Zeus North America Mining Corp. — Management Reports 2021

Feb 19, 2021

PENN CAPITAL INC. (Formerly MJ BIOSCIENCE CORP.)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE

COMPANY’S FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the years ended October 31, 2020 and October 31, 2019

INTRODUCTION

The following Management Discussion and Analysis (“MD&A”) of Penn Capital Inc. (the “Company”) formerly MJ Bioscience Corp. has been prepared by management in accordance with the requirements of National Instrument 51102 as of February 19, 2021. This MD&A should be read in conjunction with the financial statements and related notes thereto for the years ended October 31, 2020 and 2019 (the “Financial Statements”), which have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by International Accounting Standards Board (“IASB”). The information contained herein is not a substitute for detailed investigation or analysis on any particular issue. The information provided in this document is not intended to be a comprehensive review of all matters and developments concerning the Company.

All amounts in the financial statements and this discussion and analysis are presented in Canadian dollars, unless otherwise indicated.

FORWARD-LOOKING STATEMENTS

This MD&A contains certain forward-looking statements and information relating to the Company that are based on the beliefs of our management as well as assumptions made by and information currently available to us. When used in this document, the words “anticipate ”, “ believe ”, “ estimate ”, “ expect ” and similar expressions, as they relate to the Company or to management, are intended to identify forward-looking statements. This MD&A contains forward-looking statements relating to, among other things, regulatory compliance, the sufficiency of current working capital, the estimated cost and availability of funding for the future development of the Company. Such statements reflect the current views of management with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or our achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements.

COMPANY OVERVIEW

Background

The Company was incorporated under the Business Corporations Act (British Columbia) on October 15, 2014. The head office of the Company is 1080 – 789 West Pender, Vancouver, British Columbia V6C 1H2. The Company plans to raise funds in order to acquire either companies or assets in the biotechnology sector including, but not limited to, the cannabis industry.

Share Consolidation

On August 21, 2020, MJ Bioscience Corp. changed its name to Penn Capital Inc. and has completed a consolidation of all its issued and outstanding common shares on the basis of one post-consolidation common share for every five pre-consolidation common shares. Prior to the consolidation, there were 532,137 common shares issued and outstanding, and following the consolidation, there are 106,369 common shares issued and outstanding.

Financing Activities

During the year ended October 31, 2020, the Company received loans from former directors and officers of $19,149 (October 31, 2019 - $20,264).

SELECTED ANNUAL INFORMATION

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October 31, October 31, October 31, October 31,
2020 2019 2018 2017
Financial Results
Net loss for the year $ (20,477) $ (20,334) $ (74,185) $ (13,065)
Loss per share – basic and diluted (0.19) (0.19) (0.15) (0.03)
Balance Sheet Data
Accounts payable and accrued liabilities 19,616 18,288 17,270 23,103
Shareholders' deficiency (157,245) (136,768) (116,434) (45,945)
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RESULTS OF OPERATIONS

Year ended October 31, 2020

The Company had no revenue and a net loss of $20,477 for the year ended October 31, 2020 compared to a net loss of $20,334 for the year ended October 31, 2019.

Major variances are as follows:

• For the year ended October 31, 2020, filing and regulatory fees were $4,084 compared to $2,836 for the prior year. The increase was largely due to TSX filing fee booked in year 2020 relating to year 2018 and fee associated with increase in the filing fee associated with BCSC 45-106 F1 form and various costs associated with name change

• For the year ended October 31, 2020, professional and consulting fees were $12,309 compared to $13,494 for the year ended October 31, 2019. The variance was due to a decrease in the amount of time spent on accounting and corporate secretarial services due to a decrease in activity in the current year;

• For the year ended October 31, 2020, transfer agent fees were $4,070 compared to $2,536 for the prior year. The increase was attributable to a filing costs associated with name change in current year and consolidation of shares and other regulatory filings.

Three months ended October 31, 2020

The Company had no revenue and a net loss of $7,402 for the three-month period ended October 31, 2020 compared to a net loss of $2,231 for the quarter ended October 31, 2019.

Major variances are as follows:

• For the quarter ended October 31, 2020, filing and regulatory fees were $1,144 compared to $70 for the quarter ended October 31, 2019. The increase is attributable to secretarial costs associated with consolidation of shares in August 2020;

• For the quarter ended October 31, 2020, professional and consulting fees were $2,845 compared to $2,835 for the prior quarter ended October 31, 2019. The variance was due to increase in the amount of time spent on accounting and corporate secretarial services in the current quarter.

• For the quarter ended October 31, 2020, transfer agent fees were $3,412 compared to $37 for the prior quarter ended October 31, 2019. The variance was due to increase in the amount of filing cost related to consolidation of shares and notice to depositories, regulators and exchanges for the name change during the current year.

SUMMARY OF PERIODIC RESULTS

Results for the most recent completed fiscal quarters are summarized in the table below:

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Three-month period Three-month period Three-month period Three-month period
ended October 31, ended July 31 ended April 30, ended January 31,
2020 2020 2020 2020
$ $ $ $
Net loss (7,402) (2,065) (7,382) (3,628)
Loss per share (0.07) (0.00) (0.01) (0.01)
Total assets 948 173 117 -
Working capital deficit 157,245 149,843 134,537 140,396
Three-month period Three-month period Three-month period Three-month period
ended October 31, ended July 31, ended April 30, ended January 31,
2019 2019 2019 2019
$ $ $ $
Net loss (2,231) (5,423) (4,009) (8,671)
Loss per share (0.00) (0.01) (0.01) (0.02)
Total assets 948 1,139 918 918
Working capital deficit 136,768 134,537 129,114 125,105
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LIQUIDITY AND CAPITAL RESOURCES

At October 31, 2020 the Company had a working capital deficit of $157,245 (October 31, 2019 – deficit of $136,768). The Company does not currently have an active business generating positive cash flows. The Company must rely upon loans from related parties in order to generate cash for general operating activities. The Company has not pledged any of its assets as security for loans or is not otherwise subject to any debt covenants.

The Company needs to raise additional capital to fund general working capital requirements for the next twelve months. Although the Company has previously been successful in raising the funds required for its operations, there can be no assurance that the Company will have sufficient financing to meet its future capital requirements or that additional financing will be available on terms acceptable to the Company in the future.

TRANSACTIONS WITH RELATED PARTIES

As at October 31, 2020 and October 31, 2019, the Company was indebted to its related parties in the following amounts:

amounts:
		October 31, 2020		October 31, 2019
Due to Current and Former Directors	$	134,106	$	114,957
Due to Companycontrolled byCFO		4,471		4,471
	$	138,577	$	119,428

During the year ended October 31, 2020, the Company received loans from former directors of $19,149 (October 31, 2019: $20,264).

Amounts due to related parties are unsecured, non-interest bearing and due on demand.

OUTSTANDING SHARE CAPITAL

As of October 31, 2020, the Company had 106,369 issued and outstanding common shares. The Company did not issue any warrants or options to purchase its common stock.

As at the date of this MD&A, the Company had 106,369 issued and outstanding common shares. The Company did not issue any warrants or options to purchase its common stock.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

SIGNIFICANT ACCOUNTING POLICIES

New accounting standard adopted.

On November 1, 2019, the Company adopted a new standard, IFRS 16 published by International Accounting Standards Board, eliminating the current dual accounting model for lessees, which distinguishes between onbalance sheet finance leases and off-balance sheet operating leases. The main provision of IFRS 16 is the recognition of lease assets and lease liabilities on the balance sheet by lessees for those leases that were previously classified as operating leases. Under IFRS 16, a lessee is required to do the following: (i) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on the balance sheet; and (ii) recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant, as the rightof-use asset is depreciated and the lease liability is accreted using the effective interest method. The new standard also requires qualitative disclosures along with specific quantitative disclosures. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. The Company has determined that adoption of this standard does not have a material impact on its financial statements as the Company has no leases.

FINANCIAL INSTRUMENTS

The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is summarized as follows:

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. The Company has no exposure to credit risk.

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 has a planning and budgeting process in place to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations.

Historically, the Company’s principal source of funding has been the issuance of equity securities for cash, primarily through private placements and loans from related parties. The Company’s access to financing is always uncertain. There can be no assurance of continued access to necessary levels of debt or equity funding.

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 is not exposed to interest rate risk.

Fair value

The Company’s financial instruments consist of receivables, accounts payable and accrued liabilities and amounts due to related parties. As at October 31, 2020, the fair values of financial instruments measured on a recurring basis are determined based on level one inputs and consist of quoted prices in active markets for identical assets. The fair value of other financial instruments approximates their carrying values due to the short-term nature of these instruments.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3 – Inputs that are not based on observable market data.

RISKS AND UNCERTAINTIES

Uninsured Risk

The Company may become subject to liability for risks against which the Company cannot insure or against which the Company may elect not to insure due to the high cost of insurance premiums or other factors. The payment of any such liabilities would reduce the funds available for the Company’s usual business activities. Payment of liabilities for which the Company does not carry insurance may have a material adverse effect on the Company’s financial position and operations.

Conflicts of Interest Risk

The Company’s directors are and may continue to be involved in other business ventures in the biotechnology industry through direct and indirect participation in corporations, partnerships, joint ventures, etc. that may become potential competitors of the products the Company intends to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of the director conflict with or diverge from the Company’s interests. In accordance with the BCBCA, directors who have a material interest in any entity that is a party to a material contract or a proposed material contract are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors and the officers are required to act honestly and in good faith with a view to the Company’s best interests. However, in conflict of interest situations, the Company’s directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Company.

Key Personnel Risk

The Company relies heavily on its directors and officers, along with key business consultants. The loss of their services would have a material adverse effect on the business of the Company. There can be no assurance that these individuals will continue to provide services in the employ of or in a consulting capacity to the Company or that they will not set up competing business or accept positions with competitors.

Speculative Nature of Investment Risk

An investment in the Company’s common shares carries a high degree of risk and should be considered as a speculative investment by purchasers. The Company has not paid dividends and is unlikely to pay dividends in the immediate or near future. The Company is in the development and planning phases of its business and has not started commercialization of the Company’s products and services. The Company’s operations are not yet sufficiently established such that it can mitigate the risks associated with its planned activities.

Liquidity and Future Financing Risk

The Company will require additional financing to fund future operations and expansion plans. The Company’s ability to secure any required financing to sustain its operations will depend in part upon prevailing capital market conditions, as well as the Company’s business success. There can be no assurance that the Company will be successful in the Company’s efforts to secure any additional financing or additional financing on terms satisfactory to the Company’s management. If additional financing is raised by issuing common shares in the Company’s authorized capital, control of the Company may change, and shareholders may suffer additional dilution. If adequate funds are not available, or are not available on acceptable terms, the Company may be required to scale back its business plan or cease operating.

Going-Concern Risk

The Company’s financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. The Company’s future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that the Company will be successful in completing equity or debt financing or in achieving profitability. The financial statements do not give effect to any adjustments relating to the carrying values and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.

Share Price Volatility Risk

External factors outside of the Company’s control such as announcements of quarterly variations in operating results, revenues and costs, and sentiments toward biotechnology sector stocks may have a significant impact on the market price of the Company’s common shares. Global stock markets, including the Exchange, have from time to time experienced extreme price and volume fluctuations that have often been unrelated to the operations of particular companies. The same applies to companies in the technology sector. There can be no assurance that an active or liquid market will develop or be sustained for the common shares.

Covid-19

Since March 2020, several measures have been implemented in Canada and the rest of the world in response to the increased impact from coronavirus (COVID-19). The Company continues to operate its business and move its exploration activity forward at this time. While the impact of COVID-19 is expected to be temporary, the current circumstances are dynamic and the impacts of COVID-19 on business operations cannot be reasonably estimated at this time. The Company anticipates this could have an adverse impact on its business, results of operations, financial position and cash flows in future periods.

CONTINGENCIES

There are no contingent liabilities.

DIRECTORS AND OFFICERS

As of the date of this report, February 19, 2021, the Company’s directors and officers are as follows:

• Jesse Hahn – Director, Interim Chief Executive Officer and Corporate Secretary

• Barry Hartley – Director, Chief Financial Officer

• James McCrea - Director