Clearmind Medicine Inc 6-K, filed Feb 1, 2023
Clearmind Medicine Inc. (CMND)
About this 6-K
Clearmind Medicine Inc filed this 6-K on February 1, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of February 2023
Commission file number: 001-41557
Clearmind Medicine Inc.
(Translation of registrant’s name into English)
101 – 1220 West 6th Avenue
Vancouver, British Columbia
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
CONTENTS
On January 31, 2023, the registrant filed in Canada its consolidated financial statements and Management’s Discussion and Analysis for the year ended October 31, 2022, with the Canadian Securities Administration and each of the Ontario Securities Commission, British Columbia Securities Commission and Alberta Securities Commission. The registrant expects to file its Annual Report on Form 20-F no later than February 28, 2023.
EXHIBIT INDEX
| Exhibit No. | ||
| 99.1 | Consolidated Financial Statements for the year ended October 31, 2022. | |
| 99.2 | Management’s Discussion and Analysis for the year ended October 31, 2022. |
1
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.
| Clearmind Medicine Inc. | |||
| Date: February 1, 2023 | By: | /s/ Adi Zuloff-Shani | |
| Name: | Adi Zuloff-Shani | ||
| Title: | Chief Executive Officer | ||
2
Exhibit 99.1
CLEARMIND MEDICINE INC.
Consolidated Financial Statements
(Expressed in Canadian Dollars)
F-1
CLEARMIND MEDICINE INC.
Index of Financial Statements
As of October 31, 2022
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Clearmind Medicine Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial position of Clearmind Medicine Inc. and its subsidiaries (the “Company”) as of October 31, 2022 the related consolidated statement of operations and comprehensive loss, changes in shareholders’ equity (deficit) and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1b to the financial statements, the Company’s accumulated losses and the additional funds needed to maintain its operations raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1b. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S/ Brightman Almagor Zohar & Co.
Certified Public Accountants
A Firm in the Deloitte Global Network
Tel Aviv, Israel
January 31, 2023
We have served as the Company’s auditor since 2023.
F-3
To the Shareholders and Board of Directors of Clearmind Medicine Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Clearmind Medicine Inc. (the “Company”) as at October 31, 2021, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for the years ended October 31, 2021 and 2020 and related notes (collectively, the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at October 31, 2021, and the results of their operations and cash flows for the years ended October 31, 2021 and 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Explanatory Paragraph Regarding Going Concern
Without modifying our opinion, we draw attention to Note 1 in the consolidated financial statements which indicates that there are material uncertainties that cast significant doubt about the going concern assumption. The Company has not generated any revenues, has negative cash flow from operations, and has an accumulated deficit. These conditions, along with other matters as set forth in Note 1, indicate the existence of a material uncertainty that casts significant doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to fraud or error. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. As part of our audits, we are required to obtain an understanding of the Company’s internal controls over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the Board of Directors and that: (i) relate to accounts or disclosures that are material to the financial statements; and (ii) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ SATURNA GROUP CHARTERED PROFESSIONAL ACCOUNTANTS LLP
Saturna Group Chartered Professional Accountants LLP
We have served as the Company’s auditor since 2017.
Vancouver, Canada
March 8, 2022, except as to Note 1(c) which is as of October 19, 2022
F-4
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
| October 31, 2022 | October 31, 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 175,768 | $ | 4,599,437 | ||||
| Other receivables | 69,518 | 160,866 | ||||||
| Related parties (Note 7b) | 64,134 | – | ||||||
| Prepaid expenses | 19,443 | 160,063 | ||||||
| Short-term investment (Note 6) | 264,449 | – | ||||||
| Total current assets | 593,312 | 4,920,366 | ||||||
| Non-current assets | ||||||||
| Property and equipment (Note 4) | 17,610 | 20,578 | ||||||
| Intangible assets (Note 3) | 177,797 | 198,039 | ||||||
| Restricted cash | 20,000 | 20,000 | ||||||
| Right-of-use asset (Note 5) | 48,768 | – | ||||||
| Deferred offering costs | 270,487 | – | ||||||
| Total non-current assets | 534,662 | 238,617 | ||||||
| Total assets | $ | 1,127,974 | $ | 5,158,983 | ||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 1,906,706 | $ | 348,895 | ||||
| Due to related parties (Note 7) | 281,844 | 8,260 | ||||||
| Derivative liability (Note 8c) | 396,597 | – | ||||||
| Lease liability (Note 5) | 52,399 | – | ||||||
| Total liabilities | $ | 2,637,546 | $ | 357,155 | ||||
| Shareholders’ (deficit) equity | ||||||||
| Share capital and share premium (Note 8) | 9,153,900 | 7,905,514 | ||||||
| RSU reserve (Note 11) | 672,945 | 154,000 | ||||||
| Warrants (Note 9) | 626,641 | 342,000 | ||||||
| Share-based payment reserve (Note 10) | 1,915,895 | 839,457 | ||||||
| Accumulated other comprehensive loss | (29,004 | ) | – | |||||
| Accumulated deficit | (13,849,949 | ) | (4,439,143 | ) | ||||
| Total shareholders’ equity (deficit) | (1,509,572 | ) | 4,801,828 | |||||
| Total liabilities and shareholders’ equity (deficit) | $ | 1,127,974 | $ | 5,158,983 | ||||
Approved and authorized for issuance on behalf of the Board on January 29, 2023:
| /s/ “Alan Rootenberg” | /s/ “Adi Zuloff-Shani” | |
| Alan Rootenberg, Director, CFO | Adi Zuloff-Shani, Director, CEO |
(The accompanying notes are an integral part of these consolidated financial statements)
F-5
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in Canadian Dollars)
| Year ended | Year ended | Year ended | ||||||||||
| October 31, | October 31, | October 31, | ||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Operating expenses | ||||||||||||
| General and administrative (Note 17) | $ | 4,327,334 | $ | 3,029,730 | $ | 233,220 | ||||||
| Research and development (Note 18) | 4,205,245 | 646,487 | – | |||||||||
| Total operating expenses | 8,532,579 | 3,676,217 | 233,220 | |||||||||
| Loss before other expenses | (8,532,579 | ) | (3,676,217 | ) | (233,220 | ) | ||||||
| Impairment of exploration and evaluation assets | – | (10,000 | ) | (179,689 | ) | |||||||
| Finance expenses | ||||||||||||
| Unrealized loss on short-term investment (Note 6) | (420,646 | ) | – | – | ||||||||
| Foreign exchange loss | (552 | ) | (33,528 | ) | – | |||||||
| Interest expense | (19,678 | ) | – | – | ||||||||
| Change in fair value of derivative liability (Note 8c) | (396,597 | ) | – | – | ||||||||
| Total finance expenses | (837,473 | ) | (33,528 | ) | – | |||||||
| Loss Before taxes | (9,370,052 | ) | (3,719,745 | ) | (412,909 | ) | ||||||
| Tax expenses | (40,754 | ) | – | – | ||||||||
| Net Loss | (9,410,806 | ) | (3,719,745 | ) | (412,909 | ) | ||||||
| Other comprehensive loss for the year | ||||||||||||
| Items that may be reclassified subsequently to profit or loss: | ||||||||||||
| Foreign exchange differences on translation of foreign operations | (29,004 | ) | – | – | ||||||||
| Comprehensive loss | $ | (9,439,810 | ) | $ | (3,719,745 | ) | $ | (412,909 | ) | |||
| Loss per share (*), basic and diluted | $ | (7.24 | ) | $ | (4.01 | ) | $ | (0.76 | ) | |||
| Weighted average number of shares (*) for the purposes of basic and diluted loss per share | 1,300,050 | 927,345 | 543,902 | |||||||||
| (*) | On September 30, 2022, the Company effected a 1-for-30 share consolidation (reverse share split) of its issued and outstanding shares. All share amounts have been retroactively restated for all periods presented. |
(The accompanying notes are an integral part of these consolidated financial statements)
F-6
Statements of Changes in Shareholders’ Equity (Deficit)
(Expressed in Canadian Dollars)
| Share capital and share premium | Share-based | Accumulated other | Total | |||||||||||||||||||||||||||||
| Number of shares (*) | Amount | RSU reserve | Warrants | payment reserve | comprehensive income | Accumulated deficit | shareholders’ equity (deficit) | |||||||||||||||||||||||||
| Balance, October 31, 2019 | 370,000 | $ | 293,000 | $ | – | $ | – | $ | 147,302 | $ | – | $ | (306,489 | ) | $ | 133,813 | ||||||||||||||||
| Issuance of shares for private placement | 270,858 | 650,000 | – | – | – | – | – | 650,000 | ||||||||||||||||||||||||
| Share issuance costs | – | (51,300 | ) | – | – | – | – | – | (51,300 | ) | ||||||||||||||||||||||
| Net loss for the year | – | – | – | – | – | (412,909 | ) | (412,909 | ) | |||||||||||||||||||||||
| Balance, October 31, 2020 | 640,858 | $ | 891,700 | $ | – | $ | – | $ | 147,302 | $ | – | $ | (719,398 | ) | $ | 319,604 | ||||||||||||||||
| Issuance of shares for private placement | 610,000 | 7,725,000 | – | – | – | – | 7,725,000 | |||||||||||||||||||||||||
| Share issuance costs | – | (711,186 | ) | – | – | – | – | – | (711,186 | ) | ||||||||||||||||||||||
| RSU reserve for vested RSU’s | – | – | 154,000 | – | – | – | – | 154,000 | ||||||||||||||||||||||||
| Issuance of warrants for cash | – | – | – | 375,000 | – | – | – | 375,000 | ||||||||||||||||||||||||
| Warrants issuance costs | – | – | – | (33,000 | ) | – | – | – | (33,000 | ) | ||||||||||||||||||||||
| Share-based compensation | – | – | – | – | 692,155 | – | – | 692,155 | ||||||||||||||||||||||||
| Net loss for the year | – | – | – | – | – | – | (3,719,745 | ) | (3,719,745 | ) | ||||||||||||||||||||||
| Balance, October 31, 2021 | 1,250,858 | $ | 7,905,514 | $ | 154,000 | $ | 342,000 | $ | 839,457 | $ | – | $ | (4,439,143 | ) | $ | 4,801,828 | ||||||||||||||||
| Net loss for the year | – | – | – | – | – | - | (9,410,806 | ) | (9,410,806 | ) | ||||||||||||||||||||||
| Foreign currency translation gain | – | – | – | – | – | (29,004 | ) | – | (29,004 | ) | ||||||||||||||||||||||
| Total comprehensive loss for the year | – | – | – | – | – | (29,004 | ) | (9,410,806 | ) | (9,439,810 | ) | |||||||||||||||||||||
| RSU reserve for vested RSU’s | – | – | 372,598 | – | – | – | – | 372,598 | ||||||||||||||||||||||||
| RSU reserve for services | – | – | 133,734 | – | – | – | – | 133,734 | ||||||||||||||||||||||||
| Shares issued for services | 2,667 | 52,800 | 12,613 | – | – | – | – | 65,413 | ||||||||||||||||||||||||
| Issuance of shares and warrants to Medigus net of issuance costs (Note 8(c)) | 66,245 | 1,195,586 | – | 284,641 | – | – | – | 1,480,227 | ||||||||||||||||||||||||
| Share-based compensation | – | – | – | – | 1,076,438 | – | – | 1,076,438 | ||||||||||||||||||||||||
| Balance, October 31, 2022 | 1,319,770 | $ | 9,153,900 | $ | 672,945 | $ | 626,641 | $ | 1,915,895 | $ | (29,004 | ) | $ | (13,849,949 | ) | $ | (1,509,572 | ) | ||||||||||||||
| (*) | On September 30, 2022, the Company effected a 1-for-30 share consolidation (reverse share split) of its issued and outstanding shares. All share amounts have been retroactively restated for all periods presented. |
(The accompanying notes are an integral part of these consolidated financial statements)
F-7
Consolidated Statements of Cash Flows
(Expressed in Canadian Dollars)
| Year ended | Year ended | Year ended | ||||||||||
| October 31, | October 31, | October 31, | ||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Operating activities | ||||||||||||
| Net loss | $ | (9,410,806 | ) | $ | (3,719,745 | ) | $ | (412,909 | ) | |||
| Adjustments for: | ||||||||||||
| Amortization of intangible assets | 20,242 | – | – | |||||||||
| Amortization of right-of-use asset | 82,802 | – | – | |||||||||
| Interest on lease liability | 19,699 | – | – | |||||||||
| Depreciation of property and equipment | 10,335 | 2,572 | – | |||||||||
| Impairment of exploration and evaluation assets | – | 10,000 | 179,689 | |||||||||
| Change in fair value of derivative liability | 396,597 | – | – | |||||||||
| Share-based compensation | 1,648,183 | 846,155 | – | |||||||||
| Unrealized loss on short-term investment | 420,645 | – | – | |||||||||
| Tax expenses | 40,754 | – | – | |||||||||
| Movements in working capital: | ||||||||||||
| Decrease (increase) in amounts receivable | 27,214 | (157,740 | ) | (28 | ) | |||||||
| Decrease (increase) in prepaid expenses | 140,620 | (160,063 | ) | – | ||||||||
| Increase (decrease) in accounts payable and accrued liabilities | 1,246,570 | 343,597 | (7,444 | ) | ||||||||
| Increase (decrease) in due to related parties | 273,584 | 195 | (23,760 | ) | ||||||||
| Net cash used in operating activities | (5,083,561 | ) | (2,835,029 | ) | (264,452 | ) | ||||||
| Investing activities | ||||||||||||
| Acquisition of property and equipment | (7,593 | ) | (23,150 | ) | – | |||||||
| Acquisition of intangible assets | – | (198,039 | ) | – | ||||||||
| Exploration and evaluation asset expenditures | – | (10,000 | ) | (10,000 | ) | |||||||
| Mineral tax credits received | – | – | 4,905 | |||||||||
| Restricted cash | – | (20,000 | ) | – | ||||||||
| Net cash used in investing activities | (7,593 | ) | (251,189 | ) | (5,095 | ) | ||||||
| Financing activities | ||||||||||||
| Proceeds from issuance of shares and warrants, net (Note 8c) | 795,133 | 7,355,814 | 598,700 | |||||||||
| Interest paid | (19,699 | ) | – | – | ||||||||
| Repayment of lease liabilities | (77,031 | ) | – | – | ||||||||
| Net cash provided by financing activities | 698,403 | 7,355,814 | 598,700 | |||||||||
| Effect of foreign exchange rate changes | (30,918 | ) | – | – | ||||||||
| Net increase (decrease) in cash and cash equivalents | (4,423,669 | ) | 4,269,596 | 329,153 | ||||||||
| Cash and cash equivalents at beginning of year | 4,599,437 | 329,841 | 688 | |||||||||
| Cash and cash equivalents at end of year | $ | 175,768 | $ | 4,599,437 | $ | 329,841 | ||||||
| Supplementary disclosure of cash flow information: | ||||||||||||
| Non-cash financing and investing activities | ||||||||||||
| Shares obtained from Medigus in issuance of shares and warrants (Note 8c) | $ | 621,695 | $ | – | $ | – | ||||||
Deferred offering costs included in non-current assets | 270,487 | – | – | |||||||||
| Right of use assets obtained in exchange for lease liabilities | $ | 126,077 | $ | – | $ | – | ||||||
F-8
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 1. | Nature of Operations and Going Concern |
| a. | Clearmind Medicine Inc. (formerly Cyntar Ventures Inc.) (the “Company”) was incorporated in the province of British Columbia on July 18, 2017. The Company changed its name from Cyntar Ventures Inc. to Clearmind Medicine Inc. on March 24, 2021. The Company’s previous business was carrying out mining exploration operations and was involved in the exploration of the Lorn mineral property located in the Clinton and Lillooet Mining Divisions of British Columbia. Effective May 18, 2021, the Company is in the business of researching, developing and marketing proprietary formulations of psychedelic designer therapeutics with an initial focus of developing products. The Company’s head office is located at Suite 101, 1220 West 6th Avenue, Vancouver, BC, V6H 1A5. The Company’s Israeli subsidiary (Clearmindmed Ltd.) provides research and development services to the Company. |
On November 14, 2022, the Company completed a public offering for aggregate gross proceeds of US$7.5 million and up listing to the Nasdaq Capital Market (“Nasdaq”). The Company trades under the symbol CMND on both the Nasdaq and the Canadian Securities Exchange (“CSE”) in Toronto.
| b. | Going concern |
These consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. For the year ended October 31, 2022, the Company has not generated any revenues and has negative cash flow from operations of $5,083,561. As of October 31, 2022, the Company has an accumulated deficit of $13,849,949 and a negative working capital of $2,044,234. The continued operations of the Company are dependent on its ability to generate future cash flows or obtain additional financing through debt or equity. Management is of the opinion that sufficient working capital will be obtained from external financing to meet the Company’s liabilities and commitments as they become due, although there is a risk that additional financing will not be available on a timely basis or on terms acceptable to the Company. These factors may cast substantial doubt on the Company’s ability to continue as a going concern. These consolidated financial statements do not reflect any adjustments that may be necessary if the Company is unable to continue as a going concern.
| c. | Reverse share split |
On September 30, 2022, the Company’s Board of Directors approved a 1-for-30 reverse split of its issued and outstanding ordinary shares, effective as of September 30, 2022, pursuant to which holders of the Company’s ordinary shares received 0.0333 of an ordinary share for every one ordinary share.
All issued and outstanding ordinary shares or instruments convertible into ordinary shares contained in these financial statements have been retroactively adjusted to reflect the reverse share split for all periods presented, unless explicitly stated otherwise.
F-9
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies |
| a. | Basis of Presentation |
The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) on a going concern basis.
These consolidated financial statements include the accounts of the Company and its 100% owned subsidiaries, Clearmindmed Ltd. and Clearmind Labs Ltd. (inactive). All inter-company balances and transactions have been eliminated on consolidation.
These consolidated financial statements have been prepared on a historical cost basis, except for financial assets and liabilities (including derivatives) which are presented at fair value through profit or loss (“FVTPL”), and are presented in Canadian dollars, which is the Company’s functional currency.
| b. | Significant Accounting Estimates and Judgments |
The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates, and assumptions that affect the application of policies and reported amounts of assets, liabilities, income, and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Significant Estimates
Share-based Compensation
Fair values are determined using the Black-Scholes option pricing model. Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. Option-pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide reliable measurement of the fair value of the Company’s stock options.
Significant Judgments
The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows:
Going Concern
The application of the going concern assumption requires management to take into account all available information about the future, which is at least but not limited to, 12 months from the year end of the reporting period. The Company is aware that material uncertainties related to events or conditions may cast significant doubt upon the Company’s ability to continue as a going concern.
F-10
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| c. | Cash and Cash Equivalents |
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance, which are readily convertible to known amounts of cash, and which are subject to insignificant risk of changes in value to be cash equivalents.
| d. | Provisions |
Provisions are recognized where a legal or constructive obligation has been incurred as a result of past events; it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. If material, provisions are measured at the present value of the expenditures expected to be required to settle the obligation.
| e. | Property and Equipment |
Property and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. The carrying amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs are charged to the consolidated statements of operations and comprehensive loss during the period in which they are incurred.
Depreciation of property and equipment is provided using the straight-line method at the following rates approximating their estimated useful lives:
| Research and development equipment | 3 years |
| f. | Intangible Assets |
Intangible assets consist of patents and patent applications acquired to be used in pre-clinical drug research programs. Intangible assets are carried at cost less accumulated amortization and impairment losses and are capitalized when the costs can be measured reliably, and it is probable that future economic reliably benefits that are attributable to the asset will flow to the Company. The Company amortizes patents over the term of the patent.
F-11
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| g. | Impairment of Non-Current Assets |
At each reporting date, the Company reviews the carrying amounts of its non-current assets to determine whether there are any indications of impairment. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any.
Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash generating unit (“CGU”) to which the asset belongs. The recoverable amount is determined as the higher of fair value less direct costs to sell and the asset’s value in use. In assessing value in use, the estimated future cash flows are discounted to their present value. Estimated future cash flows are calculated using estimated recoverable reserves, estimated future commodity prices and the expected future operating and capital costs. The pre-tax discount rate applied to the estimated future cash flows reflects current market assessments of the time value of money and the risks specific to the asset for which the future cash flow estimates have not been adjusted.
If the carrying amount of an asset or CGU exceeds its recoverable amount, the carrying amount of the asset or CGU is reduced to its recoverable amount through an impairment charge to the consolidated statement of operations and comprehensive loss.
Assets that have been impaired are tested for possible reversal of the impairment whenever events or changes in circumstance indicate that the impairment may have reversed. When an impairment subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but only so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of depreciation, depletion and amortization) had no impairment loss been recognized for the asset or CGU in prior periods. A reversal of impairment is recognized as a gain in the consolidated statement of operations and comprehensive loss.
F-12
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| h. | Financial Instruments |
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the respective instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at FVTPL) are included in the initial carrying value of the related instrument and are amortized using the effective interest method. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in the consolidated statement of operations and comprehensive loss.
Fair value estimates are made at the statement of financial position date based on relevant market information and information about the financial instrument. All financial instruments are classified into either: FVTPL or amortized cost.
The Company has made the following classifications:
| Cash | Amortized cost | |
| Amounts receivable | Amortized cost | |
| Accounts payable and accrued liabilities | Amortized cost | |
| Due to related parties | Amortized cost | |
|
Short-term investments Derivative liability |
FVTPL FVTPL |
Financial assets
The classification of financial assets depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Financial assets at FVTPL
Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as FVTPL. A financial asset is classified as held for trading if:
| ● | it has been acquired principally for the purpose of selling it in the near term; or |
| ● | on initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking. |
F-13
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| h. | Financial Instruments (continued) |
Financial assets at amortized cost
Financial assets at amortized cost are non-derivative financial assets which are held within a business model whose objective is to hold assets to collect contractual cash flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition. Subsequent to initial recognition, financial assets are measured at amortized cost using the effective interest method, less any impairment.
Subsequent to initial recognition, financial liabilities are measured at amortized cost, unless designated as FVTPL.
Impairment of financial assets
Financial assets, other than those classified as FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been decreased.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are offset against the allowance account. Changes in the carrying amount of the allowance account are recognized in the consolidated statement of operations and expected comprehensive loss (“ECL”). Loss allowances are based on the lifetime ECL’s that result from all possible default events over the expected life of the trade receivable, using the simplified approach.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the consolidated statement of operations and ECL to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.
F-14
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| h. | Financial Instruments (continued) |
Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized as the proceeds received, net of direct issue costs.
Other financial liabilities
Other financial liabilities (including loans and borrowings and trade payables and other liabilities) are initially measured at fair value, net of transaction costs. Subsequently, other financial liabilities are measured at amortized cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
Derivative financial instruments
If a hybrid contract contains a financial asset, the embedded derivative is not separated from the host. Such hybrid contracts are measured in their entirety at amortized cost or at fair value, based on the criteria for determining the characteristics of the business model and contractual cash flows.
If the financial asset host is not within the scope of the FASB, the embedded derivative is separated from the host and accounted for as a derivative when the economic risks and characteristics of the embedded derivative are not closely related to the economic risks and characteristics of the host, the embedded derivative meets the definition of a derivative and the hybrid contract is not measured at fair value with the changes in FVTPL.
Reassessment of the need to separate an embedded derivative only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required.
F-15
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| i. | Income Taxes |
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in the consolidated statement of operations and ECL. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax
Deferred income tax is provided using the statement of financial position method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable income will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
| j. | Foreign Currency Translation |
The Company’s reporting currency is the Canadian dollar. The functional currency for the Company and its subsidiary is the currency of the primary economic environment in which the entity operates. The functional currency of the Company and its Canadian subsidiaries is the Canadian dollar, while the functional currency of its Israeli subsidiary is the New Israeli Shekel (“NIS”).
Transactions denominated in currencies other than the functional currency are translated using the exchange rate in effect on the transaction date or at the annual average rate. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange in effect at the consolidated statement of financial position date. Non-monetary items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are included in the consolidated statement of operations and comprehensive loss.
Subsidiaries that have functional currencies other than the Canadian dollar translate their statement of operations and ECL items at the average rate during the year. Assets and liabilities are translated at exchange rates prevailing at the end of each reporting period. Exchange rate variations resulting from the retranslation at the closing rate of the net investment in these subsidiaries, together with differences between their statement of operations and ECL items translated at actual and average rates, are recognized in accumulated other comprehensive income (loss).
F-16
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| k. | Share-based Payments |
The grant date fair value of share-based payment awards granted to employees is recognized as stock-based compensation expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Where equity instruments are granted to parties other than employees, they are recorded by reference to the fair value of the services received. If the fair value of the services received cannot be reliably estimated, the Company measures the services received by reference to the fair value of the equity instruments granted, measured at the date the counterparty renders service. The fair value of services received from consultants cannot be reliably measured; therefore, the fair value of the underlying equity instruments was utilized for all periods presented.
All equity-settled share-based payments are reflected in share-based payment reserve, unless exercised. Upon exercise, shares are issued and the amount reflected in share-based payment reserve is credited to share capital, adjusted for any consideration paid.
| l. | Restricted Share Units |
The Company recognizes compensation expense for restricted share units (“RSU’s”) awarded based on the grant-date fair value of the common shares. The grant-date fair value, which is determined by multiplying the Company’s share price by the number of RSU’s granted, is amortized over the vesting period and is included in compensation expense with a corresponding increase in reserves. If RSU’s are for services that have been provided and are non-cancellable, the Company recognizes the full cost of the RSU’s on the date of grant. The amount recognized is adjusted to reflect the number of RSU’s expected to eventually vest.
| m. | Leases |
The Company’s lease includes an office rental. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company reassesses whether a contract is, or contains, a lease only if the terms and conditions of the contract are changed.
At the commencement date, the Company measures the lease liability at the present value of the lease payments that are not paid at that date, including, inter alia, the exercise price of a purchase option if the Company is reasonably certain to exercise that option. Simultaneously, the Company recognizes a right-of-use (“ROU”) asset in the amount of the lease liability.
The discount rate applied by the Company is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the ROU asset in a similar economic environment. The weighted average of lessee’s incremental annual borrowing rate applied to the lease liabilities was estimated at 20%.
F-17
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| m. | Leases (continued) |
The lease term is the non-cancellable period for which the Company has the right to use an underlying asset, together with both, the periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.
After the commencement date, the Company measures the ROU asset applying the cost model, less any accumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the lease liability.
Assets are depreciated by the straight-line method over the estimated useful lives of the ROU asset or the lease period, whichever is shorter.
Interest on the lease liability is recognized in profit or loss in each period during the lease term in an amount that produces a constant periodic rate of interest on the remaining balance of the lease liability.
The Company applied the following practical expedients:
| ● | Non-lease components: practical expedient by class of underlying asset not to separate non-lease components (services) from lease components and, instead, account for each lease component and any associated non lease components as a single lease component. |
| ● | The practical expedient for short-term leases is applied. |
| n. | Employee benefits |
| 1) | Pension and retirement benefit obligations |
The Company operates a number of post-employment defined contribution plans.
A defined contribution plan is a program that benefits an employee after termination of employment, under which the Company regularly makes fixed payments to a separate and independent entity so that the Company has no legal or constructive obligation to pay additional contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The fund assets are not included in the Company’s statement of financial position.
The Company operates pension and severance compensation plans subject to Section 14 of the Israeli Severance Pay Law. The Option Plans are funded through payments to insurance companies or pension funds administered by trustees. In accordance with its terms, the Option Plans meet the definition of a defined contribution plans as defined above. The expenses in respect of defined contribution plans during the years ended October 31, 2022, 2021 and 2020 were CAD$42,526, CAD$69,147 and nil, respectively.
| 2) | Vacation and recreation pay |
Under Israeli law, each employee is
entitled to vacation days and recreation pay, both computed on an annual basis. The entitlement is based on the period of employment.
The Company records a liability and an expense for vacation and recreation pay, based on the benefit accumulated for each employee.
F-18
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| o. | Research and Development |
Research costs are charged to operations as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product is technically and commercially feasible, future economic benefits are probable, and the Company intends to or has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use and borrowing costs on qualifying assets. Other development expenditures are recognized in the consolidated statement of operations and comprehensive loss as incurred. The Company has not capitalized any development costs for the years ended October 31, 2022, 2021 and 2020.
| p. | Loss Per Share |
Basic loss per share is computed using the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted loss per share, whereby all “in the money” stock options and share purchase warrants are assumed to have been exercised at the beginning of the period and the proceeds from their exercise are assumed to have been used to purchase common shares at the average market price during the period. When a loss is incurred during the period, basic and diluted loss per share is the same as the exercise of stock options and share purchase warrants is considered to be anti-dilutive. As of October 31, 2022, the Company had 792,571 (2021 – 645,222, 2020 - nil) potentially dilutive shares outstanding.
F-19
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 2. | Significant Accounting Policies (continued) |
| q. | The Company capitalizes certain legal and other third-party fees that are directly related to the Company’s in- process equity financing until such financing is consummated After consummation of such equity financing, these costs are recorded as a reduction of the respective gross proceeds. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are written off to operating expenses. |
| r. | Accounting Standards Issued But Not Yet Effective |
| i. | In February 2021, the IASB issued amendments to IAS 8, in which it introduces a new definition of accounting estimates. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates. Effective for annual periods beginning on or after January 1, 2023. The Company is currently evaluating the potential effect of the adoption on the financial position and results of operations. |
| ii. | Classification of liabilities: |
The IASB issued a narrow-scope amendment to IAS 1, in January 2020, to clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. The amendment could affect the classification of liabilities, particularly for entities that previously considered management’s intentions to determine classification and for some liabilities that can be converted into equity. Inter alia, the amendment requires the following:
Liabilities are classified as non-current if the entity has a substantive right to defer settlement for at least 12 months at the end of the reporting period. The amendment no longer refers to unconditional rights. The assessment determines whether a right exists, but it does not consider whether the entity will exercise the right.
‘Settlement’ is defined as the extinguishment of a liability with cash, other economic resources or an entity’s own equity instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where the conversion option is classified as an equity instrument as a separate component of a compound financial instrument.
The Company early adopted the narrow-scope amendment to IAS 1 on January 1, 2019, with no effect to the Company’s financial statements.
On October 31, 2022, the IASB published Non-current Liabilities with Covenants (Amendments to IAS 1) to clarify how conditions with which an entity must comply within twelve months after the reporting period affect the classification of a liability. The amendments are effective for reporting periods beginning on or after January 1, 2024.
F-20
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 3. | Intangible Assets |
Intangible assets are comprised of the following:
| Patents | ||||
| Cost: | ||||
| Balance, October 31, 2021 | $ | 198,039 | ||
| Addition | – | |||
| Balance, October 31, 2022 | $ | 198,039 | ||
| Accumulated amortization: | ||||
| Balance, October 31, 2021 | $ | – | ||
| Addition | 20,242 | |||
| Balance, October 31, 2022 | $ | 20,242 | ||
| Carrying amounts: | ||||
| Balance, October 31, 2021 | $ | 198,039 | ||
| Balance, October 31, 2022 | $ | 177,797 | ||
On May 4, 2021, the Company entered into an assignment agreement to acquire certain intellectual property including a patent for “Binge Behavior Regulators,” which has been granted in the U.S., Europe, China and India, with pending divisional applications in Europe and the U.S, and a patent for “Alcohol Beverage Substitute,” which has been approved for a European patent, with pending applications in the U.S., China and India. In consideration for the acquired intellectual property, the Company paid $198,039 (US$160,000). The patents are amortized over their estimated remaining life of 14.6 years.
F-21
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 4. | Property and Equipment |
Property and equipment is comprised of the following:
| Research and development equipment | ||||
| Cost | ||||
| Balance, October 31, 2021 | $ | 23,150 | ||
| Addition | 7,593 | |||
| Foreign currency translation | 55 | |||
| Balance, October 31, 2022 | $ | 30,798 | ||
| Accumulated depreciation: | ||||
| Balance, October 31, 2021 | $ | 2,572 | ||
| Addition | 10,335 | |||
| Foreign currency translation | 281 | |||
| Balance, October 31, 2022 | $ | 13,188 | ||
| Carrying amounts: | ||||
| Balance, October 31, 2021 | $ | 20,578 | ||
| Balance, October 31, 2022 | $ | 17,610 | ||
F-22
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 5. | Leases |
On July 1, 2021, the Company entered into a lease agreement (“2021 Lease”) with Scisparc Ltd, a related party (“Scisparc”) and a third party for a total area of approximately 240m2, of which the Company occupies approximately 120m2 for the Company’s offices, in Tel Aviv, Israel. The lease expires on June 30, 2023. The Company, Scisparc and the third party have an option to extend the 2021 Lease for an additional three-year period. The Company’s base rent was ILS11,000 per month ($4,464) during the term of the 2021 Lease. The lease liability was discounted using the Company’s estimated incremental borrowing rate of 20%. On December 31, 2021, the third party elected to leave the office space, and a new lease agreement was signed with the Company and the related party. As a result, the Company’s base rent was increased to ILS 18,200 per month ($7,382). See Note 7b.
| ROU office space | ||||
| Balance, October 31, 2021 | $ | – | ||
| Addition | 126,077 | |||
| Accumulated depreciation | (82,802 | ) | ||
| Foreign currency fluctuation | 5,493 | |||
| Balance, October 31, 2022 | $ | 48,768 | ||
| Lease liability | ||||
| Balance, October 31, 2021 | $ | – | ||
| Addition | 124,027 | |||
| Lease payments | (96,730 | ) | ||
| Interest expense | 19,699 | |||
| Foreign currency translation | 5,403 | |||
| Balance, October 31, 2022 | $ | 52,399 | ||
Amounts recognized in profit or loss
| Year ended | ||||
| October 31, | ||||
| 2022 | ||||
| Depreciation | $ | 82,802 | ||
| Interest | 19,699 | |||
| Foreign currency fluctuation | (90 | ) | ||
| $ | 102,411 | |||
F-23
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 6. | Short-term Investment |
Pursuant to the Share Exchange Agreement (as defined in Note 8(c)) with Medigus Ltd (“Medigus”), on February 14, 2022, the Company received 27,778 (*) common shares of Medigus (the “Medigus Agreement”).
As of October 31, 2022, the Company holds 27,778 common shares of Medigus (approximately 7.7%) with a total fair value of $264,449. The fair value of common shares held was determined by reference to public price quotations in an active market. See Note 12.
| October
31, 2021 | Additions | Unrealized
loss | October
31, 2022 | |||||||||||||
| Medigus Ltd. – Shares | $ | – | $ | 685,095 | $ | (420,646 | ) | $ | 264,449 | |||||||
| * | The share amount is following the Medigus 1:15 share split from November 14, 2022. |
F-24
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 7. | Related Party Transactions |
| a. | Compensation to key management personnel |
| (i) | The compensation to key management personnel for employment services they provide to the Company is as follows: |
| Year ended | Year ended | |||||||
| October 31, | October 31, | |||||||
| 2022 | 2021 | |||||||
| Officers: | ||||||||
| Payroll and other short-term benefits | $ | – | $ | 405,632 | ||||
| Consulting fees | 615,413 | 68,000 | ||||||
| Share based compensation | 1,047,017 | 245,677 | ||||||
| $ | 1,662,430 | $ | 719,309 | |||||
| Directors: | ||||||||
| Directors’ fees | $ | 170,266 | $ | 52,000 | ||||
| Share based compensation | 59,353 | 23,501 | ||||||
| $ | 229,619 | $ | 75,501 | |||||
| (ii) | Balances with related parties |
| October 31, | October 31, | |||||||
| 2022 | 2021 | |||||||
| Amounts owed to officers | $ | 185,830 | $ | 2,260 | ||||
| Amounts owed to directors | 96,014 | 6,000 | ||||||
| $ | 281,844 | $ | 8,260 | |||||
| b. | On March 7, 2022, the Company signed an agreement with SciSparc, pursuant to which the Company and SciSparc agreed to cooperate in conducting a feasibility study using certain molecules developed by each party (the “Cooperation Agreement”). Certain of the Company’s officers and directors currently operate, manage or are engaged as officers and/or directors of SciSparc, which may have similar or different objectives than the Company’s. Such activities could detract from the time these people have to allocate to the Company’s affairs. To date, no determination has been made to pursue the joint venture and the development of the research activities with SciSparc remains in a very early stage. For the year ended October 2022, the Company received $194,205 as a reimbursement for research and development expenses conducted within the framework of the Cooperation Agreement. As of October 31, 2022, $64,134 is owed to the Company (2021 – nil). |
| c. | The Company shares office space with SciSparc – see note 5. |
| d. | See Note 19b for details of bonuses paid to certain related parties subsequent to the balance sheet date. |
F-25
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 8. | Share Capital |
The Company’s Authorized share capital is unlimited common shares without par value share capital consists of:
As of October 31, 2022, the number of shares issued and outstanding are 1,319,770 (October 31, 2021 - 1,250,858).
On September 30, 2022, the Company effected a 1-for-30 share consolidation (reverse share split) of its issued and outstanding shares. All share amounts and instruments convertible into shares have been retroactively restated for all periods presented.
Share transactions during the year ended October 31, 2022:
| a. | On November 26, 2021, the Company issued 1,333 shares of common stock with a fair value of $28,800 to the Chief Science Officer (“CSO”) of the Company as per the agreement described in Note 14(a). |
| b. | On February 14, 2022, the Company issued 1,334 shares of common stock with a fair value of $24,000 to the CSO as per the agreement described in Note 14(a). |
| c. | On February 14, 2022, the Company closed the Medigus Agreement, whereby the Company issued a total of 66,245 units to Medigus in consideration for $953,925 (US$750,000) (“Cash Financing”) and 416,667 common shares of Medigus (“Share Exchange Agreement”). Each unit was comprised of one common share and one warrant, with each warrant exercisable at $60.00 per common share for a period of 18 months. |
Pursuant to the Cash Financing, the Company issued 39,747 units at $24.00 per unit for proceeds of $953,925 (US$750,000) consisting of common shares with a fair value of $763,140 and warrants with a fair value of $190,785.
In connection with the Cash Financing, the Company incurred a finder’s fee of $95,393 (US$75,000), which was charged to the statement of changes in shareholders’ equity (deficit).
Pursuant to the Share Exchange, the Company issued 26,498 units with a fair value of $621,695, consisting of common shares with a fair value of $508,760 and warrants with a fair value of $112,935. The fair value of the warrants was determined using the Black-Scholes option pricing model with the following assumptions: risk-free rate of 1.43%, expected life of 1.5 years, and volatility of 107.46%.
In connection with the Share Exchange, the Company incurred finder’s fees of $63,399 (US$50,000), which were charged to the statement of Operations and Comprehensive Loss.
F-26
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 8. | Share Capital (continued) |
On June 29, 2022, the Company signed an amendment to the Medigus Agreement (“Medigus Amended Agreement”), pursuant to which, in the event of an initial public offering, Medigus would receive, in respect of the Cash Financing, for no additional consideration, the number of shares necessary to maintain an ownership percentage of the Company’s shares equal to the level of ownership it had at the time of the Medigus Agreement. See Note 19a for details of the issuance of further shares and warrants subsequent to the reporting period.
As of October 31, 2022, the Company recorded the fair value of this derivative financial liability in the amount of $396,597 as a current liability.
In addition, Medigus will be entitled to 10% of the initial equity of a potential venture in the area of psychedelics, in connection with a research project currently conducted according to an agreement between the Company and the commercialization arm of a leading Israeli academic institution.
Share transactions during the year ended October 31, 2021:
| d. | On April 9, 2021, the Company issued 333,333 common shares at $4.50 per share for gross proceeds of $1,500,000. In connection with this private placement, the Company paid a finder’s fee of $117,186. |
| e. | On June 22, 2021, the Company issued 276,666 units at $22.50 per unit for gross proceeds of $6,225,000. Each unit consisted of one common share and one share purchase warrant exercisable at $37.50 per common share expiring on December 22, 2022. In connection, with this private placement, the Company paid finders’ fees of $594,000. |
Share transactions during the year ended October 31, 2020:
| f. | On March 12, 2020, the Company issued of 270,833 common shares at $2,40 per share for gross proceeds of $650,000. The Company incurred share issuance costs of $51,300 in connection with this private placement. |
F-27
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 9. | Share Purchase Warrants |
The following table summarizes the continuity of the Company’s share purchase warrants:
| Number
of warrants |
Weighted average exercise price |
|||||||
| Balance, October 31, 2020 | – | $ | – | |||||
| Issued (a) | 526,666 | 21.84 | ||||||
| Balance, October 31, 2021 | 526,666 | 21.84 | ||||||
| Issued (b) | 66,245 | 60.00 | ||||||
| Balance, October 31, 2022 | 592,911 | $ | 26.10 | |||||
| a. | On April 22, 2021, the Company issued 250,000 warrants for proceeds of $375,000. Each warrant is exercisable into one common share at $4.50 per share expiring on April 22, 2024. In connection with this private placement, the Company paid a finder’s fee of $33,000. |
| b. | On February 14, 2022, the Company completed the Medigus Agreement, whereby the Company issued a total of 66,245 units to Medigus in consideration for $953,925 (US$750,000) (“Cash Financing”) and 416,667 common shares of Medigus (“Share Exchange”). Each unit was comprised of one common share and one warrant, with each warrant exercisable at $60.00 per common share for a period of 18 months. |
As of October 31, 2022, the following share purchase warrants were outstanding:
| Number
of warrants outstanding | Exercise price | Expiry date | ||||||
| 250,000 | $ | 4.50 | April 22, 2024 | |||||
| 276,666 | $ | 37.50 | December 22, 2022 | |||||
| 66,245 | $ | 60.00 | August 14, 2023 | |||||
| 592,911 | ||||||||
F-28
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 10. | Stock Options |
On September 1, 2021, the Company implemented a stock option plan pursuant to which stock options may be granted to directors, officers, employees, and consultants of the Company. The Board of directors is authorized to grant the maximum number of common shares reserved for issuance in any 12-month period to anyone, optionee, other than a consultant may not exceed 5% of the issued and outstanding common shares at the date of the grant. The maximum number of common shares reserved for issuance in any 12-month period to any consultant may not exceed 2% of the issued and outstanding common shares at the date of the grant and the maximum number of common shares reserved for issuance in any 12-month period to all persons engaged in investor relations activities may not exceed 2% of the issued and outstanding number of common shares at the date of the grant.
The following table summarizes the continuity of the Company’s stock options:
| Number of options | Weighted average exercise price | |||||||
| Outstanding, October 31, 2020 | – | $ | – | |||||
| Granted (i) | 111,889 | 20.67 | ||||||
| Outstanding, October 31, 2021 | 111,889 | 20.67 | ||||||
| Granted (ii) | 86,333 | 20.68 | ||||||
| Cancelled (iii) | (40,556 | ) | 21.56 | |||||
| Outstanding, October 31, 2022 | 157,666 | $ | 20.45 | |||||
| Exercisable, October 31, 2022 | 71,194 | $ | 20.30 | |||||
F-29
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 10. | Stock Options (continued) |
Additional information regarding stock options outstanding as of October 31, 2022, is as follows:
| Outstanding | Exercisable | |||||||||||||||||||||
| Range of exercise prices |
Number of stock options |
Weighted average remaining contractual life (years) |
Weighted average exercise price |
Number of stock options |
Weighted average exercise price |
|||||||||||||||||
| $ | 5.55 | 16,000 | 3.57 | $ | 5.55 | 6,667 | $ | 5.55 | ||||||||||||||
| $ | 16.80 | 29,333 | 9.26 | 16.80 | 12,500 | 16.80 | ||||||||||||||||
| $ | 20.40 | 12,667 | 9.11 | 20.40 | 12,667 | 20.40 | ||||||||||||||||
| $ | 22.50 | 35,000 | 3.57 | 22.50 | 15,833 | 22.50 | ||||||||||||||||
| $ | 23.40 | 6,000 | 6.50 | 23.40 | 2,250 | 23.40 | ||||||||||||||||
| $ | 24.00 | 31,333 | 9.26 | 24.00 | 7,833 | 24.00 | ||||||||||||||||
| $ | 24.90 | 4,000 | 3.89 | 24.90 | 4,000 | 24.90 | ||||||||||||||||
| $ | 25.20 | 20,000 | 3.67 | 25.20 | 8,333 | 25.20 | ||||||||||||||||
| $ | 30.00 | 3,333 | 9.11 | 30.00 | 1,111 | 30.00 | ||||||||||||||||
| 157,666 | 6.45 | $ | 20.45 | 71,194 | $ | 20.30 | ||||||||||||||||
| i) | During the year ended October 31, 2021, the Company granted 111,889 stock options to officers, directors and consultants with weighted average exercise price of $20.67 per Common Share. The options vest over 3 years with expiration dates between 5 to 10 years. |
| ii) | During the year ended October 31, 2022, the Company granted 86,333 stock options to officers, directors and consultants with weighted average exercise price of $20.68 per Common Share. The options vest over 3 years with expiration dates between 5 to 10 years. |
| iii) | On July 2, 2022, 6,667 options canceled with a fair value of $17,649. On May 7, 2022, 33,333 options canceled with a fair value of $92,170. On May 1, 2022 ,556 options canceled with a fair value of $3,959. |
The fair value for stock options granted have been estimated using the Black-Scholes option pricing model assuming no expected dividends or forfeitures and the following weighted average assumptions:
| 2022 | 2021 | |||||||
| Risk-free interest rate | 2.05 | % | 0.89 | % | ||||
| Expected life (in years) | 8.67 | 5 | ||||||
| Expected volatility | 94.09 | % | 98 | % | ||||
The portion of the total fair value of stock options expensed during the year ended October 31, 2022, was $1,101,438 (2021 - $692,155) which was recorded as share-based payment reserve and charged to operations. The weighted average grant date fair value of stock options granted during the year ended October 31, 2022, was $12.75 (2021 - $13.80) per share.
F-30
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 11. | Restricted Share Units |
On August 4, 2021, the Company approved an RSU plan, which is designed to provide certain directors, officers, employees, and consultants of the Company with the opportunity to acquire RSU’s of the Company. Each unit is equivalent in value to a common share and upon vesting results in the holder thereof being issued, at the discretion of the Board, either (i) a common share, or (ii) an amount of cash equal to the fair market value of a common share.
During the year ended October 31, 2022, the Company recognized RSU reserve of $518,945 (2021 - $154,000) related to vested RSU’s.
The following table summarizes the continuity of RSUs:
| Number of RSUs |
Weighted average issue price |
|||||||
| Balance, October 31, 2020 | – | $ | – | |||||
| Granted | 6,667 | 23.10 | ||||||
| Vested | (6,667 | ) | 23.10 | |||||
| Balance, October 31, 2021 | – | – | ||||||
| Granted | 51,339 | 10.57 | ||||||
| Vested | (42,006 | ) | 11.07 | |||||
| Balance, October 31, 2022 | 9,333 | $ | 8.30 | |||||
| 12. | Financial Instruments and Risk Management |
| a. | Fair Values |
Fair value measurements are classified using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The fair value hierarchy has the following levels:
| ● | Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| ● | Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
| ● | Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
F-31
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 12. | Financial Instruments and Risk Management (continued) |
Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s statement of financial position as of October 31, 2022, as follows:
| Fair Value Measurements Using | ||||||||||||||||
| Quoted
prices in active markets for identical instruments (Level 1) | Significant
other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Balance
October 31, 2022 | |||||||||||||
| Short-term investment | $ | 264,449 | $ | – | $ | – | $ | 264,449 | ||||||||
| Derivative liability | – | 396,597 | – | 396,597 | ||||||||||||
The fair value of other assets and liabilities, which include cash, amounts receivable, accounts payable and accrued liabilities, and amounts due to related parties, approximate their carrying values due to the relatively short-term maturity of these instruments.
| b. | Credit Risk |
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and other receivables. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. The carrying amount of financial assets represents the maximum credit exposure.
| c. | Foreign Exchange Rate Risk |
Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. The Company is exposed to foreign currency risk to the extent that monetary assets and liabilities are denominated in a foreign currency. The Company’s subsidiary operates in Israel and has certain monetary financial instruments denominated in NIS and U.S dollars. The Company has not entered into foreign exchange rate contracts to mitigate this risk.
The following table indicates the impact of foreign currency exchange risk on net working capital as of October 31, 2022. The table below also provides a sensitivity analysis of a 10% strengthening of the foreign currency against functional currencies identified which would have increased (decreased) the Company’s net loss by the amounts shown in the table below. A 10% weakening of the foreign currency against the functional currencies would have had the equal but opposite effect as of October 31, 2022.
| Cash | $ | 169,715 | ||
| Amounts receivable | 47,846 | |||
| Accounts payable and accrued liabilities | (475,464 | ) | ||
| Due to related parties | (198,146 | ) | ||
| Total foreign currency financial assets and liabilities | $ | (456,049 | ) | |
| Impact of a 10% strengthening or weakening of foreign exchange rate | $ | (45,605 | ) |
F-32
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 12. | Financial Instruments and Risk Management (continued) |
| d. | Interest Rate Risk |
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to significant interest rate risk as it does not have any liabilities with variable rates.
| e. | Liquidity Risk |
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's objective to managing liquidity risk is to ensure that it has sufficient liquidity available to meet its liabilities when due. The Company relies on raising debt or equity financing in a timely manner.
The following amounts are the contractual maturities of financial liabilities as of October 31, 2022 and 2021:
| 2022 | Total | Within
1 year | Within
2-5 years | |||||||||
| Accounts payable and accrued liabilities | $ | 1,906,706 | $ | 1,906,706 | $ | – | ||||||
| Due to related parties | 281,844 | 281,844 | – | |||||||||
| Derivative liability | 396,597 | 396,597 | ||||||||||
| Lease liability | 52,399 | 52,399 | – | |||||||||
| $ | 2,637,546 | $ | 2,637,546 | $ | – | |||||||
| 2021 | Total | Within
1 year | Within
2-5 years | |||||||||
| Accounts payable and accrued liabilities | $ | 348,895 | $ | 348,895 | $ | – | ||||||
| Due to related parties | 8,260 | 8,260 | – | |||||||||
| $ | 357,155 | $ | 357,155 | $ | – | |||||||
| 13. | Capital Management |
The Company manages its capital to maintain its ability to continue as a going concern and to provide returns to shareholders and benefits to other stakeholders. The capital structure of the Company consists of cash and equity comprised of issued share capital, RSU reserve, warrants reserve, and options reserve.
The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company, upon approval from its Board of Directors, will balance its overall capital structure through new share issuances or by undertaking other activities as deemed appropriate under the specific circumstances.
The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect to capital risk management remains unchanged from the year ended October 31, 2022.
F-33
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 14. | Commitments |
| a. | On November 1, 2020 (as amended on May 12, 2021), the Company entered into an agreement to acquire the rights, title, and interest in certain patents and patent applications in exchange for entering into a consulting services agreement with the consultant. The consultant will become the Company’s scientific consultant and will be compensated with a monthly fee of $5,000 starting on February 1, 2021. The Company is to issue the consultant 16,000 common shares in equal instalments, at the end of each quarter, commencing with the ending of the first complete quarter after the date on which the Canadian Securities Exchange (“Listing Date”) has provided its final approval to the Company’s change of business, over a period of three years. The Company is to also grant the consultant 16,000 stock options which will be exercisable at $5.55 per common share (granted). The stock options will vest in equal parts at the end of each quarter commencing with the ending of the first complete quarter after the Listing Date, over a period of three years. During the year ended October 31, 2022, the Company recognized share-based compensation of $133,734 (2021 - $nil) related to the RSU reserve pursuant to the agreement. As of October 31, 2022, the Company has issued 2,667 (2021 – $0) common shares pursuant to the agreement (Note 8). |
| b. | Effective January 1, 2022, the Company entered into advisory agreements with three advisors of the Company, whereby the Company agreed to issue each consultant 666 RSU’s at the end of each month commencing January 31, 2022, for an initial term of 12 months. During the year ended October 31, 2022, the Company recognized share-based compensation of $228,100 related to RSU’s. As of October 31, 2022, a total of 20,000 shares are issuable to the 3 advisors in consideration for 10 months of services (Note 11). |
| c. | On March 1, 2022, the Company entered into an advisory agreement with a consultant, whereby the Company agreed to pay the consultant ILS 20,000 ($7,752) and 666 RSU’s per month for a period of 12 months. During the year ended October 31, 2022, the Company recognized share-based compensation of $52,633 related to RSU’s. As of October 31, 2022, a total of 5,333 shares are issuable to the advisor in consideration for 8 months of services (Note 11). |
| d. | On March 14, 2022, the Company entered an agreement with a consultant, whereby the Company agreed to issue the consultant RSU’s equivalent to US$10,000 per month for a period of three months. The term is automatically renewed unless terminated by the Company with three days’ written notice within the initial term or thirty days in a subsequent term. His agreement is still in effect. During the year ended October 31, 2022, the Company recognized share-based compensation of $91,864 related to RSU’s. As of October 31, 2022, a total of 9,994 shares are issuable to the advisor in consideration for 7 months of services (Note 11). |
| e. | On May 23, 2022, the Company entered an agreement with a consultant, whereby the Company agreed to issue the consultant RSU’s equivalent to US$10,000 per month for a period of three months. The term is automatically renewed unless terminated by the Company with three days’ written notice within the initial term or thirty days in a subsequent term. During the year ended October 31, 2022, the Company recognized share-based compensation of $65,413 related to RSU’s. |
F-34
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 14. | Commitments (continued) |
f. Research Agreements
The Company entered into research agreements with scientists from several universities in Israel. The purpose of these studies is to further explore, invent and create innovative molecules that will lead to new psychotherapy drug candidates intended for the treatment of widespread and underserved mental illness.
These research agreements include:
Agreements with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd., or Yissum
Effective as of November 8, 2021, the Company entered with Yissum into a framework agreement for the conduct of research, pursuant to which we may request Yissum from time to time to provide the Company with certain research services to be performed in each such event according to an agreed upon research program that will define the applicable research project, the project’s plan, and the identity of the researcher/s and the consideration we should pay for it.
With respect of each of such research, the results of the research will be owned by the Company, except that in the event a research results in a patentable invention, the patent/s shall be jointly owned with Yissum, such that to the extent the Company is interested to obtain an exclusive license under Yissum’s rights – the Company has the option to negotiate a license agreement with Yissum that would provide for the compensation terms to Yissum.
The Company has a right to terminate each of such researches, at any time, upon a 45 days prior written notice to Yissum, provided that fees already shall not be refunded, and that any accrued fees and expenses due based on work duly performed until the date of termination – shall be paid to Yissum regardless of the termination. In addition, each of these researches may be terminated by either party due to a material breach committed by the other party which is not cured within 30 days of notice.
Pursuant to the framework agreement, the Company commenced two research programs, as more fully set out below.
In November 2021, the Company commenced a research program, pursuant to which Professor Yossi Tam would oversee Yissum’s research of MEAI on food intake, metabolic and activity profiles. The research period spans from November 1, 2021 until November 1, 2022. As consideration, the Company paid and amount of $131,625 to Yissum.
In January 2022, the Company commenced a second research program, pursuant to which Professor Amiram Goldblum, a researcher for the Hebrew-University, would oversee screening and scoring of a psychedelic compound. The research period spans from January 1, 2022 until August 31, 2022. As consideration, the Company paid an amount of NIS 17,500 (approximately $5,443) to Yissum on the signing of the statement of work.
F-35
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 14. | Commitments (continued) |
f. Research Agreements (continued)
Agreement with BIRAD
In November 2021, the Company entered into a research agreement with BIRAD, whose offices are located at Bar-Ilan University in Ramat Gan, Israel, pursuant to which Professor Gal Yadid would oversee BIRAD’s research into the safety, efficacy, and other characteristics of MEAI. The research period of the agreement spans from November 8, 2021, until May 8, 2023. As consideration, the Company has agreed to pay BIRAD a research fee of $493,167 to be paid in installments (50% of such research fee already having been paid) based on meeting certain milestone achievements. The intellectual property stemming from the results of the research will belong to the Company, except that in the event a patentable invention is conceived under the agreement, the Company and BIRAD will own it jointly, and the Company will has the option to negotiate an exclusive royalty-bearing license to BIRAD’s ownership rights in such jointly owned invention. This license with BIRAD would provide for the compensation terms of the Company subject under the license which includes the rate and terms of royalty payments.
To date, there has been one jointly owned provisional patent that has been conceived under the agreement with BIRAD, in connection with use of MEAI in methods for treating cocaine addiction. The Company has approached BIRAD to initiate the negotiations on the terms of the exclusive license agreement, the royalty rates, and the term of the obligation to pay royalty.
The Company has the right to terminate the foregoing research agreement at any time upon a 45 days prior written notice to BIRAD, provided that the Company pay for the tasks performed by BIRAD until the termination date and that any irrevocable payment commitment shall be paid for. In addition, the agreement can be terminated (i) by us if Prof. Gal Yadid ceases to supervise the research and BIRAD fails to identify a substitute acceptable to us; and (ii) bye either party in the event of a material breach committed by the other party and not cured within 30 days of notice. If the breach is a failure to pay the research fees to BIRAD then the Company will only has one opportunity to cure.
F-36
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 15. | Segmented Information |
As of October 31, 2022, the Company has one operating segment, research and development of psychedelic medicine, which takes place primarily in Israel. The Company’s head office is in Vancouver, BC, Canada.
The Company’s non-current assets by geographical location are as follows:
| October 31, 2022 | Canada | United States | Europe | Asia | Total | |||||||||||||||
| Intangible assets | $ | – | $ | 53,339 | $ | 53,339 | $ | 71,119 | $ | 177,797 | ||||||||||
| Property and equipment | – | – | – | 17,610 | 17,610 | |||||||||||||||
| Restricted cash | 20,000 | – | – | – | 20,000 | |||||||||||||||
| ROU asset | – | – | – | 48,768 | 48,768 | |||||||||||||||
| Deferred offering costs | – | 270,487 | – | – | 270,768 | |||||||||||||||
| $ | 20,000 | $ | 323,826 | $ | 53,339 | $ | 137,497 | $ | 534,662 | |||||||||||
| October 31, 2021 | Canada | United States | Europe | Asia | Total | |||||||||||||||
| Intangible assets | $ | – | $ | 59,412 | $ | 59,412 | $ | 79,215 | $ | 198,039 | ||||||||||
| Property and equipment | – | – | – | 20,578 | 20,578 | |||||||||||||||
| Restricted cash | 20,000 | – | – | – | 20,000 | |||||||||||||||
| $ | 20,000 | $ | 59,412 | $ | 59,412 | $ | 99,793 | $ | 238,617 | |||||||||||
| 16. | Income Taxes |
Tax rates applicable to the Company:
The combined Canadian federal and provincial statutory income tax rate is 27% for years ended October 31, 2022, 2021 and 2020 and the Israeli statutory corporate tax rate were 23% in 2022, 2021, and 2020.
The tax effect (computed by applying the Canadian federal and provincial statutory rate) of the significant temporary differences, which comprise deferred income tax assets and liabilities, are as follows:
| 2022 $ | 2021 $ | 2020 $ | ||||||||||
| Canadian statutory income tax rate | 27 | % | 27 | % | 27 | % | ||||||
| Income tax recovery at statutory rate | (2,540,729 | ) | (1,052,847 | ) | (111,485 | ) | ||||||
| Tax effect of: | ||||||||||||
| Permanent differences and other | 457,916 | (4,443 | ) | (14,070 | ) | |||||||
| Tax rate difference for foreign jurisdiction | 76,673 | 54,848 | – | |||||||||
| Change in unrecognized deferred income tax assets | 2,046,894 | 1,002,442 | 125,555 | |||||||||
| Income tax provision | 40,754 | – | – | |||||||||
F-37
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 16. | Income Taxes (continued) |
As of October 31, 2022, the Company has Canadian non-capital losses carried forward of $8,785,000, which is available to offset future years’ taxable income in Canada. These losses expire as follows:
| $ | ||||
| 2037 | 6,671 | |||
| 2038 | 104,767 | |||
| 2039 | 102,087 | |||
| 2040 | 243,880 | |||
| 2041 | 1,642,704 | |||
| 2042 | 6,684,510 | |||
| 8,784,619 | ||||
As of October 31, 2022, the Company has a non-capital loss carried forward of approximately $2,253,000 which is available to offset future years’ taxable income in Israel.
Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can utilize the benefits therefrom.
F-38
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 17. | General and Administrative Expenses |
| Year ended | Year ended | Year ended | ||||||||||
| October 31, | October 31, | October 31, | ||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Depreciation of ROU asset | $ | 82,801 | $ | – | $ | – | ||||||
| Consulting fees (Note 7) | 262,674 | 712,122 | 153,000 | |||||||||
| Depreciation of property and equipment | 10,335 | 2,572 | – | |||||||||
| Insurance | 204,103 | 140,716 | – | |||||||||
| Investor relations | 645,742 | 156,562 | – | |||||||||
| Office and miscellaneous | 92,835 | 51,961 | 13,778 | |||||||||
| Professional fees | 1,493,024 | 656,012 | 41,800 | |||||||||
| Salaries and benefits (Note 7) | 125,975 | 405,632 | – | |||||||||
| Share-based compensation (Notes 7, 10 and 11) | 1,291,638 | 846,155 | – | |||||||||
| Transfer agent and regulatory fees | 118,207 | 57,998 | 24,642 | |||||||||
| Total general and administrative | $ | 4,327,334 | $ | 3,029,730 | $ | 233,220 | ||||||
| 18. | Research and Development |
| Year ended | Year ended | Year ended | ||||||||||
| October 31, | October 31, | October 31, | ||||||||||
| 2022 | 2021 | 2020 | ||||||||||
| Research and preclinical studies | $ | 2,984,677 | $ | – | $ | – | ||||||
| Salaries, regulatory, professional and other expenses | 909,194 | 646,487 | – | |||||||||
| Amortization of intangible assets | 20,242 | – | – | |||||||||
| Share-based compensation (Notes 7, 10 and 11) | 291,132 | – | – | |||||||||
| Total research and development | $ | 4,205,245 | $ | 646,487 | $ | – | ||||||
F-39
CLEARMIND MEDICINE INC.
Notes to the Consolidated Financial Statements
(Expressed in Canadian Dollars)
| 19. | Subsequent Events |
| a. | On November 14, 2022, the Company completed an underwritten public offering of 1,153,847 shares at a price to the public of US$6.50 per share (CAD$8.65), for aggregate gross proceeds of US$7.5 million, prior to deducting underwriting discounts and offering expenses. |
In addition, the Company granted Aegis Capital Corp. (“Aegis”), who acted as the underwriters for the deal, a 45-day option to purchase up to 173,077 additional common shares, equal to 15% of the number of shares sold in the offering solely to cover over-allotments, if any (“Over-Allotment”). The public purchase price per additional common share would have been US$6.50 per share (CAD$8.65). The Over-Allotment was not exercised. The offering closed on November 17, 2022. Net proceeds received were $8,860,757.
Aegis received 57,692 underwriter warrants, each such warrant entitling the agents to receive one common share upon payment of US $8.125 per share, exercisable six (6) months after the commencement of sales of this offering and expiring on a date which is no more than five (5) years after the commencement of sales of the offering.
In connection with the offering, the Company’s common shares were approved for listing on the Nasdaq and began trading on the Nasdaq under the symbol “CMND” on November 15, 2022.
Following the public offering, Medigus are entitled to receive 44,829 shares and 2,241 warrants pursuant to the Medigus Amended Agreement (see note 8c). As of the date of this report, the shares and warrants have not yet been issued.
| b. | On November 1, 2022, the Company approved cash bonuses to certain officers and directors in the total amount of $300,700. |
F-40
Exhibit 99.2
CLEARMIND MEDICINE INC.
(Expressed in Canadian Dollars)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included elsewhere in this annual report. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties.
Overview
We are a pre-clinical pharmaceutical company approaching phase 1 clinical trials, that develops novel psychedelic medicines to solve widespread, yet under-served, health problems. Our goal is to develop and provide a new type of treatment for mental health disorders, including AUDs, binge drinking and eating disorders, where there is significant unmet need and lack of innovation. We see psychedelic therapies, which previously may have been overlooked or underused, as the future of treatment for a variety of indications. We believe that our solution for AUDs can help solve one of the world’s biggest health problems, which costs the United States alone $250 billion each year.
We have experienced net losses in every period since our inception in 2017. We incurred net losses of CAD$9,410,806, CAD$3,719,745 and CAD$412,909 for the years ended October 31, 2022, 2021 and 2020, respectively. As of October 31, 2022, we had an accumulated deficit of CAD$13,849,949. We anticipate that we will continue to incur significant losses for the foreseeable future as our operating expenses and capital expenditures increase substantially due to our continued investment in our research and development activities and as we hire additional employees over the coming years. Furthermore, we expect to incur additional expenses associated with operating as a U.S. public company, including significant legal, accounting, investor relations and other expenses.
Components of Operating Results
Research and Development Expenses
Research and development activities are our primary focus. We do not believe that it is possible at this time to accurately project total expenses required for us to reach the point at which we will be ready to out-license our technologies. Development timelines, the probability of success and development costs can differ materially from expectations. In addition, we cannot forecast whether and when collaboration arrangements will be entered into, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We expect our research and development expenses to increase over the next several years as our development program progresses. We would also expect to incur increased research and development expenses if we were to identify and develop additional technologies.
Research and development expenses include the following:
| ● | employee-related expenses, such as salaries and share-based compensation; |
| ● | expenses relating to outsourced and contracted services, such as consulting, research and advisory services; |
| ● | supply and development costs; |
| ● | expenses incurred in operating our small-scale equipment; and |
| ● | costs associated with regulatory compliance. |
We recognize research and development expenses as we incur them.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, including share-based compensation related to directors, employees and consultants, facility costs, patent application and maintenance expenses, and external professional service costs, including legal, accounting, audit, finance, business development, investor relations and human resource services, and other consulting fees.
We anticipate that our general and administrative expenses will increase in the future as we increase our administrative headcount and infrastructure to support our continued research and development programs and the potential commercialization of our products. We also anticipate that we will incur increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance premiums, director compensation, and other costs associated with being a public company.
Income Taxes
We have yet to generate taxable income in Canada. We anticipate that we will continue to generate tax losses for the foreseeable future and that we will be able to carry forward these tax losses indefinitely to future taxable years. Accordingly, we do not expect to pay taxes in Canada until we have taxable income after the full utilization of our carry forward tax losses.
Results of Operations
Our results of operations have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.
Year Ended October 31, 2022 Compared to Year Ended October 31, 2021
Research and development expenses
Research and development expenses for the year ended October 31, 2022, amounted to CAD$4,205,245, representing an increase of CAD$3,558,758, or 550%, compared to CAD$646,487 for the year ended October 31, 2021. The increase resulted mainly from increase in share-based compensation expense of CAD$291,132and an increase in pre-clinical studies expenses related to our new business of researching and developing designer therapeutics.
We have completed a series of pre-clinical, IND-enabling studies in the United States and China that are required before we can study our compound for the first time in humans. These studies include pharmacokinetic and toxicological studies in rats and dogs in order to assess the safety profile of our compound and characterization of the drug metabolism. We have conducted several metabolism studies designed to better understand the way MEAI is digested in several species. In addition, we have conducted a pre-clinical animal model of AUD to characterize the effect of MEAI on alcohol consumption. This study involved testing the effect of MEAI’s ability to curb alcohol cravings after exposing mice to prolonged alcohol consumption over a short period, mimicking binge alcohol consumption in humans.
We are working on our IND dossier with the intention to submit it and to initiate the Phase I/IIa clinical study in the first quarter of 2023.
Additionally, the Company entered into research agreements with scientists from several universities in Israel; three Agreements with Yissum Research Development Company of the Hebrew University of Jerusalem Ltd., or Yissum, with two out of them recently completed.
In addition, the Company recently completed a research program, with Professor Yossi Tam from the Hebrew University through Yissum for the research of MEAI on food intake, metabolic and activity profiles.
Also, a research agreement signed with BIRAD, Bar Ilan University Research and Development Company, in Ramat Gan, Israel, for the research of the safety, efficacy and other characteristics of MEAI as completed under the leadership of Professor Gal Yadid.
In addition, we have expended our IP portfolio that now includes seven utility patent families including patents and applications having method of use and composition of matter claims.
General and administrative expenses
General and administrative expenses for the year ended October 31, 2022, amount to CAD$4,327,334 representing an increase of CAD$1,297,604, or 43%, compared to CAD$3,029,730 for the year ended October 31, 2021. The increase resulted from increase in professional and consulting fees of CAD $387,564, increase in share-based compensation expense of CAD$445,483, increase in investor relations of CAD$489,180, and an increase in other general and administrative expenses of CAD$123,675 for the year ended October 31, 2022 as compared to the year ended October 31, 2021 related to hiring additional engaging consultants in connection with our new business of researching and developing designer therapeutics.
Net loss and comprehensive loss
Net loss for the year ended October 31, 2022, amounted to CAD$9,410,806 representing an increase of CAD$5,691,061, or 153%, compared to CAD$3,719,745 for the year ended October 31, 2021. The increase resulted mainly from increased research and development expenses and general and administrative expenses as discussed above.
B. Liquidity and Capital Resources
As of October 31, 2022, the Company had cash on hand of CAD$175,768 and negative working capital of CAD$2,044,234, compared to CAD$4,599,437 and positive working capital of CAD$4,563,211 as of October 31, 2021, respectively.
The Company may have capital requirements in excess of its currently available resources. In the event the Company’s plans change, its assumptions change or prove inaccurate, or its capital resources in addition to projected cash flow, if any, prove to be insufficient to fund operations, the Company may be required to seek additional financing. There can be no assurance that the Company will have sufficient financing to meet its future capital requirements or that additional financing will be available on terms acceptable to the Company in the future.
As of October 31, 2022, the Company had accounts payable and accrued liabilities of CAD$1,906,706. On November 14, the Company completed a public offering on NASDAQ and raised US$7.5 million (gross). These funds will be sued to fund the Company in the near term.
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We have financed our operations for the last year primarily from our issuance of Common Shares.
Since the Company announced its Change of Business on May 25, 2021, we raised an aggregate of CAD$17,402,977 net of issuance costs. As of October 31, 2022, we had CAD$175,768 in cash.
The table below shows a summary of our cashflows for the periods indicated:
| Year Ended October 31, | Year Ended October 31, | |||||||
| 2022 | 2021 | |||||||
| Canadian dollars, in thousands | CAD | |||||||
| Net cash used in operating activities | (5,084 | ) | (2,835 | ) | ||||
| Net cash used in investing activities | (7 | ) | (251 | ) | ||||
| Net cash provided by financing activities | 698 | 7,356 | ||||||
| Effect of foreign exchange on cash | (31 | ) | - | |||||
| Net increase (decrease) in cash | (4,424 | ) | 4,270 | |||||
Year Ended October 31, 2022 Compared to Year Ended October 31, 2021
Net cash provided by (used in) operating activities – continuing operations
Net cash used in operating activities for the year ended October 31, 2022, amounted to CAD$5,083,561 representing an increase of CAD$2,248,532, or 79%, compared to CAD$2,835,029 for the year ended October 31, 2021. This increase was mainly due to hiring additional employees and engaging consultants in connection with our new business of researching and developing designer therapeutics.
Net cash used in investing activities
Net cash used in investing activities for the year ended October 31, 2022, amounted to CAD$7,593 representing a decrease of CAD$243,596, or 97%, compared to CAD$251,189 for the year ended October 31, 2021. This decrease was mainly due to an assignment agreement whereby the Company acquired patents and patent applications to be used in pre-clinical drug research programs and due to a payment related to exploration and evaluation activity in 2021.
Net cash provided by financing activities
Net cash provided by financing activities for the year ended October 31, 2022, amounted to CAD$698,403 representing a decrease of CAD$6,657,411, or 91%, compared to CAD$7,355,814 for the year ended October 31, 2021. This decrease was due to increase in share capital issuance relating the Company’s change of business in 2021.
We have incurred losses and cash flow deficits from operations since inception, resulting in an accumulated deficit as of October 31, 2022 of CAD$13,849,949. We anticipate that we will continue to incur net losses for the foreseeable future. To meet future capital needs, we would need to raise additional capital through equity or debt financing or other strategic transactions. However, any such financing may not be on favorable terms or even available to us. Our failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on our business, results of operations and financial condition. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be significantly higher than we currently anticipate.
Our future capital requirements will depend on many factors, including, but not limited to:
| ● | the progress and costs of our research and development activities; |
| ● | the costs of development and expansion of our operational infrastructure; |
| ● | our ability, or that of our collaborators, to achieve development milestones and other events or developments under potential future licensing agreements; |
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| ● | the amount of revenues and contributions we receive under future licensing, collaboration, development and commercialization arrangements with respect to our technologies; |
| ● | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; |
| ● | the costs of contracting with third parties to provide sales and marketing capabilities for us or establishing such capabilities ourselves, once our technologies are developed and ready for commercialization; |
| ● | the costs of acquiring or undertaking development and commercialization efforts for any future products or technology; |
| ● | the magnitude of our general and administrative expenses; and |
| ● | any additional costs that we may incur under future in- and out-licensing arrangements relating to our technologies and futures products. |
Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through capital raising or by out-licensing and/or co-developing applications of one or more of our product candidates. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available on favorable terms, or at all, we may be required to delay, reduce the scope of or eliminate research or development efforts or plans for commercialization with respect to our technologies and make necessary change to our operations to reduce the level of our expenditures in line with available resources.
We are a development-stage technology company and it is not possible for us to predict with any degree of accuracy the outcome of our research and development efforts. As such, it is not possible for us to predict with any degree of accuracy any significant trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net loss, liquidity or capital resources, or that would cause financial information to not necessarily be indicative of future operating results or financial condition. However, to the extent possible, certain trends, uncertainties, demands, commitments and events are described herein.
C. Research and development, patents and licenses, etc.
For a description of our research and development programs and the amounts that we have incurred over the last two years pursuant to those programs, please see “Operating and Financial Review and Prospects— A. Operating Results—Research and Development Expenses” and “Operating and Financial Review and Prospects— A. Operating Results— Comparison of the year ended October 31, 2022 to the year ended October 31, 2021— Research and Development Expenses.”
The COVID-19 pandemic and its impacts continue to evolve. We cannot predict the duration and severity of any further disruptions as a result of COVID-19 or their impacts on us, but business disruptions for us or any of the third parties with whom we engage, including the manufacturers, suppliers, customers, regulators and other third parties with whom we conduct business could materially and negatively impact our ability to conduct our business in the manner and on the timelines presently planned. Further, we cannot predict impacts, trends and uncertainties involving the pandemic’s effects on economic activity, the size of our labor force, and the extent to which our income, profitability, liquidity, or capital resources may be materially and adversely affected. The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates and uncertainty about economic stability. We are unable to determine the extent of the impact of the pandemic on our clinical trials, operations and financial condition going forward. See also “Risk Factors– Risks Related to Our Business Operations.”
E. Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with IFRS. The preparation of these consolidated financial statements requires management to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that management believes are 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 and any such differences may be material.
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While our significant accounting policies are more fully described in Note 2 to the audited consolidated financial statements appearing elsewhere in this Annual Report on Form 20-F, management believes the following discussion addresses our most critical accounting policies, which are those that are most important to the financial condition and results of operations and require our most difficult, subjective and complex judgments.
Significant Estimates
Share-based Compensation
Fair values are determined using the Black-Scholes option pricing model.
Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. Option-pricing models require the use of highly subjective estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide reliable measurement of the fair value of the Company’s stock options.
We selected the Black-Scholes option-pricing model as a fair value method for our options awards. The option-pricing model requires a number of assumptions:
Expected dividend yield - The expected dividend yield assumption is based on our historical experience and expectation of no future dividend payouts. We have historically not paid cash dividends and have no foreseeable plans to pay cash dividends in the future.
Volatility - The expected volatility is based on fluctuations in the price of our Ordinary Share prices on the Nasdaq.
Risk free interest rate - The risk free interest rate is based on the U.S. Treasury yield curve, in accordance with the option’s contractual term.
Contractual term - An option’s contractual term must at least include the Vesting Period and the employees’ historical exercise and post-vesting employment termination behavior for similar grants. If the amount of past exercise data is limited, that data may not represent a sufficiently large sample on which to base a robust conclusion on expected exercise behavior.
Share price - The share price is determined according to the last known or above closing price of our Ordinary Shares at the grant date.
Significant Judgments
The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows:
Going Concern
The application of the going concern assumption which requires management to take into account all available information about the future, which is at least but not limited to, 12 months from the year end of the reporting period. The Company is aware that material uncertainties related to events or conditions may cast substantial doubt upon the Company’s ability to continue as a going concern.
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Recently Issued Accounting Pronouncements
| Accounting Standards Issued But Not Yet Effective |
| i. | In February 2021, the IASB issued amendments to IAS 8, in which it introduces a new definition of accounting estimates. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates. Effective for annual periods beginning on or after January 1, 2023. The Company is currently evaluating the potential effect of the adoption on the financial position and results of operations. |
| ii. | Classification of liabilities: |
The IASB issued a narrow-scope amendment to IAS 1, in January 2020, to clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. The amendment could affect the classification of liabilities, particularly for entities that previously considered management’s intentions to determine classification and for some liabilities that can be converted into equity. Inter alia, the amendment requires the following:
Liabilities are classified as non-current if the entity has a substantive right to defer settlement for at least 12 months at the end of the reporting period. The amendment no longer refers to unconditional rights. The assessment determines whether a right exists, but it does not consider whether the entity will exercise the right.
‘Settlement’ is defined as the extinguishment of a liability with cash, other economic resources or an entity’s own equity instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where the conversion option is classified as an equity instrument as a separate component of a compound financial instrument.
The Company early adopted the narrow-scope amendment to IAS 1 on January 1, 2019, with no effect to the Company’s financial statements.
Emerging Growth Company Status
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
| ● | a requirement to present only two years of audited financial statements in addition to any required interim financial statements and correspondingly reduced Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; |
| ● | to the extent that we no longer qualify as a foreign private issuer, (i) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (ii) exemptions from the requirement to hold a non-binding advisory vote on executive compensation, including golden parachute compensation; |
| ● | an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and |
| ● | an exemption from compliance with the requirement that the Public Company Accounting Oversight Board has adopted regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements. |
We may take advantage of these exemptions for up to five years or until such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; (iii) the date on which we are deemed to be a large accelerated filer under the rules of the SEC; or (iv) the last day of the fiscal year following the fifth anniversary of this offering. We may choose to take advantage of some but not all of these exemptions. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This means that an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. Given that we currently report and expect to continue to report our financial results under IFRS as issued by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures about Market Risk
Liquidity Risk
Liquidity risk is the risk that we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled in cash. Cash flow forecasting is performed in our operating entities and aggregated at a consolidated level. We monitor forecasts of our liquidity requirements to ensure we have sufficient cash to meet operational needs. We may be reliant on our ability to raise additional investment capital from the issuance of both debt and equity securities to fund our business operating plans and future obligations.
Credit risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. The carrying amount of financial assets represents the maximum credit exposure.
Credit risk is the risk of financial loss to us if a debtor or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from our receivables.
We restrict exposure to credit risk in the course of our operations by investing only in bank deposits.
Equity price risk
As we have not invested in securities riskier than short-term bank deposits, we do not believe that changes in equity prices pose a material risk to our holdings. However, decreases in the market price of our Common Shares could make it more difficult for us to raise additional funds in the future or require us to raise funds at terms unfavorable to us.
Inflation risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations in the reporting period. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through hedging transactions. Our inability or failure to do so could harm our business, financial condition and results of operations.
Foreign Currency Exchange Risk
Our results of operations and cash flow are subject to fluctuations due to changes mainly in NIS/CAD currency exchange rates. As of October 31, 2022, the majority of our liquid assets are held in CAD, and the majority of our expenses is denominated in U.S. dollars or ILS. Changes of both 5% and 10% in the CAD/NIS and CAD/USD exchange rate would decrease/increase our loss for 2022 by less than 6%, respectively. However, these historical figures may not be indicative of future exposure, as we expect that the percentage of our NIS denominated expenses will materially decrease in the near future, therefore reducing our exposure to exchange rate fluctuations.
We do not hedge our foreign currency exchange risk. In the future, we may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of our principal operating currencies. These measures, however, may not adequately protect us from the material adverse effects of such fluctuations.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements made and information contained herein is “forward-looking information” within the meaning of the Ontario Securities Act. These statements relate to future events or the Company’s future performance. All statements, other than statements of historical fact, may be forward-looking statements. Generally, these forward-looking statements can be identified by the use of forward looking terminology such as “anticipates”, “plans”, “budget”, “scheduled”, “continue”, “estimates”, “forecasts”, “expect”, “is expected”, “project”, “propose”, “potential”, “targeting”, “intends”, “believes” or variations of such words and phrases or statements that certain actions, events or results “may”, “could”, “would”, “might”, or “will be taken”, “occur” or “be achieved” or the negative connotation thereof. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this MD&A should not be unduly relied upon by readers, as actual results may vary. These statements speak only as of the date of this MD&A and are expressly qualified, in their entirety, by this cautionary statement.
The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth above. Although the Company has attempted to identify important factors that could cause results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Readers are cautioned that the foregoing lists of factors are not exhaustive. Forward looking statements are made as of the date hereof and accordingly are subject to change after such date. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. The Company does not undertake to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.
OTHER INFORMATION
Additional information related to the Company, is available for viewing on SEDAR at www.sedar.com.
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