Indigenous Bloom Hemp Corp. — Audit Report / Information 2019

May 21, 2020

Amended and Restated

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VERITAS PHARMA INC.

Consolidated Financial Statements Years Ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Veritas Pharma Inc.

We have audited the consolidated financial statements of Veritas Pharma Inc. (the “Company”), which comprise the consolidated statements of financial position as at April 30, 2019 and 2018, and the consolidated statements of operations and comprehensive loss, changes in equity, and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at April 30, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 1 in the consolidated financial statements, which indicates that the Company incurred a net loss of $11,898,790 during the year ended April 30, 2019 and, as of that date, the Company’s has a working capital deficit of $1,155,616 and an accumulated deficit of $30,601,520. As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Information Other than the Consolidated Financial Statements and Auditor’s Report Thereon

Management is responsible for the other information. The other information comprises the information included in the Management’s Discussion and Analysis, but does not include the consolidated financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision, and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

Emphasis of Matter – Restated Consolidated Financial Statements

We draw attention to Note 21 to the consolidated financial statements, which describes that the consolidated financial statements that we originally reported on August 28, 2019 have been restated and describes the matter that gave rise to the restatement of the consolidated financial statements. Our opinion is not modified in respect of this matter.

The engagement partner on the audit resulting in this independent auditors’ report is Lonny Wong.

/s/ SATURNA GROUP CHARTERED PROFESSIONAL ACCOUNTANTS LLP

Saturna Group Chartered Professional Accountants LLP

Vancouver, Canada

May 13, 2020

VERITAS PHARMA INC. Consolidated statements of financial position (Expressed in Canadian dollars)

April 30, 2019 $	April 30, 2018 $
Assets Current assets Cash 19,996 Amounts receivable 43,519 Prepaid expenses and deposits – Due from related parties (Note 10) –	2,156,496 6,665 427,110 129,528
Total current assets 63,515	2,719,799
Non-current assets Property and equipment (Note 7) 319,439 Intangible asset (Note 8) – Investment (Note 9) 375,000	365,941 1,580,000 –
Total non-current assets 694,439	1,945,941
Total assets 757,954	4,665,740
Liabilities Current liabilities Accounts payable and accrued liabilities (Note 10) 416,923 Advance payable (Note 11) 180,000 Due to related parties (Note 10) 622,208	204,809 – 47,006
Total liabilities 1,219,131	251,815
Shareholders’ equity (deficit) Share capital 28,778,344 Share-based payment reserve 677,864 Warrant reserve 684,135 Share subscriptions receivable (Note 12) – Deficit (30,601,520)	22,395,823 231,197 684,135 (194,500) (18,702,730)
Total shareholders’equity (deficit) (461,177)	4,413,925
Total liabilities and shareholders’ equity (deficit) 757,954	4,665,740

Nature of operations and continuance of business (Note 1) Commitments (Note 17) Contingencies (Note 18) Subsequent events (Note 22)

Approved and authorized for issuance on behalf of the Board of Directors on May 13, 2020:

/s/ Lorne Mark Roseborough /s/ Nick Standish

Lorne Mark Roseborough, Director

Nick Standish, Director

(The accompanying notes are an integral part of these consolidated financial statements)

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VERITAS PHARMA INC.

Consolidated statements of operations and comprehensive loss (Expressed in Canadian dollars)

VERITAS PHARMA INC. Consolidated statements of operations and comprehensive loss (Expressed in Canadian dollars)
Year ended April 30, 2019 $	Year ended April 30, 2018 $
(Restated – Note 21) Expenses Consulting fees (Note 10) 1,345,638 Depreciation 10,492 Foreign exchange loss – Investor relations 121,362 Office and miscellaneous 90,971 Professional fees (Note 10) 236,227 Rent 160,766 Research and development (Note 10) 148,946 Share-based compensation (Note 13) 464,126 Transfer agent and filing fees 31,257 Travel and promotion 63,203 Wages and benefits 566,289	6,101,207 18,593 16,525 2,555,378 300,562 213,961 35,647 96,361 3,197,458 30,720 154,145 390,163
Total expenses 3,239,277	13,110,720
Loss before other income (expense) (3,239,277)	(13,110,720)
Other income (expense) Impairment of investments (Note 9) (5,809,166) Impairment of intangible asset (Note 8) (1,580,000) Impairment of loan receivable (Note 6) (214,580) Impairment of property and equipment (Note 7) (66,517) Unauthorized payment (Note 5) (1,000,000) Write-off of accounts payable 10,750 Impairment of goodwill (Note 4) –	– – – – – – (891,141)
Total other income (expense) (8,659,513)	(891,141)
Net loss for the year (11,898,790) Less: net loss attributable to non-controlling interest –	(14,001,861) 138,620
Net loss and comprehensive loss attributable to Veritas Pharma Inc. (11,898,790)	(13,863,241)
Net loss per share attributable to Veritas Pharma Inc. shareholders, basic and diluted (1.32)	(2.96)
Weighted average shares outstanding used in the calculation of net loss attributable to Veritas Pharma Inc.per common share 9,021,235	4,690,385

(The accompanying notes are an integral part of these consolidated financial statements)

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Statements of changes in equity (Expressed in Canadian dollars)

VERITAS PHARMA INC.

	Share-based Share Total Share capital payment Warrant subscriptions shareholders’ Number of shares Amount $ reserve $ reserve $ receivable $ Deficit $ equity (deficit) $
Balance, April 30, 2018 Shares issued pursuant to private placements Share subscriptions received Shares issued pursuant to acquisition of 3 Carbon Extractions Shares issued pursuant to acquisition of Indigenous Bloom Shares issued for services Shares issued for exercise of stock options Cancellation of shares Fair value of stock options vested Netlossforthe year	6,929,680 22,395,823 231,197 684,135 (194,500) (18,702,730) 4,413,925 713,158 1,460,000 – – – – 1,460,000 – – – – 147,500 – 147,500 150,000 367,500 – – – – 367,500 4,166,666 4,166,666 – – – – 4,166,666 157,894 307,896 – – – – 307,896 50,000 149,309 (39,309) – – – 110,000 (10,000) (68,850) 21,850 – 47,000 – – – – 464,126 – – – 464,126 – – – – – (11,898,790) (11,898,790)
Balance,April 30,2019	12,157,398 28,778,344 677,864 684,135 – (30,601,520) (461,177)

(The accompanying notes are an integral part of these consolidated financial statements)

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VERITAS PHARMA INC.

Statements of changes in equity (Expressed in Canadian dollars)

	Share-based Share Share Non- Total Share capital payment Warrant subscriptions subscriptions controlling shareholders’ Number of shares Amount $ reserve $ reserve $ received $ receivable $ interest $ Deficit $ equity $
Balance, April 30, 2017 Shares issued pursuant to private placements Finders’ fees Shares issued pursuant to acquisition of Cannevert Therapeutics Ltd. Shares issued pursuant to acquisition of Sechelt Organic Marijuana Corp. Shares issued for services Shares issued for exercise of stock options Shares issued for exercise of warrants Fair value of stock options vested Netlossforthe year	3,781,459 5,994,670 1,083,579 759,104 100,000 – 472,389 (4,839,489) 3,570,253 693,960 2,603,088 – – – (50,000) – – 2,553,088 – (131,064) – 55,576 – – – – (75,488) 500,000 2,700,000 (2,366,231) – – – (333,769) – – 145,455 727,272 – – – – – – 727,272 400,000 2,840,000 – – – – – – 2,840,000 698,500 5,048,609 (1,683,609) – (100,000) (144,500) – – 3,120,500 710,306 2,613,248 – (130,545) – – – – 2,482,703 – – 3,197,458 – – – – – 3,197,458 – – – – – – (138,620) (13,863,241) (14,001,862)
Balance,April 30,2018	6,929,680 22,395,823 231,197 684,135 – (194,500) – (18,702,730) 4,413,925

(The accompanying notes are an integral part of these consolidated financial statements)

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VERITAS PHARMA INC. Consolidated statements of cash flows (Expressed in Canadian dollars)

VERITAS PHARMA INC. Consolidated statements of cash flows (Expressed in Canadian dollars)
	Year ended	Year ended
	April 30,	April 30,
	2019	2018
	$	$
	(Restated –
	Note 21)
Operating activities
Net loss for the year	(11,898,790)	(14,001,861)
Items not involving cash:
Depreciation	10,492	18,593
Impairment of investments	5,809,166	–
Impairment of loans receivable	1,214,580	–
Impairment of property and equipment	66,517	–
Impairment of intangible asset	1,580,000	–
Impairment of goodwill	–	891,141
Shares issued for services	307,896	2,840,000
Share-based compensation	464,126	3,197,458
Changes in non-cash operating working capital:
Amounts receivable	(142,873)	662
Prepaid expenses and deposits	427,110	61,412
Amounts due from related parties	704,730	(8,390)
Accountspayable and accrued liabilities	212,114	(19,225)
Net cash used in operatingactivities	(1,244,932)	(7,020,210)
Investing activities
Advances to related parties	–	(71,635)
Cash paid for acquisition of 3 Carbon	(400,000)	–
Cash paid for acquisition of 1182372 B.C. Ltd.	(1,250,000)	–
Cash acquired from advance payable	180,000	–
Loan to Springbank Capital Partners, LLC	(108,561)	–
Purchase ofpropertyand equipment	(30,507)	(11,079)
Net cash used in investingactivities	(1,609,068)	(82,714)
Financing activities
Proceeds from issuance of shares and share subscriptions received	1,607,500	8,156,291
Proceeds from issuance of options	110,000	–
Share issuance costs	–	(75,488)
Net cashprovided byfinancingactivities	1,717,500	8,080,803
Change in cash	(2,136,500)	977,879
Cash,beginningofyear	2,156,496	1,178,617
Cash, end ofyear	19,996	2,156,496

Supplement cash flow information (Note 20)

(The accompanying notes are an integral part of these consolidated financial statements)

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VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

1. Nature of Operations and Continuance of Business

Veritas Pharma Inc. (the “Company”) was incorporated on May 14, 2014 under the Business Corporations Act of British Columbia as Seashore Organic Marijuana Corp. for the purpose of completing the Plan of Arrangement between Noor Energy Corporation and Sechelt Organic Marijuana Corp. which was completed on August 7, 2014. On September 22, 2014, the Company changed its name from Seashore Organic Marijuana Corp. to Seashore Organic Medicine Inc. and had intentions to become a producer and distributor of medical marijuana in Canada. On December 29, 2015, the Company’s name was changed to Veritas Pharma Inc., and its trading symbol was changed to “VRT”. Its current focus is to develop the most effective proprietary cannabis strains for specific disease conditions. The Company’s head office is located at Suite 101, 2386 East Mall, Vancouver, BC V6T 1Z3.

These consolidated financial statements have been prepared on the 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. As at April 30, 2019, the Company has not generated any revenues from operations, has a working capital deficit of $1,155,616, and has an accumulated deficit of $30,601,520. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's future business. These factors indicate the existence of a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2. Significant Accounting Policies

• (a) Basis of Presentation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board on a going concern basis.

These consolidated financial statements include the accounts of the Company and its 100% owned subsidiaries, Sechelt Organic Marijuana Corp. (“Sechelt”), Veritas Pharma Puerto Rico LLC (“VPPR”), and Cannevert Therapeutics Ltd. (“CTL”). All significant inter-company balances and transactions have been eliminated on consolidation.

These consolidated financial statements have been prepared on a historical cost basis and are presented in Canadian dollars, which is also the Company’s functional currency.

• (b) Application of New IFRS

IFRS 9 Financial Instruments

IFRS 9 sets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39, “Financial Instruments: Recognition and Measurement”.

IFRS 9 introduces a new expected credit loss ("ECL") model for all financial assets in scope of the impairment requirements. The new ECL will result in an allowance for credit losses being recorded on financial assets irrespective of whether there has been an actual loss event.

The Company adopted the amendments to IFRS 9, effective May 1, 2018 using the full retrospective method, with no significant impact on the Company's consolidated financial statements.

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VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

2. Significant Accounting Policies (continued)

• (c) Use of Estimates and Judgments

The preparation of these consolidated financial statements in conformity with IFRS requires the Company’s management to make judgments, estimates, and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, revenues, and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

Significant areas requiring the use of estimates include collectability of amounts receivable, impairment of marketable securities, recoverability of loans receivable, useful lives and recoverability of property and equipment, impairment of intangible asset, impairment of investments, fair value of share-based compensation, and unrecognized deferred income tax assets.

The assessment of whether the going concern assumption is appropriate requires management to take into account all available information about the future, which is at least, but is not limited to, 12 months from the end of the reporting period. The Company is aware that material uncertainties related to events or conditions may cast significant doubt upon the Company’s ability to continue as a going concern.

• (d) Cash and Cash Equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance, are readily convertible to known amounts of cash, and which are subject to insignificant risk of changes in value to be cash equivalents.

• (e) Property and Equipment

Property and equipment is recorded at cost. The Company depreciates the cost of property and equipment over their estimated useful lives at the following rates:

Computer equipment	2 year straight-line
Computer software	1 year straight-line
Lab equipment	5 years straight-line

Residual values and useful economic lives are reviewed at least annually, and adjusted if appropriate, at each reporting date. Subsequent expenditure relating to an item of property and equipment is capitalized when it is probable that future economic benefits from the use of the assets will be increased. All other subsequent expenditures are recognized as repairs and maintenance expenses during the period in which they are incurred. Gains and losses on disposal of equipment are determined by comparing the proceeds from disposal with the carrying amount of the asset and are recognized net within other income in the consolidated statement of operations.

(f) Goodwill

Goodwill represents assets that are not separately identifiable. Goodwill does not include identifiable assets that are capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable asset, or liability regardless of whether the entity intends to do so. Goodwill also does not include contractual or other legal rights regardless of whether those are transferable or separable from the entity or other rights and obligations. Goodwill is never amortized. Instead, management is responsible for valuing goodwill every year and to determine if impairment is required.

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VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

2. Significant Accounting Policies (continued)

• (g) Intangible Assets

Intangible assets are recorded at cost less accumulated amortization and any accumulated impairment losses. Intangible assets with finite useful lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The useful lives of intangible assets are assessed as either finite or infinite. The amortization method and amortization period of an intangible asset with a finite useful life is reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method as appropriate, and are treated as a change in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statement of operations.

• (h) Impairment of Non-Financial Assets

Intangible asset with indefinite useful lives are not amortized but are tested for impairment annually, either individually or at the cash generating unit (”CGU”) level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

At each reporting date, the Company assesses whether there are indicators of impairment for its non-financial assets. If indicators exist, the Company determines if the recoverable amount of the asset or CGU is greater than its carrying amount. A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets. The Company has used geographical proximity, geological similarities, analysis of shared infrastructure, commodity type, assessment of exposure to market risks, and materiality to define its CGUs.

If the carrying amount exceeds the recoverable amount, the asset or CGU is recorded at its recoverable amount with the reduction recognized in the consolidated statement of operations. The recoverable amount is the greater of the value in use or fair value less costs to sell. Fair value is the amount the asset could be sold for in an arm’s length transaction. The value in use is the present value of the estimated future cash flows of the asset from its continued use. The fair value less costs to sell considers the continued development of a property and market transactions in a valuation model.

Impairments are reversed in subsequent periods when there has been an increase in the recoverable amount of a previously impaired asset or CGU and these reversals are recognized in the consolidated statement of operations. The recovery is limited to the original carrying amount less depreciation, if any, that would have been recorded had the asset not been impaired.

• (i) Financial Instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the respective instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are included in the initial carrying value of the related instrument and are amortized using the effective interest method. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in the consolidated statement of operations.

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VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

2. Significant Accounting Policies (continued)

• (i) Financial Instruments (continued)

Fair value estimates are made at the consolidated statement of financial position date based on relevant market information and information about the financial instrument. All financial instruments are classified into either: fair value through profit or loss (“FVTPL”) or amortized cost.

The Company has made the following classifications:

Cash	FVTPL
Marketable securities	FVTPL
Amounts receivable	Amortized cost
Accounts payable and accrued liabilities	Amortized cost
Loans payable	Amortized cost
Due to related parties	Amortized cost

The classification of financial assets depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Financial assets at FVTPL

Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as FVTPL. A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling it in the near term; or

• on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

Financial assets at amortized cost

Financial assets at amortized cost are non-derivative financial assets which are held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition. Subsequent to initial recognition, financial assets are measured at amortized cost using the effective interest method, less any impairment.

Subsequent to initial recognition, financial liabilities are measured at amortized cost, unless designated as fair value through profit or loss. The Company’s accounts payable and accrued liabilities, loan payable, and amounts due to related parties are measured at amortized cost.

Impairment of Financial Assets

Financial assets, other than those classified as FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been decreased.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.

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VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

2. Significant Accounting Policies (continued)

• (i) Financial Instruments (continued)

Impairment of Financial Assets (continued)

When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are offset against the allowance account. Changes in the carrying amount of the allowance account are recognized in the consolidated statement of operations. Loss allowances are based on the lifetime ECL’s that result from all possible default events over the expected life of the trade receivable, using the simplified approach.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the consolidated statement of operations to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

• (j) Financial Liabilities and Equity Instruments

Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized as the proceeds received, net of direct issue costs.

Other financial liabilities

Other financial liabilities (including loans and borrowings and trade payables and other liabilities) are initially measured at fair value, net of transaction costs. Subsequently, other financial liabilities are measured at amortized cost using the effective interest method.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

• (k) Foreign Currency Translation

The functional and reporting currency is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange in effect at the statement of financial position date. Non-monetary items are translated using the historical rate on the date of the transaction. Revenue and expenses are translated at average rates for the periods. Foreign exchange gains and losses are included in the consolidated statement of operations.

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VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

2. Significant Accounting Policies (continued)

• (l) Income Taxes

Current income tax

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in the consolidated statement of operations. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income tax

Deferred income tax is provided using the statement of financial position method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable income will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

(m) Share-based Payments

The grant date fair value of share-based payment awards granted to employees is recognized as stock-based compensation expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and nonmarket vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

Where equity instruments are granted to parties other than employees, they are recorded by reference to the fair value of the services received. If the fair value of the services received cannot be reliably estimated, the Company measures the services received by reference to the fair value of the equity instruments granted, measured at the date the counterparty renders service.

All equity-settled share-based payments are reflected in share-based payment reserve, unless exercised. Upon exercise, shares are issued from treasury and the amount reflected in sharebased payment reserve is credited to share capital, adjusted for any consideration paid.

14

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

2. Significant Accounting Policies (continued)

(n) Loss Per Share

Basic loss per share is computed using the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted loss per share, whereby all “in the money” stock options and share purchase warrants are assumed to have been exercised at the beginning of the period and the proceeds from their exercise are assumed to have been used to purchase common shares at the average market price during the period. When a loss is incurred during the period, basic and diluted loss per share are the same as the exercise of stock options and share purchase warrants is considered to be anti-dilutive. As at April 30, 2019, the Company had 1,700,000 (2018 – 2,606,225) potentially dilutive shares outstanding.

• (o) Comprehensive Loss

Comprehensive loss is the total non-owner change in equity for a reporting period. This change encompasses all changes in equity other than transactions from shareholders. For the years ended April 30, 2019 and 2018, the Company did not have any transactions impacting comprehensive income (loss).

• (p) Accounting Standards Issued But Not Yet Effective

The following new standards, and amendments to standards and interpretations, are not yet effective for the year ended April 30, 2019, and have not been applied in preparing these consolidated financial statements:

New standard IFRS 16, “Leases”

The Company has not early adopted these new and revised standards and is currently assessing the impact that these standards will have on the Company’s consolidated financial statements.

Other accounting standards or amendments to existing accounting standards that have been issued but have future effective dates are either not applicable or are not expected to have a significant impact on the Company’s consolidated financial statements.

3. Acquisition of Cannevert Therapeutics Ltd.

On December 7, 2015, the Company entered into a share purchase agreement with Cannevert Therapeutics Ltd. (“CTL”) (the "Agreement"). Under the Agreement, the Company will invest a total of $1,500,000 into CTL in consideration for 6,001 common shares of CTL (the "CTL Shares"), in six separate tranches over the period of 15 months from the date of the Agreement (the "Private Placement"), after which the Company will hold 80% of the total issued and outstanding CTL Shares. The proceeds will be used for joint research with the Company to develop and assess specific cannabis cultivars that are selective in action on specific medical disorders.

As at April 30, 2016, the Company had advanced $500,000 to CTL. On April 23, 2017, the Company completed the acquisition of 80% of the total issued and outstanding CTL Shares. In accordance with IFRS 3, Business Combinations, the agreement was deemed a business combination for accounting purposes. Assets acquired and liabilities assumed were reported at their fair values as at the acquisition date.

On March 5, 2018, the Company entered into a purchase agreement to purchase the remaining 1,500 common shares of CTL for an aggregate 100% ownership in consideration of 500,000 common shares of the Company with a fair value of $2,700,000, which was issued on March 21, 2018. Refer to Note 12(l). The fair value of the common shares was based on the closing stock price on the date they were issued. As there was no change in control, the transaction was accounted for as an equity transaction, with the excess of the consideration given up over the interest acquired being recorded in share-based payment reserve.

15

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

4. Acquisition of Sechelt Organic Marijuana Corp.

On November 18, 2016, the Company entered into a Letter of Intent (“LOI”) where it has the exclusive option to acquire 100% of the issued and outstanding shares of Sechelt. In consideration for entering into the LOI, the Company issued 75,000 units to the shareholders of Sechelt. Each unit consisted of one common share and one share purchase warrant exercisable at $7.50 expiring two years from the date of issuance.

Upon receiving exchange approval on December 16, 2016, the Company issued the 75,000 units with a fair value of $425,020. The fair value of the common shares was based on the closing stock price on the date they were issued. The fair value of the share purchase warrants was valued at $245,020 using the Black-Scholes option pricing model. The weighted average assumptions used in calculating the fair value assuming no dividend yield or forfeitures are as follows: risk-free interest rate of 0.67%, expected volatility of 187%, and an expected life of 2 years.

On November 18, 2017, the Company signed a binding letter of intent with 906474 Alberta Ltd. (“906474”), subject to regulatory authority, to acquire 100% ownership of Sechelt, free and clear of all liens, charges, and encumbrances in exchange for common shares of the Company.

On February 16, 2018, the Company completed the share purchase agreement for 100% of the common shares of Sechelt by issuing 145,455 common shares with a fair value of $727,272. Refer to Note 12(j). The fair value of the common shares was based on the closing stock price on the date they were issued.

Given the limited operations and inactive status of Sechelt at the date of the transaction, Sechelt did not meet the definition of a business under IFRS 3, Business Combinations. The acquisition is therefore considered an issuance of common shares by the Company for the net assets of Sechelt in accordance with IFRS 2, Share-based Payment. Assets acquired and liabilities assumed are reported at their fair values as at the acquisition date. The following table summarizes the consideration paid, the fair value of assets acquired, and liabilities assumed at the acquisition date:

reported at their fair values as at the acquisition date. The consideration paid, the fair value of assets acquired, and liabilities	following table summarizes the assumed at the acquisition date:
	$
Fair value of units issued	425,020
Fair value of common shares issued	727,272
Total consideration paid	1,152,292
Land	319,439
Accounts payable and accrued liabilities	(2,890)
Amounts due to related parties	(55,398)
Total net identifiable assets	261,151
Goodwill	891,141

During the year ended April 30, 2019, the Company recorded an impairment of goodwill of $nil (2018 - $891,141) due to the uncertainty of future cash flows.

5. Advance to Liht Cannabis Corp.

On June 25, 2018, the Company advanced $1,000,000 to Liht Cannabis Corp. (formerly Marapharm Ventures Inc.) (“Liht”), which was supposed to bear interest at 10% per annum compounded daily, was to be repayable within 90 days, and was to be secured by certain assets of Liht, but the agreement was not executed. The Company and Liht had common officers and directors at the time of the advance. During the year ended April 30, 2019, the Company recorded this as an unauthorized payment in the statement of operations. Refer to Note 18(a).

16

Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

VERITAS PHARMA INC.

6. Loans Receivable

• (a) On November 20, 2018, the Company advanced US$81,785 to Springbank Capital Partners, LLC which bears interest at 2% per annum, is unsecured, and due on demand as of November 20, 2019. As at April 30, 2019, the Company recorded an impairment of $108,561 (US$81,785) due to the uncertainty of collectability.

• (b) As at April 30, 2019, the Company recorded an impairment of $19,460 owed from a company controlled by the former Chief Financial Officer of the Company due to the uncertainty of collectability.

• (c) As at April 30, 2019, the Company recorded an impairment of $5,313 owed from a company controlled by a former director of the Company due to the uncertainty of collectability.

• (d) As at April 30, 2019, the Company recorded an impairment of $23,352 owed from a company under common control due to the uncertainty of collectability.

• (e) As at April 30, 2019, the Company recorded an impairment of $57,894 owed from a company under common control due to the uncertainty of collectability.

7. Property and Equipment

Computer hardware $ Computer software $ Lab equipment $ Land $	Total $
Cost: Balance, April 30, 2017 3,471 1,229 50,739 – Additions – 3,581 7,498 319,439	55,439 330,518
Balance, April 30, 2018 3,471 4,810 58,237 319,439 Additions – – 30,507 – Impairment (3,471) (4,810) (88,744) –	385,957 30,507 (97,025)
Balance,April 30,2019 – – – 319,439	319,439
Accumulated depreciation: Balance, April 30, 2017 163 173 1,087 – Additions 1,957 2,926 13,710 –	1,423 18,593
Balance, April 30, 2018 2,120 3,099 14,797 – Additions – – 10,492 – Impairment (2,120) (3,099) (25,289) –	20,016 10,492 (30,508)
Balance,April 30,2019 – – – –	–
Carrying amounts: As at April 30,2018 1,351 1,711 43,440 319,439	365,941
As at April 30,2019 – – – 319,439	319,439

17

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

8. Intangible Asset

Intangible asset consists of intellectual property relating to the development and assessment of specific cannabis cultivars that are selective in action on specific medical disorders with a fair value of $1,580,000 acquired from CTL as part of the acquisition described in Note 3. The fair value of the intangible asset was determined using an independent valuator. As at April 30, 2019, CTL was conducting clinical trials testing of one of its compounds. It was not determinable if the results of the trials would be successful or if the compound could be sold to a third party. Based on these factors, the Company recorded an impairment of $1,580,000 as at April 30, 2019.

9. Investments

• (a) On July 9, 2018, the Company issued 150,000 common shares with a fair value of $367,500 and paid $400,000 (US$300,000) to acquire 1,000 Class A voting common shares of 3 Carbon Extractions Inc. (“3 Carbon”), a private company. The share certificate was not received until March 2020.

The Company determined that the investment no longer fit into its business plan. The Company recorded an impairment of $392,500 on April 30, 2019 to bring the carrying value to its estimated fair value of $375,000. Refer to Note 22(d).

• (b) On October 17, 2018, the Company entered into a purchase agreement with 1182372 B.C. Ltd. (“1182372”) to acquire a 25% interest in 1182372 for $1,250,000. 1182372 is a private company which is building a marijuana growing facility and applying for a marijuana licence.

As at April 30, 2019, 1182372 was experiencing significant cash funding problems which creates significant doubt that the growing facility will be completed which is needed to obtain a marijuana licence. As a result, the Company recorded an impairment of $1,250,000 as at April 30, 2019.

• (c) In December 2018, the Company entered into share purchase agreements with three shareholders of Indigenous Bloom Corp. (“IB”) to purchase an aggregate 2,000,000 common shares of IB in exchange for 4,166,666 common shares of the Company with a fair value of $4,166,666. As at April 30, 2019, this represents an approximately 3.5% interest in IB, which is a private company with a marijuana licence application.

Legislated changes introduced in February 2019 created a lot of uncertainty in the licence process. This added uncertainty impacted the cash funding problems that IB was already experiencing as it relates to its licence application. As a result, the Company recorded an impairment of $4,166,666 as at April 30, 2019.

10. Related Party Transactions

• (a) As at April 30, 2019, the Company owed $20,358 (2018 – was owed $23,558 from) to a company controlled by the former Chief Executive Officer of the Company, which was recorded in accounts payable and accrued liabilities. The amount is unsecured, non-interest bearing, and due on demand. During the year ended April 30, 2019, the Company incurred consulting fees of $73,634 (2018 – $387,344) to a company controlled by the former Chief Executive Officer of the Company.

• (b) As at April 30, 2019, the Company owed $nil (2018 - $25,944) to a company controlled by the former Chief Financial Officer of the Company, which was recorded in accounts payable and accrued liabilities. The amount is unsecured, non-interest bearing, and due on demand. During the year ended April 30, 2019, the Company incurred consulting fees of $60,000 (2018 – $310,250) and professional fees of $nil (2018 - $64,000) to a company controlled by the former Chief Financial Officer of the Company.

18

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

10. Related Party Transactions (continued)

• (c) As at April 30, 2019, the Company owed $nil (2018 - $31,900) to a former director of the Company, which was recorded in accounts payable and accrued liabilities. The amount is unsecured, non-interest bearing, and due on demand. During the year ended April 30, 2019, the Company incurred consulting fees of $378,457 (2018 – $nil) to a company controlled by the former director of the Company, which included the issuance of 157,894 common shares with a fair value of $307,896. Refer to Note 12(f).

• (d) As at April 30, 2019, the Company owed $575,202 (2018 - $nil) to a company where a director of the Company is a director.

• (e) As at April 30, 2019, the Company owed $47,006 (2018 - $47,006) to a former director of Sechelt. The amount is unsecured, non-interest bearing and due on demand.

• (f) As at April 30, 2019, the Company was owed $nil (2018 – $57,894) from a company formerly under common control. The amount is unsecured, non-interest bearing, and due on demand.

• (g) As at April 30, 2019, the Company was owed $nil (2018 – $71,635) from a company formerly under common control. The amount is unsecured, non-interest bearing, and due on demand.

• (h) During the year ended April 30, 2019, the Company granted 270,000 (2018 – 3,037,000) stock options with a fair value of $211,203 (2018 - $790,475) to officers and directors of the Company.

• (i) During the year ended April 30, 2019, the Company issued 65,790 common shares (2018 – 2,530,000) to officers, directors, and former directors of the Company for proceeds of $125,001 (2018 - $1,109,500) pursuant to a private placement and issued 157,895 common shares with a fair value of $307,896 (2018 - $nil) for consulting services.

11. Advance Payable

On September 26, 2018, the Company entered into a share purchase agreement with Leis Industries Limited (“Leis”) whereby Leis is to purchase 100% of the outstanding common shares of SOM for $350,000.

As at April 30, 2019, the Company has received $180,000 from Leis.

12. Share Capital

Authorized: Unlimited number of common shares without par value

Share transactions for the year ended April 30, 2019:

• (a) On July 9, 2018, the Company issued 150,000 common shares with a fair value of $367,500 for the purchase of common shares of 3 Carbon. Refer to Note 9(a).

• (b) On July 27, 2018, the Company cancelled 10,000 previously issued common shares as the proceeds for the shares were not received from the subscriber. The fair value of the stock options of $21,850 was reallocated from share capital to share-based payment reserve.

• (c) On July 30, 2018, the Company issued 50,000 units at $4.00 per unit for proceeds of $200,000. Each unit consisted of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at $5.00 per share until January 30, 2020.

• (d) On August 16, 2018, the Company issued 50,000 common shares for proceeds of $110,000 pursuant to the exercise of stock options. The fair value of the stock options exercised of $39,309 was reallocated from the share-based payment reserve to share capital.

• (e) On November 9, 2018, the Company issued 663,158 common shares at $1.90 per share for proceeds of $1,260,000.

19

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

12. Share Capital (continued)

Share transactions for the year ended April 30, 2019 (continued):

• (f) On November 9, 2018, the Company issued 157,894 common shares with a fair value of $307,896 to a consultant for services rendered. Refer to Note 10(c).

• (g) On December 18, 2018, the Company issued 4,166,666 common shares with a fair value of $4,166,666 for the purchase of shares of IB. Refer to Note 9(c).

• (h) On February 20, 2019, the Company effected a 1-for-10 share consolidation. All share amounts have been retroactively restated for all periods presented.

Share transactions for the year ended April 30, 2018:

• (i) On October 10, 2017, the Company issued 367,000 units at $2.80 per unit for proceeds of $1,027,600. Each unit consisted of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at $4.50 per share until April 10, 2019, subject to the Company's discretion to reduce such exercise period in the event that the trading price of the common shares of the Company is $1.00 per share for a period of ten consecutive trading days. Included in this issuance were 10,000 units for proceeds of $28,000 to a company controlled by the CEO of the Company and 20,000 for proceeds of $56,000 to the spouse of the CEO of the Company. In connection with this private placement, the Company paid a finder’s fee of $75,488, which was settled via issuance of 26,960 common shares, and issued 269,600 finder’s warrants with the same terms as the unit warrants at a fair value of $55,576.

• (j) On February 16, 2018, the Company issued 145,455 common shares with a fair value of $727,272 to finalize the purchase of Sechelt. Refer to Note 4.

• (k) On February 23, 2018, the Company issued 400,000 units with a fair value of $2,840,000 to three consultants for consulting services rendered.

• (l) On March 21, 2018, the Company issued 500,000 common shares with a fair value of $2,700,000 to finalize the purchase of Cannevert. Refer to Note 3.

• (m) On March 28, 2018, the Company issued 300,000 units at $5.00 per unit for proceeds of $1,500,000, of which $50,000 is receivable as at April 30, 2018. Each unit consisted of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional common share at $7.00 per share until March 28, 2021. Included in this issuance were 50,000 units for proceeds of $250,000 to a company controlled by the CEO of the Company.

• (n) During the year ended April 30, 2018, the Company issued 698,500 common shares for proceeds of $3,365,000, of which $144,500 is receivable as at April 30, 2018, pursuant to the exercise of stock options. The fair value of the stock options exercised of $1,683,609 was reallocated from share-based payment reserve to share capital.

• (o) During the year ended April 30, 2018, the Company issued 710,306 common shares for proceeds of $2,482,703 pursuant to the exercise of share purchase warrants. The fair value of the share purchase warrants exercised of $130,545 was reallocated from warrant reserve to share capital.

20

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

13. Share Purchase Warrants

The following table summarizes the continuity of share purchase warrants:

		Weighted
		average
		exercise
	Number of	price
	warrants	$
Balance, April 30, 2017	2,224,384	3.90
Issued	693,960	5.60
Exercised	(710,307)	3.50
Expired	(126,312)	7.50
Balance, April 30, 2018	2,081,725	3.90
Issued	50,000	5.00
Expired	(931,725)	3.90
Balance,April 30,2019	1,200,000	4.79

As at April 30, 2019, the following share purchase warrants were outstanding:

Number of	Exercise
warrants	price
outstanding	$	Expiry date
850,000	4.00	August 7, 2019
50,000	5.00	January 30, 2020
300,000	7.00	March 28, 2021
1,200,000

14. Stock Options

The Company has adopted a stock option plan pursuant to which options may be granted to directors, officers, employees and consultants of the Company to a maximum of 10% of the issued and outstanding common shares. The exercise price of each option is set by the Board of Directors at the time of grant subject to a minimum price of $0.10 per share but cannot be less than the market price (less permissible discounts) on the Canadian Securities Exchange. Options can have a maximum term of five years and typically terminate ninety days following the termination of the optionee’s employment or engagement (thirty days for options granted for investor relations services), except in the case of retirement or death. Vesting of options is at the discretion of the Board of Directors at the time the options are granted.

21

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

14. Stock Options (continued)

The following table summarizes the continuity of the Company’s stock options:

				Weighted
				average
				exercise
			Number of	price
			stock options	$
Outstanding, April	30,	2017	352,650	4.20
Granted			1,198,000	6.30
Exercised			(698,500)	4.80
Expired			(327,650)	6.30
Outstanding, April	30,	2018	524,500	6.80
Granted			640,000	2.14
Exercised			(50,000)	2.20
Expired			(614,500)	6.13
Outstanding,April	30,	2019	500,000	2.15

Additional information regarding stock options outstanding as at April 30, 2019, is as follows:

Range of exercise prices $	Outstanding and exercisable
	Number of stock options Weighted average remaining contractual life (years) Weighted average exercise price $
1.90 2.30	190,000 0.1 1.90 310,000 0.4 2.30
	500,000 0.3 2.15

The fair value for stock options granted have been estimated using the Black-Scholes option pricing model assuming no expected dividends or forfeitures and the following weighted average assumptions:

assumptions:
	2019	2018
Risk-free interest rate	2.05%	1.5%
Expected life (in years)	1.0	1.0
Expected volatility	104%	110%

The total fair value of stock options vested during the year ended April 30, 2019 was $464,126 (2018 - $3,197,458) which was recorded as share-based payment reserve and charged to operations. The weighted average grant date fair value of stock options granted during the year ended April 30, 2019 was $0.73 (2018 - $2.70) per share. The weighted average share price for stock options exercised during the year ended April 30, 2019 was $2.05 (2018 - $7.20).

22

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

15. Capital Management

The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of cash and equity comprised of issued share capital, share-based payment reserve, warrant reserve, and share subscriptions received.

The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share issuances or by undertaking other activities as deemed appropriate under the specific circumstances.

The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect to capital risk management remains unchanged from the year ended April 30, 2018.

16. Financial Instruments and Risk Management

(a) Fair Values

Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s statement of financial position as at April 30, 2019, as follows:

	Fair value measurements using Quoted prices in active markets for identical instruments (Level 1) $ Significant other observable inputs (Level 2) $ Significant unobservable inputs (Level 3) $ Balance, April 30, 2019 $
Cash	19,996 – – 19,996

The fair values of other financial instruments, which include amounts receivable, amounts due from/to related parties, advance payable, and accounts payable and accrued liabilities, approximate their carrying values due to the relatively short-term maturity of these instruments.

(b) Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and amounts receivable. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. Amounts receivable consists of GST receivable due from the Government of Canada and a receivable from a public company. The carrying amount of financial assets represents the maximum credit exposure.

• (c) Foreign Exchange Rate Risk

Foreign exchange risk is the risk that the Company’s financial instruments will fluctuate in value as a result of movements in foreign exchange rates. Foreign exchange risk arises from purchase transactions.

• (d) Interest Rate Risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company manages its interest rate risk by maximizing the interest earned on excess funds while maintaining the liquidity necessary to fund daily operations. Fluctuations in market interest rates do not have a significant impact on the Company’s results of operations due to the short term to maturity of the investments held.

23

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

16. Financial Instruments and Risk Management (continued)

• (e) Liquidity Risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company currently settles its financial obligations out of cash and cash equivalents. The ability to do this relies on the Company raising debt or equity financing in a timely manner and by maintaining sufficient cash in excess of anticipated needs.

17. Commitment

On August 1, 2018, the Company entered into a premises sublease agreement with Arbutus Biopharma Corporation (“Arbutus”). The sublease commenced on August 1, 2018 and the Company is required to pay the following amounts:

• $20,000 per month for the period from August 1, 2018 through to October 31, 2018; and

• $47,333 per month for the period from November 1, 2018 though to July 31, 2019.

Refer to Note 21(c).

18. Contingencies

• (a) On February 28, 2019, the Company filed a civil claim against Liht for the recovery of the $1,000,000 advance plus interest. The interest payable on the advance was to be 10% per annum compounded daily from June 25, 2018 through and including the date on which it was repaid in full. The advance was to be repayable within 90 days and secured by certain assets of Liht. The Company alleges that, even though the Company had advanced Liht $1,000,000, Liht had refused to execute the loan agreement and has taken no steps to perfect the security of the advance. On August 28, 2018, the Company made a demand for the return of the $1,000,000 and again on January 14, 2019 together with interest accrued totalling of $1,055,068.49 on or before January 21, 2019. Liht has refused to return any portion of the $1,000,000 and any interest or deliver any consideration for the advance. The civil claim is ongoing and the Company believes that the advance to Liht will be recovered, but the outcome cannot be reasonably determined at this time.

• (b) On June 26, 2019, the Company filed a civil claim against its former management for the breach of their fiduciary duty and duty of care to the Company with respect to the advance made to Liht. This resulted in a loss and damage to the Company. The civil claim is ongoing and the amount of any damages recoverable cannot be reasonable determined or estimated at this time.

19. Income Taxes

The tax effect (computed by applying the Canadian federal and provincial statutory rate) of the significant temporary differences, which comprise deferred income tax assets and liabilities, are as follows:

	2019	2018
	$	$
Canadian statutory income tax rate	27%	26.33%
Income tax recovery at statutory rate	(3,212,673)	(3,650,654)
Tax effect of:
Permanent differences and other	118,747	1,062,761
Change in enacted tax rate	–	(61,264)
True up of prior year differences	213,092	–
Change in unrecognized deferred income tax assets	2,880,834	2,649,157
Income taxprovision	–	–

24

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

19. Income Taxes (continued)

The significant components of deferred income tax assets and liabilities are as follows:

	2019	2018
	$	$
Deferred income tax assets
Non-capital losses carried forward	6,299,458	3,555,573
SR&ED carried forward	48,214	5,983
Intangible assets	–	(106,650)
Property and equipment	(85,174)	(80,844)
Share issuance costs	19,279	26,881
Unrecognized deferred income tax assets	(6,281,777)	(3,400,943)
Net deferred income tax asset	–	–

As at April 30, 2019, the Company has non-capital losses carried forward of $23,331,325, which are available to offset future years’ taxable income. These losses expire as follows:

	$
2035	134,318
2036	820,231
2037	2,593,897
2038	9,922,243
2039	9,860,636
	23,331,325

20. Supplemental Cash Flow Disclosure

	Year ended	Year ended
	April 30,	April 30,
	2019	2018
	$	$
Non-cash investing and financing activities:
Fair value of finders’ warrants	–	55,576
Fair value of options transferred to share capital upon exercise	39,309	1,683,609
Fair value of warrants transferred to share capital upon exercise	–	130,545
Fair value of options transferred from share capital	21,850	–
Shares issued for acquisition of Cannevert Therapeutics Ltd.	–	2,700,000
Shares issued for acquisition of Sechelt Organic Marijuana Corp.	–	727,272
Shares issued for acquisition of 3 Carbon Extractions Ltd.	367,500	–
Shares issued for acquisition of Indigenous Bloom Corp.	4,166,666	–

25

VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

21. Restatements

The Company has restated its consolidated financial statements for the year ended April 30, 2019 to reflect the write-off of the $1,000,000 advance to Liht Cannabis Corp. as an unauthorized payment and to improve disclosures relating to various impairments recognized.

Consolidated statements of operations and comprehensive loss

	Year EndedApril30,2019
	As Reported $ Adjustment $ As Restated $
Other income (expense) Impairment of loans receivable Unauthorized payment Total other income(expense)	(1,214,580) 1,000,000 (214,580) – (1,000,000) (1,000,000) (8,659,513) – (8,659,513)

Consolidated statement of cash flows

	Year EndedApril30,2019
	As Reported $ Adjustment $ As Restated $
Operating activities Items not involving cash: Impairment of loans receivable Net cash used in operating activities Investing activities Loan to Liht Cannabis Corp. Net cash used in investingactivities	1,214,580 (1,000,000) 214,580 (1,244,932) (1,000,000) (2,244,932) (1,000,000) 1,000,000 – (2,609,068) 1,000,000 (1,609,068)

22. Subsequent Events

• (a) On May 5, 2019, the Company cancelled 500,000 stock options.

• (b) On May 15, 2019, the Company granted 1,200,000 stock options exercisable at $0.52 per share expiring on May 15, 2024 to officers and directors of the Company.

• (c) On June 20, 2019, the Company entered into a settlement agreement with Arbutus to settle the the amounts due and owing from the sublease agreement described in Note 17. The Company and Arbutus have reached an agreement to settle all matters and provide a mutual release from the sublease agreement, in consideration for a one-time payment of $200,000 to Arbutus.

• (d) On June 25, 2019, the Company entered into an agreement for the Company to sell the 1,000 Class A voting shares of 3 Carbon for $375,000. The amount was received on June 28, 2019. Refer to Note 9(a).

• (e) On November 28, 2019, the Company sold its land for proceeds of $350,000.

• (f) On November 28, 2019, the Company entered into a settlement agreement with Leis and repaid the $180,000 advance payable to Leis.

• (g) On February 19, 2020, the Company issued 273,913 common shares to settle debt of $31,500 owing to the interim CEO and CFO of the Company.

• (h) On February 19, 2020, the Company cancelled the 1,200,000 stock options in Note 22(b).

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VERITAS PHARMA INC. Notes to the consolidated financial statements Years ended April 30, 2019 and 2018 (Expressed in Canadian dollars)

22. Subsequent Events (continued)

• (i) On March 26, 2020, the Company issued 3,000,000 common shares to settle debt of $540,000 owing to a company where a director of the Company is a director. This company helped the Company to fund its accounts payables.

• (j) On April 24, 2020, the Company granted 1,215,738 stock options exercisable at $0.15 per share expiring on April 24, 2025 to officers and directors of the Company.

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