fair value of contingent consideration on the acquisition of Fluorinov was calculated using a discounted cash flow approach, where a risk-adjusted discount rate was applied to future cash flows. The discount rates used require significant judgments of probabilities of future preclinical and clinical success that are inherently uncertain. The estimate of the potential timing of future events is also uncertain. Changes in these judgments affect the fair value estimates of other liabilities.
3.	Significant accounting policies
	The Company’s significant accounting policies were outlined in the Company’s annual audited consolidated financial statements for the year ended December 31, 2015 and have been applied consistently to all periods presented in these unaudited interim condensed consolidated financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these unaudited interim condensed consolidated financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements for the year ended December 31, 2015.

(a)	Basis of consolidation
	These unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly- owned subsidiaries: Fluorinov from the date of its acquisition on January 26, 2016, and Trillium Therapeutics USA Inc. from its date of incorporation on March 26, 2015.
	Investments in entities where the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee, are considered subsidiaries due to the control exercised over the investee by the Company. Subsidiaries are fully consolidated from the date at which control is determined to have occurred and are deconsolidated from the date that the Company no longer controls the entity. The financial statements of the subsidiaries are prepared for the same reporting period as the Company using consistent accounting policies. Intercompany transactions, balances and gains and losses on transactions between subsidiaries are eliminated.

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

3. Significant accounting policies (continued)

(b)	New standards and interpretations not yet effective
	IAS 7, Statement of Cash Flows
	In February 2016, the IASB issued amendments to IAS 7, Statement of Cash Flows (“IAS 7”), which requires entities to provide disclosures that enable investors to evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes. The IAS 7 amendments are effective for annual periods beginning on or after January 1, 2017. The Company does not expect the adoption of this amendment to have a material impact on its unaudited interim condensed consolidated financial statements.
	IFRS 9, Financial Instruments
	In October 2010, the IASB published amendments to IFRS 9, Financial Instruments (“IFRS 9”), which provides added guidance on the classification and measurement of financial liabilities. In July 2014, the IASB issued its final version of IFRS 9, which completes the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39, Financial Instruments: Recognition and Measurement. The final standard is mandatorily effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Company is reviewing the standard to determine the impact that the adoption of this standard may have on the unaudited interim condensed consolidated financial statements.
	IFRS 15, Revenue from Contracts with Customers
	In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), which covers principles for reporting about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. IFRS 15 is effective for annual periods beginning on or after January 1, 2018. Entities will transition following either a full or modified retrospective approach. The Company is reviewing the standard to determine the impact that the adoption of this standard may have on the unaudited interim condensed consolidated financial statements.
	IFRS 16, Leases
	In January 2016, the IASB issued IFRS 16, Leases (“IFRS 16”), its new leases standard that requires lessees to recognize assets and liabilities for most leases on their balance sheets. Lessees applying IFRS 16 will have a single accounting model for all leases, with certain exemptions. The new standard will be effective for annual periods beginning on or after January 1, 2019 with limited early application permitted. The Company has not yet begun the process of evaluating the impact of this standard on the unaudited interim condensed consolidated financial statements.
	Other accounting standards or amendments to existing accounting standards that have been issued, but have future effective dates, are either not applicable or are not expected to have a significant impact on the Company’s unaudited interim condensed consolidated financial statements. The Company assesses the impact of adoption of future standards on its unaudited interim condensed consolidated financial statements, but does not anticipate significant changes in 2016.

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

4.	Acquisition of Fluorinov
	On January 26, 2016, Trillium purchased all the issued and outstanding shares of Fluorinov, a private oncology company, to access its proprietary medicinal chemistry platform. The acquisition date fair value of consideration transferred and the fair value of identifiable assets acquired and liabilities assumed are as follows:

	$
Fair value of consideration paid:
Cash	10,000,000
Working capital deficiency	(134,089	)
Contingent consideration	1,750,000
	11,615,911
Assets acquired:
Cash	291,078
Amount due from Fluorinov shareholders	36,886
Acquired technology	15,439,759
	15,767,723
Liabilities assumed:
Accounts payable and accrued liabilities	462,138
Deferred tax liabilities	3,689,674
	4,151,812
Net identifiable assets acquired	11,615,911

The upfront consideration for Fluorinov was $10,000,000 less the working capital deficiency of $134,089. At closing, the Company paid $9,510,554 in cash, applied $250,000 paid in fiscal 2015 as a standstill fee, and held back $150,000 until settlement of the final working capital deficit which was completed in October 2016. The purchase price allocation is preliminary and is subject to change for certain items such as the valuation of intangible assets and finalization of the working capital settlement.

The Company may also incur up to $35 million of future payments contingent on Trillium achieving certain clinical and regulatory milestones with an existing Fluorinov compound. The amount of contingent consideration recognized by the Company as of the acquisition date was $1,750,000 and has been classified as other liabilities on the interim condensed consolidated statement of financial position. The fair value of the contingent consideration was calculated using a discounted cash flow approach, where a risk-adjusted discount rate was applied to future cash flows. Trillium also has an obligation to pay royalty payments on future sales of such compounds.

At Trillium’s discretion, up to 50% of the future contingent payments can be satisfied through the issuance of common shares of Trillium provided that the aggregate number of common shares issuable under such payments will not exceed 1,558,447 common shares unless shareholder approval has first been obtained. In addition, any such future share issuance remains subject to final approval from Trillium’s board of directors and receipt of any requisite approvals under the applicable rules of the Toronto Stock Exchange and the NASDAQ Stock Market. Trillium has also committed to use commercially reasonable efforts to monetize Fluorinov’s central nervous system assets and share 50% of the net proceeds with Fluorinov shareholders.

Cash used in the acquisition was determined as follows:

	$
Cash consideration	9,865,911
Less cash acquired	291,078
	9,574,833

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

4.	Acquisition of Fluorinov (continued)
	Acquisition costs incurred by the Company and included in general and administrative expenses for the year ended December 31, 2015 and for the nine months ended September 30, 2016, were approximately $174,671 and $106,887, respectively. From the date of the acquisition to September 30, 2016, Fluorinov contributed revenue of nil and a loss of $5,294,170. If the acquisition had occurred on January 1, 2016, the combined loss for the Company for the nine months ended September 30, 2016 would be $22,766,102.
	In connection with the acquisition, the Company established deferred tax liabilities related to the acquired identifiable intangible assets and determined that these deferred tax liabilities exceeded the acquired deferred tax assets. This allowed the Company to realize a deferred tax benefit of $3,689,674 by releasing the valuation allowance associated with the Company’s overall deferred tax assets.
	Under IFRS, the acquisition of Fluorinov was considered a related party transaction as two Company directors were determined to be related parties of Fluorinov. One Company director was a director of Fluorinov and had an ownership position in Fluorinov at the time of acquisition of less than 2%, and the second director was a director of an entity that was a beneficiary of a trust that was a shareholder and debenture holder of Fluorinov. The two directors declared their conflict of interest and abstained from all discussions and decisions concerning the Fluorinov acquisition. Accordingly, the Company determined that the consideration paid on the acquisition was made on terms equivalent to those that prevail in arm’s length transactions.
5.	Amounts receivable

	September 30,	December 31,
	2016	2015
	$	$
Government programs receivable	408,162	957,951
Other amounts receivable	40,326	16,871
	448,488	974,822

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

6. Property and equipment

		Computer	Office
	Lab	equipment	equipment and
	equipment	and software	leaseholds		Total
	$	$	$		$
Cost
Balance, December 31, 2014	252,076	40,028	20,016		312,120
Additions	457,796	57,180	265,406		780,382
Balance, December 31, 2015	709,872	97,208	285,422		1,092,502
Additions	616,531	138,698	1,985,047		2,740,276
Disposals	-	-	(9,381	)	(9,381	)
Balance, September 30, 2016	1,326,403	235,906	2,261,088		3,823,397
Accumulated depreciation
Balance, December 31, 2014	48,089	23,558	5,071		76,718
Depreciation	86,577	26,679	5,138		118,394
Balance, December 31, 2015	134,666	50,237	10,209		195,112
Depreciation	132,521	34,313	241,441		408,275
Disposals	-	-	(9,381	)	(9,381	)
Balance September 30, 2016	267,187	84,550	242,269		594,006
Net carrying amounts
December 31, 2015	575,206	46,971	275,213		897,390
September 30, 2016	1,059,216	151,356	2,018,819		3,229,391

7. Intangible assets

	Total
	$
Cost
Balance, December 31, 2014 and 2015	1,018,037
Fluorinov acquisition (note 4)	15,439,759
Balance, September 30, 2016	16,457,796
Accumulated amortization
Balance, December 31, 2014	585,104
Amortization	339,348
Balance, December 31, 2015	924,452
Amortization	2,718,762
Balance, September 30, 2016	3,643,214
Net carrying amounts
December 31, 2015	93,585
September 30, 2016	12,814,582

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

8. Accounts payable and accrued liabilities

	September 30,	December 31,
	2016	2015
	$	$
Trade and other payables	1,767,643	1,401,462
Accrued liabilities	2,213,027	1,728,636
Due to related parties	505,703	103,651
	4,486,373	3,233,749

	Amounts due to related parties represent expense reimbursements, accrued vacation payable and directors’ fees payable.
9.	Non-current liabilities

(a)	Trillium is indebted to the Federal Economic Development Agency for Southern Ontario under a non-interest bearing contribution agreement and is making monthly repayments of $9,586 through November 2019. As at September 30, 2016 and December 31, 2015, the balance repayable was $354,661 and $440,935, respectively. The loan payable was discounted using an estimated market interest rate of 15%. Interest expense accretes on the discounted loan amount until it reaches its face value at maturity.
(b)	As at September 30, 2016 and December 31, 2015, the Company had a deferred lease inducement of $439,985 and $348,205, respectively, for a new facility lease. The inducement benefit will be recognized over the expected term of the lease.
(c)	As at September 30, 2016 and December 31, 2015, the Company had a long-term liability of $1,750,000 and nil, respectively, related to contingent consideration on the acquisition of Fluorinov (note 4), and a long-term liability of nil and $60,109, respectively, related to certain discontinued technologies.
	The current portions of the loan payable and long-term liabilities are included in other current liabilities in the unaudited interim condensed consolidated statements of financial position.

10. Share capital

(a)	Authorized
	The authorized share capital of the Company consists of an unlimited number of common shares, Class B shares and First Preferred Shares, in each case without nominal or par value. Common shares are voting and may receive dividends as declared at the discretion of the board of directors. Class B shares are non-voting and convertible to common shares at the holder’s discretion, on a one-for-one basis. Upon dissolution or wind-up of the Company, Class B shares participate rateably with the common shares in the distribution of the Company’s assets. First Preferred Shares have voting rights as decided upon by the board of directors at the time of grant. Upon dissolution or wind-up of the Company, First Preferred Shares are entitled to priority over common and Class B shares.
	The Company has Series I First Preferred Shares that are non-voting, may receive dividends as declared at the discretion of the board of directors, and are convertible to common shares at the holder’s discretion, on the basis of 30 Series I First Preferred Shares for one common share.
	The Company has Series II First Preferred Shares that are non-voting, may receive dividends as declared at the discretion of the board of directors, and are convertible to common shares at the holder’s discretion, on the basis of one Series II First Preferred Share for one common share.

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

10.

Share capital (continued)

Holders may not convert Series I or Series II First Preferred Shares into common shares if, after giving effect to the exercise of conversion, the holder and its joint actors would have beneficial ownership or direction or control over common shares in excess of 4.99% of the then outstanding common shares. This limit may be raised at the option of the holder on 61 days’ prior written notice: (i) up to 9.99%, (ii) up to 19.99%, subject to clearance of a personal information form submitted by the holder to the Toronto Stock Exchange, and (iii) above 19.99%, subject to approval by the Toronto Stock Exchange and shareholder approval.

(b)	Share capital issued – nine months ended September 30, 2016
	During the nine months ended September 30, 2016, 3,000 common shares were issued on the exercise of 90,000 warrants for proceeds of $36,000.
	During the nine months ended September 30, 2016, 562,388 Series I First Preferred Shares were converted into 18,746 common shares.
	Share capital issued – year ended December 31, 2015
	On April 7, 2015, the Company completed an underwritten public offering of common shares and non-voting convertible preferred shares in the United States. In the offering, Trillium sold 1,750,754 common shares and 1,077,605 Series II First Preferred Shares at a price of U.S. $19.50 per share, including 228,359 common shares sold pursuant to the full exercise of the underwriters’ option to purchase additional common shares. The gross proceeds to Trillium from this offering were $68,875,067 (U.S. $55,153,000) before deducting offering expenses of $4,913,443.
	During the year ended December 31, 2015, 1,087,603 common shares were issued on the exercise of 32,628,425 warrants for proceeds of $9,515,154 and 6,666 stock options were exercised for proceeds of $49,995.
	During the year ended December 31, 2015, 15,716,110 Series I First Preferred Shares were converted into 523,870 common shares.
(c)	Weighted average number of common shares
	The weighted average number of common shares outstanding for the three and nine months ended September 30, 2016 and September 30, 2015 were 7,815,600 and 7,813,824 and 7,345,519 and 6,379,237, respectively. The Company has not adjusted its weighted average number of common shares outstanding in the calculation of diluted loss per share, as any adjustment would be antidilutive.
(d)	Warrants
	The following table shows the number of warrants outstanding, the exercise prices, and the number of common shares issuable on exercise of the warrants and the exercise price per common share for 30 warrants as at September 30, 2016:

			Number of	Exercise
			common shares	price per
	Number of	Exercise	issuable	common share
Expiry dates	warrants	price	on exercise	(30 warrants	)
March 15, 2018	9,123,780	$0.40	304,126	$12.00
March 27, 2018	300,000	$0.40	10,000	$12.00
December 13, 2018	96,582,576	$0.28	3,219,419	$8.40
	106,006,356		3,533,545

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

10.	Share capital (continued)
	Changes in the number of warrants outstanding during the nine months ended September 30 were as follows:

			2016			2015
			Weighted			Weighted
			average			average
	Number of		exercise	Number of		exercise
	warrants		price	warrants		price
Balance, beginning of period	106,096,356		$0.29	138,724,781		$0.29
Exercised	(90,000	)	0.40	(30,268,151	)	0.30
Balance, end of period	106,006,356		$0.29	108,456,630		$0.29

(e)	Stock option plan
	The 2016 Stock Option Plan was approved by the Company’s shareholders at the annual meeting held on May 27, 2016. Options granted are equity-settled, have a vesting period of four years and have a maximum term of ten years. The total number of common shares available for issuance under the Company’s 2016 Stock Option Plan is 1,894,501. As at September 30, 2016, the Company was entitled to issue an additional 612,338 stock options under the 2016 Stock Option Plan.
	Changes in the number of options outstanding during the nine months ended September 30 were as follows:

			2016			2015
			Weighted			Weighted
			average			average
	Number of		exercise	Number of		exercise
	options		price	options		price
Balance, beginning of period	927,834		$14.07	590,141		$9.76
Granted	320,459		13.84	126,500		25.00
Exercised	-		-	(6,666	)	7.50
Forfeited	(12,500	)	28.52	(3,000	)	30.00
Expired	(5,418	)	30.00	-		-
Balance, end of period	1,230,375		$13.79	706,975		$12.42
Options exercisable, end of period	448,127		$11.16	333,927		$ 10.94

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

10.	Share capital (continued)
	The following table reflects stock options outstanding and exercisable as at September 30, 2016:

		Stock options outstanding			Stock options exercisable
		Weighted average
		remaining
	Number	contractual life		Weighted average	Number		Weighted average
Exercise prices	outstanding	(in years)		exercise price	exercisable		exercise price
$7.50 - $8.34	290,599	7.4	$	8.12	206,206	$	8.09
$10.35 - $12.01	283,127	7.7	$	10.42	176,085	$	10.35
$13.98 - $15.30	307,125	9.6	$	14.01	4,444	$	15.30
$17.00 - $23.44	320,191	8.9	$	20.40	51,387	$	22.66
$28.05 - $30.00	29,333	8.6	$	28.07	10,005	$	28.11
	1,230,375	8.4	$	13.79	448,127	$	11.16

Share-based compensation expense was determined based on the fair value of the options at the date of measurement using the Black-Scholes option pricing model with the weighted average assumptions for the nine months ended September 30 as follows:

	2016	2015
Expected option life	6 years	6 years
Risk-free interest rate	0.8%	1.5%
Dividend yield	0%	0%
Expected volatility	82%	85%

The Black-Scholes option pricing model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differs from the Company’s stock option awards. This model also requires highly subjective assumptions, including future stock price volatility and average option life, which significantly affect the calculated values.

The risk-free interest rate is based on the implied yield on a Government of Canada zero-coupon issue with a remaining term equal to the expected term of the option. Expected volatility was determined using a combination of historical volatilities of a peer group of biotechnology companies and the Company’s own historical volatility. The life of the options is estimated considering the vesting period at the grant date, the life of the option and the average length of time similar grants have remained outstanding in the past. The forfeiture rate is an estimate based on historical evidence and future expectations. The dividend yield was excluded from the calculation since it is the present policy of the Company to retain all earnings to finance operations and future growth.

For the nine months ended September 30, 2016, the Company issued 320,459 stock options with a fair value of $3,081,993 and a weighted average grant date fair value of $9.62. For the nine months ended September 30, 2015, the Company issued 126,500 stock options with a fair value of $2,254,067 and a weighted average grant date fair value of $17.82.

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

10. Share capital (continued)

(f)

Deferred Share Unit Plan

The shareholders of the Company approved the 2014 Deferred Share Unit Plan (the “2014 DSU Plan”) on May 27, 2014 and the reservation for issuance of up to 66,667 common shares under the plan. DSUs granted are equity-settled. There were 23,011 DSUs issued during the year ended December 31, 2015 and no DSUs issued during the nine months ended September 30, 2016 for payment of directors’ fees. A total of 51,788 DSUs were outstanding as at September 30, 2016.

11.	Research and development
	Components of research and development expenses for the three months ended September 30 were as follows:

	2016		2015
	$		$
Research and development programs, excluding the below items	4,283,082		3,319,494
Salaries, fees and short-term benefits	1,481,339		1,258,570
Share-based compensation	902,035		361,341
Amortization of intangible assets	964,986		84,837
Depreciation of property and equipment	196,851		51,735
Tax credits	(108,726	)	(121,166	)
	7,719,567		4,954,811

Components of research and development expenses for the nine months ended September 30 were as follows:

	2016		2015
	$		$
Research and development programs, excluding the below items	10,841,677		9,319,256
Salaries, fees and short-term benefits	4,472,065		2,976,237
Share-based compensation	2,251,913		1,421,320
Amortization of intangible assets	2,718,762		254,511
Depreciation of property and equipment	408,275		85,881
Tax credits	(165,939	)	(372,697	)
	20,526,753		13,684,508

12.	General and administrative
	Components of general and administrative expenses for the three months ended September 30 were as follows:

	2016	2015
	$	$
General and administrative expenses, excluding the below items	438,306	328,218
Salaries, fees and short-term benefits	320,069	347,722
Deferred share units for director compensation	135,000	-
Share-based compensation	137,934	45,609
	1,031,309	721,549

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

12.	General and administrative (continued)
	Components of general and administrative expenses for the nine months ended September 30 were as follows:

	2016	2015
	$	$
General and administrative expenses, excluding the below items	1,360,377	1,061,057
Salaries, fees and short-term benefits	894,973	778,761
Deferred share units for director compensation	405,000	300,000
Share-based compensation	355,368	152,988
	3,015,718	2,292,806

13.	Commitments and contingencies
	As at September 30, 2016, the Company had obligations to make future payments, representing significant research and development contracts and other commitments that are known and committed in the amount of approximately $7,397,000. These contracts include the clinical research organization agreement for conducting the Phase I trial, and other preclinical and manufacturing activities. The Company also has minimum lease payments relating to operating lease commitments in the amount of $223,000 over the next 12 months, $986,000 from 12 to 60 months, and $1,099,000 thereafter.
	The Company enters into research, development and license agreements in the ordinary course of business where the Company receives research services and rights to proprietary technologies. Milestone and royalty payments that may become due under various agreements are dependent on, among other factors, clinical trials, regulatory approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain. Under the license agreement for SIRPαFc, the Company has future contingent milestones payable of $35,000 related to successful patent grants, $200,000 and $300,000 on the first patient dosed in phase II and III trials respectively, and regulatory milestones on their first achievement totalling $5,000,000.
	In connection with the acquisition of Fluorinov, the Company is obligated to pay up to $35 million of additional future payments that are contingent upon achieving certain clinical and regulatory milestones with an existing Fluorinov compound. The Company also has an obligation to pay royalty payments on future sales of such compounds.
	The Company entered into two agreements with Catalent Pharma Solutions in August 2014 pursuant to which Trillium acquired the right to use a proprietary expression system for the manufacture of two SIRPαFc constructs. Consideration for each license includes potential pre-marketing approval milestones of up to U.S. $875,000 and aggregate sales milestone payments of up to U.S. $28.8 million.
	The Company periodically enters into research and license agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities undertaken by or on behalf of the Company. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the unaudited interim condensed consolidated financial statements with respect to these indemnification obligations.

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TRILLIUM THERAPEUTICS INC.

Notes to the Interim Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2016 and 2015

Amounts in Canadian Dollars

(Unaudited)

14.	Financial instruments
	Currency risk
	The Company is exposed to currency risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates. Currency risk results mainly from the Company’s expenses and working capital denominated in currencies other than the Canadian dollar, which are primarily in U.S. dollars. As at September 30, 2016 and December 31, 2015, the Company held U.S. dollar cash and cash equivalents in the amount of U.S. $36,644,487 and U.S. $44,547,591 and had U.S. dollar denominated accounts payable and accrued liabilities in the amount of U.S. $1,670,298 and U.S. $1,033,319, respectively. Therefore, a 1% change in the foreign exchange rate would have a net impact on finance costs as at September 30, 2016 and December 31, 2015 of $462,485 and $556,377, respectively. U. S. dollar expenses for the nine months ended September 30, 2016 and 2015 were approximately U.S. $8,030,000 and U. S. $6,500,000, respectively. Varying the U.S. exchange rate for the nine months ended September 30, 2016 and 2015 to reflect a 5% strengthening of the Canadian dollar would have decreased the net loss by approximately $530,928 and $409,432, respectively, assuming that all other variables remained constant.

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