Exhibit 99.1
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following management's discussion and analysis ("MD&A") of results of operations and financial conditions of Medicus Pharma Ltd. ("Medicus", the "Company", "we", "our", "us" and similar expressions), formerly Interactive Capital Partners Corporation ("Interactive"), has been prepared as of September 30, 2024, and should be read in conjunction with the audited financial statements of Medicus Pharma Ltd., for the years ended December 31, 2023 and 2022 (the "annual financial statements") and the auditor's report thereon, and the Medicus unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2024 and 2023 (the "interim financial statements"), together with the information included under the headings "Risk Factors" in the Company's Annual Information Form dated July 19, 2024, which can be found on SEDAR+ at www.sedarplus.ca.
All financial information in this MD&A and annual and interim financial statements of the Company were prepared in accordance with International Financial Reporting Standards ("IFRS") and all dollar amounts are expressed in United States dollars unless otherwise noted.
This MD&A is dated as of November 22, 2024.
FORWARD LOOKING INFORMATION
Certain information contained in the MD&A is forward-looking and contains "forward-looking information" within the meaning of applicable securities laws in Canada. Forward-looking information may relate to our future outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, budgets, operations, financial results, taxes, dividend policy, plans, or objectives. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities, or the markets in which we operate is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects", "outlook", "prospects", "strategy", "intends", "believes", or variations (including negative and grammatical variations) of such words and phrases, or statements that certain actions, events or results "may", "could", "would", "might", "will", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections, or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding future events or circumstances.
Forward-looking information contained in this MD&A and other forward-looking information are based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct.
The forward-looking information in this MD&A represents our expectations as of the date of this MD&A. The Company does not, and will not, have any policies to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada.
Further information regarding factors that may cause actual results to differ materially are included in the Company's annual and other reports filed from time to time with the Canadian Securities Administrators on SEDAR+ (www.sedarplus.ca), including the Company's Annual Information Form dated July 19, 2024, under the heading "Risk Factors." This list of risk factors should not be construed as exhaustive. Readers are cautioned that events or circumstances could cause results to differ materially from those predicted, forecasted or projected. The forward-looking statements contained in this document speak only as of the date of this document. The Company does not undertake any obligation to publicly update or revise any forward-looking statements or information contained herein, except as required by applicable laws. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
COMPANY OVERVIEW
The Company is a clinical stage, multi-strategy holding company focused on investing in and accelerating novel life sciences and bio-technology companies through U.S. Food and Drug Administration ("FDA") approved clinical trials. Utilizing a thesis driven collaborative process, the Company attempts to acquire and advance clinical stage assets through clinical development and commercialization. The Company looks into opportunities across all therapeutics areas where an unmet need exists for improved patient safety and efficacy. The Company is actively exploring to expand its drug development pipeline through qualified and accretive acquisitions and partnerships.
The Company has two wholly owned subsidiaries, Medicus Pharma Inc., a Company incorporated in the state of Delaware on October 12, 2023, and SkinJect, Inc. ("SkinJect").
SkinJect is focused on the development of a novel drug delivery system using dissolvable microneedle arrays ("MNAs") for the treatment of certain skin cancers. To that end, the Company licensed certain technology co-developed by the University of Pittsburgh and Carnegie Mellon University. The Company established and validated fabrication processes relative to the MNAs, completed pre-clinical testing and secured approval to proceed with clinical trials activity from the Food and Drug Administration.
The Company then completed a dose escalation study ("'SKNJCT-001") that assessed the safety of MNA patch in patients with basal cell carcinoma ("BCC"). There were no serious adverse events nor any demonstrated alterations in any clinical measurements during the trial. The conclusion of the study was that MNA patch was well tolerated with no evidence of dose limiting toxicity.
The Company had initiated a clinical study ("SKNJCT-002") aimed at evaluating clinical efficacy. The first part involved the enrollment of 15 healthy volunteers and was designed to study the penetration of placebo-containing Dynamic Mechanical Allodynia ("DMA") patches at five different anatomic locations. After the first seven health volunteers were enrolled, due to the variability of array application observed by the investigator, SkinJect made the decision to pause the trial. The study was never resumed, and it was ultimately closed without further enrollment. There were no adverse events reported in the enrolled subjects.
In January 2024, the Company submitted the clinical design for a randomized, double-blinded, placebo-controlled ("P-MNA"), multi-center study ("SKNJCT-003") enrolling up to 60 subjects presenting with nodular type BCC of the skin. The FDA responded in March 2024 and requested additional clinical information. A final protocol was submitted to the FDA in July 2024, which included the information requested by the FDA, along with updated chemistry, manufacturing and controls ("CMC"), stability and sterility data. On July 31, 2024, the FDA responded to the latest submission and requested certain additional information and clarification. The Company has responded to the FDA on August 2, 2024. Beginning August 13, 2024, the Company commenced activating its clinical trial sites and has enrolled its first patient.
Business Combination Agreement
Unless otherwise stated, all information in this MD&A is presented giving retroactive effect to the Share Consolidation (as defined below under "Subsequent Events").
On March 17, 2023, and as amended on May 12, 2023 and August 29, 2023, the Company entered into a Business Combination Agreement with RBx Capital, LP ("RBx") and SkinJect under which the Company entered into a reverse takeover transaction ("RTO") with SkinJect on September 29, 2023. The RTO transaction included a concurrent financing of $5,109,950. To facilitate the RTO, SkinJect converted all its equity securities, including securities convertible into common stock, into shares of SkinJect common stock. Effective September 29, 2023, Interactive changed its name to Medicus Pharma Ltd.
Interactive and SkinJect were combined via the purchase of SkinJect which constituted a reverse takeover of Interactive by the shareholders of SkinJect. Interactive acquired all of the issued and outstanding shares of SkinJect common stock and issued to each former shareholder of SkinJect (other than Interactive) the number of common shares in the capital of the Company as described below. In connection with and as a closing condition of the RTO, Interactive raised aggregate gross proceeds of $5,109,950 through the issuance of 1,277,488 common shares at a price of $4.00 per share.
Pursuant to the terms of the RTO, all outstanding financial instruments of SkinJect were converted into shares of SkinJect common stock. The SkinJect preferred shares, convertible promissory notes and note payable were converted into 15,423,561 shares of SkinJect common stock which were then consolidated into 4,626,876 shares of SkinJect common stock on a 3.413443-to-1 basis, with the exception of $1,000,000 of convertible promissory notes, which converted into 261,781 of the Company's common shares on a one-to-one basis. In addition, 6,434,000 shares of SkinJect common stock were consolidated on a 3.413443-to-one basis, into 1,884,900 shares of SkinJect common stock.
Immediately prior to the completion of the RTO, the 7,249,999 Interactive common shares were consolidated into 287,471 common shares on a 25.219932-to-1 basis.
Upon closing of the transaction, the Company assumed $2,071,580 in transaction costs incurred by RBx that related to the RTO. The consideration paid to acquire Interactive consisted of net liabilities assumed of $50,000 and the value of the shares exchanged with Interactive, valued at $1,149,882, which was expensed on completion of the RTO.
RBx, a family office controlled by the Company's Executive Chairman and CEO, played a foundational role in the Company's development, dating back to the identification and evaluation of the SkinJect technology and negotiation of a proposed merger and Canadian listing transaction with the SkinJect principals. RBx participated as lead investor in financings leading up to the Business Combination. It also identified Interactive as a suitable Canadian reporting issuer vehicle to combine with SkinJect in the Business Combination (Interactive subsequently changed its name to "Medicus Pharma Ltd.").
RBx was a party to the Business Combination Agreement prior to Interactive being identified and designated as the acquisition vehicle. The Business Combination Agreement was later amended to include Interactive as acquiror.
Beginning prior to the designation of Interactive as the acquisition vehicle, RBx engaged external legal and accounting advisors, paid regulatory and exchange listing costs, and incurred other expenses for the advancement of the Business Combination and associated financings, and the TSX Venture Exchange ("TSXV" listing.
Following completion of the Business Combination and upon approval by the disinterested board members of the Company, expenses incurred by RBx were reimbursed by the Company.
The Company determined that the expenses incurred by and reimbursed to RBx were appropriately recorded as Company listing expenses in the Company's financial statements. Pursuant to IFRS 2.13A, as RBx assumed costs in connection with the Business Combination, these costs form part of the transaction and were recognized as a liability measured at fair value.
SELECTED FINANCIAL INFORMATION
The following table sets forth selected financial information with respect to the Company. The selected financial information has been derived, except where indicated, from the interim financial statements for the three and nine months ended September 30, 2024.
| | | September 30, | | | December 31, | | | | | | | |
| | | 2024 | | | 2023 | | | | | | | |
| | | $ | | | $ | | | | | | | |
| Total assets | | 5,720,909 | | | 1,893,057 | | | | | | | |
| Total liabilities | | 2,228,805 | | | 781,609 | | | | | | | |
| | | | | | | |
| | | Three months ended
September 30, | | | Nine months ended
September 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | $ | | | $ | | | $ | | | $ | | |
| Total operating expenses | | 3,005,747 | | | 226,813 | | | 8,830,197 | | | 885,040 | |
| Net loss and comprehensive loss | | (2,959,216 | ) | | (2,963,692 | ) | | (8,880,935 | ) | | (3,936,284 | ) |
| Net loss per common share (basic and diluted) | | (0.31 | ) | | (1.47 | ) | | (0.98 | ) | | (2.04 | ) |
As of the date of this MD&A, we have not earned revenue and we do not expect to generate revenue in the near future.
DISCUSSION OF OPERATIONS
The following table outlines our statements of loss and comprehensive loss for the three and nine months ended September 30, 2024 and 2023:
| | | Three months ended
September 30, | | | Nine months ended
September 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | $ | | | $ | | | $ | | | $ | |
| General and administrative | | 2,201,911 | | | 186,418 | | | 6,008,493 | | | 725,957 | |
| Research and development | | 777,514 | | | 40,395 | | | 2,162,680 | | | 159,083 | |
| Depreciation | | 26,322 | | | - | | | 78,395 | | | - | |
| Share-based compensation | | - | | | - | | | 580,629 | | | - | |
| Total operating expenses | | 3,005,747 | | | 226,813 | | | 8,830,197 | | | 885,040 | |
| Loss from operations | | (3,005,747 | ) | | (226,813 | ) | | (8,830,197 | ) | | (885,040 | ) |
| Finance expense (income), net | | (46,531 | ) | | 186,214 | | | 50,738 | | | 500,579 | |
| Listing expense | | - | | | 2,550,665 | | | - | | | 2,550,665 | |
| Net loss and comprehensive loss | | (2,959,216 | ) | | (2,963,692 | ) | | (8,880,935 | ) | | (3,936,284 | ) |
| Net loss per common share (basic and diluted) | | (0.31 | ) | | (1.47 | ) | | (0.98 | ) | | (2.04 | ) |
General and administrative
General and administrative expenses for the three and nine months ended September 30, 2024 and 2023 are comprised of:
| | | Three months ended
September 30, | | | Nine months ended
September 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | $ | | | $ | | | $ | | | $ | |
| Professional fees | | 1,137,176 | | | 124,904 | | | 2,811,358 | | | 483,679 | |
| Consulting fees | | 417,405 | | | 60,000 | | | 1,356,599 | | | 180,000 | |
| Salaries, wages and benefits | | 279,358 | | | - | | | 819,717 | | | - | |
| General office, insurance and administration expenditures | | 157,018 | | | 1,514 | | | 580,335 | | | 62,278 | |
| Investor relations | | 210,954 | | | - | | | 440,484 | | | - | |
| | | 2,201,911 | | | 186,418 | | | 6,008,493 | | | 725,957 | |
Professional fees increased by $1,012,272 or 810% and $2,327,679 or 481% for the three and nine months ended September 30, 2024, respectively, compared to the equivalent periods in the prior year. The increase was primarily due to increases in legal and accounting fees related to the Company's registration statement filing with the U.S. Securities and Exchange Commission.
Consulting fees increased by $357,405 or 596% and $1,176,599 or 654% for the three and nine months ended September 30, 2024, respectively, compared to the equivalent periods in the prior year. Consulting fees include fees paid to individuals and professional firms who provide advisory services to the Company and fluctuate from period to period based on the nature of the transactions the Company undertakes.
Salaries, wages and benefits increased by $279,358 or 100% and $819,717 or 100% for the three and nine months ended September 30, 2024, respectively, compared to the equivalent periods in the prior year. The Company did not have employees in the equivalent periods of the prior year.
General office, insurance and administration expenditures increased by $155,054 or 10271% and $518,057 832% for the three and nine months ended September 30, 2024, respectively, compared to the equivalent periods in the prior year. The increase was primarily due to the Company now incurring more significant insurance related expenses and general office related expenditures in support of expanded operations.
Investor relations costs increased by $210,954 or 100% and $440,484 or 100% for the three and nine months ended September 30, 2024, respectively, compared to the equivalent periods in the prior year. Investor relations expenses for the three and nine months ended September 30, 2024, were incurred as a result of the Company becoming a listed public entity after the RTO transaction.
There is an expected increase in general and administrative expenses associated with being a public company, including costs related to accounting, audit, legal, regulatory, and tax-related services associated with maintaining compliance with applicable securities law requirements; additional director and officer insurance costs; and investor and public relations costs.
Research and development ("R&D")
Research and development ("R&D") costs include costs incurred under agreements with third-party contract research organizations, contract manufacturing organizations and other third parties that conduct preclinical and clinical activities on our behalf and manufacture our product candidates, and other costs associated with our R&D programs, including laboratory materials and supplies.
R&D expenses increased by $737,119 or 1825% and $2,003,597 or 1259% for the three and nine months ended September 30, 2024, respectively, compared to the equivalent periods in the prior year. This increase is primarily due to costs incurred related to SKNJCT-003.
As of the date of this MD&A, the Company has commenced activating its clinical trial sites and participant recruitment is now underway and we expect to randomize patients shortly.
We expect our R&D expenses to increase substantially for the foreseeable future as we continue with the SKNJCT-003 study and trials.
The principal risks related to the Company's future performance are that the trials are unsuccessful, the Company does not receive FDA approval to proceed with the next stage of its research and development, or the Company is unsuccessful in obtaining future funding needed to continue its research and development. These are customary risks for a development stage pharmaceutical Company and are less acute than for a Company with a less advanced product. Nevertheless, there can be no assurance that the Company will be able to complete its trials of the MNA, that the trials will be successful, or that the product will ultimately reach commercialization.
Depreciation
Depreciation increased by $26,322 or 100% and $78,395 or 100% for the three and nine months ended September 30, 2024, respectively, compared to the equivalent periods in the prior year. Depreciation is the result of a right-of-use asset related to the new office lease.
Share-based compensation
Share-based compensation was $nil and $580,629 for the three and nine months ended September 30, 2024, respectively, compared to $nil and $nil for the equivalent periods in the prior year. Share-based compensation changes based on the variability in the number of options granted, vesting periods of the options and the grant date fair value. During the nine months ended September 30, 2024, the share-based compensation expense relates to the vesting of share options. On June 25, 2024, the Board of Directors approved the acceleration of vesting for all outstanding share options resulting in the Company recognizing the remaining expense for all share options outstanding and unvested as of that date.
Finance expense (income), net
Finance expense (income) decreased by $232,745 or 125% and $449,841 or 90% for the three and nine months ended September 30, 2024, respectively, compared to the equivalent periods in the prior year. Finance expense (income) for the three and nine months ended September 30, 2024, is primarily related to interest on convertible notes and the Company's office lease offset by interest income earned on short-term money market investments. Finance expense for the three and nine months ended September 30, 2023, was comprised of interest accretion on convertible promissory notes and dividend expense, partially offset by a fair value adjustment gain on the convertible promissory notes.
SUMMARY OF QUARTERLY RESULTS
The following table sets forth selected unaudited quarterly results of operations data for each of the four quarters immediately preceding September 30, 2024. The information for each of these quarters has been derived from the condensed interim consolidated financial statements of the Company. Financial data for the four quarters including and immediately preceding the RTO, which occurred on September 29, 2023, have been omitted. Prior to the RTO, the Company existing as a shell company with no operations and its results of operations during this period are not relevant to its ongoing business.
| | | September 30,
2024 | | | June 30,
2024 | | | March 31,
2024 | | | December 31,
2023 | |
| | | $ | | | $ | | | $ | | | $ | |
| Net loss | | (2,959,216 | ) | | (4,130,198 | ) | | (1,791,521 | ) | | (3,514,800 | ) |
| Net loss attributable to shareholders: | | | | | | | | | | | | |
| Basic and diluted | | (0.31 | ) | | (0.51 | ) | | (0.22 | ) | | (0.44 | ) |
LIQUIDITY, CAPITAL RESOURCES AND FINANCING
The general objectives of our capital management strategy are to preserve our capacity to continue operating, provide benefits to our stakeholders and provide an adequate return on investment to our shareholders by continuing to invest in our future in a manner that is commensurate with the level of operating risk we assume. We determine the total amount of capital required consistent with risk levels. This capital structure is adjusted on a timely basis depending on changes in the economic environment and risks of the underlying assets. We are not subject to any externally imposed capital requirements.
The financial statements and this MD&A have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The financial statements and this MD&A do not include any adjustments to the amounts and classification of assets and liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
We currently do not earn any revenues from our preclinical programs and are therefore considered to be in the R&D stage. As required, the Company will continue to finance its operations through the sale of equity or pursue non-dilutive funding sources available to the Company in the future. The continuation of our R&D activities is dependent on our ability to obtain financing.
As at September 30, 2024, the Company had cash and cash equivalents of $5,306,159 compared to cash and cash equivalents of $1,719,338 as of December 31, 2023. During the nine months ended September 30, 2024, the Company received $5,172,500 of net proceeds from the issuance of convertible notes and $5,470,000 net proceeds from the issuance of common shares in a non-brokered private placement. For the nine months ended September 30, 2024, cash used in operating activities was $6,980,076 compared to $769,657 for the equivalent period in the prior year. As at September 30, 2024, the Company has an accumulated deficit of $27,751,997 (December 31, 2023 - $18,871,062) and net loss and comprehensive loss of $2,959,216 and $8,880,935 for the three and nine months ended September 30, 2024 (2023 - $2,963,692 and $3,936,284). The Company has a working capital surplus of $3,450,299 as at September 30, 2024 (December 31, 2023 - $1,111,448).
The Company does not expect to generate positive cash flow from operations for the foreseeable future due to additional R&D expenses, including expenses related to drug discovery, preclinical testing, clinical trials, chemistry, manufacturing and controls and operating expenses associated with supporting these activities. It is expected that negative cash flow from operations will continue until such time, if ever, that we receive regulatory approval to commercialize any of our products under development and/or we receive royalty or milestone revenue from any such products that exceeds our expenses.
Cash flows
| | | Nine months ended September 30, | |
| | | 2024 | | | 2023 | |
| | | $ | | | $ | |
| Cash used in operating activities | | (6,980,076 | ) | | (769,657 | ) |
| Cash provided by financing activities | | 10,566,897 | | | 5,609,950 | |
| Net change in cash during the period | | 3,586,821 | | | 4,840,293 | |
| Cash, beginning of the period | | 1,719,338 | | | 267,652 | |
| Cash, end of the period | | 5,306,159 | | | 5,107,945 | |
Cash flows used in operating activities
Cash flows used in operating activities for the nine months ended September 30, 2024 were $6,980,076 compared to cash flows used in operating activities of $769,657 for the nine months ended September 30, 2023. The increase is primarily due to increased spending on research and development and general and administrative expenses.
Cash flows provided by financing activities
Cash flows provide by financing activities for the nine months ended September 30, 2024, were $10,566,897 compared to cash flows provided by financing activities of $5,609,950 for the nine months ended September 30, 2023. The increase is primarily due to increased proceeds from the issuance of convertible notes and proceeds from the issuance of common shares during the nine months ended September 30, 2024.
CONTRACTUAL OBLIGATIONS
We have no significant contractual arrangements other than those noted in our financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company's financial instruments are exposed to certain risks as summarized below.
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from deposits with banks and outstanding receivables. The Company does not hold any collateral as security but mitigates this risk by dealing only with what management believes to be financially sound counterparties and, accordingly, does not anticipate significant loss for non-performance.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company's exposure to liquidity risk is dependent on the Company's ability to raise additional capital to meet its commitments and sustain operations. The Company mitigates liquidity risk by management of working capital, cash flows, and the issuance of share capital.
The Company is obligated to the following contractual maturities of undiscounted cash flows as at September 30, 2024:
| | | Carrying
amount | | | Contractual
cash flows | | | Year 1 | | | Year 2 | | | Year 3
and
beyond | |
| | | $ | | | $ | | | $ | | | $ | | | $ | |
| Accounts payable and accrued liabilities | | 1,879,834 | | | 1,879,834 | | | 1,879,834 | | | - | | | - | |
| Lease obligation | | 348,971 | | | 398,181 | | | 141,211 | | | 145,448 | | | 111,522 | |
| | | 2,228,805 | | | 2,278,015 | | | 2,021,045 | | | 145,448 | | | 111,522 | |
The Company is obligated to the following contractual maturities of undiscounted cash flows as at December 31, 2023:
| | | Carrying
amount | | | Contractual
cash flows | | | Year 1 | | | Year 2 | | | Year 3
and
beyond | |
| | | $ | | | $ | | | $ | | | $ | | | $ | |
| Accounts payable and accrued liabilities | | 781,609 | | | 781,609 | | | 781,609 | | | - | | | - | |
| | | 781,609 | | | 781,609 | | | 781,609 | | | - | | | - | |
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.
Currency risk
Currency risk is the risk to the Company's earnings that arises from fluctuations of foreign exchange rates. The Company's primary exposure with respect to foreign currencies is from Canadian dollar denominated trade and other payables. A 1% change in the foreign exchange rates would not result in any significant impact to the consolidated financial statements.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not exposed to interest rate risk as at September 30, 2024.
Other price risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from interest rate risk or currency risk, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. The Company is not exposed to other price risks as at September 30, 2024.
Fair values
The carrying values of cash and trade and other payables approximate the fair values due to the short-term nature of these items. The risk of material change in fair value is not considered to be significant due to a relatively short-term nature. The Company does not use derivative financial instruments to manage this risk.
Financial instruments recorded at fair value on the statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes the inputs used by the Company's valuation techniques. A level is assigned to each fair value measurement based on the lowest-level input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1 - Unadjusted quoted prices as at the measurement date for identical assets or liabilities in active markets.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Significant unobservable inputs that are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.
RELATED PARTY TRANSACTIONS
The Company had an agreement with Velocity Fund Management, LLC ("VFM"), an affiliate of a shareholder of the Company, that provided for certain managerial positions to be filled from within VFM. These employees were not deemed employees of the Company, and VFM was responsible for the payment and provision of all wages, bonuses, commissions and benefits. Reimbursable salaries paid to VFM were $nil during the periods ended September 30, 2024 (2023 - $60,000). This agreement was terminated on September 29, 2023.
On October 18, 2023, the Company signed an agreement with RBx, that provides for certain managerial positions to be filled from within RBx. RBx is responsible for the payment and provision of all wages, bonuses, and benefits for these positions. Reimbursable salaries paid to RBx pursuant to this agreement are $125,000 per month. Reimbursable salaries paid to RBx were $375,000 and $1,050,000 during the three and nine months ended September 30, 2024 (2023 - $nil and $nil). Additional expenses of $36,829 and $161,006 were incurred by RBx on behalf of the Company in the three and nine months ended September 30, 2024. The Company paid $403,506 and $1,233,534 to RBx during the three and nine months ended September 30, 2024 (2023 - $nil and $nil). The total amount of accounts payable to RBx was $143,422 as of September 30, 2024 (December 31, 2023 - $165,950).
In connection with the convertible notes issued by the Company on May 3, 2024, related parties consisting of key management personnel subscribed for 168,750 convertible notes in the principal amount of $675,000. Upon conversion the Company settled the convertible notes, along with accrued but unpaid interest, with 172,953 common shares.
Key management personnel compensation during the periods ended September 30, 2024 and 2023 comprised:
| | | For the three months
ended September 30, | | | For the nine months
ended September 30, | |
| | | 2024 | | | 2023 | | | 2024 | | | 2023 | |
| | | $ | | | $ | | | | | | | |
| Salaries and benefits | | 359,489 | | | - | | | 1,014,849 | | | - | |
| Share-based payments | | - | | | - | | | 435,717 | | | - | |
| Total | | 359,489 | | | - | | | 1,450,566 | | | - | |
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to Note 2 and Note 3 of the audited financial statements for the year ended December 31, 2023, together with Note 2 of the unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2024, for a full discussion of our critical accounting policies and estimates.
OUTSTANDING SHARE DATA
The Company has authorized unlimited common shares with no par value. Each holder of common shares is entitled to one vote for each share owned on all matters voted upon by shareholders.
The Company has 11,816,721 common shares issued and outstanding, 1,037,500 share options issued and outstanding and 970,000 warrants issued and outstanding as of the date of this MD&A.
SUBSEQUENT EVENTS
On October 28, 2024, the Company effected a reverse stock split of its common shares at a ratio of 1-for-2 (the "Share Consolidation"). The Share Consolidation was approved by the shareholders of the Company on June 25, 2024 and by the board of directors of the Company on October 15, 2024.
After the completion of the Share Consolidation, the number of the Company's issued and outstanding common shares decreased from 21,693,560 to 10,846,721. The par value of the Company's common shares remains unchanged at $nil per share after the Share Consolidation. The Share Consolidation was completed in preparation for a proposed U.S. listing.
On November 14, 2024, the Company granted 100,000 share options to an officer of the Company with an exercise price of C$3.25 and an expiry date of November 14, 2029. Each share option can be exercised to acquire one common share of the Company. The share options will vest over 5 years.
On November 15, 2024, the Company closed its initial public offering in the United States of 970,000 units, at a price of $4.125 per unit. Each unit consists of one common share of the Company and one warrant to purchase one common share. The warrants have an exercise price of $4.64 per share and will expire 5 years from the date of issuance. In connection with the offering, the underwriter partially exercised its overallotment option and purchased an additional 145,500 warrants at $0.01 per warrant. The common shares and the warrants commenced trading on the Nasdaq Capital Market under the symbols "MDCX" and "MDCXW," respectively on November 14, 2024. The common shares will continue to trade on the TSXV under the symbol "MDCX". The warrants will not trade on the TSXV.
On November 20, 2024, the Company granted 50,000 share options to a consultant of the Company with an exercise price of C$2.70 and an expiry date of November 20, 2029. Each share option can be exercised to acquire one common share of the Company. The share options are fully vested upon the date of grant.
DISCLOSURE OF INTERNAL CONTROLS
Management has established processes to provide them with sufficient knowledge to support representations that they have exercised reasonable diligence to ensure that (i) the annual consolidated financial statements do not contain any untrue statement of material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it is made, as of the date of and for the periods presented by the annual consolidated financial statements: and (ii) the annual consolidated financial statements fairly present in all material respects the financial condition, financial performance and cash flows of the Company, as of the date of and for the periods presented.
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in issuers' Annual and Interim filings ("NI 52-109"), the Venture Issuer Basic Certificate filed by the Company does not include representations relating to the establishment and maintenance of disclosure controls and procedures ("DC&P") and internal control over financial reporting ("ICFR"), as defined in NI 52-109. In particular, the certifying officers filing such certificate are not making any representations relating to the establishment and maintenance of:
(i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation: and
(ii) a process to provide reasonable assurance regarding the reliability of financial reposting and the preparation of the unaudited condensed interim consolidated financial statements for external purposed in accordance with the issuer's generally accepted accounting principles (IFRS).
The Company's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in such certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost-effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
ADDITIONAL INFORMATION
Additional information relating to the Company can be found on SEDAR+ at www.sedarplus.ca and on the U.S. Securities and Exchange Commission's EDGAR website at www.sec.gov.
