| Significant Accounting Policies | 2. Significant
Accounting Policies
a. Basis
of Presentation The accompanying consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International
Accounting Standards Board (“IASB”) on a going concern basis. These consolidated financial statements
include the accounts of the Company and its 100% owned subsidiaries, Clearmindmed Ltd. and Clearmind Labs Ltd. (inactive). All inter-company
balances and transactions have been eliminated on consolidation. These consolidated financial statements
have been prepared on a historical cost basis, except for financial assets and liabilities (including derivatives) which are presented
at fair value through profit or loss (“FVTPL”), and are presented in Canadian dollars, which is the Company’s functional
currency.
b. Significant Accounting Estimates and Judgments The preparation of consolidated financial
statements in accordance with IFRS requires management to make judgments, estimates, and assumptions that affect the application of policies
and reported amounts of assets, liabilities, income, and expenses. The estimates and associated assumptions are based on historical experience
and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the
judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates. Significant Estimates Share-based Compensation Fair values are determined using the
Black-Scholes option pricing model. Estimating fair value requires determining the most appropriate valuation model for a grant of equity
instruments, which is dependent on the terms and conditions of the grant. Option-pricing models require the use of highly subjective
estimates and assumptions including the expected stock price volatility. Changes in the underlying assumptions can materially affect
the fair value estimates and, therefore, existing models do not necessarily provide reliable measurement of the fair value of the Company’s
stock options. Significant Judgments The critical judgments that the Company’s
management has made in the process of applying the Company’s accounting policies that have the most significant effect on the amounts
recognized in the Company’s consolidated financial statements are as follows: Going Concern The application of the going concern
assumption requires management to take into account all available information about the future, which is at least but not limited to,
12 months from the year end of the reporting period. The Company is aware that material uncertainties related to events or conditions
may cast significant doubt upon the Company’s ability to continue as a going concern.
c. Cash
and Cash Equivalents The Company considers all highly liquid
instruments with a maturity of three months or less at the time of issuance, which are readily convertible to known amounts of cash,
and which are subject to insignificant risk of changes in value to be cash equivalents.
d. Provisions Provisions are recognized where a legal
or constructive obligation has been incurred as a result of past events; it is probable that an outflow of resources embodying economic
benefit will be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made. If material,
provisions are measured at the present value of the expenditures expected to be required to settle the obligation.
e. Property
and Equipment Property and equipment is stated at cost less accumulated
depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. The carrying
amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs are charged to the consolidated statements of
operations and comprehensive loss during the period in which they are incurred. Depreciation of property and equipment
is provided using the straight-line method at the following rates approximating their estimated useful lives:
Research and development equipment 3 years
f. Intangible
Assets Intangible assets consist of patents
and patent applications acquired to be used in pre-clinical drug research programs. Intangible assets are carried at cost less accumulated
amortization and impairment losses and are capitalized when the costs can be measured reliably, and it is probable that future economic
reliably benefits that are attributable to the asset will flow to the Company. The Company amortizes patents over the term of the patent.
g. Impairment
of Non-Current Assets At each reporting date, the Company
reviews the carrying amounts of its non-current assets to determine whether there are any indications of impairment. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any. Where the asset does not generate cash
flows that are independent from other assets, the Company estimates the recoverable amount of the cash generating unit (“CGU”)
to which the asset belongs. The recoverable amount is determined as the higher of fair value less direct costs to sell and the asset’s
value in use. In assessing value in use, the estimated future cash flows are discounted to their present value. Estimated future cash
flows are calculated using estimated recoverable reserves, estimated future commodity prices and the expected future operating and capital
costs. The pre-tax discount rate applied to the estimated future cash flows reflects current market assessments of the time value of
money and the risks specific to the asset for which the future cash flow estimates have not been adjusted. If the carrying amount of an asset or CGU exceeds its recoverable amount,
the carrying amount of the asset or CGU is reduced to its recoverable amount through an impairment charge to the consolidated statement
of operations and comprehensive loss. Assets that have been impaired are
tested for possible reversal of the impairment whenever events or changes in circumstance indicate that the impairment may have reversed.
When an impairment subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable
amount, but only so that the increased carrying amount does not exceed the carrying amount that would have been determined (net of depreciation,
depletion and amortization) had no impairment loss been recognized for the asset or CGU in prior periods. A reversal of impairment is
recognized as a gain in the consolidated statement of operations and comprehensive loss.
h. Financial
Instruments Financial assets and financial liabilities
are recognized when the Company becomes a party to the contractual provisions of the respective instrument. Financial assets and financial liabilities are initially measured
at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at FVTPL) are included in the initial carrying value of the related instrument
and are amortized using the effective interest method. Transaction costs directly attributable to the acquisition of financial assets
or financial liabilities at FVTPL are recognized immediately in the consolidated statement of operations and comprehensive loss. Fair value estimates are made at the
statement of financial position date based on relevant market information and information about the financial instrument. All financial
instruments are classified into either: FVTPL or amortized cost. The Company has made the following classifications:
Cash Amortized cost
Amounts receivable Amortized cost
Accounts payable and accrued
liabilities Amortized cost
Due to related parties Amortized cost
Short-term investments Derivative liability FVTPL FVTPL Financial assets The classification of financial assets
depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets at FVTPL Financial assets are classified as FVTPL when the financial
asset is either held for trading or it is designated as FVTPL. A financial asset is classified as held for trading if:
● it has been acquired principally for the purpose of
selling it in the near term; or
● on initial recognition it is part of a portfolio of
identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking. Financial assets at amortized cost Financial assets at amortized cost
are non-derivative financial assets which are held within a business model whose objective is to hold assets to collect contractual cash
flows and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding. A financial asset (unless it is a trade receivable without a significant financing component that is initially
measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly
attributable to its acquisition. Subsequent to initial recognition, financial assets are measured at amortized cost using the effective
interest method, less any impairment. Subsequent to initial recognition,
financial liabilities are measured at amortized cost, unless designated as FVTPL. Impairment of financial assets Financial assets, other than those
classified as FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to
be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the investment have been decreased. The carrying amount of the financial
asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying
amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is
written off against the allowance account. Subsequent recoveries of amounts previously written off are offset against the allowance account.
Changes in the carrying amount of the allowance account are recognized in the consolidated statement of operations and expected comprehensive
loss (“ECL”). Loss allowances are based on the lifetime ECL’s that result from all possible default events over the
expected life of the trade receivable, using the simplified approach. For financial assets measured at amortized
cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognized, the previously recognized impairment loss is reversed through the consolidated statement
of operations and ECL to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed
what the amortized cost would have been had the impairment not been recognized. Financial liabilities and equity instruments Classification as debt or equity Debt and equity instruments issued
by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements
and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract
that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the
Company are recognized as the proceeds received, net of direct issue costs. Other financial liabilities Other financial liabilities (including
loans and borrowings and trade payables and other liabilities) are initially measured at fair value, net of transaction costs. Subsequently,
other financial liabilities are measured at amortized cost using the effective interest method. The effective interest method is a
method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that
form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of
the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Derivative financial instruments If a hybrid contract contains a financial asset, the embedded
derivative is not separated from the host. Such hybrid contracts are measured in their entirety at amortized cost or at fair value, based
on the criteria for determining the characteristics of the business model and contractual cash flows. If the financial asset host is not
within the scope of the FASB, the embedded derivative is separated from the host and accounted for as a derivative when the economic
risks and characteristics of the embedded derivative are not closely related to the economic risks and characteristics of the host, the
embedded derivative meets the definition of a derivative and the hybrid contract is not measured at fair value with the changes in FVTPL. Reassessment of the need to separate
an embedded derivative only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that
otherwise would be required.
i. Income
Taxes Current income tax Current income tax assets and liabilities
for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating
to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in
the consolidated statement of operations and ECL. Management periodically evaluates positions taken in the tax returns with respect to
situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred income tax Deferred income tax is provided using
the statement of financial position method on temporary differences at the reporting date between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at the end
of each reporting period and recognized only to the extent that it is probable that sufficient taxable income will be available to allow
all or part of the deferred income tax asset to be utilized. Deferred income tax assets and liabilities are measured at the tax rates
that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and deferred income tax liabilities
are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred
income taxes relate to the same taxable entity and the same taxation authority.
j. Foreign
Currency Translation The Company’s reporting currency
is the Canadian dollar. The functional currency for the Company and its subsidiary is the currency of the primary economic environment
in which the entity operates. The functional currency of the Company and its Canadian subsidiaries is the Canadian dollar, while the
functional currency of its Israeli subsidiary is the New Israeli Shekel (“NIS”). Transactions denominated in currencies other than the functional
currency are translated using the exchange rate in effect on the transaction date or at the annual average rate. Monetary assets and liabilities
denominated in foreign currencies are retranslated at the rate of exchange in effect at the consolidated statement of financial position
date. Non-monetary items are translated using the historical rate on the date of the transaction. Foreign exchange gains and losses are
included in the consolidated statement of operations and comprehensive loss. Subsidiaries that have functional currencies
other than the Canadian dollar translate their statement of operations and ECL items at the average rate during the year. Assets and
liabilities are translated at exchange rates prevailing at the end of each reporting period. Exchange rate variations resulting from
the retranslation at the closing rate of the net investment in these subsidiaries, together with differences between their statement
of operations and ECL items translated at actual and average rates, are recognized in accumulated other comprehensive income (loss).
k. Share-based
Payments The grant date fair value of share-based
payment awards granted to employees is recognized as stock-based compensation expense, with a corresponding increase in equity, over
the period that the employees unconditionally become entitled to the awards. The amount recognized as an expense is adjusted to reflect
the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately
recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the
vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured
to reflect such conditions and there is no true-up for differences between expected and actual outcomes. Where equity instruments are granted to parties other than
employees, they are recorded by reference to the fair value of the services received. If the fair value of the services received cannot
be reliably estimated, the Company measures the services received by reference to the fair value of the equity instruments granted, measured
at the date the counterparty renders service. The fair value of services received from consultants cannot be reliably measured; therefore,
the fair value of the underlying equity instruments was utilized for all periods presented. All equity-settled share-based payments
are reflected in share-based payment reserve, unless exercised. Upon exercise, shares are issued and the amount reflected in share-based
payment reserve is credited to share capital, adjusted for any consideration paid.
l. Restricted
Share Units The Company recognizes compensation
expense for restricted share units (“RSU’s”) awarded based on the grant-date fair value of the common shares. The grant-date
fair value, which is determined by multiplying the Company’s share price by the number of RSU’s granted, is amortized over
the vesting period and is included in compensation expense with a corresponding increase in reserves. If RSU’s are for services
that have been provided and are non-cancellable, the Company recognizes the full cost of the RSU’s on the date of grant. The amount
recognized is adjusted to reflect the number of RSU’s expected to eventually vest.
m. Leases The Company’s lease includes
an office rental. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains,
a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company reassesses whether a contract is, or contains, a lease only if the terms and conditions of the contract are changed. At the commencement date, the Company
measures the lease liability at the present value of the lease payments that are not paid at that date, including, inter alia, the exercise
price of a purchase option if the Company is reasonably certain to exercise that option. Simultaneously, the Company recognizes a right-of-use
(“ROU”) asset in the amount of the lease liability. The discount rate applied by the Company is the rate of interest
that the Company would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset
of a similar value to the ROU asset in a similar economic environment. The weighted average of lessee’s incremental annual borrowing
rate applied to the lease liabilities was estimated at 20%. The lease term is the non-cancellable
period for which the Company has the right to use an underlying asset, together with both, the periods covered by an option to extend
the lease if the Company is reasonably certain to exercise that option and periods covered by an option to terminate the lease if the
Company is reasonably certain not to exercise that option. After the commencement date, the Company
measures the ROU asset applying the cost model, less any accumulated depreciation and any accumulated impairment losses and adjusted
for any remeasurement of the lease liability. Assets are depreciated by the straight-line
method over the estimated useful lives of the ROU asset or the lease period, whichever is shorter. Interest on the lease liability is
recognized in profit or loss in each period during the lease term in an amount that produces a constant periodic rate of interest on
the remaining balance of the lease liability. The Company applied the following practical
expedients:
● Non-lease components: practical
expedient by class of underlying asset not to separate non-lease components (services) from
lease components and, instead, account for each lease component and any associated non lease
components as a single lease component.
● The practical expedient for short-term
leases is applied.
n. Employee benefits
1) Pension and retirement benefit obligations The Company operates a number of post-employment
defined contribution plans. A defined contribution plan is a program
that benefits an employee after termination of employment, under which the Company regularly makes fixed payments to a separate and independent
entity so that the Company has no legal or constructive obligation to pay additional contributions if the fund does not hold sufficient
assets to pay all employees the benefits relating to employee service in the current and prior periods. The fund assets are not included
in the Company’s statement of financial position. The Company operates pension and severance compensation plans
subject to Section 14 of the Israeli Severance Pay Law. The Option Plans are funded through payments to insurance companies or pension
funds administered by trustees. In accordance with its terms, the Option Plans meet the definition of a defined contribution plans as
defined above. The expenses in respect of defined contribution plans during the years ended October 31, 2022, 2021 and 2020 were CAD$42,526,
CAD$69,147 and nil
2) Vacation and recreation pay Under Israeli law, each employee is
entitled to vacation days and recreation pay, both computed on an annual basis. The entitlement is based on the period of employment.
The Company records a liability and an expense for vacation and recreation pay, based on the benefit accumulated for each employee.
o. Research
and Development Research costs are charged to operations as incurred. Development
activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures
are capitalized only if development costs can be measured reliably, the product is technically and commercially feasible, future economic
benefits are probable, and the Company intends to or has sufficient resources to complete development and to use or sell the asset. The
expenditure capitalized includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the
asset for its intended use and borrowing costs on qualifying assets. Other development expenditures are recognized in the consolidated
statement of operations and comprehensive loss as incurred. The Company has not capitalized any development costs for the years ended
October 31, 2022, 2021 and 2020.
p. Loss
Per Share Basic loss per share is computed using the weighted average
number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted loss per share,
whereby all “in the money” stock options and share purchase warrants are assumed to have been exercised at the beginning of
the period and the proceeds from their exercise are assumed to have been used to purchase common shares at the average market price during
the period. When a loss is incurred during the period, basic and diluted loss per share is the same as the exercise of stock options and
share purchase warrants is considered to be anti-dilutive. As of October 31, 2022, the Company had 792,571 (2021 – 645,222, 2020
- nil) potentially dilutive shares outstanding. q. The Company capitalizes certain legal and other third-party fees that are directly related to the Company’s in- process equity financing until such financing is consummated After consummation of such equity financing, these costs are recorded as a reduction of the respective gross proceeds. Should a planned equity financing be abandoned, terminated or significantly delayed, the deferred offering costs are written off to operating expenses. r. Accounting Standards Issued But Not Yet Effective
i. In February 2021, the IASB issued amendments to IAS 8, in which it introduces a new definition of accounting estimates. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates. Effective for annual periods beginning on or after January 1, 2023. The Company is currently evaluating the potential effect of the adoption on the financial position and results of operations.
ii. Classification of liabilities: The IASB issued a narrow-scope amendment to IAS 1, in January
2020, to clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the
reporting period. The amendment could affect the classification of liabilities, particularly for entities that previously considered management’s
intentions to determine classification and for some liabilities that can be converted into equity. Inter alia, the amendment requires
the following: Liabilities are classified as non-current if the entity has
a substantive right to defer settlement for at least 12 months at the end of the reporting period. The amendment no longer refers to unconditional
rights. The assessment determines whether a right exists, but it does not consider whether the entity will exercise the right. ‘Settlement’ is defined as the extinguishment
of a liability with cash, other economic resources or an entity’s own equity instruments. There is an exception for convertible
instruments that might be converted into equity, but only for those instruments where the conversion option is classified as an equity
instrument as a separate component of a compound financial instrument. The Company early adopted the narrow-scope amendment to IAS
1 on January 1, 2019, with no effect to the Company’s financial statements. On October 31, 2022, the IASB published Non-current
Liabilities with Covenants (Amendments to IAS 1 |
