form 5 quarterly listing statement - csethecse.com/sites/default/files/cse_form_5_31jan2017… ·...

FORM 5 – QUARTERLY LISTING STATEMENT

January 2015

FORM 5

QUARTERLY LISTING STATEMENT

Name of Listed Issuer: THC Biomed Intl Ltd. (the “Issuer”).

Trading Symbol: THC

This Quarterly Listing Statement must be posted on or before the day on which the Issuer’s unaudited interim financial statements are to be filed under the Securities Act, or, if no interim statements are required to be filed for the quarter, within 60 days of the end of the Issuer’s first, second and third fiscal quarters. This statement is not intended to replace the Issuer’s obligation to separately report material information forthwith upon the information becoming known to management or to post the forms required by the Exchange Policies. If material information became known and was reported during the preceding quarter to which this statement relates, management is encouraged to also make reference in this statement to the material information, the news release date and the posting date on the Exchange website.

General Instructions

(a) Prepare this Quarterly Listing Statement using the format set out below. The sequence of questions must not be altered nor should questions be omitted or left unanswered. The answers to the following items must be in narrative form. When the answer to any item is negative or not applicable to the Issuer, state it in a sentence. The title to each item must precede the answer.

(b) The term “Issuer” includes the Listed Issuer and any of its subsidiaries.

(c) Terms used and not defined in this form are defined or interpreted in Policy 1 – Interpretation and General Provisions.

There are three schedules which must be attached to this report as follows: SCHEDULE A: FINANCIAL STATEMENTS The financial statements for the six months ended January 31, 2017 are attached. SCHEDULE B: SUPPLEMENTARY INFORMATION

1. Related party transactions

All related party transactions have been disclosed in the Issuer’s financial statements for the period ended January 31, 2017.


January 2015

2. Summary of securities issued and options granted during the period.

All securities issued and options granted during the period have been disclosed in the Issuer’s financial statements for the period ended January 31, 2017.

3. Summary of securities as at the end of the reporting period.

A summary of securities as at the end of the reporting period have been disclosed in the Issuer’s financial statements for the period ended January 31, 2017.

4. List the names of the directors and officers, with an indication of the position(s) held, as at the date this report is signed and filed.

Name Position(s) Held

John Miller Director, Chief Executive Officer, and President Hee Jung Chun Director and Chief Financial Officer Jason Walsh Director George Smitherman Director

SCHEDULE C: MANAGEMENT DISCUSSION AND ANALYSIS

The MD&A for the six months ended January 31, 2017 is attached.

Certificate Of Compliance

The undersigned hereby certifies that:

1. The undersigned is a director and/or senior officer of the Issuer and has been duly authorized by a resolution of the board of directors of the Issuer to sign this Quarterly Listing Statement.

2. As of the date hereof there is no material information concerning the Issuer which has not been publicly disclosed.

3. The undersigned hereby certifies to the Exchange that the Issuer is in compliance with the requirements of applicable securities legislation (as such term is defined in National Instrument 14-101) and all Exchange Requirements (as defined in CNSX Policy 1).


January 2015

4. All of the information in this Form 5 Quarterly Listing Statement is true.

Dated March 31, 2017

John Miller Name of Director or Senior Officer

“John Miller” Signature

Director, President, and CEO Official Capacity

Issuer Details Name of Issuer

THC Biomed Intl Ltd.

For Quarter Ended January 31, 2017

Date of Report YY/MM/D March 31, 2017

Issuer Address PO Box 20033, Towne Centre

City/Province/Postal Code Kelowna, BC, V1Y 9H2

Issuer Fax No. (888) 422-4718

Issuer Telephone No. (250) 870-2512

Contact Name John Miller

Contact Position Director, President, and CEO

Contact Telephone No. (250) 870-2512

Contact Email Address [email protected]

Web Site Address www.thcbiomed.com

1

THC BIOMED INTL LTD.

Condensed Interim Consolidated Financial Statements

For the Six Months Ended January 31, 2017

(Expressed in Canadian Dollars)

2

THC BIOMED INTL LTD. Condensed Interim Consolidated Financial Statements

For the Six Months Ended January 31, 2017 Page Notice to Readers 3 Condensed Interim Consolidated Statements of Financial Position 4 Condensed Interim Consolidated Statements of Comprehensive Loss 5 Condensed Interim Consolidated Statements of Changes in Equity 6 Condensed Interim Consolidated Statements of Cash Flows 7 Notes to the Condensed Interim Consolidated Financial Statements 8 – 25

3

Notice to Readers

Under National Instrument 51-102, Part 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited condensed interim consolidated financial statements of THC BioMed Intl Ltd. for the six months ended January 31, 2017 have been prepared in accordance with International Accounting Standard 34 for Interim Financial Reporting under International Financial Reporting Standards. These condensed interim consolidated financial statements are the responsibility of the Company’s management and have been approved by the Board of Directors. The Company’s independent auditors have not performed an audit or a review of these condensed interim consolidated financial statements.

The accompanying notes are an integral part of these condensed interim consolidated financial statements. 4

THC BIOMED INTL LTD. Condensed Interim Consolidated Statements of Financial Position (Expressed in Canadian Dollars)

(Audited)(Restated - note 17)

January 31 July 31As at 2017 2016

AssetsCurrent

Cash 205,294$ 109,101$ Amounts receivable (note 4) 657 124,551 Goods and services tax receivable 44,079 19,107 Advances to related parties (note 11) 70,748 75,613 Biological assets and inventory (note 5) 2,056,814 - Prepaid expenses and deposits 67,487 126,156

2,445,079 454,528

Non-currentProperty and equipment (note 6) 1,215,172 1,146,445 Intangible property (note 7) 88,756 -

1,303,928 1,146,445

3,749,007$ 1,600,973$

LiabilitiesCurrent

Accounts payable and accrued liabilities 527,016$ 473,118$ Promissory note payable (note 8 and 12) 135,000 135,000 Current portion of mortgages payable (note 9) 249,226 23,802 Advances from related parties (note 12) 55,251 213,718

966,493 845,638

Non-currentMortgages payable (note 9) 164,302 404,668

1,130,795 1,250,306

Shareholders’ Equity Share capital (note 10) 5,361,939 3,865,413 Share subscription received in advance - 250,000 Reserves 24,263 70,652 Accumulated deficit (2,767,990) (3,835,398)

2,618,212 350,667

3,749,007$ 1,600,973$ Nature and continuance of operations (note 1) Contingency (note 13) Subsequent event (note 19) These condensed interim consolidated financial statements were authorized for issue by the Board of Directors on March 31, 2017. They are signed on the Company’s behalf by: “John Miller” “Hee Jung Chun”

Director Director


THC BIOMED INTL LTD. Condensed Interim Consolidated Statements of Comprehensive Income (Loss) (Expressed in Canadian Dollars)

January 31 January 31 January 31 January 312017 2016 2017 2016

Sales 3,195$ -$ 3,195$ -$ Cost of sales (14,694) - (14,694) - Other production costs (160,233) - (160,233) - Gain on changes in fair value of biological assets (note 5) 653,349 - 1,877,930 -

Gross margin 481,617 - 1,706,198 -

ExpensesGeneral and administration (note 12) 323,668 302,850 578,729 541,620 Depreciation and amortization (note 6 and 7) 30,605 3,399 43,103 6,799 Sales and marketing 9,654 - 25,008 - Share-based compensation (note 11) - 7,588 - 62,252

363,927 313,837 646,840 610,671

Other (income) expense itemsConsulting fees - (250,000) - (250,000) Foreign exchange loss 1 2 3 3 Forgiveness of debt settlements - (125,303) - (125,303) Gain on sale of investment - (1,575) - (1,575) Interest income (8,013) (51) (8,053) (133)

(8,012) (376,927) (8,050) (377,008)

Net and comprehensive income (loss) for the period 125,702$ 63,090$ 1,067,408$ (233,663)$

Basic and diluted earnings per share 0.00$ 0.00$ 0.01$ (0.00)$

Weighted average number of shares outstanding 102,949,459 89,135,157 101,187,894 82,519,279

For the three months ended For the six months ended


THC BIOMED INTL LTD. Condensed Interim Consolidated Statements of Changes in Equity (Expressed in Canadian Dollars)

ShareSubscription Share-Based

Number of Share Received Payment TotalShares Capital in Advance Reserve Deficit Equity

Balance, July 31, 2016 - Restated (note 18) 96,199,544 3,865,413$ 250,000$ 70,652$ (3,835,398)$ 350,667$ Shares issued for cash 1,000,000 250,000 (250,000) - - - Stock options exercised 916,000 104,100 - - 104,100 Fair value of stock options exercised - 46,389 (46,389) - - Warrants exercised 4,983,915 1,096,037 - - 1,096,037 Income for the period - - - 1,067,408 1,067,408

Balance, January 31, 2017 103,099,459 5,361,939$ 24,263$ (2,767,990)$ 2,618,212$

Balance, July 31, 2015 75,674,620 1,734,048$ 59,754$ (3,308,506)$ (1,514,704)$ Shares issued for cash 10,675,000 1,090,500 - - - 1,090,500 Shares issued for debt 6,359,924 706,516 - - - 706,516 Shares issued for finder fees 240,000 23,400 - - - 23,400 Share issuance costs - (62,300) - - - (62,300) Stock options exercised 250,000 25,000 - - - 25,000 Share-based compensation - - 62,252 - 62,252 Reverse fair value of stock options exercised and cancelled - - - (12,696) 12,696 - Loss for the period - - - (233,663) (233,663)

Balance, January 31, 2016 93,199,544 3,517,164$ 109,310$ (3,529,473)$ 97,001$


Condensed Interim Consolidated Statements of Cash Flows (Expressed in Canadian Dollars)

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

7

January 31 January 31 January 31 January 312017 2016 2017 2016

Cash provided by (used for)

Operating activitiesNet income (loss) for the period 125,702$ 63,090$ 1,067,408$ (233,663)$

Add items not affecting cashAccrued interest revenue 40 (49) - (98) Accrued liabilities (39,644) (61,719) (18,844) 22,950 Depreciation and amortization 30,605 3,399 43,103 6,799 Foreign exchange loss 1 2 3 3 Gain on biological assets and inventory (663,349) - (1,887,930) - Share-based compensation - 7,588 - 62,252 Shares issued for servicesShares issued for finance costs - - - 14,175

(546,645) 12,311 (796,260) (127,582) Net change in non-cash working capital 380,883 (595,325) 61,449 (562,520)

(165,762) (583,014) (734,811) (690,102)

Financing activitiesAdvances from (repaid to) related parties (239,411) (77,096) (158,467) (36,411) Issuance of shares for cash, net of share issuance costs 41,600 907,000 1,200,137 1,076,600 Mortgage proceeds repaid (8,848) (4,548) (14,942) (14,012) Promissory notes repaid - (188,754) - (289,400)

(206,659) 636,602 1,026,728 736,777

Investing activitiesAcquisition of property and equipment (45,990) (27,205) (99,151) (57,909) Acquisition of intangible property (101,435) - (101,435) - Advances to (repaid by) related parties (2,506) 9,470 4,865 2,550 Disposition of investment held for sale - 3,150 - 3,150

(149,931) (14,585) (195,721) (52,209)

Effect of foreign exchange translation on cash (1) (2) (3) (3)

Net increase (decrease) in cash (522,353) 39,001 96,193 (5,537)

Cash, beginning of period 727,647 7,172 109,101 51,710

Cash, end of period 205,294$ 46,173$ 205,294$ 46,173$

For the three months ended For the six months ended

Supplemental cash flow information (note 15)


Notes to the Condensed Interim Consolidated Financial Statements (Expressed in Canadian Dollars)

For the Six months ended January 31, 2017

8

1. NATURE AND CONTINUANCE OF OPERATIONS THC BioMed Intl Ltd. (“THC” or the “Company”), formerly Thelon Capital Ltd. (“Thelon”), was formed by a reverse take-over (“RTO”) on January 14, 2015, by the shareholders of THC BioMed Ltd. and THC Meds Inc. (collectively the “THC Companies”). THC BioMed Intl Ltd. is a public company incorporated under the Company Act of British Columbia on February 2, 1982. The Company traded on the TSX Venture Exchange from February 4, 2010 until December 22, 2014 when the Company requested the Company’s common shares be delisted. The Company also consolidated its share capital on a six old for one new basis on December 23, 2014. All references to share and per share amounts in these consolidated financial statements have been adjusted to reflect the share consolidation on a retrospective basis. On April 29, 2015, the Company was relisted and began trading on the Canadian Securities Exchange (“CSE”) under the symbol THC. THC BioMed Ltd., a wholly-owned subsidiary of the Company, is licensed under Canada’s Access to Cannabis for Medical Purposes Regulations (“ACMPR”) for the cultivation and sale of cannabis for medical purposes in the form of dried or fresh product, oil, and starting materials. THC also conducts research and development of the products and services related to cannabis for medical purposes. On September 26, 2016, the Company announced that it has signed a Letter of Intent to purchase 100% of Clone Shipper LLC, a US based company specializing in the packaging products used to transport live plants, for US$1,000,000. On October 27, 2016, the Company signed a Distribution Agreement with Clone Shipper LLC. Under this agreement, the Company has the distribution rights for all Clone Shipper products in Canada. The Distribution Agreement is for a period of two years for which the Company paid US$75,000. THC will use the Clone Shipper packaging to transport the sale of live plants. Sales began in January 2017.

The Company’s corporate office and principal place of business is at Unit 27 – 2550 Acland Road, Kelowna, British Columbia, Canada, V1X 7L4.

These condensed interim consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to raise adequate financing to commence profitable operations in the future. To date the Company is considered to be in the development stage. These factors create material uncertainty that cast significant doubt about the Company being able to continue as a going concern. These condensed interim consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. Further discussion of liquidity risk has been disclosed in Note 17c.




9

2. BASIS OF PREPARATION

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financing Reporting (“IAS34”) as issued by the International Accounting Standards Board (“IASB”) using accounting policies consistent with International Financial Reporting Standards (“IFRS”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with IFRS have been omitted or condensed.

The preparation of the condensed interim consolidated financial statements using accounting policies consistent with IFRS requires management to make certain critical accounting estimates which requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the unaudited condensed interim financial statements have been set out in note3 of the annual audited consolidated financial statements for the year ended July 31, 2016. These unaudited condensed interim consolidated financial statements were prepared using the same accounting policies and methods as those used in the annual audited consolidated financial statements for the year ended July 31, 2016, and should be read in conjunction with those statements.

3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

The following accounting pronouncements have been released but have not yet been adopted by the Company: IFRS 9 Financial Instruments In November 2009, the IASB issued, and subsequently revised in October 2010, IFRS 9 Financial Instruments (IFRS 9) as a first phase in its ongoing project to replace IAS 39. IFRS 9, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. The standard also adds guidance on the classification and measurement of financial liabilities. Management has not yet determined the potential impact the adoption of IFRS 9 will have on the Company’s financial statements. IFRS 15 Revenue Recognition In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers (IFRS 15). The new standard provides a comprehensive five-step revenue recognition model for all contracts with customers and requires management to exercise significant judgment and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. Management has not yet determined the potential impact the adoption of IFRS 15 will have on the Company’s financial statements.




10

4. AMOUNTS RECEIVABLE

January 31 July 312017 2016

Bank of Montreal -$ 42$ Government of Canada (Scientific Research & Experimental Development Claim) - 111,169 Other 657 - Supra Research and Development Inc. - 840 Trans-Medica Ltd. - 12,500

657$ 124,551$ 5. BIOLOGICAL ASSETS AND INVENTORY

Inventory ofMother Inventory of Inventory of ClonePlants Clones Seeds Dried Marijuana Shipper Kits Total

Carrying amount, July 31, 2015 -$ -$ -$ -$ -$ -$ Cost of biological assets 19,254 71,948 9,377 - - 100,579 Loss on changes in fair value of biological assets (19,254) (71,948) (9,377) - - (100,579)

Carrying amount, July 31, 2016 - - - - - - Cost of biological assets 20,041 160,206 - 77,553 12,286 270,086 Gain (loss) on changes in fair value of biologcial assets 584,959 (138,946) 1,315,000 25,715 - 1,786,728

Carrying amount, January 31, 2017 605,000$ 21,260$ 1,315,000$ 103,268$ 12,286$ 2,056,814$ 6. PROPERTY AND EQUIPMENT

The Company acquired the first property to house their warehouse and laboratory facilities in September of 2012 for $291,526, of which $162,140 was attributed to the land and $129,386 to the building. All costs of modifications to the property to meet all specifications required by Health Canada have been capitalized along with the mortgage interest until May 1, 2016 when growing commenced.

The Company acquired the second property to expand their warehouse facilities on October 2, 2014 for cash and mortgage payable totaling $341,604, of which $199,326 was attributed to the land and $142,278 to the building. All costs of modifications to the property to meet all specifications required by Health Canada have been capitalized along with the mortgage interest until May 1, 2016 when growing commenced.




11

6. PROPERTY AND EQUIPMENT (continued)

Depreciation began May 1, 2016 when the buildings were considered “in use” with the planting of the first crop of medical marijuana.

July 31 July 31 January 312015 Additions 2016 Additions 2017

CostLand 406,607$ 16,006$ 422,613$ -$ 422,613$ Buildings 580,939 104,414 685,353 - 685,353 Automobile - - - 6,741 6,741 Office computer equipment 1,326 2,235 3,561 5,702 9,263 Office furniture and equipment 7,388 4,037 11,425 23,097 34,522 Sofware 1,093 - 1,093 - 1,093 Warehouse and lab computer equipment 28,359 4,209 32,568 12,301 44,869 Warehouse and lab equipment 22,291 28,051 50,342 49,418 99,760

1,048,003$ 158,952$ 1,206,955$ 97,259$ 1,304,214$

July 31 July 31 January 312015 Depreciation 2016 Depreciation 2017

Accumulated DepreciationBuildings -$ 25,326$ 25,326$ 13,200$ 38,526$ Automobile - - - 506 506 Office computer equipment 1,131 722 1,853 1,254 3,107 Office furniture and equipment 1,415 1,599 3,014 1,995 5,009 Sofware 1,093 - 1,093 - 1,093 Warehouse and lab computer equipment 9,174 11,708 20,882 4,906 25,788 Warehouse and lab equipment 1,349 6,993 8,342 6,671 15,013

14,162$ 46,348$ 60,510$ 28,532$ 89,042$

Carrying Amounts 1,033,841$ 1,146,445$ 1,215,172$

7. INTANGIBLE PROPERTY

On October 27, 2016, the Company signed a Distribution Agreement with Clone Shipper LLC. Under this agreement, the Company has the distribution rights for all Clone Shipper products in Canada. The Distribution Agreement is for a period of two years for which the Company paid US$75,000.




12

7. INTANGIBLE PROPERTY (continued)

January 31 July 312017 2016

CostDistribution agreement 101,435$ -$ Accumulated amortization 12,679 -

Carrying Amount 88,756$ -$ 8. PROMISSORY NOTE PAYABLE

Thelon issued a promissory note in the principal amount of up to $150,000 on December 31, 2014 to BUA Capital Management Ltd., a private company controlled by a director, Jason Walsh. The note is without interest and due on December 31, 2016. At January 31, 2017, $135,000 (July 31, 2016 - $135,000) is owed against the note.

9. MORTGAGES PAYABLE The Company has a mortgage payable on its first property in the principal amount of $210,560 with

interest at 5.50% per annum with monthly payments of $2,760 due on the 21st day of each month. The mortgage originally matured on September 21, 2015. On March 31, 2015, the mortgage was modified to mature on August 21, 2018 with interest at 10% per annum starting on September 22, 2015. At January 31, 2017, the balance payable is $180,659 (July 31, 2016 - $189,645) including accrued interest.

The Company has a mortgage payable on its second property in the principal amount of $250,000

with interest at 10% per annum with monthly payments of $2,656 due on the 2nd day of each month. The first payment was on November 2, 2014 and the mortgage matures on October 2, 2017. At January 31, 2017, the balance payable is $232,870 (July 31, 2016 - $238,825) including accrued interest.

10. SHARE CAPITAL

a) Common shares Authorized: Unlimited number of common shares without par value Issued:




13

10. SHARE CAPITAL (continued)

a) Common shares (continued)

IssuedNumber Amount

Balance, July 31, 2015 75,674,620 1,734,048$ Shares issued for cash 10,675,000 1,090,500 Shares issued for debt 8,359,924 906,516 Shares issued for finder fees 240,000 (38,900) Stock options exercised 1,250,000 125,000 Fair value of stock options exercised - 48,249

Balance, July 31, 2016 96,199,544 3,865,413 Shares issued for cash 1,000,000 250,000 Stock options exercised 916,000 104,100 Fair value of stock options exercised - 46,389 Warrants exercised 4,983,915 1,096,037

Balance, January 31, 2017 103,099,459 5,361,939$ On October 26, 2015, the Company closed a non-brokered private placement of 4,119,583 units (“Unit”) at a price of $0.06 per Unit for gross proceeds of $190,500 and settlement of $56,675 of short term debt. Each Unit consists of one common share and one common share purchase warrant exercisable at $0.15 per share until October 26, 2016. Warrants were valued at $Nil using the residual value method. A finder’s fee of $2,900 was paid in cash along with 90,000 Units on the same terms for the private placement, for total a finder’s fee of $8,300.

On November 6, 2015, the Company issued 4,660,000 common shares pursuant to a

settlement agreement with Jacob Securities Inc. The shares were issued at a fair value of $0.12 per share and will be released pursuant to a stock restriction agreement over the course of 36 months. The value of the shares of $559,200 was recorded as consulting fees in fiscal 2015 and previously included in accounts payable and accrued liabilities. On December 9, 2015, 250,000 stock options were exercised at $0.10 per share for gross proceeds of $25,000. The market price on the date of exercise was $0.10. On December 10, 2015, the Company closed a non-brokered private placement of 7,500,000 units (“Unit”) at a price of $0.12 per Unit for gross proceeds of $900,000. Each Unit consists of one common share and one common share purchase warrant exercisable at $0.25 per share until December 10, 2016. The warrants will have an acceleration clause such that, if after the required hold period, the shares in the Company trade above $0.30 for 10 consecutive trading days, the Company will notify the warrant holders that they have 30 days to exercise the warrants from the date that such notice is given. Warrants were valued at $Nil using the residual value method. A finder’s fee of $36,000 was paid in cash along with 150,000 Units on the same terms for the private placement, for a total finder’s fee of $54,000.




14

10. SHARE CAPITAL (continued)

a) Common shares (continued) On December 10, 2015, the Company issued 755,341 common shares at $0.12 per share to settle $90,641 in debt. The market price on the date of exercise was $0.13. On February 4, 2016, the Company issued 2,000,000 common shares pursuant to a settlement agreement with Cervus Business Management Inc. The shares were issued at a fair value of $0.10 per share and will be released pursuant to a stock restriction agreement over the course of 36 months. The value of the shares of $200,000 was recorded as consulting fees in fiscal 2015 and previously included in accounts payable and accrued liabilities. On March 24, 2016, 500,000 stock options were exercised at $0.10 per share for gross proceeds of $50,000. The market price on the date of exercise was $0.13. On May 24, 2016, 500,000 stock options were exercised at $0.10 per share for gross proceeds of $50,000.

On September 12, 2016, 1,000,000 common shares were issued at $0.25 per share for gross proceeds of $250,000.

On September 22, 2016, 250,000 stock options were exercised at $0.10 per share for gross proceeds of $25,000 and 250,000 stock options were exercised at $0.15 per share for gross proceeds of $37,500. On September 25, 2016, 166,666 warrants were exercised at $0.60 for gross proceeds of $100,000 and 4,459,001 warrants expired at $0.60. On October 5, 2016, 1,154,167 warrants were exercised at $0.15 for gross proceeds of $173,125. October 26, 2016, 7,650,000 warrants expired at $0.25. On November 22, 2016, 250,000 stock options were exercised at $0.10 per share for gross proceeds of $25,000. On December 20, 2016, 166,000 stock options were exercised at $0.10 per share for gross proceeds of $16,600.

b) Escrow shares

Currently 690 common shares (July 31, 2016 – 690) are held in escrow.




15

10. SHARE CAPITAL (continued) c) Warrants outstanding

Number of Weighted AverageWarrants Exercise Price

Balance, July 31, 2015 5,233,333 $ 0.30/$0.60Warrants issued 11,859,583 0.21

Balance, July 31, 2016 17,092,916 0.33 Warrants exercised (4,983,915) 0.22 Warrants expired (12,109,001) 0.38

Balance, January 31, 2017 - -$

11. SHARE-BASED COMPENSATION The Company is authorized to grant options to directors, officers, and employees to acquire common

shares. The Company’s previous stock option plan was cancelled and the Company has adopted the 2015 Stock Option Incentive Plan (the “Plan”). The essential elements of the Plan provide that the aggregate number of shares of the Company’s capital stock issuable pursuant to options granted under the Plan may not exceed 10% of the issued common shares of the Company from time to time. Options granted under the Plan may have a maximum term of ten (10) years. The exercise price of options granted under the Plan will not be less than the fair market value price of the shares on the date of grant of the options (defined as the last closing market price of the Company’s shares on the last day shares are traded prior to the grant date). Stock options granted under the Plan vest immediately subject to vesting terms which may be imposed at the discretion of the Directors. Stock options granted under the Plan are to be settled with the issuance of equity instruments.

The following summarizes the stock options outstanding:

Number of Weighted AverageOptions Exercise Price

Balance, July 31, 2015 4,083,334 0.30$ Options granted 1,000,000 0.10 Options cancelled/expired (2,333,334) 0.44 Options exercised (1,250,000) 0.10

Balance, July 31, 2016 1,500,000 0.11 Options exercised (916,000) 0.11

Balance, January 31, 2017 584,000 0.10$




16

11. SHARE-BASED COMPENSATION (continued)

Number ofRemaining Options

Date of Grant Expiry Date Life (Years) Outstanding Exercise Price

October 5, 2015 October 5, 2017 0.68 584,000 0.10$ On July 10, 2015, Thelon granted 1,000,000 stock options to a consultant of the Company to acquire 1,000,000 common shares of the Company with an expiry date of July 10, 2017. 500,000 stock options have an exercise price of $0.10 per share and 500,000 stock options have an exercise price of $0.15 per share. The options vest over the course of one year with 25% vesting on the date of grant and 25% every four months following the date of grant. The options have a fair value, calculated using the Black-Scholes option pricing model, of $20,699 or $0.02 per option, assuming an expected life of 2 years, a risk-free interest rate of 0.50%, an expected dividend rate of 0.00%, stock price of $0.04 and an expected annual volatility coefficient of 147%. Volatility was determined using historical stock prices.

On July 22, 2015, Thelon granted 500,000 stock options to a consultant of the Company to acquire 500,000 common shares of the Company with an expiry date of July 22, 2017. 250,000 stock options have an exercise price of $0.10 per share and 250,000 stock options have an exercise price of $0.15 per share. The options vest over the course of one year with 25% vesting on the date of grant and 25% every four months following the date of grant. The options have a fair value, calculated using the Black-Scholes option pricing model, of $29,107 or $0.06 per option, assuming an expected life of 2 years, a risk-free interest rate of 0.43%, an expected dividend rate of 0.00%, stock price of $0.09 and an expected annual volatility coefficient of 158%. Volatility was determined using historical stock prices. On July 28, 2015, Thelon granted 1,000,000 stock options to consultants of the Company to acquire 1,000,000 common shares of the Company with an expiry date of July 28, 2017. The options have a fair value, calculated using the Black-Scholes option pricing model, of $44,018 or $0.04 per option, assuming an expected life of 2 years, a risk-free interest rate of 0.44%, an expected dividend rate of 0.00%, and an expected annual volatility coefficient of 158%. Volatility was determined using historical stock prices.

On October 5, 2015, Thelon granted 1,000,000 stock options to employees of the Company to acquire 1,000,000 common shares of the Company with an expiry date of October 5, 2017. The options have a fair value, calculated using the Black-Scholes option pricing model, of $41,546 or $0.04 per option, assuming an expected life of 2 years, a risk-free interest rate of 0.51%, an expected dividend rate of 0.00%, stock price of $0.06 and an expected annual volatility coefficient of 165%. Volatility was determined using historical stock prices.

12. RELATED PARTY TRANSACTIONS

The Company has identified certain directors and senior officers as key management personnel. The following table lists the compensation costs paid to key management personnel and companies owned by key management personnel for the six months ended January 31, 2017 and 2016:




17

12. RELATED PARTY TRANSACTIONS (continued)

Office and Salaries January 31, 2017Accounting Consulting Director Fees Administration and Benefits Total

BUA Capital Management Ltd. -$ 20,000$ -$ -$ -$ 20,000$ BUA Group Holdings Ltd. - - - 16,400 - 16,400 George Smitherman - - 3,000 - - 3,000 Hee Jung Chun - - 3,000 - 20,000 23,000 John Miller - - 3,000 - 20,000 23,000

-$ 20,000$ 9,000$ 16,400$ 40,000$ 85,400$

Office and Salaries January 31, 2016Consulting Administration and Benefits Total

BUA Capital Management Ltd. -$ 45,000$ -$ -$ -$ 45,000$ BUA Group Holdings Ltd. - - - 24,600 - 24,600 GRW Inc. - 12,000 - - - 12,000 Hee Jung Chun - - - - 31,200 31,200 John Miller - - - - 100,200 100,200 Publico Services Ltd. - 5,000 - - - 5,000 T. St. Denis, Inc. 48,725 - - - - 48,725

48,725$ 62,000$ -$ 24,600$ 131,400$ 266,725$ BUA Capital Management Ltd. provided consulting services to the Company until November 30, 2016. It is a private company controlled by a director, Jason Walsh. On October 26, 2015, BUA Capital Management Ltd. was issued 250,000 Units (note 10a) at $0.06 for $15,000 in debt. At January 31, 2017, the Company owed $Nil (July 31, 2016 - $70,448) to BUA Capital Management Ltd. which is included in advances from related parties, and $135,000 (July 31, 2016 - $150,000) which is included in the promissory note payable. BUA Group Holdings Ltd. provided administration services to the Company until November 30, 2016. It is a private company controlled by a director, Jason Walsh. At January 31, 2017, the Company owed $Nil (July 31, 2016 - $6,679) to BUA Group Holdings Ltd. George Smitherman receives a director fee of $500 per month totaling $3,000 (January 31, 2016 - $Nil) for the six months ended January 31, 2017. GRW Inc. provided consulting services to the Company until November 30, 2015. It is a private company controlled by the former Chief Financial Officer, Geoff Watson. Hee Jung Chun is the Chief Financial Officer, a director of the Company, and co-founder of the THC Companies. Ms. Chun receives a salary from the THC Companies of $5,000 per month. At January 31, 2017, $46,800 (July 31, 2016 - $36,400) in accrued salaries to Ms. Chun is included in accounts payable and accrued liabilities. At January 31, 2017, the Company also owed Ms. Chun $43,899 (July 31, 2016 - $125,239), which is included in advances from related parties. Ms. Chun also receives a director fee of $500 per month totaling $3,000 (January 31, 2016 - $Nil) for the six months ended January 31, 2017.




18

12. RELATED PARTY TRANSACTIONS (continued) John Miller is the President and Chief Executive Officer of the Company, a director, and co-founder of the THC Companies. Mr. Miller receives a salary from the THC Companies of $5,000 per month. At January 31, 2017, $46,800 (July 31, 2016 - $36,400) in accrued salaries to Mr. Miller is included in accounts payable and accrued liabilities. . Mr. Miller also receives a director fee of $500 per month totaling $3,000 (January 31, 2016 - $Nil) for the six months ended January 31, 2017. T. St. Denis, Inc. is a private accounting firm owned by the former Chief Financial Officer, Tracey A. St. Denis. T. St. Denis, Inc. provides accounting services to the Company. On October 26, 2015, T. St. Denis, Inc. was issued 250,000 Units (note 10a) at $0.06 for $15,000 of debt. International Ranger Corp. is a public company with common directors. At January 31, 2017, the Company is owed $1,881 (July 31, 2016 - $1,881) from International Ranger Corp. which is included in advances to related parties.

Thelon Diamond Company Limited is a public company with a common director, Jason Walsh. At January 31, 2017, the Company owes Thelon Diamond Company Limited $1,000 (July 31, 2016 - $1,000) which is included in advances from related parties. At January 31, 2017, the Company owed $10,352 (July 31, 2016 - $10,352) to Thelon Diamonds Ltd., a private company controlled by a director of the Company, Jason Walsh. The amount is included in advances from related parties. At January 31, 2017, the Company was owed $5,850 (July 31, 2016 - $5,850) from 1177129 Alberta Ltd., a private company controlled by a director of the Company, Jason Walsh. The amount is included in advances to related parties. At January 31, 2017, the Company was owed $66 (July 31, 2016 - $66) from 782618 B.C. Ltd., a private company controlled by a director of the Company, Jason Walsh. The amount is included in advances to related parties. At January 31, 2017, the Company was owed $613 (July 31, 2016 - $613) from United Zeolite Ltd., a private company with common directors. The amount is included in advances to related parties. At January 31, 2017, the Company was owed $62,338 (July 31, 2016 - $67,203) from Zadar Ventures Ltd., a public company with a common director, Jason Walsh. The amount is included in advances to related parties. Amounts due to or from related parties are unsecured, do not bear interest, and are classified as a current asset or liability due to their nature and expected time of repayment.




19

13. CONTINGENCY During the year ended July 31, 2016, a Notice of Civil Claim was received by the Company from

Jacob Securities Inc. (the “Complainant”) claiming that the Company is in breach of a settlement agreement dated September 10, 2015 (the “Settlement Agreement”). The Complainant alleges it is owed delivery of certain original share certificates from the Company and possible damages. The Complainant alleges that pursuant to the Settlement Agreement, it was entitled to 4,660,000 common shares of the Company plus an additional 1,600,000 shares on the occurrence of certain events. The Complainant acknowledges it received from the Company and sold 1,165,000 shares but alleges at a later date that 3,495,000 of the remaining shares in its possession were represented by copies and not original share certificates. The Company intends to vigorously defend itself from this lawsuit as it believes it has meritorious defences to this action. Although it is not possible to predict the outcome of the pending litigation, the Company believes that the action will not have a material adverse effect upon the results of operations, cash flow, or financial condition of the Company.

14. SEGMENTED INFORMATION

The Company operates in a single reportable segment being the scientific research and development, and cultivation of medical marijuana in Canada.

15. SUPPLEMENTAL CASH FLOW INFORMATION

January 31 January 312017 2016

Fair value of stock options exercised 46,389$ 12,696$ Income taxes paid -$ -$ Interest paid 30,114$ 68,446$ Interest received 8,053$ 35$

16. OPERATING LEASE COMMITMENTS

The Company signed a 36 month lease for a Toyota Venza. A vehicle is to be available to the Responsible Person in Charge at all times in case of an emergency as stipulated by Health Canada. The lease began on October 1, 2014 with monthly payments of $757. The Company signed a 36 month lease to expand its facility in Kelowna, BC by renting an adjacent unit to the current property. The lease began on September 1, 2016 with monthly payments of $2,104. The lease includes an option for a further two terms of 36 months each.




20

17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT a) Fair value of financial instruments

The carrying values of cash, amounts receivable, advances due to/from related parties, accounts payable and accrued liabilities, promissory note payable, and mortgage payable approximate their carrying values due to the immediate or short-term nature of these instruments.

b) Fair value hierarchy

IFRS 13, Fair Value Measurement, establishes a fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value as follows: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or

liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 – inputs for the asset or liability that are not based on observable market data

(unobservable inputs). c) Financial risk management

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

i) Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist primarily of cash, amounts receivable, and advances to related parties. The Company limits its exposure to credit risk by placing its cash with a high credit quality financial institution in Canada. For amounts receivable, the Company limits its exposure to credit risk by dealing with what management believes to be financially sound counterparties. The Company’s financial assets are not subject to material credit risk as it does not anticipate significant loss for non-performance.

ii) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments associated with financial instruments, or the proposed transaction. The Company manages liquidity risk by maintaining adequate cash balances.

The Company’s expected source of cash flow in the upcoming year will be through debt or equity financing. Cash on hand at January 31, 2017 and expected cash flows for the next 12 months are not sufficient to fund the Company’s ongoing operational needs. The Company will need funding through equity or debt financing, entering into joint venture agreements, or a combination thereof.




21

17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

c) Financial risk management (continued) iii) Market risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices. (a) Interest rate risk

Interest rate risk consists of two components: to the extent that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates, the Company is exposed to interest rate cash flow risk; and to the extent that changes in prevailing market rates differ from the interest rate in the Company’s monetary assets and liabilities, the Company is exposed to interest rate risk. Current financial assets and financial liabilities are generally not exposed to significant interest rate risk because of their short-term nature, fixed interest rates, and maturity. The Company is not exposed to interest rate risk on the promissory note payable as it is without interest.

The Company is exposed to interest rate risk when the mortgages payable mature if there is not significant cash available at that time and a mortgage renewal is required.

(b) Foreign currency risk

Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities area denominated in a foreign currency. At January 31, 2017, the Company is exposed to foreign currency risk with respect to its US denominated bank accounts. At January 31, 2017, financial instruments were converted at a rate of $1.00 US to Canadian $1.3030. At January 31, 2017, the cash in US denominated bank accounts was minimal. The Company has not entered into any foreign currency contracts to mitigate foreign currency risk.

(c) Capital risk management The Company manages its capital to ensure that it will be able to continue as a going

concern while maximizing the return to stakeholders through a suitable debt and equity balance appropriate for an entity of the Company’s size and status. The Company’s overall strategy remains unchanged from last year.




22

17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

c) Financial risk management (continued) iii) Market risk (continued)

(c) Capital risk management (continue) The capital structure of the Company consists of equity attributable to common

shareholders, comprised of issued capital, reserves, and deficit. The availability of new capital will depend on many factors including positive stock market conditions, the Company’s track record, and the experience of management. The Company is not subject to any external covenants on its capital.

(d) Price risk

Price risk is the risk that the fair value of investments will decline below the cost of the underlying investments. The Company is not exposed to price risk as it has no investments held for sale.

18. CORRECTION OF MISSTATEMENT For the year ended July 31, 2016, the Company incorrectly recorded the receipt of $250,000 as

consulting fee revenue rather than a share subscription received in advance. The applicable Goods and Services Tax was also recorded. The consolidated financial statements have been restated as detailed in the following tables:

Consolidated Statements of Financial Position

Previously Correction of

Reported Error Restated

Amounts receivable 137,051$ (12,500)$ 124,551$

Goods and services tax receivable 6,607 12,500 19,107

Share subscription received in advance - 250,000 250,000

Accumulated deficit (3,585,398) (250,000) (3,835,398)

Year ended

July 31, 2016




23

18. CORRECTION OF MISSTATEMENT (continued)

Consolidated Statements of Comprehensive Income (Loss)



General and administration -$ -$ -$

Total expenses - - -

Consulting revenue 500,000 (250,000) 250,000

Total other (income) expense items (747,995) 250,000 (497,995)

Net and comprehensive loss for the period (286,340) (250,000) (536,340)

Earnings (loss) per share 0.00 (0.01) (0.01)

Year ended

July 31, 2016

Consolidated Statements of Changes in Equity



Share subscription received in advance -$ 250,000$ 250,000$

Shares issued for services - - -

Income (loss) for the period (286,340) (250,000) (536,340)

Year ended

July 31, 2016




24

18. CORRECTION OF MISSTATEMENT (continued) Consolidated Statements of Cash Flows



Net income (loss) for the period (286,340)$ (250,000)$ (536,340)$


Net change in operating activities (898,294) (250,000) (1,148,294)


Net change in financing activities 1,084,923 250,000 1,334,923

Year ended

July 31, 2016

19. SUBSEQUENT EVENT

On March 16, 2017, the Company announced that it entered into a Capital Commitment Agreement with GEM Global Yield Fund LLC SCS for a $10 million capital commitment from GEM to invest into THC. Proceeds raised from the investment will be used for working capital and general corporate purposes, and in particular, to close the Clone Shipper acquisition. THC has the right to draw down under the Capital Commitment for a term of two years. Common shares will be issued to GEM at a price per share equal to the higher of the floor price set by THC and a 10% discount to the market price of the common shares based on the immediately preceding 15-day volume weighted average price for the acceptance period. Each draw down is subject to certain market out rights of GEM and approval of the CSE. GEM will hold freely trading common shares of the Company through a share lending facility provided by certain current shareholders.

THC will pay GEM a commission fee of $225,000 upon the earliest of the closing of a private placement (in an amount equal to 15% of the proceeds of placements until the full amount of the fee is paid), 18 months from the date of the Capital Commitment Agreement, or a change of control of THC. This fee will be payable by THC at the 18-month date even if THC makes no demands on the capital commitment; if GEM fails to invest pursuant to the terms of the Capital Commitment Agreement, the fee will not be payable by THC. THC may elect to pay the commitment fee in cash or stock, subject to CSE approval.




25

19. SUBSEQUENT EVENT (continued) As part of the transaction, THC has agreed to issue 6,635,000 common share purchase warrants to GEM, subject to the terms and conditions of the Capital Commitment Agreement. The warrants have an exercise price equal to the greater of $1.20 and the market price of the common shares on the date of the issuance of the warrants. The warrants will have an exercise period of 5 years. The warrant exercise price is subject to repricing to 105% of the market price in the event that THC’s market price is less than 90% of the warrant exercise price on the first anniversary of the date of the Capital Commitment Agreement. The repricing must be done in accordance with the rules of the CSE. If the Company does not issue the 6,635,000 warrants within 18 months of the initial execution of the Capital Commitment Agreement, the Company shall pay GEM 8% of the original face value of any unissued warrants.


Management Discussion and Analysis

For the Six Months Ended January 31, 2017

(Expressed in Canadian Dollars)

THC BIOMED INTL LTD. Management Discussion and Analysis (Expressed in Canadian Dollars) For the Six Months Ended January 31, 2017

2

CAUTION REGARDING FORWARD LOOKING STATEMENTS

This MD&A contains certain statements that constitute forward-looking statements (within the meaning of the Canadian securities legislation and the U.S. Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties. All statements, other than statements of historical fact, made by the Company that address activities, events ,or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements, including, but not limited to, statements preceded by, followed by, or that include words such as “may”, “will”, “would”, “could”, “should”, “believes”, “estimates”, “projects”, “potential”, “expects”, “plans”, “intends”, “anticipates”, “targeted”, “continues”, “forecasts”, “designed”, “goal”, or the negative of those words or other similar or comparable words. Forward-looking statements may relate to future financial conditions, results of operations, plans, objectives, performance, or business developments. These statements speak only as of the date they are made and are based on information currently available and on the Company’s then current expectations and assumptions concerning future events, which are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements to be materially different from that which was expressed or implied by such forward-looking statements, including, but not limited to, risks and uncertainties related to:

the availability of financing opportunities, risks associated with economic conditions, dependence on management, and conflicts of interest;

market competition and agricultural advances of competitive products;

the timing and availability of the Company’s products, its ability to expand production space, and acceptance of its products by the market;

the progress and the successful and timely receipt of a sales license from Health Canada;

the progress and success of the Company’s research and development program; and

the ability to successfully market, sell, and distribute the products, and to expand the Company’s customer base.

Actual results or events could differ materially from the plans, intentions, and expectations expressed or implied in any forward-looking information or statements, including the underlying assumptions thereto, as a result of numerous risks, uncertainties, and other factors such as those described above and in “Risks and Uncertainties” below. The Company has no policy for updating forward looking information beyond the procedures required under applicable securities laws.


3

INTRODUCTION This Management Discussion and Analysis (“MD&A”) of the operating results and financial condition of THC BioMed Intl Ltd. (the “Company”) for the six months ended January 31, 2017 should be read in conjunction with the condensed interim consolidated financial statements for the six months ended January 31, 2017 and the audited annual consolidated financial statements for the year ended July 31, 2016, which are prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements include the accounts of the Company and its two subsidiaries, THC BioMed Ltd. and THC Meds Inc. (the “THC Companies”), on a consolidated basis after elimination of intercompany transactions and balances. Subsidiaries are entities the Company controls when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the relevant activities of the entity. Management is responsible for the preparation and integrity of the consolidated financial statements, including the maintenance of appropriate information systems, procedures, and internal controls and to ensure that information used internally or disclosed externally, including the financial statements and MD&A, is complete and reliable. The Company’s Board of Directors follows recommended corporate governance guidelines for public companies to ensure transparency and accountability to shareholders. The Board of Director’s Audit Committee meets with management quarterly to review the financial statements and the MD&A and to discuss other financial, operating, and internal control matters. The reader is encouraged to review the Company’s statutory filings on www.sedar.com. This MD&A is prepared as at March 31, 2017. All dollar figures stated herein are expressed in Canadian dollars unless otherwise noted. Readers should use the information contained in this report in conjunction with all other disclosure documents including those filed on SEDAR at www.sedar.com. DESCRIPTION OF THE BUSINESS THC BioMed Intl Ltd. (the “Company”) was formed by a reverse take-over (“RTO”) on January 14, 2015, by the shareholders of THC BioMed Ltd. and THC Meds Inc. (collectively the “THC Companies”). THC BioMed Intl Ltd. is a public company incorporated under the Company Act of British Columbia on February 2, 1982. The Company traded on the TSX Venture Exchange from February 4, 2010 until December 22, 2014 when the Company requested the Company’s common shares be delisted. The Company also consolidated its share capital on a six old for one new basis on December 23, 2014. All references to share and per share amounts in the consolidated financial statements and MD&A have been adjusted to reflect the share consolidation on a retrospective basis. On April 29, 2015, the Company was relisted and began trading on the Canadian Securities Exchange (“CSE”) under the symbol C.THC. On November 22, 2016, the Company’s shares began trading on the Over the Counter (“OTC”) QB market. THC BioMed Ltd., a wholly-owned subsidiary of the Company, is licensed under Canada’s Access to Cannabis for Medical Purposes Regulations (“ACMPR”) for the cultivation and sale of cannabis for medical purposes in the form of dried or fresh product, oil, and starting materials. THC also conducts research and development of the products and services related to cannabis for medical purposes. On September 26, 2016, the Company announced that it has signed a Letter of Intent to purchase 100% of Clone Shipper LLC, a US based company specializing in the packaging products used to transport live plants, for US$1,000,000. On October 27, 2016, the Company signed a Distribution Agreement with Clone Shipper


4

LLC. Under this agreement, the Company has the distribution rights for all Clone Shipper products in Canada. The Distribution Agreement is for a period of two years for which the Company paid US$75,000. THC will use the Clone Shipper packaging to transport the sale of live plants. Sales began in January 2017. The Company’s corporate office and principal place of business is at Unit 27 – 2550 Acland Road, Kelowna, British Columbia, Canada, V1X 7L4. HISTORY OF THE BUSINESS On May 13, 2014, the Company announced that it entered into a Production and Branding Agreement with Trans-Medica Ltd. to provide consulting services and utilize Trans-Medica Ltd.’s proprietary Vertical Grow System for total consideration of $700,000 to the Company. On February 18, 2016, THC BioMed Ltd. received its license to grow medical marijuana. On May 24, 2016 the Company’s license was amended to include the production of fresh marijuana, cannabis oil, and cannabis resin. On September 26, 2016, the Company announced that it signed a Letter of Intent to purchase 100% of Clone Shipper LLC, a US based company specializing in the packaging products used to transport live plants, for US$1,000,000. This is a strategic acquisition to allow the Company to penetrate the US and International cannabis market along with the ability to securely ship live plants with the increased legalization of medical marijuana. Clone Shipper is currently the only device that meets the legal requirements governing the transportation of controlled live plants. Clone Shipper products are currently available for sale at gardening supply outlets throughout the US and on popular sites like Amazon.com. On September 20, 2016, the Company entered into a lease to expand its growing facility. The term is for 3 years commencing September 1, 2016 with the option to lease for a further two terms of three years each. On October 17, 2016, the Company had its license amended again to be able to sell its products to other licensed producers. As an interim step until the acquisition of Clone Shipper LLC is completed, the Company signed a Distribution Agreement with Clone Shipper LLC on October 27, 2016. The Distribution Agreement is for a period of two years and the Company paid Clone Shipper LLC US$75,000 for the Company to have the distribution rights for all Clone Shipper products in Canada. On December 19, 2016, Health Canada amended THC BioMed Ltd.’s license to allow the sale of “starting materials” or marijuana plants immediately to legally authorized patients under the Access to Cannabis for Medical Purposes Regulations (“ACMPR “). In January 2017, the Company began sales of clones using the Clone Shipper packaging. The Company has also set the foundation for another entity, Seeds R Us, to focus on establishing a national supply chain for cannabis genetics. The Company is in possession of a diverse selection of seeds imported from Holland. The imported genetics are listed on the Company’s website, www.thcbiomed.com, under the Seeds R Us tab and include high CBD and high THC producing strains. Profiling for both genotypes and phenotypes for each of the 29 strains is currently underway. The Company aims to become a leader in the industry by producing a product of high quality and reliable quantity. The Company expects to be selling its medical marijuana product and earning revenues by concentrating on:


5

1. Target market: the Company intends to sell its products and services, including medical marijuana, to other Licensed Producers, patients, and physicians;

2. Marketing and branding: the Company will develop recognition of its brand and quality through a high quality web presence and participation in industry events. The Company has developed the website www.thcbiomed.com . The Company intends to comply with all advertising prohibitions and marketing restrictions of the Food and Drug Act, the Narcotic Control Regulations, and the ACMPR;

3. Personnel: the Company intends to engage new professionals as required for its board of directors, sales

and marketing to fulfill the Company’s current business objectives, and to prepare the Company for changes and developing opportunities in the industry; and

4. Monitoring and development of growing plan: the Company intends to continuously monitor and attempt

to maximize the quantity and quality of its medical marijuana products. The Company further intends to continue to develop technologies, products, and services that will assist the Company and other Licensed Producers to grow the best product possible, in sufficient quantity, and for reasonable costs.

SUMMARY OF QUARTERLY RESULTS

Net Income (Loss)Quarter Ended Revenue Income (Loss) Per Share

Q2/2017 January 31, 2017 3,195$ 125,702$ $0.00Q1/2017 October 31, 2016 -$ 941,706$ $0.01Q4/2016 July 31, 2016 -$ (46,301)$ $0.00Q3/2016 April 30, 2016 -$ (256,376)$ ($0.01)Q2/2016 January 31, 2016 250,000$ 63,090$ $0.00Q1/2016 October 31, 2015 -$ (296,753)$ $0.00Q4/2015 July 31, 2015 -$ (1,193,440)$ ($0.03)Q3/2015 April 30, 2015 -$ (409,685)$ ($0.01) RESULTS OF OPERATIONS Six months ended January 31, 2017 The Company’s net income for the six months ended January 31, 2017 was $1,067,408 compared to a net loss of $233,663 for the six months ended January 31, 2016. For the six months ended January 31, 2017: sales were $3,195 (January 31, 2016 - $Nil) with sales starting in January, 2017; cost of sales and other production costs totaled $174,927 (January 31, 2016 - $Nil); and the gain on changes in the fair value of biological assets was $1,877,930 (January 31, 2016 - $Nil). General and administrative expenses increased to $578,729 (January 31, 2016 - $541,620) for the six months ended January 31, 2017 given the increased business activity. Depreciation and amortization increased to $43,103 (January 31, 2016 - $6,799) for the six months ended January 31, 2017 as all the assets became “in use” upon the license received by Health Canada effective May 1, 2016. The warehouse facilities were not depreciated until after May 1, 2016.


6

Sales and marketing increased to $25,008 (January 31, 2016 - $Nil) for the six months ended January 31, 2017 as the Company is starting marketing efforts for its products. Share-based compensation decreased to $Nil (January 31, 2016 - $62,252) for the six months ended January 31, 2017 as no stock options were granted during the period. Other income was $8,050 (January 31, 2016 - $377,008) for the six months ended January 31, 2017 consisting mainly of interest refunded from the Canada Revenue Agency. In the comparative period, the Company had earned $250,000 in consulting fees which were not recurring; included $125,303 in income on the forgiveness of debt that was settled with a number of vendors; a gain on an investment held for sale of $1,575; and other income of $130 consisting mainly of interest income. Three months ended January 31, 2017 The Company’s net income for the three months ended January 31, 2017 was $125,702 compared to a net loss of $63,090 for the three months ended January 31, 2016. For the three months ended January 31, 2017: sales were $3,195 (January 31, 2016 - $Nil) with sales starting in January, 2017; cost of sales and other production costs totaled $174,927 (January 31, 2016 - $Nil); and the gain on changes in the fair value of biological assets was $653,349 (January 31, 2016 - $Nil). General and administrative expenses increased to $323,668 (January 31, 2016 - $302,850) for the three months ended January 31, 2017 given the increased business activity. Depreciation and amortization increased to $30,605 (January 31, 2016 - $3,399) for the three months ended January 31, 2017 as all the assets became “in use” upon the license received by Health Canada effective May 1, 2016. The warehouse facilities were not depreciated until after May 1, 2016. Sales and marketing increased to $9,654 (January 31, 2016 - $Nil) for the three months ended January 31, 2017 as the Company is starting marketing efforts for its products. Share-based compensation decreased to $Nil (January 31, 2016 - $7,588 for the three months ended January 31, 2017 as no stock options were granted during the period. Other income was $8,012 (January 31, 2016 - $376,927) for the three months ended January 31, 2017 consisting mainly of interest refunded from the Canada Revenue Agency. In the comparative period, the Company had earned $250,000 in consulting fees which were not recurring; included $125,303 in income on the forgiveness of debt that was settled with a number of vendors; a gain on an investment held for sale of $1,575; and other income of $49 consisting mainly of interest income. LIQUIDITY At January 31, 2017, the Company’s cash on hand increased to $205,294 (July 31, 2016 - $109,101) with a number of stock options and warrants exercised during the period. The Company had working capital of $1,478,586 at January 31, 2017 compared to a working capital deficiency of $391,110 at July 31, 2016. The Company’s current asset balance of $2,445,079 (July 31, 2016 - $454,528) is comprised of cash of $205,294 (July 31, 2016 - $109,101), amounts receivable of $657 (July 31, 2016 - $124,551), goods and services tax receivable from the Canada Revenue Agency of $44,079 (July 31, 2016 - $19,107), advances to


7

related parties of $70,748 (July 31, 2016 - $75,613), biological assets and inventory of $2,056,814 (July 31, 2016 - $Nil) and prepaid expenses and deposits of $67,487 (July 31, 2016 - $126,156). The Company’s current liabilities total $966,493 (July 31, 2016 - $845,638) consisting of accounts payable and accrued liabilities of $527,016 (July 31, 2016 - $473,118); a promissory note payable of $135,000 (July 31, 2016 - $135,000); the current portion of the mortgages payable of $249,226 (July 31, 2016 - $23,802); and advances from related parties of $55,251 (July 31, 2016 - $213,718). The Company’s long term liabilities total $164,302 (July 31, 2016 - $404,668) consisting of a mortgage payable. On March 16, 2017, the Company announced that it entered into a Capital Commitment Agreement with GEM Global Yield Fund LLC SCS for a $10 million capital commitment from GEM to invest into THC. Proceeds raised from the investment will be used for working capital and general corporate purposes, and in particular, to close the Clone Shipper acquisition. THC has the right to draw down under the Capital Commitment for a term of two years. Common shares will be issued to GEM at a price per share equal to the higher of the floor price set by THC and a 10% discount to the market price of the common shares based on the immediately preceding 15-day volume weighted average price for the acceptance period. Each draw down is subject to certain market out rights of GEM and approval of the CSE. GEM will hold freely trading common shares of the Company through a share lending facility provided by certain current shareholders. THC will pay GEM a commission fee of $225,000 upon the earliest of the closing of a private placement (in an amount equal to 15% of the proceeds of placements until the full amount of the fee is paid), 18 months from the date of the Capital Commitment Agreement, or a change of control of THC. This fee will be payable by THC at the 18-month date even if THC makes no demands on the capital commitment; if GEM fails to invest pursuant to the terms of the Capital Commitment Agreement, the fee will not be payable by THC. THC may elect to pay the commitment fee in cash or stock, subject to CSE approval. As part of the transaction, THC has agreed to issue 6,635,000 common share purchase warrants to GEM, subject to the terms and conditions of the Capital Commitment Agreement. The warrants have an exercise price equal to the greater of $1.20 and the market price of the common shares on the date of the issuance of the warrants. The warrants will have an exercise period of 5 years. The warrant exercise price is subject to repricing to 105% of the market price in the event that THC’s market price is less than 90% of the warrant exercise price on the first anniversary of the date of the Capital Commitment Agreement. The repricing must be done in accordance with the rules of the CSE. If the Company does not issue the 6,635,000 warrants within 18 months of the initial execution of the Capital Commitment Agreement, the Company shall pay GEM 8% of the original face value of any unissued warrants. OPERATING LEASE COMMITMENTS The Company signed a 36 month lease for a Toyota Venza. A vehicle is to be available to the Responsible Person in Charge at all times in case of an emergency, as stipulated by Health Canada. The lease began on October 1, 2014 with monthly payments of $757. The Company signed a 36 month lease to expand its facility in Kelowna, BC by renting an adjacent unit to the current property. The lease began on September 1, 2016 with monthly payments of $2,104. The lease includes an option for a further two terms of 36 months each.


8

PROPOSED TRANSACTIONS There are no other proposed assets or business acquisitions or dispositions, other than those in the ordinary course of business as disclosed herein, before the board of directors for consideration. OFF-BALANCE SHEET ARRANGEMENTS None TRANSACTIONS WITH RELATED PARTIES The Company has identified certain directors and senior officers as key management personnel. The following table lists the compensation costs paid to key management personnel and companies owned by key management personnel for the six months ended January 31, 2017 and 2016:

Office and Salaries January 31, 2017Accounting Consulting Director Fees Administration and Benefits Total

BUA Capital Management Ltd. -$ 20,000$ -$ -$ -$ 20,000$ BUA Group Holdings Ltd. - - - 16,400 - 16,400 George Smitherman - - 3,000 - - 3,000 Hee Jung Chun - - 3,000 - 20,000 23,000 John Miller - - 3,000 - 20,000 23,000

-$ 20,000$ 9,000$ 16,400$ 40,000$ 85,400$

Office and Salaries January 31, 2016Consulting Administration and Benefits Total

BUA Capital Management Ltd. -$ 45,000$ -$ -$ -$ 45,000$ BUA Group Holdings Ltd. - - - 24,600 - 24,600 GRW Inc. - 12,000 - - - 12,000 Hee Jung Chun - - - - 31,200 31,200 John Miller - - - - 100,200 100,200 Publico Services Ltd. - 5,000 - - - 5,000 T. St. Denis, Inc. 48,725 - - - - 48,725

48,725$ 62,000$ -$ 24,600$ 131,400$ 266,725$ BUA Capital Management Ltd. provided consulting services to the Company until November 30, 2016. It is a private company controlled by a director, Jason Walsh. On October 26, 2015, BUA Capital Management Ltd. was issued 250,000 Units (note 10a) at $0.06 for $15,000 in debt. At January 31, 2017, the Company owed $Nil (July 31, 2016 - $70,448) to BUA Capital Management Ltd. which is included in advances from related parties, and $135,000 (July 31, 2016 - $150,000) which is included in the promissory note payable. BUA Group Holdings Ltd. provided administration services to the Company until November 30, 2016. It is a private company controlled by a director, Jason Walsh. At January 31, 2017, the Company owed $Nil (July 31, 2016 - $6,679) to BUA Group Holdings Ltd.


9

George Smitherman receives a director fee of $500 per month totaling $3,000 (January 31, 2016 - $Nil) for the six months ended January 31, 2017. GRW Inc. provided consulting services to the Company until November 30, 2015. It is a private company controlled by the former Chief Financial Officer, Geoff Watson. Hee Jung Chun is the Chief Financial Officer, a director of the Company, and co-founder of the THC Companies. Ms. Chun receives a salary from the THC Companies of $5,000 per month. At January 31, 2017, $46,800 (July 31, 2016 - $36,400) in accrued salaries to Ms. Chun is included in accounts payable and accrued liabilities. At January 31, 2017, the Company also owed Ms. Chun $43,899 (July 31, 2016 - $125,239), which is included in advances from related parties. Ms. Chun also receives a director fee of $500 per month totaling $3,000 (January 31, 2016 - $Nil) for the six months ended January 31, 2017. John Miller is the President and Chief Executive Officer of the Company, a director, and co-founder of the THC Companies. Mr. Miller receives a salary from the THC Companies of $5,000 per month. At January 31, 2017, $46,800 (July 31, 2016 - $36,400) in accrued salaries to Mr. Miller is included in accounts payable and accrued liabilities. Mr. Miller also receives a director fee of $500 per month totaling $3,000 (January 31, 2016 - $Nil) for the six months ended January 31, 2017. T. St. Denis, Inc. is a private accounting firm owned by the former Chief Financial Officer, Tracey A. St. Denis. T. St. Denis, Inc. provides accounting services to the Company. On October 26, 2015, T. St. Denis, Inc. was issued 250,000 Units (note 10a) at $0.06 for $15,000 of debt. International Ranger Corp. is a public company with common directors. At January 31, 2017, the Company is owed $1,881 (July 31, 2016 - $1,881) from International Ranger Corp. which is included in advances to related parties. Thelon Diamond Company Limited is a public company with a common director, Jason Walsh. At January 31, 2017, the Company owes Thelon Diamond Company Limited $1,000 (July 31, 2016 - $1,000) which is included in advances from related parties. At January 31, 2017, the Company owed $10,352 (July 31, 2016 - $10,352) to Thelon Diamonds Ltd., a private company controlled by a director of the Company, Jason Walsh. The amount is included in advances from related parties. At January 31, 2017, the Company was owed $5,850 (July 31, 2016 - $5,850) from 1177129 Alberta Ltd., a private company controlled by a director of the Company, Jason Walsh. The amount is included in advances to related parties. At January 31, 2017, the Company was owed $66 (July 31, 2016 - $66) from 782618 B.C. Ltd., a private company controlled by a director of the Company, Jason Walsh. The amount is included in advances to related parties. At January 31, 2017, the Company was owed $613 (July 31, 2016 - $613) from United Zeolite Ltd., a private company with common directors. The amount is included in advances to related parties. At January 31, 2017, the Company was owed $62,338 (July 31, 2016 - $67,203) from Zadar Ventures Ltd., a public company with a common director, Jason Walsh. The amount is included in advances to related parties. Amounts due to or from related parties are unsecured, do not bear interest, and are classified as a current asset or liability due to their nature and expected time of repayment.


10

CONFLICTS OF INTEREST

The Company’s directors and officers may serve as directors or officers, or may be associated with other reporting companies, or have significant shareholdings in other public companies. To the extent that such other companies may participate in business or asset acquisitions, dispositions, or ventures in which the Company may participate, the directors and officers of the Company may have a conflict of interest in negotiating and concluding on terms with respect to the transaction. If a conflict of interest arises, the Company will follow the provisions of the Business Corporations Act (BC) (“Corporations Act”) dealing with conflict of interest. These provisions state that where a director has such a conflict, that director must, at a meeting of the Company's directors, disclose his or her interest and refrain from voting on the matter unless otherwise permitted by the Corporations Act. In accordance with the laws of the Province of British Columbia, the directors and officers of the Company are required to act honestly, in good faith, and in the best interest of the Company. CONTINGENCY During the year ended July 31, 2016, a Notice of Civil Claim was received by the Company from Jacob Securities Inc. (the “Complainant”) claiming that the Company is in breach of a settlement agreement dated September 10, 2015 (the “Settlement Agreement”). The Complainant alleges it is owed delivery of certain original share certificates from the Company and possible damages. The Complainant alleges that pursuant to the Settlement Agreement, it was entitled to 4,660,000 common shares of the Company plus an additional 1,600,000 shares on the occurrence of certain events. The Complainant acknowledges it received from the Company and sold 1,165,000 shares but alleges at a later date that 3,495,000 of the remaining shares in its possession were represented by copies and not original share certificates. The Company intends to vigorously defend itself from this lawsuit as it believes it has meritorious defences to this action. Although it is not possible to predict the outcome of the pending litigation, the Company believes that the action will not have a material adverse effect upon the results of operations, cash flow, or financial condition of the Company. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Fair value of financial instruments The carrying values of cash, amounts receivable, advances due to/from related parties, accounts payable and accrued liabilities, promissory note payable, and mortgage payable approximate their carrying values due to the immediate or short-term nature of these instruments. Fair value hierarchy IFRS 13, Fair Value Measurement, establishes a fair value hierarchy that prioritizes the input to valuation techniques used to measure fair value as follows: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability,

either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable

inputs). Financial risk management The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:


11

Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk consist primarily of cash, amounts receivable, and advances to related parties. The Company limits its exposure to credit risk by placing its cash with a high credit quality financial institution in Canada. For amounts receivable, the Company limits its exposure to credit risk by dealing with what management believes to be financially sound counterparties. The Company’s financial assets are not subject to material credit risk as it does not anticipate significant loss for non-performance. Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet commitments associated with financial instruments, or the proposed transaction. The Company manages liquidity risk by maintaining adequate cash balances. The Company’s expected source of cash flow in the upcoming year will be through debt or equity financing. Cash on hand at January 31, 2017 and expected cash flows for the next 12 months are not sufficient to fund the Company’s ongoing operational needs. The Company will need funding through equity or debt financing, entering into joint venture agreements, or a combination thereof. Market risk Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices. Interest rate risk Interest rate risk consists of two components: to the extent that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates, the Company is exposed to interest rate cash flow risk; and to the extent that changes in prevailing market rates differ from the interest rate in the Company’s monetary assets and liabilities, the Company is exposed to interest rate risk. Current financial assets and financial liabilities are generally not exposed to significant interest rate risk because of their short-term nature, fixed interest rates, and maturity. The Company is not exposed to interest rate risk on the promissory note payable as it is without interest. The Company is exposed to interest rate risk when the mortgages payable mature if there is not significant cash available at that time and a mortgage renewal is required. Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities area denominated in a foreign currency. At January 31, 2017, the Company is exposed to foreign currency risk with respect to its US denominated bank accounts. At January 31, 2017, financial instruments were converted at a rate of $1.00 US to Canadian $1.3403. At January 31, 2017, the cash in US denominated bank accounts was minimal. The Company has not entered into any foreign currency contracts to mitigate foreign currency risk.


12

Capital risk management The Company manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to stakeholders through a suitable debt and equity balance appropriate for an entity of the Company’s size and status. The Company’s overall strategy remains unchanged from last year. OTHER RISKS AND UNCERTAINTIES The Company is the development stage with respect to its medical marijuana business. In conducting its business, the Company is subject to a number of risks and uncertainties that could have a material adverse effect on the Company’s business prospects or financial condition that could result in a delay or indefinite postponement in the development of the Company’s business. The following risk factors should be carefully considered in evaluating the Company. The risks presented below may not be all of the risks that the Company may face. It is believed that these are the factors that could cause actual results to be different from expected and historical results. The market in which the Company currently competes is very competitive and changes rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. Profitability of operations The Company does not have profitable operations at this time and it should be anticipated that it will operate at a loss until such time as revenue is achieved or if a profit is in fact ever achieved. Investors also cannot expect to receive any dividends on their investment in the foreseeable future. Going concern The Company’s consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to obtain the necessary financing to meet its on-going commitments and further its medical marijuana business. Reliance on license The Company’s ability to grow, store, and sell medical marijuana in Canada is dependent on the license under the ACMPR from Health Canada. Failure to comply with the requirements of the license or any failure to maintain this license would have a material adverse impact on the business, financial condition, and operating results of the Company. Regulatory risks The activities of the Company are subject to regulation by governmental authorities, particularly Health Canada. Achievement of the Company’s business objectives are contingent, in part, upon compliance with regulatory requirements enacted by these governmental authorities and obtaining all regulatory approvals, where necessary, for the sale of its products. The Company cannot predict the time required to secure all appropriate regulatory approvals for its products, or the extent of testing and documentation that may be required by governmental authorities. Any delays in obtaining, or failure to obtain regulatory approvals would significantly delay the deve lopment o f markets and products and could have a material adverse effect on the business, results of operations and financial condition of the Company.


13

Change in laws, regulations, and guidelines The Company’s operations are subject to a variety of laws, regulations and guidelines relating to the manufacture, management, transportation, storage, and disposal of medical marijuana but also including laws and regulations relating to health and safety, the conduct of operations, and the protection of the environment. While to the knowledge of management, the Company is currently in compliance with all such laws, changes to such laws, regulations, and guidelines due to matters beyond the control of the Company may cause adverse effects to the Company’s operations. Limited operating history The Company has yet to generate revenue from the sale of products. The Company is therefore subject to many of the risks common to early-stage enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial, and other resources and lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders’ investment and likelihood of success must be considered in light of the early stage of operations. Reliance on management The success of the Company is dependent upon the ability, expertise, judgment, discretion, and good faith of its management. While employment agreements are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of such employees. Any loss of the services of such individuals could have a material adverse effect on the Company’s business, operating results, or financial condition. Factors which may prevent realization of growth targets The Company is currently in the early development stage. The Company’s growth strategy contemplates outfitting the facility with additional production resources. There is a risk that these additional resources will not be achieved on time, on budget, or at all, as they are can be adversely affected by a variety of factors, including the following:

delays in obtaining, or conditions imposed by, regulatory approvals; plant design errors; environmental pollution; non-performance by third party contractors; increases in materials or labour costs; construction performance falling below expected levels of output or efficiency; breakdown, aging or failure of equipment or processes; contractor or operator errors; labour disputes, disruptions or declines in productivity; inability to attract sufficient numbers of qualified workers; disruption in the supply of energy and utilities; and major incidents and/or catastrophic events such as fires, explosions, earthquakes or storms.

As a result, there is a risk that the Company may not have product or sufficient product available for shipment to meet the anticipated demand or to meet future demand when it arises. The Company has a history of net losses, may incur significant net losses in the future, and may not achieve or maintain profitability


14

The Company has incurred losses in recent periods. The Company may not be able to achieve or maintain profitability and may continue to incur significant losses in the future. In addition, the Company expects to continue to increase operating expenses as it implements initiatives to continue to grow its business. If the Company’s revenues do not increase to offset these expected increases in costs and operating expenses, the Company will not be profitable. Additional financing The building and operation of the Company’s facilities and business are capital intensive. In order to execute the anticipated growth strategy, the Company will require some additional equity and/or debt financing to support on-going operations, to undertake capital expenditures, and/or to undertake acquisitions or other business combination transactions. There can be no assurance that additional financing will be available to the Company when needed or on terms which are acceptable. The Company’s inability to raise financing to support on-going operations or to fund capital expenditures or acquisitions could limit the Company’s growth and may have a material adverse effect upon future profitability. The Company will require additional financing to fund its operations to the point where it is generating positive cash flows. Competition There is potential that the Company will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and manufacturing and marketing experience than the Company. Increased competition by larger and better financed competitors could materially and adversely affect the business, financial condition, and results of operations of the Company. Because of the early stage of the industry in which the Company operates, the Company expects to face additional competition from new entrants. If the number of users of medical marijuana in Canada increases, the demand for products will increase and the Company expects that competition will become more intense, as current and future competitors begin to offer an increasing number of diversified products. To remain competitive, the Company will require a continued high level of investment in research and development, marketing, sales, and client support. The Company may not have sufficient resources to maintain research and development, marketing, sales, and client support efforts on a competitive basis which could materially and adversely affect the business, financial condition, and results of operations of the Company. Risks inherent in an agricultural business The Company’s business involves the growing of medical marijuana, an agricultural product. As such, the business is subject to the risks inherent in the agricultural business such as insects, plant diseases, and similar agricultural risks. Although the Company wi l l grow its products indoors under climate controlled conditions and carefully monitors the growing conditions with trained personnel, there can be no assurance that natural elements will not have a material adverse effect on the production of its products. Vulnerability to rising energy costs The Company’s medical marijuana growing operations will consume considerable energy, making the Company vulnerable to rising energy costs. Rising or volatile energy costs may adversely impact the business of the Company and its ability to operate profitably.


15

Transportation disruptions Due to the perishable and premium nature of the Company’s products, the Company will depend on fast and efficient courier services to distribute its product. Any prolonged disruption of this courier service could have an adverse effect on the financial condition and results of operations of the Company. Rising costs associated with the courier services used by the Company to ship its products may also adversely impact the business of the Company and its ability to operate profitably. Unfavourable publicity or consumer perception The Company believes the medical marijuana industry is highly dependent upon consumer perception regarding the safety, efficacy, and quality of the medical marijuana produced. Consumer perception of the Company’s products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention, and other publicity regarding the consumption of medical marijuana products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention, or other research findings or publicity will be favourable to the medical marijuana market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favourable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for the Company’s products and the business, results of operations, financial condition and cash flows of the Company. The Company’s dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on the Company, the demand for the Company’s products, and the business, results of operations, financial condition and cash flows of the Company. Further, adverse publicity reports or other media attention regarding the safety, the ef f icacy, and qual i ty of medical mar i juana in general , or the Company’s products specifically, or associating the consumption of medical marijuana with illness or other negative effects or events, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers' failure to consume such products appropriately or as directed. Product liability As a manufacturer and distributor of products designed to be ingested by humans, the Company faces an inherent risk of exposure to product liability claims, regulatory action, and litigation if its products are alleged to have caused significant loss or injury. In addition, the manufacture and sale of the Company’s products involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of the Company’s products or in combination with other medications or substances could occur. The Company may be subject to various product liability claims, including, among others, that the Company’s products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against the Company could result in increased costs, could adversely affect the Company’s reputation with its clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition of the Company. There can be no assurances that the Company will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of the Company’s potential products.


16

Product recalls Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If any of the Company’s products are recalled due to an alleged product defect or for any other reason, the Company could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. The Company may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention. Although the Company has detailed procedures in place for testing finished products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if one of the Company’s significant brands were subject to recall, the image of that brand and the Company could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for t h e C o m p a n y ’ s products and could have a material adverse effect on the results of operations and financial condition of the Company. Additionally, product recalls may lead to increased scrutiny of the Company’s operations by Health Canada or other regulatory agencies, requiring further management attention and potential legal fees and other expenses. Reliance on key inputs The Company’s business is dependent on a number of key inputs and their related costs including raw materials and supplies related to its growing operations, as well as electricity, water and other local utilities. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of the Company. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a sole source supplier was to go out of business, the Company might be unable to find a replacement for such source in a timely manner or at all. If a sole source supplier were to be acquired by a competitor, that competitor may elect not to sell to the Company in the future. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of the Company. Dependence on suppliers and skilled labour The ability of the Company to compete and grow will be dependent on it having access, at a reasonable cost and in a timely manner, to skilled labour, equipment, parts and components. No assurances can be given that the Company will be successful in maintaining its required supply of skilled labour, equipment, parts and components. It is also possible that the final costs of the major equipment contemplated by the Company’s capital expenditure program may be significantly greater than anticipated by t h e C o m p a n y ’ s management, and may be greater than funds available to the Company, in which circumstance the Company may curtail, or extend the timeframes for completing, its capital expenditure plans. This could have an adverse effect on the financial results of the Company. Difficulty to forecast The Company must rely largely on its own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the medical marijuana industry in Canada. A failure in the demand for its products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations, and financial condition of the Company.


17

Operating risk and insurance coverage The Company has insurance to protect its assets, operations, and employees. While the Company believes its insurance coverage addresses all material risks to which it is exposed and is adequate and customary in its current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which the Company is exposed. In addition, no assurance can be given that such insurance will be adequate to cover the Company‘s liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. If the Company were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if the Company were to incur such liability at a time when it is not able to obtain liability insurance, its business, results of operations, and financial condition could be materially adversely affected. Management of growth The Company may be subject to growth-related risks including capacity constraints and pressure on its internal systems and controls. The ability of the Company to manage growth effectively will require it to continue to implement and improve its operational and financial systems and to expand, train, and manage its employee base. The inability of the Company to deal with this growth may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects. Conflicts of interest Certain of the directors and officers of the Company are also directors and officers of other companies, and conflicts of interest may arise between their duties as officers and directors of the Company and as officers and directors of such other companies. Litigation The Company may become party to litigation from time to time in the ordinary course of business which could adversely affect its business. Should any litigation in which the Company becomes involved be determined against the Company, such a decision c ould adversely affect its ability to continue operating and the market price for the Company’s common shares and could use significant Company resources. Even if the Company is involved in litigation and wins, litigation can redirect significant company resources. Environmental and employee health and safety regulations The Company’s operations are subject to environmental and safety laws and regulations concerning, among other things, emissions and discharges to water, air and land, the handling and disposal of hazardous and non-hazardous materials and wastes, and employee health and safety. The Company will incur ongoing costs and obligations related to compliance with environmental and employee health and safety matters. Failure to comply with environmental and safety laws and regulations may result in additional costs for corrective measures, penalties or in restrictions on our manufacturing operations. In addition, changes in environmental, employee health and safety or other laws, more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Company’s operations or give rise to material liabilities, which could have a material adverse effect on the business, results of operations, and financial condition of the Company. Dividends The Company has no earnings or dividend record, and does not anticipate paying any dividends on the common shares in the foreseeable future. Dividends paid by the Company would be subject to tax and, potentially, withholdings.


18

NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED The following accounting pronouncements have been released but have not yet been adopted by the Company: IFRS 9 Financial Instruments In November 2009, the IASB issued, and subsequently revised in October 2010, IFRS 9 Financial Instruments (IFRS 9) as a first phase in its ongoing project to replace IAS 39. IFRS 9, which is to be applied retrospectively, is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. The standard also adds guidance on the classification and measurement of financial liabilities. Management has not yet determined the potential impact the adoption of IFRS 9 will have on the Company’s financial statements. IFRS 15 Revenue Recognition In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers (IFRS 15). The new standard provides a comprehensive five-step revenue recognition model for all contracts with customers and requires management to exercise significant judgment and make estimates that affect revenue recognition. IFRS 15 is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. Management has not yet determined the potential impact the adoption of IFRS 15 will have on the Company’s financial statements. CORRECTION OF MISSTATEMENT For the year ended July 31, 2016, the Company incorrectly recorded the receipt of $250,000 as consulting fee revenue rather than a share subscription received in advance. The applicable Goods and Services Tax was also recorded. The consolidated financial statements have been restated as detailed in the following tables: Consolidated Statements of Financial Position



Amounts receivable 137,051$ (12,500)$ 124,551$

Goods and services tax receivable 6,607 12,500 19,107


Accumulated deficit (3,585,398) (250,000) (3,835,398)

Year ended

July 31, 2016


19

Consolidated Statements of Comprehensive Income (Loss)



General and administration -$ -$ -$

Total expenses - - -

Consulting revenue 500,000 (250,000) 250,000

Total other (income) expense items (747,995) 250,000 (497,995)

Net and comprehensive loss for the period (286,340) (250,000) (536,340)

Earnings (loss) per share 0.00 (0.01) (0.01)

Year ended

July 31, 2016

Consolidated Statements of Changes in Equity



Share subscription received in advance -$ 250,000$ 250,000$


Income (loss) for the period (286,340) (250,000) (536,340)

Year ended

July 31, 2016

Consolidated Statements of Cash Flows



Net income (loss) for the period (286,340)$ (250,000)$ (536,340)$


Net change in operating activities (898,294) (250,000) (1,148,294)


Net change in financing activities 1,084,923 250,000 1,334,923

Year ended

July 31, 2016


20

CAPITAL RESOURCES Common shares

IssuedNumber Amount

Balance, July 31, 2015 75,674,620 1,734,048$ Shares issued for cash 10,675,000 1,090,500 Shares issued for debt 8,359,924 906,516 Shares issued for finder fees 240,000 (38,900) Stock options exercised 1,250,000 125,000 Fair value of stock options exercised - 48,249

Balance, July 31, 2016 96,199,544 3,865,413$ Shares issued for cash 1,000,000 250,000 Stock options exercised 916,000 104,100 Fair value of stock options exercised - 46,389 Warrants exercised 4,983,915 1,096,037

Balance, March 31, 2017 103,099,459 5,361,939$ Pursuant to the Share Exchange Agreement, a Restriction Agreement was signed by certain shareholders holding 52,717,728 common shares collectively. The Restriction Agreement includes the following vesting provisions:

Release Date Proportion of Shares Released

On the date the Company's securities are listed

on a Canadian exchange (the "Listing Date") 1/10 of the stock

6 months after the Listing Date 1/6 of the remainder of the stock





36 months after the Listing Date The remainder of the stock

Escrow Shares

Currently 690 shares (July 31, 2016 – 690) are held in escrow.


21

Warrants

Number of Weighted AverageWarrants Exercise Price

Balance, July 31, 2015 5,233,333 $ 0.30/$0.60Warrants issued 11,859,583 0.21

Balance, July 31, 2016 17,092,916 0.33$ Warrants exercised (4,983,915) 0.22 Warrants expired (12,109,001) 0.38

Balance, March 31, 2017 - -$ Stock Options

Number of Weighted AverageOptions Exercise Price

Balance, July 31, 2015 4,083,334 0.30$ Options granted 1,000,000 0.10 Options cancelled/expired (2,333,334) 0.44 Options exercised (1,250,000) 0.10

Balance, July 31, 2016 1,500,000 0.11$ Options exercised (916,000) 0.11$

Balance, March 31, 2017 584,000 0.10$

Number ofRemaining Options

Date of Grant Expiry Date Life (Years) Outstanding Exercise Price

October 5, 2015 October 5, 2017 0.52 584,000 0.10$


22

DIRECTORS AND OFFICERS The Company’s directors and officers as of the date of this MD&A are:

John Miller President, Chief Executive Officer, Director

Hee Jung Chun Chief Financial Officer, Director

Jason Walsh Independent Director, Chairman of the Board, Chair of the Audit Committee

George Smitherman Independent Director ADDITIONAL INFORMATION Additional information relating to the Company can be found on SEDAR at www.sedar.com.

form 5 quarterly listing statement - csethecse.com/sites/default/files/cse_form_5_31jan2017… ·...

Documents