AI assistant
Lancaster Resources Inc. Management Reports 2023
47911_rns_2023-03-29_4d46eaa4-97d1-4b61-b1de-b33c01ff09a3.pdf
Management Reports
Open in viewerOpens in your device viewer
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Years Ended November 30, 2022 and 2021
March 29, 2023
This Management's Discussion and Analysis ("MD&A") relates to the financial position and financial performance of NeonMind Biosciences Inc. ("NeonMind" and the "Company") for the years ended November 30, 2022 and 2021. All references to "us" "we" and "our" refer to NeonMind.
Except where otherwise indicated, the financial information contained in this MD&A was prepared in accordance with International Financial Reporting Standards ("IFRS"). This MD&A should be read in conjunction with our audited financial statements for the years ended November 30, 2022 and 2021 (referred to as the "Financial Statements").
Financial information contained in this MD&A has been prepared on the basis that we will continue as a going concern, which assumes that we will be able to realize our assets and satisfy our liabilities in the normal course of business for the foreseeable future. Management is aware, in making its going concern assessment, of material uncertainties related to events and conditions that may cast significant doubt upon our ability to continue as a going concern.
The Company has incurred a net loss from continuing operations of \$2,034,352 and used \$1,080,848 of cash for operating activities from continuing operations during the year ended November 30, 2022. As of November 30, 2022, the Company had an accumulated deficit of \$15,123,243 and working capital deficit of \$555,058. The continued operations of the Company are dependent on future profitable operations, management's ability to manage costs, and the future availability of equity or debt financing. Whether and when the Company can generate sufficient operating cash flows to pay for its expenditures and settle its obligations as they fall due is uncertain. As of November 30, 2022, the development of the Company's business was on hold pending additional funding required. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and statement of financial position classifications that would be necessary were the going concern assumption be inappropriate. The impact of these adjustments could be material.
The outbreak of the coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the Canadian and global economies, disruptions of financial markets. The COVID-19 pandemic has impacted and could further impact the Company's operations and the operations of the Company's suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company's business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to the duration, spread, severity, and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on the Company's suppliers and vendors and the remedial actions and stimulus measures adopted by local and federal governments, and to what extent normal economic and operating conditions can resume. The management team is closely following the progression of COVID-19 and its potential impact on the Company and is working on alternative measures and resources to minimize such impact. Even after the COVID-19 pandemic has subsided, the Company may experience adverse impacts to its business as a result of any economic recession or depression that has occurred or may occur in the future. Therefore, the Company cannot reasonably estimate the impact at this time our business, liquidity, capital resources and financial results.
Except where otherwise indicated, all financial information is expressed in Canadian dollars.
As at the date of the MD&A, further development of operations and continuation of our normal business activities requires securing additional funding.
CORPORATE OVERVIEW
We were incorporated under the laws of the province of British Columbia, Canada on September 18, 2019 and are extra provincially registered in Ontario. We were developing two divisions, (i) a pharmaceutical division engaged in drug development of psychedelic compounds, and (ii) a medical services division, which is in the development stage.
In our pharmaceutical division, we were developing two distinct psilocybin drug development programs targeting obesity. Psilocybin is a complex organic compound found naturally in a wide range of different species of mushrooms, known as psychedelic mushrooms ("psilocybin"). Psychedelics are a hallucinogenic class of psychoactive drugs whose primary action is to trigger psychedelic experiences via serotonin 2A receptor agonism, causing specific psychological, visual and auditory changes, and altered states of consciousness. Our first drug candidate aimed to use synthetic psilocybin to enhance a patient's ability to adopt behaviours that cause weight loss and maintain that loss through psychedelic-assisted cognitive therapy. The second drug candidate proposed low dose synthetic psilocybin as a treatment to suppress appetite.
DEVELOPMENT OF BUSINESS
We completed our IPO, which was oversubscribed, and the broker exercised their full over-allotment issuance, and our common shares were listed on the Canadian Securities Exchange under the ticker symbol "NEON". We raised funds from the IPO in the gross amount of \$4,600,000.
On January 18, 2021, our common shares were listed on the Frankfurt Stock Exchange and on May 28, 2021, our common shares began trading on the OTCQB under the ticker symbol "NMDBF".
On March 2, 2021, announced proprietary data from our initial Preclinical Trial at UBC demonstrating that both low and high dose psilocybin successfully reduced weight gain within 5 days in an animal model.
From January to March 2021, we added significantly to our drug development team with six expert consultants across North America experienced in the areas of therapeutic drug development, psilocybin research, eating disorders and obesity research and treatment, drug manufacturing, business development and product development.
In February 2021, we purchased an initial order of GMP (good manufacturing practices as mandated by Canadian regulations) grade psilocybin from Psygen Labs Inc. for our planned phase 2 human clinical trial expected to begin in Q2 2022.
In March 2021 we engaged Certara, a global leader in model-informed drug development, to provide strategic integrated drug development support for the investigation of our psilocybin based drug candidates for the treatment of obesity and to provide us with an integrated development plan.
In April, we announced a New Specialty Clinics Division for the delivery of evidence-backed innovative treatments for a variety of mental health needs. This will include psychedelic modalities and other newer treatments for mood disorders such as depression.
We appointed Ernie Ho, VP, Corporate Development with his initial focus to be the development of the team to build out medical services as well as to identify and assess partnership and acquisition targets.
In May 2021, we formed a Specialty Medical Clinic Advisory Board to guide the planning and operation of NeonMind branded clinics across Canada. Members of the advisory board will be composed of experts on provincial and local health care access and advocacy, ketamine treatment and psychotherapy protocols, and clinical operations, strategy, and growth.
In June 2021, we finalized target product profiles, establishing optimal and minimally acceptable profiles for a successful program considering medical needs, differentiation strategy, target use and access to medicine strategy. Dr. Panenka also ceased to be a member of the Advisory Board.
In July 2021, Trevor Millar resigned as Chief Psychedelic Officer. Mr. Millar and Dr. Sagar Parikh were both appointed to the Advisory Board, and in September 2021, Dr. Roumen Milev and Dr. Gustavo Vazquez were appointed to the Advisory Board.
In August 2021, we reorganized our Pharmaceutical Division to accelerate the execution of our Integrated Drug Development Plan for NEO-001 to treat obesity and established an R&D Advisory Board. As part of the reorganization, Philippe Martin was appointed Chairman of the Company's R&D Advisory Board.
In September 2021, we completed a strategic review of our long-term strategy, while electing to focus on our core competencies of drug development and deployment of medical services we identified non-core assets for divestiture including our Consumer Products Division and our financial position in TLS
On September 16, 2021, a Type B pre-IND Meeting Request was submitted to the DDLO at the Food and Drug Administration (FDA) in support of our lead drug candidate NEO-001.
On September 22, 2021, we appointed Dr. Gustavo Vazques, MD, PhD, a Professor of Psychiatry at Queen's University in Kingston, Ontario, and a noted expert in mood disorders and ketamine utilization, to our Specialty Clinics Advisory Board.
In November 2021, we formed a strategic alliance with SRx Health Solutions ("SRx"), a leading Canadian specialty healthcare services and medical treatment provider, to establish and operate a network of NeonMind-branded specialty clinics to deliver evidence-backed innovative treatments for a variety of mental health needs. We will leverage SRx's nationwide network of over 70 clinics, as well as its operational capabilities, to bring our unique treatment protocols to underserved populations in Canada.
On November 23, 2021, we successfully completed pre-IND consultation with the FDA, regarding proposed clinical trials for our lead obesity drug candidate, NEO-001. The Company expects to initiate a Phase 1/2 clinical study in 2022.
On January 13, 2022, we appointed Dr. Daniel Bainbridge, MD, FRCPC, past President of the Canadian Anesthesiologists Society, Professor from the Department of Anesthesia and Perioperative Medicine at the University of Western Ontario, and Anesthesia Consultant at London Health Sciences Centre, to our Specialty Clinics Advisory Board.
On February 17, 2022, we signed an agreement with SRx Health Solutions ("SRx") to open the Company's inaugural NeonMind specialty mental health clinic, located at the Queensway Professional Medical Centre in Mississauga, Ontario. The Mississauga location is the first in NeonMind's initiative to establish a national network of NeonMindbranded specialty clinics. These clinics will focus on delivering high-demand mental health treatments to underserved areas of Canada. The specialty services to be offered will incorporate innovative, evidence-based interventional psychiatric treatments for a variety of mood and anxiety disorders. The Mississauga clinic is expected to start seeing patients in the second half of 2022
On February 23, 2022, we announced the appointment of Dr. Dinesh Bhayana, MD, CCFP (EM), as Site Medical Director for our previously announced clinic location in Mississauga, Ontario. Dr. Bhayana is highly qualified in the treatments NeonMind seeks to provide, holding positions as Chief Medical Officer of Centre for Compassionate Care (C3) and Emergency and Addiction medicine physician with hospital privileges from Emergency Medicine and Psychiatry departments. Dr. Bhayana's scope of practice includes provision of low dose intravenous ketamine in an outpatient clinic granted by the College of Physicians and Surgeons of Ontario.
On March 3, 2022, we expanded our clinic infrastructure network by forming an additional strategic alliance with another leading Canadian specialty healthcare services and medical treatment provider, BioScript Solutions ("BioScript"). We will leverage BioScript's nationwide network of over 100 clinics, as well as its operational capabilities, to bring our unique treatment protocols to underserved populations in Canada.
On March 22, 2022, we filed a new patent application with the United States Patent and Trademark Office related to a novel mechanism of weight loss targeted to specific fat subtypes.
On March 23, 2022, we released preclinical data demonstrating the efficacy of psilocybin in reducing weight gain in obese subjects. In previous preclinical studies, we have shown efficacy in reducing weight gain in healthy subjects with normal weight. This latest study suggests a broader therapeutic potential of psilocybin in weight management and supports the current development track of our drug candidates.
On March 23, 2022, we announced we were setting up to offer low dose intravenous ketamine therapy for mood and anxiety disorders (IV-Ket) as an initial treatment at its recently announced, inaugural specialty mental health clinic location in Mississauga, Ontario, pending clinic licensing.
On April 8, 2022, we closed a convertible debenture private placement offering (the "Offering''). Pursuant to the Offering, the Company issued 285 units at a price of \$1,000 per unit (the "Units") for gross proceeds of \$285,000, and 109 units at a price of \$1,000 per unit to settle accounts payable of \$109,000. Each Unit consists of one unsecured convertible debenture in the principal amount of \$1,000 and 2,375 warrants to purchase common shares of the Company.
On April 18, 2022, we completed a consolidation of our issued and outstanding common shares of the Company on the basis of one (1) post‐consolidation common share for every four (4) pre‐consolidation common shares. All share and per share amounts in this MD&A have been retroactively adjusted for the share consolidation.
During the year ended November 30, 2022, we implemented changes to our Board of Directors and senior management. Effective May 30, 2022, Rob Tessarolo was appointed as Chairman of the Board of NeonMind and resigned from his role as President and Chief Executive Officer. Penny White was appointed as Chief Executive Officer of NeonMind. Ms. White continues as a member of the Board of Directors and is no longer Executive Chairman of the Board. Also on May 30, 2022, Kari Richardson and Jeff B Smith resigned as Directors of the Board of Directors. Kari Richardson was appointed to serve on the Company's advisory board. Cole Drezdoff was appointed to the Board of Directors. On December 7, 2022, Rob Tessarolo was reappointed to the position of the President and the Chief Executive Officer.
On December 14, 2022, we announced that it had signed a binding letter agreement dated December 14, 2022 (the "Letter Agreement") with Lancaster Lithium Inc. ("Lancaster Lithium") whereby the parties have agreed to complete a reverse merger transaction that will result in Lancaster Lithium becoming a wholly-owned subsidiary of the Company. Lancaster Lithium is a private company which is committed to powering the transition to a low carbon economy through the acquisition, exploration and development of properties that are prospective for Lithium. It has the right to acquire 100% of the Alkali Flat Lithium Project ‐ a lithium brine exploration project located in southwestern New Mexico, USA. Subsequent to the year end, on March 21, 2023 we entered into a definitive merger agreement with Lancaster Lithium and our wholly owned subsidiary, 1405306 B.C. Ltd. to replace the Letter Agreement.
SELECTED ANNUAL INFORMATION
Management considers that the main indicators of our performance are the following: revenues, net income and loss, total assets, earnings or loss per share. The following information was derived from our financial statements for the years ended November 30, 2022 and 2021.
| 2022 | 2021 | ||
|---|---|---|---|
| Revenues | \$ | - \$ | - |
| Loss before other items | (1,751,370) | (7,776,382) | |
| Net Loss from continuing operations | (2,034,352) | (6,684,440) | |
| Basic and diluted loss per shares from continuing operations | (1.80) | (6.80) | |
| Total Assets | 129,430 | 1,339,124 | |
| Dividends declared and paid out in cash | - | - |
OVERALL PERFORMANCE
For the years ended November 30, 2022 and 2021, we did not recognize any revenue. Our Pharmaceutical Drug Development Division and Medical Services Division are in a research and development stage and did not generate any revenue. In September 2021, we disposed of our consumer product assets as we determined such business did not fit our long-term strategies and the consumer product business was classified as discontinued operations.
For the years ended November 30, 2022 and 2021, we incurred a net loss from continuing operations of \$2,034,352 and \$6,684,440 respectively. The losses were primarily driven by investment in research and development and ongoing operating expenses in preparation of launching medical clinics and administrative expenses.
Due to limitations in funding, further development of our assets and business initiatives are on hold pending additional funding. We are actively seeking refinancing opportunities to resume our normal business activities.
DISCUSSION ON OPERATIONS
Revenue
We did not generate any revenue from continuing operations for the years ended November 30, 2022 and 2021. We disposed of our assets in the consumer products division in the prior year and business was discontinued. Our medical services division is actively preparing for the opening of our first specialty clinic located in Mississauga, Ontario, which is scheduled to receive patients in the second half of 2022.
Consulting fees
We engage consultants and contractors regularly to obtain expertise in various business areas. For the year ended November 30, 2022, we incurred consulting fees of \$397,942 as compared to \$216,788 in the prior year. The increase in consulting fees was driven by increased research and development activities during the year.
Depreciation
For the year ended November 30, 2022, we incurred depreciation expense of \$1,127, as compared to \$688 in the prior year. Depreciation expenses were related to office equipment assets.
Investor relations
For the year ended November 30, 2022, we incurred investor relations expenses of \$112,094 as compared to \$442,550 the prior year. We reduced activities in investor relations to reserve working capital.
Listing expenses
Listing fees were related to the application and ongoing fees for the listing of our common shares on the Canadian Securities Exchanges (CSE). For the year ended November 30, 2022, we incurred listing fees of \$6,000 as compared to \$19,785 for the prior year.
Marketing, publicity and digital media
Marketing, publicity and digital media expenses included advertising media spent to promote our corporate brand. For the year ended November 30, 2022, we recorded marketing, publicity and digital media expenses of \$320,162 as compared to \$1,786,672 in the prior year. The decrease in marketing, publicity and digital media expenses are due to cost saving measures to reserve working capital.
Office and administrative expenses
Office and administrative expenses primarily included insurance fees, broker and filing fees, and other general office expenses. For the year ended November 30, 2022, we recorded office and administration expenses of \$155,159 as compared to \$359,731 in the prior year. The decrease in office and administrative expenses was due to cost saving measures.
Pharmaceutical research and development
Pharmaceutical research and development expenses included costs of our medical research and our preclinical trials. For the year ended November 30, 2022, we incurred pharmaceutical research and development costs of \$149,018 as compared to \$1,356,291 in the prior year. We have obtained positive pre-clinical results and are preparing to submit an IND to the FDA in support of advancing the development of NEO-001 into human trials.
Professional fees
Professional fees include legal, recruitment, accounting, audit and taxation fees. For the year ended November 30, 2022, we incurred professional fees of \$159,892 as compared to \$454,424 in the prior year. The decrease was primarily driven by legal and accounting fees related to the IPO process, as well as recruitment fees to expand the team in the prior year.
Share-based compensation
As at November 30, 2022, we had 197,709 stock options (November 30, 2021 – 162,013) and 8,334 restricted share units (November 30, 2021 – 54,167) outstanding for our directors, officers, employees and consultants, and we recorded share-based compensation expense of \$166,077 for the year ended November 30, 2022, as compared to expenses of \$2,499,933 in the prior year. We expect to continue to utilize stock options, and other forms of equity instruments, to incentivize our teams.
Wages
Wages for the year ended November 30, 2022 were \$283,899, as compared to \$639,520 in the prior year. The decrease in wages was driven by downsizing of the team to reserve working capital.
Other Items
During the year ended November 30, 2022, we incurred other expense of \$282,982 as compared to other income of \$1,091,942 for the prior year. Below is a list of other items for the year ended November 30, 2022 and 2021.
| Year ended November 30, |
||
|---|---|---|
| 2022 | 2021 | |
| Accretion | (178,419) | (403) |
| Foreign exchange loss | (22,550) | (8,569) |
| Gain on extinguishment of debt | 165,663 | 576,383 |
| Gain on reclassification of investment | - | 93,027 |
| Gain sale of investment | - | 450,000 |
| Loss on sale of marketable securities | (12,960) | - |
| Interest expense | (101,090) | (33,034) |
| Loss on disposal of equipment | (1,566) | - |
| Share of net loss of equity accounted investee | - | (54,212) |
| Unrealized loss on marketable securities | (132,060) | - |
| Total other items | (282,982) | 1,091,942 |
Net loss from continuing operations
We incurred a net loss from continuing operations of \$2,034,352 for the year ended November 30, 2022, as compared to \$6,684,440 in the prior year. Loss per share from continuing operations on a basic and fully diluted basis was \$1.80 for the year ended November 30, 2022, compared to \$6.80 for the prior year.
Discontinued operations
During the year ended November 30, 2021, we divested our consumer product business, and it was considered as discontinued operations. We did not incur any loss from discontinued operations during the year ended November 30, 2022. We incurred a net loss from discontinued operations of \$523,067 in the prior year.
Dividends
No dividends were declared or paid for the years ended November 30, 2022 and 2021.
SUMMARY OF QUARTERLY RESULTS
The summary of our quarterly results are as follows:
For the quarters ended:
| Nov 30, 2022 |
Aug 31, 2022 |
May 31, 2022 |
Feb 28, 2022 |
|
|---|---|---|---|---|
| Net loss from continuing operations | \$ 178,614 |
\$ 74,066 |
\$ 900,118 |
\$ 881,554 |
| Net loss from discontinued operations | - | - | - | - |
| Net loss | 178,614 | 74,066 | 900,118 | 881,554 |
| Basic and diluted loss per share from continuing operations |
0.15 | 0.06 | 0.80 | 0.79 |
| Basic and diluted loss per share from discontinued operations |
0.00 | 0.00 | 0.00 | 0.00 |
| Nov 30, | Aug 31, | May 31, | Feb 28, | |
|---|---|---|---|---|
| 2021 | 2021 | 2021 | 2021 | |
| Net loss from continuing operations | \$ 595,101 |
\$ 1,259,203 | \$ 2,487,608 | \$ 2,342,528 |
| Net loss from discontinued operations | 55,001 | 174,234 | 156,305 | 137,527 |
| Net loss | 650,102 | 1,433,437 | 2,643,913 | 2,480,055 |
| Basic and diluted loss per share from continuing operations |
0.57 | 1.21 | 2.26 | 2.76 |
| Basic and diluted loss per share from discontinued operations |
0.05 | 0.17 | 0.15 | 0.16 |
LIQUIDITY
| November 30, 2022 | November 30, 2021 | |||
|---|---|---|---|---|
| Current ratio(1) | 0.2 | 2.2 | ||
| Cash | \$ 35,817 |
\$ | 773,525 | |
| Working capital surplus (deficit) (2) | \$ (555,018) |
\$ | 737,611 | |
| Debt (3) | \$ 846,937 |
450,009 | ||
| Equity (Deficit) | \$ (1,401,995) |
\$ | 290,295 |
(1) Current ratio is current assets divided by current liabilities.
(2) Working capital is current assets minus current liabilities.
(3) Debt consisted of the fair value of convertible debentures.
Cash Position
As at November 30, 2022, we had \$35,817 in cash. During the year ended November 30, 2022, we spent \$1,080,848 of cash in operating activities from continuing operations primarily to finance operating expenses including research and development, marketing, publicity and digital media, and wages. Cash used in operating activities from continuing operations for the prior year was \$5,205,151. The decrease in cash used in operating activities was driven by cost saving and cost reduction initiatives and the delay of business initiatives awaiting new capital. Cash provided by investing activities was \$72,140 for the year ended November 30, 2022 through sales of marketable securities and redemption of GIC, as compared to cash provided by investing activities of \$389,118 for the prior year mostly generated from disposal of marketable securities offset by investment in GIC. Cash provided by financing activities was \$271,000 for the year ended November 30, 2022 from issuance of additional convertible debentures as compared to \$6,204,193 for the prior year, primarily from IPO fund raising.
Working Capital
We had a working capital deficit of \$555,018 as at November 30, 2022, which primarily consisted of cash, marketable securities, taxes receivable and prepaid expenses and deposits, offset by accounts payable. We had working capital of \$737,611 as at November 30, 2021. The increase in working capital deficit was primarily driven by decrease in cash balances spent on operating expenses.
As at the date of the MD&A, we are experiencing difficulties in obtaining sufficient working capital, and further development of our assets is on hold pending additional funding required. We are actively seeking refinancing opportunities to resume our normal business activities.
RESULTS OF THE FOURTH QUARTER
| Three months ended Nov 30, 2022 |
||||
|---|---|---|---|---|
| Net loss from continuing operations | \$ 178,614 |
|||
| Net loss from discontinued operations | - | |||
| Net loss | 178,614 | |||
| Basic and diluted loss per share from continuing operations | 0.15 | |||
| Basic and diluted loss per share from discontinued operations | 0.00 |
CAPITAL RESOURCES AND MANAGEMENT
As at November 30, 2022, we had \$35,817 in cash. We are authorized to issue an unlimited number of common shares. As at November 30, 2022, there were 1,206,749 common shares issued and outstanding. We had 125,842 share purchase warrants outstanding with weighted average exercise price of \$15.0 per share. We had 197,709 stock options outstanding with weighted average exercise price of \$5.55 per share. We also had 8,334 restricted share units outstanding.
Convertible debentures
- On November 29, 2021, we issued convertible debentures in an aggregated amount of \$750,000. The convertible debentures carry an annual coupon rate of 10% payable semi-annually and matures in two years. The debentures are convertible into the company's common shares at \$14.40 per share anytime before or when they mature. Along with the convertible debentures, the Company issued 50,000 warrants to the debenture holders. Each warrant can be exercised to purchase one additional common share at \$16.80 per shares for a period of 36 months.
- On April 8, 2022, we issued 285 convertible debenture units at a price of \$1,000 per unit for gross proceeds of \$285,000, and 109 convertible debentures units at a price of \$1,000 per unit to settle accounts payable of \$109,000. The convertible debentures carry an annual coupon rate of 10% payable semi-annually and matures in two years. The debentures are convertible into the company's common shares at \$9.00 per share anytime before or when they mature. Along with the convertible debentures, we issued 31,192 warrants to the debenture holders. Each warrant can be exercised to purchase one additional common share at \$9.60 per shares for a period of 36 months.
Our objective is to maintain a capital base to support the development of the business through equity issuance and strategic alliances. As at the date of this MD&A, we are experiencing difficulties in obtaining sufficient funding to support our business activities due to unfavourable market conditions. Further development of our assets and business initiatives is pending additional funding required. We are actively seeking alternate value creation strategies which could include refinancing opportunities, divestiture opportunities, and/or merger options.
OFF-BALANCE SHEET ARRANGEMENTS
As at November 30, 2022 and 2021, we had no off-balance sheet arrangements.
RELATED PARTY TRANSACTIONS
During the years ended November 30, 2022 and 2021, compensation of key management personnel and related parties were as follows:
| Year ended | ||||
|---|---|---|---|---|
| November 30, | ||||
| 2022 2021 |
||||
| Consulting fees | \$ | 356,088 | \$ | 216,788 |
| Share-based compensation | 167,662 | 2,171,336 | ||
| Wages | 268,333 | 615,799 | ||
| \$ | 792,083 | \$ | 3,003,923 |
As at November 30, 2022, Better Plant Sciences Inc. ("Better Plant"), a company with common officers and directors, held a deposit of \$nil (2021 - \$10,000) from the Company, which was included in prepaid expenses and deposits. As at November 30, 2022, the Company owed \$7,713 (2021 - \$16,948) to Better Plant, which is included in due to related party. The balance is unsecured, non-interest bearing, and due on demand.
During the year ended November 30, 2022, the Company incurred marketing expenses of \$2,693 (2021 - \$59,719), investor relations expenses of \$30,000 (2021 - \$53,639), professional fees of \$54,211 (2021 - \$138,307), office and administrative expenses of \$18,299 (2021 - \$62,121), and pharmaceutical research and development expenses of \$nil (2021 - \$65,140) from Better Plant. Better Plant provided such services to the Company pursuant to an operating agreement dated August 30, 2020.
On September 10, 2021, the Company entered into an agreement with Better Plant for the sale of functional food assets related to the Company's consumer division. The following assets were transferred by the Company to Better Plant: four mushroom coffee products being sold in Canada at the time of sale and four mushroom coffee dietary products, including existing inventory, raw materials and packaging for all eight products, social media accounts related to the products, a domain neonmind.com and the neonmind.com Shopify-enabled website in Canada and the US, as well as associated marketing materials and a license to use the brand NeonMind in association with the products.
As consideration for the assets, Better Plant paid \$645,000 including taxes, which was offset by the balance due on a promissory note of a remaining balance of \$645,000 owed by the Company to Better Plant. The fair value of the assets sold was determined to be \$68,617, resulting in a gain on extinguishment of debt of \$576,383. In addition, a 3% royalty of net product sales for a term of 25 years will be payable to the Company after the Better Plant reaches cumulative net product sales of over \$1,000,000. For the year ended November 30, 2022 and 2021, the Company did not earn any royalty revenues from Better Plant.
During the year ended November 30, 2022, the Company entered into debt settlement agreements with various related parties, in order to settle outstanding accounts payable and accrued liabilities with a fair value of \$165,663 (2021 - \$nil) for a nominal amount, resulting in a gain on extinguishment of debt on the statement of operations.
During the year ended November 30, 2022, the Company issued 129,166 common shares to directors and officers of the Company with fair value of \$382,500, pursuant to pursuant to the conversion of fully vested restricted share units.
As at November 30, 2022, the Company owed \$4,750 (2021 - \$nil) to a company controlled by the CFO of the Company, which is included in accounts payable and accrued liabilities. The amount owing is unsecured, non-interest bearing, and due on demand.
As at November 30, 2022, the Company owed \$20,000 (2021 - \$nil) to a director of the Company, Rob Tessarolo, which is included in accounts payable and accrued liabilities. The amount owing is unsecured, non-interest bearing, and due on demand.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income, and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Significant areas requiring the use of estimates include the useful life and carrying value of property and equipment, fair value of convertible debentures and share-based compensation, and measurement of unrecognized deferred income tax assets.
Judgments made by management in the application of IFRS that have a significant effect on the condensed interim financial statements include the factors that are used in determining whether the Company has significant influence over another entity, and the application of the going concern assumption which requires management to consider all available information about the future, which is at least but not limited to 12 months from the end of the reporting period.
We had previously determined that it had significant influence in Komo Foods despite holding less than 20% of the voting rights in Komo Foods because we share a common CFO, and the fact that we and Komo Foods entered into a license agreement that was a key component of Komo Food's business in prior periods. As a result, Komo Foods was considered an associate of the Company, and the investment in Komo Foods was accounted for using the equity method. The equity method involves recording the initial investment at cost and subsequently adjusting the carrying value of the investment for our proportionate share of the profit or loss, other comprehensive income or loss and any other changes in the associate's net assets, such as further investments or dividends. During the year ended November 30, 2021, Komo Foods entered into a merger agreement and management determined that significant influence in Komo Foods no longer existed and we reclassified its investment to fair value through profit and loss under IFRS 9, Financial Instruments.
CHANGES IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION
Certain pronouncements have been issued by the IASB, or the IFRS Interpretations Committee that are not mandatory for the current period and have not been early adopted. Management has assessed that there are no future accounting pronouncements that are expected to have a material impact on the Company in the current or future reporting periods.
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair Values
Assets and liabilities measured at fair value on a recurring basis were presented on the statement of financial position as at November 30, 2022, as follows:
| Fair Value Measurements Using | ||||||||
|---|---|---|---|---|---|---|---|---|
| Quoted prices in active markets for identical instruments (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Balance, November 30, 2022 |
|||||
| Marketable securities Convertible debentures |
\$ | 34,090 – |
\$ | – 846,937 |
\$ | – – |
\$ | 34,090 846,937 |
| \$ | 34,090 | \$ | 846,937 | \$ | – | \$ | 881,027 |
The fair values of other financial instruments, including cash, accounts payable and accrued liabilities, and amount due to related party approximate their carrying values due to the relatively short-term maturity of these instruments.
Credit Risk
Credit risk is the risk of loss that may arise on outstanding financial instruments should a counter-party default on its obligation. The Company's credit risk is primarily attributable to cash. The Company minimizes its credit risk associated with its cash balance by dealing with major financial institutions in Canada and has no other significant concentration of credit risk arising from operations. The carrying amount of financial assets represents the maximum credit exposure.
Foreign Exchange Rate and Interest Rate Risk
The Company is not exposed to any significant foreign exchange rate or interest rate risk.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Company manages liquidity risk by maintaining sufficient cash balances and adjusting its operating budget and expenditure. Liquidity requirements are managed based on expected cash flows to ensure that there are sufficient funds to meet short-term and specific obligations.
Price Risk
The Company is exposed to price risk with respect to its marketable securities, which consists of common shares held in publicly-traded companies and is dependent upon the market price or the fair value of the common shares for those companies. The market price or the fair value of the common shares of those companies can fluctuate significantly, and there is no assurance that the future market price or the fair value of those companies will not decrease significantly.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that all material information related to NeonMind, including our consolidated subsidiaries, is made known to senior management, including the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") on a timely basis so that appropriate decisions can be made regarding public disclosure.
Internal Control over Financial Reporting ("ICOFR")
Our management, with the participation of our CEO and CFO, are responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision of the CEO and CFO, our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Our internal control over financial reporting includes policies and procedures that:
- pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of NeonMind;
- provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS and that our receipts and expenditures are made only in accordance with authorization of management and our directors; and
- provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the annual or interim financial statements.
Limitations on the Effectiveness of Disclosure Controls and the Design of ICOFR
Our management, including the CEO and CFO, do not expect that our disclosure controls and procedures and ICFR will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system objectives will be met. The likelihood of achievement is affected by limitations inherent in all internal control systems. These inherent limitations include the realities that judgments or decision making can be faulty, and that breakdowns occur because of simple errors or mistakes. Controls can also be circumvented in numerous ways including collusion, overrides and deception. In addition to the inherent limitations, the design of a control system must reflect that there are resource constraints, and the expected benefit of controls must be considered relative to the expected costs. Due to inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Further, no evaluation of controls can provide absolute assurance that all control issues within a company will be detected.
SUBSEQUENT EVENTS
On December 14, 2022, the Company signed a binding letter agreement with Lancaster Lithium Inc. ("Lancaster Lithium") whereby the parties have agreed to complete a reverse merger transaction that will result in Lancaster Lithium becoming a wholly-owned subsidiary of the Company (the "Transaction").
Lancaster Lithium is a private company which is committed to powering the transition to a low carbon economy through the acquisition, exploration and development of properties that are prospective for Lithium. It has the right to acquire 100% of the Alkali Flat Lithium Project ‐ a lithium brine exploration project located in southwestern New Mexico, USA (the "Property").
Prior to the closing of the Transaction, the Company is obligated to complete the consolidation of shares at the ratio of one new share for every thirty existing shares (the "Consolidation") (completed on January 24, 2023). At the closing of the Transaction (the "Closing") the Company will acquire 100% of the outstanding securities in Lancaster Lithium in exchange for the issuance of post‐Consolidation shares of the Company on a 1:1 basis.
Prior to the Closing, Lancaster Lithium may complete a financing at a price of \$0.20 per unit to raise gross proceeds of up to \$1,000,000, with each unit to consist of one common share and one warrant to purchase a common share at \$0.40 per share for a period of 36 months (the "Lancaster Financing"). Prior to the Closing, the Company may complete a private placement at a price of \$0.20 per unit to raise gross proceeds of up to \$400,000 on terms similar to the Lancaster Financing.
The completion of the Transaction is subject to the satisfaction of various conditions that are customary for a transaction of this nature, including but not limited to (i) the delivery by Lancaster Lithium to the Company of a technical report on the Property substantially in compliance with the requirements of National Instrument 43‐101 Standards of Disclosure for Mineral Projects; (ii) the Company having entered into amending agreements with the holders of certain convertible debentures; (iii) the completion of the Consolidation; (iv) all related party debt of the Company being forgiven for nominal consideration, with the exception of \$40,000, which may be converted into units; (v) the Company and Lancaster Lithium obtaining all required director and shareholder approvals; and (vi) the receipt of all requisite regulatory, stock exchange or governmental authorizations and consents, including the authorization and consent of the CSE.
Subsequent to November 30, 2022, in preparation for the Transaction with Lancaster Lithium, the Company cancelled an aggregate of 124,747 stock options, 7,500 restricted share units, and 83,333 issued common shares, previously granted to certain directors and officers pursuant to the company's stock plan and the Company's RSU plan.
Subsequent to November 30, 2022, the Company settled accounts payable of \$400,745 (US\$296,672) for consideration of \$27,032 (US\$20,000).
On March 13, 2023, the Company incorporated a fully owned subsidiary, 1405306 B.C. Ltd. ("Subco").
On March 21, 2023, the Company signed a definitive merger agreement with Lancaster Lithium for a reverse merger transaction (the "Transaction"). After obtaining all necessary approvals, the Transaction will be completed via a three cornered amalgamation between the Company, Lancaster Lithium, and Subco. In this process, the Company will acquire 100% of the issued and outstanding Lancaster Lithium common shares in exchange for common shares of the Company on a 1:1 basis. The outstanding warrants and options of Lancaster Lithium will be exchanged into warrants and options of the Company on an identical basis. Upon closing the Transaction, the company resulting from the amalgamation of Lancaster Lithium and Subco will become a wholly-owned subsidiary of the Company, and the Company will change its name to Lancaster Lithium Inc. and continue to advance the Lancaster Lithium exploration and development strategy.
The closing of the Transaction is contingent upon several conditions, including approval from a special majority of Lancaster Lithium shareholders and approval from the Canadian Securities Exchange.