Delivra Corp. has a mandate to license its patent-pending proprietary transdermal delivery...

Delivra Corp.

Management Discussion & Analysis

For the three and nine months ended

September 30, 2017

Delivra Corp. - Management Discussion & Analysis For the three and nine months ended September 30, 2017

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Delivra Corp. Headquartered in Burlington, Ontario, Canada, Delivra Corp. (the “Company” or “Delivra”) is a specialty biotechnology company that has a proprietary transdermal delivery system platform that can shuttle pharmaceutical and natural molecules, through the skin, in a targeted specific manner. Delivra manufactures and sells a growing line of natural topical creams with the proprietary transdermal delivery system platform under the LivReliefTM brand, for conditions such as joint and muscle pain, nerve pain, varicose veins, wound healing, and under the LivSportTM brand for sports performance. LivReliefTM products are available in pharmacies, grocery chains, and independent health food stores across Canada, and on-line at www.livrelief.com. In parallel with its consumer products business, Delivra also has a mandate to license its over-the-counter products in other countries and its patent-pending proprietary transdermal delivery technology platform to pharmaceutical companies for the repurposing of pharmaceutical molecules in the treatment of a broad range of conditions. Effective Date This MD&A is prepared as of November 21, 2017. It contains certain forward-looking statements that involve known and unknown risks and uncertainties which are beyond the control of the Company. Readers should read the sections of this MD&A entitled “Risk Factors” and “Forward Looking Information”. This MD&A should be read in conjunction with the unaudited condensed interim consolidated financial statements for the three and nine months ended September 30, 2017 as well as the audited consolidated financial statements of the Company for the year ended December 31, 2016. The unaudited condensed interim consolidated financial statements for the period ended September 30, 2017 have been prepared in compliance with International Accounting Standard 34, Interim Financial Reporting. The policies applied in the unaudited condensed interim consolidated financial statements are based on International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. Further information on the Company can be found at www.delivracorp.com. Company History and Business Overview Delivra was incorporated on October 21, 2013. The Company’s shares are listed on the TSX Venture Exchange (“TSX-V”), under the trading symbol “DVA”. Delivra Inc., a wholly-owned subsidiary of Delivra, was incorporated under the Business Corporations Act (Ontario) on July 19, 2007. Its mandate at that time was research into and development of its proprietary transdermal (meaning, “through the skin”) delivery system platform. Based on those development activities, in 2011, Delivra commercialized its Pain Relief Cream and made it available for sale in selected natural health stores and independent pharmacies in Canada. From 2012 to the present, Delivra continued to improve its product formulations, engaged in expanding its marketing efforts, and successfully achieved distribution with major pharmacy and grocery chains across Canada. During these years, Delivra also continued and increased its Research and Development (“R&D”) efforts relating to its proprietary transdermal delivery system, enhancing and validating its capabilities across a range of natural and pharmaceutical molecules. Today, the Company’s business is divided into two main areas of focus:

Consumer Healthcare Over the Counter (“OTC”) Retail Products OTC natural topical products are sold under the LivReliefTM brand, at retail locations across Canada. Delivra’s OTC products include:

o LivReliefTM Pain Relief Cream – used to treat joint pain due to inflammation;

o LivReliefTM Nerve Pain Relief Cream – used to treat cutaneous pain associated with conditions such as diabetic neuropathy and shingles;

o LivReliefTM Varicose Vein Cream – used to treat and reduce the appearance of varicose veins; and

o LivReliefTM Healing Cream – used to heal cuts, burns, and sores and help relieve skin inflammations and

irritations.

Pharmaceutical Product Development

Delivra has a mandate to license its patent-pending proprietary transdermal delivery technology platform to pharmaceutical companies for the repurposing of pharmaceutical molecules in the treatment of a broad range of

http://www.livrelief.com/

http://www.delivracorp.com/


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conditions. Delivra has therefore devoted significant R&D to testing and broadening the capabilities of its delivery system for this business purpose.

Market and Industry Overview The growth in transdermal delivery is driven by a number of factors, including:

• oral medications are largely broken down in passage through the gastrointestinal tract, leaving less of the active ingredient available for systemic delivery to address the intended issue;

• common and reputed side effects of oral medications, including stomach upset, liver and kidney problems, hypertension, etc.;

• greater safety and efficacy of topicals versus orals;

• targeted delivery of active ingredients which is possible with a topical but not with an oral medication;

• new technologies that can deliver a broader range of molecules transdermally; and

• as the patents for popular drugs expire, manufacturers are looking for ways to reposition and re-energize growth due to competition from generic competitors.

As a result of this growth, the transdermal market has become more competitive, with many OTC brands available to consumers. Advertising intensity, robust distribution, clinical trials, and product differentiation (such as natural ingredients) have become key success factors in OTC markets. As with many consumer products, an effective on-line presence has become increasingly important, and web store sales have become a more significant percentage of total sales across the industry. Markets for prescription-based delivery of pharmaceutical ingredients remain driven more by efficacy, science, and clinical results. A proven and demonstrable ability to deliver molecules of interest remains the primary driver of adoption. It is not the intention of Delivra to undertake the regulatory approval process associated with the transdermal delivery of pharmaceutical molecules, but rather to license its technology for specific applications to pharmaceutical companies, who will then be responsible for required clinical trials and regulatory approvals, given their experience, expertise, infrastructure, and available resources. Recent years have seen an increasing move by traditional pharmaceutical companies into OTC consumer healthcare markets, expanding their scope beyond drugs and prescriptions and into the consumer-packaged goods markets. Delivra believes this industry dynamic, in the context of its present positioning within the pharmaceutical delivery markets as well as OTC markets, is a source of long-term value for shareholders and of strategic interest to global pharmaceutical companies. Year-To-Date 2017 Developments Continued Sales Growth The Company achieved revenues of $923,850 for the quarter and year-to-date revenues of $3,297,836. Canada OTC sales were up 47% over the comparative 2016 quarter and up 21% for the year-to-date. The increase in sales was driven by continued growth in the sales of the Company’s flagship pain and nerve products in Canada, building on the momentum established in 2015 and 2016. The Company believes that, given the tremendous efficacy of its products and in the presence of strong marketing and advertising programs, there is considerable room for further growth in the Canadian market. Additional Board Strength During the year, Ms. Louisa Greco was appointed to the Board of Directors of the Company. Louisa has led across a number of senior roles, with a strong track record over more than 20-years. Most recently, President & Managing Director of the Johnson & Johnson Consumer Group of Companies in Canada, where she led the $1 billion Canadian consumer business. Louisa has also served as a member of Johnson & Johnson’s North American Leadership Team. Outside of Johnson & Johnson, she has served as a board member on multiple industry associations, including as a member of the Finance Committee of Canadian Health Products Canada. Louisa has an active role in the community, currently serving as an Academic Mentor for the Rotman School of Management, a member of 30% Club Canada Advisory Committee and a member of Women in Philanthropy for Providence Advisory team. She and her family dedicate time and energy to Free the Children locally and globally. Louisa received her Pharmacy degree from the University of Toronto and MBA from Ivey School of Business, University of Western Ontario. She completed the Institute of Corporate Directors (ICD) Education Program at the


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Rotman School of Management, University of Toronto. New Pharmaceutical Products Development The Company’s proprietary transdermal delivery system platform provides for multi-licensing opportunities, in order to drive continued revenue growth. Presently, the development pipeline is very robust, including products targeted towards conditions which represent significant market opportunities, such as osteoarthritis, sleep, psoriasis, migraines, cardiovascular disease, and circulation. Introduction of additional products, whether directly under the Company’s LivReliefTM brand or via out-licensing to other companies, represents a potentially strong continuing source of growth for the Company.

The Company sees four potential key drivers on its licensing programs, being improvement of the efficacy and safety of existing drugs by moving to Delivra transdermal (eg. NSAID’s, celecoxib, statins), repurposing existing drugs for new indications through Delivra transdermal (eg. doxycycline), enabling abandoned drugs that were previously stalled by delivery challenges, and facilitating delivery of new drugs in the pipeline that fit Delivra transdermal (eg. peptides and biologics). Based on the research and planning and foundational work done in 2015 and 2016, the Company has focused on migrating selected applications closer to the status of a “product” ready for licensing. The premise of this focus is to move beyond platform technology discussions and present to potential pharma partners very specific and highly evolved product licensing proposals, to expedite licensing opportunities. Licensing Deals In Q1 2017, the Company announced the completion of a service agreement with Dosecann Inc. (“Dosecann”) for cannabis oil formulations in metered dose formats. Under the terms of the agreement, the Company will use its expertise in formulation and proprietary delivery system platform to conduct preclinical and clinical studies for the evolving Canadian medical marijuana market along with international markets. Dosecann will potentially gain a suite of medical cannabis products for pain, sleep and anxiety packaged in a novel, revolutionary topical mono-dose format and a metered dosed oral spray. Delivra will receive a flat fee for each product formulation developed, Delivra will own the intellectual property, and Delivra will receive a royalty percentage on the related sales of the suite of medical cannabis products in a license agreement which continues for as long as the products are sold by Dosecann. In Q2 2017, the Company announced the completion of a licensing agreement with ARA-Avanti RX Analytics Inc. (“Avanti) for natural and medicinal products for the medical pain-related research, development, and commercialization markets, using hemp. Under the terms of the agreement, the Company will use its expertise in formulation and its proprietary delivery system platform to conduct preclinical and clinical studies for the evolving Canadian hemp market along with expanding international markets. Avanti will potentially gain a suite of natural hemp products for pain-related illnesses. The costs of the clinical trials and research will be paid by Avanti. Delivra and Avanti will own the intellectual property, and Delivra will receive a royalty percentage on the related gross sales of the suite of natural products in a license agreement which continues for as long as the products are sold by Avanti. Avanti’s pharmaceutical GMP facility will be responsible for the quality-control testing, extraction and production of the finished products under pharmaceutical GMP Standards. Continued R&D Success The very strong work of the Company’s team of scientists was, as always, a centerpiece of the activity during the period. This included moving several additional projects further down the development curve. This Company has a total of eight patents pending. Additional filings are in the pipeline, as the Company continues to showcase the prolific depth and broad applicability of its proprietary delivery system. Third Quarter 2017 Financial Results Revenues Revenue for the quarter was $923,850, up 47% against the comparable prior year quarter of $630,265. The main driver of the growth for the quarter was the increase in unit sales of the Company’s flagship pain products over the comparative period. Operating Expenses Operating expenses for the quarter were $1,000,976, down from $2,334,223 in the comparative quarter. The decrease in


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expenditures was primarily related to the following:

• Reduction in general and administrative costs of $206,861. This was mainly driven by reduced salaries, professional fees and reduced office and general costs.

• Decrease in selling and marketing expenditures of $1,249,381. The decrease was a result of reduced salaries and a reduction in US digital advertising expenditures.

• Increase in research and development expenses a result of a decrease in discounts recorded from government loans that were received for R&D related expenditures.

Net Loss The net loss and comprehensive loss for the quarter was $419,193 versus $2,246,347 in the comparative period. On a per share basis, the net loss was $0.01 for the quarter, versus $0.06 in the comparative quarter. The decrease in loss occurred from the results of operations discussed above. Year-To-Date 2017 Financial Results Revenues Revenue for the first nine months of the year was $3,297,836, up 21% against the comparable prior year period of $2,734,768. The increase in sales was driven by continued growth in the sales of the Company’s flagship pain and nerve products in Canada, building on the momentum established in 2015 and 2016. The Company believes that, given the tremendous efficacy of its products and in the presence of strong marketing and advertising programs, there is considerable room for further growth in the Canadian market. Operating Expenses Operating expenses for the first nine months of the year were $3,577,863, down from $5,696,783 in the comparative nine-month period. The decrease in expenditures was primarily related to the following:

• Reduction in general and administrative costs of $345,527. This was mainly driven by reduced salaries, reduced office and general costs, reduced compliance and investor relation costs and reduced professional fees.

• Decrease in selling and marketing expenditures of $1,636,110. The decrease was a result of a reduction in digital and commercial advertising expenditures, a reduction in salaries, offset with a severance payment to the past VP of Sales and Marketing.

• Increase in gross research and development expenditures of $41,692, offset with an increase in discount on loan valuations related to R&D expenditures of $94,691 and an increase in government grants of $8,274.

• Reduction in share based compensation $76,010. This is a result of only one option grant in 2017. Net Loss

The net loss and comprehensive loss for the year-to-date was $1,374,326 versus $4,241,331 in the comparative period. On a per share basis, the net loss was $0.03 for the first nine months of the year, versus $0.11 in the comparative period. The decrease in loss occurred from the results of operations discussed above. Summary of Operating Expenses The following table presents a summary of the Company’s operating expenses for the current and comparative quarter and year-to-date, which are discussed above.

Q3 2017 Q2 2017 Q3 2016 9M 2017 9M 2016

$ $ $ $ $ General and administrative 125,126 347,755 331,987 775,460 1,120,987 Research and development (gross) 312,687 302,607 273,070 905,123 806,328 Research and development (net) 248,617 25,209 148,932 392,852 454,125 Selling and marketing 538,425 865,161 1,787,806 2,148,549 3,784,659 Share-based compensation 88,808 76,924 65,498 261,002 337,012


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Summary of Quarterly Results The following table presents a summary of the Company’s quarterly results of operations for each of its last eight quarters in Canadian dollars.

Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016 Q4 2015

$ $ $ $ $ $ $ $ Revenues 923,850 1,121,689 1,252,297 1,019,033 630,265 1,111,821 992,682 823,023 Gross profit 657,661 808,412 870,007 713,037 406,919 784,276 673,168 614,262 Gross margin % 71% 72% 69% 70% 65% 71% 68% 75% Operating expenses 1,000,976 1,315,049 1,261,838 1,562,947 2,334,223 2,044,629 1,317,931 2,577,568 Net loss 419,193 581,136 373,997 1,707,785 2,246,347 1,310,145 684,839 1,992,626 Net loss per share 0.01 0.01 0.01 0.05 0.06 0.03 0.02 0.06

Working Capital and Liquidity The Company’s working capital and liquidity position, in the context of its current operations, remained strong during the quarter. As at September 30, 2017, current assets were $2,337,715, including cash and cash equivalents of $798,840. Against current liabilities of $749,768, this resulted in net working capital of $1,587,947. This compares to current assets of $3,591,609 and net working capital deficiency of $340,535 at December 31, 2016. Included in current liabilities at December 31, 2016, is $2,808,811 relating to the valuation of the convertible debentures and derivative liabilities, which automatically converted into equity on January 16, 2017. Adjusting for that, working capital was $2,468,276 at December 31, 2016. Cash Flow Used in Operations Cash flow used in operations for Q3 was $206,775 versus $1,130,548 in the comparable prior year period. This decrease was mainly due to the decrease in salaries, advertising, receivables, inventories, prepaid expenses and accounts payable and accrued liabilities. Cash flow used in operations for the first nine months of the year was $1,532,669 versus $3,311,390, in the comparable prior year period. This decrease was mainly due to the decrease in salaries, advertising, receivables, prepaid expenses and accounts payable and accrued liabilities and offset with an increase in inventories. At September 30, 2017, 99% of trade receivables were less than 60 days past due. The Company has historically collected 100% of its trade receivables. Cash Flow Used in Investing Activities Cash flow used in investing activities for Q3 was $53,320 versus $70,848 in the comparable prior year period. The main reason for the decrease is a result of the Company reducing the amount capitalized to intangible assets. Cash flow used in investing activities for the first nine months of the year was $184,059 versus $705,204 in the comparable prior year period. The main reason for the decrease is a result of the Company reducing the amount capitalized to intangible assets and the purchase of a major piece of machinery in Q1 2016. Cash Flow from Financing Activities Cash flow from financing activities for the quarter was $30,173 versus $2,128,742 in Q3 2016. The decreased cash flow from financing is mainly a result of i) receiving an additional $225,836 in loan proceeds in Q3 2016, ii) completing a convertible debenture financing for net proceeds of $1,903,426 in Q3 2016, and iii) receiving $40,000 from the exercise of stock options during the quarter. Cash flow from financing activities for the year-to-date was $742,289 versus $3,013,380 in the comparative 2016 period. The decreased cash flow from financing is mainly a result of i) receiving an additional $327,418 in loan proceeds in the comparative period, ii) completing a convertible debenture financing for net proceeds of $1,903,426 in Q3 2016, iii) receiving $220,000 from the exercise of stock options during the period, and iv) receiving $226,446 from the exercise of warrants during the comparative period. With respect to the interim investment of excess working capital, Delivra holds only cash, or government-issued or Canadian Schedule A bank-issued short-term debt instruments, and it does not hold debt instruments issued by other corporations, nor does it hold any material equities or other investments of any kind.


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Based on its current expectations, Delivra will require additional capital to support its operations, growth, and fulfillment of its business plan objectives. Management believes that it will be able to access additional capital as required to continue to execute its planned expenditures. However, there can be no assurance that the capital will be available as necessary to meet continuing expenditures, or if the capital is available, that it will be on terms acceptable to the Company. Therefore, there can be no assurance that the Company will be able to obtain sufficient financing to meet future needs. Any inability to secure such additional financing on appropriate terms could have a materially adverse impact on the business, financial condition, and operating results of Delivra. In addition, the incurrence of debt would create additional financial leverage and therefore an increase in the financial risk of Delivra’s operations. The issuance of additional equity securities would be dilutive to the ownership of current equity holders. As of the date of this MD&A, other than the operating leases noted below, the Company has no off-balance sheet commitments. Commitments The Company is committed to minimum annual lease payments for its premises and research facility and consulting services, as follows:

October 1, 2017 to

September 30, 2018

October 1, 2018 to

September 30, 2019

October 1, 2019 to

September 30, 2020

Total

$ $ $ $ Operating leases 60,536 8,427 - 68,963 Consulting services 132,744 144,498 78,508 355,750

193,280 152,925 78,508 424,713

The Company agreed to pay a success fee to an external consultant. The success fee will be provided, should any introduction be made by the external consultant, upon which a transaction takes place. An introduction is defined as identifying or providing information concerning prospective parties who wish to enter into a transaction with the Company, and once confirmed by the Company, to successfully arrange for introductory communications between the Company and the prospective party. The Company has entered into certain agreements for product development which subject certain future sales to royalty payments. Related Party Transactions

Related parties include the Board of Directors and Management, close family and enterprises that are controlled by these individuals, as well as certain persons performing similar functions. Other than indicated below, the Company entered into no related party transaction during the three and nine months ended September 30, 2017 and 2016. Key management personnel compensation The remuneration of directors and other members of key management personnel during the three and nine months ended September 30, 2017 and 2016 were as follows:

Three months ended

September 30, 2017

Three months ended

September 30, 2016

Nine months ended

September 30, 2017

Nine months ended

September 30, 2016

$ $ $ $ Short-term employee benefits 55,000 45,000 120,000 135,000 Research and development fees 53,600 53,600 160,800 160,800 Share-based compensation 68,207 52,055 199,526 230,092

176,807 150,655 480,326 525,892


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Changes in Accounting Policies The Company has adopted the following new standards effective January 1, 2017. IAS 7 – Statement of Cash Flows (“IAS 7”) IAS 7 was amended in January 2016 to clarify that disclosures shall be provided that enable users of financial statements to evaluate changes in liabilities arising from financing activities. IAS 12 – Income Taxes (“IAS 12”) IAS 12 was amended in January 2016 to clarify that, among other things, unrealized losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument’s holder expects to recover the carrying amount of the debt instrument by sale or by use; the carrying amount of an asset does not limit the estimation of probable future taxable profits; and estimates for future taxable profits exclude tax deduction resulting from the reversal of deductible temporary differences. Recent accounting pronouncements Certain new standards, interpretations, amendments and improvements to existing standards were issued by the IASB or IFRS Interpretations Committee (IFRIC) that are not yet effective and have not yet been early adopted by the Company. Updates that are not applicable or are not consequential to the Company have been excluded. The standards impacted that may be applicable to the Company are as follows: IFRS 9 Financial Instruments (“IFRS 9”) IFRS 9 was issued by the IASB in November 2009 with additions in October 2010 and May 2013 and will replace IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”). 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. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9, except that an entity choosing to measure a financial liability at fair value will present the portion of any change in its fair value due to changes in the entity’s own credit risk in other comprehensive income, rather than within profit or loss. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. IFRS 15 - Revenue from Contracts with Customers (“IFRS 15”) IFRS 15 proposes to replace IAS 18 - Revenue, IAS 11 - Construction contracts, and some revenue-related interpretations. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. IFRS 15 is effective for annual periods beginning on or after January 1, 2018.

IFRS 16 – Leases (“IFRS 16”) IFRS 16 was issued in January 2016 and replaces IAS 17 – Leases as well as some lease related interpretations. With certain exceptions for leases under twelve months in length or for assets of low value, IFRS 16 states that upon lease commencement a lessee recognises a right-of-use asset and a lease liability. The right-of-use asset is initially measured at the amount of the liability plus any initial direct costs. After lease commencement, the lessee shall measure the right-of-use asset at cost less accumulated depreciation and accumulated impairment. A lessee shall either apply IFRS 16 with full retrospective effect or alternatively not restate comparative information but recognise the cumulative effect of initially applying IFRS 16 as an adjustment to opening equity at the date of initial application. IFRS 16 requires that lessors classify each lease as an operating lease or a finance lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise it is an operating lease. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Earlier adoption is permitted if IFRS 15 has also been applied. IFRIC 22 – Foreign Currency Transactions and Advance Consideration (“IFRIC 22”) IFRIC 22 was issued on December 8, 2016. The Interpretation clarifies which date should be used for translation when a foreign currency transaction involves an advance payment or receipt. The Interpretation is applicable for annual periods beginning on or after January 1, 2018.


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Outstanding Securities The Company’s authorized share capital is an unlimited number of common shares of which 42,973,027 common shares were issued and outstanding as at September 30, 2017 (December 31, 2016 – 38,523,669 common shares); 5,322,862 common share purchase warrants outstanding, exercisable at an average price of $0.63 at September 30, 2017 (December 31, 2016 – 3,813,987 common share purchase warrants); and 4,676,424 common share purchase options under the Company employee stock option plan (“ESOP”) at prices between $0.30 and $0.75 per share (December 31, 2016 – 5,489,841 common share purchase options). As of the date of this MD&A, 42,973,027 common shares were issued and outstanding, 5,322,862 common share purchase warrants were outstanding, exercisable at prices between $0.25 and $0.80 per share and 4,349,757 common share purchase options under the Company ESOP were outstanding, exercisable at prices between $0.30 and $0.75 per share. Risks and Uncertainties Limited Business History The Company has not paid any dividends and it is unlikely that it will pay any dividends in the immediate future. The success of the Company depends entirely on the expertise, ability, judgment, discretion, integrity and good faith of its management. The Company has limited financial resources and there is no assurance that additional funding will be available for further operations or to fulfill its obligations under applicable agreements. There is no assurance that the Company can generate sufficient revenues to operate profitably, or provide a return on investment, or that it will successfully implement its plans. Additional Financing It is expected that the Company will require additional financing in order to make further investments or take advantage of future opportunities. The ability of the Company to arrange such financing in the future will depend in part upon prevailing capital market conditions, as well as upon the business success of the Company. There can be no assurance that the Company will be successful in its efforts to arrange additional financing, or that such financing will be available on terms satisfactory to the Company. If additional financing is raised by the issuance of shares or other forms of convertible securities from treasury, 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 not be able to take advantage of opportunities, or otherwise respond to competitive pressures and remain in business. Profitability There is no assurance that the Company will earn profits in the future, or that profitability will be sustained. There is no assurance that future revenues will be sufficient to generate the funds required to continue the Company’s business development and marketing activities. If the Company does not have sufficient capital to fund its operations, it may be required to reduce its sales and marketing efforts or forego certain business opportunities. Protection of Intellectual Property The Company’s success depends in part on its ability to obtain and defend patent and other intellectual property rights that are important to the commercialization of its products and product candidates. The degree of patent protection that will be afforded to its products and processes in Canada, the US, and in other important markets remains uncertain and is dependent upon the scope of protection decided upon by the patent offices, courts and lawmakers in these countries. The Company can provide no assurance that it will successfully obtain or preserve patent protection for the technologies incorporated into its products and processes, or that the protection obtained will be of sufficient breadth and degree to protect its commercial interests in all countries where it conducts business. If the Company cannot prevent others from exploiting its inventions, it will not derive the benefit from them that it currently expects. Furthermore, the Company can provide no assurance that its products wil l not infringe on patents or other intellectual property rights held by third parties. Litigation, interference, oppositions or other proceedings may in the future be necessary in some instances to determine the validity and scope of certain of the Company ’s proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products. Litigation, interference, oppositions or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to management. The outcome of such proceedings could adversely affect the validity and scope of the Company’s patents or other proprietary rights, hinder its ability to manufacture and market its products, require it to seek a license for the infringed product or technology or result in the assessment of significant monetary damages against the Company that may exceed amounts, if any, accrued in our financial statements. An adverse determination in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent the Company from manufacturing or selling its products.


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Dependence on Management and Key Personnel The Company depends on the business and technical expertise of its management team and there is little possibility that this dependence will decrease in the near term. The Company’s success will depend in large measure on certain key personnel. The loss of the services of such key personnel may have a material adverse effect on the Company’s business, financial condition, results of operations and prospects. The contributions of the existing management team or any new additions to the management team to the immediate and near-term operations of the Company are likely to be of central importance. In addition, the competition for qualified personnel in the Company’s industry is significant and there can be no assurance that the Company will be able to continue to attract and retain all personnel necessary for the development and operation of its business. Investors must rely upon the ability, expertise, judgment, discretion, integrity and good faith of the management of the Company. Advertising, Marketing and Promotion The Company’s results depend on the impact of its pricing, promotional and marketing plans and its ability to adjust these plans to respond quickly to economic and competitive conditions while remaining compliant with relevant legislation and regulations. Its existing or future pricing strategies and the value proposition they represent will continue to be important components of its overall plan, but may not be successful and could negatively impact sales and margins. The promotion of its offerings may yield results below desired levels. Additionally, the Company operates in an increasingly complex and costly advertising environment. Its marketing and advertising programs may not be successful and it may fail to attract and retain customers. If the Company’s pricing, promotional and marketing plans are not successful, or are not as successful as those of its competitors, its sales, market share, and financial results could be adversely affected. Some of the Company’s competitors are much larger than the Company, and expend more for their programs than the Company does, or use different approaches than the Company does, which may provide them with a competitive advantage. The Company’s marketing, advertising and promotional programs may not be effective or could require increased expenditures, which could have a material adverse effect on its revenue, profitability, and results of operations. The Company may need to adjust its marketing, advertising and promotional programs effectively and more quickly as Internet-based and other digital or mobile communication channels and other social media rapidly evolve, and it may not successfully do so. In addition, the Company must comply with regulatory restrictions on advertising and marketing. Non-compliance could result in penalties to the Company and/or increased costs. Customer Concentration The Company’s historical and current revenues are derived from a small number of customers who operate pharmacy and grocery chains, or distribute to pharmacy and grocery chains, within Canada. There can be no assurance that all or any of the Company’s customers will continue to purchase the Company’s products for resale in their stores to their own customers. The loss of any such customer, whether with respect to all Company products, or one or more of the Company’s products, may have a materially negative impact on the business conditions and financial results of the Company. Product Liability and/or Safety Concerns The development, production, and sale of therapeutic and natural health products entails an inherent risk of product liability claims, product recall and the resulting adverse publicity. By way of example, such products may contain contaminants that may be inadvertently included by the Company, and these contaminants may, in certain cases, result in illness, injury or death at the consumer level. Even an inadvertent shipment of adulterated products and/or improper advertising or labelling of products is a violation of law and may lead to a product recall and/or an increased risk of exposure to product liability claims. There can be no assurance that such claims will not be asserted against the Company or that it will not be obligated to perform product recalls in the future. If a product liability claim is successful, the Company’s insurance coverage may not be adequate to pay all liabilities and it may not be able to continue to maintain such insurance coverage or obtain comparable insurance coverage at a reasonable cost. If the Company does not have adequate insurance coverage or contractual indemnification available, product liability claims relating to defective products could have an adverse effect on its ability to successfully market its products and on its financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the adverse publicity surrounding any assertion that the Company’s products caused illness or injury could have an adverse effect on the Company’s reputation with existing and potential customers and on its financial condition and results of operations. Applicable federal, state and provincial legislation and regulations regarding product quality and safety may negatively impact the Company’s operations. Any changes in product safety or quality legislation or regulations may lead to product recalls and the disposal or write-off of merchandise inventories, as well as certain fines or penalties and reputational damage. The Company’s inability to timely comply with regulatory requirements or execute product recalls could result in substantial fines or penalties, which could have an adverse impact on its financial results. The Company may be subject to product liability claims from customers or others relating to its products recalled, defective or otherwise alleged to be harmful. Such claims may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects,


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substances, chemicals, other agents, or residues introduced during the growing, storage, handling and transportation phases. The outcome of claims against the Company could have an adverse impact on the Company’s financial results. Additionally, negative customer perceptions regarding the safety of the Company’s products could cause it to lose market share to its competitors, which could be difficult to regain. Industry Regulation The Company’s products are subject to rigorous regulation by Health Canada, the US Food and Drug Administration (“FDA”), and potentially additional international, supranational, federal, provincial, and state authorities. The process of obtaining regulatory approvals to market a drug or natural health product can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, future products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues, and in substantial additional costs. In addition, no assurance can be given that the Company will remain in compliance with applicable Health Canada, FDA, and other regulatory requirements once approval or marketing authorization has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and postmarketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns. The Company will incur expense and will spend time and effort to ensure compliance with these complex regulations. Possible regulatory actions for non-compliance could include warning letters, fines, damages, injunctions, civil penalties, recalls, seizures of our products, and criminal prosecution. These actions could result in, among other things, substantial modifications to the Company’s business practices and operations; refunds, recalls, or seizures of our products; a total or partial shutdown of production while the Company or its suppliers remedy the alleged violation; the inability to obtain future pre-market approvals or marketing authorizations; and withdrawals or suspensions of current products from the market. Any of these events could require a change in marketing strategy or otherwise disrupt the Company’s business and have a material adverse effect on the Company’s revenues, profitability and financial condition. Obtaining and maintaining regulatory approval has been and will continue to be increasingly difficult, time-consuming and costly. There may be situations in which demonstrating the efficacy and safety of a product candidate may not be sufficient to gain regulatory approval. Also, legislative bodies or regulatory agencies could enact new laws or regulations or change existing laws or regulations at any time, which could affect the Company’s ability to obtain or maintain approval of its products or product candidates. Failure to comply with new laws or regulations could result in significant monetary penalties as well as reputational and other harms. The Company is unable to predict when and whether any further changes to laws or regulatory policies affecting its business could occur. The imposition of additional requirements may delay the Company’s product development and regulatory filing efforts, and delay or prevent it from obtaining regulatory approval for new product candidates, new indications for existing products or maintenance of its current products. Successful Development and Commercialization of New Products To remain competitive, the Company must continue to launch new products and improve its technologies. To accomplish this, it must commit substantial efforts, funds, and other resources to R&D. A high rate of failure is inherent in the R&D of new products and technologies. The Company must make ongoing substantial expenditures without any assurance that its efforts will be commercially successful. Failure can occur at any point in the process, including after significant funds have been invested. Promising new product candidates may fail to reach the market or may only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others. Even if the Company successfully develops new products or enhancements or new generations of its existing products and technologies, they may be quickly rendered obsolete by changing customer preferences, changing industry standards, or competitors’ innovations. The Company cannot state with certainty when or whether any of its products under development will be launched, whether it will be able to develop, license, or otherwise acquire products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause the Company’s products to become obsolete, causing its revenues and operating results to suffer. The Company competes with a large number of multinational pharmaceutical companies, biotechnology companies, consumer healthcare companies, and consumer goods companies. To compete successfully, the Company must continue to deliver to the market innovative, cost-effective products that meet important medical needs. Its product revenues can be adversely affected by the introduction by competitors of branded products that are perceived as superior by the marketplace, by biosimilar versions of the Company’s branded products, and by generic or biosimilar versions of other products in the same therapeutic class as the Company’s branded products. Even if the Company is able to obtain regulatory approvals for its products, the success of those products is dependent upon market acceptance. Levels of market acceptance for the Company’s products could be impacted by several factors, including


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but not limited to: i) the availability of alternative products from the Company’s competitors, ii) the price of the Company’s products relative to that of its competitors, iii) the timing of market entry, iv) the ability to market its products effectively, v) other competitor actions and vi) government regulations. The occurrence of any of the above risks could adversely affect the Company’s profitability, business, financial condition, results of operations, cash flows, and/or share price. Manufacturing and Distribution A substantial portion of the Company’s capacity, as well as its current production, is attributable to a limited number of manufacturing facilities and certain third-party suppliers. A significant disruption at any one of such facilities within our internal or third party supply chain, even on a short-term basis, whether due to a labour strike, failure to reach acceptable agreement with labour and unions, adverse quality or compliance observation, infringement of intellectual property rights, act of God, civil or political unrest, export or import restrictions, or other events could impair the Company’s ability to produce and ship products to the market on a timely basis and could, among other consequences, subject it to lost revenues, damaged reputation, and exposure to claims from customers. Any of these events could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows, and/or share price. Importance of Inventory, Warehouse and Distribution Systems The Company’s inventory, warehouse and distribution systems are critical components of its operations. The Company’s ability to maintain and upgrade the capabilities of these systems is important to its future performance. If the Company is unable to maintain the inventory, warehouse and distribution systems or fails to adequately upgrade these systems, the Company’s operations could be adversely affected with the further material adverse effect being on financial results of the operations. The Company must maintain sufficient inventory levels to successfully operate its business. However, it also must seek to avoid accumulating excess inventory to maintain appropriate in-stock levels. The Company obtains a significant percentage of its raw materials from vendors in Europe and the United States. These foreign vendors often require lengthy advance notice of the Company’s requirements in order to be able to supply products in the quantities that the Company requests. This usually requires the Company to order merchandise and enter into purchase order contracts for the purchase of such merchandise well in advance of the time these materials are used in the production and sale of products. Raw Material and Ingredient Cost Increases Raw material and ingredient costs are dependent on a number of factors, including but not limited to weather, crop harvests, labour prices, government regulation, inflation and fuel prices. Any attempt to pass on an increase in wholesale costs to consumers through product price increases could have a material adverse effect on the Company’s sales while a failure to effectively pass any such increases on to consumers could have a material adverse effect on the Company’s result of operations. 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. Issuance of Debt From time to time, the Company may enter into transactions to acquire assets or the shares of other organizations or seek to obtain additional working capital. These transactions may be financed in whole or in part with debt, which may increase the Company’s debt levels above industry standards for companies of similar size. Depending on future plans, the Company may require additional equity and/or debt financing that may not be available or, if available, may not be available on terms favourable to the Company. The level of the Company’s indebtedness from time to time could impair its ability to obtain additional financing on a timely basis to take advantage of business opportunities that may arise. The inability of the Company to service its debts as required may have a materially adverse impact on the results and operations of the Company. Dilution The Company may make future acquisitions or enter into financings or other transactions involving the issuance of securities of the Company which may be dilutive to the existing shareholders.


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Price Volatility of Publicly Traded Securities In recent years, the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market prices of securities of many companies have experienced wide fluctuations in price. There can be no assurance that continuing fluctuations in price will not occur. Any quoted market for the Company’s shares will be subject to market trends generally, notwithstanding any potential success of the Company in generating revenues, cash flows or earnings. The value of the Company’s shares will be affected by such volatility. A public trading market in the Company’s securities having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of Common Shares at any given time, which presence is dependent on the individual decisions of investors over which the Company has no control. There can be no assurance that an active trading market in securities of the Company will be established and sustained. The market price for the Company’s securities could be subject to wide fluctuations, which could have an adverse effect on the market price of the Company. The stock market has, from time to time, experienced extreme price and volume fluctuations, which have often been unrelated to the operating performance, net asset values or prospects of particular companies. If an active public market for the Company’s shares does not develop, the liquidity of a shareholder’s investment may be limited and the share price may decline. Conflicts of Interest Certain directors of the Company are also directors of other companies and as such may, in certain circumstances, have a conflict of interest requiring them to abstain from certain decisions. Labour Costs and Shortages and Labour Relations The success of the Company’s business will depend on a large number of both hourly and salaried employees. Changes in the general conditions of the employment market could affect the ability of the Company to hire or retain staff at current wage levels. The occurrence of either of these events could have an adverse effect on the Company’s results of operations. The Company does not currently have unionized staff but no assurance can be made that some or all of the employees of the Company will not unionize in the future. If successful, such an occurrence could increase labour costs and thereby have an adverse effect on the Company’s results of operations. Foreign Exchange Foreign exchange risk exists on the purchases by the Company on certain raw materials and ingredients purchased in foreign currencies including in US dollars and in Euros. The Company currently does not enter into foreign exchange hedging contracts and fluctuations in the value of the Canadian dollar against these foreign currencies can lead to financial adverse effects on the business and operations of the Company. In addition, the Company sells its products in various countries and in different denominations and significant fluctuations in the value of such denominations against the Canadian dollar can result in reduced margins and profitability for the Company. Trademarks The Company considers its trademarks, particularly certain brand names and product packaging, advertising and promotion design and artwork to be of significant importance to its business and ascribes a significant value to these intangible assets. The Company will rely on trademark laws and other arrangements to protect its proprietary rights. There can be no assurance that the steps taken by the Company to protect its intellectual property rights will preclude competitors from developing confusingly similar brand names or promotional materials. The Company believes that its proprietary rights do not infringe upon the proprietary rights of third parties, but there can be no assurance in this regard. Online Sales and Privacy Breach The Company operates an online store for the purchase of Company products by customers and as a result the Company will process, store and transmit data that includes personal information. The use and handling of personally identifiable data by the Company, its business associates and third parties is regulated at the provincial, state, federal and international levels. The Company is also contractually obligated to comply with certain industry standards regarding payment card information. Increasing costs associated with information security, such as increased investment in technology, the costs of compliance and costs resulting from consumer fraud, could cause the Company’s business and results of operations to suffer materially. Additionally, the success of the Company’s online operations depends upon the secure transmission of customer and other confidential information over public networks, including the use of cashless payments. While the Company takes significant steps to protect this information, lapses in controls or the intentional or negligent actions of employees, business associates or third parties may undermine security measures. As a result, unauthorized parties may obtain access to the Company’s data systems and misappropriate employee, customer and other confidential data. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or other developments will prevent the compromise of the


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Company’s customer transaction processing capabilities and customer personal data. Furthermore, because the methods used to obtain unauthorized access change frequently and may not be immediately detected, the Company may be unable to anticipate these methods or promptly implement preventative measures. Any such compromise of security or the security of information residing with the Company’s business associates or third parties could have a material adverse effect on the Company’s reputation, which may in turn have a negative impact on sales, and may expose the Company to material costs, penalties and compensation claims. In addition, any compromise of our data security may materially increase the costs the Company incurs to protect against such breaches and could subject us to additional legal risk. Financial Instruments The Company’s risk exposures and the impact on the financial instruments are summarized below. There have been no material changes to the risks, objectives, policies and procedures during the nine months ended September 30, 2017 and the year ended December 31, 2016. (a) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s trade accounts receivable. The Company's credit risk is primarily attributable to cash and cash equivalents and trade and other receivables. The Company monitors the credit risk and credit standing of its customers on a regular basis. See Note 4 of the unaudited condensed interim consolidated financial statements for an aging analysis of trade receivables. The Company’s revenues are primarily derived from a small number of customers who operate pharmacy and grocery chains, or distribute to pharmacy and grocery chains, within Canada. The Company has three customers who represented 41%, 27% and 19% of revenues, respectively, for the three months ended September 30, 2017 (three months ended September 30, 2016 – three customers with 25%, 14% and 7% of revenues, respectively) and represented 41%, 27% and 19% of revenues, respectively, for the nine months ended September 30, 2017 (nine months ended September 30, 2016 – three customers with 38%, 27% and 20%, respectively). There can be no assurance that all or any of the Company’s customers will cont inue to purchase the Company’s products for resale in their stores to their own customers. The loss of any such customer, whether with respect to all of the Company’s products, or one or more of the Company’s products, may have a materially negative impact on the Company business conditions and financial results. Cash is generally invested in cash accounts or short-term interest-bearing securities issued by the Canadian chartered banks. At September 30, 2017, the Company had $500,000 invested in term deposits. Management believes the risk of loss associated with these assets to be remote. Management believes that the credit risk concentration with respect to financial instruments included in assets has been reduced to the extent presently practicable. (b) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The Company endeavors to have sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot be reasonably predicted. At September 30, 2017, the Company has a cash and cash equivalents balance of $798,840 (December 31, 2016 - $1,773,279) to settle current liabilities of $749,768 (December 31, 2016 - $3,932,144). Included in current liabilities as at December 31, 2016 is $2,808,811 related to convertible debentures and derivatives, which automatically converted to equity on January 16, 2017. All the Company’s financial liabilities generally have contractual maturities of less than 30 days and are subject to normal trade terms, except for loans payable and other liabilities. In addition to the commitments disclosed previously, the Company is obligated to the following contractual maturities of undiscounted cash flows as at September 30, 2017:


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Carrying amount

Contractual cash flows

October 1, 2017 to

September 30, 2018

October 1, 2018 to

September 30, 2020

October 1, 2020

and thereafter

$ $ $ $ $ Accounts payable and accrued liabilities 553,731 553,731 553,731 - - Other liabilities 155,745 296,000 - - 296,000 Loans payable 2,079,147 3,927,542 256,372 775,554 2,895,616

Total 2,788,623 4,777,273 810,103 775,554 3,191,616

(c) Currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is subject to foreign exchange risk as certain materials are purchased from vendors located outside of Canada, in US dollars and Euros. The Company is therefore subject to gains and losses due to fluctuations in the US dollar and Euro relative to the Canadian dollar. (d) Interest rate risk

The Company has cash balances with rates that fluctuate with the prevailing market rate. The Company’s current policy is to invest excess cash in cash accounts or short-term interest-bearing securities issued by Canadian chartered banks. The Company periodically monitors the investments it makes and is satisfied with the credit ratings of its banks. The Company’s Finance PEI loans are interest bearing debt with rates that fluctuate with the prevailing prime lending rate from a Canadian chartered bank from time to time. The Company closely monitors interest rates to determine the appropriate course of action to be taken by the Company. The Company does not use any derivative instrument to reduce its exposure to interest rate risk. Forward-Looking Information This MD&A includes certain information and statements about management's view of future events, expectations, plans and prospects that constitute "forward-looking statements", which are not comprised of historical facts. Forward-looking statements may be identified by such terms as "believes", "anticipates", "intends", "expects", "estimates", "may", "could", "would", "will", or "plan", and similar expressions. Specifically, forward-looking statements in this MD&A include, without limitation, statements regarding: the Company’s revenues and financial performance; the Company's drug research and development plans; the timing of operations; and estimates of market conditions. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events, performance, or achievements of Delivra to differ materially from those anticipated or implied in such forward-looking statements. The Company believes that the expectations reflected in these forward-looking statements are reasonable, but there can be no assurance that actual results will meet management's expectations. In formulating the forward-looking statements contained herein, management has assumed that business and economic conditions affecting Delivra will continue substantially in the ordinary course and will be favourable to Delivra; that the Company will continue to complete orders with existing customers and control product pricing and expenses; that clinical testing results will justify commercialization of the Company's drug candidates; that Delivra will be able to obtain all requisite regulatory approvals to commercialize its drug candidates, that such approvals will be received on a timely basis, and that Delivra will be able to find suitable partners for development and commercialization of its products and intellectual property on favourable terms. Although these assumptions were considered reasonable by management at the time of preparation, they may prove to be incorrect. Factors that may cause actual results to differ materially from those anticipated by these forward-looking statements include: the ability to maintain existing product sales with current customers at existing product pricing and expenses; uncertainties associated with obtaining regulatory approval to perform clinical trials and market products; the need to establish additional corporate collaborations, distribution or licensing arrangements; the ability of the Company to generate sales and profits; the Company's ability to raise additional capital if and when necessary; intellectual property disputes; increased competition from pharmaceutical and biotechnology companies; changes in equity markets, inflation, and changes in exchange rates; and other factors as described in detail in Delivra's public filings, all of which may be viewed on SEDAR (www.sedar.com). Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements and information, which are qualified in their entirety by this cautionary statement. Except as required by law, Delivra disclaims any intention and assumes no obligation to update or revise any forward-looking statements to reflect actual results, whether as a result of new information, future events, changes in assumptions, changes in factors affecting such forward-looking statements or otherwise.

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