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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K, including the following sections, contains forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see Item 1A “Risk Factors” in this Annual Report on Form 10-K. See also “Cautionary Note Regarding Forward-Looking Statements.” We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Annual Report. We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Annual Report.

Our U.S. GAAP accounting policies are referred to in Note 2 of the Consolidated Financial Statements. All amounts are in United States dollars, unless otherwise indicated. References to “CAD$” are to Canadian dollars.

Overview

We are a clinical stage biopharmaceutical company developing novel products to treat brain health disorders, with a particular focus on psychiatry, addiction, pain and neurology. Our mission is to be the global leader in the development and delivery of treatments that unlock new opportunities to improve patient outcomes. We are developing a pipeline of innovative drug candidates, with and without acute perceptual effects, targeting the serotonin, dopamine and acetylcholine systems. This specifically includes pharmaceutically optimized drug products derived from the psychedelic and empathogen drug classes including LSD, R(-)-MDMA and zolunicant, or 18-MC, a congener of ibogaine.

We were incorporated under the laws of the Province of British Columbia. Our wholly owned subsidiary, Mind Medicine, Inc. (“MindMed US”) was incorporated in Delaware. Prior to February 27, 2020, our operations were conducted through MindMed US.

On February 27, 2020, we completed a reverse takeover transaction with Broadway Gold Mining Ltd. ("Broadway") by way of a plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia) pursuant to the arrangement agreement dated as of October 15, 2019 between Broadway, Madison Metals Inc., Broadway Delaware Subco Inc. and MindMed US (the “Arrangement Agreement”) which resulted in Broadway becoming the legal parent company of MindMed US. MindMed US is deemed to be the acquirer in the reverse takeover transaction. As a result, the consolidated statements of financial position are presented as a continuance of MindMed US and the comparative figures presented are those of MindMed US.

On February 26, 2021 the Company acquired 100% of the issued and outstanding shares of HealthMode Inc. (“HealthMode”), a developer of technologies using Artificial Intelligence (AI)-enabled digital measurement to increase the precision and speed of clinical research and patient monitoring. The Company plans to utilize these technologies in its clinical trials to enhance the quality of the data that is collected during the Company’s clinical trials.

Since inception, we have incurred losses while advancing the research and development of our products and processes. Our net losses were $93.0 million for the year ended December 31, 2021, $33.9 million for the year ended December 31, 2020 and $10.7 million for the period from May 30, 2019 (inception) through December 31, 2019. As of December 31, 2021, we had an accumulated deficit of $137.7 million and cash of $133.5 million

During the period ended December 31, 2021, we continued to enhance the resources it requires to build our pipeline of opportunities. This included adding personnel and contract resources and ramping up the nonclinical aspects of our activities. In addition, considerable effort was directed towards employing a successful financing strategy.

Impact of COVID-19 Pandemic

We continue to monitor the ongoing COVID-19 global pandemic, which has resulted in travel and other restrictions to reduce the spread of the disease. To date, we have not experienced any significant disruptions from the ongoing COVID-19 pandemic. All clinical and chemistry, manufacturing and control activities are currently active.

The safety, health and well-being of all patients, medical staff and our internal and external teams is paramount and is our primary focus. As the pandemic and its resulting restrictions evolve in jurisdictions across the country, we are aware that the potential exists for further disruptions to our projected timelines. We are in close communication with our clinical teams and key vendors and are prepared to take action should the pandemic worsen and impact our business in the

future.

Components of Operating Results

Operating Expenses

Research and Development

To date, our resources have focused primarily on the development of our MM-120 and MM-110 programs and the commencement of related clinical activities. We have commenced clinical studies and have funded data and study acquisitions and acquired the materials required to supply our studies.

Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of direct and indirect costs incurred for the development of our product candidates, as follows:

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payroll, consulting and benefits expenses;

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licensing fees;

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manufacturing costs to produce clinical trial materials;

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clinical research costs associated with discovery, preclinical and clinical testing of our product candidates;

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data and study acquisition cost; and

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other costs.

We may also incur in-process research and development expense as we acquire or in-license assets from other parties. Technology acquisitions are expensed or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. Acquired in-process research and development costs that have no alternative future use are immediately expensed.

General and Administrative

General and administrative expenses consist primarily of compensation costs, including stock-based compensation, for executive management and administrative employees, including finance and accounting, legal, human resources and other offices supporting administrative functions, professional services fees, insurance expenses and allocated expenses.

We expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to support our research and development activities, grow our business and, if any of our product candidates receive marketing approval, commercialization activities. We also expect to increase the size of our administrative function and facility costs to support the growth of our business.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following tables summarize our results of operations for the periods presented (in thousands):

Operating expenses:

Other income (expense):

Foreign exchange (loss) gain, net (86 ) 130 (216 ) -166 %

Loss on revaluation of derivative liability — (873 ) 873 -100 %

Other comprehensive gain:

Comparison of the Year Ended December 31, 2020 and Period from May 30, 2019 to December 31, 2019

The following tables summarize our results of operations for the periods presented (in thousands):

Operating expenses:

Other income (expense):

Interest (expense) income, net (164 ) 10 (174 ) *

Loss on revaluation of derivative liability (873 ) — (873 ) 100 %

Total other (expense) income, net (907 ) 28 (935 ) *

Income taxes — — —

Other comprehensive gain:

Gain on foreign currency translation 284 — 284 100 %

* Represents a change greater than 300%

Operating Expenses

Research and Development (in thousands):

External Costs

* Represents a change greater than 300%

Research and development expenses increased by $16.2 million, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to an increase of $2.7 million in expenses related to our MM-120 clinical research, $2.3 million of expense related to our MM-110 clinical research, $3.5 million in expenses related to other preclinical and other research programs, offset by a $3.5 million decrease of expense in connection with various external R&D collaborations. Internal costs increased $11.1 million primarily related to an increase non-cash expenses of $6.6 million of stock-based compensation expenses and $2.6 million of amortization of our developed technology.

External Costs

* Represents a change greater than 300%

Research and development expenses increased by $11.1 million, for the year ended December 31, 2020 compared to the period from May 30, 2019 to December 31, 2019. The increase was primarily due to an increase of $1.1 million in expenses related to our MM-120 clinical research, $7.7 million of expense in connection with various external R&D collaborations, and $1.4 million in expenses related to other preclinical and other research programs, offset by a decrease of $0.8 million in expenses related to our MM-110 clinical research. Internal costs increased by $1.7 million primarily due to $1.4 million of costs incurred due to increased headcount of research and development personnel.

General and Administrative

General and administrative expenses increased by $44.7 million, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to an increase of $28.7 million in non-cash stock-based compensation expenses of which $21.9 million related to the modification of stock options and RSUs. Other contributors to the increase included higher professional services including accounting, audit, legal, compliance, director and officer insurance, and investor and public relations and personnel costs to support the growth of the company.

General and administrative expenses increased by $11.2 million, for the year ended December 31, 2020 compared to the period from May 30, 2019 to December 31, 2019. The increase was primarily due $6.8 million in non-cash stock-based compensation due to director compensation expense, an increase of $2.2 million in investor relations expenses, and an increase of $1.5 million in personnel-related expenses due to an increase in headcount and related employee costs. There were partially offset by $0.2 million in legal fees.

Other Income (Expense)

Interest Income (Expense), Net

Interest expense, net increased by $0.2 million for the year ended year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to interest incurred on our contribution payable.

Interest expense, net increased by $0.2 million for the year ended December 31, 2020 compared to the period from May 30, 2019 to December 31, 2019. The increase was primarily due to interest incurred on our contribution payable.

Foreign Exchange Gain (Loss), Net

Foreign exchange loss increased by $0.2 million for the year ended year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to unfavorable changes in foreign exchange rates during the year.

Foreign exchange gain increased by $0.1 million for the year ended December 31, 2020 compared to the period from May 30, 2019 to December 31, 2019. The increase was primarily due to favorable changes in foreign exchange rates during the year.

Other Income

Other income was $0.1 million for the year ended December 31, 2021. There was no other income recorded for the year ended December 21, 2020. Other income primarily consists of branded merchandise sales.

Loss on Revaluation of Derivative Liability

Loss on revaluation of derivative liability was $0.9 million for the year ended December 31, 2020. There was no loss on revaluation of derivative liability for the years ended December 31, 2021 or 2019. Loss on revaluation of derivative liability consists of revaluation losses on the Company's foreign currency denominated warrants.

Income Tax Benefit

Income tax benefit was $1.2 million for the year ended December 31, 2021. There was no income tax benefit or expense for the years ended December 31, 2020 or 2019. Income tax benefit is primarily due to the HealthMode acquisition.

Liquidity and Capital Resources

Sources of Liquidity

Since inception, we have financed our operations primarily from the issuance of equity. Our primary capital needs are for funds to support our scientific research and development activities including staffing, manufacturing, preclinical studies, clinical trials, administrative costs and for working capital.

We have experienced operating losses and cash outflows from operations since inception and will require ongoing financing in order to continue our research and development activities and we have not earned any revenue or reached successful commercialization of our products. Our future operations are dependent upon our ability to finance our cash requirements which will allow us to continue our research and development activities and the commercialization of our products. There can be no assurance that we will be successful in continuing to finance our operations.

On December 19, 2019, MindMed US entered into an agency agreement with Canaccord Genuity Corp. (“Canaccord”) and completed the first tranche of a private placement by MindMed US (the “MindMed US Offering”), issuing a total of 18,771,897 Subordinate Voting Shares at a price of CAD$0.33 ($0.25) per share for gross proceeds of $4.7 million, before deducting cash share issuance costs of $0.4 million. On closing of the first tranche of the MindMed US Offering, MindMed issued Canaccord, as agent, 1,314,033 compensation warrants.

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On February 18, 2020, MindMed US completed the second tranche of the MindMed US Offering, issuing a total of 37,105,370 Subordinate Voting Shares at a price of CAD$0.33 ($0.25) per share for gross proceeds of $9.3 million. On closing of the second tranche, MindMed issued Canaccord, as agent, 2,596,376 compensation warrants.

On May 26, 2020, we completed a bought deal financing resulting in the issuance of 24,953,850 units at a price per unit of CAD$0.53 ($0.38) for gross proceeds of $9.5 million. Each unit was comprised of one Subordinate Voting Share and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a “May Warrant”). Each May Warrant is exercisable at CAD$0.79 ($0.57) until May 26, 2022. Also, in connection with this transaction, the Company issued 994,034 compensation warrants to its agent.

On October 30, 2020, we completed a bought deal financing resulting in the issuance of 27,381,500 units of the Company at a price per unit of CAD$1.05 ($0.79) for gross proceeds of $21.6 million. Each unit was comprised of one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, an "October Warrant"). Each October Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$1.40 ($1.05) until October 30, 2023. Also, in connection with this transaction, the Company issued 1,642,890 compensation warrants to its agent.

On December 11, 2020, we completed a bought deal financing resulting in the issuance of 18,170,000 units of the Company at a price per unit of CAD$1.90 ($1.49) for gross proceeds of $27.1 million. Each unit was comprised of one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a "December Warrant"). Each December Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$2.45 ($1.92) until December 11, 2023. Also, in connection with this transaction, the Company issued 1,090,200 compensation warrants to its agent.

On January 7, 2021, we completed a bought deal financing resulting in the issuance of 20,930,000 units of the Company at a price per unit of CAD$4.40 ($3.47) for gross proceeds of $72.6 million. Each unit comprised one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a “January Warrant”). Each January Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$5.75 ($4.53) until January 7, 2024. Also, in connection with this transaction, the Company issued 1,255,800 compensation warrants to its underwriter.

On March 9, 2021, we completed a private placement bought deal financing resulting in the issuance of 6,000,000 units of the Company at a price per unit of CAD$3.25 ($2.57) for gross proceeds of $15.4 million. Each unit was comprised of one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a “March Warrant”). Each March Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$4.40 ($3.48) until March 9, 2024. Also, in connection with this transaction, the Company issued 360,000 compensation warrants to its underwriter.

Our cash and working capital as at December 31, 2021 were $133.5 million and $127.5 million, respectively. The increase in cash was due mainly to the $81.9 million of net financings mentioned above net of the cash used in operations of $45.8 million.

Future Funding Requirements

To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if at all, that will occur. We will continue to require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Moreover, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the development of and seek regulatory approvals for our product candidates. Further, we are subject to all the risks incident in the development of new pharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. Our expenses will increase if, and as, we:

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advance our product candidates through preclinical and clinical development;

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seek regulatory approvals for any product candidates that successfully complete clinical trials;

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seek to discover and develop additional product candidates;

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establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly;

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expand our operational, financial and management systems and increase personnel, including personnel to support our development, manufacturing and commercialization efforts and our operations as a public company;

We expect our current cash will be sufficient to fund our current 2022 and 2023 operating plan and will extend our cash runway into 2024. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. Until we can generate a sufficient amount of revenue from the commercialization of our product candidates, we may seek to raise any necessary additional capital through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties or from grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, including restricting our operations and limiting our ability to incur liens, issue additional debt, pay dividends, repurchase our Subordinate Voting Shares, make certain investments or engage in merger, consolidation, licensing or asset sale transactions. If we raise funds through collaborations, strategic partnerships and other similar arrangements with third parties, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts. We have based our projections of operating capital requirements on our current operating plan, which is based on several assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount and timing of our working capital requirements. Our future funding requirements will depend on many factors, including:

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the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;

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the costs, timing and outcome of regulatory review of our product candidates;

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the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;

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the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;

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the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

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the cost and timing of hiring new employees to support our continued growth;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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the ability to establish and maintain collaborations on favorable terms, if at all;

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the extent to which we acquire or in-license other product candidates and technologies; and

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the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.

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Cash Flows

Net cash used in operating activities $ (45,824 ) $ (23,597 ) $ (3,199 )

Net cash used in investing activities (297 ) — —

Foreign exchange impact on cash 742 284 —

Cash flows from operating activities

Cash used in operating activities for the year ended December 31, 2021 was $45.8 million, which consisted of a net loss of $93.0 million, partially offset by $45.3 million in non-cash charges and a net change of $1.9 million in our net operating assets and liabilities. The non-cash charges consisted of share-based payments of $42.7 million, and amortization of intangible assets of $2.6 million.

Cash used in operating activities for the year ended December 31, 2020 was $23.6 million, which consisted of a net loss of $33.9 million, partially offset by $8.3 million in non-cash charges and a net change of $2.1 million in our net operating assets and liabilities. The non-cash charges consisted of share-based payments of $7.4 million, the loss on revaluation of derivative liability of $0.9 million.

Cash used in operating activities for the period from May 30, 2019 through December 31, 2019 was $3.2 million, which consisted of a net loss of $10.7 million, partially offset by $5.6 million in non-cash charges and a net change of $1.9 million in our net operating assets and liabilities. The non-cash charges consisted of share-based payments of $0.1 million, and a write-off of acquired IPR&D intangible assets of $5.5 million.

Cash flows from investing activities

Cash used in investing activities for the year ended December 31, 2021 was $0.3 million, which consisted of cash paid for the acquisition of HealthMode, net of cash acquired.

Cash flows from financing activities

Cash provided by financing activities for the year ended December 31, 2021 was $98.8 million, which consisted of the net proceeds of $ 81.9 million from the issuance of common shares and warrants, net of issuance costs, the net proceeds from exercise of warrants of $11.2 million, and proceeds of $5.7 million from exercise of options.

Cash provided by financing activities for the year ended December 31, 2020 was $96.7 million, which consisted of the net proceeds of $72.0 million from the issuance of common shares and warrants, net of issuance costs, the net proceeds from exercise of warrants of $24.5 million, proceeds of $0.6 million from exercise of options, and $0.4 million from share issuance costs associated with the reverse takeover.

Cash provided by financing activities for period from May 30, 2019 through December 31, 2019 was $9.9 million, which consisted of the net proceeds of $9.9 million from the issuance of common shares, net of issuance costs.

Contractual Obligations and Contingencies

We enter into research, development and license agreements in the ordinary course of business where we receive research services and rights to proprietary technologies. Milestone and royalty payments that may become due under various agreements are dependent on, among other factors, clinical trials, regulatory approvals and ultimately the successful development of a new drug, the outcome and timing of which is uncertain.

We periodically enter into research and license agreements with third parties that include indemnification provisions customary in the industry. These indemnities generally require us to compensate the other party for certain damages and costs incurred as a result

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of claims arising from research and development activities undertaken by us or on our behalf. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions could be unlimited. These indemnification provisions generally survive termination of the underlying agreement. The nature of the indemnification obligations prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay. Historically, we have not made any indemnification payments under such agreements and no amount has been accrued in our financial statements with respect to these indemnification obligations.

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

Business Combinations

At the time of acquisition, the Company determines whether what is acquired meets the definition of a business, in which case if it does, the transaction is considered a business combination, and otherwise it is recorded as an asset acquisition.

For an asset acquisition, the net identifiable assets acquired and liabilities assumed are measured at the fair value of the consideration paid, based on their relative fair values at the acquisition date. Acquisition related costs are included in the consideration paid and capitalized. No goodwill is recorded and no deferred tax asset or liability arising from the assets acquired or liabilities assumed is recognized upon the acquisition of the assets.

Business combinations are accounted for using the acquisition method. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the fair value of the consideration transferred, over the fair value of the Company’s share of the identifiable net assets acquired is recorded as goodwill.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the fair value of the net identifiable assets acquired and liabilities assumed.

Acquisition costs are expensed as incurred, unless they qualify to be treated as debt issue costs, or as cost of issuing equity securities. The measurement period is the period from the date of acquisition to the date the Company obtains complete information about facts and circumstances that existed as of the acquisition date – and is subject to a maximum of one year.

Fair Value Measurements

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liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

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Level 1 – Quoted prices in active markets for identical assets or liabilities.

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Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

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Level 3 – Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Cash prepaid and other current assets, accounts payable, and accrued liabilities are all short-term in nature and, as such, their carrying values approximate fair values.

Share-Based Payments

When equity-settled share payments are awarded to management, employees and consultants, the fair value of the equity instruments at the date of grant is charged to the consolidated statements of operations and comprehensive loss. When the terms and conditions are modified before they vest, any increase in the fair value of the shares, measured immediately before and after the modification, is also charged to the consolidated statements of operations and comprehensive loss.

We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model.

This model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:

Fair Value of Subordinate Voting Shares— The fair value of the Company's Subordinate Voting Shares is determined based upon the closing price of the Company's stock one day prior to grant.

Risk-free interest rate—The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of our stock options.

Expected volatility—Due to our limited operating history and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

Expected term—The expected term represents the period that the stock-based awards are expected to be outstanding. The Company have opted to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option, which is generally 5 years.

Dividend Yield—We have never paid dividends on our Subordinate Voting Shares and have no plans to pay dividends on our Subordinate Voting Shares. Therefore, we used an expected dividend yield of zero.

Recent Accounting Pronouncements

See Note 2—Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this Annual Report for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.

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Emerging Growth Company Status

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Quantitative and Qualitative Disclosures About Market Risk

Credit risk

Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s cash. The carrying amount of these financial assets represents the maximum credit exposure. Cash and funds held in trust are on deposit with major Swiss, American and Canadian chartered banks.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company is a development stage company and is reliant on external fundraising to support its operations. Once funds have been raised, the Company manages its liquidity risk by investing in cash to provide regular cash flow for current operations. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The board of directors reviews and approves the Company’s operating and capital budgets, as well as any material transactions not in the ordinary course of business.

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 holds its cash in bank accounts. The Company had no material interest income during the year. Due to the nature of our cash, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash.

Currency risk

The Company is exposed to currency risk related to the fluctuation of foreign exchange rates and the degree of volatility of those rates. Currency risk is limited to the portion of the Company’s business transactions and balances denominated in currencies other than the Canadian dollar.

Fully Diluted Share Capital

The number of issued and outstanding Subordinate Voting Shares on a fully converted basis as at December 31, 2021 was as follows:

Number of Subordinate Voting Share Equivalents

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We do not believe that inflation, interest rate changes or exchange rate fluctuations had a significant impact on our results of operations for any periods presented herein.

Item 8. Financial Statements and Supplementary Data.

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INDEX TO Consolidated FINANCIAL STATEMENTS

Page

Consolidated Financial Statements:

Consolidated Balance Sheets 110

Consolidated Statements of Operations and Comprehensive Loss 111

Consolidated Statements of Shareholders’ Equity 112

Consolidated Statements of Cash Flows 113

Notes to Consolidated Financial Statements 114

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Mind Medicine (MindMed) Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Mind Medicine (MindMed) Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, consolidated statements of shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

Chartered Professional Accountants

Licensed Public Accountants

We have served as the Company's auditor since 2021.

Toronto, Canada

March 28, 2022

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Mind Medicine (MindMed) Inc.

Consolidated Balance Sheets

(In thousands, except share amounts)

December 31,

Assets

Current assets:

Prepaid and other current assets 3,676 1,425

Intangible assets, net 6,869 —

Liabilities and Shareholders’ Equity

Current liabilities:

Commitments and contingencies (Note 11)

Shareholders' Equity:

Accumulated other comprehensive income 1,046 284

Total liabilities and shareholders' equity $ 164,002 $ 81,519

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

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Mind Medicine (MindMed) Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

Operating expenses:

Other income (expense):

Foreign exchange (loss) gain, net (86 ) 130 18

Other income 106 — —

Loss on revaluation of derivative liability — (873 ) —

Total other expense, net (339 ) (907 ) 28

Income tax benefit (1,157 ) — —

Other comprehensive gain:

Gain on foreign currency translation 762 284 —

Net loss per common share, basic and diluted $ (0.23 ) $ (0.13 ) $ (0.10 )

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

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Mind Medicine (MindMed) Inc.

Consolidated Statements of Shareholders’ Equity

(in thousands, except share amounts)

Subordinate Voting Multiple Voting

Balance, May 30, 2019 — $ — — $ — $ — $ — $ — $ —

Issuance of Multiple Voting Shares in Asset acquisition — — 550,000 5,500 5,500

Net loss and Comprehensive loss — — — — — — (10,699 ) (10,699 )

Stock-based compensation expense — — — — 1,587 — — 1,587

Vesting of restricted stock units 2,212,654 — — — — — — —

Stock-based compensation expense — — — — 37,028 — — 37,028

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

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Mind Medicine (MindMed) Inc.

Consolidated Statements of Cash Flows

(In thousands)

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Write-off of acquired IPR&D — 5,500

Amortization of intangible assets 2,616 — —

Loss on revaluation of derivative liability — 873 —

Changes in operating assets and liabilities:

Prepaid and other current assets (2,163 ) (1,368 ) (34 )

Deferred tax liability (1,157 ) — —

Cash flows from investing activities

Acquisition, net of cash acquired (297 ) — —

Net cash used in financing activities (297 ) — —

Cash flows from financing activities

Share issuance costs associated with reverse takeover — (395 ) —

Proceeds from exercise of options 5,722 648 —

Effect of exchange rate changes on cash 742 284 —

Supplemental disclosures of non-cash financing activities:

Reclassification of warrants from liability to equity — 1,678 —

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

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Mind Medicine (MindMed) Inc.

Notes to Consolidated Financial Statements

(In USD thousands, except share and per share amounts)

DESCRIPTION OF THE BUSINESS

Mind Medicine (MindMed) Inc. (formerly Broadway Gold Mining Ltd.) (the “Company” or “MindMed”) is incorporated under the laws of the Province of British Columbia. Its wholly owned subsidiaries, Mind Medicine, Inc. (“MindMed US”), HealthMode, Inc., MindMed Pty Ltd., and MindMed GmbH are incorporated in Delaware, Delaware, Australia and Switzerland respectively. Prior to February 27, 2020, the Company’s operations were conducted through MindMed US.

MindMed US was incorporated on May 30, 2019. On February 27, 2020, MindMed US completed a reverse takeover transaction with Broadway Gold Mining Ltd. (“Broadway”) by way of a plan of arrangement which resulted in Broadway becoming the legal parent company of MindMed US. MindMed US is deemed to be the accounting acquirer in the reverse takeover transaction. The reverse takeover transaction was accounted for as a reverse recapitalization and Broadway was treated as the “acquired” company for accounting purposes. The reverse takeover transaction was accounted as the equivalent of MindMed issuing stock for the net assets of Broadway, accompanied by a recapitalization. Accordingly, all historical financial information for all periods prior to the reverse takeover transaction are the consolidated financial statements of MindMed US, “as if” MindMed US is the predecessor to the Company. As a result, the consolidated balance sheets are presented as a continuance of MindMed US and the comparative figures presented are those of MindMed US. See Note 3 for details.

MindMed is a clinical stage biopharmaceutical company developing novel products to treat brain health disorders, with a particular focus on psychiatry, addiction, pain and neurology. Our mission is to be the global leader in the development and delivery of treatments that unlock new opportunities to improve patient outcomes. We are developing a pipeline of innovative drug candidates, with and without acute perceptual effects, targeting the serotonin, dopamine and acetylcholine systems. This specifically includes pharmaceutically optimized drug products derived from the psychedelic and empathogen drug classes including LSD, R(-)-MDMA and zolunicant, or 18-MC, a congener of ibogaine.

COVID-19

The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Depending on the length and severity of the pandemic, COVID-19 could impact the Company's operations, could cause delays relating to approval from the FDA and equivalent organizations in other countries, could postpone research activities, could impair the Company's ability to raise funds depending on COVID-19’s effect on capital markets, and could affect logistics and the Company’s ability to move materials in a timely manner to clinical trial sites or production of GMP materials (which availability of GMP materials may also impact clinical trial timelines).

To the knowledge of the Company’s management as of the date hereof, COVID-19 does not present, at this time, any specific known impacts to the Company in relation to the Company's business objectives or milestones related thereto. The Company relies on third parties to conduct and monitor the Company’s pre-clinical studies and clinical trials. However, to the knowledge of Company’s management, the ability of these third parties to conduct and monitor pre-clinical studies and clinical trials has not been and is not anticipated to be impacted by COVID-19. The Company is not currently aware of any changes in laws, regulations or guidelines, including tax and accounting requirements, arising from COVID-19 which would be reasonably anticipated to materially affect the Company’s business.

Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use the extended transition period for complying with new or revised accounting standards, and as a result of this election, the consolidated financial statements may not be comparable to companies that comply with public company FASB standards’ effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of an offering or such earlier time that it is no longer an EGC.

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BASIS OF pRESENTATION AND Summary of Significant Accounting Policies

Basis of Presentation

MindMed was incorporated on May 30, 2019. As a result, the consolidated financial statements are presented from the date of incorporation to December 31, 2021.

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates of the Financial Accounting Standards Board (“FASB”).

Intercompany balances and transactions, and any unrealized income and expenses arising from intercompany transactions, are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

Foreign Currency

The Company’s reporting currency is U.S. dollars. In 2019, the Company only operated MindMed US, a single US-based entity, which had a functional currency of the U.S. dollar. After the reverse takeover transaction in February 2020, the Company determined that the functional currency of the Company, to be the U.S. dollar. During the fourth quarter of 2020, the Company determined that the there was a significant change in circumstances relating to the primary economic environment of the Company, which required a change in the entity’s functional currency from the U.S. dollar to the Canadian dollar (“CAD”). This change in functional currency for the Company, was applied prospectively.

The local currency of the Company’s foreign affiliates is generally their functional currency. Accordingly, the assets and liabilities of the foreign affiliates and the parent entity, are translated from their respective functional currency to U.S. dollars using fiscal year-end exchange rates, income and expense accounts are translated at the average rates in effect during the fiscal year and equity accounts are translated at historical rates. Transactions denominated in currencies other than the functional currency are remeasured to the functional currency at the exchange rate on the transaction date. Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured at period-end using the period-end exchange rate.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the intangible assets, functional currency, and, share-based awards and warrants. Actual results could differ from those estimates, and such differences could be material to the consolidated balance sheets and statements of operations and comprehensive loss.

Segments

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s Chief Executive Officer, views the Company’s operations and manages its business as a single operating segment, which is the research and development of the Company’s neuro-pharmaceutical drug development platform. All long-lived assets are located in the United States. The Company does not currently generate any revenue.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a significant concentration of credit risk consist of cash. Cash is deposited in checking accounts at high-quality financial institutions, which at times, may exceed federally insured limits. Management believes that these financial institution are financially sound, and, accordingly, minimal credit risk exists with respect to these financial institutions. As of December 31, 2021, the Company has not experienced any losses on its cash.

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Business Combinations

The Company evaluates acquisitions to determine whether it is a business combination or an asset acquisition. The Company accounts for business combinations under the acquisition method of accounting. The Company includes the results of operations of acquired businesses in its consolidated financial statements as of the respective dates of acquisition. The purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess recorded to goodwill.

The determination of fair value requires considerable judgment and is sensitive to changes in the underlying assumptions. The Company’s estimates are preliminary and subject to adjustment, which may result in material changes to the final valuation. During the measurement period, which will not exceed one year from closing, the Company may continue to obtain information to assist in finalizing the acquisition date fair values. Any qualifying changes to the preliminary estimates will be recorded as adjustments to the respective assets and liabilities, with any residual amounts allocated to goodwill. Acquisition costs are expensed as incurred, unless they qualify to be treated as debt issue costs, or as cost of issuing equity securities.

Asset acquisitions are accounted for using a cost accumulation model, with the cost of the acquisition allocated to the acquired assets based on their relative fair values. Goodwill is not recognized in an asset acquisition.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. The recognition of goodwill, represents the strategic and synergistic benefits the Company expects to realize from acquisitions.

Goodwill is not amortized to earnings, rather, assessed for impairment annually during the fourth quarter for its single reporting unit. The Company also performs an assessment at other times if events or changes in circumstances indicate the carrying value of the assets may not be recoverable.

In conducting the annual impairment test, the Company first reviews qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If factors indicate that the fair value of the reporting unit is less than its carrying amount, a quantitative assessment is performed and the fair value of the reporting unit is determined by analyzing the total fair value of equity compared to the carrying value of the reporting unit. If the carrying value of the reporting unit continues to exceed its fair value, the implied fair value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded. The Company’s analysis did not indicate impairment of goodwill during the year ended December 31, 2021. The Company had no goodwill recorded as of December 31, 2020.

Intangible Assets

The Company’s finite-lived intangible assets consist of acquired developed technology and are amortized on a straight-line basis, which is aligned to the economic benefit of the asset, over their estimated useful life of three years.

Intangible assets or asset groups are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be fully recoverable. Upon occurrence, recoverability is measured by comparing the sum of the undiscounted expected future cash flows the asset or asset group is expected to generate to its carrying amount. If the carrying amount of the asset exceeds its undiscounted expected future cash flows, an impairment loss is recognized in the amount of the excess of the carrying amount over the fair value of the asset. Any write-downs are treated as permanent reductions in the carrying amount of the respective asset. There was no impairment of intangible assets recorded during the year ended December 31, 2021.

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Warrants

Compensation Warrants

Freestanding warrants for the purchase of Subordinate Voting Shares issued in conjunction with the Company’s US offering and various financing transactions as a form of compensation are classified as equity and recorded at fair value at the time of issuance. The Company accounted for these as transactions as issuance costs related to the underlying equity transactions.

Financing Warrants

Freestanding warrants for the purchase of Subordinate Voting Shares issued in conjunction with the Company’s US offering and various financing transactions for the purchase of Subordinate Voting Shares are classified as equity and recorded at fair value at the time of issuance.

Freestanding warrants issued by the Company and denominated in a currency different from the functional currency of the Company (i.e. a foreign currency) met the definition of a derivative financial liability and were fair valued at each balance sheet date using the market value of the warrants traded on the NEO Exchange Inc. (“NEO Exchange”), with changes in the fair value recognized in the consolidated statements of operations and comprehensive loss. As a result of the change in functional currency of the Company from the US dollar to the Canadian dollar, the warrants are no longer considered denominated in a foreign currency. The Company’s accounting policy is not to re-evaluate the classification of debt and equity instruments in situations where the terms of the instrument have not changed, but when the surrounding circumstances have changed. Accordingly, the warrant liability was transferred to equity instruments effective October 1, 2020. The warrants were transferred into equity at their fair value as of October 1, 2020, and as an equity instrument, the warrants will not be revalued on an ongoing basis.

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•

Level 1 – Quoted prices in active markets for identical assets or liabilities.

•

Cash, other current assets, accounts payable and accrued expenses are all short-term in nature and, as such, their carrying values approximate fair values.

Research and Development

Research and development expenses include all direct and indirect operating expenses supporting the products and processes in development, including payroll and benefits, including stock-based compensation, for research and development employees, consulting expenses, licensing fees, manufacturing costs to produce clinical trial materials, clinical research costs, and data and study acquisition costs. The Company recognizes the benefit of refundable research and development tax credits as a reduction of research and development costs when received or there is reasonable assurance that the amount claimed will be recovered. The costs incurred in establishing and maintaining patents are expensed as incurred.

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Substantial portions of the Company’s pre-clinical trials are performed by third-party laboratories, medical centers, contract research organizations (“CROs”) and other vendors. These vendors generally bill monthly for services performed, or bill based upon milestone achievement. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the remaining contract milestones. At times, the Company is obligated to make upfront payments upon execution of research and development agreements. Upfront payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are capitalized as prepaid expenses until such goods are delivered or the related services are performed. The Company estimates the period over which such services will be performed based on the terms of the agreements as well as the level of effort to be expended in each period. Sometimes the actual timing of performance or the level of effort varies from the estimate, and if that does occur, the Company will adjust the amounts recorded accordingly.

Intellectual property acquired separately for a particular research and development project and that have no alternative future uses (in other research and development projects or otherwise) are expensed in research and development costs at the time the costs are incurred.

General and Administrative

General and administrative expense primarily consists of payroll, including stock-based compensation, for executive management and administrative employees, including finance and accounting, legal, human resources and other offices supporting administrative functions, consulting and professional services fees, insurance expenses, and allocated expenses.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period that includes the enactment date.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability. To date, there have been no interest charges or penalties related to unrecognized tax benefits.

As a result of incurring scientific research and development expenditures, management anticipates that there will be non-refundable tax credits receivable following the completion of normal audit processes by tax authorities. Investment tax credits are recorded at the earlier of when received or when there is reasonable assurance that the amounts claimed will be recovered. Upon recognition, amounts will be recorded as a reduction of research and development expenditures.

Net Loss Per Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during each period. Diluted net loss per share of common shares includes the effect, if any, from the potential exercise or conversion of securities such as share options and warrants, which would result in the issuance of incremental shares of common shares. For diluted net loss per share, the weighted-average number of common shares is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. For all periods presented, basic and diluted net loss per share are the same, as any additional share equivalents would be anti-dilutive.

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In calculating the weighted average number of shares, the Multiple Voting Shares are included assuming the shareholders executed their conversion rights. The Company has not adjusted its weighted average number of Subordinate Voting shares outstanding in the calculation of diluted loss per share, as the effect of warrants and options is anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per share attributable to common shareholders:

Numerator:

Net loss attributable to common shareholders $ (93,036 ) $ (33,937 ) $ (10,699 )

Denominator:

The following potentially dilutive securities have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

Years Ended December 31,

Vested and unissued RSUs 792,783 —

Unvested director compensation — 1,785,235

Stock-based compensation

Stock-based compensation expense represents the cost of the grant date fair value of employee, officer, director and non-employee stock option grants or restricted stock unit ("RSU"), estimated in accordance with the applicable accounting guidance, recognized on a straight-line basis over the vesting period. The vesting period generally approximates the expected service period of the awards. The Company recognizes forfeitures as they occur.

The fair value of stock options is estimated using a Black-Scholes-Merton valuation model on the date of grant. The Black-Scholes-Merton option-pricing model requires inputs based on certain highly subjective assumptions. Changes to these assumptions can materially affect the fair value of stock options and ultimately the amount of stock-based compensation expense recognized in the Company's consolidated financial statements. These assumptions include:

Fair Value of Subordinate Voting Shares— The fair value of the Company's Subordinate Voting Shares is determined based upon the closing price of the Company's stock one day prior to grant.

Risk-free interest rate—The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of our stock options.

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Dividend Yield—The Company has never paid dividends on its Subordinate Voting Shares and has no plans to pay dividends on its Subordinate Voting Shares. Therefore, the Company has used an expected dividend yield of zero.

When the terms and conditions are modified before an award vests, any increase in the fair value of the shares, measured immediately before and after the modification, is also charged to the consolidated statements of operations and comprehensive loss.

The Company also grants-cash settled Directors' Deferred Share Units ("DDSU") to non-executive directors for compensation. The fair market value of one DDSU is equal to the volume weighted average trading price of a Subordinate Voting Share on the NEO Exchange for the five business days immediately preceding the valuation date. The Company revalues DDSU's on a quarterly basis. The Company recognizes expense on the revaluation of DDSU awards as they vest and records the expense to stock-based compensation expense under general and administrative expense in the consolidated statement of operations and comprehensive loss with a corresponding adjustment to related a DDSU liability recorded to accrued expenses in the consolidated balance sheets.

Recent Adopted Accounting

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position, results of operations, or cash flows upon adoption.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. In July 2018, the FASB issued ASU 2018-11 to amend certain aspects of Topic 842. These amendments provide entities with an additional (and optional) transition method to adopt Topic 842. Under this transition method, an entity initially applies the transition requirements in Topic 842 at that Topic’s effective date with the effects of initially applying Topic 842 recognized as a cumulative effect adjustment to the opening balance of retained earnings (or other components of equity or net assets, as appropriate) in the period of adoption. On April 8, 2020, the FASB changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2022. The Company does not expect the impact of this standard on its financial position, results of operations, and cash flows to be material.

In June 2016, FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). The amendments in ASU 2016-13 affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in ASU 2016-13 require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. On April 8, 2020, the FASB has changed the effective date of this standard applicable to the Company as an emerging growth company to January 1, 2023. The Company does not expect the impact of this standard on its financial position, results of operations, and cash flows to be material.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for the Company for its fiscal year beginning after December 15, 2021, to the extent the Company remains an emerging growth company, and early adoption is permitted. The Company adopted this standard effective January 1, 2021, the adoption had no impact on the consolidated financial statements.

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ACQUISITIONS

HealthMode Acquisition

The consideration paid for the acquisition of HealthMode was $27.6 million, and consisted of $0.5 million cash, 81,497 Multiple Voting Shares (equivalent to 8,149,700 Subordinate Voting Shares), valued at approximately $27.0 million based upon the closing price of the Company's Subordinate Voting Shares on the acquisition date, and $0.1 million in stock options (33,619 stock options), which are convertible into Subordinate Voting Shares of the Company. The Company incurred acquisition costs of $0.3 million in connection with the acquisition, primarily related to legal, accounting, and other professional services, which were recorded to general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss.

The Company recognized this transaction as a business combination. The Company recognized approximately $9.5 million of identifiable finite-lived intangible assets and $19.9 million of goodwill related to the acquisition of HealthMode. The identifiable finite-lived intangible assets are expected to be amortized over their useful lives which are estimated to be three years.

The following table sets forth the allocation of the purchase price to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed, with the excess recorded to goodwill (in thousands):

Prepaid and other current assets 75

Property and equipment 15

Intangible assets (developed technology) 9,485

Accounts payable and accrued expenses 880

Deferred tax liability 1,157

Total liabilities $ 2,037

Net assets acquired $ 27,634

Actual and pro forma results for this acquisition have not been presented as the financial impact to the Company’s consolidated statement of operations is not material.

The goodwill is attributable to the value of the assembled workforce, and the related expertise and developed business function. Further, the acquisition is expected to allow the Company streamline its product development processes. None of the goodwill is expected to be deductible for tax purposes.

Reverse Acquisition

On February 27, 2020, the Company announced the completion of its reverse acquisition (the “Transaction”) which was accounted for as a reverse recapitalization, pursuant to the terms of an arrangement agreement entered into on October 15, 2019 (the “Arrangement”) between Broadway, Madison Metals Inc., Broadway Delaware Subco Inc. (“Delaware Subco”) and MindMed US. The Transaction does not constitute a business combination as Broadway does not meet the definition of a business under ASC 805 – Business Combinations. Immediately after the Transaction, shareholders of MindMed US owned 97% of the voting rights of Broadway. As a result, the Transaction has been accounted for as a capital transaction with MindMed US being identified as the accounting acquirer and the equity consideration being measured at fair value. Any excess value of the consideration transferred as compared to the net assets acquired was recorded as within additional paid-in capital on the Company's consolidated balance sheets.

The consideration consisted entirely of shares of the MindMed US which were measured at the estimated fair value on the date of acquisition. The fair value of the Subordinate Voting Shares issued to the former Broadway shareholders was determined to be $1.5 million based on the acquisition date fair value of the shares issued. The Company incurred share issuance costs of $0.4 million in connection with the acquisition, which were recorded as a reduction to additional paid-in capital.

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The following table sets forth the allocation of the purchase price to the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed (in thousands, except per share amounts):

Subordinate Voting Shares of the Company issued 6,232,525

Fair value of shares issued @CAD$0.33 (USD $0.247) per share $ 1,539

Total purchase price 1,539

Identifiable assets and liabilities acquired:

Assets

Prepaid expenses and other current assets 23

Total assets 23

Liabilities

Accounts payable and accrued expenses 261

Total liabilities (261 )

Net liabilities acquired 238

Excess of consideration transferred over net assets acquired $ 1,777

Savant Addiction Medicine Asset Acquisition

In July 2019, MindMed US acquired the assets of the 18-methyloxycoronaridine (“18-MC”) program from Savant Addiction Medicine, LLC in exchange for the issuance by MindMed US of 55,000,000 Class A common shares (550,000 Multiple Voting Shares). The assets were valued based on the shares exchanged. The shares were valued using third party arm’s-length purchases of the MindMed US Class C common shares at the time of acquisition of 18-MC which were issued at $0.10 per share for a fair value of $5.5 million. The Company expensed the fair value of the shares issued in exchange for the assets acquired as the Company determined that the assets do not have any alternative future use.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and the fair value hierarchy of the valuation techniques utilized. The Company classifies these assets and liabilities as either short- or long-term based on maturity and anticipated realization dates. The Company had no assets measured at fair value on a recurring basis as of December 31, 2021 and no assets or liabilities measured at fair value on a recurring basis as of December 31, 2020.

Level 1 Level 2 Level 3 Total

Financial liabilities:

DDSU Liability $ 509 $ — $ — $ 509

There were no transfers into or out of Level 1, Level 2, or Level 3 during the years ended December 31, 2021 and 2020.

GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

During the year ended December 31, 2021, the Company recorded $19,918 to goodwill, as a direct result of the HealthMode acquisition discussed in Note 3. There have been no impairment charges recognized related to the goodwill recorded to date.

Intangible assets, net

The following table summarizes the carrying value of the Company's intangible assets (in thousands):

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Developed technology has a remaining useful life of 2.2 years. Amortization expense included in research and development expense was $2,616 for the year ended December 31, 2021. There was no amortization expense recorded for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2021, the expected future amortization expense for finite-lived intangible assets was as follows (in thousands):

Year Ending December 31, Amount

ACCRUED EXPENSES

At December 31, 2021 and 2020, accrued expenses consisted of the following (in thousands):

December 31,

Accrued compensation 2,295 —

Accrued clinical and manufacturing costs 906 —

Total accrued expenses $ 6,230 $ 986

SHAREHOLDERS’ EQUITY

Pursuant to the terms of the Arrangement, the Company’s equity structure reflects the equity structure of Broadway (the accounting acquiree), including the equity interests Broadway issued to effect the combination. Accordingly, the equity structure of MindMed US (the accounting acquirer) is restated using the exchange ratio established in the Agreement to reflect the number of shares of Broadway (the accounting acquiree) issued in the reverse takeover. On February 27, 2020, all outstanding Class B common shares (“Class B Shares”), Class C common shares (“Class C Shares”) and Class D common shares (“Class D Shares”) of MindMed US were exchanged for Class A common shares of MindMed US (“Class A Shares”), immediately following which all Class A Shares were exchanged, on a one-for-one basis (the “Exchange Ratio”), for Subordinate Voting Shares or Multiple Voting Shares (in the case of Multiple Voting Shares the exchange was on a one-for-one-hundred basis) of the Resulting Issuer (“Resulting Issuer Shares”) on a post-Consolidation basis. Such Class A Shares were then cancelled pursuant to the Arrangement, and MindMed US issued 1,000 common shares to the Company as consideration for issuing the Resulting Issuer Shares to the former MindMed US shareholders.

Subordinate Voting Shares

The Company is authorized to issue an unlimited number of Subordinate Voting Shares, which had no par value. As of December 31, 2021, the Company had issued and outstanding 421,444,157 shares of Subordinate Voting Shares.

Voting Rights - The holders of Subordinate Voting Shares are entitled to one vote for each Subordinate Voting share held. All holders of Subordinate Voting Shares are entitled to receive notice of any meeting of shareholders of the Company, and to attend, vote and speak at such meetings, except those meetings at which only holders of a specific class of shares are entitled to vote separately as a class under the Business Corporations Act (British Columbia). A quorum for the transaction of business at any meeting of shareholders is two persons present at the meeting, each of whom is entitled to vote at the meeting, and who hold or represent by proxy in the aggregate not less than 5% of the outstanding shares of the Company entitled to vote at the meeting.

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Multiple Voting Shares

The Company is authorized to issue an unlimited number of Multiple Voting Shares, which had no par value. As of December 31, 2021, the Company had issued and outstanding 4,521 shares of Multiple Voting Shares.

Voting Rights - The holders of Multiple Voting Shares are entitled to 100 votes for each Multiple Voting Share held. All holders of Multiple Voting Shares are entitled to receive notice of any meeting of shareholders of the Company, and to attend, vote and speak at such meetings, except those meetings at which only holders of a specific class of shares are entitled to vote separately as a class under the Business Corporations Act (British Columbia). A quorum for the transaction of business at any meeting of shareholders is two persons present at the meeting, each of whom is entitled to vote at the meeting, and who hold or represent by proxy in the aggregate not less than 5% of the outstanding shares of the Company entitled to vote at the meeting.

Conversion Rights - Issued and outstanding Multiple Voting Shares, including fractions thereof, may at any time, at the option of the holder, be converted into Subordinate Voting Shares at a ratio of 100 Subordinate Voting Shares per Multiple Voting Share. Further, the board of directors of the Company may determine in the future that it is no longer advisable to maintain the Multiple Voting Shares as a separate class of shares and may cause all of the issued and outstanding Multiple Voting Shares to be converted into Subordinate Voting Shares at a ratio of 100 Subordinate Voting Shares per Multiple Voting Share. Pursuant to the Company’s articles of incorporation, the Board of Directors of the Company may at any time determine that it is no longer in the best interests of the Company that the Multiple Voting Shares be maintained as a separate class of shares, and without any action of the holder, convert the Multiple Voting Shares into Subordinate Voting Shares at a ratio of 100 Subordinate Voting Shares per Multiple Voting Share.

Subordinate Voting Shares and Multiple Voting Shares Issued

2019 Equity Transactions

In July 2019, MindMed US issued 550,000 Multiple Voting Shares to Savant Addiction Medicine, LLC for the acquisition of its 18-MC program. The shares were valued using third party arm’s-length purchases of MindMed US’s Subordinate Voting Shares at the time of acquisition of 18-MC which were issued at $0.10 per share.

In July 2019 and September 2019, MindMed US issued 91,993,671 Subordinate Voting Shares in various financings at prices between $0.0001 and $0.10 per share yielding gross proceeds of $5.7 million before deducting share issuance costs of $0.1 million.

2020 Equity Transactions

On February 18, 2020, MindMed US completed the second tranche of the MindMed US Offering, issuing a total of 37,105,370 Subordinate Voting Shares at a price of CAD$0.33 ($0.25) per share for gross proceeds of $9.3 million. On closing of the second tranche of the MindMed US Offering, MindMed US issued Canaccord, as agent, 2,597,376 compensation warrants (Note 8).

On February 18, 2020, MindMed US issued 100,000 Subordinate Voting Shares to a former executive of MindMed US.

On February 26, 2020, MindMed US completed the third tranche of the MindMed US Offering, issuing a total of 41,227,788 Subordinate Voting Shares at a price of CAD$0.33 ($0.25) per share for gross proceeds of $10.3 million. On closing of the third tranche of the MindMed US Offering, MindMed US issued 2,885,945 compensation warrants to its agents (Note 8). Total cash share issuance costs for the second and third tranches of the MindMed US Offering of $0.8 million were deducted from the gross proceeds.

Pursuant to the Arrangement, 244,923,751 Class A Shares were exchanged for Subordinate Voting Shares or Multiple Voting Shares, as applicable. Pursuant to the Arrangement, 1,000 common shares of MindMed US were issued to Broadway in consideration of the issuance of the Subordinate Voting Shares and Multiple Voting Shares to former MindMed US shareholders.

As of February 26, 2020, Broadway had 49,860,200 common shares issued and outstanding; pursuant to the Arrangement, Broadway’s common shares were consolidated on an eight to one (8:1) basis and converted to 6,232,525 Subordinate Voting Shares.

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Pursuant to the Arrangement, Class A Shares were exchanged for either: (a) Subordinate Voting Shares (189,923,751 Class A Shares were exchanged for 189,923,751 Subordinate Voting Shares); or (b) Multiple Voting Shares (55,000,000 shares were exchanged for 550,000 Multiple Voting Shares).

On May 26, 2020, the Company completed a bought deal financing resulting in the issuance of 24,953,850 units at a price per unit of CAD$0.53 ($0.38) for gross proceeds of $9.5 million. Each unit comprises one Subordinate Voting Share and one-half of one Subordinate Voting Share financing warrant (12,476,925 warrants) (each whole warrant, a "May Warrant"). Each May Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$0.79 ($0.57) until May 26, 2022. Also in connection with this transaction, the Company issued 994,034 compensation warrants to its agent (Note 8). Total cash share issuance costs of $1.3 million were deducted from the gross proceeds.

On October 30, 2020, the Company completed a bought deal financing resulting in the issuance of 27,381,500 units of the Company at a price per Unit of CAD$1.05 ($0.79) for gross proceeds of $21.6 million. Each Unit comprised one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (13,690,750 warrants) (each whole warrant a "October Warrant"). Each October Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$1.40 ($1.05) until October 30, 2023. Also in connection with this transaction, the Company issued 1,642,890 compensation warrants to its agent (Note 8). Total cash share issuance costs of $1.6 million were deducted from the gross proceeds.

On December 11, 2020, the Company completed a bought deal financing resulting in the issuance of 18,170,000 units of the Company (the "Units") at a price per Unit of CAD$1.90 ($1.49) for gross proceeds of $27.1 million. Each Unit comprised one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (9,085,000 warrants) (each whole warrant, a "December Warrant"). Each Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$2.45 ($1.92) until December 11, 2023. Also in connection with this transaction, the Company issued 1,090,200 compensation warrants to its agent (Note 8). Total cash share issuance costs of $2.2 million were deducted from the gross proceeds.

On December 11, 2020, the Company issued 3,000,000 Subordinate Voting Shares in settlement of a claim made by a former promoter of the Company. The shares were valued at CAD$2.42 ($1.86) which was the value on the date that the settlement was approved.

2021 Equity Transactions

On January 7, 2021, the Company completed a bought deal financing resulting in the issuance of 20,930,000 units of the Company at a price per unit of CAD$4.40 ($3.47) for gross proceeds of $72.6 million. Each unit comprised one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (10,465,000 warrants) (each whole warrant, a “January Warrant”). Each January Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$5.75 ($4.53) until January 7, 2024. Also, in connection with this transaction, the Company issued 1,255,800 compensation warrants to its underwriter (Note 8). Total cash share issuance costs of $4.9 million were deducted from the gross proceeds.

On March 9, 2021, the Company completed a private placement bought deal financing resulting in the issuance of 6,000,000 units of the Company at a price per unit of CAD$3.25 ($2.57) for gross proceeds of $15.4 million. Each unit comprised one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (3,000,000 warrants) (each whole warrant, a “March Warrant”). Each March Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$4.40 ($3.48) until March 9, 2024. Also, in connection with this transaction, the Company issued 360,000 compensation warrants to its underwriter (Note 8). Total cash share issuance costs of $1.1 million were deducted from the gross proceeds.

During February and March 2021, the Company approved an officer of the Company to exchange 3,500,000 Subordinate Voting Shares for 35,000 Multiple Voting Shares. Between May and October holders of 661,976 Multiple Voting Shares exchanged their shares for 66,197,640 Subordinate Voting Shares.

On July 8, 2021, the Company issued 1,500,000 Subordinate Voting Shares to a holding company of its former CEO as part of a settlement agreement. The shares were valued at CAD$4.11 ($3.25) which was the value on the date that the shares were issued.

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Common Shares Reserved for Issuance

A summary of shares reserved for issuance as is summarized below:

Options issued and outstanding under stock option plan 23,093,044

Vested and unissued RSUs 792,783

Shares available for grant under stock option plan 30,524,172

Total shares reserved for issuance 86,617,146

WARRANTS

MindMed US Offering Compensation Warrants

MindMed US issued 1,314,033 compensation warrants in relation to the completion of the first tranche of the MindMed US Offering which closed on December 19, 2019 (Note 7). The warrants had an expiry date of February 27, 2021. Each warrant entitled the holder to purchase one Subordinate Voting Share, at CAD$0.33 per share until the expiry date.

MindMed US issued 5,483,321 compensation warrants in relation to the completion of the second and third tranches of the MindMed US Offering which took place in February 2020 (Note 7). The warrants have an expiry date of February 27, 2021. Each warrant entitles the holder to purchase one Subordinate Voting Share at CAD$0.33 per share until the expiry date.

Pursuant to the terms of the Arrangement, all warrants of MindMed US were exchanged for warrants of the Company.

Bought Deal Compensation and Financing Warrants

The Company issued 994,034 compensation warrants to the underwriter in connection with a bought deal financing (Note 7) which was completed on May 26, 2020. The warrants have an expiry date of May 26, 2022. Each warrant entitles the holder to purchase one Subordinate Voting Share at CAD$0.53 per share until the expiry date.

The Company issued 1,642,890 compensation warrants to the underwriter in connection with a bought deal financing (Note 7) which was completed on October 30, 2020. The warrants have an expiry date of October 30, 2023. Each warrant entitles the holder to purchase one unit at CAD$1.05 per warrant until the expiry date. Each unit entitles the holder to one Subordinate Voting Share and one-half Subordinate Voting Share financing warrant. Each financing warrant entitles the holder to purchase one Subordinate Voting Share at CAD$1.40 until expiry on October 30, 2023. In November and December 2020, 1,642,890 compensation warrants were exercised, and 821,443 financing warrants were subsequently issued.

The Company issued 1,090,200 compensation warrants to the underwriter in connection with a bought deal financing (Note 7) which was completed on December 11, 2020. The warrants have an expiry date of December 11, 2023. Each warrant entitles the holder to purchase one unit at CAD$1.90 per warrant until the expiry date. Each unit entitles the holder to one Subordinate Voting Share and one-half Subordinate Voting Share financing warrant. Each financing warrant entitles the holder to purchase one Subordinate Voting Share at CAD$2.45 until expiry on December 11, 2023. In February and March 2021, 817,650 compensation warrants were exercised, and 408,825 financing warrants were subsequently issued.

The Company issued 1,255,800 compensation warrants to the underwriter in connection with a bought deal financing (Note 7) which was completed on January 7, 2021. The warrants have an expiry date of January 7, 2024. Each warrant entitles the holder to purchase one unit at CAD$4.40 per warrant until the expiry date. Each unit entitles the holder to one Subordinate Voting Share and one-half Subordinate Voting Share financing warrant. Each financing warrant entitles the holder to purchase one Subordinate Voting Share at CAD$5.75 until expiry on January 7, 2024.

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The Company issued 360,000 compensation warrants to the underwriter in connection with a bought deal financing (Note 7) which was completed on March 9, 2021. The warrants have an expiry date of March 9, 2024. Each warrant entitles the holder to purchase one unit at CAD$3.25 per warrant until the expiry date. Each unit entitles the holder to one Subordinate Voting Share and one-half Subordinate Voting Share financing warrant. Each financing warrant entitles the holder to purchase one Subordinate Voting Share at CAD$4.40 until expiry on March 9, 2024.

Compensation Warrants FinancingWarrants WeightedAverage ExercisePrice (CAD$)

Balance – May 30, 2019 (inception) — — —

Issued on exercise of compensation warrants — 821,443 1.40

Issued on exercise of compensation warrants — 408,825 2.45

The weighted average market fair value of shares purchased through warrant exercises during the years ended December 31, 2021 and 2020 was CAD$4.55 and CAD$2.22, respectively.

STOCK-BASED COMPENSATION

Stock Incentive Plan

2020 Plan

On February 27,2020, the Company adopted the MindMed Stock Option Plan (the “Plan”) to advance the interests of the Company by providing employees, contractors and directors of the Company a performance incentive for continued and improved service with the Company. The Plan sets out the framework for determining eligibility as well as the terms of any stock-based compensation granted. The plan was approved by the shareholders as part of the Arrangement and is authorized to issue 15% of the Company's outstanding Subordinate Voting Shares under the terms of the plan.

The fair value of options issued has been estimated using the Black-Scholes option pricing model with the following assumptions:

Expected life 2.7 - 3.6 years 2.7 - 3.5 years

Expected dividend yield 0% 0%

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The following table summarizes the Company’s stock option activity:

The weighted average grant date fair value of options granted during in the year ended December 31, 2021 was CAD$1.92. The aggregated fair value of options vested during the year ended December 31, 2021 was $24.2 million.

Restricted Share Units

The Company has adopted a Performance and Restricted Share Unit (“RSU”) Plan to advance the interests of the Company by providing employees, contractors and directors of the Company a performance incentive for continued and improved service with the Company. The plan sets out the framework for determining eligibility as well as the terms of any stock-based compensation granted. The plan was approved by the shareholders as part of the Arrangement. The fair value has been estimated based on the closing price of the stock on the day prior to the grant.

Number of RSUs Weighted Average Grant Date Fair Value

Balance December 31, 2020 — $ —

The fair market value of RSUs vested during the year ended December 31, 2021 was $9.3 million.

Modification of Stock Options and RSUs

During 2021 and 2020, the Company modified the option awards and RSUs of certain employees and non-employees to accelerate the vesting and continue the vesting of 7,062,201

unvested options 1,986,147 RSUs during 2021 and 1,000,000 unvested options during 2020 that were improbable of vesting as of the modification date. Under this type of modification, the original grant date fair value is remeasured, and compensation cost is recognized based on the fair value of the modified award, as measured on the modification date. For the years ended December 31, 2021 and 2020, the Company recognized $21.9 million and $0.3 million of incremental compensation cost resulting from the modification in general and administrative expense in the consolidated statements of operations and comprehensive loss.

Directors' Deferred Share Unit Plan

2021 Plan

On April 16, 2021 the Company adopted the MindMed Director's Deferred Share Unit Plan ("DDSU Plan"). The DDSU Plan sets out a framework to grant non-executive directors DDSU's which are cash settled awards. The plan states that the fair market value of one DDSU shall be equal to the volume weighted average trading price of a Subordinate Voting Share on the NEO Exchange for

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the five business days immediately preceding the valuation date. The DDSU's generally vest ratably over twelve months after grant and are settled within 90 days of the date the director ceases service to the Company.

Number of DSUs

For the year ended December 31, 2021 stock-based compensation expense of $0.6 million was recognized relating to the revaluation of the vested DDSUs, recorded in general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss. There were 346,133 DDSUs vested as of December 31, 2021. The liability associated with the outstanding vested DDSU's was $0.5 million as of December 31, 2021 and was recorded to accrued expenses in the accompanying consolidated balance sheets.

Director Share Compensation

On September 16, 2019, MindMed US entered into an agreement with a director of the MindMed US pursuant to which the director agreed to: (i) join the board of directors of MindMed US, (ii) obtain a loan (the “Loan”) of $0.5 million for the sole purpose of acquiring 5,000,000 Class D Shares, and (iii) purchase 5,000,000 Class D Shares for $0.5 million.

The Loan is secured by the Class D shares, which is the sole security and recourse against the director. One-quarter of the Loan ($0.1) shall be automatically deemed to be repaid and satisfied on each six-month anniversary of the date of the Loan (the “Repayment Date”) so long as the director remains a member of the board of directors of MindMed US.

If the director ceases to be a member of the board of directors of MindMed US and all affiliates of MindMed US, other than as a result of his disqualification under applicable corporate law or his resignation, the Loan shall be automatically deemed to be repaid and satisfied in full and the director shall be fully and finally released from his obligations under the Loan.

The principal remaining from time to time unpaid and outstanding shall bear interest, before and after an event of default at 2% per annum calculated monthly, not in advance. Accrued and unpaid interest shall be payable on each Repayment Date. The director has the right and privilege of prepaying the whole or any portion of the principal amount of the Loan at any time or times prior to maturity or if an event of default has occurred, whichever comes first, without notice, bonus or penalty. All such prepayments shall be applied first in satisfaction of any accrued but unpaid interest and thereafter to the outstanding principal amount of the Loan.

The Loan has been accounted for as an option plan since MindMed does not have full recourse to the outstanding loan balance. In the event the director ceases to be a member of the board of directors of MindMed US and all affiliates of MindMed US, the Class D Shares (which have since been exchanged for Subordinate Voting Shares) would be tendered back to the Company without any payment being made. As a result, the Company has not recognized a loan receivable or the corresponding Class D Shares (or resulting Subordinate Voting Shares) as outstanding. The Company has estimated a grant- date fair value, which is recorded as share-based compensation expense over a two-year vesting period with a corresponding amount to additional paid-in capital. The fair value has been estimated using the Black- Scholes option pricing model with the following assumptions: (i) expected dividend yield of 0%, (ii) expected volatility of 151%, (iii) risk-free rate of 1.74%, (iv) share price of $0.10, (v) forfeiture rate of 0%, and (vi) expected life of 24 months. The total grant-date fair value is $0.5 million.

In connection with the Transaction, the directors of MindMed US were elected as directors of the Company. The Class D Shares issued pursuant to the Loan were converted to Subordinate Voting Shares. The Company recognized $0.2 million, $0.2 million, and $0.1 million in compensation expense for the years ended December 31, 2021. 2020, and 2019, respectively. Corresponding with the vesting of the shares in connection with the settlement of the loan the Company issued 1,785,235, 2,489,740, and 725,025 Subordinate Voting Shares to the director in the years ended December 31, 2021, 2020, and 2019, respectively.

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Stock-based Compensation Expense

Stock-based compensation expense for all equity arrangements for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands):

Year Ended December 31,

Research and development $ 7,174 $ 548 $ —

Total share-based compensation expense $ 42,716 $ 7,406 $ 73

As of December 31, 2021, there was approximately $17.0 million and of total unrecognized stock-based compensation expense, related to unvested options granted to employees under the Company’s stock option plan that is expected to be recognized over a weighted average period of 3.1 years. As of December 31, 2021, there was approximately $18.2 million and of total unrecognized stock-based compensation expense, related to RSUs granted to employees under the Company’s stock option plan that is expected to be recognized over a weighted average period of 3.2 years.

10.

INCOME TAXES

The Components of the loss before income taxes were as follows (in thousands):

Year Ended December 31,

For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s provision (benefit) for income taxes at the effective tax rate, a notional of 21% tax rate was applied as follows (in thousands):

December 31,

Income tax at federal statutory rate $ (19,781 ) $ (7,127 ) $ (2,247 )

State income tax expense, net of federal tax effect (16 ) — —

Nondeductible permanent items 46 2,220 —

Executive Compensation 3,808 — —

Capitalized Research Expenses 4,316 — —

Net operating losses (466 ) — —

Adjustment to deferred taxes (1,687 ) — —

Nonqualified stock option and performance award windfall upon exercise 2,461 — —

The difference between the statutory federal income tax rate and the Company's effective tax rate in 2021 and 2020 is primarily attributable to the change in valuation allowance, foreign rate differential, executive compensation, and capitalized research expenses.

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The provision for (benefit from) income taxes is as follows (in thousands):

December 31,

Current:

Federal $ — $ — $ —

State 2 — —

Foreign — — —

Total current 2 — —

Deferred:

State (2 ) — —

Foreign — — —

Total deferred (1,159 ) — —

Total $ (1,157 ) $ — $ —

The following table provides the effect of temporary differences that created deferred income taxes as of December 31, 2021 and 2020. Deferred tax assets and liabilities represent the future effects on income taxes resulting from temporary differences and carryforwards at the end of the respective periods (in thousands):

December 31,

Deferred tax assets:

Reserves $ 47 $ —

Net deferred income tax assets 2,057 —

Deferred tax liabilities:

Unrealized Gain/Loss (620 ) —

Intangible Assets (1,427 ) —

Property and equipment (10 ) —

Other - —

Total deferred tax liabilities (2,057 ) —

Net deferred income tax liability $ — $ —

As of December 31, 2021 and 2020, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company's deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of the Company's deferred tax assets, management considers all available evidence, both positive and negative.

In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.” Based upon available evidence, it was concluded on a more-likely-than-not basis that all deferred tax assets were not realizable as of December 31, 2021 and 2020. Accordingly, a valuation allowance of $35.8 million has been recorded to offset this deferred tax asset. The valuation allowance increased by $22.7 million for the year ended December 31, 2021.

As of December 31, 2021, the Company has accumulated federal and state net operating loss ("NOL") carryforwards of $81.1 million and $13.4 million, respectively. The federal NOL carryforwards can be carried forward indefinitely, subject to 80% taxable income limitation. Of the $13.4 million of state NOL carryforwards, $3.6 million can be carried forward indefinitely and $2.9 million expire beginning December 31, 2028.

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As of December 31, 2021 the Company had combined foreign net operating loss carryforwards available to reduce future taxable income of approximately $52.5 million, of which $2.2 million carryforward indefinitely, $49.1 million begin to expire in 2040, and $1.2 million begin to expire in 2028.

Utilization of the Company’s net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination of the net operating loss and tax credit carryforwards before utilization. Management believes that the limitation will not limit utilization of the carryforwards prior to their expiration.

The Company is subject to taxation in the United States, various states, Canada, Australia and Switzerland.

The Company has not been notified that it is under audit by the IRS or any state or foreign taxing authorities, however, due to the presence of NOL carryforwards, all of the income tax years remain open for examination in each of these jurisdictions.

Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries because of the Company’s intent to reinvest such earnings indefinitely in active foreign operations.

As of December 31, 2021 and 2020 the Company did not have a liability for unrecognized tax benefits.

DFTX US Equity

DFTX · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

DFTX US Equity☆

DFTX · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

DFTX US Equity