VERITAS PHARMA INC. (fka Seashore Organic Medicine Inc.) QUARTERLY REPORT for the period ended October 31, 2015

Transcription

1 VERITAS PHARMA INC. QUARTERLY REPORT for the period ended October 31, 2015 MANAGEMENT DISCUSSION AND ANALYSIS 1.1 Date of Report: October 31, 2015 The following management s discussion and analysis should be read together with the Consolidated financial statements and accompanying notes for the six months ended October 31, 2015 and related notes hereto, which are prepared in accordance with International Financial Reporting Standards ( IFRS ). All amounts are stated in Canadian dollars unless otherwise indicated. This management discussion and analysis includes certain statements that may be deemed forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. 1.2 Overall Performance Nature of Business and Overall Performance Veritas Pharma Inc. (the Company or Seashore ) was incorporated on May 14, 2014 under the Business Corporation Act of British Columbia. The head office of the Company is East Mall, University of British Columbia, Vancouver, BC V6T 1Z3. On September 22, 2014 the Company changed its name from Seashore Organic Marijuana Corp. to Seashore Organic Medicine Inc. On December 29, 2015, the Company changed its name to Veritas Pharma Inc. On August 12, 2014, the Company commenced trading on the Canadian Securities Exchange ( CSE ) under the trading symbol SOM. On December 29, 2015, the trading symbol was changed to VRT. Plan of Arrangement On May 14, 2014, the Company was incorporated as a subsidiary of Noor Energy Corporation ( Noor ) pursuant to a Plan of Arrangement agreement (the "Plan of Arrangement") signed on the same date between Noor, Sechelt, and the Company. Under the Plan of Arrangement, Sechelt was required to pay 15,000 to acquire 100% of the issued and outstanding shares of the Company ( Purchase Shares ). Sechelt and the Company then exchanged shares on a 1-for-1 basis resulting in each party exchanging 19,550,000 common shares. Noor then exchanged 5,000 of its common shares to the Company for 350,000 newly issued common shares of the Company which were then distributed to Noor shareholders. The Company then cancelled the initial Purchase Shares. This transaction was completed on August 7, This transaction has been accounted for as a recapitalization and the financial statements are a continuation of the operations of Sechelt from April 16, 2014, the date of incorporation, except for the capital structure which reflects the capital structure of Seashore, the legal parent. Background In 2000, the Ontario Court of Appeal ruled that the Federal Government of Canada must make medical marijuana available to those patients in need of it. In July 2001, Canada implemented a government-run program for medical marijuana access, authorized and regulated under the Marijuana Medical Access Regulations ( MMAR ). Under the MMAR guidelines, patients could purchase medical marijuana from

2 For the period ended October 31, 2015 Page 2 the government, grow it themselves or have it grown by a third party. According to Health Canada, in a press release issued on June 10, 2013, the number of authorized persons under the MMAR had grown from 500 in 2001 to over 30,000 as of the date of the press release. Due in part to this rapid increase and the resulting unintended health, safety and security consequences, Health Canada issued a new set of regulations in June 2013 that will replace the MMAR, with the primary result of eliminating production in homes and transferring it to highly secure and regulated commercial operations. The Company had planned to become an emerging producer and distributor of medical marijuana ( Product ),and has applied to Health Canada (HC) for a medical marijuana production and distribution license under the new Marijuana for Medical Purposes Regulations ( MMPR ) (a Production License or License )), which became law as of April 1, Until recently, the Company was seeking to begin Phase 1 and start the construction of our growing facility under a Ready to Build approval. The Company s wholly owned subsidiary Sechelt Medical Marijuana Corp. ( Sechelt ) is currently awaiting approval from Health Canada for the build notice. On March 14, 2015, the Company acquired property in Sechelt, B.C., to facilitate the building of an organic medical marijuana production facility. The 0.75-acre property is located in the Sechelt Inlet Industrial Park, which is zoned light industrial and allows for the construction of a building to facilitate the company's business. In consideration, the company paid an aggregate of 315,000, which was financed in part from shareholder loans in the amount of 200,000 from Vlad Voskoboinikov and a private company controlled by Alex Polevoy. Mr. Voskoboinikov and Mr. Polevoy are former directors of the company, and Mr. Polevoy was the chief financial officer of the company. These shareholder loans accrue interest at 5 per cent per annum, have a six-month term, and are convertible into common shares of the company at a conversion price equal to the 30-day average trading price of the shares less 20 per cent, to a minimum of 10 cents per share. The investment in the plan to become an emerging producer through Sechelt. It is now the intent of the Company to dispose of its investment in Sechelt and concentrate solely on developing Cannevert Therapeutics Ltd. Investment in Cannevert Therapeutics Ltd. The Company entered into an agreement dated October 9, 2014 with Cannevert Therapeutics Ltd. ( Cannevert ) to subscribe for subscription shares such that the Company will acquire up to a 70% equity and voting interest in Cannevert. Cannevert shall conduct research and license to the Company resultant intellectual property from proceeds of the Subscription based on the terms and conditions of a license agreement to be entered into concurrently with this agreement. On December 21st, 2015, the Company announced that it has entered into an amended and restated share purchase agreement with Cannevert Therapeutics Ltd. ("CTL") (the "Agreement"). Under the Agreement, the Company will invest a total of 1,500,000 into CTL in consideration for 6,001 common shares of CTL (the "CTL Shares"), in six separate tranches over the period of 15 months from the date of the Agreement (the "Private Placement"), after which the Company will hold 80% of the total issued and outstanding CTL Shares. The proceeds will be used for joint research with SOM to develop and assess specific cannabis cultivars that are selective in action on specific medical disorders. The Company advanced on December 15, 2015 the first 250,000 tranche. In connection with the Agreement and the transactions contemplated therein, CTL, its shareholders, and the Company will enter into a voting trust agreement (the "Voting Agreement"). Pursuant to the Voting Agreement, the Company will grant a representative of CTL the right to vote the CTL Shares held by the Company until the completion of the Private Placement. CTL and the Company will jointly engage a qualified independent business valuator on or about the date that is 18 months from the closing of the first tranche (the "Valuation Date"), or such other date as may be mutually agreed upon by the parties, to prepare a written report as to the total value of CTL as of the Valuation Date. Concurrent with the closing of the first tranche of the Private Placement, the Company and CTL will also enter into a shareholders agreement, pursuant to which the Company will, so long as it holds shares in CTL, have the right to appoint one director to the board of CTL (the "Board"), and will, upon holding

3 For the period ended October 31, 2015 Page 3 80% of the total issued and outstanding CTL Shares, have the right to appoint a majority of directors to the CTL Board. Each other shareholder of CTL, except the Company, will be granted a right for a period of 3 months following the receipt of the valuation of CTL to give notice to the Company to require the Company to purchase the CTL Shares that each shareholder holds. 1.3 Summary of Quarterly Results The following is a summary of the Company s financial results for the six most recently completed quarters: Quarter Ended Revenue Total expenses before other items July 31, 2014 October 31, 2014 January 31, 2015 April 30, 2015 July 31, 2015 October 31, , ,641 36, ,339 64,457 56,692 Loss for the period 169, ,882 36,224 98,098 64, Basic and Diluted Loss per share (0.01) (0.01) 1.4 Results of Operations The Company has not generated revenues to date and has experienced minimal operating cash flow and incurred a net loss of 868,577 from inception to October 31, Comparison of operations for the three months ended October 31, 2015 and 2014: Description October October Increase Explanation 31, , 2014 (decrease) Consulting 24,463 12,170 12,293 Increased costs Cost of going public - 32,241 (32,241) 2014 expense Professional fees 7,497 35,891 (28,394) 2014 agreements and filing Stock-based 1, ,430 (132,677) Cost of issuing stock options compensation Interest 2,871-2,871 Interest on debt, no debt in 2014 Listing and filing costs 3,439 1,418 2,021 Ongoing costs Office and miscellaneous 986 6,987 (6,001) Start-up expenses in 2014 Research and 8,215-8,215 Cost incurred in 2015 development Rent 4,500 6,000 (1,500) Reduced rent in 2015 Shareholder - 5,000 (5,000) No consultant in 2015 communications Travel and promotion 2,838 6,176 (3,338) Less travel in 2015 Depreciation Total Expenses 56, ,313 (183,621) Comparison of operations for the six months ended October 31, 2015 and 2014: Description October October Increase Explanation 31, , 2014 (decrease) Consulting 46, ,426 (208,463) Health Canada consulting costs in 2014 Cost of going public - 32,241 (32,241) 2014 expense

4 For the period ended October 31, 2015 Page 4 Professional fees 8, ,042 (111,546) 2014 agreements and filing Stock-based 3, ,430 (130,924) Cost of issuing stock options compensation Interest 5,364-5,364 Interest on debt, no debt in 2014 Listing and filing costs 5,421 1,418 4,003 Ongoing costs Office and miscellaneous 4,612 8,707 (4,095) Start-up expenses in 2014 Research and 22,739-22,739 Cost incurred in 2015 development Rent and property tax 12,327 6,000 6,327 Property taxes in 2015 Shareholder - 15,000 (15,000) No consultant in 2015 communications Travel and promotion 11,551 16,503 (4,952) Less travel in 2015 Depreciation Total Expenses 121, ,767 (468,618) 1.5 Liquidity The Company has total assets of 424,241 consisting of 1,532 in cash, Property, plant and equipment of 321,983 and intangible asset of 100,000 and a working capital deficiency of 256,726. The Company has not pledged any of its assets as security for loans, or otherwise and is not subject to any debt covenants. Management believes that the Company will require additional working capital to meet its primary business objectives over the next 12 months. Since the Company will not be able to generate cash from its operations in the foreseeable future, the Company will have to rely on the funding through future equity issuances and through short term borrowing in order to fund ongoing operations and to meet its obligations. The ability of the Company to raise capital will depend on market conditions and it may not be possible for the Company to issue shares on acceptable terms or at all. During the six months ended October 31, 2015, the Company has borrowed 50,000 from a company owned by a former director of the Company. This loan increases the total indebtedness to 250,000. The notes bear interest at 5% per annum, have a term of 6 months and are convertible into common shares of the Company at a conversion price equal to the 30-day average trading price of the shares less 20%, to a minimum of 0.10 per share. At October 31, 2015 accounts payable includes 6,675 in accrued interest payable (April 30, ,397). 1.6 Capital Resources The Company does not have any commitments for material capital expenditures. 1.7 Off Balance Sheet Arrangements There are no off-balance sheet arrangements to which the Company is committed. 1.8 Transactions with Related Parties During the six months ended October, 2015, the Company was not involved in any related party transactions. Key management personnel compensation The Company considers its Chief Executive Officer and Chief Financial Officer and directors of the Company to be key management. The new Chief Executive Officer and Chief Financial Officer, Dr. Lui Franciosi is to be paid an annual salary of 130,000 payable semi-monthly commencing in December Second Quarter

5 For the period ended October 31, 2015 Page 5 Activity during the second quarter was primarily related to the resurrection of the Investment in Cannevert Therapeutics Inc. The Company also maintained the Company s reporting status as it awaits the build approval from Health Canada. During the second quarter the Company incurred a net loss of 56, Critical Accounting Estimates The preparation of financial statements in accordance with IFRS requires the Company to make estimates and assumptions concerning the future. The Company s management reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted for prospectively in the period in which the estimates are revised. Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the condensed interim financial statements is the assumption that the Company is a going concern and will continue in operation for the foreseeable future and at least one year is a judgement. The factors considered by management are disclosed in the financial statements Changes in Accounting Policies Accounting standards issued but not yet applied The following new standard and interpretation is not yet effective and has not been applied in preparing this financial statement. The Company is currently evaluating the potential impacts of this new standard and does not anticipate any material change to the financial statements upon adoption of this new and revised accounting pronouncement. (i) IFRS 9, Financial Instruments (New) (ii) IFRS 11, Joint Arrangements (New) (iii) IFRS 16, Property, Plant, and Equipment (Amended) (iv) IAS 27, Separate Financial Statements (Amended) (v) IAS 38, Intangible Assets (Amended) The Company has not early adopted these new and revised standards and is currently assessing the impact that these standards will have on its 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 consolidated financial statements Financial Instruments and Other Instruments The Company s financial instruments consist of cash, amount receivable, accounts payable and accrued liabilities and convertible loans payable. The Company s financial instruments are exposed to the following risks: Credit risk The Company has not experienced any significant credit losses and believes it is not exposed to any significant credit risk. Interest rate risk Interest rate risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial assets and liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company does not hold any financial liabilities

6 For the period ended October 31, 2015 Page 6 with variable interest rates. The Company does maintain bank accounts which earn interest at variable rates but it does not believe it is currently subject to any significant interest rate risk. Liquidity risk The Company s ability to continue as a going concern is dependent on management s ability to raise required funding through future equity issuances and through short-term borrowing. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments. The Company intends to meet its current obligations in the following year with funds to be raised through private placements, shares for debt, loans and related party loans. Fair value Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3 Inputs that are not based on observable market data Other MD&A Requirements Disclosure of Outstanding Share Data i) Authorized: Unlimited common shares without par value ii) Common Shares Issued: Number Amount Balance, October 31, 2015 and date of MDA 19,900, ,000 As at date of MDA there are: 1,800,000 share purchase options outstanding exercisable at 0.10 per share for a period of five years. (June 16, 2019) Approved and authorized by the Directors of the Company on December 30, 2015: _s/jason Birmingham Leonard Werden s/dr. Lui Franciosi Dr. Lui Franciosi