FSD Pharma Inc.
Condensed consolidated interim financial statements
For the three months ended March 31, 2023, and 2022
(unaudited) (expressed in United States dollars, except per share amounts)
NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM FINANCIAL STATEMENTS
Under Part 4, subsection 4.3(3)(a) of National Instrument 51-102 - Continuous Disclosure Obligations, if an auditor has not performed a review of the condensed interim financial statements, they must be accompanied by a notice indicating that the condensed interim financial statements have not been reviewed by an auditor.
The accompanying unaudited condensed interim financial statements of FSD Pharma [the "Company"] have been prepared by and are the responsibility of the Company's management.
The Company's independent auditor has not performed a review of these condensed interim financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.
FSD PHARMA INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
[unaudited] [expressed in United States dollar]
| As at | March 31 | December 31, | |||||||
| 2023 | 2022 | ||||||||
| Notes | $ | $ | |||||||
| ASSETS | |||||||||
| Current assets | |||||||||
| Cash and cash equivalents | 9,222,852 | 16,980,472 | |||||||
| Other receivables | 4 | 425,048 | 374,377 | ||||||
| Prepaid expenses and deposits | 5 | 837,540 | 472,137 | ||||||
| Note receivables | 223,333 | - | |||||||
| Net investment in lease | 23,206 | 23,188 | |||||||
| 10,731,979 | 17,850,174 | ||||||||
| Non-current assets | |||||||||
| Equipment, net | 102,821 | 105,729 | |||||||
| Investments | 7 | 650,334 | 827,612 | ||||||
| Right-of-use asset, net | 8 | 118,779 | 155,196 | ||||||
| Finance receivables, net | 6 | 7,407,408 | 7,431,656 | ||||||
| Intangible assets, net | 9 | 10,469,584 | 12,040,289 | ||||||
| 29,480,905 | 38,410,656 | ||||||||
| LIABILITIES | |||||||||
| Current liabilities | |||||||||
| Trade and other payables | 10 | 7,706,530 | 7,108,419 | ||||||
| Lease obligations | 11 | 141,702 | 177,870 | ||||||
| Warrants liability | 12 | 450,544 | 243,594 | ||||||
| Notes payable | 300,549 | 300,549 | |||||||
| 8,599,325 | 7,830,432 | ||||||||
| Non-current liabilities | |||||||||
| Lease obligations | 11 | 24,122 | 38,004 | ||||||
| 8,623,447 | 7,868,436 | ||||||||
| SHAREHOLDERS' EQUITY | |||||||||
| Class A share capital | 13 | 151,588 | 151,588 | ||||||
| Class B share capital | 13 | 137,287,903 | 143,258,972 | ||||||
| Warrants | 13 | 3,036,979 | 2,142,400 | ||||||
| Contributed surplus | 29,627,239 | 28,500,924 | |||||||
| Foreign exchange translation reserve | 668,003 | 652,601 | |||||||
| Accumulated deficit | (149,914,254 | ) | (144,164,265 | ) | |||||
| 20,857,458 | 30,542,220 | ||||||||
| 29,480,905 | 38,410,656 | ||||||||
| Commitments and contingencies | 18 | ||||||||
| Subsequent events | 20 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
On behalf of the Board:
"Signed" | "Signed" |
Director - Donal Carroll | Director - Nitin Kaushal |
FSD PHARMA INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
[unaudited] [expressed in United States dollar, except number of shares]
| For the period ended March 31, | 2023 | 2022 | |||||||
| Notes | $ | $ | |||||||
| Expenses | |||||||||
| General and administrative | 16 | 2,716,777 | 3,528,302 | ||||||
| External research and development fees | 2,311,596 | 937,052 | |||||||
| Share-based payments | 14 | 3,206,535 | 83,161 | ||||||
| Depreciation and amortization | 8 & 9 | 1,129,971 | 1,101,155 | ||||||
| Impairment loss | 9 | 480,096 | - | ||||||
| Total operating expenses | 9,844,975 | 5,649,670 | |||||||
| Loss from continuing operations | (9,844,975 | ) | (5,649,670 | ) | |||||
| Interest income | 17 | (272,341 | ) | - | |||||
| Finance expense, net | 667 | 16,382 | |||||||
| Gain on settlement of financial liability | - | (82,725 | ) | ||||||
| Loss (gain) on change in fair value of derivative liability | 12 | 206,950 | (242,519 | ) | |||||
| Loss on changes in fair value of investments | 7 | 177,278 | 120,023 | ||||||
| Net loss from continuing operations | (9,957,529 | ) | (5,460,831 | ) | |||||
| Net loss from discontinued operations | 3 | - | (444,506 | ) | |||||
| Net loss | (9,957,529 | ) | (5,905,337 | ) | |||||
| Other comprehensive loss | |||||||||
| Items that may be subsequently reclassified to loss: | |||||||||
| Exchange gain (loss) on translation of foreign operations | 15,402 | (73,585 | ) | ||||||
| Comprehensive loss | (9,942,127 | ) | (5,978,922 | ) | |||||
| Net loss per share | |||||||||
| Basic and diluted - continuing operations | 15 | (0.26 | ) | (0.14 | ) | ||||
| Basic and diluted - discontinued operations | 15 | - | (0.01 | ) | |||||
| Weighted average number of shares outstanding - basic and diluted | 15 | 38,962,415 | 39,998,791 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
FSD PHARMA INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
For the periods ended March 31, 2023 and 2022
[unaudited] [expressed in United States dollar, except number of shares]
| Foreign exchange | Accumulated | |||||||||||||||||||||||||||||
| Class A shares | Class B shares | Warrants | Contributed surplus | translation reserve | deficit | Total | ||||||||||||||||||||||||
| # | $ | # | $ | # | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Balance, December 31, 2021 | 72 | 151,588 | 40,450,754 | 152,173,089 | 6,956,795 | 5,137,417 | 22,583,649 | 239,612 | (126,154,317 | ) | 54,131,038 | |||||||||||||||||||
| Share repurchase [note 13] | - | - | (1,524,700 | ) | (5,735,821 | ) | - | - | - | - | 4,260,912 | (1,474,909 | ) | |||||||||||||||||
| Share-based payments [note 14] | - | - | 70,179 | 75,600 | - | - | 7,561 | - | - | 83,161 | ||||||||||||||||||||
| Share cancellation [note 13] | - | - | (504,888 | ) | (1,752,090 | ) | - | - | 1,752,090 | - | - | - | ||||||||||||||||||
| Comprehensive loss for the period | - | - | - | - | - | - | - | (73,585 | ) | (5,905,337 | ) | (5,978,922 | ) | |||||||||||||||||
| Balance, March 31, 2022 | 72 | 151,588 | 38,491,345 | 144,760,778 | 6,956,795 | 5,137,417 | 24,343,300 | 166,027 | (127,798,742 | ) | 46,760,368 | |||||||||||||||||||
| Balance, December 31, 2022 | 72 | 151,588 | 38,504,210 | 143,258,972 | 6,482,093 | 2,142,400 | 28,500,924 | 652,601 | (144,164,265 | ) | 30,542,220 | |||||||||||||||||||
| Share repurchase [note 13] | - | - | (1,904,700 | ) | (7,165,356 | ) | - | - | - | - | 4,207,540 | (2,957,816 | ) | |||||||||||||||||
| Share-based payments [note 14] | - | - | - | - | - | 2,311,956 | - | - | 2,311,956 | |||||||||||||||||||||
| Share options exercised [note 13] | - | - | 9,000 | 14,217 | - | - | (5,571 | ) | - | - | 8,646 | |||||||||||||||||||
| PSUs converted to shares [note 14] | - | - | 2,420,104 | 1,180,070 | - | - | (1,180,070 | ) | - | - | - | |||||||||||||||||||
| Warrant issued [note 13] | - | - | - | - | 3,300,000 | 894,579 | - | - | - | 894,579 | ||||||||||||||||||||
| Comprehensive loss for the period | - | - | - | - | - | - | - | 15,402 | (9,957,529 | ) | (9,942,127 | ) | ||||||||||||||||||
| Balance, March 31, 2023 | 72 | 151,588 | 39,028,614 | 137,287,903 | 9,782,093 | 3,036,979 | 29,627,239 | 668,003 | (149,914,254 | ) | 20,857,458 | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
FSD PHARMA INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2023 and 2022
[unaudited] [expressed in United States dollar]
| 2023 | 2022 | |||||
| $ | $ | |||||
| Operating activities | ||||||
| Net loss from continuing operations | (9,957,529 | ) | (5,460,831 | ) | ||
| Add (deduct) items not affecting cash | ||||||
| Depreciation and amortization | 1,129,934 | 1,101,155 | ||||
| Interest expense | 2,373 | 19,615 | ||||
| Share-based payments | 3,206,535 | 83,161 | ||||
| Change in fair value of investments | 177,278 | 120,023 | ||||
| Change in fair value of derivative liability | 206,950 | (242,519 | ) | |||
| Unrealized foreign exchange loss (gain) | - | (200,056 | ) | |||
| Gain on settlement of financial liability | - | (82,725 | ) | |||
| Impairment loss | 480,096 | - | ||||
| Changes in non-cash working capital balances | ||||||
| Finance receivables | 24,248 | - | ||||
| Other receivables | (50,671 | ) | (170,611 | ) | ||
| Prepaid expenses and deposits | (365,403 | ) | (195,016 | ) | ||
| Note receivable | (218,728 | ) | - | |||
| Trade and other payables | 610,781 | 438,640 | ||||
| Cash used in continuing operating activities | (4,754,136 | ) | (4,589,164 | ) | ||
| Cash used in discontinued operating activities | - | (504,264 | ) | |||
| Cash used in operating activities | (4,754,136 | ) | (5,093,428 | ) | ||
| Investing activities | ||||||
| Purchase of equipment | - | (14,622 | ) | |||
| Additions to intangible assets | - | (250,000 | ) | |||
| Proceeds from sale of investments | - | 158,036 | ||||
| Cash used in continuing investing activities | - | (106,586 | ) | |||
| Cash used in discontinued investing activities | - | - | ||||
| Cash used in investing activities | - | (106,586 | ) | |||
| Financing activities | ||||||
| Share repurchase | (2,957,816 | ) | (1,474,909 | ) | ||
| Payment of lease obligation | (54,314 | ) | (11,838 | ) | ||
| Share options exercised | 8,646 | - | ||||
| Cash used in continuing financing activities | (3,003,484 | ) | (1,486,747 | ) | ||
| Cash used in discontinued financing activities | - | - | ||||
| Cash used in financing activities | (3,003,484 | ) | (1,486,747 | ) | ||
| Net decrease | (7,757,620 | ) | (6,686,761 | ) | ||
| Cash and cash equivalents, beginning of the period | 16,980,472 | 35,259,645 | ||||
| Cash and cash equivalents, end of the period | 9,222,852 | 28,572,884 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
1. Nature of business
FSD Pharma Inc. ("FSD" or the "Company") is a biotechnology company with three drug candidates in different stages of development. FSD Biosciences Inc., a wholly-owned subsidiary, is focused on pharmaceutical research and development ("R&D") of its lead compound, ultra-micronized palmitoylethanolamide ("PEA") or FSD-PEA (also known as FSD-201). Through the Company's wholly owned subsidiary, Lucid Psycheceuticals Inc. ("Lucid"), the Company is also focused on the research and development of its lead compounds, Lucid-PSYCH (also known as Lucid-201) and Lucid-MS (also known as Lucid-21-302). PEA, the active substance in FSD-PEA, interacts with the endocannabinoid system in the body and exhibits anti-inflammatory activities. Lucid PSYCH is a molecular compound identified for the potential treatment of mental health disorders. Lucid-MS is a molecular compound identified for the potential treatment of neurodegenerative disorders.
FV Pharma Inc. ("FV Pharma"), a wholly owned subsidiary of the Company, was a licensed producer of cannabis in Canada under the Cannabis Act (Canada) (together with the regulations promulgated thereunder (the "Cannabis Regulations"), the "Cannabis Act") and associated Cannabis Regulations. FV Pharma surrendered its cannabis license in July 2020 and suspended all activities in September 2020. In March 2020, the Company decided to focus its efforts and resources on the pharmaceutical business and initiated the process to exit the medical cannabis industry and sell FV Pharma's facility located at 520 William Street, Cobourg, Ontario, K9A 3A5 (the "Facility") and the 64-acre property on which the Facility is located (the "Facility Property"). On May 6, 2022, the Company closed the sale of the Facility and the Facility Property (refer to Note 3).
On May 13, 2022, FSD Strategic Investments Inc. ("FSD Strategic Investments"), a wholly owned subsidiary of the Company, was incorporated. FSD Strategic Investments is focused on generating returns and cashflow through the issuance of loans secured by residential or commercial property, with FSD Strategic Investments having a first collateral mortgage on the secured property.
On November 24, 2022, FSD Pharma Australia Pty Ltd. ("FSD Australia"), a wholly owned subsidiary of the Company, was incorporated. FSD Australia will be used to facilitate the Corporation's development of Lucid-PSYCH by running Australian clinical trials in respect of Lucid-PSYCH, and potentially other assets.
The Company's registered office is located at 199 Bay Street, Suite 4000, Toronto, Ontario, M5L 1A9.
Subsidiaries
These unaudited condensed consolidated interim financial statements are comprised of the financial results of the Company and its subsidiaries, which are the entities over which the Company has control. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and can affect those returns through its power over the investee.
The Company has the following subsidiaries:
| Ownership percentage as at | |||||||||
| Entity Name | Country | March 31, 2023 | December 31, 2022 | ||||||
| % | % | ||||||||
| FSD Biosciences Inc. | USA | 100 | 100 | ||||||
| Prismic Pharmaceuticals Inc. | USA | 100 | 100 | ||||||
| FV Pharma Inc. | Canada | 100 | 100 | ||||||
| Lucid Psycheceuticals Inc. | Canada | 100 | 100 | ||||||
| FSD Strategic Investments Inc. | Canada | 100 | 100 | ||||||
| FSD Pharma Australia Pty Ltd | Australia | 100 | 100 | ||||||
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
2. Basis of presentation
[a] Statement of compliance
These unaudited condensed consolidated interim financial statements ("financial statements') were prepared using the same accounting policies and methods as those used in the Company's audited consolidated financial statements for the year ended December 31, 2022. These financial statements have been prepared in compliance with IAS 34 - Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB"). Accordingly, certain disclosures normally included in annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") have been omitted or condensed. These financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2022.
These financial statements were approved and authorized for issuance by the Board of Directors of the Company on May 11, 2023.
[b] Functional currency and presentation currency
The financial statements of each company within the consolidated group are measured using their functional currency, which is the currency of the primary economic environment in which an entity operates. The Company's functional currency is the United States dollar and the functional currencies of its subsidiaries are as follows:
FSD Biosciences Inc. | United States Dollar |
Prismic Pharmaceuticals Inc. | United States Dollar |
FV Pharma Inc. | Canadian Dollar |
Lucid Psycheceuticals Inc. | Canadian Dollar |
FSD Strategic Investments Inc. | Canadian Dollar |
FSD Pharma Australia Pty Ltd | Australian Dollar |
[c] Use of estimates and judgments
The preparation of these financial statements in conformity with IFRS requires management to make estimates, judgements and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, consistent with those disclosed in the audited consolidated financial statements for the year ended December 31, 2022 and described in these financial statements. Actual results could differ from these estimates.
Estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
New standards, amendments and interpretations recently adopted by the Company
IAS 1, Presentation of financial statements ("IAS 1")
In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1). The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the consolidated statements of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a company might settle by converting it into equity.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
The amendments are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application permitted. In July 2020, the effective date was deferred to January 1, 2023. The impact of adopting these amendments on the Company's financial statements was not significant.
IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8")
In February 2021, the IASB issued Definition of Accounting Estimates, which amends IAS 8. The amendment will require the disclosure of material accounting policy information rather than disclosing significant accounting policies and clarifies how to distinguish changes in accounting policies from changes in accounting estimates. Under the new definition, accounting estimates are "monetary amounts in financial statements that are subject to measurement uncertainty". The amendment provides clarification to help entities to distinguish between accounting policies and accounting estimates.
The amendments are effective for annual periods beginning on or after January 1, 2023. The impact of adopting these amendments on the Company's financial statements was not significant.
IAS 12, Income Taxes ("IAS 12")
In May 2021, the IASB issued Deferred Tax related to Assets and Liabilities arising from a single transaction (Amendments to IAS 12). The amendment narrows the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal taxable and deductible temporary differences. As a result, companies will need to recognize a deferred tax asset and deferred tax liability for temporary differences arising on initial recognition of transactions such as leases and decommissioning obligations.
The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and are to be applied retrospectively. The impact of adopting these amendments on the Company's financial statements was not significant.
New standards, amendments and interpretations not yet adopted by the Company
IFRS 16 - Leases ("IFRS 16")
In September 2022, the IASB issued amendments to IFRS 16, Leases, which add to requirements explaining how a company accounts for a sale and leaseback after the date of the transaction.
The amendments are effective for annual reporting periods beginning on or after January 1, 2024. Earlier application is permitted.
All other IFRSs and amendments issued but not yet effective have been assessed by the Company and are not expected to have a material impact on the Consolidated Financial Statements.
3. Discontinued operations
In March 2020, the Company decided to focus its efforts and resources on the pharmaceutical business and initiated the process to exit the medical cannabis industry and sell the Facility and the Facility Property. On May 6, 2022, the Company closed the sale of the Facility and the Facility Property for total consideration of $12,730,942 (C$16,400,000). The Company recognized a gain of $4,249,582 on the sale of the Facility and the Facility Property and incurred selling expenses of $616,002 for the year ended December 31, 2022.
Results of operations related to the Disposal Group are reported as discontinued operations for the period ended March 31, 2022.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
Net loss and comprehensive loss from discontinued operations for the three months ended March 31, 2022 is comprised of the following:
| For the three months | ||||||
| ended March 31, | ||||||
| Notes | 2022 | |||||
| $ | ||||||
| Expenses | ||||||
| General and administrative | 16 | 459,674 | ||||
| Total operating expenses | 459,674 | |||||
| Loss from discontinued operations | (459,674 | ) | ||||
| Other income | (15,168 | ) | ||||
| Net loss from discontinued operations | (444,506 | ) |
Cash flows from discontinued operations for the three months ended March 31, 2022 is comprised of the following:
| For the three months | |||
| ended March 31, | |||
| 2022 | |||
| $ | |||
| Operating activities | |||
| Net income (loss) from discontinued operations | (444,506 | ) | |
| Add (deduct) items not affecting cash | |||
| Changes in non-cash working capital balances | |||
| Other receivables | (37,140 | ) | |
| Prepaid expenses and deposits | (17,424 | ) | |
| Trade and other payables | (5,194 | ) | |
| Cash used in operating activities | (504,264 | ) |
4. Other receivables
The Company's other receivables are comprised of the following:
| March 31, 2023 | December 31, 2022 | |||||
| $ | $ | |||||
| Sales tax recoverable | 416,981 | 279,333 | ||||
| Interest receivable | 8,067 | 95,044 | ||||
| 425,048 | 374,377 |
5. Prepaid expenses and deposits
The Company's prepaid expenses and deposits include the following:
| March 31, 2023 | December 31, 2022 | |||||
| $ | $ | |||||
| Research and development | 325,942 | 308,502 | ||||
| Insurance | 361,833 | 95,697 | ||||
| Other prepaids and deposits | 149,765 | 67,938 | ||||
| 837,540 | 472,137 |
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
6. Finance receivables
Finance receivables consist of secured loans to customers measured at amortized cost, net of allowance for credit losses.
Finance receivables as at March 31, 2023 are as follows:
| $ | |||
| Balance - December 31, 2022 | 7,431,656 | ||
| Add: Interest income | 133,412 | ||
| Less: Interest payments | (163,722 | ) | |
| Effects of foreign exchange | 6,062 | ||
| Balance - March 31, 2023 | 7,407,408 | ||
| Current | - | ||
| Non-current | 7,407,408 | ||
| Balance - March 31, 2023 | 7,407,408 |
Allowances for credit losses as at March 31, 2023, were $nil. Finance receivables earn fees at fixed rates and have an average term to maturity of two years from the date of issuance. The loans are secured by residential or commercial property with a first collateral mortgage on the secured property. Loans are issued up to 55% of the initial appraised value of the secured property.
Finance receivables include the following:
| $ |
Minimum payments receivable | 8,190,180 |
Unearned income | (782,772) |
Net investment | 7,407,408 |
Allowance for credit losses | - |
Balance - March 31, 2023 | 7,407,408 |
As at March 31, 2023, all loans were classified as stage 1 and there were no changes between stages during the year.
7. Investments
The following tables outline changes in investments during the periods:
| Change in fair | |||||||||||
| Balance at December | value through | Balance at | |||||||||
| Entity | Instrument | Note | 31, 2022 | profit or loss | March 31, 2023 | ||||||
| $ | $ | $ | |||||||||
| Solarvest BioEnergy Inc. | Shares | (i) | 221,490 | (110,655 | ) | 110,835 | |||||
| Solarvest BioEnergy Inc. | Convertible debenture | (i) | 177,192 | (88,524 | ) | 88,668 | |||||
| A2ZCryptoCap Inc. | Shares | (ii) | 10,632 | 8 | 10,640 | ||||||
| Lions Bay Fund | Shares | (III) | 418,298 | 21,893 | 440,191 | ||||||
| 827,612 | (177,278 | ) | 650,334 |
(i) Solarvest BioEnergy Inc. ("Solarvest")
The Company holds 3,000,000 common shares of Solarvest and a convertible debenture with a principal amount of C$2,400,000 maturing on May 31, 2024. The convertible debenture can be converted into common shares of Solarvest at a price of $1.00 per share.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
As at March 31, 2023, the fair value of the shares was determined based on the quoted market price of the shares of C$0.05 per share (December 31, 2022 - C$0.10). The fair value of the convertible debenture is calculated as the fair value of the shares the Company would receive if the debenture were converted into 2,400,000 common shares at the Solarvest share price of C$0.05 as at March 31, 2023 (December 31, 2022 - C$0.10). The shares have been classified as level 1 within the fair value hierarchy - quoted market price, and the convertible debenture has been classified as level 2 - valuation technique with observable market inputs.
(ii) A2ZCryptoCap Inc. ("A2Z")
On June 23, 2022, the Company acquired 80,000 shares of A2Z for C$0.10 per share. As at March 31, 2023, the fair value of the shares was determined based on the quoted market price of the shares of C$0.18 per share (December 31, 2022 - C$0.18). The shares have been classified as level 1 within the fair value hierarchy - quoted market price.
(iii) Lions Bay Fund ("Fund")
During the year ended December 31, 2022, the Company invested C$500,000 into the Fund. As at March 31, 2023, the fair value of the investment was determined to be C$595,738 (December 31, 2022 - C$566,569) based on the Company's share of the net asset value of the fund. The net asset value as provided by the Fund manager provides the most reasonable assessment of the investment's fair value given the magnitude of the investment. Due to the unobservable nature of the net asset value, the investment has been classified as level 3 within the fair value hierarchy and is measured at fair value through profit or loss. Therefore, the Company cannot assess whether applying reasonable possible alternative assumptions would have an impact on the fair value of the investment.
8. Right-of-use asset
Right-of-use assets as at March 31, 2023 are as follows:
| $ | |||
| Balance - December 31, 2022 | 155,196 | ||
| Amortization | (36,417 | ) | |
| Balance - March 31, 2023 | 118,779 |
9. Intangible assets
Intangible assets as at March 31, 2023 are as follows:
| Innovet | Prismic | Lucid | Total | ||||||||||
| $ | $ | $ | $ | ||||||||||
| As at December 31, 2022 | 750,000 | 19,201,493 | 6,314,571 | 26,266,064 | |||||||||
| Impairment | (750,000 | ) | - | - | (750,000 | ) | |||||||
| As at March 31, 2023 | - | 19,201,493 | 6,314,571 | 25,516,064 | |||||||||
| Accumulated amortization | |||||||||||||
| As at December 31, 2022 | 229,933 | 13,457,622 | 538,220 | 14,225,775 | |||||||||
| Amortization | 39,971 | 946,913 | 103,725 | 1,090,609 | |||||||||
| Impairment | (269,904 | ) | - | - | (269,904 | ) | |||||||
| As at March 31, 2023 | - | 14,404,535 | 641,945 | 15,046,480 | |||||||||
| Net book value | |||||||||||||
| As at December 31, 2022 | 520,067 | 6,263,938 | 5,776,351 | 12,040,289 | |||||||||
| As at March 31, 2023 | - | 4,796,958 | 5,672,626 | 10,469,584 |
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
On March 9, 2021, the Company entered into a license agreement ("Innovet License Agreement") with Innovet Italia S.R.L. ("Innovet"), under which Innovet granted the Company a license to use ultra-micro PEA to develop FDA approved veterinary drugs for the treatment of gastro-intestinal diseases in canines and felines. Under the Innovet license agreement, the Company is required to make payments to Innovet upon the achievement of certain milestones (Note 18), including $500,000 which was paid upon execution of the Innovet License Agreement as consideration in exchange for the rights to the Licensed Products. The Company made a payment of $250,000 on March 9, 2022, as part of the consideration payable for the rights to use the intellectual property. During the three months ended March 31, 2023, the Company recognized an impairment loss of $480,096 in the statement of loss and comprehensive loss related to the Innovet License Agreement as the Company made a strategic decision to no longer pursue the development of ultra-micro PEA for veterinary purposes.
10. Trade and other payables
Trade and other payables consist of the following:
| March 31, 2023 | December 31, 2022 | |||||
| $ | $ | |||||
| Trade payables | 3,378,275 | 2,760,002 | ||||
| Accrued liabilities (i) | 4,328,255 | 4,348,417 | ||||
| 7,706,530 | 7,108,419 | |||||
| (i) Accrued liabilities consist of the following: | ||||||
| March 31, 2023 | December 31, 2022 | |||||
| $ | $ | |||||
| External research and development fees | 3,362,910 | 3,531,996 | ||||
| Operational expenses | 69,032 | 92,783 | ||||
| Professional and other fees | 487,120 | 314,445 | ||||
| Accrued interest | 409,193 | 409,193 | ||||
| 4,328,255 | 4,348,417 |
11. Lease obligations
The lease obligations as at March 31, 2023, are as follows:
| $ | |||
| Balance - December 31, 2022 | 215,874 | ||
| Add: Interest Expense | 4,055 | ||
| Less: Lease Payments | (54,314 | ) | |
| Effects of foreign exchange | 209 | ||
| Balance - March 31, 2023 | 165,824 | ||
| Current | 141,702 | ||
| Non-current | 24,122 | ||
| Balance - March 31, 2023 | 165,824 |
Lease obligations are related to the Company's office leases.
The following table sets out a maturity analysis of the lease payments payable, showing the undiscounted lease payments to be paid on an annual basis, reconciled to the lease obligation.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
| $ | |||
| Less than one year | 148,851 | ||
| One to two years | 24,350 | ||
| Thereafter | - | ||
| Total undiscounted lease payments payable | 173,201 | ||
| Less: impact of present value | (7,377 | ) | |
| Balance - March 31, 2023 | 165,824 |
12. Warrants Liability
In August 2020, the Company issued 2,762,430 Class B shares and 1,381,215 warrants to purchase Class B shares for total cash proceeds of $9,999,997. Each warrant is exercisable to purchase one Class B share of the Company at an exercise price of $4.26 per share and expire five years from the date of issuance. The fair value of these warrants is classified as Level 2 in the fair value hierarchy.
On initial recognition the Company determined that these warrants did not meet the IFRS definition of equity due to the exercise price being denominated in United States dollar, which was not the functional currency of the Company at the time resulting in variability in exercise price. The change in functional currency on October 1, 2020, was determined to be a change in circumstance and, as such, the Company has made an accounting policy choice to continue to recognize the warrants as a financial liability classified at fair value through profit or loss.
The fair value of the warrants liability as at March 31, 2023, was $450,544 (December 31, 2022 - $243,594) resulting in a loss on change in fair value of $206,950 for the period ended March 31, 2023. The fair value was determined using the Black-Scholes option pricing model and the following assumptions:
| March 31, 2023 | December 31, 2022 | |||||
| Share price | $ | 1.55 | $ | 0.79 | ||
| Exercise price | $ | 4.26 | $ | 4.26 | ||
| Expected dividend yield | - | - | ||||
| Risk free interest rate | 3.78% | 4.07% | ||||
| Expected life | 2.35 | 2.60 | ||||
| Expected volatility | 77% | 96% |
13. Share capital
[a] Authorized
The Company is authorized to issue an unlimited number of Class A multiple voting shares ("Class A shares") and an unlimited number of Class B subordinate voting shares ("Class B shares"), all without par value. All shares are ranked equally with regard to the Company's residual assets.
The holders of Class A shares are entitled to 276,660 votes per Class A share held. Class A shares are held by certain Directors and the former CEO of the Company. The holders of Class B shares are entitled to one (1) vote per share held.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
[b] Issued and outstanding
Reconciliation of the Company's share capital is as follows:
| Class A shares | Class B shares | Warrants | ||||||||||||||||
| # | $ | # | $ | # | $ | |||||||||||||
| Balance, December 31, 2021 | 72 | 151,588 | 40,450,754 | 152,173,089 | 6,956,795 | 5,137,417 | ||||||||||||
| Shares-based payments [a] | - | - | 70,179 | 75,600 | - | - | ||||||||||||
| Share repurchase [b] | - | - | (1,524,700 | ) | (5,735,821 | ) | - | - | ||||||||||
| Share cancellation [c] | - | - | (504,888 | ) | (1,752,090 | ) | - | - | ||||||||||
| Balance, March 31, 2022 | 72 | 151,588 | 38,491,345 | 144,760,778 | 6,956,795 | 5,137,417 | ||||||||||||
| Balance, December 31, 2022 | 72 | 151,588 | 38,504,210 | 143,258,972 | 6,482,093 | 2,142,400 | ||||||||||||
| Share repurchase [d] | - | - | (1,904,700 | ) | (7,165,356 | ) | - | - | ||||||||||
| Warrants issued [e] | - | - | - | - | 3,300,000 | 894,579 | ||||||||||||
| Share options exercised [f] | - | - | 9,000 | 14,217 | - | - | ||||||||||||
| PSU converted to shares [note 14] | - | - | 2,420,104 | 1,180,070 | - | - | ||||||||||||
| Balance, March 31, 2023 | 72 | 151,588 | 39,028,614 | 137,287,903 | 9,782,093 | 3,036,979 | ||||||||||||
[a] During the three months ended March 31, 2022, the Company issued 70,179 Class B shares for services received during the period with a fair value of $75,600.
[b] During the three months ended March 31, 2022, the Company repurchased and cancelled 1,524,700 Class B Common Shares at prevailing market prices as part of its share repurchase program.
[c] On March 29, 2022, the Company cancelled 504,888 Class B shares previously held by the former CEO following a court decision with respect to the shares issued in February 2021.
[d] During the three months ended March 31, 2023, the Company repurchased 1,904,700 and cancelled Class B Common Shares at prevailing market prices as part of its share repurchase program.
[e] During the three months ended March 31, 2023, the Company issued 3,300,000 warrants for consulting services with a fair value of $894,579. The Company determined the fair value of the services received could not be measured reliably and determined the fair value using the Black-Scholes model.
[f] During the three months ended March 31, 2023, 9,000 share options were exercised with an exercise price of C$1.30 in exchange for 9,000 Class B Common Shares.
The changes in the number of warrants outstanding during the three months ended March 31, 2023 and 2022 were as follows:
| Weighted average | ||||||
| Number of warrants | exercise price | |||||
| # | C$ | |||||
| Outstanding as at December 31, 2021 | 6,956,795 | 5.50 | ||||
| Outstanding as at March 31, 2022 | 6,956,795 | 5.46 | ||||
| Outstanding as at December 31, 2022 | 6,482,093 | 5.48 | ||||
| Issued | 3,300,000 | 5.14 | ||||
| Outstanding as at March 31, 2023 | 9,782,093 | 5.36 |
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
Measurement of fair values
The fair value of the warrants issued during the three months ended March 31, 2023, were estimated at the date of grant using the Black-Scholes option pricing model with the following inputs:
| 2023 | |||
| Grant date share price | C$1.92 - C$2.29 | ||
| Exercise price | C$2.03 - C$10.82 | ||
| Expected dividend yield | - | ||
| Risk free interest rate | 3.42% - 4.26% | ||
| Expected life | 1 - 2 years | ||
| Expected volatility | 64% - 67% |
There were no warrants granted during the three months ended March 31, 2022.
The following table is a summary of the Company's warrants outstanding as at March 31, 2023:
| Warrants Outstanding | ||||||
| Exercise price | Number outstanding | |||||
| Expiry Date | C$ | # | ||||
| May 20, 2023 | 16.08 | 7,311 | ||||
| June 23, 2023 | 2.50 | 100,000 | ||||
| July 24, 2023 | 13.07 | 3,357 | ||||
| September 11, 2023 | 5.43 | 22,382 | ||||
| March 14, 2024 (i) | 2.50 | 200,000 | ||||
| March 14, 2024 (i) | 5.77 | 100,000 | ||||
| March 14, 2024 (i) | 10.83 | 200,000 | ||||
| March 30, 2024 (i) | 2.03 | 300,000 | ||||
| March 30, 2024 (i) | 4.06 | 250,000 | ||||
| March 30, 2024 (i) | 6.09 | 250,000 | ||||
| February 27, 2025 (i) | 2.37 | 400,000 | ||||
| February 27, 2025 (i) | 5.41 | 400,000 | ||||
| February 27, 2025 (i) | 10.83 | 200,000 | ||||
| March 24, 2025 (i) | 2.37 | 400,000 | ||||
| March 24, 2025 (i) | 5.41 | 400,000 | ||||
| March 24, 2025 (i) | 10.83 | 200,000 | ||||
| May 4, 2025 | 26.73 | 3,730 | ||||
| May 10, 2025 | 26.73 | 1,865 | ||||
| May 17, 2025 | 26.73 | 3,730 | ||||
| May 31, 2025 | 26.73 | 1,865 | ||||
| June 8, 2025 | 9.65 | 1,500,000 | ||||
| August 6, 2025 (i) | 5.77 | 1,381,215 | ||||
| October 20, 2025 (i) | 3.52 | 3,454,543 | ||||
| January 16, 2026 | 26.73 | 1,722 | ||||
| January 20, 2026 | 26.73 | 373 | ||||
| 5.36 | 9,782,093 |
(i) Warrants were issued in US$
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
The following table is a summary of the Company's warrants outstanding as at March 31, 2022:
| Warrants Outstanding | ||||||
| Exercise price | Number outstanding | |||||
| Expiry Date | C$ | # | ||||
| May 24, 2022 | 18.09 | 163,535 | ||||
| September 15, 2022 | 4.42 | 199,005 | ||||
| November 30, 2022 | 1.21 | 46,242 | ||||
| December 31, 2022 | 2.43 | 65,920 | ||||
| May 20, 2023 | 16.08 | 7,311 | ||||
| June 23, 2023 | 2.50 | 100,000 | ||||
| July 24, 2023 | 13.07 | 3,357 | ||||
| September 11, 2023 | 5.43 | 22,382 | ||||
| May 4, 2025 | 26.73 | 3,730 | ||||
| May 10, 2025 | 26.73 | 1,865 | ||||
| May 17, 2025 | 26.73 | 3,730 | ||||
| May 31, 2025 | 26.73 | 1,865 | ||||
| June 8, 2025 | 9.65 | 1,500,000 | ||||
| August 6, 2025 (i) | 5.32 | 1,381,215 | ||||
| October 20, 2025 (i) | 3.25 | 3,454,543 | ||||
| January 16, 2026 | 26.73 | 1,722 | ||||
| January 20, 2026 | 26.73 | 373 | ||||
| 5.46 | 6,956,795 |
(i) Warrants were issued in US$
14. Share-based compensation
The Company has established a share option plan (the "Option Plan") for directors, officers, employees and consultants of the Company. The Company's Board of Directors determines, among other things, the eligibility of individuals to participate in the Option Plan, the term and vesting periods, and the exercise price of options granted to individuals under the Option Plan.
Each share option converts into one common share of the Company on exercise. No amounts are paid or payable by the individual on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.
[i] Share-based payment arrangements
During the three months ended March 31, 2023, the Company granted 2,488,000 share options to directors, officers, employees and consultants of the Company.
The changes in the number of share options during the three months ended March 31, 2023 and 2022 were as follows:
| Weighted average | ||||||
| Number of options | exercise price | |||||
| # | C$ | |||||
| Outstanding as at December 31, 2022 | 418,529 | 3.71 | ||||
| Granted | 2,488,000 | 1.52 | ||||
| Exercised | (9,000 | ) | 1.30 | |||
| Outstanding as at March 31, 2023 | 2,897,529 | 1.84 | ||||
| Exercisable as at March 31, 2023 | 2,679,521 | 1.79 |
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
| Weighted average | ||||||
| Number of options | exercise price | |||||
| # | C$ | |||||
| Outstanding as at December 31, 2021 | 3,224,859 | 2.75 | ||||
| Expired | (12,438 | ) | 3.86 | |||
| Outstanding as at March 31, 2022 | 3,212,421 | 2.75 | ||||
| Exercisable as at March 31, 2022 | 3,185,413 | 2.71 |
During the three months ended March 31, 2022, 12,438 share options related to former officers and employees who are no longer with the Company expired. Individuals who are no longer with the Company have 30 days after their last day to exercise any vested share options. Vested options that remain unexercised after 30 days expire.
Measurement of fair values
The fair value of share options granted during the three months ended March 31, 2023, were estimated at the date of grant using the Black-Scholes option pricing model with the following inputs:
| 2022 | |||
| Grant date share price | C$1.28 - C$2.30 | ||
| Exercise price | C$1.30 - C$2.45 | ||
| Expected dividend yield | - | ||
| Risk free interest rate | 2.88% - 3.99% | ||
| Expected life | 2.91 - 5 years | ||
| Expected volatility | 95% - 110% |
Expected volatility was estimated by using the annualized historical volatility of the Company. The expected option life represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on Canadian government bonds with a remaining term equal to the expected life of the options.
There were no share options granted during the three months ended March 31, 2022.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
The following table is a summary of the Company's share options outstanding as at March 31, 2023:
| Options outstanding | Options exercisable | |||||||||||
| Weighted average | ||||||||||||
| remaining contractual | ||||||||||||
| Exercise price | Number outstanding | life [years] | Exercise price | Number exercisable | ||||||||
| C$ | # | # | C$ | # | ||||||||
| 1.30 | 2,051,000 | 4.76 | 1.30 | 2,051,000 | ||||||||
| 1.70 | 103,453 | 1.97 | 1.70 | 103,453 | ||||||||
| 2.25 | 168,898 | 0.79 | 2.25 | 168,898 | ||||||||
| 2.37 | 15,000 | 2.92 | 2.37 | 10,000 | ||||||||
| 2.37 | 15,000 | 2.98 | 2.37 | 5,000 | ||||||||
| 2.45 | 458,000 | 2.90 | 2.45 | 257,000 | ||||||||
| 2.61 | 12,687 | 0.24 | 2.61 | 12,683 | ||||||||
| 2.91 | 5,150 | 2.75 | 2.91 | 5,150 | ||||||||
| 3.75 | 5,000 | 0.97 | 3.75 | 5,000 | ||||||||
| 3.86 | 5,000 | 3.61 | 3.86 | 3,000 | ||||||||
| 5.43 | 16,265 | 0.24 | 5.43 | 16,264 | ||||||||
| 10.65 | 3,731 | 0.24 | 10.65 | 3,730 | ||||||||
| 13.07 | 10,856 | 0.24 | 13.07 | 10,855 | ||||||||
| 13.47 | 1,418 | 0.24 | 13.47 | 1,418 | ||||||||
| 16.08 | 18,410 | 0.24 | 16.08 | 18,409 | ||||||||
| 17.89 | 4,178 | 0.24 | 17.89 | 4,178 | ||||||||
| 50.25 | 3,483 | 1.04 | 50.25 | 3,483 | ||||||||
| 1.84 | 2,897,529 | 4.00 | 1.79 | 2,679,521 | ||||||||
The following table is a summary of the Company's share options outstanding as at March 31, 2022:
| Options outstanding | Options exercisable | |||||||||||
| Weighted average | ||||||||||||
| remaining contractual | ||||||||||||
| Exercise price | Number outstanding | life [years] | Exercise price | Number exercisable | ||||||||
| C$ | # | # | C$ | # | ||||||||
| 1.70 | 154,953 | 3.21 | 1.70 | 154,953 | ||||||||
| 2.25 | 2,559,995 | 2.18 | 2.25 | 2,559,995 | ||||||||
| 2.61 | 12,684 | 1.24 | 2.61 | 12,683 | ||||||||
| 2.91 | 5,150 | 3.75 | 2.91 | 5,150 | ||||||||
| 3.75 | 10,500 | 3.67 | 3.75 | 6,500 | ||||||||
| 3.86 | 243,807 | 3.02 | 3.86 | 240,805 | ||||||||
| 4.42 | 99,503 | 0.46 | 4.42 | 99,502 | ||||||||
| 4.75 | 15,000 | 3.04 | 4.75 | 15,000 | ||||||||
| 5.43 | 16,265 | 1.24 | 5.43 | 16,264 | ||||||||
| 7.63 | 50,000 | 3.76 | 7.63 | 30,000 | ||||||||
| 10.65 | 3,731 | 1.24 | 10.65 | 3,730 | ||||||||
| 13.07 | 10,856 | 1.24 | 13.07 | 10,855 | ||||||||
| 13.47 | 1,418 | 1.24 | 13.47 | 1,418 | ||||||||
| 16.08 | 18,410 | 1.24 | 16.08 | 18,409 | ||||||||
| 17.89 | 4,178 | 1.24 | 17.89 | 4,178 | ||||||||
| 18.09 | 2,488 | 0.99 | 18.09 | 2,488 | ||||||||
| 50.25 | 3,483 | 2.04 | 50.25 | 3,483 | ||||||||
| 2.75 | 3,212,421 | 2.25 | 2.71 | 3,185,413 | ||||||||
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
[ii] Performance Share Units ("PSUs")
In May 2022, the Company established a performance share unit plan ("PSU Plan"), for directors, offers, employees and consultants of the Company. The Company's Board of Directors determines the eligibility of individuals to participate in the PSU Plan in order to align their interests with those of the Company's shareholders.
No amounts are paid or payable by the individual on receipt of the PSUs. Each PSU converts into one common share of the Company at $nil exercise price. The Company's PSU Plan provides that the number of common shares reserved for issuance may not exceed 10% of the aggregate number of common shares that are outstanding unless the Board has increased such limit by a Board resolution.
The change in the number of PSUs during the three months ended March 31, 2023, is as follows:
| Number of PSUs | |||
| # | |||
| Outstanding as at December 31, 2022 | 2,420,104 | ||
| Granted | 400,000 | ||
| Converted to Class B Common shares | (2,420,104 | ) | |
| Outstanding as at March 31, 2023 | 400,000 |
During the three months ended March 31, 2023, the Company converted 2,420,104 PSUs to Class B Common shares following the completion of the vesting condition on January 6, 2023, the filing of the MS Phase 1 IND. During the three months ended March 31, 2023, the Company granted 400,000 PSUs to independent directors of the Company. As at March 31, 2023, the PSUs had fully vested upon the filing of the MS Phase 1 IND on January 6, 2023.
The Company recognized share-based compensation for the three months ended March 31, 2023 and 2022 as follows:
| For the three months ended March 31, | ||||||
| 2023 | 2022 | |||||
| $ | $ | |||||
| Share options | 1,853,703 | 7,561 | ||||
| PSUs | 458,253 | - | ||||
| Class B Common Shares issued for services | - | 75,600 | ||||
| Warrants issued for services | 894,579 | - | ||||
| 3,206,535 | 83,161 | |||||
15. Loss per share
Net loss per common share represents net loss attributable to common shareholders divided by the weighted average number of common shares outstanding during the year.
For all the periods presented, diluted loss per share equals basic loss per share due to the anti-dilutive effect of warrants, share options and PSUs. The outstanding number and type of securities that could potentially dilute basic net loss per share in the future but would have decreased the loss per share (anti-dilutive) for the three months ended March 31, 2023 and 2022 are as follows:
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
| March 31, 2023 | March 31, 2022 | |||||
| # | # | |||||
| Warrants | 9,782,093 | 6,956,795 | ||||
| Share Options | 2,897,529 | 3,212,421 | ||||
| PSUs | 400,000 | - | ||||
| 13,079,622 | 10,169,216 |
16. General and administrative
Components of general and administrative expenses for the three months ended March 31, 2023 and 2022 were as follows:
| For the three months ended March 31, | ||||||
| 2023 | 2022 | |||||
| $ | $ | |||||
| Professional fees | 594,286 | 2,132,377 | ||||
| General office, insurance and administration | ||||||
| expenditures | 622,316 | 471,523 | ||||
| Consulting fees | 556,804 | 351,689 | ||||
| Salaries, wages and benefits | 630,027 | 578,350 | ||||
| Investor relations | 247,392 | 291,170 | ||||
| Building and facility costs | - | 412,360 | ||||
| Foreign exchange loss (gain) | 65,952 | (249,493 | ) | |||
| 2,716,777 | 3,987,976 | |||||
| Allocated to: | ||||||
| Continuing operations | 2,716,777 | 3,528,302 | ||||
| Discontinued operations | - | 459,674 | ||||
17. Segment information
Reportable segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, with appropriate aggregation. The chief operating decision maker is the CEO who is responsible for allocating resources, assessing the performance of the reportable segment and making key strategic decisions. The Company operates in two segments: Biotechnology and Strategic Investments.
The Company's Biotechnology segment is focused on furthering the research and development of the Company's three drug candidates consisting of FSD-PEA, Lucid-PSYCH and Lucid-MS. The Biotechnology segment primarily earns interest income on guaranteed investment certificates.
The Company's Strategic Investments segment is focused on generating returns and cashflow through the issuance of loans secured by residential or commercial property, with FSD Strategic Investments having a first collateral mortgage on the secured property.
Assets by segment are as follows:
| As at March 31, 2023 | As at December 31, 2022 | |||||||||||
| Biotechnology | Strategic Investments | Biotechnology | Strategic Investments | |||||||||
| $ | $ | $ | $ | |||||||||
| Current assets | 10,508,646 | 223,333 | 17,850,174 | - | ||||||||
| Non-current assets | 11,341,518 | 7,407,408 | 13,128,826 | 7,431,656 | ||||||||
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
Interest income by segments is presented below:
| For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | |||||||||||
| Biotechnology | Strategic Investments | Biotechnology | Strategic Investments | |||||||||
| $ | $ | $ | $ | |||||||||
| Interest income | 136,516 | 135,825 | - | - | ||||||||
18. Commitments and contingencies
Commitments
Epitech License Agreement
Under the terms of the Company's License Agreement with Epitech Group SPA ("Epitech"), the Company has payments due to Epitech pending the achievement of specified milestones. Upon first notification by the U.S. Food and Drug Administration ("FDA") of approval of a New Drug Application, the non-refundable sum of $700,000 will be due and payable to Epitech. Within thirty days of the first notification by the FDA of approval of a New Drug Application, the Company is required to pay the non-refundable sum of $500,000 to Epitech. Within ten business days of the first notification of approval of a Supplemental New Drug Application by the FDA, the Company will pay the non-refundable sum of $1,000,000 to Epitech.
For non-prescription drug rights, any one-off lump sum payments received by the Company as consideration for granting a sub-license to a Commercial Partner with respect to a Licensed Product, shall require the Company to pay to Epitech 25% of the lump sum payment received by the Company. For prescription drug rights the Company shall pay 5% of any one-off lump sum payments to Epitech as consideration for granting a sub-license to a Commercial Partner with respect to a Licensed Product. The Company will pay the amounts payable on a quarterly basis within 60 days of the end of each calendar quarter.
The Company shall pay either a) 7% of Net Sales of the Licensed Product in a Product Regulatory Category other than prescription drugs placed on the market by the Company; or b) 25% of Net Receipts received by the Company from Commercial Partners where Licensed Products in a Product Regulatory Category other than prescription drugs are placed on the market by such Commercial Partners; or c) 5% of Net Sales or Net receipts of the Licensed Products in the Product Regulatory Category of prescription drugs. The Company will pay the amounts payable on a quarterly basis within 60 days of the end of each calendar quarter. No payments have been made to date related to these milestones.
Lucid-MS Agreement
The Company has entered into a license agreement that governs the Lucid-MS compound. Under the terms of the agreement, the Company shall pay a yearly license maintenance fee of C$100,000 until the first commercial sale of a product is made.
Under the agreement the Company is committed to minimum milestone payments of $nil and maximum milestone payments of C$12,500,000 if all product development and regulatory milestones are met.
Furthermore, the Company is also responsible to pay revenue milestone payments and royalties if revenue milestones from commercial sales are achieved. Milestones can be extended by mutual agreement. No payments have been made to date related to these milestones.
Contingencies
Legal Matters
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
From time to time, the Company is named as a party to claims or involved in proceedings, including legal, regulatory and tax related, in the ordinary course of its business. While the outcome of these matters may not be estimable at the reporting date, the Company makes provisions, where possible, for the estimated outcome of such claims or proceedings. Should a loss result from the resolution of any claims or proceedings that differs from these estimates, the difference will be accounted for as a charge to profit or loss in that period.
Contract Research Organization ("CRO") Dispute
The Company is involved in arbitration proceedings with a CRO regarding amounts claimed to be owed to the CRO by the Company. The CRO is claiming it is owed amounts outstanding for work on clinical trials in the United States. The Company is disputing the amounts claimed to be owed. The Company believes it has sufficiently provided for amounts claimed to be owed to the CRO which are recorded in trade and other payables.
In November 2022, evidentiary hearings were held in New York. The parties submitted post-hearing briefs in December 2022. Subsequent to March 31, 2023, the arbitrator declared the hearings closed as of April 20, 2023. The Company awaits a decision and final award to be rendered by the tribunal. As at March 31, 2023, the ultimate outcome of the matter cannot be reliably determined at this time, however, the Company believes it is sufficiently provisioned for any potential outcome.
Raza Bokhari
On July 15, 2021, the Company's former CEO, Raza Bokhari, filed a notice of arbitration seeking relief and support for breach of contract and severance and damages in the amount of $30,200,000, for aggravated and punitive damages in the amount of $500,000 and legal fees and disbursements associated with the arbitration.
Raza Bokhari was placed on administrative leave from his role as the Company's Chief Executive Officer following the Company's annual general and special meeting of shareholders on May 14, 2021, pending the outcome of an investigation of various concerns by a Special Committee comprised of independent directors using independent legal counsel. Upon the recommendation of the Special Committee, Raza Bokhari's employment was terminated for cause by the Company's board of directors on July 27, 2021.
The Company disputed the allegations and counterclaimed against Raza Bokhari for losses sustained as a result of his alleged breaches of his duties to the Corporation. The arbitration hearing concluded in August 2022 and the arbitrator issued his decision in November 2022. Raza Bokhari's claim for USD $30.2 million was dismissed in its entirety along with his claim that he had been wrongfully dismissed. The arbitrator ordered that Raza Bokhari repay certain monies to FSD Pharma, while also holding him responsible for FSD Pharma's costs of the arbitration.
On December 9, 2022, Raza Bokhari filed an application in the Ontario Superior Court seeking to set aside the arbitral award of the court on the grounds that he was not treated equally and fairly and the arbitrator's written award provided inadequate reasons for his decision.
On December 20, 2022, the Company's legal counsel wrote to the Commercial List of the Ontario Superior Court of Justice seeking to transfer the application from the Civil List to the Commercial List. The request was granted on January 12, 2023.
Indemnity Application
Raza Bokhari commenced an application in the Superior Court seeking an order appointing an arbitrator to arbitrate his claim to be entitled to indemnification of his legal expenses associated with the litigation he has commenced against the Company or in which he has been named as a party by the Company. The Company denies the validity of the underlying indemnification agreement and is opposing the application. In April 2022, the parties agreed to adjourn the application without setting a new hearing date.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
19. Related party transactions
Key management personnel are those persons having the authority and responsibility for planning, directing and controlling activities of the entity, directly or indirectly.
Transactions with key management and directors comprised the following:
a) In fiscal 2023, the Company pays independent directors' compensation of C$60,000, with the chair of the audit committee receiving an additional C$20,000 and the chair of the compensation committee receiving an additional C$10,000. Director's compensation for the three months ended March 31, 2023, was $49,932 (2022
- $55,260).
b) During the three months ended March 31, 2023, the Company granted 400,000 PSUs to independent members of the Board of Directors. As at March 31, 2023, the PSUs had fully vested upon the filing of the MS Phase 1 IND on January 6, 2023.
c) During the three months ended March 31, 2023, the Company granted the CEO, President, COO and CEO of Lucid, 500,000 share options each with an exercise price of C$1.30, expiry date of January 25, 2028 and all options are fully vested. Each share option can be exercised to acquire one Class B Common Share.
Key management personnel compensation during the three months ended March 31, 2023 and 2022 is comprised of:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Salaries, benefits, bonuses and consulting fees | 317,831 | 321,846 | ||||
| Share-based payments | 1,963,983 | 6,077 | ||||
| Total | 2,281,814 | 327,923 |
20. Subsequent events
Options exercised
On April 23, 2023, 12,000 share options were exercised at C$1.30 in exchange for 12,000 Class B Common Shares.
Raza Bokhari
On May 6, 2023, the Ontario Superior Court of Justice awarded C$2,814,229 in favour of the Company against Raza Bokhari for legal costs incurred by the Company with respect to the arbitration matter.
Finance receivables
Subsequent to March 31, 2023, the Company entered into a loan agreement with the President of the Company. The Company issued a loan receivable in the aggregate amount of C$1,200,000. The loan is secured by a second charge against a residential property and was issued at loan to value ratio below 50%. The loan carries interest at a rate of 6% per annum, payable monthly, and matures two years from the date of issuance. The principal balance is due at maturity and can prepaid, in whole or in part, at any time without notice or penalty.
FSD PHARMA INC.
Notes to the condensed consolidated interim financial statements
(expressed in United States dollars)
March 31, 2023 and 2022
GBB Drink Lab, Inc.
GBB Drink Lab, Inc. has filed a complaint with the United States District Court of Southern District of Florida, Fort Lauderdale Division against FSD Biosciences, Inc. and FSD Pharma, Inc. claiming a material breach of a mutual nondisclosure agreement and misappropriation of trade secrets, which has and continues to cause irreparable harm to Plaintiff, which has been valued, as of August 30, 2022 (prior to the misappropriation and material breach) at $53,047,000. The ultimate outcome of the matter cannot be determined at this time.
