UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-41429

PROMIS NEUROSCIENCES INC.

(Exact name of Registrant as specified in its Charter)


Ontario, Canada		98-0647155
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
Suite 200, 1920 Yonge Street

Toronto, Ontario		M4S 3E2
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 416-847-6898

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Shares, no par value per share

PMN

The Nasdaq Capital Market

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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

If an emerging growth company, 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 provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of November 10, 2023, the registrant had 18,885,254 Common Shares outstanding.

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		Page
PART I	FINANCIAL INFORMATION	3
Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss	4
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28

PART II	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
Signatures		32

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements.” Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on current beliefs, expectations or assumptions regarding the future of the business, future plans and strategies, operational results and other future conditions of the Company. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q regarding the prospects of our industry or our prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “plans,” “expects” or “does not expect,” “is expected,” “look forward to,” “budget,” “scheduled,” “estimates,” “forecasts,” “will continue,” “intends,” “the intent of,” “have the potential,” “anticipates,” “does not anticipate,” “believes,” “should,” “should not,” or variations of such words and phrases that indicate that certain actions, events or results “may,” “could,” “would,” “might,” or “will,” “be taken,” “occur,” or “be achieved,” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission (“SEC”) or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to:

●

the anticipated amount, timing and accounting of contingent, milestone, royalty and other payments under licensing or collaboration agreements;

●

tax positions and contingencies; research and development costs; compensation and other selling, general and administrative expense;

●

amortization of intangible assets;

●

foreign currency exchange risk;

●

estimated fair value of assets and liabilities; and impairment assessments;

●

patent terms, patent term extensions, patent office actions and expected availability and period of regulatory exclusivity;

●

our plans and investments in our portfolio as well as implementation of our corporate strategy;

●

the risk that the Company will maintain enough liquidity to execute its business plan and its ability to continue as a going concern;

●

the drivers for growing our business, including our plans and intention to commit resources relating to discovery, research and development programs and business development opportunities as well as the potential benefits and results of, and the anticipated completion of, certain business development transactions;

●

the expectations, development plans and anticipated timelines, including costs and timing of potential clinical trials, filings and approvals, of our products candidates and pipeline programs, including collaborations with third-parties, as well as the potential therapeutic scope of the development and commercialization of our and our collaborators’ pipeline product candidates, if approved;

●

the timing, outcome and impact of administrative, regulatory, legal and other proceedings related to our patents and other proprietary and intellectual property rights, tax audits, assessments and settlements, pricing matters, sales and promotional practices, product liability and other matters;

●

our ability to finance our operations and business initiatives and obtain funding for such activities;

●

any lingering impact of the COVID-19 pandemic on our business and operations, including expenses, reserves and allowances, the supply chain, manufacturing, cyber-attacks or other privacy or data security incidents, research and development costs, clinical trials and employees;

●

inflation, market volatility and rising interest rates;

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●

the potential impact of healthcare reform in the United States (U.S.) and measures being taken worldwide designed to reduce healthcare costs and limit the overall level of government expenditures, including the impact of pricing actions and reduced reimbursement for our product candidates, if approved;

●

the risk that we become characterized as a passive foreign investment company;

●

lease commitments, purchase obligations and the timing and satisfaction of other contractual obligations; and

●

the impact of new laws (including tax), regulatory requirements, judicial decisions and accounting standards.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. Risks, uncertainties and other factors which may cause the actual results, performance or achievements of ProMIS Neurosciences Inc. (the “Company”), as applicable, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements include, but are not limited to, the risks described under the heading “Risk Factors Summary” and in Item 1A—“Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 8, 2023 (the “Form 10-K”), the section entitled “Risk Factors” in the Company’s Post-Effective Amendment No. 1 to Form S-1 filed with the SEC on March 17, 2023 as well as the risks described in Item 1A—“Risk Factors” in subsequently filed Quarterly Reports on Form 10-Q.

Readers are cautioned not to place undue reliance on any forward-looking statements contained in this Quarterly Report on Form 10-Q, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PROMIS NEUROSCIENCES INC.

Condensed Consolidated Balance Sheets

(expressed in US dollars, except share amounts)

(Unaudited)


	September 30,		December 31,
	2023		2022
Assets
Current assets:
Cash	$	16,868,347	$	5,875,796
Short-term investments		31,824		31,009
Prepaid expenses and other current assets		957,785		996,682
Total current assets		17,857,956		6,903,487
Property and equipment, net		—		321
Intangible assets, net		18,022		20,838
Total assets	$	17,875,978	$	6,924,646
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable	$	8,414,596	$	2,975,398
Accrued liabilities		1,436,740		3,437,646
Share-based compensation liability - short-term		49		—
Total current liabilities		9,851,385		6,413,044
Share-based compensation liability		992,348		—
Warrant liability		277,356		1,859,374
Total liabilities		11,121,089		8,272,418

Commitments and contingencies (Note 10)
Shareholders' deficit:
Series 1 Convertible Preferred Shares, no par value, 70,000,000 shares authorized, 70,000,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022		—		—
Common shares, no par value, unlimited shares authorized, 18,525,254 and 8,579,284 shares issued and outstanding as of September 30, 2023 and December 31, 2022		—		—
Additional paid-in capital		97,011,590		79,101,061
Accumulated other comprehensive loss		(371,184)		(195,369)
Accumulated deficit		(89,885,517)		(80,253,464)
Total shareholders' equity (deficit)		6,754,889		(1,347,772)
Total liabilities and shareholders' equity (deficit)	$	17,875,978	$	6,924,646

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PROMIS NEUROSCIENCES INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(expressed in US dollars, except share amounts)

(Unaudited)


	For the		For the		For the		For the
	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2023		2022		2023		2022
Operating expenses:
Research and development	$	1,142,160	$	4,570,562	$	5,658,127	$	9,702,978
General and administrative		1,375,380		1,483,573		4,729,969		5,154,324
Total operating expenses		2,517,540		6,054,135		10,388,096		14,857,302
Loss from operations		(2,517,540)		(6,054,135)		(10,388,096)		(14,857,302)

Other income (expense):
Change in fair value of financial instruments		119,019		61,407		683,568		2,972,272
Other interest expense		(75,413)		—		(124,595)		—
Interest expense on convertible debt		—		—		—		(282,064)
Gain on extinguishment of convertible debt and derivative liability		—		—		—		1,307,421
Other income		113,286		35,853		197,070		62,915
Total other income (expense), net		156,892		97,260		756,043		4,060,544

Net loss		(2,360,648)		(5,956,875)		(9,632,053)		(10,796,758)
Other comprehensive loss
Foreign currency translation adjustment		—		(131,874)		(175,815)		(82,397)
Comprehensive loss	$	(2,360,648)	$	(6,088,749)	$	(9,807,868)	$	(10,879,155)

Net loss per share, basic and diluted	$	(0.19)	$	(0.83)	$	(0.98)	$	(1.50)

Weighted-average shares outstanding of common shares, basic and diluted		12,370,830		7,195,529		9,861,719		7,195,529

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PROMIS NEUROSCIENCES INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

(expressed in US dollars, except share amounts)

(Unaudited)


									Accumulated
	Series 1 Convertible						Additional		Other
	Preferred Shares			Common Shares			Paid-in		Comprehensive		Accumulated
	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Total
Balance, January 1, 2022	—	$	—	7,195,529	$	—	$	68,039,178	$	(187,919)	$	(62,191,201)	$	5,660,058
Share-based compensation	—		—	—		—		348,861		—		—		348,861
Conversion of convertible debt and derivative liability to Series 1 Convertible Preferred Shares	70,000,000		—	—		—		5,600,000		—		—		5,600,000
Foreign currency translation	—		—	—		—		—		(82,397)		—		(82,397)
Net loss	—		—	—		—		—		—		(10,796,758)		(10,796,758)
Balance, September 30, 2022	70,000,000	$	—	7,195,529	$	—	$	73,988,039	$	(270,316)	$	(72,987,959)	$	729,764


									Accumulated
	Series 1 Convertible						Additional		Other
	Preferred Shares			Common Shares			Paid-in		Comprehensive		Accumulated
	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Total
Balance, January 1, 2023	70,000,000	$	—	8,579,284	$	—	$	79,101,061	$	(195,369)	$	(80,253,464)	$	(1,347,772)
Share-based compensation expense	—		—	—		—		266,701		—		—		266,701
Foreign currency translation	—		—	—		—		—		(175,815)		—		(175,815)
Proceeds from the issuance of common stock, pre-funded warrants and accompanying common warrants in August 2023 PIPE, net of issuance costs of $2,738,558	—		—	9,945,970		—		17,745,200		—		—		17,745,200
Reclassification of USD denominated warrants from warrant liability to additional paid-in capital due to change in functional currency	—		—	—		—		1,287,400		—		—		1,287,400
Reclassification of CAD denominated warrants from additional paid-in capital to warrant liability due to change in functional currency	—		—	—		—		(396,375)		—		—		(396,375)
Reclassification of CAD equity-classified stock options to share-based compensation liability due to change in functional currency	—		—	—		—		(1,435,913)		—		—		(1,435,913)
Re-measurement of liability-classified CAD stock options as of September 30, 2023	—		—	—		—		443,516		—		—		443,516
Net loss	—		—	—		—		—		—		(9,632,053)		(9,632,053)
Balance, September 30, 2023	70,000,000	$	—	18,525,254	$	—	$	97,011,590	$	(371,184)	$	(89,885,517)	$	6,754,889

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PROMIS NEUROSCIENCES INC.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

(expressed in US dollars, except share amounts)

(Unaudited)


									Accumulated
	Series 1 Convertible						Additional		Other
	Preferred Shares			Common Shares			Paid-in		Comprehensive		Accumulated
	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Total
Balance, July 1, 2022	—	$	—	7,195,529	$	—	$	73,879,455	$	(138,442)	$	(67,031,084)	$	6,709,929
Share-based compensation	—		—	—		—		108,584		—		—		108,584
Conversion of convertible debt and derivative liability to Series 1 Convertible Preferred Shares	70,000,000		—	—		—		—		—		—		—
Foreign currency translation	—		—	—		—		—		(131,874)		—		(131,874)
Net loss	—		—	—		—		—		—		(5,956,875)		(5,956,875)
Balance, September 30, 2022	70,000,000	$	—	7,195,529	$	—	$	73,988,039	$	(270,316)	$	(72,987,959)	$	729,764


									Accumulated
	Series 1 Convertible						Additional		Other
	Preferred Shares			Common Shares			Paid-in		Comprehensive		Accumulated
	Shares	Amount		Shares	Amount		Capital		Income (Loss)		Deficit		Total
Balance, July 1, 2023	70,000,000	$	—	8,579,284	$	—	$	79,367,762	$	(371,184)	$	(87,524,869)	$	(8,528,291)
Proceeds from the issuance of common stock, pre-funded warrants and accompanying common warrants in August 2023 PIPE, net of issuance costs of $2,738,558	—		—	9,945,970		—		17,745,200		—		—		17,745,200
Reclassification of USD denominated warrants from warrant liability to additional paid-in capital due to change in functional currency	—		—	—		—		1,287,400		—		—		1,287,400
Reclassification of CAD denominated warrants from additional paid-in capital to warrant liability due to change in functional currency	—		—	—		—		(396,375)		—		—		(396,375)
Reclassification of CAD equity-classified stock options to share-based compensation liability due to change in functional currency	—		—	—		—		(1,435,913)		—		—		(1,435,913)
Re-measurement of liability-classified CAD stock options as of September 30, 2023	—		—	—		—		443,516		—		—		443,516
Net loss	—		—	—		—		—		—		(2,360,648)		(2,360,648)
Balance, September 30, 2023	70,000,000	$	—	18,525,254	$	—	$	97,011,590	$	(371,184)	$	(89,885,517)	$	6,754,889

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

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PROMIS NEUROSCIENCES INC.

Condensed Consolidated Statements of Cash Flows

(expressed in US dollars)

(Unaudited)


	Nine Months Ended
	September 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(9,632,053)	$	(10,796,758)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		266,701		348,861
Foreign currency exchange (gain) loss		(2,632)		367,649
Change in fair value of derivative liability		—		(2,643,123)
Change in fair value of warrant liability		(683,568)		(326,741)
Depreciation of property and equipment		322		5,771
Amortization of debt discount and issuance costs		—		247,046
Amortization of intangible assets		2,816		3,886
Gain on extinguishment of convertible debt and derivative liability		—		(1,307,421)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		38,897		(781,683)
Accounts payable		5,439,199		1,518,327
Accrued liabilities		(2,515,120)		883,931
Net cash used in operating activities		(7,085,438)		(12,480,255)
Cash flows from investing activities
Purchase of property and equipment		—		(2,024)
Net cash used in investing activities		—		(2,024)
Cash flows from financing activities
Proceeds from issuance of common shares, pre-funded warrants and accompanying common warrants from August 2023 PIPE, net of issuance costs		18,259,414		—
Net cash provided by financing activities		18,259,414		—
Effect of exchange rates on cash		(181,425)		(540,884)
Net decrease in cash		10,992,551		(13,023,163)

Cash at beginning of period		5,875,796		16,943,905
Cash at end of period	$	16,868,347	$	3,920,742

Noncash financing activities
Conversion of convertible debt and derivative liability to Series 1 Convertible Preferred Shares	$	—	$	5,600,000
Share issuance costs related to August 2023 PIPE included in accrued liabilities as of September 30, 2023	$	514,214	$	—
Reclassification of historical CAD denominated warrants from equity to liability	$	(396,375)	$	—
Reclassification of historical USD warrants from liability to equity	$	1,287,400	$	—

Supplemental disclosure of cash flow information
Cash paid for interest on convertible debt	$	—	$	87,069
Cash paid for other interest	$	124,595	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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PROMIS NEUROSCIENCES INC.

Notes to Unaudited Condensed Consolidated Financial Statements

(expressed in US dollars, except share and per share amounts)

(Unaudited)

1.	DESCRIPTION OF BUSINESS

Business Description

ProMIS Neurosciences Inc. (the “Company” or “ProMIS”) is applying its patented technology platform to build a portfolio of antibody therapies, therapeutic vaccines, and other antibody-based therapies in neurodegenerative diseases and other protein-misfolding diseases, with a focus on Alzheimer’s disease (AD), multiple system atrophy (MSA), and amyotrophic lateral sclerosis (ALS). The Company believes these diseases share a common biologic cause — misfolded versions of proteins, that otherwise perform a normal function, becoming toxic and killing neurons, resulting in disease. ProMIS’ technology platform enables drug discovery through a combination of protein biology, physics and supercomputing. ProMIS believes this platform provides a potential advantage in selectively targeting the toxic misfolded proteins with therapeutics or detecting them with diagnostics.

The Company is developing a pipeline of antibodies aimed at selectively targeting misfolded toxic forms of proteins that drive neurodegenerative diseases without interfering with the essential functions of the same properly folded proteins. The Company's product candidates are PMN310, PMN267, and PMN442. The lead product candidate is PMN310, a monoclonal antibody designed to treat AD by selectively targeting toxic, misfolded oligomers of amyloid-beta. PMN267 is our second lead product candidate targeting ALS. It has been shown in preclinical studies to selectively recognize misfolded, cytoplasmic TDP 43 aggregates without interacting with normal TDP 43. Misfolded TDP 43 is believed to play an important role in the development of ALS. In light of research suggesting that misfolded toxic a-syn is a primary driver of disease in synucleinopathies such as MSA and Parkinson’s disease, our third lead product candidate, PMN442, has shown robust binding to pathogenic a-syn oligomers and seeding fibrils in preclinical studies, with negligible binding to a-syn monomers and physiologic tetramers which are required for normal neuronal function.

The Company was incorporated on January 23, 2004 under the Canada Business Corporations Act (“CBCA”). On July 13, 2023, the Company continued its existence from a corporation incorporated under the CBCA into the Province of Ontario under the Business Corporations Act (Ontario) (the “OBCA”) (the “Continuance”). The Continuance was approved by the Company’s shareholders at the Company’s 2023 Annual Meeting of Shareholders held on June 29, 2023. The Company is located at 1920 Yonge Street, Toronto, Ontario. The Company’s Common Shares are traded on the Nasdaq Capital Market (“Nasdaq”) under the symbol PMN. The Company has a wholly-owned U.S. subsidiary, ProMIS Neurosciences (US) Inc. (“ProMIS USA”), which was incorporated in January 2016 in the State of Delaware. As of September 30, 2023, ProMIS USA has had no material activity and has no material financial impact on the Company’s unaudited condensed consolidated financial statements.

The success of the Company is dependent on obtaining the necessary regulatory approvals of its product candidates, marketing its products, if approved, and achieving profitable operations. The continuation of the research and development activities and the commercialization of its products, if approved, are dependent on the Company’s ability to successfully complete these activities and to obtain additional financing through a combination of financing activities and operations. It is not possible to predict either the outcome of future research and development or commercialization programs, the Company’s ability to fund these programs, or the Company’s ability to continue as a going concern.

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Liquidity Risk

The accompanying unaudited condensed consolidated financial statements were prepared on a going concern basis, which assumes that the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated revenues from its activities. The Company had a net loss of $2.4 million and $9.6 million for the three and nine months ended September 30, 2023, respectively, and an accumulated deficit of $89.9 million as of September 30, 2023. Management believes these conditions raise substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the date these unaudited condensed consolidated financial statements are issued. The Company will require additional funding to conduct future clinical activities. The Company will seek additional funding through public and private financings, debt financings, collaboration agreements, strategic alliances and licensing agreements. Although the Company has been successful in raising capital in the past, there is no assurance of success in obtaining such additional financing on terms acceptable to us, if at all, and there is no assurance that the Company will be able to enter into collaborations or other arrangements. If the Company is unable to obtain funding, it could force delays, reduce or eliminate research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect future business prospects, and the ability to continue operations.

The Company may continue to incur net losses for at least the next several years as the Company advances its product candidates. The Company is actively pursuing additional financing to further develop certain of the Company’s scientific initiatives, but there is no assurance these initiatives will be successful, timely or sufficient.

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022, which are included with the Company’s Annual Report on Form 10-K and related amendments filed with the United States Securities Exchange Commission (“SEC”). Furthermore, the Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the years ended December 31, 2022 and 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC. Since the date of those audited consolidated financial statements, there have been no changes to the Company’s significant accounting policies except for the Company’s accounting treatment of deferred financing costs for common stock issuances, accounting for liability-classified share-based compensation and foreign currency further described below.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations, and cash flows. The December 31, 2022 condensed consolidated balance sheet was derived from audited financial statements, but does not include all GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results for the full year.

Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.

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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made in the accompanying unaudited condensed consolidated financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of warrant liabilities and embedded derivative liabilities. Actual results could differ from those estimates, and such differences could be material to the unaudited condensed consolidated financial statements.

Segment Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”), or decision-making group, in making decisions on how to allocate resources and assess performance. The Company has one operating segment and its Chief Executive Officer serves as the CODM. Substantially all of the Company’s assets are located in Canada.

Foreign and Functional Currency

Prior to July 1, 2023, the Company’s functional currency was the Canadian dollar (“C$”). Translation gains and losses from the application of the United States dollar (“US$”) as the reporting currency during the period that the Canadian dollar was the functional currency were included as part of cumulative currency translation adjustment, which is reported as a component of stockholders’ equity (deficit) as accumulated other comprehensive loss.

Following the Company’s voluntary delisting from the Toronto Stock Exchange in July 2023, the Company reassessed its functional currency and determined that, as of July 1, 2023, its functional currency had changed from the C$ to the US$. The Company analysis included various factors, including: the Company’s cash flows and expenses denominated primarily in US$, the primary market for the Company’s Common Shares trading in US$ and a majority ownership by U.S. shareholders. The change in functional currency was accounted for prospectively from July 1, 2023 and consolidated financial statements prior to and including the period ended June 30, 2023 were not restated for the change in functional currency.

For periods commencing July 1, 2023, monetary assets and liabilities denominated in foreign currencies are translated into US$ using exchange rates in effect at the end of the reporting period. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets acquired, and non-monetary liabilities incurred after July 1, 2023 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction. Foreign exchange gains and losses are included in the consolidated statement of operations and comprehensive loss within operating expenses.

Share-Based Compensation

Share-based compensation expense related to share awards granted to employees, directors and non-employees is recognized based on the grant-date estimated fair values of the awards using the Black- Scholes option pricing model (“Black-Scholes”). The value is recognized as expense ratably over the requisite service period, which is generally the vesting term of the award. The Company adjusts the expense for actual forfeitures as they occur. Share based compensation expense is classified in the accompanying consolidated statements of operations and comprehensive loss based on the function to which the related services are provided.

Black-Scholes requires a number of assumptions, of which the most significant are expected volatility, expected option term (the time from the grant date until the options are exercised or expire) and risk-free rate. Expected volatility is determined using the historical volatility for the Company. The risk-free interest rate is based on the yield of Canadian government bonds with a remaining term equal to the expected life of the option. Expected dividend yield is zero because the Company has never paid any cash dividends on common shares and the Company does not expect to pay cash dividends in the foreseeable future.

Awards of options that provide for an exercise price that is not denominated in: (a) the currency of a market in which a substantial portion of the Company's equity securities trades in, (b) the currency in which the employee's pay is denominated, or (c) the Company's functional currency, are required to be classified as liabilities. The change in the Company’s functional currency, effective July 1, 2023 resulted in the reclassification of outstanding stock options that were previously denominated

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in C$ from equity-classified to liability-classified options (see Note 8), which are accounted for as a share option modification in accordance with FASB’s ASC 718 – Compensation – Stock Compensation (“ASC 718”). Under ASC 718, when an award is reclassified from equity to liability, if at the reclassification date the original vesting conditions are expected to be satisfied, then the minimum amount of compensation cost to be recognized is based on the grant date fair value of the original award. Fair value changes below this minimum amount are recorded in additional paid-in capital. For each reporting period after the modification date, the stock option liability is adjusted so that it equals the portion of the requisite service provided multiplied by the modified award’s fair value at the end of the reporting period.

Share Issuance Costs

Common share issuance costs are incremental costs directly associated with an offering of securities. These costs typically include fees paid to bankers or underwriters, attorneys, accountants, as well as printers and other third parties. Prior to the effective date of an offering of equity securities, specific incremental costs directly attributable to a proposed or actual offering of securities may be deferred and charged against the gross proceeds of the offering. The Company capitalizes these deferred financing costs as prepaid expenses and other current assets in the accompanying unaudited interim condensed consolidated balance sheets until the completion of the offering, unless the offering is abandoned, at which time the deferred financing costs will be recognized in the unaudited condensed consolidated statements of operations. During the three and nine months ended September 30, 2023, the Company recognized general and administrative expenses of $0.0 million and $0.8 million related to abandoned offerings.

Emerging Growth Company Status

The Company is an Emerging Growth Company, as defined in Section 2(a) of the Securities Act of 1933, as modified by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these unaudited condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (“Subtopic 470-20 ”) and Derivatives and Hedging Contracts in Entity s Own Equity (“Subtopic 815-40 ”): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred shares. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (i) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (ii) convertible debt instruments issued with substantial premiums for which the premiums are recorded as additional paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective for the Company for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact adopting ASU 2020-06 will have on the Company’s consolidated financial statements and related disclosures, but does not have any outstanding debt as of September 30, 2023.

In June 2016, and in later clarifying amendments, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The pronouncement changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. ASU 2016-13 will be effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this standard effective January 1, 2023 with no material impact on the Company’s unaudited interim condensed consolidated financial statements.

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3.	FAIR VALUE MEASUREMENTS

The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022:


	As of September 30, 2023
	Level 1		Level 2			Level 3	Total
Assets:
Short-term investments	$	31,824	$	—	$	—	$	31,824
Total assets measured at fair value	$	31,824	$	—	$	—	$	31,824
Liabilities:
Warrant liability	$	—	$	—	$	277,356	$	277,356
Total liabilities measured at fair value	$	—	$	—	$	277,356	$	277,356


	As of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Short-term investments	$	31,009	$	—	$	—	$	31,009
Total assets measured at fair value	$	31,009	$	—	$	—	$	31,009
Liabilities:
Warrant liability	$	—	$	—	$	1,859,374	$	1,859,374
Total liabilities measured at fair value	$	—	$	—	$	1,859,374	$	1,859,374

No transfers between levels have occurred in either reporting period presented. Refer to Note 7 below for disclosures related to the warrant liability.

4.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:


	September 30,		December 31,
	2023		2022
Upfront research payments	$	64,418	$	346,015
Goods and services tax receivable		83,448		71,626
Accrued interest receivable		82,059		—
Insurance		645,133		471,088
Dues and subscriptions		32,036		7,926
Consultants		4,811		56,797
License fee		4,722		25,700
Deposits		19,623		12,907
Miscellaneous		21,535		4,623
Total prepaid expenses and other current assets	$	957,785	$	996,682

5.	ACCRUED LIABILITIES AND ACCOUNTS PAYABLE

Accrued liabilities consist of the following:


	September 30,		December 31,
	2023		2022
Legal	$	46,697	$	—
Accounting		82,732		73,970
Research and development		729,717		3,185,346
Other		577,594		178,330
Accrued liabilities	$	1,436,740	$	3,437,646

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Other accrued liabilities for the period ending September 30, 2023 include $514,214 of share issuance costs related to the August 2023 PIPE.

Accounts payable are current obligations due to vendors. In May 2023, the Company entered into an agreement with a vendor which gives the option to defer payment on approximately $5.5 million of current accounts payable and accrued liabilities until March 31, 2024. The outstanding balance of invoices due to the vendor will accrue interest at an annual rate of 5.5%, which will be paid monthly. The Company may repay the outstanding balance at any time.

6.	EQUITY

The Company has authorized an unlimited number of both Common and Preferred Shares, issuable in series, and 70 million Series 1 Convertible Preferred Shares. As of September 30, 2023 and December 31, 2022, the Company had 18,525,254 and 8,579,284 issued and outstanding Common Shares, respectively, and 70,000,000 issued and outstanding Series 1 Convertible Preferred Shares. The Common Shares and Series 1 Convertible Preferred Shares have no par value.

Common Shares reserved for future issuance consists of the following:


	September 30,	December 31,
	2023	2022
Warrants	13,955,897	1,873,622
Series 1 Convertible Preferred Shares	1,166,667	1,166,667
Options issued and outstanding under stock option plan	1,041,492	1,043,025
Deferred Share Units	1,061	1,061
Common Shares available for grant under stock option plan	397,613	396,080
Total Common Shares reserved for future issuance	16,562,730	4,480,455

The preferences, privileges and rights of the Common Shares are as follows:

Voting

Subject to any special voting rights or restrictions, holders of Common Shares entitled to vote shall have one vote per share.

Dividends

The Company’s Board of Directors may from time to time declare and authorize payment of dividends, if any, as they may deem advisable and need not give notice of such declaration to any shareholder. Subject to the rights of common shareholders, if any, holding shares with specific rights as to dividends, all dividends on Common Shares shall be declared and paid according to the number of such shares held and paid in Canadian dollars.

Liquidation Rights

In the event of the liquidation, dissolution or winding-up of the Company or any other distribution of the Company’s assets for the purpose of winding up the Company’s affairs, after the payment of dividends declared but unpaid, the holders of Common Shares shall be entitled pari passu to receive any remaining property of the Company.

Series 1 Convertible Preferred Shares

On June 17, 2022, the directors of the Company authorized the issuance of 70,000,000 Series 1 Convertible Preferred Shares (“Preferred Shares”) with the following preferences, privileges and rights:

Dividends

If the Company declares, pays or sets aside any dividends on shares of any other class or series of capital stock the holders of the Preferred Shares shall receive a dividend on each outstanding share of Preferred Share in an amount equal to that dividend per share of the Preferred Share as would equal the product of the dividend payable as if all shares of such series had been converted into Common Shares.

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Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Preferred Shares shall be entitled to be paid out of the assets of the Company available for distribution to the shareholders an amount per share equal to $6.00, plus any dividends declared but not paid. If, upon any such liquidation event, the assets available for distribution to the shareholders are insufficient to pay the holders of the Preferred Shares, the holders of the Preferred Shares shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.

Voting

The Preferred Shares do not confer any voting rights or privileges.

Redemption

The Preferred Shares are not subject to mandatory redemption or other redemption provisions for which the events resulting in redemption are not within the Company’s control.

Optional Conversion

Preferred Shares are convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable Common Shares as is determined by dividing $0.10 by the applicable conversion price in effect at the time of conversion. The Conversion Price was initially equal to $0.10 and, following the Reverse Share Split on June 28, 2022, is equal to $6.00, such that 60 Preferred Shares are convertible into 1 Common Share.

Mandatory Conversion

All outstanding Preferred Shares shall automatically convert into Common Shares, at the effective conversion rate upon the closing of one or more sales of equity securities resulting in at least $30 million of gross proceeds to the Company. As of September 30, 2023, the Company has raised approximately $27.8 million.

Equity Transactions

Following the change in functional currency effective July 1, 2023, the Company reassessed the classification of its historical US$ and C$ denominated warrants in accordance with the Company’s accounting policy for warrants. As a result of the reassessment, the Company determined that 870,026 US$ warrants to purchase Common Shares, originally issued in financing transactions in 2021 and 2022, previously classified as warrant liabilities met the criteria under ASC 815-40 for permanent equity classification. The US$ warrants with a total fair value of $1,287,400, calculated using a Black Scholes calculation as of June 30, 2023, were reclassified from warrant liability to additional-paid-in-capital in the accompanying unaudited condensed consolidated financial statements. The fair value of the US$ warrants represented the entirety of the Company’s warrant liability as of June 30, 2023. The US$ warrants will not be re-measured prospectively.

As result of the reassessment the Company determined that 687,591 C$ warrants, originally issued in financing transactions between 2018 and 2020, which were previously classified in permanent equity no longer met the criteria for equity classification. The C$ warrants were remeasured as of July 1, 2023. The C$ warrants have exercise prices between C$12.00 and C$28.80 and expire between January 2024 and November 2025. The Company measured the fair value of the C$ warrants on July 1, 2023 using a Black Scholes calculation and the resulting value of $396,375 was recorded as a reclassification from additional-paid-in-capital to warrant liability. The C$ warrants liability was subsequently re-measured at September 30, 2023 to a fair value of $277,356, with the change in fair value of $119,019 reported in other income in the accompanying unaudited condensed consolidated statement of comprehensive loss.

The weighted-average values of the significant assumptions used in the Black Scholes valuation of the C$ warrants as of July 1, 2023 included volatility of 84.6%, a risk-free rate of 4.54%, exercise price of C$12.80 and an expected term of 2.3 years. The weighted-average values of the significant assumptions used in the Black Scholes valuation of the C$ warrants as of

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September 30, 2023 included volatility of 127.8%, a risk-free rate of 4.83%, exercise price of C$13.35 and an expected term of 1.9 years.

A summary of warrant liability activity for the nine-month period ended September 30, 2023 is as follows:


	September 30,
	2023
Balance at December 31, 2022	$	1,859,374
Change in fair value of US$ warrant liability		(564,549)
Foreign exchange loss		(7,425)
Fair value of US$ warrant liability as of June 30, 2023		1,287,400
Fair value of previously liability-classified US$ warrants reclassified to additional paid-in-capital as of July 1, 2023		(1,287,400)
Fair value of previously equity-classified C$ warrants reclassified to warrant liability as of July 1, 2023		396,375
Change in fair value of C$ warrant liability		(119,019)
Balance at September 30, 2023	$	277,356

A summary of warrant liability activity for the year ended December 31, 2022 is as follows:


	December 31,
	2022
Balance at December 31, 2021	$	1,871,687
October 2022 PIPE warrant liability at issuance		1,520,401
Change in fair value of the warrant liability		(1,533,644)
Foreign exchange loss		930
Balance at December 31, 2022	$	1,859,374

In August 2023, through a private placement (“August 2023 PIPE”), the Company issued 9,945,969 Common Shares, and, in lieu of Common Shares, Pre-Funded Warrants to purchase an aggregate of 954,725 Common Shares, and, in each case, accompanying Common Warrants to purchase an aggregate of up to 10,900,604 additional Common Shares at a unit price of $1.88 per Common Share and accompanying Common Warrant (or $1.87 per Pre-Funded Warrant and accompanying Common Warrant). The private placement resulted in aggregate gross proceeds of $20,483,758 before $2,738,558 of issuance costs. The Common Warrants are exercisable for five years commencing six months after the issuance date at a price of $1.75.

The Company determined the Pre-Funded Warrants and Common Warrants both met the permanent equity criteria classification. The Pre-Funded Warrants and Common Warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the Common Shares 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, the Pre-Funded Warrants and Common Warrants do not provide any guarantee of value or return.

The Company also issued 327,020 compensation warrants to purchase Common Shares as compensation to a placement agent as part of the August 2023 PIPE. The compensation warrants have an exercise price of $1.75 and expire in February 2029. The Company used a Black Scholes calculation to determine the fair value of the compensation warrants at the issuance date. The fair value of $466,658 of issuance costs are recorded in additional-paid-in capital, which results in a net zero impact to additional paid-in-capital and issuance costs. Significant assumptions used in the Black Scholes calculation included risk free interest rate of 4.36%; historical volatility of 107.3%; and a 5.5-year expiry.

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7.	WARRANTS

As of September 30, 2023, outstanding Common Share warrants and exercise prices denominated in C$ unless otherwise noted, related to unit offerings are as follows:


Exercise	Number of
Price $	Warrants	Expiry date
28.80	139,659	January 2024
18.00	68,334	June 2024
18.00	150,818	November 2024
18.00	49,167	December 2024
12.00	279,613	November 2025
USD

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company