Bright Minds Biosciences Inc 20-F for FY2023
Bright Minds Biosciences Inc. (DRUG)
About this 20-F
Bright Minds Biosciences Inc filed this 20-F on December 29, 2023, covering the fiscal year ended September 30, 2023 (FY2023).
Headline figures
Fiscal year ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- 7.37M CAD
- compared with a net loss of 14.96M CAD a year earlier
- Diluted EPS
- -1.98 CAD
- compared with -6.06 CAD a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
OR
For the fiscal year ended
OR
For the transition period from _______________ to _______________
OR
Date of event requiring this shell company report _______________
Commission file number
(Exact name of Registrant specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
British Columbia,
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of business of the period covered by the annual report.
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Emerging Growth Company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
Indicate by check market whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S. C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
|
U.S. GAAP ☐ |
|
Other ☐ |
|
|
by the International Accounting Standards Board ☒ |
|
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act):
Yes ☐ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Not applicable.
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
This Annual Report on Form 20-F contains statements that constitute "forward-looking statements". Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in a number of different places in this Annual Report and, in some cases, can be identified by words such as "anticipates", "estimates", "projects", "expects", "contemplates", "intends", "believes", "plans", "may", "will" or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this Annual Report may include, but are not limited to:
- the duration and effects of COVID-19 and any other pandemics on the Company's workforce, business, operations and financial condition;
- the Company's expectations regarding the achievement of clinical and regulatory milestones;
- the executive compensation of the Company;
- the composition of the board of directors (the "Board") and management of the Company;
- the Company's expectations regarding its revenue, expenses and research and development operations;
- the Company's anticipated cash needs and its needs for additional financing;
- the Company's intention to grow the business and its operations;
- expectations with respect to the success of its research and development of serotonergic therapeutics;
- expectations regarding growth rates, growth plans and strategies of the Company;
- expectations that provisional patent applications will be converted to regular patent applications or refiled as new provisional patent applications 12 months from their filing dates;
- expectations that international patent applications will enter the national phase;
- the Company's strategy with respect to the expansion and protection of its intellectual property;
- the medical benefits, safety, efficacy, dosing and consumer acceptance of serotonergic therapeutics;
- the Company's ability to comply with provincial, federal, local and regulatory agencies in the United States, Canada and other jurisdictions in which the Company operates;
- the Company's competitive position and the regulatory environment in which the Company operates;
- the Company's expected business objectives for the next 12 months;
- the Company's plans with respect to the payment of dividends;
- beliefs and intentions regarding the ownership of material trademarks and domain names used in connection with the design, production, marketing, distribution and sale of the Company's products and services;
- the Company's ability to obtain additional funds through the sale of equity or debt commitments;
- the Company's ability to obtain the necessary regulatory approvals;
- expectations that regulatory requirements will be maintained;
| - 2 - |
- expectations related to general business and economic conditions;
- the Company's ability to successfully execute its plans and intentions;
- the availability of financing on reasonable terms to the Company;
- the Company's ability to attract and retain skilled staff;
- expectations about market competition;
- expectations about the products, services and technology offered by the Company's competitors; and
- expectations that the Company's current good relationships with its suppliers, service providers and other third parties will be maintained.
Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Although, the Company believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect, and the Company cannot assure that actual results will be consistent with these forward-looking statements. Given these risks, uncertainties and assumptions, prospective investors should not place undue reliance on these forward-looking statements. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions and other factors, including those listed under Item 3.D "Risk Factors" which include:
- limited operating history;
- the Company's actual financial position and results of operations may differ materially from the expectations of the Company's management;
- the Company may be required to obtain and maintain certain permits, licenses, and approvals in the jurisdictions where its products or technologies are being researched, developed, or commercialized;
- the Company may encounter substantial delays or difficulties with its clinical trial;
- clinical trials are very expensive, time consuming and difficult to design and implement;
- the Company's current and future clinical trials or those of its current or future collaborators may reveal significant adverse events not seen in pre-clinical and non-clinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of the Company's product candidates.
- the Company has limited experience in completing clinical trials and has only completed one phase one drug trial to date;
- if the Company experience delays or difficulties in the enrolment of patients in clinical trials, receipt of regulatory approvals could be delayed or prevented;
- success in pre-clinical studies or clinical trials may not be predictive of results in future clinical trials;
- interim, "topline," and preliminary data from the Company's clinical trials that the Company announces or publishes from time to time may change as more patient data becomes available and are subject to audit and verification procedures that could result in material changes in the final data;
- the Company may not be successful in its efforts to identify, license or discover additional product candidates;
- risks associated with the development of the Company's products which are at early stages of development;
- there is no assurance that the Company will turn a profit or generate immediate revenues;
| - 3 - |
- the continued operation of the Company as a going concern;
- the Company's intellectual property and licenses thereto;
- the Company may not achieve the timelines for project development set out in this Annual Report;
- the Company faces product liability exposure;
- the Company has international operations, which subject the Company to risks inherent with operations outside of Canada;
- exchange rate fluctuations between the U.S. dollar and the Canadian dollar;
- changes to patent laws or the interpretation of patent laws;
- the risk of patent-related or other litigation;
- the Company may not be able to enforce its intellectual property rights throughout the world;
- the lack of product for commercialization;
- the lack of experience of the Company/management in marketing, selling, and distribution products;
- the size of the Company's target market is difficult to quantify;
- potentials for conflicts of interest for the Company's officers and directors;
- in certain circumstances, the Company's reputation could be damaged;
- negative operating cash flow;
- need for additional financing;
- uncertainty and discretion of use of proceeds;
- the potential for a material weakness in the Company's internal controls over financial reporting;
- difficulties with forecasts;
- market price of Common Shares and volatility; and
- dilution of Common Shares.
Although management has attempted to identify important factors that could cause actual 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 is no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. These cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to the Company or persons acting on the Company's behalf. The Company does not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements, except as, and to the extent required by, applicable securities laws. Readers should carefully review the cautionary statements and risk factors contained in this Annual Report and other documents that the Company may file from time to time with the securities regulators.
| - 4 - |
PART I
The following discussion and analysis, prepared for the year ended September 30, 2023, is a review of our operations, current financial position and outlook and should be read in conjunction with our annual consolidated financial statements for the year ended September 30, 2023 and the notes thereto. We present our financial statements in Canadian dollars. All references to "C$" are to Canadian dollars and references to "US$" are to United States dollars. On September 29, 2023, the daily average exchange rate for the conversion of Canadian dollars into U.S. dollars as reported by the Bank of Canada was C$1.00 = US$0.74.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the offer and use of proceeds
Not applicable.
D. Risk Factors
An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this Annual Report, including our historical and pro forma financial statements and the financial statements and related notes included elsewhere in this Annual Report, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our securities. Refer to "Forward-Looking Statements".
We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.
Risks Related to the Business of the Company
We have a limited operating history and have not yet generated any revenues.
We have a very limited history of operations and are considered a start-up company, which makes evaluating our business and future prospects difficult. As such, we are subject to many risks common to such enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. There is no assurance that we will be successful in achieving a return on shareholders' investment and the likelihood of our success must be considered in light of our early stage of operations.
| - 5 - |
Our actual financial position and results of operations may differ materially from the expectations of our management.
Our actual financial position and results of operations may differ materially from our management's expectations. We have experienced some changes in our operating plans and certain delays in our plans. As a result, our revenue, net income and cash flow may differ materially from our expected revenue, net income and cash flow. The process for estimating our revenue, net income and cash flow requires the use of judgment in determining the appropriate assumptions and estimates. These estimates and assumptions may be revised as additional information becomes available and as additional analyses are performed. In addition, the assumptions used in planning may not prove to be accurate, and other factors may materially affect our financial condition or results of operations.
We may be required and have not yet obtained regulatory approvals, licenses, and permits in the jurisdictions where our products or technologies are being researched, developed or commercialized, which failure to obtain such regulatory approvals, licenses and permits will likely have a material adverse effect on our business, financial condition and results of operations.
We, or our service providers, may be required to obtain and maintain certain permits, licenses, and approvals in the jurisdictions where our products or technologies are being researched, developed, or commercialized. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any future product candidates will ever obtain regulatory approval. There can be no assurance that we will be able to obtain or maintain any necessary licenses, permits, or approvals. Any material delay or inability to receive these items is likely to delay and/or inhibit our ability to conduct our business, and would have an adverse effect on its business, financial condition, and results of operations. In particular, we will require approval from the FDA (as defined herein) and equivalent organizations in other countries before any of our products can be marketed. There is no assurance that such approvals will be forthcoming. Furthermore, the exact nature of the studies these regulatory agencies will require is not known and can be changed at any time by the regulatory agencies, increasing the financing risk and potentially increasing the time to market we face, which could adversely affect our business, financial condition or results of operations.
We may encounter substantial delays or difficulties with our clinical trials, which could have a material adverse effect on our financial condition and results of operations.
We may not commercialize, market, promote or sell any product candidate without obtaining marketing approval from the FDA (as defined herein) or comparable foreign regulatory authorities, and we may never receive such approvals. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans and will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of its product candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.
We may experience numerous unforeseen events prior to, during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize current and any future product candidates, including:
- delays in reaching a consensus with regulatory authorities on design or implementation of clinical trials;
- regulators or institutional review boards, or IRBs (as defined herein), may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
- delays in reaching agreement on acceptable terms with prospective clinical research organizations and clinical trial sites;
- clinical trials of our product candidates may produce negative or inconclusive results;
- imposition of a clinical hold by regulatory authorities as a result of a serious adverse event, concerns with a class of product candidates or after an inspection of our clinical trial operations, trial sites or manufacturing facilities;
- occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
- changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; or
- we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs.
| - 6 - |
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional testing to bridge our modified product candidate to earlier versions. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates, if approved, or allow competitors to bring competing drugs to market before us, which could impair our ability to successfully commercialize our product candidates and may harm our business, financial condition, results of operations and prospects.
Additionally, if the results of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with product candidates, we may:
- be delayed in obtaining marketing approval, if at all;
- obtain approval for indications or patient populations that are not as broad as intended or desired;
- obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;
- be subject to additional post-marketing testing requirements;
- be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;
- be subject to the addition of labeling statements, such as warnings or contraindications;
- be sued; or
- experience damage to its reputation.
Our product development costs will also increase if we experience delays in testing or obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, need to be restructured or be completed on schedule, if at all.
Further, we, the FDA or an IRB may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements, such as the FDA's current GCP (as defined herein), that we are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our INDs (as defined herein), or in the conduct of these trials. Therefore, we cannot predict with any certainty the schedule for commencement and completion of future clinical trials. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of our product candidates could be negatively impacted, and our ability to generate revenues from our product candidates may be delayed.
Clinical trials are expensive, time consuming and difficult to design and implement, which could have a material adverse effect on our business, financial condition or results of operations.
Our product candidates will require clinical testing before we can submit an NDA (as defined herein) for regulatory approval. We cannot predict with any certainty if or when we might submit an NDA for regulatory approval for any of our product candidates or whether any such NDA will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with our proposed endpoints for any future clinical trial of our product candidates, which may delay the commencement of our clinical trials. The clinical trial process is also time consuming. Furthermore, failure can occur at any stage, and we could encounter problems that cause us to abandon or repeat clinical trials, which could have a material adverse effect on our business, financial condition or results of operations.
| - 7 - |
Our current and future clinical trials or those of our current or future collaborators may reveal significant adverse events not seen in our pre-clinical and non-clinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.
Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through lengthy, complex and expensive pre-clinical studies and clinical trials that our product candidates are both safe and effective for use in each target indication. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. There is typically an extremely high rate of attrition for product candidates proceeding through clinical trials. Product candidates in later stages of clinical trials also may fail to show the desired safety and efficacy profile despite having progressed through non-clinical studies and initial clinical trials. If the results of our ongoing or future pre-clinical studies and clinical trials are inconclusive with respect to the safety and efficacy of our product candidates, if we do not meet the clinical endpoints with statistical and clinically meaningful significance, or if there are safety concerns associated with our product candidates, we may be prevented from or delayed in obtaining marketing approval for such product candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the clinical trial protocols and the rate of dropout among clinical trial participants. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects. Further, our product candidates could cause undesirable side effects in clinical trials related to on-target toxicity. If on-target toxicity is observed, or if our product candidates have characteristics that are unexpected, we may need to abandon their development or limit development to narrower uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Most product candidates that commence clinical trials are never approved as products and there can be no assurance that any of our current or future clinical trials will ultimately demonstrate positive results or support further clinical development of any of our product candidates.
If significant adverse events or other side effects are observed in any of our current or future clinical trials, we may have difficulty recruiting patients to our clinical trials, patients may drop out of our trials or we may be required to abandon the trials or our development efforts of one or more product candidates altogether. We, the FDA or other applicable regulatory authorities may suspend or terminate clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to unacceptable health risks or adverse side effects. Even if the side effects do not preclude the product from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Any of these developments could materially harm our business, financial condition, results of operations and prospects.
We have limited experience in completing clinical trials and have only completed on phase one drug trial to date.
In July 2023, we completed its first Phase 1 clinical trial for its lead compound, BMB-101. However, we have not yet demonstrated an ability to obtain regulatory approval, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialisation of a product candidate. We may not be able to file an IND for BMB-101 or any of our other product candidates on the timelines we expect, if at all. For example, we may experience manufacturing delays with IND-enabling studies. Moreover, we cannot be sure that submission of an IND will result in the FDA allowing further clinical trials to begin, or that, once begun, issues will not arise that require us to suspend or terminate clinical trials. Commencing each of these clinical trials is subject to finalizing the trial design based on discussions with the FDA and other regulatory authorities. Any guidance we receive from regulatory authorities is subject to change. For example, a regulatory authority could change its position, including on the acceptability of our trial designs or the clinical endpoints selected, which may require us to complete additional clinical trials or impose stricter approval conditions than we currently expect.
If we are required to conduct additional pre-clinical studies or clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
- be delayed in obtaining marketing approval for our product candidates;
- not obtain marketing approval at all;
- obtain approval for indications or patient populations that are not as broad as intended or desired;
| - 8 - |
- be subject to post-marketing testing requirements; or
- have the product removed from the market after obtaining marketing approval.
If we experience delays or difficulties in the enrolment of patients in clinical trials, our receipt of regulatory approvals could be delayed or prevented
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enrol a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In particular, because we are deploying our drug discovery platform across a broad target space, our ability to enrol eligible patients may be limited or may result in slower enrolment than we anticipate. For example, because some of our product candidates target rare diseases, we may have difficulty enrolling a sufficient number of eligible patients or enrolment may be slower than we anticipate. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enrol in clinical trials of our competitors' product candidates. We may not be able to identify, recruit and enrol a sufficient number of patients to complete our clinical studies for a number of reasons, including:
- the severity of the disease under investigation;
- the eligibility criteria and overall design of the clinical trial in question;
- the perceived risks and benefits of the product candidate under study;
- clinicians' and patients' perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved for the indications we are investigating;
- the ability to obtain and maintain patient consents;
- the efforts to facilitate timely enrolment in clinical trials;
- the patient referral practices of physicians;
- the size and nature of the patient population required for analysis of the trial's primary endpoints;
- the ability to monitor patients adequately during and after treatment;
- the proximity and availability of clinical trial sites for prospective patients;
- the risk that patients enrolled in clinical trials will drop out of the clinical trials before completion of their treatment; and
- factors we may not be able to control, such as the ongoing COVID-19 pandemic or potential future pandemics that may limit patients, principal investigators, staff or clinical site availability.
Success in pre-clinical studies or clinical trials may not be predictive of results in future clinical trials.
Positive results from early pre-clinical studies and clinical trials of our product candidates are not necessarily predictive of the results of later pre-clinical studies and any future clinical trials of our product candidates. Even if we are able to complete our planned pre-clinical studies and clinical trials of our product candidates according to our current development timeline, the results from such pre-clinical studies and clinical trials of our product candidates may not be replicated in subsequent pre-clinical studies or clinical trial results. If we cannot replicate such positive results in our later pre-clinical studies and future clinical trials, we may be unable to successfully develop, obtain regulatory approval for and commercialise our product candidates.
Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, pre-clinical and other non-clinical findings made while clinical trials were underway, or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, pre-clinical, non-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials nonetheless failed to obtain FDA approval.
| - 9 - |
Additionally, future clinical trials that we may plan might utilise an "open-label" trial design. An "open-label" clinical trial is one where both the patient and investigator know whether the patient is receiving the investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a "patient bias" where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. In addition, open-label clinical trials may be subject to an "investigator bias" where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favourably given this knowledge. The results from an open-label trial may not be predictive of future clinical trial results with any of our product candidates for which we include an open-label clinical trial when studied in a controlled environment with a placebo or active control.
Interim, "topline," and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data becomes available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary or topline data from our clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline or preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, we may also disclose interim data from our clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrolment continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could significantly harm our business prospects.
If the interim, topline, or preliminary data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialise, our product candidates may be harmed, which could harm our business, financial condition, results of operations and prospects. In addition, the information we choose to publicly disclose regarding a particular clinical trial is based on what is typically extensive information, and investors may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
We may not be successful in our efforts to identify, license or discover additional product candidates, which may have a material adverse effect on our business and could potentially cause us to cease operations.
Although a substantial amount of our effort will focus on the continued research and pre-clinical testing, potential approval and commercialization of our existing product candidates, the success of our business also depends in part upon our ability to identify, license or discover additional product candidates. Our research programs or licensing efforts may fail to yield additional product candidates for clinical development for a number of reasons, including but not limited to the following:
- our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;
- we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
- our product candidates may not succeed in pre-clinical or clinical testing;
| - 10 - |
- our product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;
- competitors may develop alternatives that render our product candidates obsolete or less attractive;
- product candidates we develop may be covered by third parties' patents or other exclusive rights;
- the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;
- a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
- a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.
If any of these events occurs, we may be forced to abandon our development efforts to identify, license or discover additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
There is no assurance that we will turn a profit or generate immediate revenues.
There is no assurance as to whether we will be profitable, earn revenues, or pay dividends. We have incurred and anticipate that we will continue to incur substantial expenses relating to the development and initial operations of our business. The payment and amount of any future dividends will depend upon, among other things, our results of operations, cash flow, financial condition, and operating and capital requirements. There is no assurance that we pay any future dividends, if at all, and, if dividends are paid, there is no assurance with respect to the amount of any such dividends.
We have a going concern risk, which if we are unable to generative positive cash flows and/or obtain additional financing sufficient to fund continued activities and acquisitions, may materially adversely affect our financial condition and results of operations as well as our ability to continue operations.
Our continued operation as a going concern is dependent upon our ability to generate positive cash flows and/or obtain additional financing sufficient to fund continuing activities and acquisitions. While we continue to review our operations in order to identify strategies and tactics to increase revenue streams and financing opportunities, there is no assurance that we will be successful in such efforts; if we are not successful, we may be required to significantly reduce or limit operations, or no longer operate as a going concern. It is also possible that operating expenses could increase in order to grow the business. If we do not start generating and significantly increase revenues to meet these increased operating expenses and/or obtain financing until our revenues meet these operating expenses, our business, financial condition and operating results could be materially adversely affected. We cannot be sure when or if we will ever achieve profitability and, if we do, we may not be able to sustain or increase that profitability.
We may not be able to adequately protect and maintain our intellectual property and licenses, which could result in a material adverse effect to our business, financial condition and results of operations.
Our success will depend in part on our ability to protect and maintain our intellectual property rights and our licenses. No assurance can be given that the license or rights used by us will not be challenged, invalidated, infringed or circumvented, nor that the rights granted thereunder will provide competitive advantages to us. It is not clear whether the pending patent applications will result in the issuance of patents. There is no assurance that we will be able to enter into licensing arrangements, develop or obtain alternative technology in respect of patents issued to third parties that incidentally cover its production processes. Moreover, we could potentially incur substantial legal costs in defending legal actions which allege patent infringement or by instituting patent infringement suits against others. Our commercial success also depends on us not infringing patents or proprietary rights of others and not breaching any license granted to us. There can be no assurance that we will be able to maintain such licenses that we may require to conduct our business or that such licenses have been obtained at a reasonable cost. Furthermore, there can be no assurance that we will be able to remain in compliance with our licenses. Consequently, there may be a risk that such licenses may be withdrawn with no compensation or penalties to us.
| - 11 - |
Our inability to achieve timelines for publicly disclosed projects may result in material adverse effects on our business, financial condition and results of operations.
Our business is dependent on a number of key inputs and their related costs including raw materials and supplies related to our operations, as well as electricity, water and other utilities. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition operating results, and timelines for our project development. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition, operating results, and timelines for our project development.
We may need additional capital for future operations and if we are not able to secure any required capital, we may be forced to curtail or discontinue our operations.
It is possible that costs associated with the operating our business will exceed our projections depending on the timing of future operating and capital expenses. Assuming our existing funds sustain our operations for next 12 months, we believe that we may thereafter require additional capital for additional product development, sales and marketing operations, other operating expenses and for general corporate purposes to fund growth in our Company's markets. We do not know how much additional funding we may require. We may therefore be required to seek other sources of financing in the future, which sources (assuming we are able to locate such alternative sources of financing) may be on terms less favorable to us than those of our previous securities offerings. Any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants. If additional funds are raised through the issuance of equity securities, the percentage ownership of our shareholders will be reduced, shareholders may experience additional dilution in net book value per share, or such equity securities may have rights, preferences or privileges senior to those of the holders of the Common Shares. If adequate funds are not available on acceptable terms, we may be unable to develop or enhance our products and services, take advantage of future opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and operating results, or we may be forced to curtail or cease our operations.
We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.
The risk of product liability is inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Product candidates and products that we may commercially market in the future may cause, or may appear to have caused, injury or dangerous drug reactions, and expose us to product liability claims. These claims might be made by patients who use the product, healthcare providers, pharmaceutical companies, corporate collaborators or others selling such products. If our product candidates during clinical trials were to cause adverse side effects, we may be exposed to substantial liabilities. Regardless of the merits or eventual outcome, product liability claims or other claims related to our product candidates may result in:
- decreased demand for our products due to negative public perception;
- injury to our reputation;
- withdrawal of clinical trial participants or difficulties in recruiting new trial participants;
- initiation of investigations by regulators;
- costs to defend or settle related litigation;
- a diversion of management's time and resources;
- substantial monetary awards to trial participants or patients;
- product recalls, withdrawals or labeling, marketing or promotional restrictions;
- loss of revenues from product sales; and
- the inability to commercialize any of product candidates, if approved.
| - 12 - |
The Company intends to obtain clinical trial insurance for its clinical trials. However, the insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Insurance coverage is becoming increasingly expensive, and, in the future, we, or any of our collaborators, may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or at all to protect against losses due to liability. Even if our agreements with any future collaborators entitle us to indemnification against product liability losses, such indemnification may not be available or adequate should any claim arise. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against product liability claims could prevent or inhibit the commercialization of our product candidates. If a successful product liability claim or a series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.
Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations.
Health and safety issues related to our products may have a material adverse effect on our business and results of operations.
Health and safety issues related to our products may arise that could lead to litigation or other action against us or to regulation of certain of our product components. We may be required to modify our products and may also be required to pay damages that may reduce our profitability and adversely affect our financial condition. Even if these concerns prove to be baseless, the resulting negative publicity could affect our ability to market certain of our products and, in turn, could harm our business and results from operations.
We have international operations, which subjects us to risks inherent with operations outside of Canada.
We have international operations and may seek to obtain market approvals in foreign markets that we deem could generate significant opportunities. However, even with the cooperation of a commercialization partner, conducting drug development in foreign countries involves inherent risks, including, but not limited to: difficulties in staffing, funding and managing foreign operations; different and unexpected changes in regulatory requirements; export restrictions; tariffs and other trade barriers; different reimbursement systems; economic weaknesses or political instability in particular foreign economies and markets; compliance with tax, employment, immigration and labour laws for employees living or travelling abroad; supply chain and raw materials management; difficulties in protecting, acquiring, enforcing and litigating intellectual property rights; fluctuations in currency exchange rates; and potentially adverse tax consequences.
If we were to experience any of the difficulties listed above, or any other difficulties, our international development activities and our overall financial condition may suffer and cause it to reduce or discontinue our international development and market approval efforts.
Exchange rate fluctuations between the U.S. dollar and the Canadian dollar may negatively affect our earnings and cash flows.
Our functional currency is the Canadian dollar. We may incur expenses in Canadian dollars and U.S. dollars. As a result, we are exposed to the risks that the Canadian dollar may devalue relative to the U.S. dollar, or, if the Canadian dollar appreciates relative to the U.S. dollar, that the inflation rate in Canada may exceed such rate of devaluation of the Canadian dollar, or that the timing of such devaluation may lag behind inflation in Canada. We cannot predict any future trends in the rate of inflation in Canada or the rate of devaluation, if any, of the Canadian dollar against the U.S. dollar.
If patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize our discoveries.
Important legal issues remain to be resolved as to the extent and scope of available patent protection for biopharmaceutical products and processes in Canada and other important markets outside Canada, such as Europe or the United States. As such, litigation or administrative proceedings may be necessary to determine the validity, scope and ownership of certain of ours and others' proprietary rights. Any such litigation or proceeding may result in a significant commitment of resources in the future and could force us to do one or more of the following: cease selling or using any of our future products that incorporate a challenged intellectual property, which would adversely affect our revenue; obtain a license or other rights from the holder of the intellectual property right alleged to have been infringed or otherwise violated, which license may not be available on reasonable terms, if at all; and redesign our future products to avoid infringing or violating the intellectual property rights of third parties, which may be time-consuming or impossible to do. In addition, changes in patent laws in Canada and other countries may result in allowing others to use our discoveries or develop and commercialize our products. We cannot provide assurance that the patents we obtain will afford us significant commercial protection.
| - 13 - |
We may not be able to enforce our intellectual property rights throughout the world. This risk is exacerbated because we expect that one or more of our product candidates will be manufactured and used in a number of foreign countries.
The laws of foreign countries may not protect intellectual property rights to the same extent as the laws of Canada. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This risk is exacerbated for us because we expect that future product candidates could be manufactured, and used in a number of foreign countries.
The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult to stop the infringement or other misappropriation of our intellectual property rights. For example, several foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents and trade secrets may provide limited or no benefit.
Most jurisdictions in which we intend to apply for patents have patent protection laws similar to those of Canada, but some of them do not. For example, we may do business in the future in countries that may not provide the same or similar protection as that provided in Canada. Additionally, due to uncertainty in patent protection law, we have not filed applications in many countries where significant markets exist.
Proceedings to enforce patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, efforts to protect intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in Canada, the U.S., and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.
The lack of product for commercialization would have a material adverse effect on our business, financial condition and results of operations.
We cannot successfully develop, manufacture and distribute our products, or if we experience difficulties in the development process, such as capacity constraints, quality control problems or other disruptions, we may not be able to develop market-ready commercial products at acceptable costs, which would adversely affect our ability to effectively enter the market. A failure by us to achieve a low-cost structure through economies of scale or improvements in cultivation and manufacturing processes would have a material adverse effect on our commercialization plans and our business, prospects, results of operations and financial condition.
Failure to develop new and innovative products may have a material adverse effect on our business.
Our success will depend, in part, on our ability to develop, introduce and market new and innovative products. If there is a shift in consumer demand, we must meet such demand through new and innovative products or else our business will fail. Our ability to develop, market and produce new products is subject to us having substantial capital. There is no assurance that we will be able to develop new and innovative products or have the capital necessary to develop such products.
The lack of experience of our management in marketing, selling, and distributing products may have a material adverse effect on our business and financial condition.
Our management's lack of experience in marketing, selling, and distributing our products could lead to poor decision-making, which could result in cost-overruns and/or the inability to produce the desired products. Although our management intends to hire experienced and qualified staff, this inexperience could also result in our inability to consummate revenue contracts or any contracts at all. Any combination of the aforementioned may result in the failure of our business and a loss of investment.
The size of our target market is difficult to quantify, and investors will be reliant on their own estimates on the accuracy of market data.
Because the industry in which we operate is in a nascent stage with uncertain boundaries, there is a lack of information about comparable companies available for potential investors to review in deciding whether to invest in us and, few, if any, established companies whose business model we can follow or upon whose success we can build. Accordingly, investors will have to rely on their own estimates in deciding about whether to invest in us. There can be no assurance that our estimates are accurate or that the market size is sufficiently large for our business to grow as projected, which may negatively impact our financial results.
| - 14 - |
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under the laws of the Province of British Columbia, a substantial portion of our assets are in Canada and some of our executive officers and directors reside outside the United States
We are organized pursuant to the laws of the Province of British Columbia under the Business Corporations Act (British Columbia) (the "BCBCA"). The majority of our directors and officers and our auditor reside outside of the United States. In addition, a substantial portion of their assets and our assets are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside of the United States, judgments you may obtain in U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Furthermore, there is substantial doubt as to the enforceability in Canada against us or against any of our directors, officers and the expert named in this Annual Report who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities based solely upon the civil liability provisions of the U.S. federal securities laws. In addition, shareholders in British Columbia companies may not have standing to initiate a shareholder derivative action in U.S. federal courts. As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
We continue to sell shares for cash to fund operations, capital expansion, mergers and acquisitions that will dilute our current shareholders.
There is no guarantee that we will be able to achieve our business objectives. Our continued development will require additional financing. The failure to raise such capital could result in the delay or indefinite postponement of current business objectives or us going out of business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to us.
If additional funds are raised through issuances of equity or convertible debt securities, existing shareholders could suffer significant dilution. Our articles permit the issuance of an unlimited number of Common Shares, and shareholders will have no pre-emptive rights in connection with such further issuance. Our directors have discretion to determine the price and the terms of issue of further issuances. In addition, from time to time, we may enter into transactions to acquire assets or the shares of other companies. These transactions may be financed wholly or partially with debt, which may temporarily increase our debt levels above industry standards. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may require additional financing to fund our operations to the point where it is generating positive cash flows. Negative cash flow may restrict our ability to pursue our business objectives.
If you purchase our Common Shares in an offering, you will experience substantial and immediate dilution, because the price that you pay may be substantially greater than the net tangible book value per share of our Common Shares that you acquire. This dilution is due in large part to the fact that our earlier investors will most likely have paid substantially less than the offering price which you may pay if you purchase our Common Shares.
Our officers and directors may be engaged in a range of business activities resulting in conflicts of interest, which may have a material adverse effect on our operations.
We may be subject to various potential conflicts of interest because some of our officers and directors may be engaged in a range of business activities. In addition, our executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to us. In some cases, our executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to our business and affairs and that could adversely affect our operations. These business interests could require significant time and attention of our executive officers and directors.
In addition, we may become involved in other transactions which conflict with the interests of our directors and officers who may from time to time deal with persons, firms, institutions or companies with which we may be dealing, or which may be seeking investments similar to those desired by us. The interests of these persons could conflict with ours. In addition, from time to time, these persons may be competing with us for available investment opportunities. Conflicts of interest, if any, will be subject to the procedures and remedies provided under applicable laws. In particular, if such a conflict of interest arises at a meeting of our directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, our directors are required to act honestly, in good faith and in our best interests.
| - 15 - |
In certain circumstances, our reputation could be damaged, which may have a material adverse effect on our financial performance, financial condition, cash flows and growth prospects.
Damage to our reputation can be the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views regarding us and our activities, whether true or not. Although we believe that we operate in a manner that is respectful to all stakeholders and that we take care in protecting our image and reputation, we do not ultimately have direct control over how we are perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance our projects, thereby having a material adverse impact on financial performance, financial condition, cash flows and growth prospects.
We have negative operating cash flow.
Our business has incurred losses since its inception. Although we expect to become profitable, there is no guarantee that will happen, and we may never become profitable. We currently have a negative operating cash flow and may continue to have a negative operating cash flow for the foreseeable future. To date, we have not generated any revenues and a large portion of our expenses are fixed, including expenses related to facilities, equipment, contractual commitments and personnel. As a result, we expect our net losses from operations to improve. Our ability to generate additional revenues and potential to become profitable will depend largely on our ability to manufacture and market our products and services. There can be no assurance that any such events will occur or that the Company will ever become profitable. Even if we do achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time, we may be unable to continue our business.
Our forward-looking statements may prove to be inaccurate.
Investors should not place undue reliance on forward-looking statements. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, of both general and specific nature, that could cause actual results to differ materially from those suggested by the forward-looking statements or contribute to the possibility that predictions, forecasts or projections will prove to be materially inaccurate. Additional information on the risks, assumptions and uncertainties can be found in this Annual Report under the heading "Forward-Looking Statements".
If we have a material weakness in our internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of its securities.
One or more material weaknesses in our internal controls over financial reporting could occur or be identified in the future. In addition, because of inherent limitations, our internal controls over financial reporting may not prevent or detect misstatements, and any projections of any evaluation of effectiveness of internal controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure or difficulty in implementing required new or improved controls, our business and results of operations could be harmed, we may not be able to provide reasonable assurance as to our financial results or meet our reporting obligations and there could be a material adverse effect on the price of our securities.
Difficulties with forecasts.
We must rely largely on our own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the biotechnology industry dedicated to the discovery of serotonergic therapeutics. A failure in the demand for its products and services to materialize as a result of competition, technological change or other factors could have a material adverse effect on our business, results of operations and financial condition.
| - 16 - |
COVID-19 may materially and adversely affect our business and financial results.
Our business could be materially and adversely affected by health epidemics in regions where we conduct research and development activities.
In December 2019, a novel strain of COVID-19 was reported in China. Since then, COVID-19 has spread globally. On March 11, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 as a "pandemic", or a worldwide spread of a new disease. Many countries around the world, including Canada, the United States and most countries in Europe, have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus, and have closed non-essential businesses.
The COVID-19 pandemic and any other health epidemics have the potential to cause significant disruption in the operations of the laboratories upon whom we rely, including laboratories situated in various parts of the United States and Europe. We are reliant on the continued operations of such laboratories. The regulations imposed by governments in response to the COVID-19 pandemic may cause laboratories to operate at limited occupancy rates, which may slow the rate at which research and development activities can be conducted. We may not have control over the protocols adopted in response to the COVID-19 pandemic by such laboratories in response to the regulations imposed by the governments in the regions in which they operate. The effects of such protocols and/or regulations may negatively impact productivity, disrupt our business and delay our research and development timelines, as well as potentially impact our financial condition and result of operations. The magnitude of these potential effects is uncertain and will depend, in part, on the length and severity of the COVID-19 pandemic and the restrictions imposed by governments in response.
To the knowledge of our management as of the date hereof, COVID-19 does not present, at this time, any specific known impacts to us in relation to our timelines, business objectives or disclosed milestones related thereto. We rely on third parties to process and manufacture our products.
Risks Related to Our Common Shares
Our executive officers and directors beneficially own approximately 31.51% of our Common Shares.
As of December 22, 2023, our executive officers and directors beneficially own, in the aggregate, approximately 31.51% of our Common Shares, which includes shares that our executive officers and directors have the right to acquire pursuant to warrants and stock options which have vested. As a result, they are able to exercise a significant level of control over all matters requiring shareholder approval, including the election of directors, amendments to our Articles and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our Company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these shareholders.
The continued sale of our equity securities will dilute the ownership percentage of our existing shareholders and may decrease the market price for our Common Shares.
Our Notice of Articles authorizes the issuance of an unlimited number of Common Shares. Our Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future. The issuance of any such Common Shares may result in a reduction of the book value or market price of our outstanding Common Shares. Given our lack of revenues, we will likely have to issue additional equity securities to obtain working capital we require in the future. Our efforts to fund our intended business plans will therefore result in dilution to our existing shareholders. If we do issue any such additional Common Shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. As a result of such dilution, if you acquire Common Shares your proportionate ownership interest and voting power could be decreased. Furthermore, any such issuances could result in a change of control or a reduction in the market price for our Common Shares.
Additionally, we had 228,161 stock options, 192,000 RSUs and 1,709,285 warrants outstanding as of December 22, 2023. The exercise price of some of these options and warrants is below our current market price, and you could purchase shares in the market at a price in excess of the exercise price of our outstanding warrants or options. If the holders of these options and warrants elect to exercise them, your ownership position will be diluted and the per share value of the Common Shares you have or acquire could be diluted as well. As a result, the market value of our Common Shares could significantly decrease as well.
| - 17 - |
The market price of our Common Shares may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
Securities of companies with a small market capitalization have experienced substantial volatility in the past, often based on factors unrelated to the companies' financial performance or prospects. These factors include macroeconomic developments in North America and globally, as well as market perceptions of the attractiveness of particular industries. Factors unrelated to the Company's performance that may affect the price of the Common Shares include the following: the extent of analytical coverage available to investors concerning our business may be limited if investment banks with research capabilities do not follow us; lessening in trading volume and general market interest in the Common Shares may affect an investor's ability to trade significant numbers of Common Shares; the size of our public float may limit the ability of some institutions to invest in Common Shares; and a substantial decline in the price of the Common Shares that persists for a significant period of time could cause the Common Shares, if listed on an exchange, to be delisted from such exchange, further reducing market liquidity. As a result of any of these factors, the market price of the Common Shares at any given point in time may not accurately reflect our long-term value. Securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management's attention and resources.
The market price of the Common Shares is affected by many other variables which are not directly related to our success and are, therefore, not within our control. These include other developments that affect the breadth of the public market for the Common Shares, the release or expiration of lock-up or other transfer restrictions on the Common Shares, and the attractiveness of alternative investments. The effect of these and other factors on the market price of the Common Shares is expected to make the Common Share price volatile in the future, which may result in losses to investors.
Our stock price is expected to be volatile and will be drastically affected by governmental and regulatory regimes and other factors outside of our control. We cannot fully predict the results of our operations expected to take place in the future. The results of these activities will inevitably affect our decisions related to future operations and will likely trigger major changes in the trading price of the Company shares.
We do not intend to pay dividends and there will thus be fewer ways in which you are able to make a gain on your investment.
We have never paid any cash or stock dividends and we do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding in the future, our funding sources may prohibit the payment of any dividends. Because we do not intend to declare dividends, any gain on your investment will need to result from an appreciation in the price of our Common Shares. There will therefore be fewer ways in which you are able to make a gain on your investment.
FINRA sales practice requirements may limit your ability to buy and sell our Common Shares, which could depress the price of our shares.
Financial Industry Regulation Authority ("FINRA") rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our Common Shares, which may limit your ability to buy and sell our Common Shares, have an adverse effect on the market for our Common Shares and, thereby, depress their market prices.
Our Common Shares have typically been thinly traded, and you may be unable to sell at or near ask prices or at all if you need to sell your Common Shares to raise money or otherwise desire to liquidate your shares.
Our Common Shares began trading on the Canadian Securities Exchange (the "CSE") on February 8, 2021 and began trading on The Nasdaq Capital Market ("Nasdaq") on November 8, 2021. Our Common Shares have typically been "thinly-traded", meaning that the number of persons interested in purchasing our Common Shares at or near bid prices at any given time was relatively small or non-existent. This could be due to a number of factors, including that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our Common Shares until such time as we became more seasoned. As a consequence, there may be periods of several days or more when trading activity in our Common Shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. The Company cannot predict when periods of increased trading activity may occur, or whether they will occur at all. Broad or active public trading market for our Common Shares may not develop or be sustained.
| - 18 - |
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.
We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:
- we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company;
- for interim reporting we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
- we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
- we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
- we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and
- we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any "short-swing" trading transaction.
Our shareholders may not have access to certain information they may deem important and are accustomed to receive from U.S. reporting companies.
As an "emerging growth company" under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our Common Shares less attractive to investors.
For as long as we remain an "emerging growth company", as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" and including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports, exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our Common Shares less attractive as a result, there may be a less active trading market for such securities and their market prices may be more volatile.
We incur significant costs as a result of being a public company, which costs will grow after we cease to qualify as an "emerging growth company."
We incur significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the U.S. Securities and Exchange Commission (the "SEC") and Nasdaq, impose various requirements on the corporate governance practices of public companies. We are an "emerging growth company", as defined in the JOBS Act, and will remain an emerging growth company until the earlier of : (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the U.S. Securities Act, (b) in which we have total annual gross revenue of at least US$1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Shares that is held by non-affiliates exceeds US$700 million as of the prior June 30th; and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act in the assessment of the emerging growth company's internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
| - 19 - |
Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
ITEM 4. INFORMATION ON THE COMPANY
Summary
We were incorporated on May 31, 2019, under the laws of the Province of British Columbia, Canada, under the name "1210954 B.C. Ltd." On March 6, 2020, we changed our name to "Bright Minds Biosciences Inc."
Our head office is located at 19 Vestry Street, New York, NY 10013.
Additional information related us is available on SEDAR+ at www.sedarplus.ca and on our website at https://brightmindsbio.com/. We do not incorporate the contents of our website or of www.sedarplus.ca into this Annual Report. Information on our website does not constitute part of this Annual Report. In addition, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC which can be viewed as www.sec.gov.
Our registered and records office is located at Suite 1500, 1055 West Georgia Street, P.O. Box 11117, Vancouver, British Columbia, Canada, V6E 4N7.
A. History and development of the Company
We are a biotechnology company dedicated to developing therapeutics to improve the lives of patients with severe and life-altering diseases, which was incorporated on May 31, 2019 under the laws of British Columbia, Canada.
We have two wholly-owned subsidiaries: Bright Minds Biosciences LLC, a limited liability company formed pursuant to the laws of Delaware, and Bright Minds Bioscience Pty. Ltd., a company formed pursuant to the laws of Australia.
B. Business Overview
Overview
The Company is a biotechnology company dedicated to developing the next-generation therapeutics to improve the lives of patients with severe and life-altering diseases. The Company is focused on new chemical entities (NCEs) for a variety of central nervous system disorders, including but not limited to pediatric epilepsies, as well as other neuro-psychiatric disorders, including but not limited to depression. The Company's R&D efforts focus on medical indications based on its expertise in 5-HT (serotonin) mediated diseases.
Principal Products
Serotonin (5-HT) is the most prominent neurotransmitter in the brain and modulates many biological functions. Dysfunction of serotonin receptors, transporters, and associated neurocircuits is fundamental to many diseases including epilepsies and neuro-psychiatric disorders such as depression. The class of medications known as selective serotonin reuptake inhibitors ("SSRIs"), such as Prozac®, Zoloft®, and Lexapro®, are widely used in the treatment of depression with a market of US$14.3 Billion1. Similarly, other serotoninergic drugs are widely used in the treatment of pain (Triptans in migraine)2, Alzheimer's and Parkinson's disease related psychosis (Pimavanserin)3, and seizures (Fintepla)4. The off-label use of psilocybin extracts in depression and cluster headache, as well as encouraging clinical trial data with psilocybin and MDMA in depression and PTSD illustrate the potential for advancing serotoninergic therapies in neuropsychiatry and pain. The full potential of serotonin-based therapeutics has not been achieved due to the lack of medications that are selective and specific to certain serotonin receptor subtypes that are fundamental to disease pathology, without non-specific effects, or other off-target effects on other serotonin receptors in the body that are associated with cardiac toxicities and have resulted in previous drugs being withdrawn from the market.
1Research and Markets, "Global Antidepressants Market (2020 to 2030) - COVID-19 Implications and Growth" (21 April 2020), online: Intrado GlobeNewswire <https://www.globenewswire.com/news-release/2020/04/21/2019282/0/en/Global-Antidepressants-Market-2020-to-2030-COVID-19-Implications-and-Growth.html>.
2Samar Nicolas & Diala Nicolas, "Triptans" (26 May 2020), online: National Center for Biotechnology Information <https://www.ncbi.nlm.nih.gov/books/NBK554507/>.
3Cerner Multum, "Pimavanserin" (5 February 2020), online: Drugs.com <https://www.drugs.com/mtm/pimavanserin.html>.
4"Fintepla FDA Approval History" (accessed 5 May 2021), online: Drugs.com <https://www.drugs.com/history/fintepla.html>.
| - 20 - |
Bright Minds has a portfolio of patented, selective serotonin (5-HT2C and 5-HT2C/A-receptor subtypes) agonists that were identified using high-throughput screening methods in combination with advanced molecular modeling techniques to interrogate the interaction between the drug and its targeted receptors to increase downstream signaling while avoiding off-target effects.
| - 21 - |
The Company's lead 5-HT2 subtype selective drug portfolio candidate is a synthetic 5-HT2C receptor agonist without psychedelic effects. The Company expects its 5-HT2A and 5-HT2A/C selective compounds will possess desirable pharmacokinetic and pharmacodynamic effects and a wide effective dose range in the target populations, and could thus be used without the need for close supervision by psychotherapists in the clinic. Bright Minds is partnered with the National Institute of Neurological Disorders and Stroke ("NINDS"), a component of the National Institutes of Health, with respect to the Epilepsy Therapy Screening Program (the "ETSP Program") which permits the Company to have its product candidates screened and tested by the NINDS for the purposes of determining whether the product candidates are anticonvulsant, antiepileptogenic, or have activity against resilient epilepsy and related disorders. The Company is also partnered with the NINDS with respect to the Pre-clinical Screening Platform for Pain Program (the "PSPP Program") which permits the Company to have its product candidates screened and tested by the NINDS for the purpose of identifying non-opioid therapeutics for the treatment of pain. The NINDS screens and tests Company's product candidates in both the ETSP Program and PSPP Program free of charge and the NINDS retains zero financial interest in the Company. Further, the NINDS is not permitted to use the Company's product candidates tested in either the ETSP Program or PSPP Program for any commercial purposes nor is the NINDS permitted to make any derivative, resynthesize, or make any modification to the Company's product candidates.
The Company has completed the following preclinical studies on its product candidates:
| Program | Indications | Study | Major Objective | Study Outcome |
| 5-HT2C | - |
|
|
|
| - 22 - |
| - | Formulation studies:
|
|
| |
| - | Toxicity assessment
|
|
| |
| Dravet Syndrome |
|
|
| |
| Epilepsy |
|
|
| |
| Opioid withdrawal (Opioid use disorder, OUD) |
|
|
| |
| Opioid withdrawal (Opioid use disorder, OUD) |
|
|
|
| - 23 - |
| Binge Eating Disorder (BED) |
|
|
| |
| Alzheimer’s Disease |
|
|
| |
| 5-HT2A | Depression and PTSD |
|
|
|
|
|
| ||
ADMEPK studies (studies on absorption, distribution, metabolism, and excretion and pharmacokinetics):
|
|
| ||
|
|
| ||
|
|
|
| - 24 - |
| ||||
|
|
| ||
| Depression |
|
|
| |
| 5-Ht2a+2c | Depression Pain disorders |
|
|
|
|
|
| ||
|
|
| ||
|
|
| ||
|
|
|
| - 25 - |
The Company has completed a Phase 1 clinical trial on its leading product candidate, 5-HT2Cagonist, as follows:
| Product | Indications | Clinical Trial | Major Objective | Outcome |
| BMB-101 | Undisclosed Seizure Disorder | Phase 1 SAD, MAD and Food Effects |
|
|
Competition
The biotechnology and biopharmaceutical industries, and the neurological subsector, are characterized by rapid evolution of technologies, fierce competition, and strong defense of intellectual property. Any product candidates that we successfully develop and commercialize will have to compete with existing therapies and new therapies that may become available in the future. While we believe that our rational approach to drug design, along with our scientific expertise in the field of serotonergic drugs and central nervous system ("CNS") function, provide us with competitive advantages, a wide variety of institutions, including large biopharmaceutical companies, specialty biotechnology companies, academic research departments, and public and private research institutions, are actively developing potentially competitive products and technologies. Our competitors generally fall within the following categories:
- Antidepressants and anxiolytics. Alkermes Plc, Allergan Plc, Bristol Myers Squibb Co., Eli Lilly and Co., GlaxoSmithKline Plc, H. Lundbeck, Eli Lilly and Co., Merck & Co. Inc., Pfizer Inc., and Takeda Pharmaceutical Co. Ltd Teva Pharmaceutical Industries Ltd., AstraZeneca, Johnson & Johnson, and others.
- Treatment of cluster headache. Amgen, Novartis, Teva, Eli Lilly, Lundbeck, Allergan, Generic Drugs.
- Binge eating disorder. Takeda Pharmaceutical Company Limited, Sunovion Pharmaceuticals Inc., H. Lundbeck A/S, Orexigen Therapeutics, Inc., Novo Nordisk A/S, Eli Lilly and Company, Jazz Pharmaceuticals Inc., and VIVUS Inc.
- Dravet Syndrome/Epilepsy. LivaNova PLC, Johnson & Johnson Services Inc., Eisai Co. Ltd., GlaxoSmithKline PLC, Pfizer Inc., UCB SA, Medtronic PLC, NeuroPace Inc., Novartis AG, GW Pharmaceuticals PLC, and Abbott Laboratories, Zogenix.
- Opioid use disorder. Merck & Co., Inc, Teva Pharmaceutical Industries Ltd, Pfizer Inc, Novartis, Sanofi N.V, Johnson & Johnson Services, F. Hoffmann-La Roche Ltd, Bayer AG, Alkermes.
Patents and Patent Applications
Kozikowski-Roth Patents
The Company has exclusively licensed a family of patents based on PCT/US2011/023535, which is co-owned by the Board of Trustees of the University of Illinois and the University of North Carolina at Chapel Hill. This family of licensed patents includes patents granted in Australia (AU Pat No 2011212930), Canada (CA Pat No 2788416), Europe (EU Pat No 2531485), Japan (JP Pat No 5810099), United States (US Pat No 8492591 and US Pat No 8754132). In addition, the Company has exclusively licensed a family of patents based on PCT/US2016/015019, which is solely owned by the Board of Trustees of the University of Illinois. This family of licensed patents includes patents applied for or granted in China (CN Publication No 107810175), Europe (EU Publication No 3250549), Hong Kong SAR (HK Publication No 1251831), and the United States (US Pat No 10407381). The latest patent to issue is US Pat No 10407381 which will expire on January 27, 2036.
| - 26 - |
These patents were based on the past research completed by Dr. Alan Kozikowski and Dr. Bryan Roth that is documented in United States publication number US20090203750A1 "5-HT2C Receptor Agonists as Anorectic Agents". The invention related to the discovery of novel selective 5-HT2C and 5-HT2C/A agonists that could be used for the treatment of multiple neurological conditions.
On May 26, 2020, the Company entered into an option agreement (the "Roth Kozikowski Agreement") with the Board of Trustees of the University of Illinois ("UIC") in which UIC granted the Company, in consideration for an option fee, an exclusive option to: (i) evaluate the inventions described in PCT/US2011/023535 and all counterpart patents related thereto and described in PCT/US2016/015019 and all counterpart patents related thereto (collectively, the "Inventions"); and (ii) obtain an exclusive license to the Inventions. On April 23, 2021, the Company and UIC entered into a First Amendment to the Roth Kozikowski Agreement for the purpose of amending certain terms in the Roth Kozikowski Agreement.
On April 23, 2021, the Company entered into an exclusive license agreement (the "Exclusive License Agreement") with UIC pursuant to the exercise of its option under the Roth Kozikowski Agreement and the First Amendment to the Roth Kozikowski Agreement. Pursuant to the terms and conditions of the Exclusive License Agreement, UIC granted the Company an exclusive license to the Inventions (the "License"). In consideration for the License, the Company (i) paid UIC a signing fee of US$100,000, less US$15,000 paid by the Company pursuant to the Roth Kozikowski Agreement; and (ii) issued 63,000 Common Shares at a deemed price of $5.85 per Common Share to the UIC (part of which was received by UIC on behalf of the University of North Carolina at Chapel Hill). Additionally, the Company agreed to pay UIC a royalty on net sales of products derived from the Inventions and a portion of all revenue received by the Company from sublicensees.
The Company may terminate the Exclusive License Agreement at any time on written notice to UIC at least ninety (90) days prior to the termination date specified in the notice. The notice of termination must also include the Company's reason for such termination. UIC may terminate the Exclusive License Agreement if the Company: (a) fails to pay any amount, or provide any other consideration, or make any report when required, and the Company does not cure such failure within ninety (90) days after receiving notice thereof; (b) is in breach of any provision of the Exclusive License Agreement not covered by (a) and the Company does not cure such failure within forty-five (45) days after receiving notice thereof; (c) is in breach of any obligations that the Company has to UIC under any other agreement between the Company and UIC and the Company does not cure such failure within ninety (90) days after receiving notice thereof, however, should the Company be aware it is unable to remedy such breach within ninety (90) days, the Company shall have the option to provide written notice to UIC after which the Company and UIC shall negotiate in good faith to determine an appropriate extension to said ninety (90) day time frame; (d) makes any materially false report and receives written notice from UIC; (e) to the extent not prohibited by applicable law commences a voluntary case as a debtor under the Bankruptcy Code of the United States or any successor statute (the "Bankruptcy Code"), or if an involuntary case is commenced against the Company under the Bankruptcy Code, or if an order for relief shall be entered in such case, or if the same or any similar circumstance shall occur under the laws of any foreign jurisdiction; and/or (f) takes any action that purports to cause or causes any of the patent rights or technical information subject to the Exclusive License Agreement to be subject to any lien or encumbrance, and such termination shall be upon written notice to the Company.
Filed Patent Applications
Based upon molecular modeling studies in concert with data available from published research articles, the Bright Minds chemistry team designed novel analogs of psilocin that they believed would retain 5-HT2A activity while having no propensity to activate the 5-HT2B receptors. These new chemical entities were thus anticipated to retain the brain re-booting activity of psilocin while showing no propensity to cause valvulopathy issues.
On March 12, 2020, Bright Minds filed a United States provisional application that was assigned a serial number of US 62/988,926. This patent application focused on psilocin analogs that have been decorated with functionality appropriate to achieving the goals of maintaining the desired 5-HT2A activity while being devoid of 5-HT2B activity. On March 12, 2021, Bright Minds filed a Patent Cooperation Treaty patent application that claims priority to US 62/988,926. Such Patent Cooperation Treaty patent application was assigned a serial number of PCT/CA2021/050336. In September 2022, PCT/CA2021/050336 entered the national phase in the United States of America; the United States application, which has been assigned a serial number of 17/911,022, is currently pending. In October 2022, PCT/CA2021/050336 entered the national phase in the European Union; the European Union application, which has been assigned a serial number of 21768153.5, is currently pending.
| - 27 - |
On April 29, 2020, Bright Minds filed a United States provisional application that was assigned a serial number of US 63/017,627. This patent application focused on psilocin analogs that have been decorated with functionality appropriate to achieving the goals of maintaining the desired 5-HT2A activity while being devoid of 5-HT2B activity; on April 29, 2021, US 63/017,627 expired without further public disclosure. On May 4, 2021, Bright Minds filed a United States provisional application that was assigned a serial number of US 63/184,040; US 63/184,040 included subject matter that was previously recited in US 63/017,627; on May 4, 2022, US 63/184,040 expired without further public disclosure. On May 5, 2022, Bright Minds filed a United States provisional application that has been assigned a serial number of US 63/338,842; US 63/338,842 includes subject matter that was previously recited in US 63/184,040 and US 63/017,627; on May 5, 2023, US 63/338,842 expired without further public disclosure. On May 8, 2023, Bright Minds filed a United States provisional application that has been assigned a serial number of US 63/464,749; US 63/464,749 includes subject matter that was previously recited in US 63/338,842 and US 63/184,040 and US 63/017,627.
On May 26, 2021, Bright Minds filed a United States provisional application that was assigned a serial number of US 63/193,062. This patent application focused on substitutions at a particular position on an indole structure. On May 25, 2022, Bright Minds filed a Patent Cooperation Treaty patent application that claims priority to US 63/193,062. Such Patent Cooperation Treaty patent application has been assigned a serial number of PCT/CA2022/050833. In November 2023, PCT/CA2022/050833 entered the national/regional phase in the United States of America (assigned application number 18/562,587), Canada (assigned application number 3,219,940), Japan (assigned application number 2023-573064), and the European Union (assigned application number 22810004.6). Bright Minds will also enter the national phase for this international application in South Korea and China. The deadline to enter the South Korean national phase is December 26, 2023. The deadline to enter the Chinese national phase is January 26, 2024 (by way of a 2 month extension).
On January 4, 2022, Bright Minds filed a United States provisional application that has been assigned a serial number of US 63/296,430. This patent application focuses on phenethylamine compounds. On November 4, 2022, Bright Minds filed a second United States provisional application focused on phenethylamine compounds; this provisional application has been assigned a serial number of US 63/422,730. On January 4, 2023, Bright Minds filed a Patent Cooperation Treaty patent application that claims priority to US 63/296,430 and US 63/422,730. Such Patent Cooperation Treaty patent application has been assigned a serial number of PCT/CA2023/050003.
On May 6, 2022, Bright Minds filed a United States provisional application that has been assigned a serial number of US 63/338,889. This patent application focuses on substitutions at a particular position on an indole structure. On May 2, 2023, Bright Minds filed a Patent Cooperation Treaty patent application that claims priority to US 63/338,889. Such Patent Cooperation Treaty patent application has been assigned a serial number of PCT/CA2023/050595.
Bright Minds is currently listed as an applicant in the following matters:
| Patent Application Number | Region | Title | Inventors | Applicant | Filing Date | Status |
| 17/911,022 | USA | 3-(2-(AMINOETHYL)-INDOL-4-OL DERIVATIVES, METHODS OF PREPARATION THEREOF, AND THE USE AS 5-HT2 RECEPTOR MODULATORS | Alan KOZIKOWSKI; Werner TUECKMANTEL | Bright Minds Biosciences Inc.; The Medical College of Wisconsin Inc. | September 12, 2022 (national phase entry of PCT/CA2021/050336 having an international filing date of March 12, 2021, which claims priority to US 62/988,926 filed March 12, 2020) | Pending
|
| - 28 - |
21768153.5 | European Union | 3-(2-(AMINOETHYL)-INDOL-4-OL DERIVATIVES, METHODS OF PREPARATION THEREOF, AND THE USE AS 5-HT2 RECEPTOR MODULATORS | Alan KOZIKOWSKI; Gideon SHAPIRO; Werner TUECKMANTEL John McCORVY | Bright Minds Biosciences Inc.;
The Medical College of Wisconsin Inc. | October 12, 2022
(national phase entry of PCT/CA2021/050336 having an international filing date of March 12, 2021, which claims priority to US 62/988,926 filed March 12, 2020) | Pending |
PCT/CA2023/050003 | PCT | Phenethylamines and Methods of Preparation Thereof | Alan KOZIKOWSKI; Werner TUECKMANTEL; | Bright Minds Biosciences Inc. | January 4, 2023 (claims priority to US63/296,430 filed January 4, 2022 and US63/422,730 filed November 4, 2022) | Pending |
PCT/CA2023/050595 | PCT | Azepinoindoles and Methods of Preparation Thereof | Alan KOZIKOWSKI; Werner TUECKMANTEL; | Bright Minds Biosciences Inc. | May 2, 2023 (claims priority to US 63/338,889 filed May 6, 2022) | Pending |
63/464,749 | USA | Heterocyclic Compounds and Methods of Preparation Thereof | Werner TUECKMANTEL; Alan KOZIKOWSKI; | Bright Minds Biosciences Inc. | May 8, 2023 | Pending |
18/562,587 | USA | Heterocyclic Compounds and Methods of Preparation Thereof | Alan KOZIKOWSKI; Werner TUECKMANTEL; John MCCORVY; Uros LABAN; | Bright Minds Biosciences Inc.; The Medical College of Wisconsin Inc. | November 20, 2023 (national phase entry of PCT/CA2022/050833 having an international filing date of May 25 2022, which claims priority to US 63/193,062 filed May 26, 2021 and US 63/309,735 filed February 14, 2022) | Pending |
3,219,940 | Canada | Heterocyclic Compounds and Methods of Preparation Thereof | Alan KOZIKOWSKI; Werner TUECKMANTEL; John MCCORVY; Uros LABAN; | Bright Minds Biosciences Inc.; The Medical College of Wisconsin Inc. | November 21, 2023 (national phase entry of PCT/CA2022/050833 having an international filing date of May 25 2022, which claims priority to US 63/193,062 filed May 26, 2021 and US 63/309,735 filed February 14, 2022) | Pending |
| - 29 - |
2023-573064 | Japan | Heterocyclic Compounds and Methods of Preparation Thereof | Alan KOZIKOWSKI; Werner TUECKMANTEL; John MCCORVY; Uros LABAN; | Bright Minds Biosciences Inc.; The Medical College of Wisconsin Inc. | November 24, 2023 (national phase entry of PCT/CA2022/050833 having an international filing date of May 25 2022, which claims priority to US 63/193,062 filed May 26, 2021 and US 63/309,735 filed February 14, 2022) | Pending |
22810004.6 | European Union | Heterocyclic Compounds and Methods of Preparation Thereof | Alan KOZIKOWSKI; Werner TUECKMANTEL; John MCCORVY; Uros LABAN; | Bright Minds Biosciences Inc.; The Medical College of Wisconsin Inc. | November 29, 2023 (national phase entry of PCT/CA2022/050833 having an international filing date of May 25 2022, which claims priority to US 63/193,062 filed May 26, 2021 and US 63/309,735 filed February 14, 2022) | Pending |
Pending | South Korea | Heterocyclic Compounds and Methods of Preparation Thereof | Alan KOZIKOWSKI; Werner TUECKMANTEL; John MCCORVY; Uros LABAN; | Bright Minds Biosciences Inc.; The Medical College of Wisconsin Inc. | To be filed before December 26, 2023 (national phase entry of PCT/CA2022/050833 having an international filing date of May 25 2022, which claims priority to US 63/193,062 filed May 26, 2021 and US 63/309,735 filed February 14, 2022) | Pending |
Pending | China | Heterocyclic Compounds and Methods of Preparation Thereof | Alan KOZIKOWSKI; Werner TUECKMANTEL; John MCCORVY; Uros LABAN; | Bright Minds Biosciences Inc.; The Medical College of Wisconsin Inc. | To be filed before January 26, 2024 (2 month grace period) (national phase entry of PCT/CA2022/050833 having an international filing date of May 25 2022, which claims priority to US 63/193,062 filed May 26, 2021 and US 63/309,735 filed February 14, 2022) | Pending |
| - 30 - |
Trademarks
Bright Minds has applied to register the following trademark applications:
| Trademark | Country | Application Number (Registration Number) | Filing Date (Registration Date) | Status |
| BRIGHT MINDS | Canada | 2,016,213 (TMA1202388) | 2020-03-06 (2023-10-11) | Registered |
| BRIGHT MINDS | United States of America | 90/245,748 | 2020-10-09 | Pending |
Web Domains
Bright Minds has use and control over the following domain names: brightmindsbio.com.
Government Regulation
Regulatory Framework
Drug products must be approved by the appropriate governing body before it can be sold in that country or area. The United States Food and Drug Administration (the "FDA") approves products for the United States market and Health Canada approves products for the Canadian market. The European Medicines Agency approves products for the European Union. While the process by which products are approved by the FDA and Health Canada is very similar, each regulatory body has its own unique requirements for a product. In both cases, the development of a product through to approval can be a lengthy process and, in some cases, can take over 10 years. While early studies conducted in one jurisdiction will usually be accepted in the other, further and somewhat modified studies may be required to have a product approved in another jurisdiction.
Canadian Government Regulation
Drug products in Canada are regulated by Health Canada under the Food and Drugs Act and the Food and Drugs Regulations. Health Canada regulates, among other things, research and development activities and the testing, approval, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, advertising and promotion of any product candidates or commercial products.
For a drug product to be approved in Canada, it must provide sufficient evidence of safety, efficacy and chemical quality based on preclinical investigation and Phase I, II and III clinical trials using approved and compliant manufacturing and clinical sites.
To obtain approval to market a drug in Canada, a sponsor usually requests a pre-submission meeting with the review division of Health Canada responsible for the therapeutic field. If the meeting is granted, the sponsor must submit a Pre-Submission Information package to the Therapeutic Products Directorate ("TPD") to meet with the review division. This process occurs prior to submitting the New Drug Submission ("NDS") application. The purpose of the pre-submission meeting is to review the evidence (non-clinical and clinical research, quality information, indication) that will be submitted in the NDS application.
| - 31 - |
During the drug development process, the sponsor prepares study reports. Once the sponsor releases the last study required for the submission, the sponsor completes the NDS application and submits it to the TPD. Prior to submitting the NDS and, if applicable, based on the intended use of the product in the identified patient population, the sponsor may submit in advance a request for priority review status.
After submitting the NDS application, the file undergoes a screening process prior to being accepted for review. TPD has 45 calendar days from receipt to complete the screening review process. If granted a priority review, the screening period is reduced to 25 calendar days.
After a comprehensive review of an NDS application, Health Canada will issue a Notice of Compliance ("NOC") if the product is approved or a Notice of Non-Compliance ("NON") if further questions remain. If a NOC is issued, a Drug Identification Number ("DIN") is also issued that is required to be printed on each label of the product, as well as the final version of the Product Monograph that has been agreed to between Health Canada and the sponsor.
The average target time for reaching a first decision on an NDS is 300 calendar days, unless the submission has received a priority review in which case the time is 180 calendar days. Fees are levied for a review of an NDS application.
The regulatory approval process is generally lengthy and expensive, with no guarantee of a positive result. Once approved, Health Canada continues to monitor the product and license holders have obligations related to reporting to Health Canada, record keeping and ensuring continued safety and efficacy of the product. Failure to comply with any of the above applicable regulations, regulatory authorities or other requirements may result in civil or criminal penalties, recall or seizure of products, injunctive relief including partial or total suspension of production, or withdrawal of a product from the market.
United States Government Regulation
In the United States, the FDA regulates drugs under the United States Food, Drug, and Cosmetic Act (the "FDCA"), and its implementing regulations, and biologics under the FDCA and the Public Health Service Act, and its implementing regulations. FDA approval is required before any new unapproved drug or biologic or dosage form, including a new use of a previously approved drug, can be marketed in the United States. In some cases, changes to aspects of an approved drug product also require pre-approval prior to implementation of these changes. Drugs and biologics are also subject to other federal, state, and local statutes and regulations. If Bright Minds fails to comply with applicable FDA or other requirements at any time during the product development process, clinical testing, the approval process or after approval, Bright Minds may become subject to administrative or judicial sanctions. These sanctions could include the FDA's refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, civil monetary penalties or criminal prosecution. Any FDA enforcement action could have a material adverse effect on Bright Minds.
The process required by the FDA before drug products may be marketed in the United States generally involves the following:
- Completion of extensive preclinical laboratory tests and preclinical animal studies, some performed in accordance with the GLP regulations;
- submission to the FDA of an Investigational New Drug ("IND") Application, which must be reviewed by the FDA and become active before human clinical trials may begin and must be updated annually;
- approval by an independent review board ("IRB") or ethics committee representing each clinical site before each clinical trial may be initiated;
- performance of adequate and well-controlled human clinical trials conducted under Good Clinical Practices ("GCP") to establish the safety and efficacy of the product candidate for each proposed indication;
- preparation of and submission to the FDA of a New Drug Application ("NDA") or Biologics License Application ("BLA") after completion of all pivotal clinical trials;
- a determination by the FDA within 60 days of its receipt of an NDA or BLA to file the application for review;
| - 32 - |
- potential review of the product application by an FDA advisory committee, where appropriate and if applicable;
- satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities where the proposed product is produced to assess compliance with current GMP ("cGMP");
- a potential FDA audit of the preclinical research and clinical trial sites that generated the data in support of the NDA or BLA; and
- FDA review and approval of an NDA or BLA prior to any commercial marketing or sale of the product in the United States.
The preclinical research, clinical testing and approval process require substantial time, effort, and financial resources, and Bright Minds cannot be certain that any approvals for the Company's product candidates will be granted on a timely basis, if at all. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans in clinical trials. The central focus of an IND submission is on the general investigational plan and the protocol(s) for human clinical trials. The IND also includes results of animal studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product; chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational new drug.
An IND must become effective before human clinical trials may begin in the US. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to the proposed clinical trials. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before clinical trials can begin. Accordingly, submission of an IND may or may not result in the FDA allowing clinical trials to commence. As drug product programs continue in development, clinical trial protocols, additional preclinical testing results, and manufacturing information is submitted with the IND to facilitate discussions with the FDA and approval of additional clinical trials.
Clinical Trials
Clinical trials involve the administration of the IND to human subjects under the supervision of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. Additionally, approval must also be obtained from each clinical trial site's IRB or ethics committee, before the trials may be initiated, and the IRB or ethics committee must monitor the trial until completed. All subjects must provide informed consent prior to participating in the trial. There are also requirements governing the reporting of ongoing clinical trials and clinical trial results to public registries.
The clinical investigation of a drug is generally divided into three or four phases. Although the phases are usually conducted sequentially, they may overlap or be combined.
- Phase I. The drug is initially introduced into healthy human subjects or, in some cases, patients with the target disease or condition. These studies are designed to evaluate the safety, tolerance, metabolism, pharmacokinetic and pharmacologic actions of the investigational new drug in humans, and the side effects associated with increasing doses.
- Phase II. The drug is administered to a limited patient population to evaluate safety and optimal dose levels for safety and efficacy, identify possible adverse side effects and safety risks, and preliminarily evaluate efficacy.
- Phase III. The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites to generate sufficient data to statistically evaluate dose levels, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the IND product, and to provide an adequate basis for physician labeling.
- Phase IV. In some cases, the FDA may conditionally approve an NDA or BLA for a drug product with the sponsor's agreement to conduct additional clinical trials after approval. In other cases, a sponsor may voluntarily conduct additional clinical trials after approval to gain more information about the drug. Such post-approval studies are typically referred to as Phase IV clinical trials.
| - 33 - |
Clinical trial sponsors must also report to the FDA, within certain timeframes: (i) serious and unexpected adverse reactions, (ii) any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator's brochure, or (iii) any findings from other studies or animal testing that suggest a significant risk in humans exposed to the product candidate. The FDA, the IRB, the ethics committee or the clinical trial sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoring board or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data from the trial.
The clinical trial process can take years to complete, and there can be no assurance that the data collected will support FDA approval or licensing of the product. Results from one trial are not necessarily predictive of results from later trials. The Company may also suspend or terminate a clinical trial based on evolving business objectives and/or competitive climate.
Submission of an NRA or BLA to the FDA
Assuming successful completion of all required preclinical studies and clinical testing in accordance with all applicable regulatory requirements, detailed IND product information is submitted to the FDA in the form of an NDA or BLA requesting approval to market the product for one or more indications. Under federal law, the submission of most NDAs and BLAs is subject to an application user fee. Applications for Oppositional Defiant Disorder ("ODD") products are exempted from the NDA and BLA application user fee, unless the application includes an indication for other than a rare disease or condition, and may be exempted from product and establishment user fees under certain conditions. An NDA or BLA must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product's chemistry, manufacturing, controls, and proposed labeling, among other things. Data comes from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a product, and may also come from several alternative sources, including clinical trials initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational new drug product to the satisfaction of the FDA.
Once an NDA or BLA has been submitted, the FDA's goal is to review the application within ten months after it accepts the application for filing, or, if the application relates to an unmet medical need in a serious or life-threatening indication, six months after the FDA accepts the application for filing. The review process is often significantly extended by the FDA's requests for additional information or clarification. Before approving an NDA or BLA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and related regulations.
The FDA is required to refer an NDA or BLA for a novel drug (in which no active ingredient has been approved in any other application) to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and the conditions thereof. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA's Decision on an NDA or BLA
After the FDA evaluates the NDA or BLA and conducts inspections of manufacturing facilities where the product will be produced, the FDA will issue either an approval letter or a complete response letter ("Complete Response Letter"). An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A Complete Response Letter indicates that the review cycle of the application is complete and the application is not ready for approval. To satisfy deficiencies identified in a Complete Response Letter, additional clinical data and/or an additional Phase III clinical trial(s), and/or other significant, expensive and time-consuming requirements related to clinical trials, preclinical studies or manufacturing may be required for the drug product.
Even if such additional information is submitted, the FDA may ultimately decide that the NDA or BLA does not satisfy the criteria for approval. The FDA could also approve the NDA or BLA with a risk evaluation and mitigation strategy, which could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA may also conditionally approve a drug product subject to, among other things, changes to proposed labeling, development of adequate controls and specifications, or a commitment to conduct one or more post-market studies or clinical trials. Such post-market testing may include Phase IV clinical trials and surveillance to further assess and monitor the product's safety and effectiveness after commercialization. New government requirements, including those resulting from new legislation, may be established during the review process, or the FDA's policies may change, which could delay or prevent regulatory approval of the Company's products under development.
| - 34 - |
The Company has numerous options as it relates to contract manufactures of GMP (good manufacturing products) grade active pharmaceutical ingredients and finished products. The Company does not expect to encounter any issues sourcing raw materials nor do we foresee material volatility in raw materials and finished good pricing.
Legal Proceedings
We are not involved in, or aware of, any legal or administrative proceedings contemplated or threatened by any governmental authority or any other party that is likely to have a material adverse effect on our business. As of the date of this Annual Report, no director, officer or affiliate is a party adverse to us in any legal proceeding or has an adverse interest to us in any legal proceeding.
C. Organizational structure
The Company has two wholly-owned subsidiaries: Bright Minds Biosciences LLC, a limited liability company formed pursuant to the laws of Delaware, and Bright Minds Bioscience Pty. Ltd., a company formed pursuant to the laws of Australia. The Company owns 100% of the voting and dispositive control over each subsidiary. The following chart illustrates, as at the date of this Annual Report, the Company's subsidiaries, including their respective jurisdiction of incorporation and percentage of voting securities in each that are held by the Company either directly or indirectly:
D. Property, plant and equipment
The Company leases its executive headquarters located at 19 Vestry St., New York, NY 10013 pursuant to a lease agreement (the "Vestry Lease Agreement") between the Company and Gerep Realty Corp., as landlord, dated August 13, 2021, as amended on May 31, 2022. Pursuant to the Vestry Lease Agreement, monthly rent is US$5,510 from September 1, 2022 to August 31, 2023, and US$5,630 from September 1, 2023 to August 31, 2024, which is also when the lease expires. The Company has paid all rent in advance.
Other than the Company's executive headquarters in New York, the Company does not own or lease any other real property and it does not own any equipment. The Company's registered office is located in Vancouver, Canada. The nature of the space is immaterial to the Company's operations as physical operating activities related to research and development programs and the Company's clinical trial are primarily outsourced to trusted contract research organizations and clinical trial centres, including but not limited to the University of Texas, the Medical College of Wisconsin, and CMAX Clinical Research.
| - 35 - |
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
General
This Annual Report should be read in conjunction with the accompanying financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the International Accounting Standards Board ("IASB").
The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates or other forward-looking statements under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our actual results may differ materially as a result of many factors, including those set forth under "Forward-Looking Statements" and "Risk Factors" herein.
Critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below under the heading "Critical Accounting Policies and Estimates", and have not changed significantly since our founding.
Figures in this Item 5 are in Canadian dollars unless otherwise indicated.
Overview
Bright Minds Biosciences Inc. was incorporated under the BCBCA on May 31, 2019. The Company's objective is to generate income and achieve long term profitable growth through the development of therapeutics to improve the lives of patients with certain severe and life-altering diseases. The Company's head office is located at 19 Vestry Street, New York, NY 10013.
Additional information related us is available on SEDAR+ at www.sedarplus.ca and www.brightmindsbio.com. We do not incorporate the contents of our website or of www.sedarplus.ca into this Annual Report. Information on our website does not constitute part of this Annual Report.
Financing
Our ability to continue operations will depend on our continued ability to raise capital on acceptable terms. We incurred losses of $8,650,763 for the year ended September 30, 2021, $14,964,941 for the year ended September 30, 2022, and $7,372,225 for the year ended September 30, 2023, and anticipate incurring losses for the year ending September 30, 2024. We had negative operating cash flows of $7,024,265 for the year ended September 30, 2023 and anticipate negative operating cash flows during the year ended September 30, 2024. Although we had working capital surplus of $6,531,803, including cash and cash equivalents of $6,747,986, at September 30, 2023, we anticipate further financings through the sale of our shares. If we are not successful in raising additional capital on terms that are acceptable to us, we may be forced to curtail or cease operations.
Market conditions, trends or events
Our ability to continue operations also depends on market conditions outside of our control. Significant changes in the Canadian and United States drug and health laws may materially and adversely affect our business and prospects. The regulatory approval process is generally lengthy and expensive, with no guarantee of a positive result. Once approved, Health Canada and the FDA would continue to monitor the product and license holders have obligations related to reporting to these agencies, record keeping and ensuring continued safety and efficacy of the product. Failure to comply with any of the above applicable regulations, regulatory authorities or other requirements may result in civil or criminal penalties, recall or seizure of products, injunctive relief including partial or total suspension of production, or withdrawal of a product from the market.
| - 36 - |
A. Operating Results
Results of Operations for the Year ended September 30, 2023 as Compared to the Year Ended September 30, 2022
Revenues
Since inception, the Company has not realized any revenue.
Operating Expenses
During the year ended September 30, 2023, the Company incurred a net loss of $7,372,225 compared to a net loss of $14,964,941 for the corresponding period in 2022. The increase in net loss between the two years resulted from an overall ramp up of operations. The largest expense items in net comprehensive loss are described below.
Consulting fees. Consulting fees were $207,930 for the year ended September 30, 2023 compared to $771,329 for the year ended September 30, 2022. The decrease of $563,399 was a result of a discontinuation of services from various consultants.
Foreign exchange. Foreign exchange recovery was $14,189 for the year ended September 30, 2023 compared to $12,151 for the year ended September 30, 2022. The increase of $2,038 was a result of volatility in the foreign exchange market.
Funds processing fees. Funds processing fees were $Nil for the year ended September 30, 2023 compared to $Nil for the year ended September 30, 2022 because the Company did not incur any of these cost in either year.
Marketing, advertising and investor relations expenses. Marketing, advertising and investor relations expenses were $119,418 for the year ended September 30, 2023 compared to $551,864 for the year ended September 30, 2022. The decrease of $432,446 was a result of the discontinuation of certain marketing and advertising activities for the year.
Office and administrative expenses. Office and administrative expenses were $278,809 for the year ended September 30, 2023 compared to $478,248 for the year ended September 30, 2022. The decrease of $199,439 was a result of fewer overhead expenditures incurred by the Company personnel.
Professional fees. Professional fees were $437,679 for the year ended September 30, 2023 compared to $650,196 for the year ended September 30, 2022. The decrease of $212,517 was a result of the fewer instances and business activity during the current year requiring professional services in comparation to the previous year.
Regulatory and filing expenses. Regulatory and filing expenses were $186,651 for the year ended September 30, 2023 compared to $243,079 for the year ended September 30, 2022. The decrease of $56,428 was a result the non-recurring regulatory fees from the prior year listing on the Nasdaq which did not occur in the current year.
Research and development expenses. Research and development were $4,999,944 for the year ended September 30, 2023 compared to $12,180,938 for the year ended September 30, 2022. The decrease of $7,180,994 was a result of the completion of certain research and development activities in the current year.
Net Loss
As a result of the above factors, we reported a net loss for the year ended September 30, 2023 of $7,372,225, compared to a net loss of $14,964,941 for the corresponding period in 2022.
| - 37 - |
Results of Operations for the Year ended September 30, 2022 as Compared to the Year Ended September 30, 2021
Revenues
Since inception, the Company has not realized any revenue.
Operating Expenses
During the year ended September 30, 2022, the Company incurred a net loss of $14,964,941 compared to a net loss of $8,650,763 for the corresponding period in 2021. The increase in net loss between the two years resulted from an overall ramp up of operations. The largest expense items in net comprehensive loss are described below.
Consulting fees. Consulting fees were $771,329 for the year ended September 30, 2022 compared to $394,624 for the year ended September 30, 2021. The increase of $376,705 was a result of hiring various consultant to assist in day to day operations.
Foreign exchange. Foreign exchange recovery was $12,151 for the year ended September 30, 2022 compared to $154,099 for the year ended September 30, 2021. The decrease of $141,948 was as a result of volatility in the foreign exchange market.
Funds processing fees. Funds processing fees were $Nil for the year ended September 30, 2022 compared to $18,665 for the year ended September 30, 2021. The decrease of $18,665 was a result of higher fees relating to the increase in financing activity for the previous year in comparison to the current year.
Marketing, advertising and investor relations expenses. Marketing, advertising and investor relations expenses were $551,864 for the year ended September 30, 2022 compared to $852,151 for the year ended September 30, 2021. The decreaseof $300,287 was a result of the Company reducing its marketing expenditures in its second year of operations. In the previous year of operation, the Company executed awareness and marketing campaigns as a new company.
Office and administrative expenses. Office and administrative expenses were $478,248 for the year ended September 30, 2022 compared to $197,125 for the year ended September 30, 2021. The increase of $281,123 was a result of increased overhead administrative activities supporting the ramp up of operations.
Professional fees. Professional fees were $650,196 for the year ended September 30, 2022 compared to $709,954 for the year ended September 30, 2021. The decrease of $59,758 was a result of non-recurring legal fees related to its listing on the CSE in the previous year.
Regulatory and filing expenses. Regulatory and filing expenses were $243,079 for the year ended September 30, 2022 compared to $181,743 for the year ended September 30, 2021. The increase of $61,336 was a result of additional fees being listed on the Nasdaq.
Research and development expenses. Research and development were $12,180,938 for the year ended September 30, 2022 compared to $6,313,988 for the year ended September 30, 2021. The increase of $5,866,950 was a result of continued development across all drug pipelines.
Net Loss
As a result of the above factors, we reported a net loss for the year ended September 30, 2022 of $14,964,941, compared to a net loss of $8,650,763 for the corresponding period in 2021.
B. Liquidity and Capital Resources
Liquidity
The Company's financial success is dependent upon its ability to market and sell its products and solutions; and to raise sufficient working capital to enable the Company to execute its business plan. The Company's historical capital needs have been met by internally generated cash flow from operations and the support of its shareholders. There is no assurance that equity funding will be possible at the times required by the Company. If no funds are able to be raised and sales of its products and solutions do not produce sufficient net cash flow, then the Company may require a significant curtailing of operations to ensure its survival.
| - 38 - |
The financial statements have been prepared on a 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 foreseeable future. The Company incurred a net loss of $7,372,225 during the year ended September 30, 2023, and had a cash and cash equivalents balance and a working capital surplus of $6,747,986 and $6,531,803, respectively, as at September 30, 2023. There can be no assurance that funding from this or other sources will be sufficient in the future to continue its operations. Even if the Company is able to obtain new financing, it may not be on commercially reasonable terms or terms that are acceptable to it. Failure to obtain such financing on a timely basis could cause the Company to reduce or terminate its operations.
As of September 30, 2023, the Company had 3,772,072 issued and outstanding shares and 5,386,954 shares on a fully-diluted basis. The Company began trading on Canadian Stock Exchange on February 8, 2021 and began trading on Nasdaq on November 8, 2021.
The Company had $6,531,803, of working capital surplus as at September 30, 2023, compared to $10,475,632 of working capital surplus as at September 30, 2022. The decrease in working capital resulted from decreased capital raises in the current year
Capital Resources
As at September 30, 2023, the Company had cash of $6,747,986 (September 30, 2022: $11,627,913). The Company continues to pursue additional equity financing although there can be no guarantees given that the Company will be successful in such endeavors.
Critical Accounting Policies and Estimates
The preparation of the Company's financial statements requires management to use estimates and assumptions that affect the reported amounts of assets and liabilities as well as revenue and expenses. These are based on the best information available at the time utilizing generally accepted industry standards.
Significant estimates and assumptions
The preparation of the financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Certain of the Company's accounting policies and disclosures require key assumptions concerning the future and other estimates that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities or disclosures within the next fiscal year. Where applicable, further information about the assumptions made is disclosed in the notes specific to that asset or liability. The critical accounting estimates and judgments set out below have been applied consistently to all periods presented in these financial statements.
Significant judgements
The preparation of financial statements in accordance with IFRS requires the Company to make judgements, apart from those involving estimates, in applying accounting policies. The most significant judgements in applying the Company's financial statements include:
- the classification of financial instruments; and
- the calculation of deferred income taxes require judgement in interpreting tax rules and regulations.
Financial Instruments
Financial instruments are accounted for in accordance with IFRS 9, "Financial Instruments: Classification and Measurement". A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
| - 39 - |
Financial assets
(a) Recognition and measurement of financial assets
The Company recognizes a financial asset when it becomes a party to the contractual provisions of the instrument.
(b) Classification of financial assets
The Company classifies financial assets at initial recognition as financial assets: measured at amortized cost, measured at fair value through other comprehensive income ("FVTOCI") or measured at fair value through profit or loss ("FVTPL").
i. Financial assets measured at amortized cost
A financial asset that meets both of the following conditions is classified as a financial asset measured at amortized cost:
- The Company's business model for such financial assets is to hold the assets in order to collect contractual cash flows.
- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the amount outstanding.
A financial asset measured at amortized cost is initially recognized at fair value plus transaction costs directly attributable to the asset. After initial recognition, the carrying amount of the financial asset measured at amortized cost is determined using the effective interest method, net of impairment loss, if necessary.
ii. Financial assets measured at FVTOCI
A financial asset measured at fair value through other comprehensive income is recognized initially at fair value plus transaction costs directly attributable to the asset. After initial recognition, the asset is measured at fair value with changes in fair value included as "financial asset at fair value through other comprehensive income" in other comprehensive income or loss.
iii. Financial assets measured at FVTPL
A financial asset measured at fair value through profit or loss is initially recognized at fair value with any associated transaction costs being recognized in profit or loss when incurred. Subsequently, the financial asset is re-measured at fair value and a gain or loss is recognized in profit or loss in the reporting period in which it arises.
The Company's cash is classified as subsequently measured at FVTPL.
(c) Derecognition of financial assets
The Company derecognizes a financial asset if the contractual rights to the cash flows from the asset expire, or the Company transfers substantially all the risks and rewards of ownership of the financial asset. Any interests in transferred financial assets that are created or retained by the Company are recognized as a separate asset or liability. Gains and losses on derecognition are generally recognized in the statement of comprehensive loss. However, gains and losses on derecognition of financial assets classified as FVTOCI remain within accumulated other comprehensive income or loss.
Financial liabilities
(a) Recognition and measurement of financial liabilities
The Company recognizes a financial liability when it becomes a party to the contractual provisions of the instrument.
(b) Classification of financial liabilities
i. Financial liabilities measured at amortized cost
| - 40 - |
A financial liability measured at amortized cost is initially measured at fair value less transaction costs directly attributable to the issuance of the financial liability. Subsequently, the financial liability is measured at amortized cost using the effective interest method.
The Company's accounts payable and accrued liabilities are classified as subsequently measured at amortized cost.
ii. Financial liabilities measured at fair value through profit or loss
A financial liability measured at fair value through profit or loss is initially measured at fair value with any associated transaction costs being recognized in profit or loss when incurred. Subsequently, the financial liability is re-measured at fair value and a gain or loss is recognized in profit or loss in the reporting period in which it arises.
(c) Derecognition of financial liabilities
The Company derecognizes a financial liability when the financial liability is discharged, cancelled or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the statement of comprehensive loss.
Offsetting financial assets and liabilities
Financial assets and liabilities are offset and the net amount is presented in the statement of financial position only when the Company has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Impairment of financial assets
The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost.
At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve-month expected credit losses. The Company recognizes in the statement of comprehensive income or loss, as an impairment loss (or gain), the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.
Share-based payments
Share-based compensation expense relates to stock options as well as cash and equity settled restricted share units ("RSUs"). The grant date fair values of stock options and equity settled RSUs granted are recognized as an expense, with a corresponding increase in reserves in equity, over the vesting period. The amount recognized as an expense is based on the estimate of the number of awards expected to vest, which is revised if subsequent information indicates that actual forfeitures are likely to differ from the estimate. Upon exercise of stock options, the consideration paid by the holder is included in share capital and the related reserves associated with the stock options exercised is reclassified into share capital. Upon vesting of equity settled RSUs, the related reserves associated with the RSU is reclassified into share capital.
For cash settled RSUs, the fair value of the RSUs is recognized as share-based compensation expense, with a corresponding increase in accrued liabilities over the vesting period. The amount recognized as an expense is based on the estimate of the number of RSUs expected to vest. Cash settled RSUs are measured at their fair value at each reporting period on a mark-to-market basis. Upon vesting of the cash settled RSUs, the liability is reduced by the cash payout.
Share-based payments are included in the Company's Consolidated Statements of Comprehensive Loss on a functional account basis.
Research and development expenses
Research costs are expensed when incurred. Development costs, including direct material, direct labor and contract service costs, are capitalized as intangible assets when: we can demonstrate that the technical feasibility of a project has been established; when we intend to complete the asset for use or sale and have the ability to do so; when the asset can generate probable future economic benefits; when the technical and financial resources are available to complete the development; and when we can reliably measure the expenditure attributable to the intangible asset during its development. After initial recognition, internally generated intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses. These costs are amortized on a straight-line basis over the estimated useful life. To date the Company did not have any development costs that met the capitalization criteria.
| - 41 - |
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, in the countries where the Company operates and generates taxable income.
Deferred Tax
Deferred tax is provided 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 tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Deferred 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 tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
C. Research and Development, Patents and Licenses, etc.
The following table summarizes the material components of research and development expenditure across its drug portfolio for the years ended September 30, 2023, 2022, and 2021:
| Drug Portfolio | For the year ended September 30, 2023 | For the year ended September 30, 2022 | For the year ended September 30, 2021 |
| $ | $ | $ | |
| 5-HT2A | 832,621 | 2,165,206 | 1,724,833 |
| 5-HT2C | 3,485,285 | 8,412,193 | 3,626,015 |
| 5-HT2C/A | 682,038 | 1,603,539 | 963,140 |
| TOTAL | 4,999,944 | 12,180,938 | 6,313,988 |
D. Trend Information
Due to our short operating history, except as noted below, we are not aware of any trends that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
E. Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements nor does it have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources or significant components of revenue or expenses.
| - 42 - |
F. Tabular Disclosure of Contractual Obligations
The following table provides the Company's contractual obligations:
| Contractual Obligations | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years |
| Long-Term Debt Obligations | Nil | Nil | Nil | Nil | Nil |
| Capital (Finance) Lease Obligations | 80,509 | 80,509 | Nil | Nil | Nil |
| Operating Lease Obligations | Nil | Nil | Nil | Nil | Nil |
| Purchase Obligations | Nil | Nil | Nil | Nil | Nil |
| Other Long-Term Liabilities Reflected on the Company's Balance Sheet under the GAAP of the primary financial statements | Nil | Nil | Nil | Nil | Nil |
| Total | 90,523 | 90,523 | Nil | Nil | Nil |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
| Name, Province/State and Country of Residence | Age | Position | Director/Officer Since |
| Ian McDonald, Dubai, UAE | 36 | President, Chief Executive Officer and Director | May 31, 2019 |
| Ryan Cheung, British Columbia, Canada | 45 | Chief Financial Officer | May 29, 2020 |
| Dr. Mark Smith, Elkton, MD | 68 | Chief Medical Officer | December 1, 2022 |
| Nils Christian Bottler(1)(2)(3)(4), Berlin, Germany | 36 | Director | September 29, 2020 |
| Jeremy Fryzuk(1)(2)(3)(4), London, UK | 38 | Director | September 29, 2020 |
| Dr. Jan Pedersen, Soborg, Denmark | 59 | Director and Chief Science Officer | April 27, 2022 (Director) June 26, 2022 (Interim Chief Science Officer) September 22, 2022 (Chief Scientific Officer) |
| David Weiner(1)(2)(3)(4), New York, USA | 59 | Director | February 16, 2023 |
____________________
Notes
(1) Member of the Audit Committee.
(2) Member of the Nominating and Corporate Governance Committee.
(3) Member of the Compensation Committee.
(4) Member of Corporate Disclosure Committee.
Business Experience
The following summarizes the occupation and business experience during the past five years or more for our directors and executive officers as of the date of this Annual Report:
Ian McDonald, President, Chief Executive Officer and Director
Mr. McDonald is an entrepreneur and former investment banker. Prior to joining the Company, Mr. McDonald served on the management team at a TSX-listed gold mining company. In that capacity, Mr. McDonald developed and implemented the corporate strategy as it relates to M&A and capital markets resulting in a $160 million sale within one year. Previously, he worked in a senior role at a Canadian investment bank and in private equity in Vancouver, London and Toronto. Under Mr. McDonald's guidance, clients raised hundreds of millions of dollars in capital. Mr. McDonald has served as a member of the board of directors of several TSX Venture Exchange, CSE listed and private companies.
| - 43 - |
Ryan Cheung, Chief Financial Officer
Mr. Cheung is the founder and managing partner of MCPA Services Inc., Chartered Professional Accountants, in Vancouver, B.C. Leveraging his experience as a former auditor of junior venture and resource companies, Mr. Cheung serves as a director and officer or consultant for public and private companies, providing financial reporting, taxation and strategic guidance.
He has been an active member of the Chartered Professional Accountants of British Columbia (formerly Institute of Chartered Accountants of British Columbia) since January 2008. Mr. Cheung holds a diploma in accounting from the University of British Columbia and a Bachelor of Commerce in international business from the University of Victoria.
Dr. Mark A. Smith, Chief Medical Officer
Prior to joining the Company, Dr. Smith was Chief Medical Officer at VistaGen Therapeutics, where he led the clinical development of drug candidates in the areas of major depression, social anxiety disorder, and depression through all phases of development. Previously, Dr. Smith served as the Clinical Lead for Neuropsychiatry at Teva Pharmaceuticals, where he was accountable for the strategy and clinical development of neuropsychiatric drugs with a focus on schizophrenia, sleep disorders, and agitation. He also held a range of director positions, including as Executive Director of Clinical Development at AstraZeneca Pharmaceutical Company, where he led the development of several novel chemical entities targeting treatment-resistant depression, anxiety, and schizophrenia.
Dr. Smith was also Senior Director of Experimental Medicine of Global Clinical Development and Innovation at Shire Pharmaceuticals and Senior Investigator and Principal Research Scientist of CNS Diseases at DuPont Pharmaceuticals. Prior to joining the pharmaceutical industry, he served as a Senior Staff Scientist of the Biological Psychiatry Branch and Senior Staff Fellow of the Clinical Neuroendocrinology Branch at the U.S. National Institute of Mental Health (NIMH).
Dr. Smith received his Bachelor's degree and Master of Science from Yale University, his Doctor of Medicine and Doctor of Philosophy in Physiology and Pharmacology from the University of California, San Diego, and completed his residency in the Department of Psychiatry at Duke University Medical Center. He currently serves on the National Institute of Mental Health Translational Neuropsychopharmacology Task Force
Nils Christian Bottler, Director
Mr. Bottler is a venture capitalist currently working at Think.Health Ventures as an associate partner. The company focuses on investment in early-stage start-ups in the fields of digital health and medical device technology. Think.Health supports its portfolio beyond financial investment with knowledge, experience and access to an extensive business network. Mr. Bottler's prior work experience was in the banking industry working mainly on M&A projects as well as on a number of consulting projects in Germany, China, the UK, and the United Arab Emirates. He then moved to digital media and analyzed, developed and executed new business models at the Axel Springer SE in Berlin before taking a deep dive into the German health care market as SVP RHÖN-Innovations and the premier hospital chain RHÖNKLINIKUM AG.
Jeremy Fryzuk, Director
Mr. Fryzuk is a private equity investment professional based in London. He has over 10 years of experience in private equity. He started his career in investment banking in Toronto with BMO Capital Markets. Mr. Fryzuk holds a Bachelor of Commerce with a major in Finance from Dalhousie University in Canada.
Jan Pedersen, Director and Chief Science Officer
Jan Pedersen, PhD, MSc, is an innovative and highly experienced leader in drug discovery research, with more than 25 years of expertise in neuroscience research management. Dr. Pedersen's academic interests include neurodegeneration, bioinformatics, biophysics and drug discovery R&D. He is the founder of Torleif Science ApS, a consultancy company aimed at delivering innovation and new ideas in neuroscience. Prior to that, Dr. Pedersen spent 20 years at Lundbeck, a global pharmaceutical company specialized in brain diseases, in positions of increasing responsibility, including building its neurodegeneration/Alzheimer's disease pipeline, and bringing research programs to the clinic. Dr. Pedersen received an MSc in Chemistry from DTU - Technical University of Denmark, and a PhD in biophysics from the University of Bath.
| - 44 - |
David Weiner, Director
Dr. Weiner has over 25 years of experience in the discovery and clinical development of novel therapeutics for neurological, psychiatric and rare diseases. He began his career at ACADIA Pharmaceuticals, where he held a series of discovery research and clinical development roles working on multiple central nervous system (CNS) therapeutics, most notably pimavanserin, a 5-HT2A receptor inverse agonist, which is approved for the treatment of Parkinson's disease psychosis. Dr. Weiner also served as the Chief Medical Officer (CMO) and Interim Chief Executive Officer (CEO) for Proteostasis Therapeutics, CMO at aTyr Pharma and Lumos Pharma, CEO at Amathus Therapeutics, and as an independent board member and senior executive at Eleusis, a company focused on therapeutic development of psychedelics and novel 5-HT2A receptor agonists. He has authored more than 30 scientific publications and patents and serves on multiple clinical and scientific advisory boards, including the Michael J. Fox Foundation for Parkinsons Research. He received his M.D. from the School of Medicine and Biomedical Sciences, SUNY at Buffalo, was a Howard Hughes Medical Institute Research Scholar at the NIH, trained in neurology at New York Hospital, Memorial Sloan Kettering, Cornell Medical Center, and did a post-doctoral fellowship in neuropharmacology at the University of Vermont.
Family Relationships
There are no family relationships among any of our directors and executive officers.
Term of Office
All appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission, participation in profits or otherwise) that the Board thinks fit and are subject to termination at the pleasure of the Board, and an officer may in addition to such remuneration be entitled to receive, after he or she ceases to hold such office or leaves the employment of the Company, a pension or gratuity. The Board may, from time to time, appoint such officers, if any, as it determines and the Board may, at any time, terminate any such appointment.
Involvement in Certain Legal Proceedings
Except as disclosed below, during the past ten years, none of our directors or executive officers have been the subject of the following events:
1. a petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
2. convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
3. the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
(a) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
(b) engaging in any type of business practice; or
(c) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
| - 45 - |
4. the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;
5. was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;
6. was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
7. was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
(a) any Federal or State securities or commodities law or regulation;
(b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
(c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
8. was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Mr. Ryan Cheung is currently the CFO of DMG Blockchain Solutions Inc. ("DMG"), a company listed on the TSX Venture Exchange. DMG was issued a failure-to-file cease trade order on February 1, 2019 by the British Columbia Securities Commission (the "BCSC") for failing to file its annual audited financial statements for the year ended September 30, 2018 and the related management's discussion and analysis and certification. This failure-to-file cease trade order was revoked on August 28, 2019.
Mr. Cheung was formerly the CFO, CEO and a director of Xemplar Energy Corp. ("Xemplar"), a company previously listed on the TSX Venture Exchange and currently listed on the NEX board of the TSX Venture Exchange. Xemplar was issued a failure-to-file cease trade order on May 8, 2015 by the BCSC for failing to file its annual audited financial statements for the year ended December 31, 2014 and the related management's discussion and analysis and certification. Xemplar was issued another failure-to-file cease trade order on August 7, 2015 by the Alberta Securities Commission for failing to file its annual audited financial statements for the year ended December 31, 2014 and the related management's discussion and analysis and certification, as well as the interim unaudited financial statements for the period ended March 31, 2015 and the related management's discussion and analysis and certification. Both failure-to-file cease trade orders have not been revoked as of the date of this Annual Report. Mr. Cheung resigned as CFO on April 30, 2013 and resigned as CEO and director on April 28, 2015.
Director Independence
Our Board of Directors has determined that the following directors are independent as such directors do not have a direct or indirect material relationship with our Company. A "material relationship" is a relationship which could, in the view of our Board of Directors, be reasonably expected to interfere with the exercise of a director's independent judgment.
David Weiner;
Nils Bottler; and
Jeremy Fryzuk.
| - 46 - |
Code of Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") that applies to all of our employees and officers, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics meets the requirements for a "code of ethics" within the meaning of that term in Item 16B of Form 20-F. A copy of our Code of Ethics will be provided to any person without charge upon request. All requests for a copy of our Code of Ethics should be directed in writing to the attention of Ian McDonald at ian@brightmindsbio.com.
Board Diversity Matrix
The table below reports self-identified diversity statistics for the Board of the Company as required by NASDAQ Rule 5606:
| Country of Principal Executive Offices | Canada | |||||||
| Foreign Private Issuer | Yes | |||||||
| Disclosure Prohibited Under Home Country Law | No | |||||||
| As at December 21, 2023 | As at November 9, 2022 | |||||||
| Number of Directors: | 5 | Number of Directors: | 5 | |||||
| Gender Identity | Female | Male | Non-Binary | Did Not Disclose Gender | Female | Male | Non-Binary | Did Not Disclose Gender |
| Directors | 0 | 5 | 0 | 0 | 0 | 5 | 0 | 0 |
| Demographic Background | ||||||||
| Underrepresented Individual in Home Country Jurisdiction | 1 | 1 | ||||||
| LGBTQ+ | 0 | 0 | ||||||
| Did Not Disclose Demographic Background | 0 | 0 | ||||||
Under Nasdaq listing rule 5605(f), the Company is required to (i) have at least one diverse director, or (ii) explain why it does not have at least one diverse director on its Board. The Company currently has one diverse director.
B. Compensation
Compensation Discussion and Analysis
This section sets out the objectives of our Company's executive compensation arrangements, our Company's executive compensation philosophy and the application of this philosophy to our Company's executive compensation arrangements. It also provides an analysis of the compensation design, and the decisions that the Board of Directors made in fiscal 2023 with respect to its Named Executive Officers (as herein defined). When determining the compensation arrangements for the Named Executive Officers, our Compensation Committee considers the objectives of: (i) retaining an executive critical to the success of the Company and the enhancement of shareholder value; (ii) providing fair and competitive compensation; (iii) balancing the interests of management and our Company's shareholders; and (iv) rewarding performance, both on an individual basis and with respect to the business in general.
| - 47 - |
Elements of the Compensation Program
The responsibilities relating to executive and director compensation, including reviewing and recommending compensation of the Company's officers and employees and overseeing the Company's base compensation structure and equity-based compensation program is performed by the Board and the Compensation Committee. The Board and Compensation Committee also assumes responsibility for reviewing and monitoring the long-range compensation strategy for the Company's senior management. The Compensation Committee generally reviews the compensation of senior management on an annual basis taking into account compensation paid by other issuers of similar size and activity and the performance of officers generally and in light of the Company's goals and objectives.
The Company is a small biotechnology company with limited resources. The compensation for senior management of the Company is designed to ensure that the level and form of compensation achieves certain objectives, including: (a) attracting and retaining talented, qualified and effective executives; (b) motivating the short and long-term performance of executives; and (c) better aligning the interests of executive officers with those of the Company's shareholders. In the Board's view, paying salaries which are competitive in the markets in which the Company operates is a first step to attracting and retaining talented, qualified and effective executives. Competitive salary information on comparable companies is compiled from a variety of sources, including national and international publications. Further, the Board believes that to attract and retain qualified and effective executives the Company must pay base salaries which are reasonable in relation to the level of service expected while remaining competitive in the markets in which the Company operates.
The Compensation Committee determines the compensation for the CEO and for the Company's other officers. In each case, the Compensation Committee takes into consideration the executive's performance in light of established goals and objectives, prior experience of the executive, industry standards, competitive salary information on comparable companies of similar size and stage of development, the degree of responsibility and participation of the executive in the day-to-day affairs of the Company, and the Company's available cash resources.
The Board an has assessed the Company's compensation plans and programs for its executive officers to ensure alignment with the Company's business plan and to evaluate the potential risks associated with those plans and programs. The Board has concluded that the compensation policies and practices do not create any risks that are reasonably likely to have a material adverse effect on the Company. The Board considers the risks associated with executive compensation and corporate incentive plans when designing and reviewing such plans and programs.
The Company has not adopted a policy restricting its executive officers or directors from purchasing financial instruments that are designated to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by its executive officers or directors. To the knowledge of the Company, none of the executive officers or directors has purchased such financial instruments.
Philosophy and Objectives
The compensation program for the senior management of the Company is designed within this context with a view that the level and form of compensation achieves certain objectives, including:
attracting and retaining qualified executives;
motivating the short and long-term performance of these executives; and
better aligning their interests with those of the Company's shareholders.
Base Salary or Consulting Fees
In the Board's view, paying base salaries which are reasonable in relation to the level of service expected while remaining competitive in the markets in which the Company operates is a first step to attracting and retaining qualified and effective executives.
Base salary ranges for the executive officers were initially determined upon a review of companies within the biotechnology industry, which were of the same size as the Company, at the same stage of development as the Company and considered comparable to the Company.
In determining the base salary of an executive officer, the Compensation Committee considers the following factors:
| - 48 - |
the particular responsibilities related to the position;
salaries paid by other companies in the biotechnology industry which were similar in size as the Company;
the experience level of the executive officer;
the amount of time and commitment which the executive officer devotes to the Company; and
the executive officer's overall performance and performance in relation to the achievement of corporate milestones and objectives.
Executive Compensation
Except for the grant of incentive share options and restricted share unit awards to the NEOs and any compensation payable pursuant to an executive compensation agreement between the CEO or CFO and the Company, there are no arrangements under which NEOs were compensated by the Company during the two most recently completed financial years for their services in their capacity as NEOs, directors or consultants.
Director Compensation
The directors receive no cash compensation for acting in their capacity as directors of the Company.
Except for the grant to directors of stock options and restricted share unit awards, there are no arrangements under which directors were compensated by the Company during the two most recently completed financial years for their services in their capacity as directors.
Bonus Incentive Compensation
The Company's objective is to achieve certain strategic objectives and milestones. The Compensation Committee considers executive bonus compensation dependent upon the Company meeting those strategic objectives and milestones and sufficient cash resources being available for the granting of bonuses. The Compensation Committee approves executive bonus compensation dependent upon compensation levels based on recommendations of the CEO. Such recommendations are generally based on information provided by issuers that are similar in size and scope to the Company's operations.
Equity Compensation
The Company believes that encouraging its executives and consultants to become shareholders is the best way of aligning their interests with those of its shareholders. Equity participation is accomplished through the Company's existing stock option plan and its restricted share unit plan. Stock options and RSUs are granted to executives and employees taking into account a number of factors, including the amount and term of options and RSUs previously granted, base salary and bonuses and competitive factors. The amounts and terms of options and RSUs granted are determined by the Compensation and Corporate Governance Committee based on recommendations put forward by the CEO. Prior to the establishment of the Compensation and Corporate Governance Committee, grants of stock options and RSUs were considered and approved by the board of directors of the Company.
Compensation Review Process
The Company's Compensation Committee reviews the Company's compensation guidelines and structure. More specifically, the Compensation Committee:
- annually reviews and approves the corporate goals and objectives with respect to compensation for the Chief Executive Officer of the Company and evaluates the Chief Executive's performance in light of these established goals and objectives. Based upon these evaluations the Compensation Committee sets the Chief Executive Officer's annual compensation, including salary, bonus, incentive and equity compensation. The Chief Executive Officer is not present when their compensation is considered or determined by the Compensation Committee;
| - 49 - |
annually reviews and approves the evaluation process and compensation structure for the Company's other officers including salary, bonus, incentive and equity compensation and evaluates their individual performance in light of these established goals and objectives. Based upon their evaluations the Compensation Committee set the officer's annual compensation, including salary, bonus, incentive and equity compensation. No officer may be present when their compensation is considered or determined by the Compensation Committee;
annually reviews the Company's incentive compensation and other equity-based plans and recommends changes in such plans to the Board as needed; and
periodically reviews and makes recommendations to the Board regarding the compensation of non-management directors, including Board and Committee retainers, meeting fees, equity-based compensation and such other forms of compensation and benefits as the Compensation Committee may consider appropriate.
Risks Associated with the Company's Compensation Program
The Company's directors have not considered the implications of any risks to the Company associated with decisions regarding the Company's compensation program. The Company intends to formalize its compensation policies and practices and will take into consideration the implications of the risks associated with the Company's compensation program and how it might mitigate those risks.
The Company did not retain a compensation consultant during financial years ending September 30, 2023, September 30, 2022 or September 30, 2021.
Benefits and Perquisites
The Company does not, as of the date of this Annual Report offer any benefits or perquisites to its NEOs other than potential grants of incentive stock options and RSUs as otherwise disclosed and discussed herein.
Hedging by Directors or NEOs
The Company has adopted a policy restricting directors, officers and employees of the Company from hedging or monetizing transactions to lock in the value of holdings in securities (whether debt or equity) of the Company. The objective of the policy is to prohibit individuals subject to the policy from (i) directly or indirectly engaging in the hedging against future declines in the market value of any securities of the Company (including through the purchase of financial instruments designed to offset such risk), and (ii) pledging Company securities as collateral for a loan (whether in a margin account or otherwise).
As of the date of this Annual Report, entitlement to grants of incentive stock options under the Option Plan (as defined herein) and unit awards under the RSU Plan (as defined herein) are the only equity security elements awarded by the Company to its executive officers and directors.
Pension Disclosure
The Company does not have a pension plan that provides for payments or benefits to the NEOs at, following, or in connection with retirement.
Summary Compensation Table
The following table sets forth all compensation paid, payable, awarded, granted, given or otherwise provided, directly or indirectly, by Bright Minds or its subsidiaries, to each of the executive officers set out below (each, an "NEO"), in any capacity, including, for greater certainty, all plan and non-plan compensation, direct or indirect pay, remuneration, economic or financial award, reward, benefit, gift or perquisite paid, payable, awarded, granted, given or otherwise provided to the NEO for services provided and for services to be provided, directly or indirectly, to Bright Minds for the periods indicated.
| - 50 - |
| Named Executive Officer and Principal Position | Year | Salary (C$) | Share based awards (C$)(1) | Equity incentive awards (C$)(1) | Annual Incentive Plan (C$) | Long- term Incentive Plan (C$) | Pension Value (C$) | All Other Compen- sation (C$) | Total Compen- sation (C$) |
| Ian McDonald(2) President and CEO | 2023 2022 2021 | Nil Nil Nil | 626,178 Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 626,178 Nil Nil |
| Ryan Cheung(3) CFO | 2023 2022 2021 | 120,000 144,000 86,575 | Nil Nil Nil | Nil Nil 23,126 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 120,000 144,000 109,701 |
| Jan Pedersen(4) Chief Science Officer | 2023 2022 2021 | 243,550 174,215 N/A | 556,174 46,529 N/A | Nil Nil N/A | Nil Nil N/A | Nil Nil N/A | Nil Nil N/A | Nil Nil N/A | 799,724 220,744 N/A |
| Mark Smith(5) Chief Medical Officer | 2023 2022 2021 | 272,946 N/A N/A | Nil N/A N/A | 177,975 N/A N/A | Nil N/A N/A | Nil N/A N/A | Nil N/A N/A | Nil N/A N/A | 450,921 N/A N/A |
| Revati Shreeniwas(6) Former Chief Medical Officer | 2023 2022 2021 | 58,900 383,850 244,084 | Nil 123,052 236,652 | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil | 58,900 506,902 480,736 |
________________________________
Notes:
(1) Option-based awards represent the fair value of stock options granted in the year under our Stock Option Plan. The fair value of stock options granted is calculated as of the grant date using the Black-Scholes option pricing model. For discussion of the assumptions made in the valuation, refer to Note 6 to our financial statements for our fiscal year ended September 30, 2023. Share based awards represent the fair value of RSUs granted in the year. The fair of RSUs granted is calculated on the grant date closing value.
(2) Mr. McDonald was appointed President and a director of the Company on May 31, 2019 and as CEO on June 5, 2020.
(3) Mr. Cheung was appointed CFO of the Company on May 29, 2020.
(4) Dr. Pedersen was engaged as Interim Chief Science Officer of the Company on June 26, 2022 and permanent Chief Science Officer on September 22, 2022.
(5) Dr. Smith was appointed Chief Medical Officer on December 1, 2022.
(6) Dr. Shreeniwas was engaged as Chief Medical Officer of the Company on June 5, 2020 and her engagement with the Company was terminated on November 22, 2022
Executive Compensation Agreements
The Company entered into an Independent Consultant Agreement dated June 5, 2020, between the Company and a corporation controlled by Dr. Revati Shreeniwas, pursuant to which Dr. Revati Shreeniwas was engaged to perform services as Chief Medical Officer of the Company. The agreement contains standard nondisclosure, noncompetition and non-solicitation provisions and automatically renews on an annual basis unless terminated by either party. Dr. Revati Shreeniwas' engagement with the Company was terminated on November 22, 2022, and accordingly, the CMO ICA is no longer in force and effect
The Company entered into an Independent Contractor Agreement dated December 1, 2022 between the Company and Dr. Mark A. Smith engaging the services of Dr. Smith as Chief Medical Officer of the Company for annual compensation of US$205,000. The agreement contains standard nondisclosure, noncompetition and non-solicitation provisions and automatically renews on an annual basis unless terminated by either party
| - 51 - |
Other than as set out above, the Company has not entered into any other contract, agreement, plan or arrangement that provides for payments to a NEO or a director at, following or in connection with any termination (whether voluntary, involuntary or constructive), resignation, retirement a change in control of the Company or a change in an NEOs or directors responsibilities).
Securities Authorized For Issuance Under Equity Compensation Plans
The Company has two equity compensation plans: (i) a 10% "rolling" stock option plan, and (ii) a 10% "rolling" restricted share unit plan, as described in this Annual Report. The Company received shareholder approval of the Option Plan and RSU Plan on May 18, 2021.
The following table sets forth details of the Company's equity compensation plan information as at the financial year ended September 30, 2023:
| Plan Category | Number of securities to be issued upon exercise of outstanding options and settlement of outstanding RSUs (a)(1) | Weighted-average exercise price of outstanding options ($) (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(1) |
| Equity compensation plans approved by securityholders | 212,161 (Options) 222,000 (RSUs) | $4.22 (Options/RSUs) | 165,046 (Options) N/A (RSUs) |
| Equity compensation plans not approved by securityholders(2) | N/A | N/A | N/A |
| Total | 212,161 (Options) 222,000 (RSUs) | 165,046 (Options) N/A (RSUs) |
________________________________
Notes:
(1) On July14, 2023, the Company consolidated its Common Shares on the basis of five (5) pre-consolidation Common Shares for one (1) post-consolidation Common Share (the "Consolidation"). All figures in this Annual Report on stated on a post-Consolidation basis.
Stock Option Plan
The Company adopted a 10% rolling stock option plan (the "Option Plan"), which became effective on July 1, 2020.
The principal purpose of the Option Plan is to advance the interests of the Company by encouraging the directors, employees and consultants of the Company and of its subsidiaries or affiliates, if any, by providing them with the opportunity, through options, to acquire Common Shares in the share capital of the Company, thereby increasing their proprietary interest in the Company, encouraging them to remain associated with the Company and furnishing them with additional incentive in their efforts on behalf of the Company in the conduct of its affairs.
The Option Plan provides that the number of Common Shares issuable under the Option Plan, together with all of the Company's other previously established or proposed share compensation arrangements, may not exceed 10% of the total number of the Company's issued and outstanding Common Shares.
The Option Plan is administered by the board of directors of the Company or by a special committee of the directors appointed from time to time by the board of directors of the Company. The maximum term may not exceed ten (10) years from the date of grant.
The following information is intended to be a brief description of the Option Plan and is qualified in its entirety by the full text of the Option Plan. All capitalized words used but not defined have the meanings ascribed to such term in the Option Plan:
| - 52 - |
the maximum number of Options which may be granted to any one holder under the Option Plan within any 12 month period shall be 5% of the number of issued and outstanding Common Shares (unless the Company has obtained disinterested shareholder approval if required by applicable laws);
if required by applicable laws, disinterested shareholder approval is required to grant to related persons, within a 12 month period, of a number of Options which, when added to the number of outstanding Options granted to related persons within the previous 12 months, exceed 10% of the issued Common Shares;
the expiry date of an Option shall be no later than the tenth anniversary of the grant date of such Option;
the maximum number of Options which may be granted to any one consultant within any 12 month period must not exceed 2% of the number of issued and outstanding Common Shares;
the maximum number of Options which may be granted within any 12 month period to employees or consultants engaged in investor relations activities must not exceed 2% of the number of issued and outstanding Common Shares and such Options must vest in stages over 12 months with no more than 25% of the Options vesting in any three month period;
the exercise price of any Option issued under the Option Plan shall not be less than the Market Value (as defined in the Option Plan) of the Common Shares as of the grant date; and
the Board, or any committee to whom the Board delegates, may determine the vesting schedule for any Option.
The foregoing summary of the Option Plan is not complete and is qualified in its entirety by reference to the Option Plan, which is filed as Exhibit 15.1 to the Company's registration statement on Form 20-F as filed with the SEC on June 17, 2021.
Restricted Share Unit Plan and Restricted Share Units
The Company has in place a restricted share unit plan which became effective July 1, 2020 (the "RSU Plan"). A copy of the RSU Plan is filed as Exhibit 15.2 to the Company's registration statement on Form 20-F as filed with the SEC on June 17, 2021. The RSU Plan was designed to provide certain directors, officers, consultants and other key employees (an "Eligible Person") of the Company and its related entities with the opportunity to acquire restricted share units ("RSUs") of the Company. The acquisition of RSUs allows an Eligible Person to participate in the long-term success of the Company thus promoting the alignment of an Eligible Persons. The following is a summary of the RSU Plan. Capitalized terms used but not defined have the meanings ascribed to them in the RSU Plan.
Nature and Administration of the RSU Plan
All Directors, Officers, Consultants and Employees (as defined in the RSU Plan) of the Company and its related entities ("Eligible Persons") are eligible to participate in the RSU Plan (as "Participants"), and the Company reserves the right to restrict eligibility or otherwise limit the number of persons eligible for participation as Participants in the RSU Plan. Eligibility to participate as a Participant in the RSU Plan does not confer upon any person a right to receive an award of RSUs.
Subject to certain restrictions, the Board or its appointed committee, can, from time to time, award RSUs to Eligible Persons. RSUs will be credited to an account (an "Account") maintained for each Participant on the books of the Company as of the award date. The number of RSUs to be credited to each Participant's account shall be determined at the discretion of the Board and pursuant to the terms of the RSU Plan. RSUs and all other rights, benefits or interests in the RSU Plan are not transferable or assignable otherwise than by will or the laws of descent and distribution, and shall be exercisable during the lifetime of the Participant only by the Participant and after death only by the Participant's legal representative.
Credit for Dividends
A Participant's Account will be credited with additional RSUs (the "Dividend RSUs") as of each dividend payment date in respect of which cash dividends are paid on Common Shares. The number of Dividend RSUs credited to a Participant's Account in connection with the payment of dividends on Common Shares will be based on the actual amount of cash dividends that would have been paid to such Participant had he or she been holding such number of Common Shares equal to the number of RSUs credited to the Participant's Account on the date on which cash dividends are paid on the Common Shares and the market price of the Common Shares on the payment date. Note that the Company is not obligated to pay dividends on Common Shares.
| - 53 - |
Resignation, Termination, Leave of Absence or Death
Generally, if a Participant's employment or service is terminated, or if the Participant resigns from employment with the Company, then all RSUs held by the Participant (whether vested or unvested) shall terminate automatically upon the termination of the Participant's service or employment.
In the event a Participant is terminated by reason of (i) termination by the Company other than for cause or (ii) the Participant's death, the Participant's unvested RSUs shall vest automatically as of such date. In the event the termination of the Participant's services is by reason of voluntary resignation, only the Participant's unvested RSUs shall terminate automatically as of such date.
Change of Control
In the event of a Change of Control, the Board may, in its discretion, without the necessity or requirement for the agreement or consent of any Participant: (i) accelerate, conditionally or otherwise, on such terms as it sees fit, the vesting date of any RSU; (ii) permit the conditional settlement of any RSU, on such terms as it sees fit; (iii) otherwise amend or modify the terms of the RSU, including for greater certainty permitting Participants to settle any RSU, to assist the Participants to tender the underlying Common Shares to, or participate in, the actual or potential Change of Control Event (as defined in the RSU Plan) or to obtain the advantage of holding the underlying Common Shares during such Change of Control Event; and (iv) terminate, following the successful completion of such Change of Control Event, on such terms as it sees fit, the RSUs not settled prior to the successful completion of such Change of Control Event, including, without limitation, for no payment or other compensation. The determination of the Board in respect of any such Change of Control Event shall for the purposes of this RSU Plan be final, conclusive and binding.
Adjustments
In the event there is a change in the outstanding Common Shares by reason of any stock dividend or split, recapitalization, amalgamation, consolidation, combination or exchange of shares, or other corporate change, the Board shall make, subject to the prior approval of the CSE and Nasdaq where necessary, appropriate substitution or adjustment in (i) the number or kind of Common Shares or other securities reserved for issuance pursuant to the RSU Plan, and (ii) the number and kind of Common Shares or other securities subject to unsettled and outstanding RSUs granted pursuant to the RSU Plan.
Vesting
Each award of RSUs vests on the date(s) specified by the Board on the award date, and is reflected in the applicable RSU agreement certificate.
Limitations under the RSU Plan
The maximum number of Common Shares made available for issuance pursuant to the RSU Plan shall be determined from time to time by the Board, but in any case, shall not exceed 10% of the Common Shares issued and outstanding from time to time, subject to adjustments as provided in the RSU Plan.
| - 54 - |
Incentive Plan Awards
Outstanding Option-based Awards
The following table sets out the option-based awards outstanding as at September 30, 2023, for any NEO:
| Name | Option-based Awards(1) | |||
| Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date m - d - y | Value of unexercised in-the- money options(2) ($) | |
| Ryan Cheung CFO | 5,000 | $6.25 | 11-17-2025(3) | Nil |
| Mark Smith Chief Medical Officer | 60,000 | $8.25 | 12-01-2027(4) | Nil |
____________________
Notes:
(1) All figures stated on a post-Consolidation basis.
(2) The value is the difference between the closing price of $2.15 per Common Share on the CSE at September 29, 2023 and the exercise price of the options.
(3) Options were granted on November 17, 2020.
(4) Options were granted on December 1, 2022.
Outstanding Share-Based Awards
The following table sets out share-based awards outstanding as at September 30, 2023, for any NEO:
| Name | Share-based Awards(1) | ||
| Number of shares or units of shares that have not vested (#) | Market or payout value of share-based awards that have not vested ($) | Market or payout value of vested share-based awards not paid out or distributed ($) | |
| Ian McDonald | 90,000 | 193,500 | 193,500 |
| Jan Pedersen Chief Science Officer | 90,000 | 193,500 | 193,500 |
____________________
Notes:
(1) All figures stated on a post-Consolidation basis.
Incentive Plan Awards - Value Vested or Earned During the Year
The following table sets out the value vested or earned under the Option Plan awards and the RSU Plan awards during the financial year ended September 30, 2023, for each NEO:
| Name of NEO | Option-based awards - Value vested during the year ($) | Share-based awards - Value vested during the year ($) | Non-equity incentive plan compensation - Value earned during the year ($) |
| Ian McDonald | Nil | Nil | Nil |
| Ryan Cheung | Nil | Nil | Nil |
| Jan Pedersen | Nil | Nil | Nil |
| - 55 - |
Director Compensation for Fiscal 2023
The following table sets forth all compensation for services as a director to the Company during the fiscal years ended September 30, 2023, 2022, and 2021 in respect of the directors set out below, which for those directors who are NEOs excludes compensation for services provided as an NEO:
| Name | Year | Salary ($) | Share- based Awards(1) ($) | Equity Incentive Awards(1) ($) | All Other Compensation ($) | Total Compensation ($) |
| Ian McDonald | 2023 2022 2021 | Nil Nil Nil | 626,178 Nil Nil | Nil Nil Nil | Nil Nil Nil | 626,178 Nil Nil |
| Nils Christian Bottler | 2023 2022 2021 | Nil Nil Nil | Nil Nil Nil | 7,685 23,900 39,237 | Nil Nil Nil | 7,685 23,900 39,237 |
| Jeremy Fryzuk | 2023 2022 2021 | Nil Nil Nil | Nil Nil Nil | 7,685 23,900 39,237 | Nil Nil Nil | 7,685 23,900 39,237 |
| Dr. Alan Kozikowski(2) | 2023 2022 2021 | N/A 188,850 246,655 | N/A Nil Nil | N/A Nil Nil | N/A Nil Nil | N/A 188,850 246,655 |
| Dr. Emer Leahy(3) | 2023 2022 2021 | N/A Nil Nil | N/A Nil Nil | N/A (58,132) 58,132 | N/A Nil Nil | N/A (58,132) 58,132 |
| Jan Pedersen(4) | 2023 2022 2021 | 243,550 174,215 N/A | 556,174 46,529 N/A | Nil Nil N/A | Nil Nil N/A | 799,724 220,744 N/A |
| Douglas Williamson(5) | 2023 2022 2021 | Nil Nil N/A | (63,241) 63,241 N/A | Nil Nil N/A | Nil Nil N/A | (63,241) 63,241 N/A |
| David Weiner(6) | 2023 2022 2021 | Nil Nil Nil | Nil Nil Nil | 22,039 Nil Nil | Nil Nil Nil | 22,039 Nil Nil |
____________________
Notes:
(1) Option-based awards represent the fair value of stock options granted in the year under our Stock Option Plan. The fair value of stock options granted is calculated as of the grant date using the Black-Scholes option pricing model. For discussion of the assumptions made in the valuation, refer to Note 6 to our financial statements for our fiscal year ended September 30, 2023. Share based awards represent the fair value of RSUs granted in the year. The fair of RSUs granted is calculated on the grant date closing value.
(2) Dr. Alan Kozikwoski ceased to hold the position of Chief Science Officer on June 26, 2022.
(3) Dr. Emer Leahy resigned as a director on April 25, 2022.
(4) Jan Pedersen was appointed as a director on April 27, 2022.
(5) Douglas Williamson was appointed as a director on September 6, 2022 and resigned as a director effective January 9, 2023.
(6) David Weiner was appointed a director on February 16, 2023.
We reimburse out-of-pocket costs that are incurred by the directors.
Outstanding Option-based Awards
| - 56 - |
The following table sets out the option-based awards outstanding as at September 30, 2023, for each director, excluding a director who is already set out in disclosure for an NEO of the Company:
| Name | Option-based Awards(1) | |||
| Number of securities underlying unexercised options (#) | Option exercise price ($) | Option expiration date m - d - y | Value of unexercised in-the- money options(2) ($) | |
| Jeremy Fryzuk | 16,000 | $6.25 | 11-17-2025(3) | $Nil |
| Nils Bottler | 16,000 | $6.25 | 11-17-2025(3) | $Nil |
| David Weiner | 16,000 | $5.25 | 02-16-2028(4) | $Nil |
____________________
Notes:
(1) All figures stated on a post-Consolidation basis.
(2) The value is the difference between the closing price of $2.15 per Common Share on the CSE at September 30, 2023 and the exercise price of the options.
(3) Options were granted during the year ended September 30, 2021.
(4) Options were granted during the year ended September 30, 2023.
Outstanding Share-Based Awards
There are no share-based awards outstanding as at September 30, 2023 for any of the directors of the Company, excluding a director who is already set out in disclosure for an NEO of the Company.
Incentive Plan Awards - Value Vested or Earned During the Year
The following table sets out the value vested or earned under the Option Plan awards and the RSU Plan awards during the financial year ended September 30, 2023, for each director, excluding a director who is already set out in disclosure for an NEO for the Company:
| Name | Option-based awards - Value vested during the year ($) | Share-based awards - Value vested during the year ($) | Non-equity incentive plan compensation - Value earned during the year ($) |
| Ian McDonald | Nil | 626,178 | Nil |
| Jeremy Fryzuk | 7,685 | Nil | Nil |
| Nils Bottler | 7,685 | Nil | Nil |
| Dr. Emer Leahy(1) | Nil | Nil | Nil |
| Douglas Williamson | Nil | Nil | Nil |
| David Weiner | 22,039 | Nil | Nil |
______________________
Notes:
(1) Dr. Emer Leahy resigned as a director on April 25, 2022.
(2) Douglas Williamson resigned as a director on January 9, 2023.
Clawback Policy
On December 1, 2023, the Board adopted a Policy for the Recovery of Erroneously Awarded Incentive-Based Compensation (the "Clawback Policy") providing for the recovery of certain incentive-based compensation from current and former executive officers of the Company in the event the Company is required to restate any of its financial statements filed with the SEC under the Exchange Act in order to correct an error that is material to the previously-issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. Adoption of the Clawback Policy was mandated by new Nasdaq listing standards introduced pursuant to Exchange Act Rule 10D-1. The Clawback Policy is in addition to Section 304 of the Sarbanes-Oxley Act of 2002 which permits the SEC to order the disgorgement of bonuses and incentive-based compensation earned by a registrant issuer's chief executive officer and chief financial officer in the year following the filing of any financial statement that the issuer is required to restate because of misconduct, and the reimbursement of those funds to the issuer. A copy of the Clawback Policy has been filed herewith as Exhibit 97.1.
| - 57 - |
Pension Benefits
We do not have any defined benefit pension plans or any other plans providing for retirement payments or benefits.
Termination of Employment and Change of Control Benefits
Details with respect to termination of employment and change of control benefits for our directors and executive officers is reported above under the section titled "Executive Compensation Agreements".
C. Board Practices
Board of Directors
Our Notice of Articles and Articles were filed as Exhibits 1.1 and 1.2, respectively, to our registration statement on Form 20-F as filed with the SEC on June 17, 2021 and incorporated herein by reference. The Articles of the Company provide that the number of directors is set at:
(a) subject to paragraphs (b) and (c), the number of directors that is equal to the number of the Company's first directors;
(b) if the Company is a public company, the greater of three and the number most recently elected by ordinary resolution (whether or not previous notice of the resolution was given); and
(c) if the Company is not a public company, the number most recently elected by ordinary resolution (whether or not previous notice of the resolution was given).
The Board currently consists of five directors. The directors are elected annually at each annual meeting of our Company's shareholders. The Board assesses potential Board candidates to fill perceived needs on the Board for required skills, expertise, independence and other factors.
The Board is responsible for appointing the Company's officers.
Board of Director Committees
The Board currently has three committees, the Audit Committee, the Nominating and Corporate Governance Committee, the Compensation Committee, and the Corporate Disclosure Committee.
Audit Committee
The Audit Committee consists of David Weiner, Jeremy Fryzuk and Nils Christian Bottler (Chair). Each member of the Audit Committee satisfies the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq and meets the independence standards under Rule 10A-3 under the Exchange Act. The Audit Committee consists solely of independent directors that satisfy the Nasdaq and SEC requirements. The Audit Committee oversees the accounting and financial reporting processes and the audits of the financial statements of the Company. The Audit Committee is responsible for, among other things:
- ensuring, through discussion with management and the external auditors, that the Company's annual and quarterly financial statements (individually and collectively, the "Financial Statements"), as applicable, present fairly in all material respects the financial conditions, results of operations and cash flows of the Company as of and for the periods presented;
- reviewing and recommending for approval to the Board, the Company's financial statements, accounting policies that affect the financial statements, annual MD&A and associated press release(s);
- reviewing significant issues affecting financial reports;
- monitoring the objectivity and credibility of the Company's financial reports;
| - 58 - |
- considering the effectiveness of the Company's internal controls over financial reporting and related information technology security and control;
- reviewing with auditors any issues or concerns related to any internal control systems in the process of the audit;
- reviewing with management, external auditors and legal counsel any material litigation claims or other contingencies, including tax assessments, and adequacy of financial provisions, that could materially affect financial reporting;
- overseeing the work of the external auditor engaged for the purpose of preparing or issuing an auditor's report or performing such other audit, review or attest services for the Company, including the resolution of disagreements between management and the external auditor regarding financial reporting; and
- taking such other actions within the general scope of its responsibilities as the Audit Committee shall deem appropriate or as directed by the Board of Directors.
Nominating and Corporate Governance Committee
On June 13, 2021, the Board of Directors adopted a new Nominating and Corporate Governance Committee Charter that complies with the requirements of Nasdaq Listing Rule 5605(e)(2), and has established a nominating and corporate governance committee (the "N&CG Committee") which operates under its Nominating and Corporate Governance Committee Charter. The N&CG Committee is currently comprised of Nils Bottler (Chair), Jeremy Fryzuk and David Weiner. The N&CG Committee is responsible for (i) identifying and recommending to the Board, individuals qualified to be nominated for election to the Board; (ii) recommending to the Board, the members and chairperson for each Board committee; and (iii) periodically reviewing and assessing the Company's corporate governance principles contained in the Nominating and Corporate Governance Committee Charter and making recommendations for changes thereto to the Board.
The N&CG Committee is responsible for, among other things:
- leading the Company's search for individuals qualified to become members of the Board;
- evaluating and recommending to the Board for nomination candidates for election or re-election as directors;
- establishing and overseeing appropriate director orientation and continuing education programs;
- making recommendations to the Board regarding an appropriate organization and structure for the Board of Directors;
- evaluating the size, composition, membership qualifications, scope of authority, responsibilities, reporting obligations and charters of each committee of the Board;
- periodically reviewing and assessing the adequacy of the Company's corporate governance principles as contained in the Nominating and Corporate Governance Committee Charter and, should it deem it appropriate, it may develop and recommend to the Board of Directors for adoption of additional corporate governance principles;
- periodically reviewing the Company's Articles in light of existing corporate governance trends, and shall recommend any proposed changes for adoption by the Board of Directors or submission by the Board of Directors to the Company's shareholders;
- making recommendations on the structure and logistics of Board of Directors' meetings and may recommend matters for consideration by the Board of Directors;
- considering, adopting and overseeing all processes for evaluating the performance of the Board of Directors, each committee and individual directors; and
- annually reviewing and assessing its own performance.
| - 59 - |
Compensation Committee
On June 13, 2021, the Board of Directors adopted a new Compensation Committee Charter which complies with the requirements of Nasdaq Listing Rule 5605(d)(1) and the Board of Directors has established a Compensation Committee (the "Compensation Committee"). The Compensation Committee is comprised of Nils Bottler (Chair), David Weiner and Jeremy Fryzuk.
The Compensation Committee assists the Board in fulfilling its oversight responsibilities relating to officer and director compensation, succession planning for senior management, development and retention of senior management and such other duties as directed by the Board.
Each of the Compensation Committee members satisfies the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of Nasdaq. The Compensation Committee will be responsible for, among other things:
- reviewing and approving the Company's compensation guidelines and structure;
- reviewing and approving on an annual basis the corporate goals and objectives with respect to the CEO of the Company;
- reviewing and approving on an annual basis the evaluation process and compensation structure for the Company's other officers, including salary, bonus, incentive and equity compensation;
- reviewing the Company's incentive compensation and other equity-based plans and recommending changes in such plans to the Board as needed.
- Periodically making recommendations to the Board regarding the compensation of non-management directors, including Board and committee retainers, meeting fees, equity-based compensation and such other forms of compensation and benefits as the Committee may consider appropriate; and
- overseeing the appointment and removal of executive officers, and reviewing and approving for executive officers, including the CEO, any employment, severance or change in control agreements.
Corporate Disclosure Committee
The Company's Corporate Disclosure Committee consists of Nils Bottler (Chair), David Weiner and Jeremy Fryzuk. The Corporate Disclosure Committee oversees the effectiveness of risk management policies, procedures and practices implemented by management of the Company with respect to the Company's disclosure controls and procedures.
D. Employees
As of December 21, 2023, the Company has no employees, and operated solely through the use of our consultants and independent contractors. However, the Company's wholly-owned subsidiary, Bright Minds Biosciences LLC, has one employee.
The Company has entered into the following consulting Agreements with the following consultants on the following terms:
- Scientific Advisory Board Agreement dated June 1, 2020 between the Company and Narayan R. Kissoon, MD, engaging the services of Narayan R. Kissoon as a member of the Company's Scientific Advisory Board and as a consultant to the Company;
- Scientific Advisory Board Agreement dated July 14, 2020 between the Company and Peter Hendricks, engaging Peter Hendricks as a member of the Company's Scientific Advisory Board and as a consultant to the Company;
- Independent Contractor Agreement dated November 17, 2020 between the Company and Dr. Gideon Shapiro engaging the services of Dr. Shapiro as Vice President (Discovery) of the Company;
- Scientific Advisory Board Agreement dated April 21, 2021 between the Company and Jianmin Duan, engaging Jiamin Duan as a member of the Company's Scientific Advisory Board and as a consultant to the Company;
- Consulting agreement dated August 15, 2020 between the Company and Dr. Krista Lanctot, engaging the public relations services of Dr. Lanctot as a consultant;
- Consulting agreement dated August 15, 2020 between the Company and Werner Tueckmantel, engaging the public relations services of Mr. Tueckmantel as a consultant;
| - 60 - |
- Consulting agreement dated August 15, 2020 between the Company and John McCorvy, engaging the public relations services of Dr. McCorvy as a consultant;
- Consulting agreement dated August 15, 2020 between the Company and Peter Kowey, MD, engaging the public relations services of Dr. Kowey as a consultant;
- Consulting agreement dated August 15, 2020 between the Company and Jesse Damsker engaging the services of Dr. Damsker as a consultant;
- Consulting Agreement dated January 25, 2021 between the Company and John McCall, engaging the services of Mr. McCall as a consultant;
- Consulting agreement dated December 22, 2020 between the Company and Toxicology Services, Inc., engaging the services of Dr. Thomas Grizzle as a consultant;
- Scientific Advisory Board Agreement dated February 4, 2022 between the Company and Robert C. Malenka, engaging Mr. Malenka as a member of the Company's Scientific Advisory Board;
- Independent contractor agreement dated February 11, 2022 between the Company and Herbert Y. Meltzer, engaging the services of Mr. Meltzer as a consultant;
- Scientific Advisory Board Agreement dated March 22, 2022 between the Company and Michael Bogenschutz, engaging Mr. Bogenschutz as a member of the Company's Scientific Advisory Board; and
- Scientific Advisory Board Agreement dated April 11, 2022 between the Company and Karl Deisseroth, engaging Mr. Deisseroth as a member of the Company's Scientific Advisory Board.
E. Share Ownership
Shares
The shareholdings of our officers and directors are set out in Item 7 below.
Options
The Options, exercisable into Common Shares of the Company, held by our officers and directors are set out in Item 6 B above.
Warrants
The Company's officers and directors currently hold an aggregate of 661,765 warrants exercisable into common shares of the Company.
F. Disclosure of Action to Recover Erroneously Awarded Compensation
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial ownership of our Common Share as of December 22, 2023 by: (a) each stockholder who is known to us to own beneficially 5% or more of our outstanding Common Shares; (b) all directors; (c) our executive officers; and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their Common Shares, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their Common Shares.
| - 61 - |
| Name | Common Shares of the Company Beneficially Owned (1) | Percentage of Common Shares Beneficially Owned(2) |
| Directors and Executive Officers: | ||
| Ian McDonald(3), Chief Executive Officer, President and Director | 1,536,510 | 29.98% |
| Ryan Cheung(4), Chief Financial Officer | 5,000 | 0.11% |
| Jeremy Fryzuk(5), Director | 21,280 | 0.48% |
| Nils Bottler(6), Director | 20,000 | 0.45% |
| Jan Torleif Pedersen(7), Chief Science Officer and Director | 60,000 | 1.33% |
| David Weiner(8), Director | 4,000 | 0.09% |
| Directors and Executive Officers as a Group (7 persons) | 1,646,790 | 31.51% |
| Other 5% or more Shareholders: | ||
| Dr. Alan Kozikowski | 400,500 | 8.97% |
| Gideon Shapiro | 299,200 | 6.70% |
____________________
Notes
(1) Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or common shares: (i) voting power, which includes the power to vote, or to direct the voting of common shares; and (ii) investment power, which includes the power to dispose or direct the disposition of common shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the common shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership or voting power with respect to the number of Common Shares actually outstanding on December 22, 2022.
(2) The percentage is calculated based on 4,463,737 Common Shares that were outstanding as of December 22, 2023.
(3) Shares beneficially owned consist of (i) 874,745 Common Shares held directly by Mr. McDonald, and (ii) warrants to purchase 661,765 Common Shares.
(4) Shares beneficially owned consist of stock options to purchase 5,000 Common Shares.
(5) Shares beneficially owned consist of (i) 5,280 Common Shares held directly by Mr. Fryzuk, and (ii) stock options to purchase 16,000 Common Shares which have vested.
(6) Shares beneficially owned consist of (i) 4,000 Common Shares held directly by Mr. Bottler, and (ii) stock options to purchase 16,000 Common Shares which have vested.
(7) Shares beneficially owned consist of restricted share units to acquire 60,000 Common Shares which have vested.
(8) Shares beneficially owned consist of stock options to purchase 4,000 Common Shares.
The information as to shares beneficially owned, not being within our knowledge, has been furnished by the officers and directors.
As at December 21, 2023, there were 138 holders of record of our Common Shares.
Transfer Agent
Our Common Shares are recorded in registered form on the books of our transfer agent, Computershare Trust Company located at 3rd Floor, 510 Burrard Street, Vancouver, British Columbia, Canada, V6C 3B9.
B. Related Party Transactions
Dr. Revati Shreeniwas
On June 5, 2020, the Company entered into an independent consultant agreement (the "CMO ICA") whereby the consultant Revati, Inc., a private corporation incorporated in the State of California, USA, was engaged and the consultant's representative, Dr. Revati Shreeniwas, will serve as the Company's Chief Medical Officer, with the services being provided in California. As compensation for performing these services, the consultant or the consultant's representative will participate in the Company's equity incentive plans and will be eligible for cash payments in respect of fees at such time as the Company begins to compensate other C-level personnel in cash and in similar proportion to total compensation (the "fees"). The cash portion of the consultant's fees was US$15,000 per month until August 2021, when it was amended to US$25,000 per month. The non-cash portion of the consultant's fees for the first year of the term was in the form of a grant of 150,000 vested stock options and 150,000 RSUs. The services will continue for an initial term of one year unless sooner terminated. The CMO ICA can be terminated by either party giving the other 30 days written notice or by mutual written agreement. At the end of the initial term, the CMO ICA will automatically be extended for additional one-year period(s) unless either party gives the other 30 days written notice. Dr. Revati Shreeniwas' engagement with the Company was terminated on November 22, 2022, and accordingly, the CMO ICA is no longer in force and effect.
| - 62 - |
Dr. Alan Kozikowski
On October 29, 2020, the Company entered into an independent contractor agreement (the "CSO ICA") whereby the contractor, Dr. Alan Kozikowski, was engaged to serve as the Company's Chief Science Officer on an as-needed basis. The contractor will be compensated for these services as determined by the Board of Directors of the Company. The services will continue for an initial term of one year unless sooner terminated. The CSO ICA can be terminated by the Company providing five working days written notice, the contractor providing three months' written notice or by mutual written agreement. At the end of the initial term, the CSO ICA will automatically be extended for additional one-year period(s) unless the Company provides contractor with 30 days written notice. Dr. Kozikwoski ceased to hold the position of Chief Science Officer on June 26, 2022, and accordingly, the CSO ICA is no longer in force and effect.
Dr. Mark A. Smith
On December 1, 2022, the Company entered into an independent contractor agreement (the "Smith ICA") whereby the contractor, Dr. Mark A. Smith, was engaged as the Company's Chief Medical Officer. For the provision of services, the contractor will be compensated US$205,000 annually, payable in monthly installments, and the contractor also received a US$35,000 signing bonus. The services will continue for an initial term of one year unless sooner terminated. The Smith ICA can be terminated by the Company providing one months' written notice, the contractor providing three months' written notice or by mutual written agreement. At the end of the initial term, the Smith ICA will automatically be extended for additional one-year period(s) unless the Company provides contractor with 30 days written notice.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Financial Statements
The financial statements of the Company for the years ended September 30, 2023, 2022, and 2021 have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board, or IASB, and are included under Item 18 of this Annual Report. The financial statements including related notes are accompanied by the report of the Company's independent registered public accounting firm, DeVisser Gray LLP.
Legal Proceedings
As of the date of this Annual Report, in the opinion of our management, we are not currently a party to any litigation or legal proceedings which are material, either individually or in the aggregate, and, to our knowledge, no legal proceedings of a material nature involving us currently are contemplated by any individuals, entities or governmental authorities.
Dividends
We have not paid any dividends on our Common Shares since incorporation. Our management anticipates that we will retain all future earnings and other cash resources for the future operation and development of our business. We do not intend to declare or pay any cash dividends in the foreseeable future. Payment of any future dividends will be at the Board of Directors' discretion, subject to applicable law, after taking into account many factors including our operating results, financial condition and current and anticipated cash needs.
| - 63 - |
B. Significant Changes
We have not experienced any significant changes since the date of the financial statements included with this Annual Report except as disclosed in this Annual Report.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing
Our Common Shares are traded on the CSE and Nasdaq under the symbol "DRUG".
B. Plan of Distribution
Not applicable.
C. Markets
Please see Item 9.A above.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following is a summary of the Company's Notice of Articles (the "Notice of Articles") and Articles (the "Articles"). You should read those documents for a complete understanding of the rights and limitations set out therein. The Company number, as assigned by the British Columbia Registry Services, is BC1210954.
Remuneration of Directors
The directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors so decide, the remuneration of the directors, if any, will be determined by the shareholders. We must reimburse each director for the reasonable expenses that he or she may incur in and about our business. If any director performs any professional or other services for us that in the opinion of the directors are outside the ordinary duties of a director, he or she may be paid remuneration fixed by the directors, or at the option of the directors, fixed by ordinary resolution, and such remuneration will be in addition to any other remuneration that he or she may be entitled to receive. Unless otherwise determined by ordinary resolution, the directors on our behalf may pay a gratuity or pension or allowance on retirement to any director who has held any salaried office or place of profit with us or to his or her spouse or dependents and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.
| - 64 - |
Number of Directors
According to Article 13.1 of our Articles, the number of directors, excluding additional directors appointed under Article 14.8 is set at:
(a) subject to paragraphs (b) and (c), the number of directors that is equal to the number of our first directors;
(b) if we are a public company, the greater of three and the most recently set of:
(i) the number of directors set by a resolution of the directors (whether or not previous notice of the resolution was given); and
(ii) the number of directors in office pursuant to Article 14.4 of our Articles; and
(c) if we are not a public company, the most recently set of:
(i) the number of directors set by a resolution of the directors (whether or not previous notice of the resolution was given); and
(ii) the number of directors in office pursuant to Article 14.4 of our Articles.
Directors
Our directors are elected annually at each annual meeting of our company's shareholders. Our Articles provide that the Board of Directors may, between annual meetings, appoint one or more additional directors to serve until the next annual meeting, but the number of additional directors must not at any time exceed:
(a) one-third of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term of office; or
(b) in any other case, one-third of the number of the current directors who were elected or appointed as directors at the expiration of the last annual meeting of our company's shareholders.
Our Articles provide that our directors may from time to time on behalf of our company, without shareholder approval:
- subdivide or consolidate all or any of its unissued, or fully paid issued, shares;
- alter the identifying name of any of its shares;
- borrow money in the manner and amount, on the security, from the sources and on the terms and conditions that they consider appropriate;
- issue bonds, debentures and other debt obligations either outright or as security for any liability or obligation of the Company or any other person and at such discounts or premiums and on such other terms as the directors consider appropriate;
- guarantee the repayment of money by any other person or the performance of any obligation of any other person; and
- mortgage, charge, whether by way of specific or floating charge, grant a security interest in, or give other security on, the whole or any part of the present and future assets and undertaking of the Company.
Our Articles also provide that, we may by resolution of the directors authorize an alteration to our Notice of Articles to change our name or adopt or change any translation of that name.
Our Articles provide that the directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the directors held at regular intervals may be held at the place, at the time and on the notice, if any, as the directors may from time to time determine. Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting has a second or casting vote. A director may participate in a meeting of the directors or of any committee of the directors in person, or by telephone or other communications medium, if all directors participating in the meeting, whether in person or by telephone or other communications medium, are able to communicate with each other. A director who participates in a meeting in a manner contemplated by the foregoing is deemed for all purposes of the BCBCA and our Articles to be present at the meeting and to have agreed to participate in that manner.
| - 65 - |
Our Articles provide that the quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is deemed to be a majority of the directors or, if the number of directors is set at one, is deemed to be set at one director, and that director may constitute a meeting.
Our Articles provide that a director who holds a disclosable interest (as that term is used in the BCBCA) in a contract or transaction into which we have entered or propose to enter is liable to account to us for any profit that accrues to the director under or as a result of the contract or transaction only if and to the extent provided in the BCBCA. A director who holds a disclosable interest in a contract or transaction into which we have entered or propose to enter is not entitled to vote on any directors' resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution. A director who holds a disclosable interest in a contract or transaction into which we have entered or propose to enter and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting. A director who holds any office or possesses any property, right or interest that could result, directly or indirectly, in the creation of a duty or interest that materially conflicts with that individual's duty or interest as a director, must disclose the nature and extent of the conflict as required by the BCBCA. A director may hold any office or place of profit with us, other than the office of our auditor, in addition to his or her office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine. No director or intended director is disqualified by his or her office from contracting with us either with regard to the holding of any office or place of profit the director holds with us or as vendor, purchaser or otherwise, and no contract or transaction entered into by or on behalf of us in which a director is in any way interested is liable to be voided for that reason.
Our Articles do not set out a mandatory retirement age for our directors. Our directors are not required to own our securities to serve as directors.
Authorized Capital
Our Notice of Articles provide that our authorized capital consists of an unlimited number of Common Shares, without par value.
Rights, Preferences and Restrictions Attaching to Our Shares
The BCBCA provides the following rights, privileges, restrictions and conditions attaching to our Common Shares:
- to vote at meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote;
- subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of our company, to share equally in the remaining property of our company on liquidation, dissolution or winding-up of our company; and
- subject to the rights of the preferred shares, the Common Shares are entitled to receive dividends if, as, and when declared by the Board of Directors
The provisions in our Articles attaching to our Common Shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the outstanding Common Shares.
With the exception of special resolutions (i.e. resolutions in respect of fundamental changes to our company, including: the sale of all or substantially all of our assets, an amalgamation or other arrangement or an alteration to our authorized capital that is not allowed by resolution of the directors) that require the approval of holders of two-thirds of the outstanding Common Shares entitled to vote at a meeting, either in person or by proxy, resolutions to approve matters brought before a meeting of our shareholders require approval by a simple majority of the votes cast by shareholders entitled to vote at a meeting, either in person or by proxy.
| - 66 - |
Shareholder Meetings
The BCBCA provides that: (i) a general meeting of shareholders must be held in British Columbia, or may be held at a location outside British Columbia if (A) the location is provided for in the articles, (B) the articles do not restrict the company from approving a location outside of British Columbia for the holding of the general meeting and the location for the meeting is (1) approved by the resolution required by the articles for that purpose, or (2) if no resolution is required for that purpose by the articles, approved by ordinary resolution, or (C) the location for the meeting is approved in writing by the Registrar of Companies for British Columbia before the meeting is held; (ii) directors must call an annual meeting of shareholders not later than 15 months after the last preceding annual meeting; (iii) for the purpose of determining shareholders entitled to receive notice of or vote at meetings of shareholders, the directors may fix in advance a date as the record date for that determination, provided that such date shall not precede by more than two months or by less than 21 days the date on which the meeting is to be held, and, if no record date is set, the record date is 5:00 p.m. on the day immediately preceding the first date on which the notice is sent or, if no notice is sent, the beginning of the meeting; (iv) the holders of not less than 5% of the issued shares entitled to vote at a meeting may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition; (v) only shareholders entitled to vote at the meeting, our directors and our auditor are entitled to be present at a meeting of shareholders; and (vi) upon the application of a director or shareholder entitled to vote at the meeting, the British Columbia Supreme Court may order a meeting to be called, held and conducted in a manner that the Court directs.
Pursuant to Article 10.9 of our Articles, in addition to any location in British Columbia, any general meeting may be held in any location outside of British Columbia approved by a resolution of the directors.
Pursuant to Article 11.3 of our Articles, the quorum for the transaction of business at a meeting of shareholders is at least one person who is, or who represents by proxy, one or more shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting.
C. Material Contracts
The following summary of our material agreements, all of which have been previously filed with the SEC, does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of those agreements. There are no material contracts, other than those contracts entered into in the ordinary course of business, currently in place or to which we or any member of our group is a party, from the two years immediately preceding the publication of this Annual Report, except as follows:
Agency Agreement
On August 25, 2022, the Company entered into an agency agreement (the "Agency Agreement") with Eight Capital (the "Agent"). The Agency Agreement was entered into in connection with the sale of 2,858,000 units of the Company (the "2022 Units") at a price of $1.40 per 2022 Unit for aggregate gross proceeds of $4,001,200 on August 30, 2022 pursuant to the Company's prospectus supplement dated August 25, 2022 to its short form base shelf prospectus dated June 7, 2021 (the "2022 Unit Offering").
Each 2022 Unit consisted of one Common Share and one Common Share purchase warrant of the Company (a "2022 Warrant"). Each 2022 Warrant is exercisable to acquire one Common Share (each, a "2022 Warrant Share") at an exercise price of $1.76 per 2022 Warrant Share until August 30, 2024.
Pursuant to the Agency Agreement, the Agent was paid cash commission for their services in the amount of $280,084 plus expenses and received compensation warrants ("Compensation Warrants") entitling them to purchase an aggregate of 134,040 2022 Units at a price of $1.40 per 2022 Unit until August 30, 2024.
In connection with the 2022 Offering, H.C. Wainwright & Co. ("HCW) acted as the Company's U.S. capital markets advisor. As compensation for their services HCW was paid $93,326.80 plus expenses and received 91,158 Compensation Warrants.
Warrant Indenture
In connection with the 2022 Unit Offering, the Company and the Warrant Agent entered into a warrant indenture (the "2022 Warrant Indenture") dated August 30, 2022 governing the terms of the 2022 Warrants.
| - 67 - |
The 2022 Warrant Indenture provides for adjustment in the number of 2022 Warrant Shares issuable upon the exercise of the 2022 Warrants and/or the exercise price per 2022 Warrant Share upon the occurrence of certain events. However, no adjustment in the exercise price or the number of 2022Warrant Shares issuable upon the exercise of the 2022 Warrants is required to be made unless the cumulative effect of such adjustment or adjustments would result in a change of at least 1% in the exercise price. Pursuant to the 2022 Warrant Indenture, the Company must give notice to the Warrant Agent and to the holders of the 2022 Warrants of certain stated events, including events that would result in an adjustment to the exercise price for the 2022 Warrants or the number of 2022 Warrant Shares issuable upon exercise of the 2022 Warrants. The notice must be given not less than fourteen (14) days prior to any such applicable record date. If notice has been given and the adjustment is not then determinable, the Company shall promptly, after the adjustment is determinable, file with the Warrant Agent a computation of the adjustment and give notice to the holders of the 2022 Warrants of such adjustment computation.
No fractional 2022 Warrant Shares are issuable upon the exercise of any 2022 Warrants and no compensation will be paid in lieu of fractional 2022 Warrant Shares. Except as may be specifically provided in the 2022 Warrant Indenture, nothing in the 2022 Warrant Indenture or in the holding of a warrant certificate, entitlement to a 2022 Warrant or otherwise, confers or is to be construed as conferring upon holders of 2022 Warrants any right or interest whatsoever as a shareholder of the Company, including, but not limited to, the right to vote at, to receive notice of, or to attend, meetings the Company's shareholders or any other proceedings of the Company, or the right to dividends and other allocations.
D. Exchange Controls
We are incorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See "Certain Canadian Federal Income Tax Information For United States Residents" below.
There is no limitation imposed by Canadian law or by the charter or other constituent documents of our Company on the right of a non-resident to hold or vote common shares of our Company. However, the Investment Act has rules regarding certain acquisitions of shares by non-residents, along with other requirements under that legislation.
The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire common shares of our Company. The discussion is general only; it is not a substitute for independent legal advice from an investor's own advisor; and it does not anticipate statutory or regulatory amendments.
The Investment Act is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures (each an "entity"). Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Act. If an investment by a non-Canadian to acquire control over an existing Canadian business that is not a Canadian "cultural business" is reviewable under the Investment Act, the Investment Act generally prohibits implementation of the investment unless, after review, the Minister of Innovation, Science and Industry (the "Minister") is satisfied that the investment is likely to be of net benefit to Canada. For investments in Canadian "cultural businesses" that are reviewable, the Minister of Canadian Heritage is responsible for reviewing the investment to confirm it is likely to be of net benefit to Canada. We do not believe that the Company is a Canadian cultural business as the term "cultural business" is defined in the Investment Act.
A non-Canadian would acquire control of our Company for the purposes of the Investment Act through the acquisition of common shares if the non-Canadian acquired a majority of the voting interests in our Company.
Further, the acquisition of less than a majority but one-third or more of the voting interests in our Company by a non-Canadian would be presumed to be an acquisition of control of our Company unless it could be established that, on the acquisition, our Company was not controlled in fact by the acquirer through the ownership of such voting interests.
For a direct acquisition that would result in an acquisition of control of our Company, subject to the exception for "WTO-investors" that are controlled by persons who are nationals or permanent residents of World Trade Organization ("WTO") member nations, a proposed investment generally would be reviewable where the value of the acquired assets is CAD$5 million or more.
| - 68 - |
For a proposed indirect acquisition by an investor other than a so-called WTO investor that would result in an acquisition of control of our Company through the acquisition of a non-Canadian parent entity, the investment generally would be reviewable where the value of the assets of the entity carrying on the Canadian business, and of all other entities in Canada, the control of which is acquired, directly or indirectly is CAD$50 million or more.
In the case of a direct acquisition by a "WTO investor", the threshold is significantly higher. An investment in common shares of our Company by a WTO investor that is not a state-owned enterprise would be reviewable only if it was an investment to acquire control of the company and the enterprise value of the assets of the company was equal to or greater than a specified amount, which is published by the Minister after its determination for any particular year. For 2023, this amount is CAD$1.287 billion (unless the investor is controlled by persons who are nationals or permanent residents of countries that are party to one of a list of certain free trade agreements, in which case the amount is CAD$1.931 billion for 2023); each year, both thresholds are adjusted by a GDP (Gross Domestic Product) based index.
The higher WTO threshold for direct investments and the exemption for indirect investments do not apply where the relevant Canadian business is carrying on a "cultural business". The acquisition of a Canadian business that is a "cultural business" is subject to lower review thresholds under the Investment Act because of the perceived sensitivity of the cultural sector.
In 2009, amendments were enacted to the Investment Act concerning investments that may be considered injurious to national security. If the Minister has reasonable grounds to believe that an investment by a non-Canadian "could be injurious to national security," the Minister may send the non-Canadian a notice indicating that an order for review of the investment may be made. The review of an investment on the grounds of national security may occur whether or not an investment is otherwise subject to review on the basis of net benefit to Canada or otherwise subject to notification under the Investment Act.
Certain transactions, except those to which the national security provisions of the Investment Act may apply, relating to the acquisition of common shares of our Company, are exempt from the Investment Act, including:
(a) the acquisition of our common shares by a person in the ordinary course of that person's business as a trader or dealer in securities;
(b) the acquisition of control of our Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Act, if the acquisition is subject to approval under the Bank Act, the Cooperative Credit Associations Act, the Insurance Companies Act or the Trust and Loan Companies Act; and
(c) the acquisition of control of our Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of our company, through the ownership of voting interests, remained unchanged.
E. Taxation
Certain Canadian Federal Income Tax Considerations for United States Residents
The following is a summary of certain Canadian federal income tax considerations generally applicable to the holding and disposition of our common shares acquired by a holder who, at all relevant times, (a) for the purposes of the Income Tax Act (Canada) (the "Tax Act") (i) is not resident, or deemed to be resident, in Canada, (ii) deals at arm's length with us and any underwriters that we have recently used, and is not affiliated with us or the underwriters that we have recently used, (iii) holds our common shares as capital property, (iv) does not use or hold the common shares in the course of carrying on, or otherwise in connection with, a business carried on or deemed to be carried on, in Canada and (v) is not a "registered non-resident insurer", an "authorized foreign bank" (each as defined in the Tax Act), or other holder of special status or in special circumstances, and (b) for the purposes of the Canada-U.S. Tax Convention (the "Tax Treaty"), is a resident of the United States, has never been a resident of Canada, does not have and has not had, at any time, a permanent establishment or fixed base in Canada, and who qualifies for the full benefits of the Tax Treaty. Holders who meet all the criteria in clauses (a) and (b) above are referred to herein as "U.S. Holders", and this summary only addresses such U.S. Holders.
| - 69 - |
This summary does not deal with special situations, such as the particular circumstances of traders or dealers, tax exempt entities, insurers or financial institutions, or other holders of special status or in special circumstances. Such holders, and all other holders who do not meet the criteria in clauses (a) and (b) above, should consult their own tax advisors.
This summary is based on the current provisions of the Tax Act, the regulations thereunder in force at the date hereof (the "Regulations"), the current provisions of the Tax Treaty, and our understanding of the administrative and assessing practices of the Canada Revenue Agency published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Proposed Amendments") and assumes that any such Proposed Amendments will be enacted in the form proposed. However, such Proposed Amendments might not be enacted in the form proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative or assessing practices, whether by legislative, governmental or judicial decision or action, nor does it take into account tax laws of any province or territory of Canada or of any other jurisdiction outside Canada, which may differ significantly from those discussed in this summary.
For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of our securities must be expressed in Canadian dollars. Amounts denominated in United States currency generally must be converted into Canadian dollars using the rate of exchange that is acceptable to the Canada Revenue Agency.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder, and no representation with respect to the Canadian federal income tax consequences to any particular U.S. Holder or prospective U.S. Holder is made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, all prospective purchasers (including U.S. Holders as defined above) should consult with their own tax advisors for advice with respect to their own particular circumstances.
Withholding Tax on Dividends
Amounts paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends on our common shares to a U.S. Holder will be subject to Canadian withholding tax. Under the Tax Treaty, the rate of Canadian withholding tax on dividends paid or credited by us to a U.S. Holder that beneficially owns such dividends and qualifies for the full benefits of the Tax Treaty is generally 15% of the gross amount of the dividends (unless the beneficial owner is a company that owns at least 10% of our voting stock at that time, in which case the rate of Canadian withholding tax is generally reduced to 5%).
Dispositions
A U.S. Holder will, in general terms, not be subject to tax under the Tax Act on a capital gain realized on a disposition or deemed disposition of common shares unless the common shares are "taxable Canadian property" to the U.S. Holder for purposes of the Tax Act and the U.S. Holder is not entitled to relief under the Tax Treaty.
Provided the common shares are listed on a "designated stock exchange" as defined in the Tax Act (which currently includes the CSE) at the time of disposition, the common shares generally will not constitute "taxable Canadian property" of a U.S. Holder at that time unless, at any time during the 60 month period immediately preceding the disposition, the following two conditions are met concurrently: (i) the U.S. Holder, persons with whom the U.S. Holder did not deal at arm's length, partnerships in which the U.S. Holder or such non-arm's length persons holds a membership interest (either directly or indirectly through one or more partnerships), or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class or series of shares of our company; and (ii) more than 50% of the fair market value of the common shares of the company was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource properties (as defined in the Tax Act) or options in respect of, or interests in, or for civil law rights in, property described in any of the foregoing whether or not the property exists. Notwithstanding the foregoing, in certain other circumstances set out in the Tax Act, common shares could also be deemed to be "taxable Canadian property".
U.S. Holders who may hold common shares as "taxable Canadian property" should consult their own tax advisors with respect to the application of Canadian capital gains taxation, any potential relief under the Tax Treaty, and compliance procedures under the Tax Act, none of which is described in this summary.
| - 70 - |
F. Dividends and Paying Agents
Not applicable.
G. Statements by Experts
Not applicable.
H. Documents on Display
The documents concerning our Company referred to in this Annual Report may be viewed at our registered office, 1500 - 1055 West Georgia St., Vancouver, BC, V6E 4N7 (Telephone: (647) 407-2515), during normal business hours. Copies of our financial statements and other continuous disclosure documents required under the Securities Act (British Columbia) are available for viewing on SEDAR+ at www.sedarplus.ca. All of the documents referred to are in English.
In addition, we have filed with the SEC a registration statement on Form 20-F under the Securities Act and the documents referred to in this Annual Report have been filed as exhibits to such Form 20-F with the SEC and may be inspected and copied at the public reference facility maintained by the SEC at 100F. Street NW, Washington, D.C. 20549. In addition, the SEC maintains a website at www.sec.gov that contains copies of documents that we have filed with the SEC using its EDGAR system.
I. Subsidiary Information
The Company has two wholly-owned subsidiaries: Bright Minds Biosciences LLC, a limited liability company formed pursuant to the laws of Delaware, and Bright Minds Bioscience Pty. Ltd., a company formed pursuant to the laws of Australia. Neither of the subsidiaries are material subsidiaries to the Company.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed in varying degrees to a variety of financial instrument related risks. The Board approves and monitors the risk management processes, inclusive of controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company's primary exposure to credit risk is on its cash balance. At September 30, 2023, the Company had cash of $6,747,986, which was held with a major bank in Canada and a major bank in the United States. Because of the balance on deposit with one bank, there is a concentration of credit risk. This risk is managed by using a major bank that is a high credit quality financial institution as determined by rating agencies. The maximum exposure to credit risk is the carrying amount of the Company's financial instruments. The credit risk is assessed as low.
Foreign Exchange Risk
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. As at September, 2023, the Company had the following foreign currency balances - cash (US$677,231 and AU$602,203), receivables (AU$4,709), prepaids (US$14,783 and AU$395) and accounts payable and accrued liabilities (US$82,470, 4,150 Euros, and AU$29,087). A 10% fluctuation in the US$ and AU$ against the Canadian dollar would have an impact of approximately $132,000 on comprehensive loss.
Liquidity Risk
Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. The Company's objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. The Company's main source of funding has been the issuance of equity securities for cash, primarily through private placements. The Company's access to financing is always uncertain. There can be no assurance of continued access to significant equity funding. As at September, 2023, the Company had cash and cash equivalents of $6,747,986 to cover current liabilities of $280,856.
| - 71 - |
Capital Management
Management's objective is to manage its capital to ensure that there are adequate capital resources to safeguard the Company's ability to continue as a going concern through the optimization of its capital structure. The capital structure consists of share capital and working capital. In order to achieve this objective, management makes adjustments to it in light of changes in economic conditions and risk characteristics of the underlying assets. To maintain or adjust the capital structure, management may invest its excess cash in interest bearing accounts of Canadian chartered banks and/or raise additional funds externally as needed. The Company is not subject to externally imposed capital requirements. The Company's management of capital did not change during the year ended September 30, 2023.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
There have not been any defaults with respect to dividends, arrearages or delinquencies since incorporation on May 31, 2019.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
There have been no material modifications to the rights of our security holders since incorporation on May 31, 2019.
Use of Proceeds
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure controls and procedures are defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act to mean controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and includes, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 or 15d-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of our Company's disclosure controls and procedures as of the end of the period covered by this Annual Report, that being as at September 30, 2023. This evaluation was carried out by our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Exchange Act Rules 13a-15(f ) and 15d-15(f ) define this as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
- pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
| - 72 - |
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and
- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that may have a material effect on the financial statements.
Under the supervision and with the participation of our CEO and CFO, our management assessed the effectiveness of our internal control over financial reporting as at September 30, 2023. In making this assessment, our management used the criteria, established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, our management concluded that our internal control over financial reporting was effective as at September 30, 2023.
Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report is not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this Annual Report.
Changes In Internal Control Over Financial Reporting
Except as noted above, during the period ended September 30, 2023, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
As disclosed above, as of the date hereof, our Audit Committee is comprised of David Weiner, Jeremy Fryzuk and Nils Christian Bottler (Chair), each of whom is independent under the listing standards regarding "independence" within the meaning of the Listing Rules of Nasdaq.
Our Board of Directors has determined that Nils Bottler qualifies as an audit committee financial expert pursuant to Items 16A(b) and (c) of Form 20-F. In addition, we believe that each member of the Audit Committee satisfies the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of Nasdaq, meets the independence standards under Rule 10A-3 under the Exchange Act and is financially literate under applicable Canadian laws.
ITEM 16B. CODE OF ETHICS
The Board has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") that applies to all of our employees and officers, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics meets the requirements for a "code of ethics" within the meaning of that term in Item 16B of Form 20-F. A copy of our Code of Ethics will be provided to any person without charge upon request. All requests for a copy of our Code of Ethics should be directed in writing to the attention of Ian McDonald, President and CEO, at 1500-1055 West Georgia Street, Vancouver, British Columbia, V6E 4N7, or by email at ian@brightmindsbio.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth information regarding the amount billed and accrued to us by DeVisser Gray LLP for the fiscal year ended September 30, 2023 and 2022:
| Year Ended September 30 | ||
| 2023 | 2022 | |
| Audit Fees: | $64,000 | $69,000 |
| Audit Related Fees: | $- | $- |
| Tax Fees: | $2,300 | $1,950 |
| Total: | $66,300 | $70,950 |
| - 73 - |
Audit Fees
This category includes the aggregate fees billed by our independent auditor for the audit of our annual financial statements, reviews of interim financial statements that are provided in connection with statutory and regulatory filings or engagements.
Audit Related Fees
This category includes the aggregate fees billed in each of the last two fiscal years for assurance and related services by our independent auditor that are reasonably related to the performance of the audits or reviews of the financial statements and are not reported above under "Audit Fees", and generally consist of fees for other engagements under professional auditing standards, accounting and reporting consultations.
Tax Fees
This category includes the aggregate fees billed in each of the last two fiscal years for professional services rendered by our independent auditor for tax compliance, tax planning and tax advice.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The policy of our Audit Committee is to pre-approve all audit and permissible non-audit services to be performed by our independent auditors during the fiscal year.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
The Company is a foreign private issuer and our common shares are listed on Nasdaq. Nasdaq Listing Rule 5615(a)(3) permits a foreign private issuer to follow its home country practices in lieu of most of the requirements of the 5600 Series of the Nasdaq Listing Rules. In order to claim such an exemption, the Company must disclose the significant differences between its corporate governance practices and those required to be followed by U.S. domestic issuers under Nasdaq's corporate governance requirements. Set forth below is a brief summary of such differences.
Shareholder Approval Requirements
NASDAQ Listing Rule 5635 requires shareholder approval for issuances of common shares, or any securities convertible or exercisable into common shares:
(a) in connection with the acquisition of the stock or assets of another company
(i) where, due to the present or potential issuance of common shares (including shares issued pursuant to an earn-out or similar type of provision, or securities convertible into or exercisable for common shares) other than a public offering for cash:
| - 74 - |
(A) the common shares constitute or will upon issuance constitute at least 20% of the voting power outstanding before the issuance of the common shares (or, if applicable before the issuance of the securities convertible into or exercisable for common shares); or
(B) the common shares constitute or will upon issuance constitute at least 20% of the number of common shares outstanding before the issuance; or
(ii) if any director, officer or Substantial Shareholder (as defined by Rule 5635(e)(3) of the NASDAQ Listing Rules) of the listed company has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target company or assets to be acquired, or in the consideration to be paid in the transaction or series of related transactions, and the present or potential issuance of common shares, or securities convertible into or exercisable for common shares, could result in an increase of 5% or more in the outstanding common shares or voting power of the listed company; and
(b) where the issuance or potential issuance will result in a change of control of the listed company.
The Company intends to follow the British Columbia corporate and securities laws, which do not require shareholder approval for dilutive events unless the Company were to dispose of all or substantially all of its undertaking. In addition, the Company intends to follow the Canadian Securities Exchange policies which require shareholder approval on the occurrence of a "fundamental change", defined by the policies of the Canadian Securities Exchange to be an asset purchase (whether for cash or securities), take-over (either a formal or exempt bid), amalgamation, arrangement or other form of merger, the result of which is that for the next 12-month period at least 50% of the issuer's:
(a) assets or resources are expected to be comprised of,
(b) anticipated revenues are expected to be derived from, or
(c) expenditures and management time and effort will be devoted to the assets, properties businesses or other interests that are the subject of such transaction,
in combination with a change of control. The determination of a change of control in such context would include the distribution of 100% of the number of equity securities of the issuer outstanding prior to the transaction, a distribution resulting in new shareholders holding greater than 50% of the voting securities of the issuer, or otherwise may be determined through a change in voting control of the issuer or a substantial change of the management or the board of directors of the issuer.
Further, the policies of the Canadian Securities Exchange require securityholder approval of an acquisition if:
(a) the total number of securities issuable (on a fully-diluted basis):
(i) is more than 50% of the total number of securities or votes of the issuer outstanding (on a non-diluted basis) accompanied by a new control person, or 100% of the total number of securities outstanding; or
(ii) would, as determined by the issuer or the Canadian Securities Exchange, materially affect control of the issuer.
NASDAQ Listing Rule 5635(c) also requires shareholder approval prior to the issuance of securities when a stock option or purchase plan is established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants, except for:
| - 75 - |
(a) warrants or rights issued generally to all security holders of the listed company or stock purchase plans available on equal terms to all security holders of the listed company (such as a typical dividend reinvestment plan);
(b) tax qualified, non-discriminatory employee benefit plans (e.g., plans that meet the requirements of Section 401(a) or 423 of the Internal Revenue Code) or parallel nonqualified plans, provided such plans are approved by the listed company's independent compensation committee or a majority of the listed company's independent directors; or plans that merely provide a convenient way to purchase shares on the open market or from the listed company at market value;
(c) plans or arrangements relating to an acquisition or merger as permitted under IM-5635-1; or
(d) issuances to a person not previously an employee or director of the listed company, or following a bona fide period of non-employment, as an inducement material to the individual's entering into employment with the listed company, provided such issuances are approved by either the listed company's independent compensation committee or a majority of the listed company's independent directors. Promptly following an issuance of any employment inducement grant in reliance on this exception, a listed company must disclose in a press release the material terms of the grant, including the recipient(s) of the grant and the number of shares involved.
The Company intends to follow British Columbia corporate and securities laws, which do not require shareholder approval of equity compensation plans or most discount to market offerings of securities unless otherwise indicated in the Articles of the Company. In addition, the Company intends to follow the Canadian Securities Exchange policies which provide that an issuer must obtain securityholder approval for rolling/evergreen security based compensation plans (a) with three years after the institution of such plan, and (b) within every three years thereafter. The Company also intends to follow Canadian Securities Exchange policies and certain provisions of Canadian securities laws which require limitations on the number of equity compensation securities that can be distributed, as follows:
(a) options granted to persons performing investor relations services cannot exceed 2% of the outstanding number of listed securities in any 12-month period; and
(b) the issuance of equity compensation securities cannot result in the issuance of greater than 5% of the issued and outstanding shares (at the time of adoption) to an individual, or 10% in total in the following 12 months, without first obtaining shareholder approval.
NASDAQ Listing Rule 5635(d) also requires shareholder approval where there is a transaction other than a public offering (as defined in NASDAQ IM-5635-3), involving the sale, issuance or potential issuance by the listed company of common stock (or securities convertible into or exercisable for common stock), which alone or together with sales by officers, directors or Substantial Shareholders of the listed company, equals 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance (a "20% Issuance") at a price less than the lower of (the "Minimum Price"):
(a) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or
(b) the average Nasdaq Official Closing Price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement.
The Company intends to follow British Columbia corporate and securities laws, which do not require shareholder approval of 20% Issuances at a price that is less than the Minimum Price. In addition, the Company intends to follow the Canadian Securities Exchange policies which permit private placements of an issuer's securities to be issued at a price per security lower than the greater of:
| - 76 - |
(a) $0.05; and
(b) the closing market price of the security on the Canadian Securities Exchange on the trading day prior to the earlier of the dissemination of a news release disclosing the private placement or the posting of notice of the proposed private placement, less a discount which shall not exceed the maximum permitted discount, as follows (the "Maximum Permitted Discount"):
(i) 25% for securities with a closing price of up to CAD$0.50;
(ii) 20% for securities with a closing price between CAD$0.51 to CAD$2.00; and
(iii) 15% for securities with a closing price above CAD$2.00.
However, the policies of the Canadian Securities Exchange require securityholder approval of a proposed securities offering (by way of prospectus or by private placement) if:
(a) the number of securities issued in the offering (on a fully-diluted basis) is more than 50% of the total number of securities or votes of the issuer outstanding (on a non-diluted basis) accompanied by a new control person, or 100% of the total number of securities outstanding;
(b) the price is lower than the market price less the Maximum Permitted Discount; or
(c) the issuer or the Canadian Securities Exchange otherwise determine that the transaction will materially affect control of the issuer.
Quorum Requirement
NASDAQ Listing Rule 5620(c) requires that each company that is not a limited partnership shall provide for a quorum as specified in its by-laws for any meeting of holders of common stock; provided, however, that in no case shall such quorum be less than 33 1/3% of the outstanding shares of the listed company's common voting stock. The Company will not follow this NASDAQ Listing Rule. Instead, the Company intends to comply with British Columbia corporate and securities laws and its Articles which do not require a quorum of no less than 33 1/3% of the outstanding shares of the Company's common voting stock and provides that the quorum for the transaction of business at a meeting of shareholders is the quorum established by the Company's Articles, which is at least one person who is, or who represents by proxy, one or more shareholders who, in the aggregate, hold at least 5% of the issued shares entitled to be voted at the meeting.
Executive Sessions
Under NASDAQ Listing Rule 5605(b)(2), a listed company must have regularly scheduled meetings at which only independent directors are present ("executive sessions"). The rule contemplates that executive sessions will occur at least twice a year, and perhaps more frequently, in conjunction with regularly scheduled board meetings. Under applicable Canadian rules, customs and practice, the Company's independent directors are not required to hold executive sessions. However, since the Company's common shares are listed for trading on NASDAQ, the Company is subject to certain disclosure requirements prescribed in Canadian Form 58-101F1 - Corporate Governance Disclosure. In particular, the Company must disclose whether the independent directors hold executive sessions and, if such executive sessions are held, how many of these meetings have been held since the beginning of the Company's most recently completed financial year. If the Company does not hold executive sessions, the Company must describe what the Board does to facilitate open and candid discussion among its independent directors.
Proxy Delivery Requirements
Under NASDAQ Listing Rule 5620(b), a listed company that is not a limited partnership must solicit proxies and provide proxy statements for all meetings of shareholders, and also provide copies of such proxy solicitation materials to NASDAQ. The Company is a "foreign private issuer" as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
| - 77 - |
Distribution of Annual and Interim Reports
Under NASDAQ Listing Rule 5250(d)(1), a listed company shall make available to shareholders an annual report containing audited financial statements of the listed company and its subsidiaries (which, for example may be on Form 10-K, 20-F, 40-F or N-CSR) within a reasonable period of time following the filing of the annual report with the SEC. A listed company may comply with this requirement either:
(a) by mailing the report to the shareholders;
(b) by satisfying the requirements for furnishing an annual report contained in Rule 14a-16 under the Act; or
(c) by posting the annual report to shareholders on or through the listed company's website, along with a prominent undertaking in the English language to provide shareholders, upon request, a hard copy of the listed company's annual report free of charge. A listed company that chooses to satisfy this requirement pursuant to this paragraph (c) must, simultaneous with this posting, issue a press release stating that its annual report has been filed with the SEC (or other regulatory authority). This press release shall also state that the annual report is available on the listed company's website and include the website address and that shareholders may receive a hard copy free of charge upon request. A listed company must provide such hard copies within a reasonable period of time following the request.
In addition, under NASDAQ Listing Rule 5250(d)(4)(A), each listed company that is not a limited partnership and is not subject to Rule 13a-13 under the Exchange Act and that is required to file with the SEC, or other regulatory authority, interim reports relating primarily to operations and financial position, shall make available to shareholders reports which reflect the information contained in those interim reports. Such reports shall be made available to shareholders either before or as soon as practicable following filing with the appropriate regulatory authority. If the form of the interim report provided to shareholders differs from that filed with the regulatory authority, the listed company shall file one copy of the report to shareholders with NASDAQ in addition to the report to the regulatory authority that is filed with NASDAQ pursuant to Rule 5250(c)(1).
The Company intends to comply with NASDAQ Listing Rules 5250(d)(1) and 5250(d)(4)(A), however, the Company may not do so or on a consistent basis. Instead, the Company may determine to comply with British Columbia corporate and securities laws which do not require the distribution of annual or interim reports to shareholders but do require the Company to place before the annual general meeting the annual financial statements that the Company is required to file with the applicable securities commissions in Canada under the Securities Act (British Columbia) in relation to the most recently completed financial year, file annual and interim financial statements on SEDAR+ at www.sedarplus.ca, and send annually a request form to the registered holders and beneficial owners of its securities that can be used to request a paper copy of the Company's annual financial statements and management discussion and analysis for the annual financial statements, and a copy of the Company's interim financial reports and management discussion and analysis for the interim financial reports free of charge.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
On June 13, 2021, the Company adopted its Security Trading and Reporting Guidelines which sets forth guidelines that apply to directors, officers and employees of the Company and its subsidiaries. There are also specific guidelines that apply to directors and officers, as follows:
- Directors and officers should obtain pre-clearance for all trading activities from the Chair of the Board of Directors or the Chief Financial Officer of the Company. This pre-clearance is intended to provide an additional review of current business initiatives to ensure that trading does not occur while material non-public information exists.
| - 78 - |
- Directors and officers must report all trading in securities to the Chief Financial Officer within 24 hours of the transaction taking place. Trading includes purchase and sale of securities, exercise of options, and transfer of securities.
- The Chief Financial Officer has been given power of attorney for the filing of all insider trading reports with the appropriate securities regulators within prescribed filing timelines on behalf of the directors and officers.
A copy of the Security Trading and Reporting Guidelines has been filed herewith as Exhibit 16.1.
ITEM 16K. CYBERSECURITY
Since the Company's fiscal year end for this Annual Report on Form 20-F was September 30, 2023, the Company is not required provide the required disclosure for Item 16K of Form 20-F until its Annual Report on Form 20-F for the fiscal year ended September 30, 2024.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Our financial statements were prepared in accordance with IFRS, as issued by the IASB, and are presented in Canadian dollars.
| - 79 - |
Bright Minds Biosciences Inc.
Consolidated Financial Statements
For the years ended September 30, 2023, 2022, and 2021
(Expressed in Canadian Dollars)
| 1 | Page |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Bright Minds Biosciences Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Bright Minds Biosciences Inc. (“the Company”) as of September 30, 2023 and 2022, and the related consolidated statements of comprehensive loss, changes in shareholders’ equity and cash flows for the years ended September 30, 2023, 2022 and 2021, 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 September 30, 2023 and 2022, and the results of its operations and its cash flows for the years ended September 30, 2023, 2022 and 2021, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
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 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 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 whether the 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 internal control over financial reporting. As part of our audits, 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 audits 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 audits 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 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 audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
We have served as the Company's auditor since 2020.
CHARTERED PROFESSIONAL ACCOUNTANTS
December 21, 2023
| 2 | Page |
| Bright Minds Biosciences Inc. Consolidated Statements of Financial Position (Expressed in Canadian dollars) |
| September 30, | September 30, | ||||||||
| As at | Notes | 2023 | 2022 | ||||||
| $ | $ | ||||||||
| ASSETS | |||||||||
| Current Assets | |||||||||
|
Cash and cash equivalents |
9 | ||||||||
|
Sales tax receivable |
|||||||||
|
Other receivables |
|||||||||
|
Prepaids |
|||||||||
| Non-Current Assets | |||||||||
|
Right-of-use asset |
11 | ||||||||
| TOTAL ASSETS | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
| Current Liabilities | |||||||||
|
Accounts payable and accrued liabilities |
5,7 | ||||||||
|
Lease liability - current portion |
11 | ||||||||
| Non-Current Liabilities | |||||||||
|
Lease liability - non-current portion |
11 | ||||||||
| TOTAL LIABILITIES | |||||||||
| Shareholders' equity | |||||||||
|
Share capital |
6 | ||||||||
|
Pre-funded warrants |
6 | ||||||||
|
Reserves |
6 | ||||||||
|
Deficit |
( |
) | ( |
) | |||||
| TOTAL SHAREHOLDERS' EQUITY | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
Nature and continuance of operations (Note 1)
Subsequent events (Note 13)
| Approved on behalf of the Board of Directors: | |||
| "Ian McDonald" | "Nils Bottler" | ||
| Director | Director | ||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 | Page |
| Bright Minds Biosciences Inc. Consolidated Statements of Comprehensive Loss (Expressed in Canadian dollars) |
| For the year ended | Notes | September 30, 2023 |
September 30, 2022 |
September 30, 2021 |
||||||||
| $ | $ | $ | ||||||||||
| EXPENSES | ||||||||||||
|
Consulting fees |
6,7 | |||||||||||
|
Directors' compensation |
6,7 | |||||||||||
|
Foreign exchange |
( |
) | ( |
) | ( |
) | ||||||
|
Funds processing fees - private placements |
||||||||||||
|
Marketing, advertising, and investor relations |
||||||||||||
|
Office and administrative |
11 | |||||||||||
|
Professional fees |
7 | |||||||||||
|
Regulatory and filing |
||||||||||||
|
Research and development |
6,7,10 | |||||||||||
| ( |
) | ( |
) | ( |
) | |||||||
| OTHER ITEMS | ||||||||||||
|
Impairment of intangible assets |
( |
) | ||||||||||
| Net and comprehensive loss | ( |
) | ( |
) | ( |
) | ||||||
| Basic and diluted loss per share | ( |
) | ( |
) | ( |
) | ||||||
| Weighted average number of common shares outstanding | ||||||||||||
| -basic and diluted |
The accompanying notes are an integral part of these consolidated financial statements.
| 4 | Page |
| Bright Minds Biosciences Inc. Consolidated Statements of Changes in Shareholders’ Equity (Expressed in Canadian dollars) |
| Share Capital | ||||||||||||||||||||||||||||
| Number of shares * |
Share capital | Subscriptions receivable |
Subscriptions received |
Pre-funded warrants |
Reserves | Deficit | Total | |||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Balance as at September 30, 2020 | ( |
) | ( |
) | ||||||||||||||||||||||||
| Private placements | ( |
) | ( |
) | ||||||||||||||||||||||||
| Finder's fees - cash | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Finder's fees - broker warrants | - | ( |
) | |||||||||||||||||||||||||
| Finder's fees - share options | - | ( |
) | |||||||||||||||||||||||||
| Share issue costs | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Debt settlement with shares | ||||||||||||||||||||||||||||
| Special warrant conversion | ||||||||||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||||||||||
| Shares issued to the University | ||||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance as at September 30, 2021 | ( |
) | ( |
) | ||||||||||||||||||||||||
| Private placement | ||||||||||||||||||||||||||||
| Finder's fees - cash | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Finder's fees - compensation warrants | - | ( |
) | |||||||||||||||||||||||||
| Finder's fees - share options | - | ( |
) | |||||||||||||||||||||||||
| Share issue costs | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||||||||||
| Compensation warrants exercised | ( |
) | ||||||||||||||||||||||||||
| Shares issued to a consultant | ||||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance as at September 30, 2022 | ( |
) | ||||||||||||||||||||||||||
| Private placement - common shares | ||||||||||||||||||||||||||||
| Private placement - pre-funded warrants | - | |||||||||||||||||||||||||||
| Share issue costs | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Warrants exercised | ||||||||||||||||||||||||||||
| RSUs exercised | ( |
) | ||||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance as at September 30, 2023 | ( |
) | ||||||||||||||||||||||||||
* On July 14, 2023, the Company completed a share consolidation on the basis of 1 new common share to 5 old common shares (Note 6). For accounting purposes, recognition of the share consolidation has been made retroactively such that all share and per share numbers have been adjusted to reflect the share consolidation.
The accompanying notes are an integral part of these consolidated financial statements.
| 5 | Page |
| Bright Minds Biosciences Inc. Consolidated Statements of Cash Flows (Expressed in Canadian dollars) |
| For the year ended |
Notes |
September 30, 2023 |
September 30, 2022 |
September 30, 2021 |
||||||||
| $ | $ | $ | ||||||||||
| Operating activities | ||||||||||||
| Net loss for the year | ( |
) | ( |
) | ( |
) | ||||||
| Non-cash items: | ||||||||||||
| Depreciation - right-of-use asset | 11 | |||||||||||
| Foreign exchange | ( |
) | ( |
) | ||||||||
| Shares recorded as consulting fees | ||||||||||||
| Shares recorded as research and development | ||||||||||||
| Share-based compensation | 6 | |||||||||||
| Interest on lease liability | 11 | |||||||||||
| Impairment of intangible assets | ||||||||||||
| Changes in non-cash operating working capital items: | ||||||||||||
| Sales tax receivable | ( |
) | ( |
) | ||||||||
| Other receivables | ( |
) | ||||||||||
| Prepaids | ( |
) | ||||||||||
| Accounts payable and accrued liabilities | ( |
) | ||||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ( |
) | ||||||
| Financing activities | ||||||||||||
| Private placement proceeds | 6 | |||||||||||
| Finder's fees | 6 | ( |
) | ( |
) | |||||||
| Share issue costs | ( |
) | ( |
) | ( |
) | ||||||
| Pre-funded warrant proceeds | 6 | |||||||||||
| Special warrant proceeds | ||||||||||||
| Refund of special warrant proceeds | ( |
) | ||||||||||
| Warrant exercise proceeds | 6 | |||||||||||
| Compensation warrant exercise proceeds | ||||||||||||
| Principal portion of lease liability | 11 | ( |
) | ( |
) | |||||||
| Net cash from financing activities | ||||||||||||
| Change in cash and cash equivalents | ( |
) | ( |
) | ||||||||
| Effect of foreign exchange on cash | ( |
) | ||||||||||
| Cash and cash equivalents, beginning of year | ||||||||||||
| Cash and cash equivalents, end of year | ||||||||||||
| SUPPLEMENTARY INFORMATION | ||||||||||||
| Debt settlement by issuing shares | ||||||||||||
| Fair value ascribed by brokers' warrants issued | ||||||||||||
| Fair value of RSUs exercised | 6 | |||||||||||
| Fair value of options issued as finders' fees |
The accompanying notes are an integral part of these consolidated financial statements.
| 6 | Page |
|
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
1. NATURE AND CONTINUANCE OF OPERATIONS
Bright Minds Biosciences Inc. (the "Company") was incorporated under the Business Corporations Act of British Columbia on May 31, 2019. The Company's objective is to generate income and achieve long term profitable growth through the development of therapeutics to improve the lives of patients with certain severe and life-altering diseases. On February 8, 2021, the Company started trading on the Canadian Stock Exchange ("CSE") under the symbol DRUG. On May 17, 2021, the Company started trading on the OTCQB under the symbol BMBIF. On November 8, 2021, the Company started trading on the NASDAQ under the symbol DRUG. The registered address of the Company is located at 1500 - 1055 West Georgia Street, Vancouver, British Columbia, V6E 4N7, Canada. The head office address of the Company is located at 19 Vestry Street, New York, NY 10013, USA.
These consolidated financial statements have been prepared on a 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 foreseeable future. As at September 30, 2023, the Company is not able to finance day to day activities through operations and has incurred a loss of $
2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION
Statement of compliance
These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and Interpretations of the International Financial Reporting Interpretations Committee ("IFRIC"). The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
Basis of preparation
Depending on the applicable IFRS requirements, the measurement basis used in the preparation of these consolidated financial statements is cost, net realizable value, fair value or recoverable amount. These consolidated financial statements, except for the statement of cash flows, are based on the accrual basis.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries Bright Minds Biosciences LLC, a Delaware limited liability company, and Bright Minds Bioscience Pty Ltd., a proprietary company registered under the Corporations Act of Australia on June 24, 2021. On June 10, 2021, the CEO (the "Chief Executive Officer") of the Company transferred, assigned and conveyed all of his membership interests in Bright Minds Biosciences LLC to the Company.
A subsidiary is an entity that the Company controls, either directly or indirectly, where control is defined as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial results of the Company's subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the Company's subsidiaries have been aligned with the policies adopted by the Company. When the Company ceases to control a subsidiary, the financial statements of that subsidiary are de-consolidated.
Inter-company balances and transactions, and any income and expenses arising from inter-company transactions, have been eliminated in these consolidated financial statements.
| 7 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Critical accounting estimates
The preparation of the consolidated financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Certain of the Company's accounting policies and disclosures require key assumptions concerning the future and other estimates that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities or disclosures within the next fiscal year. Where applicable, further information about the assumptions made is disclosed in the notes specific to that asset or liability. The critical accounting estimates and judgments set out below have been applied consistently to all periods presented in these consolidated financial statements.
Ability to continue as a going concern
Evaluation of the ability of the Company to realize its strategy for funding its future needs for working capital involves making judgments.
Share-based compensation
The fair value of stock options is measured using a Black Scholes option pricing model. Measurement inputs include the common share price on the grant date, the exercise price of the instrument, the expected common share price volatility, the weighted average expected life of the instruments, the expected dividends and the risk-free interest rate. Service and non-market performance conditions are not taken into account in determining fair value. The fair value of equity settled RSUs is measured based on management's best estimate of the Company's share price on the grant date.
The share-based compensation recognized is also determined based on management's grant date estimate of the forfeitures that are expected to occur over the life of the stock options and equity settled RSUs. Cash settled RSUs outstanding are fair valued using a mark-to-market calculation based on the Company's closing common share price at the end of the period. The number of stock options and RSUs that actually vest could differ from the estimated number of awards expected to vest and any differences between the actual and estimated forfeitures are recognized prospectively as they occur.
Foreign currency translation
The functional currency of the Company, Bright Minds Biosciences LLC and Bright Minds Bioscience Pty Ltd. is the Canadian dollar and the presentation currency of the Company is the Canadian dollar. Transactions in currencies other than the functional currency are recorded at the rates of exchange prevailing on the transaction date. Monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at each reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Foreign currency translation differences are recognized in profit or loss.
Business combinations
The Company uses the acquisition method to account for business combinations. The Company measures goodwill as the fair value of the consideration transferred, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a gain on acquisition is recognized immediately in net income or loss.
Goodwill is not amortized and is tested for impairment annually. Additionally, goodwill is reviewed at each reporting date to determine if events or changes in circumstances indicate that the asset might be impaired, in which case an impairment test is performed. Goodwill is measured at cost less accumulated impairment losses.
| 8 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.
Internally generated intangible assets - Research and development expenditure
Intangible assets acquired separately are initially recognized at cost. Expenditure on research activities is recognized as an expense in the period in which it is incurred. An internally generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following have been demonstrated:
• The technical feasibility of completing the intangible asset so that it will be available for use or sale;
• The intention to complete the intangible asset and use or sell it;
• The ability to use or sell the intangible asset;
• How the intangible asset will generate probable future economic benefits;
• The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
• The ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally-generated intangible assets is the sum of the expenditures incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
At September 30, 2023 and 2022, the Company has not recognized any internally-generated intangible assets.
Share-based compensation awards
Share-based compensation expense relates to stock options as well as cash and equity settled restricted share units ("RSUs"). The grant date fair values of stock options and equity settled RSUs granted are recognized as an expense, with a corresponding increase in reserves in equity, over the vesting period. The amount recognized as an expense is based on the estimate of the number of awards expected to vest, which is revised if subsequent information indicates that actual forfeitures are likely to differ from the estimate. Upon exercise of stock options, the consideration paid by the holder is included in share capital and the related reserves associated with the stock options exercised is reclassified into share capital. Upon vesting of equity settled RSUs, the related reserves associated with the RSU is reclassified into share capital.
For cash settled RSUs, the fair value of the RSUs is recognized as share-based compensation expense, with a corresponding increase in accrued liabilities over the vesting period. The amount recognized as an expense is based on the estimate of the number of RSUs expected to vest. Cash settled RSUs are measured at their fair value at each reporting period on a mark-to-market basis. Upon vesting of the cash settled RSUs, the liability is reduced by the cash payout.
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost within net income or loss.
| 9 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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, in the countries where the Company operates and generates taxable income.
Deferred tax:
Deferred tax is provided 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 tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Deferred 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 tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Loss per share
Basic loss per share is calculated by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. The loss attributable to common shareholders equals the reported loss attributable to owners of the Company. Diluted loss per share is calculated using the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period. Because the Company incurred net losses, the effect of dilutive instruments would be anti-dilutive and therefore diluted loss per share equals loss per share.
Share capital
Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company's common shares are classified as equity instruments.
Incremental costs directly attributable to the issue of new common shares are recognized as a deduction from equity, net of tax.
Investment tax credits
Investment tax credits under the Australian government's Research and Development Tax Incentive program are recorded using the cost reduction approach based on IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. Investment tax credits related to current research and development expenses are included in the consolidated statements of comprehensive loss as a reduction of expenses.
Investment tax credits arising on qualified expenditures are recognized when there is reasonable assurance that the credits will be realized. The investment tax credits are subject to audit by taxation authorities and the actual amount may change depending on the outcome of an audit.
Financial instruments
Financial instruments are accounted for in accordance with IFRS 9, "Financial Instruments: Classification and Measurement". A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
| 10 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
Financial assets
(a) Recognition and measurement of financial assets
The Company recognizes a financial asset when it becomes a party to the contractual provisions of the instrument.
(b) Classification of financial assets
The Company classifies financial assets at initial recognition as financial assets: measured at amortized cost, measured at fair value through other comprehensive income ("FVTOCI") or measured at fair value through profit or loss ("FVTPL").
(i) Financial assets measured at amortized cost
A financial asset that meets both of the following conditions is classified as a financial asset measured at amortized cost:
• The Company's business model for such financial assets is to hold the assets in order to collect contractual cash flows.
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the amount outstanding.
A financial asset measured at amortized cost is initially recognized at fair value plus transaction costs directly attributable to the asset. After initial recognition, the carrying amount of the financial asset measured at amortized cost is determined using the effective interest method, net of impairment loss, if necessary.
(ii) Financial assets measured at FVTOCI
A financial asset measured at FVOCI is recognized initially at fair value plus transaction costs directly attributable to the asset. After initial recognition, the asset is measured at fair value with changes in fair value included as "financial asset at fair value through other comprehensive income" in other comprehensive income or loss.
(iii) Financial assets measured at FVTPL
A financial asset measured at FVTPL is initially recognized at fair value with any associated transaction costs being recognized in profit or loss when incurred. Subsequently, the financial asset is re-measured at fair value and a gain or loss is recognized in profit or loss in the reporting period in which it arises.
The Company's cash and cash equivalents are classified as subsequently measured at FVTPL.
(c) Derecognition of financial assets
The Company derecognizes a financial asset if the contractual rights to the cash flows from the asset expire, or the Company transfers substantially all the risks and rewards of ownership of the financial asset. Any interests in transferred financial assets that are created or retained by the Company are recognized as a separate asset or liability. Gains and losses on derecognition are generally recognized in the consolidated statement of comprehensive loss. However, gains and losses on derecognition of financial assets classified as FVTOCI remain within accumulated other comprehensive income or loss.
Financial liabilities
(a) Recognition and measurement of financial liabilities
The Company recognizes a financial liability when it becomes a party to the contractual provisions of the instrument.
| 11 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial instruments (continued)
(b) Classification of financial liabilities
(i) Financial liabilities measured at amortized cost
A financial liability measured at amortized cost is initially measured at fair value less transaction costs directly attributable to the issuance of the financial liability. Subsequently, the financial liability is measured at amortized cost using the effective interest method.
The Company's accounts payable and accrued liabilities are classified as subsequently measured at amortized cost.
(ii) Financial liabilities measured at fair value through profit or loss
A financial liability measured at fair value through profit or loss is initially measured at fair value with any associated transaction costs being recognized in profit or loss when incurred. Subsequently, the financial liability is re-measured at fair value and a gain or loss is recognized in profit or loss in the reporting period in which it arises.
(c) Derecognition of financial liabilities
The Company derecognizes a financial liability when the financial liability is discharged, cancelled or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the consolidated statement of comprehensive loss.
Offsetting financial assets and liabilities
Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Company has a legally enforceable right to offset the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Impairment of financial assets
The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost.
At each reporting date, the Company measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the Company measures the loss allowance for the financial asset at an amount equal to the twelve-month expected credit losses. The Company recognizes in the consolidated statement of comprehensive income or loss, as an impairment loss (or gain), the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognized.
Leases
Leases are accounted for in accordance with IFRS 16, "Leases". 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 over a period of time in exchange for consideration. The Company assesses whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all of the economic benefits from the use of the asset during the term of the contract and if it has the right to direct the use of the asset.
As a lessee, the Company recognizes a right-of-use asset and a lease liability at the commencement date of the lease.
Right-of-use asset
The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any lease payments made and any initial direct costs incurred at or before the commencement date, less any lease incentives received.
| 12 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain re-measurements of the lease liability.
Lease liability
A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date discounted by the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest method.
New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations are not yet effective for the year ended September 30, 2023 and have not been applied in preparing these consolidated financial statements. The following new standards have not been adopted which may impact the Company in future:
IAS 1 - Presentation of Financial Statements
An amendment to IAS 1 clarifies the criterion for classifying a liability as non-current relating to the right to defer settlement of a liability for at least 12 months after the reporting period.
IAS 1 has amended the definition of material to "information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity." The previous definition of material from IAS1 was "omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor."
IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors
IAS 8 amended the definition of material reflect the changes outlined above under IAS 1.
IAS 12 and IFRIC 23 - Income Taxes
IAS 12 currently provides guidance on current and deferred tax assets and liabilities however uncertainty may exist on how tax law applies to certain transactions. IFRIC 23 provides guidance on how to address uncertainty related to tax treatments.
4. INTANGIBLE ASSETS
Psilocybinlabs Ltd. ("PL") was incorporated under the laws of the province of British Columbia on April 25, 2019, with the incorporator share being held by a company controlled by the CEO of the Company. On May 17, 2019, this share was transferred to the Company. On April 25, 2019, PL entered into a confirmatory assignment and waiver (the "CAW") with an individual, which was amended and restated on May 17, 2019. Pursuant to the amended and restated CAW, this individual assigned all of the right, title and interest, including all other intellectual property rights (the Rights, as described) to PL. As compensation for the assignment of the Rights, PL issued
| 13 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| September 30, 2023 |
September 30, 2022 |
|||||
| $ | $ | |||||
| Accounts payable | ||||||
| Accrued liabilities | ||||||
| Total accounts payable and accrued liabilities |
6. SHARE CAPITAL
Authorized share capital
Unlimited number of common shares without par value.
Issued share capital for the year ended September 30, 2023
On December 2, 2022, the Company issued
The PFWs are classified as a component of permanent shareholders' equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the Units with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of common shares upon exercise. In addition, such PFWs do not provide any guarantee of value or return. The Company valued the PFWs at issuance, concluding that their sales price approximated their fair value, and a total of $
On March 10, 2023,
During the year ended September 30, 2023, an aggregate of
Issued share capital for the year ended September 30, 2022
On April 11, 2022, the Company entered into a scientific advisory board agreement with Karl Deisseroth ("Deisseroth") pursuant to which the Company will pay Deisseroth a monthly fee of US$
| 14 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
6. SHARE CAPITAL (continued)
On August 30, 2022, the Company issued
In September 2022,
During the year ended September 30, 2022,
Issued share capital for the year ended September 30, 2021
On November 2, 2020, the Company closed the second tranche of a non-brokered private placement financing through the issuance of
On January 6, 2021, the Company issued
On February 3, 2021, the
On March 17, 2021, the Company issued
On April 6, 2021, the Company paid a New York-based company (the "Finder") a contingent cash fee in the amount of $
On April 23, 2021,
On April 28, 2021, the Company issued
| 15 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
6. SHARE CAPITAL (continued)
Escrowed securities
On January 28, 2021, the Company entered into an escrow agreement under National Policy 46-201 Escrow for Initial Public Offerings (the "Policy") in connection with the listing of common shares of the Company on the CSE, whereby
As at September 30, 2023,
Stock options
The Company's stock option plan provides for stock options to be issued to directors, officers, employees and consultants of the Company, its subsidiaries and any personal holding company of such individuals so that they may participate in the growth and development of the Company. Subject to the specific provisions of the stock option plan, eligibility, vesting period, terms of the options and the number of options granted are to be determined by the Board of Directors at the time of grant. The stock option plan allows the Board of Directors to issue up to
Options granted during the year ended September 30, 2023
On December 1, 2022, the Company granted
On December 1, 2022, the Company and a consultant mutually agreed to cancel
On February 16, 2023, the Company granted
Options granted during the year ended September 30, 2022
On September 6, 2022, the Company granted
| 16 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
6. SHARE CAPITAL (continued)
The following table summarizes the movements in the Company's outstanding stock options for the years ended September 30, 2023 and September 30, 2022:
| Number of options |
Weighted average exercise price |
|||||
| Balance at September 30, 2021 | $ | |||||
| Granted | $ | |||||
| Forfeited | ( |
) | $ | |||
| Balance at September 30, 2022 | $ | |||||
| Granted | $ | |||||
| Cancelled(1), (2) | ( |
) | $ | |||
| Balance at September 30, 2023 | $ |
(1)
As at September 30, 2023, the options have a weighted average remaining life of
The following table summarizes the stock options issued and outstanding:
| Options Outstanding and Exercisable | ||||||||||||
| Expiry Date | Number of options |
Exercisable |
Exercise price |
Remaining life (Years) |
||||||||
| September 21, 2024 | $ | |||||||||||
| November 17, 2025 | $ | |||||||||||
| April 28, 2026 (2) | $ | |||||||||||
| June 15, 2026 | $ | |||||||||||
| December 1, 2027 | $ | |||||||||||
| February 16, 2028 | $ | |||||||||||
(2) On December 1, 2022, the Company and a consultant mutually agreed to cancel
Restricted share unit plan
The Company's restricted share unit ("RSU") plan provides RSUs to be issued to directors, officers, employees and consultants of the Company, its subsidiaries and any personal holding company of such individuals so that they may participate in the growth and development of the Company. Subject to the specific provisions of the RSU plan, eligibility, vesting period, terms of the RSUs and the number of RSUs granted are to be determined by the Board of Directors at the time of the grant. The RSU plan allows the Board of Directors to issue common shares of the company as equity settled RSUs, provided that, when combined, the maximum number of common shares reserved for issuance under all share-based compensation arrangements of the Company does not exceed
On December 1, 2022, the Company issued
On April 27, 2022, the Company issued
| 17 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
6. SHARE CAPITAL (continued)
On February 4, 2022 and February 11, 2022, the Company issued
The following table summarizes the movements in the Company's outstanding RSUs for the years ended September 30, 2023 and September 30, 2022:
| Equity settled | Cash settled |
Total | Weighted average exercise price |
|||||||||
| Balance at September 30, 2020 and 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| Balance at September 30, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( |
) | ( |
) | $ | |||||||
| Forfeited* | ( |
) | ( |
) | $ | |||||||
| Balance at September 30, 2023 | $ |
* On November 23, 2022,
As at September 30, 2023, the RSUs have a weighted average remaining life of
The following table summarizes the RSUs issued and outstanding:
| RSUs Outstanding and Exercisable | ||||||||||||
| Expiry Date |
Number of RSUs |
Exercisable |
Exercise price |
Remaining life (Years) |
||||||||
| February 1, 2027 | $ | |||||||||||
| February 1, 2027 | $ | |||||||||||
| April 27, 2027 | $ | |||||||||||
| December 1, 2027 | $ | |||||||||||
Share-based compensation expense recognized in the consolidated statements of comprehensive loss is comprised of the following:
| For the year ended: | |||||||||
| September 30, 2023 |
September 30, 2022 |
September 30, 2021 |
|||||||
| $ | $ | $ | |||||||
| Stock options | |||||||||
| Restricted share units - equity settled grants | |||||||||
| Total equity settled share-based compensation expense | |||||||||
| Restricted share units - cash settled grants | |||||||||
| Total share-based compensation expense | |||||||||
| 18 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
6. SHARE CAPITAL (continued)
Share-based compensation expense is included in the consolidated statements of comprehensive loss as follows:
| For the year ended: | |||||||||
| September 30, 2023 |
September 30, 2022 |
September 30, 2021 |
|||||||
| $ | $ | $ | |||||||
| Consulting fees | |||||||||
| Directors' compensation | |||||||||
| Marketing, advertising and investor relations | |||||||||
| Professional fees | |||||||||
| Research and development | ( |
) | |||||||
| Total share-based compensation expense | |||||||||
Warrants
The following table summarizes the movements in the Company's outstanding warrants for the years ended September 30, 2023 and September 30, 2022:
| Number of warrants |
Weighted average exercise price |
|||||
| Balance at September 30, 2021 | $ | |||||
| Issued | ||||||
| Issued - compensation warrants | ||||||
| Exercised | ( |
) | ||||
| Balance at September 30, 2022 | $ | |||||
| Issued | ||||||
| Exercised | ( |
) | ||||
| Balance at September 30, 2023 | $ |
On March 17, 2021, the Company issued
On August 30, 2022, the Company granted
As at September 30, 2023, the warrants have a weighted average remaining life of
| 19 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
6. SHARE CAPITAL (continued)
The following table summarizes the warrants issued and outstanding:
| Warrants Outstanding | |||||||||
| Expiry Date | Number of warrants |
Exercise price |
Remaining life (Years) |
||||||
| July 30, 2024 (1) | $ | ||||||||
| March 17, 2024 | $ | ||||||||
| March 17, 2024 | $ | ||||||||
| August 30, 2024 | $ | ||||||||
| August 30, 2024 | $ | ||||||||
| August 30, 2024 | $ | ||||||||
| December 2, 2024 | $ | ||||||||
(1) On June 15, 2021, the Company entered into warrant exercise agreements with the two warrant holders, whereby the warrant holders authorized the Company to issue only such number of common shares (or other class of voting securities of the Company, if applicable) as will result in the warrant holders and any other person (as defined) holding less than the threshold number of
7. RELATED PARTY TRANSACTIONS
Related party transactions were recorded at the exchange value, which is the consideration determined and agreed to by the related parties. The Company's related parties include directors, key management and companies controlled by directors and key management.
Included in accounts payable and accrued liabilities as at September 30, 2023 was $
Compensation of Key Management Personnel
Key management personnel are those persons that have authority and responsibility for planning, directing and controlling the activities of the Company, directly and indirectly, and by definition include the directors of the Company.
The following table summarizes expenses related to key management personnel:
| For the year ended: | |||||||||
| September 30, 2023 |
September 30, 2022 |
September 30, 2021 |
|||||||
| $ | $ | ||||||||
| Professional fees | |||||||||
| Research and development | |||||||||
| Consulting fees | |||||||||
| Share-based compensation included in directors' compensation | |||||||||
| Share-based compensation included in professional fees | |||||||||
| Share-based compensation included in research and development | |||||||||
See Note 8 for related party contractual obligations.
| 20 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
8. CONTRACTUAL OBLIGATIONS
License agreement
On April 23, 2021, the Company entered into an exclusive license agreement with equity (the "LA") with the Board of Trustees of the UIC (the "University"), whereby the University granted to the Company, in all fields of use and worldwide, an exclusive, non-transferable license with the right to sublicense under the University's rights in and to the Patent Rights (as defined) and a non-exclusive, non-transferable license with the right to sublicense under the University's rights in and to the Technical Information (as defined) to make, have made, construct, have constructed, use, import, sell, and offer for sale royalty-bearing Product (as defined). As consideration for the grant of license, the Company will pay the following amounts (in US$) to the University:
- Signing Fee - a signing fee of $
- Net Sales - royalties on Net Sales (as defined) ranging from
- Sublicensee Revenues - royalties (as for net sales above) on Sublicensee Revenue (as defined), with such r
- Annual Minimums - if the total royalties paid to the University for any license year are less than the following annual minimums, the Company must pay the University the amount equal to the shortfall:
- Years 1 and 2 - $;
- Year 3 - $
- Year 4 - $
- Year 5 - $
- Year 6 and thereafter - $
- After first commercial sale - $
- Milestone Payments - milestone payments after the occurrence of the following milestone events:
Prior to any sublicensing agreements, joint ventures or change of control:
- $
- $
- $
- $
After any sublicensing agreements, joint ventures or change of control:
- As above;
- $
- $
- $
Unless otherwise agreed to in writing by the University, the Company will reimburse the University for all documented costs and expenses in connection with the Patent Rights, including the preparation, filing, prosecution, maintenance and defense thereof. From time to time, the anticipated costs and expenses may be significant and, upon request, the Company will pay the estimated costs and expenses in advance of such costs and expenses being incurred by the University.
| 21 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
The term of the LA ends on the later of the last to expire of the Patent Rights, expiration of regulatory exclusivity for Product or when the Company provides notice that use of Technical Information has ceased. The University has the right to terminate the LA if the Company fails to make any required payments or is in breach of any provision of the LA. The Company may terminate the LA at any time upon providing at least 90 days written notice to the University.
Related party contracts
On June 5, 2020, the Company entered into an independent consultant agreement (the "ICA") whereby the consultant, a private corporation incorporated in the State of California, USA, was engaged and the consultant's representative will serve as the Company's Chief Medical Officer, with the services being provided in California. As compensation for performing these services, the consultant or the consultant's representative will participate in the Company's equity incentive plans and will be eligible for cash payments in respect of fees at such time as the Company begins to compensate other C-level personnel in cash and in similar proportion to total compensation (the "fees"). The non-cash portion of the consultant's fees was in the form of a grant of
On October 29, 2020, the Company entered into an independent contractor agreement (the "ICA") whereby the contractor was engaged to serve as the Company's Chief Science Officer on an as-needed basis. The contractor will be compensated for these services as determined by the Board of Directors of the Company. The services will continue for an initial term of one year unless sooner terminated. The ICA can be terminated by the Company providing five working days written notice, the contractor providing three months' written notice or by mutual written agreement. At the end of the initial term, the ICA will automatically be extended for additional one-year period(s) unless the Company provides the contractor with 30 days written notice. In March 2021, the Board of Directors authorized a monthly fee of US$
The Company entered into several director indemnity agreements (the "DIAs") with the directors of the Company. Pursuant to the DIAs and subject to all applicable laws, including the applicable limitations and restrictions set forth in the Business Corporations Act (British Columbia), the Company will:
- Indemnify and save harmless the Directors against and from:
- any and all charges or claims by reason of them being or having been a director of the Company or another corporation, at a time when the other corporation is or was an affiliate of the Company, or at the request of the Company;
- any and all costs, damages, expenses, fines, liabilities, losses and penalties (the "Consequences") which they may sustain, incur or be liable for in consequence of their acting as a director of the Company, whether sustained or incurred by reason of their negligence, default, breach of duty or trust, failure to exercise due diligence or otherwise in relation to the Company or any of its affairs; and
- in particular, and without in any way limiting the generality of the foregoing, any and all Consequences which they may sustain, incur or be liable for as a result of or in connection with the release or presence in the environment of substances, contaminants, litter, waste, effluent, refuse, pollutants or deleterious materials and that arise out of or are in any way connected with the management, operation, activities or existence of the Company or by virtue of them holding any other directorship with any other entity at the Company's request.
- gross up any indemnity payment made pursuant to the DIAs by the amount of any income tax payable by the Directors in respect of that payment; and
| 22 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
8. CONTRACTUAL OBLIGATIONS (continued)
- indemnify the Directors for the amount of all costs they incur in obtaining any Court approval required to enable or require the Company to make a payment to them under the DIAs, or enforce the DIAs against the Company, including without limitation legal fees and disbursements on a full indemnity basis.
Notwithstanding the above-noted, the Company will have no obligation to indemnify or save harmless the Directors in respect of any liability for which they are entitled to indemnity pursuant to any valid and collectible policy of insurance obtained and maintained by the Company, to the extent of the amounts actually collected by the Directors under the insurance policy.
On April 11, 2022, the Company entered into a scientific advisory board agreement with Karl Deisseroth ("Deisseroth") pursuant to which the Company will pay Deisseroth a monthly fee of US$
On November 13, 2022, the Company entered into an ICA whereby the contractor was engaged to serve as the Chief Medical Officer of the Company effective December 1, 2022. The Company agreed to pay a signing bonus of US$
Scientific advisory board agreements
The Company entered into numerous scientific advisory board agreements (the "SABAs") whereby the advisors were retained to serve as members of the Company's scientific advisory board and as consultants to the Company and senior management in the areas of scientific, technical and business advice. As compensation for performing these services, the Company will pay the advisors hourly rates of $
Consulting agreements
The Company has entered into numerous consulting agreements (the "CAs") whereby the consultants were retained to serve as advisors to the Company and senior management in the areas of public relations and content creation and scientific, technical and business advice. As compensation for performing these services, the Company will pay the advisors hourly rates between US$
On October 9, 2020, the Company entered into a CA whereby the consultant was retained to serve as an advisor to the Company in the areas of scientific, technical and business advice. As compensation for performing these services, the Company will pay the advisor an hourly rate of US$
| 23 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
8. CONTRACTUAL OBLIGATIONS (continued)
On November 6, 2020, the Company entered into a sponsored research agreement (the "SRA") with the University of Texas Medical Branch (the "UTMB") whereby the UTMB conducted a research program on behalf of the Company. Pursuant to the SRA, the agreement is effective as of October 15, 2020 and the research program was carried out through to its conclusion on February 15, 2021. As consideration for UTMB's performance, the Company paid US$
On November 17, 2020, the Company entered into an ICA whereby the contractor was engaged to serve as the Company's Vice President (Discovery). The contractor will be compensated for these services as determined by the Board of Directors of the Company. The services will continue for an initial term of one year unless sooner terminated. The ICA can be terminated by the Company providing five working days written notice, the contractor providing three months' written notice or by mutual written agreement. At the end of the initial term, the ICA will automatically be extended for additional one-year period(s) unless the Company provides the contractor with 30 days written notice. In March 2021, the Board of Directors authorized a monthly fee of US$
On November 1, 2021, the Company entered into a letter agreement (the "LA") with a New York-based company, whereby the company will provide investor relations services to the Company. As compensation for performing these services, the Company will pay a non-refundable monthly retainer of US$
9. FINANCIAL INSTRUMENTS AND CAPITAL MANAGEMENT
The following table summarizes the carrying value of financial assets and liabilities:
| September 30, 2023 |
September 30, 2022 |
|||||
| FVTPL | $ | $ | ||||
| Cash | ||||||
| Guaranteed investment certificate | ||||||
| Cash and cash equivalents | ||||||
| Amortized cost | ||||||
| Accounts payable and accrued liabilities |
Fair value measurement
Financial assets and liabilities that are recognized on the consolidated statement of financial position at fair value can be classified in a hierarchy that is based on the significance of the inputs used in making the measurements.
The levels in the hierarchy are:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The Company's cash and cash equivalents is classified as Level 1, whereas accounts payable and accrued liabilities are classified as Level 2. As at September 30, 2023, the Company believes that the carrying values of cash and cash equivalents and accounts payable and accrued liabilities approximate their fair values because of their nature and relatively short maturity dates or durations.
| 24 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
Financial risk management
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes. The type of risk exposure and the way in which such exposure is managed is provided as follows:
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company's primary exposure to credit risk is on its cash and cash equivalents balance. As at September 30, 2023, the Company had cash and cash equivalents of $
Foreign exchange risk
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. As at September, 2023, the Company had the following foreign currency balances - cash (US$
Liquidity risk
Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. The Company's objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. The Company's main source of funding has been the issuance of equity securities for cash, primarily through private placements. The Company's access to financing is always uncertain. There can be no assurance of continued access to significant equity funding. As at September, 2023, the Company had cash and cash equivalents of $
Capital management
Management's objective is to manage its capital to ensure that there are adequate capital resources to safeguard the Company's ability to continue as a going concern through the optimization of its capital structure. The capital structure consists of share capital and working capital. In order to achieve this objective, management makes adjustments to it in light of changes in economic conditions and risk characteristics of the underlying assets. To maintain or adjust the capital structure, management may invest its excess cash in interest bearing accounts of Canadian chartered banks and/or raise additional funds externally as needed. The Company is not subject to externally imposed capital requirements. The Company's management of capital did not change during the period ended September 30, 2023.
| 25 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
10. RESEARCH AND DEVELOPMENT
Research and development expense recognized in the consolidated statements of comprehensive loss is comprised of the following:
| For the year ended: | |||||||||
| September 30, 2023 |
September 30, 2022 |
September 30, 2021 |
|||||||
| $ | $ | $ | |||||||
| Laboratory costs (see Note 11) | |||||||||
| Novel drug development | |||||||||
| Patents and related payments | |||||||||
| Salary and subcontractors | |||||||||
| Share-based compensation (see Note 6) | ( |
) | |||||||
| Investment tax credits | ( |
) | |||||||
Investment tax credits under the Australian government's Research and Development Tax Incentive program have been recorded as a reduction of research and development expenses in the period received.
11. PREMISES LEASES
Commencing June 1, 2021, the Company entered into a commercial laboratory lease in Wauwatosa, Wisconsin USA for a term of
Commencing September 1, 2021, the Company entered into an apartment lease in New York, New York USA for a term of
(a) Right-of-Use Assets
As at September 30, 2023, $
| 2023 | |||
| As at September 30, 2021 | $ | ||
| Inception of lease | |||
| Depreciation | ( |
) | |
| As at September 30, 2022 | $ | ||
| Depreciation | ( |
) | |
| As at September 30, 2023 | $ | ||
| 26 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
11. PREMISES LEASES (continued)
(b) Lease Liabilities
Minimum lease payments in respect of lease liabilities and the effect of discounting are as follows:
| Year ended September 30, 2023 |
Year ended September 30, 2022 |
|||||
| Undiscounted minimum lease payments: | ||||||
| Less than one year | $ | $ | ||||
| Two to three years | ||||||
| Effect of discounting | ( |
) | ( |
) | ||
| Present value of minimum lease payments | ||||||
| Less current portion | ( |
) | ( |
) | ||
| Long-term portion | $ | $ | ||||
(c) Lease Liability Continuity
The lease liability continuity is as follows:
| 2022 | |||
| As at September 30, 2021 | $ | ||
| Inception of lease | |||
| Cash flows: | |||
| Principal payments | ( |
) | |
| As at September 30, 2022 | $ | ||
| Cash flows: | |||
| Principal payments | ( |
) | |
| As at September 30, 2023 | $ | ||
During the year ended September 30, 2023, interest of $
12. INCOME TAXES
A reconciliation of the expected income tax recovery to the actual income tax recovery is as follows:
| September 30, 2023 |
September 30, 2022 |
September 30, 2021 |
|||||||
| $ | $ | $ | |||||||
| Net loss | ( |
) | ( |
) | ( |
) | |||
| Statutory tax rate | |||||||||
| Expected income tax recovery | ( |
) | ( |
) | ( |
) | |||
| Deductible and non-deductible items | ( |
) | |||||||
| True up of prior year amounts | |||||||||
| Change in deferred tax assets not recognized | |||||||||
| Total income tax recovery |
| 27 | Page |
Bright Minds Biosciences Inc. Notes to the Consolidated Financial Statements (Expressed in Canadian dollars) |
12. INCOME TAXES (continued)
The Company has the following deductible temporary differences for which no deferred tax has been recognized:
| September 30, 2023 |
September 30, 2022 |
|||||
| $ | $ | |||||
| Non-capital losses | ||||||
| Share issue costs | ||||||
| Valuation allowance | ( |
) | ( |
) | ||
| Net deferred income tax assets |
The Company has Canadian non-capital losses of approximately $
The Company's Canadian non-capital loss carry-forwards expire as follows:
|
Year of Origin |
Year of Expiry |
Non-Capital Losses |
|
|
|
$ |
|
2019 |
|
|
|
2020 |
|
|
|
2021 |
|
|
|
2022 |
|
|
|
2023 |
|
|
|
|
|
|
13. SUBSEQUENT EVENT
On December 22, 2023, the Company issued
On December 13, 2023,
| 28 | Page |
ITEM 19. EXHIBITS
The following exhibits are filed as part of this Annual Report on Form 20-F:
| - 2 - |
Notes:
| * | Filed herewith. |
| + | Portions of this exhibit have been omitted pursuant to a request for confidential treatment. Confidential information has been omitted from the exhibit in places marked "****"and has been filed separately with the SEC. |
| (1) | Filed as an exhibit to our registration statement on Form 20-F as filed with the SEC on June 17, 2021 and incorporated herein by reference. |
| (2) | Filed as an exhibit to our registration statement on Form 20-F/A (Amendment No. 1) as filed with the SEC on July 29, 2021 and incorporated herein by reference. |
| (3) | Filed as an exhibit to our annual report on Form 20-F as filed with the SEC on December 29, 2023 and incorporated herein by reference. |
| - 3 - |
SIGNATURES
The registrant certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Bright Minds Biosciences Inc.
Date: December 29, 2023
| By: | /s/ Ian McDonald | |
| Ian McDonald | ||
| President and Chief Executive Officer |
| - 4 - |
EXHIBIT 2.2
DESCRIPTION OF REGISTRANT'S SECURITIES
The following securities of our Company are registered under section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"):
- our Company's common shares are listed on the Nasdaq Capital Market ("Nasdaq"), under the symbol "DRUG".
Jurisdiction of Incorporation
Our Company was incorporated under the Business Corporations Act (British Columbia) on May 31, 2019.
Authorized and Issued Share Capital
Our Notice of Articles provide that our authorized capital consists of an unlimited number of common shares without par value.
As of September 30, 2023, we had 3,772,072 common shares issued and outstanding.
As of December 22, 2023, we had 4,463,837 common shares issued and outstanding.
Rights, Preferences and Restrictions Attaching to Our Shares
The Business Corporations Act provides the following rights, privileges, restrictions and conditions attaching to our common shares:
(a) to vote at meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote;
(b) subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of our Company, to share equally in the remaining property of our Company on liquidation, dissolution or winding-up of our Company; and
(c) subject to the rights of the preferred shares, the common shares are entitled to receive dividends if, as, and when declared by our Board of Directors.
The provisions in our Articles attaching to our common shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the outstanding common.
With the exception of special resolutions (i.e., resolutions in respect of fundamental changes to our Company, including: the sale of all or substantially all of our assets, a merger or other arrangement or an alteration to our authorized capital that is not allowed by resolution of the directors) that require the approval of holders of two-thirds of the outstanding common shares entitled to vote at a meeting, either in person or by proxy, resolutions to approve matters brought before a meeting of our shareholders require approval by a simple majority of the votes cast by shareholders entitled to vote at a meeting, either in person or by proxy.
Shareholder Meetings
The Business Corporations Act provides that: (i) a general meetings of shareholders must be held in British Columbia, or may be held at a location outside British Columbia since our Articles do not restrict our Company from approving a location outside of British Columbia for the holding of the general meeting and the location for the meeting is approved by ordinary resolution; (ii) directors must call an annual meeting of shareholders not later than 15 months after the last preceding annual meeting; (iii) for the purpose of determining shareholders entitled to receive notice of or vote at meetings of shareholders, the directors may fix in advance a date as the record date for that determination, provided that such date shall not precede by more than two months or by less than 21 days the date on which the meeting is to be held; (iv) the holders of not less than 5% of the issued shares entitled to vote at a meeting may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition; (v) only shareholders entitled to vote at the meeting, our directors and our auditor are entitled to be present at a meeting of shareholders; and (vi) upon the application of a director or shareholder entitled to vote at the meeting, the British Columbia Supreme Court may order a meeting to be called, held and conducted in a manner that the Court directs.
Limitations on Rights of Non-Canadians
Our Company is incorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however, no such remittances are likely in the foreseeable future. For additional information, see "Item 10. Additional Information - E. Taxation - Canadian Federal Income Tax Considerations for United States Residents" in our Annual Report on Form 20-F.
There is no limitation imposed by Canadian law or by our Articles or other constituent documents of our Company on the right of a non-resident to hold or vote common shares of our Company. However, the Investment Canada Act (Canada) has rules regarding certain acquisitions of shares by non-residents, along with other requirements under that legislation. For additional information, see "Item 10. Additional Information - B. Memorandum and Articles of Association - Limitations on Rights of Non-Canadians" in our Annual Report on Form 20-F.
EXHIBIT 8.1
LIST OF SUBSIDIARIES
Subsidiaries
1. Bright Minds Biosciences LLC, a Delaware limited liability company; and
2. Bright Minds Bioscience Pty. Ltd., an Australia corporation.
EXHIBIT 12.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ian McDonald, certify that:
1. I have reviewed this Annual Report on Form 20-F of Bright Minds Biosciences Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
|
Date: |
December 29, 2023 |
|
|
|
|
|
|
|
/s/ Ian McDonald |
|
|
Name: |
Ian McDonald |
|
|
Title: |
President and Chief Executive Officer |
|
| (Principal Executive Officer) |
EXHIBIT 12.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ryan Cheung, certify that:
1. I have reviewed this Annual Report on Form 20-F of Bright Minds Biosciences Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
|
Date: |
December 29, 2023 |
|
|
|
|
|
|
|
/s/ Ryan Cheung |
|
|
Name: |
Ryan Cheung |
|
|
Title: |
Chief Financial Officer |
|
| (Principal Financial Officer and Principal Accounting Officer) |
EXHIBIT 13.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Bright Minds Biosciences Inc. on Form 20-F for the fiscal year ended September 30, 2023 filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certify that to the best of our knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of Bright Minds Biosciences Inc.
|
Date: December 29, 2023 |
/s/ Ian McDonald |
|
|
|
Name: Ian McDonald |
|
|
|
Title: President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
Date: December 29, 2023 |
/s/ Ryan Cheung |
|
|
|
Name: Ryan Cheung |
|
|
|
Title: Chief Financial Officer |
|
|
|
(Principal Financial Officer and Principal Accounting Officer) |
A signed original of this written statement, or other document authenticating, acknowledging, or otherwise adopting each of the signatures appearing in typed form within the electronic version of this written statement, has been provided to Bright Minds Biosciences Inc. and will be retained by Bright Minds Biosciences Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
This written statement accompanies the Annual Report on Form 20-F in which it appears as an Exhibit pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the U.S. Sarbanes-Oxley Act of 2002 or other applicable law, be deemed filed by Bright Minds Biosciences Inc. for purposes of Section 18 of the U.S. Securities Exchange Act of 1934, as amended.
BRIGHT MINDS BIOSCIENCES INC.
(the "Corporation")
SECURITIES TRADING AND REPORTING GUIDELINES
These Securities Trading and Reporting Guidelines (the "Guidelines") are to be read in conjunction with the Corporation's Corporate Disclosure Policy.
Objectives
The Corporation's commitment to ethical and lawful business conduct is a fundamental shared value of the Corporation's Board of Directors (the "Board of Directors"), management and employees and critical to the Corporation's success. These Guidelines covering securities trades by Corporation personnel (including directors) will help protect the Corporation and its personnel from potentially severe consequences. These Guidelines are intended to avoid even the appearance of improper conduct on the part of anyone employed by or associated with the Corporation.
Consequences
The consequences for violating these Guidelines may be severe. In addition to potential civil and criminal liabilities, employees who violate these Guidelines may be subject to discipline by the Corporation, including termination of employment with cause. Such violations of these Guidelines brought to the attention of any member of the Board of Directors will be brought to the attention of the full Board of Directors and upon legal advice may be reported to the appropriate securities regulators and other authorities.
General Guidelines
The following are general Guidelines that apply to all directors, officers and employees of the Corporation and their subsidiary companies.
1. It is illegal for anyone with knowledge of material information affecting a public corporation that has not been publicly disclosed to purchase or sell securities of that corporation. If a director, officer, an associate or affiliate of a director or officer, any employee, or any former directors, officers and employees (who acquired material non-public information while with the Corporation), of the Corporation or its subsidiaries, has material non-public information relating to the Corporation, neither that person nor any related person may buy or sell securities of the Corporation or engage in any other action to take advantage of that information. This Guideline also applies to information relating to any other corporation, including our customers, suppliers or vendors and those with which the Corporation may be negotiating major transactions, obtained in the course of employment and to trading in the shares of such a customer or supplier. Information that is not material to the Corporation may nevertheless be material to one of these other corporations.
- 2 -
Material information is any information relating to the business and affairs of the Corporation that results in, or would reasonably be expected to result in, a significant change in the market price or value of the Corporation's securities or that would reasonably be expected to have a significant influence on a reasonable investor's investment decisions. In short, any information that could reasonably affect the price of stock should be considered material.
Information that will likely be regarded as material includes: annual or quarterly financial results; projections of future earnings or losses; a significant change in earnings or earnings projections; news of a proposed merger, acquisition or tender offer; news of a significant purchase or sale of assets or the purchase or disposition of a division or subsidiary; changes in dividend policies or the declaration of a stock split or the offering of additional securities; changes in management; significant new products; impending bankruptcy or financial or liquidity problems; major litigation or regulatory sanctions; and the gain or loss of a substantial customer or supplier. Either positive or negative information may be material.
If in doubt as to whether or not you possess material information, please contact the Corporation's Chief Financial Officer (the "CFO") regarding your thoughts. The CFO will be able to provide their personal guidance to your situation, but the final judgment of material information rests with the individual regardless of advice or opinions provided.
2. It is also illegal for anyone to inform any other person of material non-public information (tipping), except in the necessary course of business. Insiders and employees with knowledge of confidential or material information about the Corporation or counter-parties in negotiations of potentially material transactions are prohibited from trading securities of the Corporation or any counter-party until the information has been fully disclosed and a reasonable period has passed for the information to be widely disseminated to the public.
All directors, officers (including the CFO, the Chair of the Board of Directors, the Chief Executive Officer, President, any Vice-President, the Corporate Secretary or any other individual who performs a similar function) of the Corporation and subsidiaries of the Corporation, and any person or corporation that beneficially owns or exercises control or direction over 10% or more of the shares of the Corporation, is an insider of the Corporation.
3. Posting material, non-public information, or making statements or recommendations based on material non-public information, on any Internet website, electronic bulletin board, Internet message board, Internet chat room or other similar form of electronic communication, can also constitute tipping under the securities laws. Because of the high potential for improper or premature disclosure of material, non-public information posed by these activities and the resulting liability under the securities laws for the employee and the Corporation, no director, officer or employee may post any information about the Corporation, its business plans, its employees or directors, or its customers, suppliers or vendors, nor engage in any discussions with other parties about the Corporation, its business plans, its employees or directors, or its customers, suppliers or vendors, on any of these forums. Furthermore, employees should notify the Corporation's CFO if they are aware of such activities by any other employee.
- 3 -
4. It is also improper for a director, officer or employee to enter a trade immediately after the Corporation has made a public announcement of material information, including earnings releases. Because the Corporation's stockholders and the investing public should be afforded time to receive the information and act upon it, no director, officer or employee should engage in any transactions involving securities of the Corporation until two full business day after such information has been released. Thus, if an announcement were made after the market closes on a Monday, Thursday would be the first day on which you could trade. If an announcement were made before the market opens on a Friday, Tuesday would be the first day you could trade.
5. To minimize the risk of liability on the part of the Corporation and its personnel for violations of the foregoing insider trading restrictions, the Corporation has established a period relating to the Corporation's earnings during which the Corporation's directors, officers and employees should not buy or sell shares, or exercise options, under any circumstances. No director, officer or employee should engage in any transactions involving securities of the Corporation during the black-out period (the "Black-out Period"). The Black-out Period begins two weeks before the release of quarterly financial information and ends two full business days following the public release of the Corporation's quarterly financial information.
Black-out Periods may be prescribed from time to time by the Corporation, as a result of special circumstances when insiders would be precluded from trading in its securities. All parties with knowledge of such special circumstances should be covered by the Black-out Period. These parties may include external advisors such as legal counsel, investment bankers, investor relations consultants and other professional advisors and counter-parties in negotiations of material potential transactions.
To prevent the misuse or inadvertent disclosure of material information, the following procedures should be observed at all times.
1. Documents and files containing confidential information should be kept in a safe place, with access restricted to individuals who "need to know" that information in the necessary course of business. Code names for confidential projects should be used if necessary.
2. Confidential matters should not be discussed in places where the discussion may be overheard, such as elevators, hallways, restaurants, airplanes or taxis.
3. Confidential documents should not be read or displayed in public places and should not be discarded where others can retrieve them.
- 4 -
4. Employees must ensure they maintain the confidentiality of information in their possession outside of the office as well as inside the office.
5. Transmission of documents by electronic means, such as by fax, e-mail or directly from one computer to another, should be made only where it is reasonable to believe that the transmission can be made and received under secure conditions.
6. Unnecessary copying of confidential documents should be avoided and documents containing confidential information should be promptly removed from conference rooms and work areas after meetings have concluded. Extra copies of confidential documents should be shredded or otherwise destroyed.
7. Access to confidential electronic data should be restricted through the use of passwords.
8. Because we believe it is improper and inappropriate for any Corporation personnel to engage in short-term or speculative transactions involving Corporation stock, directors, officers and employees should not engage in any of the following activities with respect to securities of the Corporation:
(a) trading in securities on a short-term basis - any Corporation shares purchased by any personnel in the open market should be acquired with the mindset of holding theses shares for a minimum duration of not less than six months and ideally longer, unless (in the case of employees who are not officers or directors) the sale results from personal emergency and the holding period is waived by the Corporation's CFO;
(b) short sales; and
(c) buying or selling puts or calls.
Additional Guidelines for Directors and Officers
In addition to the above general Guidelines, the following specific Guidelines apply to all directors and officers of the Corporation.
1. Directors and officers should obtain pre-clearance for all trading activities from the Chair of the Board of Directors or the CFO of the Corporation. This pre-clearance is intended to provide an additional review of current business initiatives to ensure that trading does not occur while material non-public information exists.
2. Directors and officers must report all trading in securities to the CFO within 24 hours of the transaction taking place. Trading includes purchase and sale of securities, exercise of options, and transfer of securities.
- 5 -
3. The CFO has been given power of attorney for the filing of all insider trading reports with the appropriate securities regulators within prescribed filing timelines on behalf of the directors and officers.
Insider Trading Reporting
It is the personal duty of each of the directors, officers and other insiders to file insider reports following any trade or other change in holdings of securities of the Corporation (including the exercise of any options) in accordance with securities laws. The Corporation assists directors and officers with the filing procedures by providing administrative support. This administrative support does not remove individual responsibility to file insider reports in a timely and accurate fashion. Currently, insider reports must be filed within five or two days, respectively, after a change in direct or indirect beneficial ownership of, or control or direction over, the Corporation's securities. Insider trading reports may be filed electronically. Registration of the Corporation's insiders under the electronic filing systems (known as EDGAR and SEDI) is available through the CFO. Copies of all filed insider trading reports are to be promptly provided to the CFO.
Control Blocks
This section applies to persons who hold 20% or more of the securities of the Corporation.
1. Sales by a Control Person. Any trade in securities by, or from the holdings of, a control person must be made by way of a prospectus or pursuant to an exemption from the prospectus requirements. A "control person" is (a) a person who holds a sufficient number of the voting securities of the Corporation to materially affect the control of the Corporation, or (b) each person in a combination of persons, acting in concert by virtue of an agreement, arrangement, commitment or understanding, which holds in total a sufficient number of the voting securities of the Corporation to materially affect the control of the Corporation. Alternatively, a control block distribution may be made on a prospectus exempt basis after the filing of an advance notice of intention to sell securities provided certain other conditions are satisfied: the selling security holder must sign the required notice no earlier than one day before it is filed, must file the required notice on EDGAR and/or SEDAR at least seven days before the first trade of the securities, and must file an insider report within five or two days after the completion of any trade. In addition to filing a notice of intention, the following conditions must also be satisfied: (a) the Corporation is and has been a reporting issuer in a Canadian jurisdiction for the four months immediately preceding the sale; (b) the selling security holder has held the securities for at least four months; (c) no unusual effort is made to prepare the market or to create a demand for the security and no extraordinary commission or consideration is paid to a person in respect of the trade; and (d) the selling security holder has no reasonable grounds to believe that the Corporation is in default of securities legislation.
2. Purchases by a Control Person. A person must not offer to acquire voting securities of the Corporation where the acquisition would result in that person owning 20% or more of the outstanding securities of that class, unless the offer is made by way of a formal take-over bid to all holders of the Corporation's securities. There are limited exceptions to this rule. Two of those exceptions are the following: (a) under the normal course purchase exemption, the following requirements apply: (i) the purchase is for no more than 5% of the outstanding securities of a class of securities, (ii) the aggregate number of securities acquired by the purchaser and any joint actor within a given 12-month period, together with acquisitions otherwise made by the purchaser and any joint actor within the same 12-month period, does not exceed 5% of the securities of that class outstanding at the beginning of that 12-month period, and (iii) the value of the consideration paid for any of the securities acquired is not in excess of the market price of the date of acquisition, plus reasonable brokerage fees or commissions actually paid; and (b) under the private agreement exemption, purchases must not be made from more than five persons, and the price of the securities purchased must not be greater than 115% of the market price of the securities at the date of the purchase.
- 6 -
3. Reporting by a Control Person. Control persons are reminded to file revised early warning reports and insider reports with respect to any trades in the securities of the Corporation as required under applicable securities laws.
Individual Responsibility
Each director, officer, employee, insider or person subject to these Guidelines has the individual responsibility to comply with these Guidelines and applicable securities laws. The Guidelines set forth herein are guidelines only, and appropriate judgment should be exercised in connection with any trade in the Corporation's securities.
__________
BRIGHT MINDS BIOSCIENCES INC.
POLICY FOR THE RECOVERY OF ERRONEOUSLY AWARDED INCENTIVE-BASED COMPENSATION
(the "Recovery Policy")
As adopted by the Board of Directors on December 1, 2023
1.
GENERAL PROVISIONS
Purpose
(a) This Recovery Policy has been adopted by resolution of the Board (as hereinafter defined) in accordance with certain listing standards of the Nasdaq Stock Market LLC mandated by SEC Rule 10D-1 (as hereinafter defined), to facilitate reasonably prompt recover by the Company of the amount of any Incentive-Based Compensation that is deemed to have been erroneously awarded in the event that the Company is required to restate its financial statements due to material non-compliance with any financial reporting requirement under relevant Securities Laws (as hereinafter defined).
Definitions
(b) In this Recovery Policy, the following terms will have the following meanings:
(1) "Accounting Restatement" means an accounting restatement due to material noncompliance of the Company with any financial reporting requirement under the Securities Laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period;
(2) "Board" means the Board of Directors of the Company;
(3) "Company" means Bright Minds Biosciences Inc.;
(4) "Compensation Committee" means the Compensation Committee of the Board;
(5) "Effective Date" means the effective date of this Recovery Policy, being the 1st day of December, 2023;
(6) "Erroneously Awarded Incentive-Based Compensation" means that portion of any Incentive-Based Compensation that has been paid to an Executive Officer and is recoverable under Section 4.1 of this Recovery Policy, as such Erroneously Awarded Incentive-Based Compensation is determined under this Recovery Policy;
(7) "Exchange Act" means the United States Securities Exchange Act of 1934, as amended;
- 2 -
(8) "Executive Officer" means any individual deemed to be an "executive officer" of the Company under Rule 10D-1, and shall include the Company's president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), and vice-president of the Company in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person (including an executive officer of a subsidiary of the Company) who performs similar policymaking functions for the Company. For the avoidance of doubt, the identification of an executive officer for purposes of this Recovery Policy shall include each executive officer who is or was identified pursuant to Item 401(b) of Regulation S-K or Item 6.A of Form 20-F, as applicable, as well as the principal financial officer and principal accounting officer (or, if there is no principal accounting officer, the controller).
(9) "Financial Reporting Measures" means any measures that are determined and presented in accordance with the accounting principles used in preparing the Company's financial statements, and any measures derived wholly or in part from such measures whether or not the measure is presented within the financial statements or included in a filing with the SEC. For greater certainty, stock price and TSR are included in the definition of Financial Reporting Measures;
(10) "Incentive-Based Compensation" means any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure;
(11) "Nasdaq" means The Nasdaq Stock Market, LLC;
(12) "Received" means, in the context of Incentive-Based Compensation, the actual or deemed receipt in the Company's fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation is attained, even if the payment or grant of the Incentive-Based Compensation occurs after the end of that period;
(13) "Recovery Period" has the meaning set forth in Section 4.4;
(14) "Recovery Policy" means this policy for the recovery of erroneously awarded executive compensation;
(15) "Rule 10D-1" means Rule 10D-1 adopted by the SEC under the Exchange Act;
(16) "SEC" means the United States Securities and Exchange Commission;
(17) "SEC Final Release" means the final release no. 34-96159 of the SEC entitled "Listing Standards of Recovery of Erroneously Awarded Compensation" in respect of the adoption of Rule 10D-1 pursuant to the requirements of Section 10D of the Exchange Act;
- 3 -
(18) "Securities Laws" means the Exchange Act and the U.S. Securities Act, and the rules and regulations promulgated under the Exchange Act and the U.S. Securities Act;
(19) "TSR" means total shareholder return;
(20) "U.S. Securities Act" means the United States Securities Act of 1933, as amended;
2.
ADMINISTRATION
Administration
(a) This Recovery Policy will be administered by the Compensation Committee which will be empowered to, with consideration of applicable Securities Laws,
(1) interpret and administer this Recovery Policy,
(2) make determinations as to whether any Incentive-Based Compensation that has been Received by the current and former Executive Officers of the Company constitutes Erroneously Awarded Incentive-Based Compensation in the event of an Accounting Restatement,
(3) take action to enforce on behalf of the Company any recovery of any Erroneously Awarded Incentive-Based Compensation pursuant to the provisions of this Recovery Policy, and
(4) make any other determinations that the Compensation Committee deems necessary or desirable to give effect to the objectives of this Recovery Policy.
Interpretations
(b) This Recovery Policy is intended to be a "Recovery Policy" for the purposes of Nasdaq Listing Rule 5608 and will be interpreted by the Compensation Committee consistent with the SEC's interpretation of Rule 10D-1, including the guidance of the SEC set forth in the SEC Final Release and any other applicable law, regulation, rule or interpretation of the SEC or Nasdaq promulgated or issued in connection therewith. This Recovery Policy is in addition to the requirements of Section 304 of the Sarbanes-Oxley Act of 2002 that are applicable to the Company's chief executive officer and chief financial officer.
Compliance
(c) The Compensation Committee may require that any employment agreement, offer letter, compensation plan, equity award agreement, or any other agreement entered into on or after the Effective Date require an Executive Officer to agree to abide by the terms of this Recovery Policy. Further, the Compensation Committee may require each Executive Officer to acknowledge this Recovery Policy through execution of the form of acknowledgement attached hereto as Appendix A (or such other form as approved from time-to-time by the Compensation Committee).
- 4 -
3.
SCOPE AND INTERPRETATION OF THIS RECOVERY POLICY
Effective Period
(a) This Recovery Policy will be applied to all Incentive-Based Compensation that is Received by an Executive Officer on or after the Effective Date.
Scope of Executive Officers Subject to Recovery Policy
(b) The Compensation Committee will determine from time-to-time the individuals that are deemed to be subject to the Recovery Policy by virtue of being considered an Executive Officer.
Scope of Accounting Restatements Subject to Recovery Policy
(c) The Accounting Restatements that will trigger the obligation to recover Erroneously Awarded Incentive-Based Compensation will include any restatement of any of the financial statements of the Company filed with the SEC under the Exchange Act to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. For clarity, Accounting Restatements include for the purposes of this Recovery Policy both:
(1) Big "R" restatements, being restatements to correct an error material to previously issued financial statements; and
(2) little "r" restatements, being restatements to correct errors that were not material to those previously issued financial statements but would result in a material misstatement if (i) the errors were left uncorrected in the current report or (ii) the error correction was recognized in the current period.
Determination of When Incentive-Based Compensation is Received
(d) Incentive-Based Compensation will be deemed Received in the fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation award was attained, even if the payment or grant occurs after the end of that period.
4.
RECOVERY OF ERRONEOUSLY AWARDED INCENTIVE-BASED COMPENSATION
Recovery
(a) In that event that the Company is required to prepare an Accounting Restatement, the Company will reasonably promptly take action to recover the amount of any Erroneously Awarded Incentive-Based Compensation that has been Received by each applicable Executive Officer:
(1) after beginning services as an Executive Officer;
(2) who served as Executive Officer at any time during the performance period for that Incentive-Based Compensation;
- 5 -
(3) while the Company has a class of securities listed on Nasdaq (or another national securities exchange in the United States); and
(4) during the three completed fiscal years immediately preceding the date on which the Company was required to prepare the Accounting Statement, as this three-year period is determined under Section 4.4 below.
(b) Recovery will be required on a "no fault" basis, without regard to whether an Executive Officer engaged in any misconduct or whether the Executive Officer was responsible for the erroneous financial statements that led to the Accounting Restatement.
Trigger for Recovery of Erroneously Award Compensation
(c) The date on which the Company is deemed to be required to prepare an Accounting Restatement for the purposes of determining the Recovery Period under Section 4.1 will be the earlier to occur of:
(1) the date that the Board or a committee of the Board concludes, or reasonably should have concluded that the Company, is required to prepare an Accounting Restatement, or
(2) the date that a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement.
Determination of Recovery Period
(d) The recovery period for the determination of Erroneously Awarded Incentive-Based Compensation (the "Recovery Period") will be determined as the three completed fiscal years immediately preceding the date that the Company is required to prepare an Accounting Restatement, as that date is determined under Section 4.3. In the event of a change in the financial year of the Company, the Recovery Period will also include any transition period that results from a change in the Company's fiscal year within or immediately following those three completed fiscal years, provided that a transition period between the last day of the Company's previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to 12 months would be deemed a completed fiscal year.
Scope of Incentive-Based Compensation Subject to Recovery
(e) Recovery will be made against each current and former Executive Officer who has Received Incentive-Based Compensation during the three-year Recovery Period to the extent that such Incentive-Based Compensation is determined to be Erroneously Awarded Incentive-Based Compensation. Recovery of Incentive-Based Compensation received while an individual was serving in a non-executive capacity prior to becoming an Executive Officer is not subject to this Recovery Policy and recovery will not be required. An award of incentive-based compensation granted to an individual before the individual becomes an Executive Officer will be subject to this Recovery Policy, so long as the Incentive-Based Compensation was received by the individual at any time during the performance period after beginning service as an Executive Officer.
- 6 -
Determination of Amount of Erroneously Awarded Compensation
(f) The amount of any Erroneously Awarded Incentive-Based Compensation to be recovered under Section 4.1 will be determined as follows for each applicable Executive Officer:
(1) the amount of Incentive-Based Compensation that has been Received by the Executive Officer during the Recovery Period to which this Recovery Policy applies, less
(2) the amount of the Incentive-Based Compensation that would have been received in respect of the Recovery Period had the Incentive-Based Compensation been determined based on the restated amount.
(g) Erroneously Awarded Incentive-Based Compensation will include any Incentive-Based Compensation that was based on stock price or TSR to the extent that the Incentive-Based Compensation was inaccurate as a result of the Accounting Restatement. For Incentive-Based Compensation based on stock price or TSR, where the amount of Erroneously Awarded Incentive-Based Compensation is not subject to mathematical recalculation directly from the information in the Accounting Restatement:
(1) the amount must be based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or TSR upon which the Incentive-Based Compensation was received, and
(2) the amount of the Incentive-Based Compensation that would have been received in respect of the Recovery Period had the Incentive-Based Compensation been determined based on the restated amount.
(h) The Compensation Committee shall promptly notify each Executive Officer with a written notice containing the amount of any Erroneously Awarded Compensation and a demand for repayment or return of such compensation.
(i) The amount of any Erroneously Awarded Incentive-Based Compensation will be computed without regard to any taxes paid by the Executive Officer.
(j) To the extent that the Executive Officer has already reimbursed the Company for any Erroneously Awarded Compensation Received under any duplicative recovery obligations established by the Company or applicable law, it shall be appropriate for any such reimbursed amount to be credited to the amount of Erroneously Awarded Compensation that is subject to recovery under this Recovery Policy.
(k) Notwithstanding anything in this Recovery Policy, in no event will the Company be required to award any Executive Officer an additional payment or other compensation if the Accounting Restatement would have resulted in the grant, payment or vesting of Incentive-Based Compensation that is greater than the Incentive-Based Compensation actually received by the affected Executive Officer. The recovery of Erroneously Awarded Incentive-Based Compensation is not dependent on if or when the restatement is filed.
- 7 -
5.
REPORTING
Reporting of Erroneously Award Compensation
(a) In the event of an Accounting Restatement pursuant to which the Compensation Committee has considered whether recovery of any Erroneously Awarded Incentive-Based Compensation is required, the Compensation Committee will prepare a report to management of the Company detailing the information required to be reported by the Company with respect to such Accounting Restatement on the Form 20-F or other form of annual report to be filed by the Company under the Exchange Act for the fiscal year in which the Accounting Restatement occurred and in any other filing required to be made by the Company under Securities Laws.
Documentation
(b) The Compensation Committee will maintain documentation as to the determination of the amount of any Erroneously Awarded Incentive-Based Compensation, including any reasonable estimates made during the calculation process, any efforts undertaken to recover Erroneously Awarded Incentive-Based Compensation, amounts that have been recovered and amounts that remain unrecovered as of a specific date. The Company will provide this information to Nasdaq upon its request.
(c) Without limiting the above, the Company will comply will all disclosure, documentation and records requirements relating to this Recovery Policy under Section 10D of the Exchange Act, Item 6.F of Form 20-F, or Instruction 19 of Form 40-F, if applicable, and the applicable Nasdaq listing rules and the filings required to be made by the Company under the Exchange Act.
6.
ENFORCEMENT OF RECOVERY
Requirement to Recover
(a) Upon a determination by the Compensation Committee that the Company is obligated to recover Erroneously Awarded Incentive-Based Compensation under Section 4.1, the Company will take steps to recover such Erroneously Awarded Incentive-Based Compensation other than in circumstances where each of (a) and (b) below apply:
(1) one of the following circumstances exists:
(A) the direct expense paid to a third party to assist in enforcing this Recovery Policy would exceed the amount to be recovered, provided that before concluding that it would be impracticable to recover any amount of Erroneously Awarded Incentive-Based Compensation based on expense of enforcement, the Company has made a reasonable attempt to recover such Erroneously Awarded Incentive-Based Compensation and documented such reasonable attempt(s) to recover (which documentation will be provided to Nasdaq at the request of Nasdaq);
- 8 -
(B) recovery would violate British Columbia or Canadian law where that law was adopted prior to November 28, 2022, provided that the Company has obtained an opinion of its local counsel, in a form acceptable to Nasdaq, that recovery would result in such a violation, and such opinion is provided to Nasdaq; or
(C) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the registrant, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and regulations thereunder; and
(2) the Compensation Committee, or a majority of the independent directors of the Board, has made a determination that recovery would be impracticable.
Deferred Payment Plans
(b) The Compensation Committee may consider the establishment of a deferred payment where recovery is required from an Executive Officer and where the deferred payment plan allows the Executive Officer to repay the Erroneously Awarded Incentive-Based Compensation as soon as possible without unreasonable economic hardship to the Executive Officer, depending on the facts and circumstances.
Recovery of Costs
(c) If an Executive Officer fails to repay all Erroneously Awarded Incentive-Based Compensation when due, the Company will take all actions reasonable and appropriate to recover the Erroneously Awarded Incentive-Based Compensation from the Executive Officer, and in that case the Executive Officer will be required to reimburse the Company for all reasonable expenses incurred in recovering the Erroneously Awarded Incentive-Based Compensation from the Executive Officer.
Other Legal Remedies
(d) Any right of recovery under this Recovery Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to the Company under applicable law, regulation or rule, or under the terms of any similar policy or agreement in any employment agreement, offer letter, compensation plan, equity award agreement, or similar agreement and any other legal remedies available to the Company.
(e) This Recovery Policy does not preclude the Company from taking any other action to enforce an Executive Officer's obligations to the Company or limit any other remedies that the Company may have available to it and any other actions that the Company may take, including termination of employment, institution of civil proceedings, or reporting of any misconduct to appropriate government authorities.
- 9 -
7.
PROHIBITION ON INDEMNIFICATION
Prohibition on Indemnification
(a) The Company shall not be permitted to indemnify or insure any Executive Officer against (i) the loss of any Erroneously Awarded Compensation that is repaid, returned or recovered pursuant to the terms of this Policy, or (ii) any claims relating to the Company's enforcement of its rights under this Recovery Policy. Further, the Company shall not enter into any agreement that exempts any Incentive-Based Compensation that is granted, paid or awarded to an Executive Officer from the application of this Recovery Policy or that waives the Company's right to recovery of any Erroneously Awarded Compensation, and this Recovery Policy shall supersede any such agreement (whether entered into before, on or after the Effective Date of this Recovery Policy).
Insurance
(b) The Company will not purchase or pay or reimburse any Executive Officer for any insurance policy to cover losses incurred by any Executive Officer under this Recovery Policy.
Other Recovery Rights
(c) This Recovery Policy shall be binding and enforceable against all Executive Officers and, to the extent required by applicable law or guidance from the SEC or Nasdaq, their beneficiaries, heirs, executors, administrators or other legal representatives. The Compensation Committee intends that this Policy will be applied to the fullest extent required by applicable law. Any employment agreement, equity award agreement, compensatory plan or any other agreement or arrangement with an Executive Officer shall be deemed to include, as a condition to the grant of any benefit thereunder, an agreement by the Executive Officer to abide by the terms of this Recovery Policy. Any right of recovery under this Recovery Policy is in addition to, and not in lieu of, any other remedies or rights of recovery that may be available to the Company under applicable law, regulation or rule or pursuant to the terms of any policy of the Company or any provision in any employment agreement, equity award agreement, compensatory plan, agreement or other arrangement.
8.
AUTHORITY OF THE COMPENSATION COMMITTEE
Engagement of Professional Advisors
(a) In addition to any authority provided under its charter, the Compensation Committee will have the authority to engage and retain independent legal counsel, independent accounting advisors and any outside professional advisor that it determines necessary to carry out its duties, at the expense of the Company, without the Board's approval and at any time, and has the authority to determine any such advisor's fees and other retention terms.
Oversight
(b) In the event that the Company is required to recover any Erroneously Awarded Incentive-Based Compensation under this Recovery Policy, such recovery efforts will be undertaken with the supervision and oversight of the Compensation Committee.
- 10 -
Review
(c) The Compensation Committee will periodically review legislative developments, regulatory initiatives, and similar matters relating to Securities Laws that may have an impact on this Recovery Policy, and report to the Board any recommendations it may have concerning the Recovery Policy.
- 11 -
Appendix A
ATTESTATION AND ACKNOWLEDGEMENT OF POLICY FOR THE RECOVERY OF ERRONEOUSLY
AWARDED INCENTIVE-BASED COMPENSATION
By my signature below, I acknowledge and agree that:
-
I have received and read the attached Policy for the Recovery of Erroneously Awarded Incentive-Based Compensation (this "Recovery Policy"), as adopted by resolution of the Board of Directors of Bright Minds Biosciences Inc. (the "Company").
-
I hereby agree to abide by all of the terms of this Recovery Policy both during and after my employment with the Company, including, without limitation, by promptly repaying or returning any Erroneously Awarded Incentive-Based Compensation to the Company as determined in accordance with this Recovery Policy.
|
|
|
|
Name: |
|
|
Date: |