What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-06-23 compared with 2022-06-21 · 226 added, 183 removed, 534 unchanged (43% of the section changed)

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market Information

Our common shares are traded on The Nasdaq Capital Market and the TSX Venture Exchange under the symbol “ACST.”

Our common shares are traded on The Nasdaq Capital Market under the symbol “ACST.”

As of June 23, 2023, there were 40 holders of record of our common shares.

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Holder who makes a Mark-to-Market Election or a QEF Election (each as defined below), any “excess distribution”

with respect to the common

shares would be allocated ratably over the U.S.

with respect to the common shares would be allocated ratably over the U.S.

Holder’s holding period.

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Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the lesser of (a) the excess, if any, of (i) such U.S.

Holder’s adjusted tax basis in the common shares over (ii) the fair market value of such shares as of the close of such taxable year or (b) the excess, if any, of (i) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (ii) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years.

Holder’s adjusted tax basis in the common shares over (ii) the fair market value of such shares as of the close of such taxable year or (b) the excess, if any, of

(i) the amount included in ordinary income because of such Mark-to-Market Election for prior taxable years over (ii) the amount allowed as a deduction because of such Mark-to-Market Election for prior taxable years.

Holder makes a Mark-to-Market Election after the first taxable year in which we are a PFIC and such U.S.

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Holder’s mark-to-market income for the year of the election.

If we were to cease being a

If we were to cease being a PFIC, a U.S.

Holder that marked its common shares to market would not include mark-to-market gain or loss with respect to its common shares for any taxable year that we were not a PFIC.

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We undertake no obligation to update forward-looking statements which reflect events or circumstances occurring after the date of this annual report, unless required by applicable securities laws.

This management’s discussion and analysis, or MD&A, is presented in order to provide the reader with an overview of the financial results and changes to our financial position as at March 31, 2022 and for the twelve-month periods then ended.

This MD&A explains the material variations in our operations, financial position and cash flows for the years ended March 31, 2023 and 2022.

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dollars, except share and per share amounts or unless otherwise indicated.

Basis of Presentation of the Financial Statements

Our consolidated financial statements, which include the accounts of our subsidiaries AIAG and Acasti Pharma US, have been prepared in accordance with GAAP and the rules and regulations of the SEC related to annual reports filed on Form 10-K.

All intercompany transactions and balances are eliminated on consolidation.

Our assets as at March 31, 2023, include cash and cash equivalents and short-term investments totalling $27.9 million and intangible assets and goodwill totalling $49.2 million.

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Comparative Financial Information for the years ended March 31, 2023 and 2022

March 31, 2023

Increase (Decrease)

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Total shareholders’

Working capital is calculated by subtracting total current liabilities of $3,260 at March 31, 2022 ($1,579 at March 31, 2021) from total current assets of $45,531 at March 31, 2022 ($62,372 at March 31, 2021).

Working capital is calculated by subtracting total current liabilities from total current assets.

Because there is no standard method endorsed by GAAP, the results may not be comparable to similar measurements presented by other public companies.

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Operating expenses

Cost of sales of products

Research and development expenses, net of government assistance

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Impairment of Intangible assets

Impairment of Equipment

Impairment of Other assets and prepaids

Impairment of Goodwill

Impairment of Assets held for sale

Loss from operating activities

Financial income (expenses)

Financial income

Income tax recovery

The net loss of $9,819 or $0.27 per share for the year ended March 31, 2022, decreased by $9,859 from the net loss of $19,678 or $1.33 per share for the year ended March 31, 2021.

Revenue and cost of sales of products

In October 2020, we entered into a short term agreement with the Centre Integre Universitaire et des services sociaux de L’Estrie –

Centre hospitalier Universitaire de Sherbrooke to start producing and selling viral transport medium tubes to be utilized in testing related to the COVID-19 pandemic, for which we generated revenues of $196 for the year ended March 31, 2021.

We did not engage in any production and sales under this agreement during the year ended March 31, 2022.

The net loss of $42,429 or $0.95 loss per share for the year ended March 31, 2023, increased by $32,610 from the net loss of $9,819 or $0.27 loss per share for the year ended March 31, 2022.

Research and development expenses

Research and development expenses consist primarily of:

fees paid to external service providers such as clinical research organizations and contract manufacturing organizations related to clinical trials, including contractual obligations for clinical development, clinical sites, manufacturing and scale-up, and formulation of clinical drug supplies;

fees paid to external service providers such as contract research organizations ("CROs") and contract manufacturing organizations ("CMOs") related to clinical trials, including contractual obligations for clinical development, clinical sites, manufacturing and scale-up, and formulation of clinical drug supplies;

fees paid to contract service providers related to drug discovery efforts including chemistry and biology services;

patent-related services;

salaries and related expenses for personnel, including expense related to stock options.

We record research and development expenses as incurred.

Our research and development during the year ended March 31, 2022 was focused primarily on our clinical development programs GTX 104, GTX 102, and GTX 101 drug candidates, which were acquired in the Grace merger on August 27, 2021.

Research and development expenses during the year ended March 31, 2021, related to the completion of our TRILOGY Phase 3 clinical program for CaPre.

Our research and development during the year ended March 31, 2023 was focused primarily on our clinical development programs GTX 104, GTX 102, and GTX 101 drug candidates.

Research and development expenses during the year ended March 31, 2022, related to the completion of our TRILOGY Phase 3 clinical program for our former drug candidate CaPre, as well as the initiation and progression of development work related to GTX 104, GTX 102 and GTX 101.

The following table summarizes our research and development expenses:

Research and development expenses

March 31, 2023

Increase (Decrease)

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Stock-based compensation

Depreciation and amortization

1 Total third-party research and development expenses is calculated before salaries, depreciation, amortization and stock-based compensation.

Depreciation and write off of equipment

1 Total third-party research and development expenses is calculated before salaries and benefits, depreciation, write-off of equipment and stock-based compensation.

Because there is no standard method endorsed by GAAP, the results may not be comparable to similar measurements presented by other public companies.

Total third-party research and development expenses before salaries and benefits, depreciation, amortization and stock-based compensation expenses for the year ended March 31, 2023, totalled $7,539 compared to $3,095 for the year ended March 31, 2022.

This resulted in an increase $1,650 related mostly to the initiation of clinical development programs GTX 104, GTX 102 and GTX 101, which we acquired through the merger with Grace.

Third-party contract research expenses related to GTX 104 amounted to $1,796 from the date our acquisition of Grace as our PK bridging study was initiated and progressed.

Third party contract research expenses of $61 related to GTX 102 are a related to the progression of CMC phase 1 work.

Third party contract research expenses of $538 related to GTX 101 were mostly related to non-clinical studies and CMC non-clinical work.

The program related increases for GTX 104, GTX 102 and GTX 101 were offset by a decrease of $193, related to other third-party contract research expenses.

These expenses related to non-clinical outside services and IP legal costs to support and maintain our patents for our three clinical programs GTX 104, GTX 102 and GTX 101 drug candidates.

Other third-party contract research expenses for the year end March 31, 2021, related to expenses incurred through the completion and termination of the TRILOGY phase 3 clinical program.

The increase of third party-contract research expenses of were offset by a decrease of $150 of professional fees and an increase of $450 in tax research credits.

Salaries and benefits increased by $558 to $2,017 for the year ended March 31, 2022, from $1,459 for the year ended March 31, 2021.

The increase is related to additional R&D headcount since the date of the Grace merger, as well as the renewal of our employee incentive bonus program.

Government tax credits increased by $450 due to the increased government credit eligible research activities related to our clinical programs GTX 104, GTX 102 and GTX 101.

This resulted in an increase of $4,444 related mostly to the continued work of clinical development programs for GTX-104, GTX-102 and GTX-101.

Third-party contract research expenses related to GTX-104 amounted to $838 for the year ended March 31, 2023, compared to $1,796 for the year ended March 31, 2022.

This resulted in a $958 decrease as our PK bridging for GTX-104 study wound down.

third-party contract research expenses related to GTX-102 were $1,779 for the year ended March 31, 2023, compared to $61 for the year ended March 31, 2022.

This resulted in a $1,718 increase due to the initiation of the PK bridging study for GTX-102 and for clinical trial materials.

third-party contract research expenses related to GTX 101 amounted to $2,612 for the year ended March 31, 2023, compared to $538 for the year ended March 31, 2022.

This resulted in a $2,074 increase and was mostly related to the planning and initiation of the Phase 1 single dose trial.

The program related increases for GTX 104, GTX 102 and GTX 101 were offset by a decrease of $119, related to other third-party contract research expenses for non-clinical outside services.

Professional fees of $1,600 for the year ended March 31, 2023, compared to $317 for the year ended March 31, 2022, amounted to an increase of $1,283.

This is due to increased specialized clinical and regulatory consultants supporting our clinical programs for GTX-104, GTX-102 and GTX-101.

Total third-party research and development expenses were reduced by $165 due to government credits eligible research activities related to our clinical programs GTX 104, GTX 102 and GTX 101.

Salaries and benefits decreased by $275 to $1,742 for the year ended March 31, 2023, from $2,017 for the year ended March 31, 2022.

The decrease relates to a reduced accrual of our employee incentive bonus program.

General and administrative expenses

General and administrative expenses consisted primarily of salaries and related benefits, including share-based compensation, related to our executive, finance, legal, and support functions.

Other general and administrative expenses include professional fees for auditing, tax, consulting, rent and utilities and insurance.

General and administrative expenses consist primarily of salaries and benefits, including share-based compensation, related to our executive, finance, legal, and support functions.

Other general and administrative expenses include professional fees for auditing, tax, consulting, rent and utilities, insurance and patent-related services.

General and administrative expenses

March 31, 2023

Increase (Decrease)

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Because there is no standard method endorsed by GAAP, the results may not be comparable to similar measurements presented by other public companies.

General and administrative expenses totalled $8,421 before stock-based compensation and depreciation expense for the year ended March 31, 2022, and increased by $3,736 from $4,685 for the year ended March 31, 2021.

This increase was a result of increased legal, tax, accounting and other professional fees related to the Grace merger, and the renewal of our at-the-market program.

In addition, salaries and benefits increased by $424 due to the accruals related to the renewal of our employee incentive bonus program.

General and administrative expenses totaled $6,428 before stock-based compensation and depreciation expense for the year ended March 31, 2023, a decrease of $1,993, from $8,421 for the year ended March 31, 2022.

The decrease was primarily a result of decreased legal, tax, accounting and other professional fees related to the Grace Therapeutics merger for the year ended March 31, 2022.

Salaries and benefits increased by $617 to $2,362 for the year ended March 31, 2023, from $1,745 for the year ended March 31, 2022.

The increase relates to severance amounts accrued in relation to the former CEO.

The decrease in professional fees were partially offset by an increase in other expenses.

Other expenses increased by $576 to $2,053 for the year ended March 31, 2023, from $1,477 for the year ended March 31, 2022.

This increase was related to increased expenses for accounting software upgrades, and IP legal costs to support and maintain our patents relating to TX-104, GTX-102 and GTX-101.

Sales and marketing

Sales and marketing expenses consist primarily of salaries and related benefits, including share-based compensation, related to our commercial functions.

Sales and marketing expenses consist primarily of salaries and benefits, including share-based compensation, related to our commercial functions.

Sales and marketing expenses

March 31, 2023

Increase (Decrease)

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Sales and marketing expenses before stock-based compensation expense were $564 for the year ended March 31, 2023, compared to $470 for the year ended March 31, 2022.

The decrease of $679 was mostly due to a reduction in salaries of $779 due to a reduction in headcount associated with the CaPre program.

Aggregate stock-based compensation expense decreased by $163 to $1,337, for the year ended March 31, 2022, as compared to $1,174 for the year ended March 31, 2021.

The increase of $94 was mostly due to an increase in salaries associated with added personnel.

Aggregate stock-based compensation expense increased by $474 to $1,811, for the year ended March 31, 2023, as compared to $1,337 for the year ended March 31, 2022.

This increase was due to the timing of the stock options granted during the year ended March 31, 2023 and year ended March 31, 2022.

Aggregate depreciation and amortization expense decreased by $924 for the year ended March 31, 2022, to nil as compared to $924 for the year ended March 31, 2021.

This decrease was due to the impact of equipment being classified as held for resale during the year ended March 31, 2021 and no subsequent additional depreciation being recognized.

Aggregate depreciation and amortization expense increased by $124 for the year ended March 31, 2023, to $124 as compared to nil for the year ended March 31, 2022.

This increase is due to the impact of certain equipment being reclassified from held for sale to held for use during the year ended March 31, 2023, resulting in additional depreciation being recognized.

In April 2023, we announced the strategic decision to prioritize development of GTX-104 with a goal to advance to commercialization, while conserving resources as much as possible to complete development efficiently.

We estimate that the deferral could be 3 years given the timeline to complete the development and commercial launch of GTX 104.

Further development of GTX-102 and GTX-101 will occur at such time as we obtain additional funding or enter into strategic partnerships.

The decision to defer further development has triggered a comprehensive impairment review of our intangible assets in March 2023.

Given the extended timeline, we increased the discount rates used to value the assets in order to recognize additional risks related to prioritizing one asset over the others, financing the projects given limited available resources and the need to preserve cash to advance GTX 104 as far as possible, potential competitor advances that could arise over three years, and the general market depression affecting small cap development companies like us and the prohibitively high dilution and expense of available funding in the capital markets.

Increasing the discount rates significantly reduced the discounted cash flow values for each of the programs deferred.

Accordingly, an impairment of intangible assets of $28,682 resulted in the year ended March 31, 2023, compared to nil for the year ended March 31, 2022.

In addition, an impairment of $4,826 of goodwill resulted in the year ended March 31, 2023, compared to nil for the year ended March 31, 2022.

Income tax recovery

The impairment of $28,682 of the intangible assets resulted in an income tax recovery of $8,633 of the related deferred tax liability.

Liquidity and Capital Resources

Share Capital Structure

Our authorized share capital consists of an unlimited number of Class A, Class B, Class C, Class D and Class E shares, without par value.

Our authorized share capital consists of an unlimited number of Class A, Class B, Class C, Class D and Class E shares, each without par value.

Issued and outstanding fully paid shares, stock options, restricted shares units and warrants, were as follows for the periods ended (all amounts in the table below give effect to the 1-for-8 share consolidation we completed on August 31, 2021):

March 31, 2023

Class A shares, voting, participating and without par value

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public offering broker warrants exercisable at US$10.10 until December 27, 2022

February 2017 Canadian public offering of warrants exercisable at CAD$17.20 until February 21, 2022

Total fully diluted shares

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As at March 31, 2023, cash and cash equivalents totalled $27,875, a net decrease of $2,464 compared to cash and cash equivalents totalling $30,339 at March 31, 2022.

During the year ended March 31, 2021, we received net proceeds of approximately $59.3 million from our at the market (ATM) program.

During the year ended March 31, 2022, we did not have financing activities and used existing cash balances for operations purposes.

Operating activities

During the years ended March 31, 2022 and 2021, our operating activities used cash of $17,234 and $14,319 respectively.

Net cash used in operating activities

During the years ended March 31, 2023 and 2022, our operating activities used cash of $15,913 and $17,234, respectively resulting in a decrease of $1,321.

Cash used in operating activities during 2023 primarily related to our net loss of $42,429, adjusted for non-cash items such as stock-based compensation of $1,811, impairments of $33,908, income tax recovery of $9,542 and changes in our operating assets and liabilities of $181.

Cash used in operating activities during 2022 primarily related to our net loss of $9,819, adjusted for non-cash items such as change in fair value of warrant liabilities of $5,197, unrealized foreign exchange gain of $370 and changes in our operating assets and liabilities of $2,786.

Investing activities

During the years ended March 31, 2022 and 2021, we used cash of $3,522 and $9,858 respectively due primarily to the acquisition of investments offset by the maturity of investments.

For the year ended March 31, 2023 our investing activities generated cash of $13,153 compared to cash used of $3,522 for the year ended March 31, 2022.

The increase in cash generated was a function of an increase in proceeds from maturity of short-term investments included in 2022.

Financing activities

During the year ended March 31, 2022, our financing activities provided cash totalling nil, compared to cash generated of $59,490 due to proceeds from the sale of shares under our ATM, program.

During the year ended March 31, 2023 we received net proceeds of approximately $304 from our at the market (ATM) program.

During the year ended March 31, 2022, we did not have financing activities and used existing cash balances for operations purposes.

On June 29, 2020, we entered into an amended and restated sales agreement (the “Sales Agreement”) with B.

Riley FBR, Inc., Oppenheimer & Co.

Wainwright & Co., LLC (collectively, the “Agents”) to amend our ATM program.

Riley, Oppenheimer & Co.

Wainwright & Co., LLC (collectively, the “Agents”).

Under the terms of the Sales Agreement, which has a three-year term, we may issue and sell from time-to-time common shares having an aggregate offering price of up to $75,000,000 through the Agents.

Subject to the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell the common shares from time to time, based upon our instructions.

Subject to the terms and conditions of the Sales

Agreement, the Agents will use their commercially reasonable efforts to sell the common shares from time to time, based upon our instructions.

We have no obligation to sell any of the common shares and may at any time suspend sales under the Sales Agreement.

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Under the terms of the Sales Agreement, we have provided the Agents with customary indemnification rights and the Agents will be entitled to compensation at a commission rate equal to 3.0% of the gross proceeds from each sale of the common shares.

On November 10, 2021, we filed a prospectus supplement relating to our ATM program to restore available capacity to $75,000,000.

The common shares sold under the ATM will be distributed at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution.

On November 10, 2021, we filed a prospectus supplement relating to our ATM program, expiring July 7, 2023, to restore available capacity to $75,000,000, with B.

Riley, Oppenheimer & Co.

Wainwright & Co., LLC continuing to act as Agents.

Under the terms of the Sales Agreement and the prospectus supplement, we may issue and sell from time-to-time common shares having an aggregate offering price of up to $75,000,000 through the Agents;

however, our use of the shelf registration statement on Form S-3 will be limited for so long as we are subject to General Instruction I.B.6 of Form S-3, which limits the amounts that we may sell under the registration statement and in accordance with the Sales Agreement.

The common shares will be distributed at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution.

The volume and timing of sales under the ATM program, if any, will be determined at the sole discretion of our board of directors and management.

During the year ended March 31, 2023, 324,648 common shares were sold under the ATM program for total gross proceeds of approximately $314.

The common shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.95 per share.

During the year ended March 31, 2022, no common shares were sold under the ATM program.

During the year ended March 31, 2021, 14.7 million common shares were sold for total net proceeds of approximately $59.3 million with related commissions, legal expenses and costs amounting to $2 million.

The common shares were sold at the prevailing market prices, which resulted in an average price of $4.16 per share.

Accordingly, proportional costs of $18 related to the common shares sold have been reclassified from deferred financings costs to equity.

Total costs incurred relating to the ATM were initially recorded as deferred financing costs in the consolidated balance sheet.

During the year ended March 31, 2021, the remaining balance of the costs incurred of $264 were written off to financing expenses.

Financial Position

The following table details the significant changes to the statements of financial position as at March 31, 2022, compared to the prior fiscal year end at March 31, 2021:

The following table details the significant changes to the consolidated balance sheet as at March 31, 2023, compared to the prior fiscal year end at March 31, 2022:

Cash and cash equivalents

See cash flow statement

Increase in cash available to invest

Decrease in cash available to invest

Timing of reimbursement of sales taxes

Assets held for sale

Impairment of RKO and Foreign exchange

Impairment of RKO and production equipment

Prepaid expenses

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Adjustment to the net present value of lease contract for Sherbrooke

Depreciation expense, write off of assets

Intangible assets

Related to acquisition of Grace (IPR&D)

Related to acquisition of Grace

Related to Impairment

Trade and other payables

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Deferred tax liability

Related to acquisition of Grace

Related to Impairment of intangibles

See the statement of changes in equity in our financial statements for details of changes to the equity accounts since March 31, 2022.

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Our treasury policy is to invest cash that is not required immediately into instruments with an investment strategy based on capital preservation.

Cash equivalents and marketable securities are primarily made in guaranteed investment certificates, term deposits and high-interest savings accounts, which are issued and held with Canadian chartered banks, highly rated promissory notes issued by government bodies and commercial paper.

Cash equivalents and marketable securities are primarily in guaranteed investment certificates, term deposits and high-interest savings accounts, which are issued and held with Canadian chartered banks, highly rated promissory notes issued by government bodies and commercial paper.

We hold cash denominated in both U.S.

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Funds received in U.S.

dollars from equity financings are invested as per our treasury policy in U.S.

dollar investments and converted to Canadian dollars as appropriate to fulfil operational requirements and funding.

Acquisition of Grace

On August 27, 2021, we completed the acquisition of Grace Therapeutics.

In connection with the share-for-share noncash transaction, Grace was merged with a new wholly owned subsidiary of Acasti and became a wholly owned subsidiary of Acasti.

Grace was subsequently renamed Acasti Pharma US Inc.

As a result of the merger, we acquired Grace’s entire therapeutic pipeline consisting of three unique clinical stage and multiple pre-clinical stage assets supported by an intellectual property portfolio consisting of more than 40 granted and pending patents in various jurisdictions worldwide.

Under the terms of the merger, each issued and outstanding share of Grace common stock was automatically converted into the right to receive Acasti common shares equal to the equity exchange ratio set forth in the merger agreement.

dollars from equity financing's are invested as per our treasury policy in U.S.

dollar investments and converted to Canadian dollars as appropriate to fulfill operational requirements and funding.

Acquisition of Grace Therapeutics

On August 27, 2021, we completed the Grace Therapeutics merger.

In connection with the share-for-share noncash transaction, Grace Therapeutics was merged with a new wholly owned subsidiary of Acasti and became a subsidiary of Acasti.

As a result, we acquired Grace Therapeutics entire therapeutic pipeline consisting of three unique clinical stage and multiple pre-clinical stage assets supported by an intellectual property portfolio consisting of various granted and pending patents in various jurisdictions worldwide.

Under the terms of the acquisition, each issued and outstanding share of Grace Therapeutics common stock was automatically converted into the right to receive Acasti common shares equal to the equity exchange ratio set forth in the merger agreement.

Consideration for Acquisition

A total of 18,241,233 common shares of Acasti were issued to Grace stockholders as consideration for the acquisition.

A total of 18,241,233 common shares of Acasti were issued to Grace Therapeutics stockholders as consideration for the acquisition.

Total common shares issued

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Fair value of common shares issued

Our acquisition of Grace has been accounted for as a business combination using the acquisition method of accounting.

Our acquisition of Grace Therapeutics has been accounted for as a business combination using the acquisition method of accounting.

This acquisition method requires, among other things, that assets acquired, and liabilities assumed in a business combination be recognized at their fair values as of the acquisition date.

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and (iv) other individually insignificant adjustments to identifiable net assets of $30.

The adjustments primarily resulted from the completion of the valuation of the intangible assets based on facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date.

The adjustments primarily resulted from the completion of the valuation of the intangible assets based on facts and circumstances that existed as of the acquisition date and

did not result from intervening events subsequent to such date.

The following table summarizes the final fair value of assets acquired and liabilities assumed as of the acquisition date:

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Total assets acquired and liabilities assumed

Intangible assets of $69,810 relate to the value of in-process research and development (“IPR&D”) related to Grace’s therapeutic pipeline, consisting of three unique clinical stage programs/assets.

The value of which has been attributed as follows:

Intangible assets –

in-process research and development

Goodwill of $12,964 was calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from the other assets acquired that could not be individually identified and separately recognized.

Acquired In-Process Research and Development

In a business combination, the fair value of IPR&D acquired is capitalized and accounted for as indefinite-lived intangible assets, and not amortized until the underlying project receives regulatory approval, at which point the intangible assets will be accounted for as a definite-lived intangible assets or discontinued.

If discontinued, the intangible asset will be written off.

R&D costs incurred after the acquisition are expensed as incurred.

The estimated fair values of identifiable intangible assets were determined using the multi-period excess earnings method, which is a valuation methodology that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows that an asset would generate over its remaining useful life.

Intangible assets of $69,810 relate to the value of IPR&D of Grace Therapeutics therapeutic pipeline, consisting of three unique clinical stage programs/assets supported by intellectual property.

We estimated the fair value of the IPR&D intangible assets using a multi-period excess earnings method.

The significant assumptions used in the valuation are the discount rate, the probability of clinical success of research and development programs, obtaining regulatory approval and forecasted net sales.

Goodwill and indefinite-lived assets are not amortized but are subject to an impairment review annually and more frequently when indicators of impairment exist.

An impairment of goodwill could occur if the carrying amount of a reporting unit exceeds the fair value of that reporting unit.

An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible asset is less than the carrying value.

Acquisition-related expenses, which were comprised primarily of regulatory, financial advisory and legal fees, totalled $3.2 million for the year ended March 31, 2022, and were included in general and administrative expenses in the condensed consolidated interim statements of earnings.

The net loss attributed to Grace in the consolidated statement of loss for the year ended March 31, 2022, since the date of acquisition is immaterial.

Pro Forma Financial Information

The following table presents the unaudited pro forma combined results of operations of Acasti and Grace for the year ended March 31, 2022, as if the acquisition of Grace had occurred on April 1, 2020:

Year ended March 31, 2022

A deferred tax liability of $17,536 related to the identified intangible assets resulted.

Acquisition-related expenses, which were comprised primarily of regulatory, financial advisory and legal fees, totaled $3.2 million for the year ended March 31, 2022 and were included in general and administrative expenses in the consolidated statements of loss and comprehensive loss.

The net loss during the year ended March 31, 2022 attributed to Grace in the consolidated statement of income (loss), since the date of acquisition is $1,505.

Assets Held for Sale

We determined to actively market for sale Other assets and Equipment and have met the criteria for classification of assets held for sale:

In January 2020 and August 2020, we released Phase 3 TRILOGY clinical trial results for our former lead drug candidate, CaPre.

The TRILOGY trials did not meet the primary endpoint which resulted in our board of directors deciding not to proceed with a filing of an NDA with the FDA.

With the completion of the TRILOGY trials beginning in the second half of fiscal 2021, we committed to a plan and were actively marketing for the sale Other assets and Production Equipment which met the criteria for classification of assets held for sale:

March 31, 2023

March 31, 2022

Reclassed as explained below

Other assets (a)

Equipment (b)

Other assets represent krill oil (RKO) held by us that was expected to be used in the conduct of R&D activities and commercial inventory scale up related to the development and commercialization of our previous drug candidate, CaPre.

Given that the development of CaPre will no longer be pursued, we expect to sell this reserve.

Production equipment (b)

Other assets represent krill oil ("RKO") held by the Corporation that was expected to be used in the conduct of R&D activities and commercial inventory scale up related to the development and commercialization of the CaPre drug.

Given that the development of CaPre will no longer be pursued, the Corporation expected to sell this reserve.

The other asset is being recorded at the fair value less costs to sell, which has resulted in an impairment loss of $195 (2022 - $249).

Management’s estimate of the fair value of the RKO less cost -to sell, is based primarily on estimated market prices obtained from an appraiser specialized in the krill oil market.

Management’s estimate of the fair value of the RKO less cost -to sell, is based on current market conditions for the age of the RKO and the inability to sell it.

These projections are based on Level 3 inputs of the fair value hierarchy and reflect management’s best estimate of market participants’

pricing of the assets as well as the general condition of the asset.

The total impairment loss recognized, includes amounts paid for krill oil in advance, but not yet received and was recorded as a prepaid asset.

March 31, 2022

Cost, net of impairment

Furniture and office equipment

Computer equipment

Laboratory equipment

The total impairment loss recognized, includes amounts paid for RKO in advance, but not yet received and was recorded previously as a prepaid.

Production equipment

March 31, 2022

Cost, net of previous impairment

Production equipment

Similarly, to the Other assets, the announcement of the outcomes of the TRILOGY clinical trials resulted in an impairment trigger for the production equipment.

The impairment loss is based on management’s estimate of the fair value of the equipment less cost -to sell, which is based primarily on estimated market conditions for selling used equipment and the inability to sell.

These projections are based on Level 3 inputs of the fair value hierarchy and reflect the Corporations best estimate of market participants’

pricing of the assets as well as the general condition of the assets.

This resulted in an impairment loss of $157.

In June 2022, we reclassed the following assets from assets held for sale as they no longer met the criteria of such classification.

value reclassed from held for sale

Furniture and office equipment

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Laboratory equipment

Production equipment

For the year ended March 31, 2021, depreciation expense was $143 and was included in research and development expenses.

Equipment is made up of laboratory, production, computer and office equipment that was utilized in the development of CaPre.

Given that the development of CaPre will no longer be pursued by the Corporation, it is expected to sell this equipment.

Similar, to how the intangible assets are treated, the announcement of the outcomes of the TRILOGY clinical trials resulted in an impairment trigger for the laboratory and production equipment.

The impairment loss is based on management’s estimate of the fair value of the equipment less cost -to sell, which is based primarily on estimated market prices obtained from brokers specialized in selling used equipment.

These projections are based on Level 3 inputs of the fair value hierarchy and reflect the management’s best estimate of market participants’

pricing of the assets as well as the general condition of the assets.

Derivative Warrant Liabilities

A total of 1,369,937 warrants were issued as part of our May 2018 public offering in Canada and recognized as derivative warrant liabilities with a fair value at inception of $3,323.

As of March 31, 2022, the derivative warrant liability for the remaining 824,218 warrants totalled $10, which represents the fair value of these warrants as at March 31, 2022.

The weighted average fair value of the warrants issued in the May 2018 public offering in Canada was determined to be CAD $3.10 per warrant at inception and approximately CAD $0.02 (US $0.01) per warrant as at March 31, 2022.

On December 27, 2017, 1,225,366 warrants were issued as part of our U.S.

public offering and recognized as derivative warrant liabilities with a fair value at inception of $4,548.

The December 2017 warrants are derivative warrant liabilities for accounting purposes due to the currency of the exercise price (US$) being different from our Canadian dollar functional currency.

As of March 31, 2022, the derivative warrant liability for the remaining 884,120warrants totalled nil, which represents the fair value of these warrants as at March 31, 2022.

The weighted average fair value of the December 2017 warrants issued was determined to be CAD $4.77 per warrant at inception and approximately nil per warrant as at March 31, 2022.

The variance in the fair value of both existing derivative warrant liabilities as at March 31, 2022, is mostly due to the fluctuations in our share price and the dilution factor.

During the year ended March 31, 2022, no warrants were exercised.

Contractual Obligations and Commitments

As at March 31, 2022, our contractual liabilities totalled $3,461 of which $3,260 was due within 1 year, and $10 related to derivative warrant liabilities that are expected to be settled in common shares.

A summary of our contractual obligations at March 31, 2022, is as follows:

Furthermore, depreciation expense of $94 was recognized related to the period from the date that the assets were classified as held for sale until June 30, 2022.

The reclassification from held for sale to equipment was reflected on the comparative balance sheet.

Contractual Obligations and Commitments

Trade and other payables

Operating lease obligations

RKO supply agreement

Our contractual obligations and commitments include trade payables, operating lease obligations, CMO and CRO agreements, and the RKO supply agreement.

Research and development contracts and contract research organizations agreements

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Pursuant to the agreements with these contract manufacturing organizations and contract research organizations, we have either the right to terminate the agreements without penalties or under certain penalty conditions.

As such, the amount of commitments is excluded from the above table.

On March 14, 2022, we renewed the lease agreement effective April 1, 2022 for our research and development and quality control laboratory facility located in Sherbrooke, Québec, resulting in a commitment of $556 over a 24 months base lease term and 48 months additional lease renewal term.

This is not reflected in table above as it is effective April 1, 2022.

On February 25, 2022, we renewed the lease agreement effective March 1, 2022, for our research and development and quality control laboratory facility located in North Brunswick, New Jersey, resulting in an obligation of $303 over a 36 months lease term.

As at March 31, 2022, the remaining balance of the obligation amounted to $326.

RKO supply agreement

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As at March 31, 2023, the remaining balance of the commitment with Aker amounts to $2.8 million.

As of March 31, 2022 the remaining balance of the krill oil product has not been made available for delivery by the supplier under the terms of the supply agreement, therefore no liability has been recorded.

Acasti no longer has any planned use for the raw krill oil product for its own operating purposes and therefore we would seek to sell the product upon receipt.

There is uncertainty whether we can recover value from the raw krill oil product and we expect we may incur a loss on this contract in the near term.

Off-Balance Sheet Arrangements

As of the date of this annual report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

During the second calendar quarter of 2022, Aker informed the Company that Aker believed it had satisfied the terms of the supply agreement as to their ability to deliver the remaining balance of krill oil product, and that the Company was therefore required to accept the remaining product commitment and to pay Aker the $2.8 million balance.

We disagree with Aker’s position and believe that Aker is not entitled to further payment under the supply agreement.

Accordingly, no liability has been recorded.

The dispute was unresolved as of March 31, 2023 and remains unresolved.

There is uncertainty as to whether the Company will be required to make further payment to Aker in connection with the dispute.

Additionally, in the event the Company is required to accept delivery from Aker of the remaining balance of krill oil product under the supply agreement, there is uncertainty as to whether the Company can recover value from the product, which may result in the Company incurring a loss on the supply agreement in the near term.

Use of Estimates and Measurement of Uncertainty

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Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Estimates and assumptions include the measurement of derivative warrant liabilities, stock-based compensation, assets held for sale, acquisition of Grace valuation of intangibles and the RKO supply agreement.

Estimates and assumptions include the measurement of derivative warrant liabilities, stock-based compensation, assets held for sale, valuation of intangible acquired from Grace Therapeutics, goodwill and the RKO supply agreement.

Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and development expenditures at each reporting date and determining which research and development expenses qualify for research and development tax credits and in what amounts.

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Recorded tax credits are subject to review and approval by tax authorities and, therefore, could be different from the amounts recorded.

Estimates and assumptions are also utilized in the assessment of impairment of deferred financing costs, equipment, and intangibles.

Estimates and assumptions are also utilized in the assessment of impairment of equipment, and intangibles.

Critical Accounting Policies

Valuation of Intangible Assets

Valuation of Intangible Assets and Goodwill

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R&D costs incurred after the acquisition are expensed as incurred.

The estimated fair values of identifiable intangible assets were determined using the multi-period excess earnings method, which is a valuation methodology that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life.

The projected discounted cash flow models used to estimate the fair value of assets of our IPR&D reflect significant assumptions and are level 3 unobservable data regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:

Probability of clinical success of research and development and obtaining regulatory approval;

Forecasted net sales from up-front and milestone payments, royalties and product sales;

A discount rate reflecting our weighted average cost of capital and specific risk inherent in the underlying assets.

Based on our valuation assumptions described above, as at the date of acquisition, varying the discount rate would result in the following range in value attributable to each IPR&D intangible asset, related to Grace’s therapeutic pipeline, assuming that all other variables remain constant.

Discount assumption

19.2% (discount rate used in valuation)

The valuation of our acquired IPR&D has significant measurement uncertainty given the lack of historical data on which to base assumptions.

We engaged a third party valuation firm to assist us with the valuation of the IPR&D.

Assumptions are difficult to make accurately and were mainly derived from life science studies, industry data, and peer company information that our management believes represent appropriate comparable data.

Our IPR&D and Goodwill was $49.3 million as of March 31, 2023, which represents 62% of total assets.

Goodwill and indefinite-lived assets are not amortized but are subject to an impairment review annually and more frequently when indicators of impairment exist.

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An impairment of indefinite-lived intangible assets would occur if the fair value of the intangible asset is less than the carrying value.

The nature of the assumptions in the intangible asset's impairment tests are considered critical due to a high level of subjectivity and judgment necessary to account for highly uncertain matters, and the impact of the assumptions on our financial condition and our operating performance could be material.

We test goodwill for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount.

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We test indefinite lived intangible assets for impairment by first assessing qualitative factors to determine whether it is more likely than not that the fair value is less than its carrying amount.

If we conclude it is more likely than not that the fair value is less than its carrying amount, a quantitative impairment test is performed.

There were no triggering events from the date of acquisition of Grace to the end of the year.

Our annual impairment test will be performed in the third quarter of the fiscal year.

Events that could result in an impairment, or trigger an interim impairment assessment, include the decision to discontinue the development of a drug, the receipt of additional clinical or nonclinical data regarding our drug candidates or a potentially competitive drug candidates, changes in the clinical development program for a drug candidate, or new information regarding potential sales for the drug candidates and increases in our weighted average cost of capital.

Individual IPR&D projects and goodwill is tested for impairment on an annual basis in the fourth quarter, and in between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of each technology or our reporting unit below its carrying value.

We identified the strategic realignment plan announced on April 4, 2023 to prioritize resources to GTX-104, from GTX-101 and GTX-102 triggered a comprehensive impairment review of our intangible assets and have considered these facts in our annual impairment test.

Deferral of development for GTX 101 and 102 has extended the cash runway from existing resources and

has also reduced the values in the discounted cashflow due to the deferral.

The result of the impairment assessment resulted in the following activity between March 31, 2022 and March 31, 2023:

Intangible assets –

in-process research and development

Balance, beginning of the year

Balance, end of the year

The impairment of $28,682 of the identified intangible assets resulted in a recovery of $8,633 of the related deferred tax liability.

Balance, beginning of the year

Balance, end of the year

The estimated fair values of our intangible assets were determined using the multi-period excess earnings method, which is a valuation methodology that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life.

The projected discounted cash flow models used to estimate the fair value of assets of our IPR&D reflect significant assumptions and are Level 3 unobservable data regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:

Probability of clinical success of research and development and obtaining regulatory approval.

This estimate was based on various publicly available studies conducted by third parties;

Forecasted net sales from up-front and milestone payments, royalties and product sales.

Comparable market transactions were used to estimate milestone and royalty revenues.

The addressable market and patient acquisition rates were estimated based on studies we commissioned a third-party to conduct.

The estimated sales prices of our technologies are based on competitors with similar drug products.

We have made estimates related to deductions expected to be provided based on conventional commercial models to access the market;

A discount rate reflecting our weighted average cost of capital and specific risk inherent in the underlying assets.

The projected discounted cash flow model used to estimate the fair value of our reporting unit and intangible assets as of March 31, 2023 includes a significant assumption related to each project's probability of clinical success, which is reflected in the cash flows.

Based on our fair value assessment, an impairment loss of GTX 104 would result if the probability of success assumption decreased more than approximately 6.2% for each year, all other assumptions remaining constant.

Furthermore, a reasonably possible change of -1% in the probability of success assumption would decrease the fair value of GTX 101 and GTX 102 by $331K and $305K, respectively.

The projected discounted cash flow model used to estimate the fair value of our reporting unit and the intangibles as of March 31, 2023 includes a significant assumption related to each project's projected net sales levels, which is reflected in the cash flows.

Based on our fair value assessment, an impairment loss for GTX 104 would result if the net sales assumptions decreased more than approximately 11.8%, for each year, all other assumptions remaining constant.

Furthermore, a reasonably possible change of -1% in the net sales assumptions would decrease the fair value of GTX 101 and GTX 102 by $119K and $233K, respectively.

We believe that the net sales assumptions developed were applied with a conservative framework such as the exclusion of addressable markets outside the United States, which markets we expect to provide revenue upside if and when GTX-101, GTX-102 and GTX-104 are approved by the FDA.

The following table depicts as at the impairment assessment, the discount rate used in the fair value model and the discount rate in which an impairment loss would occur for GTX 104.

Discount assumption

Discount rate used in fair value model

Discount rate that results in an impairment

Furthermore, a reasonably possible change of 1% in the discount rate assumption would change the fair value of GTX 101 and GTX 102 by $1.6M and $2.0M, respectively.

During the year ended March 31, 2022, a discount rate of 19.2% was used in each of the programs as at the date of the acquisition.

The valuation of our IPR&D has significant measurement uncertainty given the risks and uncertainties associated with the timely and successful completion of the development and commercialization of drug candidates.

We engaged a third-party valuation firm to assist us with the valuation of the IPR&D and goodwill.

Assumptions are difficult to make accurately and were mainly derived from life science studies, industry data, and peer company information that our management believes represent

appropriate comparable data.

Estimates of value are required to be discounted to account for risks related to the inherent uncertainties of the overall development and commercialization processes.

The summation of our Goodwill and IPR&D fair values, as indicated by our discounted cash flow calculations, were compared to our consolidated fair value, as indicated by our market capitalization, to evaluate the reasonableness of our calculations.

Our determination of a reasonable control premium that an investor would pay, over and above market capitalization for a control position, included a number of factors:

Market control premium;

The identification of recent public market information of comparable peer acquisition transactions.

The selection of comparable peer acquisition transactions is subject to judgment and uncertainty.

Impact of low public float and limited trading activity on market capitalization:

A significant portion of our common shares are owned by a concentrated number of investors.

The public float of our common shares, calculated as the percentage of common shares freely traded by public investors divided by our total shares outstanding, is significantly lower than that of our publicly traded peers.

Based on our evaluation of third-party market data, we believe there is an inherent discount impacting our share price due to the low public float and limited trading volume, thus impacting our market capitalization.

The impairment assessment is sensitive to changes in forecasted cash flows, our selected discount rates as well as the implied control premiums.

Changes to our assumptions, in particular changes in technological feasibility or changes in the regulatory approval process could materially affect the estimation of the fair value and could result in impairment charges in future quarters.

Measurement of Assets Held for Sale and RKO Supply Agreement

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Assets, once classified as held for sale, are not subject to depreciation or amortization and both the assets and any liabilities directly associated with the assets held for sale are classified as current in our consolidated balance sheets.

Subsequent changes to the estimated

selling price of assets held for sale are recorded as gains or losses to the consolidated statements of income wherein the recognition of subsequent gains is limited to the cumulative loss previously recognized.

In addition, there is judgement and potential for loss regarding the recognition and measurement of our RKO supply agreement with Aker to purchase raw krill oil product for a committed volume of commercial starting material for CaPre for a total fixed value of $3.1 million, which is described in more detail in note 20(a) of our financial statements found elsewhere in this annual report.

Subsequent changes to the estimated selling price of assets held for sale are recorded as gains or losses to the consolidated statements of income wherein the recognition of subsequent gains is limited to the cumulative loss previously recognized.

In addition, there is judgment and potential for loss regarding the recognition and measurement of our RKO supply agreement with Aker to purchase RKO product for a committed volume of commercial starting material for CaPre for a total fixed value of $3.1 million, which is described in more detail in note 21 of our financial statements found elsewhere in this annual report.

Financial Instruments

Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations.

Credit risk is the risk of a loss if a customer or counter party to a financial asset fails to meet its contractual obligations.

We have credit risk relating to cash, cash equivalents and marketable securities, which we manage by dealing only with highly rated Canadian institutions.

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We are exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates.

Foreign currency risk is limited to the portion of our business transactions denominated in currencies other than the Canadian dollar.

Foreign currency risk is limited to the portion of our business transactions denominated in currencies other than our functional currency.

On April 1, 2022, our functional currency was changed from the Canadian dollar to the US dollar.

This change is reflected prospectively in our financial statements.

Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in our operating results.

A portion of our expenses, mainly related to research contracts and purchase of production equipment, is incurred in U.S.

dollars, for which no financial hedging is in place.

There is a financial risk related to the fluctuation in the value of the U.S.

dollar in relation to the Canadian dollar.

In order to minimize the financial risk related to the fluctuation in the value of the U.S.

dollar in relation to the Canadian dollar, funds which were part of U.S.

dollar financings continue to be invested as short-term investments in the U.S.

Furthermore, a portion of our cash and cash equivalents and marketable securities are denominated in U.S.

dollars, further exposing us to fluctuations in the value of the U.S.

dollar in relation to the Canadian dollar.

The following table provides an indication of our significant foreign exchange currency exposures at the following dates:

Denominated in

Since April 1, 2022, a portion of our expenses, salaries is incurred in Canadian dollars and research contracts in Euros, for which no financial hedging is in place.

There is a financial risk related to the fluctuation in the value of the Canadian dollar and the Euro in relation to the U.S.

In order to minimize the financial risk related to the fluctuation in the value of the Canadian dollar in relation to the U.S.

dollar, certain funds continue to be invested as cash and cash equivalents and short-term investments in the Canadian dollar.

The following table provides an indication of our significant foreign exchange currency exposures from functional currency at the following dates:

March 31, 2023

March 31, 2022

Cash and cash equivalents

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The following exchange rates are those applicable to the following periods and dates:

CAD$ per Euro

Based on our foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the U.S.

dollar and Euro would have an increase (decrease) in net loss as follows, assuming that all other variables remain constant:

March 31, 2023

March 31, 2022

US$ per CAD$ (2022 - CAD per US$)

US$ per Euro (2022- CAD per Euro)

Based on our foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the Canadian dollar and Euro would have an increase (decrease) in net loss as follows, assuming that all other variables remain constant:

March 31, 2023

Increase (decrease) in net loss

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Our contractual obligations related to financial instruments and other obligations and liquidity resources are presented in the liquidity and capital resources of this MD&A.

We have incurred operating losses and negative cash flows from operations in each year since our inception.

We expect to incur significant expenses and continued operating losses for the foreseeable future.

We expect our expenses will increase substantially in connection with our ongoing activities, particularly as we advance clinical development for our drug candidates in our pipeline;

continue to engage contract manufacturing organizations to manufacture our clinical study materials and to ultimately develop large-scale manufacturing capabilities in preparation for commercial launch;

seek regulatory approval for our drug candidates;

and add personnel to support our drug product development and future drug product launch and commercialization.

We do not expect to generate revenue from product sales unless and until we successfully complete drug development and obtain regulatory approval, which we expect will take several years and is subject to significant uncertainty.

To date, we have financed our operations primarily through public offerings and private placements of our common shares, warrants and convertible debt and with the proceeds from research tax credits.

Until such time that we can generate significant revenue from drug product sales, if ever, we will require additional financing, which we expect to be sourced from a combination of public or private equity offerings or debt financing's or other non-dilutive sources, which may include fees, milestone payments and royalties from collaborations with third parties.

Arrangements with collaborators or others may require us to relinquish certain rights related to our technologies or drug product candidates.

Adequate additional financing may not be available to us on acceptable terms, or at all.

Our inability to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategy.

We expect to have sufficient cash resources to satisfy our objectives into the second quarter of calendar 2025, which is 21 to 24 months from the issuance date of the financial statements included elsewhere in this annual report.

We require additional capital to fund our daily operating needs beyond that time.

We plan to raise additional capital prior to that time in order to maintain adequate liquidity.

Negative results from studies, if any, and depressed prices of our common shares could impact our ability to raise additional financing.

Raising additional equity capital is subject to market conditions not within our control.

If we do not raise additional funds in this time period, we may not be able to realize our assets and discharge our liabilities in the normal course of business.

In May 2023, we implemented a strategic realignment plan to enhance shareholder value that resulted in engaging a new management team and greatly reducing our research and development activities including a reduction in workforce.

Future Accounting Changes

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity