Grace Therapeutics, Inc. 10-K

Item 9A. Controls and Procedures Disclosure Controls and Procedures As of the end of the period covered by this annual report, our management, with the participation of our chief executive officer (“CEO”) and chief financial officer (“CFO”), has performed an evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rules 13a-15 (e) and 15d-15(e) of the Exchange Act. Based upon this evaluation, our management has concluded that, as of March 31, 2023, our existing disclosure controls and procedures were effective. It should be noted that while the CEO and CFO believe that our disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect the disclosure controls and procedures to be capable of preventing all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management’s Report on Internal Controls over Financial Reporting Our management, with the participation of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management conducted an assessment of the design and operation effectiveness of our internal control over financial reporting as of March 31, 2023. In making this assessment, we used the criteria established within the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that, as of March 31, 2023, our internal control over financial reporting was effective. Changes in Internal Control over Financial Reporting No changes were made to our internal controls over financial reporting that occurred during the year ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We are a non-accelerated filer under the Exchange Act and not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Therefore, this annual report does not include an attestation report of our registered public accounting firm regarding our management’s assessment of internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections None. 51 PART III Item 10. Directors, Executive Officers and Corporate Governance The following table sets forth information with respect to our current directors and executive officers: Name Age Position(s) held within Acasti In Office Since Current Term to Expire Directors Vimal Kavuru 54 Chairman of the Board August 2021 September 2023 Donald Olds 63 Director, Chairman of Audit Commitee and Chairman of Governance and Human Resources Committee April 2018 September 2023 Michael L. Derby 50 Director March 2022 September 2023 Executive Officers Prashant Kohli 51 Chief Executive Officer April 2023 - Brian Ford 65 Chief Financial Officer September 2020 - Dr. R. Loch Macdonald 61 Chief Medical Officer May 2023 - Carrie D'Andrea 51 VP Clinical Operations May 2023 - Amresh Kumar 43 VP of Program Management May 2023 - The following is a brief biography of our current directors and executive officers: Vimal Kavuru Mr. Kavuru has created and led several pharmaceutical companies. Mr. Kavuru brings, in his vision and management, a broad-based understanding of the global pharmaceutical industry with expertise in strategic planning, product and business development, and operations. In addition to previously serving as the Chairman of the Grace Therapeutics board of directors, Mr. Kavuru is the Founder, Chairman and Chief Executive Officer of Rising Pharma Holdings, Inc., a U.S. generic pharmaceutical company, and Acetris Pharma Holdings, LLC, a generic pharmaceutical company serving U.S. government agencies. Previously, Mr. Kavuru founded Citron Pharma & Lucid Pharma, which were sold to Aceto Corporation in 2016, Casper Pharma LLC, an emerging specialty brand pharmaceutical company, and Gen-Source RX, a national distributor of generic pharmaceuticals that was acquired by Cardinal Health in 2014. In 2007, Mr. Kavuru also co-founded Celon Labs, a specialty oncology and critical care pharmaceutical company that was acquired by Zanzibar Pharma Limited, a portfolio company of CDC Group. He is a registered pharmacist in the state of New York, holds a B.S. in Pharmacy from HKE College of Pharmacy, Bulgarga, India, and attended Long Island University, Brooklyn, New York with specialization in industrial pharmacy. Mr. Kuvaru was elected to the Acasti board as a nominee of former shareholders of Grace Therapeutics pursuant to the terms of Acasti’s acquisition of Grace Therapeutics. Our board of directors believes that Mr. Kuvaru’s management experience in the pharmaceutical industry, as well as his operational expertise, qualify him to serve on our board of directors. Donald Olds Until May 2019, Mr. Olds was the President and Chief Executive Officer of the NEOMED Institute, a research and development organization dedicated to advancing Canadian research discoveries to commercial success. Prior to NEOMED, he was the Chief Operating Officer of Telesta Therapeutics Inc., a TSX-listed biotechnology company, where he was responsible for finance and investor relations, manufacturing operations, business development, human resources, and strategy. In 2016, he led the successful sale of Telesta to a larger public biotechnology company. Prior to Telesta, he was President and Chief Executive Officer of Presagia Corp., and Chief Financial Officer and Chief Operating Officer of Aegera Therapeutics Inc., where he was responsible for clinical operations, business development, finance, and mergers and acquisitions. At both Telesta and Aegera, Mr. Olds was responsible for raising equity financing and leading regional and global licensing transactions with life sciences companies. Mr. Olds is currently lead director of Goodfood Market Corp, Chair of Aifred Health, lead director of Cannara Biotech Inc, and director of Presagia Corp. He has extensive past corporate governance experience serving on the boards of private and public for-profit and not-for-profit organizations. He holds an M.B.A. (Finance & Strategy) and M..Sc. (Renewable Resources) from McGill University. Our board believes that Mr. Old’s extensive industry experience and his strong financial background, as well as his service on the board of directors of public and private companies, qualifies him to serve on our board of directors. Michael L. Derby Mr. Derby has more than two decades of experience and a proven track record within the biopharmaceutical industry, with particular expertise in strategic drug repurposing. Having founded or co-founded seven biopharmaceutical companies, he most recently launched TardiMed Sciences LLC, a company creation and investment firm in the life sciences. TardiMed has formed, capitalized and advanced multiple biopharmaceutical companies through development, including Timber Pharmaceuticals, Inc. (NYSE: TMBR), PaxMedica, Inc. and Visiox Pharma LLC. Mr. Derby has served as Executive Chairman of the Board of Directors for each of these companies. Prior to TardiMed, Mr. Derby co-founded Castle Creek Pharmaceuticals, which he built into a multi-product, late clinical stage company focused on treating rare and debilitating dermatologic conditions. He also founded Norphan Pharmaceuticals, a biopharmaceutical company focused on the development of drugs for orphan neurologic disease, which he led through its early stages prior to selling the company to Marathon Pharmaceuticals LLC in 2013. Prior to founding and managing life sciences companies, Mr. Derby was a private equity investor and venture capitalist, and also worked in management roles at Merck & Co. and Forest Laboratories Inc. Mr. Derby holds an M.B.A. from New York University’s Stern School of Business, a M.S. from the University of Rochester, and a B.S. from Johns Hopkins University. Mr. Derby was appointed to the Acasti board as a nominee of former shareholders of Grace Therapeutics pursuant to the terms of Acasti’s acquisition of Grace Therapeutics. Our board of directors believes that Mr. Derby’s extensive industry and management experience, including his experience in drug repositioning and his strong financial background, qualify him to serve on our board of directors. Prashant Kohli Prashant Kohli has over 20 years of commercialization experience leading strategy, sales, marketing, and product management. Prior to joining Acasti in August 2021, , Mr. Kohli was VP, Commercial Operations of Grace Therapeutics since December 2017. He has expertise crafting go-to-market plans for products with unique value proposition that address critical unmet needs. He has built, deployed, and led sales and marketing from the ground-up with significant experience in organization design, recruiting, performance management, incentive compensation, and P&L accountability. He has successfully implemented evidence-based, consultative-selling model that is rooted in deep understanding of the health ecosystem including patients, providers, health systems, government, and payers. He has also designed strategic marketing plans that generate leads and increase share-of-voice, augmenting the salesforce with digital tactics that increase reach and frequency. He has extensive commercial experience with specialty and small molecule drugs including in rare and orphan diseases. Prashant has worked at Archi-Tech Systems, Cardinal Health, IMS Health, Rosenbluth, and Dun & Bradstreet. He has a BA in Computer Science and Math from Augustana College and an MBA from The Wharton School. 52 Brian Ford Mr. Ford brings over three decades of financial, project management and M&A experience within the healthcare and financial industries. Mr. Ford is an accomplished CPA-CA having served both publicly traded as well as privately owned organizations. Mr. Ford has been responsible for developing business recovery strategies, negotiating M&A transactions, as well as managing quarterly and yearly accounting reports. Most recently, Mr. Ford served as Chief Financial Officer and Senior Business Advisor at a private group of Ontario based medical clinics, including the largest chronic pain management practice in Canada. Prior to that, Mr. Ford served as Chief Financial Officer at Telesta Therapeutics Inc. At Telesta Therapeutics, Mr. Ford helped develop a new business plan and was heavily involved in all capital transactions. Previously, Mr. Ford started his own consulting firm, Petersford Consulting, where he provided clients with finance and business risk services. Mr. Ford began his career at Ernst & Young, eventually becoming a Principal, Business Risk Services, developing essential business plans that evaluated revenue and cost profiles supporting budget planning and understanding drivers of growth, specifically with healthcare companies. Additionally, at Ernst & Young, Mr. Ford participated in and often led teams in due diligence assignments in relation to M&A or the sale of a business, having extensive experience in developing financial forecasts, product and market valuation, and audits of critical accounting and processes. Mr. Ford holds a B.A. in Economics, History, and English from the University of Guelph and has a Graduate Diploma in Accounting from the University of McGill. Mr. Ford is a member of the Ontario Institute of Chartered Accountants. Dr. R. Loch Macdonald Dr. Macdonald is a world-renowned practicing neurosurgeon-scientist and respected authority in subarachnoid hemorrage. Dr. Macdonald acted as Professor, Department of Surgery, Division of Neurosurgery at the University of Toronto from January 2007 until December 2019, and was Head, Division of Neurosurgery, St. Michael's Hospital, University of Toronto from January 2007 until December 2015. He was Professor, Department of Neuorological Surgery, Barrow Neurological Surgery, Barrow Neurological Institute, Phoenix, Arizona, from April 2018 until August 2018; Fellow, Department of Neurosurgery, University of Illinois Hospitals in Chicago, Illinois from December 2018 until June 2019; Clinical Professor, Department of Neurological Surgery, University of California San Franciso Fresno, in Fresno, California from July 2019 until September 2021; and from October 2021 to the present has been Neurosurgeon, Community Physicians Group, Community Neurosciences Institute, Community Regional Medical Center and Medical Director of Neurosciences Research, Community Health Partners. Dr Macdonald was also a founder of Edge Therapeutics, Inc. in 2009, where he was a member of the board of directors between 2009 and 2018 and was Chief Scientific Officer between 2011 and 2018. Dr. Macdonald completed his medical degree at the University of British Columbia, Vancouver, British Columbia and his PhD in Experimental Surgery at the University of Alberta in Edmonton, Alberta. He completed his Neurosurgery residency at the University of Toronto. Carrie D’Andrea Ms. D’Andrea is a highly experienced professional with 25 years of experience in the pharmaceutical and biotechnology industry who has built and led the planning, implementation, management, and execution of global Phase 2 and Phase 3 trials for a drug candidate for subarachnoid hemorrhage. Ms. D'Andrea was the Vice President of Clinical Operations for Edge Therapeutics Inc. from October 2014 until March 2019 and for EryDel SpA from October 2020 until April 2021. Ms. D’Andrea was a clinical operations consultant at Aegle Research from July 2021-August 2022 and Praxis Precisions Medicines from September 2022-May 2023. Ms. D’Andrea was named a Healthcare Businesswomen’s Association Rising Star in 2009 and Ms. D'Andrea received her master's degree in Pharmaceutical Quality and Regulatory Affairs from Temple University and teaches Clinical Trial Design and Operations at Rutgers University in the Master of Business and Science Program. Amresh Kumar Mr. Kumar is an experienced drug development, CMC, and program management expert supporting investigational and marketed products for rare diseases and neurology. Mr. Kumar is the former product leader of GTX-104 while at Grace Therapeutics Inc. (which was acquired by the Company in August 2021). Mr. Kumar acted as the Sr. Director of Program Management at Foresee Pharmaceuticals Inc. from April 2022 until May 2023 and as Program Leader and Associate Director - R&D at Grace Therapeutics Inc. between March 2015 and January 2022. Mr. Kumar received a PhD in Pharmaceutical Science from Sunrise University, India, focusing on complex injectable drug delivery systems of highly soluable oncology drugs. He has published many research articles and has more than 10 granted patents and many patent applications worldwide to his credit. Family Relationships There are no family relationships between any directors or officers of the Company. Code of Business Conduct and Ethics Please see the section entitled “Code of Business Conduct and Ethics” in “Item 13. Certain Relationships and Related Transactions and Director Independence.” Audit Committee Our audit committee is responsible for assisting the board of directors in fulfilling its oversight responsibilities with respect to financial reporting, including: • reviewing our procedures on overall financial reporting and internal control framework; • reviewing and approving the engagement of our external auditor; • reviewing annual and quarterly financial statements and all other material continuous disclosure documents, including our annual and quarterly reports; • assessing our financial and accounting personnel; • assessing our accounting policies; • reviewing our risk management procedures; and • reviewing any significant transactions outside our ordinary course of business and any pending litigation involving us. The audit committee has direct communication channels with our management performing financial functions and our external auditor to discuss and review such issues as the audit committee may deem appropriate. The audit committee is composed of Mr. Olds, as Chairperson, Mr.Kavuru and Mr. Derby. Each of Mr. Olds, Mr. Kavuru and Mr. Derby is “financially literate” and “independent” within the meaning of the Exchange Act. Audit Committee Financial Expert 53 Our board of directors has determined that Mr. Olds is an “audit committee financial expert”, as defined by applicable regulations of the SEC. The SEC has indicated that the designation of Mr. Olds as an audit committee financial expert does not make him an “expert” for any purpose, impose any duties, obligations or liability on Mr. Olds that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation, or affect the duties, obligations or liability of any other member of the audit committee or board of directors. Item 11. Executive Compensation Our executive compensation program is intended to attract, motivate and retain high-performing senior executives, encourage and reward superior performance, and align the executives’ interests with ours as well as our shareholders by providing compensation that is competitive with the compensation received by executives employed by comparable companies, and ensuring that the achievement of annual objectives is rewarded through the payment of bonuses, and providing executives with long-term incentives through the grant of stock options. Our governance and human resources committee, or GHR committee, has authority to retain the services of independent compensation consultants to advise its members on executive and board compensation and related matters, and to determine the fees and the terms and conditions of the engagement of those consultants. During our fiscal year ended March 31, 2023, the GHR committee retained compensation consulting services from FW Cook to review our executive compensation programs, including base salary, short-term and long-term incentives, total cash compensation levels and total direct compensation of certain senior positions, against those of a peer group of 20 broadly similar size, as measured by market capitalization (peer market cap all averaged less than $500M in 2021), biotechnology and pharmaceutical companies listed or headquartered in North America. The consultants also reviewed board compensation, including advisory fees and equity incentives. All of the services provided by the consultants were provided to the GHR committee. The GHR committee assessed the independence of the consultants and concluded that its engagement of the consultants did not raise any conflict of interest with us or any of our directors or executive officers. Compensation for our CEO was below the peer company median based on FW Cook’s review during the fiscal year ended March 31, 2023. Use of Fixed and Variable Pay Components Compensation of our named executive officers, or NEOs, is revised each year and has been structured to encourage and reward executive officers on the basis of short-term and long-term corporate performance. In the context of its analysis of compensation for our fiscal year ended March 31, 2023, the following components were examined by the GHR committee: • base salary; • short term incentive plan, consisting of a cash bonus; • long term incentive plan, consisting of stock options and equity incentive grants based on performance and/or time vesting conditions; and • other elements of compensation, consisting of group benefits and perquisites. For executives, more than half of their target compensation (base salary + target STIP awards + target LTIP awards) is considered “at risk”. We believe this mix results in a strong pay-for-performance relationship and alignment with shareholders and is competitive with other firms of comparable size in similar fields. The CEO (or any person acting in that capacity) makes recommendations to the GHR committee as to the compensation of our executive officers, other than the CEO for review and approval by the board of directors. The GHR committee makes recommendations to the board of directors as to the compensation of the CEO, for approval. The CEO’s salary is based on comparable market consideration, and the GHR committee’s assessment of the CEO's performance, with regard to our financial performance, and progress in achieving key strategic business goals. Qualitative factors beyond the quantitative financial metrics are also a key consideration in determination of individual executive compensation payments. How executives achieve their financial results and demonstrate leadership consistent with our values are key to individual compensation decisions. Base Salary We intend to be competitive over time with comparator companies and to attract and retain top talent. The GHR committee reviews compensation matters periodically to help ensure that it meets this strategic imperative. Base salary is set to reflect an individual’s skills, experience, and contributions within a salary structure consistent with peer group data. Base salary structure is revised annually by the GHR committee as financial and market conditions evolve. Short Term Incentive Plan (STIP) Our Short-Term Incentive Plan, or STIP, provides for potential rewards when a threshold of corporate performance is met compared to the board of director's primary stated objectives for the fiscal year. Corporate performance is assessed against a table of weighted performance categories and sub-goals within each weighted category, which assessment of goal achievement funds the corporate bonus pool. These performance goals take into account the achievement of corporate milestones within timelines and budget and individual objectives determined annually by the board of directors according to short-term priorities. The corporate bonus pool is allocated based on achievement of personal objectives assessed through a performance grid, with pre-specified, objective performance criteria. For the most senior participants in the STIP, greater weight is assigned to corporate objectives. Target payout is expressed as a percentage of base salary, and is determined by benchmarking against peer group data. Annual salary for STIP purposes is the annual salary in effect at the end of the plan year (i.e., prior to any annual salary increases awarded for the subsequent year). The STIP is a variable compensation plan, and all STIP payments are subject to board of directors approval. Participants must be employed by us at the end of the fiscal year to qualify. Long Term Incentive Plan (LTIP) The LTIP has been adopted as a reward and retention mechanism. Participation is determined annually at the discretion of the board of directors. The stock option plan is intended to align the long-term interests of participants with those of shareholders, in order to promote creation of shareholder value. The GHR committee determines the number of stock options to be granted to a participant based on peer group data and taking into account corporate performance and the employee’s level in the organization. The LTIP calculation for NEOs is determined by both reviewing grant values and a dilution- based methodology that considers 54 the annual grant rate as a percent of shares outstanding. All fiscal 2023 grants to named executive officers had a grant value that was below the median of the peer data reviewed at the end of the year. Our directors and executive officers are not permitted to purchase financial instruments, such as prepaid variable forward contracts, equity swaps, collars or units of exchange funds that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by the director or officer. Stock Option Plan Our stock option plan was adopted by our board of directors on October 8, 2008, and has been amended from time to time, as most recently amended on August 4, 2022, and approved by our shareholders on September 28, 2022. The grant of options is part of the long-term incentive component of executive and director compensation and an essential part of our compensation framework. Qualified directors, employees and consultants may participate in our stock option plan, which is designed to encourage option holders to link their interests with those of our shareholders, in order to promote an increase in shareholder value. Awards and the determination of any exercise price are made by our board of directors, after recommendation by the GHR committee. Awards are established, among other things, according to the role and responsibilities associated with the participant’s position and his or her influence over appreciation in shareholder value. Any award grants a participant the right to purchase a certain number of common shares during a specified term in the future, after a vesting period and/or specific performance conditions, at an exercise price equal to at least 100% of the market price (as defined below) of our common shares on the grant date. The “market price” of common shares as of a particular date generally means the highest closing price per common share on the Nasdaq, or any other exchange on which the common shares are listed from time to time, for the last preceding date on which there was a sale of common shares on that exchange (subject to certain exceptions set forth in the stock option plan in the event that our common shares are no longer traded on any stock exchange). Previous awards may sometimes be taken into account when new awards are considered. In accordance with the stock option plan, all of an option holder’s options will immediately fully vest on the date of a Change of Control event (as defined in the stock option plan), subject to the terms of any employment agreement or other contractual arrangement between the option holder and us. However, in no case will the grant of options under the stock option plan, together with any proposed or previously existing security-based compensation arrangement, result in (in each case, as determined on the grant date): the grant to any one consultant within any 12-month period, of options reserving for issuance a number of common shares exceeding in the aggregate 2% of our issued and outstanding common shares (on a non-diluted basis); or the grant to any one employee, director and/or consultant, which provides investor relations services, within any 12-month period, of options reserving for issuance a number of common shares exceeding in the aggregate 2% of our issued and outstanding common shares (on a non-diluted basis). Options granted under the stock option plan are non-transferable and are subject to a minimum vesting period of 36 months for management, and 12 months for non-executive board members, in each case with gradual and equal vesting on no less than a quarterly basis in the case of management and monthly in the case of non-executive board members. They are exercisable, subject to vesting and/or performance conditions, at a price equal to the highest closing price of the common shares on the Nasdaq, or any other exchange on which the common shares are listed from time to time, on the day prior to the grant of such options. In addition, and unless otherwise provided for in the relevant agreement between us and the holder, options will also lapse upon termination of employment or the end of the business relationship with us except that they may be exercised for 90 days after termination, ceasing to hold office or the end of the business relationship (30 days for investor relations services employees), in each case to the extent that they will have vested on such date of termination of employment, end of the business relationship or ceasing to hold office, as applicable, except in the case of death, disability or retirement where this period is extended to 12 months. Subject to the approval of relevant regulatory authorities, including the Nasdaq, if applicable, and compliance with any conditions attached to that approval (including, in certain circumstances, approval by disinterested shareholders) if applicable, the board of directors has the right to amend or terminate the stock option plan. However, unless option holders’ consent to the amendment or termination of the stock option plan in writing, any such amendment or termination of the stock option plan cannot affect the conditions of options that have already been granted and that have not been exercised under the stock option plan. Options for common shares representing 20% of our issued and outstanding common shares as of July 28, 2022, from time to time may be granted by the board under the stock option plan, which number shall include common shares issuable pursuant to awards issued under the equity incentive. As of the date of this annual report, there were 8,898,839 common shares reserved for issuance under the stock option plan and 4,445,492 options outstanding under the stock option plan. Equity Incentive Plan On May 22, 2013, our equity incentive plan was adopted by the board of directors in order to, among other things, provide us with a share-related mechanism to attract, retain and motivate qualified directors, employees and consultants. The adoption of the equity incentive plan was initially approved by shareholders on June 27, 2013, and has been amended from time to time, as most recently amended on August 4, 2022, and approved by shareholders on September 28, 2022. Eligible persons may participate in the equity incentive plan. “Eligible persons” under the equity incentive plan consist of any director, officer, employee, or consultant (as defined in the equity incentive plan) of our Company or a subsidiary. A participant is an eligible person to whom an award has been granted under the equity incentive plan. The equity incentive plan provides us with the option to grant to eligible persons bonus shares, restricted shares, restricted share units, performance share units, deferred share units and other share-based awards. The board of directors has the discretion to determine that any unvested or unearned restricted share units, deferred share units, performance share units or other share-based awards or restricted shares subject to a restricted period outstanding immediately prior to the occurrence of a change in control will become fully vested or earned or free of restriction upon the occurrence of a change in control. The board of directors may also determine that any vested or earned restricted share units, deferred share units, performance share units or other share-based awards will be cashed out based on the market price of our common shares as of the date a change in control is deemed to have occurred, or as of such other date as the board of directors may determine prior to the change in control. Further, the board has the right to provide for the conversion or exchange of any restricted share unit, deferred share unit, performance share unit or other share-based award into or for rights or other securities in any entity participating in or resulting from the change in control. The equity incentive plan is administered by the board of directors and the board of directors has sole and complete authority, in its discretion, to determine the type of awards under the equity incentive plan relating to the issuance of common shares (including any combination of bonus shares, restricted share units, performance share units, deferred share units, restricted shares or other share-based awards) in such amounts, to such persons and under such terms and conditions as the board of directors may determine, in accordance with the provisions of the equity incentive plan and the recommendations made by the GHR committee. Subject to the adjustment provisions provided for in the equity incentive plan and the applicable rules and regulations of all regulatory authorities to which we are subject (including any stock exchange), the total number of common shares reserved for issuance pursuant to awards granted under the equity incentive plan will be equal to a 55 number that will not exceed 20% of the issued and outstanding common shares as of July 28, 2022, which number shall include common shares issuable pursuant to options issued under the stock option plan. Other Forms of Compensation Retirement Plans . We sponsor a voluntary Registered Retirement Savings Plan, or RRSP, matching program, which is open to all eligible employees, including NEOs, who reside in Canada. The RRSP matching program matches employees’ contributions up to a maximum of $1,500 per fiscal year for eligible employees who participate in the program. We have also implemented a 401K plan for US employees. Because of the small size of our current employee population in the US and to assure passage of anti-discrimination testing, the 401K plan has a “safe harbor” provision which provides a contribution of 3% of salary to the 401K accounts of all eligible US employees, including NEOs who reside in the US. Other Benefits and Perquisites. Our executive employee benefit program also includes life, medical, dental and disability insurance. These benefits and perquisites are designed to be competitive overall with equivalent positions in comparable organizations. We do not have a pension plan for employees. Compensation Governance Compensation of our executive officers and directors is recommended to the board of directors by the GHR committee. In its review process, the GHR committee informally reviews executive and corporate performance on a quarterly basis, with input from management. Annually, the GHR committee conducts a more formal review and assessment of executive and corporate performance. The GHR committee is composed of the following members: Mr. Olds (Chairman), Mr. Kavuru and Mr. Derby, each of whom is independent within the meaning of applicable Nasdaq rules. The GHR committee establishes management compensation policies and oversees their general implementation. All members of the GHR committee have direct experience which is relevant to their responsibilities as GHR committee members. All GHR committee members are or have held senior executive or director roles within significant businesses in our industry, some also having public companies experience, and have a level of financial understanding which allows them to assess the costs versus benefits of compensation plans. The GHR committee’s members’ combined experience in our sector provides them with a good understanding of our success factors and risks, which are highly relevant to determining metrics for measuring success. We do not believe that our compensation program results in unnecessary or inappropriate risk taking, including risks that are likely to have a material adverse effect on us. Payments of bonuses, if any, are not made unless performance goals are met. Compensation Paid to Named Executive Officers The following table sets forth the compensation information for our principal executive officer, and our two most highly compensated executive officers other than our principal executive officer (NEOs), who were serving as executive officers as of March 31, 2023, during the fiscal years ended March 31, 2023, and 2022 respectively. Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($) Option Awards ($) (1) (2) Nonequity Incentive Plans ($)(7) All Other Compensation ($) Total Compensation ($) Jan D'Alvise (4) March 31, 2023 $ 494,761 $ 210,642 $ - $ 426,799 $ - $ - $ 1,132,202 Former President and CEO March 31, 2022 $ 445,161 $ - $ - $ 926,502 $ 175,000 $ - $ 1,546,663 George Kottayil (5) March 31, 2023 $ 361,972 $ 97,344 $ - $ 38,069 $ - $ - $ 497,385 Former COO, US March 31, 2022 $ 146,640 $ - $ - $ 701,710 $ - $ - $ 848,350 Prashant Kohli (6) March 31, 2023 $ 379,370 $ 75,270 $ - $ 57,103 $ - $ - $ 511,743 CEO and former CCO March 31, 2022 $ 141,000 $ - $ - $ 470,056 $ - $ - $ 611,056 Notes: (1) The fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model. This model requires the input of a number of parameters, including share price, share exercise price, expected share price volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect management’s best estimates, they involve inherent uncertainties based on market conditions generally outside of our control. (2) The fair value of the option-based awards granted on June 22, 2022, was $0.76. (3) The fair value of the option-based awards granted on November 11, 2021, was $1.40. (4) Ms. D’Alvise ceased to be the Company’s President and CEO effective April 4, 2023. (5) Mr. Kottayil ceased to be the Company’s Chief Operating Officer (US) effective May 8, 2023. (6) Mr. Kohli, the Company’s former Chief Commercial Officer, was appointed CEO effective April 4, 2023. (7) Whether the earnings were paid during the fiscal year, payable during the period but deferred at the election of the named executive officer, or payable by their terms at a later date. Outstanding Equity Awards at March 31, 2023 The following tables provide information about the number and value of the outstanding option-based awards held by the NEOs as of March 31, 2023 56 Option awards Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) Option exercise price ($) Option expiration date Jan D’Alvise, Former President and CEO 65,625 — — $ 9.71 Friday, May 12, 2023 32,250 — — $ 10.70 Monday, June 14, 2027 21,500 — — $ 10.70 Monday, June 14, 2027 113,281 — — $ 4.68 Sunday, July 02, 2028 28,263 — — $ 7.68 Sunday, April 15, 2029 96,488 — — $ 7.68 Sunday, April 15, 2029 111,251 55,624 55,624 $ 2.99 Sunday, March 31, 2030 237,566 321,155 321,155 $ 1.65 Tuesday, November 11, 2031 140,000 420,000 420,000 $ 0.89 Tuesday, June 22, 2032 George Kottayil, Former COO, US 119,958 167,942 167,942 $ 1.65 Tuesday, November 11, 2031 12,500 37,500 37,500 $ 0.89 Tuesday, June 22, 2032 Prashant Kohli, CEO and former CCO 51,708 72,392 72,392 $ 1.65 Tuesday, November 11, 2031 18,750 56,250 56,250 $ 0.89 Tuesday, June 22, 2032 Notes: (1) The option awards listed in the table above vest with respect to 1/12 on each quarterly anniversary thereafter over the following three years, subject to the executive officer’s continuous service with us through the vesting date. (2) The option awards listed above will be cancelled 90 days after termination date, as per the stock option plan. Employment Agreements with Named Executive Officers Jan D’Alvise, Former CEO On June 1, 2016, we entered into an executive employment agreement with Ms. D’Alvise. Pursuant to her executive employment agreement, Ms. D’Alvise’s annual base salary was set at $330,000 and she is eligible to receive annual performance bonuses based on a target amount of 50% of her annual base salary with a maximum of up to 80% of her annual base salary. In accordance with the terms and provisions of the executive employment agreement we entered into with Ms. D’Alvise, we may terminate the executive’s employment at any time for “good and sufficient cause”, as defined in the employment agreement, without notice or severance. We may terminate the executive’s employment at any time without cause or upon a change of control, as defined in our stock option plan, by providing the executive with sixty days’ notice of termination and payment equal to twelve months’ base salary plus any bonus payable. The executive may decide to resign from employment and must provide us with at least sixty days' advance written notice. The executive may decide to terminate employment with “good reason”, as defined in the executive employment agreement, and we are required to make payment equal to twelve months’ base salary plus any bonus payable. Effective April 4, 2023, Jan D'Alvise employment was terminated as both parties mutually agreed to part ways and she is entitled to a severance payment in accordance with the terms of her executive employment agreement. Pierre Lemieux, Former COO, Canada On September 26, 2017, we entered into an executive employment agreement with Dr. Lemieux. Pursuant to his executive employment agreement, Dr. Lemieux’s annual base salary was set at CAD$253,700 and he was eligible to receive annual performance bonuses of up to 40% of his annual base salary. In accordance with the terms and provisions of the executive employment agreement we entered into with Dr. Lemieux, we were entitled to terminate the executive’s employment at any time for “good and sufficient cause”, as defined in the employment agreement, without notice or severance. We were entitled to terminate the executive’s employment at any time without cause or upon a change of control, as defined in our stock option plan, by providing the executive with thirty days’ notice of termination and payment equal to twelve months’ base salary plus any bonus payable. The executive was entitled to resign from employment upon providing us with at least sixty days' advance written notice. The executive was entitled to terminate employment with “good reason”, as defined in the executive employment agreement, and we were required to make payment equal to twelve months of base salary. Effective May 8, 2023, Dr. Lemieux’s employment was terminated by the Company and he is entitled to severance payment in accordance with the terms of his executive employment agreement. 57 Brian Ford, Interim CFO On September 13, 2021, we entered into an executive employment agreement with Mr. Ford. Pursuant to his executive employment agreement, Mr. Ford’s annual base salary was set at CAD$350,000 and he was eligible to receive annual performance bonuses of up to 40% of his annual base salary. In accordance with the terms and provisions of the executive employment agreement we entered into with Mr. Ford, we were entitled to terminate his employment at any time with cause. We were entitled to terminate the executive’s employment without cause by providing the executive employee, with either a payment equal to six months of base salary, plus two months of base salary for each completed year of service, to a maximum of twelve months in total, or a payment equal to twelve months of base salary in the event that such a termination occurs within three months following a change of control, as defined in our stock option plan. The executive was entitled to resign from employment and upon providing us with at least eight weeks of advance written notice. Effective May 8, 2023, Mr. Ford employment as the Company’s Chief Financial Officer was terminated and he is entitled to severance payment in accordance with the terms of his executive employment agreement. Mr. Ford has agreed to serve as the Company’s Interim Chief Financial Officer until June 30, 2023, subject to potential extension of that term by the Company. Dr. R. Loch Macdonald, Chief Medical Officer On May 8, 2023 we entered into a consulting agreement with R. Loch Macdonald. The Consulting Agreement provides, among other things, that Dr.Macdonald will serve as a non-employee Chief Medical Officer on a part-time basis, in exchange for a fee of $100,000 per month. There is no arrangement or understanding between Dr. Macdonald and any other persons pursuant to which Dr. Macdonald was selected as an officer. Carrie D’Andrea, VP Climical On May 8, 2023 we entered into a consulting agreement with Carrie D'Andrea. The Consulting Agreement provides, among other things, that Ms. D'Andrea will serve as a non-employee vice-president of clinical operations on a full-time basis, in exchange for a fee of $18,000 per month. There is no arrangement or understanding between Ms. D’Andrea and any other persons pursuant to which Ms. D’Andrea was selected as an officer. Non-Executive Director Compensation Our directors’ compensation consists of an annual fixed compensation of $65,000 for the chairman of the board and $35,000 for the other non-executive board members. In addition, the chairperson of the audit committee and the chairperson of the GHR committee receive additional compensation of $15,000 and $11,000, respectively, while members of the audit committee and the GHR committee receive additional compensation of $7,500 and $6,000, respectively. The directors are also entitled to a fee of $1,000 per non-regularly scheduled board meeting as well as a reimbursement for traveling and other reasonable expenses properly incurred by them in attending meetings of the board or any committee or in otherwise serving us, in accordance with our policy on travel and expenses. Following their first election to our board of directors, non-executive directors are eligible to receive an initial equity grant of up to 150% of their annual cash retainer worth of stock options vesting monthly in equal installments over a 12-month period, subject to the other terms and conditions set forth under the heading “Stock Option Plan”. In addition to their initial grant, non-executive directors are eligible to receive an annual equity-based award equal to 100% of their total annual cash retainer vesting monthly in equal installments over a 12-month period. These awards will be granted at the same time that we are performing our annual performance review for our employees, subject to availability of common shares and subject to the terms and conditions described under the headings “Stock Option Plan” and “Equity Incentive Plan”. The level of these awards are intended to be consistent with equivalent awards by comparable companies obtained from our benchmarking exercise and in accordance with the recommendations obtained from our independent compensation consultant. The total compensation for our non-executive directors during fiscal year ended March 31, 2023, was as follows: Name Fees earned or paid in cash ($) Stock awards ($) Option awards ($) Non-equity incentive plan compensation ($) Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Vimal Kavuru 66,000 — 30,189 — — — 96,189 Donald Olds 60,500 — 30,189 — — — 90,689 Michael Derby 44,500 — 57,024 — — — 101,524 Roderick N. Carter (1) 34,400 — — — — 34,400 Jean-Marie (John) Canan (2) 59,600 — 30,189 — — — 89,789 Notes: (1) Dr. Carter did not stand for reelection at the 2022 Annual Meeting of Stockholders and his service as a director ended as of that date. (2) Mr. Canan resigned from the board of directors, effective March 30, 2023. (3) Mr. Haseltine did not stand for reelection at the 2022 Annual Meeting of Stockholders and his service as a director ended as of that date. Item 402(v) Pay Versus Performance The disclosure included in this section is prescribed by SEC rules and does not necessarily align with how the Company or the GHR committee view the link between the Company’s performance and named executive officer pay. This disclosure is intended to comply with the requirements of Item 402(v) of Regulation S-K applicable to “smaller reporting companies.” Required Tabular Disclosure of Pay Versus Performance As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(v) of Regulation S-K, we are providing the following information about the relationship between executive compensation actually paid and certain financial performance of the Company. The following table sets forth information concerning Compensation Actually Paid (“CAP”) to our Principal Executive Officer (“PEO”) NEOs versus our total shareholder return (“TSR”) and net income (loss) performance results for the fiscal years ended March 31, 2023 and 2022. The amounts set forth below under the headings “Compensation Actually Paid to PEO” and “Average Compensation Actually Paid to Non-PEO NEOs” have been calculated in a manner consistent with Item 402(v) of Regulation S-K. Use of the term 58 CAP is required by the SEC’s rules and as a result of the calculation methodology required by the SEC, such amounts differ from compensation actually received by the individuals and the compensation decisions described in the “Executive Compensation Summary” section above. The 2023 CAP to our PEO and the average CAP to our non-PEO NEOs reflects the following adjustments required by the applicable SEC rules from the total compensation reported in the Summary Compensation Table (“SCT”): Year Summary Compensation Table Total for PEO ($) Compensation Actually Paid to PEO ($) Average Summary Compensation Table Total for Non-PEO NEOs ($) Average Compensation Actually Paid to non-PEO NEOs ($) Value of Initial Fixed $100 Investment Based On: Total Shareholder Return (TSR) ($)1 Net Income (Loss) ($ in 000s)2 (a) (b) (c) (d) (e) (f) (g) March 31, 2023 1,132,202 1,263,723.92 504,564 596,611 25.42 (42,429 ) March 31, 2022 1,546,663 2,036,960.42 729,703 766,415 9.58 (9,819 ) (1) Our Total Shareholder Return (“TSR”) for each of the applicable fiscal years is calculated based on a fixed investment of $100 at the applicable measurement point (March 31, 2021) on the same cumulative basis as is used in Item 201(e) of Regulation S-K. (2) Net loss is as reported in our consolidated financial statements. The 2023 CAP to our PEO and the average CAP to our non-PEO NEOs reflects the following adjustments required by the applicable SEC rules from the total compensation reported in the SCT: PEO Average of Non-PEO NEOs Total Reported in 2023 SCT $ 1,132,202.25 $ 504,563.95 Less: value of equity award reported in the SCT $ (426,799 ) $ (47,586 ) Add: year-end value of equity awards granted in 2023 that are unvested and outstanding $ 285,786 $ 31,896 Add: change in fair value (from prior year-end) of prior year equity awards that are unvested and outstanding $ 205,833 $ 11,524 Add: fair market value of equity awards granted in 2023 and that vested in 2023 $ 104,287.09 $ 11,639.18 Add: change in fair value (from prior year-end) of prior year equity awards that vested in 2023 $ (37,584.92 ) $ 84,573.88 Compensation Actually Paid for 2023 $ 1,263,723.92 $ 596,610.76 The 2022 CAP to our PEO and the average CAP to our non-PEO NEOs reflects the following adjustments required by the applicable SEC rules from the total compensation reported in the SCT: Required Disclosure of the Relationship between Compensation Actually Paid and Financial Performance Measures PEO Average of Non-PEO NEOs Total Reported in 2022 SCT $ 1,546,662.97 $ 848,349.58 Less: value of equity award reported in the SCT $ (926,502 ) $ (585,883 ) Add: year-end value of equity awards granted in 2022 that are unvested and outstanding $ 852,297 $ 267,846 Add: change in fair value (from prior year-end) of prior year equity awards that are unvested and outstanding $ 601,773 $ 189,125 Add: fair market value of equity awards granted in 2022 and that vested in 2022 $ 74,740.53 $ 23,488.25 Add: change in fair value (from prior year-end) of prior year equity awards that vested in 2022 $ (112,012.07 ) $ 23,488.71 Compensation Actually Paid for 2022 $ 2,036,960.42 $ 766,415.30 In accordance with Item 402(v) of Regulation S-K, we are providing the following descriptions of the relationships between information presented in the Pay Versus Performance table above. Compensation Actually Paid and Net Income (Loss) Due to the nature of our Company’s consolidated financial's and primary focus on research and development of novel therapies, our company has not historically utilized net income (loss) as a performance measure for our executive compensation program. As a result, we do not believe there is any meaningful relationship between our net loss and compensation actually paid to our NEOs during the periods presented. Compensation Actually Paid and TSR The following graph sets forth the relationship between CAP to our PEO, the average of CAP to our Non-PEO NEOs, and the Company's TSR over the period covering 2023 and 2022. 59 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Equity Compensation Plan Information The following table sets forth certain information regarding the Company’s equity compensation plans as of March 31, 2023: Plan category (a) Number of securities to be issued upon exercise of outstanding options,warrants and rights (b) Weighted- average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders (Stock Option Plan)(1): 4,445,492 $ 2.27 4,410,152 Equity compensation plans approved by security holders (Equity Incentive Plan)(2): — $ — — Equity compensation plans not approved by security holders: — $ — — Total 4,445,492 2.27 4,410,152 Notes: (1) A summary of certain material provisions of the Company’s stock option plan is available under “Item 11. Executive Compensation – Summary of our Compensation Programs – Stock Option Plan”. (2) The total number of common shares reserved for issuance under the Company’s equity incentive plan is limited by the number of options that are outstanding under the stock option plan such that the total number of common shares available for issuance under both stock-based compensation plans shall not exceed 8,898,839. A summary of certain material provisions of the Company’s equity incentive plan is available under “Item 11. Executive Compensation – Summary of our Compensation Programs – Equity Incentive Plan”. 60 Security Ownership of Certain Beneficial Owners The following table sets forth certain information regarding beneficial ownership of our common shares as of May 31, 2023 by each director and the executive officer identified above, and all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. All common shares have the same voting rights. For the purposes of calculating percentage ownership, as of May 31, 2023 , 44,612,831 common shares were issued and outstanding, and, for any individual who beneficially owns common shares represented by options exercisable within 60 days of May 31, 2023 , these shares are treated as if outstanding for that person, but not for any other person. Name and Address of Beneficial Owner (1) Amount and Nature of Beneficial Ownership Percentage of Common Shares Prashant Kohli 198,596 * Donald Olds 92,875 * George Kottayil 878,522 1.97% Jan D'Alvise 943,970 2.12% Michael Derby 42,500 * Vimal Kavuru 3,880,893 8.70% Directors and officers as a group (8 persons) 4,376,072 9.81% * Less than 1%. Notes: 1. Unless otherwise indicated, the address of each of the executive officers and directors named above is 3009 boul. de la Concorde East, Suite 102, Laval, Québec, Canada H7E 2B5 2. Includes 70,458 common shares that Prahsant Kohli may acquire through the exercise of share options within 60 days hereof, with exercise prices ranging between $0.89 and $1.65. 3. Includes 88,125 common shares that Donald Olds may acquire through the exercise of share options within 60 days hereof, with exercise prices ranging between $0.59 and 7.71. Includes 4,750 common shares held and controlled by Mr. Olds’ spouse, Ofra Aslan. 4. Includes 42,500 common shares that Michael Derby may acquire through the exercise of share options within 60 days hereof, with exercise price of $.059 5. Includes 3,070,229 common shares owned by Shore Pharma LLC, of which Mr. Kavuru is the sole member, 746,064 common shares owned indirectly Kottayil Grace Pharma LLC, of which Mr. Kavuru is a manager, and 64,600common shares that Vimal Kavuru may acquire through the exercise of share options within 60 days hereof, with exercise price of $0.89 and $1.65. To the best of our knowledge, other than as disclosed above, the only other beneficial owner of 5% or more of our outstanding common shares is Rajitha Grace Irrevocable Trust, 40 Bey Lea Road, Suite C202, Tom’s River, NJ, 08753, which beneficially owns 4,689,547 common shares, representing 10.51% of our issued and outstanding common shares. Changes in Control There existed no change in control arrangements at March 31, 2023 Item 13. Certain Relationships and Related Transactions and Director Independence Related Transactions Since April 1, 2022, there were no transactions or any currently proposed transactions in which the Company was or is to be a participant and the amounts exceeds $120,000, and in which any related person had or will have a direct or indirect interest. Director Independence Our board of directors believes that, in order to maximize its effectiveness, the board of director must be able to operate independently. A majority of directors must satisfy the applicable tests of independence, such that the board of directors complies with all independence requirements under applicable corporate and securities laws and stock exchange requirements applicable to us. No director will be independent unless the board of directors has affirmatively determined that the director has no material relationship with us or any of our affiliates, either directly or indirectly or as a partner, shareholder or officer of an organization that has a relationship with us or our affiliates. Such determinations will be made on an annual basis and, if a director joins the board of directors between annual meetings, at such time. Independent Directors The board of directors determined that Mr. Kavuru, Mr. Olds and Mr. Derby are independent within the meaning of Nasdaq Stock Market rules. Chairman of the Board Mr. Kavuru acts as chairman of the board. His duties and responsibilities consist of the oversight of the quality and integrity of the board of directors’ practices. Board Mandate The board of directors is responsible for overseeing management in carrying out the business and affairs of the Company. Directors are required to act and exercise their powers with reasonable prudence in the best interests of the Company. The board agrees with and confirms its responsibility for overseeing management's performance in the following particular areas: • approving and monitoring the Company’s compliance procedures; • establishing and developing the Company’s corporate governance principles and committees; • evaluating the strategic plan of the Company; • identification and oversight of the principal risks associated with the business of the Company and application of appropriate systems to manage and mitigate such risks; 61 • planning for succession of management; • the Company's policies regarding communications with its shareholders and others; and • the integrity of the internal controls and management information systems of the Company. In carrying out its mandate, the board relies primarily on management to provide it with regular detailed reports on the operations of the Company and its financial position. The board reviews and assesses these reports and other information provided to it at meetings of the board and/or of its committees. At least annually, the board approves a strategic plan for the Company, taking into account, among other things, the opportunities and risks of the Company’s business, its risk appetite, emerging trends, and the competitive environment in the industry. Position Descriptions A written position description has been approved for the chairs of each committee of the board of directors. The primary role and responsibility of the chair of each committee of the board of directors is to: (i) in general, ensure that the committee fulfills its mandate, as determined by the board of directors and in accordance with the committee’s charter; (ii) chair meetings of the committee; (iii) report to the board of directors; and (iv) act as liaison between the committee and the board of directors and our management. The board of directors has adopted a written position description for the chairman of the board of directors. The chairman of the board of directors is responsible for leading the board to fulfill its duties under the board’s mandate as independent of management and acting as an advisor to the chief executive officer. The chairman’s duties include, but are not limited to, setting meeting agendas, approving and supervising management’s progress towards achieving strategic goals, chairing meetings and working with the respective committee and management to ensure, to the greatest extent possible, the effective functioning of the committee and the board of directors. The chairman must oversee that the relationship between the board of directors, management of the Company, the Company’s shareholders and other stakeholders are effective, efficient, and further to the best interests of the Company. Orientation and Continuing Education We provide orientation for new appointees to the board of directors and committees in the form of informal meetings with members of the board and senior management, complemented by presentations on the main areas of our business. The board does not formally provide continuing education to its directors, as directors are experienced members. The board of directors relies on third-party professional assistance, when judged necessary, in order to be educated/updated on a particular topic. Code of Business Conduct and Ethics The board of directors adopted a Code of Business Conduct and Ethics, or Code of Conduct, for our directors, officers and employees on May 31, 2007, as amended from time to time. Our Code of Conduct can be found on SEDAR at www.sedar.com and on our website on www.acastipharma.com. A copy of the Code of Conduct can also be obtained by contacting our corporate secretary. We intend to disclose future amendments to or waivers from certain provisions of our Code of Conduct provisions on our website. Since its adoption by the board of directors, any breach of the Code of Conduct must be brought to the attention of the board of directors by our CEO or other senior executives. No report has ever been filed which pertains to any conduct of a director or executive officer that constitutes a breach to our Code of Conduct. The board of directors actively monitors compliance with the Code Conduct and promotes a business environment where employees are encouraged to report malfeasance, irregularities, and other concerns. The Code of Conduct provides for specific procedures for reporting non-compliant practices in a manner which, in the opinion of the board of directors, encourages and promotes a culture of ethical business conduct. The board of directors has also adopted a disclosure policy, insider trading policy, majority voting policy, management and board compensation policies, and a whistle blower policy. In addition, under the Civil Code of Québec, to which we are subject as a legal person incorporated under the Business Corporations Act (Québec) (L.R.Q., c. S-31), a director must immediately disclose to the board any situation that may place him or her in a conflict of interest. Any such declaration of interest is recorded in the minutes of proceedings of the board of directors. In such instances, the director abstains, except if otherwise required, from the discussion and voting on the question. In addition, it is our policy that an interested director recuse himself or herself from the decision-making process pertaining to a contract or transaction in which he or she has an interest. Nomination of Directors The board of directors receives recommendations from the GHR committee, but retains responsibility for managing its own affairs by, among other things, giving its approval for the composition and size of the board of directors, and the selection of candidates nominated for election to the board of directors. The GHR committee initially evaluates candidates for nomination for election as directors, having regard to the background, diversity, employment, and qualifications of possible candidates. The selection of the nominees for the board of directors is made by the other members of the board, based on our needs and the qualities required for the board of directors, including ethical character, integrity and maturity of judgment of the candidates; the level of experience of the candidates; their ideas regarding the material aspects of our business; the expertise of the candidates in fields relevant to us while complementing the training and experience of the other members of the board of directors; the will and ability of the candidates to devote the necessary time to their duties to the board of directors and its committees; the will of the candidates to serve on the board of directors for numerous consecutive financial periods; and the will of the candidates to refrain from engaging in activities which conflict with the responsibilities and duties of a director. The board researches the training and qualifications of potential new directors which seem to correspond to the selection criteria of the board of directors and, depending on the results of said research, organizes meetings with the potential candidates. In the case of incumbent directors whose terms of office are set to expire, the board will review such directors’ overall service to us during their term of office, including the number of meetings attended, level of participation, quality of performance and any transactions of such directors with us during their term of office. We may use various sources in order to identify the candidates for the board of directors, including our own contacts and the references of other directors, officers, advisors and executive placement agencies. We will consider director candidates recommended by shareholders and will evaluate those director candidates in the same manner in which we evaluate candidates recommended by other sources. In making recommendations for director nominees for the annual meeting of shareholders, we will consider any written recommendations of director candidates by shareholders received by our corporate secretary not later than 120 days before the anniversary of the previous year’s annual meeting of shareholders. Recommendations must include the candidate’s name, contact information and a statement of the candidate’s 62 background and qualifications, and must be mailed to us. Following the selection of the candidates by the board of directors, we will propose a list of candidates to the shareholders, for our annual meeting of shareholders. The board of directors does not have a separate nominating committee and has not adopted any formal written director term limit policy. Proposed nominations of director candidates are evaluated by our GHR committee. GHR Committee The mandate of the GHR committee consists of the evaluation of the proposed nominations of senior executives and director candidates to our board of directors; recommending for board approval, if appropriate; revisions of our corporate governance practices and procedures; developing new charters for any new committees established by the board of directors; monitoring relationships and communication between management and the board of directors; monitoring emerging best practices in corporate governance and oversight of governance matters; and assessing the board of directors and its committees. The GHR committee is also in charge of establishing the procedures which must be followed by us to comply with applicable requirements of the Nasdaq Stock Market regarding corporate governance. The GHR committee has the responsibility of evaluating the compensation, performance incentives as well as the benefits granted to our management in accordance with their responsibilities and performance as well as to recommend the necessary adjustments to our board of directors. The GHR committee also reviews the amount and method of compensation granted to the directors. The GHR committee may retain an external firm in order to assist it during the execution of its mandate. The GHR committee considers time commitment, comparative fees, and responsibilities in determining compensation. Periodic Assessments The board of directors, its committees and each director are subject to periodic evaluations of their efficacy and contribution. The evaluation procedure consists of identifying any shortcomings and implementing adjustments proposed by directors at the beginning and during meetings of the board of directors and of each of its committees. Among other things, these adjustments deal with the level of preparation of directors, management and consultants employed by us, the relevance and sufficiency of the documentation provided to directors and the time allowed to directors for discussion and debate of items on the agenda. Director Term Limits The board actively considers the issue of term limits from time to time. At this time, the board does not believe that it is in our best interests to establish a limit on the number of times a director may stand for election. While such a limit could help create an environment where fresh ideas and viewpoints are available to the board, a director term limit could also disadvantage us through the loss of the beneficial contribution of directors who have developed increasing knowledge of, and insight into, us and our operations over a period of time. As we operate in a unique industry, it is difficult to find qualified directors with the appropriate background and experience and the introduction of a director term limit would impose further difficulty. Policies Regarding the Representation of Women on the Board and Among Executive Officers We have not adopted a formal written policy regarding diversity amongst executive officers and members of the board of directors, including mechanisms for board renewal, in connection with, among other things, the identification and nomination of women directors. Nevertheless, we recognize that gender diversity is a significant aspect of diversity and acknowledge the important role that women with appropriate and relevant skills and experience can play in contributing to the diversity of perspective on the board of directors. Rather than considering the level of representation of women for directorship and executive officer positions when making board or executive officer appointments, we consider all candidates based on their merit and qualifications relevant to the specific role. While we recognize the benefits of diversity at all levels within our organization, we do not currently have any targets, rules or formal policies that specifically require the identification, consideration, nomination, or appointment of candidates for directorship or executive management positions or that would otherwise force the composition of our board of directors and executive management team. Item 14. Principal Accounting Fees and Services Audit Fees Our independent registered public accounting firm is Ernst & Young LLP, Montréal, Québec, Canada, “Audit fees” consist of fees for professional services for the audit of our annual financial statements and fees related to securities filings. Audit fees for Ernst & Young LLP were CAD $385,000 for the fiscal year ended March 31, 2023. Our previous independent registered public accounting firm was KPMG LLP, Montreal, Quebec, Canada, which audited our annual financial statements for our fiscal year ended March 31, 2022. Audit fees for KPMG LLP were CAD $538,400 for the fiscal year ended March 31, 2022. Audit-Related Fees “Audit-related fees” consist of fees for professional services that are reasonably related to the performance of the audit or review of our financial statements, and which are not reported under “Audit Fees” above. Ernst & Young LLP billed CAD nil for audit-related fees for the fiscal year ended March 31, 2023. KPMG LLP billed CAD nil for audit related fees for the fiscal year ended March 31, 2022. Tax Fees “Tax fees” consist of fees for professional services for tax compliance, tax advice and tax planning. Ernst & Young LLP billed CAD nil for tax fees for the fiscal year ended March 31, 2023. KPMG LLP billed CAD $28,595 for tax fees for the fiscal year ended March 31, 2022. Tax fees include, but are not limited to, preparation of tax returns. All Other Fees “Other fees” include all other fees billed for professional services other than those mentioned hereinabove. Ernest & Young LLP billed no fees under this category for the fiscal year ended March 31, 2023, and KPMG LLP billed no fees under this category for the fiscal year ended March 31, 2022. Change in Accountant KPMG LLP was previously our principal independent accountants. On February 22, 2023, the audit committee and board of directors approved the dismissal of KPMG LLP as the Company’s independent registered public accounting firm. The report of KPMG LLP on the consolidated financial statements of the Company as of and for 63 the fiscal years ended March 31, 2022 and 2021 did not contain any adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended March 31, 2022 and 2021 and the subsequent interim period through the date of the engagement of Ernst & Young LLP as the Company’s registered independent public accounting firm, there were no (1) disagreements between the Company and KPMG LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of KPMG LLP, would have caused KPMG LLP to make reference in connection with their opinion to the subject matter of the disagreements, or (2) reportable events. The Company provided KPMG LLP with a copy of the disclosures in the Company’s related Current Report on Form 8-K prior to its filing with the Securities and Exchange Commission (the “ SEC ”) and requested KPMG LLP furnish it a letter addressed to the SEC stating whether it agrees with the above statements. A copy of that letter, dated February 22, 2023, was filed as Exhibit 16.1 to the related Current Report on Form 8-K. On February 22, 2023, in connection with the Company’s dismissal of KPMG LLP, the board of directors approved the engagement of Ernst & Young LLP as its new independent registered public accounting firm to audit the Company’s financial statements for the fiscal year ending March 31, 2023. The decision to retain Ernst & Young LLP was recommended by the audit committee, and approved by the board of directors, after taking into account the results of a competitive review process and other business factors. During the fiscal years ended March 31, 2022 and 2021 and the subsequent interim period through February 22, 2023, neither the Company nor anyone on its behalf consulted with Ernst & Young LLP regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on the Company’s financial statements and neither a written report nor oral advice was provided to the Company that Ernst & Young LLP concluded was an important factor considered by the Company in reaching a decision as to accounting, auditing or financial reporting issues, (iii) any matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions), or (iv) any reportable event (as described in Item 304(a)(1)(v) of Regulation S-K). Pre-Approval Policies and Procedures The audit committee approves all audit, audit-related services, tax services and other non-audit related services provided by the external auditors in advance of any engagement. Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve certain fees for non-audit related services pursuant to a de minimus exception prior to the completion of an audit engagement. Non-audit related services satisfy the de minimus exception if the following conditions are met: • the aggregate amount of all non-audit services that were not pre-approved is reasonably expected to constitute no more than five per cent of the total amount of fees paid by us and our subsidiaries to our external auditors during the fiscal year in which the services are provided; • we or our subsidiaries, as the case may be, did not recognize the services as non-audit services at the time of the engagement; and • the services are promptly brought to the attention of the audit committee and approved, prior to the completion of the audit, by the audit committee or by one or more of its members to whom authority to grant such approvals had been delegated by the audit committee. None of the services described above under “Principal Accounting Fees and Services” were approved by the audit committee pursuant to the de minimus exception. 64 PART IV Item 15. Exhibits, Financial Statement Schedules (a)(1) Financial Statements—The financial statements included in Item 8 are filed as part of this annual report on Form 10-K. (a)(2) Financial Statement Schedules—All schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the consolidated Financial Statements or notes thereto included in Item 8 of this annual report on Form 10-K. (a)(3) Exhibits—The exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below. (b) Exhibits—The exhibits listed on the Exhibit Index below are filed herewith or are incorporated by reference to exhibits previously filed with the SEC. Item 16. Form 10-K Summary None. EXHIBITS INDEX Exhibit No. Description 2.1 Agreement and Plan of Merger dated as of May 7, 2021 among Acasti Pharma Inc., Acasti Pharma U.S., Inc. and Grace Therapeutics Inc. (incorporated by reference to Exhibit 2.1 from Form 8-K filed with the SEC on May 7, 2021) 3.1 Articles of Incorporation (incorporated by reference to Exhibit 4.1 from Form S-8 (File No. 333-191383) filed with the Commission on September 25, 2013) 3.2 Articles of Amendment (incorporated by reference to Exhibit 3.1 from Form 8-K filed with the SEC on August 27, 2021) 3.2 Amended and Restated General By-Law (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on February 21, 2017) 3.3 Advance Notice bylaw No. 2013-1 (incorporated by reference to Exhibit 4.3 from Form S-8 (File No. 333-191383) filed with the Commission on September 25, 2013) 4.1 Specimen Certificate for Common Shares of Acasti Pharma Inc. (incorporated by reference to Exhibit 2.1 from Form 20-F (File No. 001- 35776) filed with the Commission on June 6, 2014) 4.5 Amended and Restated Warrant Indenture dated May 10, 2018 between Acasti Pharma Inc. and Computershare Trust Company of Canada (incorporated by reference to Exhibit 2.5 from Form 20-F (File No. 001-35776) filed with the Commission on June 29, 2018) 4.6 Description of Securities (incorporated by reference to exhibit 4.6 from form 10K filed with the commission on June 21, 2022). 10.2 Acasti Pharma Inc., Equity Incentive Plan, as amended August 4, 2022(incorporated by reference from Schedule A to proxy statement filed with the Commission on August 31, 2022). 10.3 Acasti Pharma Inc., Stock Option Plan, as amended August 4, 2022.(incorporated by reference from Schedule A to proxy statement filed with the Commission on August 31, 2022). 23.1 Consent of Ernst & Young LLP, an Independent Registered Public Accounting Firm. 23.2 Consent of KPMG LLP, an Independent Registered Public Accounting Firm. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: June 23, 2023 ACASTI PHARMA INC. By: /s/ Prashant Kohli Name: Prashant Kohli Title: Chief Executive Officer and (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Prashant Kohli Chief Executive Officer June 23, 2023 Prashant Kohli (Principal Executive Officer) /s/ Brian Ford Interim Chief Financial Officer June 23, 2023 Brian Ford (Principal Financial Officer and Principal Accounting Officer) /s/ Donald Olds Director June 23, 2023 Donald Olds /s/Vimal Kavuru Director June 23, 2023 Vimal Kavuru /s/Michael L.Derby Director June 23, 2023 Michael L.Derby 66 ACASTI PHARMA INC. Consolidated Financial Statements For the years ended March 31, 2023 and 2022 Consolidated Balance Sheets F- 1 Consolidated Statements of Loss and Comprehensive Loss F- 2 Consolidated Statements of Shareholders’ Equity F- 3 Consolidated Statements of Cash Flows F- 4 Notes to the Consolidated Financial Statements F- 5 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Acasti Pharma Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Acasti Pharma Inc. (the “Corporation”) as of March 31, 2023, the related consolidated statements of loss and comprehensive loss, shareholders’ equity, and cash flows for the year ended March 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation at March 31, 2023 and the results of its operations and its cash flows for the year ended March 31, 2023, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment of goodwill and in-process research and development intangibles (“IPR&D”) Description of the matter As discussed in Notes 2 and 5 of the consolidated financial statements, goodwill and IPR&D intangible assets are tested for impairment at least annually and more frequently when indicators of impairment exist. The Corporation recorded an impairment charge of $28.7 million and $4.8 million related to IPR&D intangible assets and goodwill, respectively, for the year ended March 31, 2023, and as of March 31, 2023 there is a remaining carrying value of $41.1 million and $8.1 million related to IPR&D intangibles and goodwill, respectively. Management estimated the fair value of the IPR&D intangible assets on an individual project basis and estimated the fair value of the reporting unit for purposes of testing goodwill. Auditing the Corporation's impairment tests was complex and required a high degree of auditor judgment when performing procedures due to the significant estimation uncertainty in determining the fair value of the IPR&D and goodwill. Significant assumptions used in the Corporation's fair value estimate of the IPR&D assets and goodwill are the discount rates, forecasted net sales, and the probability of clinical success of research and development programs and obtaining regulatory approval. How we addressed the matter in our audit To test the estimated fair value of the IPR&D and goodwill, our audit procedures included, among others, assessing the fair value methodologies applied and the prospective financial information used by the Corporation in its valuation analysis. We involved our valuation specialists to assist in evaluating the valuation methodologies used, and also in testing the discount rates by developing an independent range of discount rates and comparing them to the discount rates selected by management. We assessed forecasted net sales used by management by comparing to recent transactions for certain peer companies or market data. We compared management's assumptions related to probability of success with data from third party studies and the stage of product development. We performed sensitivity analyses of the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions. /s/ Ernst & Young LLP We have served as the Corporation’s auditor since 2023. Montréal, Canada June 23, 2023 Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors of Acasti Pharma Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Acasti Pharma Inc. (the "Company") as of March 31, 2022, the related consolidated statements of loss and comprehensive loss, shareholders’ equity, and cash flows for the year ended March 31, 2022, and the related notes (collectively, the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022, and the results of its operations and its cash flows for the year ended March 31, 2022, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. KPMG LLP, an Ontario limited liability partnership and member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. KPMG Canada provides services to KPMG LLP. Page 2 We served as the Company’s auditor from 2009 to 2023. Montréal, Québec June 21, 2022 ACASTI PHARMA INC. Consolidated Balance Sheets As of March 31, 2023 March 31, 2022 (Expressed in thousands of U.S. dollars except share data) Notes $ $ Assets Current assets: Cash and cash equivalents 27,875 30,339 Short-term investments 7 15 13,322 Receivables 6 802 548 Assets held for sale 8 — 352 Prepaid expenses 598 720 Total current assets 29,290 45,281 Operating lease right of use asset 463 315 Equipment 9 104 250 Intangible assets 4, 5 41,128 69,810 Goodwill 4, 5 8,138 12,964 Total assets 79,123 128,620 Liabilities and Shareholders’ equity Current liabilities: Trade and other payables 11 3,336 3,156 Operating lease liability 12 75 104 Total current liabilities 3,411 3,260 Derivative warrant liabilities 13, 14(b) — 10 Operating lease liability 12 410 191 Deferred tax liability 4,19 7,347 16,889 Total liabilities 11,168 20,350 Shareholders’ equity: Common shares, no par value per share; unlimited shares authorized as of March 31, 2023 and March 31, 2022; 44,612,831 and 44,288,183 shares issued and outstanding as of March 31, 2023 and March 31, 2022, respectively 258,294 257,990 Additional paid-in capital 14 13,965 12,154 Accumulated other comprehensive loss ( 6,038 ) ( 6,037 ) Accumulated deficit ( 198,266 ) ( 155,837 ) Total shareholder’s equity 67,955 108,270 Commitments and contingencies 21 Total liabilities and shareholders’ equity 79,123 128,620 The accompanying notes are an integral part of these consolidated financial statements ACASTI PHARMA INC. Consolidated Statements of Loss and Comprehensive Loss Year ended March 31, 2023 Year ended March 31, 2022 (Expressed in thousands of U.S. dollars except share and per data) Notes $ $ Operating Expenses Research and development expenses, net of government assistance 10 ( 9,972 ) ( 5,559 ) General and administrative expenses ( 7,614 ) ( 9,263 ) Sales and marketing ( 661 ) ( 518 ) Impairment of intangible assets 5 ( 28,682 ) — Impairment of goodwill 5 ( 4,826 ) — Impairment of assets held for sale 8 ( 400 ) ( 249 ) Loss from operating activities ( 52,155 ) ( 15,589 ) Other income 15 184 5,122 Loss before income tax recovery ( 51,971 ) ( 10,467 ) Income tax recovery 19 9,542 648 Net loss and total comprehensive loss ( 42,429 ) ( 9,819 ) Basic and diluted loss per share 17 ( 0.95 ) ( 0.27 ) Weighted average number of shares outstanding 44,612,831 36,841,762 The accompanying notes are an integral part of these consolidated financial statements ACASTI PHARMA INC. Consolidated Statements of Shareholders’ Equity (Expressed in thousands of U.S. dollars except share data) Common Shares Notes Number Dollar Additional Paid-in Capital Accumulated other comprehensive loss Deficit Total $ $ $ $ $ Balance, March 31, 2022 44,288,183 257,990 12,154 ( 6,037 ) ( 155,837 ) 108,270 Net loss and total comprehensive loss for the period — — — — ( 42,429 ) ( 42,429 ) Cumulative translation adjustment — — — ( 1 ) — ( 1 ) Stock-based compensation 16 — — 1,811 — — 1,811 Net proceeds from shares issued under the at-the -market (ATM) program 14 324,648 304 — — — 304 Balance at March 31, 2023 44,612,831 258,294 13,965 ( 6,038 ) ( 198,266 ) 67,955 Common Shares Notes Number Dollar Additional Paid-in Capital Accumulated other comprehensive loss Deficit Total $ $ $ $ $ Balance, March 31, 2021 26,046,950 197,194 10,817 ( 6,333 ) ( 146,018 ) 55,660 Net loss and total comprehensive loss for the period — — — — ( 9,819 ) ( 9,819 ) Cumulative translation adjustment — — — 296 — 296 Stock-based compensation 16 — — 1,337 — — 1,337 Common shares issued in relation to merger with Grace via share-for-share, net 4 18,241,233 60,796 — — — 60,796 Balance at March 31, 2022 44,288,183 257,990 12,154 ( 6,037 ) ( 155,837 ) 108,270 The accompanying notes are an integral part of these consolidated financial statements F- 3 ACASTI PHARMA INC. Consolidated Statements of Cash Flows Year ended March 31, 2023 Year ended March 31, 2022 (Expressed in thousands of U.S. dollars) Notes $ $ Cash flows used in operating activities: Net loss for the year ( 42,429 ) ( 9,819 ) Adjustments: Depreciation of equipment 9 124 — Impairment of intangible assets 5 28,682 — Impairment of goodwill 5 4,826 — Impairment of assets held for sale 8 400 249 Stock-based compensation expense 16 1,811 1,337 Change in fair value of warrant liabilities 12 ( 10 ) ( 5,197 ) Income tax recovery 19 ( 9,542 ) ( 648 ) Unrealized foreign exchange loss 5 ( 370 ) Write-off of equipment 9 39 — Changes in operating assets and liabilities 18 181 ( 2,786 ) Net cash used in operating activities ( 15,913 ) ( 17,234 ) Cash flows from (used in) investing activities: Acquisition of equipment 9 ( 17 ) — Acquisition of short-term investments ( 5,015 ) ( 34,929 ) Maturity of short-term investments 18,185 31,407 Net cash from (used in) investing activities 13,153 ( 3,522 ) Cash flows from (used in) financing activities: Net proceeds from shares issued under the at-the-market (ATM) program 304 — Net cash from financing activities 304 — Effect of exchange rate fluctuations on cash and cash equivalents ( 8 ) 26 Translation effect on cash and cash equivalents related to reporting currency — 127 Net decrease in cash and cash equivalents ( 2,464 ) ( 20,603 ) Cash and cash equivalents, beginning of year 30,339 50,942 Cash and cash equivalents, end of year 27,875 30,339 Cash and cash equivalents are comprised of: Cash 17,803 30,339 Cash equivalents 10,072 — Cash interest received 143 71 Right-of-use assets obtained in exchange for new operating lease liability 548 363 F- 4 ACASTI PHARMA INC. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share and per share data) 1. Nature of Operations Acasti Pharma Inc. (“Acasti” or the “Corporation”) is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 3009 boul. de la Concorde East, Suite 102, Laval, Québec, Canada H7E 2B5. The Corporation’s shares are listed on the Nasdaq Capital Market (the "Nasdaq"), and from April 1, 2022 through March 27, 2023 the Corporation's shares were also listed on the TSX Venture Exchange ("TSXV"), in each case, under the symbol "ACST". On March 13, 2023 the Corporation received approval to voluntarily delist from the TSXV. Effective as at the close of trading on March 27, 2023, the Corporation's common shares are no longer listed and posted for trading on the TSXV. In August 2021, the Corporation completed the acquisition via a share-for-share merger of Grace Therapeutics, Inc. (“Grace”), a privately held emerging biopharmaceutical company focused on developing innovative drug delivery technologies for the treatment of rare and orphan diseases. The post-merger Corporation is focused on building a late-stage specialty pharmaceutical company specializing in rare and orphan diseases and developing and commercializing products that improve clinical outcomes using our novel drug delivery technologies. The Corporation seeks to apply new proprietary formulations to existing pharmaceutical compounds to achieve enhanced efficacy, faster onset of action, reduced side effects, more convenient delivery and increased patient compliance; all of which could result in improved patient outcomes. The active pharmaceutical ingredients chosen by the Corporation for further development may be already approved in the target indication or could be repurposed for use in new indications. In May 2023, the Corporation implemented a strategic realignment plan to enhance shareholder value that resulted in the Corporation engaging a new management team and greatly reducing its research and development activities including a reduction in workforce. Moving forward part of this strategic realignment plan includes the Corporation rebuilding a smaller organization in the United States. The Corporation has incurred operating losses and negative cash flows from operations in each year since its inception. The Corporation expects to incur significant expenses and continued operating losses for the foreseeable future. The Corporation expects its expenses will increase substantially in connection with its ongoing activities, particularly as it advances clinical development for the first three drug candidates in the Corporation’s pipeline; continues to engage contract manufacturing organizations (“CMO's”) to manufacture its clinical study materials and to ultimately develop large-scale manufacturing capabilities in preparation for commercial launch; seeks regulatory approval for its drug candidates; and adds personnel to support its drug product development and future drug product launch and commercialization. The Corporation does not expect to generate revenue from product sales unless and until it successfully completes drug development and obtains regulatory approval, which the Corporation expects will take several years and is subject to significant uncertainty. To date, the Corporation has financed its operations primarily through public offerings and private placements of its common shares, warrants and convertible debt and the proceeds from research tax credits. Until such time that the Corporation can generate significant revenue from drug product sales, if ever, it will require additional financing, which is expected to be sourced from a combination of public or private equity or debt financing 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 the Corporation to relinquish certain rights related to its technologies or drug product candidates. Adequate additional financing may not be available to the Corporation on acceptable terms, or at all. The Corporation’s inability to raise capital as and when needed could have a negative impact on its financial condition and its ability to pursue its business strategy. Management expects the Corporation to have sufficient cash resources to satisfy its objectives into the second quarter of calendar 2025, which is 21 to 24 months from the issuance date of these Financial Statements based on current plans or forecasts. Part of the strategic realignment plan includes the decision to prioritize the development pf GTX-104 with a goal to advance to commercialization, while conserving resources as much as possible to complete development efficiently. Further development of GTX-102 and GTX-101 will occur at such time as additional funding is obtained or strategic partnerships are entered. The Corporation will require additional capital to fund our daily operating needs beyond that time. The Corporation plans to raise additional capital prior to that time in order to maintain adequate liquidity. Negative results from studies, if any, and depressed prices of the Corporation’s stock could impact the Corporation’s ability to raise additional financing. Raising additional equity capital is subject to market conditions not within the Corporation’s control. If the Corporation does not raise additional funds in this time period, the Corporation may not be able to realize our assets and discharge our liabilities in the normal course of business. The Corporation remains subject to risks similar to other development stage companies in the biopharmaceutical industry, including compliance with government regulations, protection of proprietary technology, dependence on third-party contractors and consultants and potential product liability, among others. Reverse stock split On August 26, 2021, the shareholders of the Corporation approved a resolution to undertake a reverse split of the common stock within a range of 1-6 to 1-8 with such specific ratio to be approved by the Acasti Board. All references in these financial statements to number of common shares, warrants and options, price per share and weighted average number of shares outstanding prior to the reverse split have been adjusted to reflect the approved reverse stock split of 1- 8 , which was made effective on August 31, 2021, on a retrospective basis as of the earliest period presented. 2. Summary of significant accounting policies Basis of presentation These consolidated financial statements of Acasti Pharma Inc., which include the accounts of its subsidiaries have been prepared in accordance with generally accepted accounting principles' in the United States of America ("U.S. GAAP"). All intercompany transactions and balances are eliminated on consolidation. Smaller Reporting Company The Corporation qualifies as a “smaller reporting company” under the Exchange Act as of March 31, 2023 because the market value of its common shares held by non-affiliates was less than $ 560 million as of September 30, 2022 and its revenue for the year ended March 31, 2022 was less than $ 100 million. As a smaller reporting company, the Corporation may rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. For so long as the Corporation remains a smaller reporting company, it is permitted and the Corporation intends to rely on such exemptions from certain disclosure and other requirements that are applicable to other public companies that are not smaller reporting companies. F- 5 Use of estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates. Estimates are based on management’s best knowledge of current events and actions that management may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Estimates and assumptions include the measurement of derivative warrant liabilities (note 12), stock-based compensation ( note 14 )), assets held for sale (notes 8), the supply contract (note 19(a)) and valuation of intangibles and goodwill (note 5). Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and developments expenditures at each reporting date, and determining which research and development expenses qualify for research and development tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Functional and foreign currency On April 1, 2022, the Corporation’s functional currency was changed from the Canadian dollar to the US dollar. This change is reflected prospectively in the Corporation’s financial statements. FASB ASC Topic 830, “Functional Currency Matters,” requires a change in functional currency to be reported as of the date it is determined there has been a change, and it is generally accepted practice that the change is made at the start of the most recent period that approximates the date of the change. Management determined it would enact this change effective on April 1, 2022. While the change was based on a factual assessment, the determination of the date of the change required management’s judgment given the change in the Corporation's primary economic and business environment, which has evolved over time. As part of management’s functional currency assessment, changes in economic facts and circumstances were considered. This included analysis of changes in: impact of the merger with Grace Therapeutics, management of operations, and in the composition of cash and short term investment balances. Additionally, budgeting is in USD, whereas this was previously performed in CAD. The Corporation's cash outflows consist primarily of USD cash balances and less of CAD, as also reflected in the budget. Transactions denominated in currencies other than the functional currency are measured and recorded in the functional currency at the exchange rate in effect on the date of the transactions. At each consolidated balance sheet date, monetary assets and liabilities denominated in currencies other than the functional currency are remeasured using the exchange rate in effect at that date. Non-monetary assets and liabilities and revenue and expense items denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing at the dates of the respective transactions. Any gains or losses arising on remeasurement are included in the consolidated statement of loss. Cash and Cash Equivalents Cash and cash equivalents comprise cash balances and highly liquid investments purchased with original maturities of three months or less. Cash and cash equivalents consist of term deposits held at the bank and recorded at cost, which approximates fair value. Investments The Corporation’s investments consist of term deposits and are classified as held-to-maturity securities. These investments are recorded at amortized cost. Investments with original maturities exceeding three months and less than one year are categorized as short-term. The Corporation has the intent and ability to hold these securities for at least the next 12 months. Assets held for sale Assets that are classified as held for sale are measured at the lower of their carrying amount or fair value less expected selling costs (“estimated selling price”) with a loss recognized to the extent that the carrying amount exceeds the estimated selling price. The classification is applicable at the date upon which the sale of assets is probable, and the assets are available for immediate sale in their present condition. Assets once classified as held for sale, are not subject to depreciation or amortization and both the assets and any liabilities directly associated with the assets held for sale are classified as current in the Corporation’s 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. Equipment (i) Recognition and measurement Equipment is measured at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset, including all costs incurred in bringing the asset to its present location and condition. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment. Gains and losses on disposal of equipment are determined by comparing the proceeds from disposal with the carrying amount of equipment and are recognized net within operating expenses in the Consolidated Statement of Loss and Comprehensive Loss. (ii) Subsequent costs The costs of the day-to-day servicing of equipment are recognized in profit or loss as incurred. (iii) Depreciation Depreciation is recognized in profit or loss on either a straight-line basis or a declining basis over the estimated useful lives of each part of an item of equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Items of equipment are depreciated from the date that they are available for use or, in respect of assets not yet in service, from the date they are ready for their intended use. F- 6 The estimated useful lives and rates for the current and comparative periods are as follows: Assets Method Rate Furniture and office equipment Declining balance 20 % to 30 % Computer equipment Declining balance 30 % Laboratory equipment Declining balance 30 % Production equipment Declining balance 10 % to 30 % Depreciation methods, useful lives and residual values are reviewed periodically and adjusted prospectively if appropriate. Intangible assets - acquired in-process research and development In a business combination, the fair value of in-process research and development (“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 definite-lived intangible assets and amortized over the remaining useful life or discontinued. If discontinued, the intangible asset will be written off. Research and development (“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 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, including milestone payments and royalty revenues. Impairment of Long-Lived Assets The Corporation reviews the recoverability of its finite long-lived assets whenever events or changes in circumstances indicate that it is carrying amount may not be recoverable. The carrying amount is first compared with the undiscounted cash flows. If the carrying amount is higher than the sum of undiscounted cash flows, then the Corporation determines the fair value of the underlying asset group. Any impairment loss to be recognized is measured as the difference by which the carrying amount of the asset group exceeds the estimated fair value of the asset group. 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. The Corporation tests its 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. If the Corporation concludes it is more likely than not that fair value of the reporting unit is less than its carrying amount, a quantitative impairment test is performed. The Corporation tests 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 the Corporation concludes it is more likely than not that the fair value is less than it's carrying amount, a quantitative impairment test is performed. The Corporation's annual impairment test is performed in the fourth quarter of the fiscal year. Research and Development Costs Research and developments expenditures are expensed as incurred. These costs primarily consist of employees’ salaries and benefits related to research and development activities, contractors and consultants that conduct the Corporation’s clinical trials, independent auditors and consultants to perform investigation activities on behalf of the Corporation, laboratory material and small equipment, clinical trial materials, stock-based compensation expense, and other non-clinical costs and regulatory fees. Advance payments for goods and services that will be used in future research and development are recognized in prepaids or other assets and are expensed when the services are performed, or the goods are used. Stock - based compensation The Corporation has in place a stock option plan for directors, officers, employees, and consultants of the Corporation, with grants under the stock option plan approved by the Corporation’s Board of Directors. The plan provides for the granting of options to purchase Common Shares and the exercise price of each option equals the closing trading price of Common Shares on the day prior to the grant. The terms and conditions for acquiring and exercising options are set by the Corporation’s Board of Directors in accordance with and subject to the terms and conditions of the stock option plan. The Corporation measures the cost of such awards based on the fair value of the award at grant date, net of estimated forfeiture, and recognizes stock-based compensation expense in the Consolidated Statements of Loss and Comprehensive Loss on a graded vesting basis over the requisite service period. The requisite service period equals the vesting periods of the awards. The fair value of options is estimated for each tranche of an award that vests on a graded basis. The fair value of options is estimated using the Black-Scholes option pricing model, which uses various inputs including fair value of the Common Shares at the grant date, expected term, estimated volatility, risk-free interest rate and expected dividend yields of the Common Shares. The Corporation applies an estimated forfeiture rate derived from historical employee termination behaviour. If the actual forfeitures differ from those estimated by management, adjustment to compensation expense may be required in future periods. Non-employee stock-based compensation transactions in which the Corporation receives goods or services as consideration for its own equity instruments are accounted for as stock-based compensation transactions. The Corporation establishes the fair value at the grant date for non-employee awards and measures the fair value based on the fair value of equity instruments issued. The fair value of a non-employee award is estimated using the Black-Scholes option pricing model, which uses various inputs including fair value of the Common Shares at the grant date, contractual term, estimated volatility, risk-free interest rate and expected dividend yields of the Common Shares. Government grants Government grants are recorded as a reduction of the related expense or cost of the asset acquired. Government grants are recognized when there is reasonable assurance that the Corporation has met the requirements of the approved grant program and there is reasonable assurance that the grant will be received. F- 7 Grants that compensate the Corporation for expenses incurred are recognized in profit or loss in reduction thereof on a systematic basis in the same years in which the expenses are recognized. Grants that compensate the Corporation for the cost of an asset are recognized in profit or loss on a systematic basis over the useful life of the asset. Leases At the inception of an arrangement, the Corporation determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Corporation utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Corporation could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. . The Corporation has elected not to recognize leases with an original term of one year or less on the balance sheet. The Corporation typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Corporation’s assessment unless there is reasonable certainty that the Corporation will renew. The Corporation’s lease expense is recognized in research and development expenses. The Corporation does not have financing leases. In accordance with ASC 842, components of a lease should be split into three categories: lease components, non-lease components and non-components. The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components. Entities may elect not to separate lease and non-lease components. The Corporation has elected to account for lease and non-lease components together as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only. Income tax Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in profit or loss except to the extent that they relate to items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized in respect of temporary differences between the carrying amounts (tax base) of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rate expected to apply when the underlying asset or liability is realised (settled) based on the rates that are enacted at the reporting date. Deferred tax assets and liabilities are offset if the Corporation has the right to set off the amount owed by with the amount owed by the other party, the Corporation intends to set off and the offset right is enforceable at law. A deferred tax asset is recognized for unused tax losses and tax credits, reduced by a valuation allowance to the extent that it is more likely than not that some portion or all of the deferred tax asset will not be realized. Earnings per share The Corporation presents basic and diluted earnings per share ( EPS ) data for its Common Shares. Basic EPS is calculated by dividing the profit or loss attributable to the holders of Common Shares by the weighted average number of Common Shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to the holders of Common Shares and the weighted average number of Common Shares outstanding adjusted for the effects of all dilutive potential Common Shares, which comprise warrants and share options granted to employees. Segment reporting An operating segment is a component of the Corporation that engages in business activities from which it may earn revenues and incur expenses. The Corporation has one reportable operating segment: the development and commercialization of pharmaceutical applications of its patent portfolio and licensed rights. The majority of the Corporation’s assets are located in Canada and the United States, while one production unit, which is classified as an asset held for sale, with a carrying value of nil ( March 31, 2022 - $ 157 ), is located in France at a third-party contract manufacturing facility. Derivative financial instruments The Corporation has issued warrants of which some are accounted for as liability-classified derivatives over its own equity. Derivatives are recognized initially at fair value; attributable transaction costs are recognized in profit and loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and all changes in their fair value are recognized immediately in profit or loss as a component of financial expenses. Other equity instruments Warrants that do not meet the definition of a liability instrument are recognized in equity as additional paid in capital. Fair Value Measurements Certain of the Corporation’s accounting policies and disclosures require the determination of fair value, for both financial assets and liabilities. In establishing fair value, the Corporation uses a fair value hierarchy based on levels as defined below: • Level 1: defined as observable inputs such as quoted prices in active markets. • Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable. • Level 3: defined as inputs that are based on little or no observable market data, therefore requiring entities to develop their own assumptions. The Corporation has determined that the carrying values of its short-term financial assets and liabilities (cash and cash equivalents, short-term investments and trade and other payables) approximate their fair value given the short-term nature of these instruments. The Corporation measured its derivative warrant liabilities at fair value on a recurring basis using level 3 inputs . F- 8 3. Recent Accounting Pronouncements The Corporation has considered recent accounting pronouncements and concluded that they are either not applicable to the business or that the effect is not expected to be material to the consolidated financial statements as a result of future adoption. 4. Acquisition of Grace On August 27, 2021, the Corporation completed its acquisition of all outstanding equity interests in Grace Therapeutics Inc, via a merger. Grace, based in New Jersey and organized under the laws of Delaware, was a rare and orphan disease specialty pharmaceutical company. In connection with the share-for-share noncash transaction, Grace was merged with a new wholly owned subsidiary of Acasti and became a subsidiary of Acasti. As a result, Acasti 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 various granted and pending patents in various jurisdictions worldwide. Under the terms of the acquisition, 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. Consideration for acquisition A total of 18,241,233 common shares of Acasti have been issued to Grace stockholders as consideration for the acquisition. Total common shares issued 18,241,233 Acasti share price (closing share price on August 27, 2021) $ 3.3344 Fair value of common shares issued $ 60,824 The acquisition of Grace has been accounted for as a business combination using the acquisition method of accounting. The fair value of the purchase price was allocated to the assets acquired and liabilities assumed at their respective fair values. 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. The valuation of assets acquired, and liabilities assumed has been finalized during the fourth quarter of 2022. Measurement period adjustments to the preliminary purchase price allocation during 2022 included (i) an increase to intangible assets of $ 4,602 ; (ii) an increase to goodwill of $ 12,964 ; (iii) an increase to deferred tax liability of $ 17,536 ; and (iv) other individually insignificant adjustments to identifiable net assets of $ 30 . The measurement period of 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: $ Assets acquired and liabilities assumed Cash and equivalents 90 Prepaid expenses and other current assets 74 Intangible assets – in-process research and development 69,810 Goodwill 12,964 Accounts payable and accrued expenses ( 4,578 ) Deferred tax liability ( 17,536 ) Total assets acquired and liabilities assumed 60,824 Intangible assets of $ 69,810 relate to the value of IPR&D of Grace's therapeutic pipeline, consisting of three unique clinical stage programs/assets supported by intellectual property. Management 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 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. 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, totalled $ 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 . Pro forma financial information The following table presents the unaudited pro forma combined results 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 $ Net loss ( 13,734 ) The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of Acasti and Grace. The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisition been completed on April 1, 2020. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company, nor does it reflect the realization of any synergies or cost savings associated with the acquisition. 5. Intangible assets and Goodwill F- 9 Intangible assets and goodwill resulted from the acquisition of Grace (note 4), related to Grace’s therapeutic pipeline, consisting of three unique clinical stage programs/assets supported by intellectual property. 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. The Corporation has one reporting unit which we have determined to be the Company. The strategic realignment plan announced April 4, 2023, to prioritize resources to GTX-104, from GTX-101 and GTX-102 triggered a comprehensive review and have been considered in our annual impairment test. The estimated fair values of identifiable intangible assets were determined using the multi-period excess earnings method. The estimated fair value of the reporting unit was determined using the projected discounted cash flow model. The impairment assessments resulted in the following activity between March 31, 2022 and March 31, 2023: $ $ $ $ GTX 104 GTX 102 GTX 101 Total Intangible assets – in-process research and development Balance, beginning of the year 27,595 31,908 10,307 69,810 Impairment — ( 22,712 ) ( 5,970 ) ( 28,682 ) Balance, end of the year 27,595 9,196 4,337 41,128 The impairment of $ 28,682 of the intangible assets resulted in a recovery of $ 8,633 of the related deferred tax liability. $ Goodwill Balance, beginning of the year 12,964 Impairment ( 4,826 ) Balance, end of the year 8,138 The multi-period excess earnings method models used to estimate the fair value of assets of our IPR&D reflect significant assumptions and are level 3 un-observable 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; and • A discount rate reflecting our weighted average cost of capital and specific risk inherent in the underlying assets. Our IPR&D projects, consistent with others in our industry, have risks and uncertainties associated with the timely and successful completion of the development and commercialization of product candidates, including our ability to confirm safety and efficacy based on data from clinical trials, our ability to obtain necessary regulatory approvals and our ability to successfully complete these tasks within budgeted costs. It is not permitted to market a human therapeutic without obtaining regulatory approvals, and such approvals require the completion of clinical trials that demonstrate that a product candidate is safe and effective. In addition, the availability and extent of coverage and reimbursement from third-party payers, including government healthcare programs and private insurance plans as well as competitive product launches, affect the revenues a product can generate. Consequently, the eventual realized values, if any, of acquired IPR&D projects may vary from their estimated fair values. 6. Receivables March 31, 2023 March 31, 2022 Notes $ $ Sales tax receivables 338 184 Government assistance 10 412 353 Interest receivable 52 11 Total receivables 802 548 7. Short-term Investments The Corporation holds various short term investments with maturities greater than 3 months at the time of purchase as follows: March 31, 2023 March 31, 2022 $ $ Term deposits issued in CAD currency earning interest at 3 % and maturing on March 29, 2024 15 — Term deposits issued in USD currency earning interest at 0.2 % and maturing on April 1, 2022 — 11,893 Term deposits issued in CAD currency earning interest at ranges between 0.50 % and 0.58 % and maturing on various dates from April 1, 2022 to March 30,2023 — 1,429 Total short-term investments 15 13,322 8. Assets held for sale In January 2020 and August 2020, the Corporation released Phase 3 TRILOGY clinical study results for the Corporation’s lead drug candidate, CaPre. The TRILOGY studies did not meet the primary endpoint which resulted in the Corporation’s Board of Directors deciding not to proceed with a filing of an NDA with the FDA. With the completion of the TRILOGY studies beginning in the second half of fiscal 2021, the Corporation committed to a plan and was actively marketing for the sale Other assets and Production Equipment which met the criteria for classification of assets held for sale: F- 10 March 31, 2023 March 31, 2022 $ $ Reclassed as explained in note 9 Other assets (a) — 195 Production equipment (b) — 157 — 352 a. Other assets Other assets represent krill oil (RKO) held by the Corporation that was expected to be used in the conduct of R&D activities and commercial inventory scale up related to the development and commercialization of the CaPre drug. Given that the development of CaPre will no longer be pursued, the Corporation 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 los s of $ 195 (2022 - $ 249 ). Management’s estimate of the fair value of the RKO less cost -to sell, is based current market conditions for the age of the krill oil 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 g eneral condition of the asset. The total impairment loss recognized, includes amounts paid for krill oil in advance, but not yet received and previously recorded as a prepaid. b. 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 fiscal 2023 resulting in a nil carrying value at March 31, 2023. March 31, 2022 Cost, net of previous impairment Accumulated depreciation Net book value $ $ $ Production equipment 1,179 ( 1,022 ) 157 1,179 ( 1,022 ) 157 9. Equipment In June 2022, the Corporation reclassed the following assets from assets held for sale as they no longer met the criteria of such classification. Cost, net of impairment Accumulated depreciation Net book value reclassed from held for sale $ $ $ Furniture and office equipment 17 ( 5 ) 12 Computer equipment 94 ( 6 ) 88 Laboratory equipment 585 ( 435 ) 150 696 ( 446 ) 250 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. March 31, 2023 Cost, net of impairment Accumulated depreciation Write off Net book value $ $ $ Furniture and office equipment 19 ( 11 ) ( 1 ) 7 Computer equipment 108 ( 47 ) ( 22 ) 39 Laboratory equipment 586 ( 512 ) ( 16 ) 58 713 ( 570 ) ( 39 ) 104 March 31, 2022 Cost, net of impairment Accumulated depreciation Net book value $ $ $ Furniture and office equipment 17 ( 5 ) 12 Computer equipment 94 ( 6 ) 88 Laboratory equipment 585 ( 435 ) 150 696 ( 446 ) 250 10. Government assistance F- 11 March 31, 2023 March 31, 2022 $ $ Investment tax credit 412 353 Government assistance is comprised of research and development investment tax credits receivable from the Quebec provincial government which relate to qualifiable research and development expenditures under the applicable tax laws. The amounts recorded as receivables are subject to a government tax audit and the final amounts received may differ from those recorded. For the years ended March 31, 2023 and 2022 , the Corporation recorded $ 165 and $ 577 , respectively, as a reduction of research and development expenses in the Consolidated Statements of Loss and Comprehensive Loss. Unrecognized Canadian federal tax credits may be used to reduce future Canadian federal income tax and expire as follows: $ 2029 9 2030 23 2031 36 2032 345 2033 353 2034 348 2035 415 2036 229 2037 252 2038 259 2039 355 2040 226 2041 146 2042 312 2043 642 3,950 11. Trade and other payables March 31, 2023 March 31, 2022 $ $ Trade payables 1,242 1,678 Accrued liabilities and other payables 946 296 Employee salaries and benefits payable 1,148 1,182 Total trade and other payables 3,336 3,156 12. Leases The Corporation has historically entered into lease arrangements for its research and development and quality control laboratory facility located in Sherbrooke, Québec. As of March 31, 2023, the Corporation had one operating lease with required future minimum payments. On March 14, 2022, the Corporation renewed the lease agreement effective April 1, 2022, resulting in a commitment of $ 556 over a 24 months base lease term and 48 months additional lease renewal term. As of March 31, 2022, the Corporation had one operating lease with required future minimum payments for its research and development facility located in New Jersey, which was cancelled during the year ended March 31, 2023. The following tables contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Corporation’s operating leases for the year ended March 31, 2023: March 31, 2023 $ Operating cash flows for operating leases $ 92 Right-of-use assets obtained in exchange for lease obligations $ 556 Weighted-average remaining lease term (in years) 5.00 Weighted-average discount rate 4.3 % As the Corporation's leases do not provide an implicit rate, the Corporation utilized its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Corporation could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Future minimum lease payments under the Corporation’s operating leases as of March 31, 2023 were as follows: F- 12 March 31, 2023 $ 2024 101 2025 105 2026 108 2027 112 2028 115 Total lease payments 541 Less: interest ( 56 ) Total lease liabilities 485 13. Derivative warrant liabilities In connection with the Canadian public offering of units consisting of common shares and warrants that closed on May 9, 2018, the Corporation issued a total of 1,369,937 warrants. Each warrant entitles the holder thereof to acquire one common share at an exercise price of CAD $ 10.48 at any time until May 9, 2023. The warrants issued are derivative warrant liabilities given the warrant indenture contains certain contingent provisions that allow for cash settlement. In connection with the U.S. public offering units consisting of common shares and warrants that closed on December 27, 2017, the Corporation issued a total of 1,225,366 warrants. Each warrant entitles the holder thereof to acquire one common share at an exercise price of $ 10.08 at any time until December 27, 2022. The warrants issued are derivative warrant liabilities given the currency of the exercise price is different from the Corporation’s functional currency. The derivative warrant liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value is presented in the following tables: Warrants issued May 2018 Warrants issued December 27, 2017 March 31, 2023 March 31, 2022 March 31, 2023 March 31, 2022 $ $ $ $ Balance – beginning of year 10 2,597 — 2,622 Change in fair value ( 10 ) ( 2,580 ) — ( 2,622 ) Translation effect — ( 7 ) — — Balance – end of year — 10 — — Fair value per warrant issuable — 0.01 — — As at March 31, 2022, the fair value of the derivative warrant liabilities was estimated using the Black-Scholes option pricing model and based on the following assumptions: Warrant liabilities issued May 2018 Warrant liabilities issued December 27, 2017 March 31, 2022 March 31, 2022 $ $ Exercise price CAD $ 10.48 USD $ 10.08 Share price CAD $ 1.54 USD $ 1.22 Risk-free interest 2.39 % 2.41 % Contractual life (years) 1.11 0.74 Expected volatility 81.56 % 85.94 % The Corporation measured its derivative warrant liabilities at fair value on a recurring basis. These financial liabilities were measured using level 3 inputs (see Note 19) . As at March 31, 2023 , the effect of an increase or a decrease of 5 % of the volatility used, which is the significant unobservable input in the fair value estimate, would have a nominal impact. 14. Capital and other components of equity a. Common Shares Authorized capital stock Unlimited number of shares ➣ Class A shares (Common Shares), voting ( one vote per share), participating and without par value. ➣ Class B shares, voting ( ten votes per share), non-participating, without par value and maximum annual non-cumulative dividend of 5 % on the amount paid per share. Class B shares are convertible, at the holder’s discretion, into Class A shares (Common Shares), on a one-for-one basis, and Class B shares are redeemable at the holder’s discretion for CAD $ 0.80 per share, subject to certain conditions. There are no ne issued and outstanding. ➣ Class C shares, non-voting, non-participating, without par value and maximum annual non-cumulative dividend of 5 % on the amount paid per share. Class C shares are convertible, at the holder’s discretion, into Class A shares (Common Shares), on a one-for-one basis, and Class C shares are redeemable at the holder’s discretion for CAD $ 0.20 per share, subject to certain conditions. There are no ne issued and outstanding. ➣ Class D and E shares, they are non-voting, non-participating, without par value and maximum monthly non-cumulative dividend between 0.5 % and 2 % on the amount paid per share. Class D and E shares are convertible, at the holder’s discretion, into Class A shares (Common Shares), on a one-for-one basis, and Class D and E shares are redeemable at the holder’s discretion, subject to certain conditions. There are no ne issued and outstanding. F- 13 “At-the-market” sales agreement On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the Sales Agreement) with B. Riley, Oppenheimer& Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the existing ATM program. Under the terms of the Sales Agreement, which has a three-year term, the Corporation may issue and sell from time to time its common shares (the Shares) having an aggregate offering price of up to US $ 75,000,000 through the Agents. Subject to the terms and conditions of the Sales Agreement, the Agents will use their commercially reasonable efforts to sell the Shares from time to time, based upon the Corporation’s instructions. The Corporation has no obligation to sell any of the Shares and may at any time suspend sales under the Sales Agreement. The Corporation and the Agents may terminate the Sales Agreement in accordance with its terms. Under the terms of the Sales Agreement, the Corporation has provided the Agents with customary indemnification rights and the Agents will be entitled to compensation, at a commission rate equal to 3.0 % of the gross proceeds from each sale of the common shares. On November 10, 2021, the Corporation filed a prospectus supplement relating to its at-the-market program, expiring July 7, 2023, with B. Riley, Oppenheimer& Co. Inc. and H.C. Wainwright & Co., LLC acting as agents. Under the terms of the ATM Sales Agreement and the prospectus supplement, the Corporation 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 ATM 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 the Corporation’s 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. b. Warrants The warrants of the Corporation are composed of the following: March 31, 2023 March 31, 2022 Number outstanding Amount Number outstanding Amount $ $ Liability May 2018 public offering warrants 2018 (i) 824,218 — 824,218 10 December 2017 U.S. public offering warrants (ii) — — 884,120 — 824,218 — 1,708,338 10 Equity Public offering warrants Public offering U.S. broker warrants December 2017 (iii) — — 32,390 161 — — 32,390 161 (i) Warrants to acquire one common share at an exercise price of CAD $ 10.48 , expiring on May 9, 2023. (ii) Warrants to acquire one common share at an exercise price of $ 10.08 , expired on December 27, 2022 . (iii) Warrants to acquire one common share at an exercise price of $ 10.10 , expired on December 19, 2022. During the years ended March 31, 2023 and 2022 no warrants were exercised. 15. Other income (expenses) March 31, 2023 March 31, 2022 $ $ Foreign exchange gain (loss) ( 72 ) ( 299 ) Interest income 246 77 Other income — 147 Change in fair value of warrant liabilities 10 5,197 Other income (expenses) 184 5,122 16. Stock-based compensation At March 31, 2021, the Corporation has the following stock-based compensation arrangement: a. Corporation stock option plan The Corporation has in place a stock option plan for directors, officers, employees, and consultants of the Corporation. An amendment of the stock option plan was approved by shareholders on September 28, 2022. The amendment provides for a change to the existing limits for Common Shares reserved for issuance under the Stock Option Plan. The Stock Option Plan continues to provide for the granting of options to purchase common shares. The exercise price of the stock options granted under this amended plan is not lower than the closing price of the common shares on the Nasdaq at the close of markets the day preceding the grant. The maximum number of common shares that may be issued upon exercise of options granted under the amended Stock Option Plan shall not exceed 20% of the aggregate number of issued and outstanding shares of the Corporation as of July 28, 2022. The terms and conditions for acquiring and exercising options are set by the Corporation’s Board of Directors, subject among others, to the following limitations: the term of the options cannot exceed ten years and (i) all options granted to a director will be vested evenly on a monthly basis over a period of at least twelve (12) months, and (ii) all options granted to an employee will be vested evenly on a quarterly basis over a period of at least F- 14 thirty-six (36) months. The total number of shares issued to any one consultant within any twelve-month period cannot exceed 2 % of the Corporation’s total issued and outstanding shares (on a non-diluted basis). The Corporation is not authorized to grant within any twelve-month period such number of options under the Stock Option Plan that could result in a number of common shares issuable pursuant to options granted to (a) related persons exceeding 2 % of the Corporation’s issued and outstanding common shares (on a non-diluted basis) on the date an option is granted, or (b) any one eligible person in a twelve-month period exceeding 2 % of the Corporation’s issued and outstanding common shares (on a non-diluted basis) on the date an option is granted. In connection to the voluntary delisting from the TSXV, and as permissible under the stock option plan the Corporation communicated to each holder of stock options, that the exercise price of all existing option grants will be redesignated in US dollars on the basis of the equivalent price in US dollar at the applicable date of grant. This does not constitute a repricing of the existing exercise price of stock options and has no impact on the compensation expense recognized under the stock option plan. The following tables summarize information about activities within the stock option plan: Number of options Weighted average exercise price Weighted average grant date fair value USD $ USD $ Outstanding, March 31, 2022 2,989,381 2.98 2.53 Granted 1,482,500 0.85 0.72 Forfeited ( 22,615 ) 5.66 3.86 Expired ( 3,774 ) 27.41 13.68 Outstanding, March 31, 2023 4,445,492 2.27 1.93 Exercisable at end of year 2,294,717 3.21 2.73 Number of options Weighted average exercise price Weighted average grant date fair value CAD $ CAD $ Outstanding, March 31, 2021 911,871 8.33 6.96 Granted 2,115,400 2.04 1.75 Exercised — 0.00 0.00 Forfeited ( 37,890 ) 4.00 3.06 Outstanding, March 31, 2022 2,989,381 3.94 3.32 March 31, 2023 USD $ Weighted average fair value of the options granted to employees and directors of the Corporation- $ 0.72 USD Year ended March 31, 2022 CAD $ Weighted average fair value of the options granted to employees and directors of the Corporation- 1.75 Compensation expense recognized under the stock option plan is summarized as follows: March 31, 2023 March 31, 2022 $ $ Research and development expenses 591 447 General and administrative expenses 1,123 842 Sales and marketing expenses 97 48 1,811 1,337 As of March 31, 2023 , there was USD $ 718 ( March 31, 2022 – CAD $ 1,794 ) of total unrecognized compensation cost, related to non-vested share options, which is expected to be recognized over a remaining weighted average vesting period of 1.12 years ( March 31, 2022 - 1.36 years). A summary of the non-vested stock option activity and related information for the Corporation’s stock options granted is as follows: Number of options Weighted average grant date fair value USD ($) Non- vested, March 31, 2022 1,999,470 1.51 Options granted 1,482,500 0.72 Options vested ( 1,331,195 ) 1.33 Non- vested, March 31, 2023 2,150,775 1.08 The fair value of options granted was estimated using the Black-Scholes option pricing model, resulting in the following weighted average assumptions for options granted during the periods ended: F- 15 March 31, 2023 Weighted average Exercise price $ 0.85 USD Share price $ 0.85 USD Dividend — Risk-free interest 3.28 % Estimated life (years) 5.73 Expected volatility 117.56 % March 31, 2022 Weighted average- CAD Exercise price $ 1.75 CAD Share price $ 2.04 CAD Dividend — Risk-free interest 1.48 % Estimated life (years) 5.77 % Expected volatility 120.65 % The following tables summarize information about activities within the stock option plan: March 31, 2023 Exercise price USD Weighted average remaining contractual life Number of options outstanding Number of options exercisable $ 0.59 — $ 1.64 9.26 1,520,000 438,125 $ 1.65 — $ 4.73 8.23 2,479,960 1,411,060 $ 4.74 — $ 7.70 5.89 243,489 243,489 $ 7.71 — $ 10.06 0.71 70,675 70,675 $ 10.07 — $ 12.22 3.26 131,368 131,368 8.19 4,445,492 2,294,717 Stock-based compensation payment transactions The fair value of stock-based compensation transactions is measured using the Black-Scholes option pricing model. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility for a duration equal to the weighted average life of the instruments, life based on the average of the vesting and contractual periods for employee awards as minimal prior exercises of options in which to establish historical exercise experience), and the risk-free interest rate (based on government bonds). Service and performance conditions attached to the transactions, if any, are not considered in determining fair value. The expected life of the stock options is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome. b. Corporation equity incentive plan The Corporation established an equity incentive plan for employees, directors and consultants. The plan provides for the issuance of restricted share units ( RSUs ), performance share units, restricted shares, deferred share units and other stock-based awards, subject to restricted conditions as may be determined by the Board of Directors. There were no such awards outstanding as of March 31, 2023, and March 31, 2022 , and no stock-based compensation was recognized for the period ended March 31, 2023 and March 31, 2022 . 17. Loss per share Diluted loss per share was the same amount as basic loss per share, as the effect of options, and warrants would have been anti-dilutive, as the Corporation has incurred losses in each of the periods presented. All outstanding options, and warrants could potentially be dilutive in the future. 18. Supplemental cash flow disclosure Changes in operating assets and liabilities: March 31, 2023 March 31, 2022 $ $ Receivables ( 302 ) ( 18 ) Prepaid expenses 72 ( 380 ) Trade and other payables 411 ( 2,388 ) Total changes in working capital items 181 ( 2,786 ) F- 16 19. Income taxes Income tax (recovery) expense: March 31, 2023 March 31, 2022 $ $ Current tax (recovery) expense — — Deferred tax (recovery) expense ( 9,542 ) ( 648 ) Income tax (recovery) expense ( 9,542 ) ( 648 ) Reconciliation of effective tax rate: March 31, 2023 March 31, 2022 $ $ Loss before income taxes ( 51,971 ) ( 10,467 ) Basic combined Canadian statutory income tax rate 1 26.50 % 26.50 % Computed income tax recovery ( 13,772 ) ( 2,774 ) Increase resulting from: Difference in foreign tax rates ( 1,315 ) ( 77 ) Non-deductible stock-based compensation 480 354 Non-deductible change in fair value of warrants ( 3 ) ( 1,377 ) Non-deductible transaction costs — 697 Non-deductible goodwill impairment 1,453 — Non-refundable federal ITC ( 642 ) ( 349 ) Change in valuation allowance 4,263 2,864 Other – foreign exchange — 12 Other ( 6 ) 2 Total tax (recovery) expense ( 9,542 ) ( 648 ) Net deferred income tax assets as of March 31, 2023, and 2022 were comprised of the following: March 31, 2023 March 31, 2022 $ $ Deferred tax assets Tax losses carried forward 38,628 35,683 Research and development expenses 7,672 5,828 Equipment 905 688 Financing expenses 267 674 Licenses — 118 Tax credit carry forwards 3,950 3,331 Operating lease right of use asset 129 78 Other temporary differences 92 85 Deferred tax assets 51,643 46,485 Deferred tax liabilities Equipment and intangible assets ( 12,198 ) ( 20,890 ) Operating lease liability ( 123 ) ( 83 ) Other taxable temporary differences ( 5 ) — Deferred tax liabilities ( 12,326 ) ( 20,973 ) Valuation allowance ( 46,664 ) ( 42,401 ) Net deferred tax liabilities ( 7,347 ) ( 16,889 ) As at March 31, 2023, the amounts and expiry dates of tax attributes and temporary differences, which are available to reduce future years’ taxable income, were as F- 17 follows: March 31, 2023 Federal Provincial United States $ $ $ Tax losses carried forward 2028 571 571 2029 1,302 1,297 2030 1,657 1,651 2031 1,810 1,794 2032 1,484 1,461 2033 2,879 2,879 2034 3,678 3,568 2035 4,397 4,397 2036 6,470 6,371 2037 401 396 2038 14,855 13,821 2039 32,424 32,381 2040 23,576 23,439 2041 13,999 13,999 2042 9,417 9,416 2043 11,132 11,132 No expiry 14,400 Total 130,052 128,573 14,400 Research and development expenses, without time limitation 26,106 28,282 Unrecognized tax benefits The Corporation does not expect a significant change to the amount of unrecognized tax benefits over the next 12 months. However, any adjustments arising from certain ongoing examinations by tax authorities could alter the timing or amount of taxable income or deductions, of the allocation of income among tax jurisdictions, and these adjustments could differ from the amount accrued. The Corporation’s federal and provincial income tax returns filed for all years remain subject to examination by the taxation authorities. 20. Financial instruments a. Concentration of credit risk Financial instruments that potentially subject the Corporation to a concentration of credit risk consist primarily of cash and cash equivalents and investments. Cash and cash equivalents and investments are all invested in accordance with the Corporation’s Investment Policy with the primary objective being the preservation of capital and the maintenance of liquidity, which is managed by dealing only with highly rated Canadian institutions. The carrying amount of financial assets, as disclosed in the consolidated balance sheets, represents the Corporation’s credit exposure at the reporting date. b. Foreign currency risk The Corporation is 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 the Corporation's business transactions denominated in currencies other than the Corporation's functional currency of the U.S. dollar. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in the Corporation's operating results. The Corporation does not use derivative instruments to hedge exposure to foreign exchange risk. The fluctuation of the Canadian dollar in relation to the U.S. dollar and other foreign currencies will consequently have an impact upon the Corporation’s net loss. c. Liquidity risk Liquidity risk is the risk that the Corporation will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Corporation manages liquidity risk through the management of its capital structure and financial leverage. It also manages liquidity risk by continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Corporation's operating budgets, and reviews material transactions outside the normal course of business. The Corporation currently does not have long-term debt nor arranged committed sources of financing and is operating via use of existing cash and short-term investment balances. Refer to Note 1 – Nature of Operations. The Corporation’s financial liabilities obligations include trade and other payables, which fall due within the next 12 months. F- 18 21 . Commitments and contingencies Research and development contracts and contract research organizations agreements We utilize contract manufacturing organizations, for the development and production of clinical materials and contract research organizations to perform services related to our clinical trials. 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. Supply contract On October 25, 2019, the Corporation signed a supply agreement with Aker Biomarine Antarctic. (“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. As at March 31, 2023 , the remaining balance of the commitment with Aker amounts to $ 2.8 million. During the second calendar quarter of 2022, Aker informed the Corporation 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 Corporation was therefore required to accept the remaining product commitment and to pay Aker the $ 2.8 million balance. The Corporation disagrees with Aker’s position and believes 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 Corporation will be required to make further payment to Aker in connection with the dispute. Additionally, in the event the Corporation 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 Corporation can recover value from the product, which may result in the Corporation incurring a loss on the supply agreement in the near term. Legal proceedings and disputes In the ordinary course of business, the Corporation is at times subject to various legal proceedings and disputes. The Corporation assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Corporation will incur a loss and the amount of the loss can be reasonably estimated, the Corporation records a liability in its consolidated financial statements. These legal contingencies may be adjusted to reflect any relevant developments. Where a loss is not probable or the amount of loss is not estimable, the C orporation does not accrue legal contingencies. While the outcome of legal proceedings is inherently uncertain, based on information currently available, management believes that it has established appropriate legal reserves. Any incremental liabilities arising from pending legal proceedings are not expected to have a material adverse effect on the Corporation’s financial position, results of operations, or cash flows. However, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to the Corporation’s financial position, results of operations, or cash flows. No reserves or liabilities have been accrued as at March 31, 2023. 22. Subsequent events In May 2023, the Corporation communicated the decision to terminate its Canadian employees as part of discontinuing its operations in Canada and the rebuilding of a leaner organization in the United States, which resulted in $ 1.3 million of severances to be paid. F- 19