Psyence Group Inc. - Annual Report 2021

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Psyence Group Inc.

(Formerly Cardinal Capital Partners Inc.)

Consolidated Financial Statements

Period from May 21, 2020 (Date of incorporation of MindHealth Biomed Corp.) to March 31, 2021

Expressed in Canadian Dollars

(CAD $)

PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Management's Responsibility for Financial Reporting

The accompanying consolidated financial statements of the Company have been prepared by management in accordance with International Financial Reporting Standards. These consolidated financial statements contain estimates based on management’s judgment. Management maintains an appropriate system of internal controls to provide reasonable assurance that transactions are authorized, assets safeguarded, and proper records maintained.

The Audit Committee of the Board of Directors reviews the results of the annual audit and the consolidated financial statements prior to submitting the consolidated financial statements to the Board for approval.

The Company’s auditors, MNP LLP, are appointed by the shareholders to conduct an audit and their report follows.

“Jody Aufrichtig”

Chief Executive Officer

Toronto, Canada

June 30, 2021

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Independent Auditor’s Report

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To the Shareholders of Psyence Group Inc. (formerly Cardinal Capital Partners Inc.):

Opinion

We have audited the consolidated financial statements of Psyence Group Inc. (formerly Cardinal Capital Partners Inc.) and its subsidiaries (the "Company"), which comprise the consolidated statement of financial position as at March 31, 2021, and the consolidated statements of net loss and comprehensive loss, changes in equity and cash flows for the period from May 21, 2020 (date of incorporation) to March 31, 2021, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at March 31, 2021, and its consolidated financial performance and its consolidated cash flows for the period from May 21, 2020 to March 31, 2021 in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Information

Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor's report is Zhi Huang.

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Toronto, Ontario June 30, 2021

Chartered Professional Accountants Licensed Public Accountants

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Consolidated Statement of Financial Position as at March 31, 2021

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Note CAD $
ASSETS
Current assets
Cash and cash equivalents 7 6,096,074
Other receivables 8 181,780
Prepaids 42,727
Total current assets 6,320,581
Non-current assets
Property and equipment 9 392,405
Intangible assets 10 17,866
Total non-current assets 410,271
TOTAL ASSETS 6,730,852
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 11 227,577
Due to related parties 16 7,581
Current portion of lease liabilities 15 2,155
Total current liabilities 237,313
Non-current liabilities
Lease liabilities 15 54,621
Total non-current liabilities 54,621
TOTAL LIABILITIES 291,934
SHAREHOLDERS' EQUITY
Share capital 12 16,023,565
Options reserve 12 358,723
Warrants reserve 12 1,329,640
Foreign currency translation reserve 10,788
Deficit (11,283,798)
TOTAL SHAREHOLDERS' EQUITY 6,438,918
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 6,730,852
Nature of operations (Note 1)
Commitments (Note 20)
Subsequent events (Note 22)
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Approved on behalf of the Board of Directors.

“Jody Aufrichtig”

“Gavin Basserabie”

____ ____ Chief Executive Officer and Director Director

The accompanying notes are an integral part of the consolidated financial statements

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Consolidated Statement of Net Loss and Comprehensive Loss

For Period from May 21, 2020 (date of incorporation) to March 31, 2021

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Note CAD $
Expenses
Sales and marketing 109,994
Research and development 21,906
General and administrative 105,304
Professional fees and consulting fees 12,16 2,925,403
Depreciation and amortization 9,10 24,496
Listing expense 5 1,271,894
Consideration paid in excess of net assets acquired from acquisition 6 6,794,631
Loss before other items (11,253,628)
Other items
Accretion expense 15 (1,193)
Foreign exchange loss (28,977)
NET LOSS (11,283,798)
Other comprehensive income
Foreign exchange gain on translation 10,788
TOTAL COMPREHENSIVE LOSS (11,273,010)
Loss per share - basic and diluted 18 (0.22)
Weighted average number of outstanding shares - basic and
51,205,555
diluted
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The accompanying notes are an integral part of the consolidated financial statements

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Annual Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Consolidated Statement of Changes in Equity

For Period from May 21, 2020 (date of incorporation) to March 31, 2021

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Foreign
Total
Number of Share Warrants Options currency
Note Deficit shareholders'
shares capital reserve reserve translation
equity
reserve
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			$	$	$	$	$	$
Founder's share	12	1	-	-	-	-	-	-
Acquisition of Mind Health (Pty) Ltd.	12,13	24,000,000	390	-	-	-	-	390
Shares issued	12	34,720,517	9,302,882	-	-	-	-	9,302,882
Share issuance costs	12	-	(835,901)	208,252	-	-	-	(627,649)
Issuance of options	12	-	-	-	358,723	-	-	358,723
Issuance of warrants	12	-	-	735,323	-	-	-	735,323
Acquisition of Psyence Therapeutics Corp	6	18,000,000	6,300,000	386,065	-	-	-	6,686,065
Shares issued to Cardinal Capital
Partners Inc. in connection with reverse	5	3,822,379	1,256,194	-	-	-	-	1,256,194
take-over
Impacts of share exchange due to reverse take-over	12	4,986,034	-	-	-	-	-	-
Other comprehensive income		-	-	-	-	10,788	-	10,788
Net loss		-	-	-	-	-	(11,283,798)	(11,283,798)
Balance, March 31, 2021		85,528,931	16,023,565	1,329,640	358,723	10,788	(11,283,798)	6,438,918

The accompanying notes are an integral part of the consolidated financial statements

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Consolidated Statement of Cash Flows

For Period from May 21, 2020 (date of incorporation) to March 31, 2021

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Note CAD $
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Net Ioss		(11,283,798)
Non-cash adjustments:
Depreciation and amortization	9,10	24,496
Foreign exchange		11,005
Cost of acquisition	6	6,794,631
Listing expense	5	1,271,894
Share based compensation - warrants	12	735,323
Share based compensation - options	12	358,723
Accretion expense	15	1,193
Changes in non-cash working capital:
Other receivables		(181,163)
Prepaids		(24,983)
Accounts payable and accrued liabilities		81,840
Due to relatedparties		7,581
Cash used in operating activities		(2,203,258)
Additions of intangible assets	10	(18,324)
Additions to property and equipment	9	(357,941)
Increase in cash due to reverse take-over	5	3,499
Cash used in investing activities		(372,766)
Repayment of lease liabilities	15	(3,135)
Proceeds from shares issuance,net of issuance costs	12	8 675 233
Cashprovided from financing activities		8,672,098
Change in cash and cash equivalents		6,096,074
Cash and cash equivalents,beginningofperiod		-
Cash and cash equivalents, end of period		6,096,074

The accompanying notes are an integral part of the consolidated financial statements

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Notes to the Consolidated Financial Statements

1. Nature of operations

Psyence Group Inc. (formerly Cardinal Capital Partners Inc ( “Cardinal” )) (the “Company” or “PGI” ) is a life science biotechnology company pioneering the use of natural psychedelics in the treatment of psychological trauma and mental health disorders. The Company is also developing nutraceutical products for depression, acute anxiety and sleep disorders . Prior to January 19, 2021, the Company’s operations were conducted through MindHealth Biomed Corp. ( “MindHealth” ). MindHealth was incorporated under the laws of the province of British Columbia, Canada on May 21, 2020. On January 19, 2021, MindHealth changed its name to Psyence Biomed Corp. ( “PBC” ). The Company’s registered office is at 200 Bay Street, P. O. Box 10, Toronto, Ontario M5J 2J1.

On September 11, 2020, the Company and MindHealth (the "Parties" ) entered into a definitive agreement (the " Definitive Agreement ") pursuant to which the Parties intended to complete a business combination transaction, in which MindHealth acquired all of the issued and outstanding common shares of Cardinal, in a three-cornered amalgamation (the “ Transaction ”), involving the Company, MindHealth and 1264216 B.C. Ltd., a wholly owned subsidiary of the Company. The combined public company resulting from the Transaction (the "Resulting Issuer" or “Psyence Group Inc.”) would carry on the business of MindHealth. The transaction constitutes a “Qualifying Transaction” for Cardinal as defined in the TSX Venture Exchange Policy 2.4 – Capital Pool Companies.

In anticipation of the Transaction, pursuant to articles of amendment dated January 19, 2021, Cardinal completed the consolidation of common shares in the capital of Cardinal on the basis of one (1) postconsolidation Cardinal share for every 19.24 pre-consolidation Cardinal shares (the "Consolidation" ), resulting in approximately 3,822,379 common shares (note 5). Cardinal changed its name to "Psyence Group Inc." and the newly amalgamated wholly-owned subsidiary was named "Psyence Biomed Corp". Cardinal issued 1.0649 Cardinal common shares (on a post-Consolidation basis) for each MindHealth common share. All outstanding warrants and options of MindHealth issued prior to the transaction were cancelled and the Company issued 1.0649 warrants and options in the capital of the Resulting Issuer, as applicable, for each MindHealth warrant or option on the same terms and conditions as the respectively cancelled warrants and options granted by MindHealth. The transaction was completed on January 19, 2021 (refer to note 5).

During the period, there was a global outbreak of COVID-19, which had a significant impact on businesses as restrictions were put in place by governments regarding travel, business operations and isolation/quarantine orders. The financial performance of the Company has not been impacted until now. It is unknown the extent the impact the Coronavirus outbreak may have on the Company as this will depend on future developments that are highly uncertain and cannot be predicted with certainty. These uncertainties arise from the inability to predict the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place by governments. While the extent of the impact is unknown, the Company does not anticipate that the outbreak will impact its financial condition.

2. Basis of presentation

Statement of compliance

The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“ IFRS ”) issued by the International Accounting Standards Board (“ IASB ”).

The consolidated financial statements were authorized for issue on June 30, 2021 by the directors of the Company.

Basis of measurement

These consolidated financial statements have been prepared on an accrual basis, are based on historical costs and are presented in Canadian dollars, unless otherwise noted.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Functional and presentation currency

These consolidated financial statements are presented in Canadian Dollars ( “CAD $” ) , which is also PGI’s functional currency. The functional currency of PGI’s subsidiary, PBC, and Psyence Therapeutics Corp (“ PTC” ) is Canadian Dollars and Mind Health (Pty) Ltd, is the Lesotho Loti ( “LSL” ).

3. Significant accounting policies

Basis of consolidation

These consolidated financial statements incorporate the accounts of PGI and its subsidiaries. A subsidiary is an entity controlled by PGI and its results are consolidated into the financial results of the Company from the effective date of control up to the effective date of loss of control.

Control exists when an investor is exposed, or has rights, to variable returns from the involvement with the investee and has liability to affect those returns through its power over the investee. Where the Company’s interest is less than 100%, the Company recognizes non-controlling interests.

The subsidiaries of PGI that have been consolidated as of March 31, 2021 are as follows:

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Name of entity Place of incorporation % Ownership Accounting method
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Mind Health (Pty) Ltd.	Lesotho	100%	Consolidation
Psyence Biomed Corp.	British Columbia	100%	Consolidation
Psyence Therapeutics Corp.	Ontario	100%	Consolidation

Inter-company balances and transactions are eliminated upon consolidation.

Business combination

A business combination is a transaction or event in which an acquirer obtains control of one or more businesses and is accounted for using the acquisition method. The total consideration paid for the acquisition is the aggregate of the fair values of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree at the acquisition date. The acquisition date is the date on which the Company obtains control of the acquiree. The identifiable assets acquired, and liabilities assumed are recognized at their acquisition date fair values, except for deferred taxes and share-based payment awards where IFRS provides exceptions to recording the amounts at fair value. Acquisition costs are expensed as incurred to net loss.

Contingent consideration, if any, is measured at its acquisition date fair value and included as part of the consideration transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates with the corresponding gain or loss being recognized in net loss.

The Company measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount of the identifiable assets and liabilities assumed, all measured as of the acquisition date. Goodwill is initially recognized at cost as an asset and subsequently measured at cost less accumulated impairment. Goodwill is not amortized but is tested annually for impairment.

Common control transactions

A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately controlled by the same parties, both before and after the business combination, and control is not transitory. Business combinations involving entities under common control are outside the scope of IFRS 3 Business Combinations. IFRS provides no guidance on the accounting for these types of transactions. As a result, the Company was required to develop an accounting policy. The three most common methods utilized are the acquisition method, the predecessor values since inception method, and the predecessor values from the date of transaction method. The Company determined that the predecessor carrying value from date of transaction method to account for common control transactions is the most appropriate. This method requires the consolidated financial statements to be prepared using the predecessor carrying values without an adjustment to fair value. The consideration given is measured based on the aggregate carrying value

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

of the assets and liabilities acquired. Transaction costs associated with common control transactions are recognized as an expense in the period.

Loss per share

Basic loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of shares outstanding in the period. Diluted loss per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to purchase common shares at the average market price during the period. The impact of convertible securities issued during the period from May 21, 2020 (date of incorporation) to March 31, 2021 is anti-dilutive.

IFRS 9 Financial instruments

The Company recognizes a financial asset or a financial liability when, and only when, it becomes a party to the contractual provisions of the instrument. Such financial assets or financial liabilities are initially recognized at fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of financial instruments that are not classified as fair value through profit or loss.

The classification and measurement approach for financial assets reflect the business model in which assets are managed and their cash flow characteristics. Financial assets are classified and measured based on these categories: amortized cost, fair value through other comprehensive income ( “FVOCI” ) and fair value through profit and loss ( “FVTPL” ). Financial assets are not reclassified subsequent to their initial recognition unless the Company identifies changes in its business model in managing financial assets.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as FVTPL:

The financial asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to measure the investment at FVOCI whereby changes in the investment’s fair value (realized and unrealized) will be recognized permanently in OCI with no reclassification to profit or loss. The election is made on an investment-by-investment basis.

A financial asset shall be measured at FVTPL unless it is measured at amortized cost or at FVOCI.

Financial liabilities are classified and measured based on two categories - amortized cost or FVTPL:

Amortized cost

Financial liabilities are classified as measured at amortized cost unless they fall into one of the following categories: financial liabilities at FVTPL, financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, financial guarantee contracts, commitments to provide a loan at a below-market interest rate, or contingent consideration recognized by an acquirer in a business combination.

FVTPL

Financial liabilities are classified as FVTPL if they fall into one of the five exemptions detailed above.

Classification and measurement of the financial instruments is as follows:

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Financial instrument Classification
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Financial instrument	Classification
Cash and cash equivalents	Amortized cost
Other receivables (excluding sales tax receivable)	Amortized cost
Accounts payable and accrued liabilities	Amortized cost
Due to related parties	Amortized cost
Current and non-current portion of lease liabilities	Amortized cost

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Under IFRS 9, the Company applies a forward-looking expected credit loss (“ ECL ”) model, at each balance sheet date, to financial assets measured at amortized cost or those measured at FVOCI, except for investments in equity instruments.

The three-stage approach to recognizing ECL under IFRS 9 is intended to reflect the increase in credit risk of a financial instrument and are:

Stage 1 is comprised of all financial instruments that have not had a significant increase in credit risk since initial recognition or that have low credit risk at the reporting date. The Company recognizes an impairment loss for those financial instruments at an amount equal to the twelve-month expected credit loss following the balance sheet date.
Stage 2 is comprised of all financial instruments that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of a credit loss event. The Company recognizes an impairment loss for those financial instruments at an amount equal to the lifetime expected credit losses.
Stage 3 is comprised of all financial instruments that have objective evidence of impairment at the reporting date. The Company recognizes an impairment loss for those financial instruments at an amount equal to the lifetime expected credit losses.

Impairment losses are recorded in the consolidated statement of net loss and comprehensive loss with the carrying amount of the financial assets reduced through the use of impairment allowance accounts.

The Company reverses impairment losses on financial assets carried at amortized cost when the decrease in impairment can be objectively related to an event occurring after the impairment loss was initially recognized.

Foreign currency translation

The consolidated financial statements are presented in CAD $ which is PGI’s functional currency. The functional currency of one subsidiary of the Company is the LSL, while the functional currency of other two subsidiaries is CAD $.

In each individual entity, a foreign currency transaction is initially recorded in the functional currency of the entity, by applying the exchange rate between the functional currency and the foreign currency at the date of the transaction.

At the end of the reporting period, monetary assets and liabilities of the Company which are denominated in foreign currencies are translated at the period-end exchange rate. Non-monetary assets and liabilities are translated at rates in effect at the date the assets were acquired, and liabilities incurred.

The resulting exchange gains or losses arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition, are included in profit or loss in the period in which they arise.

For the purpose of presenting these consolidated financial statements, the assets and liabilities of the subsidiary are translated into CAD $ at the exchange rates prevailing at the end of the reporting period. Income and expenses are translated at the average rates for the period. Exchange differences arising are recognized in foreign currency translation reserve.

Income taxes

Income tax expense consists of current and deferred tax expense. Current and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income. Current tax is recognized and measured at the amount expected to be recovered from or payable to the taxation authorities based on the income tax rates enacted or substantively enacted at the end of the reporting period and includes any adjustment to taxes payable in respect of previous years. Deferred tax is recognized on any temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable earnings. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized and the liability is settled. The effect of a change in the enacted or substantively enacted tax rates is recognized in net loss and comprehensive loss or in equity depending on the item to which the adjustment relates. Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

end, deferred tax assets are reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset to be recovered.

Share capital

Financial instruments issued by PGI are classified as shareholders’ equity only to the extent that they do not meet the definition of a financial asset or financial liability. PGI’s common shares, warrants and share options are classified as equity instruments.

Incremental costs directly attributable to the issuance of new shares are recognized as a deduction from shareholders’ equity.

Share-based payments

Equity-settled share-based payments to directors, officers and employees are measured at the fair value of the equity instruments at the grant date and are recognized as an expense over the relevant vesting periods with a corresponding credit to options reserve or warrants reserve.

Equity-settled share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments granted, if it is determined that the fair value of the goods or services received cannot be reliably measured. The fair value of equity-settled sharebased payments to non-employees is recorded as an expense at the date the goods or services are received with a corresponding credit to options reserve or warrants reserve.

The number of equity instruments expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. After the vesting date, amounts recorded for expired instruments remain in options reserve or warrants reserve.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker ( “CODM” ). The CODM is responsible for allocating resources and assessing performance of the operating segments. Management has determined that the Company has only one operating segment for the period from May 21, 2020 (date of incorporation) to March 31, 2021.

Property and equipment

Property and equipment are recognized as an asset when:

it is probable that an associated future economic benefit will flow to the Company; and
the cost can be measured reliably.

Property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes costs incurred initially to acquire or construct a capital asset and costs incurred subsequently to add to, replace part of or service it. If a replacement cost is recognized in the carrying amount of a capital asset, the carrying amount of the replaced part is derecognized.

Property and equipment are depreciated on a straight-line basis over their expected useful lives to their estimated residual value. Their useful lives have been assessed as follows:

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Asset Method Rate
Computer equipment Straight-line 3 years
Right-of-use assets Straight-line Over lease term – 19 years
Buildings Straight-line 10 years
Equipment Straight-line 3 years
Furniture & fixtures Straight-line 3 years
Bulk infrastructure Straight-line 10 years
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The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting year. If the expectations differ from previous estimates, the change is accounted for prospectively as a change in accounting estimate.

The gain or loss arising from the derecognition of a capital asset is included in the consolidated statement of net loss and comprehensive loss when the item is derecognized. The gain or loss arising

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

from the derecognition of a capital asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

Intangible assets

Intangible assets are recognized when:

it is probable that an associated future economic benefit will flow to the Company; and
the cost can be measured reliably.

Intangible assets are initially recorded at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and/or impairment losses.

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives using the following rates:

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Asset Method Rate
Website Straight-line 10 years
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The amortization period and the amortization method for intangible assets are reviewed every period end. During the period from May 21, 2020 (date of incorporation) to March 31, 2021, the Company did not recognize any impairment losses.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and, when applicable, short-term, highly liquid deposits which are either cashable or with original maturities of less than three months at the date of their acquisition.

Related party transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. Related parties may be individuals or entities. A transaction is considered to be a related party transaction when there is transfer of resources or obligations between related parties.

Impairment of non-financial assets

The carrying amount of the Company’s non-financial assets (which include property and equipment) is reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the consolidated statement of net loss and comprehensive loss.

The recoverable amount of assets is the greater of an asset’s fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is only reversed to profit or loss if there is an indication that the impairment loss no longer exists and there has been a change in the estimates used to determine the recoverable amount. Any reversal of impairment cannot increase the carrying value of the asset to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years.

IFRS 16 Leases

The Company assesses whether a contract is or contains a lease, at inception of a contract. The Company recognizes a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low values assets. For these leases, the Company recognizes the leases as an operating expense on a straight-line basis over the term of the lease.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

The Company presents right-of-use assets in “property and equipment” and lease liabilities in “Lease liabilities” in the consolidated statement of financial position.

Lease liability

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. The incremental borrowing rate is defined as the rate of interest that the Company would have to pay to borrow, over a similar term and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.

Lease payments included in the measurement of the lease liability comprise:

fixed lease payments (including in-substance fixed payments), less any lease incentives;
variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
the amount expected to be payable by the lessee under residual value guarantees;
the exercise of purchase options, if the lessee is reasonably certain to exercise the options; and
payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used)
a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate

Right-of-use assets

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses.

Whenever the Company incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognized and measured under IAS 37 Provisions, Contingent Liabilities and Contingent Assets . The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories.

Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

The Company applies IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Warrants

Warrants that have been issued in combination with common shares are accounted for under IAS 32 Financial Instruments: Presentation . Liability classification applies to instruments where a variable amount of cash (or liability) denominated in the issuer’s functional currency is exchanged for a fixed number of shares otherwise they are classified as equity. In calculating the value of the warrants, the Black Scholes option model was used and incorporate the following key inputs: share price, expected life of the warrant, expected volatility, expected dividend yield and the risk-free interest rate.

Stock options

Estimating fair values for stock options requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining and making assumptions about the most appropriate inputs to the valuation model including the expected life, volatility, dividend yield and forfeiture rate.

Provisions

Provisions are recognized when the Company has a present obligation, legal or constructive as a result of a previous event, if it is probable that the Company will be required to settle the obligation and a reliable estimate can be made of the obligation. The amount recognized is the best estimate of the expenditure required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligations. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate of the expected future cash flows.

4. Critical accounting estimates and judgements

The preparation of consolidated financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions concerning the future. Actual results may differ from these estimates. The Company’s management reviews these estimates, judgments, and assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to estimates are adjusted prospectively in the period in which the estimates are revised. The following are deemed to be critical accounting policies by management for the period from May 21, 2020 (date of incorporation) to March 31, 2021 as these require a high level of subjectivity and judgement and could have a material impact on PGI’s consolidated financial statements.

Acquisitions

Acquisition of MindHealth (Pty) Ltd.

During the acquisition of Mind Health (Pty) Ltd., judgement was initially required to determine if the acquisition represented a business combination or an asset purchase. Management also used judgement to determine that since MindHealth and MindHealth (Pty) Ltd were controlled by the same parties before and after the transaction, the business combination is considered a common control business combination. Thus, acquired net assets were recorded at their predecessor carrying values rather than at fair value.

Acquisition of PTC

During the acquisition of PTC, judgment was initially required to determine if the acquisition represented a business combination or an asset purchase. Management considered the acquisition to be an asset purchase. The assets and liabilities were recorded at fair value and cost of acquisition was recognized as difference between net assets acquired and fair value of consideration paid.

Reverse Take Over (“RTO”)

On September 11, 2020, the Company and MindHealth entered into a Definitive Agreement pursuant to which the Parties intended to complete a transaction, in which MindHealth acquired all of the issued and outstanding common shares of Cardinal, by way of the Transaction, involving the Company, MindHealth and 1264216 B.C. Ltd., a wholly owned subsidiary of the Company.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

newly amalgamated wholly-owned subsidiary was named "Psyence Biomed Corp". Cardinal issued 1.0649 Cardinal common shares (on a post-Consolidation basis) for each MindHealth common share. All outstanding warrants and options of MindHealth issued prior to the Transaction were cancelled and the Company issued 1.0649 warrants and options in the capital of the Resulting Issuer, as applicable, for each MindHealth warrant or option on the same terms and conditions as the respectively cancelled warrants and options granted by MindHealth. The transaction was completed on January 19, 2021 (refer to note 5). As a result, the Company issued a total of 81,706,552 common shares to former MindHealth shareholders which represented 96% of the total issued and outstanding shares on closing. The Transaction does not constitute a business combination as Cardinal does not meet the definition of a business under IFRS 3 Business Combinations. Immediately after the Transaction, shareholders of MindHealth owned majority of the voting rights of the Company. As a result, the Transaction has been accounted for as a capital transaction with MindHealth being identified as the accounting acquirer and the equity consideration being measured at fair value, using the acquisition method of accounting. The Transaction has been accounted for in the consolidated financial statements as a continuation of the consolidated financial statements of MindHealth.

Term and incremental borrowing rate of lease

The calculation of lease liabilities and associated interest expense is dependent on estimates of how many lease renewal options will be exercised, as well as the determination of the Company’s incremental borrowing rate. These are determined through the exercise of judgment and are dependent upon estimates that take into account factors such as economic and market conditions, operational plans and anticipated changes in laws.

Deferred tax assets

Deferred tax assets, including those arising from un-utilized tax losses, require management to assess the likelihood that the Company will generate sufficient taxable earnings in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could be impacted.

Going concern

These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Management routinely plans future activities including forecasting future cash flows and forming judgements collectively with directors of the Company.

Share-based compensation

The Company measures equity settled share-based payments based on their fair value at the grant date and recognize compensation expense over the vesting period based on management’s estimate of equity instruments that will eventually vest. Expected forfeitures are estimated at the date of grant and subsequently adjusted if further information indicates actual forfeitures may vary from the original estimate. The impact of the revision of the original estimate is recognized in profit or loss such that the cumulative expense reflects the revised estimate.

For share-based payments granted to non-employees, the compensation expense is measured at the fair value of the goods and services received except where the fair value cannot be estimated in which case it is measured at the fair value of the equity instruments granted. The fair value of share-based compensation to non-employees is periodically re-measured until counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if cash was paid instead of paying with or using equity instruments. Consideration paid by employees or nonemployees on the exercise of stock options is recorded as share capital and the related share-based compensation is transferred from share-based reserve to share capital. The Company’s plan does not feature any options for cash settlement.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

5. Acquisition of Cardinal Capital Partners Inc.

On September 11, 2020, the Company and MindHealth entered into a Definitive Agreement pursuant to which the Parties intended to complete a business combination transaction, in which MindHealth acquired all of the issued and outstanding common shares of the Cardinal, in the Transaction, involving the Company, MindHealth and 1264216 B.C. Ltd., a wholly owned subsidiary of the Company.

In anticipation of the Transaction, pursuant to articles of amendment dated January 19, 2021, Cardinal completed the consolidation of common shares in the capital of Cardinal on the basis of one (1) postconsolidation Cardinal share for every 19.24 pre-consolidation Cardinal shares, resulting in approximately 3,822,379 common shares. Cardinal changed its name to "Psyence Group Inc." and the newly amalgamated wholly-owned subsidiary was named "Psyence Biomed Corp". Cardinal issued 1.0649 Cardinal common shares (on a post-Consolidation basis) for each MindHealth common share. All outstanding warrants and options of MindHealth issued prior to the Transaction were cancelled and the Company issued 1.0649 warrants and options in the capital of the Resulting Issuer, as applicable, for each MindHealth warrant or option on the same terms and conditions as the respectively cancelled warrants and options granted by MindHealth. The Transaction was completed on January 19, 2021. As a result, the Company issued a total of 81,706,552 common shares to former MindHealth shareholders which represented 96% of the total issued and outstanding shares on closing. The Company commenced trading on the Canadian Securities Exchange ( “CSE” ) on January 27, 2021 under the symbol “PSYG”.

The Transaction has been accounted for in accordance with IFRS 2 Share-based payments . The Transaction is considered to be an RTO of Cardinal by MindHealth. An RTO transaction involving a non-public operating entity and a non-operating public company is in substance a shared based payment transaction rather than a business combination. The Transaction is equivalent to the issuance of common shares by the non-public operating entity, MindHealth, for the net assets and the listing status of the non-operating public company, Cardinal. The fair value of the common shares issued was determined based on the fair value of the common shares issued by the Resulting Issuer. For financial reporting purposes, the Company is considered a continuation of MindHealth, the legal subsidiary. The Transaction was negotiated and completed at arm’s length. The combined results of operations are included from January 19, 2021.

At the date of acquisition on January 19, 2021, the Transaction was recorded as follows:

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Purchase price consideration paid $
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Fair value of common shares issued Total consideration Net identifiable liabilities acquired Accounts Payable and accrued liabilities Cash Total net identifiable liabilities acquired Excess of consideration paid over net assets acquired, representing a listing cost Fair value of Cardinal shares Number of pre-consolidation Cardinal shares Consolidation basis of Cardinal shares Number of post-consolidation Cardinal shares Share value as determined Value of Cardinal shares that would have been issued to obtain the same ownership percentage`	1,256,194 1,256,194 19,199 (3,499)
	15,700 1,271,894 73,546,474 19.24 3,822,379 $ 0.33 1,256,194

Fair value of common shares issued
Total consideration
Net identifiable liabilities acquired
Accounts Payable and accrued liabilities
Cash
Total net identifiable liabilities acquired
Excess of consideration paid over net assets acquired,
representing a listing cost
Fair value of Cardinal shares
Number of pre-consolidation Cardinal shares
Consolidation basis of Cardinal shares
Number of post-consolidation Cardinal shares
Share value as determined
Value of Cardinal shares that would have been
issued to obtain the same ownership percentage`

1,256,194
1,256,194
19,199
(3,499)

15,700
1,271,894
73,546,474
19.24
3,822,379
$ 0.33
1,256,194

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

The excess of fair value of net assets assumed over purchase price is considered an expense of acquiring a public listing and as a result, the listing fee expense is $1,271,894.

6. Asset Acquisition

Acquisition of PTC

On January 15, 2021, MindHealth acquired 100% of the issued and outstanding common shares of PTC. PTC is a research and development company in the Psychedelic industry. The consideration consisted entirely of shares of MindHealth which were measured at the estimated fair value, based on the most recent private placement on the date of acquisition. The fair value of the common shares issued to the former PTC shareholders was determined to be $6,300,000 based on the fair value of the shares issued (18,000,000 shares at $0.35 per share). The fair value of the PTC warrants was determined to be $386,065 using a Black Scholes model based on the following assumptions: stock price volatility - 100%; risk-free interest rate –0.25%; stock price at January 15[th] , 2021 -$0.35 and an expected life of 3 years.

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PTC acquisition cost $
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Consideration: 18,000,000 shares	6,300,000
Warrants	386,065
Total consideration	6,686,065
Net identifiable liabilities acquired
Total net identifiable liabilities acquired	108,566
Cost of acquisition	6,794,631

The acquisition of PTC does not constitute a business combination because this entity does not meet the definition of a business under IFRS 3 Business Combination . As a result, the transaction has been measured at the fair value of equity consideration issued to acquire these entities.

PTC was in the early stage of product development, and research and development of compounds that are found in various strains of mushroom and fungi. As such, the remaining unidentifiable asset did not meet the intangible asset criteria for capitalization. Accordingly, the Company expensed $6,794,631 in the consolidated statement of net loss and comprehensive loss.

7. Cash and cash equivalents

Cash and cash equivalents include the following amounts:

an amount of $5,000 held in trust by a brokerage firm as security for foreign currency exchanges.
an amount of $6,091,074 unrestricted cash held with chartered banks.

8. Other Receivables

Other receivables include the following amounts

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$
Other receivables 7,827
Sales tax receivable 173,953
At March 31, 2021 181,780
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The Company estimated the expected credit loss on the other receivable to be nominal during the period from May 21, 2020 (date of incorporation) to March 31, 2021.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

9. Property and equipment

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Computer Right-of- Production Bulk
equipment Buildings use assets equipment Furniture infrastructure Total
$ $ $ $ $ $ $
Additions 7,677 257,900 58,708 10,023 21,797 60,544 416,649
At March 31, 2021 7,677 257,900 58,708 10,023 21,797 60,544 416,649
Depreciation:
Charge for the
(1,228) (9,202) (2,553) (1,210) (6,097) (3,748) (24,038)
period
At March 31, 2021 (1,228) (9,202) (2,553) (1,210) (6,097) (3,748) (24,038)
Foreign exchange differences (5) (148) 0 (6) (12) (35) (206)
Carrying amount:
At March 31, 2021 6,444 248,550 56,155 8,807 15,688 56,761 392,405
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10. Intangible assets

On November 18, 2020, the Company acquired a domain name for a cost of $18,324 which is recognized under intangible assets at cost and it is carried at the amortized value on March 31, 2021.

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Intangible assets $
Additions 18,324
At March 31, 2021 18,324
Amortization:
Charge for the period (458)
At March 31, 2021 (458)
Carrying amount:
At March 31, 2021 17,866
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11. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities include the following amounts:

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March 31, 2021
$
Trade payables 55,918
Accrued liabilities 171,659
Total 227,577
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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

12. Share capital

Authorized share capital

Unlimited number of voting common shares without par value.

Issued and outstanding

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Common shares
Number Amount ($)
Issuance of shares on incorporation (May 21, 2020) 1 -
Issuance of shares on purchase of Mind Health (Pty) Ltd. 24,000,000 390
Issuance of shares in private placements 34,720,517 9,302,882
Acquisition of PTC 18,000,000 6,300,000
-
Impact of share exchange due to RTO 4,986,034
RTO of Cardinal 3,822,379 1,256,194
Share issuance costs (835,901)
Balance as at March 31, 2021 85,528,931 16,023,565
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Common shares

On May 21, 2020, the Company issued 1 common share on incorporation for $0.01.

On May 22, 2020, the Company issued 24,000,000 common shares in connection with the share exchange agreement with Mind Health (Pty) Ltd. (Note 13).

Private placements

On June 30, 2020, the Company issued 6,340,000 common shares with a subscription price of $0.25 per share for gross proceeds of $1,585,000.

On August 31, 2020, the Company issued 12,826,884 common shares with a subscription price of $0.25

per share for gross proceeds of $3,206,721.

On December 4, 2020, the Company issued 6,756,113 common shares with a subscription price of $0.25 per share for gross proceeds of $1,689,029.

On December 31, 2020, the Company issued 2,570,000 common shares with a subscription price of $0.25 per share for gross proceeds of $642,500.

On January 14, 2021, the Company issued 5,427,520 common shares with a subscription price of $0.35 per share for gross proceeds of $1,899,632.

On January 18, 2021, the Company issued 800,000 common shares with a subscription price of $0.35

per share for gross proceeds of $280,000.

In relation to the private placements aforementioned, the Company incurred share issuance costs of $835,901 for the period ended March 31, 2021. The share issuance costs were comprised of $627,649 of cash settled issuance costs and $208,252 of non-cash costs being the fair value of warrants issued.

Acquisition of PTC

On January 15, 2021, the Company issued 18,000,000 common shares in exchange of PTC shares for total value of $6,300,000 (Note 6). Together with this acquisition, the Company also issued 1,744,493 warrants and 1,788,344 options to the shareholders of PTC. The transaction was measured based on the most recent financing price for shares issued, being $0.35 per share.

Impact of share exchange due to RTO

On January 19, 2021, the Company exchanged its existing shares issued at the rate of 1.0649 new shares in exchange of 1 existing share and issued 4,986,034 additional shares for that effect.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Reverse takeover

On January 19, 2021, the Company issued 3,822,379 common shares to the former shareholders of Cardinals (now PGI). The transaction was measured based on the most recent financing price for shares issued, revised by the share exchange ratio of 1 to 1.0649, at the fair value of $0.33 per share and total value of $1,256,194. (Note 5)

Stock Options

The changes in stock options outstanding during the period ended March 31, 2021 are as follows:

Options granted Additional options issued due to share exchange (Note 5) Options outstanding, ending Options exercisable, ending	Period ended March 31, 2021
	Number of options Weighted average exercise price ($)
	6,978,525 0.32 453,530 (0.02)
	7,432,055 0.30
	233,333 0.30

During the period ended March 31, 2021, the Company granted 6,978,525 stock options pursuant to its stock option plan. In relation to the RTO Transaction (Note 5), on January 19, 2021, the existing options were exchanged at the rate of 1.0649 new option for every 1 existing option and an additional 453,530 options were issued for that effect. As a result of this re-issuance, the exercise price has been adjusted accordingly. There was no incremental fair value. The assumptions used in Black Scholes pricing model reflected the changes of the revised number of options and revised exercise price.

From the total of 7,432,055 stock options issued, 6,732,055 stock options vest over a period of 30 months and 700,000 stock options vest over 18 months. The fair value was estimated to be $1,383,328 at the grant date based on the Black Scholes pricing model, using the following weighted average assumptions:

Number issued Share price Expected dividend yield Exercise price Risk-free interest rate Expected life Expected volatility Expiry date	Options granted on December 31 Options granted on January 15
	5,527,488 1,904,567 0.23 0.33 Nil Nil 0.30 0.30 0.39% 0.42% 5.00 4.96 100% 100% December 31, 2025 December 31, 2025

$358,723 was expensed and recorded as share based payments under professional fees and consulting expenses in the consolidated statement of net loss and comprehensive loss based on the vesting terms of the options at March 31, 2021.

The weighted average remaining life for the options outstanding as at March 31, 2021 is 4.75 years.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Warrants

The changes in warrants outstanding during the period ended March 31, 2021 are as follows:

he changes in warrants outstanding during	the period ended March 31, 2021 are as follows:
Warrants granted Additional warrants issued due to share exchange (Note 5) Warrants outstanding, ending Warrants exercisable, ending	Period ended March 31, 2021
	Number of warrants Weighted average exercise price ($)
	8,366,799 0.32 543,754 (0.02)
	8,910,553 0.30
	8,910,553 0.30

On December 31, 2020, the Company granted 6,511,549 warrants for share issuance costs and consulting expenses, which vest immediately upon issuance. In relation to the RTO Transaction (Note 5), on January 19, 2021, the existing warrants were exchanged at the rate of 1.0649 new warrants for every 1 existing warrant and an additional 423,182 warrants were issued for that effect. As a result of this re-issuance, the exercise price has been adjusted accordingly. There was no incremental fair value.

On January 15, 2021, the Company granted 110,757 broker warrants in relation to the private placements. In relation to the RTO Transaction (Note 5), on January 19, 2021, the Company exchanged its existing warrants issued at the rate of 1.0649 new warrants in exchange of 1 existing warrant and issued 7,198 additional warrants for that effect. As a result of this re-issuance, the exercise price has been adjusted accordingly. There was no incremental fair value identified in relation to the modification of such warrants.

On January 15, 2021, in relation to the acquisition of PTC (Note 6), the Company issued 1,744,493 warrants. In relation to the RTO Transaction (Note 5), on January 19, 2021, the Company exchanged its existing warrants issued at the rate of 1.0649 new warrants in exchange of 1 existing warrant and issued 113,374 additional warrants for that effect. As a result of this re-issuance, the exercise price has been adjusted accordingly. There was no incremental fair value identified in relation to the modification of such warrants.

The assumptions used in Black Scholes pricing model reflected the changes of the revised number of warrants and revised exercise price. The fair value was estimated to be $1,329,640 at the grant date based on the Black Scholes pricing model, using the following weighted average assumptions:

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Broker warrants
Warrants granted on Warrants granted on
granted on January
December 31,2020 January 15,2021
15,2021
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	Warrants granted on December 31,2020	Broker warrants granted on January 15,2021	Warrants granted on January 15,2021
Number issued	6,934,731	117,955	1,857,867
Share price	0.23	0.33	0.33
Expected dividend yield	Nil	Nil	Nil
Exercise price	0.30	0.33	0.30
Risk-free interest rate	0.25%	0.15%	0.20%
Expected life	3.00	2.00	2.96
Expected volatility	100%	100%	100%
Expiry date	December 31, 2023	January 15, 2023	December 31, 2023

$735,323 was expensed and recorded as share based payments under professional fees and consulting fees in the consolidated statement of net loss and comprehensive loss and $208,252 in relation to share issuance costs were recorded as a reduction to share capital in the consolidated statement of changes in equity. $386,065 in relation to the acquisition of PTC was recorded under cost of acquisition in the consolidated statement of net loss and comprehensive loss.

The weighted average life remaining for the warrants outstanding as at March 31, 2021 is 2.75 years.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Escrow Securities

In connection with the Company’s listing on the CSE, 12,181,767 common shares and 1,635,431 warrants beneficially owned by certain directors and officers of the Company were placed in escrow with an escrow agent pursuant to an escrow agreement dated January 19, 2021. In connection with the acquisition of PTC on January 15, 2021 an additional 6,795,496 common shares were placed in escrow based on the same terms. These shares and warrants shall be released from escrow as follows:

1/10 of escrowed securities to be released on January 27, 2021, the date of listing;
1/6 of remaining escrow securities to be released 6 months after the listing date;
1/5 of remaining escrow securities to be released 12 months after the listing date;
1/4 of remaining escrow securities to be released 18 months after the listing date;
1/3 of remaining escrow securities to be released 24 months after the listing date;
1/2 of remaining escrow securities to be released 30 months after the listing date; and
Remaining escrow securities to be released 36 months after the listing date.

As of March 31, 2021, 17,079,537 common shares and 1,471,887 warrants are held in escrow.

13. Common control transaction

Acquisition of Mind Health (Pty) Ltd.

On May 22, 2020, MindHealth entered into a share exchange agreement to issue 24,000,000 common shares to acquire all the issued and outstanding shares of Mind Health (Pty) Ltd. from its previous shareholders. The acquisition was considered to be a business combination between entities under common control. As a result, assets acquired were recorded at their predecessor carrying values rather than at fair value. The issuance of 24,000,000 shares has been measured based on the net assets acquired through Mind Health (Pty) Ltd. being $390 (5,000 LSL).

14. Segmented information

For the period from May 21, 2020 (date of incorporation) to March 31, 2021, management determined that the Company operated only in one segment: development of psilocybin medical and nutraceutical products.

The following is an analysis of non-current assets by geographical location:

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Asset location ($) March 31, 2021
Canada 17,866
Lesotho 392,405
Non-current segment assets 410,271
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15. Leases

The Company has a lease for land that was entered into with a related party. The lease is reflected on the consolidated statement of financial position as a right-of-use asset and a lease liability. The land has been used to erect manufacturing and processing facilities. The initial term of the lease is nine years beginning June 1, 2020 and ending May 21, 2029. Thereafter, the Company has the option to renew the lease for a further ten-year period for a maximum of five times total. The incremental borrowing rate and term length used in the calculation of the right-of-use asset and discounted lease liability amounts are 2.5% and 19 years, respectively.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Lease liability

The continuity of lease liability is as follows:

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Lease liability ($)
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Opening Balance, May 21, 2020	-
Additions	58,708
Accretion expense	1,193
Lease payments	(3,135)
Foreign exchange	10
Closing Balance, March 31, 2021	56,776
Less: currentportion	2,155
Non-currentportion of lease liability	54,621

The following table presents the future undiscounted payments associated with the sole lease liability as of March 31, 2021 for the next five years and thereafter:

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Future undiscounted payments ($)
2021 3,549
2022 3,549
2023 3,549
2024 3,591
2025 3,643
Thereafter for 14 years 54,280
Total 72,161
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16. Transactions with related parties

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel include the Company’s executive officers and Board of Directors.

All related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. All amounts either due from or due to related parties other than specifically disclosed are non-interest bearing, unsecured and have no fixed terms of repayments.

The Company incurred the following transactions with related parties during the period from May 21, 2020 (date of incorporation) to March 31, 2021:

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Related party
Balance payable as at
Transaction type transactions
March 31, 2021 ($)
($)
Consulting fees - key management personnel 166,612 -
Management fees 459,386 -
Working capital advances - 7,581
Share-based compensation 483,230 -
Total 1,109,228 7,581
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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

17. Financial instruments and financial risk management

In the normal course of business, the Company is exposed to a variety of financial risks: credit risk, liquidity risk, foreign exchange risk and interest rate risk. These financial risks are subject to normal credit standards, financial controls, risk management as well as monitoring. The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework.

Credit risk

Credit risk arises from cash held with banks and other receivables. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses on financial assets. The Company minimizes the credit risk of cash by depositing with only reputable financial institutions. The Company also assesses the credit quality of counterparties, taking into account their financial position, past experience and other factors.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due.

As at March 31, 2021, the Company’s financial liabilities consist of account payable, accrued liabilities and amounts due to related parties which all have contractual maturity dates within one year.

The Company manages liquidity risk through an ongoing review of future commitments and cash balances available. Historically, the Company's main source of funding has been the issuance of shares for cash, primarily through private placements. The Company’s access to financing is always uncertain. There can be no assurance of continued access to significant equity or debt funding.

Based on the Company’s working capital position at March 31, 2021, management regards liquidity risk to be low.

Foreign exchange risk

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency.

The Company operates internationally and is exposed to foreign exchange risk from the LSL. Foreign exchange risk arises from transactions as well as recognized financial assets and liabilities denominated in foreign currencies.

As at March 31, 2021, the Company is exposed to currency risk through the following financial assets and liabilities denominated in LSL and USD:

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Foreign exchange risk March 31, 2021
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	LSL	USD
Cash	1,015,531	7,810
Other receivables & prepaids	87,576	-
Accounts payable and accrued liabilities	256,315	-
Due to related parties	89,317	-

A 10% change in exchange rate would have resulted in a loss of $7,412 as at March 31, 2021.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company has no significant interest-bearing assets or liabilities and therefore its income and operating cash flows are substantially independent of changes in market interest rates.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

18. Loss per share

The calculation of basic and diluted loss per common share for the period from May 21, 2020 (date of incorporation) to March 31, 2021 was based on the net loss of $(11,283,798) and a weighted average number of common shares outstanding of 49,273,786 calculated as follows:

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For the period from May
21,2020 (date of
Earnings per share ($)
incorporation) to March
31, 2021
Basic and diluted loss per share:
Net loss (11,283,798)
Average number of common shares outstanding 51,205,555
Loss per share - basic and diluted (0.22)
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The diluted weighted average number of common shares does not take into account the effects of stock options and warrants as they would be anti-dilutive for the period from May 21, 2020 (date of incorporation) to March 31, 2021.

19. Income taxes

The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% to the effective tax rate is as follows:

Net Income/(Loss) before recovery of income taxes Expected income tax (recovery)/expense Difference in foreign tax rates Tax rate changes and other adjustments Acquisition costs Non-deductible consulting fees Listing expense Other permanent expenses Share issuance cost booked through equity Change in tax benefits not recognized Income tax (recovery)/expense	(11,283,798)
	(2,990,180) 36,204 - 1,812,502 220,952 337,052 105,453 (222,039) 700,056 -

Deferred tax

The following table summarizes the components of deferred tax:

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Deferred tax $
Deferred tax assets
Lease liability 5,615
Deferred tax liabilities
ROU asset (5,615)
Net deferred tax asset -
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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

Unrecognized deferred tax asset

Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income tax values and the carrying amounts of assets and liabilities. Deferred tax assets have not been recognized in respect of the following deductible temporary differences:

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Unrecognized deferred tax $
Property, plant and equipment 21,668
Intangible assets 458
Share issuance costs - 20(1)(e ) 678,231
Non-capital losses carried forward-Canada 1,843,055
Non-capital losses carried forward-Lesotho 197,321
Non-capital losses carried forward-PTC 37,179
Lease liability 621
2,778,533
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The Canadian non-capital loss carries forward will expire as noted in the table below.

Share issuance and financing costs will be fully amortized in 2025.

The Company’s Canadian non-capital income tax losses expire as follows:

Expiry	Amount $
2040	1,843,055
Total	1,843,055

The Company’s Lesotho non-capital income tax losses show as follows and can be carried forward indefinitely.

Expiry	Amount $
No expiry	197,321
Total	197,321

The Company’s PTC non-capital income tax losses show as follows and can be carried forward indefinitely.

Expiry	Amount $
No expiry	37,179
Total	37,179

20. Commitments

For the period from May 21, 2020 (date of incorporation) to March 31, 2021, the Company was committed to a consultancy agreement, whereby the Company is required to pay the service provider a 3.8% royalty of net sales of all new products allocated to the service provider and developed and commercialised under the Service Provider Duties and 2.5% royalty of net sales of all existing products developed up to the date of agreement allocated to the Service Provider and developed and commercialised under the Service Provider’s duties. During the period from May 21, 2020 (date of incorporation) to March 31, 2021, there were no revenues and no royalties paid. All Royalty payments are calculated on a quarterly basis and shall remain full and owing to the service provider, only expiring at (i) the Royalty Products end of life or (ii) 5 years after the termination date, whichever date is earlier.

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PSYENCE GROUP INC. (formerly Cardinal Capital Partners Inc.) Consolidated Financial Statements Period from May 21, 2020 (Date of incorporation) to March 31, 2021

21. Capital management

The Company manages its cash, common shares, stock options and warrants as capital. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development of natural health business, to maintain a flexible capital structure which optimizes the cost of capital at an acceptable risk level.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets or adjust the amount of cash and short-term investments on hand.

In order to facilitate the management of its capital requirements, the Company prepares annual budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors.

Management considers its approach to capital management to be appropriate given the relative size of the Company. There were no changes in the Company’s approach to capital management during the year.

22. Subsequent Events

On April 12, 2021, Psyence South Africa was incorporated in South Africa as a subsidiary of PBC.

On May 5, 2021, a South African-based special purpose vehicle (“ SPV ”) called Good Psyence (Pty) Ltd (" Good Psyence ") was incorporated. The SPV is a 50/50 joint venture between the Company, via its subsidiary PBC, and Southern Sun Pharma Inc's wholly owned subsidiary, The Goodleaf Company (Pty) Ltd, a private company incorporated in South Africa. The Company will launch its functional mushroom brand, "GoodMind", through the SPV and it will be responsible for the production, commercialization and sale of the products.

On May 11, 2021, Psyence Jamaica Limited (“ Psyence Jamaica ”) was incorporated in Jamaica as a subsidiary of PBC. Psyence Jamaica will develop standardized nutraceutical and pharmaceutical psychedelic products in Jamaica for the treatment of psychological traumas.

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AI assistant

Psyence Group Inc. — Annual Report 2021

43134_rns_2021-06-30_5a1a227c-5363-4c64-952f-371208abdf71.pdf

Consolidated Financial Statements

Management's Responsibility for Financial Reporting

Independent Auditor’s Report

Opinion

Basis for Opinion

Other Information

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Consolidated Statement of Financial Position as at March 31, 2021

“Jody Aufrichtig”

Consolidated Statement of Net Loss and Comprehensive Loss

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

1. Nature of operations

2. Basis of presentation

Statement of compliance

Basis of measurement

Functional and presentation currency

3. Significant accounting policies

Basis of consolidation

Business combination

Common control transactions

Loss per share

IFRS 9 Financial instruments

Amortized cost

FVTPL

Foreign currency translation

Income taxes

Share capital

Share-based payments

Segment reporting

Property and equipment

Intangible assets

Cash and cash equivalents

Related party transactions

Impairment of non-financial assets

IFRS 16 Leases

Lease liability

Right-of-use assets

Warrants

Stock options

Provisions

4. Critical accounting estimates and judgements

Acquisitions

Acquisition of MindHealth (Pty) Ltd.

Acquisition of PTC

Reverse Take Over (“RTO”)

Term and incremental borrowing rate of lease

Deferred tax assets

Going concern

Share-based compensation

5. Acquisition of Cardinal Capital Partners Inc.

6. Asset Acquisition

7. Cash and cash equivalents

8. Other Receivables

9. Property and equipment

10. Intangible assets

11. Accounts payable and accrued liabilities

12. Share capital

Authorized share capital

Issued and outstanding

Common shares

Private placements

Acquisition of PTC

Impact of share exchange due to RTO

Reverse takeover

Stock Options

Warrants

Escrow Securities

13. Common control transaction

Acquisition of Mind Health (Pty) Ltd.

14. Segmented information

15. Leases

Lease liability

16. Transactions with related parties

17. Financial instruments and financial risk management

Credit risk

Psyence Group Inc. Annual Report 2021