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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. This Annual Report, including the following section, 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. 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, except as required by law.

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 product candidates to treat brain health disorders. 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 product candidates, with and without acute perceptual effects, targeting neurotransmitter pathways that play key roles in brain health disorders. This specifically includes pharmaceutically optimized product candidates derived from the psychedelic and empathogen drug classes, including MM-120 and MM-402, our lead product candidates.

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 26, 2021, we acquired 100% of the issued and outstanding shares of HealthMode Inc. (“HealthMode”), a digital medicine and therapeutics company that used artificial intelligence enabled digital measurement to increase the precision and speed of clinical research and patient monitoring. The acquisition enabled us to build our digital medicine division. We plan to utilize these technologies in our clinical trials to enhance the quality of the data that is collected during our clinical trials.

Since inception, we have incurred losses while advancing the research and development of our products and processes. Our net losses were $56.8 million for the year ended December 31, 2022 and $93.0 million for the year ended December 31, 2021. As of December 31, 2022, we had an accumulated deficit of $194.5 million and cash and cash equivalents of $142.1 million.

During the period ended December 31, 2022, we continued to enhance the resources required to build our pipeline of opportunities. This included adding personnel and contract resources and ramping up the non-clinical aspects of our activities. In addition, considerable effort was directed towards employing a successful financing strategy.

Global Economic Conditions

Worldwide economic conditions remain uncertain and we continue to monitor the impact of macroeconomic conditions, including those related to the COVID-19 pandemic, the Russia-Ukraine war and rising inflation rates.

Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the Russia-Ukraine war, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Additionally, the general consensus among economists suggests a higher recession risk may continue over the next year, which, together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates continue to rise) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine, and employee availability and wage increases, which may result in additional stress on our working capital resources.

August 2022 Reverse Share Split

As previously disclosed, on May 27, 2022 we received a letter from Nasdaq’s Listing Qualifications Department notifying us that we were not in compliance with Nasdaq Listing Rule 5550(a)(2), as the minimum bid price for our listed securities was less than $1.00

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for the previous 30 consecutive business days. We had a period of 180 calendar days, or until November 23, 2022, to regain compliance with the rule referred to in this paragraph.

Our Board of Directors approved a reverse share split of our common shares on a 15-for-1 basis, which was effected on August 26, 2022 and which brought the bid price of our common shares above the minimum bid price requirement under the Nasdaq Listing Rules. No fractional common shares were issued as a result of the August Share Split. Each fractional common share remaining upon the August Share Split that was less than 1/2 of a common share was cancelled and each fractional common share that was at least 1/2 of a common share was changed to one whole common share. The August Share Split affected all common shares outstanding immediately prior to the effective time of the August Share Split, as well as the number of common shares available under our stock option plan and equity incentive plan. In addition, the August Share Split effected a reduction in the number of common shares issuable upon exercise of stock options, vesting of Restricted Share Units and exercise of warrants outstanding immediately prior to the effectiveness of the August Share Split. All references to common shares, options to purchase common shares, share data, per share data, and related information contained in this report have been retrospectively adjusted to reflect the effect of the August Share Split for all periods presented.

On September 13, 2022, following the completion of the August Share Split, we received a notice from the Nasdaq Listing Qualifications Office indicating that we had regained compliance with the minimum bid price requirement under Nasdaq Listing Rule 5550(a)(2).

Components of Operating Results

Operating Expenses

Research and Development

To date, our resources have focused primarily on the research and development of our product candidates MM-120, MM-402 and MM-110 (prior to when we paused development of MM-110 in the third quarter of 2022) and the commencement of related clinical activities, including funding data and study acquisitions and acquiring 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, including:

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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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allocated operational expenses, which include direct or allocated expenses for information technologies and human resources.

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.

We expect our research and development expenses to increase for the foreseeable future as we continue the clinical development of our product candidates and other preclinical programs in GAD, ADHD, ASD and other potential or future indications, including initiating additional and larger clinical trials.

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 administrative

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functions, professional services fees, advisory and professional services fees in connection with financing transactions, 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, commence 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, 2022 and 2021

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

Operating expenses:

Other income/(expense):

Foreign exchange gain/(loss), net 195 (86 ) 281 *

Other comprehensive gain:

(Loss)/gain on foreign currency translation (419 ) 762 (1,181 ) -155 %

* Represents a change greater than 300%

Operating Expenses

Research and Development (in thousands):

External Costs

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Research and development expenses increased by $1.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to increases of $2.9 million in expenses related to clinical research for MM-120 and $5.4 million in internal personnel costs as a result of increasing research and development capacities, offset by a decrease of $5.6 million in expenses related to our MM-110 program, and a decrease of $2.4 million of expenses in connection with various external R&D collaborations.

General and Administrative

General and administrative expenses decreased by $28.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was primarily due to a decrease of $27.4 million in non-cash stock-based compensation expenses primarily relating to the modification of stock option awards and RSUs recorded during the year ended December 31, 2021.

Other Income (Expense)

Interest Income/(Expense), Net

Interest income, net increased by $1.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. This was primarily due to interest earned on our cash and cash equivalents as a result of higher cash and cash equivalents and higher interest rates during the year ended December 31, 2022.

Foreign Exchange Gain/(Loss), Net

Foreign exchange gain increased by $0.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to favorable changes in foreign exchange rates during the year in relation to our 2022 USD Financing Warrants.

Other Income

Other income decreased by $0.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to a cessation of sales of branded merchandise.

Change in fair value of 2022 USD Financing Warrants

Revaluation gain on the 2022 USD Financing Warrants liability was $7.8 million for the year ended December 31, 2022. Gain on revaluation of the 2022 USD Financing Warrants liability consists of the change in the fair value of our 2022 USD Financing Warrants that were issued as part of our public equity offering which closed on September 30, 2022. No liability classified warrants were outstanding during the year ended December 31, 2021.

Income Tax Benefit

There was no income tax benefit or expense for the year ended December 31, 2022 compared to an income tax benefit of $1.2 million for the year ended December 31, 2021. Income tax benefit for the year ended December 31, 2021 was 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. 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.

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Our previous equity structure included Multiple Voting Shares, which had no par value and were eligible to be exchanged with Subordinate Voting Shares on a one-for-one-hundred basis, and Subordinate Voting Shares, which had no par value and were equivalent in rights to common shares. All equity financings described below, as applicable, have been revised to reflect the conversion of all outstanding Multiple Voting Shares and Subordinate Voting Shares to common shares, which was completed on June 30, 2022.

On January 7, 2021, we completed a bought deal financing resulting in the issuance of 1,395,333 units at a price per unit of CAD$66.00 ($52.05) for gross proceeds of $72.6 million. Each unit comprised one common share and one-half of one common share financing warrant (each whole warrant, a “January Warrant”). Each January Warrant entitles the holder thereof to purchase one common share at an exercise price of CAD$86.25 ($67.95) until January 7, 2024. Also, in connection with this transaction, we issued 83,720 compensation warrants to the underwriter.

On March 9, 2021, we completed a private placement bought deal financing resulting in the issuance of 400,000 units at a price per unit of CAD$48.75 ($38.55) for gross proceeds of $15.4 million. Each unit was comprised of one common share and one-half of one common share financing warrant (each whole warrant, a “March Warrant”). Each March Warrant entitles the holder thereof to purchase one common share at an exercise price of CAD$66.00 ($52.20) until March 9, 2024. Also, in connection with this transaction, we issued 24,000 compensation warrants to the underwriter.

On May 4, 2022, we filed a shelf registration statement on Form S-3 (the “Registration Statement”). Pursuant to the Registration Statement, we may offer and sell securities having an aggregate public offering price of up to $200.0 million. In connection with the filing of the Registration Statement, we also entered into a sales agreement with Cantor Fitzgerald & Co. and Oppenheimer & Co. Inc. as sales agents (together, the “Sales Agents”), pursuant to which we may issue and sell common shares for an aggregate offering price of up to $100.0 million under the ATM. Pursuant to the ATM, we will pay the Sales Agents a commission rate equal to 3.0% of the gross proceeds from the sale of any common shares. We are not obligated to make any sales of common shares under the ATM. As of December 31, 2022 we sold 2,311,652 common shares for net proceeds of $31.1 million under the ATM.

On September 30, 2022, we closed an underwritten public offering of 7,058,823 common shares and accompanying warrants to purchase 7,058,823 common shares (the “2022 USD Financing Warrants”) at a combined offering price of $4.25 per common share, for net proceeds of $27.5 million. Each 2022 USD Financing Warrant is immediately exercisable for one common share at an initial exercise price of $4.25 per common share, subject to certain adjustments and will expire on September 30, 2027.

Our cash and cash equivalents and working capital as of December 31, 2022 were $142.1 million and $128.2 million, respectively. The increase in cash and cash equivalents was due mainly to the $58.6 million of net proceeds from financings mentioned above net of the cash used in operations of $50.1 million during the year ended December 31, 2022.

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; and

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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.

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We expect our current cash will be sufficient to fund our current operating plans into the first half of 2025. 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 shareholders 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 shareholders. 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 common 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.

Cash Flows

For the YearEndedDecember 31, 2022 For the YearEndedDecember 31, 2021

Net cash used in operating activities $ (50,139 ) $ (45,824 )

Net cash used in investing activities — (297 )

Net cash provided by financing activities 59,051 98,824

Foreign exchange impact on cash (309 ) 742

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Cash flows from operating activities

Cash used in operating activities for the year ended December 31, 2022 was $50.1 million, which consisted of a net loss of $56.8 million, partially offset by $10.5 million in non-cash charges and a net change of $3.8 million in our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of $13.7 million, and amortization of intangible assets of $3.2 million, partially offset by a change in fair value on the 2022 USD Financing Warrants liability of $7.8 million.

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 stock-based compensation of $42.7 million, and amortization of intangible assets of $2.6 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, 2022 was $59.0 million, which consisted of the net proceeds of $42.3 million from the issuance of common shares, net of issuance costs, proceeds of $17.7 million from the issuance of warrants, the proceeds of $0.7 million from exercise of warrants, and proceeds of $0.2 million from exercise of options, partially offset by $1.5 million of warrant issuance costs and $0.4 million of withholding taxes paid on vested RSUs.

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.

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 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.

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 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.

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Business Combinations

At the time of acquisition, we determine 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 our 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 we obtain 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

Certain of our assets and liabilities 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:

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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 us 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 and cash equivalents, 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.

The 2022 USD Financing Warrants (as defined in Note 7 in the notes to our annual financial statements) are liability classified due to being denominated in USD and not the Company's functional currency. Accordingly, the 2022 USD Financing Warrants were recognized at fair value upon issuance and are remeasured to fair value at the end of each reporting period. Any change in fair value is recognized in general and administrative expense on the consolidated statements of operations. Issuance costs related to warrants were expensed within general and administrative expense on the consolidated statements of operations.

Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate research and development costs incurred during the period, which impacts the amount of accrued expenses and prepaid balances related to such costs as of each balance sheet

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date. This process involves reviewing open contracts and purchase orders, communicating with our personnel and service providers to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.

Research and development costs are expensed in the periods in which they are incurred. External costs consist primarily of payments to outside consultants, third-party CROs, CDMOs, clinical trial sites and central laboratories in connection with our discovery and preclinical activities, process development, manufacturing and clinical development activities. External costs also include laboratory supplies as well as allocated facilities, depreciation and other expenses. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We allocate external costs by program, clinical or preclinical. Internal costs consist primary of employee-related costs including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions. We do not allocate internal costs by program because these costs are deployed across multiple programs and, as such, are not separately classified.

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 over the vesting period. 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 common shares— The fair value of our common shares is determined based upon the closing price of our common shares 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. We 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. We 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 between 5 to 10 years.

Dividend Yield—We have never paid dividends on our common shares and have no plans to pay dividends on our common 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.

Fully Diluted Share Capital

The number of issued and outstanding common shares on a fully converted basis as of December 31, 2022 was as follows:

Number of Common Share Equivalents

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

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item.

Item 8. Financial Statements and Supplementary Data.

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INDEX TO Consolidated FINANCIAL STATEMENTS

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Reports of Independent Registered Public Accounting Firms 106

Consolidated Financial Statements:

Consolidated Balance Sheets 108

Consolidated Statements of Operations and Comprehensive Loss 109

Consolidated Statements of Shareholders’ Equity 110

Consolidated Statements of Cash Flows 111

Notes to Consolidated Financial Statements 112

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Mind Medicine (MindMed) Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Mind Medicine (MindMed) Inc. and subsidiaries (the Company) as of December 31, 2022, the related consolidated statement of operations and comprehensive loss, shareholders’ equity, and cash flows for the year then ended and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

We also have audited the adjustments to the 2021 consolidated financial statements to retrospectively apply the reverse share split and conversion of all outstanding Multiple Voting Shares and Subordinate Voting Shares to Common Shares, as described in note 7. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2021 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2021 consolidated financial statements taken as a whole.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. 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 audit 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 consolidated 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company's auditor since 2022.

San Diego, California

March 9, 2023

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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 Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Mind Medicine (MindMed) Inc. (the Company) as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for the year ended December 31, 2021, and the related notes, before the effects of the adjustments to retrospectively apply the reverse share split and conversion of all outstanding Multiple Voting Shares and Subordinate Voting Shares to Common Shares as described in note 7 (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements, before the effects of the adjustments to retrospectively apply the reverse share split and conversion of all outstanding Multiple Voting Shares and Subordinate Voting Shares to Common Shares as described in note 7, present fairly, in all material respects, the financial position of the Company at December 31, 2021 and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We were not engaged to audit, review or apply any procedures to the adjustments to retrospectively apply the reverse share split and conversion of all outstanding Multiple Voting Shares and Subordinate Voting Shares described in note 7 and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by other auditors.

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 audit 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 audit, 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 audit 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 audit 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 audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

Chartered Professional Accountants

Licensed Public Accountants

We have served as the Company's auditor for 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 3,913 3,676

Other non-current assets 331 —

Liabilities and Shareholders’ Equity

Current liabilities:

Commitments and contingencies (Note 11)

Shareholders' Equity:

Accumulated other comprehensive income 627 1,046

Total liabilities and shareholders' equity $ 169,993 $ 164,002

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)

Years Ended December 31,

Operating expenses:

Other income/(expense):

Interest income/(expense), net 1,495 (359 )

Foreign exchange gain/(loss), net 195 (86 )

Change in fair value of 2022 USD Financing Warrants 7,843 —

Loss on revaluation of derivative liability — —

Total other income/(expense), net 9,535 (339 )

Income tax benefit — (1,157 )

Other comprehensive (loss)/gain:

(Loss)/gain on foreign currency translation (419 ) 762

Net loss per common share, basic and diluted $ (1.84 ) $ (3.40 )

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)

Common Shares

Issuance of common shares for vested director compensation 119,016 — 190 — — 190

Vesting of restricted stock units 147,510 — — — — —

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

Settlement of restricted share unit awards 367,950 — — — — —

Withholding taxes paid on vested restricted share units — — (407 ) — — (407 )

Stock-based compensation expense — — 13,664 — — 13,664

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)

Years Ended December 31,

Cash flows from operating activities

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

Amortization of intangible assets 3,180 2,616

Unrealized foreign exchange (148 ) —

Non-cash lease expense 43 —

Issuance costs on 2022 USD Financing Warrants 1,500 —

Change in fair value of 2022 USD Financing Warrants (7,843 ) —

Changes in operating assets and liabilities:

Prepaid and other current assets (260 ) (2,163 )

Other noncurrent assets (180 ) —

Deferred tax liability — (1,157 )

Contribution payable (870 ) (713 )

Net cash used in operating activities (50,139 ) (45,824 )

Cash flows from investing activities

Acquisition, net of cash acquired — (297 )

Net cash used in investing activities — (297 )

Cash flows from financing activities

Proceeds from issuance of common shares, net of issuance costs 42,297 81,924

Proceeds from issuance of 2022 USD Financing Warrants 17,747 —

Payment of 2022 USD Financing Warrants issuance costs (1,500 ) —

Proceeds from exercise of warrants 708 11,178

Proceeds from exercise of options 206 5,722

Withholding taxes paid on vested restricted stock units (407 ) —

Net cash provided by financing activities 59,051 98,824

Effect of exchange rate changes on cash (309 ) 742

Net increase in cash and cash equivalents 8,603 53,445

Cash and cash equivalents, beginning of year 133,539 80,094

Supplemental disclosures of non-cash financing activities:

Right-of-use assets obtained in exchange of operating lease liabilities 194 —

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)

1.

DESCRIPTION OF THE BUSINESS

Mind Medicine (MindMed) Inc. (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. MindMed US was incorporated on May 30, 2019.

MindMed is a clinical stage biopharmaceutical company developing novel product candidates to treat brain health disorders. The Company’s mission is to be the global leader in the development and delivery of treatments that unlock new opportunities to improve patient outcomes. The Company is developing a pipeline of innovative product candidates, with and without acute perceptual effects, targeting neurotransmitter pathways that play key roles in brain health disorders. This specifically includes pharmaceutically optimized product candidates derived from the psychedelic and empathogen drug classes, including MM-120 and MM-402, the Company’s lead product candidates.

As of December 31, 2022, the Company had an accumulated deficit of $194.5 million. Through December 31, 2022, all the Company’s financial support has primarily been provided by proceeds from the issuance of Common Shares and warrants to purchase Common Shares.

As the Company continues its expansion, it may seek additional financing and/or strategic investments however, there can be no assurance that any additional financing or strategic investments will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it will most likely be required to reduce its plans and/or certain discretionary spending, which could have a material adverse effect on the Company’s ability to achieve its intended business objectives. The accompanying consolidated financial statements do not include any adjustments that might be necessary if it were unable to continue as a going concern. Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date of the issuance of these financial statements.

Global Economic Conditions

Worldwide economic conditions remain uncertain and the Company continues to monitor the impact of macroeconomic conditions, including those related to the COVID-19 pandemic, the Russia-Ukraine war and rising inflation rates.

Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the Russia-Ukraine war, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Additionally, the general consensus among economists suggests a higher recession risk may continue over the next year, which, together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect the Company’s operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although the Company does not believe that inflation has had a material impact on its financial position or results of operations to date, the Company may experience increases in the near future (especially if inflation rates continue to rise) on its operating costs, including its labor costs and research and development costs, due to supply chain constraints, consequences associated with COVID-19 and the ongoing conflict between Russia and Ukraine, and employee availability and wage increases, which may result in additional stress on its working capital resources.

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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2.

BASIS OF pRESENTATION AND Summary of Significant Accounting Policies

Basis of Presentation

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 valuation of 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 expose the Company to concentration of credit risk primarily consist of cash and cash equivalents. As of December 31, 2022, the Company’s cash equivalents primarily includes a U.S. government money market fund at a high-quality financial institution which invests in highly liquid securities that are issued or guaranteed by the U.S. government or by U.S. government agencies and instrumentalities. The Company's cash is deposited in checking accounts at high-quality financial institutions, which at times, may exceed federally insured limits. Management believes that these financial institutions are financially sound, and, accordingly, minimal credit risk exists with respect to these financial institutions. As of December 31, 2022, the Company has not experienced any losses on its cash or cash equivalents.

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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. When impairment indicators are identified, the Company compares the reporting unit’s fair value to its carrying amount, including goodwill. An impairment loss is recognized as the difference, if any, between the reporting unit’s carrying amount and its fair value, to the extent the difference does not exceed the total amount of goodwill allocated to the reporting unit.

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. No impairment charges have been recorded during the years ended December 31, 2022 and 2021.

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 years ended December 31, 2022 and 2021.

Warrants

Compensation Warrants

Freestanding warrants for the purchase of Common Shares issued in conjunction with the Company’s US offerings 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.

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Financing Warrants

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

2022 USD Financing Warrants

The 2022 USD Financing Warrants (as defined below in Note 7) are liability classified due to being denominated in USD and not the Company's functional currency. Accordingly, the 2022 USD Financing Warrants were recognized at fair value upon issuance and are remeasured to fair value at the end of each reporting period. Any change in fair value is recognized in general and administrative expense on the consolidated statements of operations. Issuance costs related to warrants were expensed within general and administrative expense on the consolidated statements of operations.

Cash and Cash Equivalents

The Company considers all investments with an original maturity date at the time of purchase of three months or less to be cash and cash equivalents. Cash equivalents consist primarily of money market funds. The Company’s accounts, at times, may exceed federally insured limits. The Company had cash equivalents of $131.7 million as of December 31, 2022, and no cash equivalents as of December 31, 2021.

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.

•

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.

•

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 and cash equivalents, 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, which includes 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.

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

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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, advisory and professional services fees in connection with financing transactions, insurance expenses, issuance costs related to warrants, 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.

The Company has not adjusted its weighted average number of Common Shares outstanding in the calculation of diluted loss per share, as the effect of warrants and options is anti-dilutive.

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

Years Ended December 31,

Numerator:

Net loss attributable to common shareholders $ (56,796 ) $ (93,036 )

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,

Options issued and outstanding under stock option plan 2,190,315 1,539,511

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”) grants, 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 Common Shares— The fair value of the Company’s Common 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 the Company's stock options.

Expected volatility—Due to the Company's limited operating history and a lack of company-specific historical and implied volatility data, the Company has based its 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 the Company's own share 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 between 5 to 10 years.

Dividend Yield—The Company has never paid dividends on its Common Shares and has no plans to pay dividends on its Common 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.

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The Company also grants-cash settled Directors’ Deferred Share Units (“DDSUs”) to non-executive directors for compensation. The fair market value of one DDSU is equal to the volume weighted average trading price of a Common Share on the NEO Exchange for the five business days immediately preceding the valuation date. The Company revalues DDSUs 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 related to a DDSU liability recorded to accrued expenses in the consolidated balance sheets.

Recently Adopted Accounting Pronouncements

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 Financial Accounting Standards Board (“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 adopted this standard effective January 1, 2022, the adoption had no impact on the consolidated financial statements. The Company adopted the standard using the practical expedients allowing the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired leases, and (iii) indirect costs for any existing leases. The Company has elected to not separate lease and non-lease components for any leases within its existing classes of assets, therefore the Company accounts for lease and non-lease components as a single lease component. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less.

Recently Issued Accounting Pronouncements

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.

3.

ACQUISITIONS

HealthMode Acquisition

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.

The consideration paid for the acquisition of HealthMode was $27.6 million, and consisted of $0.5 million cash, 5,433 Multiple Voting Shares (equivalent to 543,313 Common Shares), valued at approximately $27.0 million based upon the closing price of the Company’s Common Shares on the acquisition date, and $0.1 million in stock options (2,241 stock options), which are convertible into Common 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.

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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 to streamline its product development processes. None of the goodwill is expected to be deductible for tax purposes.

4. 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, 2022 and the fair value hierarchy of the valuation techniques utilized. The Company classifies its 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.

Level 1 Level 2 Level 3 Total

Financial assets:

Financial liabilities:

Directors' Deferred Share Unit Liability $ 124 $ — $ — $ 124

Level 1 Level 2 Level 3 Total

Financial liabilities:

Directors' Deferred Share Unit Liability $ 509 $ — $ — $ 509

There were no transfers into or out of Level 1, Level 2, or Level 3 during the years ended December 31, 2022 and 2021.

The Company's cash equivalents includes a U.S. government money market fund which invests in highly liquid securities that are issued or guaranteed by the U.S. government or by U.S. government agencies and instrumentalities, and are measured at fair value in accordance with the fair value hierarchy.

The fair value of the warrant liability is measured at fair value on a recurring basis. The 2022 USD Financing Warrants are classified as Level 3 in the fair value hierarchy and are determined using the Black-Scholes option pricing model using the following assumptions:

For the Year Ended December 31, 2022

Expected life 4.75 - 5.0 years

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5.

GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

During the year ended December 31, 2022, the Company has made no additions to its outstanding goodwill. During 2022, the Company performed its annual goodwill impairment test and considered the decrease in its share price as well as other market factors as triggering events and determined a quantitative analysis was needed to be performed. As a result of the quantitative analysis, no impairment loss was recognized. No impairment charges have been recorded during the years ended December 31, 2022 and 2021.

Intangible assets, net

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

Developed technology has a remaining useful life of 1.2 years. Amortization expense included in research and development expense was $3.2 million and $2.6 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the expected future amortization expense for finite-lived intangible assets was as follows (in thousands):

Year Ending December 31, Amount

6.

ACCRUED EXPENSES

At December 31, 2022 and 2021, accrued expenses consisted of the following (in thousands):

December 31,

Accrued clinical and manufacturing costs 605 906

Lease liabilities 72 —

Other payables — 3

7.

SHAREHOLDERS’ EQUITY

Common Shares

The Company is authorized to issue an unlimited number of Common Shares, which have no par value. As of December 31, 2022, the Company had issued and outstanding 37,979,136 shares of Common Shares.

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Voting Rights - The holders of Common Shares are entitled to one vote for each Common Share held. All holders of Common 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) (the “BCBCA”). 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.

The Company's previous equity structure included Multiple Voting Shares, which had no par value and were eligible to be exchanged with Subordinate Voting Shares on a one-for-one-hundred basis, and Subordinate Voting Shares, which had no par value and were equivalent in rights to Common Shares. All share data shown in the accompanying consolidated financial statements and related notes has been retroactively revised to reflect the conversion of all outstanding Multiple Voting Shares and Subordinate Voting Shares to Common Shares as of December 31, 2022.

During the first quarter of 2022, holders of 301 Multiple Voting Shares exchanged their shares for 30,137 Subordinate Voting Shares on a one-for-one-hundred basis. These Subordinate Voting Shares were subsequently redesignated as Common Shares as of June 30, 2022.

August 2022 Reverse Share Split

The Company’s Board of Directors (the “Board”) approved a reverse split of the Company’s Common Shares on a 15-for-1 basis (the “August Share Split”), which was effected on August 26, 2022, and which brought the bid price of the Company’s Common Shares above the minimum bid price requirement under the Listing Rules of The Nasdaq Stock Market LLC (“Nasdaq”). No fractional Common Shares were issued as a result of the August Share Split. Each fractional Common Share that was remaining upon the August Share Split that was less than 1⁄2 of a Common Share was cancelled and each fractional Common Share that was at least 1⁄2 of a Common Share was changed to one whole Common Share. The August Share Split affected all Common Shares outstanding immediately prior to the effective time of the August Share Split, as well as the number of Common Shares available under the Company’s stock option plan and equity incentive plan. In addition, the August Share Split effected a reduction in the number of Common Shares issuable upon exercise of stock options, vesting of Restricted Share Units and exercise of warrants outstanding immediately prior to the effectiveness of the August Share Split. All references to Common Shares, options to purchase Common Shares, share data, per share data, and related information contained in these financial statements have been retrospectively adjusted to reflect the effect of the August Share Split for all periods presented.

Common Shares Issued

2021 Equity Transactions

On January 7, 2021, the Company completed a bought deal financing resulting in the issuance of 1,395,333 units of the Company at a price per unit of CAD$66.00 ($52.05) for gross proceeds of $72.6 million. Each unit comprised one Common Share of the Company and one-half of one Common Share financing warrant (for a total of 697,667 warrants) (each whole warrant, a “January Warrant”). Each January Warrant entitles the holder thereof to purchase one Common Share at an exercise price of CAD$86.25 ($67.95) until January 7, 2024. Also, in connection with this transaction, the Company issued 83,720 compensation warrants to its underwriter (see 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 400,000 units of the Company at a price per unit of CAD$48.75 ($38.55) for gross proceeds of $15.4 million. Each unit comprised one Common Share of the Company and one-half of one Common Share financing warrant (for a total of 200,000 warrants) (each whole warrant, a “March Warrant”). Each March Warrant entitles the holder thereof to purchase one Common Share at an exercise price of CAD$66.00 ($52.20) until March 9, 2024. Also, in connection with this transaction, the Company issued 24,000 compensation warrants to its underwriter (see 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 233,333 Common Shares for 2,333 Multiple Voting Shares. Between May and October holders of 44,132 Multiple Voting Shares exchanged their shares for 4,413,176 Common Shares.

On July 8, 2021, the Company issued 100,000 Common Shares to a holding company of its former CEO as part of a settlement agreement. The shares were valued at CAD$61.65 ($48.75) which was the value on the date that the shares were issued.

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2022 Equity Transactions

On May 4, 2022, the Company filed a shelf registration statement on Form S-3 (the “Registration Statement”). Pursuant to the Registration Statement, the Company may offer and sell securities having an aggregate public offering price of up to $200.0 million. In connection with the filing of the Registration Statement, the Company also entered into a sales agreement with Cantor Fitzgerald & Co. and Oppenheimer & Co. Inc. as sales agents (together, the “Sales Agents”), pursuant to which the Company may issue and sell Common Shares for an aggregate offering price of up to $100.0 million under an at-the-market offering program (the “ATM”). Pursuant to the ATM, the Company will pay the Sales Agents a commission rate equal to 3.0% of the gross proceeds from the sale of any Common Shares. The Company is not obligated to make any sales of its Common Shares under the ATM. As of December 31, 2022, the Company had sold 2,311,652 Common Shares for net proceeds of $31.1 million under the ATM.

On September 30, 2022, the Company closed an underwritten public offering of 7,058,823 Common Shares and accompanying warrants to purchase 7,058,823 Common Shares (the “2022 USD Financing Warrants”) at a combined offering price of $4.25 per Common Share, for net proceeds of $27.5 million after deducting underwriting discounts and commissions and offering costs. Each 2022 USD Financing Warrant is immediately exercisable for one Common Share at an initial exercise price of $4.25 per Common Share, subject to certain adjustments and will expire on September 30, 2027.

Common Shares Reserved for Issuance

A summary of shares reserved for issuance as of December 31, 2022 is summarized below:

Options issued and outstanding under stock option plan 2,190,315

Vested and unissued RSUs 47,589

Shares available for grant under stock option plan 1,936,174

Total shares reserved for issuance 14,167,866

8.

WARRANTS

The following table summarizes warrant activity for the year ended December 31, 2022.

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The following table summarizes warrant activity for the year ended December 31, 2021.

The weighted average market fair value of shares purchased through warrant exercises during the years ended December 31, 2022 and 2021 was CAD$11.85 and CAD$68.25, respectively.

2022 USD Financing Warrants

On September 30, 2022, the Company closed an underwritten public offering of 7,058,823 Common Shares and accompanying warrants to purchase 7,058,823 Common Shares (see Note 7) at a combined offering price of $4.25 per Common Share, for net proceeds of $27.5 million after deducting underwriting discounts and commissions and offering costs. Each 2022 USD Financing Warrant is immediately exercisable for one Common Share at an initial exercise price of $4.25 per Common Share, subject to certain adjustments and will expire on September 30, 2027.

The below table represents the activity associated with the Company's outstanding liability classified 2022 USD Financing Warrants for the year ended December 31, 2022:

2022 USD FinancingWarrants WeightedAverage ExercisePrice (USD$)

Balance at December 31, 2021 — —

Exercised — —

Expired — —

The 2022 USD Financing Warrants are liability classified due to being denominated in USD and not the Company's functional currency. Accordingly, the 2022 USD Financing Warrants are recognized at fair value upon issuance and are adjusted to fair value at the end of each reporting period. Any change in fair value is recognized on the consolidated statements of operations. Issuance costs of $1.5 million related to warrants were expensed within general and administrative expense on the consolidated statements of operations.

Balance at December 31, 2021 $ —

Warrant liability at issuance 17,747

Change in fair value of the warrant liability (7,843 )

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9.

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 terms of an arrangement agreement (the “Arrangement”) entered into by the Company on October 15, 2019 in connection with the completion of its reverse acquisition, which completed on February 27, 2020 (the “Transaction”) and is authorized to issue 15% of the Company’s outstanding Common 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 2.5 - 6.1 years 2.7 - 3.6 years

Expected dividend yield 0% 0%

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, 2022 was CAD$13.06. The aggregate fair value of options vested during the year ended December 31, 2022 was $9.7 million. The expense recognized related to options during the year ended December 31, 2022 was $6.7 million.

Restricted Share Units

The Company has adopted a Performance and Restricted Share Unit 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 common shares on the day prior to the grant.

Number of RSUs Weighted Average Grant Date Fair Value (CAD$)

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The fair market value of RSUs vested during the year ended December 31, 2022 was $4.0 million. The expense recognized related to RSUs during the year ended December 31, 2022 was $6.9 million.

Modification of Stock Options and RSUs

The Company modified the option awards and RSUs of certain employees and non-employees to accelerate the vesting and continue the vesting of 603,125 and 470,813 unvested options and 26,042 and 132,410 RSUs during 2022 and 2021, respectively, 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 2022 and 2021, the Company recognized $0.7 million and $21.9 million of incremental compensation cost, respectively, 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 Common Share on the NEO Exchange for 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

Settled —

For the year ended December 31, 2022 stock-based compensation expense of a nominal amount 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 71,478 DDSUs vested as of December 31, 2022. The liability associated with the outstanding vested DDSU’s was $0.1 million as of December 31, 2022 and was recorded to accrued expenses in the accompanying consolidated balance sheets.

Director Share Compensation

On September 16, 2019, the Company entered into an agreement with an individual pursuant to which the individual agreed to: (i) join the Board, (ii) obtain a loan (the “Loan”) of $0.5 million for the sole purpose of acquiring 333,333 Common Shares, and (iii) purchase 333,333 Common Shares for $0.5 million.

The Loan was accounted for as an option since the Company does not have full recourse to the outstanding loan balance. In the event the director ceases to be a member of the Board, the Common 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 Common Shares as outstanding. The Company estimated the grant-date fair value of the Loan, which was recorded as share-based compensation expense over a two-year vesting period with a corresponding amount to additional paid-in capital. During the year ended December 31, 2021, the Company recognized $0.2 million in compensation expense in relation to this arrangement and issued 119,016 Common Shares to the director. During the year ended December 31, 2022, the Company did not recognize any compensation expense or issue any Common Shares to the director in relation to this arrangement.

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Stock-based Compensation Expense

Stock-based compensation expense for all equity arrangements for the years ended December 31, 2022 and 2021 was as follows (in thousands):

Year Ended December 31,

Total share-based compensation expense $ 13,707 $ 42,716

As of December 31, 2022, there was approximately $16.0 million 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 2.6 years. As of December 31, 2022, there was approximately $18.7 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 2.7 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 $ (11,926 ) $ (19,781 )

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

Nondeductible permanent items 224 46

Warrant fair value adjustment (3,240 ) —

Capitalized research expenses — 4,316

Net operating losses — (466 )

The difference between the statutory federal income tax rate and the Company’s effective tax rate in 2022 and 2021 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 )

The following table provides the effect of temporary differences that created deferred income taxes as of December 31, 2022 and 2021. 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:

Share issuance costs 2,944 —

Capitalized R&D 4,595 —

Lease liability 35 —

Net deferred income tax assets 32 2,057

Deferred tax liabilities:

Right of use asset (32 ) —

Unrealized gain/loss — (620 )

Intangible assets — (1,427 )

Property and equipment — (10 )

Other — —

Total deferred tax liabilities (32 ) (2,057 )

Net deferred income tax liability $ — $ —

As of December 31, 2022 and 2021, 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, 2022 and 2021. Accordingly, a valuation allowance of $36.1 million has been recorded to offset this deferred tax asset. The valuation allowance increased by $0.3 million for the year ended December 31, 2022.

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As of December 31, 2022, the Company has accumulated federal and state net operating loss (“NOL”) carryforwards of $98.1 million and $19.8 million, respectively. The federal NOL carryforwards can be carried forward indefinitely, subject to 80% taxable income limitation. Of the $19.8 million of state NOL carryforwards, $0.2 million can be carried forward indefinitely and $19.6 million expire beginning December 31, 2028.

As of December 31, 2022 the Company had combined foreign net operating loss carryforwards available to reduce future taxable income of approximately $12.3 million, of which $0.1 million carryforward indefinitely, $9.6 million begin to expire in 2040, and $2.6 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, 2022 and 2021 the Company did not have a liability for unrecognized tax benefits.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2022 and 2021, interest and penalties recognized were insignificant.

In December 2019, the FASB issued an ASU that simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 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. This ASU is effective for annual periods and interim periods for those annual periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this standard effective January 1, 2021, the adoption had no impact on the consolidated financial statements.

The Tax Cuts and Jobs Act subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred.

11.

COMMITMENTS AND CONTINGENCIES

As of December 31, 2022 and 2021, the Company has obligations to make future payments, representing significant research and development contracts and other commitments that are known and committed in the amount of approximately $31.6 million and $29.3 million, respectively. Most of these agreements are cancelable by the Company with notice. These commitments include agreements related to the conduct of the clinical trials, sponsored research, manufacturing and preclinical studies.

The Company enters into research, development and license agreements in the ordinary course of business where the Company receives 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 are uncertain.

The Company periodically enters into research and license agreements with third parties that include indemnification provisions customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of claims arising from research and development activities undertaken by or on behalf of the Company. 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 the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the consolidated financial statements with respect to these indemnification obligations.

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Operating Lease Agreement

During April 2022, the Company entered into a 3-year operating lease for office space located in North Carolina. Total lease payments under the lease amount to approximately $0.2 million and the Company recorded a related right-of-use asset and related lease liability upon lease commencement of approximately $0.2 million. Upon the expiration of the initial term of the lease, the Company has the option to extend the term of the lease for an additional 5-year period. The right-of-use asset is recorded in other non-current assets in the accompanying consolidated balance sheet. The current portion of the lease liability is recorded in accrued expenses and the noncurrent portion is recorded in other liabilities, long-term in the accompanying consolidated balance sheet. The incremental borrowing rate utilized in the determination of the lease liability was 8.0%.

12.

RELATED PARTY TRANSACTIONS

The Company had no related party transactions during the year ended December 31, 2022. The Company paid professional fees of approximately $1.1 million and corporate legal fees of approximately $0.8 million to entities controlled by a former director of the Company during the year ended December 31, 2021.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management including our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. As of December 31, 2022, our Chief Executive Officer and Chief Financial Officer carried out an evaluation with the participation of management of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). Management conducted an assessment of our internal control over financial reporting based on the framework established in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on the assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting was effective.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting as required by Section 404(c) of the Sarbanes Oxley Act of 2002. Because we qualify as an emerging growth company under the JOBS Act, management’s report was not subject to attestation by our independent registered public accounting firm.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Securities Exchange Act of 1934 that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.