EDGAR 10-K Filing

Company CIK: 1444192
Filing Year: 2021
Filename: 1444192_10-K_2021_0001171843-21-004462.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
We are a biopharmaceutical innovator that has historically focused on the research, development and commercialization of cardiometabolic prescription drugs using omega-3, or OM3 fatty acids delivered both as free fatty acids and bound-to-phospholipid esters, derived from krill oil. OM3 fatty acids have extensive clinical evidence of safety and efficacy in lowering triglycerides in patients with hypertriglyceridemia, or HTG. Our lead product candidate was CaPre, an OM3 phospholipid therapeutic. As a result of disappointing results from our two TRILOGY phase 3 trials, we publicly disclosed that our board had commenced a formal process to explore and evaluate a range of strategic alternatives to enhance shareholder value, and that it had engaged Oppenheimer & Co. as its financial advisor to assist in that process. Since that announcement, we continue to maintain an active pharmaceutical development business, including retaining key research and development, finance and administrative personnel. We have completed a pooled analysis of the TRILOGY data and we have prepared a manuscript for publication, which has been submitted to a major journal. We continue to manage ongoing regulatory filing obligations with the Federal Drug Administration, or the FDA, and, evaluate potential strategic partnerships for the continued clinical development of CaPre. We also continue to maintain and further develop valuable CaPre assets including additional patent filings and ongoing prosecutions, and maintenance of our commercial manufacturing equipment. Since September 2020, we increased our available cash by approximately $54.4 million through financing activities, which has served to strengthen Acasti’s balance sheet while providing additional flexibility and leverage while we worked through our strategic evaluation process and advancement of a potential commercial partnership for CaPre. On May 7, 2021, we announced our intent to acquire Grace through an acquisition. Grace is a New Jersey-based life sciences company focused on novel and innovative drug delivery technologies designed to improve clinical outcomes in rare and orphan disease treatments. Grace’s scientific and product development efforts are focused in cardiovascular, central nervous system and gastrointestinal disorders.
Recent Developments
TRILOGY 1 & 2 Topline Results
Our two Phase 3 clinical trials, designated as TRILOGY 1 & 2 randomized a total of 242 and 278 patients respectively, and were designed to evaluate the efficacy, safety and tolerability of CaPre in patients with severe hypertriglyceridemia. The top-line results were announced on January 13, 2020, and August 31, 2020 respectively, and neither TRILOGY 1 nor TRILOGY 2 met their primary endpoint for lowering triglycerides at 12 weeks. CaPre was well tolerated in TRILOGY, with a safety profile similar to placebo, and consistent with our previously conducted Phase 2 and 3 studies. Given the outcome of the TRILOGY studies we will not file a New Drug Application (NDA) with the U.S. Food and Drug Administration (FDA) for patients with severe hypertriglyceridemia, and we do not plan to conduct additional clinical trials for CaPre. Instead, we plan to continue to advance discussions with third parties who are interested in pursuing clinical development and regulatory approval for CaPre.
Engaged Oppenheimer & Co. Inc. to Assist in Strategic Review
On September 29, 2020, we announced that we had commenced a formal process to explore and evaluate strategic alternatives to enhance shareholder value. Towards this end, we engaged Oppenheimer & Co., Inc. as our financial advisor to assist in the process. We have devoted significant time and resources to identifying and evaluating strategic alternatives, which led to the announced pending transaction with Grace. However, there can be no assurance that our proposed merger with Grace will close, or of the timing of any such outcome. We have also devoted significant time and resources to identify and evaluate potential strategic partnerships for CaPre; however, there can be no assurance that such activities will result in any agreements or transactions that will enhance shareholder value. We do not intend to make any further disclosures regarding the strategic process for CaPre unless and until a specific course of action is approved by our board of directors.
Definitive Agreement to Acquire Grace Therapeutics, Inc.
On May 7, 2021, we announced a definitive agreement to acquire Grace. Subject to the completion of the Proposed Transaction, we will acquire Grace’s pipeline of drug candidates addressing critical unmet medical needs for the treatment of rare and orphan diseases. The Proposed Transaction has been approved by the boards of directors of both companies and is supported by a majority of Grace stockholders through voting and lock-up agreements with Acasti. The transaction remains subject to approval of our shareholders, as well as applicable stock exchanges.
In connection with the Proposed Transaction, we will acquire Grace’s entire therapeutic pipeline consisting of three unique clinical stage and multiple pre-clinical stage assets supported by an intellectual property portfolio consisting of more than 40 granted and pending patents in various jurisdictions worldwide. Grace’s product candidates aim to improve clinical outcomes by applying proprietary formulation and drug delivery technologies to existing pharmaceutical compounds to achieve improvements over the current standard of care, or to provide treatment for diseases with no currently approved therapy. Grace’s three lead programs have all received Orphan Drug Designation from the FDA, which could provide up to seven years of marketing exclusivity in the United States upon the FDA’s approval of the NDA, provided that certain conditions are met.
Management and Operations
Subject to shareholder approval of the Proposed Transaction, the combined companies will be led by Jan D’Alvise as President and Chief Executive Officer (“CEO”) and will continue to maintain our corporate headquarters in Laval, Quebec, Canada. It is expected that all Grace employees will transition to Acasti and they will continue to maintain an R&D laboratory and commercial presence in North Brunswick, New Jersey. The new board of directors of the combined company will be composed of 4 representatives from Acasti and 3 representatives from Grace.
About the Proposed Transaction
Pending approval by our shareholders as well as applicable stock exchange approvals, Grace will merge with a new wholly owned subsidiary of Acasti. Grace stockholders will receive newly issued Acasti common shares pursuant to an equity exchange ratio formula set forth in the merger agreement. Under the terms of the definitive agreement, immediately following the consummation of the Proposed Transaction, Acasti’s shareholders on a pro forma basis would own approximately 55% of the combined company’s common shares, and Grace’s stockholders would own approximately 45% of the combined company’s common shares, in each case calculated on a fully-diluted basis, subject to upward adjustments in favor of Acasti shareholders based on each company’s capitalization and net cash balance as set forth in the merger agreement. For illustrative purposes, assuming no adjustments for each company’s capitalization and net cash balance and based on 208,375,549 Acasti common shares currently issued and outstanding, an aggregate of up to 170,489,086 Acasti common would be issued to Grace stockholders as consideration for the Proposed Transaction.
In connection with the entering into the merger agreement, all significant stockholders of Grace have entered into voting and lock-up agreements with Acasti pursuant to which they have agreed, amongst other things to (i) vote their shares of Grace in favor of the Proposed Transaction, (ii) be subject to lock-up provisions for a period of 12 months (subject to certain exceptions), and (iii) support the election of board nominees specified in the voting and lock-up agreements through to the 2023 annual general meeting of shareholders.
The Proposed Transaction is expected to close in calendar the third quarter of 2021, immediately following approval by the Acasti shareholders, subject to any applicable U.S. Securities and Exchange Commission (“SEC”) review and stock exchange approvals, as well as satisfaction of other closing conditions by each company specified in the definitive agreement.
Oppenheimer & Co. is acting as the Acasti’s financial advisor for the Proposed Transaction and Osler, Hoskin & Harcourt, LLP is serving as its legal counsel. William Blair & Company, LLC is serving as financial advisor to Grace, with Reed Smith, LLP serving as its legal counsel.
The Proposed Transaction is an arm’s length transaction in accordance with the policies of the TSX Venture Exchange.
Nasdaq Update
On May 11, 2021, Acasti received written notice from the Nasdaq Listing Qualifications Department notifying Acasti that based upon Acasti’s non-compliance with the $1.00 bid price requirement set forth in Nasdaq Listing Rule 5550(a) as of May 10, 2021, Acasti common shares were subject to delisting unless Acasti timely requests a hearing before the Nasdaq Hearings Panel. Acasti requested a hearing, which stayed any further action by Nasdaq pending the conclusion of the hearing process.
At the hearing on June 17, 2021, Acasti presented a detailed plan of compliance for the Nasdaq Listing Panel’s consideration, which included Acasti’s commitment to implement a share consolidation in connection with the Proposed Transaction. Acasti expects to receive the Nasdaq Listing Panel’s decision within 30 days after the hearing date. There can be no assurance that Nasdaq will accept Acasti’s plan or that Acasti will be able to regain compliance with Nasdaq’s listing rules or maintain compliance with any other Nasdaq requirement in the future. The approval by Nasdaq of (i) the continued listing of Acasti’s common shares on Nasdaq following the effective time and (ii) the listing of the Acasti common shares being issued in connection with the merger on Nasdaq at or prior to the effective time are conditions to the closing of the merger.
COVID-19 Update
To date, the ongoing COVID-19 pandemic has not caused significant disruptions to our business operations and research and development activities.
The extent to which the COVID-19 pandemic impacts our business and prospects will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 pandemic and the actions to contain the COVID-19 pandemic or treat its impact, among others.
Corporate Structure
Acasti was incorporated on February 1, 2002 under Part 1A of the Companies Act (Québec) under the name “9113-0310 Québec Inc.” On February 14, 2011, the Business Corporations Act (Québec), or QBCA, came into effect and replaced the Companies Act (Québec). We are now governed by the QBCA. On August 7, 2008, pursuant to a Certificate of Amendment, we changed our name to “Acasti Pharma Inc.”, our share capital description, the provisions regarding the restriction on securities transfers and our borrowing powers. On November 7, 2008, pursuant to a Certificate of Amendment, we changed the provisions regarding our borrowing powers. We became a reporting issuer in the Province of Québec on November 17, 2008. On December 18, 2019, we incorporated a new wholly owned subsidiary named Acasti Innovation AG, or AIAG, under the laws of Switzerland for the purpose of future development of our intellectual property and for global distribution of our products. AIAG currently does not have any operations.
Available Information
This annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to these reports are filed, or will be filed, as applicable, with the SEC, and the Canadian Securities Administrators, or CSA. These reports are available free of charge on our website, www.acastipharma.com, as soon as reasonably practicable after we electronically file such reports with or furnish such reports to the SEC and the CSA. Information contained on, or accessible through, our website is not a part of this annual report, and the inclusion of our website address in this document is an inactive textual reference.
Additionally, our filings with the SEC may be accessed through the SEC’s website at www.sec.gov and our filings with the CSA may be accessed through the CSA’s System for Electronic Document Analysis and Retrieval at www.sedar.com.

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ITEM 1A. RISK FACTORS
Item 1A.
Risk Factors
Any investment in our common Shares involves a high degree of risk. The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. If any of these risks actually occur, our business, financial condition, prospects, results of operations or cash flow could be materially and adversely affected, and you could lose all or a part of the value of your investment. Additional risks or uncertainties not currently known to us, or that we deem immaterial, may also negatively affect our business operations.
In addition, on May 7, 2021, Acasti entered into a merger agreement with Grace, pursuant to which, subject to the approval of Acasti shareholders and the satisfaction or waiver of the conditions set forth in the merger agreement, Grace would become a wholly-owned subsidiary of Acasti, referred to herein as the merger.
Risks Related to the Merger
The equity exchange ratio will not be adjusted in the event of any change in Acasti's share price.
If the merger is completed, at the effective time of the merger, each issued and outstanding share of Grace common stock will automatically be converted into the right to receive a number of Acasti common shares per share of Grace common stock equal to the equity exchange ratio set forth in the merger agreement such that, immediately following the consummation of the merger, existing Acasti shareholders are expected to own at least 55% and existing Grace stockholders are expected to own at most 45% of the outstanding capital stock of the combined company on a fully-diluted basis. The equity exchange ratio is subject to upward adjustment in favor of Acasti shareholders based on each company’s capitalization and net cash balance at the effective time of the merger, as specified in the merger agreement. For more information on the equity exchange ratio, see the merger agreement filed as exhibit 2.1 to this annual. The equity exchange ratio will not be adjusted for changes in the market price of Acasti common shares. As a result, changes in the price of Acasti common shares prior to completion of the merger will affect the market value of the share considerations that Grace stockholders will receive in the merger. Changes in the Acasti common share price may result from a variety of factors (many of which are beyond Acasti’s control), including the following:
• changes in Acasti’s and Grace’s respective businesses, operations and prospects, or the market assessments thereof;
• market assessments of the likelihood that the merger will be completed; and
• general market and economic conditions and other factors generally affecting the price of Acasti common shares.
The price of Acasti common shares at the closing of the merger may vary from the price on the date the merger agreement was executed, the date of this annual report and the date of the annual and special meeting of Acasti shareholders. As a result, the market value of the merged entity will also vary. For example, based on the range of closing prices of Acasti common shares during the period from May 6, 2021, which was the last trading day before the public announcement of the execution of the merger agreement, through June 18, 2021, the estimated equity exchange ratio represented a market value ranging from a low of approximately $2.47 to a high of approximately $3.07 for each share of Grace common stock.
Because the merger will be completed after the date of the Acasti annual and special shareholders meeting and the Grace stockholder approval, you will not know, at the time of the Acasti annual and special shareholder meeting or the Grace stockholder approval, the market value of the Acasti common shares that Grace stockholders will receive upon completion of the merger.
If the price of Acasti common shares increases between the time of the Acasti annual and special meeting or the Grace stockholder approval and the time at which Acasti common shares are distributed to Grace stockholders following completion of the merger, Grace stockholders will receive Acasti common shares that have a market value that is greater than the market value of such shares at the time of the Acasti annual and special meeting or the Grace stockholder approval. Conversely, if the price of Acasti common shares decreases between the time of the Acasti annual and special meeting or Grace stockholder approval and the time at which Acasti common shares are distributed to Grace stockholders following completion of the merger, Grace stockholders will receive Acasti common shares that have a market value that is less than the market value of such shares at the time of the Acasti annual and special meeting or the Grace stockholder approval. Therefore, Grace stockholders and Acasti shareholders will not have certainty at the time of the Acasti annual and special meeting or the Grace stockholder approval of the market value of the consideration that will be paid to Grace stockholders upon completion of the merger.
Failure to complete the merger could negatively impact the share prices and the future business and financial results of Acasti.
If the merger is not completed, the ongoing businesses of Acasti may be adversely affected. Additionally, if the merger is not completed and the merger agreement is terminated, in certain circumstances, either Acasti or Grace may be required to pay to the other a termination fee of $1,000,000 including any reimbursement the other party’s expenses up to a maximum of $500,000. Even if a termination fee or expenses of the other party are not payable in connection with a termination of the merger agreement, Acasti has incurred significant transaction expenses in connection with the merger regardless of whether the merger is completed. The foregoing risks, or other risks arising in connection with the failure of the merger, including the diversion of management attention from conducting the business of Acasti and pursuing other opportunities during the pendency of the merger, may have an adverse effect on the business, operations, and financial results of Acasti as well the price of Acasti common shares. In addition, Acasti could be subject to litigation related to any failure to consummate the merger transaction or any related action that could be brought to enforce a party’s obligations under the merger agreement.
The merger agreement contains provisions that could discourage a potential competing acquirer of either Acasti or Grace.
The merger agreement contains “no shop” provisions that, subject to limited exceptions, restrict Acasti’s and Grace’s ability to solicit, encourage, facilitate, or discuss competing third party proposals to acquire shares or assets of Acasti or Grace. In specified circumstances, upon termination of the merger agreement, Acasti or Grace will be required to pay the termination fee to the other party. In the event that either Acasti or Grace receives an alternative acquisition proposal, the other party has the right to propose changes to the terms of the merger agreement before the Acasti or Grace board of directors may withdraw or qualify its recommendation with respect to the merger and related transactions.
These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Acasti from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances. Acasti’s and Grace’s right to match specified alternative acquisition proposals with respect to the other party could also discourage potential competing acquirers from considering or proposing that acquisition.
If the merger agreement is terminated and Acasti determines to seek another transaction, it may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.
The merger may be completed even though certain events occur prior to the closing that materially and adversely affect Acasti or Grace.
The merger agreement provides that either Acasti or Grace can refuse to complete the merger if there is a material adverse change affecting the other party prior to the closing. However, certain types of changes do not permit either party to refuse to complete the merger, even if such change could be said to have a material adverse effect on Acasti or Grace, including, among others:
· changes, developments or conditions in or relating to general international, political, economic or financial or capital market conditions, or political, economic or financial or capital market conditions in any jurisdiction in which Acasti and Grace operate or carry on business;
· changes, developments or conditions resulting from any act of sabotage or terrorism or any outbreak of hostilities or declared or undeclared war, or any escalation or worsening of such acts of sabotage, terrorism, hostilities or war;
· any natural disaster;
· changes or developments in or relating to currency exchange or interest rates;
· changes or developments affecting the pharmaceutical industry in general;
· any change in applicable laws (other than orders against a party or a subsidiary thereof) or U.S. GAAP;
· except for purposes of representations regarding required approvals in connection with the merger and the absence of violations of law, the parties' respective constating documents or material contracts of the parties or changes in permits held by the parties as a result of the consummation of the transactions contemplated by the merger agreement, the announcement of the execution of the merger agreement or the transactions contemplated thereby;
· any actions taken (or omitted to be taken) by Acasti or Grace upon the express written request of the other;
· any changes in the share price or trading volume of Acasti common shares or any failure of Grace to meet projections, guidance, milestones, forecasts or published financial or operating predictions or measures (it being agreed that the facts and circumstances giving rise to any of the foregoing events or failures, unless expressly excluded, may be taken into account in determining whether a material adverse effect has occurred);
· the COVID-19 pandemic or other epidemic or pandemic outbreaks including any continuation or worsening thereof; or
· a share consolidation of Acasti.
If an adverse change occurs and Acasti and Grace still complete the merger, the business, operations or prospects of the combined company, or the market price of its common shares, may suffer. This in turn may reduce the value received by the shareholders of Acasti in connection with the merger.
If the conditions to the merger are not satisfied or waived, the merger may not occur. If the merger is consummated, it will result in substantial dilution to Acasti shareholders and may not deliver the anticipated benefits Acasti expects.
Even if the merger is approved by the shareholders of Acasti and the stockholders of Grace, specified other conditions must be satisfied or waived to complete the merger. These conditions are set forth in the merger agreement filed as exhibit 2.1 to this annual report. Acasti cannot assure you that all of the conditions will be satisfied or waived. Certain of the closing conditions are legally incapable of being waived. If the conditions are not satisfied or waived, the merger may not occur or will be delayed, and Acasti may lose some or all of the intended benefits of the merger. If consummated, the merger will result in dilution to Acasti’s shareholders and could result in other restrictions that may affect its business. Further, if completed, the merger ultimately may not deliver the anticipated benefits or enhance shareholder value.
The combined company may become involved in securities class action litigation that could divert management’s attention and harm the combined company’s business and insurance coverage may not be sufficient to cover all costs and damages.
In the past, securities class action or shareholder derivative litigation often follows certain significant business transactions, such as the sale of a business division or announcement of a merger. The combined company may become involved in this type of litigation in the future. Litigation is often expensive and diverts management’s attention and resources, which could adversely affect the combined company’s business.
Acasti has received notice from Nasdaq of non-compliance with the Nasdaq Listing Rules.
On May 11, 2021, Acasti received written notice from the Nasdaq Listing Qualifications Department notifying Acasti that based upon Acasti’s non-compliance with the $1.00 bid price requirement set forth in Nasdaq Listing Rule 5550(a) as of May 10, 2021, Acasti securities were subject to delisting unless the Company timely requested a hearing before the Nasdaq Hearings Panel.
Acasti requested a hearing, which stayed any further action by Nasdaq pending the conclusion of the hearing process.
At the hearing, on June 17, 2021, Acasti presented a detailed plan of compliance for the Nasdaq Listing Panel’s consideration, which included Acasti’s commitment to implement a share consolidation if needed to evidence compliance with Nasdaq listing rules. Acasti expects to receive the Nasdaq Listing Panel’s decision 30 days after the hearing date. There can be no assurance that Nasdaq will accept Acasti’s plan or that Acasti will be able to regain compliance with Nasdaq’s listing rules or maintain compliance with any other Nasdaq requirement in the future. The approval by Nasdaq of (i) the continued listing of Acasti’s common shares on Nasdaq following the effective time and (ii) the listing of the Acasti common shares being issued in connection with the merger on Nasdaq at or prior to the effective time are conditions to the closing of the merger.
We may be subject to foreign exchange rate fluctuations.
Our reporting currency is the U.S. dollar. However, many of our expenses are denominated in foreign currencies, including Canadian dollars. As we previously completed financings in both Canadian and U.S. dollars, both currencies are maintained and used to make required payments in the applicable currency. Though we plan to implement measures designed to reduce our foreign exchange rate exposure, the U.S. dollar/Canadian dollar and U.S. dollar /European euro exchange rates have fluctuated significantly in the recent past and may continue to do so, which could have a material adverse effect on our business, financial position and results of operations.
Risks Related to Intellectual Property
We may not realize any additional value in a strategic transaction for our intellectual property.
The market capitalization of our corporation is or may be below the value of our cash, cash equivalents and marketable securities at the time of consummation of any strategic transaction. Although the CaPre clinical trial failed to meet its primary endpoints, we believe that data from preclinical and other clinical studies of CaPre may support potential further investigation and development activities. However, potential counterparties in a strategic transaction involving our corporation may place minimal or no value on our assets, given the limited data regarding their potential application. Further, the development and any potential commercialization of investigational CaPre will require substantial additional funding associated with conducting the necessary clinical testing and obtaining regulatory approval. Consequently, any potential counterparty in a strategic transaction involving our corporation may choose not to spend additional resources and continue development of CaPre and may attribute little or no value, in such a transaction, to CaPre or our other intellectual property.
It is difficult and costly to protect our intellectual property rights.
It is possible that our patents and/or proprietary technologies in the future could be circumvented through the adoption of competitive, though non-infringing, processes or products. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowable or enforceable in our patents, or of patents licensed to us.
We face risks that:
· our rights under our U.S., Canadian or foreign patents or other licensed patents that other third parties license to us could be curtailed;
· we may not be the first inventor of inventions covered by our issued patents or pending applications or be the first to file patent applications for those inventions;
· our pending or future patent applications may not be issued with the breadth of claim coverage sought by us, or be issued at all;
· our competitors could independently develop or patent technologies that are substantially equivalent or superior to our technologies;
· our trade secrets could be learned independently by our competitors;
· the steps we take to protect our intellectual property may not be adequate; and
· effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not sought by us in some foreign countries.
Further, patents have a limited lifespan. In the United States, a patent generally expires 20 years after it is filed (or 20 years after the filing date of the first non-provisional U.S. patent application to which it claims priority). While extensions may be available, the life of a patent, and the protection it affords, is limited. Further, the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which we can market that product candidate under patent protection. Patents owned by third parties could have priority over patent applications filed or in-licensed by us, or we or our licensors could become involved in interference, opposition or invalidity proceedings before U.S., Canadian or foreign patent offices. The cost of defending and enforcing our patent rights against infringement charges by other patent holders may be significant and could limit our operations.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. If we or our licensors were to initiate legal proceedings against a third party to enforce a patent our technology, the defendant could counterclaim that our or our licensor’s patent is invalid or unenforceable. In patent litigation, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements; for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the patent office, such as the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we or our licensors and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection or certain aspects of our platform technology. Such a loss of patent protection could have a material adverse impact on our business. Patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without legally infringing our patents or other intellectual property rights.
In addition, in an infringement proceeding, a court may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business.
Interference proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, or at all. Litigation or interference proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States and Canada. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common shares.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect product candidates.
Numerous recent changes to the patent laws and proposed changes to the rules of the various patent offices around the world may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. These changes may lead to increasing uncertainty with regard to the scope and value of our issued patents and to our ability to obtain patents in the future.
Once granted, patents may remain open to opposition, re-examination, post-grant review, inter partes review, nullification derivation and opposition proceedings in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against the initial grant. In the course of any such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims attacked or may lose the allowed or granted claims altogether. Depending on decisions by authorities in various jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
Risks Relating to Our Common Shares
The price of our common shares may be volatile.
Market prices for pharmaceutical companies can fluctuate significantly. Factors such as the announcement to the public or in various scientific or industry forums of technological innovations; new commercial products; patents or exclusive rights obtained by us or others; disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; the commencement, enrollment or announcement of results of clinical trials we conduct, or changes in the development status of our product candidates; results or delays of pre-clinical and clinical studies by us or others; any delay in our regulatory filings for our product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings; a change of regulations; additions or departures of key scientific or management personnel; overall performance of the equity markets; general political and economic conditions; publications; failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public; research reports or positive or negative recommendations or withdrawal of research coverage by securities analysts; actual or anticipated variations in quarterly operating results; announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; public concerns over the risks of pharmaceutical products and dietary supplements; unanticipated serious safety concerns related to the use of our product candidates; the ability to finance, future sales of securities by us or our shareholders; and many other factors, many of which are beyond our control, could have considerable effects on the price of our common shares. The price of our common shares has fluctuated significantly in the past and there can be no assurance that the market price of our common shares will not experience significant fluctuations in the future.
In addition, pharmaceutical companies often experience extreme price and volume fluctuations that are unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may negatively affect the market price of our common shares, regardless of our actual operating performance. In the past, securities class action litigation has often been instituted against pharmaceutical companies following periods of volatility in the market price of their securities. This type of litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources, which would harm our business, operating results or financial condition.
Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may need to raise additional capital in order to execute on our business plan. We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our shareholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our shareholders. The incurrence of indebtedness by us would result in increased fixed payment obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates or grant licenses on terms unfavorable to us.
The market price of our common shares could decline as a result of operating results falling below the expectations of investors or fluctuations in operating results each quarter.
Our net losses and expenses may fluctuate significantly and any failure to meet financial or clinical expectations may disappoint securities analysts or investors and result in a decline in the price of our common shares. Our net losses and expenses have fluctuated in the past and are likely to do so in the future. The market price of our common shares has fluctuated significantly in the past and may continue to do so. Some of the factors that could cause the market price for our common shares to fluctuate include the following:
· the fluctuations in valuation of our derivative warrant liabilities;
· the outcome of any litigation;
· changes in foreign currency fluctuations;
· competition;
· the timing of achievement and the receipt of milestone payments from current or future third parties;
· failure to enter into new or the expiration or termination of current agreements with third parties;
· execution of any new collaboration, licensing or similar arrangement, and the timing of payments we may make or receive under such existing or future arrangements or the termination or modification of any such existing or future arrangements;
· any intellectual property infringement lawsuit or opposition against us or our competition that could have a negative impact on or any proceedings in which we may become involved;
· additions and departures of key personnel;
· strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
· inability to achieve strategic outcome from review of strategic alternatives; and
· changes in general market and economic conditions.
If our quarterly operating results fall below the expectations of investors or securities analysts, the market price of our common shares could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the market price of our common shares to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
There can be no assurance that an active market for our common shares will be sustained.
There can be no assurance that an active market for our common shares will be sustained. Holders of common shares may be unable to sell their investments on satisfactory terms. As a result of any risk factor discussed herein, the market price of our common shares at any given point in time may not accurately reflect our long-term value. Furthermore, responding to these risk factors could result in substantial costs and divert management’s attention and resources. Substantial and potentially permanent declines in the value of our common shares may adversely affect the liquidity of the market for our common shares.
Other factors unrelated to our performance that may have an effect on the price and liquidity of our common shares include: positive or negative industry or competitor news; extent of analyst coverage; lessening in trading volume and general market interest in our common shares; the size of our public float; and any event resulting in a delisting of our common shares.
A large number of common shares may be issued and subsequently sold upon the exercise of existing warrants. The sale or availability for sale of existing warrants or other securities convertible into common shares may depress the price of our common shares.
As of March 31, 2021, there were 15.6 million common shares issuable under outstanding warrants at various exercise prices. To the extent that holders of existing warrants sell common shares issued upon the exercise of warrants, the market price of our common shares may decrease due to the additional selling pressure in the market. The risk of dilution from issuances of common shares underlying existing warrants may cause shareholders to sell their common shares, which could further contribute to any decline in our common share market price.
Any downward pressure on the price of our common shares caused by the sale of common shares issued upon the exercise of existing warrants could encourage short sales by third parties. In a short sale, a prospective seller borrows common shares from a shareholder or broker and sells the borrowed common shares. The prospective seller anticipates that the common share price will decline, at which time the seller can purchase common shares at a lower price for delivery back to the lender. The seller profits when the common share price declines because it is purchasing common shares at a price lower than the sale price of the borrowed common shares. Such short sales of common shares could place downward pressure on the price of our common shares by increasing the number of common shares being sold, which could lead to a decline in the market price of our common shares.
We do not currently intend to pay any cash dividends on our common shares in the foreseeable future.
We have never paid any cash dividends on our common shares and we do not anticipate paying any cash dividends on our common shares in the foreseeable future because, among other reasons, we currently intend to retain any future earnings to finance our business. The future payment of cash dividends will be dependent on factors such as cash on hand and achieving profitability, the financial requirements to fund growth, our general financial condition and other factors our board of directors may consider appropriate in the circumstances. Until we pay cash dividends, which we may never do, our shareholders will not be able to receive a return on their common shares unless they sell them.
If we fail to meet applicable listing requirements, the NASDAQ Stock Market or the TSXV may delist our common shares from trading, in which case the liquidity and market price of our common shares could decline.
Our common shares are currently listed on the NASDAQ Stock Market and the TSXV, but we cannot assure you that our securities will continue to be listed on the NASDAQ Stock Market and the TSXV in the future. In the past, we have received notices from the NASDAQ Stock Market that we have not been in compliance with its continued listing standards, and we have taken responsive actions and regained compliance.
On February 28, 2020, we received written notification from the NASDAQ Listing Qualifications Department for failing to maintain a minimum bid price of $1.00 per share for the preceding 30 consecutive business days, as required by NASDAQ Listing Rule 5550(a)(2) - bid price (the “Minimum Bid Price Rule”). Under NASDAQ Listing Rule 5810(c)(3)(A) - compliance period, we initially had 180 calendar days to regain compliance.
On April 17, 2020, we were informed that NASDAQ had granted temporary regulatory relief related to its minimum bid price requirement due to the COVID-19 pandemic for all NASDAQ-listed companies and therefore extended the deadline for us to regain compliance to November 9, 2020.
On November 11, 2020, we were further informed that NASDAQ had granted an additional 180 calendar days, or until May 10, 2021, for us to regain compliance.
On May 11, 2021, we received notice from the Nasdaq Listing Qualifications Department indicating that, based upon our non-compliance with the $1.00 bid price requirement set forth in (the Minimum Bid Price Rule) as of May 10, 2021, our common shares were subject to delisting unless we timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”).
We requested and were granted a hearing on June 17, 2021, which will stay any further action by Nasdaq pending the conclusion of the hearing process.
At the hearing, we presented a detailed plan of compliance for the Panel’s consideration, which included our commitment to implement a share consolidation if needed to evidence compliance with the Minimum Bid Price Rule. Should we determine that a share consolidation is necessary or otherwise advisable to regain compliance with the Minimum Bid Price Rule, we would likely take such action concurrently with the completion of our proposed acquisition of Grace.
If we fail to comply with listing standards and the NASDAQ Stock Market or TSXV delists our common shares, we and our shareholders could face significant material adverse consequences, including:
· a limited availability of market quotations for our common shares;
· reduced liquidity for our common shares;
· a determination that our common shares are “penny stock”, which would require brokers trading in our common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common shares;
· a limited amount of news about us and analyst coverage of us; and
· a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.
We may pursue opportunities or transactions that adversely affect our business and financial condition.
Our management, in the ordinary course of our business, regularly explores potential strategic opportunities and transactions. These opportunities and transactions may include strategic joint venture relationships, significant debt or equity investments in us by third parties, the acquisition or disposition of material assets, the licensing, acquisition or disposition of material intellectual property, the development of new drug candidates, significant distribution arrangements, the sale of our common shares and other similar opportunities and transactions. The public announcement of any of these or similar strategic opportunities or transactions might have a significant effect on the price of our common shares. Our policy is to not publicly disclose the pursuit of a potential strategic opportunity or transaction unless we are required to do so by applicable law, including applicable securities laws relating to periodic disclosure obligations. There can be no assurance that investors who buy or sell common shares are doing so at a time when we are not pursuing a particular strategic opportunity or transaction that, when announced, would have a significant effect on the price of our common shares.
In addition, any such future corporate development may be accompanied by certain risks, including exposure to unknown liabilities relating to the strategic opportunities and transactions, higher than anticipated transaction costs and expenses, the difficulty and expense of integrating operations and personnel of any acquired companies, disruption of our ongoing business, diversion of management’s time and attention, and possible dilution to shareholders. We may not be able to successfully overcome these risks and other problems associated with any future acquisitions and this may adversely affect our business and financial condition.
We are a “smaller reporting company” under the SEC’s disclosure rules and have elected to comply with the reduced disclosure requirements applicable to smaller reporting companies.
We are a “smaller reporting company” under the SEC’s disclosure rules, meaning that we have either:
· a public float of less than $250 million; or
· annual revenues of less than $100 million during the most recently completed fiscal year; and
o no public float; or
o a public float of less than $700 million.
As a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have elected to adopt the accommodations available to smaller reporting companies. Until we cease to be a smaller reporting company, the scaled-back disclosure in our SEC filings will result in less information about our company being available than for other public companies.
If investors consider our common shares less attractive as a result of our election to use the scaled-back disclosure permitted for smaller reporting companies, there may be a less active trading market for our common shares and our share price may be more volatile.
As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.
We are a non-accelerated filer under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Therefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements. In addition, we cannot predict if investors will find our common shares less attractive because we are not required to comply with the auditor attestation requirements. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and trading price for our common shares may be negatively affected.
U.S. investors may be unable to enforce certain judgments.
We are a company existing under the Business Corporations Act (Québec). Some of our directors and officers are residents of Canada, and substantially all of our assets are currently located outside the United States. As a result, it may be difficult to effect service within the United States upon us or upon some of our directors and officers. Execution by U.S. courts of any judgment obtained against us or any of our directors or officers in U.S. courts may be limited to assets located in the United States. It may also be difficult for holders of securities who reside in the United States to realize in the United States upon judgments of U.S. courts predicated upon civil liability of us and our directors and executive officers under the U.S. federal securities laws. There may be doubt as to the enforceability in Canada against non-U.S. entities or their controlling persons, directors and officers who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities predicated solely upon U.S. federal or state securities laws.
There is a significant risk that we may be classified as a PFIC for U.S. federal income tax purposes.
Current or potential investors in our common shares who are U.S. Holders (as defined below) should be aware that, based on our most recent financial statements and projections and given uncertainty regarding the composition of our future income and assets, there is a significant risk that we may have been classified as a “passive foreign investment company” or “PFIC” for the taxable year that ended on March 31, 2021, and may be classified as a PFIC for our current taxable year and possibly subsequent years. If we are a PFIC for any year during a U.S. Holder’s holding period of our common shares, then such U.S. taxpayer generally will be required to treat any gain realized upon a disposition of such common shares or any so-called “excess distribution” received on such common shares, as ordinary income (with a portion subject to tax at the highest rate in effect), and to pay an interest charge on a portion of such gain or excess distribution. In certain circumstances, the sum of the tax and the interest charge may exceed the total amount of proceeds realized on the disposition, or the amount of excess distribution received, by the U.S. Holder. Subject to certain limitations, a timely and effective QEF Election (as defined below) under Section 1295 of the U.S. Internal Revenue Code of 1986, as amended, or the Code, or a Mark-to-Market Election (as defined below) under Section 1296 of the Code may be made with respect to the common shares. A U.S. Holder who makes a timely and effective QEF Election generally must report on a current basis its share of our net capital gain and ordinary earnings for any year in which we are a PFIC, whether or not we distribute any amounts to our shareholders. A U.S. Holder who makes the Mark-to-Market Election generally must include as ordinary income each year the excess of the fair market value of their common shares over the holder’s basis therein. This paragraph is qualified in its entirety by the discussion under the heading “Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities - U.S. Federal Income Tax Considerations of the Acquisition, Ownership, and Disposition of Common Shares - Passive Foreign Investment Company Rules” and does not take into account any changes to the composition of our income and assets resulting from the merger. Each current or potential investor who is a U.S. Holder should consult its own tax advisor regarding the U.S. federal, state and local, and non-U.S. tax consequences of the acquisition, ownership, and disposition of our common shares, the U.S. federal tax consequences of the PFIC rules, and the availability of any election that may be available to the holder to mitigate adverse U.S. federal income tax consequences of holding shares in a PFIC.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

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ITEM 2. PROPERTIES
Item 2. Properties
Our head office and operations are located at 3009 boul. de la Concorde East, Suite 102, Laval, Québec, Canada H7E 2B5 and our research and development and quality control laboratory is located at Espace Lab, 2650 Maximilien-Chagnon, Sherbrooke, Québec, Canada, J1E 0M8. We currently lease our office and laboratory space. We do not own our own manufacturing facility to produce CaPre; however, we do own the proprietary equipment for producing the related active pharmaceutical ingredient, or API, and drug product.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
Due to the fact that a portion of our intellectual property rights are licensed to us by Neptune/Aker, we rely on Neptune/Aker to protect a certain of the intellectual property rights that we use under our license agreement with Neptune/Aker. Neptune/Aker are engaged in a number of legal actions related to their intellectual property.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common shares are traded on The Nasdaq Capital Market and the TSX Venture Exchange under the symbol “ACST.”
Holders
As of June 22, 2021, there were approximately 26 holders of record of our common shares. The actual number of shareholders is greater than this number of record holders and includes shareholders who are beneficial owners but whose shares are held in street name by brokers and other nominees.
Dividends
We do not anticipate paying any cash dividend on our common shares in the foreseeable future. We presently intend to retain future earnings to finance the expansion and growth of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors the board of directors deems relevant. In addition, the terms of any future debt or credit facility may preclude us from paying dividends.
Taxation
The following is a summary of certain U.S. federal income tax considerations arising from and relating to the acquisition, ownership, and disposition of our common shares to a U.S. Holder (as defined below) as capital assets.
This summary provides only general information and does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of our common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences applicable to that U.S. Holder. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, state and local, and non-U.S. tax consequences arising from or relating to the acquisition, ownership, and disposition of our common shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service, or IRS, has been requested, or will be obtained, regarding the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of our common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Disclosure
Authorities
This summary is based on the Code, U.S. Treasury Regulations promulgated thereunder (whether final, temporary or proposed), published IRS rulings, judicial decisions, published administrative positions of the IRS, and the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the Canada-U.S. Tax Treaty), in each case, as in effect as of the date of this report. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis. Unless otherwise discussed, this summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation.
U.S. Holders
For purposes of this summary, a “U.S. Holder” is a beneficial owner of common shares that, for U.S. federal income tax purposes, is (a) an individual who is a citizen or resident of the United States, (b) a corporation, or other entity classified as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S., any state in the United States or the District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income, or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax consequences applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax deferred accounts; (b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders subject to the alternative minimum tax provisions of the Code; (f) U.S. Holders that own common shares as part of a straddle, hedging transaction, conversion transaction, integrated transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired common shares through the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold common shares other than as a capital asset within the meaning of Section 1221 of the Code; (i) U.S. Holders that beneficially own (directly, indirectly or by attribution) 10% or more of our equity securities (by vote or value); and (j) U.S. expatriates. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences arising from and relating to the acquisition, ownership, and disposition of the common shares.
If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to that partnership and the partners of that partnership generally will depend on the activities of the partnership and the status of the partners. Partners of entities that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership and disposition of the common shares.
Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed
This summary does not address the U.S. estate and gift, alternative minimum, state, local or non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of our common shares. Each U.S. Holder should consult its own tax advisor regarding the U.S. estate and gift, alternative minimum, state, local and non-U.S. tax consequences arising from and relating to the acquisition, ownership, and disposition of our common shares.
U.S. Federal Income Tax Considerations of the Acquisition, Ownership, and Disposition of Common Shares
Distributions on Common Shares
Subject to the discussion under “-Passive Foreign Investment Company Rules” below, a U.S. Holder that receives a distribution, including a constructive distribution or a taxable stock distribution, with respect to the common shares generally will be required to include the amount of that distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current or accumulated “earnings and profits” (as computed for U.S. federal income tax purposes). To the extent that a distribution exceeds our current and accumulated “earnings and profits”, the excess amount will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder’s adjusted tax basis in the common shares with respect to which the distribution is made (resulting in a corresponding reduction in the tax basis of those common shares) and, (b) thereafter, as gain from the sale or exchange of those common shares (see the more detailed discussion at “-Disposition of Common Shares” below). We do not intend to calculate our current or accumulated earnings and profits for U.S. federal income tax purposes and, therefore, will not be able to provide U.S. Holders with that information. U.S. Holders should therefore assume that any distribution by us with respect to our common shares will constitute a dividend. However, U.S. Holders should consult their own tax advisors regarding whether distributions from us should be treated as dividends for U.S. federal income tax purposes. Dividends paid on our common shares generally will not be eligible for the “dividends received deduction” allowed to corporations under the Code with respect to dividends received from U.S. corporations.
A dividend paid by us generally will be taxed at the preferential tax rates applicable to long-term capital gains if, among other requirements, (a) we are a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving the dividend is an individual, estate, or trust, and (c) the dividend is paid on common shares that have been held by the U.S. Holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend date” (i.e., the first date that a purchaser of the common shares will not be entitled to receive the dividend).
For purposes of the rules described in the preceding paragraph, we generally will be a “qualified foreign corporation”, or a QFC, if (a) we are eligible for the benefits of the Canada-U.S. Tax Treaty, or (b) our common shares are readily tradable on an established securities market in the United States, within the meaning provided in the Code. However, even if we satisfy one or more of the requirements, we will not be treated as a QFC if we are classified as a PFIC (as discussed below) for the taxable year during which we pay the applicable dividend or for the preceding taxable year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of those rules to them in their particular circumstances. Even if we satisfy one or more of the requirements, as noted below, there can be no assurance that we will not be a PFIC in the current taxable year or become a PFIC in the future. Thus, there can be no assurance that we will qualify as a QFC.
Disposition of Common Shares
Subject to the discussion under “-Passive Foreign Investment Company Rules” below, a U.S. Holder will recognize gain or loss on the sale or other taxable disposition of common shares (that is treated as a sale or exchange for U.S. federal income tax purposes) equal to the difference, if any, between (a) the U.S. dollar value of the amount realized on the date of the sale or disposition and (b) the U.S. Holder’s adjusted tax basis (determined in U.S. dollars) in the common shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital gain or loss if the common shares are held for more than one year. A U.S. Holder's initial tax basis in the common shares generally will equal the U.S. dollar cost of such common shares. Each U.S. Holder should consult its own tax advisor as to the tax treatment of dispositions of common shares in exchange for Canadian dollars.
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to complex limitations.
Passive Foreign Investment Company Rules
If we are or become a PFIC, the preceding sections of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of our common shares.
Passive Foreign Investment Company Status.
Special, generally unfavorable, rules apply to the ownership and disposition of the stock of a PFIC. For U.S. federal income tax purposes, a non-U.S. corporation is classified as a PFIC if:
· at least 75% of its gross income for the taxable year is “passive” income (referred to as the “income test”); or
· at least 50% of the average value of its assets held during the taxable year is attributable to assets that produce passive income or are held for the production of passive income (referred to as the “asset test”).
Passive income generally includes the following types of income:
· dividends, royalties, rents, annuities, interest, and income equivalent to interest; and
· net gains from the sale or exchange of property that gives rise to dividends, interest, royalties, rents, or annuities and certain gains from the commodities transactions.
In determining whether we are a PFIC, we will be required to take into account a pro rata portion of the income and assets of each corporation in which we own, directly or indirectly, at least 25% by value.
As described above, PFIC status of a non-U.S. corporation depends on the relative values of certain categories of assets and the relative amount of certain kinds of income for a taxable year. Therefore, our status as a PFIC for any given taxable year depends upon the financial results for such year and upon relative valuations, which are subject to change and beyond our ability to predict or control. Based on our most recent financial statements and projections and given uncertainty regarding the composition of our future income and assets, there is a significant risk that we may have been classified as a PFIC for the taxable year that ended on March 31, 2021, and may be classified as a PFIC for our current taxable year and possibly subsequent years. However, PFIC status is fundamentally factual in nature, depends on the application of complex U.S. federal income tax rules (which are subject to differing interpretations), generally cannot be determined until the close of the taxable year in question and is determined annually. In addition, in evaluating the risk that we may be classified as a PFIC for our current taxable year and subsequent years, we have not taken into account any changes to the composition of our income and assets that may result from the merger. Accordingly, there can be no assurance that we will not be a PFIC in our current taxable year or subsequent years. The PFIC rules are complex, and each U.S. Holder should consult its tax advisor regarding the application of the PFIC rules to us.
Default PFIC Rules Under Section 1291 of the Code.
Generally, if we are or have been treated as a PFIC for any taxable year during a U.S. Holder’s holding period of common shares, subject to the special rules described below applicable to a U.S. Holder who makes a Mark-to-Market Election or a QEF Election (each as defined below), any “excess distribution” with respect to the common shares would be allocated ratably over the U.S. Holder’s holding period. The amounts allocated to the taxable year of the excess distribution and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations in that taxable year, as appropriate, and an interest charge would be imposed on the amount allocated to that taxable year. Distributions made in respect of common shares during a taxable year will be excess distributions to the extent they exceed 125% of the average of the annual distributions on common shares received by the U.S. Holder during the preceding three taxable years or the U.S. Holder’s holding period, whichever is shorter. In addition, dividends generally will not be qualified dividend income if we are a PFIC in the taxable year of payment or the preceding year.
Generally, if we are treated as a PFIC for any taxable year during which a U.S. Holder owns common shares, any gain on the disposition of the common shares would be treated as an excess distribution and would be allocated ratably over the U.S. Holder’s holding period and subject to taxation in the same manner as described in the preceding paragraph and would not be eligible for the preferential long-term capital gains rate.
Certain elections (including the Mark-to-Market Election and the QEF Election, as defined and discussed below) may sometimes be used to mitigate the adverse impact of the PFIC rules on U.S. Holders, but these elections may accelerate the recognition of taxable income and have other adverse results.
Each current or prospective U.S. Holder should consult its own tax advisor regarding potential status of us as a PFIC, the possible effect of the PFIC rules to such holder in their particular circumstances, information reporting required if we were treated as a PFIC and the availability of any election that may be available to the holder to mitigate adverse U.S. federal income tax consequences of holding shares in a PFIC.
QEF Election.
A U.S. Holder of common shares in a PFIC generally would not be subject to the PFIC rules discussed above if the U.S. Holder had made a timely and effective election (a “QEF Election”) to treat us as a “qualified electing fund” (a “QEF”). Instead, such U.S. Holder would be subject to U.S. federal income tax on its pro rata share of our (i) net capital gain, which would be taxed as long-term capital gain to such U.S. Holder, and (ii) ordinary earnings, which would be taxed as ordinary income to such U.S. Holder, in each case regardless of whether such amounts are actually distributed to such U.S. Holder. However, a U.S. Holder that makes a QEF Election may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a timely and effective QEF Election generally (a) may receive a tax-free distribution from us to the extent that such distribution represents our “earnings and profits” that were previously included in income by such U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder’s tax basis in the common shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, for U.S. federal income tax purposes, a U.S. Holder that makes a timely QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of the common shares.
A QEF Election will be treated as “timely” if such QEF Election is made for the first taxable year in the U.S. Holder’s holding period for the common shares in which we are a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such first year. If a U.S. Holder makes a QEF Election after the first taxable year in the U.S. Holder’s holding period for the common shares in which we are a PFIC, then, in addition to filing the QEF Election documents, a U.S. Holder may elect to recognize gain (which will be taxed under the rules discussed under “-Default PFIC Rules Under Section 1291 of the Code”) as if the common shares were sold on the qualification date. The “qualification date” is the first day of the first taxable year in which we are a QEF with respect to such U.S. Holder. The election to recognize such gain can only be made if such U.S. Holder’s holding period for the common shares includes the qualification date. By electing to recognize such gain, such U.S. Holder will be deemed to have made a timely QEF Election. In addition, under very limited circumstances, it is possible that a U.S. Holder might make a retroactive QEF Election if such U.S. Holder failed to file the QEF Election documents in a timely manner. If a U.S. Holder fails to make a QEF Election for the first taxable year in the U.S. Holder’s holding period for the common shares in which we are a PFIC and does not elect to recognize gain as if the common shares were sold on the qualification date, such holder will not be treated as having made a “timely” QEF Election and will continue to be subject to the special adverse taxation rules discussed above under “-Default PFIC Rules Under Section 1291 of the Code”.
A QEF Election will apply to the taxable year for which such QEF Election is made and to all subsequent taxable years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent taxable year, we cease to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those taxable years in which we are not a PFIC. Accordingly, if we become a PFIC in another subsequent taxable year, the QEF Election will be effective, and the U.S. Holder will be subject to the rules described above during any such subsequent taxable year in which we qualify as a PFIC.
A U.S. Holder cannot make and maintain a valid QEF Election unless we provide certain U.S. tax information necessary to make such an election. On an annual basis, we intend to use commercially reasonable efforts to make available to U.S. Holders, upon their written request (a) timely information as to our status as a PFIC, and (b) for each year in which we are a PFIC, information and documentation that a U.S. Holder making a QEF Election with respect to us is required to obtain for U.S. federal income tax purposes. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election with respect to us.
Mark-to-Market Election.
A U.S. Holder of common shares in a PFIC would not be subject to the PFIC rules discussed above under “-Default PFIC Rules Under Section 1291 of the Code” if the U.S. Holder had made a timely and effective election to mark the PFIC common shares to market (a “Mark-to-Market Election”).
A U.S. Holder may make a Mark-to-Market Election with respect to the common shares only if such shares are marketable stock. Such shares generally will be “marketable stock” if they are regularly traded on a “qualified exchange,” which is defined as (a) a national securities exchange that is registered with the SEC, (b) the national market system established pursuant to section 11A of the Exchange Act, or (c) a non-U.S. securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such non-U.S. exchange has trading volume, listing, financial disclosure, surveillance, and other requirements, and the laws of the country in which such non-U.S. exchange is located, together with the rules of such non-U.S. exchange, ensure that such requirements are actually enforced and (ii) the rules of such non-U.S. exchange ensure active trading of listed stocks. Our common shares will generally be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of common shares is traded on a qualified exchange for at least 15 days during each calendar quarter. Each U.S. Holder should consult its own tax advisor with respect to the availability of a Mark-to-Market Election with respect to the common shares.
In general, a U.S. Holder that makes a timely Mark-to-Market Election with respect to the common shares will include in ordinary income, for each taxable year in which we are a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the common shares as of the close of such taxable year over (b) such U.S. Holder’s tax basis in such shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the lesser of (a) the excess, if any, of (i) such U.S. Holder’s adjusted tax basis in the common shares over (ii) the fair market value of such shares as of the close of such taxable year or (b) the excess, if any, of (i) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (ii) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years. If a U.S. Holder makes a Mark-to-Market Election after the first taxable year in which we are a PFIC and such U.S. Holder has not made a timely QEF Election with respect to us, the PFIC rules described above under “-Default PFIC Rules Under Section 1291 of the Code” will apply to certain dispositions of, and distributions on, the common shares, and the U.S. Holder’s mark-to-market income for the year of the election. If we were to cease being a PFIC, a U.S. Holder that marked its common shares to market would not include mark-to-market gain or loss with respect to its common shares for any taxable year that we were not a PFIC.
A U.S. Holder that makes a Mark-to-Market Election generally will also adjust such U.S. Holder’s tax basis in his common shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of the common shares subject to a Mark-to-Market Election, any gain or loss on such disposition will be ordinary income or loss (to the extent that such loss does not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years). A Mark-to-Market Election applies to the taxable year in which such Mark-to-Market Election is made and to each subsequent taxable year unless the common shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election with respect to the common shares.
Reporting.
If we were to be treated as a PFIC in any taxable year, a U.S. Holder will generally be required to file an annual report with the IRS containing such information as the U.S. Treasury Department may require.
Each U.S. Holder should consult its own tax advisor regarding our potential status as a PFIC, the possible effect of the PFIC rules to such holder and information reporting required if we were a PFIC, as well as the availability of any election that may be available to the holder to mitigate adverse U.S. federal income tax consequences of holding shares in a PFIC.
Receipt of Foreign Currency
The amount of a distribution paid in Canadian dollars or Canadian dollar proceeds received on the sale or other taxable disposition of common shares will generally be equal to the U.S. dollar value of the currency on the date of receipt. If any Canadian dollars received with respect to the common shares are later converted into U.S. dollars, U.S. Holders may realize foreign currency gain or loss on the conversion. Any gain or loss generally will be treated as ordinary income or loss and generally will be from sources within the United States for U.S. foreign tax credit purposes. Each U.S. Holder should consult its own tax advisor concerning the possibility of foreign currency gain or loss if any such currency is not converted into U.S. dollars on the date of receipt.
Foreign Tax Credit
Subject to certain limitations, a U.S. Holder who pays (whether directly or through withholding) Canadian or other non-U.S. income tax with respect to the common shares may be entitled, at the election of the U.S. Holder, to receive either a deduction or a credit for Canadian or other non-U.S. income tax paid. Dividends paid on common shares generally will constitute income from sources outside the United States. Any gain from the sale or other taxable disposition of the common shares by a U.S. Holder generally will constitute U.S. source income. The foreign tax credit rules (including the limitations with respect thereto) are complex, and each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules, having regard to such holder’s particular circumstances.
Information Reporting; Backup Withholding
Generally, information reporting and backup withholding will apply to distributions on, and the payment of proceeds from the sale or other taxable disposition of, the common shares unless (i) the U.S. Holder is a corporation or other exempt entity, or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number, certifies that the U.S. Holder is not subject to backup withholding and otherwise complies with the applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax. Any amount withheld generally will be creditable against a U.S. Holder’s U.S. federal income tax liability or refundable to the extent that it exceeds such liability provided the required information is provided to the IRS in a timely manner.
In addition, certain categories of U.S. Holders must file information returns with respect to their investment in a non-U.S. corporation. For example, certain U.S. Holders must file IRS Form 8938 with respect to certain “specified foreign financial assets” (such as the common shares) with an aggregate value in excess of US$50,000 (and, in some circumstances, a higher threshold). Failure to do so could result in substantial penalties and in the extension of the statute of limitations with respect to such holder’s U.S. federal income tax returns. Each U.S. Holder should consult its own tax advisor regarding application of the information reporting and backup withholding rules to it in connection with an investment in our common shares.
Medicare Contribution Tax
U.S. Holders that are individuals, estates or certain trusts generally will be subject to a 3.8% Medicare contribution tax on, among other things, dividends on, and capital gains from the sale or other taxable disposition of, common shares, subject to certain limitations and exceptions. Each U.S. Holder should consult its own tax advisor regarding possible application of this additional tax to income earned in connection with an investment in our common shares.
Recent Sales of Unregistered Securities
None.
Issuer Repurchases of Equity Securities
None.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following discussion should be read in conjunction with the attached consolidated financial statements and notes thereto. This annual report contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see Item 1A, “Risk Factors” of this annual report. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this annual report. We undertake no obligation to update forward-looking statements which reflect events or circumstances occurring after the date of this annual report, unless required by applicable securities laws.
Introduction
This management’s discussion and analysis, or MD&A, is presented in order to provide the reader with an overview of the financial results and changes to our financial position as at March 31, 2021 and for the three and twelve-month periods then ended. This MD&A explains the material variations in our financial statements of operations, financial position and cash flows for the three and twelve-month periods ended March 31, 2021, and 2020.
Market data and certain industry data and forecasts included in this MD&A were obtained from internal corporation surveys, market research, and publicly available information, reports of governmental agencies and industry publications and surveys. We have relied upon industry publications as our primary sources for third-party industry data and forecasts. Industry surveys, publications and forecasts generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of that information is not guaranteed. We have not independently verified any of the data from third-party sources or the underlying economic assumptions they made. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon our management’s knowledge of our industry, have not been independently verified. Our estimates involve risks and uncertainties, including assumptions that may prove not to be accurate, and these estimates and certain industry data are subject to change based on various factors, including those discussed under Item 1.A “Risk Factors” in this annual report. While we believe our internal business, research is reliable and the market definitions we use in this MD&A are appropriate, neither our business research nor the definitions we use have been verified by any independent source. This MD&A may only be used for the purpose for which it has been published.
This MD&A, approved by the Board of Directors on June 22, 2021, should be read in conjunction with our audited consolidated financial statements for the year ended March 31, 2021, and 2020. Our audited financial statements were prepared in accordance with generally accepted accounting principles issued by the Financial Accounting Standards Board in the United States, or GAAP. Up to and including the third quarter ended December 31, 2019, we prepared our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board. Our financial results are now published in United States dollars. Effective March 31, 2020, the reporting currency used in the consolidated financial statements changed from Canadian dollars to U.S. dollars. This change in reporting currency has been applied in the financial statements retrospectively such that all amounts expressed in our consolidated financial statements and the accompanying notes thereto are in U.S. dollars. All amounts appearing in this MD&A for the period-by-period discussions are in thousands of U.S. dollars, except share and per share amounts or unless otherwise indicated.
Basis of presentation of the financial statements
Our consolidated financial statements, which include the accounts of our subsidiary AIAG, have been prepared in accordance with GAAP and the rules and regulations of the SEC related to annual reports filed on Form 10-K. All intercompany transactions and balances are eliminated on consolidation.
The following summarizes the principal conditions or events relevant to our going concern assessment, which primarily considers the period of one year from the issuance date of our financial statements.
We have incurred operating losses and negative cash flows from operations since our inception. In prior years there was substantial doubt regarding our ability to realize our assets and discharge our liabilities and commitments in the ordinary course of business. During year ended March 31, 2021, we raised net proceeds of $59.3 million under our ATM program. Our assets as at March 31, 2021, include cash and cash equivalents and short-term investments totaling $60.8 million. Our current liabilities total $1.6 million as at March 31, 2021 and are comprised primarily of amounts due to or accrued for creditors.
Our ability to continue as a going concern is dependent upon our ability to achieve a successful completion of our proposed merger with Grace or another strategic alternative and ultimately generate cashflows to meet our obligations. To date, we have financed our operations primarily through public offerings of common shares, private placements, and the proceeds from research tax credits, and will require additional financing in the future. There is no assurance that our proposed merger with Grace or another strategic transaction will be consummated as such transaction is not within our control. As a result of our current liquidity profile, the reduction of operating expenses and the limited liabilities, management has assessed that substantial doubt no longer exists regarding our ability to continue as a going concern for one year from the issuance date of these financial statements.
Comparative financial information for the three-month periods and years ended March 31, 2021, and 2020.
Three-month periods ended
Year ended
March 31, 2021
March 31, 2020
March 31, 2021
March 31, 2020
$
$
$
$
Net income (loss)
(5,646 )
16,625
(19,678 )
(25,513 )
Basic and diluted gain (loss) per share
(0.03 )
0.18
(0.17 )
(0.30 )
Total assets
62,458
22,853
62,458
22,853
Working capital1
60,793
8,684
60,793
8,684
Total non-current financial liabilities
5,219
2,464
5,219
2,464
Total shareholders’ equity
55,660
12,994
55,660
12,994
_____________________________________
1 Working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by GAAP, the results may not be comparable to similar measurements presented by other public companies.
Statement of Net Loss
Three-month periods ended
Year ended
March 31, 2021
March 31, 2020
March 31, 2021
March 31, 2020
$
$
$
Revenue
-
-
Cost sales of products
(40 )
-
(76 )
-
Research and development expenses
(453 )
(1,918 )
(4,173 )
(15,974 )
General and administrative expenses
(1,443 )
(1,549 )
(5,521 )
(5,799 )
Sales and marketing expenses
(66 )
(563 )
(1,142 )
(2,665 )
Impairment of Intangible assets
-
-
(3,706 )
-
Impairment of Equipment
-
-
(1,584 )
-
Impairment of Other assets and prepaids
(413 )
-
(413 )
-
Financial Income (expenses)
(3,346 )
20,646
(3,259 )
(1,075 )
Net loss
(5,646 )
16,616
(19,678 )
(25,513 )
Results of operations for the three and twelve-month periods ended March 31, 2021, and 2020
Three months ended March 31, 2021, and 2020
The net loss of $5,646 or $0.03 per share for the three months ended March 31, 2021, increased by $22,262 from the net income of $16,616 or $0.18 per share for the three months ended March 31, 2020.
The increase in net loss resulted primarily from net financial expenses decreasing by $23,992 to an expense of $3,346 for the three months ended March 31, 2021, as compared to net financial income of $20,646 for the three months ended March 31, 2020. This is due mostly to a decrease from the change in fair value of the derivative warrant liability as compared to the comparative fiscal quarter in 2020 caused by a proportionately higher decrease in the quarter over quarter closing share price partly offset by a reduction in the number of warrants outstanding due to exercises during the prior year.
In October 2020, the Corporation entered into an agreement with the Centre Integre Universitaire et des services sociaux de L’Estrie - Centre hospitalier Universitaire de Sherbrooke to start producing and selling viral transport medium tubes to be utilized in testing related to the COVID-19 pandemic.
In addition, a decrease in research and development expenses of $1,465 occurred as the TRILOGY Phase 3 clinical program for CaPre was winding down. General and administrative expenses decreased from the prior period, with the current period being impacted by lower legal and professional fees. Sales and marketing expenses also decreased as a result of the termination of CaPre commercialization activities due to the TRILOGY 2 Phase 3 clinical trial results.
Fiscal years ended March 31, 2021, and 2020
The net loss of $19,678 or $0.17 per share for the year ended March 31, 2021, decreased by $5,835 from the net loss of $25,513 or $0.30 per share for the year ended March 31, 2020.
The decreased net loss resulted in part from a decrease in research and development expenses of $11,801 occurred as the TRILOGY Phase 3 clinical program for CaPre was winding down. General and administrative expenses decreased from the comparative period due to decreased stock-based compensation. Sales and marketing expenses also decreased by $1,523, as a result of the termination of any CaPre commercialization activities due to the TRILOGY 2 Phase 3 clinical trial results. Furthermore, operational events related to the TRILOGY results resulted in increased loss related to the impairment of equipment and intangible assets amounting to $5,290. The decreased net loss also resulted from financial expenses of $3,259 for the year ended March 31, 2021, as compared to net financial expenses of $1,075 for the year ended March 31, 2020, due mostly to the change in fair value of the warrant derivative liability.
Two separate derivative warrant liabilities are included in the statement of financial position as at March 31, 2021, and March 31, 2020. These derivative warrant liabilities stem from financing transactions that took place in May 2018 and December 2017. These derivative warrant liabilities are re-measured to fair value at each reporting date using the Black-Scholes option pricing model. The valuations are mainly driven by the fluctuation in our share price resulting in an increased or decreased loss or gain related to the change in fair value of the warrant liabilities and increasing or decreasing the corresponding liability in the balance sheet.
Breakdown of major components of the statement of loss and comprehensive loss
Research and development expenses
Three Months Ended
Year Ended
March 31, 2021
March 31, 2020
March 31, 2021
March 31, 2020
$
$
$
$
Salaries and benefits
1,459
1,759
Research contracts
10,260
Professional fees
1,117
Other
Government grants & tax credits
(36 )
(117 )
(127 )
(313 )
Sub-total
1,228
2,904
13,215
Stock-based compensation
Depreciation and amortization
-
2,316
Total
1,918
4,173
15,974
General and administrative expenses
Three Months Ended
Year Ended
March 31, 2021
March 31, 2020
March 31, 2021
March 31, 2020
$
$
$
$
Salaries and benefits
1,321
1,506
Professional fees
2,337
2,018
Other
1,027
1,058
Sub-total
1,321
1,291
4,685
4,582
Stock-based compensation
1,217
Depreciation
-
-
-
Total
1,443
1,549
5,521
5,799
Sales and Marketing Expenses
Three Months Ended
Year Ended
March 31, 2021
March 31, 2020
March 31, 2021
March 31, 2020
$
$
$
$
Salaries and benefits
1,050
1,206
Professional fees
-
Other
Sub-total
1,149
2,372
Stock-based compensation
-
(7 )
Total
1,142
2,665
Three months ended March 31, 2021, compared to the three months ended March 31, 2020
During the three months ended September 30, 2020, we released our TRILOGY 2 Phase 3 clinical study results for CaPre. TRILOGY 2 failed to meet the primary endpoint, and consequently we decided we will not file an NDA with the FDA. Research and development expenses are reduced due to the completion of the TRILOGY program, and we discontinued all CaPre related marketing activities, while we evaluated a range of strategic alternatives. As a result, research and development expenses before depreciation, amortization and stock-based compensation expense for the three months ended March 31, 2021, totaled $404 compared to $1,228 for the three months ended March 31, 2020. The net decrease of $824 was mainly attributable to a reduction in research contracts with the completion of the TRILOGY research and development activities of $667 as well as a reduction in headcount within the department resulting in a decrease of salaries of $132. The remaining decrease of $23 is a result of various other operational reductions.
General and administrative expenses totaled $1,321 before depreciation and stock-based compensation expense for the three-months ended March 31, 2021 and increased by $31 from $1,291 for the three months ended March 31, 2020. This increase is mostly a result of increased salaries of $49 related to retention amounts offset by a decrease in professional fees of $22.
Sales and marketing expenses were $66 before stock-based compensation expense for the three months ended March 31, 2021, compared to $469 for the three months ended March 31, 2020. The decrease of $403 was mostly due to a decrease in salaries related to the reduction in headcount in the department of $324 as well as a decrease of $79 related to other sales activities as a result of discontinuing planned pre-launch marketing activities for CaPre.
Stock-based compensation expense decreased by $274 to $171 for the three-month period ended March 31, 2021, as compared to $445 for the three-month period ended March 31, 2020. The decrease in expense is due to forfeited options as well as the fact that no options have been granted in the current period.
The depreciation expense decreased by $597 for the three-month period ended March 31, 2021, as compared to $597 for the three-month period ended March 31, 2020. This is due to the impact of the equipment being classified as held for resale and no additional depreciation recognized.
Year ended March 31, 2021, compared to year ended March 31, 2020
During the three months ended September 30, 2020, we released our TRILOGY 2 Phase 3 clinical study results for our lead product in development, CaPre. TRILOGY 2 failed to meet its primary endpoint, and consequently we will not file an NDA with the FDA. Research and development expenses have been reduced due to the completion of the TRILOGY program, and we discontinued all CaPre related marketing activities while we evaluate a range of strategic alternatives. As a result, research and development expenses before depreciation, amortization and stock-based compensation expense for the year ended March 31, 2021, totaled $2,904 compared to $13,215 for the year ended March 31, 2020. The net decrease of $10,311 was mainly attributable to a reduction in research contracts with the completion of the CaPre R&D activities of $9,343 as well as a reduction in headcount within the department resulting in a decrease of salaries of $300. In addition, a decrease of $854 related to various other operational reductions such as professional fees resulted, as well as a decrease to the government tax credits of $186.
General and administrative expenses totaled $4,685 before depreciation and stock-based compensation expense for the year ended March 31, 2021 and increased by $103 from $4,582 for the year ended March 31, 2020. This increase was mainly attributable to a $100 increase associated with our insurance policies, as well as an increase of $186 in legal fees, which was offset by a $185 decrease in salaries related to a reversal in bonus amounts accrued.
Sales and marketing expenses were $1,149 before stock-based compensation expense for the year ended March 31, 2021, compared to $2,372 for the year ended March 31, 2020. The decrease of $1,223 was mostly due to a reduction in salaries of $156 due to a reduction in headcount, as well as a reduction in professional fees and other sales activities of $1,067 due to the end of the planned pre-launch marketing activities for CaPre.
Stock-based compensation expense decreased by $779 to $1,174 for the year ended March 31, 2021, as compared to $1,953 for the year ended March 31, 2020. The decrease in expense is due to forfeited options as well as the fact that no options have been granted in the current period.
The depreciation expense decreased by $1,392 to $924 for the year ended March 31, 2021, as compared to $2,316 for the year ended March 31, 2020. This is due to the impact of the equipment being classified as held for resale and no additional depreciation recognized.
Liquidity and Capital Resources
Share Capital Structure
Our authorized share capital consists of an unlimited number of Class A, Class B, Class C, Class D and Class E shares, without par value. Issued and outstanding fully paid shares, stock options, restricted shares units and warrants, were as follows for the periods ended:
March 31, 2021
March 31, 2020
Number outstanding
Number outstanding
Class A shares, voting, participating and without par value
208,375,549
90,209,449
Stock options granted and outstanding
7,294,919
9,936,486
May 2018 public offering of warrants exercisable at CAD $1.31, until May 9, 2023
6,593,750
6,593,750
Public offering broker warrants May 2018 exercisable at CAD $1.05 until May 9, 2023
222,976
December 2017 U.S. public offering of warrants exercisable at US$1.26, until December 19, 2022
7,072,962
7,072,962
December 2017 U.S. broker warrants exercisable at US $1.2625, until December 27, 2022
259,121
259,121
February 2017 public offering of warrants exercisable at CAD $2.15, until February 21, 2022
1,723,934
1,723,934
Total fully diluted shares
231,320,236
116,018,678
Cash Flows and Financial Condition between the years ended March 31, 2021 and 2020
Summary
As at March 31, 2021, cash and cash equivalents totaled $50,942, a net increase of $36,702 compared to cash and cash equivalents totaling $14,240 at March 31, 2020.
Operating activities
During the years ended March 31, 2021, and March 31, 2020, our operating activities used cash of $14,319 and $22,951, respectively, the decrease of which is a reflection of the completion of our Phase 3 program for CaPre and related reduction of accounts payables and accruals.
Investing activities
During the year ended March 31, 2021, we used cash of $9,858 due primarily to the acquisition of investments. During the year ended March 31, 2020, we generated cash of $8,138 due primarily to the maturity of investments.
Financing activities
During the year ended March 31, 2021, the Corporation’s financing activities provided cash totaling $59,490 due to proceeds from the sale of shares under the “at-the-market”, or ATM, program, compared to cash generated of $13,183 due to proceeds from the sale of shares under the “at-the-market” and exercise of warrants, net of repayment of convertible debentures of $1,556 during the year ended March 31, 2020.
On June 29, 2020, we filed a registration statement on Form S-3 with the SEC to register up to US $200 million of common shares, warrants and units that may be offered and sold by us from time to time (the “Registration Statement”). The Registration Statement was declared effective by the SEC on July 7, 2020.
ATM Program
On February 14, 2019, the Corporation entered into an “at-the-market” (ATM) sales agreement with B. Riley FBR, Inc. (“B. Riley”) pursuant to which the Common Shares may be sold from time to time for aggregate gross proceeds of up to $30 million, with sales only being made on the NASDAQ Stock Market. The Common Shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 3-year term and requires the Corporation to pay between 3% and 4% commission to B. Riley based on volume of sales made. On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the Sales Agreement) with B. Riley, Oppenheimer& Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the existing ATM program. Under the terms of the Sales Agreement, the Corporation may issue and sell from time to time its common shares having an aggregate offering price of up to US $75,000,000 through the Agents. Subject to the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell the common shares from time to time, based upon the Corporation’s instructions. The Corporation has no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement. The Corporation and the Agents may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Corporation has provided the Agents with customary indemnification rights and the Agents will be entitled to compensation, at a commission rate equal to 3.0% of the gross proceeds from each sale of the common shares. As at March 31, 2021, a total of 117.7 million common shares (March 31, 2020 - 4.1 million common shares) were sold for total net proceeds of approximately $59.3 million (March 31, 2020 - $7.0 million) under the ATM program. Commission, legal and costs related to share sale amounted to $2.0 million (March 31, 2020 - $291). The shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.52 per share (March 31, 2020 - $1.79 per share). Accordingly, proportional costs of $18 related to the common shares sold, have been reclassified from deferred financings costs to equity (March 31, 2020 - $40). Total costs incurred to register the Sales Agreements were initially recorded as deferred financing costs in the Consolidated Balance Sheet. As at March 31, 2021, the remaining balance of the costs incurred of $264 were written off to financing expenses.
Financial Position
The following table details the significant changes to the statements of financial position as at March 31, 2021, compared to the prior fiscal year end at March 31, 2020:
Accounts
Increase
(Decrease) $
Comments
Cash and cash equivalents
36,702
See cash flow statement
Investments
9,789
Increase in cash available to invest
Receivables
(16)
Timing of reimbursement of sales taxes
Deferred financing costs
(121)
New costs, net of write off
Prepaid expenses
(634)
Expensing of insurance, impairment and other prepaid expenses
Other assets
(281)
Use of other assets in research and development activities and impairment
Equipment
(1,529)
Amortization & Impairment
Right of use asset
(61)
Adjustment to the net present value of lease contract for Sherbrooke
Intangible assets
(4,244)
Amortization and Impairment of license
Trade and other payables
(5,826)
Timing of payments net of accruals
Derivative warrant liabilities
2,826
Change in fair value of derivative warrants
Lease liability
(61)
Payment of lease liability
See the statement of changes in equity in our financial statements for details of changes to the equity accounts since March 31, 2020.
Treasury Operations
Our treasury policy is to invest cash that is not required immediately into instruments with an investment strategy based on capital preservation. Cash equivalents and marketable securities are primarily made in guaranteed investment certificates, term deposits and high-interest savings accounts, which are issued and held with Canadian chartered banks, highly rated promissory notes issued by government bodies and commercial paper. We hold cash denominated in both U.S. and CAD dollars. Funds received in U.S. dollars from equity financings are invested as per our treasury policy in U.S. dollar investments and converted to CAD dollars as appropriate to fulfill operational requirements and funding.
Impairment loss Intangible assets:
The Corporation tests intangible assets for impairment should circumstances change or events occur that would indicate that the fair value of an asset may be below its carrying value. During the second quarter of fiscal 2021, the Corporation released its topline TRILOGY 2 Phase 3 clinical trial results and the resulting decision to not file an NDA to obtain FDA approval for CaPre as a result of TRILOGY 2 not meeting its primary endpoint. As a result, a significant share price reduction occurred. Due to these indicators of impairment under ASC 350, the Corporation undertook an analysis to determine the fair value of its intangible asset this quarter.
In prior years, the Corporation entered into agreements with Neptune Wellness Solutions Inc. (“Neptune”) pursuant to which the Corporation obtained a license and exercised its option under this license agreement to pay in advance all of the future royalties payable to Neptune. This license allows the Corporation to exploit the intellectual property rights in-order to develop novel active pharmaceutical ingredients into commercial products for the prescription drugs market. In assessing the magnitude of any impairment of the license the Corporation considered all available evidence including i) significant adverse impact from business climate due to the TRILOGY Phase 3 clinical programs failure to meet its primary endpoints, and the resulting decision to not file an NDA to obtain FDA approval for CaPre, and the resulting internal forecasts that no cash flows from the use of the license was possible, and (ii) management’s estimate that a market place participant would place minimal to no value on the license if it were to be sold on its own or in combination with other assets, recognized or not, which is a level 3 measurement in the fair value hierarchy which included unobservable inputs. Accordingly, an impairment loss of $3,706 was recognized during the year ended March 31, 2021, which represents the totality of the intangible assets net book value prior to the impairment trigger. For the year ended March 31, 2021, amortization expense was $781 (2020 - $1,910) and was included in research and development expenses.
Assets held for sale
During the period the Corporation committed to a plan and is actively marketing for sale Other assets and Equipment and has met the criteria for classification of assets held for sale:
March 31,
March 31,
$
$
Other assets
Equipment
1,910
2,578
Other assets
Other assets represent krill oil (RKO) held by the Corporation that was expected to be used in the conduct of R&D activities and commercial inventory scale up related to the development and commercialization of the CaPre drug. Given that the development of CaPre will no longer be pursued, the Corporation is expected to sell this reserve. The other asset is being recorded at the fair value less costs to sell, which has resulted in an impairment loss of $413. Management’s estimate of the fair value of the RKO less cost -to sell, is based primarily on estimated market prices obtained from an appraiser specialized in the krill oil market. These projections are based on Level 3 inputs of the fair value hierarchy and reflect management’s best estimate of market participants’ pricing of the assets as well as the general condition of the asset. The total impairment loss recognized, includes amounts paid for krill oil in advance, but not yet received and was recorded as a prepaid.
Equipment
March 31, 2021
Cost
Accumulated
depreciation
Impairment
loss
Net book
value
$
$
$
$
Furniture and office equipment
(5 )
-
Computer equipment
(30 )
(54 )
Laboratory equipment
(436 )
(171 )
Production equipment
2,538
(1,023 )
(1,359 )
3,459
(1,494 )
(1,584 )
March 31, 2020
Cost
Accumulated
depreciation
Net book value
$
$
$
Furniture and office equipment
Computer equipment
Laboratory equipment
Production equipment
2,341
1,511
3,104
1,194
1,910
For the year ended March 31, 2021, depreciation expense was $143 (2020 $410) and was included in research and development expenses.
Equipment is made up of laboratory, production, computer and office equipment that was utilized in the development of CaPre. Given that the development of CaPre will no longer be pursued by the Corporation, it is expected to sell this equipment. Similar, to how the intangible assets are treated, the announcement of the outcomes of the TRILOGY clinical trials resulted in an impairment trigger for the laboratory and production equipment. The impairment loss is based on management’s estimate of the fair value of the equipment less cost -to sell, which is based primarily on estimated market prices obtained from brokers specialized in selling used equipment. These projections are based on Level 3 inputs of the fair value hierarchy and reflect the management’s best estimate of market participants’ pricing of the assets as well as the general condition of the assets.
Derivative warrant liabilities
The 10,188,100 warrants issued as part of our May 2018 public offering in Canada were recognized as derivative warrant liabilities with a fair value of $3,323. As of March 31, 2021, the derivative warrant liability for the remaining 6,593,750 warrants totaled $2,597, which represents the fair value of these warrants. The weighted average fair value of the warrants issued in the May 2018 public offering in Canada was determined to be CAD$0.39 per warrant at inception and approximately CAD$0.49 (USD $0.39) per warrant as at March 31, 2021.
On December 27, 2017, 9,801,861 warrants were issued as part of our U.S. public offering and recognized as derivative warrant liabilities. The December 2017 warrants are derivative warrant liabilities for accounting purposes due to the currency of the exercise price (US$) being different from our Canadian dollar functional currency. As of March 31, 2021, the derivative warrant liability for the remaining 7,072,962 warrants totaled $2,622 which represents the fair value of these warrants. The weighted average fair value of the 2017 warrants issued was determined to be CAD$0.60 per warrant at inception and approximately CAD$0.47 (USD $0.37) per warrant as at March 31, 2021.
The increase in the fair value of both existing derivative warrant liabilities as at March 31, 2021 is due to the decrease in our share price and the dilution factor.
During the year ended March 31, 2021, no warrants were exercised. In fiscal 2020, the following warrants were exercised with the resulting cash proceeds:
March 31, 2020
Number
Proceeds
exercised
$
May 2018 over-allotment warrants 2018
3,594,350
3,567
December 2017 US public offering warrants 2017
2,676,611
3,373
Canadian public offering warrants February 2017
180,100
Canadian public offering broker warrants May 2018
325,000
Contingent warrants private placement 2017
150,000
6,926,061
7,706
Contractual Obligations and Commitments
As at March 31, 2021, our liabilities totaled $6,744, of which $1,525 was due within 1 year, and $5,219 related to derivative warrant liabilities that are expected to be settled in common shares.
A summary of the contractual obligations at March 31, 2021, is as follows:
Contractual Obligations
Total
Less than
1 year
1-3 years
More than
3 years
$
$
$
$
Trade and other payables
1,479
1,479
-
-
Operating lease obligations
-
-
RKO supply agreement
2,800
2,800
-
-
Total
4,365
4,365
-
-
Lease
On March 5, 2020, we renewed the lease agreement for our research and development and quality control laboratory facility located in Sherbrooke, Québec, resulting in an obligation of $160 over 24 months of the lease term. As at March 31, 2021, the remaining balance of the commitment amounted to $86.
RKO supply agreement
On October 25, 2019, we signed a supply agreement with Aker to purchase RKO for a committed volume of commercial starting material for CaPre at a fixed price for a total value of $3.1 million (take or pay). The delivery of the RKO has been established following a calendar year basis and it is expected to be completed in the 4th calendar quarter of 2021. As at March 31, 2021, the remaining balance of the commitment with Aker amounts to $2.8 million. There are no termination provisions within the supply agreement. Management is currently assessing whether the Corporation can recover any value from the raw krill oil product and given the uncertainty of recoverability, there is a risk that the Corporation may have a loss on this contract in the near term.
Financial advisor agreement
On September 23, 2020, we engaged Oppenheimer & Co., Inc, as our financial advisor to assist in the formal process to explore and evaluate strategic alternatives to enhance shareholder value. This arrangement includes fees of $1.2 million to be paid on the success of a strategic outcome.
Contingencies
We evaluate contingencies on an ongoing basis and establish loss provisions for matters in which losses are probable and the amount of the loss can be reasonably estimated.
Off-Balance Sheet Arrangements
As of the date of this annual report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Use of estimates and measurement of uncertainty
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates.
Estimates are based on management’s best knowledge of current events and actions that management may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Estimates and assumptions include the measurement of derivative warrant liabilities (see note 10 of the consolidated financial statements), stock-based compensation (see note 14 of the consolidated financial statements), and impairment and recoverability of other assets - RKO (see note 7 of the consolidated financial statements). Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and developments expenditures at each reporting date, are determining which research and development expenses qualify for research and development tax credits and in what amounts. We recognize the tax credits once we have reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and therefore, could be different from the amounts recorded.
Critical Accounting Policies
Impairment of Long-Lived Assets
We review the recoverability of our long-lived assets and Assets held for sale whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount is first compared with the undiscounted cash flows. If the carrying amount is higher than the sum of undiscounted cash flows, then we determine the fair value of the underlying asset group. Any impairment loss to be recognized is measured as the difference by which the carrying amount of the asset group exceeds the estimated fair value of the asset group.
Measurement of Assets held for sale
Assets that are classified as held for sale are measured at the lower of their carrying amount or fair value less expected selling costs (“estimated selling price”) with a loss recognized to the extent that the carrying amount exceeds the estimated selling price. The classification is applicable at the date upon which the sale of assets is probable, and the assets are available for immediate sale in their present condition. Assets once classified as held for sale, are not subject to depreciation or amortization and both the assets and any liabilities directly associated with the assets held for sale are classified as current in our Consolidated Balance Sheets. Subsequent changes to the estimated selling price of assets held for sale are recorded as gains or losses to the Consolidated Statements of Income wherein the recognition of subsequent gains is limited to the cumulative loss previously recognized.
Financial Instruments
Credit risk
Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations. We have credit risk relating to cash, cash equivalents and marketable securities, which we manage by dealing only with highly rated Canadian institutions. The carrying amount of financial assets, as disclosed in the statements of financial position, represents our credit exposure at the reporting date.
Currency risk
We are exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates. Foreign currency risk is limited to the portion of our business transactions denominated in currencies other than the Canadian dollar. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in our operating results.
A portion of the expenses, mainly related to research contracts and salaries is incurred in U.S. dollars and in Euros, for which no financial hedging is in place. There is a financial risk related to the fluctuation in the value of the U.S. dollar and the Euro in relation to the Canadian dollar. In order to minimize the financial risk related to the fluctuation in the value of the U.S. dollar in relation to the Canadian dollar, funds which were part of U.S. dollar financings continue to be invested as short-term investments in the U.S. dollar.
Furthermore, a portion of our cash and cash equivalents and marketable securities are denominated in U.S. dollars, further exposing us to fluctuations in the value of the U.S. dollar in relation to the Canadian dollar.
The following table provides an indication of our significant foreign exchange currency exposures as stated in Canadian dollars at the following dates:
March 31, 2021
March 31, 2020
Denominated in
US
$
Euro
US
$
Euro
Cash and cash equivalents
58,176
-
5,694
-
Investments
9,475
-
-
-
Trade and other payables
(687 )
(2,141 )
(7,275 )
(579 )
66,964
(2,141 )
(1,581 )
(579 )
The following exchange rates are those applicable to the following periods and dates:
March 31, 2021
March 31, 2020
Average
Reporting
Average
Reporting
CAD$ per US$
1.3212
1.2562
1.3120
1.4062
CAD$ per Euro
1.5409
1.4736
1.4789
1.5514
Based on our foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the U.S. dollar and Euro would have an increase (decrease) in net loss as follows, assuming that all other variables remain constant:
March 31, 2021
March 31, 2020
$
$
Increase (decrease) in net loss
4,235
An assumed 5% weakening of the foreign currencies would have an equal but opposite effect on the basis that all other variables remained constant.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates.
Our exposure to interest rate risk as at March 31, 2021 and March 31, 2020 is as follows:
Cash and cash equivalents
Short-term fixed interest rate
Investments
Short-term fixed interest rate
Our capacity to reinvest the short-term amounts with equivalent return will be impacted by variations in short-term fixed interest rates available on the market. Management believes the risk we will realize a loss as a result of the decline in the fair value of our short-term investments is limited because these investments have short-term maturities and are held to maturity.
Liquidity risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We manage liquidity risk through the management of our capital structure and financial leverage. We also manage liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves our operating budgets and reviews material transactions outside the normal course of business.
Our contractual obligations related to financial instruments and other obligations and liquidity resources are presented in the liquidity and capital resources of this MD&A.
Future accounting changes
The following new standards, and amendments to standards and interpretations, are not yet effective for the period ended March 31, 2021, and have not been applied in preparing our consolidated financial statements.
In June 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-13-Financial Instruments-Credit Losses (Topic 326), which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost, the new guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Management has not yet evaluated the impact of this ASU on the consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Information relating to quantitative and qualitative disclosures about market risks is detailed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
See our consolidated financial statements beginning on page of this annual report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our management, with the participation of our CEO and chief financial officer (“CFO”), has performed an evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rules 13a-15 (e) and 15d-15(e) of the Exchange Act. Based upon this evaluation, our management has concluded that, as of March 31, 2021, our existing disclosure controls and procedures were effective. It should be noted that while the CEO and CFO believe that our disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect the disclosure controls and procedures to be capable of preventing all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Management’s Report on Internal Controls over Financial Reporting
Our management, with the participation of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management conducted an assessment of the design and operation effectiveness of our internal control over financial reporting as of March 31, 2021. In making this assessment, we used the criteria established within the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that, as of March 31, 2021, our internal control over financial reporting was effective.
Changes in Internal Control over Financial Reporting
No changes were made to our internal controls over financial reporting that occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
We are a non-accelerated filer under the Exchange Act and not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Therefore, this annual report does not include an attestation report of our registered public accounting firm regarding our management’s assessment of internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth information as of June 22, 2021 with respect to our directors:
Name
Age
Position(s) held within Acasti
In Office Since
Current Term to Expire
Directors
Jan D’Alvise
President, Chief Executive Officer, Director and Corporate Secretary
June 2016
September 2021
Roderick N. Carter
Chairman of the Board
October 2015
September 2021
Jean-Marie (John) Canan
Director and Chairman of Audit Committee
July 2016
September 2021
Donald Olds
Director and Chairman of Governance and Human Resources Committee
April 2018
September 2021
Senior Management
Jan D’Alvise
President, Chief Executive Officer, Director and Corporate Secretary
June 2016
-
Pierre Lemieux
Chief Operating Officer and Chief Scientific Officer
April 2010
-
Brian Ford
CFO
September 2020
-
The following is a brief biography of our current directors and senior management:
Jan D’Alvise
Ms. D’Alvise has extensive experience in the pharmaceutical, diagnostic, medical device, and drug discovery research segments of the healthcare industry, and has served as the president and CEO of Acasti since 2016. Prior to Acasti, Ms. D’Alvise was the President and Chairman of Pediatric Bioscience, a private company that was developing a diagnostic test for autism. Before that, she was the CEO of Gish Biomedical, a cardiopulmonary medical device company that she sold to the Sorin Group. Prior to Gish, Ms. D’Alvise was the CEO of the Sidney Kimmel Cancer Center (SKCC), a drug discovery research institute focused on translational medicine in oncology. Prior to SKCC, she was the Co- Founder/President/CEO/Chairman of NuGEN, Inc., and was also the Co-Founder and Executive VP/COO of Metrika Inc. Ms. D’Alvise built both companies from technology concept through to successful regulatory approvals, product introduction and sustainable revenue growth. Prior to Metrika, Ms. D’Alvise was a VP of Drug Development at Syntex/Roche and Business Unit Director of their Pain and Inflammation business, and prior to that, VP of Commercial Operations at SYVA, (Syntex’s clinical diagnostics division). Ms. D’Alvise began her career with Diagnostic Products Corporation. Ms. D’Alvise has a B.S. in Biochemistry from Michigan Technological University. She has completed post-graduate work at the University of Michigan, Stanford University, and the Wharton Business School. In addition to Acasti, Ms. D’Alvise currently serves on the board and audit committee for Spectral Medical (EDT:TO) and is the Chairman of The ObG Project, Inc, a private company. She has previously served on the boards of numerous private companies and non-profits.
Dr. Roderick N. Carter
Dr. Carter has a strong history of contributions to healthcare through clinical, research, business, and people leadership. He has significant experience developing and commercializing nutraceutical and pharmaceutical products and has successfully led clinical research and business development strategies for cardiovascular and inflammation-related diseases. Dr. Carter is currently Principal at Aquila Life Sciences LLC, a consulting firm he founded in April 2008 focusing on pharmaceutical development and commercialization. Prior to this, he was Vice President of Clinical Development at Reliant Pharmaceuticals, which developed the omega-3 cardiovascular drug LOVAZA, and today is a wholly owned subsidiary of GlaxoSmithKline. He also served as Executive Director at Merck and Co., USA, President and Chief Executive Officer of WellGen and Senior Medical Director at Pfizer Inc., USA. Dr. Carter received his Medical Degree from the University of Witwatersrand, Johannesburg, along with a Master of Science degree in Sports Medicine from Trinity College, Dublin.
Jean-Marie (John) Canan
Mr. Canan is an accomplished business executive with over 34 years of strategic, business development and financial leadership experience. Mr. Canan recently retired from Merck & Co., Inc. where his last senior position was as Senior Vice-President, Global Controller, and Chief Accounting Officer for Merck from November 2009 to March 2014. He has managed all interactions with the audit committee of the Merck board of directors, while participating extensively with the main board and the compensation & benefits committee. Mr. Canan serves as a director of REV Group, a public company, where he chairs the audit committee and is the lead independent director. He also serves on the board of trustees of Angkor Hospital for Children Inc. Mr. Canan is a graduate of McGill University, Montreal, Canada, and is a Canadian Professional Accountant.
Donald Olds
Until May 2019, Mr. Olds was the President and Chief Executive Officer of the NEOMED Institute, a research and development organization dedicated to advancing Canadian research discoveries to commercial success. Prior to NEOMED, he was the Chief Operating Officer of Telesta Therapeutics Inc., a TSX-listed biotechnology company, where he was responsible for finance and investor relations, manufacturing operations, business development, human resources, and strategy. In 2016, he led the successful sale of Telesta to a larger public biotechnology company. Prior to Telesta, he was President and Chief Executive Officer of Presagia Corp., and Chief Financial Officer and Chief Operating Officer of Aegera Therapeutics, where he was responsible for clinical operations, business development, finance, and mergers and acquisitions. At both Telesta and Aegera, Mr. Olds was responsible for raising more than C$100 million in equity financing and leading regional and global licensing transactions with life sciences companies. Mr. Olds is currently lead director of Goodfood Market Corp, Chair of Aifred Health, lease director of Cannara Biotech Inc, and director of Presagia Corp. Since December 2019, Mr. Olds has also been the Chairman of the board of directors for Alfred Health Inc. He has extensive past corporate governance experience serving on the boards of private and public for-profit and not-for-profit organizations. He holds an MBA (Finance & Strategy) and M.Sc. (Renewable Resources) from McGill University.
Dr. Pierre Lemieux
Dr. Lemieux has been our Chief Operating Officer since April 12, 2010, and our Chief Scientific Officer since June 2018. Previously, Mr. Lemieux was CEO, Co-Founder and Chairman of BiolActis Inc. which he sold in 2009 to interests affiliated with the Nestlé multinational group. Mr. Lemieux joined Suprateck Pharma in 1999 as Director and Vice-President involved in the development of formulations for gene therapy on behalf of Rhone-Poulenc Rorer and Genzyme, which today are under the Sanofi banner. Prior to this, Mr. Lemieux was involved in the development of cardiovascular products at Angiotech Pharmaceuticals. Mr. Lemieux has a Ph.D. in biochemistry from Université Laval (Québec). He holds more than 16 patents and has authored over 50 publications. Mr. Lemieux’s research was conducted at Université Laval as well as at the anti-cancer center Paul Papin D’Angers (France) and the University of Nottingham (England). His research focused on ovarian cancer and its treatment with monoclonal antibodies used to target cancer drugs. After completing his graduate studies, Mr. Lemieux joined the Oncology division of the Center for Health Research, University of Texas. He obtained a postdoctoral fellowship from the Susan G. Komen Foundation (Breast Cancer). Mr. Lemieux has served on the boards of BioQuébec, Montreal in vivo and PharmaBio Development.
Brian Ford
Mr. Ford has been our CFO since September 24, 2021. Prior to joining Acasti, Mr. Ford served both publicly traded as well as privately owned organizations. Mr. Ford has been responsible for developing business recovery strategies, negotiating M&A transactions, as well as managing quarterly and yearly accounting reports. In 2017 Mr. Ford started his own consulting firm, Petersford Consulting, where he provided clients with finance and business risk services. From 2017 to 2020, through his consulting firm, Mr. Ford served as Chief Financial Officer and Senior Business Advisor at a private group of Ontario based medical clinics, including the largest chronic pain management practice in Canada. Prior to that, Mr. Ford served as Chief Financial Officer at Telesta Therapeutics. At Telesta Therapeutics, Mr. Ford helped develop a new business plan and was heavily involved in all capital transactions Mr. Ford began his career in 1982 at Ernst & Young, working his way to Principal, Business Risk Services, developing essential business plans that evaluated revenue and cost profiles supporting budget planning and understanding drivers of growth, specifically with healthcare companies. Additionally, at Ernst & Young, Mr. Ford participated in and often led teams in due diligence assignments in relation to mergers and acquisitions or the sale of a business, having extensive experience in developing financial forecasts, product and market valuation, and audits of critical accounting and processes. Mr. Ford holds a B.A. in Economics, History, and English from the University of Guelph and has a Graduate Diploma in Accounting from the University of McGill. Mr. Ford is a member of the Ontario Institute of Chartered Accountants.
Family Relationships
There are no family relationships between any directors or officers of the Company.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires directors, executive officers, and shareholders owning more than 10% of any class of a company’s outstanding equity shares to file reports of ownership and changes of ownership with the SEC. As of April 1, 2020, we are required to comply with Section 16(a) because we are no longer eligible to rely upon foreign private issuer exemptions under U.S. securities laws and NASDAQ’s corporate governance rules.
Based solely upon its review of the copies of such forms it received, or written representations from certain reporting persons for whom no such forms were required, we are aware of no late Section 16(a) filings.
Code of Business Conduct and Ethics
Please see the section entitled “Code of Business Conduct and Ethics” in “Item 13. Certain Relationships and Related Transactions and Director Independence.”
Audit Committee
Our audit committee is responsible for assisting the board of directors in fulfilling its oversight responsibilities with respect to financial reporting, including:
· reviewing our procedures on overall financial reporting and internal control framework.
· reviewing and approving the engagement of the auditor.
· reviewing annual and quarterly financial statements and all other material continuous disclosure documents, including our annual information form and management’s discussion and analysis.
· assessing our financial and accounting personnel.
· assessing our accounting policies.
· reviewing our risk management procedures; and
· reviewing any significant transactions outside our ordinary course of business and any pending litigation involving us.
The audit committee has direct communication channels with our management performing financial functions and our external auditor, to discuss and review such issues as the audit committee may deem appropriate. As of March 31, 2021, the audit committee was composed of Mr. Canan, as chairperson, Dr. Carter, and Mr. Olds. Each of Mr. Canan, Dr. Carter and Mr. Olds is “financially literate” and “independent” within the meaning of the Exchange Act. As of the date of this annual report, the composition of the audit committee remains the same as at March 31, 2021.
Audit Committee Financial Expert
Our board of directors has determined that Mr. Canan is the “audit committee financial expert”, as defined by applicable regulations of the SEC. The SEC has indicated that the designation of Mr. Canan as an audit committee financial expert does not make him an “expert” for any purpose, impose any duties, obligations or liability on Mr. Canan that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee or board of directors.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Summary of our Compensation Programs
Our executive compensation program is intended to attract, motivate and retain high-performing senior executives, encourage and reward superior performance, and align the executives’ interests with ours as well as shareholders by providing compensation that is competitive with the compensation received by executives employed by comparable companies, and ensuring that the achievement of annual objectives is rewarded through the payment of bonuses, and providing executives with long-term incentive through the grant of stock options.
Our governance and human resources committee, or GHR committee, has authority to retain the services of independent compensation consultants to advise its members on executive and board compensation and related matters, and to determine the fees and the terms and conditions of the engagement of those consultants. During our fiscal year ended March 31, 2021, the GHR committee retained compensation consulting services from FW Cook to review our executive compensation programs, including base salary, short-term and long-term incentives, total cash compensation levels and total direct compensation of certain senior positions, against those of peer groups of similar and larger size, as measured by market capitalization, biotechnology and pharmaceutical companies listed or headquartered in North America. The consultants also reviewed board compensation, including advisory fees and equity incentives. All of the services provided by the consultants were provided to the GHR committee. The GHR committee assessed the independence of the consultants and concluded that its engagement of the consultants did not raise any conflict of interest with us or any of our directors or executive officers.
Compensation for our CEO was below the peer company median following FW Cook’s review during fiscal period 2020.
Use of Fixed and Variable Pay Components
Compensation of our named executive officers, or NEOs, is revised each year and has been structured to encourage and reward executive officers on the basis of short-term and long-term corporate performance. In the context of its analysis of compensation for our fiscal year ended March 31, 2021, the following components were examined by the GHR committee:
· base salary;
· short term incentive plan, consisting of a cash bonus;
· long term incentive plan, consisting of stock options and equity incentive grants based on performance and/or time vesting conditions; and
· other elements of compensation, consisting of group benefits and perquisites.
Base Salary
We intend to be competitive over time, with comparator companies and to attract and retain top talent. The GHR committee reviews compensation periodically to be sure that it meets this strategic imperative. Base salary is set to reflect an individual’s skills, experience, and contributions within a salary structure consistent with peer group data, and with our gender pay equity policy. Base salary structure is revised annually by the GHR committee as our financial and market conditions evolve.
Retention Agreements
In connection with our strategic review process and upon the recommendation of our Governance and Human Resources Committee, in October 2020 we entered into retention incentive agreements with Ms. Jan D’Alvise, our President and CEO, and Mr. Pierre Lemieux, our Chief Operating Officer (“COO”) and Chief Scientific Officer (the “Retention Agreements”).
The Retention Agreements provide that we will pay Ms. D’Alvise an employment retention incentive of $100,000 provided that she remains employed with the Corporation until the earlier of April 30, 2021, or the closing of a merger or like transaction with a third party. This amount is also payable by the Corporation to Ms. D’Alvise in the event of the termination of her employment without cause prior to the achievement of such milestones.
Mr. Lemieux was also awarded and paid a $25,000 retention bonus in April 2021.
In addition, the Retention Agreements also provide that we will pay each of Ms. D’Alvise and Mr. Lemieux an amount of up to $125,000 in the event that certain milestones are met in relation to the monetization by the Company of its assets relating to CaPre. A minimum amount of $75,000 is also payable by the Corporation to each of Ms. D’Alvise and Mr. Lemieux in the event of the termination of their employment without cause prior to the achievement of such milestones.
Short Term Incentive Plan (STIP)
Our Short-Term Incentive Plan, or STIP, provides for potential rewards when a threshold of corporate performance is met. Personal objectives that support corporate goals are established annually with each employee and are assessed at the end of each financial year. Personal objectives are assessed through a performance grid, with pre-specified, objective performance criteria. STIP awards are paid out in proportion to overall company performance which establishes the STIP pool, and individual performance, which is determined in end-of-year performance reviews. For the most senior participants in the STIP, greater weight is assigned to corporate objectives. Target payout is expressed as a percentage of base salary, and is determined by benchmarking against peer group data, and board discretion. Annual salary for STIP purposes is the annual salary in effect at the end of the plan year (i.e., prior to any annual salary increases awarded for the subsequent year).
The STIP is a discretionary variable compensation plan, and all STIP payments are subject to board approval. Participants must be employed by us at the end of the financial year to qualify. We reserve the right to modify or discontinue the STIP at any time.
Ms. D’Alvise, our CEO, is eligible for up to a 50% bonus of her annual base salary. Dr. Lemieux, our COO, is eligible for up to a 40% bonus of their annual base salary.
These performance goals will take into account the achievement of corporate milestones within timelines and budget and individual objectives determined annually by the board according to short-term priorities.
Long Term Incentive Plan (LITP)
The LTIP has been adopted as a reward and retention mechanism. Participation is determined annually at the discretion of the board. Employees approved by our board of directors may participate in our stock option plan, which is designed to align the long-term interests of participants with those of shareholders, in order to promote shareholder value. The GHR committee may also determine, in its sole discretion, ad hoc stock option awards to be granted to participants in order to address extraordinary situations. Awards at any level may be adjusted as necessary to maintain an equity burn rate and overhang similar to comparator companies. In addition to our stock option plan, the board is also empowered to grant ad hoc awards, from time to time, under our equity incentive plan to provide for a share-related mechanism to attract, retain and motivate qualified directors, senior employees, and consultants.
The GHR committee determines the number of stock options to be granted to a participant based on peer group data and taking into account corporate performance and the employee’s level in the organization. The LTIP calculation for NEOs is determined from both reviewing grant values and a dilution-based methodology that considers the annual grant rate as a percent of shares outstanding. The board did not award stock option grants for FY’21.
Our directors and executive officers are not permitted to purchase financial instruments, such as prepaid variable forward contracts, equity swaps, collars or units of exchange funds that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by the director or officer.
Share Ownership Guidelines
To further align the interests of our executives and board members with those of our other shareholders, the board has adopted share ownership guidelines. Under these guidelines, non-employee directors, the CEO, and other executives (i.e., CFO, COO, VPs) are required to retain and hold 50% of the shares acquired by them under any equity incentive award granted on or after June 7, 2017 (after subtracting shares sold to pay for option exercise costs, and relevant federal, state, and local taxes which are assumed to be at the highest marginal tax rates). In addition, the share retention rule applies unless the executive or non-employee director beneficially owns shares with a value at or in excess of the following share ownership guidelines:
· Non-employee directors - 2x then-current total annual cash retainer
· CEO - 2x then-current annual base salary
· Other executives - 1x then-current annual base salary.
The value of an individual’s shares for purposes of the share ownership guidelines is deemed to be the greater of the then- current fair market value of the shares, or the individual’s cost basis in the shares. Shares counted in calculating the share ownership guidelines include shares beneficially owned outright, whether from open market purchases, shares retained after option exercises, and shares of restricted stock or deferred stock units that have fully vested. In addition, in the case of vested, unexercised, in-the-money stock options, the in-the-money value of the stock options will be included in the share ownership calculation. Executives have five years from their date of hire or promotion to satisfy the share ownership guidelines.
Stock Option Plan
Our stock option plan was adopted by our board of directors on October 8, 2008, and has been amended from time to time, as most recently amended on September 30, 2020, and approved by shareholders on September 30, 2020. The grant of options is part of the long-term incentive component of executive and director compensation and an essential part of compensation. Qualified directors, employees and consultants may participate in our stock option plan, which is designed to encourage option holders to link their interests with those of our shareholders, in order to promote an increase in shareholder value. Awards and the determination of any exercise price are made by our board of directors, after recommendation by the GHR committee. Awards are established, among other things, according to the role and responsibilities associated with the participant’s position and his or her influence over appreciation in shareholder value. Any award grants a participant the right to purchase a certain number of common shares during a specified term in the future, after a vesting period and/or specific performance conditions, at an exercise price equal to at least 100% of the market price (as defined below) of our common shares on the grant date. The “market price” of common shares as of a particular date generally means the highest closing price per common share on the TSXV, NASDAQ, or any other exchange on which the common shares are listed from time to time, for the last preceding date on which there was a sale of common shares on that exchange (subject to certain exceptions set forth in the stock option plan in the event that we are no longer traded on any stock exchange). Previous awards may sometimes be taken into account when new awards are considered.
In accordance with the stock option plan, all of an option holder’s options will immediately fully vest on the date of a Change of Control event (as defined in the stock option plan), subject to the terms of any employment agreement or other contractual arrangement between the option holder and us.
However, in no case will the grant of options under the plan, together with any proposed or previously existing security based compensation arrangement, result in (in each case, as determined on the grant date): the grant to any one consultant within any 12-month period, of options reserving for issuance a number of common shares exceeding in the aggregate 2% of our issued and outstanding common shares (on a non-diluted basis); or the grant to any one employee, director and/or consultant, which provides investor relations services, within any 12-month period, of options reserving for issuance a number of common shares exceeding in the aggregate 2% of our issued and outstanding common shares (on a non-diluted basis).
Options granted under the stock option plan are non-transferable and are subject to a minimum vesting period of 36 months for management, and 18 months for non-executive board members, in each case with gradual and equal vesting on no less than a quarterly basis. They are exercisable, subject to vesting and/or performance conditions, at a price equal to the highest closing price of the common shares on the TSXV, NASDAQ, or any other exchange on which the common shares are listed from time to time, on the day prior to the grant of such options. In addition, and unless otherwise provided for in the agreement between us and the holder, options will also lapse upon termination of employment or the end of the business relationship with us except that they may be exercised for 90 days after termination, ceasing to hold office or the end of the business relationship (30 days for investor relations services employees), in each case to the extent that they will have vested on such date of termination of employment, end of the business relationship or ceasing to hold office, as applicable, except in the case of death, disability or retirement where this period is extended to 12 months.
Subject to the approval of relevant regulatory authorities, including the TSXV, NASDAQ, if applicable, and compliance with any conditions attached to that approval (including, in certain circumstances, approval by disinterested shareholders) if applicable, the board of directors has the right to amend or terminate the stock option plan. However, unless option holders’ consent to the amendment or termination of the stock option plan in writing, any such amendment or termination of the stock option plan cannot affect the conditions of options that have already been granted and that have not been exercised under the stock option plan.
Options for common shares representing a fixed rate of 15% of our outstanding issued common shares as of August 26, 2020, may be granted by the board under the stock option plan. As of the date of this annual report, there were 14,533,881 common shares reserved for issuance under the stock option plan and 7,294,919 options outstanding under the stock option plan.
Equity Incentive Plan
On May 22, 2013, our equity incentive plan was adopted by the board in order to, among other things, provide us with a share-related mechanism to attract, retain and motivate qualified directors, employees and consultants. The adoption of the equity incentive plan was initially approved by shareholders at our 2013 Shareholders’ meeting held on June 27, 2013, and has been amended from time to time, as most recently amended on August 27, 2020, and approved by shareholders on September 30, 2020.
Eligible persons may participate in the equity incentive plan. “Eligible persons” under the equity incentive plan consist of any director, officer, employee, or consultant (as defined in the equity incentive plan) of our Company or a subsidiary who may participate in the equity incentive plan. A participant is an eligible person to whom an award has been granted under the equity incentive plan. The equity incentive plan provides us with the option to grant to eligible persons bonus shares, restricted shares, restricted share units, performance share units, deferred share units and other share-based awards.
If, and for so long as our common shares are listed on the TSXV, no more than 2% of the issued and outstanding common shares may be granted to any one consultant or employee conducting investor relations activities in any 12-month period.
The board has the right to determine that any unvested or unearned restricted share units, deferred share units, performance share units or other share-based awards or restricted shares subject to a restricted period outstanding immediately prior to the occurrence of a change in control will become fully vested or earned or free of restriction upon the occurrence of a change in control. The board may also determine that any vested or earned restricted share units, deferred share units, performance share units or other share-based awards will be cashed out at the market price as of the date a change in control is deemed to have occurred, or as of such other date as the board may determine prior to the change in control. Further, the board has the right to provide for the conversion or exchange of any restricted share unit, deferred share unit, performance share unit or other share-based award into or for rights or other securities in any entity participating in or resulting from the change in control.
The equity incentive plan is administered by the board and the board has sole and complete authority, in its discretion, to determine the type of awards under the equity incentive plan relating to the issuance of common shares (including any combination of bonus shares, restricted share units, performance share units, deferred share units, restricted shares or other share-based awards) in such amounts, to such persons and under such terms and conditions as the board may determine, in accordance with the provisions of the equity incentive plan and the recommendations made by the GHR committee.
Subject to the adjustment provisions provided for in the equity incentive plan and the applicable rules and regulations of all regulatory authorities to which we are subject (including any stock exchange), the total number of common shares reserved for issuance pursuant to awards granted under the equity incentive plan will be equal to a number that (A) if, and for so long as the common shares are listed on the TSXV, will not exceed the lower of (i) 1,953,318 common shares, and (ii) 15% of the issued and outstanding common shares, which as of April 9, 2019, representing 11,719,910 common shares, which includes common shares issuable pursuant to options issued under our stock option plan.
Other Forms of Compensation
Retirement Plans. Effective June 1, 2016, we sponsor a voluntary Registered Retirement Savings Plan, or RRSP, matching program, which is open to all eligible employees, including NEOs who reside in Canada. The RRSP matching program matches employees’ contributions up to a maximum of $1,500 per fiscal year for eligible employees who participate in the program. Effective January 1, 2019, a 401K plan was implemented for US employees. Because of the small size of our current employee population in the US and to assure passage of anti-discrimination testing, the 401K administrator, TransAmerica, required either a 4% match or a 3% “safe harbor” contribution. Balancing cost considerations with a plan design that is both externally competitive and internally equitable, Acasti adopted the “safe harbor” provision which provides a contribution of 3% of salary to the 401K accounts of all eligible US employees, including NEOs who reside in the US.
Other Benefits and Perquisites. Our executive employee benefit program also includes life, medical, dental and disability insurance. These benefits and perquisites are designed to be competitive overall with equivalent positions in comparable organizations. We do not have a pension plan for employees.
Compensation Governance
Compensation of our executive officers and directors is recommended to the board of directors by the GHR committee. In its review process, the GHR committee informally reviews executive and corporate performance on a quarterly basis, with input from management. Annually, the GHR committee conducts a more formal review and assessment of executive and corporate performance. During the fiscal year ended March 31, 2021, the GHR committee was composed of the following members, each of whom is independent: Mr. Olds (Chairman), Dr. Carter, and Mr. Canan. The GHR committee establishes management compensation policies and oversees their general implementation. All members of the GHR committee have direct experience, which is relevant to their responsibilities as GHR committee members. All members are or have held senior executive or director roles within significant businesses in our industry, several also having public companies experience, and have a good financial understanding which allows them to assess the costs versus benefits of compensation plans. The GHR committee’s members combined experience in our sector provides them with a good understanding of our success factors and risks, which is very important when determining metrics for measuring success.
Risk management is a primary consideration of the GHR committee when implementing its compensation program. We do not believe that our compensation program results in unnecessary or inappropriate risk taking, including risks that are likely to have a material adverse effect on us. Payments of bonuses, if any, are not made unless performance goals are met.
For executives, more than half of their target compensation (base salary + target STIP awards + target LTIP awards) is considered “at risk”. We believe this mix results in a strong pay-for-performance relationship and alignment with shareholders and is competitive with other firms of comparable size in similar fields. The CEO (or any person acting in that capacity) makes recommendations to the GHR committee as to the compensation of our executive officers, other than herself for review and approval by the board. The GHR committee makes recommendations to the board of directors as to the compensation of the CEO, for approval. The CEO’s salary is based on comparable market consideration, and the GHR committee’s assessment of her performance, with regard to our financial performance, and progress in achieving key strategic business goals.
Qualitative factors beyond the quantitative financial metrics are also a key consideration in determination of individual executive compensation payments. How executives achieve their financial results and demonstrate leadership consistent with our values are key to individual compensation decisions.
Compensation Paid to Named Executive Officers
The following table sets forth the compensation information for our principal executive officers, and our most highly paid executive officers, during the fiscal years ended March 31, 2021, and 2020, respectively.
Name and Year Salary Bonus ($) Stock Option Nonequity All Other Total
Principal
($)
Awards Awards Incentive Compensation Compensation
Position
($) ($)(1) (2) Plans ($) ($)
($)
Jan D’Alvise March 31, 2021 428,040 - - - - - 428,040
President and CEO March 31, 2020 410,703 154,781 - 1,620,863 - - 2,186,347
Pierre Lemieux March 31, 2021 276,377 - - - - - 276,377
COO March 31, 2020 264,128 80,018 - 603,458 - - 947,604
Brian Ford3 March 31, 2021 190,605 - - - - - 190,605
CFO March 31, 2020 - - - - - - -
Brian Groch4 March 31, 2021 229,680 - - - - - 229,680
Former CCO March 31, 2020 289,615 87,000 - 357,461 - - 734,106
___________________________
Notes:
(1) The fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model. This model requires the input of a number of parameters, including share price, share exercise price, expected share price volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect management’s best estimates, they involve inherent uncertainties based on market conditions generally outside of our control
(2) The fair value of the option-based awards granted on March 31, 2020, was CAD$0.41.
(3) Mr.Ford was appointed our CFO September 24, 2020.
(4) Departure of Brian Groch, Chief Commercial Officer, from his position with the Corporation effective December 31, 2020
Outstanding Equity Awards at March 31, 2021
The following tables provide information about the number and value of the outstanding option-based awards held by the NEOs as of March 31, 2021.
Option awards
Name
Number of securities underlying unexercised options (#) exercisable
Number of securities underlying unexercised options (#) unexercisable
Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)
Option exercise price ($) (1)
Option expiration date
525,000
-
-
$ 1.56
May 12, 2023
258,000
-
-
$ 1.77
June 14, 2027
Jan D’Alvise
172,000
-
-
$ 1.77
June 14, 2027
830,000
75,521
75,521
$ 0.77
July 2, 2028
150,733
75,367
75,367
$ 1.28
April 15, 2029
514,600
257,300
275,300
$ 1.28
April 15, 2029
445,500
890,000
890,000
$ 0.53
March 31, 2030
16,900
-
-
$ 4.50
June 1, 2022
31,400
-
-
$ 1.99
May 30, 2023
50,000
-
-
$ 1.65
February 24, 2027
Pierre Lemieux
93,000
-
-
$ 1.77
June 14, 2027
62,000
-
-
$ 1.77
June 14, 2027
335,055
30,460
30,460
$ 0.77
July 2, 2028
52,867
59,475
59,475
$ 1.28
April 15, 2029
180,467
203,025
203,025
$ 1.28
April 15, 2029
195,667
587,000
587,000
$ 0.53
March 31, 2030
______________________________
Notes:
(1) Canadian dollars.
Employment Agreements with Named Executive Officers
Jan D’Alvise, President and CEO
On May 11, 2015, we entered into an executive employment agreement with Ms. D’Alvise. Pursuant to her executive employment agreement, Ms. D’Alvise’s annual base salary was set at $330,000 and she is eligible to receive annual performance bonuses based on target amount of 40% of her annual base salary with a maximum of up to 80% of her annual base salary. In accordance with the terms and provisions of the executive employment agreement we entered into with Ms. D’Alvise, we may terminate the executive’s employment at any time for “good and sufficient cause”, as defined in the employment agreement, without notice or severance. We may terminate the executive’s employment at any time without cause or upon a change of control, as defined in our Stock Option Plan, by providing the executive with sixty days’ notice of termination and payment equal to twelve months’ base salary plus any bonus payable. The executive may decide to resign from employment and must provide us with at least sixty days' advance written notice. The executive may decide to terminate employment with “good reason”, as defined in the employment agreement, and we are required to make payment equal to twelvemonths’ base salary plus any bonus payable.
Pierre Lemieux, COO
On September 26, 2017, we entered into an executive employment agreement with Dr. Lemieux. Pursuant to his executive employment agreement, Dr. Lemieux’s annual base salary was set at CAD$253,700 and he is eligible to receive annual performance bonuses of up to 40% of his annual base salary. In accordance with the terms and provisions of the executive employment agreement we entered into with Dr. Lemieux, we may terminate the executive’s employment at any time for “good and sufficient cause”, as defined in the employment agreement, without notice or severance. We may terminate the executive’s employment at any time without cause or upon a change of control, as defined in our Stock Option Plan, by providing the executive with thirty days’ notice of termination and payment equal to twelve months’ base salary plus any bonus payable. The executive may decide to resign from employment and must provide us with at least sixty days' advance written notice. The executive may decide to terminate employment with “good reason”, as defined in the employment agreement, and we are required to make payment equal to twelve months of base salary.
Brian Ford, CFO
On September 14, 2021, we entered into a consulting agreement with PFC Business Advisory Services Inc., an entity through which Mr. Ford provides consulting services (the “Consulting Agreement”). The Consulting Agreement provides, among other things, that Mr. Ford will serve as a non-employee Chief Financial Officer on a full-time basis, in exchange for a fee of CAD$36,000 per month. There is no arrangement or understanding between Mr. Ford and any other persons pursuant to which Mr. Ford was selected as an officer.
Compensation of Directors
Our directors’ compensation consists of an annual fixed compensation of $60,000 for the chairman of the board and $30,000 for the other non-executive board members. In addition, the chairperson of the audit committee and the chairperson of the governance and human resources committee receive additional compensation of $15,000 and $10,000, respectively, while members of the audit committee and the governance and human resources committee receive additional compensation of $7,500 and $5,000, respectively. The directors are also entitled to a fee of $1,000 per non-regularly scheduled board meeting as well as a reimbursement for travelling and other reasonable expenses properly incurred by them in attending meetings of the board or any committee or in otherwise serving us, in accordance with our policy on travel and expenses.
Following their first election to our board of directors, non-executive directors are eligible to receive an initial equity grant of up to 150% of their annual cash retainer worth of stock options vesting monthly in equal installments over a 12-month period, subject to the other terms and conditions set forth under the heading “Stock Option Plan”. In addition to their initial grant, non-executive directors are eligible to receive an annual equity-based award equal to 100% of their total annual cash retainer vesting monthly in equal installments over a 12-month period. These awards will be granted at the same time that we are performing our annual performance review for our employees, subject to availability of common shares and subject to the terms and conditions described under the headings “Stock Purchase Plan” and “Equity Incentive Plan”. The level of these awards will be consistent with equivalent awards in comparable companies obtained from the benchmark exercise and in accordance with the recommendations obtained from our independent compensation consultant.
The total compensation for our non-executive directors during fiscal year ended March 31, 2021, was as follows:
Name
Fees earned or
Stock
Option
Non-equity
incentive plan
Nonqualified
deferred
compensation
All other
paid in cash
awards
awards
compensation
earnings
compensation
Total
($)
($)
($)
($)
($)
($)
($)
Roderick N. Carter
106,500
-
-
-
-
-
106,500
Jean-Marie (John) Canan
84,000
-
-
-
-
-
84,000
Donald Olds
81,500
-
-
-
-
-
81,500

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Equity Compensation Plan Information
The following table sets forth certain information regarding the Company’s equity compensation plans as of March 31, 2021:
Plan category
(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights
(b) Weighted-average exercise price of outstanding options, warrants and rights
(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (Stock Option Plan)(1):
7,294,919
CAD$1.04
6,896,271
Equity compensation plans approved by security holders (Equity Incentive Plan)(2):
-
$-
-
Equity compensation plans not approved by security holders (Stock Option Plan):
-
$-
-
Equity compensation plans not approved by security holders (Equity Incentive Plan):
-
$-
-
Total
7,294,919
CAD$1.04
6,896,271
______________________________
Notes:
(1) A summary of certain material provisions of the Company’s Stock Option Plan is available under “Item 11. Executive Compensation - Summary of our Compensation Programs - Stock Option Plan”.
(2) The total number of common shares reserved for issuance under the Company’s Equity Incentive Plan is limited by the number of options that are outstanding under the Stock Option Plan such that the total number of common shares available for issuance under both stock-based compensation plans shall not exceed 11,719,910. A summary of certain material provisions of the Company’s Equity Incentive Plan is available under “Item 11. Executive Compensation - Summary of our Compensation Programs - Equity Incentive Plan”.
Security ownership of certain beneficial owners
The following table sets forth certain information regarding beneficial ownership of our common shares as of May 31, 2021, by each director and the executive officer identified above, and all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. All common shares are common shares with the same voting rights.
For the purposes of calculating percent ownership, as of May 31, 2021, 208,375,505 common shares were issued and outstanding, and, for any individual who beneficially owns shares represented by options exercisable within sixty days of May 31, 2021, these shares are treated as if outstanding for that person, but not for any other person.
Name and Address of Beneficial Owner (1)
Amount and Nature of Beneficial Ownership
Percentage of Common Shares
Jan D’Alvise
2,948,560 (2)
1.4%
Roderick N. Carter
505,577 (3)
*
Jean-Marie (John) Canan
383,983 (4)
*
Donald Olds
226,200 (5)
*
Pierre Lemieux
1,024,353 (7)
*
Directors and officers as a group (5 persons)
3,392,655
2.4%
____________
* Less than 1%.
Notes:
(1) Unless otherwise indicated, the address of each of the executive officers and directors named above is 3009 boul. de la Concorde East, Suite 102, Laval, Québec, Canada H7E 2B5
(2) Includes 2,896,060 common shares that Jan D’Alvise may acquire through the exercise of share options within 60 days hereof.
(3) Includes 505,577 common shares that Roderick N. Carter may acquire through the exercise of share options within 60 days hereof.
(4) Includes 283,983 common shares that Jean-Marie (John) Canan may acquire through the exercise of share options within 60 days hereof.
(5) Includes 188,200 common shares that Donald Olds may acquire through the exercise of share options within 60 days hereof. Includes 38,000 common shares held and controlled by Mr. Olds’ spouse, Ofra Aslan.
(7) Includes 1,017,356 common shares that Pierre Lemieux may acquire through the exercise of share options within 60 days hereof.
To the best of our knowledge, there are no beneficial owners of 5% or more of any class of our voting securities.
Changes in Control
There existed no change in control arrangements at March 31, 2021.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence
Related Transactions
None.
Director Independence
Our board of directors believes that, in order to maximize its effectiveness, the board must be able to operate independently. A majority of directors must satisfy the applicable tests of independence, such that the board of directors complies with all independence requirements under applicable corporate and securities laws and stock exchange requirements applicable to us. No director will be independent unless the board of directors has affirmatively determined that the director has no material relationship with us or any of our affiliates, either directly or indirectly or as a partner, shareholder or officer of an organization that has a relationship with us or our affiliates. Such determinations will be made on an annual basis and, if a director joins the board of directors between annual meetings, at such time.
Independent Directors
The board of directors determined that Mr. Canan, Dr. Carter, and Mr. Olds are independent within the meaning of NI 52-110 and NASDAQ Stock Market rules.
Directors Who are Not Independent
The board of directors determined that Ms. D’Alvise is not independent within the meaning of NI 52-110 and NASDAQ Stock Market rules given that she is our President and Chief Executive Officer.
During the fiscal year ended March 31, 2021, the board of directors held 3 special meetings for independent directors.
All directors were in attendance for each regularly scheduled quarterly and annual meeting of the Board.
Chairman of the Board
Dr. Carter acts as chairman of the board. His duties and responsibilities consist of the oversight of the quality and integrity of the board of directors’ practices.
Board Mandate
The board of directors is responsible for overseeing management in carrying out the business and affairs of the Company. Directors are required to act and exercise their powers with reasonable prudence in the best interests of the Company. The board agrees with and confirms its responsibility for overseeing management's performance in the following particular areas:
• approving and monitoring the Company’s compliance procedures;
• establishing and developing of the Company’s corporate governance principles and committees;
• evaluating the strategic plan of the Company;
• identification and oversight of the principal risks associated with the business of the Company and application of appropriate systems to manage and mitigate such risks;
• planning for succession of management;
• the Company's policies regarding communications with its shareholders and others; and
• the integrity of the internal controls and management information systems of the Company.
In carrying out its mandate, the board relies primarily on management to provide it with regular detailed reports on the operations of the Company and its financial position. The board reviews and assesses these reports and other information provided to it at meetings of the board and/or of its committees. At least annually, the board approves a strategic plan for the Company taking into account, among other things, the opportunities and risks of the Company’s business, its risk appetite, emerging trends, and the competitive environment in the industry.
Position Descriptions
Written position description has been approved for the chairs of each committee of the board of directors. The primary role and responsibility of the chair of each committee of the board of directors is to: (i) in general, ensure that the committee fulfills its mandate, as determined by the board of directors and in accordance with the committee’s charter; (ii) chair meetings of the committee; (iii) report to the board of directors; and (iv) act as liaison between the committee and the board of directors and our management.
The board of directors has adopted a written position description for the chairman of the board of directors.
Chairman of the Board
The chairman of the board of directors is responsible for leading the board to fulfill its duties under the board’s mandate as independent of management and acting as an advisor to the chief executive officer.
The chairman’s duties include, but are not limited to, setting meeting agendas, approving, and supervising management’s progress towards achieving strategic goals, chairing meetings and working with the respective committee and management to ensure, to the greatest extent possible, the effective functioning of the committee and the board of directors. The chairman must oversee that the relationship between the board of directors, management of the Company, the Company’s shareholders and other stakeholders are effective, efficient, and further to the best interests of the Company.
Orientation and Continuing Education
We provide orientation for new appointees to the board of directors and committees in the form of informal meetings with members of the board and senior management, complemented by presentations on the main areas of our business. The board does not formally provide continuing education to its directors, as directors are experienced members. The board of directors relies on third party professional assistance, when judged necessary, in order to be educated/updated on a particular topic.
Code of Business Conduct and Ethics
The board of directors adopted a Code of Business Conduct and Ethics, or Code of Conduct, for our directors, officers and employees on May 31, 2007, as amended from time to time. Our Code of Conduct can be found on SEDAR at www.sedar.com and on our web site on www.acastipharma.com. A copy of the Code of Conduct can also be obtained by contacting our corporate secretary. Since its adoption by the board of directors, any breach of the Code of Conduct must be brought to the attention of the board of directors by our CEO or other senior executives. No report has ever been filed which pertains to any conduct of a director or executive officer that constitutes a breach to our Code of Conduct.
Since the adoption of the Code of Conduct and the following policies, the board of directors actively monitors compliance with the Code Conduct and promotes a business environment where employees are encouraged to report malfeasance, irregularities, and other concerns. The Code of Conduct provides for specific procedures for reporting non-compliant practices in a manner which, in the opinion of the board of directors, encourages and promotes a culture of ethical business conduct.
The board of directors also adopted a disclosure policy, insider trading policy, majority voting policy, management and board compensation policies, and a whistleblower policy.
In addition, under the Civil Code of Québec, to which we are subject as a legal person incorporated under the Business Corporations Act (Québec) (L.R.Q., c. S-31), a director must immediately disclose to the board any situation that may place him or her in a conflict of interest. Any such declaration of interest is recorded in the minutes of proceeding of the board of directors. The director abstains, except if required, from the discussion and voting on the question. In addition, it is our policy that an interested director recuse himself or herself from the decision-making process pertaining to a contract or transaction in which he or she has an interest.
Nomination of Directors
The board of directors receives recommendations from the GHR committee, but retains responsibility for managing its own affairs by, among other things, giving its approval for the composition and size of the board of directors, and the selection of candidates nominated for election to the board of directors. The GHR committee initially evaluates candidates for nomination for election as directors, having regard to the background, employment, and qualifications of possible candidates.
The selection of the nominees for the board of directors is made by the other members of the board, based on our needs and the qualities required for the board of directors, including ethical character, integrity and maturity of judgment of the candidates; the level of experience of the candidates, their ideas regarding the material aspects of our business, the expertise of the candidates in fields relevant to us while complementing the training and experience of the other members of the board of directors; the will and ability of the candidates to devote the necessary time to their duties to the board of directors and its committees, the will of the candidates to serve on the board of directors for numerous consecutive financial periods and finally, the will of the candidates to refrain from engaging in activities which conflict with the responsibilities and duties of a director. The board researches the training and qualifications of potential new directors which seem to correspond to the selection criteria of the board of directors and, depending on the results of said research, organizes meetings with the potential candidates.
In the case of incumbent directors whose terms of office are set to expire, the board will review such directors’ overall service to us during their term of office, including the number of meetings attended, level of participation, quality of performance and any transactions of such directors with us during their term of office.
We may use various sources in order to identify the candidates for the board of directors, including our own contacts and the references of other directors, officers, advisors and executive placement agencies. We will consider director candidates recommended by shareholders and will evaluate those director candidates in the same manner in which we evaluate candidates recommended by other sources. In making recommendations for director nominees for the annual meeting of shareholders, we will consider any written recommendations of director candidates by shareholders received by our corporate secretary not later than 120 days before the anniversary of the previous year’s annual meeting of shareholders. Recommendations must include the candidate’s name, contact information and a statement of the candidate’s background and qualifications, and must be mailed to us. Following the selection of the candidates by the board of directors, we will propose a list of candidates to the shareholders, for our annual meeting of shareholders.
The board of directors does not have a nominating committee and has not adopted any formal written director term limit policy. Proposed nominations of director candidates are evaluated by our GHR committee.
GHR Committee
The mandate of the GHR committee consists of the evaluation of the proposed nominations of senior executives and director candidates to our board of directors, recommending for board approval, if appropriate, revisions of our corporate governance practices and procedures, developing new charters for any new committees established by the board of directors, monitoring relationships and communication between management and the board of directors, monitoring emerging best practices in corporate governance and oversight of governance matters and assessing the board of directors and its committees. The GHR committee is also in charge of establishing the procedure which must be followed by us to comply with applicable guidelines of the TSXV and NASDAQ Stock Market regarding corporate governance.
The GHR committee has the responsibility of evaluating the compensation, performance incentives as well as the benefits granted to our upper management in accordance with their responsibilities and performance as well as to recommend the necessary adjustments to our board of directors. The GHR committee also reviews the amount and method of compensation granted to the directors. The GHR committee may retain an external firm in order to assist it during the execution of its mandate. The GHR committee considers time commitment, comparative fees, and responsibilities in determining compensation.
The GHR committee is composed of independent members within the meaning of NI 52-110 and NASDAQ Stock Exchange rules, namely Mr. Olds, Dr. Carter, and Mr. Canan.
Periodic Assessments
The board of directors, its committees and each director are subject to periodic evaluations of their efficacy and contribution. The evaluation procedure consists in identifying any shortcomings and implementing adjustments proposed by directors at the beginning and during meetings of the board of directors and of each of its committees. Among other things, these adjustments deal with the level of preparation of directors, management and consultants employed by us, the relevance and sufficiency of the documentation provided to directors and the time allowed to directors for discussion and debate of items on the agenda.
Director Term Limits
The board actively considers the issue of term limits from time to time. At this time, the board does not believe that it is in our best interests to establish a limit on the number of times a director may stand for election. While such a limit could help create an environment where fresh ideas and viewpoints are available to the board, a director term limit could also disadvantage us through the loss of the beneficial contribution of directors who have developed increasing knowledge of, and insight into, us and our operations over a period of time. As we operate in a unique industry, it is difficult to find qualified directors with the appropriate background and experience and the introduction of a director term limit would impose further difficulty.
Policies Regarding the Representation of Women on the Board and Among Executive Officers
We have not adopted a formal written policy regarding diversity amongst executive officers and members of the board of directors, including mechanisms for board renewal, in connection with, among other things, the identification and nomination of women directors. Nevertheless, we recognize that gender diversity is a significant aspect of diversity and acknowledges the important role that women with appropriate and relevant skills and experience can play in contributing to the diversity of perspective on the board of directors.
Rather than considering the level of representation of women for directorship and executive officer positions when making board or executive officer appointments, we consider all candidates based on their merit and qualifications relevant to the specific role. While we recognize the benefits of diversity at all levels within its organization, we do not currently have any targets, rules or formal policies that specifically require the identification, consideration, nomination, or appointment of candidates for directorship or executive management positions or that would otherwise force the composition of our board of directors and executive management team. Currently, we have one women director who is also our CEO.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
Audit Fees
“Audit fees” consist of fees for professional services for the audit of our annual financial statements, interim reviews, and fees related to securities filings. Audit fees for KPMG LLP, our external auditors are CAD $364,870 for the fiscal year ended March 31, 2021, and CAD $308,160 for the fiscal year ended March 31, 2020. Audit fees for the fiscal year ended March 31, 2021, include fees related to securities filings.
Audit-Related Fees
“Audit-related fees” consist of fees for professional services that are reasonably related to the performance of the audit or review of our financial statements, and which are not reported under “Audit Fees” above. KPMG LLP billed CAD nil for the fiscal year ended March 31, 2021, and CAD $82,390 for the fiscal year ended March 31, 2020. Audit-Related fees for the fiscal year ended March 31, 2020, include fees related to securities filings.
Tax Fees
“Tax fees” consist of fees for professional services for tax compliance, tax advice and tax planning. KPMG LLP billed CAD $42,067 for tax fees for fiscal year ended March 31, 2021, and CAD $46,660 for tax fees for fiscal year ended March 31, 2020. Tax fees include, but are not limited to, preparation of tax returns.
All Other Fees
“Other fees” include all other fees billed for professional services other than those mentioned hereinabove. KPMG LLP billed no fees under this category for the fiscal years ended March 31, 2021, and March 31, 2020.
Pre-Approval Policies and Procedures
The audit committee approves all audit, audit-related services, tax services and other non-audit related services provided by the external auditors in advance of any engagement. Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve certain fees for non-audit related services pursuant to a de minimus exception prior to the completion of an audit engagement. Non-audit related services satisfy the de minimus exception if the following conditions are met:
· the aggregate amount of all non-audit services that were not pre-approved is reasonably expected to constitute no more than five per cent of the total amount of fees paid by us and our subsidiaries to our external auditors during the fiscal year in which the services are provided;
· we or our subsidiaries, as the case may be, did not recognize the services as non-audit services at the time of the engagement; and
· the services are promptly brought to the attention of the audit committee and approved, prior to the completion of the audit, by the audit committee or by one or more of its members to whom authority to grant such approvals had been delegated by the audit committee.
None of the services described above under “Principal Accounting Fees and Services” were approved by the audit committee pursuant to the de minimus exception.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements-The financial statements included in Item 8 are filed as part of this annual report on Form 10-K.
(a)(2) Financial Statement Schedules-All schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the consolidated Financial Statements or notes thereto included in Item 8 of this annual report on Form 10-K.
(a)(3) Exhibits-The exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below.
(b) Exhibits-The exhibits listed on the Exhibit Index below are filed herewith or are incorporated by reference to exhibits previously filed with the SEC.
EXHIBITS INDEX
Exhibit No.
Description
2.1
Agreement and Plan of Merger, dated as of May 7, 2021, among Acasti Pharma Inc., Grace Therapeutics Inc. and Acasti Pharma U.S., Inc. (incorporated by reference to Exhibit 2.1 of from Form 8-K (File No. 001-35776 ) filed with the Commission on May 7, 2021)
3.1
Articles of Incorporation (incorporated by reference to Exhibit 4.1 from Form S-8 (File No. 333-191383) filed with the Commission on September 25, 2013)
3.2
Amended and Restated General By-Law (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on February 21, 2017)
3.3
Advance Notice bylaw No. 2013-1 (incorporated by reference to Exhibit 4.3 from Form S-8 (File No. 333-191383) filed with the Commission on September 25, 2013)
4.1
Specimen Certificate for Common Shares of Acasti Pharma Inc. (incorporated by reference to Exhibit 2.1 from Form 20-F (File No. 001-35776) filed with the Commission on June 6, 2014)
4.2
Warrant Indenture dated December 3, 2013 between Acasti Pharma Inc. and Computershare Trust Company of Canada (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on December 3, 2013)
4.3
Warrant Indenture dated February 21, 2017 between Acasti Pharma Inc. and Computershare Trust Company of Canada (incorporated by reference to Exhibit 2.3 from Form 20-F (File No. 001-35776) filed with the Commission on June 27, 2017)
4.4
Warrant Agency Agreement dated December 27, 2017 between Acasti Pharma Inc. and Computershare Inc. and its wholly-owned subsidiary, Computershare Trust Company N.A. (incorporated by reference to Exhibit 2.4 from Form 20-F (File No. 001-35776) filed with the Commission on June 29, 2018)
4.5
Amended and Restated Warrant Indenture dated May 10, 2018 between Acasti Pharma Inc. and Computershare Trust Company of Canada (incorporated by reference to Exhibit 2.5 from Form 20-F (File No. 001-35776) filed with the Commission on June 29, 2018)
10.1
Prepayment Agreement, dated December 4, 2012, between Neptune Technologies & Bioressources Inc. and Acasti Pharma Inc. (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on October 29, 2013)
10.2
Acasti Pharma Inc., Equity Incentive Plan, as amended August 27, 2020.
10.3
Acasti Pharma Inc., Stock Option Plan, as amended August 27, 2020.
10.4
Employment Agreement with Jan D’Alvise, dated May 11, 2015 (incorporated by reference to Exhibit 10.6 from Form (File No. 333-220755) filed with the SEC on September 29, 2017)
10.5
Employment Agreement with Pierre Lemieux, dated September 26, 2017 (incorporated by reference to Exhibit 10.7 from Form (File No. 333-220755) filed with the SEC on September 29, 2017)
10.6
Independent contractor agreement with PFC Business Advisory Services Inc. dated September 14, 2020, and amended March 15, 2021, and June 16, 2021.
10.7
Amended and Restated Sales Agreement, dated June 29, 2020, by and among Acasti Pharma Inc., B. Riley FBR, Inc. and Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit 1.2 from Form S-3 (File No. 333-239538) filed with the Commission on June 29, 2020)
10.8
Retention agreement, dated October 27, 2020, between Acasti Pharma Inc. and Jan D’Alvise (incorporated by reference to Exhibit 10.2 from the quarterly report on Form 10-Q filed with the Commission on November 16, 2020)
10.9
Retention agreement, dated October 29, 2020 between Acasti Pharma Inc. and Pierre Lemieux (incorporated by reference to Exhibit 10.3 from the quarterly report on Form 10-Q filed with the Commission on November 16, 2020)
23.1
Consent of KPMG LLP, an Independent Registered Public Accounting Firm.
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934.
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.