UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:
	For the quarterly period ended December 31, 2016
	For the quarterly period ended September 30, 2017
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934:
	For the transition period from ________ to ________

Commission File Number: 333-199612

Algae Dynamics Corp.

(Exact name of registrant as specified in its charter)

Canada

N/A

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

4120 Ridgeway Drive, Unit 37, Mississauga, ON L5L 5S9 Canada

(Address of principal executive offices) (Zip Code)

(289) – 997- 6740

(Registrant’s Telephone Number, including area code)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X ] Yes [ X] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [X] No

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[ ]		Accelerated filer	[ ]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Smaller reporting company	[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

As of ~~February~~January 1416, ~~2017~~2019 there were 1320,~~223~~136,~~021~~377 shares of the issuer’s non-par value common shares issued and outstanding.

TABLE OF CONTENTS

		Page
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2332
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3253
Item 4.	Controls and Procedures	3253
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	55

Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	36

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

ALGAE DYNAMICS CORP.

Condensed Interim Balance Sheets

(Stated in Canadian Dollars)

(Unaudited)

	As at December 31, 2016			As at March 31, 2016
	As at September 30,			As at March 31,
	2017			2017
ASSETS
Current Assets
Cash	$	2,~~850~~910		$	~~173~~87
Prepaid expenses (Note 7a)		124,382			14,752
Prepaid expenses		27,427			32,878
Amounts receivable from officer (Note 10)		18,395			21,064
Amounts receivable, net		13,948			11,963
Amounts receivable, net		7,604			8,002
Advances to shareholders and related parties (Note 11)		6,906			-
Total Current Assets		~~153~~51,~~231~~191			4344,~~991~~928
Equipment and leasehold improvements, net (Note 3)		5237,~~184~~710			6547,~~252~~828
Total Assets	$	~~205~~88,~~415~~901		$	~~109~~92,~~243~~756
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (Note 10)	$	180,596		$	397,878
Accounts payable and accrued liabilities	$	380,182		$	286,792
Advances from shareholders and related parties (Note 4)		525,~~326~~919			~~383~~22,~~990~~347
Term loan (Note 5)		50,956			-
Promissory note (Note 6a)		-			16,456
Convertible Note (Note 6)		11,993			-
Term loan (Note 5a)		50,447			48,894
Warrant liability (Note 7b)		-			27,479
Term loan - GHS (Note 5b)		101,864			-
Total Current Liabilities		248,871			809,347
Convertible notes (Note 6)		120,646			26,076
STOCKHOLDERS' (DEFICIENCY)
Derivative liability (Note 7)		209,986			260,677
Common stock (Note 7a), no par value, unlimited amount authorized, 12,848,021 issued and outstanding as of December 31, 2016, (March 31, 2016 - 9,701,051)		4,102,147			1,466,352
Warrant liability (Note 8b)		138,133			236,200
Additional paid in capital (Note 7c)		1,047,706			1,026,765
Total Current Liabilities		1,027,177			897,442
Warrants (Note 7b)		16,110			190,198
Going Concern (Note 1)
Equity to be issued (Note 7a)		86,381			339,949
Commitments and Contingencies (Note 10)
Accumulated deficit		(5,295,800	)		(3,723,368	)
STOCKHOLDERS’ (DEFICIENCY)
Total Stockholders' (Deficiency)		(43,456	)		(700,104	)
Common stock (Note 8a), no par value, unlimited amount authorized, 13,537,521 issued and outstanding as of September 30, 2017, (March 31, 2017 - 13,337,521)		4,339,176			4,313,931
Total Liabilities and Stockholders' (Deficiency)	$	205,415		$	109,243
Additional paid in capital (Notes 8b and 8c)		1,033,746			1,016,324
Equity to be issued (Note 8a)		27,186			-
Accumulated deficit		(6,338,384	)		(6,134,941	)
Total Stockholders’ (Deficiency)		(938,276	)		(804,686	)
Total Liabilities and Stockholders’ (Deficiency)	$	88,901		$	92,756

Going Concern (Note 1)

Commitments and Contingencies (Note 9)

These condensed interim financial statements are approved by the Directors:

signed “Cameron McDonald” signed “Blair Mullin” Director Director

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

ALGAE DYNAMICS CORP.

Condensed Interim Statements of Operations

(Stated in Canadian Dollars)

(Unaudited)

	For the			For the		For the			For the
	Three Month			Three Month		~~Nine~~Six Month			~~Nine~~Six Month
	Period Ended			Period Ended		Period Ended			Period Ended
	December 31, 2016			December 31, 2015		December 31, 2016			December 31, 2015
	September 30,			September 30,		September 30,			September 30,
	2017			2016		2017			2016
OPERATING EXPENSES
Accretion expenses (Notes 5 and 6)	$	1370,~~941~~725		$	63,~~857~~060	$	22143,~~897~~767		$	8,~~933~~956
Application and membership fees		3,~~247~~407			203,~~050~~247		96,~~740~~813			206,~~050~~493
Amortization expense (Note 3)		46,~~356~~191			4,~~438~~356		1310,~~068~~118			138,~~316~~712
Business development		1,309			3,715		5,767			11,380
Bad debt recovery (Note 11)		(5,030	)		-		(8,300	)		-
Foreign Exchange loss		2,034			492		2,352			1,538
Business development		455			1,973		877			4,458
Interest		1,863			16,801		3,564			21,817
Fair value change in derivative liability (Note 7)		(57,797	)		-		(118,844	)		-
Loss on extinguishment of related party debt (Note 4)		544,066			-		544,066			-
Foreign exchange recovery		138			-		(4,918	)		-
Gain on settlement of debt (Note 7c)		(72,924	)		-		(72,924	)		-
Interest		39,926			655		41,965			1,700
Occupancy costs		7,981			8,019		23,028			23,968
Management fees (recovery)		-			-		(8,125	)		-
Office and general		1,040			1,282		3,413			3,743
Occupancy costs		8,182			7,065		16,497			15,048
Professional fees (Notes 7a, 7b, 7c and 11e)		258,484			320,359		743,738			391,260
Office and general		(74	)		813		2,862			2,420
Research and development		1,030			118		6,195			1,915
Professional fees (Notes 8a, 8b, 8c and 12e)		56,598			330,496		40,094			485,254
Stock based compensation (Note 7c)		158,573			94,849		436,127			282,875
Research and development		(35,000	)		4,091		50,000			5,166
Telephone and internet services		3,290			4,398		8,720			11,199
Stock based compensation (Note 8c)		15,342			126,449		33,534			277,554
Travel		5,018			5,885		14,682			14,924
Telephone and internet services		1,684			2,573		5,475			5,430
Total Operating Expenses		933,578			487,263		1,764,433			806,918
Travel		2,340			4,640		7,738			9,664
Operating Loss		933,578			487,263		1,764,433			806,918
Total Operating Expenses		107,087			489,418		219,553			830,855
Deferred income tax recovery		(17,913	)		-		(17,913	)		(7,215	)
Net loss before income taxes		107,087			489,418		219,553			830,855
Net Loss for the Period	$	915,665		$	487,263	$	1,746,520		$	799,703
Deferred income tax recovery		-			-		-			-
Net loss per common share -
Net Loss for the Period	$	107,087		$	489,418	$	219,553		$	830,855
basic and diluted	$	0.09		$	0.05	$	0.17		$	0.09
Net loss per common share - basic and diluted	$	0.01		$	0.05	$	0.02		$	0.08
Weighted average common shares
Weighted average common shares outstanding - basic and diluted		13,537,521			10,091,356		13,381,357			9,910,986
outstanding - basic and diluted		10,589,979			9,358,119		10,138,140			9,298,527

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

ALGAE DYNAMICS CORP.

Condensed Interim Statements of Stockholders' ’ Equity (Deficiency)

(Stated in Canadian Dollars)

(Unaudited)

	Common		Common		Additional			~~Additional~~
	Shares		Shares		Paid in			~~Paid~~Equity into			~~Equity to~~Accumulated			~~Accumulated~~Stockholders’			~~Stockholders'~~
	Number		Amount		~~Warrants~~Capital			~~Capital~~be Issued			~~be Issued~~Deficit			~~Deficit~~(Deficiency)			~~(Deficiency)~~
March 31, 2016		9,701,051	$	1,466,352	$	190,198		$	1,026,765		$	339,949		$	(3,723,368	)	$	(700,104	)
March 31, 2017		13,337,521	$	4,313,931	$	1,016,324		$	-		$	(6,134,941	)	$	(804,686	)
Warrants exercised (Notes 7a and 7b)		44,500		2,318		—			—			—			—			2,318
Warrants expired (Note 8b)		-		-		(16,110	)		-			16,110			-
Warrant liability valuation transferred on exercise		—		43,521		—			—			—			—			43,521
Stock options		-		-		33,532			-			-			33,532
Warrants expired		—		—		(174,088	)		—			—			174,088			—
Commitment shares issued on convertible note (Note 6c and 6d)		200,000		25,245					-						25,245
Stock based compensation issued to management		645,000		592,690					(49,441	)		(107,122	)					436,127
Shares to be issued to consultants as compensation for services (Note 8a)		-		-		-			27,186			-			27,186
(Notes 7a and 7c)
Net loss for the period		-		-		-			-			(219,553	)		(219,553	)
Options exercised		25,000		7,750														7,750
September 30, 2017		13,537,521	$	4,339,176	$	1,033,746		$	27,186		$	(6,338,384	)	$	(938,276	)
Option valuation transferred on exercise		—		6,900		—			(6,900	)		—			—			—
Shares issued for conversion of debt and shareholder advances (Note 7a)		1,475,305		1,321,737		—			27,600			(172,501	)		—			1,176,836
Shares issued to consultants as compensation for services rendered (Note 7a)		957,165		660,879		—			—			26,055			—			686,934
Conversion feature of a convertible note net of deferred income taxes of $17,913 (Note 6)		—		—		—			49,682			—			—			49,682
Net loss for the period		—		—		—			—			—			(1,746,520	)		(1,746,520	)
December 31, 2016		12,848,021	$	4,102,147	$	16,110		$	1,047,706		$	86,381		$	(5,295,800	)	$	(43,456	)

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

ALGAE DYNAMICS CORP.

Condensed Interim Statements of Cash Flows

(Stated in Canadian Dollars)

(Unaudited)

	For the			For the
	Nine Month			Nine Month
	Six Month			Six Month
	Period Ended			Period Ended
	December 31, 2016			December 31, 2015
	September 30,			September 30,
	2017			2016
Cash flows from operating activities
Net loss for the period	$	(1219,~~746,520~~553	)	$	(~~799~~830,~~703~~855	)
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization		13,068			13,316
Accretion expense		143,767			8,956
Stock based compensation (Note 7c)		436,127			505,509
Accrued interest		31,382			-
Deferred income tax recovery		(17,913	)		(7,215	)
Amortization		10,118			8,712
Change in warrant liability (Note 7b)		16,042			—
Change in warrant liability (Note 8b)		(133,900	)		16,042
Shares issued and to be issued for services (Note 7a)		585,351			—
Fair value change in derivative liability (Note 7)		(118,844	)		-
Loss on extinguishment of related party debt		544,066			—
Foreign exchange loss (recovery)		(9,285	)		-
Gain on settlement of debt		(72,924	)		—
Shares issued and to be issued for services (Note 8a)		27,186			335,043
Accretion expense		22,897			8,933
Stock based compensation (Note 8c)		33,532			277,554
Unrealized foreign exchange loss		52			1,538
Change in operating assets and liabilities
Prepaid expenses		(85,~~050~~451	)		~~102~~7,303
Accounts receivable		398			7,472
Amounts receivable		(1,985	)		4,402
Accounts payable		26,839			111,621
Accounts payable and accrued liabilities		94,578			49,759
Net cash flows used in operating activities		(~~200~~137,~~297~~553	)		(~~158~~123,~~428~~084	)
Cash flows from investing activities
Investing in patents		—			(5,124	)
		—			(5,124	)
Cash flows from financing activities
Advances from shareholders		935,~~061~~491			6983,~~956~~136
Common shares issued		—			48,441
Promissory note repaid		(63,775	)
Term loan proceeds		~~40,000~~-			3040,000
Convertible note		67,595			32,288
Convertible notes issued		198,660			-
Warrant exercise proceeds		~~2,318~~-			92,~~505~~318
Net cash flows from financing activities		~~202~~140,~~974~~376			~~190~~125,~~190~~454
Net change in cash		2,~~677~~823			262,~~639~~370
Cash position - beginning of period		~~173~~87			~~3,084~~173
Cash position - end of period	$	2,~~850~~910		$	292,~~723~~543
Supplemental Information:
Income taxes paid		—			—
Common shares and shares to be issued for services (Note 7)		100,000			686,931
Interest paid		—			—
Common shares and shares to be issued for services (Note 7)		686,931			—
Common shares issued for debt settlement (Note 7)		1,065,152			—

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

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

1.) Nature of the Business and Going Concern

Algae Dynamics Corp. (the “Company”) was incorporated under the Canada Business Corporations Act on October 7, 2008 as Converted Carbon of Canada Corp. On November 19, 2010, the Company amended its Articles of Incorporation to change its name to Converted Carbon Technologies Corp. and a further amendment was approved by the shareholders on August 28, 2014 to change the name to Algae Dynamics Corp.

The Company is aconducting ~~nutrient~~research ~~ingredient~~through ~~company~~sponsored ~~and~~research ~~has~~agreements ~~developed~~with atwo ~~scalable~~universities ~~Pure-BioSilo™~~to ~~for~~support ~~sanitary~~development ~~cultivation~~ of ~~microalgae~~health products ~~targeted~~utilizing tocannabis ~~the functional food~~ and ~~beverage~~algae ~~additives and supplement markets~~oil. The Company’s planned principal operations are the ~~design,~~development ~~engineering~~ and ~~manufacturing~~sale of ahealth ~~proprietary~~products, design ~~algae~~and ~~cultivation~~development ~~system for the high volume production~~ of ~~pure contaminant-free~~a ~~algae~~facility ~~biomass.~~to ~~The~~extract ~~Company~~botanical isoils, ~~currently~~and ~~conducting~~design, ~~research~~engineering and ~~development~~manufacturing ~~activities~~of toa ~~operationalize~~proprietary ~~certain~~algae ~~technology~~cultivation ~~currently~~system infor the ~~allowed~~high-volume ~~patent~~production ~~application~~of ~~stage, so it can produce~~ pure ~~contaminate~~contaminant-free algae biomass.

During the year ended March 31, 2014, the Company secured a research facility in Mississauga, Ontario, which houses all of its employees and research and development activities. In May 2016, the Company signed a Letter of Engagement with Midtown Partners & Co, LLC to raise additional equity capital to support the implementation of its business plan.

The Company filed a Form S-1 registration Statement with the U.S Securities and Exchange Commission (SEC) as an initial registration of common shares. The registration was declared effective by the SEC on November 21, 2014. The Company’s stock began trading on September 17, 2015.

The Company’s activities are subject to significant risks and uncertainties, including failing to obtain patents and failing to secure additional funding to operationalize the Company’s current technology before another company develops similar technology.

These unaudited condensed interim financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company is in the development stage and has not yet realized profitable operations and has relied on non-operational sources to fund operations. The Company has suffered recurring losses and additional future losses are anticipated as the Company has not yet been able to generate revenue. In addition, as of ~~December~~September 3130, ~~2016~~2017, the Company has a working capital deficiency of $95975,~~640~~986 (March 31, ~~2016~~2017 - $~~765~~852,~~356~~514) and an accumulated deficit of $56,~~295~~338,~~800~~384 (March 31, ~~2016~~ 2017 - $36,~~723~~134,~~368~~941). The Company’s ability to continue as a going concern is dependent on successfully executing its business plan, which includes the raising of additional funds. The Company will continue to seek additional forms of debt or equity financing, but it cannot provide assurances that it will be successful in doing so. These circumstances raise substantial doubt as to the ability of the Company to meet its obligations as they come due and accordingly, the appropriateness of the use of accounting principles applicable to a going concern. The accompanying ~~condensed interim~~ financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Such adjustments could be material.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

2.) Presentation of Financial Statements

Basis of Presentation

These unaudited condensed interim financial statements should be read in conjunction with the financial statements for the Company’s most recently completed fiscal year ended March 31, ~~2016~~2017. These unaudited condensed interim financial statements do not include all disclosures required in annual financial statements, but rather are prepared in accordance with recommendations for interim financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These unaudited condensed interim financial statements have been prepared using the same accounting policies, and methods as those used by the Company in the annual financial statements for the year ended March 31, ~~2016~~2017, except when disclosed below.

The unaudited condensed interim financial statements contain all adjustments (consisting of only normal recurring adjustments) which are necessary to present fairly the financial position of the Company as at ~~December~~September 3130, ~~2016~~2017, and the results of its operations for the ~~nine~~six month periods ended ~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016 and its cash flows for the ~~nine~~six month periods ended ~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016. Note disclosures have been presented for material updates to the information previously reported in the annual financial statements.

Estimates

The preparation of ~~these~~the ~~condensed interim~~ financial statements ~~has~~in ~~required~~accordance with US GAAP requires management to make estimates and assumptions that ~~affect~~ affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial ~~statements~~ statements and the reported amounts of ~~the~~ revenues and expenses during the reporting period. Actual amounts could materially differ from these estimates. The significant areas requiring the use of management estimates are related to provision for doubtful accounts, accrued liabilities, contingencies, the valuation of deferred taxes, stock based compensation, warrants, convertible debt and intangible assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ materially from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to provision for doubtful accounts, accrued liabilities and contingencies, and the valuation of income taxes, stock based compensation, warrants, convertible debt and intangible assets. The Company bases its estimates on historical experiences and on various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates. As adjustments become necessary, they are reported in earnings in the period in which they become known.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

32.) Presentation ~~Equipment~~of ~~and~~Financial ~~Leasehold~~Statements ~~Improvements~~(continued)

	December 31, 2016				March 31, 2016
			Accumulated				Accumulated
	Cost		Amortization		Cost		Amortization
Computer equipment	$	3,558	$	2,419	$	3,558	$	2,089
Production equipment		67,367		33,682		67,367		27,738
Leasehold improvements		49,812		32,452		42,290		18,136
Total	$	120,737	$	68,553	$	113,215	$	47,963
Net carrying amount			$	52,184			$	65,252

New Accounting Pronouncements

~~During~~ASU ~~the~~No. ~~nine~~2015-17, ~~month~~Income ~~periods~~Taxes ~~ended~~(Topic ~~December~~740): ~~31,~~Balance ~~2016~~Sheet Classification of Deferred Taxes, ~~the~~was ~~Company~~issued ~~recorded~~to ~~total~~simplify ~~amortization~~the classification of ~~$13,068~~deferred ~~(2015~~taxes on the balance sheet. The new guidance would require that deferred taxes be classified as non-current ~~$13~~assets and liabilities based on the tax paying jurisdiction. Application of the standard,~~316)~~ which ~~was~~can be applied prospectively or retrospectively, ~~recorded~~is torequired ~~amortization~~for ~~expense~~fiscal years beginning on ~~the~~or ~~statements~~after December 15, 2016 and for interim periods within that year. The adoption of the ~~operations~~amended guidance on April 1, 2017 did not have a material impact on the Company’s financial statements.

4ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10) ~~Advances~~- ~~from~~Recognition ~~Shareholders~~and Measurement of Financial Assets and ~~Related~~Financial ~~Parties~~Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. The guidance is not expected to have a material impact on the Company’s financial statements.

AsASU No. ~~at December 31,~~ 2016-02, ~~the~~Leases ~~Company had~~(Topic ~~received~~842) ~~cumulative~~- ~~net~~On ~~working~~February ~~capital~~25, ~~advances~~2016, in the ~~amount~~FASB ofissued ~~$5,326~~a ~~(March~~new ~~31,~~standard ~~2016~~which -requires ~~$383,990)~~lessees ~~from~~to ~~two~~recognize ~~shareholders~~almost ~~who~~all ~~are~~leases ~~also~~on ~~officers~~their ~~and~~balance ~~directors~~sheet as a right-of-use ~~the~~asset ~~Company~~and a lease liability. The ~~advances~~new ~~from~~guidance ~~shareholders~~will ~~are~~require ~~unsecured,~~the ~~non-interest~~asset ~~bearing~~ and ~~payable~~liability ~~upon~~to ~~demand.~~be ~~During~~initially measured at the ~~three~~present ~~month~~value ~~period~~of ~~ended~~the ~~December~~lease ~~31,~~payments ~~2016,~~in the ~~two~~statement ~~shareholders~~of ~~converted~~financial ~~advances~~position. ofThe ~~$469,056~~new ~~and~~guidance ~~$52,030~~will ofalso ~~accounts~~require ~~payable~~the ~~into~~company ~~1,316,173~~to ~~common~~recognize ~~shares~~interest expense on the lease liability separately from the amortization of the ~~Company.~~right-use-asset for ~~The~~finance ~~common~~leases ~~shares~~and ~~were~~recognize ~~valued~~a atsingle ~~$1,065,152~~lease ~~based~~cost ~~upon~~allocated anon ~~estimated fair~~a ~~value~~straight-line ofbasis ~~USD$0.60~~over ~~($0.81)~~the ~~per~~lease ~~share~~term atfor operating leases, in the ~~time~~statement of ~~issuance~~comprehensive income. The ~~difference~~new ~~between~~standard ~~the~~is ~~fair~~effective ~~market~~for ~~value~~fiscal ofyears ~~the~~beginning ~~common~~after ~~shares~~December 15, 2018, including ~~and~~interim ~~the~~periods ~~carrying~~within ~~value~~those offiscal ~~the~~years ~~advances~~with ~~from~~early ~~shareholders~~application ~~and~~permitted. ~~the~~The ~~amount~~Company ~~included~~is incurrently ~~accounts~~evaluating ~~payable~~this ~~was~~guidance to ~~recorded~~determine asthe aimpact ~~loss~~it ~~on extinguishment~~may ofhave ~~related~~on ~~party~~the ~~debt~~Company’s offinancial ~~$544,066~~statements.

5ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): ~~Term~~Improvements ~~Loan~~to Employee Share-Based Payment Accounting. The ASU includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. The areas of simplification in the update involve several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows, however, some of the areas for simplification apply only to non-public entities. This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The guidance, as adopted on April 1, 2017, did not have a material impact on the Company’s financial statements.

On May 4, 2016, the Company agreed to a term loan of $40,000 for bridge financing with a relative of one of the officers of the Company. The loan matures on February 28, 2017 and the terms specify a 30% premium to be paid at that time. The 30% premium is recognized as an expense over the term of the loan and is amortized on the condensed interim statements of operations. During the three and nine month periods ended December 31, 2016 the Company recorded accretion expense of $2,000 and $10,956, respectively (2015 - $nil and $nil, respectively). The loan was initially scheduled to mature on August 28, 2016 but an extension of three months, followed by a second extension of three months was agreed to with the same terms.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

62.) Presentation ~~Convertible~~of ~~Note~~Financial Statements (continued)

~~Securities~~New ~~Purchase~~Accounting ~~Agreement~~Pronouncements ~~and Convertible Note~~(continued)

OnASU ~~November~~No. ~~18,~~ 2016-15, ~~the~~Statement ~~Company~~of ~~entered~~Cash ~~into~~Flows a(Topic ~~securities~~230): ~~purchase~~Classification ~~agreement~~of ~~(the~~Certain ~~“Purchase~~Cash ~~Agreement”)~~Receipts ~~with~~and ~~GHS~~Cash ~~Investments, LLC (“GHS”)~~Payments. The ~~Purchase~~ASU ~~Agreement~~ provides clarity ~~that,~~to ~~upon~~preparers on the ~~terms~~treatment ~~and~~of ~~subject~~eight tospecific ~~the~~items ~~conditions~~within ~~set~~an ~~forth~~entity’s ~~therein, GHS~~statement ~~shall~~of ~~purchase~~cash ~~from~~flows. ~~the~~The ~~Company~~guidance abecomes effective ~~senior~~for ~~convertible~~all ~~note~~public ~~with~~entities ain ~~principal~~fiscal ~~amount~~years ofbeginning ~~USD$56~~after December 15,~~500~~ ~~($76~~2017,~~382)~~ ~~for~~including ainterim ~~purchase~~periods ~~price~~therein. The guidance ofis ~~USD$50,000~~not ~~($67,595)~~expected to have a material impact on the Company’s financial statements.

~~The convertible note matures upon~~ASU ~~the~~No. ~~earlier of successfully raising at least $200~~2017-09,~~000~~ orCompensation-Stock ~~August~~Compensation ~~18,~~(Topic ~~2017~~718): ~~and~~Scope ~~accrues interest at the rate~~ of ~~10%~~Modification ~~per annum~~Accounting. The ~~convertible~~ ~~note~~ASU isamends ~~convertible following ninety (90) days of~~ the ~~execution~~scope of ~~the~~modification accounting ~~note,~~for inshare-based ~~whole~~arrangements orand inprovides ~~part,~~guidance aton ~~GHS’~~the ~~option into~~types ~~common shares~~ of ~~the~~changes ~~Company’s capital stock at a variable conversion price equal~~ to athe ~~38%~~terms ~~discount~~or ~~from~~conditions ~~the~~of ~~lowest~~share-based ~~trading~~payment ~~price~~awards into ~~the~~which ~~twenty~~an ~~(20)~~entity ~~trading~~would ~~days~~be ~~prior~~required to ~~the~~apply ~~day~~modification ~~that~~accounting ~~GHS~~under ~~requests~~ASC ~~conversion~~718. AtThe noguidance ~~time~~becomes ~~will~~effective for ~~GHS~~annual bereporting ~~entitled~~periods, ~~to convert~~including ~~any~~interim ~~portion~~periods ofwithin ~~the~~those ~~convertible~~annual ~~note~~reporting toperiods, ~~the~~beginning ~~extent that~~ after ~~such~~December ~~conversion~~15, ~~GHS~~2017. The ~~(together~~guidance ~~with~~is ~~its~~not ~~affiliates)~~expected ~~would beneficially~~to ~~own~~have ~~more~~a ~~than~~material ~~4.99%~~impact ofon the ~~outstanding~~Company’s ~~common~~financial ~~shares, although GHS can modify this limit to 9~~statements.~~99% of the outstanding common shares.~~

~~The convertible note includes customary~~3.) ~~event~~Equipment ~~of default provisions,~~ and ~~provides~~Leasehold ~~for~~Improvements a default interest rate of 20%. The Company has the right at any time prior to May 18, 2017 to redeem all, but not less than all, of the total outstanding amount then remaining under the Convertible Note in cash at a price ranging from 125% to 135% of the total amount of the Convertible Note then outstanding.

The beneficial conversion feature was recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital in accordance with ASC 470-20. The intrinsic value at issuance was $67,595.

	September 30, 2017				March 31, 2017
			Accumulated				Accumulated
	Cost		Depreciation		Cost		Depreciation
Computer equipment	$	3,558	$	2,684	$	3,558	$	2,530
Production equipment		67,367		38,834		67,367		35,663
Leasehold improvements		42,290		33,987		42,290		27,194
Total	$	113,215	$	75,505	$	113,215	$	65,387
Net carrying amount			$	37,710			$	47,828

~~The issuance of convertible debt~~During ~~with~~the asix ~~beneficial~~month ~~conversion~~period ~~feature~~ended ~~results~~September in30, a2017, ~~tax~~the ~~basis~~Company ~~difference.~~recorded ~~The~~total ~~recognition~~amortization of ~~deferred~~$10,118 ~~taxes~~(2016 ~~for~~- ~~the~~$8,712) ~~temporary~~which ~~difference of~~was ~~the convertible debt with a beneficial conversion feature is~~ recorded ~~as an adjustment~~ to ~~additional~~amortization ~~paid-in~~expense ~~capital.~~on Athe ~~deferred income~~condensed ~~tax~~interim ~~liability~~statements of ~~$17,913 was recognized upon the issuance of the convertible note~~operations.

The discount to the carrying value of the convertible note is being amortized as a non-cash interest expense over the term of the convertible note using the effective interest rate method, at a rate of 144%4. ~~During the three and nine months periods ended December 31, 2016, the Company accreted $11,941 and $11,941, respectively (2015 - $Nil and $Nil, respectively~~) ~~in non-cash accretion expense~~ inAdvances ~~connection~~from ~~with the convertible note, which is included in accretion expense on the condensed interim statements of operations.~~Shareholders

As at September 30, 2017, the Company had received cumulative net working capital advances in the amount of $25,919 (March 31, 2017 - $22,347) from two shareholders who are also officers and directors of the Company. The advances from shareholders are unsecured, non-interest bearing and payable upon demand.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

75.) Term ~~Capital Stock~~Loans

(a) Term loan issued May 4, 2016

On May 4, 2016, the Company agreed to a term loan of $40,000 for bridge financing with a relative of one of the officers of the Company. The loan matured on November 30, 2017 and the terms specified a 30% premium to be paid at that time. The 30% premium is recognized as an expense over the term of the loan and is amortized on the condensed interim statements of operations. During the three and six months periods ended September 30, 2017, the Company accreted $777 and $1,553, respectively (2016 - $3,059 and $8,956, respectively). The loan was initially scheduled to mature on August 28, 2016 but an extension was agreed to with the same terms. The unsecured loan has been extended indefinitely until the Company has the appropriate liquidity to repay the initial loan plus the premium.

(b) Term loan issued August 18, 2017

In order to satisfy the repayment terms of the securities purchase agreement and convertible note (see Note 6b) GHS Investments, LLC (“GHS”) and the Company agreed to a short term loan which was paid in full by the Company in November of 2017.

6.) Convertible Notes

The carrying values of the Company’s secured convertible notes consist of the following as of September 30, 2017 and March 31, 2017 respectively:

Convertible Notes	September 30, 2017			March 31, 2017
USD$50,000 face value convertible note due August 15, 2017, a	$	-		$	(26,076	)
USD$56,000 face value convertible note due August 18, 2017, b		-			(16,456	)
USD$50,000 face value convertible notes due June 21, 2018, c		(23,134	)		-
USD$50,000 face value convertible note due July 25, 2018, d		(25,699	)		-
USD$10,000 face value convertible note due November 20, 2017, e		(11,029	)
USD$50,000 face value convertible note due October 13 2017, e		(60,784	)
	$	(120,646	)	$	(42,532	)

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

6.) Convertible Notes (continued)

(a) Promissory Note

On February 14, 2017, the Company issued a USD$50,000 ($65,350) face value convertible promissory note, due August 15, 2017 to Salamon Partners LLC (“Salamon”) for net proceeds of USD$47,500. which consisted of the principal amount, net of transaction cost of US$2,500. The Salamon Note accrues interest at 12% per annum, payable in cash at maturity. However, the principal amount, plus accrued interest, may be converted at the option of the holder at any time during the term to maturity into shares of our common stock at a variable conversion price of 65% of market per share subject to adjustment for capital reorganization events and subsequent sales by the Company of shares of its common stock at a price per share below the conversion price of the Salamon note. The Salamon Note also embodies certain traditional default provisions that are linked to credit or interest risks, such as bankruptcy proceedings, liquidation events and corporate existence. The Company has concluded that the embedded conversion option is not indexed to our stock due to the variability in the conversion price and the down-round protection features afforded to the holder as well as the foreign exchange rate fluctuations. Therefore, the embedded conversion option is subject to classification in the financial statements in liabilities at fair value both at inception and subsequently pursuant to ASC 480-10-25-14. On August 15, 2017, the Company paid a total of USD$53,000 ($67,591) which consisted of the principal amount due USD$50,000 ($63,775) plus accrued interest USD$3,000 ($3,816). During the three and six month periods ended September 30, 2017, the Company recorded an accretion expense of $14,876 and $48,499, respectively (2016 - $Nil and $Nil, respectively) to amortize the discount to the carrying value of the note.

(b) Securities Purchase Agreement and Convertible Note

On November 18, 2016, the Company issued a USD$56,000 ($76,382) face value secured convertible note, due August 18, 2017 to GHS for net proceeds of USD$50,000 ($67,595). The GHS Note is secured and accrues interest at 12% per annum, payable in cash at maturity. However, the principal amount, plus accrued interest, may be converted at the option of the holder at any time during the term to maturity into shares of our common stock at variable conversion price of 62% of market per share subject to adjustment for capital reorganization events and subsequent sales by the Company of shares of its common stock price per share below the conversion price of the GHS Note. The GHS Note also embodies certain traditional default provisions that are linked to credit or interest risks, such as bankruptcy proceedings, liquidation events and corporate existence. The Company has concluded that the embedded conversion option is not indexed to our stock due to the variability in the conversion price and the down-round protection features afforded to the holder as well as the foreign exchange rate fluctuations. Therefore, the embedded conversion option is subject to classification in the financial statements in liabilities at fair value both at inception and subsequently pursuant to ASC 480-10-25-14. During the fiscal year, the Company repaid the convertible note in full (see Note 5b). During the three and six month periods ended September 30, 2017, the Company recorded an accretion expense of $10,078 and $45,854, respectively (2016 - $Nil and $Nil, respectively) to amortize the discount to the carrying value of the note.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

6.) Convertible Notes (continued)

(c) Convertible Note – issued June 21, 2017

On June 21, 2017, the Company commenced a financing of up to USD$500,000 of one-year 12% convertible notes. The notes are convertible at the option of the holder into common shares of the Company at a price of USD$0.25 per share, and are subject to mandatory conversion if the volume-weighted trading price of the common shares is greater than USD$1.00 per share for twenty consecutive trading days so long as the underlying shares may be resold in compliance with the registration requirements of the Securities Act of 1933, as amended. In addition, the Company shall issue pro rata to the purchasers of the first USD$100,000 of notes an aggregate of 200,000 common shares as a commitment fee. On June 21, 2017, the Company issued two notes totaling USD$50,000 ($66,451). The Company also granted 200,000 common share purchase warrants to the holders of the USD$50,000 notes. Each warrant is exercisable into one common share at USD$0.50 for a period of five years. The Company has concluded that the embedded conversion option and warrants are not indexed to our stock due to the down-round protection features afforded to the holder and foreign exchange rate fluctuations. Therefore, the embedded conversion option and warrants are subject to classification in the financial statements in liabilities at fair value both at inception and subsequently pursuant to ASC 480-10-25-14. During the three and six month periods ended September 30, 2017, the Company recorded an accretion expense of $13,736 and $15,148, respectively (2016 - $Nil and $Nil, respectively) to amortize the discount to the carrying value of the note.

On June 21, 2018, the principals plus accrued interest were converted into common shares (560,000) at a price of USD$0.10 per share. The issuance of subsequent convertible notes (Note 6e) with an exercise price of USD$0.10 per share correspondingly reduced the exercise price for the June 21, 2017 convertible notes issued in accordance with the terms of the convertible notes.

(d) Convertibles Notes – issued July 25, 2017

On July 25, 2017, the Company added a second one-year 12% convertible note as a continuation of the financings commenced with the convertibles notes on June 21, 2017 (Note 6a). The amount of this convertible note is USD$50,000 ($62,535). The note is convertible at the option of the holder into common shares of the Company at a price of USD$0.25 per share, and is subject to mandatory conversion if the volume-weighted trading price of the common shares is greater than USD$1.00 per share for twenty consecutive trading days so long as the underlying shares may be resold in compliance with the registration requirements of the Securities Act of 1933, as amended. In addition, the Company shall issue pro rata to the purchasers of the first USD$100,000 of notes an aggregate of 200,000 common shares as a commitment fee. The Company also granted 200,000 common share purchase warrants to the holder of the USD$50,000 note. Each warrant is exercisable into one common share at USD$0.50 for a period of five years. The Company have concluded that the embedded conversion option and warrants are not indexed to our stock due to the down-round protection features afforded to the holder and foreign exchange rate fluctuations. Therefore, the embedded conversion option and warrants are subject to classification in the financial statements in liabilities at fair value both at inception and subsequently pursuant to ASC 480-10-25-14. During the three and six month periods ended September 30, 2017, the Company recorded an accretion expense of $8,256 and $8,256, respectively (2016 - $Nil and $Nil, respectively) to amortize the discount to the carrying value of the note.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

6.) Convertible Notes (continued)

(d) Convertibles Notes – issued July 25, 2017 (continued)

On July 25, 2018, the principal plus accrued interest was converted into common shares (560,000) at a price of USD$0.10 per share. The issuance of subsequent convertible notes (Note 6e) with an exercise price of USD$0.10 per share correspondingly reduced the exercise price for the July 25, 2017, convertible note issued in accordance with the terms of the convertible note.

(e) Convertible Notes – issued August to November 2017

The Company issued several convertible notes on August 14, 2017 with a face value of USD$53,000 ($67,602), maturity date of October 13, 2017, September 18, 2017 with a face value of USD$10,000 ($12,238), maturity date November 20, 2017, October 27, 2017 with face value of USD$250,000 ($321,850), maturity date December 27, 2017, November 1, 2017 with face value of USD$20,000, maturity date January 2, 2018, ($25,770) and November 13, 2017 with face value of USD$25,000 ($31,833), maturity date January 15, 2018 for a total of USD$358,000 ($459,293). The notes have all matured two months after issuance and was converted into a total of 3,639,931 common shares at the conversion rate of USD$0.10. The Company issued 2,541,781 common shares during the fiscal year ending March 31, 2018 with the remaining 1,098,150 issued subsequent to March 31, 2018 (Note 13). The Company agreed to issue an additional 159,023 warrants with an exercise price of $0.75 and an expiry of January 2, 2020, in connection with conversions. During the period ended September 30, 2017, the Company recorded an accretion expense of $24,458 as the discount to the carrying value of the notes (2016 - $Nil).

Accounting for the Secured Convertible and Promissory Notes

The Company has evaluated the terms and conditions of the secured convertible notes issued on June 21, 2017 and July 25, 2017, under the guidance of ASC 815. Because the economic characteristics and risks of the equity-linked conversion options are not clearly and closely related to a debt-type host, the conversion features require classification and measurement as derivative financial instruments. The other embedded derivative features were also not considered clearly and closely related to the host debt instruments. Further, these features individually were not afforded the exemption normally available to derivatives indexed to a company’s own stock. Accordingly, the evaluation resulted in the conclusion that this compound derivative financial instrument requires bifurcation and liability classification, at fair value. The compound derivative financial instrument consists of (i) the embedded conversion features and the (ii) down-round protection features. Current standards contemplate that the classification of financial instruments requires evaluation at each report date.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

6.) Convertible Notes (continued)

Discounts on the convertible notes arise from (i) the allocation of basis to other instruments issued in the transaction, (ii) fees paid directly to the creditor and (iii) initial recognition at fair value, which is lower than face value. The discount to the carrying value of the convertible notes is being amortized as a non cash interest expense over the term of the promissory note using the effective interest rate method. Amortization of discounts on the convertible notes in accretion expense amounted to $143,767 during the nine month period ended September 30, 2017 (September 30, 2016 - $8,956).

7.) Derivative Liability

The Company follows the provisions of ASC 820 with respect to our financial instruments. As required by ASC 820, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to their fair value measurement. The derivative financial instruments which are required to be measured at fair value on a recurring basis under of ASC 815 as of September 30, 2017 and 2016 respectively, are all measured at fair value using Level 1 inputs. Level 1 inputs are observable inputs that are supported by market activity.

The compound embedded derivative and warrants were valued using a binomial-lattice-based valuation model. The lattice-based valuation technique was utilized because it embodies all the requisite assumptions (including the underlying price, exercise price, term, volatility, and risk-free interest-rate) that are necessary to fair value these instruments. For forward contracts that contingently require net-cash settlement as the principal means of settlement, the Company projects and discounts future cash flows applying probability-weighted to multiple possible outcomes. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock. Because derivative financial instruments are initially and subsequently carried at fair values, the income will reflect the volatility in these estimate and assumption changes. The following table sets forth (i) the range of inputs for each significant assumption and (ii) the equivalent, or averages, of each significant assumption as of September 30, 2017:

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

7.) Derivative Liability (continued)

Compound Embedded Derivative:

	September 30, 2017			March 31, 2017
Stock Price	$	0.11 USD		$	0.23 USD
Risk free rate		1.31	%		1.02	%
Expected volatility		258	%		308	%
Conversion/Exercise price	$	0.07 USD		$	0.145 USD
Expected dividend rate		0	%		0	%
Expected life (in years)		0.72			0.38

Derivative Liability Warrants

	September 30, 2017			March 31, 2017
Stock Price	$	0.11 USD			N/A
Risk free rate		1.92	%		N/A
Expected volatility		220	%		N/A
Conversion/Exercise price	$	0.50 USD			N/A
Expected dividend rate		0	%		N/A
Expected life (in years)		4.73			N/A

8.) Capital Stock

(a) Common Shares

Authorized

The Company is authorized to issue an unlimited number of common shares with no par value.

Issued and Outstanding

On ~~May~~June 1821, ~~2016~~2017, ~~44,500~~under ~~common~~the ~~shares~~terms ~~purchase~~of ~~warrants~~a ~~were~~convertible ~~exercised~~note atissued for USD$~~0.04~~50,000 ($~~0.052~~66,550), ~~per~~the ~~warrant~~Company ~~for~~issued ~~total~~100,000 ~~cash~~common ~~proceeds of~~shares ~~USD~~valued using convertible debt issue market share price at $113,~~780~~989 ~~($2~~as a commitment fee,~~318)~~ see Note 6c.

On July ~~May~~25, 152017, ~~2016~~under the terms of a convertible note issued for USD$50,000 13($62,~~874~~535), ~~shares to~~the beCompany ~~issued~~agreed to aissue ~~consulting~~100,000 ~~firm~~common shares ~~were~~valued ~~issued~~using asconvertible ~~common~~debt ~~shares~~issue ~~for~~date ~~services~~market ~~rendered~~share ~~during~~price ~~the~~at ~~year~~$11,256 ~~ended~~as ~~March~~a 31commitment fee, ~~2016~~6d.

~~On June 22, 2016, 15,264 shares to be issued to a consulting firm were issued as common shares for services rendered during the year ended March 31, 2016.~~16

On June 30, 2016, 66,667 common shares were issued to a consultant in settlement of a debt at a value of $64,585 based upon an estimated fair market value of USD$0.75 ($0.97) per share at the time of issuance.

On June 30, 2016, 250,000 common shares were issued to a consulting firm as a portion of the compensation for services initiated on June 24, 2016 and to be provided over a 6 month period at a value of $201,481 based upon an estimated fair market value of USD$0.62 ($0.81) per share at the date of issue. This amount was expensed during the nine months ended December 31, 2016 as professional fees on the condensed interim statements of operations. A second issuance of 250,000 common shares was made on October 17, 2016 at a value of $113,225 based upon an estimated fair market value of USD$0.35 ($0.45) per share at the date of issue and the final issuance of 250,000 common shares was made on October 18, 2016 at a value of $125,766 based upon an estimated fair market value of USD$0.38 ($0.50) per share at the date of issue.

On July 6, 2016, the Company committed to issue 20,000 common shares to a consultant in settlement of a debt at a value of $19,500 (USD$15,000) based upon an estimated fair market value of USD$0.75 ($0.97) per share at the time of commitment. These common shares were issued on October 17, 2016.

On May 19, 2016, the Company signed a letter of engagement with an agent in connection with proposed placements of up to US$10,000,000 ($13,427,000), which included as part of the fee the issuance of 100,000 common shares as a non-refundable retainer at a value of $101,579 based upon an estimated fair market value of USD$0.78 ($1.02) per share at the time of the agreement (See Note 9). The retainer has been recorded as a prepaid expense on the condensed interim balance sheet as at December 31, 2016. The common shares were issued on December 5, 2016.

On December 19, 2016, 25,000 stock options were exercised at an exercise price of $0.31 per common share for gross proceeds of $7,750. The proceeds were allocated to settle a debt with the consultant who exercised the stock options.

On December 29, 2016, a consulting firm was issued 78,027 common shares for services rendered in the amount of USD$45,000 ($58,500), this amount has been recorded as professional fees on the statement of operations.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

78.) Capital Stock (continued)

~~On December 29, 2016, 117,465 shares~~(a) toCommon beShares issued were issued as common shares, 72,465 of these shares were committed to be issued during the year ended March 31, 2016 in settlement of debt and 45,000 of these shares were committed to be issued during the year ended March 31, 2016 as compensation to three members of management.(continued)

On December 29, 2016, an aggregate of 600,000 shares were issued to three members of management as compensation at a value of $485,458 based upon an estimated fair market value of USD$0.60 ($0.81) per share at the date of issue.

On December 29, 2016, 1,316,173 shares were issued to two officers and directors as conversion of shareholder advances and accounts payable. See Note 4.

Equity to be issued

On April 189, ~~2016~~2017, the Company signed ~~an agreement with~~ a ~~consultant~~12-month ~~pursuant~~consulting toagreement. ~~which~~The itterms ~~committed to issue 250,000 common shares~~ of the ~~Company~~agreement asinclude ~~compensation for~~the ~~services~~provision ~~to be rendered over a period~~ of ~~5 months. Two directors and officers of the Company transferred 250~~100,000 ~~of their~~ ~~personal shares to the consultant and as such the Company has agreed to reimburse the directors and officers for these~~ common ~~shares~~ ~~transferred~~stock byon ~~issuance~~signing, ~~of common shares from treasury. The commitment was~~ valued at USD$8620,~~381~~390 ~~based upon an estimated fair market value of USD$0.27~~ ($~~0.35) per share at the date of issue and was expensed during the nine months ended December 31~~27, ~~2016 as professional fees on the condensed interim statements of operations~~186). ~~These~~See ~~shares~~Note ~~were issued on January~~ 10~~, 2017 (see Note 12)~~.

	Common shares to be issued			Value ($)
Balance, March 31, 2016		146,603			339,949
Equity to be issued as compensation		250,000			86,381
Equity issued		(146,603	)		(339,949	)
Balance, December 31, 2016		250,000			86,381

Equity Purchase Agreement (“EPA”)

On September 10, 2015, the Company entered into the EPA. The holder of the EPA iswas committed to purchase up to USD$750,000 worth of of the Company’s common shares (the “Put Shares”) over the 12 -month term of the EPA. The Company paid to the ~~holder~~ holder of the EPA a commitment fee for entering into the EPA equal to 50,000 restricted common shares of the Company, valued at $67,195, based on the stock price in the most recent private placement as the Company’s shares had not yet begun to trade on a public market.

12Equity Purchase Agreement (“EPA”) (continued)

On June 23, 2016, the Company agreed in conjunction with RY Capital Group, LLC and GHS Investments, LLC to assign the EPA to GHS Investments, LLC.

The Company has notified the holder of the EPA that the facility will not be utilized and there is no cancellation fee or any commitment.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

78.) Capital Stock (continued)

Equity Purchase Agreement (“EPA”) (continued)

From time to time over the EPA, commencing on the trading day immediately following the date on which the registration statement covering the resale of the Put Shares (the “Registration Statement”) is declared effective by the Securities and Exchange Commission (the “Commission”), the Company may, in its sole discretion, draw upon the EPA periodically during the term by the Company’s delivery to the holder of the EPA, a written notice requiring the holder to purchase a dollar amount in common shares (the “Draw Down Notice”). The shares issuable pursuant to a Draw Down Notice, when aggregated with the shares then held by the holder on the date of the draw down may not exceed the lessor of (i) 4.99% of the Company’s outstanding common shares, (ii) USD$62,500 in any 30 days period or (iii) 100% of the aggregate trading volume for the 10 trading days immediately preceding the date of the Draw Down Notice without the prior written consent of the holder. The purchase price per common share purchased under the EPA shall equal 65% of the lowest closing bid for the 10 days immediately preceding the date of the Draw Down Notice. The Registration Statement was filed with the Commission on October 1, 2015 and was declared effective by the Commission on March 3, 2016.

On June 23, 2016, the Company agreed in conjunction with RY Capital Group, LLC and GHS Investments, LLC to assign the EPA to GHS Investments, LLC. The changes made to the EPA included increasing the share purchase price per common share to 80% from 65% of the lowest closing bid for the 10 trading days immediately preceding the date of the draw down notice, increasing the upper limit on individual draws to USD$75,000 from USD$62,500 and including a true-up feature whereby if the lowest volume-weighted average price (“VWAP”) for the ten trading days following a draw down (the “Trading Period”) is less than 85% of the purchase price of the common shares issued in connection with a draw down, then the Company shall issue such additional common shares as maybe necessary to adjust the purchase price for such draw down to equal the VWAP during the Trading Period.

(b) Warrants

As at ~~December~~September 3130, ~~2016~~2017, the following warrants were outstanding:

			Number of		Weighted			~~Grant~~Fair ~~Date~~Value at September 30, 2017		~~Fair Value at~~
	Number of		Warrants		Average			~~Fair~~of ~~Value -~~Vested		~~December 31, 2016~~
Expiration Date	Warrants		Exercisable		Exercise Price			~~Equity~~Warrants – Liability		~~of Vested Warrants - Liability~~
June 6, 2017		22,500		22,500	$	1.12		$	16,110	$	-
December 31, 2018, ii.)		275,000		50,000	USD$	0.04
December 31, 2017		325,000		-	USD $	0.04			-		-
					$	(0.05	)	$	5,100
					$	(0.054	)		-		-
January 17, 2022, iii.)		900,000		900,000	USD$	0.65
		347,500		22,500	$	0.12		$	16,110	$	-
					$	(0.81	)	$	97,200
June 21, 2022, iv.)		200,000		200,000	USD$	0.50
					$	(0.62	)	$	21,479
July 25, 2022, v.)		200,000		200,000	USD$	0.50
					$	(0.62	)	$	14,354
		1,575,000		1,350,000	$	0.63		$	138,133

13i.) During the year ended March 31, 2015, the Company issued 27,500 warrants of the Company valued at $19,290 for services rendered of which 22,500 warrants were granted to an officer of the Company. Each warrant entitled the holder to purchase one common share at an exercise price of $1.12 for a period ranging from 2.15 to 3 years after the date of issuance. The fair value of the warrants at the date of grant of $19,290 was estimated using the Black-Scholes option pricing model, based on the following weighted average assumptions: expected dividend yield of 0%; risk free interest rate of 1.14%; expected volatility of 182%; and expected term of 2.85 years. The warrants were not exercised by the June 6, 2017 expiry date.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

78.) Capital Stock (continued)

(b) Warrants (continued)

	i)	During the year ended March 31, 2015, the Company issued 27,500 warrants of the Company valued at $19,290 for services rendered of which 22,500 warrants were granted to an officer of the Company. Each warrant entitles the holder to purchase one common share at an exercise price of $1.12 for a period ranging from 2.15 to 3 years after the date of issuance. The fair value of the warrants at the date of grant of $19,290 was estimated using the Black-Scholes option pricing model, based on the following weighted average assumptions: expected dividend yield of 0%; risk free interest rate of 1.14%; expected volatility of 182%; and expected term of 2.85 years.
	ii)	In connection with a consulting agreement with Connectus, Inc. (see Note 8), the Company granted 625,000 common share purchase warrants with each warrant entitling the grantee to acquire one common share in the capital of the Company at an exercise price of USD$0.04 ($0.054) at any time prior to April 1, 2017. Of the warrants granted, 300,000 vested on September 3, 2014 with the unvested portion vesting pro-rata for each USD$250,000 ($335,675) raised in an offering, fully vesting upon USD$1,500,000 ($2,014,050) being raised. The fair value of the 625,000 warrants at the date of grant of $500,000 was estimated using the Black-Scholes option pricing model, based on the following assumptions: expected dividend yield of 0%; expected volatility of 159%; risk free interest rate of 1.25%; and expected term of 3 years.

ii.) In connection with a consulting agreement with Connectus, Inc. (see Note 10), the Company granted 625,000 common share purchase warrants with each warrant entitling the grantee to acquire one common share in the capital of the Company at an exercise price of USD$0.04 ($0.054) at any time prior to April 1, 2017. Of the warrants granted, 300,000 vested on September 3, 2014 with the unvested portion vesting pro-rata for each USD$250,000 ($335,675) raised in an offering, fully vesting upon USD$1,500,000 ($2,014,050) being raised. The fair value of the 625,000 warrants at the date of grant of $500,000 was estimated using the Black-Scholes option pricing model, based on the following assumptions: expected dividend yield of 0%; expected volatility of 159%; risk free interest rate of 1.25%; and expected term of 3 years. On December 27, 2016, the Company extended the agreement and the expiry date of the warrants to December 31, 2017. On January 23, 2017, the Company approved the vesting of 100,000 warrants of which 50,000 were exercised on March 21, 2017. This leaves a balance of 275,000 warrants remaining under the contract of which 50,000 were exercisable at March 31, 2018 and March 31, 2017. The Company approved a further extension to the agreement to December 31, 2018, with the vested warrants being extended to March 31, 2019. The fair value of $5,100 of the warrants was estimated at September 30, 2018 using the Black-Scholes model, based on the following assumptions: expected dividend yield of 0%; risk free interest rate of 1.0%; expected volatility of 281%; and expected term of 0.25 years.

Oniii.) During ~~December~~the 27year ended March 31, ~~2016~~2017, the Company ~~extended~~issued 900,000 warrants of the ~~contract~~Company ~~and~~valued ~~expiry~~at $566,100 for services rendered. Each warrant entitled the holder to purchase one common share at an exercise price of USD$$0.65 ($0.82) for a period of 5 years after the date of issuance. The fair value of the warrants toat ~~December~~the 31date of grant of $566,100 ~~2017.~~was ~~Subsequent~~estimated tousing ~~December~~the Black-Scholes option ~~31,~~pricing ~~2016~~model, based on the ~~Company~~following ~~agreed~~weighted toaverage ~~vest~~assumptions: ~~100~~expected dividend yield of 0%; risk free interest rate of 1.09%; expected volatility of 140%; and expected term of 5 years. The fair value of $97,~~000~~200 of the warrants was estimated at September 30, 2018 using the Black-Scholes option pricing model, based on the following weighted average assumptions: expected dividend yield of 0%; risk free interest rate of 1.68%; expected volatility of 159.25%; and expected term of 4.30 years.

~~For~~iv.) On ~~the~~June ~~nine~~21, ~~month~~2017, ~~period~~the ~~ended December~~Company ~~31,~~issued ~~2016~~200,000 warrants of the Company ~~recorded~~valued at $~~Nil~~23,359 (~~2015 -~~ USD$~~Nil~~17,550), aspursuant ~~compensation~~to ~~expense~~the ~~for~~financing described ~~warrants~~in ~~issued~~Note 6(c). Each warrant entitles the holder to apurchase ~~consultant~~one ~~for~~common ~~service, net~~share at an issue price of USD$0.50 for a ~~market~~period of ~~adjustment~~5 ~~for~~years after the ~~three~~date ~~and~~of ~~nine~~issuance. ~~month~~The ~~periods~~fair ~~ended~~value ~~December~~of ~~31,~~the ~~2016~~warrants at the date of ~~$nil~~grant ~~and~~of $1623,~~042,~~359 ~~respectively~~was ~~(2015~~estimated using the binomial-lattice-based ~~$Nil~~valuation ~~and~~model, based on the following weighted average assumptions: stock price of USD$~~Nil,~~0.11; ~~respectively)~~expected dividend yield of 0%; risk free interest rate of 1.28%; ~~The~~expected ~~expense~~volatility ~~was~~of ~~recorded~~223%; and expected term of 5 years. See valuation and assumption as ~~professional~~at ~~fees~~September on30, ~~the~~2017 ~~statements~~in ofNote ~~operations~~7.

1419

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

78.) Capital Stock (continued)

(b) Warrants (continued)

~~ASC~~v.) ~~815~~On ~~“Derivatives~~July ~~and~~25, ~~Hedging”~~2017, ~~indicates~~the ~~that~~Company issued 200,000 warrants ~~with~~of ~~exercise~~the ~~prices~~Company ~~denominated~~valued inat a$17,935 ~~currency~~(USD$14,340), ~~other~~pursuant ~~than~~to anthe financing ~~entity’s~~described ~~functional~~in ~~currency~~Note ~~should~~6(d). ~~not~~Each bewarrant ~~classified~~entitles asthe ~~equity.~~holder Asto apurchase ~~result,~~one ~~warrants~~common ~~with~~share aat ~~USD~~an ~~exercise~~issue price ~~have~~of ~~been treated~~USD$0.50 asfor ~~derivatives~~a ~~and~~period of ~~recorded~~5 asyears ~~liabilities~~after ~~carried~~the atdate ~~their~~of issuance. The fair value of the warrants at the date of grant of $17,935 ~~with~~was ~~period~~estimated using the binomial-tolattice-~~period~~based ~~changes~~valuation inmodel, based on the ~~fair~~following ~~value~~weighted average assumptions: stock price of USD$0.11; expected ~~recorded~~dividend asyield aof ~~gain~~0%; orrisk ~~loss~~free ininterest ~~the~~rate ~~statements~~of 1.90%; expected volatility of ~~operations~~226%; and expected term of 5 years. See valuation and assumption as at September 30, 2017 in Note 7

~~The~~ASC ~~continuity~~815 of“Derivatives and Hedging” indicates that warrants ~~for~~with ~~the~~exercise ~~period~~prices ~~ended~~denominated ~~December~~in 31a currency other than an entity’s functional currency should not be classified as equity. As a result, ~~2016~~warrants iswith a USD exercise price have been treated as ~~follows:~~derivatives and recorded as liabilities carried at their estimated fair value, with period-to-period changes in the fair value recorded as a gain or loss in the statements of operations.

	Number			Weighted Average
	of Warrants			Exercise Price
Balance, March 31, 2016		709,583		$	1.06
Exercised		(44,500	)		0.05
Expired, unexercised		(317,583	)		2.23
Balance, December 31, 2016		347,500		$	0.12

The continuity of warrants for the period ended September 30, 2017 as follows:

As at December 31, 2016, the fair value of the 325,000 (March 31, 2016 – 381,700) warrants exercisable in US dollars was $244,075 (March 31, 2016 - $222,803) which was estimated using the Black-Scholes option pricing model based on the following weighted average assumptions: expected dividend yield of 0% (March 31, 2016 - 0%); expected volatility of 265% (March 31, 2016 – 150%); risk-free interest rate of 0.74% (March 31, 2016 – 0.54%) and expected term of 1.00 years (March 31, 2016 – 0.99 years). Of this amount, $Nil (March 31, 2016 - $27,479) was reflected as a liability as at December 31, 2016, representing the percentage of the fair value of the warrants that is equal to the percentage of the requisite service that has been rendered at December 31, 2016.

	Number			Weighted Average
	of Warrants			Exercise Price
Balance, March 31, 2017		1,197,500		$	0.68
Issued		400,000		$	0.63
Expired, unexercised		(22,500	)	$	1.12
Balance, September 30, 2017		1,575,000		$	0.63

~~The warrant~~As ~~liability~~at isSeptember ~~classified~~30, as2017, ~~Level 3 within~~ the fair value ~~hierarchy (See Note 11). The Company’s computation~~ of ~~expected~~ ~~volatility during~~ the ~~periods~~1,575,000 ~~ended~~(March ~~December~~ 31, ~~2016~~2017 ~~and~~– ~~2015~~1,175,000) iswarrants ~~based~~exercisable onwas ~~the~~$161,083 ~~market~~(March ~~close~~31, ~~price~~2017 of- ~~comparable~~$298,700) ~~public~~which ~~entities~~was estimated ~~over~~using the ~~period~~option ~~equal~~pricing tomodels ~~the~~based ~~expected~~on ~~life of~~ the ~~warrants.~~assumptions ~~The~~mentioned ~~Company’s~~in ~~computation~~Note of8 ~~expected~~b) ~~life~~ii.) isto ~~calculated~~b) ~~using the contractual life~~vi.).

Of this amount, $138,133 (cMarch 31, 2017 - $236,200) was reflected as a liability as at September 30, 2017, representing the percentage ~~Stock-based~~of ~~compensation~~the fair value of the warrants that is equal to the percentage of the requisite service that has been rendered at September 30, 2017.

The ~~Company’s~~warrant ~~stock-based~~liability ~~compensation~~is ~~program~~classified (as Level 3 within the ~~“Plan”)~~fair ~~includes~~value ~~stock~~hierarchy ~~options~~(See inNote ~~which~~12). ~~some~~The ~~options~~Company’s ~~vest~~computation ~~based~~of expected onvolatility ~~continuous~~during ~~service.~~the ~~For~~six ~~those~~months ~~equity~~ended ~~awards~~September ~~that~~30, ~~vest~~2017 and 2016 is based on ~~continuous~~the ~~service,~~market ~~compensation~~close ~~expense~~price isof ~~recorded~~comparable public entities over the ~~service~~ period ~~from~~equal to the ~~date~~expected life of ~~grant~~the warrants. The Company’s computation of expected life is calculated using the contractual life.

The total number of options outstanding as at December 31, 2016 was 770,000 (March 31, 2016 – 930,000). The weighted average grant date fair value of options granted during the nine-month period ended December 31, 2016 was $0.34 (2015 - $nil). The maximum number of options that may be issued under the Plan is floating at an amount equivalent to 15% of the issued and outstanding common shares, or 1,927,203 as at December 31, 2016 (March 31, 2016 – 1,455,158).20

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

78.) Capital Stock (continued)

~~During the nine-month period ended~~The ~~December 31, 2016, 525,000 options were granted to officers and consultants of the~~ Company.’s ~~The weighted average exercise price of these options is $0.37. Of this grant, 340,000 options vest as to one~~stock-~~third~~based oncompensation ~~the~~program ~~grant date and one-third on each of~~ (the ~~first~~ ~~anniversary~~“Plan”) ~~and~~includes ~~the~~stock ~~second~~options ~~anniversary~~in ofwhich ~~the~~some ~~grant date; 85,000~~ options vest ~~as to one quarter~~ based on ~~the~~continuous ~~date of grant and one quarter at 90 days, 180 days and 270 days from the grant date and 100,000 options vested immediately~~service. ~~Since~~For ~~stock-based compensation is recognized only for~~ those equity awards that ~~are ultimately expected to~~ vest, ~~the Company has applied an estimated forfeiture rate (~~based on ~~historical~~continuous ~~experience~~service, ~~and~~compensation ~~projected~~expense ~~employee~~is ~~turnover)~~recorded toover ~~unvested~~the service ~~awards~~period ~~for~~from the ~~purpose~~date of ~~calculating compensation expense~~grant. The ~~weighted~~maximum ~~average~~number ~~grant date fair value~~ of ~~these~~ options ~~was~~that ~~estimated~~may asbe ~~$0.34~~issued ~~using~~under the ~~Black-Scholes~~plan ~~option~~is ~~pricing model,~~floating ~~based~~at onan ~~the~~amount equivalent ~~following~~to ~~weighted average assumptions: expected dividend yield of 0~~15%; ~~expected volatility~~ of ~~154%;~~the ~~expected risk~~issued ~~free interest rate of 0.76%;~~ and ~~expected~~outstanding ~~term~~common ofshares, 5or ~~years. Of the stock options issued~~2, ~~100~~030,~~000~~628 ~~were~~as ~~issued~~at toSeptember ~~a consultant of the Company in settlement of debt of $131~~30,~~256.~~ ~~These~~2017 ~~stock~~(March ~~options were valued at $27~~31,~~600.~~ ~~The~~2017 ~~proceeds~~– ~~from the exercise of the stock options ($31~~2,000,628) ~~will be applied against the balance outstanding~~. ~~As a result a gain on settlement of debt of $72,656 was recognized and recorded on the condensed interim statement of operations.~~

The total number of options outstanding as at September 30, 2017 was 695,000 (2016 – 930,000). No options were granted during the six months ended September 30, 2017.

The activities in options outstanding are as noted below:

	Number of			Weighted Average
	Options			~~Weighted~~Exercise ~~Average~~Price
	Granted			Exercise Price
Balance, March 31, 2017		695,000		$	0.99
Balance, March 31, 2016		930,000		$	2.05
Granted		-		$	-
Forfeited		(660,000	)	$	2.09
Balance, September 30, 2017		695,000		$	0.99
Granted		525,000		$	0.37
Exercised		(25,000	)	$	0.31
Balance, December 31, 2016		770,000		$	0.92

16The following table presents information relating to stock options outstanding and exercisable at September 30, 2017.

		Options Outstanding				Options Exercisable
				Weighted						Weighted
				Average				Weighted		Average
				Remaining				Average		Remaining
		Number of		Contractual		Number of		Exercise		Contractual
Exercise Price		Options		Life (Years)		Options		Price		Life (Years)
$	1.73		185,000		2.21		185,000	$	1.73		2.21
$	2.43		85,000		3.27		85,000	$	2.43		3.27
$	0.38		425,000		4.08		198,333	$	0.38		4.08
$	0.99		695,000		3.48		468,333	$	1.29		3.19

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

79.) Income ~~Capital Stock (continued)~~Taxes

~~(c)~~The ~~Stock~~Company has no taxable income under Canadian Federal and provincial tax laws for the three and six month periods ended September 30, 2017 and 2016. The Company has non-~~based~~capital ~~compensation~~loss ~~(continued)~~carryforwards at September 30, 2017, total of approximately $3,810,000, which may be offset against future taxable income. If not used, the loss carryforwards will expire between 2019 and 2037.

~~The~~10.) ~~following~~Commitments ~~table presents information relating to stock options outstanding~~ and ~~exercisable at December 31, 2016.~~Contingencies

		Options Outstanding				Options Exercisable
				Weighted						Weighted
				Average				Weighted		Average
				Remaining				Average		Remaining
		Number of		Contractual		Number of		Exercise		Contractual
Exercise Price		Options		Life (Years)		Options		Price		Life (Years)
$	1.73		185,000		2.95		185,000	$	1.73		2.95
$	2.43		85,000		4.00		85,000	$	2.43		4.00
$	0.38		425,000		4.81		134,583	$	0.38		4.81
$	0.31		75,000		4.90		75,000	$	0.31		4.90
$	0.92		770,000		4.00		479,583	$	1.25		3.96

The Company entered into a five year operating lease for office and production facilities. The lease commenced on December 1, 2013 and expires on November 30, 2018. The base monthly rental is $1,390 plus the Company’s estimated portion of property taxes and operating expenses which are currently $847 per month. The Company has agreed to extend the lease to November 30, 2021. Under the terms of the extended lease the base monthly rental is $1,853 in 2019, $1,946 in 2020, and $2,039 in 2021. The future commitments pursuant to this lease extension, including property taxes and operating expenses for the fiscal periods ending March 31 are:

For the three and nine month periods ended December 31, 2016, the Company recorded a recovery of ($326,995) and ($49,441), respectively (2015 - $94,849 and $282,875, respectively) as Additional Paid in Capital for options and $485,568 and $485,568, respectively for common shares issued to directors, officers and consultants based on continuous service. This expense was recorded as stock based compensation on the statements of operations. Additionally, for the three and nine month periods ended December 31, 2016, the Company recorded $211,312 and $526,855 respectively (2015 - $nil and $nil) as professional fees for services rendered related to common shares issued as retainers to consultants.

2018 (remaining)	$	13,422
2019	$	28,685
2020	$	32,763
2021	$	33,875
2022	$	23,500

~~8.)~~For the ~~Income~~three ~~Taxes~~and six month periods ended September 30, 2017, occupancy costs related to this lease were $6,711 and $13,422 (2016 – $6,525 and $13,032).

~~The~~On March 11, 2014, and as amended on July 18, September 3, 2014, September 5, 2014, December 31, 2015 and again on December 20, 2016, the Company ~~has~~entered nointo ~~taxable~~a ~~income~~consulting agreement with Connectus, Inc. (“Connectus”) to assist and advise the Company ~~under~~in ~~Canadian~~matters ~~federal~~concerning corporate finance and ~~provincial~~the ~~tax~~Company’s ~~laws~~current and proposed financing activities for the ~~three~~period ~~and~~commencing April ~~nine~~1, ~~month~~2014 ~~periods~~and ~~ended~~ending December 31, ~~2016~~2014. ~~and~~Pursuant ~~2015.~~to ~~The~~this agreement, the Company agreed to issue to Connectus, 625,000 warrants ~~has~~of ~~non-capital~~the ~~loss~~Company. ~~carryforwards~~Each warrant is exercisable at USD$0.04 ($0.054) per share for a period of three years. Of the warrants granted, 300,000 vested on September 3, 2014 with the unvested portion vesting pro-rata for each USD$250,000 ($335,675) raised in an offering, fully vesting upon USD$1,500,000 ($2,014,050) being raised. During the year ended March 31, 2015, the President of Connectus became a director of the Company. On December 31, 2015, the Company extended the contract to December 31, 2016. ~~totaling~~In ~~approximately~~consideration $4of the contract extension,~~039~~ the Company issued 93,000 common shares to Connectus as compensation, which ~~may~~has bebeen ~~offset~~recorded ~~against~~as ~~future~~professional ~~taxable~~fees ~~income~~on the statements of operations during the year ended March 31, 2016. IfOn ~~not~~December ~~used~~27, 2016, the ~~loss~~Company ~~carryforwards~~extended ~~will~~the ~~expire~~contract and ~~between~~expiry ~~2029~~date of the warrants to December 31, 2017. On January 23, 2017, the Company approved the vesting of 100,000 warrants. Connectus assigned the warrants to Apollo Marketing, LLC. On January 15, 2018, the Company extended the contract and ~~2037~~expiry date of the warrants to December 31, 2018. The Company agreed to extend the vested warrants to March 31, 2019.

1722

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

910.) Commitments and Contingencies (continued)

~~The~~On April 23, 2014, the Company entered into aemployment ~~five~~agreements ~~year~~with ~~operating~~three ~~lease~~officers ~~for~~of ~~office~~the ~~and~~Company ~~production~~effective ~~facilities~~July 1, 2014. The initial ~~lease~~contracts ~~commenced~~contain onminimum ~~December~~aggregate 1commitments of approximately $427,000 ~~2013~~ per year for three years and ~~expires~~additional oncontingent payments ~~November~~of 30up to approximately $600,000 ~~2018~~in aggregate upon the occurrence of a change of control. ~~The~~As ~~base~~a ~~monthly~~triggering ~~rental~~event ishas $1not taken place,~~390~~ ~~plus~~ the contingent payments have not been reflected in these financial statements. If employment is terminated by the Company’s ~~estimated~~other ~~portion~~than upon a change of ~~property~~control ~~taxes~~or for just cause, the officers will be entitled to an amount equal to twelve months ~~and~~compensation ~~operating~~including ~~expenses~~benefits, which ~~are~~shall ~~currently~~be ~~$810~~increased ~~per~~by one month for each full year of service completed. The ~~future~~employment agreements ~~commitments~~were ~~pursuant~~amended towhereby ~~this~~any ~~lease~~salary ~~arrangement,~~from ~~including property~~the ~~taxes~~commencement ~~and~~of ~~operating~~the ~~expenses~~employment ~~for~~agreements has been waived until such a time when the ~~fiscal~~Company ~~periods~~is ~~ending~~able ~~March~~to 31raise ~~are:~~additional financing.

2017 (remaining)	$	8,947
2018	$	26,399
2019	$	17,600

Salaries will be earned based upon the Company’s success in raising future capital in accordance with the following schedule:

For the three and nine month periods ended December 31, 2016, rental expenses related to this lease were $6,544 and $19,577 (2015 - $6,500 and $19,499)

Cumulative Funds Raised ¹		Effective Monthly Salary %
$	100,000		10.0	%
$	175,000		15.0	%
$	250,000		25.0	%
$	375,000		37.5	%
$	500,000		50.0	%
$	750,000		62.5	%
$	1,000,000		75.0	%
$	1,250,000		87.5	%
$	1,500,000		100.0	%

On1 Cumulative ~~March~~funds ~~11,~~raised ~~2014,~~is ~~and~~inclusive asof ~~amended on~~all ~~July~~sources ~~18,~~including ~~September~~without 3,limitation ~~2014~~capital raised, ~~September~~grants 5received, ~~2014~~revenue recorded, ~~December~~debt 31raised, ~~2015~~ and ~~again~~assets onsold. ~~December~~The ~~20, 2016, the Company entered into a consulting agreement with Connectus, Inc~~37.5% ~~(“Connectus”)~~threshold towas ~~assist~~reached ~~and~~during ~~advise~~ the ~~Company~~period inended ~~matters~~September ~~concerning~~30, ~~corporate finance~~2017; ~~and~~however, the Company’s ~~current~~has ~~and~~further ~~proposed~~deferred ~~financing~~any ~~activities~~regular commitments for ~~the~~salaries ~~period~~until ~~commencing April 1, 2014 and ending December 31, 2014. Pursuant to this agreement,~~ the Company ~~agreed~~has tosufficient ~~issue~~liquidity to ~~Connectus,~~sustain ~~625,000 warrants of the Company. Each warrant~~salary ispayments ~~exercisable at USD$0.04 ($0.054) per share for a period of three years. Of the warrants granted, 300,000 vested~~ on ~~September 3, 2014 with the unvested portion vesting pro-rata for each USD$250,000 ($335,675) raised in~~ an ~~offering,~~ongoing ~~fully vesting upon USD$1,500,000 ($2,014,050) being raised~~basis. ~~During~~The ~~the~~Board ~~year~~will ~~ended~~on ~~March 31, 2015, the President of Connectus became~~ a ~~director~~periodic ofbasis ~~the~~as ~~Company. On~~funds ~~December~~are ~~31,~~available ~~2015,~~make ~~the~~non ~~Company~~regular ~~extended the contract to December 31, 2016~~payments. InFor ~~consideration of~~ the ~~contract extension, the~~period ~~Company~~ended ~~issued~~September 9330,~~000~~ ~~common~~2017 ~~shares~~no tosalary ~~Connectus~~commitments aswere ~~compensation,~~accrued ~~which~~or ~~has~~expensed ~~been~~in ~~recorded~~the ascondensed ~~professional~~interim ~~fees on the~~ statements of operations ~~during the year ended March 31, 2016. On December 27, 2016, the Company extended the contract and expiry date of~~(September ~~the warrants to December 31~~30, ~~2017. Subsequent to December 31,~~ 2016, ~~the~~- ~~Company agreed to vest 100,000 warrants~~$Nil). ~~Connectus assigned the warrants to Apollo Marketing, LLC.~~

18On May 19, 2016, the Company signed a consulting agreement with an agent in connection with proposed placements of up to USD$10,000,000 ($13,427,000) in a combination of equity and or debt of the Company for a term of one year. Consideration payable under the consulting agreement include a non-refundable equity retainer of 100,000 common shares of the Company, a placement fee equal to 8% of the gross purchase price paid for equity of the Company, an administrative fee of 4% of the gross purchase price paid for equity, a placement fee of 4% of the gross purchase price paid for non-convertible debt and warrants to purchase common shares of the Company equal to 8% of the number of shares of common stock issuable by the Company upon exercise or conversion of any and all securities issued at each closing. On January 10, 2017, the Company entered into an addendum to the agreement signed on May 19, 2016 which provided for a grant of 900,000 warrants at an exercise price of USD$0.65 ($0.86) for a period of five years with a cashless exercise option. On August 15, 2017, the Company extended the contract for an additional year.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

910.) Commitments and Contingencies (continued)

On ~~April~~February 23, ~~2014~~2017, the Company entered into ~~employment~~a ~~agreements~~three ~~with~~year ~~three~~sponsored ~~officers~~research ofcontract with the ~~Company~~University ~~effective~~of ~~July~~Waterloo commencing on April 1, ~~2014~~2017. ~~The initial~~Under ~~contracts~~the ~~contain~~terms ~~minimum~~of ~~aggregate~~the ~~commitments~~agreement ofthe ~~approximately~~Company will contribute $~~427~~130,000 ~~per~~upon ~~year~~start ~~for~~date ~~three~~of ~~years~~the ~~and~~project, ~~additional contingent~~$130,000 ~~payments~~on completion of upYear to1 ~~approximately~~and $~~600~~130,000 inon ~~aggregate~~completion ~~upon~~of ~~the~~Year ~~occurrence~~2, ofplus athe ~~change~~Company ofwill ~~control.~~make Asan ain-kind ~~triggering~~contribution ~~event~~valued ~~has~~at ~~not~~$70,000 ~~taken~~in ~~place,~~each of the ~~contingent~~3 ~~payments have not been reflected in these financial statements~~years. IfAny ~~employment~~patents isinitiated ~~terminated~~ by the Company ~~other~~from ~~than~~the ~~upon~~sponsored aresearch ~~change~~will ofbe ~~control~~assigned orto ~~for~~the ~~just~~Company ~~cause,~~and in return the ~~officers~~Company will bepay ~~entitled~~the toresearcher an$10,000 ~~amount~~per ~~equal~~patent tofiled, ~~twelve months compensation including benefits~~$40,000 ~~which~~per ~~shall~~patent beissued ~~increased~~ by ~~one~~the ~~month~~U.S. ~~for~~patent ~~each~~office, ~~full~~$50,000 per ~~year~~product ofafter ~~service~~the ~~completed.~~first ~~The~~commercial ~~employment agreements~~sale ~~were~~and ~~amended~~$50,000 ~~whereby~~per ~~any~~product ~~salary~~once ~~from~~ the ~~commencement~~gross ofsales ~~the~~exceed ~~employment~~$1,000,000. ~~agreements~~As ~~has~~of ~~been~~September ~~waived~~30, 2017, ~~until~~the ~~such~~Company ahas ~~time when~~not ~~the~~made ~~Company~~any ispayments ~~able~~pursuant to ~~raise~~this ~~additional financing~~agreement. ~~Salaries~~As ~~will~~of beNovember ~~earned~~30, ~~based~~2018 ~~upon~~ the Company’s ~~success~~has inmade ~~raising~~payments ~~future~~totalling ~~capital~~$130,000 inunder ~~accordance~~the ~~with~~terms of the ~~following~~payment schedule: agreed to with the University.

Cumulative Funds Raised 1		Effective Monthly Salary %
$	100,000		10.0	%
$	175,000		15.0	%
$	250,000		25.0	%
$	375,000		37.5	%
$	500,000		50.0	%
$	750,000		62.5	%
$	1,000,000		75.0	%
$	1,250,000		87.5	%
$	1,500,000		100.0	%

On March 13, 2017, the Company entered into a four year sponsored research contract with the University of Western Ontario commencing on April 1, 2017. Under the terms of the agreement the Company will contribute $210,000 upon execution of the agreement, $210,000 on completion of Year 1, $210,000 on completion of Year 2 and $210,000 on completion of Year 3, plus the Company will make an in-kind contribution valued at $62,500 in each of the 4 years. Any patents initiated by the Company from the sponsored research will be assigned to the Company and in return the Company will pay the researcher $10,000 per patent filed, $40,000 per patent issued by the U.S. patent office, $50,000 per product after the first commercial sale and $50,000 per product once the gross sales exceed $1,000,000. As of September 30, 2017, the Company has made a payment of $50,000 pursuant to this agreement. As of November 30, 2018 the Company had made additional payments totalling $230,000 pursuant to the terms of the agreement as agreed to with the University.

1On ~~Cumulative~~March ~~funds~~27, ~~raised~~2017, isthe ~~inclusive~~Company ofentered ~~all~~into ~~sources~~a ~~including~~one ~~without~~year ~~limitation~~agreement ~~capital~~with ~~raised~~Questrade, ~~grants~~Inc. ~~received,~~an ~~revenue~~Investment Dealer to provide guidance on ~~recorded~~the trading of the Company’s securities and guidance with respect to the promotion of the Company. The Company shall pay Questrade a monthly fee in an amount equal to USD$5,500 ~~debt~~for ~~raised~~consulting services rendered each month of the term. Questrade filed a statement of claim in the amount of $29,941 in small claims court and ~~assets~~the ~~sold~~matter has had an initial trial date with a subsequent date scheduled for March 14, 2019.

On May 18, 2016, the Company signed a consulting agreement with an agent in connection with proposed placements of up to USD$10,000,000 ($13,427,000) in a combination of equity and or debt of the Company for a term of one year. Consideration payable under the consulting agreement include a non-refundable equity retainer of 100,000 restricted shares of the Company (see Note 7a), a placement fee equal to 8% of the gross purchase price paid for equity of the Company, an administrative fee of 4% of the gross purchase price paid for equity, a placement fee of 4% of the gross purchase price paid for non-convertible debt and warrants to purchase common shares of the Company equal to 8% of the number of shares of common stock issuable by the Company upon exercise or conversion of any and all securities issued at each closing. See Note 12.24

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

10.) Commitments ~~Related~~and ~~Party~~Contingencies ~~Transactions~~(continued)

~~Included~~On April in9, ~~accounts~~2017, ~~payable~~the ~~and accrued~~Company ~~liabilities~~signed asa at12 ~~December~~month 31consulting agreement effective April 15, ~~2016~~2017 iswith ~~$Nil~~an ~~(March~~arm’s 31length organization, The ~~2016~~Eversull ~~- $52~~Group,~~030)~~ ~~owing~~Inc. to ~~two~~provide ~~directors~~financial ~~who~~public ~~are~~relations, ~~also~~investor, ~~officers~~shareholder, press relations and capital search consulting ~~significant~~services. ~~shareholders~~Terms of the ~~Company~~agreement ~~for~~include ~~unpaid~~the ~~management~~provision ~~fees.~~of ~~In December 2016~~100,000 ~~common~~restricted shares ~~were~~annually, ~~issued~~a tominimum ~~the~~monthly ~~two~~retainer ~~directors~~of USD$2,000 toplus ~~satisfy~~a ~~the~~3% ~~amount~~introduction fee for all sources of funding introduced by The Eversull Group, Inc. and accepted by the ~~outstanding~~Company. ~~debt~~The Company terminated the agreement.

~~See~~On April ~~also Notes 4~~19, 52017, 7(the Company announced plans to form a), 7joint venture corporation with Avanti Rx Analytics Inc. (bARA). The Company would own 96% of the joint venture and 7ARA would own 4%. As a result of signing the letter of Intent with Bonify on August 10, 2017 (cdetails provided below), 9the ~~and~~Company 12will not be proceeding with the joint venture. The plans for this venture were cancelled after the year end.

~~Amounts~~On May ~~receivable~~8, ~~from~~2017, ~~officer as~~the atCompany ~~December~~signed 31a consulting agreement with Carter, ~~2016~~Terry & Company in connection with the proposed raising of ~~$18~~capital in a combination of equity and/or debt of the Company for a term of two years. Terms of the agreement include the issuance of 150,~~395~~000 restricted common shares on signing (~~March~~see 31Note 8(a)) plus future consideration payable under the consulting agreement, including ~~2016~~a -placement fee equal to 10% of the gross proceeds raised less than USD$211,~~064)~~000,000 isand ~~owing~~8% ~~from~~for agross ~~shareholder~~funds raised in excess of USD$1,000,000, ~~who~~plus isthe ~~also~~equivalent aamount ~~director~~of ~~and~~restricted ~~officer~~shares equal to 4% of the capital raised divided by the closing price of the ~~Company~~stock ~~for~~on ~~funds~~the ~~advanced~~date ~~under~~of ~~his~~close ~~employment~~for ~~agreement~~a ~~(See~~period ~~Note~~of 9)two years. ~~The~~Notification ~~amount~~has ~~receivable~~been isprovided ~~unsecured~~to the Carter, ~~non-interest~~Terry & Company ~~bearing~~that the consulting agreement is cancelled and ~~repayable~~the ~~upon~~Company ~~demand~~will not be making any payments. This agreement was subsequently cancelled with no further obligations by the Company and the shares were not issued.

11On August 8 2017, the Company signed a non-binding Letter of Intent (LOI) with 6779264 Manitoba Ltd. dba Bonify (“Bonify”). Bonify ~~Financial~~is ~~Instruments~~a licensed producer, pursuant to the Access to Cannabis for Medical Purposes Regulations in Canada. In the LOI, the Company and Bonify have outlined the following:

i)	The purchase and installation of cannabis oil extraction equipment with an estimated cost of $1,450,000 to be jointly agreed upon by the Company and Bonify with the equipment being located in Bonify’s facility. At the end of the agreement, full right and title to the equipment would be assigned to Bonify;

ii)	The processing of cannabis material supplied by Bonify and other licensed producers in the oil extraction facility;

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

10.) Commitments and Contingencies (continued)

iii)	The supply of cannabis oil and algae omega-3 oils to The University of Waterloo and University of Western Ontario to support the sponsored research agreements that the Company has in place with the two universities (See Note 10);

iv)	The sharing of direct expenses, and, after adjustment for the market value of cannabis material supplied by Bonify and third parties, sharing of revenues from the sale of cannabis oil and algae-cannabis oil products; and

v)	The negotiation of a definitive agreement no later than September 30, 2017. The definitive agreement was not completed.

This letter of intent was subsequently abandoned and the Company has no additional obligations.

The Company, as the industry partner, is the participant in a Project Grant of up to $400,000 from the Mitacs Accelerate program that will be delivered directly to Western University through eligible internships. The financial contribution by the Company which is $180,000 for this grant is part of the funding included in the research agreement the Company signed with the university and announced on March 13, 2017. To-date the Company has paid the initial of two installments to Mitacs, with the remaining installments being invoiced by Mitacs to the Company throughout the duration of the project. The balance of the $400,000 award ($220,000) will be provided by Mitacs. The project started on December 1, 2017 and is scheduled to operate for two (2) years. The extent of the announced award from Mitacs of $400,000 to be paid directly to the university by Mitacs is dependent on the funding provided by the Company and the number of interns employed in the project. The commitment by the Company for 2018 – 2019 is $66,000 and in 2019 – 2020 is $60,000.

On August 15, 2017, the Company engaged a Canadian firm, Kernaghan and Partners Ltd. (the “Agent”) a fully regulated full service brokerage firm to conduct a capital raise in the Canadian market. In consideration of the services to be rendered, the Agent shall receive on the closing date of the offering:

i)	a work fee of $25,000;

ii)	cash commission (the “Agency Fee”) of 6% of the gross proceeds from the sale of common shares pursuant to the offering, except for sales to persons on the “President’s List”, in respect of which the commission shall be reduced to 2% of the gross proceeds received from such persons;

iii)	broker warrants entitling the Agent to purchase, equal to the issue price, the number of common shares that is equal to 6% of the number of common shares sold pursuant to the offering, except for sales to persons on the President’s List, in respect of which the broker warrants shall entitle the Agent to purchase the number of common shares that is equal to 2% of the number of common shares sold to such persons. The broker warrants shall have a term of 2 years and an exercise price equal to the offering price of the common shares.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

11.) Related Party Transactions

Amounts receivable from an officer in the amount of $8,300 was recovered during the six month period ended September 30, 2017 from an amount of $17,656 previously offset by an allowance for doubtful accounts, leaving a remaining balance in the doubtful account of $9,356. The net amount receivable from two shareholders at September 30, 2017 was $6,906 (2016 - $22,995). The amount receivable is unsecured, non-interest bearing and repayable upon demand.

12.) Financial Instruments

(a) Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s liquidity and operating results may be adversely affected if its access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or matters specific to the Company. The Company generates cash flow primarily from its financing activities and advances from shareholders. As at ~~December~~September 3130, ~~2016~~2017, the Company had cash of $2,~~850~~910 (March 31, ~~2016~~2017 - $~~173~~87) to settle current liabilities of $~~248~~1,~~871~~027,176 (March 31, ~~2016~~2017 - $~~809~~897,~~347~~442). All of the Company’s financial liabilities other than the warrant liability of $~~Nil~~138,133 (March 31, ~~2016~~2017 - $27236,~~479~~200), the term loan of $50,~~956~~447 (March 31, 2017 - $48,894), the convertible notes of $120,646 (March 31, ~~2016~~2017 - $~~nil~~26,076), and aderivative ~~convertible~~liability ~~note~~ of $11209,~~993~~986 (March 31, ~~2016~~2017 - $~~nil~~260,677) have contractual maturities of less than 30 days and are subject to normal trade terms. The Company regularly evaluates its cash position to ensure preservation and security of capital as well as liquidity.

In the normal course of business, management considers various alternatives to ensure that the Company can meet some of its operating cash flow requirements through financing activities, such as private placements of common stock, preferred stock offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. Management may also consider strategic alternatives, including strategic investments and divestitures. As future operations may be financed out of funds generated from financing activities, the ability to do so is dependent on, among other factors, the overall state of capital markets and investor appetite for investments in the ~~green~~cannabis ~~technology~~ industry and the Company’s securities in particular. ~~Should~~ Should the Company elect to satisfy its cash commitments through the issuance of securities, by way of either private placement or public offering or otherwise, there can be no assurance that the efforts to obtain such additional funding will be successful, or achieved on terms favorable to the Company or its existing shareholders. If adequate funds are not available on favorable terms, the Company may have to reduce substantially or eliminate expenditures or obtain funds through other sources such as divestiture or monetization of certain assets or sublicensing (where permitted) of certain rights to certain of the Company’s technologies or products.

2027

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

1112.) Financial Instruments (continued)

(b) Concentration of credit risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash deposits. Cash deposits with a major Canadian chartered bank are insured by the Canadian Deposit Insurance Corporation up to $100,000. As at ~~December~~September 3130, ~~2016~~2017, the Company held $2,~~850~~910 (March 31, ~~2016~~2017 - $~~173~~87) with a major Canadian chartered bank.

(c) Foreign exchange risk

The Company principally operates within Canada. The Company’s functional currency is the Canadian dollar and major purchases are transacted in Canadian dollars. ~~Management~~Certain ~~believes~~of the ~~foreign~~Company’s ~~exchange~~debt ~~risk~~obligations ~~derived~~are ~~from~~denominated ~~currency~~in ~~conversions~~U.S. isdollars. ~~negligible~~Management ~~and therefore~~ does not hedge its foreign exchange risk. ~~See also Note 11 (e).~~

(d) Interest rate risk

As at ~~December~~September 3130, ~~2016~~2017, the Company does not have any non-fixed interest-bearing debt. ~~The~~Management ~~Company~~believes ~~invests~~that ~~any~~the ~~cash~~interest ~~surplus to its~~rate ~~operational~~risk ~~needs~~concentration inwith ~~investment-grade~~respect ~~short-term~~to ~~deposit~~financial ~~certificates~~instruments ~~issued~~included byin ~~highly~~assets ~~rated Canadian banks. The Company periodically assesses the quality of its investments~~ and isliabilities ~~satisfied~~has ~~with~~been ~~the~~reduced ~~credit~~to ~~rating of~~ the ~~bank~~extent presently practicable.

(e) Derivative liability – embedded derivative and warrant ~~liability~~liabilities

In connection with athe consulting ~~agreement~~and investment agreements, the Company granted warrants to purchase up to ~~625~~1,575,000 common shares of the Company as disclosed in Note 78(b). The warrants have an exercise price of USD$0.04 ($0.~~054~~05) for Connectus warrants, USD$0.65 ($0.81) for Midtown warrants and USD$0.50 ($0.62) for the investment placed in June and July 2017. The Connectus warrants are exercisable at any time prior to December 31, ~~2017~~2018 (See Note 10), the Midtown warrants are exercisable at any time prior to January 16, 2022, the warrants for the investments undertaken in June are exerciseable prior to June 21, 2022 and the warrants for the investment undertaken in July are exerciseable prior to July 25, 2022. The warrants are accounted for as derivative liabilities because the exercise price is denominated in a currency other than the Company’s functional currency.

Fair Value at

~~Fair Value at~~

Fair Value Measurement Using

~~Fair Value Measurement Using~~

December 31, 2016

Level 1

Level 2

Level 3

September 30, 2017

Level 1

Level 2

Level 3

Derivative liability – Warrants

-209,986

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative liability) for the periods ended December 31, 2016 and March 31, 2016:28

	Nine months ended December 31, 2016			Year ended March 31,2016
Balance at beginning of period	$	27,479		$	364,878
Derivative instruments exercised		(43,521	)		(509,054	)
Change in fair market value, recognized in operations as professional fees		16,042			171,655
Balance at end of period	$	—		$	27,479

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016

1112.) Financial Instruments (continued)

(e) Derivative liability – embedded derivatives and warrant ~~liability~~liabilities (continued)

~~These~~The ~~instruments~~table ~~were~~below ~~valued~~sets ~~using~~forth ~~pricing models that incorporate the price of~~ a ~~share~~summary of ~~common~~changes ~~stock,~~in ~~expected volatility, risk free rate, expected dividend rate and expected estimated life. The Company estimated~~ the fair value of the ~~warrants~~Company’s ~~using~~Level ~~the~~3 ~~Black-Scholes model.~~financial ~~There were no transfers of assets or~~ liabilities ~~between~~(warrant ~~Level~~derivative liability) 1,for ~~Level 2, or Level 3 during~~ the periods ended ~~December 31~~September 30, ~~2016~~2017 and March 31, ~~2016.~~2017:

The following are the key weighted average assumptions used in connection with the estimation of fair value as at December 31, 2016:

	Six months ended			Year ended
	September 30, 2017			March 31, 2017
Balance at beginning of year	$	236,200		$	27,479
Derivative instruments granted or vested		41,294			633,000
Derivative instruments exercised		-			(55,321	)
Change in fair market value, recognized in operations as professional fees		(139,361	)		(368,958	)
Balance at end of period	$	138,133		$	236,200

	December 31, 2016
Number of shares underlying the warrants		325,000
Fair market value of the stock	$	0.78
Exercise price	USD$	0.04 ($0.054)
Expected volatility		265	%
Risk-free interest rate		0.74	%
Expected dividend yield		0	%
Expected warrant life (years)		1.00

See Note 8(b).

12These instruments were valued using pricing models that incorporate the price of a share of common stock, expected volatility, risk free rate, expected dividend rate and expected estimated life.) ~~Subsequent~~The ~~Events~~Company estimated the value of the warrants issued for services using the Black-Scholes model and for convertible debt financings using the binomial-lattice-based valuation model. There were no transfers of assets or liabilities between Level 1, Level 2, or Level 3 during the periods ended September 30, 2017 and March 31, 2017.

OnThe following ~~January~~are ~~9, 2017,~~ the ~~Company entered~~key ~~into~~weighted aaverage ~~three~~assumptions ~~month~~used ~~contract~~in connection with ~~an investor relations firm. The terms of~~ the ~~contract~~estimation ~~specified a cash payment~~ of ~~USD$10,000 ($13,427)~~fair ~~and~~value ~~50,000~~as ~~shares~~at ofSeptember ~~restricted stock (issued subsequent to December 31~~30, ~~2016).~~2017:

On January 10, 2017, two directors and officers of the Company were issued a total of 250,000 replacement shares. See Note 7(a).

	September 30, 2017			March 31, 2017
Number of shares underlying the warrants		1,575,000			1,175,000
Fair market value of the stock	$	0.11		$	0.3061
Exercise price	USD$	0.5($0.64	)	USD$	0.5($0.68	)
Expected volatility		220	%		229	%
Risk-free interest rate		1.92	%		1.03	%
Expected dividend yield		0	%		0	%
Expected warrant life (years)		3.71			3.85

~~On January 10, 2017, 75,000 stock options were exercised at $0.31 per common share for total proceeds of $23,250.~~29

~~On January 17, 2017, the Company~~Algae ~~entered~~Dynamics ~~into an addendum to an agreement signed on May 18, 2016 (see Note 9) which provided for a grant of 900,000 warrants at an exercise price of USD$0~~Corp.~~65 ($0.86) for a period of five years with a cashless exercise option.~~

OnNotes to ~~January 23, 2017,~~ the ~~Company vested~~Condensed ~~100,000~~Interim ~~warrants~~Financial ~~for Connectus (Apollo Marketing LLC). See Note 9.~~Statements

22(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

13.) Subsequent Events

Subsequent to March 31, 2018 year-end, the Company submitted a provisional patent which is a result of the research being undertaken at Western University under the terms of the Sponsored Research Agreement with the university. The provisional patent has been assigned to the Company. The provisional patent is applicable to the use of botanical oils in conjunction with cannabis oils for medical purposes.

The Company has signed a supply agreement for the supply of cannabis flower for medical purposes. This supply agreement is in compliance with the cannabis regulations established by Health Canada. Under the terms of the agreement, the Company did not commit to a purchase volume.

The Company has engaged a consultant to assist with an application to Health Canada to obtain a license to undertake the purchase/sale and import/export of medical cannabis without possession.

Subsequent to the March 31, 2018 year-end, the Company undertook the raising of additional capital. The capital raise initially consisted of a $100,000 convertible debenture which is exercisable into common shares of the Company at a fixed rate of $0.25 per share up until July 19, 2021. In addition, the Company completed a private placement in the amount of $947,117 issued at $0.40 per common share plus one-half warrant. A whole warrant can be exchanged for one common share at $0.75 per share up until October 26, 2020.

On July 6, 2018, the Company signed an agreement with an arm’s length organization, Edgewater Consulting Corp to assist with the raising of capital funds. The agreements provides for a cash fee of $52,355 plus the allocation of 41,885 warrants at a price of $0.75 and the allocation of 150,000 stock options at a price of $0.50. The contract also provides for the provision of consulting services at $3,000 per month to assist with the application for a public listing on a Canadian Exchange.

On October 1, 2018, the Company signed an agreement with an arm’s length individual to assist the Company with the public offering process. The terms of the agreement provide for the issuance of 50,000 Restricted Stock Units in accordance with the Stock incentive plan and a further 50,000 warrants at a price of $0.75 with an expiry date of October 26, 2020.

In accordance with Note 6 (c), under the terms of the agreements with two of the holders of convertible notes with a maturity of 60 days the Company had a commitment to issue an additional 230,876 common shares. This commitment was settled subsequent to March 31, 2018 by issuing 115,438 warrants with an exercise price of $0.75 and an expiry of January 2, 2020.

Algae Dynamics Corp.

Notes to the Condensed Interim Financial Statements

(Stated in Canadian Dollars)

(Unaudited)

September 30, 2017 and 2016

13.) Subsequent Events (continued)

On November 10, 2017, 850,000 options were granted to officers and consultants of the Company. The weighted average exercise price of these options is $0.15. Of this grant 680,000 options vest as to one-third on the grant date and one-third on each of the first anniversary and the second anniversary of the grant date; 170,000 options vest as to one quarter on the date of grant and one quarter at 90 days, 180 days and 270 days from the grant date and options vested immediately. In addition on January 15, 2018 475,000 options were granted to officers and consultants of the Company. The weighted average exercise price of these options is $0.19. Of this grant, 390,000 options vest as to one-third on the grant date and one-third on each of the first anniversary and the second anniversary of the grant date; 85,000 options vest as to one quarter on the date of grant and one quarter at 90 days, 180 days and 270 days from the grant date.

Subsequent to September 30, 2017 and during the year ended March 31, 2018, the Company recorded $495,851 (2017 - $Nil) as additional capital for the issuance of 4,507,740 deferred share units issued to officers in lieu of compensation for past service. Deferred share units represent a commitment to issue restricted shares upon request or termination at some date in the future. Accordingly, the measurement date for this commitment has not been determined and therefore the commitment requires re-measurement at each reporting period until it is fulfilled.

Subsequent to September 30, 2017 and during the year ended March 31, 2018, the Company recorded a recovery of $84,000 (2017 -$393,184) as a result of shares forfeited by management. Additionally, subsequent to the end of the period and during the year ended March 31, 2018, the Company recorded $35,186 (2017 - $782,993) as professional fees for services rendered related to common shares issued or to be issued to consultants.

The convertible notes issued on August 14, 2017, USD$53,000 ($67,602), September 18, 2017, USD$10,000 ($12,238), October 27, 2017, USD$250,000 ($321,850), November 1, 2017 USD$20,000 ($25,770), November 13, 2017, USD$25,000 ($31,833) for a total of USD$358,000 ($459,292) have matured and the Company issued a total of 3,639,931 common shares at the conversion rate of USD$0.10. The shares (2,541,781) for the USD$250,000 convertible note were issued on January 5, 2018 and the balance of the shares for the convertible notes (1,098,150) were issued subsequent to March 31, 2018. The Company agreed to issue an additional 159,023 warrants with an exercise price of $0.75 and an expiry of January 2, 2020, in connection with conversions. See Note 6 (e).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Caution Regarding Forward-Looking Information

This following information specifies certain forward-looking statements of management of Algae Dynamics Corp. (the “Company”). Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may,” “shall,” “could,” “expect,” “estimate,” “anticipate,” “predict,” “probable,” “possible,” “should,” “continue,” or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and, except as required by law, we assume no obligation to update any such forward-looking statements.

This Form 10-Q should be read in conjunction with the audited financial statements of the Company included in its Annual Report on Form 10-K for the year ended March 31, ~~2016~~2017, including the notes thereto and the risk factors identified therein ~~and our Registration Statement on Form S-1 (Commission File No~~. ~~333-215685).~~ Quarterly results are not necessarily indicative of full-year results.

Company Overview

Algae Dynamics Corp (~~the “Company”~~ADYNF) is ~~currently~~focused ~~engaged~~on in the ~~commercialization~~development of ~~our~~ proprietary ~~BioSilo®~~research ~~algae cultivation~~and ~~system~~products ~~for~~utilizing ~~the~~cannabis ~~high~~oil ~~volume,~~combined ~~low~~with other ~~cost~~botanical ~~production~~and ofnutraceutical ~~pure~~products. ~~contaminant-free~~The ~~algae~~original ~~biomass.~~core ~~This~~of ~~biomass~~our isproduct ~~high~~development instrategy was the extraction of Omega-3 fatty- acids ~~EPA,~~from ~~DHA~~certain ~~and~~strains ~~DPA,~~of ~~vitamins,~~algae ~~minerals~~with ~~and~~high ~~antioxidants,~~concentrations ~~all~~ of ~~which~~DHA ~~are~~(docosahexaenoic inacid) ~~demand~~to bycreate ~~the~~various ~~growing~~nutraceutical products. ~~multibillion~~As ~~dollar food/beverage~~a ~~and~~result ~~health~~of ~~care~~the ~~sectors.~~many ~~Our~~demonstrated ~~integrated~~health ~~BioSilo®~~benefits ~~manufacturing~~of ~~system~~other ~~provides~~botanical ~~low~~oils, ~~cost~~most ~~algae~~notably ~~biomass~~cannabis ~~production with~~oil, ~~modest~~we ~~capital~~have ~~cost~~developed a ~~requirements~~strategy ~~compared~~aimed toat ~~conventional~~developing ~~approaches.~~products ~~Furthermore,~~that ~~our~~combined ~~“controlled~~the ~~outcomes” technology~~health ~~provides~~benefits ~~ultra-high~~of ~~purity~~cannabis ~~algae~~oils ~~biomass,~~and ~~differentiating~~nutraceutical itproducts, ~~from~~including algae ~~other~~oil. ~~producers~~Capitalizing inon the ~~market.~~burgeoning ~~Following~~demand ~~completion of~~for acannabis ~~commercial-scale~~oil ~~demonstration~~and ~~facility~~other wesmoke-free ~~intend~~alternatives to ~~produce~~marijuana ~~algae~~consumption, including ~~biomass~~ for ~~sale~~medicinal ~~into~~purposes, ~~the~~will ~~functional~~help ~~additive~~support our ongoing initiatives to create and ~~supplement markets~~market research-driven product formulations.

~~The~~In ~~Company’s~~December ~~mission~~2016, iswe toannounced bea new initiative into the Canadian cannabis industry. We followed that announcement with a ~~leading~~press ~~producer~~release in March 6, 2018 announcing our intention to build shareholder value through the pursuit of ~~low-cost~~several ~~ultra-pure~~key initiatives. Over this period, we have continued to assess how to leverage the research and development which was originally focused on the commercialization of our proprietary BioSilo® algae ~~biomass~~cultivation ~~with~~system ~~high~~and ~~nutrient~~we ~~content~~have decided to suspend our focus on the development of this proprietary technology. In the interim, we will source algae oil for our research-driven product formulations. By doing so, we have eliminated the ~~functional~~immediate capital requirements for extraction and formulation equipment. We are now focused on entering into profit sharing ~~food/beverage~~business ~~additive~~ventures with potential partners who have the appropriate Health Canada licenses to produce and ~~health~~sell ~~supplement~~medical ~~industries~~cannabis formulated products, utilizing our patented formulations which combine cannabis oil and other nutraceutical products developed through our $1.69Million commitment to support the university research and previously announced C$400,000 research grant from MITACS, a not-for-profit, Canadian national research organization together with our sponsored research programs with Canadian universities (our Sponsored Research Programs).

~~The global omega-3 market was estimated to be US$14.5 billion in 2013 and is expected to reach US$21.7 billion by 2019, growing at a CAGR of 7.0% from 2014 to 2019.~~32

~~The~~Strategic North American omega-3 market was estimated to be US$4.0 billion in 2013 and is expected to reach US$5.9 billion by 2019, growing at a CAGR of 6.5% from 2014 to 2019. Supplements are the largest application segment that drives North America’s omega-3 market.Focus

~~Compared~~During ~~with~~Health ~~fiber~~Canada’s ~~Omega-3~~consultations isrelating to the ~~most~~cannabis ~~consumed~~industry ~~ingredient~~and ~~because~~related legislation, they heard many compelling personal stories of ~~its~~how ~~wide-ranging~~cannabis ~~applications~~is inmaking ~~food,~~a ~~pharmaceuticals~~difference ~~and~~to ~~dietary supplements.~~Canadians ~~Various~~living with serious health ~~concerns~~challenges such as ~~obesity~~cancer, ~~cardiac~~HIV/AIDS, ~~failure~~multiple sclerosis, arthritis and ~~neural~~fibromyalgia. ~~disorders~~They ~~are~~also ~~driving~~heard about the ~~consumers~~role ~~toward~~that ~~nutraceuticals~~cannabis can play in pain management and palliative care, and the relief that ~~contain~~cannabis, ~~omega-3~~particularly ~~fatty~~strains ~~acids~~with ashigh alevels ~~main~~of ~~ingredient.~~CBD ~~(source:~~and ~~BCC~~low ~~Research~~levels ~~November~~of ~~2014)~~THC, offers to children with severe forms of epilepsy and how cannabis has enabled patients to limit or eliminate their use of powerful narcotic drugs such as opioids.

~~ADC~~Algae isDynamics ~~looking~~intends to ~~raise~~undergo ~~US$2~~a tosignificant $3rebranding ~~million~~exercise to ~~complete~~ensure ~~its~~that ~~BioSilo®~~it ~~system commercialization plan (scheduled for 8 – 10 months) including Business to Business “B to B” value-added product strategies. The Company~~ is ~~also~~able ~~looking~~ to ~~raise US$8.0~~communicate ~~million~~its ~~for~~emphasis ~~Phase~~on IIthe ~~to roll out larger commercial systems as part~~ application of ~~its commercial growth strategy~~cannabis. ~~ADC~~Beginning ~~has~~with a ~~defined plan~~proposed toname ~~generate~~change ~~revenue~~to byCanaQuest ~~supplying~~Medical ~~algae~~Corp., ~~biomass~~our inmission ais ~~powder form and/or oil that can be used as nutrient rich ingredients for its customers.~~to:

~~DHA Algae~~(i) ~~oil~~Identify ~~prices~~with ~~trade in~~ the ~~range~~help of ~~$60~~our toresearch ~~$90~~partners ~~per~~appropriate ~~kilogram~~formulations ~~today~~(ii) ~~depending~~Acquire onthe ~~DHA~~lowest ~~concentration~~cost ~~and~~dry ~~country~~cannabis offrom ~~origin,~~domestic ~~however, algae~~and ~~oil~~international issuppliers ~~typically~~who ~~selling~~have ~~for~~adequate ~~$70~~logistics and warehousing capabilities to ~~$75~~satisfy ~~per~~our ~~kilogram.~~requirements; and (~~source:~~iii) ~~Frost~~Continue &discussions ~~Sullivan~~we ~~May~~have ~~24th.~~already ~~2016~~commenced with contract manufacturers who have experience in conducting human trials and commercializing research and development as well as managing supply and risk management including through good manufacturing practices (GMP).

~~The~~We ~~average~~expect ~~price~~our ~~observed~~formulations ~~for~~involving ~~Chlorella~~both ~~was~~THC ~~approximately~~and ~~€26.83/kg~~botanical ~~(US$30.59)~~oil inextracts ~~2015,~~will intreat ~~bulk~~mental ~~form,~~health ~~ranging~~ailments ~~from~~and ~~less~~the ~~than~~advent of our ~~€10~~formulations ~~(US$11.40)~~is expected to ~~more~~significantly ~~than~~distinguish ~~€40~~our ~~(US$45.60).~~approach ~~Chlorella~~from ~~products~~Licensed onProducers who may not have strong relationships with the ~~upper~~University ~~range~~research ~~will~~community bewhich ~~products~~we ~~produced~~believe ~~from~~we ~~environmentally-controlled closed~~have ~~systems~~cultivated ~~with~~over ~~3rd~~time ~~party-substantiated~~through ~~quality~~our ~~claims~~business objectives. ~~Users~~We ofbelieve our ~~these~~formulations ~~high-end~~may ~~products~~have ~~are~~significant ~~dietary~~potential ~~supplement~~applications in the treatment of anxiety, ~~medical~~addiction, ~~food~~depression, schizophrenia, and ~~personal~~post-traumatic ~~care~~stress ~~producers~~disorder in“PTSD” ~~the~~and ~~Western~~will ~~countries~~form a strong foundation to continue to seek other applications through our Sponsored Research Programs. ~~(source:~~Accordingly, ~~Frost~~we &believe ~~Sullivan~~we ~~August~~have ~~2015)~~developed a strategy to maximize opportunities in an evolving industry that has international scope and opportunity, with Canadian talent through its universities providing a mechanism to make a significant difference in the lives of medical cannabis users.

~~Product~~Intellectual ~~pricing~~Property ~~of Business to Consumer “B to C” and value-added products pricing are substantially higher than bulk sales.~~Protection

23The Company is undertaking development & commercialization of cannabinoid therapeutic products from strains of cannabis to treat a variety of clinical indications. Through its relationship with Universities, the Company is collaborating to formulate proprietary solutions which significantly impact the effectiveness of cannabis compounds. In addition, we are looking to:

~~Globally, there~~● ~~were~~Combine ~~351~~the ~~products~~benefits ~~containing~~of ~~Chlorella~~cannabis ~~launched between February 2013~~ and ~~April~~other ~~2016: 180 in the food category~~botanicals; 91● inEnhance ~~the drink~~a ~~category,~~highly ~~and~~effective 80suite inof ~~the~~medicinal ~~pet~~patented products; ~~category.~~and ~~(source:~~● ~~Agriculture~~Utilize ~~Canada~~formulations ~~April~~which ~~2016)~~increase absorption capacity.

~~The~~Competitive Company intends to enter the North American market through food/beverage and health supplement distributors as well as food and beverage manufacturers directly. Many of these companies have distribution globally which could provide Algae Dynamics access to world markets.Advantage

AsWe ~~well~~believe ~~the~~we ~~Company~~have isdeveloped ~~developing~~a ~~plans~~competitive toadvantage ~~build~~relative ~~brand~~to ~~recognition,~~Licensed ~~specializing~~Producers inwho ~~the~~may ~~health~~have ~~food~~vertically ~~and~~integrated ~~supplement markets,~~ operations to ~~have packaged~~produce ~~products~~medical ~~available~~applications for ~~sale~~cannabis. toIn ~~customers~~particular, ~~(Business~~we tohave ~~Consumer~~shown “Bprogress toin C”several -key ~~online,~~areas ~~retail and wholesale).~~including:

~~The~~Clinical reader is cautioned that the price data is the most recent available for the Company. While there is a risk that prices have decreased in the meantime, we believe they are still representative of market conditions. However, even if prevailing market prices have decreased, the lower margins could work to the Company’s advantage because, as management believes, its BioSilo® process gives it a production cost advantage over certain competing production methods, such as the more common open-pond system.Trials:

~~Our key~~● ~~competitive~~Clinical ~~advantage~~trial isdata ~~process~~using ~~engineering~~animal ~~control~~subjects ~~which~~performed ~~management~~by ~~believes~~Dr. ~~ensures~~Laviolette, ~~the~~Western ~~best~~University, ~~possible~~has ~~outcomes~~shown ~~for~~positive ~~each algae~~results. ~~species~~● atOur afocus ~~low~~is ~~cost.~~targeted ~~Growing~~to ~~algae~~areas ~~successfully~~that ~~requires~~can aprovide ~~blend~~positive, ofmeasurable afeedback ~~controlled~~including ~~environment~~anxiety, ~~and~~addiction, ~~species~~depression, ~~selection.~~schizophrenia ~~The Company’s~~and ~~production~~PTSD. ~~flexibility~~● ~~and~~Our ~~tight~~products ~~control~~are ~~allows~~intended it to ~~interchange~~balance ~~selected~~THC ~~species~~with ~~for~~other ~~improved~~botanical ~~algae~~compounds ~~yield~~to ~~and quality~~minimize orthe ~~client~~euphoric and ~~marketplace~~related ~~demands~~side ~~as required~~effects. ~~This~~● ~~provides~~We anexpect ~~immediate~~further ~~and~~product ~~long~~formulations ~~term competitive advantage allowing the Company to quickly~~ and ~~profitably~~uses ~~enter the market~~ as ~~R&D~~our onSponsored ~~species~~Research ~~selection~~Programs ~~evolves~~continue.

Through its assignment of rights agreement with researchers at the University of Waterloo, the Company has access to proprietary algae species developed in the researcher’s labs that management believes have very high growth rates and nutrient content. The design enables full control of all cultivation parameters allowing Algae Dynamics to achieve optimum growing conditions for any algae species. As well, a unique CO2 delivery system enhances delivery efficiency and minimizes CO2 losses from the system. In essence, Algae Dynamics is combining expertise in the science of algae cultivation with the efficiency of thoughtful engineering.Relationships:

~~The Company~~● ~~has~~Focused ~~entered~~studies ~~into~~by aour memorandum of understanding with POS Biosciences (“POS”), a Saskatchewan, Canada based company, for key process variables such as oil extraction and EPA/DHA separation. POS offers expertise and service in bioprocessing applied research ~~from~~partners ~~bench-top~~includes totwelve ~~commercialization~~years ~~scale. CO2 and agriculture quality nutrients are expected to be supplied by outside suppliers which will be managed by us. Under the POS memorandum~~ of ~~understanding,~~cannabis ~~POS~~compounding ~~will assist the Company in the commercialization of the Company’s algae strains by identifying~~(THC, ~~isolating,~~CBD) ~~extracting,~~● ~~concentrating,~~Talented ~~spray~~management ~~drying~~ and ~~purifying~~sustainability ais ~~wide~~evident ~~range~~through ofcontinuous ~~algae-based~~development ~~components.~~and ~~POS~~talent ~~also~~retention ~~has~~including inseven ~~place~~PhDs ~~the appropriate licenses~~ and ~~quality~~three ~~assurance~~interns ~~standards for~~through ~~food~~our ~~and~~Sponsored ~~nutraceutical~~Research ~~products~~Programs. ~~Billing for POS services will be on a project by project basis on terms to be negotiated.~~

~~Recent Developments~~33

~~In December~~● ~~2016~~Our innovative approach to government funding, including the ~~Company~~MITACS ~~announced~~$400,000 research grant has built a ~~new~~reputable ~~oil~~and ~~extraction~~collaborative ~~initiative~~approach ~~into~~between the ~~Canadian~~private ~~cannabis~~and ~~industry~~public sector. To● ~~expand~~Our ~~into~~scientific ~~cannabis extracts~~rather than simply “claims-based” approach provides reviewable clinical data that is attracting attention from leading pharmaceutical firms and producers. ● Our primary researcher at Western University, Ontario, Dr. Steve Laviolette, believes that the ~~Company~~clinical ~~plans~~implications onand ~~focusing~~commercial ~~its~~potential ~~efforts~~for inhis ~~2017~~formulations ~~by:~~are highly significant and has concluded that “since cannabis is commonly prescribed for a host of ailments, including pain, nausea, glaucoma, multiple sclerosis, osteoarthritis, our formulation will again be hugely significant for the non-mental health patient sectors as well”.

● Expanding research and development work with existing and new Canadian university relationships to bring the latest technology and science to develop future products. ● Entering into discussions to partner with or take potential ownership in existing Access to Cannabis for Medical Purposes Regulations (ACMPR) licensed producers to allow for access to the marketplace. ● Submitting an application to become a producer of medical marijuana under the ACMPR and ultimately sell products derived from cannabinoidsUniversity Affiliations:

24Our strong and developing relationship with Western University positions us to execute on our business strategy and develop viable, useful products.

~~The~~In ~~Company~~particular, ~~believes~~we itbelieve isresearchers ~~uniquely~~at ~~positioned~~Western byUniversity solely trading on the US financial markets while being fully domiciled and entirely operating in Canada not being subject to restrictive federal laws related to cannabis cultivation and sale in the United States.are:

~~The Company~~● ~~has~~Ahead ~~had~~of attheir ~~the~~field ~~core~~with ofover ~~its~~twelve ~~product~~years ~~development~~of ~~strategy~~cannabis ~~the~~compound ~~extraction~~(THC, ofCBD) ~~Omega-3~~research; ~~fatty~~● ~~acids~~Have ~~from~~a ~~certain~~strong ~~strains~~understanding of ~~algae,~~ ~~with~~the ~~high~~application ~~concentrations~~ of ~~DHA~~THC ~~which~~and isCBD ancompounds ~~important~~to ~~nutrient~~address ~~for~~pain, ~~brain~~anxiety, ~~eye~~addiction, depression, schizophrenia and ~~heart~~post-traumatic ~~health,~~stress asdisorder ~~well~~“PTSD”; as● Equipped to realize the ~~creation~~ benefits of ~~various~~a ~~nutraceutical~~novel ~~products~~proprietary formalizations they developed, ~~therefrom.~~and Inwhich ~~light~~are ofeligible ~~the~~for ~~many~~patents ~~demonstrated~~which ~~health~~the ~~benefits~~Company ofwill ~~other~~secure ~~botanical~~through ~~oils, most~~our ~~notably~~research ~~cannabis~~agreements; ~~oil,~~● ~~the~~In ~~Company~~a ~~has~~position ~~developed~~to aleverage ~~strategy~~their ~~aimed~~platform atestablished ~~developing~~for ~~new~~ongoing ~~products~~novel ~~combining~~formulations ~~the~~and ~~health~~produce ~~benefits of~~relevant ~~algae~~clinical ~~and~~trial ~~cannabis~~data ~~oils~~with significant results.

~~The~~In ~~following~~addition, ~~are~~the ~~some~~researchers ofat the ~~potential~~University ~~health~~of ~~benefits~~Waterloo ofare ~~algae~~exploring ~~and~~other ~~cannabis~~areas that ~~the~~have ~~Company~~shown ~~intends~~positive toresults ~~research~~for ~~further~~the ~~to potentially~~use ~~combine~~of ~~into~~cannabis ~~synergistic products~~including:

~~Algae~~● ~~Cannabis~~Colorectum, ~~Detoxes~~pancreas, ~~heavy~~breast ~~metals~~ and ~~toxins~~prostate ~~Reduces stress and anxiety Supports immune system Reduces glaucoma and prevents macular degeneration Fights~~ cancer; ~~Prevents~~● ~~certain~~Ongoing ~~cancers~~R ~~Detoxifies~~& ~~radiation~~D ~~and~~– ~~chemotherapy~~mitigation ~~Relives~~of ~~pain~~the ~~Lowers~~spread ~~cholesterol~~of ~~and~~cancerous ~~blood~~tumors; ~~glucose levels Increases appetite Improves cardiovascular function Stimulates antioxidant processes Improves cognitive functioning Fights multiple sclerosis~~ and ~~schizophrenia~~● ~~Fights~~Combined ~~Alzheimer’s~~application ~~disease~~of ~~Fights~~natural ~~neurodegenerative~~botanicals, ~~disorders~~algae ~~Reduces~~essential ~~antiplatelet~~fatty ~~effects~~acids, ~~Reduces migraines~~ and ~~headaches~~cannabis ~~Reduces major coronary events Fights epilepsy Acts as an anti-inflammatory agent Fights obesity and metabolic syndrome Improves memory Fights anorexia and osteoporosis~~oils.

As of the date of this Form 10-Q the Company’s initiatives are at a preliminary stage and ultimate implementation will at the onset be dependent upon entering into research and development partnerships with academic institutions interested in pursuing the potential benefits of combining algae and cannabis and obtaining the funding necessary to pursue such research, as well as obtaining the funding necessary for continuing operations. While the Company is pursuing research and development and funding opportunities, there can be no assurance that such pursuit will be successful, or that any research and development efforts will result in commercially saleable products.Distribution

Our focus on distribution is intended to position us to meet demand for our formulations which is expected to occur through agreements with Licensed Producers with formulation, packaging and distribution/export (GMP facilities) together with international distribution agreements and strategies to distribute product both domestically and abroad.

Product Development

We are positioned to introduce products using both THC dominated formulations with other botanicals, including combinations with plant cannabinoids as well as CBD dominated formulations with other botanicals. We believe that a strategy of introducing a combination of compounds over time and in formulations that are correlated with observed benefits will allow us to penetrate and differentiate ourselves from competitors.

Licensed Producer Partnerships

We intend to pursue our business strategy through appropriate licensing arrangements with Licensed Producers. We believe our experience and focus on nutraceutical formulations in the past several years position us to execute this strategy through relationships we have formed and continue to develop.

Next Steps:

To fully exploit our competitive advantage, we intend to:

	●	Sign agreements with Licensed Producers/Distributors to sell medicinal cannabis domestically and Internationally
	●	Schedule cannabis deliveries from JMCC (signed Supply Agreement) for supply of high-volume dry medicinal cannabis to Licensed Producers/Distributors

	●	Initiate human trials to further support our research and animal clinical trial results
	●	Secure license from Health Canada for Purchase/Sale, Import/Export - the Cannabis Act (non-possession)
	●	Formalize agreement with Licensed Processor – GMP facility, to package and distribute formulations
	●	Secure funding and list on the Canadian Securities Exchange (CSE) – dual listing
	●	Build brand awareness for sales and export – scientifically supported
	●	Support Universities on-going product development - Uniqueness (scientific data)
	●	File Provisional Patent Product Applications

Medical Cannabis – History and Benefits

Cannabis, also known as marijuana, is a family of plants called Cannabaceae. There are over 700 varieties of cannabis that have been described to date. Based on characteristics such as shape, colour, height, smell, etc., usually recognised by two Main types: Cannabis Sativa, which originated in the Western hemisphere and Cannabis Indica, which originated in Central and South Asia. Cannabis as a medicine can be found in the oldest Chinese tradition few thousand years ago, and indications showed different therapeutics use such as for malaria, rheumatic pain, constipation, disorders of reproductive system and many others.

Medical Cannabis refers to the use of cannabis and its constituent cannabinoids to treat disease or improve symptoms such as pain, muscle spasticity, nausea and other indications. Cannabinoids is a blanket term covering a family of complex chemicals, both natural and man-made, that bind with cannabinoid receptors (protein molecules on the surface of cells) and effect a wide number of responses. Cannabinoid receptors in the human body are part of a system called the Endocannabinoid System. This system produces chemicals called endocannabinoids, which also bind with cannabinoid receptors. Cannabinoid receptors are found in the brain and throughout the body. Scientists have found that cannabinoid receptors in the Endocannabinoid System are involved in a vast array of functions in our bodies, including helping to modulate brain and nerve activity (including memory and pain), energy metabolism, heart function, the immune system and even reproduction. While there are a large number of active cannabinoids found in cannabis, the two most common currently used for medical purposes are THC (tetrahydrocannabinol) and CBD (cannabidiol).

Our proposed cannabis formulations and related nutraceutical products will generally utilize:

●	a multiple combination of plant strains to target medical ailments at the neurological level;
●	the use of cannabis extracted and concentrated cannabinoid oils which are known to provide targeted benefits together with botanical oils and Algae-omega3 essential fatty acids (DHA and EPA);
●	cannabis extracted and separated terpenes (aroma, additional medicinal benefits); and
●	cannabis “whole plant” oil – with natural concentrations of THC or CBD.

From research done in the field it has been concluded that THC acts on 2 types of cannabinoid receptors: CB1 and CB2. CB1 receptors are mainly found in the brain, peripheral nerves, and nervous system, whereas CB2 are found both in the neurons and immune cells. Evidence suggests that THC helps alleviate symptoms suffered both by AIDS patients and by cancer patients undergoing chemotherapy, by increasing appetite and decreasing nausea. The other main ingredient is CBD, a non-psychoactive component of cannabis which accounts for more than 50% of the known therapeutic applications A range of clinical studies indicated that CBD appears to relieve convulsion, inflammation, anxiety, nausea and short-term memory loss.

While THC has a strong binding affinity for both CB1 and CB2 receptors, CBD has no particular binding affinity. Instead, many of the therapeutic benefits of CBD are created through indirect actions. These actions include activating TRPV1 Receptors. These receptors are involved in regulating pain, body temperature, and inflammation. We believe based on our consultations with Dr. Steve Laviolette, that these properties of THC may make it more desirable than CBD alone as it directly and more effectively treats several of these ailments while CBD only has an indirect effect. This is because THC is similar to Endocannabinoids that have a similar structure to naturally occurring Endocannaboids which are also naturally released by neurons in the human body to regulate the release of neurotransmitters.

While THC is known to have a positive impact in stabilizing the release of neurotransmitters responsible for PTSD and pain, THC selectively targets molecular and neuropharmacological signaling pathways in both cortical and sub-cortical regions of the brain. In particular, the diminished functioning of GABAergic neurons in the prefrontal cortex (PFC) may lead to the loss of control of the PFC to regulate proper sub-cortical dopamine neurotransmission. The action of THC on CB1Rs can impair PFC-CB1R signaling and associated GABAergic functionality leading to dysregulation of the normal prefrontal process. This results in an increase in the extracellular glutamate levels and lower GABA which normally inhibits dopamine production. Understanding this process provides the potential for the development of safer cannabinoid-derived formulations using THC and/or the development of novel THC formulations containing neuroprotectants to mitigate these neuropsychiatric risks. Accordingly, our primary formulation combines THC with specified quantities of a specific botanical extract. While both are naturally occurring products, we believe that our formulation is sufficiently novel as it combines these compounds in specified quantities to create a different neurological result. The specific botanical extract is a unique amino acid and is known to cross the blood-brain barrier. In addition, it may regulate the extracellular glutamine concentration in the neurons and by doing so may properly regulate GABA levels and thus inhibit the release of dopamine. This same formulation may lead to THC replacing opioids: since the primary addictive effects of opioids are believed to be due to causing a long-term ‘switching on’ of overactive dopamine, our formula would be predicted to be superior to THC alone (which does cause overactive DA similar to opioids), in that our formula prevents this side effect of THC.

THC as a replacement for opioids: According to Dr. Steve Laviolette, “Since the primary addictive effects of opioids are believed to be due to causing a long-term ‘switching on’ of overactive dopamine, our formula would be predicted to be superior to THC alone (which does cause overactive DA similar to opioids), in that our formula prevents this side effect of THC.”

This is because THC is similar to Endocannabinoids that have a similar impact in structure to naturally occurring Endocannaboids which are naturally released by neurons to regulate the release of neurotransmitters.

Competitive Landscape

The future of medical cannabis lies in medically accepted products for the management of neuropathic pain, hypertension, post-stroke neuroprotection, multiple sclerosis, epilepsy, cancer, and other disorders. An example list of publicly traded companies that have entered or are intending to enter the medicinal cannabis markets are listed as follows:

●	Aphria Inc (Canada Licensed Marijuana producer),
●	Aurora Cannabis (producer of Cannabis and medicinal solutions following its acquisition of Cannabid Inc.), Bedrocan Cannabis Corp Canada (Pharmaceutical grade medicinal cannabis), Mettrum Health Corp Canada (Licensed producer of medical cannabis),
●	OrganiGram Holdings Inc (Canada Licensed producer of organic medical marijuana),
●	Tweed Marijuana Inc. (Canada Licensed producer of medical cannabis),
●	Cannabis Science, Inc (USA OTC traded biotech company in Colorado),
●	Medical Marijuana Inc USA (OTC traded business solutions and partnerships),
●	GW Pharmaceuticals plc UK & USA (Owns a patented (MS) product – Sativex.).

We believe that while there is significant growth in this sector, our patented processes will continue to differentiate us and position us to succeed in this market.

Sponsored Research Programs

In order to support our mission, we have engaged two prominent Canadian universities to provide research and product development in the use of extracts from cannabis oil and algae oil in the context of cancer, and the development of novel pharmacotherapies for mental health, as follows:

1) Dr. Steven Laviolette, BSc, PhD (Addiction Research Group, Dept. of Anatomy & Cell Biology, Dept. of Psychiatry, Canadian Institute for Military and Veterans Health Research), Western University - to perform research and product development on cannabis oil and its constituents in the context of depression, post-traumatic stress disorder, anxiety and schizophrenia.

2) Dr. Jonathan Blay, PhD, FRSB, FIBMS, Csci, CBiol (Professor of Pharmacy, University of Waterloo, Professor of Pathology, Dalhousie University), the University of Waterloo – to perform research and product development on cannabis oil and its constituents in the context of the development and treatment of the colorectum, pancreas, breast and prostate cancers.

Each research program is a sponsored research program in which the Company pays an agreed amount to each university and in return receives the benefits of the research and the right to acquire the associated intellectual property, based on an agreed fixed payment with no ongoing royalties. The sponsored programs run for three years at the University of Waterloo, at a cost of C$600,000 over the three-year life, and for four years at Western University, at a cost of C$1,000,000 over the life of the program.

Western University in Ontario has made significant progress in its research into anxiety, depression, schizophrenia, and post-traumatic stress disorder, drawing on twelve years of cannabis compound research. We believe this work will continue to result in patentable formulations utilizing cannabis oils and other nutraceutical products which we intend to commercialize, license and distribute. Collaborating with prominent Canadian universities is a core part of our plan to develop premium products and add to our portfolio of intellectual property. Through our Sponsored Research Programs, the Company is focusing primarily on the use of extracts from cannabis oil and nutraceutical products for the development of new pharmacotherapies in the context of cancer and for mental health and pain relief. Our intention is to utilize these patents to partner with licensed producers qualified under the Access to Cannabis for Medical Purposes Regulations (or ACMPR) and the Cannabis Act (collectively, Licensed Producers or LPs) to provide a secure source of cannabis plant material and to jointly produce patented formulated products for sale by the Licensed Producer. The Cannabis Act contains details of the application requirements for licenses and permits, which are similar in nature to the requirements of the ACMPR.

Our near-term goal is to obtain brokerage revenue from the sale of medicinal cannabis to Licensed Producers/Distributors from Jamaican Medical Cannabis Corporation (“JMCC”) our Collaboration/Cultivation Partner (signed Master Supply Agreement) for supply of high-volume dry cannabis.

Our goals also include expanding research and development work with existing and new Canadian universities, securing supply/service agreements with Licensed Producers, and submitting an application to Health Canada to acquire the necessary licenses to market and sell cannabis and cannabis related medical products as necessary to implement our business objectives. The management team leading these initiatives together with our proposed collaboration partners have the relevant experience ranging from public company management and process experience to successful fund raising and commercialization. We believe that the commercialization of these formulations will lead to significant revenue generating opportunities

In our view, there is a significant market for formulations involving compounds derived from cannabis strains together with other nutraceutical products. There is research to support that Cannabinoid receptors which are part of the endocannabinoid system of the human body and the primary focus of the application of cannabis derived oil compounds as well as algae, are involved in a variety of physiological processes including appetite, pain-sensation, mood, and memory. Accordingly, the Company is generally focused on penetrating the medical marijuana industry both domestically and internationally and believes that its formulations, backed by scientific research produced through its Sponsored Research Programs, will augment the demand and enhance the credibility of medical marijuana products.

Recent Developments in our Commercialization Strategy

As of the date of this Quarterly Report on Form 10-Q, the Company, through its Sponsored Research Programs, has developed a very unique formulation involving cannabis and other nutraceutical products. We have submitted provisional patent applications for these formulations. The intellectual property (IP) protection of our formulations through appropriate patents will position us to formalize negotiations and eventually enter into domestic and international production and distribution agreements with Licensed Producers, or their equivalent in other jurisdictions. Our discussions with LPs have included production, distribution and related collaborative initiatives involving our specially formulated products and we are confident that the necessary agreements will be negotiated and executed over time so that our formulations can be introduced into the marketplace and complement or expand an increasingly attractive market for medicinal and health related cannabis applications. LPs we have spoken with to date have expressed significant interest but need to evaluate the strength of our patents and related formulations before finalizing licensing and related documentation. However, based on these discussions, we are confident that we will be able to establish relationships with business partners who understand the importance of scientifically backed medicinal cannabis products and the approach taken by Dr. Steven Laviolette, who is the primary researcher at Western University under our Sponsored Research Program and whose formulations will likely be marketed under a new brand name which is still to be determined.

We believe we have the potential to secure a very strong patent for our first formulation (which combines THC and nutraceutical products), to treat mental health ailments. We believe that our new brand will provide us with a strong name brand and trademark to identify our formulations to the public and build brand awareness. In addition, we believe the fact that the combination of active ingredients in our formulations is scientifically backed by Dr. Laviolette’s research should distinguish us from our competitors. We believe these formulations have significant potential applications in the treatment of anxiety, addiction, depression, schizophrenia, and post-traumatic stress disorder “PTSD” based on his research on animals. Dr. Steven Laviolette, Western University, has indicated to us that, “Since cannabis is commonly prescribed for a host of ailments, including pain, nausea, glaucoma, multiple sclerosis, osteoarthritis, our formulations will again be hugely significant for the non-mental health patient sectors as well.”

We have three potential formulations – which we have termed the “F” Platforms and two provisional patents which we have filed.

F1 – a unique THC + botanical extract formulation which mitigates or eliminates the negative side-effects of THC: e.g. anxiety, depression, paranoia, cognitive/memory deficits. We expect F1 to be an alternative to opioids, thus addressing addiction and dependence and effective for pain management.

F2 – a unique CBD + select nutraceutical/dietary additives aimed at synergizing the therapeutic properties of CBD in the treatment of anxiety, depression, schizophrenia, PTSD (chronic stress induced) and addiction.

F3 – expansion of research and discovery of the novel formulations utilizing other cannabinoids in addition to THC and CBD will unravel specialized applications for targeted therapies in specific mental health symptom clusters.

Capital Requirement

In order to execute on our strategy as described above, we estimate an initial capital requirement of US$5.0 million to support activities over the following twelve months, including the following:

	1.	Payment to the universities to support the sponsored existing and the new research programs

	2.	Application to Health Canada for sale import/export license under the Cannabis Act

	3.	Professional and other fees in connection with the development of our strategy, negotiations and formalizing agreements with our collaboration partners

	4.	Expenditures related to Human Trials of F1 formula

	5.	Purchase of cannabis

	6.	Working capital to support ongoing operations and research

We have engaged investment bankers to assist with raising the required capital.

Legal and Business Context

The Company’s business of the development of unique health products and pharmaceuticals that utilize hemp and cannabis oils is rigorously regulated. Legal access to medicinal cannabis or medical marijuana has been a gradual and regulated process in Canada, which started as early as 1999 with the granting of exemptions under the Controlled Drugs and Substances Act (Canada). Following successful court actions in which patients reliant on medical marijuana won legal recognition of their rights to access marijuana as a medicine, the Federal Government implemented the Marijuana Medical Access Regulations (MMAR) in 2001. The MMAR created an initial regime for individuals with a prescription from their health care practitioner in the required form, to possess and use medical marijuana which they grew themselves, or which they purchased from designated producers or a Health Canada supplier.

In general, this regime of supply was restrictive, and faced continuing court challenges from users, eventually leading to the implementation of the Marijuana for Medical Purposes Regulations (MMPR) in June 2013, providing for an expansion of supply based on a regulated private industry of licensed producers of medical marijuana.

Over time, court challenges were also mounted to the restrictions in the MMPR, which initially restricted the products made available by Licensed Producers to only dried marijuana. In 2015, the Supreme Court of Canada held that the restriction making only dried medicinal marijuana available to patients was unconstitutional. In response, the Federal Government broadened the scope of available licenses for Licensed Producers to include the production and sale of cannabis oils as well as fresh marijuana leaves and buds.

The ACMPR which was introduced to address these issues provided a more advanced and rigorous regulatory regime for the production, distribution and sale of medical marijuana in Canada, and regulated and contemplated the sale of medical marijuana by Licensed Producers to jurisdictions outside of Canada where the use and sale of medical marijuana and derivatives thereof are legally sanctioned. The ACMPR, like prior regulations, requires patients seeking medical marijuana to obtain medical approval from their health care practitioner and to provide a medical document to a Licensed Producer and have simplified the requirements of the MMPR, offering easier access to medical marijuana in Canada.

The Cannabis Act was passed by the Senate of Canada on June 19, 2018. On June 20, 2018, the Government of Canada officially announced that the production, distribution and sale of cannabis for unqualified adult use will become legal on October 17, 2018, and subsequently on June 21, 2018, the Cannabis Act received royal assent. The commitment by the Government of Canada to implement the Cannabis act did occur on October 17, 2018. On June 27, 2018, Health Canada established regulations under the Cannabis Act (the “Cannabis Regulations”). As a result, individuals who currently rely upon the medical cannabis market to supply their medical cannabis and cannabis-based products may cease this reliance, and instead turn to the adult-use cannabis market to supply their cannabis and cannabis-based products. The Company believes that its formulations will provide it with a competitive advantage in this market since they will be backed by scientific research and complement or enhance the use of existing medicinal marijuana products. However, the Company will need to ensure that it together with its collaboration partners remain in compliance with the Cannabis Act which provides a licensing and permitting scheme for the production, testing, packaging, labelling, sending, delivery, transportation, sale, possession and disposal of cannabis, which is implemented by the Cannabis Regulations. Provincial legislation will also implement measures authorizing the sale of cannabis that has been produced by a person authorized under the Cannabis Act to produce cannabis for commercial purposes. The licensing, permitting and authorization regime is implemented by the Cannabis Regulations. The Cannabis Act contains some details of the application requirements for licenses and permits, which are similar in nature to the requirements of the ACMPR (e.g. they include requirements for financial information, security information and security clearances). Below are additional highlights of the Cannabis Act:

●	set a national minimum age of purchase of 18;
●	apply comprehensive restrictions to the advertising and promotion of cannabis and related merchandise;
●	allow limited promotion in areas accessible by adults, similar to those restrictions under the Tobacco Act (Canada);
●	require plain packaging for cannabis products that only display the producer company name, strain name, price, amounts of THC and cannabidiol (CBD), and warnings and other labelling requirements;

●	impose strict sanctions on false or misleading promotion as well as promotion that encourages excessive consumption, where promotion is allowed;
●	impose requirements to protect children;
●	impose a price and tax scheme based on potency to discourage purchase of high-potency products;
●	prohibit mixed products, for example cannabis-infused alcoholic beverages or cannabis products with tobacco, nicotine or caffeine; and
●	allow for personal cultivation for non-medicinal purposes of up to four plants per residence subject to additional local and safety requirements.

The actual formulation of each product will be contracted to a third party with the approved Good Manufacturing Practices (GMP) facilities and is not expected to be a prescription medication provided the addition of a nutraceutical product to cannabis oils is permitted under the provisions of the Cannabis Act which appear to permit the combination of a cannabis product with “chemical contaminants” that are within accepted tolerance limits for herbal medicines under Schedule B to the Food and Drugs Act. Our understanding is that the components within the formulation are all-natural products and have all been individually approved by Health Canada.

If permitted, our intention is to initially distribute the formulation as a cannabis product for medical purposes (with no Drug Identification Number or DIN) and we expect the formulation will need to be obtained via a health care practitioner’s authorization for human use and cannot be provided with any health claims requiring a premarket review for safety and efficacy.

In the event the Company is unable to produce and market the product without a DIN, the Company will need to seek to obtain a Drug Identification Number (DIN) for its formulations which will also enable the Company to market such formulations with health claims that will be subject to premarket authorization by Health Canada. In such case, we will need to commence clinical trials in accordance with Health Canada standards and would expect to do so with collaboration partners. Sponsors seeking to conduct clinical trials with cannabis, using either human or animal subjects, must also receive authorization under the Food and Drugs Act. In order to receive authorization, sponsors must file a clinical trial application to Health Canada or receive an Experimental Study Certificate for certain veterinary research purposes.

We will also explore qualification of certain formulations we plan to introduce under the Natural Health Product Regulations in Canada as they evolve to incorporate the use of cannabis products. Under the updated regulations, which come into effect on October 17, 2018, Natural Health products (NHPs) can only contain cannabis parts which either do not meet the definition of cannabis in the Cannabis Act, or that have been exempted from the Cannabis Act through the Industrial Hemp Regulations (IHR). These ingredients are: Non-viable seeds or roots of the cannabis plant, Mature cannabis stalks without leaves, flowers, seeds, or branches, Fiber derived from such a stalk and Hemp derivatives that are compliant with the IHR. In addition, these ingredients must not contain more than 10 parts per million THC, or phytocannabinoids that have been isolated or concentrated. The determination of THC concentration must take into account the potential to convert the acid form into the active form (e.g. delta-9-tetrahydrocannabinolic acid (THCA) into delta-9-tetrahydrocannabinol (THC)).

Finally, we may also explore the distribution of our products for adult-use if permitted by Health Canada and once the regulations for edible products are finalized, however this distribution channel (as with other recreational marijuana products) restricts our ability to provide product literature or other information to health practitioners and could therefore be a limited strategic alternative as the market for medicinal marijuana develops.

Liberalizing Regulatory Environment and Competitive Conditions

According to Health Canada, more than 98,000 patients had enrolled with Licensed Producers under the ACMPR regime by September 30, 2016. Health Canada also indicates that, as of September 30, 2016, the average amount of dried marijuana for medical purposes authorized per client was 2.6 grams per day. For further information, see the Health Canada website at: http://www.hc-sc.gc.ca/dhpmps/marijuana/info/market-marche-eng.php.

Further information has recently been released by Canada’s Parliamentary Budget Officer (the “PBO”) in its November 1, 2016 report, which estimates that, in 2018, an estimated 4.6 million individuals aged 15 and over will use cannabis at least once, representing 655 metric tons of cannabis. This number could rise to 5.2 million individuals by 2021, representing 734 metric tons of cannabis. The PBO stated that the pre-tax price of legal cannabis is projected to be between $6.67 and $8.33 per gram, with a mid-point estimate of $7.50. For further information, see “Legalized Cannabis: Fiscal Considerations”, authored by the Office of the PBO and dated November 1, 2016.

Regulatory Pathway

The components of our current proposed formulations are all-natural ingredients that can be considered both as food and natural health product ingredients. There are multiple options for bringing these combination cannabis products to market given the current and proposed regulations for cannabis and self-care products.

Health Canada recently released “Proposed Regulations Amending the Cannabis Regulations (new classes of cannabis) and Proposed Order Amending Schedules 3 and 4 to the Cannabis Act”. These proposed changes introduce three new classes of cannabis products: edibles, concentrates and topicals.

The introduction of these new classes will allow the Company to bring combination products to market as adult-use edible cannabis products. It is proposed that only approved food ingredients and additives will be permitted for use in this class of products. Although health claims are not permitted on this type of product, this commercialization option represents the fastest route to market and allows for distribution through both healthcare practitioner-facilitated medical-use channels and recreational channels.

Currently the only commercialization option that is allowed for making health claims and the distribution of literature to healthcare practitioners is as a prescription cannabis drug. This route requires evidence from human clinical trials that demonstrates the safety and efficacy of the products to allow for premarket authorization by Health Canada. Two cannabis drug products have received Health Canada authorization thus far. To commence a clinical trial program, we will collaborate with experienced partners who are able to obtain the No Objection Letter for the conduct of the studies and the Cannabis Research License required by Health Canada. Building a portfolio of clinical research data on our products will require time; however, has the benefit of gaining broader market acceptance and possibly inclusion on drug formularies approved by insurance providers.

Health Canada has indicated that further research is required before they will consider authorizing the inclusion of cannabis in self-care products (natural health products, over-the-counter drugs). Health Canada has also published proposed changes to the regulatory framework of self-care products with a plan to issue targeted changes to the Food and Drug Act in early 2019 for public consultation. Although these regulatory changes may not have a direct impact on the oversight of cannabis products at this time, they may open the possibility of an expedited regulatory pathway should an additional category for cannabis self-care products be added in time. Self-care products also require substantiating evidence for efficacy and safety derived from human clinical trials. In commencing a clinical trial program, the Company will be poised to capitalize on any changes that will facilitate the self-care market by already obtaining data to support health claims.

Markets

We believe that our focus on development of product formulations that utilize both cannabis oil and nutraceutical products, including algae oils, is a niche strategy that will give us a unique market position. While we believe that this strategy is a natural extension of existing, rapidly growing markets, there is limited data available to measure the market opportunity. With that in mind, what follows is a discussion about the cannabis oil market and the algae oil market.

Market for Cannabis Oil

The Canadian oil extraction marketplace is forecast to grow from C$1 million in 2015 to C$1.7 billion in 2020, assuming full legalization in 2018. In terms of conversion from dried marijuana to extracts/oil, due diligence has been conducted on the Colorado market, finding that 45% of dried marijuana users would eventually convert to marijuana extracts/oil. The Company assumes the market would gradually reach an approximate 45% conversion rate by 2018. Source: Mackie Research Capital Corporation, April 8, 2016 – MRCC Estimates. In addition, it is estimated that there will be 630,000 (1.7% of the population) registered medical marijuana patients in Canada by 2024, resulting in annual demand of approximately 230,000 kilograms. In 2018 it is estimated the demand by medical marijuana patients will be roughly 95,000 kilograms. Based on these forecasts, it is estimated that by 2024, the value of the Canadian medical marijuana market could be $1.9 billion to $2.6 billion. (source: Mackie Research Capital Corporation (“MRCC”). September 20, 2017). In addition, Germany and Australia and an increasing number of countries are legalizing medical marijuana, like Canada did in 1999, and government officials are making public statements suggesting that the prohibition of marijuana is ineffective policy from a public health, fiscal and social justice perspective. Licensed Canadian companies have considerable operational experience, which can be leveraged to pursue high growth opportunities in the increasing number of federal licensing opportunities in international markets.

Market for Algae Oil

The market data for algae oil is brief since our plan is to utilize algae oil in our products largely to the extent that it complements our products that contain cannabis oil. We have suspended the development of our BioSilo® algae cultivation system. However, we believe that there is still scope to leverage the research and expertise gained from our understanding of the medical properties and use of algae oil. In particular, studies have shown that EPA (eicosapentaenoic acid) and DHA (docosahexaenoic acid), which are long-chain omega-3 fatty acids, are important for proper fetal development, including neuronal, retinal, and immune function. EPA and DHA may affect many aspects of cardiovascular function including inflammation, peripheral artery disease, major coronary events, and anticoagulation. EPA and DHA have been linked to promising results in prevention, weight management, and cognitive function in those with very mild Alzheimer’s disease. Source: Advances in Nutrition -An International Review Journal January 2012. We believe we can utilize these compounds in our formulations to further enhance their medicinal benefit.

Cannabis by itself has long been used for medical purposes and in recent decades has gained significant traction in becoming a common and preferred treatment for specific ailments. Cannabis is one of the fastest growing industries in North America. The Company’s new strategic initiative will seek product development and formulation opportunities that combine the benefits of botanical oils and cannabis oils and other nutraceutical products.

The Company’s core product development strategy has been previously focused on the production of high-volume specific algae species and extraction of Essential Fatty Acids (EFAs) which is the foundation of the endocannabinoid system (ECS). The ECS is a group of endogenous cannabinoid receptors located in the mammalian brain and throughout the central and peripheral nervous systems, consisting of neuromodulatory lipids and their receptors. The extracted algae Omega 3 oil with high concentrations of DHA and EPA is used as a health supplement product. In light of the potential synergies, the Company will continue to develop its strategy to create products and formulations that combine the health benefits of cannabis oils and algae oils.

The following are some of the health benefits of algae and cannabis that the Company intends to research further to potentially combine into synergistic products:

Algae Omega-3	Cannabis
Detoxes heavy metals and toxins	Reduces stress and anxiety
Supports immune system	Reduces glaucoma and prevents macular degeneration
Fights cancer	Prevents certain cancers
Detoxifies radiation and chemotherapy	Relives pain
Lowers cholesterol and blood glucose levels	Increases appetite
Improves cardiovascular function	Stimulates antioxidant processes
Improves cognitive functioning	Fights multiple sclerosis and schizophrenia
Fights Alzheimer’s disease	Fights neurodegenerative disorders
Reduces antiplatelet effects	Reduces migraines and headaches
Reduces major coronary events	Fights epilepsy
Acts as an anti-inflammatory agent	Fights obesity and metabolic syndrome
Improves memory	Fights anorexia and osteoporosis

Sales and Distribution

We intend to develop marketing channels including but not limited to website promotion, medical doctors, product distributors, as appropriate and in compliance with the regulatory requirements. Initially, we intend to manufacture and sell our product formulations mainly through Licensed Producers and target patients, medical doctors, and product distributors, subject to regulatory requirements and restrictions including on the promotion and labelling of medical marijuana products. The Company intends to build brand awareness by working with brand/marketing management professionals, specializing in the medical health market, to have packaged products available for sale to customers.

We believe our efforts are starting to derive significant benefits and moving our business plan forward, particularly since our potential partners appear to be seeing the significant value in our first patented product formulation which has been developed as a result of the Sponsored Research Agreement with Dr. Steve Laviolette and Western University. While we were not able to move forward with certain arrangements with Licensed Producers (including 6779264 Manitoba Ltd dba Bonify as previously reported), there have been important developments with several other licensed entities who we may partner with us as follows:

Strategic International Licensed Producer: We have executed a Master Cannabis Supply Agreement for medical cannabis product supply with a strategic international licensed grower and producer – GMP facility that has access to a significant supply of low-cost dry cannabis product. As well, the grower is locally licensed to facilitate the processing and distribution of our medicinal cannabis products internationally, subject to regulatory approvals.

Licensed Producers: We have engaged in several discussions with major Licensed Producers/Distributors to sell medicinal cannabis domestically and internationally (supplied by our Strategic International Licensed Producer). As well, these companies are reviewing the strength of our IP to potentially facilitate the processing and distribution of our formulations because our formulated products do not compete with their product lines.

Licensed Processor/Pharmaceutical Company: We have engaged in several discussions with a major pharmaceutical company, international distributor and GMP manufacturer who has provided highly positive feedback of the approach Dr. Laviolette has adopted in his research and pre-clinical animal trials, the depth of research and the effective integration of the various research departments at Western University. We believe we can leverage their expertise with multiple formulations, delivery systems for improved bioavailability, including by integrating our formulation into soft gels and tablets for timed release of the formulations. We would also expect to take advantage of their supply, processing and distribution capabilities and collaborate further on R & D and human trials for our formulations.

We have reviewed our strategy and believe it is more efficient to partner with existing Licensed Producers who have facilities compliant with good manufacturing practices (GMP) necessary for the preparation of our formulations. Additionally, we are seeking our own purchase/sales, import/export license without possession under the Cannabis Act to distribute formulations and develop our brand as permitted under the Cannabis Act Regulations. We have included a full description of the cannabis-related licensing process at the end of this Business Description section for further information and disclosure. We do not require similar special licensing with respect to algae related sales.

The Company’s strategy to achieve revenue can be summarized as follows:

●	We expect revenue generation in the near term from high volume dry medical cannabis sales and have signed a Supply Agreement for that purpose.
●	We expect to generate additional revenue from our formulated products through our agreements with licensed partners.
●	We expect to provide a very specialized and unique patentable product, with more novel and patentable products to be produced over time,
●	We expect to secure a robust sales and distribution network and expand the network over time,
●	We expect to identify worldwide markets for our formulations,

While we have been in business since 2008, we have not generated any revenues to date. Our activities have been principally directed towards development of our BioSilo® algae cultivation system, as well as proving the ability of the system to scale to a level sufficient to meet commercial demand that may develop. The change in the strategy has been very much assisted by the knowledge gained from the algae cultivation plus the relationships which we have developed. The revised strategy is being very well received by suppliers and distributors as there are a number of firms who have expressed an interest to supply cannabis material for our products and to distribute it given that it has a strong basis in science and research performed through our Sponsored Research Program. These firms are also willing to enter into agreements to market the formulated product.

The Company is in the development stage and has not yet realized profitable operations and has relied on non- operational sources to fund operations. The Company has suffered recurring losses and additional future losses are anticipated as the Company has not yet been able to generate revenue. In addition, as of September 30, 2017, the Company has a working capital deficiency of $975,986 (March 31, 2017 - $852,514) and an accumulated deficit of $6,338,384 (March 31, 2017 - $6,134,941). The Company’s ability to continue as a going concern is dependent on successfully executing its business plan, which includes the raising of additional funds. The Company will continue to seek additional forms of debt or equity financing, but it cannot provide assurances that it will be successful in doing so. These circumstances raise substantial doubt as to the ability of the Company to meet its obligations as they come due and accordingly, the appropriateness of the use of accounting principles applicable to a going concern. The financial information included in this Quarterly Report on Form 10-Q does not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Such adjustments could be material.

Marketing Strategies and Competition

Advertising and marketing of medical marijuana in Canada is regulated by the Cannabis Act, Food and Drugs Act (Canada) and the Narcotic Control Regulations issued under the Controlled Drugs and Substances Act (Canada). Licensed Producers are strictly prohibited from advertising marijuana products or promoting their use.

Our marketing activities will be focused on the promotion of the Company and increasing its visibility within the marketplace. Those efforts will include working with numerous client education centers (patient aggregators), which will review the available research data provided by the universities on medical cannabis oils and products available to clients. We believe this scientific data will help clients make educated decisions.

We believe we will have significant advantages in the market that will include multiple strain selection and consistently-produced cannabis oil products backed by scientific research that supports the improved effectiveness of each treatment.

Research and Product Development Relationships and Scientific Advisors

Dr. Steven Laviolette, BSc, PhD (Addiction Research Group, Dept. of Anatomy & Cell Biology, Dept. of Psychiatry, Canadian Institute for Military and Veterans Health Research), University of Western Ontario - performs research and product development on cannabis oil and its constituents in the context of depression, post-traumatic stress disorder, anxiety and schizophrenia.

Research/Expertise:

Dr. Laviolette’s research interests explore the interface between neurobiology, psychology and emotion by using an integrative combination of in vivo neuronal electrophysiology and behavioral neuropharmacology. At the general level, Dr. Laviolette is interested in exploring the neurobiological mechanisms that control how the brain processes emotionally salient information and how disturbances in these basic neural processes may lead to disorders such as addiction and schizophrenia.

Dr. Laviolette’s investigations into the neurobiology of addiction have focused on nicotine and opiates, both of which represent highly addictive substances and act on pathways in the brain that control reward, motivation and learning. Dr. Laviolette’s research group has characterized and identified specific regions in the mammalian brain that control the ‘switch’ from the non-addicted state, to the addicted state following exposure to drugs of abuse. Their ongoing research seeks to precisely define and identify the neurobiological mechanisms that control the addiction process at the behavioral, molecular and single neuron levels of analysis.

In addition, Dr. Laviolette’s research group is interested in exploring the neuronal mechanisms of emotional associative learning both in single neurons and in specific brain circuits. They have focused on the roles of the endocannabinoid system and specific dopamine receptor populations in the processing of emotionally salient information. Their ongoing research seeks to examine how disturbances in these brain receptor substrates may underlie the distorted sensory processing and emotional associative learning observed in individuals with schizophrenia.

His full profile may be seen on the University of Western Ontario, website:

www.uwo.ca:http://www.schulich.uwo.ca/anatomy/people/bios/faculty/laviolette_steve.html

Dr. Jonathan Blay, PhD, FRSB, FIBMS, Csci, CBiol (Professor of Pharmacy, University of Waterloo, Professor of Pathology, Dalhousie University), the University of Waterloo - performs research and product development on cannabis oil and its constituents in the context of the development and treatment of the colorectum, pancreas, breast and prostate cancers.

Research/Expertise:

	●	Tumor microenvironment of solid cancers (colorectal carcinoma);

	●	Mechanisms of metastasis and its regulation by proteins at the cell surface; and

	●	Development of drugs (both synthetic and natural product-derived) that interfere with cancer metastasis.

Dr. Blay’s research group applies a range of techniques in molecular and cellular biology to understand how cell behavior and the action of existing anticancer drugs are affected by the unique physiology of the cancer. This research involves investigations of chemokine pathways, and tumor-initiating cells; as well as the capacity of both synthetic and natural product-derived agents to interfere with the steps that favor metastasis. Researchers in the group identify novel pathways that may be the targets for future anticancer drugs, both derived from natural products and synthesized with the aid of colleagues through molecular design. The goal is to perform fundamental cancer-related research on botanical oils and their constituents which will carry out studies relating to the cellular safety and known cancer-related potential of components within the oils.

His full profile may be seen on the University of Waterloo, website at

https://uwaterloo.ca/:https://uwaterloo.ca/pharmacy/people-profiles/jonathan-blay

Dr. Kirsten Muller (PhD) – Lead Phycologist

Over 10 years’ experience researching and cultivating algae. Currently Associate Professor at the University of Waterloo and Associate Director of the Canadian Phycology Culture Centre (CPCC), which is housed within her laboratory at the University of Waterloo (500 species). She has authored over 25 papers in leading phycology journals and has received many national and international research awards. Dr. Muller won The Luigi Provasoli Award in recognition of authoring the outstanding paper published in the Journal of Phycology (Psychological Society of America) during 2011.

Dr. Brendan McConkey (PhD) – Oil Analysis

Over 7 years’ research experience as Associate Professor at the University of Waterloo. His areas of expertise include proteomics, biochemistry, toxicology, and computational biology. Research emphasis has been on interdisciplinary approaches that combine biology, chemical engineering, and computational research.

Strategic Partners:

Mark Jones

An experienced senior executive with 36 years in the Global Pharmaceutical Industry with career milestones including; President and CEO of AstraZeneca Canada; President of AstraZeneca UK and AstraZeneca Germany. Global Vice President Southern Europe.

Extensive experience in drug development as joint Global Head of AstraZeneca Cardiovascular and Respiratory Therapeutic Area Team; Global commercial lead of the international development and launch of Crestor (rosuvastatin) a $6.0 B brand.

Member of the Neuro Development Board of Canada and the Kids Brain Health Foundation Canada.

Currently Non-Executive Director of the NHS Foundation Trust Liverpool Heart and Chest Hospital Liverpool UK; Advisor to the Board of Algae Dynamics.

Mark Goldberg (Phd. in Pharmacology)

Over 25 years of experience in biomedical research and as a regulatory consultant. Currently serves on PlantForm Corporation’s Board of directors, a biopharma start–up that he founded. Is also a director of MedCannAccess and an Entrepreneur in Residence at Innovation Guelph. Did his postdoctoral work in biochemical and genetic toxicology at the Ontario Cancer Institute. Joined the department of Biomedical Sciences at the Ontario Veterinary College of the University of Guelph in 1982, and was a tenured faculty member until 1994. Was awarded the University of Guelph’s Forster Fellowship, given annually to the University’s top researcher in 1987. Is the author of more than 50 scientific publications, primarily in the cancer research field. Was co–founder of GlobalTox International Consultants, a toxicology and regulatory affairs firm and serves as its President and CEO for 17 years. Is board–certified by the American Board of Toxicology. Received the Chartered directors (C.Dir.) designation from the directors College.

Graeme G. Phipps (B.Sc.)

Oil Industry Expert

Over 30 years of oil & gas operational and management experience with Exxon, CanOxy/Nexen and Petro Canada. In 2005, he was Executive V P of PetroKazakhstan and was preparing to become President and CEO when it was successfully sold for US$4.2 billion to China National Petroleum Corporation. Mr. Phipps is a director of several public and private international oil & gas companies. He has extensive experience with financial transactions and investment banking.

Intellectual Property

We have three potential formulations – which we have termed the “F” Platforms and two provisional patents which we have filed.

History of Algae Dynamics

During 2008 and 2009, we developed the BioSilo® design. In 2010, we partnered with phycology experts Dr. Muller and Dr. McConkey at the University of Waterloo. This partnership provided us with exclusive access to proprietary algae species along with phycology expertise. Through this arrangement, we operated our laboratory and advanced from bench scale algae experiments to operating a one meter diameter BioSilo® installation. We received funding in part from Ontario Power Authority “OPA” for the design and construction of the one-meter diameter BioSilo® system. Since that time, we have updated our strategy to focus on our cannabis formulations as discussed above.

Description of Property

The Company initially entered into a five-year operating lease, expiring November 2018, for Unit 37-4120 Ridgeway Drive in Mississauga, Ontario, which consists of 2,224 square feet of office and production facilities. The rental for this facility has been extended for a further 3 years. The current space is adequate for the purpose of constructing an initial production/testing operation. The monthly base rental of the current facility is $1,390 plus the Company’s estimated portion of property taxes and operating expenses which are currently $847 per month. Beginning in November 2018 the base monthly rental of the current facility will be $1,853.

Regulatory Risks

Algae Dynamics will be subject to various US, federal, provincial, and local environmental laws and regulations including the health and safety of employees, and manufacturing practices. In addition, some of these laws and regulations require contemplated facilities to operate under permits that are subject to renewal or modification. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or facility shutdowns.

The Company does not intend to conduct any cannabis related business in the United States due to the uncertain regulatory environment. However, it may distribute its algae produced products (if any) to the United States nutraceutical market.

Product Approvals

Prior to commencing operations and prior to making or permitting sales of our products in a market, we may be required to obtain an approval, license or certification from the relevant country’s ministry of health or comparable agency. Where a formal approval, license or certification is not required, we nonetheless may need to seek a favorable opinion of counsel regarding our compliance with applicable laws. Prior to entering a new market in which a formal approval, license or certificate is required, we intend to work extensively with local authorities in order to obtain the requisite approvals. We expect the approval process will generally require us to present each product and product ingredient to appropriate regulators and, in some instances, arrange for testing of products by local technicians for ingredient analysis. The approvals may be conditioned on reformulation of our products, or may be unavailable with respect to some products or some ingredients. Product reformulation or the inability to introduce some products or ingredients into a particular market may have an adverse effect on sales. We must also comply with product labeling and packaging regulations that vary from country to country. Our failure to comply with these regulations can result in a product being removed from sale in a particular market, either temporarily or permanently.

The Company cannot determine what effect additional domestic or international governmental legislation, regulations, or administrative orders, when and if promulgated, would have on Company’s business in the future. New legislation or regulations may require the reformulation, elimination, or relabeling of certain products to meet new standards and revisions to certain sales and marketing materials, and it is possible that the costs of complying with these new regulatory requirements could be material.

Critical Accounting Policy and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. In addition, these accounting policies are described at relevant sections in this discussion and analysis and in the notes to the financial statements included in this Quarterly Report on Form 10-Q for the period ended ~~December~~September 3130, ~~2016~~2017.

All results are presented in Canadian dollars ($) unless otherwise stated.

The following discussion and analysis should be read in connection with the Company’s financial statements and related notes thereto, as included in this quarterly report on Form 10-Q.

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements, as well as information relating to the plans of our current management.

Results of Operations and Going Concern

We ~~are~~incurred ana ~~early~~net ~~stage~~loss ~~company~~of ~~with~~$219,553 afor ~~limited~~the ~~operating~~period ~~history~~ended September 30, ~~and~~2017, we(2016 ~~have~~- ~~only~~$830,855). ~~recently~~We ~~begun~~do tonot ~~commercialize~~anticipate ~~our~~having a ~~products~~positive net income in the immediate future. AsNet cash used by operations for the period ended September 30, 2017 was $137,553. These financial statements have been prepared on the basis of a ~~result~~going concern, wewhich ~~will~~contemplates ~~need~~the torealization ~~generate~~of ~~significant~~assets ~~revenues~~and the tosettlement ~~achieve~~of ~~and~~liabilities ~~maintain~~in ~~profitability~~the normal course of business. IfThe ~~our~~Company ~~revenues~~is ~~grow~~in ~~slower~~the ~~than~~development stage, in accordance with ASC ~~anticipated~~9:115 and has not yet realized profitable operations and has relied on non-operational sources to fund operations. In addition, as orof ifSeptember ~~operating~~30, ~~expenses~~2017, ~~exceed~~the ~~expectations~~Company has a working capital deficiency of $975,986 ~~then~~(March we31, ~~may~~2017 ~~not~~- be$852,514) ~~able~~and has accumulated deficit of $6,338,384 (March 31, 2017 - $6,134,941). The Company’s ability to ~~achieve~~continue ~~profitability~~as ina going concern is dependent on successfully executing its business plan, which includes the ~~near~~raising ~~future~~of additional funds. The company will continue to seek additional forms of debt or atequity ~~all~~financing, ~~which~~but ~~may~~it ~~depress~~cannot ~~our~~provide ~~stock~~assurances ~~price~~that it will be successful in doing so. These ~~conditions~~circumstances raise ~~create~~substantial andoubt ~~uncertainty~~ as to ~~our~~the ability of the company to ~~continue~~meet its obligations as they come due and accordingly, the appropriateness, ultimately, of the use of accounting principles applicable to a going concern. The accompanying financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

We continue to rely on advances and sale of equity to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurances that we will continue to be able to access advances and sell equity, without which we will not be able to continue operations. As a result of advances from members of management and their families, the Company has adequate capital resources to fund its operations through to the end of March 31, 2017 on the assumptions under additional financing can be achieved. The Company intends to commence a raise via private placement or direct offering to the public of equity in our Company in order to fund operations going forward.48

~~The~~For ~~execution of~~ the ~~business~~three ~~plan~~months ~~has~~ended ~~been~~September delayed until the appropriate commitments have been made for funding. In order to move forward the Company has entered into an agency agreement with Midtown Partners LLC (a registered broker/dealer based in New York) as of May 1930, ~~2016~~2017 with the objective being to raise up to US$10 Million. The Company is projecting that US$2 to US$3 Million is required to implement the first phase of the business plan. The initial funding is expected to be comprised of a combination of debt and ~~equity.~~2016

The financing will provide working capital for the Company to execute its long term plan as well as facilitating the initial development of the branded products strategy. The launch of the branded product strategy will involve the implementation of an awareness program for the Company’s brand as well as the establishment of an online ecommerce distribution model.

If the funding from the private placement or direct offering is not available in a timely manner then management will continue foregoing salaries and operations will be scaled back to operate within the funds available. In the normal course of business, management considers various alternatives to ensure that the Company can meet some of its operating cash flow requirements through financing activities, such as private placements of common shares, preferred share offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. Management may also consider strategic alternatives, including strategic investments and divestitures. As future operations may be financed out of funds generated from financing activities, the ability to do so is dependent on, among other factors, the overall state of capital markets and investor appetite for investments in the green technology industry and the Company’s securities in particular. Should the Company elect to satisfy its cash commitments through the issuance of securities, by way of either private placement or public offering or otherwise, there can be no assurance that the efforts to obtain such additional funding will be successful, or achieved on terms favorable to the Company or its existing shareholders. If adequate funds are not available on favorable terms, the Company may have to reduce substantially or eliminate expenditures or obtain funds through other sources such as divestiture or monetization of certain assets or sublicensing (where permitted) of certain rights to certain of the Company’s technologies or products.

For the three months ended December 31, 2016

Results of Operations and Going Concern

We are an early stage company with a limited operating history, and we have ~~only~~not ~~recently~~ begun to commercialize our products. We have incurred operating losses since our inception in October 2008, and we expect to continue to incur operating losses for the foreseeable future. At ~~December~~September 3130, ~~2016~~2017, we had an accumulated deficit of $56,~~295~~338,~~800~~384. For the ~~quarters~~three month period ended ~~December~~September 3130, ~~2016~~ 2017 and ~~2015~~2016, we had a net loss attributable to common stockholders of $~~915~~107,~~665~~087, and $~~487~~489,~~263~~418, respectively. The more significant expenditures decreased include professional fees which decreased by $273,898 and stock based compensation which decreased by $111,107 during the 3 month period ended September 30, 2017 compared to September 30, 2016. In addition, the accretion expense increased by $67,665, while the Company realized a recovery in the fair value exchange in derivative liability of $57,797. As a result of the Company being in a loss position, we will need to generate significant revenues to achieve and maintain profitability. If our revenues grow slower than anticipated, or if operating expenses exceed expectations, then we may not be able to achieve profitability in the near future or at all. These conditions create an uncertainty as to our ability to continue as a going concern.

Results of Operations

Revenues

We had no revenues for the three months ended ~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016 respectively.

Operating Expenses

The operating expenses ~~increased~~decreased in the three~~-month~~ month period ended ~~December~~September 3130, ~~2016,~~2017 ($~~915~~107,~~665~~087) compared to the same period of ~~2015~~2016 ($~~487~~489,~~263,~~418). anThis substantial ~~increase~~decrease ofwas ~~$428,402.~~a Aresult ~~significant portion~~ of ~~the~~decreases ~~increase~~ in ~~the~~professional ~~operating~~fees ~~expenses~~and isstock ~~attributable~~based tocompensation ~~the~~and ~~Loss on~~ the ~~extinguishment~~scaling back of ~~related party debt ($544,066)~~operations ~~which~~pending ~~primarily resulted with~~ the ~~conversion~~receipt of ~~the~~financing ~~shareholder advances and accounts payable~~ to ~~common~~continue ~~shares. The conversion of~~ the ~~debt~~business ~~to common shares had a positive effect on reducing the working capital deficit~~plan. ~~Stock~~Upon ~~based~~receipt ~~compensation increased by $63,724 as a combination~~ of ~~shares~~financing ~~and~~we ~~stock~~expect ~~option~~our ~~were~~operating ~~issued~~expenses to increase ~~management~~substantially as ~~compensation.~~operating Inactivities ~~addition,~~are asappropriately ~~part of the allocation of stock options to management prior allocations of stock options were forfeited~~funded.

Other Expenses

Nil

Net Loss

The Company recognized a net loss of $~~915~~107,~~665~~087 for the three- month period ended ~~December~~September 3130, ~~2016~~2017, as compared to a net loss of $~~487~~489,~~263~~418 for the same period of ~~2015~~2016. A number of initiatives have been accomplished during the three month period and subsequent to the three month periods. Please refer to Note 13 - Subsequent events to September 30, 2017 Condensed Interim Financial Statement.

Liquidity and Capital Resources

Net cash used by operating activities was $~~200~~94,~~297~~312 and $~~158~~32,~~428~~638 for the ~~nine~~three month periods ended ~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016, respectively. The Company had a working capital deficiency of $975,986 as of September 30, 2017 compared to $852,514 as of March 31, 2017.

~~On May~~The ~~4, 2016, the~~ Company ~~agreed~~does tonot aat ~~term~~present have ~~loan~~any ofmaterial ~~$40,000~~commitments for ~~bridge~~capital ~~financing with a relative of one of the officers of the Company~~expenditures. ~~The loan was initially scheduled to mature on August 28, 2016 but an extension of three months, followed by a second extension of three months was agreed to with the same terms.~~

~~The~~Additional terms specify a 30% premium to be paid at the time of maturity. The 30% premium is recognized as an accretion expense and is amortized on the condensed interim statements of operations. During the 3 month periods ended December 31, 2016 the Company accreted $1,679 (2015 - $nil). In the event the Company is unable to make the payment at maturity, the Company intends to discuss with the lender an extension of the maturity date. While it is believed that the Company will be able to reach an accommodation on the loan extension, there can be no assurances to this effect.financing

~~Furthermore,~~Please ~~given~~see the ~~cash~~section ~~shortages~~Subsequent ~~the~~Event ~~Company~~– ~~has~~Notes ~~delayed~~13 ~~paying~~of ~~trade~~the ~~creditors~~September ~~and~~30, ~~professionals~~2017 ~~pending~~Condensed ~~receipt~~Interim ofFinancial ~~expected funds from financing activities~~Statements.

2749

AIf ~~significant~~the ~~portion~~funding offrom the ~~professional~~private ~~fees~~placement or direct offering is not available in a timely manner, then management will continue foregoing salaries and ~~stock~~operations ~~based~~will ~~compensation~~be ~~are~~scaled ~~non-~~back to operate within the funds available. In the normal course of business, management considers various alternatives to ensure that the Company can meet some of its operating cash ~~expenditures~~flow ~~resulting~~requirements through financing activities, such as private placements of common shares, preferred share offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. Management may also consider strategic alternatives, including strategic investments and divestitures. As future operations may be financed out of funds generated from financing activities, the ability to do so is dependent on, among other factors, the overall state of capital markets and investor appetite for investments in athe cannabis industry and the Company’s securities in particular. Should the Company elect to satisfy its cash ~~requirement~~commitments through the issuance of ~~approximately~~securities, ~~$25~~by way of either private placement or public offering or otherwise,~~000~~ ~~per~~there ~~month~~can be no assurance that the efforts to obtain such additional funding will be successful, or achieved on terms favorable to the Company or its existing shareholders. If adequate funds are not available on favorable terms, the Company may have to reduce substantially or eliminate expenditures or obtain funds through other sources such as divestiture or monetization of certain assets or sublicensing (where permitted) of certain rights to certain of the Company’s technologies or products.

WeFor dothe ~~not~~six ~~have~~months ~~any~~ended ~~material~~September ~~commitments for capital expenditures. However~~30, ~~should~~2017 ~~we execute our business plan as anticipated, we would incur substantial capital expenditures~~ and ~~require financing in addition to the amount required to fund our present operation.~~2016

Additional Financing

We continue to rely on advances and sale of equity to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurances that we will continue to be able to access advances and sell equity, without which we will not be able to continue operations. As a result of advances from members of management and their families, the Company has adequate capital resources to fund its operations through to the end of December. The Company intends to commence a raise via private placement or direct offering to the public of equity in our Company as early as feasible in order to fund operations going forward.

The execution of the business plan has been delayed until the appropriate commitments have been made for funding. In order to move forward the Company entered into an agency agreement with Midtown Partners LLC (a registered broker/dealer based in New York) as of May 19, 2016 with the objective being to raise up to US$10 Million. The Company is projecting that US$2 to US$3 Million is required to implement the first phase of the business plan. The initial funding is expected to be comprised of a combination of debt and equity.

The Company entered into a six month agreement commencing June 24, 2016 with a consulting firm for the provision of investors relations services. The contract was not completed by December 24, 2016 and it is anticipated that the contract will continue until the end of the fiscal year (March 31, 2017).

The Company entered into a second agreement on January 9, 2017 with a consultant to provide investor relations services for a three (3) month period.

On November 18, 2016, the Company issued a convertible promissory note in the amount of $56,500 to GHS Investments, LLC which will be due on August 18, 2017 as described in Note 6 of the Condensed Interim Financial Statements.

On December 29, 2016, a consulting firm was issued 78,027 common shares for services rendered in the amount of USD$45,000 ($58,500), these amounts have been recorded as professional fees on the statement of operations. See Note 7 of the Condensed Interim Financial Statements.

During the current quarter the Company converted the shareholder advances and accounts payable to common shares as described by Note 4 of the Condensed Interim Financial Statements.

For the nine months ended December 31, 2016

Results of Operations and Going Concern

We are an early stage company with a limited operating history, and we have only recently begun to commercialize our products. We have incurred operating losses since our inception in October 2008, and we expect to continue to incur operating losses for the foreseeable future. At ~~December~~September 3130, ~~2016~~2017, we had an accumulated deficit of $56,~~295~~338,~~800~~384. For the ~~nine~~six months ended ~~December~~September 3130, 2017 ~~2016~~ and ~~2015~~2016, we had a net loss attributable to common stockholders of $1219,~~746~~553,~~520~~ and $~~799~~830,~~703~~855, respectively. As a result, we will need to generate significant revenues to achieve and maintain profitability. If our revenues grow slower than anticipated, or if operating expenses exceed expectations, then we may not be able to achieve profitability in the near future or at all, which may depress our stock price. These conditions create an uncertainty as to our ability to continue as a going concern.

Revenues.

We had no revenues for the ~~nine~~six months ended ~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016.

Operating Expenses

The operating expenses ~~increased~~decreased in the ~~nine-month~~six month period ended ~~December~~September 3130, ~~2016~~2017 ($1219,~~764,433~~553) compared to the same period of ~~2015~~2016 ($~~799~~830,~~703~~855)~~, an increase of $964,730~~. AThe most significant ~~portion~~ ~~of the increase~~ decrease in the ~~operating~~ expenses is attributable to ~~the~~professional ~~Loss~~fees onwhich ~~extinguishment~~decreased ofby ~~related party debt (~~$~~544~~445,~~066) which~~160 ~~primarily~~and ~~resulted~~there ~~with~~was ~~the~~a ~~conversion~~decrease ofin the ~~shareholder~~stock ~~advances~~based ~~and~~compensation of ~~accounts~~$244,020, ~~payable~~an toincrease ~~common~~in ~~shares. The conversion of~~ the ~~debt~~research toand ~~common~~development ~~shares~~of ~~had~~$44,834 aand ~~positive~~an ~~effect~~increase onin ~~reducing~~ the ~~working~~accretion ~~capital~~expense ~~deficit~~of $134,831. The ~~Stock~~accretion ~~based~~expense ~~compensation~~has increased by ~~$153,252~~ as athe ~~combination~~convertible offinancing ~~shares~~being ~~and~~used ~~stock~~has ~~options~~a ~~were~~fixed ~~issued~~price torange ~~management~~with asa ~~compensation.~~very Inshort ~~addition,~~maturity date. asThe ~~part~~convertibles ofwith the ~~allocation~~ offixed ~~stock~~price ~~options~~range towere ~~management~~converted ~~prior~~into ~~allocations~~shares ofas ~~stock~~all ~~options~~the ~~were~~short ~~forfeited.~~term ~~The~~convertible ~~other~~have ~~significant~~now ~~increase~~been inconverted ~~the~~into ~~operating~~shares. ~~expenses~~Please issee ~~related~~Note 13 to ~~professional~~the ~~fees,~~September ~~$352~~30,~~478~~ ~~which~~2017 ~~related~~Condensed ~~primarily~~Interim toFinancial ~~a contract for the provision of investor relation services~~Statements.

Other Expenses.

None

Net Loss.

The Company recognized a net loss of $1219,~~746,520~~ 553 for the ~~nine-~~six month period ended ~~December~~September 3130, ~~2016~~2017 as compared to a net loss of $~~799~~830,~~703~~ 855 for the same period of ~~2015~~2016. Changes in net loss are primarily attributable to changes in expenses, each of which is described above.

2950

Liquidity and Capital Resources.

Net cash used by operating activities was $~~200~~137,~~297~~553 and $~~158~~123,~~428~~084 for the ~~nine-~~six month period ended ~~December~~September 3130, ~~2016~~2017 and ~~2015~~2016, respectively. The decrease is mainly attributable to the delay in the implementation of the business plan.

The Company had a working capital deficiency of $95975,~~640~~986 as of ~~December~~September 3130, ~~2016~~2017 compared to $~~765~~852,~~356~~514 as of March 31, ~~2016~~2017.

The current level of development activity necessitates a cash requirement of approximately $2560,000 per month. This monthly cash requirement will increase as the ~~demonstration~~Company ~~production~~begins ~~facility is developed~~operations.

The Company does not have any material commitments for capital expenditures. However, should the Company execute its business plan as anticipated, it would incur substantial capital expenditures and require financing in addition to the amount required to fund its present operation.

Additional ~~Financing~~financing

IfThe ~~the~~financing ~~funding~~referenced ~~from the private placement or direct offering is not available~~ in aNote ~~timely~~13 ~~manner then management will continue foregoing salaries and operations will be scaled back to operate within the funds available. In the normal course~~ of ~~business, management considers various alternatives to ensure that~~ the ~~Company~~September ~~can meet some of its operating cash flow requirements through financing activities~~30, ~~such~~2017 asCondensed ~~private~~Interim ~~placements~~Financial ofStatements ~~common~~has ~~shares,~~provided ~~preferred~~working ~~share offerings and offerings of debt and convertible debt~~capital ~~instruments~~for as well as through merger or acquisition opportunities. Management may also consider strategic alternatives, including strategic investments and divestitures. As future operations may be financed out of funds generated from financing activities, the ~~ability~~Company to doinitiate ~~so is dependent on, among other factors,~~ the ~~overall~~execution ~~state~~ of ~~capital markets and investor appetite for investments in~~ the ~~green~~business ~~technology~~plan. ~~industry~~Plans ~~and~~are ~~the~~now ~~Company’s securities~~ in ~~particular.~~process ~~Should the Company elect~~ to ~~satisfy~~undertake ~~its~~a ~~cash commitments~~larger ~~through~~capital ~~the~~raise ~~issuance of securities, by way of either private placement or public offering or otherwise, there can~~in beorder ~~no assurance that the efforts~~ to ~~obtain~~fully ~~such~~implement ~~additional funding will be successful, or achieved on terms favorable to~~ the ~~Company or~~business ~~its~~plan ~~existing shareholders. If adequate funds are not available on favorable terms, the Company may have to reduce substantially or eliminate expenditures or obtain funds through other sources such~~ as ~~divestiture~~described orin ~~monetization~~this ~~of certain assets or sublicensing (where permitted) of certain rights to certain of the Company’s technologies or products~~document.

~~The~~If the ~~Company~~funding ~~entered~~from ~~into~~the planned capital raise is not available in a ~~six-month~~timely ~~agreement~~manner, then management will continue to forego salaries ~~commencing~~and ~~June~~operations 24will be scaled back to operate within the funds available. In the normal course of business, ~~2016~~management ~~with~~considers various aalternatives ~~consulting~~to ~~firm~~ensure ~~for~~that the ~~provision~~Company can meet some of ~~investors~~its ~~relations~~operating ~~services~~cash flow requirements through financing activities, such as private placements of common shares, preferred share offerings and offerings of debt and convertible debt instruments as well as through merger or acquisition opportunities. ~~The~~Management ~~contract~~may ~~was~~also ~~not~~consider ~~completed~~strategic alternatives, including strategic byinvestments ~~December~~and 24divestitures. As future operations may be financed out of funds generated from financing activities, ~~2016~~the ~~but~~ability to itdo so is ~~anticipated~~dependent on, among other factors, the overall state of capital markets and investor appetite for investments in the cannabis industry and the Company’s securities in particular. Should the Company elect to satisfy its cash commitments through the issuance of securities, by way of either private placement or public offering or otherwise, there can be no assurance that the itefforts to obtain such additional funding will be ~~completed~~successful, byor achieved on terms favorable to the ~~fiscal~~Company ~~year~~or ~~end~~its ~~(March~~existing shareholders. 31If adequate funds are not available on favorable terms, ~~2017~~the Company may have to reduce substantially or eliminate expenditures or obtain funds through other sources such as divestiture or monetization of certain assets or sublicensing (where permitted) of certain rights to certain of the Company’s technologies or products.

During the current quarter the Company converted the shareholder advances and accounts payable to common shares as described by Note 4 of the Condensed Interim Financial Statements.

Subsequent to the end of the quarter, the Company entered into a second agreement on January 9, 2017, with a consultant to provide investor relations services for a three (3) month period.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Recent Accounting Pronouncements

Critical Accounting Policies

The financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) applied on a consistent basis. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.

We have identified the policies below as critical to our business operations and the understanding of our financial statements. A complete discussion of our accounting policies is included in Note 3 of the annual audited financial statements for the year ended March 31, ~~2016~~2017.

Use of estimates

The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.

Going Concern

These financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company is in the development stage and has not yet realized profitable operations and has relied on non-operational sources to fund operations. The Company has suffered recurring losses and additional future losses are anticipated as the Company has not yet been able to generate revenue. In addition, as of ~~December~~September 3130, ~~2016~~2017, the Company has a working capital deficiency of $95975,~~640~~986 (March 31, ~~2016~~2017 - $~~765~~852,~~356~~514) and an accumulated deficit of $56,~~313~~338,~~713~~384 (March 31, ~~2016~~2017 - $36,~~723~~134,~~368~~941). The Company’s ability to continue as a going concern is dependent on successfully executing its business plan, which includes the raising of additional funds. The Company will continue to seek additional forms of debt or equity financing, but it cannot provide assurances that it will be successful in doing so. These circumstances raise substantial doubt as to the ability of the Company to meet its obligations as they come due and accordingly, the appropriateness of the use of accounting principles applicable to a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Such adjustments could be material.

~~New~~Recent Accounting Pronouncements

31ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, was issued to simplify the classification of deferred taxes on the balance sheet. The new guidance would require that deferred taxes be classified as non-current assets and liabilities based on the tax paying jurisdiction. Application of the standard, which can be applied prospectively or retrospectively, is required for fiscal years beginning on or after December 15, 2016 and for interim periods within that year. The adoption of the amended guidance does not have a material impact on the Company’s financial statements.

InASU ~~January~~No. 2016-01, ~~the~~Financial ~~FASB~~Instruments-Overall ~~issued~~(Subtopic ~~new~~825-10) ~~guidance~~- onRecognition ~~recognition~~ and ~~measurement~~Measurement of ~~financial~~Financial ~~assets~~Assets and ~~financial~~Financial ~~liabilities. The new~~Liabilities, ~~guidance~~which ~~will~~addresses ~~impact~~certain ~~the~~aspects ~~accounting~~of ~~for~~recognition, ~~equity investments~~measurement, ~~financial liabilities under the fair value option~~presentation, and ~~the presentation and~~ disclosure ~~requirements~~of ~~for~~ financial instruments. ~~All~~Most ~~equity~~notably, this ~~investments~~new inguidance ~~unconsolidated~~requires ~~entities~~equity investments (~~other~~except ~~than~~ those accounted for under the equity method of accounting) ~~will~~or ~~generally~~those bethat result ~~measured at fair value with changes~~ in ~~fair~~consolidation ~~value~~of ~~recognized~~the ~~through earnings.~~investee) ~~There~~to ~~will~~be nomeasured ~~longer~~at befair anvalue ~~available-for-sale~~with ~~classification (~~changes in fair value ~~reported~~recognized in ~~other~~net ~~comprehensive~~ income ~~(loss)) for equity securities with readily determinable fair values~~. InThis new ~~addition,~~guidance ~~the~~is ~~FASB~~effective ~~clarified the need~~ for aannual ~~valuation allowance~~reporting onperiods ~~deferred~~beginning ~~tax~~after ~~assets~~December ~~resulting~~15, ~~from unrealized losses on available-for-sale debt securities~~2017. InThe ~~general, the new~~ guidance ~~will~~ ~~require~~is ~~modified~~not ~~retrospective~~expected ~~application~~ to ~~all outstanding instruments, with~~ have a ~~cumulative~~material ~~effect~~impact ~~adjustment recorded to opening retained earnings. This guidance will be effective for us~~ on ~~January 1, 2018. We are currently evaluating~~ the ~~expected impact~~Company’s ~~that the standard could have on our~~ financial statements ~~and related disclosures~~.

~~In February 2016, FASB issued Accounting Standards Update (~~ASU) No. 2016-02, Leases (Topic 842)., ~~Under~~On ~~the~~February ~~new~~25, ~~guidance~~2016, ~~lessees will be required to recognize~~ the ~~following~~FASB ~~for~~issued ~~all leases (with the exception of short-term leases) at the lease commencement date:~~ a ~~lease~~new ~~liability,~~standard which isrequires alessees ~~lessee’s obligation~~ to ~~make~~recognize ~~lease~~almost all ~~payments~~leases ~~arising~~on ~~from~~their abalance ~~lease,~~sheet ~~measured~~as on a ~~discounted basis; and a~~ right-of-use asset, ~~which~~and isa anlease ~~asset~~liability. ~~that~~The ~~represents~~new guidance will require the ~~lessee’s~~asset ~~right~~and liability to ~~use,~~be orinitially ~~control~~measured at the ~~use~~present value of, ~~a specified asset for~~ the lease ~~term.~~payments ~~Under~~in the ~~new~~statement ~~guidance,~~of ~~lessor~~financial ~~accounting~~position. isThe ~~largely~~new ~~unchanged.~~guidance ~~Certain~~will also ~~targeted~~require ~~improvements~~the ~~were~~company ~~made~~ to ~~align,~~recognize ~~where~~interest ~~necessary,~~expense ~~lessor~~on ~~accounting with~~ the ~~lessee~~lease ~~accounting~~liability ~~model~~separately ~~and Topic 606, Revenue~~ from ~~Contracts~~the ~~with~~amortization ~~Customers. The~~of ~~new lease guidance simplified~~ the ~~accounting~~ right-use-asset for ~~sale~~finance leases and ~~leaseback~~recognize ~~transactions~~a ~~primarily~~single ~~because~~lease ~~lessees~~cost ~~must~~allocated ~~recognize lease~~on ~~assets~~a ~~and~~straight-line ~~lease~~basis ~~liabilities.~~over ~~Lessees~~the ~~will~~lease noterm ~~longer~~for beoperating ~~provided~~leases, in ~~with~~the astatement ~~source~~ of ~~off-balance~~comprehensive ~~sheet financing~~income. ~~Public~~The ~~business entities~~new ~~should~~standard ~~apply~~is ~~the~~effective ~~amendments in ASU 2016-02~~ for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years ~~(i.e.,~~with ~~January~~early ~~1, 2019, for a calendar year entity). Early~~ application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The ~~modified~~Company ~~retrospective~~is ~~approach~~currently ~~would~~evaluating ~~not~~this ~~require any transition accounting for leases that expired~~guidance ~~before~~to ~~the~~determine ~~earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are currently evaluating~~ the ~~expected~~ impact ~~that~~it ~~the~~may ~~standard could~~ have on ~~our~~the Company’s financial statements ~~and related disclosures~~.

InASU ~~March~~No. 2016-09, ~~FASB~~Compensation-Stock ~~issued~~Compensation ~~ASU~~(Topic ~~No.~~718): ~~2016~~Improvements to Employee Share-09Based ~~related~~Payment Accounting. The ASU includes multiple provisions intended to ~~stock~~simplify various aspects of the accounting for share-based ~~compensation~~payments. The ~~new~~areas ~~guidance~~of ~~simplifies~~simplification in the update involve several aspects of accounting for ~~stock~~share-based ~~compensation~~ payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows, however, some of the areas for simplification apply only to non-public entities. This ~~update~~guidance is effective infor ~~fiscal~~annual ~~years, including interim~~ periods, beginning after ~~December~~ December 15, 2016, and ~~early~~interim ~~adoption~~periods iswithin ~~permitted.~~those Weannual ~~are~~periods. ~~currently~~The ~~evaluating this~~ guidance ~~and~~does ~~the~~not ~~impact~~have ita ~~will~~material ~~have~~impact on the ~~financial~~Company’s ~~statements~~financial ~~and related disclosures~~statements.

ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU provides clarity to preparers on the treatment of eight specific items within an entity’s statement of cash flows. The guidance becomes effective for all public entities in fiscal years beginning after December 15, 2017, including interim periods therein. Early adoption of the guidance, including within an interim period, is permitted. The guidance is not expected to have an impact on the Company’s financial statements.

ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting. The ASU amends the scope of modification accounting for share-based arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. The guidance becomes effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. The guidance is not expected to have a material impact on the Company’s financial statements.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 3 Quantitative and Qualitative Disclosure about Market Risk

As a smaller reporting company, the Company is not required to provide this disclosure.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures.

32We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2017, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2017, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of December 31, 2016, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2016, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described below.

Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified the following ~~three~~four material weaknesses that have caused management to conclude that, as of ~~December~~September 3130, ~~2016~~2017, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

1.● We have developed documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as of the period ending ~~December~~September 3130, ~~2016~~2017. We plan to progressively implement the written policies and procedures commencing in the immediate future. However, until all of the internal controls and procedures are fully implemented there will continue to be some weaknesses in the system. 2.● We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Based on the current magnitude of our operations at the present time, it is impractical to employ sufficient staff to fully address the separation of duties issue. As the business plan is implemented and additional staff is required, we will be able to and intend to address this identified weakness. 3.● Effective controls over the control environment have not been fully implemented. Specifically, management has not developed and effectively communicated to employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, our Board of Directors has only one independent member. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. As the expansion plans are implemented, we intend to communicate our accounting policies and procedures to our employees. ● We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements. This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of the financial statements including disclosures will not be prevented or detected on a timely basis as a result.

33As a result of the material weaknesses identified above, our internal control over financial reporting was not effective as of September 30, 2017.

The Company has initiated a program to address the above weaknesses, specifically the Company has implemented a Code of Business Ethics and Conduct policy, an Equal Opportunity policy, a Freedom from Harassment policy, a Substance Abuse policy, ~~and~~ a Whistleblower policy and a Fraud policy. While segregation of duties is very difficult in a small company the Company has an internal policy that all major ~~bank~~ expenditures are ~~authorized~~collectively approved by ~~two~~the ~~people~~CEO, President and CFO. In addition, the Company has constituted an Audit Committee, consisting of two non-management directors with the Independent Director as the Chair.

To address the material weaknesses identified, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

As part of the implementation strategy for the expansion of the Company we additionally plan to engage a third-party firm to assist us with the development of any additional ~~system~~ systems required. We intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees as funding becomes available to implement the business plan in order to segregate duties in a manner that establishes effective internal controls. All such required remedies are dependent on having the financial resources available to complete them.

Changes in internal controls.

No change in our system of internal control over financial reporting occurred during the ~~quarter~~period covered by this report, the period ended ~~December~~September 3130, ~~2016~~2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

~~None~~On October 24, 2017 the Company was named in Brampton Small Claims Court entitled Questrade, Inc. v. Algae Dynamics Corp. (the “Claim”). The Claim seeks payment of Cdn$29,941 for payments allegedly owed under a Consulting Agreement with the Company in which Questrade was to provide certain financial advisory services. The Company has filed a general denial of liability on the basis that services were not provided or alternately disputing the amount claimed. A hearing date of February 6, 2018 was originally set by the Small Claims Court but an adjournment and rescheduling has been requested by Questrade Inc. The matter has had an initial trial date with a subsequent date scheduled for March 14, 2019.

Item 1A. Risk Factors.

See the risk factor identified in the Company’s ~~registration statement on~~ Form S10-1K ~~(Commission~~filed ~~File~~for ~~No.~~March ~~333-215685)~~31, 2017 which are incorporated by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of Unregistered Securities, please refer to Notes 8a and 13 on the September 30, 2017 Condensed Interim Financial Statements.

Issued and Outstanding

~~On May 18, 2016, 44,500 common shares purchase warrants were exercised at USD$0.04 ($0.052) per warrant for total cash proceeds of USD$1,780 ($2,318).~~Nil

~~On May~~Shares ~~15,~~to ~~2016,~~be ~~13,874~~issued ~~shares~~– Please see the Note 8a to bethe ~~issued~~September ~~were~~30, ~~issued~~2017 asCondensed ~~common~~Interim ~~shares.~~Financial Statements

OnEach ~~June~~of ~~22,~~these ~~2016,~~issuances ~~15,264~~was ~~shares~~exempt tofrom beregistration ~~issued~~under ~~were~~the ~~issued~~Securities Act of 1933, as ~~common~~amended ~~shares~~by virtue of Section 4(2) thereunder. No commissions were paid in connection with such issuances

On May 19, 2016, the Company signed a letter of engagement with an agent in connection with proposed placements of up to US$10,000,000 ($13,427,000), which included as part of the fee the issuance of 100,000 common shares as a non-refundable retainer at a value of $101,579 based upon an estimated fair market value of USD$0.78 ($1.02) per share at the time of the agreement. The retainer has been recorded as a prepaid expense on the condensed interim balance sheet as at December 31, 2016. These common shares were issued on December 5, 2016.

On December 19, 2016, 25,000 stock options were exercised at an exercise price of $0.31 per common share for gross proceeds of $7,750. The proceeds were allocated to settle a debt with a consultant.

On December 29, 2016, 117,465 shares to be issued were issued as common shares.

On December 29, 2016, 600,000 shares were issued to management as compensation at a value of $485,458 based upon an estimated fair market value of USD$0.60 ($0.81) per share at the date of issue.

On December 29, 2016, 1,316,173 shares were issued to two officers and directors as conversion of shareholder advances and accounts payable. See Note 4 of the Condensed Interim Financial Statements.

Shares to be issued

On April 18, 2016, the Company signed an agreement with a consultant pursuant to which it has committed to issue 250,000 common shares of the Company as compensation for services to be rendered over a period of 5 months. Two directors and officers of the Company transferred 250,000 of their personal shares to the consultant and as such the Company has agreed to reimburse the directors and officers for these common shares transferred by issuance of common shares from treasury. The commitment was valued at $86,380 based upon an estimated fair market value of USD$0.27 ($0.35) per share at the date of issue and was expensed during the nine months ended December 31, 2016 as professional fees on the condensed interim statements of operations. These shares were issued on January 10, 2017.

Convertible Note

On November 18, 2016 (the “Note Closing Date”), the Company entered into a securities purchase agreement dated as of the Note Closing Date (the “Purchase Agreement”) with GHS Investments, LLC (“GHS”). The Purchase Agreement provides that, upon the terms and subject to the conditions set forth therein, GHS shall purchase from the Company on the Closing Date a convertible note with a principal amount of $56,500 (the “Convertible Note”) for a purchase price of $50,000. Pursuant to the Purchase Agreement, on the Note Closing Date, the Company issued the Convertible Note to GHS.

The Convertible Note matures on August 18, 2017 and accrues interest at the rate of 10% per annum. The Convertible Note is convertible beginning ninety (90) trading days after the Note Closing Date, in whole or in part, at GHS’ option into common shares of the Company’s capital stock at a variable conversion price equal to a 38% discount from the lowest trading price in the twenty (20) trading days prior to the day that GHS requests conversion. At no time will GHS be entitled to convert any portion of the Convertible Note to the extent that after such conversion, GHS (together with its affiliates) would beneficially own more than 4.99% of the outstanding common shares, although GHS can modify this limit to 9.99% of the outstanding common shares.

Each of these issuances was exempt from registration under the Securities Act of 1933, as amended by virtue of Section 4(2) thereunder. No commissions were paid in connection with such issuances.

Item 3. Defaults Upon Senior Securities.

~~None~~There was a default on the GHS Investment as the covenant under the agreement for the Company to remain current in its reporting. The Convertible Note including the penalty has now been paid in full.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

~~Securities~~Please ~~Purchase~~refer ~~Agreement~~to ~~and~~Subsequent ~~Convertible~~Event Note 13 of the September 30, 2017 Condensed Interim Financial Statements.

As noted above on the Note Closing Date, the Company entered into the Purchase Agreement with GHS Investments, LLC and issued the Convertible Note.

The Convertible Note includes customary event of default provisions, and provides for a default interest rate of 20%. The Company has the right at any time prior to May 18, 2017 to redeem all, but not less than all, of the total outstanding amount then remaining under the Convertible Note in cash at a prices ranging from 125% to 135% of the total amount of the Convertible Note then outstanding.

The Purchase Agreement contains customary representations, warranties and covenants by, among and for the benefit of the parties. The Company also agreed to pay up to $1,500 of reasonable attorneys’ fees and expenses incurred by GHS in connection with the transaction. The Purchase Agreement also provides for indemnification of GHS and its affiliates in the event that GHS incurs losses, liabilities, obligations, claims, contingencies, damages, costs and expenses related to a breach by the Company of any of its representations, warranties or covenants under the Purchase Agreement.

The foregoing descriptions of the Purchase Agreement and the Convertible Note are qualified in their entirety by reference to the provisions of the Convertible Note and the Purchase Agreement filed as exhibits 4.1 and 10.1 to the previously filed September 30, 2016 Quarterly Report, respectively, which are incorporated herein by reference.

Item 6. Exhibits.

31.a	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.b	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.a	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.b	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Algae Dynamics Corp. a Canadian Corporation
	Algae Dynamics Corp.
Date: February 14, 2017	By:	/s/ Ross Eastley
	a Canadian Corporation
		Ross Eastley Chief Financial Officer (Chief Financial and Principal Accounting Officer)
Date: January 29, 2019	By:	/s/ Ross Eastley
		Ross Eastley
		Chief Financial Officer
		(Chief Financial and Principal Accounting Officer)

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