As filed with the U.S. Securities and Exchange Commission on February __, 2022

 

Registration No. [●]


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

____________________________________________________

FORM F-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

____________________________________________________

ALGERNON PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

British Columbia

2834

N/A

(State or other jurisdiction of incorporation or organization)

(Primary Standard Industrial
Classification Code Number)

(I.R.S. Employer Identification Number)


Suite 1500 – 1055 West Georgia Street
Vancouver, British Columbia, Canada, V6E 4N7
Telephone:  (604) 398-4175 ext. 701
(Address of principal executive offices, including zip code, and telephone number, including area code)

Corporation Service Company

19 West 44th Street, Suite 200

New York, NY  10036

Tel: 1-800-927-9800
(Name, address, including zip code, and telephone number, including area code, of agent of service)

_________________________________________________

Copies to:

Michael Shannon, Esq.
McMillan LLP
Suite 1500 - 1055 West Georgia Street
Vancouver, British Columbia, Canada V6E 4N7
Telephone:  (604) 689-9111

Michael F. Nertney, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
11th Floor
New York, New York  10105
Telephone: (212) 370-1300

__________________________________

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PROSPECTUS

Subject to Completion: Preliminary Prospectus Dated [●], 2022

Units, each consisting of one Common Share and [●] Warrant to purchase one Common Share

(and Common Shares underlying the Warrants)

$[●]

ALGERNON PHARMACEUTICALS INC.


_____________________________________

[●] Units

This prospectus relates to an underwritten public offering of [●] units of Algernon Pharmaceuticals Inc., each unit consisting of one Class A Common Share (the “Common Shares”) and one warrant (the “Warrants”), based on the last reported price of our Common Shares as reported on the OTC Market Group Inc.'s Venture Market (the "OTCQB") on [●], 2022, which was $[●] per Common Share. Each Warrant will entitle the holder to purchase one Common Share at an exercise price of [●]% of the price of the units in this offering, or US$[●] per share. The Warrants will expire [●] years after the date they are issued. The units will not be issued or certificated. Instead, the Common Shares and the Warrants underlying the units will be issued separately and may be resold separately, although they will have been purchased together in this offering. We will sell these units at a public offering price of US$[●] per unit.

Our Common Shares are quoted on the OTCQB, and listed for trading on the Canadian Securities Exchange (the “CSE”) and the Frankfurt Stock Exchange (the “XFRA”) under the symbols “AGNPF”, “AGN” and “AGW”, respectively. On February 16, 2022, the closing price of our Common Shares was US$5.10, CAD$6.30 and €4.38 respectively. As of February 16, 2022, the last reported sales price of our Common Shares on the OTCQB was US$5.10 per share, and on February 16, 2022 we had 1,674,868 Common Shares outstanding. We intend on applying to have our Common Shares and Warrants listed on the Nasdaq Capital Market under the symbols "[●]" and "[●]", respectively, which listing is a condition to this offering. Our application might not be approved. There is no established public trading market for the Warrants included in the units, and such a market might never develop.

We completed a 100-for-1 reverse stock split on November 23, 2021. All share and per share information in this prospectus, including the financial statements and the notes thereto, has been adjusted to reflect this reverse stock split.

We are an "emerging growth company" as defined in section 3(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are therefore eligible for certain exemptions from various reporting requirements applicable to reporting companies under the Exchange Act. (See "Exemptions Under The Jumpstart Our Business Startups Act")

    Per Unit     Total(1)  
Public offering price(2)   US$[●]     US$[●]  
Underwriters' discounts and commissions(2)(3)   US$[●]     US$[●]  
Proceeds to us, before expenses(4)   US$[●]     US$[●]  

(1) Assumes that the underwriters do not exercise any portion of their over-allotment option.

(2) The public offering price and underwriting discount in respect of each unit corresponds to a public offering price per Common Share of US$[●] and a public offering price per Warrant of US$[●].

(3) We will pay the underwriters a cash success fee of 8.0% of the total gross proceeds of the offering. In addition, we will pay a management fee to the Representative of 1.0% of the gross proceeds, which is not included in this table. See "Underwriting" in this prospectus for more information regarding our arrangements with the underwriters. This table sets out the maximum possible underwriting discounts and commissions.


(4) The total estimated expenses related to this offering are set forth in the section entitled "Expenses Relating To This Offering".

In addition to the fees discussed above, we have agreed to issue to Ladenburg Thalmann & Co. Inc., as representative (the "Representative") of the underwriters in this offering, Compensation Warrants to purchase up to a total of [●] Common Shares (which final amount shall be equal to 5.0% of the Common Shares sold in this offering) assuming a public offering price of $[●] per unit, which is the last reported price of our Common Shares on the OTCQB on [●], 2022. The Compensation Warrants will be immediately exercisable from time to time, in whole or in part, commencing on the date of issuance and expiring [●] years from the commencement of sales of this offering. The Compensation Warrants are exercisable at a per share price of US$[●]. The Compensation Warrants are also exercisable on a cashless basis. We also have agreed to reimburse the Representative for certain of its out-of-pocket expenses. See "Underwriting" for a description of these arrangements.

We expect our total cash expenses for this offering to be approximately US$[●]. The underwriters have agreed to purchase the securities from us on a firm commitment basis. The underwriters have an option exercisable within [●] days from the date of this prospectus to purchase up to [●] additional Common Shares and/or [●] additional Warrants from us at the public offering price, less the underwriting discounts and commissions, solely to cover over-allotments, assuming a public offering price of $[●] per unit, which is the last reported sale price of our Common Shares on the OCTQB on [●], 2022.

The underwriters expect to deliver the Common Shares and Warrants against payment in U.S. dollars in New York, New York on or about [●], 2022.

In reviewing this prospectus you should carefully consider the matters described under the caption "Risk Factors" beginning on page 12. This investment involves a high degree of risk. You should purchase units only if you can afford a complete loss.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The Canadian and United States federal governments regulate drugs through the Controlled Drugs and Substances Act (Canada) (the "CDSA") and the Controlled Substances Act (21 U.S.C. § 811) (the "CSA"), respectively, which place controlled substances in a schedule. Under the CDSA, N,N Dimethyltryptamine ("DMT") is currently a Schedule III drug. The CDSA generally prohibits all uses of controlled substances unless an exemption is granted under section 56 of the CDSA or the regulations allow otherwise. The Minister of Health can grant exemptions under section 56 of the CDSA to use controlled substances if it is deemed to be necessary for a medical or scientific purpose or is otherwise in the public interest. Under the CSA, DMT is currently a Schedule I drug. Health Canada and the United States Food and Drug Administration (the "FDA") have not approved DMT as a drug for any indication. If the Company is found to be in violation of the CSA or any of the requirements of the United States Drug Enforcement Administration (the "DEA"), the DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke any registrations once granted, which could have a material adverse effect on the Company's business, operations and financial condition. Certain states of the United States also maintain separate controlled substance laws and regulations, including licensing, recordkeeping, security, distribution, and dispensing requirements. State authorities, including boards of pharmacy, regulate use of controlled substances in each state. Failure to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that could have a material adverse effect on the Company's business, operations and financial condition.

In the United States, DMT is classified as Schedule I drug under the CSA and the Controlled Substances Import and Export Act (the "CSIEA") and as such, medical and recreational use is illegal under the United States federal laws. The Company's program involving a Schedule I drug is conducted in strict compliance with the laws and regulations regarding the production, storage and use of Schedule I drugs. As such, all facilities engaged with such substances by or on behalf of the Company do so under current licenses and permits issued by appropriate federal, state and local governmental agencies. The Company does not advocate for the legalization of psychedelic substances and does not deal with psychedelic substances except within laboratory or clinical trial settings conducted within approved regulatory frameworks. The Company currently sponsors and works with licensed third parties in the United States to conduct any clinical trials and research relating to psychedelics and currently does not handle controlled or restricted substances under the CDSA or CSA. If the Company were to conduct this work without reliance on third parties, it would need to obtain the required licenses, approvals and authorizations from Health Canada, the FDA or other applicable regulatory bodies. The Company does not have any direct or indirect involvement with the illegal selling, production or distribution of any substances in the jurisdictions in which it operates and does not intend to have any such involvement. It is a criminal offence to possess substances under the CDSA and the CSA without a prescription.

In the United States, the Company's activities are potentially subject to additional regulation by various federal, state, and local authorities in addition to the FDA, including, among others, the Centers for Medicare and Medicaid Services, other divisions of Health and Human Services, or HHS, (for example, the Office of Inspector General), the Department of Justice, and individual U.S. Attorney offices within the Department of Justice, and state and local governments. In addition, all psychedelic research being conducted must have authorization by the DEA. In Canada, the Company's activities are potentially subject to additional regulation by various federal and provincial authorities, including, among others, Health Canada.




Although the Company is in compliance with all applicable laws (and intends to continue to comply), there can be no assurance that new laws, regulations, and guidelines will not be enacted, or that existing or future laws and regulations will not be changed. Any introduction of new (or changes to existing) laws, regulations, and guidelines, or other unanticipated events could, among other things, (a) require the Company to implement extensive changes to its operations (which could, among other things increase compliance costs, and give rise to material liabilities), and (b) subject the Company to heightened scrutiny by regulators, stock exchanges, clearing agencies and other authorities.

Sole Book-Running Manager

Ladenburg Thalmann

The date of this Prospectus is February [●], 2022


Table of Contents

PRESENTATION OF FINANCIAL INFORMATION 1
CURRENCY AND EXCHANGE RATES 1
MARKET, INDUSTRY AND OTHER DATA 2
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 2
PROSPECTUS SUMMARY 7
OFFERING SUMMARY 10
RISK FACTORS 13
USE OF PROCEEDS 32
DIVIDEND POLICY 33
CAPITALIZATION 33
DILUTION 34
COMPANY INFORMATION 35
BUSINESS OVERVIEW 36
EXEMPTIONS UNDER THE JUMPSTART OUR BUSINESS STARTUPS ACT 62
CAUTIONARY NOTE REGARDING FINANCIAL DISCLOSURE IN THIS PROSPECTUS 63
KEY INFORMATION 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS  AND RESULTS OF OPERATIONS 66
DIRECTORS AND EXECUTIVE OFFICERS 74
EXECUTIVE COMPENSATION 83
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS 93
PRINCIPAL SHAREHOLDERS 93
RELATED PARTY TRANSACTIONS 95
MATERIAL AGREEMENTS 95
MARKET FOR OUR SECURITIES 97
SECURITIES ELIGIBLE FOR FUTURE SALE 98
NOTICE OF ARTICLES AND ARTICLES OF OUR COMPANY 100
LIMITATIONS ON RIGHTS OF NON-CANADIANS 102
MATERIAL INCOME TAX INFORMATION 103
UNDERWRITING 113
EXPENSES RELATING TO THIS OFFERING 120
LEGAL MATTERS 120
EXPERTS 121
INTERESTS OF EXPERTS AND COUNSEL 121
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION  FOR SECURITIES ACT LIABILITIES 121
WHERE YOU CAN FIND MORE INFORMATION 121
INDEX TO FINANCIAL STATEMENTS 122
PART II 124
INFORMATION NOT REQUIRED IN PROSPECTUS 124
SIGNATURES 131
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES 132


You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus prepared by or on our behalf. Neither we, nor the underwriters have authorized any other person to provide you with different or additional information. Neither we, nor the underwriters, take responsibility for, nor can we provide assurance as to the reliability of, any other information that others may provide. The underwriters are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is accurate only as of the date of this prospectus or such other date stated in this prospectus, and our business, financial condition, results of operations and/or prospects may have changed since those dates.

Except as otherwise set forth in this prospectus, neither we nor the underwriters have taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.

Unless the context otherwise requires, in this prospectus, the term(s) "we", "us", "our", "Company", "our company", "Algernon" and "our business" refer to Algernon Pharmaceuticals Inc.

We completed a 100-for-1 reverse stock split in connection with our application to list on the Nasdaq Capital Market.

PRESENTATION OF FINANCIAL INFORMATION

The Company reports under International Financial Reporting Standards as issued by the International Accounting Standards Board, referred to as "IFRS". None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States. The Company presents its financial statements in Canadian dollars.

CURRENCY AND EXCHANGE RATES

All dollar amounts in this prospectus are expressed in Canadian dollars unless otherwise indicated. Our accounts are maintained in Canadian dollars, and our financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. All references to "U.S. dollars", "USD", or to "US$" are to United States dollars.

The following table sets forth, for each period indicated, the high and low exchange rate for U.S. dollars expressed in Canadian dollars, and the average exchange rate for the periods indicated. Averages for year-end periods are calculated by using the exchange rates on the last day of each full month during the relevant period. These rates are based on the noon-buying rate certified for custom purposes by the U.S. Federal Reserve Bank of New York set forth in the H.10 statistical release of the Federal Reserve Board. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in preparation of our consolidated financial statements, pro forma financial statements or elsewhere in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. We make no representation that any Canadian dollar or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Canadian dollars, as the case may be, at any particular rate or at all.

Year Ended   Period
End
    Period
Average
Rate
    High Rate     Low Rate  
August 31, 2021 $ 1.2629   $ 1.3075   $ 1.4539   $ 1.2031  
August 31, 2020 $ 1.3034   $ 1.3461   $ 1.4539   $ 1.2962  
Last Six Months                        
January 2022 $ 1.2694   $ 1.2622   $ 1.2257   $ 1.2262  
December 2021 $ 1.2777   $ 1.2796   $ 1.2941   $ 1.2651  
November 2021 $ 1.2812   $ 1.2567   $ 1.2812   $ 1.2355  
October 2021 $ 1.2397   $ 1.2434   $ 1.2657   $ 1.2328  
September 2021 $ 1.2672   $ 1.2667   $ 1.2818   $ 1.2524  
August 2021 $ 1.2629   $ 1.2599   $ 1.2853   $ 1.2487  


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Certain conversions from U.S. dollars into Canadian dollars have been made for your convenience at US$1.00 = $1.2777, the noon-buying price on (December 31, 2021).

MARKET, INDUSTRY AND OTHER DATA

Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the sections entitled "Risk Factors", "Special Note Regarding Forward Looking Statements", and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and us.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This prospectus contains statements that constitute "forward-looking statements". Any statements that are not statements of historical facts may be deemed to be forward-looking statements. These statements appear in a number of different places in this prospectus and, in some cases, can be identified by words such as "anticipates", "estimates", "projects", "expects", "contemplates", "intends", "believes", "plans", "may", "will", or their negatives or other comparable words, although not all forward-looking statements contain these identifying words. Forward-looking statements in this prospectus may include, but are not limited to, statements and/or information related to:

 uncertainties with respect to the effects of COVID-19 will directly and indirectly have on the Company;

 the Company's plans to develop, obtain regulatory approval for and commercialize its lead product candidates;

 the Company's ability to conduct successful clinical trials for its product candidates;

 the perceived benefits of the Company's product candidates over other treatments for NASH (as defined herein), IBS (as defined herein) and CKD (as defined herein);

 the Company's expectations regarding its revenue, expenses and research and development operations;

 the Company's anticipated cash needs and its need for additional financing;

 the Company's intention to grow the business and its operations;

 expectations with respect to future production costs and capacity;

 expectations regarding the Company's growth rates and growth plans and strategies;

 expectations with respect to the approval of the Company's license applications;

 the Company's ability to expand into international markets;

 the potential size of markets for the Company's product candidates;

 the Company's ability to partner with other pharmaceutical companies to develop, obtain regulatory approval and commercialize its product candidates;

 expectations regarding regulatory requirements and developments for its product candidates;

 the Company's competitive position and the regulatory environment in which the Company operates;

 the Company's expected business objectives for the next twelve months;

 the Company's plans with respect to the payment of dividends;

 the Company's ability to obtain additional funds through the sale of equity or debt commitments; and

 the ability of the Company's products to access markets.

Forward-looking statements are based on certain assumptions and analyses made by the Company in light of the Company's experience and perception of historical trends, current conditions and expected future developments and other factors it believes are appropriate and are subject to risks and uncertainties. In making the forward‐looking statements included in this Prospectus, the Company has made various material assumptions, including but not limited to, the following: (i) the Company obtaining the necessary regulatory approvals; (ii) that regulatory requirements will be maintained; (iii) general business and economic conditions; (iv) the Company's ability to successfully execute its plans and intentions; (v) the availability of financing on reasonable terms; (vi) the Company's ability to attract and retain skilled staff; (vii) market competition; (viii) the products and technology offered by the Company's competitors; (ix) the maintenance of the Company's current good relationships with its suppliers, service providers and other third parties; (x) financial results, future financial position and expected growth of cash flows; (xi) business strategy, including budgets, projected costs, projected capital expenditures, taxes, plans, objectives, potential synergies and industry trends; (xii) research and development; (xiii) expectations concerning the size and growth of the global medical technology market; and (xiv) the effectiveness of the Company's products compared to its competitors' products. Although the Company believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect, and the Company cannot assure that actual results will be consistent with these forward‐looking statements. Given these risks, uncertainties and assumptions, investors should not place undue reliance on these forward‐looking statements. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions and other factors, including those listed under "Risk Factors", which include:


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Risks related to our business and industry

 DMT is classified as a Schedule III drug in Canada and as such, medical and recreational use is illegal in Canada and certain other jurisdictions including Finland and the U.K. where we have engaged third party contractors, which are required to conduct programs involving DMT in strict compliance under licenses and permits issued by federal, state and local governmental agencies. Violation of any applicable laws could result in the loss of the necessary licenses and permits for Schedule III drugs by our third party contractors which could have an adverse effect on our operations.

 We rely on third parties for the execution of a significant portion of our regulatory, pharmacovigilance medical information, and logistical responsibilities. Failure of third party providers to meet regulatory requirements could result in repeat pre‐clinical and clinical trials, which would delay the regulatory approval process or result in termination of pre‐clinical and clinical trials. Any of the foregoing could have a material adverse effect on our business, prospects, results of operations and financial condition.

 Regulatory approvals are required prior to each clinical trial and we and our contract research organizations may fail to obtain the necessary approvals to commence or continue clinical testing in one or more jurisdictions. We and our contract research organizations could fail to receive regulatory approval for our planned research for many reasons which could have an adverse effect on our business.

 Psychedelic therapy is a new and emerging industry with ambiguous existing regulations and uncertainty as to future regulations. As such, new risks may emerge, and management may not be able to predict all such risks or be able to predict how such risks may result in actual results differing from the results contained in any forward‐looking statements.

 The legalization of psychedelics with inadequate regulatory oversight may lead to the development of psychedelic tourism in such states in clinics without proper therapeutic infrastructure or adequate clinical research. The expansion of such an industry which could put patients at risk may bring reputational and regulatory risk to the entire industry, leading to challenges for Algernon to achieve regulatory approval.

 Due to the nature of our business and the fact that certain of our contracts involve the possession, manufacture, production or supply of DMT, the use of which is not legal under UK, EU, U.S. or Canadian law and in certain other jurisdictions, we may face difficulties in enforcing our contracts in the courts in the UK, EU, U.S. or Canada, which could have a material adverse effect on our business, operating results, financial condition or prospects.

 The market for psychedelic inspired medicines is uncertain, and any adverse or negative publicity, scientific research, limiting regulations, medical opinion and public opinion relating to the consumption of psychedelic inspired medicines may have a material adverse effect on our operational results, consumer base and financial results.The psychedelic therapy industry is in a nascent stage and is difficult to quantify and investors will be reliant on their own estimates of the accuracy of market data. We can make no assurance that our estimates are accurate or that the market size is sufficiently large for our business to grow as projected, which may negatively impact our financial results.

 Success of our business depends in part upon our ability to identify, license or discover additional product candidates, which failure to do so could have a material adverse effect on our business, prospects, results of operations and financial condition.

 None of the Company's product candidates have to date received regulatory approval for their intended commercial sale, which if not obtained would prevent us from being able to market a pharmaceutical product.

 Failure to follow applicable regulatory requirements will have a materially negative impact on our business. Furthermore, future changes in legislation cannot be predicted and could irreparably harm our business.

 We will need additional funding to support ongoing operations, to undertake capital expenditures or to undertake acquisitions or other business combination transactions. There can be no assurance that additional financing will be available to us when needed or on terms which are acceptable.

 There can be no assurance that the steps taken by us to protect proprietary rights will be adequate or that third parties will not infringe or misappropriate our copyrights, trademarks and similar proprietary rights, or that we will be able to detect unauthorized use and take appropriate steps to enforce rights, which could have a material adverse effect on our business and results of operations.

 Our clinical trials for each product candidate may fail to adequately demonstrate the safety and efficacy of that candidate, which could force us to abandon our product development plans for that product candidate.

 Pre-clinical and clinical trials are lengthy and expensive and any delays could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales;

 We may be required to suspend or discontinue clinical trials of a proposed product because of adverse side effects or other safety risks that could preclude approval of a drug candidate, which would harm our ability to generate product revenue, which could have a material adverse effect on our business.


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 We may face product liability exposure from our products that may cause injury, which, if not covered by insurance, could result in significant financial liability that could have a material adverse effect on our business and results of operations.

 In light of our current resources and limited experience, we may need to establish successful third party relationships to successfully commercialize our future product candidates, which failure to do so may prevent us from generating sufficient revenue to fund further research and development efforts.

 Failure to keep up with rapid technological change could have a material adverse effect on our business and results of operations.

 There can be no assurance that contractual arrangements or other steps taken by us to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or to deter independent third-party development of similar technologies.

 Other companies may claim that we infringe their intellectual property, whether meritorious or not, could be time consuming and result in costly litigation, which could have a material adverse effect upon our business, prospects, results of operations and financial condition.

 It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our product candidates, others could compete against us more directly, which could materially harm our business.

 Even if patents are issued based on patent applications to which we have filed or have been granted a license, because the patent positions of pharmaceutical products are complex and uncertain, we cannot predict the scope and extent of patent protection for our product candidates, which if insufficient could have a material adverse effect on our business and continued operations.

 Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and patent protection could be reduced or eliminated for noncompliance with these requirements, which could allow competitors to enter the market having a material adverse effect on our business.

 The life of patent protection is limited, and third parties could develop and commercialize products and technologies similar or identical to ours and compete directly with us after the patent licensed to us expires, which could materially and adversely affect our ability to commercialize our products and technologies.

 We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our product candidates, which could have a material adverse effect on our business and ability to continue operations.

 We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful, which would have a material adverse effect on our financial condition.

 If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and product could be significantly diminished, which could adversely affect our competitive business position.;

 We may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets, that could result in monetary damages, loss of valuable intellectual property rights or personnel, which could adversely impact our business.

 Our intellectual property may not be sufficient to protect our product candidates from competition, which may negatively affect our business as well as limit our partnership or acquisition appeal.

 We may not be able to access currently available and approved finished product for our lead compounds, and/or may not able to gain approval to conduct any Phase 2 trials in markets  where the current product is approved due to supply issues, which could have a material adverse effect on our business and results of operations.

 We may be unable to obtain and maintain the benefits associated with preferential designations, including orphan drug and Fast Track and there can be no assurances that we will be able to obtain and maintain the benefits of these programs and designations.

General Risk Factors:

 An investment in our securities is speculative and involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment.

 We anticipate that we will have negative cash flow from operating activities in future periods. To the extent that we have negative cash flow in any future period, certain of the net proceeds from any offering we undertake may be used to fund such negative cash flow from operating activities, if any.

 The impact of the novel coronavirus (COVID-19) pandemic on the global economy and our operations remains uncertain, could have a material adverse impact on our business, financial condition and results of operations.

 We are subject to many risks common to a development stage company, including under‐capitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues.


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 Our future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future.

 The market price of the Common Shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of the Company and its subsidiaries, divergence in financial results from analysts' expectations, changes in earnings estimates by stock market analysts, changes in our business prospects and our subsidiaries, general economic conditions, legislative changes, and other events and factors outside of our control.

 We may become party to litigation from time to time in the ordinary course of business which could adversely affect our business.

 There is high potential that we will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and research and manufacturing than us. Increased competition by larger and better financed competitors could materially and adversely affect our business, financial condition and results of operations.

 Our success is dependent upon the ability, expertise, judgment, discretion and good faith of our senior management.

 We have no earnings or dividend record, and do not anticipate paying any dividends on the Common Shares in the foreseeable future.

 There can be no assurance that an active and liquid market for the Common Shares will be maintained and an investor may find it difficult to resell any of our securities.

 Our operations may require licenses and permits from various governmental authorities.

 Our business may not be insurable or the insurance may not be purchased due to high cost.

 If we cannot successfully develop, manufacture and distribute our products, or if we experience difficulties in the development process, such as capacity constraints, quality control problems or other disruptions, we may not be able to develop market‐ready commercial products at acceptable costs, which would adversely affect our ability to effectively enter the market.

 The Company's management's lack of experience in marketing, selling, and distributing its products could lead to poor decision‐making which could result in cost‐overruns and/or the inability to produce the desired products.

 We may pursue additional strategic transactions in the future, which could be difficult to implement, disrupt our business or result in dilution for existing shareholders.

 We must rely largely on our own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the industry.

 Certain of our directors and officers are, or may become directors and officers of other companies, and conflicts of interest may arise between their duties as officers and directors of the Company and as officers and directors of such other companies.

 We are subject to global economy risk resulting in liquidity risks in meeting our development and future operating cost requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable.

 You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under the laws of the Province of British Columbia, a substantial portion of our assets are in Canada and all of our executive officers and most of our directors reside outside the United States.

 Our consolidated financial statements contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.

 We expect that the Common Share or Warrant price may continue to be more volatile than that of a seasoned issuer for the indefinite future which may subject the Company to securities litigation.

 Because the SEC imposes additional sales practice requirements on brokers who deal in securities that are deemed penny stocks, some brokers may be unwilling to trade in the Company's securities meaning that you may have difficulty reselling your Common Shares and Warrants, which may cause the value of your investment to decline. It is possible that broker-dealers will not want to make a market in our Common Shares or Warrants which could prevent you from reselling your Common Shares or Warrants and may cause the value of your investment to decline.

 FINRA sales practice requirements may limit your ability to buy and sell the Common Shares and Warrants which could depress the price of the Common Shares and Warrants.

 You may face significant restrictions on the resale of your Common Shares and Warrants due to state "blue sky" laws as we do not know whether our securities will be registered or exempt from registration under the laws of any state.

 We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

 The Company is a foreign private issuer within the meaning of the rules of the Exchange Act, and as such it is exempt from certain provisions applicable to United States domestic public companies. Our shareholders may not have access to certain information they may deem important and are accustomed to receiving from U.S. reporting companies.

 If we are a ''passive foreign investment company'', U.S. investors may be subject to adverse U.S. federal income tax consequences.


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 There is currently no market through which the Warrants may be sold and purchasers of such Warrants may not be able to resell such Warrants purchased under this Prospectus.

 Future sales may affect the market price of the Common Shares as we may determine there is a  need to raise funds through the issuance of additional Common Shares or the issuance of debt instruments or other securities convertible into Common Shares.

 As an "emerging growth company" under applicable laws, the Company will be subject to lessened disclosure requirements, such reduced disclosure may make the Common Shares or Warrants less attractive to investor resulting in a less active trading market for such securities and there may be more volatility in market prices for our Common Shares or Warrants.

 We incur significant costs as a result of being a public company listed on Nasdaq and these costs will grow after we cease to qualify as an "emerging growth company."

 Holders of our Warrants will have no rights as a common shareholder until they acquire our Common Shares.

 The Warrants offered in this Prospectus are speculative in nature.

 We will incur significant increased costs as a result of the listing of our securities for trading on Nasdaq. By becoming a public company in the United States, our management will be required to devote substantial time to new compliance initiatives as well as compliance with ongoing U.S. requirements.

 Nasdaq may delist our securities from trading on its exchange, which could limit investors' ability to make transactions in our securities and subject us to additional trading restrictions.

 Because the price per Common Share being offered is substantially higher than our net tangible book value per Common Share, you will experience immediate dilution in the net tangible book value of any Common Share you purchase in this offering.

 The exercise of Warrants offered hereby will cause significant dilution to holders of our equity securities.

Although management has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Forward-looking statements might not prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking statements. Accordingly, readers should not place undue reliance on forward-looking statements. We wish to advise you that these cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to our company or persons acting on our company's behalf. We do not undertake to update any forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements, except as, and to the extent required by, applicable securities laws. You should carefully review the cautionary statements and risk factors contained in this prospectus and other documents that we may file from time to time with the securities regulators.


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PROSPECTUS SUMMARY

The following summary highlights, and should be read in conjunction with, the more detailed information contained elsewhere in this prospectus. You should read carefully the entire document, including our historical and pro forma financial statements and related notes, to understand our business, the units, the Common Shares, the Warrants and the other considerations that are important to your decision to invest in the offering. You should pay special attention to the "Risk Factors" section beginning on page 12. Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' over-allotment option.

All references to "$" or "dollars", are expressed in Canadian dollars unless otherwise indicated.

Our Company

Algernon Pharmaceuticals Inc. ("Algernon" or the "Company") is a clinical stage drug re-purposing company that investigates already approved drugs, and naturally occurring compounds, for new disease applications, moving them efficiently and safely into new human trials, developing new formulations and seeking new regulatory approvals. The Company specifically investigates compounds that have never been approved in the U.S. or Europe to avoid off label prescription writing. Off label prescription writing can interfere with the normal economic pricing models and revenue potential of newly approved drug treatments and may make them less attractive targets for licensing or acquisition.

Algernon's drug discovery program is based on the concept of drug repurposing. Drug repurposing is the process of discovering new therapeutic uses for existing drugs. Repurposing offers several benefits over traditional drug development including a reduction in investment and risk, shorter research periods and as a result, a longer active patent life.

Clinical Pipeline*

Candidate Indication Development Stage
Preclinical Phase 1 Phase 2 Phase 3 Regulatory
Review
Inflammatory disorders  
NP-120 Idiopathic Pulmonary Fibrosis & Chronic Cough    
NP-251 Chronic Kidney Disease        
Cerebrovascular disorders  
AP-188 Stroke        
Oncology  
NP-120 Pancreatic Cancer        
NP-120 Small Cell Lung Cancer        
 
* In addition to the above, the Company is considering repurposing additional drug candidates currently in the preclinical stage

Drug Compound Legend

NP-120 ("Ifenprodil")

Ifenprodil is an N-methyl-D-aspartate (NMDA) receptor antagonist specifically targeting the NMDA-type subunit 2B (GluN2B). Ifenprodil prevents glutamate signalling. The NMDA receptor is found on many tissues including lung cells, T-cells, and neutrophils.

Ifenprodil was developed in France and introduced into the Japanese market in 1982 by a global pharmaceutical company.


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AP-188 ("DMT")

DMT also known as N,N-Dimethyltryptamine, is a known psychedelic compound that is part of the tryptamine family (other drugs in the tryptamine family include psilocybin and psilocin). DMT occurs naturally in many plant species and animals and has been used in religious ceremonies as a traditional spiritual medicine by indigenous people in the Amazonian basin. DMT can also be synthesised in a laboratory.

DMT is a highly regulated substance globally, falling under various restrictions and classifications. Provided DMT is proven to be efficacious in a Phase 3 clinical trial, prior to its approval, in multiple jurisdictions, certain applications and process will need to be engaged in in order to commercialize the product which depends on the occurrence of regulatory changes for psychedelic-based products, that Health Canada and the FDA have not approved for any indication. Additionally, in the United States, DMT is a Schedule I Controlled Substances under the CSA and as such we are dependent on the FDA rescheduling DMT.

NP-251

NP-251 was developed in Japan and approved in 1987. NP-251 is no longer available in Japan where it was initially approved as an anti-allergy medication. It was withdrawn from the market in 2013 for sales reasons.

Intellectual Property

With the exception of DMT, all of the Company's lead compounds are older than 20 years and the original composition of matter patents have expired. Since DMT is naturally occurring, a composition of matter patent was never filed. In order to build an intellectual property position around its discoveries, Algernon has filed new method of use patents for each of its lead compounds in the above stated disease areas, in addition to dosing and formulation patents. For example, and as it pertains to the treatment of kidney diseases, the Company is the owner of United States patent application 17/255,364 (published as United States publication number 2021/0260000) and its related counterpart applications in Canada, China, the European Union, and Japan, Where Algernon deemed it necessary, the Company has also filed patent applications in respect of chemical modifications and derivatives of certain of its lead compounds (see, for example, international patent applications PCT/CA2020/050407, PCT/CA2020/050408, and PCT/CA2020/050409).

The Company signed a license agreement relating to its Ifenprodil cancer program with Dartmouth College for the rights to U.S. Pat. No. 9,084,775 that covers, methods for diagnosing and treating neuroendocrine cancer, specific to NMDA receptors. This exclusive agreement gives the Company control over the intellectual property licensed, until the date on which the last of the valid claims under the licensed patents in the licensed territory expires, lapses or is declared invalid, provided Dartmouth and the U.S. government retains certain standard rights under the Bayh Dole Act 35 U.S.C. §200-212 and all regulations promulgated thereunder, as amended, and any successor statutes and regulations. The agreement provided for an upfront payment and reimbursement for patent costs incurred, along with milestones and a low single digit royalty in the event the drug is commercialized within the United States prior to the expiry of the patent. To date, the Company has made payments totaling $37,358 under this license agreement. The aggregate amount of all development, regulatory and milestones under the agreement are not known at this time, however are not expected to exceed US$300,000.

Incorporation

The Company was incorporated pursuant to the laws of the Province of British Columbia, Canada, on April 10, 2015 as "PBA Acquisitions Corp.", a wholly-owned subsidiary of Petro Basin Energy Corp. ("Algernon Parent"). On July 23, 2015, the Company changed its name to "Breathtec Biomedical, Inc.". The Company entered into an arrangement agreement with Algernon Parent and the plan of arrangement was completed on September 23, 2015. On February 19, 2019, the Company changed its name to "Algernon Pharmaceuticals Inc.". The Company has an August 31, fiscal year end. As of August 31, 2021, the Company had 1,674,868 Common Shares outstanding.

The Company's principal executive offices are located at Suite 1500 - 1055 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4N7. Our telephone number is (604) 398-4175 ext 701. The Company's website address is http://algernonpharmaceuticals‌.com. Information on our website does not constitute part of this Prospectus. The Company's registered and records office is also located at Suite 1500 - 1055 West Georgia Street, Vancouver, British Columbia, V6E 4N7.

Implications of Being a Foreign Private Issuer

We are considered a foreign private issuer as defined in Rule 3b-4(c) under the U.S. Securities Exchange Act of 1934, as amended or the Exchange Act. In our capacity as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and "short-swing" profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. In addition, we are not required to comply with Regulation FD, which restricts the selective disclosure of material information.


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We may take advantage of these exemptions until such time as we are no longer a foreign private issuer. We would cease to be a foreign private issuer at such time as more than 50% of our outstanding voting securities are held by U.S. residents and any of the following three circumstances applies:  (i) the majority of our executive officers or directors are U.S. citizens or residents, (ii) more than 50% of our assets are located in the United States or (iii) our business is administered principally in the United States.

We have taken advantage of certain reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold equity securities.

Implications of Being an Emerging Growth Company

We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the "JOBS Act". An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 the ability to include only two years of audited financial statements and only two years of related management's discussion and analysis of financial condition and results of operations disclosure; and

 an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than US$1.07 billion in annual revenue, have more than US$700 million in market value of our Common Shares held by non-affiliates or issue more than US$1 billion of non-convertible debt over a three-year period.

Strategy

The Company is currently investigating a number of its repurposed drug compounds in both preclinical and clinical studies for the global disease areas of idiopathic pulmonary fibrosis (IPF) and chronic cough, stroke, pancreatic cancer (PC), small cell lung cancer (SCLC) and chronic kidney disease (CKD).

The Company is currently conducting a Phase 2 clinical trial for Ifenprodil for IPF and Chronic Cough, and is in the planning stages of a DMT Phase 1 clinical trial for stroke. The Company is also in the planning stages of a Phase 1 clinical trial for Ifenprodil for PC and SCLC and is engaged in preclinical studies for NP-251 for CKD.

The compounds being advanced by the Company have all been tested in disease-specific pre-clinical in vivo animal research studies, using either the leading approved drug for the indication or an advanced clinical candidate as a positive control in cases where no appropriate approved drug was available. The decision to advance candidates for further investigation is based on a number of factors including their performance in the preclinical studies. The Company is currently conducting a Phase 2 study in Australia in idiopathic pulmonary fibrosis and chronic cough, and early in 2021 completed a Phase 2 Ifenprodil study in COVID-19. On July 6, 2021, the Company announced that based on the results of the data from the Phase 2 study that it would not be advancing Ifenprodil in a Phase 3 COVID-19 study. The Company's other programs have yet to begin human trials for the Company's target indications.

Algernon's business strategy is to advance a number of its lead compounds into human clinical trials as efficiently and as cost-effectively as possible by leveraging the currently existing regulatory approval and finished product supply in the country of origin where the drugs were originally approved. Conducting off label Phase 2 trials in the drugs' currently approved market would save the Company from having to synthesize the compounds and conduct all of the preclinical toxicology work. This additional work would in comparison, add significant time and costs to the Company's development timeline and budget.

Under some conditions, if a repurposed drug is being currently manufactured, it may be possible to access this supply in order to conduct early-stage clinical trials, so that the Company may not need to manufacture its own supply.  However, there may be other conditions where the Company may also choose to engage in its own manufacture. This would include conducting multiple trials for different diseases with the same lead compound. A final decision will be made on which compounds, diseases and locations will be included in the phase 2 trials once all of the feasibility studies are completed.

The Company is planning to conduct a minimum of two Phase 2 clinical trials simultaneously in order to improve the Company's potential of success. Ensuring the Company is not conducting and relying on a single Phase 2 clinical trial is key part of the current strategy. In the United States, the regulatory pathway is well established. A high-level synopsis of the process is as follows: (i) preclinical research in animals establishes toxicity and animal efficacy; synthesis and formulation are also characterized - this process takes between 3-8 years; (2) following preclinical work, an Investigational New Drug application ("IND") is filed, allowing use of the drug candidate in humans; (3) Phase 1 first in human studies establish safety, pharmacokinetics and preliminary dose information and takes approximately one year - these Phase 2 studies test the drug for safety in the target population and provide early efficacy signals - one to two years is typical, and multiple phase 2 studies may be required; (4) Phase 3 studies are large and used to support registration, and provide confirmation of efficacy as well as safety - these Phase 3 studies can take multiple years to complete; and (5) following completion of clinical work, a New Drug Application (NDA) is filed; after one year review, marketing authorization may be granted. All new chemical entities must follow this path. See chart on page 35 for more details.


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Subject to the success of the Phase 2 trials, the Company plans to engage in licensing, partnership and or acquisition (as the target) discussions with a number of larger pharmaceutical partners. If for whatever reason, a partnership, license or acquisition opportunities do not materialize, the Company will explore moving all successful Phase 2 compounds forward into Phase 3 clinical trials.

At present, the Company does not plan to develop a sales team to advance the marketing sales and distribution of any of its lead compounds if such compounds achieve regulatory approval in any given market. The Company's strategy is to look for moments of inflection where the potential exists to be able to consummate the best possible licensing, partnership or acquisition transaction.

Recent Developments

There have been no material developments in the Company's business since [●], 2022 the date of this Prospectus, which have not been disclosed in this Prospectus.

OFFERING SUMMARY

Units Offered:

[●] units (excluding the over-allotment discussed below), based on the last reported price of our Common Shares as reported on the OTCQB on [●], 2022, which was US$[●] per share.

Separability of Common Shares and Warrants:

The units will not be issued or certificated. Instead, the Common Shares and the Warrants underlying the units will be issued separately and may be resold separately, although they will have been purchased together in this offering.

Shares Offered:

[●] Common Shares are included in the units (excluding the over-allotment discussed below), assuming a public offering price of US$[●] per unit, which is the last reported sale price of our Common Shares on the OTCQB on [●], 2022.

Warrants Offered:

[●] Warrants are included in the units (excluding the over-allotment discussed below), assuming a public offering price of US$[●] per unit, which is the last reported sale price of our Common Shares on the OTCQB on [●], 2022. Each Warrant will entitle the holder to purchase one Common Share at an exercise price of [●]% of the price of the units in this offering, or US$[●] per share. The Warrants shall be exercisable from the date of issuance, which is the closing date of this offering, and expire on the [●] year anniversary thereof. If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a share, we will, at our election, upon exercise, either pay a cash adjustment in respect of such fraction (in an amount equal to such fraction multiplied by the exercise price) or round the number of shares to be received by the holder up to the next whole number.

Offering Price:

US$[●] per unit.

Over-allotment:

We have granted the underwriters a [●]-day option (commencing from the date of this Prospectus) to purchase up to an additional [●] Common Shares and/or up to an additional [●] Warrants at the public offering price per Common Share and per Warrant as set forth on the cover page of this prospectus, less the underwriting discount and commissions, solely to cover over-allotments, if any, in each instance assuming a public offering price of [●] per unit, which is the last reported sale price of our Common Shares on the OTCQB on [●], 2022.

Shares Outstanding Prior to the Offering:

[●] Common Shares as of [●], 2022.



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Shares Outstanding After the Offering:

[●] Common Shares will be outstanding immediately after the offering (or [●] Common Shares if the underwriters exercise their over-allotment option in full) assuming a public offering price of US$[●] per unit, which is the last reported sale price of our Common Shares on the OTCQB on [●], 2022.

Assuming that all of the Warrants sold in the offering are exercised and we issue no additional Common Shares, [●] Common Shares will be outstanding after the offering (or [●] if the underwriters exercise their over-allotment option in full) assuming a public offering price of US$[●] per unit, which is the last reported sale price of our Common Shares on the OTCQB on [●], 2022.

Gross Proceeds:

We will receive gross proceeds of approximately US$[●] (or US$[●] if the underwriters exercise their over-allotment option in full). We would receive additional gross proceeds of approximately US$[●] if all of the Warrants included in the units are exercised (or US$[●] if the underwriters exercise their over-allotment option in full and the Warrants included in the units are exercised).

Use of Proceeds:

We intend to use the net proceeds from this offering to fund research and development programs, general and administrative expenses and for working capital purposes.

Compensation Warrants:

We have agreed to issue to the Representative Compensation Warrants to purchase up to a total of [●] Common Shares (equal to 5.0% of the Common Shares sold in this offering). The Compensation Warrants will be immediately exercisable from time to time, in whole or in part, commencing on the date of issuance until [●] years from the commencement of sales of this offering. The Compensation Warrants are exercisable at a per share price of US$[●]. The Compensation Warrants and the Common Shares underlying the Compensation Warrants are being registered hereby.

The Representative:

Ladenburg Thalmann & Co. Inc.

Market for our Common Shares:

Our Common Shares are currently quoted on the OTCQB, and listed for trading on the CSE and the XFRA under the symbols “AGNPF”, “AGN” and “AGW”, respectively. On February 16, 2022, the closing price of our Common Shares was US$5.10, CAD$6.30 and €4.38 respectively. As of February 16, 2022, the last reported sale price of our Common Share on the OTCBQ was US$5.10 per share, and on February 16, 2022 we had 1,674,868 Common Shares outstanding. We intend on applying to have our Common Shares listed on the Nasdaq Capital Market under the symbol"[●]". The successful listing of our Common Shares and Warrants on the Nasdaq Capital Market is a condition of this offering.

Market for our Warrants:

Currently, there is no public trading market for the Warrants included in the units and there is no assurance such a market will develop. We intend on applying to have the Warrants listed on the Nasdaq Capital Market under the symbol “[●]W”. The successful listing of our Common Shares and Warrants on the Nasdaq Capital Market is a condition of this offering.

Risk Factors:

See "Risk Factors" and the other information in this Prospectus for a discussion of the factors you should consider before deciding to invest in our securities.

Except as otherwise indicated, all information in this prospectus is based on 1,674,868 Common Shares outstanding as of February __, 2022 and excludes the Common Shares being offered by this prospectus and issuable upon exercise of the Warrants and Compensation Warrants and also excludes the following:

  • 155,750 Common Shares issuable upon the exercise of outstanding options, with a weighted-average exercise price of $11.02 per share;
     
  • 356,587 Common Shares issuable upon the exercise of outstanding warrants with a weighted-average exercise price of $44.98 per share; and
     
  • 15,433 Common Shares issuable upon the exercise of broker warrant units, with a weighted-average exercise price of $34.35 per broker warrant unit.

Summary Financial Data

The summary financial information set forth below has been derived from our audited financial statements for the fiscal year ended August 31, 2021 and 2020 and from our unaudited financial statements for the three months ended November 30, 2021, respectively. You should read the following summary financial data together with our historical and pro forma financial statements and the notes thereto included elsewhere in this prospectus and with the information set forth in the section titled "Management's Discussion And Analysis Of Financial Conditions And Results Of Operations".


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Consolidated Statements of Financial Position 

    Three Months
Ended
November 30,
2021
    Three Months
Ended
November 30,
2020
    Year Ended
August 31,
2021
    Year ended
August 31,
2020
 
Revenue $ Nil   $ Nil   $ Nil   $ Nil  
Net Loss $ 1,200,560   $ 3,434,448   $ 7,734,080   $ 8,538,207  
Comprehensive Loss $ 1,222,326   $ 3,463,091   $ 7,869,089   $ 8,554,912  
Loss per Common Share - Basic and Fully Diluted $ 0.72   $ 2.46   $ 5.05   $ 9.71  

    November 30,
2021
    August 31,
2021
    August 31,
2020
 
Cash and Cash Equivalents $ 2,697,056   $ 2,411,163   $ 6,121,424  
Total Current Assets $ 3,244,005   $ 4,909,261   $ 7,738,225  
Total Assets $ 8,517,930   $ 10,137,632   $ 12,823,968  
Current Liabilities $ 624,938   $ 1,022,314   $ 607,053  
Total Liabilities $ 624,938   $ 1,022,314   $ 607,053  
Total Shareholders' Equity $ 7,892,992   $ 9,115,318   $ 12,216,915  


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RISK FACTORS

An investment in our securities carries a significant degree of risk.  You should carefully consider the following risks, as well as the other information contained in this prospectus, including our financial statements and related notes included elsewhere in this prospectus, before you decide to purchase our securities.  Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our securities.  Refer to "Special Note Regarding Forward Looking Statements".

There is no assurance that we will be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause, or that these potential risks and uncertainties are a complete list of the risks and uncertainties facing us.  Furthermore, there may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us.  You could lose all or a significant portion of your investment due to any of these risks and uncertainties.

Risks Related to our Business and Industry

Violations of laws and regulations could result in repercussions, and psychedelic inspired drugs may never be approved as medicines.

In Canada, under the CDSA, DMT is classified as a Schedule III drug and as such, medical and recreational use is illegal under the Canadian laws. Certain other jurisdictions, including the jurisdictions in which we have engaged third-party contractors, including Finland (EU) and the United Kingdom, have similarly regulated DMT. There is no guarantee that DMT will ever be approved as medicines in any jurisdiction in which we or our third-party contractors operate. Our third party contractors are required to conduct programs involving DMT in strict compliance with the laws and regulations regarding the production, storage and use of DMT. As such, all facilities engaged with such substances by or on our behalf do so under current licenses and permits issued by appropriate federal, state and local governmental agencies. While a portion of our research programs will be focused on using psychedelic inspired compounds, we do not have any direct or indirect involvement with the illegal selling, production or distribution of any substances in the jurisdictions in which we operate and do not intend to have any such involvement. However, a violation of any Canadian laws and regulations, such as the CDSA, or of similar legislation in the other jurisdictions, including Finland (EU) and the United Kingdom, could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings initiated by either government entities in the jurisdictions in which we or our third party contractors operate, or by private citizens, or through criminal charges. The loss of the necessary licenses and permits for Schedule III drugs by our third party contractors could have an adverse effect on our operations.

We rely on third parties for the execution of a significant portion of our regulatory, pharmacovigilance, medical information and logistical responsibilities.

We rely on third parties for the execution of a significant portion of our regulatory, pharmacovigilance medical information, and logistical responsibilities and such third parties may fail to meet their obligations as a result of inadequacies in their systems and processes or execution failure. We also rely on third parties to perform critical services, including preclinical testing, clinical trial management, analysis and reporting, regulatory, pharmacovigilance, medical information and logistical services.

Outsourcing these functions involves risk that third party providers may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. If any contract research organization fails to comply with applicable regulatory requirements, the research and data generated may be deemed unreliable to regulatory authorities. Additional pre‐clinical and clinical trials may be required before approval of marketing applications will be given. We cannot provide assurance that all third party providers will meet the regulatory requirements for research and pre‐clinical trials. Failure of third party providers to meet regulatory requirements could result in repeat pre‐clinical and clinical trials, which would delay the regulatory approval process or result in termination of pre‐clinical and clinical trials. Any of the foregoing could have a material adverse effect on our business, prospects, results of operations and financial condition.

These third parties may not be available on acceptable terms when needed or, if they are available, may not comply with all regulatory and contractual requirements or may not otherwise perform their services in a timely or acceptable manner. This non-compliance may be due to a number of factors, including inadequacies in third-party systems and processes or execution failure. We may also experience unexpected cost increases that are beyond our control. As a result, we may need to enter into new arrangements with alternative third parties that may be costly. The time that it takes us to find alternative third parties may cause a delay, extension or termination of its preclinical studies or clinical trials and we may incur significant costs to replicate data that may be lost. These third parties may also have relationships with other commercial entities, some of which may compete with Algernon. In addition, if such third parties fail to perform their obligations in compliance with regulatory requirements and our protocols, our preclinical studies or clinical trials may not meet regulatory requirements or may need to be repeated and its regulatory filings, such as marketing authorizations or new drug submissions, may not be completed correctly or within the applicable deadlines. As a result of Algernon's dependence on third parties, we may face delays or failures outside of our direct control in our efforts to develop product candidates.


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We are subject to regulatory approval risks.

Algernon's and its contract research organizations' research and development activities are and will be significantly regulated by a number of governmental entities, including Health Canada, the European Medicines Agency (the "EMA"), the Home Office in the U.K. and the FDA. Regulatory approvals are required prior to each clinical trial and we and our contract research organizations may fail to obtain the necessary approvals to commence or continue clinical testing in one or more jurisdictions. The time required to obtain approval by regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials. Any analysis of data from clinical activities we and our contract research organizations perform is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. Approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary by jurisdiction. We and our contract research organizations could fail to receive regulatory approval for our planned research for many reasons, including but not limited to:

 disagreement with the design or implementation of clinical trials;

 failure to demonstrate that a product candidate is safe and effective for its proposed indication;

 failure of clinical trials to meet the level of statistical significance required for approval;

 failure to demonstrate that a product candidate's clinical and other benefits outweigh its safety risks;

 disagreement with our interpretation of data from preclinical studies or clinical trials;

 the insufficiency of data collected from clinical trials to support the submission and filing of a submission to obtain regulatory approval;

 deficiencies in the manufacturing processes or the failure of facilities of collaborators with whom we contract for clinical supplies to pass a pre-approval inspection; or

 changes in the approval policies or regulations that render our preclinical and clinical data insufficient for approval.

We are subject to psychedelic regulatory risks.

Psychedelic therapy is a new and emerging industry with ambiguous existing regulations and uncertainty as to future regulations. Certain psychedelics may be illegal substances other than when used for scientific or medical purposes. As such, new risks may emerge, and management may not be able to predict all such risks or be able to predict how such risks may result in actual results differing from the results contained in any forward‐looking statements. This industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond our control and cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could make future capital investments or operations uneconomic. The psychedelic therapy industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants and which cannot be reliably predicted.

Our drug candidate DMT, is currently a Schedule I controlled substance in the U.S. and has similar classification in most global regulatory jurisdictions. Commercial sales in any market where the drug is current restricted will require new classification. We will formally apply using the efficacy data from our human trials in order to seek reclassification. There is no guarantee that even with positive efficacy data from human trials that the drug will be rescheduled and allowed to be sold in any market.

There is ongoing risk that new restrictions may be issued that may negatively affect our current planned preclinical and clinical studies. Specifically in the U.S., if the FDA does not reschedule the drug, we may be subject to quotas (drug supply amounts), which could have a negative effect on our ability to conduct preclinical and clinical research, which could have an adverse effect on our business and results of operation.

Decriminalization of psychedelics.

Despite the current status of DMT as a controlled substance in Canada, the European Union ("EU"), the United Kingdom and United States, there may be changes in the status of DMT under the laws of certain jurisdictions. Possession of psilocybin, for example, was voted to be decriminalized in May 2019 in Denver and in November 2020, voters in Oregon approved the legal medical use of "psilocybin products", including magic mushrooms, to treat mental health conditions in licensed facilities with registered therapists (Measure 109). The legalization of psychedelics with inadequate regulatory oversight may lead to the development of psychedelic tourism in such states in clinics without proper therapeutic infrastructure or adequate clinical research. While drug laws pertaining to DMT are less likely to be as forthcoming, the expansion of such an industry which could put patients at risk may bring reputational and regulatory risk to the entire industry, leading to challenges for Algernon to achieve regulatory approval. The legalization of psilocybin, and potentially other psychedelic compounds (including DMT) in the future may also impact commercial sales for Algernon due to a reduced barrier to entry leading to a risk of increasing competition.


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We may face difficulties in enforcing contracts.

Due to the nature of our business and the fact that certain of our contracts involve the possession, manufacture, production or supply of DMT, the use of which is not legal under UK, EU, U.S. or Canadian law and in certain other jurisdictions, we may face difficulties in enforcing our contracts in the courts in the UK, EU, U.S. or Canada. The inability to enforce any of our contracts could have a material adverse effect on our business, operating results, financial condition or prospects.

In order to manage our contracts with contractors, we will ensure that such contractors are appropriately licensed. Were such contractors to operate outside the terms of these licenses, we may experience an adverse effect on our business, including the pace of development of our product.

The success of the industry in which we operate may be significantly influenced by the public's perception of psychedelic inspired medicinal applications.

The success of the industry in which we operate may be significantly influenced by the public's perception of psychedelic inspired medicinal applications. There is no guarantee that future scientific research, publicity, regulations, medical opinion, and public opinion relating to psychedelic inspired medicine will be favourable. The industry in which we operate is in its early stages and is constantly evolving, with no guarantee of viability. The market for psychedelic inspired medicines is uncertain, and any adverse or negative publicity, scientific research, limiting regulations, medical opinion and public opinion relating to the consumption of psychedelic inspired medicines may have a material adverse effect on our operational results, consumer base and financial results. While we are undertaking research programs using psychedelic inspired compounds, and does not advocate for the legalization of any psychedelic substances or deal with psychedelic substances except within laboratory and clinical trial settings conducted within approved regulatory frameworks, any unfavourable publicity or consumer perception regarding psychedelic substances (in addition to psychedelic inspired medicines) could also have a material adverse effect on our operational results, consumer base and financial results.

The psychedelic therapy industry is difficult to quantify and investors will be reliant on their own estimates of the accuracy of market data.

Because the psychedelic therapy industry is in a nascent stage with uncertain boundaries, there is a lack of information about comparable companies available for potential investors to review in deciding about whether to invest in Algernon and, few, if any, established companies whose business model we can follow or upon whose success we can build. Accordingly, investors will have to rely on their own estimates in deciding about whether to invest in Algernon. There can be no assurance that our estimates are accurate or that the market size is sufficiently large for our business to grow as projected, which may negatively impact our financial results.

The success of our business also depends in part upon our ability to identify, license or discover additional product candidates.

Although a substantial amount of our effort will focus on the continued research and preclinical and clinical testing, potential approval and commercialization of our existing product candidates, the success of our business also depends in part upon our ability to identify, license or discover additional product candidates. Our research programs or licensing efforts may fail to yield additional product candidates for clinical development for a number of reasons, including but not limited to the following:

 our research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;

 we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;

 our product candidates may not succeed in pre‐clinical or clinical testing;

 our product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;

 competitors may develop alternatives that render our product candidates obsolete or less attractive;

 product candidates we develop may be covered by third parties' patents or other exclusive rights;

 the market for a product candidate may change during our program so that such a product may become unreasonable to continue to develop;

 a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

 a product candidate may not be accepted.

If any of these events occurs, we may be forced to abandon our development efforts to identify, license or discover additional product candidates, which could have a material adverse effect on our business, prospects, results of operations and financial condition and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.


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None of our product candidates has to date received regulatory approval for their intended commercial sale.

None of our product candidates has to date received regulatory approval for their intended commercial sale. We cannot market a pharmaceutical product in any jurisdiction until it has completed rigorous preclinical testing and clinical trials and passed such jurisdiction's extensive regulatory approval process. In general, significant research and development and clinical studies are required to demonstrate the safety and efficacy of a product candidate before it can be submitted for regulatory approval. Even if a product candidate is approved by the applicable regulatory authority, we may not obtain approval for an indication whose market is large enough to recover our investment in that product candidate. In addition, there can be no assurance that we will ever obtain all or any required regulatory approvals for any of our product candidates.

Failure to follow regulatory requirements will have a materially negative impact on our business.

Our prospects must be considered in light of the risks, expenses, shifts, changes and difficulties frequently encountered with companies whose businesses are regulated by various federal, state and local governments. The health care, wellness, workers compensation and similar companies are subject to a variety of regulatory requirements and the regulatory environment is ever changing particularly with recent legislation, the full impact of which is not yet understood as regulations have not been issued. Failure to follow applicable regulatory requirements will have a materially negative impact on our business. Furthermore, future changes in legislation cannot be predicted and could irreparably harm our business.

We will require equity and/or debt financing to support on-going operations, to undertake capital expenditures or to undertake acquisitions or other business combination transaction. There can be no assurance that additional financing will be available to us when needed or on terms which are acceptable.

We will require equity and/or debt financing to support on‐going operations, to undertake capital expenditures or to undertake acquisitions or other business combination transactions. There can be no assurance that additional financing will be available to us when needed or on terms which are acceptable. Our inability to raise financing to fund capital expenditures or acquisitions could limit our growth and may have a material adverse effect upon our business, prospects, results of operations and financial condition.

If additional funds are raised through further issuances of equity or convertible debt securities, existing shareholders could suffer significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to those of holders of Common Shares. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

Because of the early stage of the industry in which we will operate, we expect to face additional competition from new entrants. To become and remain competitive, we will require research and development, marketing, sales and client support. We may not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive basis which could materially and adversely affect our business, financial condition and results of operations.

We could be adversely affected if we do not adequately protect our intellectual property rights.

We could be adversely affected if we do not adequately protect our intellectual property rights. We regard our marks, inventions, confidential information and trade secrets and other intellectual property rights as critical to our success. To protect our investments and our rights in these various intellectual properties, we may rely on a combination of patents, trademark and copyright law, trade secret protection and confidentiality agreements and other contractual arrangements with our employees, clients, strategic partners, acquisition targets and others to protect proprietary rights. There can be no assurance that the steps taken by us to protect proprietary rights will be adequate or that third parties will not infringe or misappropriate our copyrights, trademarks and similar proprietary rights, or that we will be able to detect unauthorized use and take appropriate steps to enforce rights. In addition, although we believe that our proprietary rights do not infringe on the intellectual property rights of others, there can be no assurance that other parties will not assert infringement claims against us. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources.

We rely on trade secrets to protect technology where we do not believe patent protection is appropriate or obtainable. Trade secrets are difficult to protect. While commercially reasonable efforts to protect trade secrets will be used, strategic partners, employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose information to competitors.

If we are not able to defend patents or trade secrets, then we will not be able to exclude competitors from developing or marketing competing products, and we may not generate enough revenue from product sales to justify the cost of development of products and to achieve or maintain profitability.


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Our clinical trials for each product candidate may fail to adequately demonstrate the safety and efficacy of that candidate, which could force us to abandon our product development plans for that product candidate. We will rely on third parties to conduct our product development, chemistry activities, as well as pre‐clinical and clinical trials. If these third parties do not perform as contractually required or as otherwise expected we may not be able to obtain regulatory approval for our product candidates, which may prevent us from becoming profitable.

Our clinical trials for each product candidate may fail to adequately demonstrate the safety and efficacy of that candidate, which could force us to abandon our product development plans for that product candidate. Before obtaining regulatory approval for the commercial sale of any of our product candidates, we must demonstrate, through lengthy, complex and expensive pre‐clinical testing and clinical trials, that each product is both safe and effective for use in each target indication. Clinical trial results are inherently difficult to predict, and the results we have obtained or may obtain from third‐party trials or from our own trials may not be indicative of results from future trials. We may also suffer significant setbacks in advanced clinical trials even after obtaining promising results in earlier studies.

Although we intend to modify any of our protocols in ongoing studies or trials to address any setbacks, there can be no assurance that these modifications will be adequate or that these or other factors will not have a negative effect on the results of our clinical trials. This could significantly disrupt our efforts to obtain regulatory approvals and commercialize our product candidates. Furthermore, we may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable safety risk to patients, either in the form of undesirable side effects or otherwise. If we cannot show that our product candidates are both safe and effective in clinical trials, we may be forced to abandon our business plan.

We will rely on third parties to conduct our product development, chemistry activities, as well as pre‐clinical and clinical trials. If these third parties do not perform as contractually required or as otherwise expected we may not be able to obtain regulatory approval for our product candidates, which may prevent us from becoming profitable.

As part of the regulatory process, we would need to conduct clinical trials for any drug candidate to demonstrate safety and efficacy to the satisfaction of the regulatory authorities, including the FDA for the U.S. and Health Canada for Canada should we decide to seek approval in those jurisdictions. Clinical trials are subject to rigorous regulatory requirements and are expensive and time‐consuming to design and implement. We may experience delays in clinical trials for any of our drug candidates, and the projected timelines for continued development of the technologies and related drug candidates by us may otherwise be subject to delay or suspension. Any planned clinical trials might not begin on time; may be interrupted, delayed, suspended, or terminated once commenced; might need to be redesigned; might not enroll a sufficient number of patients; or might not be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the following:

 delays in obtaining regulatory approval to commence a trial;

 imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or other regulatory authorities;

 imposition of a clinical hold because of safety or efficacy concerns by the FDA, a data safety monitoring board or committee or by us;

 delays in reaching agreement on acceptable terms with prospective contract research organizations and clinical trial sites;

 delays in obtaining required monitoring Board approval at each site for clinical trial protocols;

 delays in identifying, recruiting and training suitable clinical investigators;

 delays in recruiting suitable patients to participate in a trial;

 delays in having patients complete participation in a trial or return for post‐treatment follow‐up;

 clinical sites dropping out of a trial to the detriment of enrollment;

 time required to add new sites;

 delays in obtaining sufficient supplies of clinical trial materials, including comparator drugs;

 delays resulting from negative or equivocal findings of a data safety monitoring board for a trial; or

 adverse or inconclusive results from pre‐clinical testing or clinical trials.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials, and clinicians' and patients' perceptions as to the potential advantages of the biologic being studied in relation to other available therapies, including any new biologics that may be approved for the indications we are investigating. Any of these delays in completing our clinical trials could increase costs, slow down the product development and approval process, and jeopardize our ability to commence product sales and generate revenue.


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Pre-clinical and clinical trials will be lengthy and expensive.

Pre‐clinical and clinical trials will be lengthy and expensive. Delays in clinical trials are common for many reasons and any such delays could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales as currently contemplated.

We may be required to suspend or discontinue clinical trials because of adverse side effects or other safety risks that could preclude approval of our drug candidates.

Clinical trials may be suspended or terminated at any time for a number of reasons. A clinical trial may be suspended or terminated by us, our collaborators, the FDA, or other regulatory authorities because of a failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, presentation of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational biologic, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or negative or equivocal findings of the data safety monitoring board for a clinical trial. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. If we elect or are forced to suspend or terminate any clinical trial of any proposed product that we develop, the commercial prospects of such proposed product will be harmed and our ability to generate product revenue from such proposed product will be delayed or eliminated. Any of these occurrences could have a materials adverse effect on our business, prospects, results of operations and financial condition.

We face product liability exposure, which, if not covered by insurance, could result in significant financial liability.

The risk of product liability is inherent in the research, development, manufacturing, marketing and use of pharmaceutical products. Product candidates and products that we may commercially market in the future may cause, or may appear to have caused, injury or dangerous drug reactions, and expose us to product liability claims. These claims might be made by patients who use the product, healthcare providers, pharmaceutical companies, corporate collaborators or others selling such products. If our product candidates during clinical trials were to cause adverse side effects, we may be exposed to substantial liabilities. Regardless of the merits or eventual outcome, product liability claims or other claims related to our product candidates may result in:

 decreased demand for our products due to negative public perception;

 injury to our reputation;

 withdrawal of clinical trial participants or difficulties in recruiting new trial participants;

 initiation of investigations by regulators;

 costs to defend or settle related litigation;

 a diversion of management's time and resources;

 substantial monetary awards to trial participants or patients;

 product recalls, withdrawals or labeling, marketing or promotional restrictions;

 loss of revenues from product sales; and

 the inability to commercialize any of product candidates, if approved.

We intend to obtain clinical trial insurance once a clinical trial is initiated. However, the insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Insurance coverage is becoming increasingly expensive, and, in the future, we, or any of our collaborators, may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or at all to protect against losses due to liability. Even if our agreements with any future collaborators entitle us to indemnification against product liability losses, such indemnification may not be available or adequate should any claim arise. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against product liability claims could prevent or inhibit the commercialization of our product candidates. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.

Should any of the events described above occur, this could have a material adverse effect on our business, prospects, results of operations and financial condition.

In light of our current resources and limited experience, we may need to establish successful third‐party relationships to successfully commercialize our future product candidates.

The long‐term viability of our future product candidates may depend, in part, on our ability to successfully establish new strategic collaborations with pharmaceutical and biotechnology companies, non‐profit organizations and government agencies. Establishing strategic collaborations and obtaining government funding is difficult and time‐consuming. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position or based on their internal pipeline; government agencies may reject contract or grant applications based on their assessment of public need, the public interest, the ability of our products to address these areas, or other reasons beyond our expectations or control. If we fail to establish a sufficient number of collaborations or government relationships on acceptable terms, we may not be able to commercialize any future drug candidates or generate sufficient revenue to fund further research and development efforts.


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Even if we establish new collaborations or obtains government funding, these relationships may never result in the successful development or commercialization of any drug candidates for several reasons, including the fact that:

 we may not have the ability to control the activities of our partners and cannot provide assurance that they will fulfill their obligations to us, including with respect to the license, development and commercialization of drug candidates, in a timely manner or at all;

 such partners may not devote sufficient resources to our drug candidates or properly maintain or defend our intellectual property rights;

 relationships with collaborators could also be subject to certain fraud and abuse laws if not structured properly to comply with such laws;

 any failure on the part of our partners to perform or satisfy their obligations to us could lead to delays in the development or commercialization of drug candidates and affect our ability to realize product revenue; and

 disagreements, including disputes over the ownership of technology developed with such collaborators, could result in litigation, which would be time‐consuming and expensive, and may delay or terminate research and development efforts, regulatory approvals and commercialization activities.

If we or our collaborators fail to maintain our existing agreements or in the event we fail to establish agreements as necessary, we could be required to undertake research, development, manufacturing and commercialization activities solely at our own expense. These activities would significantly increase capital requirements and, given our lack of sales, marketing and distribution capabilities, significantly delay the commercialization of future drug candidates.

Our business is subject to rapid technological changes.

Our business is subject to rapid technological changes. Failure to keep up with such changes could have a material adverse effect on our business, prospects, results of operations and financial condition. We are subject to the risks of companies operating in the medical and healthcare business.

The market in which we compete is characterized by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands. As a result, an investment in the Common Shares is highly speculative and is only suitable for investors who recognize the high risks involved and can afford a total loss of investment.

There can be no assurance that contractual arrangements or other steps taken by us to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or to deter independent third-party development of similar technologies.

We regard the protection of our copyrights, service marks, trademarks, trade dress and trade secrets as critical to our future success and rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protect our proprietary rights in products and services. We have entered into confidentiality and invention assignment agreements with our officers and contractors, and nondisclosure agreements with parties with which we conduct business in order to limit access to and disclosure of our proprietary information. There can be no assurance that these contractual arrangements or the other steps taken by us to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or to deter independent third‐party development of similar technologies.

Other companies may claim that we infringe their intellectual property, which could have a material adverse effect upon our business, prospectus, results of operations and financial condition.

To date, we have not been notified that our technologies infringe the proprietary rights of third parties, but there can be no assurance that third parties will not claim infringement by us with respect to past, current or future technologies. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. Any such claim, whether meritorious or not, could be time consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us or at all. As a result, any such claim could have a material adverse effect upon our business, prospects, results of operations and financial condition.

It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our product candidates, others could compete against us more directly, which would harm our business, possibly materially.


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Our commercial success will depend in part on obtaining and maintaining patent protection for our current product candidates and future product candidates, the processes used to manufacture them and the methods for using them, as well as successfully defending these patents against third-party challenges.

Our ability to stop third parties from making, using, selling, offering to sell or importing our product candidates is dependent in part upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date in the U.S. or in foreign jurisdictions outside of the U.S. Changes in either the patent laws or interpretations of patent laws in the U.S. and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be enforced in the patents that may be issued from the applications we have filed. Further, if any patents we obtain or license are deemed invalid and unenforceable, our ability to commercialize or license our product candidates or technology could be adversely affected.

Others may file patent applications covering products and technologies that are similar, identical or competitive to ours or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed or in-licensed by us, or that we or our licensors will not be involved in interference, opposition, reexamination, review, reissue, post grant review or invalidity proceedings before U.S. or non-U.S. patent offices. Such proceedings are also expensive and time consuming.

The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:

•        others will likely be able to make compounds that are similar to our product candidates, but that are not covered by the claims of our licensed patents;

•        any patents that we obtain from licensing or otherwise may not provide us with any competitive advantages;

•        any granted patents that we rely upon may be held invalid or unenforceable as a result of legal challenges by third parties; and

•        the patents of others may have an adverse effect on our business.

We are also dependent on licensed intellectual property. If we were to lose our rights to that licensed intellectual property, we may not be able to continue developing or commercializing the product candidates for which we need the license.

Even if patents are issued based on patent applications to which we have filed or have been granted a license, because the patent positions of pharmaceutical products are complex and uncertain, we cannot predict the scope and extent of patent protection for our product candidates.

Any patents that may be issued based on patent applications that we have been granted licenses to may not ensure sufficient protection with respect to our activities for a number of reasons, including without limitation the following:

•        any issued patents may not have valid claims drafted broadly enough to prevent competition from developing other similar products;

•        if patents are not issued or if issued patents expire, there may be no protections against competitors from making the same products or generic equivalents;

•        there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;

•        there may be other patents existing, now or in the future, in the patent landscape for our product candidates that we seek to commercialize or develop, if any, that may affect our freedom to operate;

•        if patents that we have been granted licenses to are challenged, a court could determine that such patents are not valid or enforceable, thereby affecting any exclusivity granted to us pursuant to the licenses;

•        a court could determine that a competitor's technology or product does not infringe patents that we have been granted licenses to;


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•        patents to which we have been granted licenses could irretrievably lapse due to failure to pay fees or otherwise comply with regulations, or could be subject to compulsory licensing, thereby affecting any exclusivity granted to us pursuant to the licenses; and

•        if we encounter delays in our development or clinical trials, the period of time during which we could market our products under patent protection would be reduced.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and patent protection could be reduced or eliminated for noncompliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to the United States Patent and Trademark Office (USPTO) and foreign Intellectual Property Offices in several stages over the term of the patent. Maintenance fees are also due for pending patent applications in some countries. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to office actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.

The life of patent protection is limited, and third parties could develop and commercialize products and technologies similar or identical to ours and compete directly with us after the patent licensed to us expires, which could materially and adversely affect our ability to commercialize our products and technologies.

The life of a patent and the protection it affords is limited. For example, in the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. In Europe, the expiration of an invention patent is 20 years from its filing date. Even if we successfully obtain patent protection for an approved candidate, it may face competition from biosimilar medications. Manufacturers of biosimilar drugs may challenge the scope, validity or enforceability of the patents underlying our technology in court or before a patent office, and the patent holder may not be successful in enforcing or defending those intellectual property rights and, as a result, we may not be able to develop or market the relevant product candidate exclusively, which would materially adversely affect any potential sales of that product.

Given the amount of time required for the development, testing and regulatory review of product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, the patents and patent applications licensed to us may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. Even if we believe that the patents involved are eligible for certain (and time-limited) patent term extensions, there can be no assurance that the applicable authorities, including the FDA and the USPTO, and any equivalent regulatory authority in other countries, will agree with our assessment of whether such extensions are available, and such authorities may refuse to grant extensions to such patents, or may grant more limited extensions than requested. For example, depending upon the timing, duration and specifics of any FDA marketing approval of any product candidates we may develop, one or more of the U.S. patents licensed to us may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. However, we may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than requested. If we are unable to obtain patent term extension or term of any such extension is less than requested, our competitors may obtain approval of competing products following our patent expiration, and our business could be harmed. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

The patents and pending patent applications licensed to us for our product candidates are expected to expire on various dates. Upon the expiration, we will not be able to assert such licensed patent rights against potential competitors, which may materially adversely affect our business, financial condition, results of operations and prospects.

There may be intellectual property rights existing now, or in the future, relevant to our product candidates that we seek to commercialize or develop, if any, that may affect our ability to commercialize such product candidates. Although the Company is not aware of any such intellectual property rights, a third-party may hold intellectual property rights, including patent rights that are important or necessary to the development or manufacture of our product candidates. Even if all our main product candidates are covered by patents, it may be necessary for us to use the patented or proprietary technology of third parties to commercialize our product candidates, in which case we would be required to obtain a license from these third parties. Such a license may not be available on commercially reasonable terms, or at all, and we could be forced to accept unfavorable contractual terms. In that event, we may be required to expend significant time and resources to redesign our technology, product candidates, or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible on a technical or commercial basis. If we are unable to do so, our business could be harmed.


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The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our product candidates.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We are not aware of any third party proprietary rights that our planned products will infringe or misappropriate, but we have not conducted any freedom to operate study as we are in the earliest stages of development. We thus cannot guarantee that our product candidates, or manufacture or use of our product candidates, will not infringe third-party patents. Furthermore, a third party may claim that we are using inventions covered by the third party's patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and scientific personnel. Some of these third parties may be better capitalized and have more resources than us. There is a risk that a court would decide that we are infringing the third party's patents and would order us to stop the activities covered by the patents. In that event, we may not have a viable way around the patent and may need to halt commercialization of our product candidates. In addition, there is a risk that a court will order us to pay the other party damages for having violated the other party's patents. In addition, we may be obligated to indemnify our licensors and collaborators against certain intellectual property infringement claims brought by third parties, which could require us to expend additional resources. The pharmaceutical industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.

If we are sued for patent infringement, we would need to demonstrate that our product candidates or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and diversion of management's time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than us or the third parties from whom we license intellectual property because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.

We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time consuming and unsuccessful.

In addition to the possibility of litigation relating to infringement claims asserted against it, we may become a party to other patent litigation and other proceedings, including inter parties review proceedings, post-grant review proceedings, derivation proceedings declared by the USPTO and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or future technologies or product candidates or products. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace.


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Competitors may infringe or otherwise violate our intellectual property, including patents that may issue to or be licensed by us. As a result, we may be required to file claims in an effort to stop third-party infringement or unauthorized use. Any such claims could provoke these parties to assert counterclaims against us, including claims alleging that we infringe their patents or other intellectual property rights, and/or that any of our intellectual property, including licensed intellectual property, is invalid and/or unenforceable. This can be prohibitively expensive, particularly for a company of our size, and time-consuming, and even if we are successful, any award of monetary damages or other remedy we may receive may not be commercially valuable. In addition, in an infringement proceeding, a court may decide that our asserted intellectual property is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our intellectual property does not cover its technology. An adverse determination in any litigation or defense proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

If the breadth or strength of our patent or other intellectual property rights is compromised or threatened, it could allow third parties to exploit and, in particular, commercialize our technology or products or result in our inability to exploit and/or commercialize our technology and products without infringing third-party intellectual property rights. Further, third parties may be dissuaded from collaborating with us.

Interference or derivation proceedings brought by the USPTO or its foreign counterparts may be necessary to determine the priority of inventions with respect to our patent applications, and we may also become involved in other proceedings, such as re-examination proceedings, before the USPTO or its foreign counterparts. Due to the substantial competition in the pharmaceutical space, the number of such proceedings may increase. This could delay the prosecution of our pending patent applications or impact the validity and enforceability of any future patents that we may obtain. In addition, any such litigation, submission or proceeding may be resolved adversely to us and, even if successful, may result in substantial costs and distraction to our management.

If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and product could be significantly diminished.

We also rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its transparency initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA's disclosure policies may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

We may be subject to claims that our employees or consultants have wrongfully used or disclosed alleged trade secrets.

As is common in the pharmaceutical industry, we employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or our employees or consultants have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we could lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

Our intellectual property may not be sufficient to protect our product candidates from competition, which may negatively affect our business as well as limit our partnership or acquisition appeal.

We may be subject to competition despite the existence of intellectual property we license or may in the future own. We can give no assurances that our intellectual property claims will be sufficient to prevent third parties from designing around patents we own or license and developing and commercializing competitive products. The existence of competitive products that avoid our intellectual property could materially adversely affect our operating results and financial condition. Furthermore, limitations, or perceived limitations, in our intellectual property may limit the interest of third parties to partner, collaborate or otherwise transact with us, if third parties perceive a higher than acceptable risk to commercialization of our product candidates or future product candidates.


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We may elect to sue a third party, or otherwise make a claim, alleging infringement or other violation of patents, trademarks, trade dress, copyrights, trade secrets, domain names or other intellectual property rights that we either own or license from a third party. If we do not prevail in enforcing our intellectual property rights in this type of litigation, we may be subject to:

•        paying monetary damages related to the legal expenses of the third party;

•        facing additional competition that may have a significant adverse effect on our product pricing, market share, business operations, financial condition, and the commercial viability of our product; and

•        restructuring our company or delaying or terminating select business opportunities, including, but not limited to, research and development, clinical trial, and commercialization activities, due to a potential deterioration of our financial condition or market competitiveness.

A third party may also challenge the validity, enforceability or scope of the intellectual property rights that we license or own and the result of these challenges may narrow the scope or claims of or invalidate patents that are integral to our product candidates in the future. There can be no assurance that we will be able to successfully defend patents we own or license in an action against third parties due to the unpredictability of litigation and the high costs associated with intellectual property litigation, amongst other factors.

Changes to patent law, including the Leahy-Smith America Invests Act of 2011 and the Patent Reform Act of 2009 and other future article of legislation, may substantially change the regulations and procedures surrounding patent applications, issuance of patents and prosecution of patents. We can give no assurances that the patents of our licensor can be defended or will protect us against future intellectual property challenges, particularly as they pertain to changes in patent law and future patent law interpretations.

Circumstances may occur where we are not able to access currently available and approved finished product for any of its lead compounds, and/or may not be able to gain approval to conduct any Phase 2 trials in markets where the current drug is approved.

This could cause delays in our product development pipeline, estimated to be approximately 24 months, in order to source and/or develop new approved finished product of these compounds and to conduct any preclinical studies required. However, the production of our own finished product and preclinical data could allow us to potentially conduct clinical trials in multiple regulatory jurisdictions other than where it is currently approved. 

There can be no assurances that our current business partners will be able to meet our timetable and requirements to meet our current development pipeline timeline. We have not contracted with alternate suppliers for production of our drug candidates in the event that the current provider is unable to scale up production, or if it otherwise experiences any other significant problems. If we are unable to arrange for alternative third-party manufacturing sources on commercially reasonable terms or in a timely manner, we may be delayed in the development of our product candidates. Further, our business partners must operate in compliance with GMP and failure to do so could result in, among other things, the disruption of product supplies. Our dependence upon third parties for the manufacture of our products may adversely affect our ability to develop and deliver products on a timely and competitive basis.

We may be unable to obtain and maintain the benefits associated with preferential designations, including orphan drug and Fast Track.

For some of the repurposed drug candidates being investigated by the Company, the Company may file for a number of programs including orphan disease designation, Fast Track status, and Breakthrough Therapy designation, however there can be no assurances that the Company will be able to obtain and maintain the benefits of these programs and designations.

To be eligible for Fast Track status, the drug must treat a serious condition and fulfill an unmet need, such as providing a therapy where none exists or providing a therapy which may be potentially better than the currently available therapy. Breakthrough Therapy designation is a process designed to expedite the development and review of drugs that are intended to treat a serious condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over available therapy on a clinically significant endpoint(s).


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General Risk Factors

There is no guarantee that an investment in the securities described herein will provide any positive return in the short term or long term.

There is no guarantee that an investment in the securities described herein will provide any positive return in the short term or long term. An investment in our securities is speculative and involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in our securities described herein is appropriate only for holders who have the capacity to absorb a loss of some or all of their investment.

We have reported negative cash flow from operations and we anticipate having negative cash flow from operating activities in future periods.

During the year ended August 31, 2021, we had negative cash flow from operating activities, reported a net comprehensive loss of $7,869,089 and net loss per Common Share of $5.05. During the year ended August 31, 2020, we had negative cash flow from operating activities, reported a net comprehensive loss of $8,554,912 and net loss per Common Share of $9.71. For the three months ended November 30, 2021, operating activities provided $338,930 in cash, reported a net comprehensive loss of $1,222,326 and a net loss per share of $0.72. We anticipate that we will have negative cash flow from operating activities in future periods. To the extent that we have negative cash flow in any future period, certain of the net proceeds from any offering we undertake may be used to fund such negative cash flow from operating activities, if any.

The impact of the novel coronavirus (COVID-19) pandemic on the global economy and our operations remains uncertain, which could have a material adverse impact on our business, financial condition and results of operations.

Since December 31, 2019, governments worldwide have been enacting emergency measures to combat the spread of COVID-19. These measures, which include the implementation of travel bans, self-imposed quarantine periods and physical distancing, have caused material disruption to business globally resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. The development and operation of our business plan is dependent on labour inputs and governmental approvals, which could be adversely disrupted by the ongoing impact of COVID-19. While it is difficult to predict the impact of the coronavirus outbreak on our business, measures taken by the Canadian government and voluntary measures undertaken by us with a view to the safety of our employees, may adversely impact our business. While the pandemic has not materially affected our clinical trials and research, its continued disruption may delay our timeline with respect to planned clinical trials. The ultimate extent of the impact of the pandemic on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the pandemic and actions taken to contain or prevent the further spread of COVID-19, among others. Thus, the current pandemic could therefore materially and adversely affect our business, financial condition and results of operations.

While governments have commenced vaccination programs, the COVID-19 pandemic continues to result in widespread global infections and fatalities, market volatility and impact global economic activity. Despite reductions in such measures and the current vaccination programs instituted by many governments, there remains significant ongoing uncertainty surrounding COVID-19 and the extent and duration of the impacts that it may have on our operations and on global financial markets.

We have a limited history of operations and is considered a development stage company.

We have a limited history of operations and are considered a development stage company. As such, we are subject to many risks common to such enterprises, including under‐capitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. There is no assurance that we will be successful in achieving a return on shareholders' investment and the likelihood of our success must be considered in light of our early stage of operations.

We are subject to going‐concern risks.

The Company's consolidated financial statements have been prepared on a going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business. Our future operations are dependent upon the identification and successful completion of equity or debt financing and the achievement of profitable operations at an indeterminate time in the future. There can be no assurances that we will be successful in completing an equity or debt financing or in achieving profitability. The financial statements do not give effect to any adjustments relating to the carrying values and classification of assets and liabilities that would be necessary should we be unable to continue as a going concern.

The financial statements do not give effect to any adjustments relating to the carrying values and classification of assets and liabilities that would be necessary should we be unable to continue as a going concern.


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The market price of the Common Shares may be subject to wide price fluctuations.

The market price of the Common Shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of the Company and its subsidiaries, divergence in financial results from analysts' expectations, changes in earnings estimates by stock market analysts, changes in our business prospects and our subsidiaries, general economic conditions, legislative changes, and other events and factors outside of our control. In addition, stock markets have from time to time experienced extreme price and volume fluctuations, which, as well as general economic and political conditions, could adversely affect the market price for our Common Shares.

We are subject to litigation risks.

We may become party to litigation from time to time in the ordinary course of business which could adversely affect our business. Should any litigation in which we become involved be determined against us such a decision could adversely affect our ability to continue operating and the market price for the Common Shares. Even if we are involved in litigation and win, litigation can redirect significant company resources.

Our commercial success will depend in part on not infringing upon the patents and proprietary rights of other parties and enforcing our own patents and proprietary rights against others. The research and development programs will be in highly competitive fields in which numerous third parties have issued patents and pending patent applications with claims closely related to the subject matter of our programs. We are not currently aware of any litigation or other proceedings or claims by third parties that our technologies or methods infringe on their intellectual property.

While it is our practice to undertake pre-filing searches and analyses of developing technologies, they cannot guarantee that they have identified every patent or patent application that may be relevant to the research, development, or commercialization of our products. Moreover, we can provide no assurance that third parties will not assert valid, erroneous, or frivolous patent infringement claims.

There may be larger, better financed companies which may become our competition.

There is high potential that we will face intense competition from other companies, some of which can be expected to have longer operating histories and more financial resources and research and manufacturing than us. Increased competition by larger and better financed competitors could materially and adversely affect our business, financial condition and results of operations.

At present, management believes that there are a number of drug development companies, on a global scale, that are advancing compounds for the treatment of CKD, IPF, chronic cough, pancreatic and small cell lung cancers and are in various stages of development from pre‐clinical up to and including Phase 3 human trials.

Competitive pressures created by any one of these companies, or by our competitors collectively, could have a material adverse effect on our business, prospects, results of operations and financial condition.

We believe that the principal competitive factors in our market are our ability to develop drug compounds that are more efficacious than the current gold standard treatment of other drugs underdevelopment, to protect our intellectual property and to also be the first company to deliver its medical device products to the market on a timely and cost-effective basis. Better performing drugs and the expansion of existing technologies may increase the competitive pressures on us by enabling our competitors to receive regulatory approval to market for certain drugs before its compounds are approved, offer a lower-cost product.

Any loss of the services of key management could have a material adverse effect on our business, prospects, results of operations and financial condition.

Our success is dependent upon the ability, expertise, judgment, discretion and good faith of our senior management. While employment/consulting agreements are customarily used as a primary method of retaining the services of key management, these agreements cannot assure the continued services of such persons. Any loss of the services of such individuals could have a material adverse effect on our business, prospects, results of operations and financial condition.

We have no earnings or dividend record, and we do not anticipate paying any dividends on the Common Shares in the foreseeable future

We have no earnings or dividend record, and do not anticipate paying any dividends on the Common Shares in the foreseeable future. Dividends paid by us would be subject to tax and, potentially, withholdings.


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There can be no assurance that an active and liquid market for the Common Shares will be maintained and an investor may find it difficult to resell any of our securities.

The Common Shares are currently listed on the CSE. There can be no assurance that an active and liquid market for the Common Shares will be maintained and an investor may find it difficult to resell any of our securities.

There can be no assurance that required licenses and permits will be granted.

Our operations may require licenses and permits from various governmental authorities. There can be no assurance that such licenses and permits will be granted.

Our business may not be insurable or insurance may not be purchased due to high cost.

Our business may not be insurable or the insurance may not be purchased due to high cost. Should such liabilities arise, they could reduce or eliminate any future profitability and result in increasing costs and a decline in the value of the Company.

The lack of product for commercialization could have a material adverse effect on our commercialization plans and our business, prospectus, results of operations and financial condition.

If we cannot successfully develop, manufacture and distribute our products, or if we experience difficulties in the development process, such as capacity constraints, quality control problems or other disruptions, we may not be able to develop market‐ready commercial products at acceptable costs, which would adversely affect our ability to effectively enter the market. A failure by us to achieve a low‐cost structure through economies of scale or improvements in cultivation and manufacturing processes could have a material adverse effect on our commercialization plans and our business, prospects, results of operations and financial condition.

The lack of experience of the Company and/or Management in marketing, selling, and distribution products may result in the failure of our business and a loss of your investment.

The Company's management's lack of experience in marketing, selling, and distributing its products could lead to poor decision‐making which could result in cost‐overruns and/or the inability to produce the desired products. Although management of the Company intends to hire experienced and qualified staff, this inexperience could also result in our inability to consummate revenue contracts or any contracts at all. Any combination of the aforementioned may result in the failure of the Company and a loss of your investment.

We may pursue additional strategic transactions in the future, which could be difficult to implement, disrupt our business or result in dilution for existing shareholders.

If appropriate opportunities present themselves, we intend to acquire businesses, technologies, services or products that we believe are strategic. We currently have no understandings, commitments or agreements with respect to any other material acquisition and no other material acquisition is currently being pursued. There can be no assurance that we will be able to identify, negotiate or finance future acquisitions successfully, or to integrate such acquisitions with our current business. The process of integrating an acquired business, technology, service or product into the Company may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for ongoing development of our business. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities and/or amortization expenses related to goodwill and other intangible assets, which could materially adversely affect the our business, results of operations and financial condition. Any such future acquisitions of other businesses, technologies, services or products might require us to obtain additional equity or debt financing, which might not be available on terms favourable to us, or at all, and such financing, if available, might be dilutive.

We must rely largely on our own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the industry.

We must rely largely on our own market research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the industry. A failure in the demand for its products to materialize as a result of competition, technological change or other factors could have a material adverse effect on our business, prospects, results of operations and financial condition.

Certain of our directors and officers are, or may be subject to conflicts of interest.

Certain of our directors and officers are, or may become directors and officers of other companies, and conflicts of interest may arise between their duties as officers and directors of the Company and as officers and directors of such other companies.


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We are subject to global economic risks.

The ongoing economic slowdown and downturn of global capital markets has generally made the raising of capital by equity or debt financing more difficult. Access to financing has been negatively impacted by the ongoing global economic risks. As such, we are subject to liquidity risks in meeting our development and future operating cost requirements in instances where cash positions are unable to be maintained or appropriate financing is unavailable. These factors may impact our ability to raise equity or obtain loans and other credit facilities in the future and on terms favourable to us. If uncertain market conditions persist, our ability to raise capital could be jeopardized, which could have an adverse impact on our operations and the trading price of our Common Shares on the stock exchange.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under the laws of the Province of British Columbia, a substantial portion of our assets are in Canada and all of our executive officers and directors reside outside the United Sates.

The Company is organized under the laws of the Business Corporations Act (British Columbia) (the "BCBCA") and our executive offices are located outside of the United States in Vancouver, British Columbia. All of our officers, our auditor and all our directors reside outside the United States. In addition, a substantial portion of their assets and our assets are located outside of the United States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You may also have difficulty enforcing, both in and outside of the United States, judgments you may obtain in U.S. courts against us or these persons in any action, including actions based upon the civil liability provisions of U.S. Federal or state securities laws. Furthermore, there is substantial doubt as to the enforceability in Canada against us or against any of our directors, officers and the expert named in this prospectus who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities based solely upon the civil liability provisions of the U.S. federal securities laws. In addition, shareholders in British Columbia companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.

As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

Our consolidated financial statements contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern, which could prevent us from obtaining new financing on reasonable terms or at all.

Our audited consolidated financial statements for the year ended August 31, 2021, contain an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. We incurred a net loss of $8,538,207 for the year ended August 31, 2020 and $7,734,080 for the year ended August 31, 2021. These events and conditions, along with other matters, indicate that a material uncertainty exists that may cast significant doubt on our ability to continue as a going concern. The consolidated financial statements for the period ended August 31, 2021 and 2020 do not include any adjustments that might result from the outcome of this uncertainty. This going concern opinion could materially limit our ability to raise additional funds through the issuance of equity or debt securities or otherwise. Further financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financing. We cannot be certain that additional funding will be available to us on acceptable terms, if at all. If funds are not available we may be required to delay, reduce the scope of, or eliminate research or development plans for, or commercialization efforts with respect to our products. This may raise substantial doubts about our ability to continue as a going concern.

Volatility in the Common Shares or Warrant price may subject us to securities litigation.

The market for Common Shares may have, when compared to seasoned issuers, significant price volatility, and we expect that the Common Share or Warrant price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.

Because the SEC imposes additional sales practice requirements on brokers who deal in securities that are deemed penny stocks, some brokers may be unwilling to trade our securities. This means that you may have difficulty reselling your Common Shares and Warrants, which may cause the value of your investment to decline.

Our Common Shares and Warrants are classified as penny stocks and are covered by section 15(g) of the Exchange Act, which imposes additional sales practice requirements on broker-dealers who sell our securities in this offering or in the aftermarket. For sales of our securities, broker-dealers must make a special suitability determination and receive a written agreement from you prior to making a sale on your behalf. Because of the imposition of the foregoing additional sales practices, it is possible that broker-dealers will not want to make a market in our Common Shares or Warrants. This could prevent you from reselling your Common Shares or Warrants and may cause the value of your investment to decline.


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FINRA sales practice requirements may limit your ability to buy and sell our Common Shares and Warrants which could depress the price of the Common Shares and Warrants.

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our Common Shares and Warrants, which may limit your ability to buy and sell our Common Shares and Warrants, have an adverse effect on the market for our Common Shares and Warrants and, thereby, depress their market prices.

You may face significant restrictions on the resale of your Common Shares and Warrants due to state "blue sky" laws.

Each state has its own securities laws, often called "blue sky" laws, which: (1) limit sales of securities to a state's residents unless the securities are registered in that state or qualify for an exemption from registration; and (2) govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or it must be exempt from registration. The applicable broker must also be registered in that state.

We do not know whether our securities will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by the broker-dealers, if any, who agree to serve as market makers for our Common Shares and Warrants. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore consider the resale market for our Common Shares and Warrants to be limited, as you may be unable to resell your Common Shares or Warrants without the significant expense of state registration or qualification.

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

The Company's management will have broad discretion in the application of the net proceeds from this offering and any proceeds from the exercise of the Warrants sold in this offering, including for any of the purposes described in the section entitled "Use Of Proceeds" and you will not have the opportunity as part of your investment decisions to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure by our management to apply these funds effectively could harm our business.

The Company is a foreign private issuer within the meaning of the rules under the Exchange Act, and as such it is exempt from certain provisions applicable to the United States domestic public companies.

The Company is a foreign private issuer within the meaning of the rules under the Exchange Act. As such, it is exempt from certain provisions applicable to United States public companies. For example:

 it is not required to provide as many Exchange Act reports, or as frequently as a domestic public company;

 for interim reporting, it is permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;

 it is not required to provide the same level of disclosure on certain issues, such as executive compensation;

 it is exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosure of material information;

 it is not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 it is not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any "short-swing" trading transaction.

Our shareholders may not have access to certain information they may deem important and are accustomed to receiving from U.S. reporting companies.


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If we are a ''passive foreign investment company'', U.S. investors may be subject to adverse U.S. federal income tax consequences.

Potential investors in the units who are U.S. taxpayers should be aware that we anticipate that we may be classified as a ''passive foreign investment company'' or ''PFIC'' for the current tax year and future tax years. If the Company is a PFIC for any year during a U.S. taxpayer's holding period of Common Shares, Warrants or Warrant Shares (as defined below), then such U.S. taxpayer generally will be required to treat any gain realized upon a disposition of the Common Shares, Warrants or Warrant Shares or any so-called ''excess distribution'' received on its Common Shares and Warrant Shares, as ordinary income, and to pay an interest charge on a portion of such gain or distribution. Subject to certain limitations, these tax consequences may be mitigated if a U.S. taxpayer makes a timely and effective QEF Election (as defined below) or a Mark-to-Market Election (as defined below). Subject to certain limitations, such elections may be made with respect to the Common Shares and Warrant Shares. A U.S. taxpayer generally may not make a QEF Election or Mark-to-Market Election with respect to the Warrants. A U.S. taxpayer who makes a timely and effective QEF Election generally must report on a current basis its share of the Company's net capital gain and ordinary earnings for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to its shareholders. A U.S. taxpayer who makes the Mark-to-Market Election generally must include as ordinary income each year the excess of the fair market value of the Common Shares or Warrant Shares over the taxpayer's basis therein. This paragraph is qualified in its entirety by the discussion below under the heading ''Material United States Federal Income Tax Considerations - Passive Foreign Investment Company Rules.'' Each potential investor who is a U.S. taxpayer should consult its own tax advisor regarding the tax consequences of the PFIC rules and the acquisition, ownership, and disposition of the Common Shares, Warrants and the Warrant Shares.

There is currently no existing trading market for Warrants.

There is currently no market through which the Warrants may be sold and purchasers of such Warrants may not be able to resell such Warrants purchased under this Prospectus. There can be no assurance that an active trading market will develop for such Warrants after an offering or, if developed, that such market will be sustained. This may affect the pricing of such Warrants in the secondary market, the transparency and availability of trading prices, the liquidity of such Warrants and the extent of issuer regulation. The public offering prices of the Warrants may be determined by negotiation between us and underwriters based on several factors and may bear no relationship to the prices at which the Warrants will trade in the public market subsequent to such offering. See "Underwriting".

Future sales may affect the market price of the Common Shares.

In order to finance future operations, we may determine to raise funds through the issuance of additional Common Shares or the issuance of debt instruments or other securities convertible into Common Shares. We cannot predict the size of future issuances of Common Shares or the issuance of debt instruments or other securities convertible into Common Shares or the dilutive effect, if any, that future issuances and sales of our securities will have on the market price of the Common Shares. These sales may have an adverse impact on the market price of the Common Shares.

As an "emerging growth company" under applicable laws, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our Common Shares or Warrants less attractive to investors.

For as long as we remain an "emerging growth company", as defined in the JOBS Act, we will elect to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies", including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. Because of these lessened regulatory requirements, our shareholders would be left without information or rights available to shareholders of more mature companies. If some investors find our Common Shares or Warrants less attractive as a result, there may be a less active trading market for such securities and their market prices may be more volatile.

We incur significant costs as a result of being a public company, which costs will grow after we are listed on Nasdaq and we cease to qualify as an "emerging growth company."

We incur significant legal, accounting and other expenses as a public company that we would not incur as a private company. Upon this Registration Statement being declared effective and the intended listing of our common shares on Nasdaq, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq, impose various requirements on the corporate governance practices of public companies. We are an "emerging growth company", as defined in the JOBS Act, and will remain an emerging growth company until the earlier of : (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the U.S. Securities Act, (b) in which we have total annual gross revenue of at least US$1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares that is held by non-affiliates exceeds US$700 million as of the prior February 28th; and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act in the assessment of the emerging growth company's internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.


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Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. After we are no longer an emerging growth company, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

Holders of our Warrants will have no rights as a common shareholder until they acquire our Common Shares.

Until you acquire common shares upon exercise of the Warrants, you will have no rights with respect to our common shares issuable upon exercise of such Warrants. Upon exercise of your Warrants, you will be entitled to exercise the rights of a common shareholder only as to matters for which the record date occurs after the exercise date.

The Warrants are speculative in nature.

The Warrants offered hereby merely represent the right to acquire Common Shares at a fixed price. Specifically, commencing on the date of issuance, holders of the Warrants may acquire the Common Shares issuable upon exercise of such Warrants at an exercise price of $[●] per share. Moreover, following this offering, the market value of the Warrants is uncertain and there can be no assurance that the market value of the Warrants will equal or exceed their public offering price. There can be no assurance that the market price of the Common Shares will ever equal or exceed the exercise price of the Warrants and consequently, whether it will ever be profitable for holders of the Warrants to exercise the Warrants.

We will incur significant increased costs as a result of the listing of our securities for trading on Nasdaq. By becoming a public company in the United States, our management will be required to devote substantial time to new compliance initiatives as well as compliance with ongoing U.S. requirements.

Upon the listing of securities on Nasdaq, we will become a publicly traded company in the United States. As a public company in the United States, we will incur additional significant accounting, legal and other expenses that we did not incur before the offering. We also anticipate that we will incur costs associated with corporate governance requirements of the SEC, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act. We expect these rules and regulations to increase our legal and financial compliance costs, introduce new costs such as investor relations, stock exchange listing fees and shareholder reporting, and to make some activities more time consuming and costly. The implementation and testing of such processes and systems may require us to hire outside consultants and incur other significant costs. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, and the rules and regulations adopted by the SEC for so long as they apply to us, will result in increased costs to us as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as executive officers.

Nasdaq may delist our securities from trading on its exchange, which could limit investors' ability to make transactions in our securities and subject us to additional trading restrictions.

We intend on having our Common Shares and Warrants listed on Nasdaq. We cannot guarantee that our securities will be approved for listing on Nasdaq; however, we will not complete this offering unless we are so listed. Although after giving effect to this offering we expect to meet, on a pro forma basis, the minimum initial listing standards set forth in the Nasdaq listing standards, we cannot assure you that our securities will be, or will continue to be, listed on Nasdaq in the future. In order to continue listing our securities on Nasdaq, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in shareholders' equity (generally $2,500,000) and a minimum number of holders of our securities (generally 300 public holders). Additionally, we will be required to demonstrate compliance with Nasdaq's initial listing requirements after this offering, which are more rigorous than Nasdaq's continued listing requirements, in order to continue to maintain the listing of our securities on Nasdaq. For instance, our share price would generally be required to be at least $4.00 per share, our shareholders' equity would generally be required to be at least$5.0 million and we would be required to have a minimum of 300 round lot holders of our securities (with at least 50% of such round lot holders holding securities with a market value of at least $2,500). We cannot assure you that we will continue to meet those initial listing requirements.


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If Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

  • a limited availability of market quotations for our securities;
  • reduced liquidity for our securities;
  • a determination that our Common Shares come within the definition of "penny stock" which will 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 securities;
  • a limited amount of news and analyst coverage; and
  • a decreased ability to issue additional securities or obtain additional financing in the future.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as "covered securities." Because we expect that our Common Shares and Warrants will be listed on Nasdaq, our Common Shares and Warrants will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case.

You will experience immediate dilution in book value of any Common Shares you purchase.

Because the price per Common Share being offered is substantially higher than our net tangible book value per Common Share, you will suffer substantial dilution in the net tangible book value of any Common Share you purchase in this offering. After giving effect to the sale by us of Common Shares in this offering, based on an assumed public offering price of $[●] per Unit, which is the last reported sale price of our Common Shares on the OTCQB on [●], 2022, and after deducting underwriter's discount and commission and offering expenses payable by us, our as adjusted net tangible book value of our Common Shares would be approximately $[●] per Common Share as of November 30, 2021. If you purchased Common Shares in this offering, you will suffer immediate and substantial dilution of our as adjusted net tangible book value of approximately $[●] per Common Share. To the extent outstanding options or warrants are exercised, you will incur further dilution. See "Dilution" for a more detailed discussion of the dilution you will incur in connection with this offering.

The exercise of Warrants offered hereby will cause significant dilution to holders of our equity securities.

Holders of the Warrants may exercise their warrants into up to [●] Common Shares. In the event that the Warrants are exercised in full, the ownership interest of existing holders of our equity securities will be diluted. See "Dilution" for further information.

USE OF PROCEEDS

Assuming the sale of US$[●] of units in this offering, after deducting the estimated underwriting discounts and offering expenses payable by us and assuming no exercise of the underwriters' over-allotment option, we expect to receive net proceeds of approximately US$[●] from this offering.

Gross proceeds

US$[●]

Underwriting discounts and commissions (up to [●]% of gross proceeds)

US$[●]

Underwriting non-accountable expenses ([●]% of gross proceeds)

US$[●]

Miscellaneous underwriting fees expenses

US$[●]

Other offering expenses(1)

US$[●]

Net proceeds

US$[●]

(1) These consist of legal fees and expenses of approximately $[●], the Nasdaq listing fee of $[●], accountant and auditing fees and expenses of approximately $[●], and other fees of approximately $[●] and excludes those other offering expenses that have already been paid.

We intend to use the net proceeds of this offering as follows, and we have ordered the specific uses of proceeds in order of priority.


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Description of Use        Estimated Amount of Net Proceeds  
General and Administrative Expenses (12 months)   US$[1,300,000]  
IPF/Chronic Cough - Ifenprodil      
          Phase 2 (USA)   US$[500,000]  
Stroke - DMT      
          Phase 1   US$[2,000,000]  
          Phase 2 Acute   US$[3,000,000]  
CKD - NP-251      
          Preclinical   US$[800,000]  
          Phase 1   US$[800,000]  
Unallocated Working Capital   US$[600,000]  
Total   US$[9,000,000]  

We would receive additional gross proceeds of approximately US$[●] if all of the Warrants included in the units are exercised, assuming no exercise of the underwriters' over-allotment option. We intend to use any such proceeds for working capital and general corporate purposes. General corporate purposes may include capital expenditures. Amounts listed are the total estimated to complete the listed phase. The Company has approximately CAD$2,000,000 in cash on hand as of February 16, 2022 in order to further fund operations and complete the programs noted in the use of proceeds table.

DIVIDEND POLICY

To date, we have not paid any dividends on our outstanding Common Shares. The future payment of dividends will depend upon our financial requirements to fund further growth, our financial condition and other factors which our Board of Directors (the "Board" or "Board of Directors") may consider in the circumstances. We do not contemplate paying any dividends in the immediate or foreseeable futures.

CAPITALIZATION

The following table sets forth our capitalization as of November 30, 2021:

 on an actual basis,

 on a pro forma basis to reflect the application of net proceeds of US$[●] (excluding proceeds from the exercise of the over-allotment option, if any) after deducting the estimated offering expenses.

You should read this table in conjunction with our historical and pro forma financial statements and related notes appearing elsewhere in this prospectus and "Use Of Proceeds".

    As of November 30, 2021  
    Actual
(unaudited)

    As of [●],2022
Proforma (1)
 
Assets:            
Current assets $ 2,697,056   $ [●]  
Restricted cash $ 57,500   $ [●]  
Intangible assets $ 5,216,425   $ [●]  
Total Assets $ 8,517,925   $ [●]  


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Liabilities:            
Current Liabilities $ 624,938   $ [●]  
Derivative Liabilities $ nil   $ [●]  
Total Liabilities $ 624,938   $ [●]  
Shareholder's Equity:            
Share Capital $ 25,849,846   $ [●]  
Share-based payment reserve $ 6,826,581   $ [●]  
Accumulated other comprehensive income $ (36,530 )      
Deficit $ (24,746,905 ) $ ([●])  
Total Equity $ 7,892,992   $ [●]  
Total Liabilities and Equity $ 8,517,930   $ [●]  

(1) Converted into Canadian dollars as set out in "Currency And Exchange Rates".

Except as otherwise indicated, all information in this prospectus is based on 1,674,868 Common Shares outstanding as of February 16, 2022 and excludes the Common Shares being offered by this prospectus and issuable upon exercise of the Warrants and Compensation Warrants and also excludes the following:

  • 155,750 Common Shares issuable upon the exercise of outstanding options, with a weighted-average exercise price of $11.02 per share;
  • 356,587 Common Shares issuable upon the exercise of outstanding warrants with a weighted-average exercise price of $44.98 per share; and
  • 15,433 Common Shares issuable upon the exercise of broker warrant units, with a weighted-average exercise price of $34.35 per broker warrant unit.

DILUTION

If you invest in our units, your interest in our Common Shares will be diluted to the extent of the difference between the offering price per unit and the pro forma net tangible book value per Common Share after the offering. Dilution results from the fact that the per unit offering price is substantially in excess of the book value per Common Share attributable to the existing shareholders for our presently outstanding Common Shares. Our net tangible book value attributable to shareholders at November 30, 2021 was $2,676,567 or approximately $1.60 per Common Share. Net tangible book value per Common Share as of November 30, 2021 represents the amount of total assets less intangible assets and total liabilities, divided by the number of Common Shares outstanding.

Our pro forma as adjusted net tangible book value of our Common Shares as of [●], 2022 gives effect to the sale of Common Shares at the assumed public offering price of $[●] (or US$[●] converted as using the exchange rate as set out in "Currency And Exchange Rates") per Common Share, after deducting the underwriting discount and commission and estimated offering expenses. We will issue [●] Common Shares upon completion of the offering (and [●] additional Common Shares if the over-allotment option is exercised in full). Our post offering pro forma net tangible book value as of [●], 2022, which gives effect to receipt of the net proceeds from the offering and issuance of additional Common Shares in the offering, but does not take into consideration any other changes in our net tangible book value after November 30, 2021, will be approximately $[●] or $[●] per Common Share (or $[●] or $[●] per Common Share if the over-allotment option is exercised in full). This would result in dilution to investors in this offering of approximately $[●] per Common Share (or $[●] per Common Share if the over-allotment option is exercised in full) or approximately [●]% (or [●]% if the over-allotment option is exercised in full) from the assumed offering price of US$[●] per unit ($[●]). Net tangible book value per Common Share would increase to the benefit of present shareholders by $[● per share attributable to the purchase of the units by investors in this offering (or $[●] if the over-allotment option is exercised in full).

The following table sets forth the estimated net tangible book value per Common Share after the offering and the dilution to persons purchasing units based on the foregoing offering assumptions.


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    Offering
Without
Over-
Allotment
(1)
    Offering With
Over-
Allotment(1)
 
Offering price per unit (US$[●])   US$[●]      US$[●]   
Offering Price ($[●])   $[●]     $[●]  
Net tangible book value per Common Share before the offering   $[●]     $[●]  
Increase per Common Share attributable to payments by new investors   $[●]     $[●]  
Pro forma net tangible book value per Common Share after the offering   $[●]     $[●]  
Dilution per Common Share to new investors   $[●]     $[●]  

(1) U.S. dollar amounts converted into $ as set out in "Currency And Exchange Rates".

Except as otherwise indicated, all information in this prospectus is based on 1,674,868 Common Shares outstanding as of February 16, 2022 and excludes the Common Shares being offered by this prospectus and issuable upon exercise of the Warrants and Compensation Warrants and also excludes the following:

  • 155,750 Common Shares issuable upon the exercise of outstanding options, with a weighted-average exercise price of $11.02 per share;
  • 356,587 Common Shares issuable upon the exercise of outstanding warrants with a weighted-average exercise price of $44.98 per share; and
  • 15,433 Common Shares issuable upon the exercise of broker warrant units, with a weighted-average exercise price of $34.35 per broker warrant unit.

A US$[●] increase or decrease in the assumed public offering price per unit would increase or decrease our pro forma as adjusted net tangible book value per share after this offering by approximately $[●] per share (or $[●] per share if the over-allotment is exercised in full), and increase or decrease the dilution per share to new investors by approximately $[●] per share (or $[●] per share if the over-allotment is exercised in full), assuming the number of Common Shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the underwriting discount and estimated offering expenses payable by us.

If any Common Shares are issued upon exercise of outstanding options or Warrants, you may experience further dilution.

COMPANY INFORMATION

History and Development of the Company

Algernon Pharmaceuticals Inc. was incorporated pursuant to the laws of the Province of British Columbia, Canada, on April 10, 2015 as "PBA Acquisitions Corp.", a wholly-owned subsidiary of Petro Basin Energy Corp. ("Algernon Parent"). On July 23, 2015, the Company changed its name to "Breathtec Biomedical, Inc.". The Company entered into an arrangement agreement with Algernon Parent. The arrangement agreement and associated plan of arrangement were approved by Algernon Parent's shareholders on July 30, 2015, and approved by the Ontario Superior Court of Justice (Commercial List) on August 5, 2015. The plan of arrangement was completed on September 23, 2015. On February 19, 2019, the Company changed its name to "Algernon Pharmaceuticals Inc.".

Corporate Headquarters

The Company's principal executive offices are located at Suite 1500 - 1055 West Georgia Street, Vancouver, British Columbia, Canada, V6E 4N7. Our phone number is (604) 398-4175 ext. 701.

Subsidiaries

The Company has two wholly-owned subsidiaries, Nash Pharmaceuticals Inc. ("Nash Pharma"), a corporation subsisting under the laws of the Province of British Columbia, Canada, and Algernon Research PTY Ltd. ("AGN Research"), an Australian proprietary company established on January 6, 2020.


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Acquisition of Nash Pharmaceuticals Inc.

On October 19, 2018, the Company acquired all of the issued and outstanding shares of Nash Pharma, a clinical stage pharmaceutical development company focused on drug repurposing in the areas of NASH, CKD and IBD. Through its ongoing research programs, Nash Pharma has developed data that supports the advancement of up to seven drug candidates into Phase 2 trials.

Pursuant to the terms of a share exchange agreement (the "Share Exchange Agreement") dated October 5, 2018 among the Company, Nash Pharma and the securityholders of Nash Pharma, the Company issued 158,000 Common Shares to the shareholders of Nash Pharma at an issue price of $22.00 per Common Share. Existing warrants to purchase common shares of Nash Pharma were cancelled and were replaced with 148,000 Common Share purchase warrants of the Company, each having an exercise at a price equal to the exercise price of the Nash Pharma warrants.

Share Consolidation

On October 16, 2018, the Company consolidated its Common Shares on a two for one basis and began trading on the CSE on a post-consolidated basis effective October 17, 2018.

On November 23, 2021, the Company consolidated its Common Shares on a one hundred for one basis.

Name Change

Effective February 19, 2019, the Company changed its name to "Algernon Pharmaceuticals Inc.".

Algernon Research Pty Ltd.

On January 6, 2020, Nash Pharma established AGN Research, its wholly-owned subsidiary, in Australia. AGN Research is a proprietary company formed with the aim to provide supporting scientific research activities to Nash Pharma.

The SEC maintains an Internet site that contains periodic reports and other information filed by issuers that are subject to reporting requirements under the Exchange Act: http://sec.gov. The Company's Internet address is: http://algernonpharmaceuticals.com. We do not incorporate the contents of our website into this Registration Statement. Information on our website does not constitute part of this Registration Statement.

BUSINESS OVERVIEW

General

Algernon is a drug re-purposing company that investigates already approved drugs, including naturally occurring compounds, for new disease applications, moving them efficiently and safely into new human trials, developing new formulations and seeking new regulatory approvals in global markets. Algernon specifically investigates compounds that have never been approved in the U.S. or Europe to avoid off label prescription writing, which can interfere with the normal economic pricing models of newly approved drug treatments.

The Company's early research identified a number of drug candidates that had already been approved for other diseases outside of the U.S and E.U. Only drugs that have not been approved in the U.S or Europe were chosen to avoid off-label prescription writing. The Company is actively investigating new disease areas including: CKD, IPF and chronic cough, stroke, and pancreatic and small cell lung cancer. In addition to these indications, the Company has additional drug candidates it is considering advancing where the Company has performed preclinical studies and filed intellectual property.

The Company's lead candidate is Ifenprodil, which is being investigated by the Company in multiple disease indications. Ifenprodil is an N-methyl-D-aspartate ("NMDA") receptor antagonist specifically targeting the NMDA-type subunit 2B (GluN2B). Ifenprodil prevents glutamate signalling. The NMDA receptor is found on many tissues including lung cells and T-cells, neutrophils. Ifenprodil (brand name Cerocral) was initially developed by Sanofi in the 1990s in the French and Japanese markets for the treatment of circulatory disorders. Although no longer available in France, the drug is highly genericized and sold in Japan and South Korea.

NMDA receptors also regulate the signalling of mTOR a serine/threonine kinase, which has been identified as a therapeutic target for many types of cancers.  Their expression on several human cancer cell lines represents a potential therapeutic avenue to control dysregulated growth, division, and invasiveness.


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The Company is investigating Ifenprodil for IPF and chronic cough and is conducting a Phase 2 study in Australia and New Zealand. The purpose of this proof-of-concept trial is to determine the efficacy of Ifenprodil in the preservation of lung function in IPF patients (including biomarkers of fibrosis) and its associated cough. On May 6, 2020, the Company received ethics approval from the Royal Brisbane & Women's Hospital, Human Research Ethics Committee. The Phase 2 IPF and Chronic Cough trial began on August 5, 2020, and it was announced on February 4, 2022 that the Company completed enrollment in the study. Costs related to the IPF and Chronic Cough study in Australia and New Zealand, estimated to cost approximately $1.2 million, will be paid for by the Company with cash on hand.

The Company has also retained Organic Consultants, Inc. (dba Cascade Chemistry) to produce the active pharmaceutical ingredient ("API") of Ifenprodil. Algernon made the decision to scale-up 'current good manufacturing practice' ("cGMP") manufacturing of Ifenprodil to support its IPF and Chronic Cough clinical program. The Company has manufactured its first multi-kilogram batch of cGMP material produced. Stability testing of the API is on-going. The Company filed a pre-IND application with the FDA to seek guidance on the use of Algernon's planned new propriety injectable and slow release formulation. The FDA advised that for the toxicology program of a new intravenous formulation, a single animal 30-day study would be acceptable. The Company's estimated cost of manufacturing of finished product is approximately $500,000.

Since all of Algernon's lead compounds are genericized, there is historical data available on each compound's mechanism of action as it relates to the disease it was originally developed to treat. The Company has decided not to pursue independent confirmation as to whether these known pathways are involved in the specific biochemical interaction that produced the pharmacological effect seen in the Company's animal model research.

Business Strategy

The Company is currently investigating a number of its repurposed drug compounds in both preclinical and clinical studies for the global disease areas of idiopathic pulmonary fibrosis (IPF) and chronic cough, stroke, pancreatic cancer (PC), small cell lung cancer (SCLC) and chronic kidney disease (CKD).

The compounds being advanced by the Company have all been tested in disease-specific pre-clinical in vivo animal research studies, using either the leading approved drug for the indication or an advanced clinical candidate as a positive control in cases where no appropriate approved drug was available. The decision to advance candidates for further investigation is based on a number of factors including their performance in the preclinical studies. The Company is currently conducting a Phase 2 study in Australia in idiopathic pulmonary fibrosis and chronic cough, and early in 2021 completed a Phase 2 study in COVID-19. On July 6, 2021, the Company announced that based on the results of the data from the Phase 2 study that it would not be advancing Ifenprodil in a Phase 3 COVID-19 study. The Company's other programs have yet to begin human trials for the Company's target indications.

Algernon's business strategy is to advance a number of its lead compounds into human clinical trials as efficiently and as cost-effectively as possible by leveraging the currently existing regulatory approval and finished product supply in the country of origin where the drugs were originally approved.  Conducting off label Phase 2 trials in the drugs' currently approved market would save the company from having to synthesize the compounds and conduct all of the preclinical toxicology work. This additional work would in comparison, add significant time and costs to the Company's development timeline and budget.

Under some conditions, if a repurposed drug is being currently manufactured, it may be possible to access this supply in order to conduct early-stage clinical trials, so that the Company may not need to manufacture its own supply.  However, there may be other conditions where the Company may also choose to engage in its own manufacture. This would include conducting multiple trials for different diseases with the same lead compound. A final decision will be made on which compounds, diseases and locations will be included in the Phase 2 trials once all of the feasibility studies are completed.

The Company is planning to conduct a minimum of two Phase 2 clinical trials simultaneously in order to improve the Company's potential of success. Ensuring the Company is not conducting and relying on a single Phase 2 clinical trial is key part of the current strategy.

Subject to the success of the Phase 2 trials, the Company plans to engage in licensing, partnership and or acquisition (as the target) discussions with a number of larger pharmaceutical partners. If for whatever reason, a partnership, license or acquisition opportunities do not materialize, the Company will explore moving all successful Phase 2 compounds forward into phase 3 clinical trials.

At present, the Company does not plan to develop a sales team to advance the marketing sales and distribution of any of its lead compounds if such compounds achieve regulatory approval in any given market. The Company's strategy is to look for moments of inflection where the potential exists to be able to consummate the best possible licensing, partnership or acquisition transaction.


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Phase 1 and Phase 2 Clinical Trials

The Company has initiated a number of feasibility studies in order to determine the best geographical location to run its planned Phase 1 or Phase 2 trials based on a number of factors including availability of finished product and the suitability of the country where the drug is registered. Some of the compounds have been approved in multiple jurisdictions.

As part of its feasibility study process the Company has developed an investigational brochure for three of its lead compounds. These investigational brochures include a protocol synopsis of the planned study as well as the historical safety data for the compounds.

Since the size of the planned Phase 2 trial (i.e. number of patients) is dependent on the strength of the data achieved from the pre-clinical research, the Company has received initial cost estimates for 2 Phase 2 trials as part of the feasibility process.

Regulatory - Drug Development

The regulatory pathway for drug development is well established in most major world markets. The most familiar in terms of stages and timing is the FDA pathway which has been estimated for discussion purposes and illustrated in the below diagram.

Drug discovery and pre-clinical describes all of the work and stages prior to testing the compound in human beings. A Phase 1 study is the first point in which the compound begins testing in human beings. All new chemical entities must successfully follow the below pathway in order to achieve regulatory approval and to begin sales to the public.

The below diagram is meant to convey approximate timelines in the commercialization of products through clinical trials.  The actual timeline and cost can vary from these approximations.

Algernon's drug discovery program is based on repurposing drugs that have already been approved. Successful drug repurposing is based on finding new uses for approved drugs in order to treat and manage new diseases. Since Algernon's lead compounds already have a well-established safety history and have already undergone pre-clinical testing when they were originally developed, the compounds are eligible in the market(s) where they were first approved, to be moved directly into off label Phase 2 clinical studies.

Typically, in order for the Company to be able to move its lead compounds into Phase 2 clinical trials, the finished drug product needs to be available for purchase and the drug needs have an active registration in a market where clinical testing can be successfully executed. The next step is for the Company to conduct what is known as an off-label Phase 2 clinical study confirming that the drug shows efficacy in human beings for the new disease.


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Since Algernon only screened compounds that were from Russia, Korea, Ukraine and Japan, none of the currently identified finished product manufacturers meet the cGMP standard of production for entry into an FDA study. As a result it is unlikely that the data from the Phase 2 study would be able to be used in a future Phase 3 trial application. However, if any of the Company's lead compounds are successful in their respective Phase 2 studies, the Company would then begin the process of synthesizing and conducting all of the toxicology and safety studies under cGMP and 'good laboratory practice' conditions in order to move forward to Phase 3 study in the U.S.

Prior to a decision to begin synthesizing any compounds, the Company intends to seek out a favourable licensing, partnership or acquisition transaction (as the target) after the completion of a Phase 2 clinical trial that met its primary and/or secondary endpoints.

Development of A Therapy for Chronic Kidney Disease (CKD)

Algernon's lead compound for the treatment and management of CKD is NP-251, an orally administered small molecule. CKD involves the gradual loss of kidney function leading to kidney failure. Advanced stage CKD leads to dangerous accumulation of fluid, electrolytes and waste in the body. CKD can progress to end-stage kidney failure, which is fatal without artificial filtering (dialysis) or a kidney transplant. Treatment for chronic kidney disease focuses on slowing the progression of the kidney damage, usually by controlling the underlying cause.

The global market for CKD drugs continues to proliferate at a significant pace, driven by the increasing number of CKD patients and the growing need of novel treatments to improve patients' quality of life. According to Research and Markets, the global CKD drugs market was valued at US$12.4 billion in 2016, and is expected to reach US$17.4 billion by 2025, expanding at a compound annual growth rate of 3.9% from 2017 to 2025.

The Company conducted two separate animal in vivo mouse studies using a Unilateral Ureter Obstruction (UUO) mouse model of kidney fibrosis conducted by Murigenics.

CKD In Vivo Study # 1, January 2019

In this study, mice were randomly assigned to receive either vehicle or one of the Company's test articles (N = 8 per arm). Animals were subjected to surgical ligation of the left ureter; a negative control group instead underwent a sham procedure.  The animals were treated for 14 days, then sacrificed and subjected to histopathogical examination.  Animals were also observed daily for their general condition. Data were analyzed using two-way Analysis of Variance (ANOVA) with a Bonferroni correction for multiple comparisons. Key results from the study were as follows:

 In animals treated with NP-251 (30 mg/kg), there was a 33% reduction in fibrosis as measured by Sirius red staining (p = NS) and a reduction of blood urea nitrogen, a marker of kidney function (p < 0.05) compared to vehicle;

 Telmisartan (5 mg/kg), a positive control in the study and a current standard of care for CKD, reduced fibrosis by 42.2% (p = 0.004); telmisartan also reduced blood urea nitrogen but the reduction was not statistically significant; and

 No adverse effects were observed in any of the treatment groups.

CKD In Vivo Study # 2, March 2019

A second CKD study was performed using the same experimental conditions as the first. Group size was increased (N = 10/arm) and the number of candidates was reduced to increase statistical power. Two doses of NP-251 were tested (30 mg/kg and 90 mg/kg). Telmisartan (3 mg/kg) was again used as a positive control. Cenicriviroc (40 mg/kg), a CCR2/5 chemokine receptor antagonist with reported anti-fibrotic activity, was used as a second positive control. Key results from the study were as follows:

 Telmisartan (3 mg/kg), reduced fibrosis by 32.6% (p < 0.001);

 Cenicriviroc (40 mg/kg) reduced fibrosis by 31.9% (p = 0.00032);

 NP-251 (30 mg/kg) reduced fibrosis by 21% (p = NS);

 NP-251 (90 mg/kg) reduced fibrosis by 50.6% (p < 0.000001);

 NP-251 (30 mg/kg) in combination with telmisartan (3 mg/kg) reduced fibrosis by 54.2% (p < 0.000001);

 In the group treated with NP-251 (30 mg/kg) in combination with telmisartan (3 mg/kg) the mass of the fibrotic kidney was lower than the negative control (p < 0.001);

 Both doses of NP-251 led to significant reduction in blood urea nitrogen compared to vehicle (p < 0.05); and

 No adverse effects were observed in any of the treatment groups.


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The Development of a Therapy for IPF and Chronic Cough

IPF is a type of chronic lung disease characterized by a progressive and irreversible decline in lung function and scarring (fibrosis) of the lungs. There is no cure for IPF and there are currently no procedures or medications that can remove the scarring from the lungs.

According to a report from research and consulting firm, GlobalData's, the IPF market is projected to rise from just over US $900 million in 2015 to US $3.2 billion by 2025, assuming a CAGR of 13.6%. Such growth is expected to occur across the seven major markets of the USA, France, Germany, Italy, Spain, the UK and Japan, and primarily be driven by the increased use of expensive therapies, the anticipated launches of two novel therapies, FibroGen's FG-3019 and Promedior's PRM-151, and a rise in diagnosed prevalent cases of the disease.

According to a research report from IndustryARC, the cough remedies market size was estimated to be US $11.40 billion in 2018, and is projected to grow at a CAGR of 6.64% during 2019-2024. Pleasant taste and easy intake of oral syrups are among the key factors driving the global cough remedies market. Some traditional cough remedies include drinking honey, bromelain and bacterial microbes. Further, some new generation cough remedies include corticosteroids, bronchodilators and antibiotics. Currently there is no approved treatment for this condition.

A chronic (persistent) cough is a cough lasting eight weeks or longer in adults, or four weeks in children. Chronic cough can interrupt sleep, cause exhaustion and in severe cases can cause serious vomiting, light-headedness and rib fractures.

A dry, non-productive cough is a very common symptom of IPF. At least 70%-85% of patients with IPF have a dry cough, which can often get worse on exertion.

The company conducted two preclinical studies in a 21-day bleomycin mouse model with established fibrosis in (treatment began on Day 7) conducted by Murigenics.

IPF In Vivo Study #1

Healthy young mice were randomly assigned to receive either vehicle or one of the Company's test articles (N = 10 per arm). Animals were first challenged intratracheally with bleomycin, and fibrosis was allowed to establish for 7 days; a control group received no bleomycin challenge. Then, the animals were treated for 14 days, at which point they were sacrificed, and lung fibrosis measured by trichrome staining and modified Ashcroft scoring. Significance was determined by two-way ANOVA followed by a Bonferroni multiple comparisons test.  Throughout the study, animals were also observed for their general condition. Key results were as follows:

 The group treated with the positive control dexamethasone (0.25 mg/kg) experienced a 60% reduction in fibrosis compared to vehicle control (p < 0.05).

 Treatment with ifenprodil (30 mg/kg) reduced fibrosis by 34% compared to vehicle, (p = NS);

 Radiprodil, which shares the same target and similar pharmacology as Ifenprodil, also reduced fibrosis to a similar level as Ifenprodil at the same dose, suggesting a class effect of the pharmacophore (p = NS);

 Treatment with Pirfenidone (300 mg/kg) reduced fibrosis by 14% compared to vehicle (p = NS). Pirfenidone is a marketed treatment for IPF;

 All groups lost bodyweight in the first seven days; over the next 14 days the animals treated with ifenprodil, radiprodil and dexamethasone recovered to their initial weight, whereas the group treated with pirfenidone did not increase (p = not determined); and

 No other adverse effects were observed in any of the treatment groups.

IPF In Vivo Study #2

A second study under the same experimental conditions was performed with a narrower range of candidates in order to improve statistical power, and included the approved treatments pirfenidone (100 mg/kg twice daily) and nintedanib (40 mg/kg once daily) as positive controls. Lung fibrosis was measured by trichrome staining and modified Ashcroft scoring.

 Pirfenidone (100 mg/kg, twice daily), showed a 44% reduction in fibrosis versus untreated controls (p = NS);

 Nintedanib (40 mg/kg, once daily), showed a 51% reduction in fibrosis versus untreated controls (p < 0.05);

 Ifenprodil (4 mg/kg, thrice daily) showed a 56% reduction in fibrosis versus untreated controls (p = 0.015);

 As in the first experiment, all animals gained weight during the treatment period with the exception of pirfenidone; and

 No other adverse effects were seen in any of the treatment groups.


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Acute Cough In Vivo Study

In this study, guinea pigs were pre-treated with the test article or vehicle, then exposed to a citric acid challenge to induce a cough response.  The number of coughs and the delay of onset of the first cough were used as measure of performance. Gefapixant, a P2X3 inhibitor developed by Merck and in Phase 3 clinical trials for chronic cough was used as a positive control. Statistical significance was determined using one-way ANOVA, with comparisons controlled used a Dunnett's test. The study was performed at Pharmidex.

Data from this study demonstrated that at clinically relevant doses

 Ifenprodil (1.5 mg/kg) showed a reduction of 42% in mean cough frequency versus untreated control (p <0.01);

 Gefapixant (3.5 mg/kg) showed a 20% reduction in mean cough frequency versus untreated control (p <0.05);

 Ifenprodil (59.8 seconds) showed a statistically significant delay in the onset of the first cough when compared to control (34.2 seconds, p < 0.05); and

 Gefapixant (49.7 seconds) showed a non-statistically significant delay in the onset of the first cough when compared to control (34.2 seconds, p = NS).

The Company is investigating Ifenprodil for IPF and chronic cough and is conducting a Phase 2 study in Australia and New Zealand. Results from this study are expected in Q2, 2022. The purpose of this proof-of-concept open label 20 patient Phase 2 human trial is to determine the efficacy of Ifenprodil in the preservation of lung function in IPF patients (including biomarkers of fibrosis) and its associated cough. The co-primary endpoints of this study are the preservation of lung function as measured by forced vital capacity and the reduction in 24 hour cough counts as measured by an ambulatory cough monitor. Secondary endpoints include biomarkers of fibrosis, other measures of lung function and safety. There are 7 sites in total participating in the study with 5 located in Australia and 2 in New Zealand.

On September 20, 2021, the company announced interim data from the cough portion of its Phase 2 IPF and Cough study. The company observed a trend towards reduction in both the total and waking 24-hour cough counts after 12 weeks of treatment compared to baseline, as measured by an ambulatory cough monitor.  The data were reported in descriptive format and no test was performed for statistical significance.

On October 7, 2021 the Company filed a Pre-IND application with the US FDA to seek guidance on a planned clinical program for the treatment of refractory chronic cough.

Ifenprodil Manufacturing

The Company retained Organic Consultants, Inc. (dba Cascade Chemistry) to produce the active pharmaceutical ingredient (“API”) of Ifenprodil. The Company has now completed the process of having the first multi-kilogram batch of cGMP material produced, at which point toxicology studies can begin. The Company filed a pre-IND application with the U.S. FDA to seek guidance on the use of Algernon’s planned new propriety injectable and slow-release formulation. The FDA advised that for the toxicology program of the new intravenous Ifenprodil formulation, a single animal 30-day study would be acceptable.

The Development of a Therapy for Stroke

Launch of Clinical Research Program on Dimethyltryptamine

On February 1, 2020, the Company announced the launch a clinical research program for stroke focused on N,N-Dimethyltryptamine, a known psychedelic compound that is part of the tryptamine family (other drugs in the tryptamine family include psilocybin and psilocin.) Algernon plans to be the first company globally to pursue DMT for ischemic stroke in humans.

On May 17, 2021, the Company received positive feedback from the U.S. Food and Drug Administration (FDA) regarding its plans to investigate DMT as an adjunct to physical therapy in the rehabilitation of stroke.

On June 17, 2021 the Company announced that all of the required permits and licenses for the manufacture of its cGMP supply of DMT have been received and as a result, is targeting its Phase 1 human study to be conducted at Hammersmith Medicines Research UK in Q1, 2022.

On November 1, 2021, the Company announced that it had established the optimum peak stimulation period of 6 hours for neuron outgrowth by DMT in its pre-clinical in vitro study conducted by Charles River Laboratories (CRL). Algernon also confirmed that the increased growth was achieved with a sub-hallucinogenic dose.

On November 19, 2021, the Company that it has received positive feedback at a scientific advice meeting from the MHRA. The scientific advice meeting was related to the Company's planned Phase 1/2a stroke study with DMT.


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As a result of the meeting, the Company plans to file a Clinical Trial Authorisation ("CTA") application for the study as soon as possible. In addition, and based on the feedback received, the Company is also considering focussing on DMT as a possible treatment for acute stroke for the Phase 2a part of the study, in addition to investigating DMT as an adjunctive treatment for stroke rehabilitation therapy. The Company is planning to conduct the Phase 1 part of the study at Hammersmith Medicines Research in London, UK and is now targeting to begin the study in January 2022.

On December 8, 2021, the Company announced that it has completed the manufacturing of its cGMP of DMT at Canadian manufacturer Dalton Pharma Services. The Company believes it has produced a sufficient supply of cGMP DMT to complete its planned Phase 1 and Phase 2 clinical trials.

The Company also announces it has appointed Dr. Anthony Rudd and Dr. Robert Simister, both from the U.K., as medical consultants to the Company's DMT stroke clinical research program. Both Dr. Rudd and Dr. Simister have extensive backgrounds in stroke management as well as clinical care and stroke research. Their primary responsibility will be to help guide the Company's Phase 2 acute stroke and post stroke therapy clinical trials planned to begin in the U.K. in the latter part of 2022, after the Phase 1 trial has been completed.

On January 19, 2022, the Company announced that it has filed a combined Clinical Trials of Investigational Medicinal Products and Ethics Approval (CTA) application, with the MHRA. This was accomplished via the combined review service, which provides for a single application route for its planned Phase 1 clinical human study of DMT.

The primary focus of the Phase 1 DMT study is to investigate prolonged intravenous infusion of DMT, for durations which have never been clinically studied. The resulting data generated will help the Company to plan both its Phase 2 acute stroke and rehabilitation studies more effectively.

The Company's decision to investigate DMT and move it into human trials for stroke is based on multiple independent, positive pre-clinical studies demonstrating that DMT helps promote neurogenesis as well as structural and functional neural plasticity. These are key factors involved in the brain's ability to form and reorganize synaptic connections, which are needed following a brain injury.

A recently published pre-clinical study in an animal model for stroke, showed that rats treated with DMT recovered motor function more quickly and to a greater extent and also exhibited lower lesion volumes when compared to control group animals that did not receive DMT. Key data from the study achieved statistical significance.

Unlike other companies recently researching psychedelic drugs, Algernon will be focusing on a sub-hallucinogenic, or microdose of DMT provided by continuous intravenous administration. By pursuing a continuous active microdose, the goal will be to provide patients with the therapeutic benefits of DMT, without having a psychedelic experience. This is an important element when considering treating a patient who has just suffered a stroke, wherein medications that cause a hallucinogenic response would not be preferred.

The Company also believes that a microdosing approach to developing a DMT treatment may enable a much wider review and acceptance of its data, including garnering the early interest of research investigators, the interest of clinical trial patients and ultimately clinical acceptance.

Global Stroke Treatment Market: Overview

According to a 2019 report from Transparency Market Research:

 the global stroke treatment market was valued at approximately US$8 billion in 2018;

 projected to grow at a compound annual growth rate ("CAGR") of approximately 7% over the forecast period, the global stroke treatment market is expected to reach a value of approximately US$15 billion by the year 2027;

 rise in the prevalence of stroke across the world, surge in the elderly patient pool, and rapid rise in comorbidities such as atrial fibrillation, diabetes, and hypertension leading to high risk of developing stroke are anticipated to drive the global stroke treatment market during the forecast period;

 North America is the leading regional market in the global stroke treatment market, and will continue to have a major share throughout the forecast period of 2019 to 2027.

DMT, or N,N-Dimethyltryptamine is a hallucinogenic tryptamine drug producing effects similar to those of other psychedelics like LSD, ketamine, psilocybin and psilocin. DMT occurs naturally in many plant species and animals and has been used in religious ceremonies as a traditional spiritual medicine by indigenous people in the Amazonian basin. DMT can also be synthesized in a laboratory.


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At higher doses, DMT has a rapid onset, intense psychedelic effects, and a relatively short duration of action with an estimated half-life of less than fifteen minutes. Like other hallucinogens in the tryptamine family, DMT binds to serotonin receptors to produce euphoria and psychedelic effects. Because the effects of DMT do not last very long, it has been referred to as the "businessman's trip".

Named the "Spirit Molecule" by Dr. Rick Strassman, an American clinical associate professor of psychiatry and DMT research pioneer, DMT has been shown to induce neuroplasticity in a number of key pre-clinical studies. DMT is believed to activate pathways involved with forming neuron connections and has been shown in studies to increase the number of dendritic spines on cortical neurons. Dendritic spines form synapses (connections) with other neurons and are a major site of molecular activity in the brain.

While Dr. Strassman's Phase 1 bolus intravenous human study identified the sub-hallucinogenic dose of DMT in man, another pre-clinical animal study demonstrated this same dose level still retains the neuroplastic effect seen in higher hallucinogenic doses.

Algernon will be investigating an intravenous sub-hallucinogenic dose of DMT in its research and clinical studies.

DMT - Building the Case for Stroke

Data from a study published in Experimental Neurology, in May 2020 showed that in a rat model of cerebral ischemia-reperfusion injury, DMT reduced the infarct (dead cells) volume and improved functional recovery.

Key Findings:

 Animals treated with DMT displayed lower lesion volumes than control animals measured by MRI 24 hours following the occlusion (p = 0.0373);

 Animals in the DMT group improved motor function more quickly and to a greater extent than the control group; The differences became significant on the 4th day (p = 0.0325) and persisted throughout a 30-day follow-up; and

 mRNA expression of brain-derived neurotrophic factor (BDNF) was upregulated in both the peri-infarct cortex (p = 0.0273) and contralateral cortex (p = 0.0048) as well as in serum (p < 0.0001). BDNF is a key facilitator of neuroplasticity.

Algernon's Preclinical Research Plan

The Company has concluded its pre-clinical research experiments on DMT and plans to use the information to inform its clinical trial programs.

The Company hired CRL, whose center in Kuopio, Finland is a world leading site for neurologic research, to perform its preclinical studies.  CRL has the necessary controlled-substance permits to carry our research with DMT.

Algernon's DMT Clinical Research Plan

1. Ischemic Stroke

Each year there are approximately 15 million strokes that occur globally with 700,000 strokes occurring in the U.S. alone. Approximately 85% of all strokes are ischemic strokes, which occur when a blood clot blocks blood flow to the brain.

Currently, medication treatments for ischemic stroke are primarily limited to Tissue Plasminogen Activator ("TPA") or blood thinners. However, these treatments are stroke type specific and cannot be given until the patient has received a CT scan to determine if the stroke is ischemic or haemorrhagic. Patients being treated with TPA must receive the drug within 3 hours of the injury. As a result, only 5% of stroke patients receive TPA.

Additional treatment options involve surgical intervention such as catheter embolectomy and decompressive craniotomy.

Based on its pre-clinical data research conducted by others, Algernon plans to test DMT in the clinic in patients as soon as possible after the stroke injury occurs. If it is established in the Company's pre-clinical research phase that DMT can be used to treat both haemorrhagic and ischemic stroke, the patient will not have to wait for a CT scan and treatment can begin immediately, possibly while being transported to the hospital.

Algernon's pre-clinical research was designed to help establish the optimal treatment period duration for DMT as well as the clinically effective sub-hallucinogenic dose.


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2. Post-Stroke Rehabilitation

Sixty-five percent of stroke survivors will end up with from some form of disability after having suffered a stroke. Intensive physical rehabilitation has been shown by researchers to improve function and reduce long-term disability.

While Algernon will investigate DMT to treat a patient as quickly as possible after the stroke occurs, it will also investigate the potential of the drug as a treatment during the rehabilitative process. Rehabilitation therapy, which includes motor-skill exercises, mobility training and range-of-motion therapy, and can begin as soon as 24 to 48 hours after the stroke has occurred.

One specific type of rehabilitation therapy is called Constraint-induced Movement Therapy ("CIMT"). It is focused on improving upper extremity function in stroke patients and involves intensive training of the weaker arm while restricting the use of the stronger arm.

If the final data is positive, the Company will move DMT into a separate clinical trial to test for its efficacy as a post stroke rehabilitation adjunctive treatment.

Pathway to Clinic

1. Pre-IND U.S. FDA & Scientific Advice Meeting UK MHRA

Based on historical data showing that several DMT Phase 1 studies have already been conducted, the Company believes that it will be able to use this data to seek approval to begin its own Phase 1 study without having to complete certain toxicology work, but can give no assurance either the FDA or Health Canada will agree.

In a Pre-IND request submitted March 16, 2021, Algernon sought direction from the FDA regarding the design and scope of the Company's preclinical and early phase stroke clinical programs. The FDA response showed they are in agreement with the Company's planned preclinical efficacy experiments and offered guidance with regards to supportive preclinical safety studies. In addition, the FDA provided valuable input into the design of the Company's planned Phase 1 clinical trial, which will be conducted through Hammersmith Medicines Research in the UK, in Q1 2022.

The Company filed a Scientific Advice Meeting Request with the UK MHRA in order to obtain additional insight and options for the Company's planned clinical research program. The meeting was held on November 18, 2021. The Agency was supportive of the Company's proposed clinical plans, and confirmed that no additional preclinical studies were necessary in order to begin human trials in the UK.

On January 19, 2022, the Company announced that it has filed a combined CTA application, with the MHRA. This was accomplished via the combined review service, which provides for a single application route for its planned Phase 1 clinical human study of DMT.

The primary focus of the Phase 1 DMT study is to investigate prolonged intravenous infusion of DMT, for durations which have never been clinically studied. The resulting data generated will help the Company to plan both its Phase 2 acute stroke and rehabilitation studies more effectively.

2. U.S. FDA

At present, the Company's business activities surrounding DMT are strictly based on either pre-clinical research or clinical trials being conducted by third parties. The regulatory steps required to gain approval for DMT are the same as any other drug or compound being studied. While each global jurisdiction has their own approval process (which often defaults to FDA approval) the FDA rules and guidelines are considered the gold standard. The drug approval process includes successfully navigating through Phase 1, 2 and 3 clinical studies and based on the strength of the data, applying for marketing approval. Since DMT is currently a Schedule 1 drug, for DMT to be approved in the U.S. for sale, there will need to be some communication and agreement between the FDA and the DEA to allow for its sale for a clinical purpose in the U.S.

The Company also believes that a microdosing approach to developing a DMT treatment may enable a much wider review and acceptance of its data, including garnering the early interest of research investigators, the interest of clinical trial patients and ultimately clinical acceptance.

Regardless of where the Company's clinical trial will be conducted, only the various parties that manufacture, ship, receive and handle DMT will be required to have all required licenses and permits and the Company will be undertaking to ensure that these are all in order. DMT is a controlled substance in most countries globally and the import and export of it is closely scrutinized and monitored.


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Pre-Clinical Research

On February 8, 2021, the Company appointed CRL to conduct its preclinical (non-human testing) research work, which will be conducted in Finland.

The pre-clinical research included conducting a cortical neurite outgrowth studies, which looked at the neuronal effects of DMT at different concentrations and over various time periods. This research was conducted in vitro.

The Company will own the rights to all results of the pre-clinical research conducted by CRL.

CRL requires the following three permits to conduct this research in Finland, all of which have been granted:

1. DMT Handling permit, granted by the Finnish Medicines Agency ("FIMEA");

2. DMT Import permit: granted by FIMEA; and

3. DMT Export permit: granted by Health Canada. The DMT has already been shipped and received at CRL.

Phase 1 Clinical Research

The Phase 1 clinical trial on DMT involves the study of safety and dosing of DMT in healthy individuals. The Company anticipates commencing the Phase 1 clinical trial within 60 days of receiving CTA approval from the UK MHRA and ethics approval. The Company has engaged Hammersmith Medicines Research in the United Kingdom ("Hammersmith") to conduct the Company's Phase 1 clinical trials for DMT. Under U.K. law, Hammersmith requires a Schedule 1 license and a "Manufacture/Import Authorisation" (known as an MIA(IMP)) in order to handle DMT and conduct the Phase 1 trials.

Hammersmith presently has both the required licence and authorisation, but Hammersmith will need to apply for a study-specific Schedule 1 license as well.  The Phase 1 trial must also be approved by the Medicines and Healthcare Products Regulatory Agency (the "MHRA") and its research ethics committee, which is expected to take approximately five weeks. The MHRA regulates medicines, medical devices and blood components for transfusion in the U.K. Upon receipt of approval from the MHRA, Hammersmith will make an application to the Home Office of U.K. for a study-specific Schedule 1 licence, which is expected to take approximately one month from the date the application is made.

There can be no assurance that the Schedule 1 study-specific license will be granted by the Home Office of the U.K.  In addition, Hammersmith requires an import permit in order to import the DMT manufactured in Canada by Dalton.  To import DMT, Hammersmith will require a certificate of analysis with the material, which is a standard document for a drug manufacturing company and which Dalton will provide as part of its contractual obligations. Obtaining the import permit can be done in parallel with the other approvals and precedes the export permit required to be obtained by Dalton.

After completion of the Phase 1 clinical trial, the Company will review the data and consider conducting a Phase 2 clinical trial. A Phase 2 clinical trial is the first time a drug can be tested in the patient population that the drug has been identified to treat. The Company's initial focus will be the acute treatment of ischemic stroke patients as well as combination therapy of DMT and Constraint Induced Movement Therapy.

The Company will need to engage a contract research organization in order to conduct Phase 2 clinical trial,

Research-Grade DMT Manufacturing

The Company retained CRL to conduct its preclinical research. Research grade DMT was secured from Toronto Research Chemicals in order to conduct this research which has now been concluded.


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Clinical-Grade DMT Manufacturing

The Company recently awarded the contract to manufacture its cGMP (clinical grade (for human use) material) DMT to Dalton Pharma Services ("Dalton"). The DMT produced by Dalton is intended for use by Hammersmith (as defined below) in the Company's Phase 1 clinical trials. Dalton is a Health Canada approved GMP contract provider of integrated chemistry, drug development and manufacturing services to the pharmaceutical and biotechnology industries. Dalton holds a dealer's license with Health Canada under the CDSA that allows Dalton to possess, produce, assemble, sell, send, transport and deliver controlled substances.

On July 17, 2021 the Company announced that all of the required permits and licenses for the manufacture and export of its cGMP supply of DMT had been received by Dalton and that they have commenced synthesis of DMT for the Company.

On December 8, 2021, the Company announced that it has completed the manufacturing of its cGMP of DMT at Canadian manufacturer Dalton Pharma Services. The Company believes it has produced a sufficient supply of cGMP DMT to complete its planned Phase 1 and Phase 2 clinical trials.

CRO's

Algernon has retained CRO Clinical Development Solutions, to support all aspects of the investigational brochure, study protocol and Pre-IND and IND application with the FDA as well as the CTA with Health Canada. Clinical Development Solutions will provide high-level oversight and management of all clinical trials.

The Company has also retained Novotech to conduct a feasibility study for Algernon to conduct all or part of its DMT stroke clinical research program in Australia. The Company has currently engaged Novotech for its Phase 2 clinical study for idiopathic pulmonary fibrosis and Chronic Cough. Australia is a favoured country for clinical research because of its government supported 40% refundable tax credit program.

Intellectual Property

Algernon has filed new provisional patent applications for new salt forms of DMT, in addition to formulation, dosage and method of use claims for ischemic stroke. The Company has also filed claims for combination therapy of DMT and CIMT.

The Development of a Therapy for Pancreatic Cancer

The Company has initiated a new clinical research program for pancreatic cancer (PC) and Ifenprodil. PC is an orphan disease and has a five-year survival rate of 7.9%. This means that only approximately 8 in 100 people will have survived for five years and beyond. The 10-year survival rate of the disease is 1%, meaning only approximately 1 in 100 people survive 10 years and beyond. PC has the lowest 5-year survival rate of any of the 22 common cancers.

The global pancreatic cancer treatment market is expected to reach USD 4.2 billion in 2025, according to a new report by Grand View Research, Inc. Increasing tobacco consumption, smoking, obesity, and growing awareness pertaining to various treatment options available are propelling the market growth at a global level. The peak incidence of pancreatic cancer is seen in the age group of 65 to 75 years. This expanding geriatric population is also expected to drive the growth during the forecast period.

Ifenprodil demonstrated a significant anti-tumour effect in a PC animal model which was reported in a paper published in the Dove Press Journal, Clinical Pharmacology: Advances and Applications. The research paper concluded that Ifenprodil significantly and rapidly reduced the average solid tumour size by approximately 50% by day three and remained stable while on treatment in a murine model of PC. The average tumour size in the untreated group doubled during the same period.

The Company signed a license agreement with Dartmouth College for the rights to a patent that covers, Methods for diagnosing and treating neuroendocrine cancer, specific to NMDA receptors.

The Company has filed a pre-IND meeting request with the U.S. FDA to help determine next steps to advance Ifenprodil into clinical studies for PC. The agency has determined that the Company may proceed directly to trials in cancer patients with no further preclinical information and with the Company's existing drug supply. Algernon also plans to file for an orphan disease designation and seek Fast Track status, as well as a Breakthrough Therapy Designation once data from Phase 1 studies are available. The Company has not yet submitted an orphan drug designation request and the determination as to whether Ifenprodil will qualify for each indication will be made on the basis of the facts and circumstances as of the date the request for orphan drug designation is made.


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The purpose of the U.S. Orphan Drug Act is to stimulate the development of drugs for rare diseases. It grants special status to a drug for the treatment, diagnosis, or prevention of a rare disease or condition, which would be defined as a disease that affects fewer than 200,000 people in the U.S.

The Company is planning to seek non-dilutive funding mechanisms in order to advance its oncology research programs.

The Development of a Therapy for Small Cell Lung Cancer

The Company has initiated a new clinical research program for small cell lung cancer ("SCLC"). Small-cell lung cancer (SCLC) is a high-grade neuroendocrine carcinoma arising predominantly in current or former smokers and has an exceptionally poor prognosis. SCLC makes up about 15% of lung cancer cases.

According to Fortune Business Insights., the global lung cancer therapeutics market size was valued at USD 18,327.6 Million in 2018 and is projected to reach USD 48,725.9 Million by 2026, exhibiting a CAGR of 13.0% in the forecast period (2019-2026).

The Company signed a license agreement with Dartmouth College for the rights to a patent that covers, Methods for diagnosing and treating neuroendocrine cancer, specific to NMDA receptors.

The Company has received feedback on a pre-IND meeting request with the U.S. FDA to help determine next steps to advance Ifenprodil into clinical studies for SCLC. Algernon also plans to file for an orphan disease designation and seek Fast Track status, as well as a Breakthrough Therapy Designation once data from Phase 1 clinical studies are available. The Company has not yet submitted an orphan drug designation request and the determination as to whether Ifenprodil will qualify for each indication will be made on the basis of the facts and circumstances as of the date the request for orphan drug designation is made.

The Company is seeking non-dilutive funding mechanisms in order to advance its oncology research programs.

The Development of a Therapy for COVID-19

On July 6, 2021, Algernon announced that it would not be advancing Ifenprodil into a Phase 3 clinical study for COVID-19. The Company's decision was based on several factors including the overall finding of the Phase 2b study final data set, the global rate of vaccinations to date, other COVID-19 drug treatment programs under development, the projected trial size, costs and timelines needed to successfully complete a Phase 3 trial. Feedback recently received from the U.S. FDA regarding the end of Phase 2 meeting request was also informative.

Safety History of Lead Compounds

Ifenprodil

Ifenprodil was developed in France and introduced into the Japanese market in 1982 by a global pharmaceutical company. It was withdrawn from the French market in 2014 owing to a lack of risk/benefit analysis but is still available in Japan as a generic drug. Since its origin, there have been a number of clinical trials investigating its use in other diseases, as summarized below:

1. Circulatory System Related Disorders (4,821 Patients over one 1 Year);

2. Circulatory Issues (94 Patients over six months); and

3. Alcohol Dependence (46 Patients over three months).

4. COVID-19 (150 patients over 8 months)

The company that marketed ifenprodil in Japan published a safety report summarizing adverse event data from clinical trials (983 patients) as well as post-marketing surveillance (14,035 patients). The incidence of adverse drug reactions was 2.26% (340/15,018). The most commonly observed reactions were dry mouth, 0.25% (37 cases), nausea/vomitting, 0.23% (35 cases), and rash, 0.23% (34 cases). None of the reported effects were described as serious. In addition, there were no clinically significant cases with abnormal laboratory values

Note: No significant adverse side effects were reported from third party studies 1-3 above. In addition, the Company conducted its own 150 patient Phase 2b/3 human study of Ifenprodil for the treatment of COVID-19. The external Data and Safety Monitoring Board completed its review at the conclusion of the Phase 2b part of the study and provided approval for the Company to continue with the Phase 3 part of the study further confirming the drug's safety, and no differences in adverse event rates were observed between groups treated with ifenprodil and group receiving standard of care treatment with no ifenprodil.

Ifenprodil is contraindicated in patients who are believed to have incomplete hemostasis following an intracranial hemorrhagic attack, and is not recommended for use in pregnant women, in patients with low blood pressure, increased heart rate, or immediately after cerebral infarction. Concomittant use with droxidopa or with drug which cause bleeding is prohibited.


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DMT

N,N-dimethyltryptamine  (DMT) has a long history of use but has not been approved of in any jurisdiction of note. DMT was first found to be psychedelic by the Hungarian chemist Stephen Szára in the 1950s. In the 60s it was discovered in the human body, with research suggesting it is synthesised in lungs and the pineal gland in the brain. It is now believed to be widespread throughout the natural kingdom, in thousands of plants, and in every mammal that has been investigated so far. DMT is typically consumed as part of South American psychoactive brew known as ayahuasca which has been in use for over 500 years. Due to abuse, in the 70s, DMT was placed into a restrictive legal category, and research was halted.

In the 90's Strassman conducted a dose response study to IV infusion of DMT (hallucinogenic and sub-hallucinogenic) into experienced hallucinogen users. Findings were that peak blood levels were seen after 2 minutes and were negligible after 30 minutes. DMT dose dependently elevated blood pressure, heart rate pupil diameter, rectal temperature, as well as blood levels of beta-endorphin, corticotropin, cortisol and prolactin. Growth hormone rose equally in response to all administered doses. All thresholds for effects to be deemed significant occurred at doses classified as hallucinogenic. Although one subject had to withdraw due to a marked diastolic blood pressure response, the study concluded that the drug could be administered with no safety concerns even at hallucinogenic doses.

A resurging interest in psychoactive compounds with data indicating neuroplastic effects has spurred numerous studies for efficacy in neurodegenerative conditions ranging from depression to stroke with regulators approving of DMT for clinical trials at doses high enough to trigger a psychedelic experience. Timmermann et al. also treated healthy volunteers with DMT through IV infusion, and found similar results to Strassman in that peak blood levels were found 2-3 minutes after infusion and remained significantly higher than placebo for 17 minutes. Timmermann also did not note any safety concerns about DMT infusion as the only subject to be excluded from the study was due excessive movement artifacts during EEG.

Clinical information on the safety of DMT, outside of use as an ingredient within ayahuasca, is limited but Algernon is unaware of any expressing significant safety concerns. Several studies regarding consumption of ayahuasca have been conducted finding significant adverse effects to be rare, with nausea, vomiting, diarrhoea, and hypertension being most commonly reported. Nausea, vomiting and diarrhea are known side effects of the harmala alkaloids which are also components of ayahuasca.

NP-251

NP-251 was developed in Japan and approved in 1987. NP-251 is no longer available in Japan where it was initially approved as an anti-allergy medication. It was withdrawn from the market in 2013 for sales reasons.

Note: The company who marketed NP-251 in Japan published a safety report summarizing adverse event data from clinical trials (837 patients) as well as post-marketing surveillance (20,050 patients). The incidence of adverse drug reactions was 0.97% (197/20,887). The most commonly observed reactions were nausea, 0.14% (30 cases), rash, 0.10% (23 cases), and gastric discomfort, 0.06% (13 cases). None of the reported effects were described as serious, and the drug was approved for both adult and pediatric use.

Competitive Conditions

CKD

Currently, there is no known cure for CKD; however, according to the Mayo clinic, depending on the underlying cause, some types of kidney disease can be treated.

Treatment usually consists of measures to help control symptoms, reduce complications, and slow progression of the disease. If the kidneys become too severely damaged through fibrosis and progress to end-stage kidney disease, dialysis or a kidney transplant are the only interventions available.

The majority of drugs are used to treat the often associated high blood pressure (e.g. angiotensin converting enzyme inhibitors, ACE inhibitors: angiotensin receptor blockers, ARBs) in patients at risk of, or are developing CKD. The CKD market is growing, owing to an increasingly older population who are more susceptible to age related diseases such as diabetes and cardiovascular disorders. With respect to the latter complication, patients with chronic CKD often experience high levels of bad cholesterol, which can increase the risk of heart disease, thus cholesterol lowering agents are often prescribed to patients. Anemia is also a common complication of CKD and therapies such as erythropoietin is often prescribed.

Algernon believes that its compound NP-251, which demonstrated anti-fibrotic activity in a commonly used model of CKD, is an attractive candidate for development. The compound does not appear to possess anti-hypertensive activity which is important to nephrologists who already have many effective, genericized blood pressure lowering agents available to them.


- 49 -

CKD Phase 2/3 Compounds in Development (not Targeting CKD Complications, e.g. anemia)

Phase

Drug

Company

Mechanism of Action/Target

T

Pyridorin

Nephrogenyx

AGE inhibitor (bankruptcy)

 

2

GTK831

Genkyotex

NOX1/4 inhibitor

 

T

Atrasentan

Abbvie

ET-1 inhibitor

 

3

Canagliflozine

J&J

SGLT1 inhibitor

 

3

Finerenone

Bayer

non-steroidal selective mineral corticoid receptor

 

2

Baricitinib

Incyte

JAK1/2 inhibitor (approved for RA)

 

2

CCX140

Chemocentryx

CCR2 inhibitor (on hold)

 

2

CTP-499

Concert

PDE inhibitor (out-licensed unknown status)

 

2

Seloncertib

Gilead

ASK-1 inhibitor (note Phase 3 NASH failure)

 

2

VPI-2690B

Janssen

alpha-5-beta-3 integrin-IGF-1 mAb

 

2

SER150

Serodus

TXA2-synthase and TX receptor antagonist

 

Legend: 2 = Phase 2 Trial      3 = Phase 3 Trial      T = Trial Terminated

Product Positioning

Based on the data from the pre-clinical animal research models, the Company believes the product placement of its compounds are likely to be used in the later stages of the disease (post development of glomerulonephritis) where there are currently no approved therapies.


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IPF & Chronic Cough

IPF

IPF is a fatal disease involving scarring of the lungs. When diagnosed, patients typically have a 3-5 year life expectancy. The condition is rare and is considered an orphan disease. There are two approved treatments for IPF, Nintedanib and Pirfenidone, although there are multiple drugs in clinical trials for IPF.

IPF is a type of interstitial lung disease in which the lung tissues are damaged, thereby reducing its oxygen delivering capacity. Increase in incidence of fibrotic diseases poses a high risk factor for IPF.

In addition, the Company believes that a rise in the geriatric population or a surge in the cigarette smoking population could boost the market growth.

One of the clinical problems with a subset of IPF patients is a persistent cough. To the Company's knowledge, no reliable data on the prevalence of cough in IPF exist. Some studies report that up to 80% of patients experience Chronic Cough; however, lower numbers are also reported. The Company believed this may be attributed to the method of reporting and the definition of cough used (any cough versus disabling cough). When cough is present in IPF, it is severe and difficult to treat.

IPF Phase 2/3 Compounds in Development

Phase

 

Compound

3

 

Antimicrobial Therapy

2

 

Autoantibody Reductive therapy

2

 

BLD-2660

2

 

CC-90001

2

 

Danazol

2

 

GB0139

2

 

GKT137831

3

 

GLPG1690

2

 

HEC 68498

2

 

IDL-2965

2

 

iNO

2

 

KD025

2

 

MN-001

2

 

ND-L02-s0201

3

 

Pamrevlumab

2

 

PLN-74809

2

 

PRM-151

2

 

Rituximab

2

 

RVT-1601

2

 

VAY736

Chronic Cough

Chronic cough is defined as a cough lasting for at least 8 weeks. In the general population it has a prevalence of 9% to 33% in the United States and Europe. It is a frequent reason for seeking medical advice, with a high number of medical consultations.

Although at present, to the Company's knowledge, there are no approved treatments, Gefapixant recently reported positive Phase 3 data, but the drug causes issues of taste disturbance with a large fraction of patients.


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Chronic Cough Phase 2/3 Compounds in Development

There are several drugs in development for Chronic Cough including TRP modulators, NK1 Antagonists, and P2X3 antagonists ranging from early pre-clinical to completion of Phase 3.

Product Positioning

Algernon believes Ifenprodil has an attractive profile in the treatment paradigm of IPF owing its ability to reduce fibrosis and cough frequency. The compound also has minimal known issues with respect to taste disturbance and diarrhea which affects up to 60% of patients taking Nintedanib. Owing to the multi-year regulatory exclusivity afforded to orphan diseases, the preferred indication is IPF.

Stroke

Worldwide, 16.9 million people suffer a first stroke each year, resulting in about 33 million stroke survivors and 5.9 million stroke-related death making stroke the second or third most common cause of death and one of the main causes of acquired adult disability. Approximately 80% of these survivors have motor impairments of the upper limb that gravely affect their ability to perform activities of daily living (ADL), as well as social participation.

Previous studies showed that the severity of upper limb paresis is an independent determinant of the outcome of basic activities of daily living (ADL) post stroke. Constraint-induced movement therapy (CIMT) or modified versions of CIMT (mCIMT) are currently considered the most effective treatment regimens in physical therapy to improve the outcome of the upper paretic limb.  CIMT is a treatment technique to improve the arm motor ability and functional use of a paretic arm-hand.  CIMT forces the use of the affected side by restraining the unaffected side.  Clinical practice guidelines recommend at least 45 minutes of each relevant stroke rehabilitation therapy for a minimum of 5 days per week (NICE 2013).  In practice, CIMT therapy is typically initiated as soon as possible after occurrence of the stroke and is done in a repetitive manner in sessions from 30 minutes to 6 hours, 2-7 times a week for as short as 2 weeks up to 12 weeks of treatment.

Stoke Phase 1/2/3 Recent Approvals and Compounds in Development

Phase

Drug

Company

Mechanism of Action/Target

2

OSU61621

Carlson Research

Monoamine stabilizer

3

nerinetide

NoNo

PSD-95 Inhibitor

2

3K3A-APC

ZZ Biotech

Blood clotting and inflammation modulator

M

tPA

Roche

thrombolytic

2

BIIB093

Biogen

SUR1-TRPM4 inhibitor

1

LT-3001

Lumosa Therapeutics

Antioxidant/free radical scavenger

Product Positioning

Algernon believes its protections filed for DMT will allow Algernon to capitalize on the compound for uses in stroke as a therapeutic and help fill the gap in approved treatments for acute ischemic stroke. Currently the only approved treatment is tPA which has the side effects of bleeding (gastrointestinal, genitourinary, nose, gums), bruising, and a plethora of other less severe side effects.

DMT, through its action on the sigma-1 and 5HT2a receptors, impacts many physiological processes including inflammation, neuronal plasticity, and cell survival. In vivo models of stroke showed a significantly lower ischemic lesion volume and better functional recovery when rats were treated with DMT. Algernon believes that the preclinical data on DMT related to its activity in neurogenesis, neuroplasticity and neuroprotection makes it an ideal candidate as a potential treatment for acute stroke patients and their rehabilitation.


- 52 -

Algernon recently announced preliminary results from the Company's preclinical in vitro study performed at CRL's neurological research site in Kuopio, Finland. In this study, rat cortical neurons were exposed for one hour to DMT, then allowed to grow for three days. Sub-psychedelic doses of DMT led to an increase of up to 40% in the number of processes compared to vehicle, and statistically significant growth was achieved with doses as low as 10 picomolar. Further experiments are in progress.

Pancreatic Cancer

Pancreatic cancer has a 5-year survival rate of 10.8%, with an estimated ~60,000 new cases, and ~48,000 new deaths projected for 2021 (Surveillance, Epidemiology, and End Results Program (SEER)).  Rates of pancreatic cancer have been increasing over the last two decades, from 11.6/100,000 to 13.7/100,000.  Surgical resection is preferred for first line treatment if possible (NCCN guidelines).  This can include neoadjuvant therapy, adjuvant therapy, and first line chemotherapy regimens.  Most regimens recommend FOLFIRINOX, gemcitabine or some combination with these therapeutics.  If caught very early there is small chance (10%) of becoming disease free, otherwise median survival times for newly diagnosed localized disease range from 3-3.5 years.  Survival time for advanced disease drops to 2-6 months.  The addition of new treatment options that could extend these survival times would be beneficial to these population of patients.

Pancreatic Cancer Phase 1/2 Recent Approvals and Compounds in Development

Phase

Drug

Company

Mechanism of Action/Target

M

Lynparza

Astrazeneca

PARP inhibitor

M

Keytruda

Merck

PD-1 checkpoint inhibitor

2

APX005M

Apexigen

CD40 immunomodulator

2

Niraparib

GSK

PARP inhibitor

2

BPM31510

Berg

Metabolic modulator

1

BYL719

Novartis

PI3K inhibitor

1

Z650

Sunshine Lake Pharma Co

EGFr antagonist

Product Positioning

Ifenprodil was shown to decrease tumor size in nu/nu mice xenografts utilizing the PanC-1 cell line. Based on the results of preclinical studies as well as Ifenprodil's established safety record in Japan, Algernon believes the compound is a clinically attractive candidate for pancreatic cancer with additional cell lines with more specific staging to be investigated. Intellectual property positioning has been established with licensing of the use of Ifenprodil like compounds for treatment of pancreatic cancer. Owing to the multi-year regulatory exclusivity afforded to orphan diseases, this would be another preferred route of protections.

Small Cell Lung Cancer

Small cell lung cancer has a 5-year survival rate of 7% overall (localized 27%, regional 16%, distant 3%) and comprises 14% all lung cancers present in the US (Surveillance, Epidemiology, and End Results Program (SEER)). The incidence of SCLC is dropping in countries such as the US, likely due to decrease tobacco consumption, although this may not be same in other countries.  Tumours in patients initially diagnoses with SCLC often respond well to initial chemotherapy, however relapse rates are high and median survival is 18-24 months (NCCN guidelines).  No major treatment advances have occurred over the past 30 years for SCLC.  The last major approval was for topotecan for second line treatment in 1996, by the U.S. Food and Drug Administration (FDA).  Small cell lung cancer was declared a "recalcitrant" cancer in the United States, indicating the strong unmet need for further therapies in this indication.

Small Cell Lung Cancer Phase 1/2 Recent Approvals and Compounds in Development

Phase

Drug

Company

Mechanism of Action/Target

M

Zepzeca

Jazz Pharmaceuticals

Transcription inhibitor

M

Imfinzi

Astrazeneca

PD-Li immunomodulator



- 53 -


2

Anlotinib

Chia Tai Tianquing Pharamceutical Group

Tyrosine kinase inhibitor

2

Prexasertib

Eli Lily

Checkpoint kinase inhibitor

2

Adavosertib

Astrazeneca

WEE1 inhibitor

1

olaparib

Astrazeneca

PARP inhibitor

1

IBI318

Innovent Biologics

PD-1/PD-L1 antibody

2

Veliparib

Abbvie

PARP inhibitor

Product Positioning

Ifenprodil was shown to largely prevent tumor growth in nu/nu mice xenografts utilizing the NCI H82 cell line. The effect was improved when Ifenprodil was combined with standard of care treatment, topotecan. Based on the results of preclinical studies as well as Ifenprodil established safety record in Japan, Algernon believes the compound is well positioned to be used in treatment of metastatic small cell lung cancer with additional stage derived cell lines to be investigated.

Intellectual Property - Drug Program

Filing

Compounds

Jurisdiction

Filing Number

Protections

Owned/
Licensed

Expiration
Date

Status

Compositions and Methods for Treating Kidney Disorders (PCT/CA2019/050881)

Iguratimod, Repirinast, Lobenzarit, Actarit, Ifenprodil, Bemithyl, Bromantane, Emoxypine, Udenafil, Istradefyllne

Japan

2021522114

Use of compounds for treating kidney disorders

 

Owned

27-Jun-2038

Pending

Canada

3105127

Owned

Pending

Europe

19827430.0

Owned

Pending

United States

17/255,364

Owned

Pending

China

201980043698.6

Owned

Pending

Compositions and Methods for Treating NASH

Cepharanthine, Repirinast, Ifenoprodil Hemitartrate, Bromantane, Actarit, Lobenzarit, Irsogladine, Istradefylline, Trapadil, Bemithyl,

 

Japan

Awaiting

Use of compounds for treating non-alcoholic fatty liver disease, and in particular, the use of particular test compounds for treating non-alcoholic fatty liver disease, non-alcoholic fatty liver, and non-alcoholic steatohepatitis

Owned

06-Jul-2038

Pending

Canada

3105850

Owned

Pending

Europe

19829889.5

Owned

Pending

United States

17/258,402

Owned

Pending

China

112654357

Owned

Pending

Compositions and Methods for Treating Cough

Ifenprodil,

Radioprodil,

Glutamate 2b receptor antagonists,

Traxoprodil,

Rislenmdaz,

Eliprodil,

Ro-25-6981,

BMT-108908,

EVT-101,

CP101-606,

MK-0657,

EVT-103,

AZD 6765,

SSRIs,

Fluvoxamine,

Fluoxetine,

Excitalpram,

donepezil

PCT

PCT/CA2020/050306

Use of compounds for treating a cough, and in particular, the use of glutamate 2b receptor antagonists such as Ifenprodil and Radiprodil for treating a cough

 

Owned

04-Dec-2039

Pending



- 54 -


Compositions and Methods for Treating IPF

Bromantane,

Ifenprodil,

Radiprodil,

Bemithyl,

Repirinast, Glutamate 2b receptor antagonists,

Traxoprodil,

Rislenmdaz,

Eliprodil,

Ro-25-6981,

BMT-108908,

EVT-101,

CP101-606,

MK-0657,

EVT-103,

AZD 6765,

SSRIs,

Fluvoxamine,

Fluoxetine,

Excitalpram,

donepezil

China

 

202080014848

Use of compounds for treating fibrosis in the lungs, and in particular, the use of Bromantane, Ifenprodil, Radiprodil, Bemithyl, and/or Repirinast for treating chronic lung disease, including idiopathic pulmonary fibrosis

Owned

14-Feb-2039

Pending

United States

 

17/424,070

Owned

Pending

Europe

20754897.5

Owned

Pending

Canada

3101853

Owned

Pending

Compounds for Treatment of IBD and Methods Thereof

Emoxypine,

Glut2B antagonists,

Ifenprodil,

Radioprodil,

Traxoprodil,

Rislenmdaz,

Eliprodil,

Ro-25-6981,

BMT-108908

 

United States

 

17/258,393

The use of compounds for treating inflammatory bowel disease, and in particular, the use of glutamate 2b receptor antagonists, and/or emoxypine, for treating inflammatory bowel disease, ulcerative colitis (UC), and Crohn's Disease

Owned

06-Jul-2038

Pending

Canada

3105834

Owned

Pending

Europe

19830563.3

Owned

Pending

Compounds for Treatment of IBD and Methods Thereof

Emoxypine,

Glut2B antagonists,

Ifenprodil,

Radioprodil,

Traxoprodil,

Rislenmdaz,

Eliprodil,

Ro-25-6981,

BMT-108908,

EVT-101,

CP101-606,

MK-0657,

EVT-103,

AZD 6765,

SSRIs

Fluvoxamine,

Fluoxetine,

Excitalpram,

donepezil

PCT

PCT/CA2020/050009

Use of compounds for treating inflammatory bowel disease, and in particular, the use of glutamate 2b receptor antagonists, and/or emoxypine, for treating inflammatory bowel disease, ulcerative colitis (UC), Crohn's Disease, and/or diarrhea

 

Owned

10-Jul-2039

Pending



- 55 -


Methods for diagnosing and treating neuroendocrine cancer

GluN2 receptor antagonists

United States

13/895,682

 

Method for treating cancer

 

Licensed

19-Apr-2026

Granted

All of the patents listed above have been publicly disclosed.  In addition, the Company has filed provisional patents around new forms of DMT, in addition to formulation, dosage and method of use claims for ischemic stroke. The Company has also filed claims for combination therapy of DMT and CIMT. These applications will be converted to non-provisional applications in late January 2022, and the information will be publicly available shortly thereafter. The company has also filed provisional applications for new forms of ifenprodil; these applications will be converted to non-provisional in October 2022.

The Company's major assets revolve around a number of method of use, dosing, and formulation patents that have been filed protecting its key scientific discoveries. All of Algernon's lead compounds' original composition of matter patents have expired, or in the case of DMT which is naturally occurring, a composition of matter patent was not possible and had never been issued. Prior to the selection of the initial 11 drug compounds that were selected for screening, an initial intellectual property search was conducted in order to gain insight on the intellectual property landscape for these compounds. Once the initial in vivo animal research studies were concluded for each disease, searches were conducted by two independent leading Canadian intellectual property law firms confirming the suitability for filing new method of use, dosing, and formulation patents. Once the searches were completed, provisional patents were filed for all of the active compounds from each of the research studies.

Where Algernon deemed it necessary, and based on intellectual property searches for uses of the Company's lead compounds, the Company has also taken certain lead compounds and has additionally filed patents for modifications and derivatives of said compounds. This approach will minimize the risk of a third party trying to make small structural changes to Algernon's lead compounds and filing new composition of matter patents. This strategy was designed to help convince potential competitors that exploring a partnership or licensing agreement with the Company would be more productive that trying to compete by developing a new NCE program for derivatives developed around the core structure of the Company's lead compounds.

The Company signed a license agreement with Dartmouth College for the rights to a patent that covers, Methods for diagnosing and treating neuroendocrine cancer, specific to NMDA receptors. This patent will provide some freedom to operate of the Ifenprodil pancreatic and small cell lung cancer research program should the drug show efficacy and reach regulatory approval.

Two of the diseases that the Company is pursuing, are orphan indications including IPF and pancreatic cancer. Orphan Indication means a disease that affects less than two hundred thousand (200,000) people in the United States as defined by the Food and Drug Administration or five (5) in ten thousand (10,000) people in the European Union as defined by the European Medicines Agency. Orphan Drug Designation confers numerous benefits to the development of new products, including clinical protocol assistance and, upon marketing authorization, assures marketing exclusivity for a period of up to seven years in the U.S. and up to ten years in the EU once the medicine is on the market.

Risk Assessment and Contingency Plan

Circumstances may occur where the Company is not able to access currently available and approved finished product for any of its lead compounds, and/or may not be able to gain approval to conduct any Phase 2 trials in markets where the current drug is approved. Should this occur, the Company intends to proceed to synthesize its lead compounds through a global cGMP contract manufacturer. The Company will conduct all of the pre‐clinical toxicological testing required of a new NCE program, which could take up to 18 months. In addition, before a Phase 2 study can begin with the new material, a Phase 1 dosing study will need to be completed, which could take approximately six months to complete.

While this contingency approach is expected to add an additional 24 months to the product development timeline before a Phase 1 trial can be conducted, the Company believes it will have considerable flexibility to conduct a Phase 1 trial in a number of geographical regulatory jurisdictions including in the U.S.


- 56 -

Regulatory Regimes (Canada, the EU and the U.S)

Drug Scheduling Regulations

Canada

Certain psychoactive compounds, such as DMT, are considered controlled substances under the CDSA.  DMT and any salt thereof, is listed under Schedule III of the CDSA.  The possession, sale or distribution of controlled substances is prohibited unless specifically permitted by the government.  Penalties for contravention of the CDSA related to Schedule I substances are the most punitive, with Schedule II being less punitive than Schedule I, Schedule III being less punitive than Schedule I and II and so forth. A party may seek government approval for a Section 56 Exemption to allow for the possession, transport or production of a controlled substance for medical or scientific purposes, as discussed in further detail below under the heading "Regulatory Approvals Required for Studies (Canada, the EU and the U.S.) - Canada".

Health Canada regulates all health products in Canada, and a health product may only be sold in Canada with the permission of Health Canada. During its evaluation of the safety, efficacy and quality of each health product, Health Canada determines whether a drug should be a controlled substance, a prescription drug or a non-prescription drug. A substance may be deemed a controlled substance but also a prescription drug. As discussed above, scheduling the substance in the CDSA means that there are criminal consequences to possessing the drug unlawfully. If Health Canada determines that a drug requires a prescription, it is placed on the Health Canada Prescription Drug List ("PDL"). DMT is not currently on the PDL.

After Health Canada determines if a drug may be sold in Canada and if it requires a prescription, the individual provinces, territories and the National Association of Pharmaceutical Regulatory Authorities ("NAPRA") decide where it may be sold, under advisement from the National Drug Scheduling Advisory Committee. NAPRA maintains a harmonized list referred to as the National Drug Schedules. NAPRA may decide to be more restrictive in scheduling drugs, but never less restrictive than has already been determined at the federal level.

United States

As explained in further detail below, DMT is currently a restricted drug under the CSA. In the United States, clinical trials involving restricted drugs must adhere to the CSA and its implementing regulations, which are enforced by DEA under a legislative, regulatory, and enforcement structure and process. State regulations of controlled substances frequently change, so it is important to be aware of the regulatory nuances of each state in which a trial is conducted.  There are three agencies -the FDA, the National Institute on Drug Abuse, and the DEA -involved in the scheduling of controlled substances, including both narcotic drugs and psychotropic substances.  Controlled substances are categorized by the DEA according to five schedules, based upon eight factors, including: 1) actual or relative potential for abuse; 2) scientific evidence of pharmacological effect, if known; 3) state of current scientific knowledge about the drug; 4) history and current pattern of abuse; 5) scope/duration/significance of abuse; 6) what, if any, risk to public health; 7) psychic or physiological dependence liability; and 8) whether the substance is an immediate precursor of an already controlled substance.

DMT is listed as a Schedule I substance under the United States Code of Federal Regulations Title 21 -Food and Drugs 21 Part 1308.11 and assigned DEA Controlled Substances Code Number 7435. Schedule I substances are described as those that have the following findings:

 the drug or other substance has a high potential for abuse;

 the drug or other substance has no currently accepted medical use in treatment in the United States; and

 there is a lack of accepted safety for use of the drug or other substance under medical supervision.

No prescriptions may be written for Schedule I substances, and such substances are subject to production quotas which the DEA imposes.  All principal investigators or sub-investigators (typically a member of a university or CRO) involved in a clinical trial using a controlled substance must obtain both federal and state authorizations. DEA registration and state licensure are required at the general physical location where the controlled substances for the clinical trial will be dispensed and/or stored overnight. In some cases, it may be possible to dispense the study drug at a satellite location with a separate license and registration if there is no overnight storage at that satellite location.

Federal registration is granted by the DEA. DEA "Practitioner" registration is valid for three years although Schedule I substances such as DMT require a DEA "Researcher" registration, valid for one year only, and in this situation, the research protocol must be formally approved by the FDA prior to registration with the DEA.  All practitioners who participate in a clinical trial as a principal investigator or sub-investigator must also be authorized by the state in which they practice to prescribe, dispense, administer, and conduct research with controlled substances. In most cases, these activities are authorized when a license is granted to the practitioner by the local Institutional Review Board. However, some states require a separate, state-issued controlled substance license and other states have a separate state-controlled substances authority that requires practitioners to obtain a separate registration, in addition to their board license.


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Europe

The International Narcotics Control Board ("INCB"), a United Nations ("UN") entity, monitors enforcement of restrictions on controlled substances.  The INCB's authority is defined by three international UN treaties -the UN Single Convention on Narcotic Drugs of 1961, the UN Psychotropic Convention of 1971 (referred to herein as the UN71), and the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988, which contains provisions related to the control of controlled substance precursors.  EU Member States, including Finland, that have agreed to abide by the provisions of these treaties, each create responsible agencies and enact laws or regulations to implement the requirements of these conventions.  Specific EU legislation establishing different classes of controlled substances is limited to EU regulations that define classes of precursors, or substances used in the illicit manufacture of controlled substances, including Regulation (EC) No. 273/2004 of the European Parliament and the Council of February 11, 2004, and the Council Regulation (EC) No. 111/2005 of December 22, 2004. While EU legislation does not establish different classes of narcotic drugs or psychotropic substances, the Council Decision 2005/387/JHA of May 10, 2005 can provoke a Council Decision requiring EU member states to put a drug under national controls equivalent to those of the INCB.  DMT is currently classified as a Schedule I substance under the UN71; the EU member states, including Finland, have agreed to the following in respect of Schedule I substances:

(a) prohibit all use except for scientific and very limited medical purposes by duly authorized persons, in medical or scientific establishments which are directly under the control of their Governments or specifically approved by them;

(b) require that manufacture, trade, distribution and possession be under a special licence or prior authorization;

(c) provide for close supervision of the activities and acts mentioned in paragraphs a) and b);

(d) restrict the amount supplied to a duly authorized person to the quantity required for his authorized purpose;

(e) require that persons performing medical or scientific functions keep records concerning the acquisition of the substances and the details of their use, such records to be preserved for at least two years after the last use recorded therein; and

(f) prohibit export and import except when both the exporter and importer are the competent authorities or agencies of the exporting and importing country or region, respectively, or other persons or enterprises which are specifically authorized by the competent authorities of their country or region for the purpose.

As classification of controlled substances may vary among different EU member states, sponsors must be aware of the prevailing legislation in each country where a clinical trial may be conducted.  Prior to operating or conducting any pre-clinical or clinical studies in any other EU member state, the Company will investigate the specific regulatory requirements of such EU member state. As referenced above, a licence is required for individuals and entities who wish to produce, dispense, import, or export Schedule I substances (including DMT), but the specific requirements vary from country to country. Currently, DMT is classified in Finland as a narcotic under the Finnish Narcotics Act (373/2008) and as such the production, manufacture, import, export, distribution, trade, handling, possession and use of DMT are prohibited.

Regulatory Approvals Required for Studies (Canada, the EU and the U.S)

Regulatory approvals are required for clinical (human) studies for all investigational products in all member countries of the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use, which includes the United States, Canada and EU member states.

Canada

CDSA

In order to conduct any scientific research, including pre-clinical (animal) and clinical (human) trials using a controlled substance (such as DMT) in Canada, an exemption under Section 56 of the CDSA is required.  This exemption allows the holder to possess and use the controlled substance without being subject to the restrictions set out in the CDSA, subject to obtaining any additional approvals such as ethics and clinical trial approvals.

Specifically, the final approved clinical study protocol and a Health Canada issued No Objection Letter are required to obtain an exemption under subsection 56(1) of the CDSA to conduct clinical investigations with DMT in Canada.


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Canada FDR

Products that contain a controlled substance such as DMT cannot be made, transported or sold without proper authorization from the government.  A party can apply for a dealer's license under Part J of the Canada Food and Drug Regulations ("Canada FDR"), which allows the party to produce, assemble, sell, provide, transport, send, deliver, import or export a restricted drug (as listed in Part J in the Canada FDR-which includes DMT), assuming compliance with all relevant laws (the CDSA and Canada) and subject to any restrictions placed on the license by Health Canada.  In order to qualify as a licensed dealer, a party must meet all regulatory requirements mandated by the regulations including having compliant facilities, compliant materials and staff that meet the qualifications under the regulations of a senior person in charge and a qualified person in charge.

United States

The DEA has a streamlined application process for researchers who wish to conduct clinical trials using a Schedule I substance not currently approved for medical use (such as DMT).  Schedule I substances are defined as drugs, substances, or chemicals with no accepted medical use and a high potential for abuse. Applicants must provide information about their qualifications, research protocol, and institution where the research will take place; complete requirements are outlined in the United States Code of Federal Regulations Title 21 -Food and Drugs 21 Part 1301.18.

Europe

Refer to the discussion above under the heading "Drug Scheduling Regulations - Europe" for a general description of the regulatory requirements to conduct research and clinical and pre-clinical studies using a Schedule I substance such as (DMT) in one of the EU member states. The specific regulatory processes and approvals required may vary among different EU member states and are set forth in the respective legislation of each country, including Finland.

Clinical Studies and Market Authorization Regulations (Canada, the EU and the U.S)

The Company's goal is to ultimately get market authorization from Health Canada, the FDA and the EMA to sell any DMT products it creates in Canada, the United States and Europe.  However, prior to doing so, the Company will need to go through the clinical trial regulatory process.  The next stage would be the market authorization regulatory process, following the completing of Phase 1, 2 and 3 clinical studies, associated nonclinical studies and preparation of manufacturing documentation.  Set forth below is a description of the regulatory regimes in Canada, the United States and the European Union that the Company will be subject to as it moves through both: (i) the clinical study regulatory processes; and the (ii) market authorization regulatory process in respect of the any future DMT products and may be produced.

Canada -Health Canada

Clinical Study Regulatory Process

In Canada, a CTA is composed of three modules:

 Module 1 contains administrative and clinical information about the proposed trial, and includes the Investigator's Brochure, which details all safety, preclinical and clinical data for the drug under study.  Other components of Module 1 are the clinical study synopsis and full protocol, informed consent documents, clinical trial site information, and letters of access;

 Module 2 contains common technical document summaries, including Chemistry, Manufacturing and Control ("CMC") information about the drug product(s) to be used in the proposed trial; and

 Module 3 contains additional supporting quality information including literature references.

The modules are organized and numbered consistently in an internationally adopted format, the Common Technical Document ("CTD").  Adhering to the CTD format facilitates evaluation by Health Canada and ensures consistency of documents in subsequent stages of the drug authorization process. Additional documents including a Clinical Trial Site Initiation Form, Qualified Investigator Undertaking and a Research Ethics Board Attestation must be completed for each clinical trial site.  Once prepared, the Clinical Trial Application is sent to the Therapeutic Products Directorate at the Health Product and Food Branch ("HPFB") of Health Canada for review. The review process is 30 days, although during the current COVID-19 pandemic environment, Health Canada is able to extend review timelines for non COVID-19 related studies to 45 days.

Health Canada invites sponsors to request a pre-CTA consultation meeting.  Such consultations may be particularly useful for new active substances or applications that will include complex issues that may be new to Health Canada.  The Company has applied to Health Canada to hold a pre-CTA consultation meeting with Health Canada to discuss proposed clinical trials for on DMT.


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Market Authorization Regulatory Process (Canada, the EU and the U.S)

The HPFB is the national authority that regulates, evaluates and monitors the safety, efficacy, and quality of therapeutic and diagnostic products available to Canadians.  When a manufacturer decides that it would like to market a drug in Canada, the company must first file a "New Drug Submission" ("NDS") with one of the Directorates (e.g. Therapeutic Products Directorate) within the HPFB.  The NDS contains information and data about the drug's safety, effectiveness and quality.  It includes the results of the preclinical and clinical studies, whether done in Canada or elsewhere, details regarding the production of the drug, packaging and labelling details, and information regarding therapeutic claims and side effects. 

The HPFB performs a thorough review of the submitted information, sometimes using external consultants and advisory committees.  HPFB evaluates the safety, efficacy and quality data to assess the potential benefits and risks of the drug.  HPFB reviews the labelling information that the sponsor proposes to provide to health care practitioners and consumers about the drug (e.g. the drug label, product monograph, patient brochure).  If, at the completion of the review, the conclusion is that the benefits outweigh the risks and that the risks can be mitigated, the drug is issued a Notice of Compliance, as well as a Drug Identification Number which permits the sponsor to market the drug in Canada and indicates the drug's official approval in Canada.  In addition, Health Canada laboratories may test certain biological products before and after authorization to sell in Canada has been issued. 

This is done through its Lot Release Process, in order to monitor safety, efficacy and quality.  This process is predominantly utilized for biologic products seeking a marketing license.  Once a drug is on the market, regulatory controls continue.  The manufacturer (license holder) and distributors of the drug must report any new information received concerning serious side effects including failure of the drug to produce the desired effect.  The manufacturer (license holder) must also notify HPFB about any studies that have provided new safety information and request approval for any major changes to the manufacturing processes, dose regime or recommended uses for the drug.  HPFB conducts market surveillance, monitors adverse reaction reports, investigates complaints and problem reports, and manages recalls, should the necessity arise.  In addition, HPFB licenses most drug production sites and conducts regular inspections as a condition for licensing.

United States -FDA

Clinical Study Regulatory Process

Current U.S. Federal law requires that a drug be the subject of an approved marketing application before it is transported or distributed across state lines.  Because a sponsor (which is typically a research and development company or drug manufacturer) will want to ship the investigational drug to clinical investigators in many states, it must seek an exemption from that legal requirement.  The IND is the means through which the sponsor technically obtains this exemption from the FDA.  During a new drug's early preclinical development, the sponsor's primary goal is to determine if the product is reasonably safe for initial use in humans, and if the compound exhibits pharmacological activity that justifies commercial development.  When a product is identified as a viable candidate for further development, the sponsor then focuses on collecting the data and information necessary to establish that the product will not expose humans to unreasonable risks when used in limited, early-stage clinical studies. FDA's role in the development of a new drug begins when the drug's sponsor, having screened the new molecule for pharmacological activity and acute toxicity potential in animals, wants to test its diagnostic or therapeutic potential in humans.  At that point, the molecule changes in legal status under the Federal Food, Drug, and Cosmetic Act and becomes a new drug subject to specific requirements of the drug regulatory system.

The IND application must contain information in three broad areas:

 Animal Pharmacology and Toxicology Studies, consisting of preclinical data to permit an assessment as to whether the product is reasonably safe for initial testing in humans.  Also included are any previous experience with the drug in humans (often foreign use);

 Manufacturing Information, pertaining to the composition, manufacturer, stability, and controls used for manufacturing the drug substance and the drug product.  This is equivalent to the CMC data referenced above for Health Canada applications, and is assessed to ensure that the company can adequately produce and supply consistent batches of the drug; and

 Clinical Protocols and Investigator Information, including detailed protocols for proposed clinical studies to assess whether the initial trials will expose subjects to unnecessary risks. Also, information on the qualifications of clinical investigators to assess whether they are qualified to fulfill their clinical trial duties. Finally, commitments to obtain informed consent from the research subjects, to obtain review of the study by an Institutional Review Board, and to adhere to the investigational new drug regulations.

Once the IND is submitted, the sponsor must wait 30 calendar days before initiating any clinical trials.  During this time, the FDA has an opportunity to review the IND for safety to assure that research subjects will not be subjected to unreasonable risk.


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The FDA invites sponsors to request a pre-IND consultation meeting in advance of application submission.  This fosters early communications between sponsors and new drug review divisions to provide guidance on the data necessary to warrant IND submission.  The Company has requested a pre-IND consultation meeting to discuss its proposed clinical trials on DMT.

Market Authorization Regulatory Process (Canada, the EU and the U.S)

The FDA regulates the development, testing, manufacturing, labeling, storage, recordkeeping, promotion, marketing, distribution, and service of medical products in the United States to ensure that such medical products distributed domestically are safe and effective for their intended uses.  In addition, the FDA regulates the export of medical products manufactured in the United States to international markets and the importation of medical products manufactured abroad.  Unless an exemption applies, each new or significantly modified medical product a company seeks to commercially distribute in the United States will require FDA approval.  The FDA approval process is conducted through the submission of a New Drug Application ("NDA"). 

The process can be expensive, and lengthy (6-12 months), and require payment of significant user fees, unless an exemption is available. Significant reductions in fees are available through the Small Business Fee Waiver/Reduction program.  Drug companies seeking to sell a drug in the United States must first test it.  The company then sends the Centre for Drug Evaluation and Research ("CDER") at the FDA the evidence from these tests to prove the drug is safe and effective for its intended use, using the NDA.  A team of CDER physicians, statisticians, chemists, pharmacologists, and other scientists reviews the company's data and proposed labeling. 

If this independent and unbiased review establishes that a drug's health benefits outweigh its known risks, the drug is approved for sale.  The center does not actually test drugs itself, although it does conduct limited research in the areas of drug quality, safety, and effectiveness standards.  The FDA drug approval process takes place within a structured framework that includes: (i) analysis of the target condition and available treatments; (ii) assessment of benefits and risks from clinical data; and (iii) strategies for managing risks.

In some cases, the approval of a new drug is expedited.  Accelerated approval can be applied to promising therapies that treat a serious or life-threatening condition and provide therapeutic benefit over available therapies. The FDA also employs several approaches to encourage the development of certain drugs, especially drugs that may represent the first available treatment for an illness, or ones that have a significant benefit over existing drugs.  These approaches, or designations, are meant to address specific needs, and a new drug application may receive more than one designation, if applicable. Each designation helps ensure that therapies for serious conditions are made available to patients as soon as reviewers can conclude that their benefits justify their risks. Designations include: (i) fast track; (ii) breakthrough therapy; and (iii) priority review.

Europe -EMA

Clinical Study Regulatory Process

The IMPD is one of several regulatory documents required for conducting a clinical trial of a pharmacologically API (active product ingredient) intended for one or more European Union Member States. The IMPD includes summaries of information related to the quality, manufacture and control of any Investigational Medicinal Product (including reference product and placebo) ("IMP"), and data from non-clinical and clinical studies.  Guidance concerning IMPDs is based on Regulation (EU) No 536/2014 on Clinical Trials on Medicinal Products for Human Use (the "Regulation") and on the approximation of laws, regulations and administrative provisions of the Member States relating to the implementation of good clinical practice in the conduct of clinical trials on medicinal products for human use (also commonly referred to as the "Clinical Trials Directive").  The Regulation came into force in 2016, harmonizing the laws, regulations and administrative provisions of the Member States relating to the implementation of Good Clinical Practice in the conduct of clinical trials on medicinal products for human use.  European Member States have transformed the requirements outlined in the Clinical Trials Directive into the respective national laws.

The content of the IMPD may be adapted to the existing level of knowledge and the product's phase of development.  When applying for a clinical trial authorization, a full IMPD is required when little or no information about an API has been previously submitted to competent authorities, when it is not possible to cross-refer to data submitted by another sponsor and/or when there is no authorization for sale in the European Union. However, a simplified IMPD may be submitted if information has been assessed previously as part of a Marketing Authorization or a clinical trial to that competent authority.  Although the format is not obligatory, the components of an IMPD are largely equivalent to clinical trial applications in Canada and the U.S.  The IMPD need not be a large document as the amount of information to be contained in the dossier is dependent on various factors such as product type, indication, development phase etc.

The assessment of an IMPD is focused on patient safety and any risks associated with the IMP.  Whenever any potential new risks are identified the IMPD must be amended to reflect the changes.  Certain amendments are considered substantial in which case the competent authority must be informed of the substantial amendment. This may be the case for changes in IMP impurities, microbial contamination, viral safety, transmissible spongiform encephalopathies (e.g. mad cow disease) and in some particular cases to stability when toxic degradation products may be generated.


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The Company is planning the Phase 1 study to obtain preliminary evidence of the safety and efficacy of DMT. The study will occur in the U.K. and the current focus is preparing an IMPD document that includes CMC (Chemistry, Manufacturing and Control) information, an Investigator's brochure (including prior safety, preclinical and clinical data) and a clinical study protocol and supporting information to be submitted to the regulatory authorities, all of which is subject to the risks, delays and related cost implications.

Market Authorization Regulatory Process

Under the centralized authorization procedure, pharmaceutical companies submit a single marketing-authorization application to the EMA, which provides the basis of a legally binding recommendation that will be provided by the EMA to the European Commission, the authorizing body for all centrally authorized products.  This allows the marketing-authorization holder to market the medicine and make it available to patients and healthcare professionals throughout the European Union on the basis of a single marketing authorization.  EMA's Committee for Medicinal products for Human Use or Committee for Medicinal Products for Veterinary Use carry out a scientific assessment of the application and give a recommendation on whether the medicine should be marketed or not, under any particular dosing regimen.  Although, under European Union law, the EMA has no authority to permit marketing in the different European Union countries, the European Commission is the authorizing body for all centrally authorized products, who takes a legally binding decision based on EMA's recommendation.  This decision is issued within 67 days of receipt of EMA's recommendation. 

Once granted by the European Commission, the centralized marketing authorization is valid in all European Union Member States as well as in the European Economic Area countries Iceland, Liechtenstein and Norway.  European Commission decisions are published in the Community Register of medicinal products for human use.  Once a medicine has been authorized for use in the European Union, the EMA and the European Union Member States constantly monitor its safety and take action if new information indicates that the medicine is no longer as safe and effective as previously thought.  The safety monitoring of medicines involves a number of routine activities ranging from: assessing the way risks associated with a medicine will be managed and monitored once it is authorized; continuously monitoring suspected side effects reported by patients and healthcare professionals, identified in new clinical studies or reported in scientific publications; regularly assessing reports submitted by the Company holding the marketing authorization on the benefit-risk balance of a medicine in real life; and assessing the design and results of post-authorization safety studies which were required at the time of authorization. 

The EMA can also carry out a review of a medicine or a class of medicines upon request of a Member State or the European Commission.  These are called European Union referral procedures; they are usually triggered by concerns in relation to a medicine's safety, the effectiveness of risk minimization measures or the benefit-risk balance of the medicine.  The EMA has a dedicated committee responsible for assessing and monitoring the safety of medicines, the Pharmacovigilance Risk Assessment Committee.  This ensures that EMA and the European Union Member States can move very quickly once an issue is detected and take any necessary action, such as amending the information available to patients and healthcare professionals, restricting use or suspending a medicine, in a timely manner in order to protect patients.

Legislation on controlled substances United Kingdom

In the UK, there are two main "layers" of regulation with which products containing controlled substances must comply. These are:

(i) controlled drugs legislation, which applies to all products containing controlled substances irrespective of the type of product, and

(ii) the regulatory framework applicable to a specific category of products, in this case, pharmaceuticals and food/food supplements.

In the U.K., DMT is considered a Class A drug under the amended Misuse of Drugs Act 1971, and as a Schedule 1 drug under the amended Misuse of Drugs Regulations 2001 (the "MDR").

Class A drugs are highly controlled and considered to be the most potentially harmful. Schedule 1 drugs receive the most restrictive controls.  They are considered to have no legitimate or medicinal use, and can only be imported, exported, produced, supplied and the like under a Home Office license.

Even if granted a marketing authorization for SPL026 by the MHRA, DMT would still remain a Schedule 1 drug until rescheduled by the Home Office.  Unless and until DMT is rescheduled under the MDR, and unless a statutory exemption were to be passed for SPL026 following the grant of a U.K. marketing authorization and before rescheduling, any prescribing doctors in the U.K. would require a Home Office license to prescribe SPL026.  There can be no guarantee that such Home Office licenses would be granted or that rescheduling would be successful.


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The amended Misuse of Drugs Act 1971, sets out the penalties for unlawful production, possession and supply of controlled drugs based on three classes of risk (A, B and C). The MDR sets out the permitted uses of controlled drugs based on which Schedule (1 to 5) they fall within. In the United Kingdom, Class A drugs are deemed to be the most dangerous, and so carry the harshest punishments for unlawful manufacture, production, possession and supply. Schedule 1 drugs can only be lawfully manufactured, produced, possessed and supplied under a Home Office licence. While exemptions do exist, none are applicable to the API.

Additional legislation was more recently passed in order to address an increasing prevalence of psychoactive drugs designed to circumvent the Misuse of Drugs Act 1971.  The Psychoactive Substances Act 2016 (the "PSA") prohibits certain activities regarding any psychoactive substance, defined in the PSA as a substance that produces a psychoactive effect, which by stimulating or depressing the central nervous system affects a person's mental functioning or emotional state.

Controlled substances are exempt from the PSA, which therefore does not apply to SPL026. SPL028 and SPL029 may fall within the MDR.  If either SPL028 or SPL029 are found to fall outside of the MDR then the PSA may apply, subject to certain exemptions which apply to experimental medicines.  Approved medicines are also exempt from the PSA, so the PSA should not apply to SPL028 or SPL029, if approved by the MHRA.

Licensing Requirements

All UK-based facilities involved in the manufacture, analytical testing, release and clinical testing of DMT need to hold appropriate Home Office licenses.  All premises that are licensed in the manufacture, analytical testing, release and clinical testing of controlled drugs are required to adhere to detailed security standards.

Typically, when controlled drugs are being transported between licensees, responsibility for their security remains with the owner and does not transfer to either the courier or the customer until the drugs arrive at their destination and are signed for.  However, where a third party is involved in the transit and/or storage of controlled drugs, even if they are not the legal owners, this party also carries responsibility for their security by virtue of being 'in possession' of them.  Under the Home Office guidance, each organisation involved in the movement of controlled drugs should have a standard operating procedure covering their responsibilities, record keeping, reconciliation and reporting of thefts/losses.

Organization Structure

Algernon has two wholly-owned subsidiaries, Nash Pharmaceuticals Inc., a corporation subsisting under the laws of the Province of British Columbia, Canada, and Algernon Research PTY Ltd., an Australian proprietary company established on January 6, 2020.

EXEMPTIONS UNDER THE JUMPSTART OUR BUSINESS STARTUPS ACT

The United States Congress passed the Jumpstart Our Business Startups Act of 2012, which provides for certain exemptions from various reporting requirements applicable to reporting companies under the Securities Exchange Act of 1934, as amended, that qualify as "emerging growth companies". We are an "emerging growth company" as defined in section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and we will continue to qualify as an "emerging growth company" until the earliest to occur of:  (a) the last day of the fiscal year during which we have total annual gross revenues of US$1,070,000,000 (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act; (c) the date on which we have, during the previous three-year period, issued more than US$1,000,000,000 in non-convertible debt; or (d) the date on which we are deemed to be a "large accelerated filer", as defined in Exchange Act Rule 12b-2. Therefore, we expect to continue to be an emerging growth company for the foreseeable future.

Generally, a registrant that registers any class of its securities under section 12 of the Exchange Act is required to include in the second and all subsequent annual reports filed by it under the Exchange Act, a management report on internal control over financial reporting and, subject to an exemption available to registrants that meet the definition of a "smaller reporting company" in Exchange Act Rule 12b-2, an auditor attestation report on management's assessment of internal control over financial reporting.

However, for so long as we continue to qualify as an emerging growth company, we will be exempt from the requirement to include an auditor attestation report in our annual reports filed under the Exchange Act, even if we do not qualify as a "smaller reporting company". In addition, section 103(a)(3) of the Sarbanes-Oxley Act of 2002 has been amended by the JOBS Act to provide that, among other things, auditors of an emerging growth company are exempt from the rules of the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the financial statements of the registrant (auditor discussion and analysis).


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Additionally, we have irrevocably elected to comply with new or revised accounting standards even though we are an emerging growth company. We have made this election to reduce the risk of having to restate our financials once we cease to be an emerging growth company.

CAUTIONARY NOTE REGARDING FINANCIAL DISCLOSURE IN THIS PROSPECTUS

This prospectus should be read in conjunction with the accompanying consolidated financial statements and related notes.  The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the International Accounting Standards Board (IASB) and in accordance with IAS 34 - Interim Financial Reporting.

The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period.  On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances.  Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations.

Critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below under the heading "Critical Accounting Policies and Estimates" and have not changed significantly.

KEY INFORMATION

Outstanding Share Data

Our authorized share capital consists of an unlimited number of Class A Common Shares without nominal or par value.  As at August 31, 2021, our outstanding equity and convertible securities were as follows:

Securities

 

Outstanding

Voting equity securities issued and outstanding

 

1,674,868 Common Shares

     

Securities convertible or exercisable into voting equity securities - Stock Options

 

Stock Options to acquire up to 10% of the number of Common Shares outstanding

     

Securities convertible or exercisable into voting equity securities - Warrants

 
  • 196,053 warrants to acquire 196,053 Common Shares at an exercise price of $55.00 per Common Share with an expiry date of May 13, 2022.
  • 41,478 warrants to acquire 41,478 Common Shares at an exercise price of $12.00 per Common Share with an expiry date of August 20, 2022.
  • 119,056 warrants to acquire 119,056 Common Shares at an exercise price of $40.00 per Common Share with an expiry date of March 5, 2023.
  • 380 broker warrants to acquire 380 Common Shares at an exercise price of $8.50 per Common Share with an expiry date of May 1, 2022.
  • 15,053 broker warrants to acquire 15,053 Common Shares at an exercise price of $35.00 per Common Share with an expiry date of May 13, 2022.


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Common Shares

Each Common Share carries the right to attend and vote at all general meetings of shareholders. Holders of Common Shares are entitled to receive on a pro rata basis such dividends, if any, as when declared by the Company's Board of Directors at its discretion from funds legally available for the payment of dividends and upon the liquidation, dissolution or winding up of the Company are entitled to receive on a pro rata basis the net assets of the Company after payment of debts and other liabilities, in each case subject to the rights, privileges, restrictions, and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro rata basis with the holders of Common Shares with respect to dividends or liquidation. The Common Shares do not carry any pre-emptive subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions. There are no restrictions on the repurchase or redemption of Common Shares by us except to the extent that any such repurchase or redemption would render us insolvent pursuant to the BCBCA.

For additional information regarding our Common Shares, please see the discussion under the heading "Notice Of Articles And Articles Of Our Company - Rights, Preferences and Restrictions Attaching to Our Shares".

Non-cumulative voting

Holders of our Common Share do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding Common Shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining Common Shares will not be able to elect any of our directors.

Stock transfer agent

The Company's Registrar and Transfer Agent is AST Trust Company (Canada), located at 1066, West Hastings Street, Suite 1600, Vancouver, British Columbia, V6E 2X1 and its telephone number is (604) 235-3700.

Dividend Policy

The Company has not paid dividends on its Common Shares during the past three financial years and through the date of this Registration Statement. The Company has no present intention of paying dividends in the near future. It will pay dividends when, as and if declared by the Board. The Company expects to pay dividends only out of retained earnings in the event that it does not require its retained earnings for operations and reserves. There are no restrictions in the Company's articles of incorporation or bylaws that prevent it from declaring dividends. The Company has no shares with preferential dividend and distribution rights authorized or outstanding.

Indebtedness as of August 31, 2021:

Contractual obligations        Payments due by period  
      Total     Less than
1 year
    1-3 years     3-5 years     More than 5
years
 
Accounts Payable and Accrued Liabilities   $ 1,022,314 (1) 
  1,022,314     Nil     Nil     Nil  
                                 
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under IFRS     Nil     Nil     Nil     Nil     Nil  
                                 
Total   $ 1,022,314     1,022,314     Nil     Nil     Nil  

Notes:

(1) The carrying value of accounts payable and accrued liabilities is estimated due to the short-term nature of these instruments.

Reasons for the Offer and Use of Proceeds

Assuming the sale of US$[●] of units in this offering, after deducting the estimated underwriting discounts and offering expenses payable by us and assuming no exercise of the underwriters' over-allotment option, we expect to receive net proceeds of approximately US$[●] from this offering.

Gross proceeds

US$[●]

Underwriting discounts and commissions (up to 8.0% of gross proceeds)

US$ [●]



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Underwriting non-accountable expenses (0.85% of gross proceeds)

US$[●]

Miscellaneous underwriting fees expenses

US$[●]

Other offering expenses(1)

US$[●]

Net proceeds

US$[●]

(1) These consist of legal fees and expenses of approximately $[●] , the Nasdaq Capital Market listing fee of $50,000, accountant and auditing fees and expenses of approximately $[●], and other fees of approximately $[●] and excludes those other offering expenses that have already been paid.

We intend to use the net proceeds of this offering as follows, and we have ordered the specific uses of proceeds in order of priority.

Description of Use   Net Proceeds  
General and Administrative Expenses (24 months)   US$[1,300,000]  
IPF or Chronic Cough - Ifenprodil      
          Phase 2 (USA)   US$[500.000]  
Stroke - DMT      
          Phase 1   US$[2,000,000]  
          Phase 2 Acute   US$[3.000,000]  
CKD - NP-251      
          Preclinical   US$[800,000]  
          Phase 1   US$[800,000]  
Unallocated Working Capital   US$[600,000]  
Total   US$[9,000,000]  

We would receive additional gross proceeds of US$[●] if all of the Warrants included in the units are exercised, assuming no exercise of the underwriters' over-allotment option. We intend to use any such proceeds for working capital and general corporate purposes. General corporate purposes may include capital expenditures.

Incentive Stock Options

On January 1, 2022, we granted 96,000 stock options with an exercise price of $4.10 per share, which options will expire on January 1, 2027 at an exercise price of $4.10 per share.

There were no stock option grants during the year ended August 31, 2021.

During the year ended August 31, 2020, we granted 43,750 stock options with an exercise price of $10.00 per share, which options will expire on February 13, 2025, 45,500 stock options with an exercise price of $29.00 per share, which options will expire on April 13, 2025, and 6,000 stock options with an exercise price of $35.00 per share, which options will expire on August 17, 2025.

The following table represents the number of stock options that are outstanding as of January [●], 2022:

Date of Grant   Number of
Options
    Price Per
Option
    Expiry Date  
May 18, 2017   1,000   $ 30.00     May 18, 2022  
March 1, 2018   3,500   $ 48.00     March 1, 2023  
February 13, 2020   27,000   $ 10.00     February 13, 2025  
April 13, 2020   22,250   $ 29.00     April 13, 2025  
August 17, 2020   6,000   $ 35.00     August 17, 2025  
January 1, 2022   96,000   $ 4.10     January 1, 2027  


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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS

This Prospectus should be read in conjunction with the accompanying financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the International Accounting Standards Board (IASB).

The preparation of financial statements in conformity with these accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis, we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates or other forward-looking statements under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Our actual results may differ materially as a result of many factors, including those set forth under the headings entitled "Special Note Regarding Forward Looking Statements" and "Risk Factors".

Critical accounting policies, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments, are outlined below under the heading "Critical Accounting Policies and Estimates", and have not changed significantly since our founding.

Overview

Algernon Pharmaceuticals Inc. was incorporated on April 10, 2015 under the BCBCA. The registered office of Algernon is located at Suite 1500 - 1055 West Georgia Street, Vancouver, British Columbia, V6E 4N7.

Results of Operations for the Three Months Ended November 30, 2021 as Compared to the Three Months Ended November 30, 2020

The Company had a net loss of $1,200,560 for the three months ended November 30, 2021 ("Q1 2022") compared to a net loss of $3,434,448 for the three months ended November 30, 2020 ("Q1 2021").  The Company's significant operating expenses for the three months ended November 30, 2021 included the following:

  • Research and development expenses of $626,718 (Q1 2021 - $2,505,231)
  • Salaries and benefits of $222,152 (Q1 2021 - $171,892)
  • Marketing expenses of $142,698 (Q1 2021 - $155,443)
  • Professional fees of $103,327 (Q1 2021 - $112,190)
  • General and administrative expenses of $48,573 (Q1 2021 - $45,095)
  • Shareholder communications expenses of $57,557 (Q1 2021 - $58,129)
  • No share-based payment expenses (Q1 2021 - $392,775)

Research and Development Expenses

    November 30     August 31,  
For the three month period ended   2021     2021  
Clinical Trials:            
  Phase 2 for IPF and chronic cough $ 388,701   $ 376,418  
  Investigator-led COVID-19 study in South Korea   -     (196,335 )
  Phase 2b/3 multinational COVID-19 study   2,676     (1,027,954 )
    391,377     (847,871 )
Preclinical:            
  Ifenprodil preclinical and manufacture   37,726     25,247  
  Oncology preclinical   36,993     -  
    74,719     25,247  
             
DMT   224,548     216,064  
Management and Ad Hoc scientific support   47,199     57,677  


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Total   737,843     (548,883 )
             
Less:  Australian R&D Tax Credit   (111,125 )   341,642  
Total Net Expenses $ 626,718   $ (207,241 )

Research and development expenses totaled $626,718 for the three months ended November 30, 2021 (Q1 2021 - $2,505,231) and pertained primarily to the Company's DMT manufacturing and development. The decrease was mainly due to activities during the three months ended November 30, 2020 in connection with the Company's multinational Phase 2b/3 study of Ifenprodil as a potential therapeutic treatment for patients with COVID-19. The Company was also supporting an investigator led Phase 2 human trial for Ifenprodil and COVID-19 in South Korea during the three months ended November 30, 2020. 

Salaries and benefits for the three months ended November 30, 2021 were $222,152 (Q1 2021 - $171,892) which included salaries paid to officers, independent directors and two employees as well as severance costs associated with a change in CFO which occurred on December 1, 2021. The increase from the three months ended November 30, 2020 resulted from severance costs which totaled $56,000 for the three months ended November 30, 2021.

Marketing expenses, consisted of expenses in relation to promotional activities to create and expand market presence of the Company, were $142,698 for the three months ended November 30, 2021 (Q1 2021 - $155,443) and were consistent with marketing expenses for the three months ended November 30, 2020.

Professional fees, which included legal, accounting and consulting fees, incurred in the operation of the business, were $103,327 for the three months ended November 30, 2021 (Q1 2021 - $112,190) and were consistent with professional fees for the three months ended November 30, 2020.

General and administrative expenses which included expenses incurred to support Company's day-to-day operational activities were $48,573 for the three months ended November 30, 2021 (Q1 2021 - $45,095) and were consistent with general and administrative expenses for the three months ended November 30, 2020.

Shareholder communications expenses, which included newswire subscription fees, communication advisory fees, transfer agent and filing expenses, were $57,557 for the three months ended November 30, 2021 (Q1 2021 - $58,129) and were consistent with shareholder communications expenses for the three months ended November 30, 2020.

There were no share-based payment expenses for the three months ended November 30, 2021 compared to share-based payments for the three months ended November 30, 2021 of $392,775 which related to share-based payments recognized related to restricted share units ("RSUs") that were previously granted to certain directors, officers and consultants of the Company.

Results of Operations for the Year Ended August 31, 2021 as Compared to the Year Ended August 31, 2020

The Company had a net loss of $7,734,080 for the year ended August 31, 2021 (2020 - $8,538,207). The Company's significant operating expenses included the following:

 Research and development of $4,797,012 (2020 - $2,675,493)

 Share-based payment of $827,402 (2020 - $3,179,440)

 Marketing expenses of $794,324 (2020 - $1,265,925)

 Salaries and benefits of $656,829 (2020 - $8,175)

 Professional fees of $607,672 (2020 - $1,171,258)

 General and administrative of $194,573 (2020 - $151,024)

 Shareholder communications of $173,312 (2020 - $209,740)


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Research and Development Expenses

    August 31     August 31,  
For the year ended   2021     2020  
Clinical Trials:            
  Phase 2 for IPF and chronic cough $ 1,203,109   $ 1,032,627  
  Investigator-led COVID-19 study in South Korea   148,182     544,710  
  Phase 2b/3 multinational COVID-19 study   4,617,199     1,264,373  
    5,968,490     2,841,710  
Preclinical:            
  Ifenprodil preclinical and manufacture   116,802     503,821  
  Oncology preclinical   49,535     23,900  
  Nash preclinical   12,468     -  
    178,805     527,721  
             
DMT   398,501     -,  
Management and Ad Hoc scientific support   214,247     251,411  
             
Total   6,760,043     3,620,842  
             
Less:  Australian R&D Tax Credit   (1,897,019 )   (929,301 )
Less: Canadian NRC Research Grant   (66,012 )   (16,048 )
Total Net Expenses $ 4,797,012   $ 2,675,493  

Research and development expenses for the year ended August 31, 2021 were $4,797,012 (2020 - $2,675,493) after being partially offset by the Australia R&D incentive cash tax credit of $1,897,019 (2020 - $929,301) and the contribution of $66,012 (2020 - $16,048) from the National Research Council - Industrial Research Assistance Program for its COVID-19 Therapeutic Development Project. The increase primarily related to the Company's Phase 2b/3 multinational COVID-19 study which began during the year ended August 31, 2020, but was ramped up and completed during the year ended August 31, 2021.  Costs pertaining to this study totaled $4,617,199 for the year ended August 31, 2021 compared to $1,264,373 for the previous year. There was a decrease in costs associated with an investigator led COVID-19 study being run in South Korea, which incurred costs of $544,710 during the year ended August 31, 2020.  This study was wound up during the year ended August 31, 2021 where costs $148,182 were incurred, a significant decline from the previous year. Additionally, the Company launched its DMT program during the year ended August 31, 2021 and incurred costs totaling $398,501 compared to nil in the previous year. Eligible research and development expenditures incurred by the Company in Australia are refundable at 43.5%.

Salaries and benefits for the year ended August 31, 2021 were $656,829 (2020 - $8,175) which included salaries and cash settlement of the final tranche of RSUs paid to officers, independent directors and two employees. For the year ended August 31, 2021, officers and director fees were remunerated as salaries whereas in the prior year, they were remunerated as consultants.

Share-based payment for the year ended August 31, 2021 was $827,402 (2020 - $3,179,440). It was mainly consisted of share-based payment recognized for the restricted share units ("RSUs") over their vesting periods that were granted to certain directors, officers and consultants of the Company on July 23, 2020. As of August 31, 2021, all RSUs were vested and settled. The decrease for the year could be attributed to no issuance of stock options by the Company whereas a total of 95,250 stock options with a weighted average exercise price of $21.00 were granted to directors, officers and consultants of the Company in the prior year.

Marketing expenses of $794,324 (2020 - $1,265,925) consisted of expenses in relation to promotional activities to create and expand market presence of the Company. For year ended August 31, 2020, the Company invested in new and additional marketing communications campaigns and investor communications initiatives to improve the Company's visibility and market awareness of the Company to support the Company's multiple financing efforts which resulted in gross proceeds totalling $10,491,880 collectively from the November 2019 Offering, the February 2020 Offering, and the May 2020 Special Warrants Offering. In the year ended August 31, 2021, the Company undertook less promotional activities as the Company's financing activities were reduced to the closing of one private placement offering that resulted in gross proceeds of $2,815,010. Therefore, the marketing expenditures were significantly higher in the prior year.

Professional fees, which included legal, accounting and consulting fees, incurred in the operation of the business, were $607,672 (2020 - $1,171,258). The decrease was mainly due to a reclassification of remuneration for officers and directors from consulting fees to salaries.


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General and administrative expenses of $194,573 (2020 - $151,024) included expenses incurred to support Company's day-to-day operational activities. The increase was mainly due to increases in insurance premiums incurred for the various clinical trial programs as well as increase in office rents.

Shareholder communications expenses, which included newswire subscription fees, communication advisory fees, transfer agent and filing expenses, were $173,312 for the year ended August 31, 2021 (2020 - $209,740). The higher costs in 2020 could be attributed to additional transfer agent and filing fees in connection with the various financing activities in 2020.

During the year ended August 31, 2021, the Company had a gain on restricted share units cash settlement of $305,117 (2020 - $nil). The gain was a result of lower market value of the Company's common shares at the settlement date than at the grant date.Liquidity and Capital Resources

Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company's objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements.

At November 30, 2021, the Company had a working capital of $2,619,067 compared to working capital at August 31, 2021 of $3,886,947. This included cash and cash equivalents of $2,697,056 (August 31, 2021 - $2,411,163) available to meet short-term business requirements and current liabilities of $624,938 (August 31, 2021 - $1,022,314). The Company's accounts payable and accrued liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.  The Company has no long-term debt.

At present, the Company has no current operating income. The Company will need to raise sufficient working capital to maintain operations.  Without additional financing, the Company may not be able to fund its ongoing operations and complete development activities. The Company intends to finance its future requirements through a combination of debt and/or equity issuance. There is no assurance that the Company will be able to obtain such financings or obtain them on favourable terms. These uncertainties may cast doubt on the Company's ability to continue as a going concern.

The Company uses "working capital" to assess liquidity and general financial strength and is calculated as current assets less current liabilities. Working capital does not have any standardized meaning prescribed by IFRS and is referred to as a "Non-GAAP Financial Measure."  It is unlikely for Non-GAAP Financial Measures to be comparable to similar measures presented by other companies.

Cash Used in Operating Activities

Operating activities used $7,822,617 in cash for the year ended August 31, 2021 compared to $6,609,933 in cash for the year ended August 31, 2020. The increase in cash used in operating activities for the year ended August 31, 2021 compared to the year ended August 31, 2020, was primarily due to the net loss of $7,734,080 and adjusting for items not involving cash in each year. Operating activities provided $338,930 in cash for the three months ended November 30, 2021 compared to cash used in operating activities of $3,422,476 in cash for the three months ended November 30, 2020. The change in cash from operating activities between the two periods is a result of the lower net loss experienced for the three months ended November 30, 2021, when compared to the same period in 2020 combined with the receipt of amounts pertaining to the Australian research and development tax credit, which were received during the three months ended November 30, 2021.

Cash Used in Investing Activities

The cash used in investing activities for the year ended August 31, 2021 was $124,488 compared to $99,741 in cash used in investing activities for the year ended August 31, 2020.  The cash used in investing activities for the three months ended November 30, 2021 was $40,048 compared to $6,262 in cash used in investing activities for the three months ended November 30, 2020. The increase in cash used in investing activities for the year ended August 31, 2021 and for the three months ended November 30, 2021 was due to additions in intangible assets.


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Cash flows from Financing Activities

Cash flows generated from financing activities for the year ended August 31, 2021 were $4,245,207 compared to $12,619,745 for the year ended August 31, 2020. The decrease in cash generated from financing activities during the year ended August 31, 2021 was mainly due to a decrease in proceeds from the sale of securities issued or cash and a decrease in proceeds from the exercise of warrants and compensation options. There was no cash from financing activities for the three months ended November 30, 2021. For the three months ended November 30, 2020, the Company used $43,490 in financing activities as a result of the payment of withholding taxes pertaining to restricted share units settled during the three months ended November 30, 2020, partially offset by proceeds received from the exercise of warrants and compensation options.

Off-Balance Sheet Arrangements

As of August 31, 2021 and November 30, 2021, we did not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

Research and Development, Patents and Licenses, etc.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Expenditures capitalized may include the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditures are recognized in profit or loss as incurred. Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss when incurred.

All of the Company's research programs and statistical analysis are being conducted by third party contract research organizations. All of the Company's drug development research programs have been directly managed by Dr. Mark Williams, the Company's Chief Science Officer until his resignation on March 1, 2021.  Effective March 1, 2021, Dr. Christopher Bryan assumed the position of Vice President of Research and Operations directly in charge of all of the Company's drug development research programs.  Some independent laboratories are also being utilized for mechanism of action research.

All research and development work is carried out by the Company's wholly-owned Canadian subsidiary, Nash Pharmaceuticals Inc. On January 6, 2020, Nash Pharma established a wholly-owned Australian, Algernon Research Pty Ltd. Through its ongoing research programs, Nash Pharma is seeking to minimize investment and drug development risk by taking advantage of regulatory approved drugs and discovering alternative clinical uses by accelerating entry into Phase 2 clinical trials (human).

The Company qualifies for the Australian R&D tax credit as it has incurred qualified R&D expenditures undertaken in Australia. The tax credit is calculated as 43.5% of qualified R&D expenditures incurred. The Company recognizes a tax credit receivable and records those amounts as a recovery against R&D expenses in the relevant periods to match with the related expenditures.

Trend Information

Due to our short operating history, we are not aware of any trends 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 is material to investors.

Going Concern

As at August 31, 2021, the Company has an accumulated deficit of $23,546,345 (August 31, 2020 - $17,463,488) and for the year then ended incurred a net loss of $ 7,734,080 (August 31, 2021 - $8,538,207). As of November 30, 2021, the Company had an accumulated deficit of $24,746,905 (August 31, 2021 - $23,546,345) and for the three months then ended incurred a net loss of $1,200,560 (November 30, 2020 - $3,434,448). The Company will need to raise sufficient working capital to maintain operations. Without additional financing, the Company may not be able to fund its ongoing operations and complete development activities. Management anticipates that the Company will continue to raise adequate funding through equity or debt financings, although there is no assurance that the Company will be able to obtain adequate funding on favorable terms. These uncertainties may cast significant doubt on the Company's ability to continue as a going concern. These annual consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. These annual consolidated financial statements do not reflect adjustments, which could be material, to the carrying value of assets and liabilities, which may be required should the Company be unable to continue as a going concern.


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The assessment of the Company's ability to continue as a going concern and to raise sufficient funds to pay its ongoing operating expenditures and to meet its liabilities for the ensuing year, involves significant judgment based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances.

The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. If the going concern basis was not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.

Internal control over financial reporting and disclosure controls and procedures

Management is responsible for the design and maintenance of both internal control systems over financial reporting and disclosure controls and procedures. Disclosure controls and procedures are designed to provide reasonable assurance that relevant information is gathered and reported to senior management on a timely basis so that appropriate decisions can be made regarding public disclosure.

Current disclosure controls include meetings with the Chief Executive Officer, Chief Financial Officer and members of our Board of Directors and Audit Committee through e-mails, on telephone conferences and informal meetings to review public disclosure. All public disclosures are reviewed by certain members of senior management and our Board of Directors and Audit Committee. Our Board of Directors has delegated the duties to the Chief Executive Officer who is primarily responsible for financial and disclosure controls.

Management and the Board of Directors continue to work to mitigate the risk of material misstatement.

Financial Instruments & Risk Management

The Company's financial instruments as at November 30, 2021 included cash and cash equivalents, accounts receivable, restricted cash equivalents and accounts payable and accrued liabilities.

The Company classifies its financial instruments into the following categories:

  • cash and cash equivalent are classified as financial assets at FVTPL;
  • accounts receivable are classified as loans and receivables;
  • restricted cash equivalents are classified as financial assets at FVTPL;
  • accounts payable and accrued liabilities are classified as other financial liabilities, which are

measured at amortized cost

Fair Value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values.

Level 1 - fair values are based on quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - fair values are based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); or

Level 3 - fair values are based on inputs for the asset or liability that are not based on observable market data (unobservable inputs).


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The Company classified its financial instruments at Level 1 and as follows:

    Financial
Assets
    Financial
Assets
    Financial
Liabilities
 
    Fair Value
Through Profit
Or loss
    Measured at
Amortized
Cost
    Measured at
Amortized
Cost
 
November 30, 2021                  
Cash and cash equivalents $ 2,697,056   $ -   $ -  
Accounts receivable   -     949     -  
Restricted cash equivalents   57,500     -     -  
Accounts payable and accrued liabilities $ -   $ -   $ (624,938 )

    Financial
Assets
    Financial
Assets
    Financial
Liabilities
 
    Fair Value
Through Profit
Or loss
    Measured at
Amortized
Cost
    Measured at
Amortized
Cost
 
August 31, 2021                  
Cash and cash equivalents $ 2,411,163   $ -   $ -  
Accounts receivable   -     484     -  
Restricted cash equivalents   57,500     -     -  
Accounts payable and accrued liabilities $ -   $ -   $ (1,022,314 )

The Company's risk exposure and the impact on the Company's financial instruments are summarized below:

Credit risk

Credit risk is the risk of loss associated with a counter party's inability to fulfill its payment obligations.  The Company's credit risk is primarily attributable to its cash and cash equivalents and accounts receivable. The Company's accounts receivable is mainly comprised of GST receivable, accrued interest receivable from GIC's held with bank, and accrued Australia R&D tax credit receivable.  GST receivable and Australia R&D tax credit receivable are not financial instruments as they do not arise from contractual obligations. The Company limits exposure to credit risk on bank deposits by holding demand deposits in high credit quality banking institutions in Canada.  Management believes that the credit risk with respect to receivables is minimal.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company's objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements.  All of the Company's financial obligations are due within one year.

At November 30, 2021, the Company had a working capital of $2,619,066 compared to working capital at August 31, 2021 of $3,886,947. This included cash and cash equivalents of $2,697,056 (August 31, 2021 - $2,411,163) available to meet short-term business requirements and current liabilities of $624,938 (August 31, 2021 - $1,022,314).

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and other price risks. The Company is not exposed to significant interest rate risk and other price risk.

 Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The risk that the Company will realize a loss as a result of a decline in the fair value of the cash is limited because of the short-term investment nature. The Company's financial asset exposed to interest rate risk consists of cash and cash equivalents and restricted cash equivalents. Cash equivalents, totaling $1,000,000, consists of a GIC held at banking institutions that bears interest at 0.2% and matures on June 14, 2022.  Restricted cash equivalents consist of GICs held at banking institutions that bear interest at prime less 2.2% and matures o April 13, 2022.


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 Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is not exposed to significant other price risk.

 Foreign currency risk

Foreign currency risk is related to fluctuations in foreign exchange rates. The Company has certain expenditures that are denominated in US dollars ("US$"), Australian dollars ("AUD$"), Euros and other operating expenses that are mainly in Canadian dollars ("CAD$"). 

The Company holds funds in Australian subsidiary in AUS$ and may fund additional cash calls to this foreign subsidiary in the future.  The Company's exposure to foreign currency risk arises primarily on fluctuations in the exchange rate of the CAD$ relative to the US$ and the AUD$. 

As at November 30, 2021, the Company had monetary assets of US$13,378 or $17,113 (August 31, 2021 - US$19,796 or $24,976) at the CAD equivalent and monetary liabilities of US$19,774 or $25,295 (August 31, 2021 - US$78,289 or $98,777) at the CAD equivalent. The Company's sensitivity analysis suggests that a change in the absolute rate of exchange in US$ by 10% will increase or decrease other comprehensive loss by approximately $818 (August 31, 2021 - $7,380).

As at November 30, 2021, the Company had monetary assets of AUD$1,466,460 or $1,336,092 (August 31, 2021 - AUD$2,685,541 or $2,478,217) at the CAD equivalent and monetary liabilities of AUD$377,200 or $343,667 (August 31, 2021 - AUD$638,313 or $589,035) at the CAD equivalent. The Company's sensitivity analysis suggests that a change in the absolute rate of exchange in AUD$ by 10% will increase or decrease other comprehensive loss by approximately $99,242 (August 31, 2021 - $188,918).

The Company has not entered into any foreign currency contracts to mitigate this risk. Foreign currency risk is considered low relative to the overall financial operating plan.

Tabular Disclosure of Contractual Obligations

The following is an analysis of the contractual maturities of our non-derivative financial liabilities as at November 30, 2021:

Contractual Obligations       Total     Less than 1 year     1 - 3 years  
Long-Term Debt Obligations   $ -   $ -   $ -  
Capital (Finance) Lease Obligations   $ -   $ -   $ -  
Operating Lease Obligations   $ -   $ -   $ -  
Purchase Obligations   $ -   $ -   $ -  
Other Long-Term Liabilities Reflected on the Company's Balance Sheet under the GAAP of the primary financial statements   $ -   $ -   $ -  
Total   $ -   $ -   $ -  

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period.

Actual outcomes could differ from these estimates, and as such, the estimates and underlying assumptions are reviewed on an ongoing basis.

The Company assesses on an annual basis if the intangible assets with finite life have indicators of impairment. In determining whether the intangible assets are impaired, the Company assesses certain criteria, including observable decreases in value, significant changes with adverse effect on the entity, evidence of technological obsolescence and future plans.  The Company will impair or write-off when it abandons a drug or determine an amortization policy when a compound is approved.


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Following initial recognition, the Company carries the value of the intangible assets at cost less accumulated amortization and any accumulated impairment losses. Intangibles assets such as patents, once approved, will have a finite life based on their expiry dates and will be amortized on a straight-line over their economic or legal life. The estimates are reviewed at least annually and are updated if expectations change as a result of the technical obsolescence or legal and other limits to use. A change in the useful life or residual value will impact the reported carrying value of the intangible assets resulting in a change in related amortization expense. As at November 30, 2021, the Company has not amortized the intangible assets as amortization begins when the intangible assets are available for use.

Apart from the above, there have been no material revisions to the nature and amount of changes in estimates of amounts reported in its condensed consolidated interim financial statements for the three months ended November 30, 2021.

DIRECTORS AND EXECUTIVE OFFICERS

Nasdaq Corporate Governance

The Company intends to comply with corporate governance requirements of the Nasdaq Marketplace Rules.  The Company is a "foreign private issuer" as defined under Rule 3b-4 promulgated under the Exchange Act.  As a foreign private issuer, the Company is not required to comply with all of the corporate governance requirements of the Nasdaq Marketplace Rules and may follow home country practice in lieu of the requirements of the Rule 5600 Series, the requirement to disclose third party director and nominee compensation set forth in Rule 5250(b)(3) and the requirement to distribute annual and interim reports set forth in Rule 5250(d).  The Company has reviewed the Nasdaq corporate governance requirements and confirms that the Company intends to comply with the Nasdaq corporate governance standards in all significant respects if it is approved for listing on the Nasdaq Capital Market. The Company intends to disclose in its annual reports to be filed under section 13 of the Exchange Act, and on the Company's website, the manner in which the Company's corporate governance practice differs from the Nasdaq corporate governance requirements.

Board of Directors

Our Notice of Articles and Articles are attached to this Registration Statement as exhibits. The Articles of the Company provide that the number of directors is set at:

(a) subject to paragraphs (b) and (c), the number of directors that is equal to the number of the Company's first directors;

(b) if the Company is a public company, the greater of three and the number most recently elected by ordinary resolution (whether or not previous notice of the resolution was given); and

(c) if the Company is not a public company, the number most recently elected by ordinary resolution (whether or not previous notice of the resolution was given).

Our Board of Directors currently consists of five directors.  Our directors are elected annually at each annual meeting of our Company's shareholders.

Our Board of Directors currently has one committee, the Audit Committee.  The Board has not appointed a compensation committee or a nominating committee because the Board fulfills these functions. The Board assesses potential Board candidates to fill perceived needs on the Board for required skills, expertise, independence and other factors.

Our Board of Directors is responsible for appointing our Company's officers.

Board Committees

Our Board of Directors currently has three committees, the Audit Committee and the Compensation Committee and Nominating and Corporate Governance. The Audit Committee is governed by a charter approved by our Board of Directors, a copy of which is attached as an exhibit to this Registration Statement.


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Audit Committee

The Company's Audit Committee consists of Harry Bloomfield (Chair), Raj Attariwala and David Levine and is chaired by David Levine. Each member of the Audit Committee satisfies the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and meet the independence standards under Rule 10A-3 under the Exchange Act. Our Audit Committee financial expert is Harry Bloomfield who qualifies as an "audit committee financial expert" within the meaning of the SEC Rule 10A-3 and possesses financial sophistication within the meaning of the Listing Rules of the Nasdaq Stock Market. The Audit Committee oversees our accounting and financial reporting processes and the audits of the financial statements of the Company. The Audit Committee is responsible for, among other things:

  • ensuring, through discussion with management and the external auditors, that the Company's annual and quarterly financial statements (individually and collectively, the "Financial Statements"), as applicable, present fairly in all material respects the financial conditions, results of operations and cash flows of the Company as of and for the periods presented;
     
  • reviewing and recommending for approval to the Board, the Company's financial statements, accounting policies that affect the financial statements, annual MD&A and associated press release(s);
     
  • reviewing significant issues affecting financial reports;
     
  • monitoring the objectivity and credibility of the Company's financial reports;

  • considering the effectiveness of the Company's internal controls over financial reporting and related information technology security and control;


  • reviewing with auditors any issues or concerns related to any internal control systems in the process of the audit;

  • reviewing with management, external auditors and legal counsel any material litigation claims or other contingencies, including tax assessments, and adequacy of financial provisions, that could materially affect financial reporting;

  • overseeing the work of the external auditor engaged for the purpose of preparing or issuing an auditor's report or performing such other audit, review or attest services for the Company, including the resolution of disagreements between management and the external auditor regarding financial reporting; and

  • taking such other actions within the general scope of its responsibilities as the Audit Committee shall deem appropriate or as directed by the Board of Directors.

Nominating and Corporate Governance Committee

On October 12, 2021, the Board of Directors adopted a new Nominating and Corporate Governance Committee Charter that complies with the requirements of Nasdaq Listing Rule 5605(e)(2), and has established a corporate governance committee (the "N&CG Committee") which operates under its Nominating and Corporate Governance Committee Charter. The N&CG Committee is currently comprised of David Levine, Raj Attariwala and Harry Bloomfield (Chair). The N&CG Committee is responsible for (i) identifying and recommending to the Board, individuals qualified to be nominated for election to the Board; (ii) recommending to the Board, the members and chairperson for each Board committee; and (iii) periodically reviewing and assessing the Company's corporate governance principles contained in the Nominating and Corporate Governance Committee Charter and making recommendations for changes thereto to the Board.

The N&CG Committee is responsible for, among other things:

  • leading the Company's search for individuals qualified to become members of the Board;
     
  • evaluating and recommending to the Board for nomination candidates for election or re-election as directors;
     
  • establishing and overseeing appropriate director orientation and continuing education programs;
     
  • making recommendations to the Board regarding an appropriate organization and structure for the Board of Directors;
  • evaluating the size, composition, membership qualifications, scope of authority, responsibilities, reporting obligations and charters of each committee of the Board;
     
  • periodically reviewing and assessing the adequacy of the Company's corporate governance principles as contained in the Nominating and Corporate
    Governance Committee Charter and, should it deem it appropriate, it may develop and recommend to the Board of Directors for adoption of additional corporate governance principles;
     

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  • periodically reviewing the Company's Articles in light of existing corporate governance trends, and shall recommend any proposed changes for adoption by the Board of Directors or submission by the Board of Directors to the Company's shareholders;
     
  • making recommendations on the structure and logistics of Board of Directors' meetings and may recommend matters for consideration by the Board of Directors;
     
  • considering, adopting and overseeing all processes for evaluating the performance of the Board of Directors, each committee and individual directors; and
     
  • annually reviewing and assessing its own performance.

Compensation Committee

On October 12, 2021, the Board of Directors adopted a new Compensation Committee Charter which complies with the requirements of Nasdaq Listing Rule 5605(d)(1) and the Board of Directors has established a Compensation Committee (the "Compensation Committee"). The Compensation Committee is comprised of David Levine, Raj Attariwala and Harry Bloomfield (Chair).

The Compensation Committee assists the Board in fulfilling its oversight responsibilities relating to officer and director compensation, succession planning for senior management, development and retention of senior management and such other duties as directed by the Board.

Each of the Compensation Committee members satisfies the "independence" requirements of Rule 5605(a)(2) of the Listing Rules of Nasdaq. The Compensation Committee will be responsible for, among other things:

  • reviewing and approving the Company's compensation guidelines and structure;

  • reviewing and approving on an annual basis the corporate goals and objectives with respect to the CEO of the Company;

  • reviewing and approving on an annual basis the evaluation process and compensation structure for the Company's other officers, including salary, bonus, incentive and equity compensation;

  • reviewing the Company's incentive compensation and other equity-based plans and recommending changes in such plans to the Board as needed.

  • periodically making recommendations to the Board regarding the compensation of non-management directors, including Board and committee retainers, meeting fees, equity-based compensation and such other forms of compensation and benefits as the Committee may consider appropriate; and

  • overseeing the appointment and removal of executive officers, and reviewing and approving for executive officers, including the CEO, any employment, severance or change in control agreements.

Directors, Executive Officers and Key Employees

The following table sets forth the names and select details of all of our directors, executive officers and key employees.

Name, Province/State and
Country of Residence

Business Address

Age

Position

Date of Appointment

Harry J.F. Bloomfield(1)(2)(3)
Quebec, Canada

Suite 1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7

77

Chairman and Director

September 8, 2021

Christopher J. Moreau
Manitoba, Canada

Suite 1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7

57

Chief Executive Officer and Director

March 1, 2018



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Christopher Bryan
Manitoba, Canada

Suite 1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7

39

Vice President of Research and Operations

March 1, 2021

James Kinley
Manitoba, Canada

Suite 1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7

43

Chief Financial Officer

December 1, 2021

Mark Williams
Manitoba, Canada

Suite 1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7

50

Director

September 22, 2021

Raj Attariwala(1)(2)(3)
British Columbia, Canada

Suite 1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7

53

Director

October 26, 2015

David Levine (1)(2)(3)
British Columbia, Canada

Suite 1500 - 1055 West Georgia Street, Vancouver, BC, V6E 4N7

54

Director

October 26, 2015

Notes:

(1) Member of Audit Committee.

(2) Member of the Compensation Committee.

(3) Member of the Nominating and Corporate Governance Committee.

Business Experience

The following summarizes the occupation and business experience during the past five years or more for our directors and executive officers as of the date of this Registration Statement.

Harry Bloomfield - Chairman and Director

Harry J. F. Bloomfield, Q.C., M.B.A., is a lawyer, business manager and philanthropist, and joined the Bar of Quebec in 1969 and was appointed Queen's Counsel in 1991. He began his business career with the J. Henry Schroder Banking Corporation in New York and served as Member of the Commission des Valeurs Mobiliers due Québec, now called the Autorité des Marchés Financiers - equivalent of the U.S. Securities and Exchange Commission in 1987 and was named by the government of Prime Minister Brian Mulroney to the Board of Directors of the Federal Business Development Bank, now called the BDC (Business Development Bank of Canada) serving as the audit committee Chairman.

Christopher J. Moreau - Chief Executive Officer and Director

Mr. Moreau is a business professional in the life sciences sector with a background in biotechnology research, business development and experience in capital markets. Mr. Moreau was previously President & CEO and Director of Miraculins Inc., a publicly traded company focussed on the research & development of screening tests for prostate cancer, skin cholesterol and type 2 diabetes from February 2007 to April 2016. He has over 30 years of senior management experience in private & publicly traded company environments.

James Kinley - Chief Financial Officer

Mr. Kinley is a Certified Professional Accountant (CPA, CA) with over 15 years of experience in building, leading, and advising corporations through their daily operations as well as on complex restructurings, mergers, acquisitions, and capital markets transactions. He also has experience in structuring and negotiating transactions with commercial and investment banks. He was previously the CFO for Medicure Inc. (TSX-V: MPH), another Canadian publicly traded pharmaceutical company, a position he held for nearly 10 years.

Christopher Bryan - Vice President of Research and Operations

Dr. Christopher Bryan graduated from the University of Toronto, with a PhD in organic chemistry. His background as a scientist and senior manager includes the synthesis of novel small molecules as potential therapeutic agents, the coordination of regional commercial teams and internal departments (i.e., marketing, R&D, manufacturing, sales and regulatory affairs), and the management of strategic relationships including those involving opinion leaders. He also has experience in scientific writing, data analysis and literature review. Since joining the Company on a full-time basis last year, Dr. Bryan has been managing its contract research providers and clinical trials, as well as all of its vendor relationships. He has also been managing the Company's intellectual property suite.


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Raj Attariwala - Director

Dr. Attariwala is a dual board certified Radiologist and Nuclear Medicine physician certified in both Canada and the United States. He received his formal medical training at University of British Columbia with periods of specialized medical training at Memorial Sloan Kettering Cancer Centre (New York), UCLA and USC. He holds a doctorate in Biomedical Engineering from Northwestern University (Evanston, IL).

David Levine - Director

David Levine has over 25 years of experience in the life sciences and technology sectors. He started his career at Baxter Healthcare. Mr. Levine also has experience running drug and device manufacturing operations, commercializing life sciences innovation and has obtained regulatory approvals for drugs and devices on a global basis. He is active in health technology, pharmacy technology, and technology mergers and acquisitions.

Mark Williams - Director

Dr. Mark Williams has over 15 years of experience in drug and medical device development having repurposed three drugs from preclinical studies directly to positive Phase 2 data including manufacturing and toxicology. Dr. Williams is the author of more than twelve patents and an inventor of DM199 (a recombinant protein) in Phase 2 trials for stroke and kidney disease. Dr. Williams is also involved in the financing and collaboration side of various life science companies and has assisted such companies with securing arrangements with drug foundations, pharma companies and various government agencies including Health Canada and US FDA. In the past five years, Dr. William has served as the former Chief Science Officer of Algernon, President and Chief Scientific Officer of Alphanco Venture Corp., Chief Scientific Officer of Marvel Biotechnology Inc., Vice President of Research of Diamedica Therapeutics Inc. and Vice President of Research and clinical Affairs of Cerebra.

Board Practices

Corporate governance refers to the policies and structure of the board of directors of a corporation, whose members are elected by and are accountable to the shareholders of the corporation. Corporate governance encourages establishing a reasonable degree of independence of the board of directors from executive management and the adoption of policies to ensure the board of directors recognizes the principles of good management. The Board is committed to sound corporate governance practices; as such practices are both in the interests of shareholders and help to contribute to effective and efficient decision-making.

Code of Business Conduct and Ethics

The Board has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") that applies to all of our employees and officers, including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. The Code of Ethics meets the requirements for a "code of ethics" within the meaning of that term in Item 16B of Form 20-F. The Code of Business Conduct and Ethics is filed as Exhibit 14.1 to the Registration Statement of which this prospectus forms a part. 

Board of Directors

The Board has responsibility for the stewardship of the Company including responsibility for strategic planning, identification of the principal risks of the Company's business and implementation of appropriate systems to manage these risks, succession planning (including appointing, training and monitoring senior management), communications with investors and the financial community and the integrity of the Company's internal control and management information systems.

The Board sets long term goals and objectives for the Company and formulates the plans and strategies necessary to achieve those objectives and to supervise senior management in their implementation. The Board delegates the responsibility for managing the day-to-day affairs of the Company to senior management but retains a supervisory role in respect of, and ultimate responsibility for, all matters relating to the Company and its business. The Board is responsible for protecting Shareholder's interests and ensuring that the incentives of the Shareholders and of management are aligned.

As part of its ongoing review of business operations, the Board reviews, as frequently as required, the principal risks inherent in the Company's business including financial risks, through periodic reports from management of such risks, and assesses the systems established to manage those risks. Directly and through the Audit Committee, the Board also assesses the integrity of internal control over financial reporting and management information systems.

In addition to those matters that must, by law, be approved by the Board, the Board is required to approve any material dispositions, acquisitions and investments outside the ordinary course of business, long-term strategy, and organizational development plans. Management of the Company is authorized to act without Board approval, on all ordinary course matters relating to the Company's business.


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The Board also monitors the Company's compliance with timely disclosure obligations and reviews material disclosure documents prior to distribution.

The Board is responsible for selecting the CEO and other senior management and for monitoring their performance.

The Board considers that the following directors are "independent" in that they are independent and free from any interest and any business or other relationship which could or could reasonably be perceived to, materially interfere with the director's ability to act with the best interests of the Company, other than interests and relationships arising from shareholding: David Levine and Raj Attariwala.

Directorships

Certain of the directors are presently a director of one or more other public companies, as follows:

Director       Name of Reporting Issuer     Exchange Listed  
Raj Attariwala   Cannabix Technologies Inc.     CSE  

Orientation and Continuing Education

The Board ensures that all new directors receive a comprehensive orientation regarding their role as a member of the Board, its committees and its directors, and the nature and operation of the Company. As each director brings a different skill set and professional background, the Board determines what orientation to the nature and operations of the Company's business will be necessary and relevant. New directors are provided with appropriate orientation through a series of meetings, telephone calls and other correspondence.

Ethical Business Conduct

The Board seeks to foster a culture of ethical conduct by striving to ensure the Company carries out its business in line with high business and moral standards and applicable legal and financial requirements. In that regard, the Board encourages management to consult with legal and financial advisors to ensure the Company is meeting those requirements.

 is cognizant of the Company's timely disclosure obligations and reviews material disclosure documents such as financial statements, Management's Discussion & Analysis (MD&A) and press releases prior to distribution.

 relies on its Audit Committee to annually review the systems of internal financial control and discuss such matters with the Company's external auditor.

 actively monitors the Company's compliance with the Board's directives and ensures that all material transactions are thoroughly reviewed and authorized by the Board before being undertaken by management.

The Board must also comply with the conflict of interest provisions of the BCBCA, as well as the relevant securities regulatory instruments, to ensure that directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.

The Board has found that the fiduciary duties placed on individual directors by the Company's governing corporate legislation and the common law and the restrictions placed by applicable corporate legislation on an individual directors' participation in decisions of the Board in which the director has an interest have been sufficient to ensure that the Board operates independently of management and in the best interests of the Company.

Nomination of Directors

The Board does not have a nominating committee, and these functions are currently performed by the Board as a whole. The Board is responsible for identifying individuals qualified to become new Board members and recommending to the Board new director nominees for the next annual general meeting of the shareholders. The criteria for selecting new directors reflect the requirements of the listing standards of the Canadian Securities Exchange (or such other exchange or self-regulatory organization on which the Company's shares are listed for trading) with respect to independence and the following factors:

 the appropriate size of the Company's Board;

 the needs of the Company with respect to the particular talents and experience of its directors;

 the personal and professional integrity of the candidate;

 level of education and/or business experience;


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 broad-based business acumen;

 the level of understanding of the Company's business and the pharmaceutical industry in which it operates and other industries relevant to the Company's business;

 the ability and willingness to commit adequate time to Board and committee matters;

 the fit of the individual's skill and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to the needs of the Company;

 the ability to think strategically and a willingness to share ideas; and

 diversity of experiences, expertise and background.

Once a decision has been made to add or replace a director, the task of identifying new candidates will fall on the Company's Board. If a candidate looks promising, the Board will conduct due diligence on the candidate and interview the candidate and if the results are satisfactory, the candidate is invited to join the Board.

Other Board Committees

The Board has no committees other than the Audit Committee.

Assessments

The Board has not established a process to regularly assess the Board and its Audit Committee with respect to their effectiveness and contribution. Nevertheless, their effectiveness is subjectively measured on an ongoing basis by each director based on each director's assessment of the performance of the Board, its committee or the individual directors compare to their expectation of performance. In doing so, the contributions of an individual director are informally monitored by the other Board members, bearing in mind the business strengths of the individual and the original purpose of nominating that individual to the Board.

Advisory Board

Medical and Scientific Advisory Board

The Company has a Medical and Scientific Advisory Board in place, complete with individuals who have various backgrounds and experience to complement our operations, mission and business strategy. The Medical and Scientific Advisory Board provides suggestions to our management on as-needed basis. The Medical and Scientific Advisory Board does not have a charter and does not meet on a scheduled basis. It is comprised of the following individuals:

Name   Position  
Dr. Martin Kolb   Medical and Scientific Advisory Board member  
Dr. Jacky Smith   Medical and Scientific Advisory Board member  
Dr. Mark Swaim   Medical and Scientific Advisory Board member  

Dr. Martin Kolb, Medical and Scientific Advisory Board

Dr. Kolb is the Moran Campbell Chair and Professor in Respiratory Medicine and Director of the Division of Respirology, McMaster University, Hamilton, Ontario, Canada. He is lead of the interstitial lung disease program, located at St. Joseph's Healthcare Hamilton, where more than 1,500 patients with different types of fibrotic interstitial lung disorders are seen annually. His major research interests are the mechanisms of lung fibrosis, with a particular interest in the role of growth factors, matrix abnormalities and pulmonary vessel remodelling in disease progression.

He leads activities in biomarker development for lung fibrosis, and is a Principal Investigator and steering committee member in numerous clinical trials. Dr. Kolb has authored over 150 peer-reviewed publications on different basic science and clinical topics. He is the Chief-Editor of the European Respiratory Journal, the flagship publication of the European Respiratory Society. He is also an editorial board member of American Journal of Respiratory and Critical Care Medicine, American Journal of Respiratory Cell and Molecular Biology, the European Respiratory Review and Respirology and serves on the Lung Injury & Repair Study Section for the National Institute of Health.

Dr. Jacky Smith, Medical and Scientific Advisory Board

Dr. Smith is a Professor of Respiratory Medicine at the University of Manchester and an Honorary Consultant at Manchester University NHS Foundation Trust. She runs a multi-disciplinary research team whose focus is on understanding mechanisms underlying pathological cough and a regional clinical service seeing patients with refractory Chronic Cough. She is also the Director of the NIHR Manchester Clinical Research Facility and Leads the Rapid Translational Incubator Theme of the NIHR Manchester Biomedical Research Centre.


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In collaboration with Mr. Kevin McGuinness (clinical engineer), she has developed a novel method for semi-automated cough detection that was licensed to Vitalograph Ltd., a medical device company with whom she collaborates. The subsequent commercialization of this cough monitoring system has changed the standards by which novel cough therapies are evaluated in regulatory clinical trials. Moreover, the use of this system to quantify coughing in a study of patients attending her Chronic Cough clinic facilitated the discovery of a new class of efficacious anti-tussive therapy, P2X3 antagonists.

Dr. Mark Swaim, Medical and Scientific Advisory Board

On October 9, 2020 the Company announced that Dr. Mark Swaim, a former practicing physician and researcher has joined the Algernon Medical and Scientific Advisory Board.

Dr. Mark Swaim, MD, PhD graduated from Duke University with honours, where he was an NIH-sponsored Medical Scientist Training Program scholar, and was elected to the Alpha Omega Alpha Honor Medical Society and served as its president. He completed post-graduate training in internal medicine, gastroenterology and hepatology at Duke University Medical Center and post-doctoral research at National Taiwan University in Taipei. Dr. Swaim served on the faculties of Duke University Medical Center, University of Texas MD Anderson Cancer Center and the McGovern Medical School of University of Texas in Houston. He was elected to fellowship in the American College of Physicians. He is editor-in-chief and founder of BioPub.co, a small-cap biotech special situations investing website with a global following.

Business Advisory Board

The Company has a Business Advisory Board in place, complete with individuals who have various backgrounds and experience to complement our operations, mission and business strategy. The Business Advisory Board provides suggestions to our management on as-needed basis. The Business Advisory Board does not have a charter and does not meet on a scheduled basis. It is comprised of the following individuals:

Name      Position  
Howard Gutman   Business Advisory Board member  

Howard Gutman, Business Advisory Board

Ambassador (Rtd) Gutman acted, during his distinguished career over the past three decades, as an international lawyer, served in a number of high-profile appointments for the government of the United States, including Ambassador to Belgium, and served as Special Assistant to the Director of the FBI for Counter-Intelligence and Counter-Terrorism.  During his legal career he served as a United States Supreme Court and federal appellate court law clerk prior to entering private practice in Washington, DC, where in addition to legal practice, he served as advisor to candidates for President, Governor and the U.S. Senate.

Family Relationships

There are no family relationships among any of our directors and executive officers.

Term of Office

Each director of our company is to serve for a term of one year ending on the date of the subsequent annual meeting of shareholders following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director is eligible for re-election or re-appointment. Our Board of Directors appoints our officers and each officer is to serve until his successor is appointed and qualified in accordance with the terms and conditions and at the remuneration that the Board of Directors see fit and are subject to termination at the pleasure of the Board of Directors.

Involvement in Certain Legal Proceedings

During the past ten years, none of our directors or executive officers have been the subject of the following events:

1. a petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;


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2. convicted in a criminal proceeding or is a named subject of a pending criminal proceeding

(excluding traffic violations and other minor offenses);

3. the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities;

(i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

(ii) engaging in any type of business practice; or

(iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

4. the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;

5. was found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;

6. was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

7. was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

(i) any Federal or State securities or commodities law or regulation; or

(ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or

(iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

8. was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Director Independence

Our Board has determined that the following directors are "independent" as such directors do not have a direct or indirect material relationship with our company. A material relationship is a relationship which could, in the view of our Board of Directors, be reasonably expected to interfere with the exercise of a director's independent judgment.

 Harry Bloomfield;

 David Levine; and

 Raj Attariwala.

Employees

As of the end of the Company's most recently completed financial year, August 31, 2021, the Company had two employees, other than the Company's executive officers. As of the date of this Registration Statement, the Company has two employees, other than the Company's executive officers. The Company uses consultants for the provision of all management and other services.


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EXECUTIVE COMPENSATION

In this Statement, references to "the Company", "Algernon Pharmaceuticals", "we" and "our" refer to Algernon Pharmaceuticals Inc.  "Common Shares" mean Class A Common Shares without par value in the capital of the Company.

All monetary amounts herein are expressed in Canadian Dollars ("$") unless otherwise stated.  In this Statement:

"CEO" of the Company means each individual who acted as chief executive officer of the Company or acted in a similar capacity for any part of the most recently completed financial year;

"CFO" of the Company means each individual who acted as chief financial officer of the Company or acted in a similar capacity for any part of the most recently completed financial year;

"compensation securities" includes stock options, convertible securities, exchangeable securities and similar instruments including stock appreciation rights, deferred share units and restricted stock units granted or issued by the Company or one of its subsidiaries (if any) for services provided or to be provided, directly or indirectly to the Company or any of its subsidiaries (if any); and

"Named Executive Officer" or "NEO" means each of the following individuals:

1) each individual who, in respect of the Company, during any part of the most recently completed financial year, served as chief executive officer, including an individual performing functions similar to a chief executive officer;

2) each individual who, in respect of the Company, during any part of the most recently completed financial year, served as chief financial officer, including an individual performing functions similar to a chief financial officer;

3) in respect of the Company and its subsidiaries, the most highly compensated executive officer other than the individuals identified in paragraphs (a) and (b) at the end of the most recently completed financial year whose total compensation was more than $150,000 for the financial year, and

4) each individual who would be an NEO under paragraph (c) but for the fact that the individual was neither an executive officer of the Company, and was not acting in a similar capacity, at the end of that financial year.

Director and Named Executive Officer Compensation

As at the year ended August 31, 2021, the Company had three NEOs, namely Christopher Moreau, the Chief Executive Officer and a director, Mark Williams, the former Chief Science Officer and Michael Sadhra, the Chief Financial Officer and former director.  The Company had two independent directors: Raj Attariwala and David Levine.

This section sets out the objectives of our Company's executive compensation arrangements, our Company's executive compensation philosophy and the application of this philosophy to our Company's executive compensation arrangements. It also provides an analysis of the compensation design, and the decisions that the Board made in fiscal 2021 with respect to its NEOs (as herein defined). Subsequent to end of the 2021 fiscal year, the Company established the Compensation Committee. The Compensation Committee determines compensation for the directors and officers of the Company as well as the procedures for this determination. See "Directors, Senior Management and Employees - Board Practices - Compensation Committee.

Director and NEO Compensation Excluding Options and Compensation Securities

The following table presents information concerning all compensation paid, payable, given, or otherwise provided, directly or indirectly, to NEOs and Directors by the Company for services in all capacities to the Company during the two most recently completed financial years:


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Name and
Principal Position
  Year     Salary
consulting
fee,
retainer or
commission

($)
    Bonus
($)
    Committee
or meeting

($)
    Value of
Perquisites

($)
    Value of all
other
compen-
sation

($)
    Total
Compen-
sation

($)
 
Christopher Moreau(1)
CEO and Director
  2021
2020
    220,000
157,000
    Nil
100,000
    Nil
Nil
    Nil
Nil
    36,079
Nil
    256,079
257,000
 
                                           
Mark Williams(2)
Former Chief Science Officer
  2021
2020
    116,667
166,663
    Nil
100,000
    Nil
Nil
    Nil
Nil
    Nil
Nil
    116,667
266,663
 
                                           
Michael Sadhra(3)
Former CFO and Former Director
  2021
2020
    120,000
60,000
    Nil
20,000
    Nil
Nil
    Nil
Nil
    28,864
Nil
    148,864
80,000
 
                                           
Christopher Bryan(4)
Vice President of Research and Operations
  2021
2020
    65,000
N/A
    Nil
N/A
    Nil
N/A
    Nil
N/A
    Nil
N/A
    65,000
N/A
 
                                           
Raj Attariwala
Director
  2021
2020
    6,000
4,000
    Nil
Nil
    Nil
Nil
    Nil
Nil
    7,216
Nil
    13,216
4,000
 
                                           
David Levine
Director
  2021
2020
    6,000
4,000
    Nil
Nil
    Nil
Nil
    Nil
Nil
    7,216
Nil
    13,216
4,000
 
                                           
Alfred Wong(5)
Former VP Corporate
Development
  2021
2020
    Nil
4,000
    Nil
Nil
    Nil
Nil
    Nil
Nil
    Nil
Nil
    Nil
4,000
 

Notes:

(1) Mr. Moreau was appointed as CEO on March 1, 2018 and as a director on May 5, 2020.

(2) Dr. Williams was appointed Chief Science Officer on October 19, 2018 and resigned effective on March 1, 2021. Dr. Williams was appointed as director of the Company on September 22, 2021.

(3) Mr. Sadhra resigned as director of the Company on September 16, 2021 and as CFO on November 30, 2021.

(4) Dr. Bryan was appointed as Vice President of Research and Operations on March 1, 2021.

(5) Mr. Wong resigned as the VP Corporate Development of the Company on August 27, 2019.

Other than as set forth above, no NEO or Director of the Company has, during the most recently completed financial year, received compensation pursuant to:

1) any standard arrangement for the compensation of NEOs or Directors for their services in their capacity as NEOs and/or Directors, including any additional amounts payable for committee participation or special assignments;

2) any other arrangement, in addition to, or in lieu of, any standard arrangement, for the compensation of NEOs in their capacity as NEOs; or

3) any arrangement for the compensation of NEOs of Directors for services as consultants or expert.


- 85 -

Compensation Securities

There were no compensation securities granted or issued to any NEO or Director of the Company during the most recently completed financial year ended August 31, 2021.

As of August 31, 2021, the NEOs and Directors of the Company held the following compensation securities:

Mr. Moreau had a total of 20,000 stock options and nil RSUs:

 2,500 stock options were issued on March 1, 2018, each exercisable into one Common Share at a price of $48.00 per share until March 1, 2023;

 5,000 stock options issued on February 13, 2020, each exercisable into one Common Share at a price of $10.00 per share until February 13, 2025;

 12,500 stock options issued on April 13, 2020, each exercisable into one Common Share at a price of $29.00 per share until April 13, 2025; and

 12,500 RSUs were issued on July 23, 2020, each RSU convertible into one Common Share.  The RSUs vested over a 12-month period with 1/3 vesting on the grant date, 1/3 vesting on January 22, 2021 and the remaining 1/3 vesting on July 22, 2021.  A total of 4,125 RSUs vested on July 23, 2020. As of August 31, 2021, all RSUs were settled. A total of 8,250 RSUs from the first and second tranches were settled in common shares with the third and final tranche of 4,250 RSUs settled in cash.

Dr. Williams had a total of 17,500 stock options and nil RSUs:

 5,000 stock options issued on February 13, 2020, each exercisable into one Common Share at a price of $10.00 per share until February 13, 2025. These stock options were exercised on May 27, 2021;

 12,500 stock options issued on April 13, 2020, each exercisable into one Common Share at a price of $29.00 per share until April 13, 2025. These stock options expired unexercised on May 29, 2021 upon Dr. Williams' resignation as Chief Science Officer effective March 1, 2021; and

 10,000 RSU's were issued on July 23, 2020, each RSU convertible into one Common Share. The RSUs vested over a 12 month period with 1/3 vesting on the grant date, 1/3 vesting on January 22, 2021 and the remaining 1/3 vesting on July 22, 2021. As of August 31, 2021, a total of 6,600 RSUs from the first and second tranches were settled in common shares. Upon Dr. Williams' resignation as Chief Science Officer effective March 1, 2021, the third and final tranche of 3,400 RSUs were forfeited.

Mr. Sadhra had a total of 22,000 stock options and nil RSUs:

 500 stock options were issued on May 18, 2017 each exercisable into one Common Share at a price of $30.00 per share until May 18, 2022;

 1,500 stock options were issued on March 1, 2018 exercisable into one Common Share at a price of $48.00 per share until March 1, 2023;

 10,000 stock options issued on February 13, 2020, each exercisable into one Common Share at a price of $10.00 per share until February 13, 2025;

 10,000 stock options issued on April 13, 2020, each exercisable into one Common Share at a price of $29.00 per share until April 13, 2025; and

 10,000 RSUs were issued on July 23, 2020, each RSU convertible into one Common Share.  The RSUs vested over a 12-month period with 1/3 vesting on the grant date, 1/3 vesting on January 22, 2021 and the remaining 1/3 vesting on July 22, 2021.  A total of 3,300 RSUs vested on July 23, 2020. As of August 31, 2021, all RSUs were settled. A total of 6,600 RSUs from the first and second tranches were settled in common shares with the third and final tranche of 3,400 RSUs settled in cash.


- 86 -

Mr. Attariwala had a total of 5,000 stock options and nil RSUs:

 500 stock options were issued on May 18, 2017 each exercisable into one Common Share at a price of $30.00 per share until May 18, 2022;

 500 stock options were issued on March 1, 2018 exercisable into one Common Share at a price of $48.00 per share until March 1, 2023;

 2,000 stock options issued on February 13, 2020, each exercisable into one Common Share at a price of $10.00 per share until February 13, 2025;

 2,000 stock options issued on April 13, 2020, each exercisable into one Common Share at a price of $29.00 per share until April 13, 2025; and

 2,500 RSUs were issued on July 23, 2020, each RSU convertible into one Common Share.  The RSUs vested over a 12-month period with 1/3 vesting on the grant date, 1/3 vesting on January 22, 2021 and the remaining 1/3 vesting on July 22, 2021.  A total of 825 RSUs vested on July 23, 2020. As of August 31, 2021, all RSUs were settled. A total of 1,650 RSUs from the first and second tranches were settled in common shares with the third and final tranche of 850 RSUs settled in cash.

Mr. Levine had a total of 5,000 stock options and nil RSUs:

 500 stock options were issued on May 18, 2017 each exercisable into one Common Share at a price of $30.00 per share until May 18, 2022;

 500 stock options were issued on March 1, 2018 exercisable into one Common Share at a price of $48.00 per share until March 1, 2023.

 2,000 stock options issued on February 13, 2020, each exercisable into one Common Share at a price of $10.00 per share until February 13, 2025;

 2,000 stock options issued on April 13, 2020, each exercisable into one Common Share at a price of $29.00 per share until April 13, 2025; and

 2,500 RSUs were issued on July 23, 2020, each RSU convertible into one Common Share.  The RSUs vested over a 12-month period with 1/3 vesting on the grant date, 1/3 vesting on January 22, 2021 and the remaining 1/3 vesting on July 22, 2021.  A total of 825 RSUs vested on July 23, 2020. As of August 31, 2021, all RSUs were settled. A total of 1,650 RSUs from the first and second tranches were settled in Common Shares with the third and final tranche of 850 RSUs settled in cash.


- 87 -

Exercise of Compensation Securities by Directors and NEOs:

The following table sets out compensation securities that were exercised/settled by Directors and NEOs during the financial year ended August 31, 2021:

Name and
position
  Type of
compensation
security
    Number of
underlying
securities
exercised
    Exercise
price per
security ($)
    Date of
exercise/vesting
    Closing
price per
security on
date of
exercise ($)
    Difference
Between
exercise
price and
closing price
on date of
exercise ($)
    Total value
on exercise
date ($)
 
Christopher Moreau CEO and Director   RSUs     4,125
4,125
4,250
  $ 35.00
$26.60
$8.50
    07/23/20
01/22/21
07/22/21
  $ 35.00
$26.60
$8.50
    N/A   $ 144,375
$109,725
$36,079
 
Mark Williams
Director and Former Chief Science Officer
  RSUs     3,300
3,300
  $ 35.00
$26.60
    07/23/20
01/22/21
  $ 35.00
$26.60
    N/A   $ 115,500
$87,780
 
Michael Sadhra
CFO and Former Director
  RSUs     3,300
3,300
3,400
  $ 35.00
$26.60
$8.50
    07/23/20
01/22/21
07/22/21
  $ 35.00
$26.60
$8.50
    N/A   $ 115,500
$87,870
$28,864
 
Raj Attariwala
Director
  RSUs     825
825
850
  $ 35.00
$26.60
$8.50
    07/23/20
01/22/21
07/22/21
  $ 35.00
$26.60
$8.50
    N/A   $ 28,875
$21,945
$7,216
 
David Levine
Director
  RSUs     825
825
850
  $ 35.00
$26.60
$8.50
    07/23/20
01/22/21
07/22/21
  $ 33.00
$26.60
$8.50
    N/A   $ 28,875
$21,945
$7,216
 

Stock Option Plan

The Company adopted a Stock Option Plan on September 11, 2015, which was adopted by shareholders on April 10, 2017 (the "Stock Option Plan").

The purpose of the Stock Option Plan is to attract, retain, and motivate NEOs, directors, employees and other service providers by providing them with the opportunity, through the grant of Stock Options, to acquire an interest in the Company and benefit from the Company's growth.  A Stock Option is an incentive share purchase option that entitles the holder to purchase Common Shares.

Under the Stock Option Plan, the maximum number of Common Shares reserved for issuance, including Stock Options currently outstanding, is equal to 10% of the issued and outstanding Common Share from time to time (the "10% Maximum").  Following the exercise, termination, cancellation or expiration of any Stock Options, a number of Common Shares equivalent to the number of Stock Options exercised, terminated, cancelled or expired would become available for reserve for issuance in respect of future Stock Option grants.

Material Terms to the Stock Option Plan

1) The number of Common Shares which may be the subject of Stock Options on a yearly basis to any one person cannot exceed 5% of the number of issued and outstanding Common Shares at the time of the grant;

2) Stock Options may be granted to any employee, officer, director, consultant, affiliate or subsidiary of the Company exercisable at a price which is not less than the market price of Common Shares on the date of the grant;

3) The directors of the Company may, by resolution, determine the time period during which any Stock Option may be exercised (the "Exercise Period"), provided that the Exercise Period does not contravene any rule or regulation of such exchange on which the Common Shares may be listed;

4) All Stock Options will terminate on the earliest to occur of:

(i) the expiry of their term;

(ii) the date of termination of an optionee's employment, office or position as director, if terminated for just cause;

(iii) 90 days (or such other period of time as permitted by any rule or regulation of such exchange on which the Common Shares may be listed) following the date of termination of an optionee's position as a director or NEO, if terminated for any reason other than the optionee's disability or death; and

(iv) 30 days following the date of termination of an optionee's position as a consultant engaged in investor relations activities, if terminated for any reason other than the optionee's disability, death, or just cause;


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5) Stock Options are non-assignable and non-transferable and are subject to early termination in the event of the death of a participant or in the event a participant ceases to be a NEO, director, employee, consultant, affiliate, or subsidiary of the Company, as the case may be.

Subject to the foregoing restrictions, and certain other restrictions set out in the Stock Option Plan, the Board is authorized to provide for the granting of Stock Options and the exercise and method of exercise of Stock Options granted under the Stock Option Plan.

Restricted Share Unit (RSU) Plan

The Company adopted a 10% rolling RSU Plan on July 23, 2020.  The RSU Plan allows the Company to grant RSUs to directors, officer, employees and consultants of the Company ("Eligible Persons").

A RSU is a bookkeeping entry equivalent in value to a Common Share credited to an Eligible Person's (a "Participant") account and represents the right of a Participant to whom a grant of such RSUs is made to receive one Common Share (or an amount of cash equal to the market value thereof).

The purpose of the RSU Plan is to promote and advance the interests of the Company by:

(i) providing Eligible Persons with additional incentive through an opportunity to receive discretionary bonuses in the form of Common Shares,

(ii) encouraging stock ownership by such Eligible Persons,

(iii) increasing the proprietary interest of Eligible Persons in the success of the Company, and

(iv) increasing the ability to attract, retain and motivate Eligible Persons.  Similar to the Stock Option Plan, the maximum number of Common Shares reserved for issuance under the RSU Plan shall not exceed 10% of the issued and outstanding Common Shares from time to time (the "10% Maximum"), less any Common Shares reserved for issuance under all other compensation agreements, such as the Stock Option Plan.

The RSU Plan is a "rolling plan" and when RSUs are cancelled (whether or not upon payment with respect to vested RSUs) or terminated, the number of Common Shares in respect of such cancelled or terminated RSUs shall again be available for the purpose of granting RSU Awards pursuant to the RSU Plan.

Material Terms to the RSU Plan

1) RSUs may be granted to any employee, officer, director, consultant or subsidiary of the Company provided that RSUs granted to any Eligible Person shall be approved by shareholders if the rules of the stock exchange the Company is listed on requires such approval;

2) Where the Board determines to grant a RSU Award to an Eligible Person and sets the terms and conditions applicable to such RSU Award, the Company shall deliver to the Eligible Person a RSU Grant Letter, containing the terms and conditions applicable to such RSU Award and will credit the Participant's account with the number of RSUs granted to such Participant under the terms of the RSU Award on the grant of an RSU Award;

3) The grant of a RSU Award shall entitle the Participant to the conditional right to receive for each RSU credited to the Participant's Account, at the election of the Company, either one Common Share or an amount in cash, net of applicable taxes and contributions to government sponsored plans, as determined by the Board, equal to the market price of one Common Share for each RSU credited to the Participant's Account on the Settlement Date, subject to the conditions set out in the RSU Grant Letter and in the Plan, and subject to all other terms of the RSU Plan;

4) An Eligible Person may receive an RSU Award on more than one occasion under the RSU Plan and may receive separate RSU Awards on any one occasion;

5) RSUs granted under the RSU Plan to an Eligible Person in a calendar year will (subject to any applicable terms and conditions) represent a right to a bonus or similar award to be received for services rendered by such Eligible Person to the Company or an affiliate, as the case may be, in the fiscal year ending in, coincident with or before such calendar year, subject to any other determination by the Company;


- 89 -

6) Subject to the provisions of the RSU Plan and any vesting limitations imposed by the Board at the time of grant, RSUs subject to an RSU Award may be settled by a Participant during the Settlement Period applicable to the RSU by delivery to the Company of a notice (the "Settlement Notice") in a form attached to the RSU Grant Letter.  As soon as practicable following the receipt of the Settlement Notice, RSUs will be settled by the Company through the delivery by the Company of such number of Common Shares equal to the number of RSUs then being settled or, at a Company's election, an amount in cash, net of applicable taxes and contributions to government sponsored plans, equal to the market price at the Settlement Date of one Common Share for each RSU then being settled.  Where, prior to the Expiry Date, a Participant fails to elect to settle an RSU, the Participant shall be deemed to have elected to settle such RSUs on the day immediately preceding the Expiry Date.

7) Notwithstanding the foregoing, if the Company elects to issue Common Shares in settlement of RSUs:

(i) the Company may arrange for such number of the Common Shares to be sold as it deems necessary or advisable to raise an amount at least equal to its determination of such applicable taxes, with such amount bring withheld by the Company; or

(ii) the Company may elect to settle for cash such number of RSUs as it deems necessary or advisable to raise funds sufficient to cover such withholding taxes with such amount being withheld by the Company; or

(iii) the Company may, as a condition of settlement in the form of Common Shares, require the Participant to pay the applicable taxes as determined by the Company or make such other arrangement acceptable to the Company in its discretion (if at all) as it deems necessary or advisable.

8) Except as otherwise determined by the Board:

(i) The "Termination Date" means the date on which a Participant ceases to be an Eligible Person;

(ii) all RSUs held by the Participant (whether vested or unvested) shall terminate automatically upon the termination of the Participant's service with the Company or any subsidiary companies for any reason other than as set forth in paragraph (b) and (c) below;

(iii) in the case of a termination of the Participant's service by reason of (A) termination by the Company or any Subsidiary Companies other than for Cause, or (B) the Participant's death, the Participant's unvested RSUs shall vest automatically as of such date, and on the earlier of the original Expiry Date and any time during the ninety (90) day period commencing on the date of such termination of service (or, if earlier, the Termination Date), the Participant (or his or her executor or administrator, or the person or persons to whom the Participant's RSUs are transferred by will or the applicable laws of descent and distribution) will be eligible to request that the Company settle his vested RSUs.

Where, prior to the 90th day following such termination of service (or, if earlier, the Termination Date) the Participant fails to elect to settle a vested RSU, the Participant shall be deemed to have elected to settle such RSU on such 90th day (or, if earlier, the Termination Date) and to receive Common Shares in respect thereof;

(i) in the case of a termination of the Participant's services by reason of voluntary resignation, only the Participant's unvested RSUs shall terminate automatically as of such date, and any time during the ninety (90) day period commencing on the date of such termination of service (or, if earlier, the Termination Date), the Participant will be eligible to request that the Company settle it's vested RSUs.  If the Participant fails to elect to settle a vested RSU, the Participant shall be deemed to have elected to settle such RSU on the 90th day and will receive Common Shares in respect thereof;

(ii) for greater certainty, where a Participant's employment or term of office terminates by reason of termination by the Company or any subsidiary companies for cause then any RSUs held by the Participant, whether or not vested at the Termination Date, immediately terminate and are cancelled on the Termination Date or at a time as may be determined by the Board, in its sole discretion;

(iii) a Participant's eligibility to receive further grants of RSUs under the RSU Plan ceases as of the earliest of the date the Participant resigns from the Company or any subsidiary company and the date that the Company or any subsidiary company provides the Participant with written notification that the Participant's employment or term of office, as the case may be, is terminated, notwithstanding that such date may be prior to the Termination Date; and


- 90 -

(iv) for the purposes of the RSU Plan, a Participant shall not be deemed to have terminated service where: (i) the Participant remains in employment or office within or among the Company or any subsidiary company or (ii) the Participant is on a leave of absence approved by the Board.

9) RSUs shall not be transferable or assignable by the Participant otherwise than by will or the laws of descent and distribution, and shall be exercisable during the lifetime of a Participant only by the Participant and after death only by the Participant's legal representative.

Subject to the foregoing restrictions, and certain other restrictions set out in the RSU Plan, the Board is authorized to provide for the granting of RSUs, the vesting limitations on the RSUs and the method in which the RSUs are settled.

Employment, Consulting and Management Agreements

Management functions of the Company are substantially performed by directors or senior officers (or private companies controlled by then, either directly or indirectly) of the Company and not, to any substantial degree, by any other person with whom the Company has contracted.

The Company entered into a Management Consulting Agreement dated March 1, 2018 with Christopher Moreau (the "Moreau Agreement") whereby he was retained to act as the Company's CEO.  The Moreau Agreement provided for the remuneration of Mr. Moreau at the rate of CAD$9,000 per month (the "Moreau Base Fee").  The Moreau Base Fee was increased to CAD$13,333 per month effective on December 1, 2019.  The Moreau Agreement was amended and restated on July 31, 2020 ("Moreau Amended and Restated Agreement") whereby the Moreau Base Fee was further amended to CAD$18,333 per month effective on July 31, 2020.  Mr. Moreau is not paid for being a director of the Company. On September 1, 2020, the Company replaced the Moreau Amended and Restated Agreement with an Executive Employment Agreement with Mr. Moreau at the same rate of CAD$18,333 per month. The Executive Employment Agreement contains a change of control clause where Mr. Moreau may terminate the Executive Employment Agreement in connection with any Change of Control by providing the Company with 30 days notice in writing, within 90 days after the Change in Control.  In this event the Company is required to pay Mr. Moreau an amount equal to two years of the base salary in effect at the time that the notice is provided.

The Company's affiliate, Nash Pharma entered into a Management Consulting Agreement dated July 1, 2018 with Dr. Mark Williams (the "Williams Agreement") whereby he was retained to act as the CEO of Nash Pharma.  The Williams Agreement provided for the remuneration of Dr. Williams at the rate of CAD$13,333 per month (the "Williams Base Fee").  After the acquisition of Nash Pharma by the Company, the Williams Agreement was amended on October 19, 2018 ("Williams Amended Agreement") whereby Dr. Williams was appointed to the position of Chief Science Officer of Nash Pharma.  The Williams Base Fee remained unchanged.  The Williams Amended Agreement was further amended and restated on July 31, 2020 ("Williams Amended and Restated Agreement") whereby the Williams Base Fee was amended to CAD$16,666 per month effective on July 31, 2020. Dr. Williams resigned as Chief Science Officer effective March 1, 2021 and was appointed as director of the Company on September 22, 2021.

Under prior agreement with the Company, Michael Sadhra has acted as the Company's CFO at a rate of CAD$4,000 per month (the "Sadhra Base Fee").  The Company amended and restated any prior agreement it had with Mr. Sadhra on July 31, 2020 ("Sadhra Amended and Restated Agreement") whereby the Sadhra Base Fee was amended to CAD$10,000 per month effective on July 31, 2020.  Mr. Sadhra is not paid for being a director of the Company. On September 1, 2020, the Company replaced the Sadhra Amended and Restated Agreement with an Executive Employment Agreement with Mr. Sadhra at the same rate of CAD$10,000 per month. Mr. Sadhra resigned as Director effective September 16, 2021.

Under prior agreement with the Company, Dr. Christopher Bryan has acted as the Company's Senior Scientist at a rate of CAD$8,000 per month (the "Bryan Consulting Agreement") since June 1, 2020.  On March 1, 2021, the Company replaced the Bryan Consulting Agreement with an Executive Employment Agreement with Dr. Christopher Bryan whereby he was retained to act as the Company's Vice President of Research and Operations at a rate of CAD$ 10,833.33 per month. 

Oversight and Description of Director and NEO Compensation

The Company does not have a compensation committee or a formal compensation policy and relies solely on the Board of Directors to determine NEO compensation.  In determining compensation, the Board considers industry standards and its financial situation but does not currently have any formal objectives or criteria.  The performance of each NEO is informally monitored by the Board, who keeps in mind the business strengths of the individual and the purpose of originally appointing the individual as an officer.  The duties and responsibilities of the NEOs are typical of those of a business entity of the Company's size in a similar business and include direct reporting responsibility to the Board, overseeing the activities of all other executive and management consultants, representing the Company, providing leadership and responsibility for achieving corporate goals and implementing corporate policies and initiatives.


- 91 -

The Board is also responsible for recommending compensation for the directors and granting stock options to the directors, NEOs and employees of, and consultants to, the Company pursuant to the Company's Stock Option Plan (defined below).

Philosophy and Objectives

The compensation program for the senior management of the Company is designed to ensure that the level and form of compensation achieves certain objectives, including:

 attracting and retaining talented, qualified and effective executives;

 motivating the short and long-term performance of these executives; and

 better aligning their interests with those of the Company's shareholders.

In compensating its senior management, the Company has employed a combination of base salary and equity participation through its Stock Option Plan.

The Company relies solely on the discussions of the Board, without any formal objectives, criteria and analysis, for determining executive compensation.

Base Salary or Consulting Fees

In establishing the base salary for NEOs, the Board considers the NEO's performance, level of expertise, responsibilities, length of service to the Company and comparable levels of remuneration paid to executives of other companies of comparable size and development.  The financial and other resources of the Company are also considered since capital management is critical to the Company as a successful generator of business using Shareholders' funds. Using this information, together with budgetary guidelines the Board determines and sets the base salaries of the CEO, CFO and other NEOs.

Bonus Incentive Compensation

The Company's objective is to achieve certain strategic objectives and milestones.  The Board will consider executive bonus compensation dependent upon the Company meeting those strategic objectives and milestones and sufficient cash resources being available for granting of bonuses.  The Board approves executive bonus compensation dependent upon compensation levels based on recommendations of the CEO.  Such recommendations are generally based on information provided by issuers that are similar in size and scope to the Company's operations.

Equity Participation

The Company believes that encouraging its executives and employees to become shareholders is the best way of aligning their interests with those of its shareholders.  Equity participation is accomplished through the Company's stock option plan.  Stock options are granted to executives and employees taking into account a number of factors, including the amount and term of options previously granted, base salary and bonuses and competitive factors.  The amounts and terms of options granted are determined by the Board.  The Board continues to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above.

Given the evolving nature of the Company's business, the Board continues to review and redesign the overall compensation plan for senior management so as to continue to address the objectives identified above.

Compensation Review Process

Compensation Components: Compensation paid to the Company's NEOs consists of a base salary in the form of cash compensation, and long-term incentive stock options.  No specific formula is used to assign a specific weighting to these components.  Instead, the Board considers the Company's performance and assigns compensation based on this assessment.

In establishing compensation levels, the Board also relies on the experience of its members as officers and directors of other companies in similar lines of business as the Company.  The purpose of this comparison to similar companies is to: (1) understand the competitiveness of current pay levels for each executive position relative to companies with similar business characteristics; (2) identify and understand any gaps that may exist between actual compensation levels and market compensation levels; and (3) establish a basis for developing salary adjustments and long-term incentive awards for the Board to consider and approve.


- 92 -

Long Term Compensation

Long term compensation is paid in the form of granting of stock options.  The Board established the Stock Option Plan to encourage share ownership and entrepreneurship on the part of the directors, management and employees.  The Board believes that the Stock Option Plan aligns the interests of the NEOs with the interests of Shareholders by linking a component of compensation to the longer-term performance of the Common Shares.

Stock Options are generally granted on an annual basis, subject to the imposition of trading blackout periods, in which case options scheduled for grant will be granted subsequent to the end of the black-out period.  All stock options granted to NEOs are approved by the Board.  In monitoring stock option grants, the Board takes into account the level of stock options granted by comparable companies for similar levels of responsibility and considers each NEO based on reports received from management, its own observations on individual performance (where possible) and its assessment of individual contributions to Shareholder value.

In addition to determining the number of stock options to be granted pursuant to the methodology outlined above, the Board also makes the following determinations:

 the exercise price for each stock option granted;

 the date on which each stock option is granted;

 the vesting terms for each stock option; and

 the other materials terms and conditions of each stock option grant.

The Board makes these determinations subject to and in accordance with the provision of the Stock Option Plan.

Risks Associated with the Company's Compensation Program

Neither the Board nor any committee of the Board considered the implications of the risks associated with the Company's compensation program during the most recently completed financial year.  All of the Company's option-based awards for the benefit of executive officers were fully discretionary.

Hedging by Named Executive Officers or Directors

The Company has no policy with respect to NEOs or directors purchasing financial instruments, including, for greater certainty, 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 NEO or director.

Benefits and Perquisites

The Company does not offer any benefits or perquisites to its directors or NEOs other than potential grants of incentive stock options as otherwise disclosed and discussed herein.

Option-Based Awards

As described above, the Company has a 10% "rolling" Stock Option Plan.  The Stock Option Plan was established to provide incentive to qualified parties to increase their proprietary interest in the Company and thereby encourage their continuing association with the Company.  Management proposes stock option grants to the Board based on such criteria as performance, previous grants, and hiring incentives.  All grants require approval of the Board.

The purpose of the Company's Option Plan is to provide the Company with a share related mechanism to enable the Company to attract, retain and motivate qualified directors, officers, employees and other service providers, to reward directors, officers, employees and other service providers for their contribution toward the long-term goals of the Company and to enable and encourage such individuals to acquire Common Shares as long-term investments.

Share-Based Awards

As described above, the Company has a 10% "rolling" RSU Plan.  The RSU Plan was established to promote and advance the interests of the Company by providing Eligible Persons with additional incentive through an opportunity to receive discretionary bonuses in the form of Common Shares, encourage stock ownership by such Eligible Persons, increase the proprietary interest of Eligible Persons in the success of the Company, and increase the ability to attract, retain and motivate Eligible Persons.


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Management proposes RSU Awards to the Board based on such criteria as performance, previous grants, and hiring incentives.  All RSU Awards require approval of the Board.

Oversight and Description of Director Compensation

In the Board's view, there is, and has been, no need for the Company to design or implement a formal compensation program for directors.  While the Board considers Option grants to directors under the Option Plan from time to time, the Board does not employ a prescribed methodology when determining the grant or allocation of Options.  Other than the Option Plan, as discussed above, the Company does not offer any long-term incentive plans, share compensation plans or any other such benefit programs for directors.

Pension Plan Benefits

The Company does not have a pension plan that provides for payments or benefits to the NEOs or Directors at, following, or in connection with retirement.

Termination and Change of Control Benefits

There are no compensatory plan(s) or arrangements(s), with respect to any of the NEOs resulting from the resignation, retirement or any other termination of employment of the officer's employment or from a change of the NEOs responsibilities following a change of control.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets out, as of the end of the Company's fiscal year ended August 31, 2021 all required information with respect to compensation plans under which equity securities of the Company are authorized for issuance:

Plan Category      Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights

(a)
    Weighted-average
exercise price of
outstanding options,
warrants and rights

(b)
    Number of securities
remaining available for
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column (a))

(c)
 
Equity compensation plans approved by security holders   155,750   $ 11.02     11,735 (1 )
Equity compensation plans not approved by security holders   N/A     N/A     11,735(1 )
Total   155,750           11,735(1 )

Note:

(1) The Company had a total of 1,674,868 Common Shares issued and outstanding as at August 31, 2021.  The maximum number of Common Shares reserved for issuance under the Stock Option Plan and RSU Plan collectively shall not exceed 10% of the issued and outstanding Common Shares from time to time.

PRINCIPAL SHAREHOLDERS

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding the beneficial ownership of our common share as of February [●] , 2022 by (a) each stockholder who is known to us to own beneficially 5% or more of our outstanding common share; (b) all directors; (c) our executive officers, and (d) all executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their common shares, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their common shares.


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Name   Common Shares of
the Company
Beneficially Owned
(1)
    Percentage of
Common Shares
Beneficially
Owned
(2)
 
Directors and Executive Officers:            
Christopher Moreau, Chief Executive Officer and Director   69,027(3 )   4.0%  
Christopher Bryan, Vice President of Research and Operations   9,250(4 )   *  
James Kinley, Chief Financial Officer   6,774(5 )   *  
Raj Attariwala, Director   22,937(6 )   1.4%  
David Levine, Director   12,937(7 )   *  
Harry Bloomfield, Director   12,000 (8 )   *  
Mark Williams, Director   6,500 (9 )   *  
Directors and Executive Officers as a Group (7 persons)   139,425(10 )   7.8%  
Other 5% or more Shareholders:            
N/A   -     -  

____________________
Notes

(*) Less than 1%

(1) Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or common shares: (i) voting power, which includes the power to vote, or to direct the voting of Common Shares; and (ii) investment power, which includes the power to dispose or direct the disposition of Common Shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the common shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership or voting power with respect to the number of Common Shares actually outstanding on February__, 2022.

(2) The percentage is calculated based on 1,674,868 Common Shares that were outstanding as of February __, 2022.

(3) This figure consists of (i) 17,027 Common Shares directly held by Mr. Moreau and (ii) 52,000 stock options to purchase 52,000 Common Shares which have vested as of February __, 2022.

(4) This figure consists of 9,250 stock options to purchase 9,250 Common Shares which have vested as of February __, 2022.

(5) This figure consists of (i) 24 Common Shares directly held by Mr. Kinley and (ii) 6,750 stock options to purchase 6,750 Common Shares which have vested as of February __, 2022.

(6) This figure consists of (i) 11,437 Common Shares directly held by Mr. Attariwala and (ii) 11,500 stock options to purchase 11,500 Common Shares which have vested as of February __, 2022.

(7) This figure consists of (i) 1,437 Common Shares directly held by Mr. Levine and (ii) 11,500 stock options to purchase 11,500 Common Shares which have vested as of February __, 2022.

(8) This figure consists of (i) 2,000 Common Shares held by Eldee Foundation (over which Mr. Bloomfield has discretionary voting and investment authority) and (ii) 10,000 stock options to purchase 10,000 Common Shares which have vested as of February __, 2022.

(9) This figure consists of 6,500 stock options to purchase 6,500 Common Shares which have vested as of February __, 2022.

(10) This figure consists of (i) 31,925 Common Shares and (ii) 107,500 stock options to purchase 107,500 Common Shares which have vested as of February __, 2022.

The information as to shares beneficially owned, not being within our knowledge, has been furnished by the officers and directors.


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RELATED PARTY TRANSACTIONS

Key management personnel are considered to be those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management includes senior officers and directors of the Company.

Related party transactions to key management personnel are as follows:

Year ended   August 31, 2021     August 31, 2020     August 31, 2019  
Short-term benefits(1) $ 596,375   $ 8,000   $ -  
Consulting fees - other(2) $ 11,750   $ 606,663   $ 297,391  
Share-based payments(3) $ 697,667   $ 2,489,669   $ -  
Rent(4) $ 36,000   $ 32,000   $ 24,000  

Note:

(1) Salaries paid to officers and director fees to independent directors:

- $256,079 (August 31, 2020 - $nil, August 31, 2019 -$nil) to Chief Executive Officer;

- $148,864 (August 31, 2020 - $nil, August 31, 2019 -$nil) to Chief Financial Officer;

- $100,000 (August 31, 2020 - $nil, August 31, 2019 -$nil) to Chief Science Officer who resigned effective March 1, 2021;

- $65,000 (August 31, 2020 - $nil, August 31, 2019 -$nil) to VP of Research and Operations who took on the role effective March 1, 2021;

- $13,216 (August 31, 2020 - $4,000, August 31, 2019 -$nil) to an independent director; and

- $13,216 (August 31, 2020 - $4,000, August 31, 2019 -$nil) to an independent director.

(2) Fees paid to consultants/companies related to management personnel:

- $nil (August 31, 2020 - $257,000, August 31, 2019 - $108,000) to a company controlled by the Chief Executive Officer;

- $nil (August 31, 2020 - $80,000, August 31, 2019 - $48,000) to a company controlled by the Chief Financial Officer;

- $nil (August 31, 2020 - $266,663, August 31, 2019 - $138,491) to the Chief Science Officer; and

- $11,750 (August 31, 2020 - $3,000, August 31, 2019 - $2,900) for tax services paid to a partnership where Chief Financial Officer is a partner.

(3) Share-based payments were non-cash items that consisted of the fair value of RSUs that were granted but unvested.

(4) Rent:

 - $36,000 (August 31, 2020 - $32,000, August 31, 2019 - $24,000) paid for corporate office space to a company controlled by Chief Financial Officer.

MATERIAL AGREEMENTS

We have not entered into any material agreements other than in the ordinary course of business and other than those described below or in this prospectus.

Share Exchange Agreement

On October 19, 2018, the Company acquired all of the issued and outstanding shares of Nash Pharma, a clinical stage pharmaceutical development company focused on drug repurposing in the areas of NASH, CKD and IBD. Through its ongoing research programs, Nash Pharma has developed data that supports the advancement of up to seven drug candidates into Phase 2 trials.

Pursuant to the terms of a Share Exchange Agreement dated October 5, 2018 among the Company, Nash Pharma and the security holders of Nash Pharma, the Company issued 158,000 Common Shares to the shareholders of Nash Pharma at an issue price of $22.00 per Common Share. Existing warrants to purchase common shares of Nash Pharma were cancelled and were replaced with 148,000 Common Share purchase warrants of the Company, each having an exercise at a price equal to the exercise price of the Nash Pharma warrants.

Agency Agreement dated September 30, 2019 with Mackie Research Capital Corporation

In connection with the Company's November 2019 Offering of units on November 1, 2019, the Company entered into an agency agreement with Mackie Research Capital Corporation and paid Mackie, the sole agent and book-runner, a cash fee of $163,092, equal to 9% of the gross proceeds from the sale of the units, subject to a reduced fee of 4.5% for units issued to President's list purchasers. As additional compensation, the Company also issued an aggregate of 18,011 non-transferable compensation options, entitling the holder to acquire one unit at an exercise price of $8.50 per unit until May 1, 2022. Each unit consists of one Common Share and one Common Share purchase warrant. Each Common Share purchase warrant entitles the holder to purchase one additional Common Share until May 1, 2022 at a purchase price of $12.00 per Common Share.


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Warrant Indenture dated November 1, 2019, with AST Trust Company (Canada)

Pursuant to the November 2019 Offering, the Company issued 244,013 units at the issue price of $8.50 per unit for total gross proceeds of $2,074,110.  Each unit was comprised of one Common Share and one Common Share purchase warrant.  Each Common Share purchase warrant entitles the holder to purchase one additional Common Share until May 1, 2022 at a purchase price of $12.00 per Common Share. The expiry date of the warrants was accelerated to January 21, 2021 resulting in the expiration of a total of 2,272 warrants. These Common Share purchase warrants were listed and posted for trading on the CSE under the symbol AGN.WT.

As compensation, the Company issued 18,011 compensation options to the agents under the November 2019 Offering.  Each compensation option entitles the holder to purchase one unit of the Company at a price of $8.50 per unit until May 1, 2022.  Each unit consists of one Common Share and one Common Share purchase warrant entitling the holder to acquire an additional Common Share at a purchase price of $12.00 per Common Share.  The Company also paid a cash commission in the aggregate amount of $153,092 to a syndicate of agents.

Agency Agreement dated May 13, 2020 with Mackie Research Capital Corporation

In connection with the Company's Special Warrant Financing on May 13, 2020, the Company entered into an agency agreement with Mackie Research Capital Corporation and paid Mackie, the sole agent and book-runner, and a syndicate of sub-agents, a cash fee of $526,853, equal to 8% of the gross proceeds from the sale of the Special Warrants, subject to a reduced fee of 4% for Special Warrants issued to President's list purchasers. As additional compensation, the Company also issued an aggregate of 15,053 non-transferable compensation options, entitling the holder to acquire one Special Warrant Unit at an exercise price of $35.00 per Special Warrant Unit until May 13, 2022.

Special Warrant Indenture dated May 13, 2020 with AST Trust Company (Canada) and Warrant Indenture dated May 13, 2020 with AST Trust Company (Canada)

On May 13, 2020, the Company completed a private placement of 196,053 Special Warrants at a price of $35.00 per Special Warrant for gross proceeds of $6,861,850. Each Special Warrant is exercisable, for no additional consideration at the option of the holder, into one unit of the Company. Each Special Warrant Unit is comprised of one Common Share and one Common Share purchase warrant. Each whole Common Share purchase warrant will entitle the holder to purchase one Common Share at an exercise price of $55.00 per Common Share until May 13, 2022. If, at any time after the Qualification Date (as defined below) and prior to the expiry date of the Common Share purchase warrants, the volume weighted average trading price of the Common Shares on the CSE, or other principal exchange on which the Common Shares are listed, is greater than $100.00 for 10 consecutive trading days, the Company may, within 15 days of the occurrence of such event, deliver a notice to the holders of Common Share purchase warrants accelerating the Expiry Date to the date that is 30 days following the date of such notice.

All unexercised Special Warrants will be automatically exercised, without payment of additional consideration, on the date that is the earlier of: (i) four months and a day following May 13, 2020; and (ii) three business days following the date on which receipt is issued by the British Columbia Securities Commission for a final short form prospectus qualifying the distribution of the underlying the Special Warrants Units. In the event the Qualification Date has not occurred prior to 5:00 p.m. on the date that is 35 days from May 13, 2020, each unexercised Special Warrant will thereafter entitle holders thereof to receive upon the exercise or deemed exercise thereof, for no additional consideration, 1.10 Units in lieu of one (1) Unit and thereafter at the end of each additional 30 day period prior to the Qualification Date, each Special Warrant will be exercisable for an additional 0.0002 of a Unit.

In connection with the Special Warrant Financing, the Company paid Mackie Research Capital Corporation, the sole agent and bookrunner, and a syndicate of sub-agents, a cash fee of $526,853, equal to 8% of the gross proceeds from the sale of the Special Warrants, subject to a reduced fee of 4% for Special Warrants issued to President's list purchasers. As additional compensation, the Company also issued an aggregate of 15,053 non-transferable compensation options, entitling the holder to acquire one Special Warrant Unit at an exercise price of $35.00 per Special Warrant Unit until May 13, 2022.


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MARKET FOR OUR SECURITIES

On February 1, 2016, our Common Shares began to trade on the CSE under the symbol "BTH" and in May of 2016, our Common Shares began to be quoted on the OTCQB under the symbol "BTHCF". On February 19, 2019, our ticker symbol on the CSE changed from "BTH" to "AGN" and on December 30, 2019, our symbol changed from "BTHCF" to "AGNPF". As of February 16, 2022, the last reported sale price of our Common Shares on the OTCQB was US$5.10 per share, and on February 16, 2022, we had 1,674,868 Common Shares outstanding. The market for our Common Shares is limited, volatile and sporadic.

The following table sets forth, for the periods indicated, the high and low bid prices of our Common Shares on the OTCQB as reported by Yahoo Finance. The following quotations reflect inter-dealer prices, without mark-up, markdown, or commissions, and may not reflect actual transactions.

    High Bid     Low Bid  
Quarter ended          
November 30, 2021   US$9.29     US$3.44  
August 31, 2021   US$14.10     US$6.00  
May 31, 2021   US$32.10     US$11.60  
February 28, 2021   US$43.80     US$14.40  
November 30, 2020   US$27.20     US$15.00  
Month ended        
December 31, 2021   US$4.56     US$2.50  
November 30, 2021   US$6.51     US$3.44  
October 31, 2021   US$7.25     US$5.84  
September 30, 2021   US$9.30     US$6.60  
August 31, 2021   US$10.90     US$6.30  
July 31, 2021   US$11.00     US$6.00  

The following table sets forth, for the periods indicated, the high and low sales prices of our Common Shares on the CSE as reported by Yahoo Finance.

    High     Low  
Quarter ended        
November 30, 2021   CAD$10.50     CAD$4.50  
August 31, 2021   CAD$18.00     CAD$7.50  
May 31, 2021   CAD$40.00     CAD$14.50  
February 28, 2021   CAD$54.00     CAD$18.50  
November 30, 2020   CAD$24.50     CAD$19.00  
Month ended        
December 31, 2021   CAD$5.90     CAD$3.25  
November 30, 2021   CAD$8.00     CAD$4.50  
October 31, 2021   CAD$9.00     CAD$7.50  
September 30, 2021   CAD$10.50     CAD$8.00  
August 31, 2021   CAD$13.00     CAD$8.50  
July 31, 2021   CAD$13.00     CAD$7.50  


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We will apply to have our Common Shares and the Warrants included in the units listed on the Nasdaq Capital Market under the symbols "[●]" and "[●]", respectively. Currently, there is no established public trading market for the Warrants included in the units, and such a market might never develop. The successful listing of our Common Shares and Warrants on the Nasdaq Capital Market is a condition of this offering.

Holders

As of January 5, 2022, there were 30 holders of record of our Common Shares as reported by our transfer agent, AST Trust Company (Canada). There were also an undetermined number of holders who hold their shares in nominee or "street" name.

SECURITIES ELIGIBLE FOR FUTURE SALE

Common Shares

Upon completion of this offering at an assumed public offering price of $[●] per unit, we will have [●] Common Shares outstanding, not including (i) Common Shares underlying the Warrants included in the units, (ii) Common Shares underlying the Warrants to be issued to the Representative (please see below "Compensation Warrants", (iii) any Common Shares that may be sold pursuant to the underwriters' over-allotment option or (iv) any Common Shares underlying Warrants that may be sold pursuant to the underwriters' over-allotment option. All of the Common Shares sold in this offering will be freely transferable by persons other than by our "affiliates" without restriction or further registration under the Securities Act. Sales of substantial amounts of our Common Shares in the public market could adversely affect prevailing market prices of our Common Share. Prior to this offering, there has been a limited public market for our Common Shares. We intend on applying to list the Common Shares on the Nasdaq Capital Market under the symbol "[●]".

Additionally, we had approximately 83,500 vested options, 356,587 Warrants and 15,433 Broker Warrants outstanding as of August 31, 2021. The exercise price of the majority of these options and Warrants is significantly above our current market price.

Warrants Underlying Units

Upon completion of this offering, at an assumed public offering price of $[●] per unit, [●] Warrants underlying the units sold in this offering will be outstanding, not including any Warrants that may be sold pursuant to the underwriters' over-allotment option. All of the Warrants underlying the units sold in this offering will be freely transferable by persons other than by our "affiliates" without restriction or further registration under the Securities Act. Sales of substantial amounts of our Warrants in the public market could adversely affect prevailing market prices of our Common Shares. Prior to this offering, there has been no public market for our Warrants. We intend on applying to list the Warrants included in the units on the Nasdaq Capital Market under the symbol "[●]".

Pursuant to a warrant agency agreement between us and [●], as warrant agent, the Warrants will be issued in book-entry form and shall initially be represented only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.

Exercisability. The Warrants are immediately exercisable and will expire on the date that is [●] years after their original issuance. The Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice.

Exercise Limitation. A holder will not have the right to exercise any portion of the Warrant if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of our then outstanding common shares following such exercise; provided, however, that upon prior notice to us, such holder may increase or decrease its ownership, provided that in no event will the ownership exceed 9.99%, as such percentage ownership is determined in accordance with the terms of the Warrants. However, any holder may increase or decrease such percentage, provided that any increase will not be effective until the 61st day after such election.

Exercise Price. The Warrants will have an exercise price of $[●] per share ([●]% of the per Unit offering price). The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common shares and also upon any distributions of assets, including cash, stock or other property to our stockholders.

Cashless Exercise. If, at the time a holder exercises its Warrant, there is no effective registration statement registering, or the prospectus contained therein is not available for an issuance of the shares underlying the Warrant to the holder, then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of common shares determined according to a formula set forth in the Warrant.

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Transferability. Subject to applicable laws, the Warrants may be offered for sale, sold, transferred or assigned without our consent.

Exchange Listing. Prior to this offering, there has been no public market for our Warrants. We intend on applying to list the Warrants included in the units on the Nasdaq Capital Market under the symbol "[●]".

Fundamental Transactions. If a fundamental transaction occurs, then the successor entity will succeed to, and be substituted for us, and may exercise every right and power that we may exercise and will assume all of our obligations under the Warrants with the same effect as if such successor entity had been named in the warrant itself. If holders of our common shares are given a choice as to the securities, cash or property to be received in a fundamental transaction, then the holder shall be given the same choice as to the consideration it receives upon any exercise of the warrant following such fundamental transaction. Additionally, as more fully described in the Warrant, in the event of certain fundamental transactions, the holders of the Warrants will be entitled to receive consideration in an amount equal to the Black Scholes value of the Warrants on the date of consummation of the transaction.

Rights as a Shareholder. Except as otherwise provided in the Warrants or by virtue of such holder's ownership of common shares, the holder of a Warrant does not have the rights or privileges of a holder of our common shares, including any voting rights, until the holder exercises the Warrant.

Compensation Warrants

In addition to cash compensation, we have agreed to issue to the Representative Compensation Warrants to purchase up to a total of [●] Common Shares (equal to 5.0% of the Common Shares sold in this offering). The Compensation Warrants will be immediately exercisable from time to time, in whole or in part, from the date of issuance until [●] years from the commencement of sales in this offering. The Compensation Warrants are exercisable at a per share price equal to US$[●]. The Compensation Warrants are also exercisable on a cashless basis. Pursuant to FINRA Rule 5110(e), the Compensation Warrants and any common shares issued upon exercise of such Warrants shall not be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of commencement of sales of this offering, except the transfer of any security: (i) by operation of law or by reason of reorganization of the issuer; (ii) to any FINRA member firm participating in the offering and the officers, partners, registered persons or affiliates thereof, if all securities so transferred remain subject to the lock-up restriction set forth above for the remainder of the time period; (iii) if the aggregate amount of our securities held by the Underwriters or related persons does not exceed 1% of the securities being offered; (iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund and the participating members in the aggregate do not own more than 10% of the equity in the fund; (v) the exercise or conversion of any security, if all securities remain subject to the lock-up restriction set forth above for the remainder of the time period; (vi) if we meet the registration requirements of Forms S-3, F-3 or F-10; or (vii) back to us in a transaction exempt from registration with the SEC. The exercise price and number of Common Shares issuable upon exercise of the Compensation Warrants may be adjusted in certain circumstances including in the event of a stock dividend, subdivisions, combinations, reclassification, merger or consolidation. The Compensation Warrants and the Common Shares underlying the Compensation Warrants are being registered hereby.

Rule 144

As of [●], 2022, our transfer agent has recorded [●] of our outstanding Common Shares as restricted. These Common Shares may be resold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement such as that provided by Rule 144 promulgated under the Securities Act. In general, a person (or persons whose Common Shares are aggregated) who at the time of a sale is not, and has not been during the three months preceding the sale, an affiliate of ours and has beneficially owned our restricted securities for at least six months will be entitled to sell the restricted securities without registration under the Securities Act, subject only to the availability of current public information about us, and will be entitled to sell restricted securities beneficially owned for at least one year without restriction. Persons who are our affiliates and have beneficially owned our restricted securities for at least six months may sell a number of restricted securities within any three-month period that does not exceed the greater of the following:

 [●]% of the then outstanding Common Shares of the same class, which immediately after this offering will equal approximately Common Shares assuming the over-allotment option is not exercised; or


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 if our Common Shares are listed on a national securities exchange (such as the Nasdaq Capital Market), the average weekly trading volume of our Common Shares, during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.

Sales by our affiliates under Rule 144 are also subject to certain requirements relating to manner of sale, notice and the availability of current public information about us.

NOTICE OF ARTICLES AND ARTICLES OF OUR COMPANY

As discussed above under the heading "Company Information", our company was incorporated under the laws of the Province of British Columbia, Canada on April 10, 2015.

Remuneration of Directors

Our directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine. If the directors so decide, the remuneration of the directors will be determined by the shareholders. That remuneration may be in addition to any salary or other remuneration paid to a director in such director's capacity as an officer or employee of ours.

Number of Directors

According to Article 13.1 of our Articles, the first directors are the persons designated as directors of the Company in the Notice of Articles that applies to the Company when it is recognized under the BCBCA. The number of directors, excluding additional directors appointed under Article 14.8 is set at:

(a) subject to paragraphs (b) and (c), the number of directors that is equal to the number of our first directors;

(b) if we are a public company, the greater of three and the most recently set of:

a. the number of directors set by a resolution of the directors (whether or not previous notice of the resolution was given); and

b. the number of directors in office pursuant to Article 14.4;

(c) if we are not a public company, the number most recently set of:

a. the number of directors set by a resolution of the directors (whether or not previous notice of the resolution was given); and

b. the number of directors in office pursuant to Article 14.4.

Directors

Our directors are elected annually at each annual meeting of our company's shareholders. Our Articles provide that the Board of Directors may, between annual meetings appoint one or more additional directors to serve until the next annual meeting, but the number of additional directors must not at any time exceed:

(a) one-third of the number of first directors, if, at the time of the appointments, one or more of the first directors have not yet completed their first term of office; or

(b) in any other case, one-third of the number of the current directors who were elected or appointed as directors under Article 14.8.

Our Articles provide that our directors may from time to time on behalf of our company, without shareholder approval:

 create one or more classes or series of shares or, if none of the shares of a class or series of shares are allotted or issued, eliminate that class or series of shares;

 increase, reduce or eliminate the maximum number of shares that we are authorized to issue out of any class or series of shares or establish a maximum number of shares that we are authorized to issue out of any class or series of shares for which no maximum is established;


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 subdivide or consolidate all or any of its unissued, or fully paid issued shares;

 if we are authorized to issue shares of a class of shares with par value:

  • decrease the par value of those shares; or

  • if none of the shares of that class of shares are allotted or issued, increase the par value of those shares;

 change all or any of its unissued or fully paid issued shares with par value into shares without par value or all or any of its unissued shares without par value into shares with par value;

 alter the identifying name of any of its shares;

 otherwise alter it shares or authorized share structure when required or permitted to do so by the BCBCA it does not specify by a special resolution; and

 if applicable, alter our Notice of Articles accordingly.

Our Articles also provide that, we may by resolution of the directors authorize an alteration to our Notice of Articles to change our name or adopt or change any translation of that name.

Our Articles provide that the directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and meetings of the Board held at regular intervals may be held at the place and at the time that the Board may by resolution from time to time determine. Questions arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair of the meeting does not have a second or casting vote. A director may participate in a meeting of the directors or of any committee of the directors in person, or by telephone or other communications medium, if all directors participating in the meeting, whether in person or by telephone or by other communications medium are able to communicate with each other. A director who participates in a meeting in a manner contemplated by such provisions of our Articles is deemed for all purposes of the BCBCA and our Articles to be present at the meeting and to have agreed to participate in that manner.

Our Articles provide that the quorum necessary for the transaction of the business of the directors may be set by the directors and, if not so set, is deemed to be a majority of the directors or, if the number of directors is set at one, is deemed to be set at one director, and that director may constitute a meeting.

The Articles provide that a director or senior officer who holds a disclosable interest (as that term is used in the BCBCA) in a contract or transaction in to which the Company has entered or proposes to enter is liable to account to the Company for any profit that accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided in the BCBCA. Additionally, a director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter is not entitled to vote on any directors' resolution to approve that contract or transaction, unless all the directors have a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution. A director or senior officer who holds any office or possess any property, right or interest that materially conflicts with that individual's duty or interest as a director or senior officer, must disclose the nature and extent of the conflict as required by the BCBCA.

Our Articles do not set out a mandatory retirement age for our directors. Our directors are not required to own securities of our company to serve as directors.

Authorized Capital

Our Notice of Articles provide that our authorized capital consists of an unlimited number of Common Shares, without par value.

Rights, Preferences and Restrictions Attaching to Our Shares

The BCBCA provides the following rights, privileges, restrictions and conditions attaching to our Common Shares:

 to vote at meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote;

 subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of our company, to share equally in the remaining property of our company on liquidation, dissolution or winding-up of our company; and


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 the Common Shares are entitled to receive dividends if, as, and when declared by the Board of Directors.

The provisions in our Articles attaching to our Common Shares may be altered, amended, repealed, suspended or changed by the affirmative vote of the holders of not less than two-thirds of the outstanding Common Shares.

With the exception of special resolutions (i.e. resolutions in respect of fundamental changes to our company, including:  the sale of all or substantially all of our assets, a merger or other arrangement or an alteration to our authorized capital that is not allowed by resolution of the directors) that require the approval of holders of two-thirds of the outstanding Common Shares entitled to vote at a meeting, either in person or by proxy, resolutions to approve matters brought before a meeting of our shareholders require approval by a simple majority of the votes cast by shareholders entitled to vote at a meeting, either in person or by proxy.

Shareholder Meetings

Part 10 of the Articles regulates the meetings of shareholders. Article 10.1 of the Articles provides that, unless an annual general meeting is deferred or waived in accordance with the BCBCA, an annual general meeting must be held at least once in each calendar year and not more than 15 months after the last annual reference date at such time and place as may be determined by directors.

The notice for meetings of Shareholders is contemplated in Article10.4 of the Articles and provides that the Company must send notice of the date, time and location of any meeting of shareholders, in the manner provided in the Articles or in such other manner, if any, as may be prescribed by ordinary resolution, to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless the Articles otherwise provide, at least 21 days before the meeting. Article 10.5 provides that the directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders and entitled to vote at any meeting of shareholders, the record date must not precede the date on which the meeting is to be held by more than two months and at least 21 days before.

Generally, notice of a meeting of the shareholders called for any purpose other than consideration of the financial statements and any reports of the directors or auditor, the setting and changing of the number of directors, the election or appointment of directors and appointment of auditor, the setting of the remuneration of the auditor, shall state the general nature of the special business and if the special business includes considering, approving, ratifying, adopting or authorizing any document or the signing of or giving effect to any document, have attached to it a copy of the document or state that a copy of the document will be available for inspection by shareholders at our records office or such other reasonably accessible location in British Columbia.

The accidental omission to send notice of any meeting to, or the non-receipt of any notice by, a shareholder will not invalidate any proceedings at that meeting.  A shareholder may in any manner waive notice of or otherwise consent to a meeting of shareholders.

LIMITATIONS ON RIGHTS OF NON-CANADIANS

Algernon is incorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax, however no such remittances are likely in the foreseeable future. See the section titled "Certain Canadian Federal Income Tax Considerations For United States Residents" below.

There is no limitation imposed by Canadian law or by the charter or other constituent documents of our Company on the right of a non-resident to hold or vote common shares of our company. However, the Investment Canada Act (Canada) (the "Investment Act") has rules regarding certain acquisitions of shares by non-Canadians, along with other requirements under that legislation.

The following discussion summarizes the principal features of the Investment Act for a "non-Canadian" (as defined under the Investment Act) who proposes to acquire common shares of our Company. The discussion is general only; it is not a substitute for independent legal advice from an investor's own advisor; and it does not anticipate statutory or regulatory amendments.

The Investment Act is a federal statute of broad application regulating the establishment and acquisition of Canadian businesses by non-Canadians, including individuals, governments or agencies thereof, corporations, partnerships, trusts or joint ventures (each an "entity"). Investments by non-Canadians to acquire control over existing Canadian businesses or to establish new ones are either reviewable or notifiable under the Investment Act. If an investment by a non-Canadian to acquire control over an existing Canadian business is reviewable under the Investment Act, the Investment Act generally prohibits implementation of the investment unless, after review, the Minister of Innovation, Science and Economic Development Canada (the "Minister") is satisfied that the investment is likely to be of net benefit to Canada.


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A non-Canadian would acquire control of our Company for the purposes of the Investment Act through the acquisition of common shares if the non-Canadian acquired a majority of the common shares of our Company.

Further, the acquisition of less than a majority but one-third or more of the common shares of our Company by a non-Canadian would be presumed to be an acquisition of control of our Company unless it could be established that, on the acquisition, our Company was not controlled in fact by the acquirer through the ownership of common shares.

For a direct acquisition that would result in an acquisition of control of our Company, subject to the exception for "WTO-investors" that are controlled by persons who are nationals or permanent residents of World Trade Organization ("WTO") member nations, a proposed investment generally would be reviewable where the value of the acquired assets is CAD$5 million or more.

For a proposed indirect acquisition by an investor other than a so-called WTO investor that would result in an acquisition of control of our Company through the acquisition of a non-Canadian parent entity, the investment generally would be reviewable where the value of the assets of the entity carrying on the Canadian business, and of all other entities in Canada, the control of which is acquired, directly or indirectly is CAD$50 million or more.

In the case of a direct acquisition by a "WTO investor", the threshold is significantly higher. An investment in common shares of our Company by a WTO investor that is not a state-owned enterprise would be reviewable only if it was an investment to acquire control of the company and the enterprise value of the assets of the company was equal to or greater than a specified amount, which is published by the Minister after its determination for any particular year. For 2021, this amount is CAD$1.043 billion (unless the investor is controlled by persons who are nationals or permanent residents of countries that are party to one of a list of certain free trade agreements, in which case the amount is CAD$1.565 billion for 2021); each January 1, both thresholds are adjusted by a GDP (Gross Domestic Product) based index.

The higher WTO threshold for direct investments and the exemption for indirect investments do not apply where the relevant Canadian business is carrying on a "cultural business". The acquisition of a Canadian business that is a "cultural business" is subject to lower review thresholds under the Investment Act because of the perceived sensitivity of the cultural sector.

In 2009, amendments were enacted to the Investment Act concerning investments that may be considered injurious to national security. If the Minister has reasonable grounds to believe that an investment by a non-Canadian "could be injurious to national security," the Minister may send the non-Canadian a notice indicating that an order for review of the investment may be made. The review of an investment on the grounds of national security may occur whether or not an investment is otherwise subject to review on the basis of net benefit to Canada or otherwise subject to notification under the Investment Act.

Certain transactions, except those to which the national security provisions of the Investment Act may apply, relating to Common Shares of the Company are exempt from the Investment Act, including:

(a) the acquisition of our Common Shares by a person in the ordinary course of that person's business as a trader or dealer in securities;

(b) the acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Act, if the acquisition is subject to approval under the Bank Act, Cooperative Credit Associations Act, the Insurance Companies Act or the Trust and Loan Companies Act; and

(c) the acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company through the ownership of Common Shares, remained unchanged.

MATERIAL INCOME TAX INFORMATION

Certain Canadian Federal Income Tax Considerations For United States Residents

The following is a summary of certain Canadian federal income tax considerations generally applicable to the holding and disposition of Common Shares and Warrants acquired by a purchaser of units pursuant to this offering who, at all relevant times, (a) for the purposes of the Income Tax Act (Canada) (the "Tax Act") (i) is not resident, or deemed to be resident, in Canada, (ii) deals at arm's length with us, the underwriters and the Representative, and is not affiliated with us, the underwriters or the Representative, (iii) acquires units as purchaser and beneficial owner pursuant to this offering and acquires and holds such units, Common Shares and Warrants as capital property, (iv) does not use or hold the units, Common Shares or Warrants in the course of carrying on, or otherwise in connection with, a business carried on or deemed to be carried on in Canada, and (v) is not a "registered non-resident insurer" or "authorized foreign bank" (each as defined in the Tax Act), or other holder of special status, and (b) for the purposes of the Canada-U.S. Tax Convention (the "Tax Treaty"), is a resident of the United States, has never been a resident of Canada, does not have and has not had, at any time, a permanent establishment or fixed base in Canada, and who otherwise qualifies for the full benefits of the Tax Treaty. Holders who meet all the criteria in clauses (a) and (b) above are referred to herein as "U.S. Holders", and this summary only addresses such U.S. Holders.


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This summary does not deal with special situations, such as the particular circumstances of traders or dealers, tax exempt entities, insurers or financial institutions, or other holders of special status or in special circumstances. Such holders, and all other holders who do not meet the criteria in clauses (a) and (b) above, should consult their own tax advisors.

This summary is based on the current provisions of the Tax Act, the regulations thereunder in force at the date hereof, the current provisions of the Tax Treaty, and our understanding of the administrative and assessing practices of the Canada Revenue Agency published in writing prior to the date hereof. This summary takes into account all specific proposals to amend the Tax Act and Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Proposed Amendments") and assumes that any such Proposed Amendments will be enacted in the form proposed. However, no assurance can be given that any such Proposed Amendments will be enacted in the form proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative or assessing practices, whether by legislative, governmental or judicial decision or action, nor does it take into account tax laws of any province or territory of Canada or of any other jurisdiction outside Canada, which may differ significantly from those discussed in this summary.

For the purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of our securities must generally be expressed in Canadian dollars. Amounts denominated in United States currency generally must be converted into Canadian dollars using the rate of exchange that is acceptable to the Canada Revenue Agency.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. Holder, and no representation with respect to the Canadian federal income tax consequences to any particular U.S. Holder or prospective U.S. Holder is made. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, all prospective purchasers (including U.S. Holders as defined above) should consult with their own tax advisors for advice with respect to their own particular circumstances.

Exercise of Warrants

No gain or loss will be realized by a U.S. Holder on the exercise of a Warrant.  When a Warrant is exercised, the U.S. Holder's cost of the Common Share acquired thereby will be the aggregate of the U.S. Holder's adjusted cost base of such Warrant for purposes of the Tax Act and the exercise price paid for the Common Share upon exercise of the Warrant. The U.S. Holder's adjusted cost base of the Common Share so acquired will be determined by averaging such cost with the adjusted cost base (as determined under the rules of the Tax Act) to the U.S. Holder of all Common Shares held by the U.S. Holder as capital property immediately prior to such acquisition.

Withholding Tax on Dividends

Amounts paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends on our Common Shares to a U.S. Holder will be subject to Canadian withholding tax. The applicable rate of Canadian withholding tax on such dividends is 25% unless reduced by an applicable tax treaty. Under the Tax Treaty, the rate of Canadian withholding tax on dividends paid or credited by us to a U.S. Holder that beneficially owns such dividends and substantiates eligibility for the benefits of the Tax Treaty is generally 15% (unless the beneficial owner is a company that owns at least 10% of our voting stock at that time, in which case the rate of Canadian withholding tax is generally reduced to 5%).

Dispositions

In general terms, a U.S. Holder will not be subject to tax under the Tax Act on a capital gain realized on a disposition or deemed disposition of Warrants or Common Shares unless such Warrants or Common Shares are "taxable Canadian property" to the U.S. Holder for purposes of the Tax Act and the U.S. Holder is not entitled to relief under the Tax Treaty.

If and provided that the Common Shares are listed on a "designated stock exchange" as defined in the Tax Act (which currently includes the CSE and Nasdaq Capital Market) at the time of disposition or deemed disposition, the Common Shares and Warrants generally will not constitute "taxable Canadian property" of a U.S. Holder at that time unless, at any time during the 60 month period immediately preceding the disposition or deemed disposition, the following two conditions were met:  (i) the U.S. Holder, persons with whom the U.S. Holder did not deal at arm's length, partnerships in which the U.S. Holder or such non-arm's length person holds a membership interest (either directly or indirectly through one or more partnerships), or the U.S. Holder together with all such persons, owned 25% or more of the issued shares of any class or series of shares of our company; and (ii) more than 50% of the fair market value of the Common Shares of the company was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, Canadian resource properties (as defined in the Tax Act), timber resource properties (as defined in the Tax Act) or options in respect of, or interests in, or for civil law rights in, property described in any of the foregoing whether or not the property exists. Notwithstanding the foregoing, in certain other circumstances set out in the Tax Act, Common Shares or Warrants could also be deemed to be "taxable Canadian property".


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U.S. Holders who may hold Common Shares or Warrants as "taxable Canadian property" should consult their own tax advisors with respect to the application of Canadian capital gains taxation, any potential relief under the Tax Treaty, and Canadian tax compliance procedures under the Tax Act, none of which is described in this summary.

Material United States Federal Income Tax Considerations

The following is a general summary of certain U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership and disposition of units acquired pursuant to this offering, the acquisition, ownership, and disposition of Common Shares acquired as part of the units, the exercise, disposition, and lapse of Warrants acquired as part of the units, and the acquisition, ownership, and disposition of Common Shares received upon exercise of the Warrants (the "Warrant Shares").

This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the acquisition of units pursuant to this Offering. 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 to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. 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 particular U.S. Holder. This summary does not address the U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of units, Common Shares, Warrants and Warrant Shares. This summary also does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of units, Common Shares, Warrants, and Warrant Shares.

No opinion from legal counsel or ruling from the Internal Revenue Service (the "IRS") has been requested, or will be obtained, regarding the U.S. federal income tax considerations applicable to U.S. Holders as discussed in this summary. 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 Summary

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (whether final, temporary, or proposed) promulgated under the Code, published rulings of the IRS, published administrative positions of the IRS and U.S. court decisions, that are in effect and available, as of the date of this document. 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 retroactively. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.

U.S. Holder

For purposes of this summary, the term "U.S. Holder" means a beneficial owner of units, Common Shares, Warrants or Warrant Shares acquired pursuant to this offering that is for U.S. federal income tax purposes:

 a citizen or individual resident of the United States;

 a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia;

 an estate whose income is subject to U.S. federal income taxation regardless of its source; or


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 a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

Transactions Not Addressed

This summary does not address the tax consequences of transactions effected prior or subsequent to, or concurrently with, any purchase of units pursuant to this prospectus (whether or not any such transactions are undertaken in connection with the purchase of units pursuant to this prospectus).

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 considerations applicable to U.S. Holders that are subject to special provisions under the Code, including U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are brokers or 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) have a "functional currency" other than the U.S. dollar; (e) own units, Common Shares, Warrants or Warrant Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquired units, Common Shares, Warrants or Warrant Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold units, Common Shares, Warrants or Warrant Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are partnerships and other pass-through entities (and investors in such partnerships and entities); (i) are subject to special tax accounting rules; (j) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of our outstanding shares; (k) are U.S. expatriates or former long-term residents of the U.S.; or (l) are subject to taxing jurisdictions other than, or in addition to, the United States. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisors regarding the U.S. federal, U.S. federal net investment income, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of units, Common Shares, Warrants or Warrant Shares.

If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds units, Common Shares, Warrants or Warrant Shares, the U.S. federal income tax consequences to such entity or arrangement and the owners of such entity or arrangement generally will depend on the activities of such entity or arrangement and the status of such owners. This summary does not address the tax consequences to any such entity or arrangement or owner. Owners of entities or arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisor regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of units, Common Shares, Warrants and Warrant Shares.

U.S. Federal Income Tax Consequences of the Acquisition of Units

For U.S. federal income tax purposes, the acquisition by a U.S. Holder of a unit will be treated as the acquisition of one Common Share and [●] of a Warrant. The purchase price for each unit will be allocated between these two components in proportion to their relative fair market values at the time the unit is purchased by the U.S. Holder. This allocation of the purchase price for each unit will establish a U.S. Holder's initial tax basis for U.S. federal income tax purposes in the Common Share and one-half of a Warrant that comprise each unit.

For this purpose, we will allocate $[●] of the purchase price for the unit to the Common Share and $[●] of the purchase price for each unit to the [●] of a Warrant. However, the IRS will not be bound by such allocation of the purchase price for the units, and therefore, the IRS or a U.S. court may not respect the allocation set forth above.  Each U.S. Holder should consult its own tax advisor regarding the allocation of the purchase price for the units.

Passive Foreign Investment Company Rules

If we are considered a "passive foreign investment company" within the meaning of Section 1297 of the Code (a "PFIC") at any time during a U.S. Holder's holding period, the following sections will generally describe the potentially adverse U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of units, Common Shares, Warrants or Warrant Shares.

Based on current business plans and financial expectations, we anticipate that we may be a PFIC for the current tax year and future tax years. No opinion of legal counsel or ruling from the IRS concerning our status as a PFIC has been obtained or is currently planned to be requested. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, our PFIC status for the current year and future years cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any PFIC determination made by us (or by one of our subsidiaries). Each U.S. Holder should consult its own tax advisor regarding our status as a PFIC and the PFIC status of each or our non-U.S. subsidiaries.


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In any year in which we are classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax.  U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.

We generally will be a PFIC for any tax year in which (a) 75% or more of our gross income for such tax year is passive income (the "PFIC income test") or (b) 50% or more of the value of our assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the "PFIC asset test").  "Gross income" generally includes sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and "passive income" generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all of a foreign corporation's commodities are stock in trade or inventory, depreciable property used in a trade or business, or supplies regularly used or consumed in the ordinary course of its trade or business, and certain other requirements are satisfied.

For purposes of the PFIC income test and PFIC asset test described above, if we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we will be treated as if we (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and PFIC asset test described above, "passive income" does not include any interest, dividends, rents, or royalties that are received or accrued by us from a "related person" (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.

Under certain attribution rules, if we are a PFIC, U.S. Holders will be deemed to own their proportionate share of any of our subsidiaries which is also a PFIC (a "Subsidiary PFIC"), and will generally be subject to U.S. federal income tax under the "Default PFIC Rules Under Section 1291 of the Code" discussed below on their proportionate share of any (i) distribution on the shares of a Subsidiary PFIC and (ii) disposition or deemed disposition of shares of a Subsidiary PFIC, both as if such U.S. Holders directly held the shares of such Subsidiary PFIC.  Accordingly, U.S. Holders should be aware that they could be subject to tax under the PFIC rules even if no distributions are received and no redemptions or other dispositions of units, Common Shares, Warrants or Warrant Shares are made.  In addition, U.S. Holders may be subject to U.S. federal income tax on any indirect gain realized on the stock of a Subsidiary PFIC on the sale or disposition of units, Common Shares, Warrants or Warrant Shares.

Default PFIC Rules Under Section 1291 of the Code

If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the purchase of units and the acquisition, ownership, and disposition of Common Shares, Warrants and Warrant Shares will depend on whether such U.S. Holder makes a "qualified electing fund" or "QEF" election (a "QEF Election") or makes a mark-to-market election under Section 1296 of the Code (a "Mark-to-Market Election") with respect to Common Shares or Warrant Shares. A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election (a "Non-Electing U.S. Holder") will be taxable as described below.

A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of Common Shares, Warrants and Warrant Shares and (b) any excess distribution received on the Common Shares and Warrant Shares. A distribution generally will be an "excess distribution" to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder's holding period for the Common Shares and Warrant Shares, if shorter).

Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, Warrants and Warrant Shares of a PFIC (including an indirect disposition of shares of a Subsidiary PFIC), and any excess distribution received on such Common Shares and Warrant Shares (or a distribution by a Subsidiary PFIC to its shareholder that is deemed to be received by a U.S. Holder) must be ratably allocated to each day in a Non-Electing U.S. Holder's holding period for the Common Shares or Warrant Shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income (and not eligible for certain preferential tax rates, as discussed below). The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax rate applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as "personal interest," which is not deductible.


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If we are a PFIC for any tax year during which a Non-Electing U.S. Holder holds Common Shares, Warrant Shares or Warrants, we will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether we cease to be a PFIC in one or more subsequent tax years. If we cease to be a PFIC, a Non-Electing U.S. Holder may terminate this deemed PFIC status with respect to Common Shares and Warrant Shares by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code as discussed above) as if such Common Shares and Warrant Shares were sold on the last day of the last tax year for which we were a PFIC. No such election, however, may be made with respect to the Warrants.

Under proposed Treasury Regulations, if a U.S. Holder has an option, warrant, or other right to acquire stock of a PFIC (such as the Warrants), such option, warrant or right is considered to be PFIC stock subject to the default rules of Section 1291 of the Code. Under rules described below, the holding period for the Warrant Shares will begin on the date a U.S. Holder acquires the units. This will impact the availability of the QEF Election and Mark-to-Market Election with respect to the Warrant Shares. Thus, a U.S. Holder will have to account for Warrant Shares and Common Shares under the PFIC rules and the applicable elections differently.

QEF Election

A U.S. Holder that makes a QEF Election for the first tax year in which its holding period of its Common Shares begins generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to its Common Shares. However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder's pro rata share of (a) our net capital gain, which will be taxed as long-term capital gain to such U.S. Holder, and (b) our ordinary earnings, which will be taxed as ordinary income to such U.S. Holder. Generally, "net capital gain" is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and "ordinary earnings" are the excess of (a) "earnings and profits" over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which we are a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by us.  However, for any tax year in which we are a PFIC and have no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder 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 QEF Election generally (a) may receive a tax-free distribution from us to the extent that such distribution represents "earnings and profits" that were previously included in income by the 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, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Shares.

The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as "timely" for purposes of avoiding the default PFIC rules discussed above if such QEF Election is made for the first year in the U.S. Holder's holding period for the Common Shares in which we were 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 year.

A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax 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 tax year, we cease to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which we are not a PFIC. Accordingly, if we become a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which we qualify as a PFIC.

As discussed above, under proposed Treasury Regulations, if a U.S. Holder has an option, warrant or other right to acquire stock of a PFIC (such as the Warrants), such option, warrant or right is considered to be PFIC stock subject to the default rules of Section 1291 of the Code. However, a U.S. Holder of an option, warrant or other right to acquire stock of a PFIC may not make a QEF Election that will apply to the option, warrant or other right to acquire PFIC stock. In addition, under proposed Treasury Regulations, if a U.S. Holder holds an option, warrant or other right to acquire stock of a PFIC, the holding period with respect to shares of stock of the PFIC acquired upon exercise of such option, warrant or other right will include the period that the option, warrant or other right was held.

Consequently, under the proposed Treasury Regulations, if a U.S. Holder of Common Shares makes a QEF Election, such election generally will not be treated as a timely QEF Election with respect to Warrant Shares and the rules of Section 1291 of the Code discussed above will continue to apply with respect to such U.S. Holder's Warrant Shares. However, a U.S. Holder of Warrant Shares should be eligible to make a timely QEF Election if such U.S. Holder makes a "purging" or "deemed sale" election to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Warrant Shares were sold for fair market value. As a result of the "purging" or "deemed sale" election, the U.S. Holder will have a new basis and holding period in the Warrant Shares acquired upon the exercise of the Warrants for purposes of the PFIC rules. In addition, gain recognized on the sale or other taxable disposition (other than by exercise) of the Warrants by a U.S. Holder will be subject to the rules of Section 1291 of the Code discussed above. Each U.S. Holder should consult its own tax advisor regarding the application of the PFIC rules to the units, Common Shares, Warrants, and Warrant Shares.


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For each tax year that we qualify as a PFIC as determined by us based on our reasonable analysis, upon the written request of a U.S. Holder, we will make publicly available: (a) a "PFIC Annual Information Statement" as described in Treasury Regulation Section 1.1295-1(g) (or any successor Treasury Regulation) and (b) all information and documentation that a U.S. Holder is required to obtain for U.S. federal income tax purposes in making a QEF Election with respect to us. We may elect to provide such information on our website. However, U.S. Holders should be aware that we can provide no assurances that we will provide any such information relating to any Subsidiary PFIC and as a result, a QEF Election may not be available with respect to any Subsidiary PFIC.  Because we may own shares in one or more Subsidiary PFICs at any time, U.S. Holders will continue to be subject to the rules discussed above with respect to the taxation of gains and excess distributions with respect to any Subsidiary PFIC for which the U.S. Holders do not obtain such required information. Each U.S. Holder should consult its own tax advisors regarding the availability of, and procedure for making, a QEF Election with respect to us and any Subsidiary PFIC.

A U.S. Holder makes a QEF Election by attaching a completed IRS Form 8621, including a PFIC Annual Information Statement, to a timely filed U.S. federal income tax return.  However, if we do not provide the required information with regard to us or any of our Subsidiary PFICs, U.S. Holders will not be able to make a QEF Election for such entity and will continue to be subject to the rules of Section 1291 of the Code discussed above that apply to Non-Electing U.S. Holders with respect to the taxation of gains and excess distributions. 

Mark-to-Market Election

A U.S. Holder may make a Mark-to-Market Election with respect to Common Shares and Warrant Shares only if the Common Shares and Warrant Shares are marketable stock. The Common Shares and Warrant Shares generally will be "marketable stock" if the Common Shares and Warrant Shares are regularly traded on (a) a national securities exchange that is registered with the SEC, (b) the national market system established pursuant to Section 11A of the U.S. Exchange Act or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be considered "regularly traded" for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter. Provided that the Common Shares and Warrant Shares are "regularly traded" as described in the preceding sentence, the Common Shares and Warrant Shares are expected to be marketable stock.  We believe that our common shares were "regularly traded" in the fourth calendar quarter of 2021 and expect that the Common Shares should be "regularly traded" in the first calendar quarter of 2022. However, there can be no assurance that the Common Shares will be "regularly traded" in subsequent calendar quarters.  U.S. Holders should consult their own tax advisors regarding the marketable stock rules. 

A U.S. Holder that makes a Mark-to-Market Election with respect to its Common Shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such Common Shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder's holding period for the Common Shares and such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the Common Shares.

Any Mark-to-Market Election made by a U.S. Holder for the Common Shares will also apply to such U.S. Holder's Warrant Shares. As a result, if a Mark-to-Market Election has been made by a U.S. Holder with respect to Common Shares, any Warrant Shares received will automatically be marked-to-market in the year of exercise. Because, under the proposed Treasury Regulations, a U.S. Holder's holding period for Warrant Shares includes the period during which such U.S. Holder held the Warrants, a U.S. Holder will be treated as making a Mark-to-Market Election with respect to its Warrant Shares after the beginning of such U.S. Holder's holding period for the Warrant Shares unless the Warrant Shares are acquired in the same tax year as the year in which the U.S. Holder acquired its units. Consequently, the default rules under Section 1291 described above generally will apply to the mark-to-market gain realized in the tax year in which Warrant Shares are received upon the exercise of the Warrants. However, the general mark-to-market rules will apply to subsequent tax years.

A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax 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 and any Warrant Shares, as of the close of such tax year over (b) such U.S. Holder's tax basis in the Common Shares and any Warrant Shares.  A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (i) such U.S. Holder's adjusted tax basis in the Common Shares and any Warrant Shares, over (ii) the fair market value of such Common Shares and any Warrant Shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).


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A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder's tax basis in the Common Shares and Warrant 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 Common Shares and Warrant Shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years).

A U.S. Holder makes a Mark-to-Market Election by attaching a completed IRS Form 8621 to a timely filed U.S. federal income tax return.  A timely Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the Common Shares and Warrant 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.

Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the Common Shares and Warrant Shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the interest charge and other income inclusion rules described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC to its shareholder.

Other PFIC Rules

Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Common Shares and Warrant Shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations).  However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which Common Shares, Warrants, or Warrant Shares are transferred. 

If finalized in their current form, the proposed Treasury Regulations applicable to PFICs would be effective for transactions occurring on or after April 1, 1992. Because the proposed Treasury Regulations have not yet been adopted in final form, they are not currently effective, and there is no assurance that they will be adopted in the form and with the effective date proposed. Nevertheless, the IRS has announced that, in the absence of final Treasury Regulations, taxpayers may apply reasonable interpretations of the Code provisions applicable to PFICs and that it considers the rules set forth in the proposed Treasury Regulations to be reasonable interpretations of those Code provisions. The PFIC rules are complex, and the implementation of certain aspects of the PFIC rules requires the issuance of Treasury Regulations which in many instances have not been promulgated and which, when promulgated, may have retroactive effect. U.S. Holders should consult their own tax advisors about the potential applicability of the proposed Treasury Regulations.

Certain additional adverse rules will apply with respect to a U.S. Holder if we are a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Shares, Warrants or Warrant Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such Common Shares, Warrants or Warrant Shares.

In addition, a U.S. Holder who acquires Common Shares, Warrants or Warrant Shares from a decedent will not receive a "step up" in tax basis of such Common Shares, Warrants or Warrant Shares to fair market value.

Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.

The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules (including the applicability and advisability of a QEF Election and Mark-to-Market Election) and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares, Warrants and Warrant Shares.

U.S. Federal Income Tax Consequences of the Exercise and Disposition of Warrants

The following discussion describes the general rules applicable to the ownership and disposition of the Warrants but is subject in its entirety to the special rules described above under the heading "Passive Foreign Investment Company Rules."


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Exercise of Warrants

A U.S. Holder should not recognize gain or loss on the exercise of a Warrant and related receipt of a Warrant Share (unless cash is received in lieu of the issuance of a fractional Warrant Share). A U.S. Holder's initial tax basis in the Warrant Share received on the exercise of a Warrant should be equal to the sum of (a) such U.S. Holder's tax basis in such Warrant plus (b) the exercise price paid by such U.S. Holder on the exercise of such Warrant. It is unclear whether a U.S. Holder's holding period for the Warrant Share received on the exercise of a Warrant would commence on the date of exercise of the Warrant or the day following the date of exercise of the Warrant. If we are a PFIC, a U.S. Holder's holding period for the Warrant Share for PFIC purposes will begin on the date on which such U.S. Holder acquired its units.

Disposition of Warrants

A U.S. Holder will recognize gain or loss on the sale or other taxable disposition of a Warrant in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder's tax basis in the Warrant sold or otherwise disposed of.  Subject to the PFIC rules discussed above, any such gain or loss generally will be a capital gain or loss, which will be long-term capital gain or loss if the Warrant is held for more than one year.  Deductions for capital losses are subject to complex limitations under the Code. 

Expiration of Warrants Without Exercise

Upon the lapse or expiration of a Warrant, a U.S. Holder will recognize a loss in an amount equal to such U.S. Holder's tax basis in the Warrant. Any such loss generally will be a capital loss and will be long-term capital loss if the Warrants are held for more than one year. Deductions for capital losses are subject to complex limitations under the Code.

Certain Adjustments to the Warrants

Under Section 305 of the Code, an adjustment to the number of Warrant Shares that will be issued on the exercise of the Warrants, or an adjustment to the exercise price of the Warrants, may be treated as a constructive distribution to a U.S. Holder of the Warrants if, and to the extent that, such adjustment has the effect of increasing such U.S. Holder's proportionate interest in the "earnings and profits" or our assets, depending on the circumstances of such adjustment (for example, if such adjustment is to compensate for a distribution of cash or other property to the shareholders).  Adjustments to the exercise price of Warrants made pursuant to a bona fide reasonable adjustment formula that has the effect of preventing dilution of the interest of the holders of the Warrants should generally not be considered to result in a constructive distribution.  Any such constructive distribution would be taxable whether or not there is an actual distribution of cash or other property.  (See more detailed discussion of the rules applicable to distributions made by us at "Distributions on Common Shares and Warrant Shares" below).

General Rules Applicable to U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares and Warrant Shares

The following discussion describes the general rules applicable to the ownership and disposition of the Common Shares and Warrant Shares, but is subject in its entirety to the special rules described above under the heading "Passive Foreign Investment Company Rules."

Distributions on Common Shares and Warrant Shares

A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share or Warrant Share (as well as any constructive distribution on a Warrant as described above) will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of our current and accumulated "earnings and profits", as computed under U.S. federal income tax principles. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if we are a PFIC for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds our current and accumulated "earnings and profits", such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the Common Shares or Warrant Shares and thereafter as gain from the sale or exchange of such Common Shares or Warrant Shares (see "Sale or Other Taxable Disposition of Common Shares and/or Warrant Shares" below). However, we may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may be required to assume that any distribution by us with respect to the Common Shares or Warrant Shares will constitute ordinary dividend income. Dividends received on Common Shares or Warrant Shares generally will not be eligible for the "dividends received deduction" generally applicable to corporations.  Subject to applicable limitations and provided we are eligible for the benefits of the Tax Treaty or the Common Shares are readily tradable on a United States securities market, dividends paid by us to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that we not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.


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Sale or Other Taxable Disposition of Common Shares and/or Warrant Shares

Upon the sale or other taxable disposition of Common Shares or Warrant Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder's tax basis in such Common Shares or Warrant Shares sold or otherwise disposed of. Gain or loss recognized on such sale or other taxable disposition generally will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the Common Shares or Warrant Shares have been held for more than one year.  Preferential tax rates may apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

Additional Tax Considerations

Receipt of Foreign Currency

The amount of any distribution paid to a U.S. Holder in foreign currency or on the sale, exchange or other taxable disposition of Common Shares, Warrants or Warrant Shares generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time).  If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in foreign currency and engages in a subsequent conversion or other disposition of the foreign currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method of tax accounting. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

Foreign Tax Credit

Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares or Warrant Shares (or with respect to any constructive dividend on the Warrants) generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid.  Generally, a credit will reduce a U.S. Holder's U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder's income subject to U.S. federal income tax.  This election is made on a year-by-year basis and applies to all foreign taxes paid or accrued (whether directly or through withholding) by a U.S. Holder during a year.  The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder's particular circumstances.  Accordingly, each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.

Information Reporting; Backup Withholding Tax

Under U.S. federal income tax laws certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person. U. S. Holders may be subject to these reporting requirements unless their Common Shares, Warrants, and Warrant Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial.  U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file IRS Form 8938.

Payments made within the U.S., or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of the Common Shares, Warrants and Warrant Shares generally may be subject to information reporting and backup withholding tax, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish its correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that it has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons, such as U.S. Holders that are corporations, generally are excluded from these information reporting and backup withholding tax rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder's U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.

The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax and, under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisors regarding the information reporting and backup withholding rules.


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THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES, WARRANTS AND WARRANT SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.

UNDERWRITING

In connection with this offering, we will enter into an underwriting agreement, dated as of [●], 2022 with Ladenburg Thalmann &am