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 CEO and chief financial officer (“CFO”), has performed an evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rules 13a-15 (e) and 15d-15(e) of the Exchange Act. Based upon this evaluation, our management has concluded that, as of March 31, 2021, our existing disclosure controls and procedures were effective. It should be noted that while the CEO and CFO believe that our disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect the disclosure controls and procedures to be capable of preventing all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management’s Report on Internal Controls over Financial Reporting Our management, with the participation of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management conducted an assessment of the design and operation effectiveness of our internal control over financial reporting as of March 31, 2021. In making this assessment, we used the criteria established within the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that, as of March 31, 2021, our internal control over financial reporting was effective. Changes in Internal Control over Financial Reporting No changes were made to our internal controls over financial reporting that occurred during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We are a non-accelerated filer under the Exchange Act and not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. Therefore, this annual report does not include an attestation report of our registered public accounting firm regarding our management’s assessment of internal control over financial reporting. Item 9B. Other Information None. 40 PART III Item 10. Directors, Executive Officers and Corporate Governance The following table sets forth information as of June 22, 2021 with respect to our directors: Name Age Position(s) held within Acasti In Office Since Current Term to Expire Directors Jan D’Alvise 66 President, Chief Executive Officer, Director and Corporate Secretary June 2016 September 2021 Roderick N. Carter 57 Chairman of the Board October 2015 September 2021 Jean-Marie (John) Canan 64 Director and Chairman of Audit Committee July 2016 September 2021 Donald Olds 61 Director and Chairman of Governance and Human Resources Committee April 2018 September 2021 Senior Management Jan D’Alvise 66 President, Chief Executive Officer, Director and Corporate Secretary June 2016 - Pierre Lemieux 56 Chief Operating Officer and Chief Scientific Officer April 2010 - Brian Ford 62 CFO September 2020 - The following is a brief biography of our current directors and senior management: Jan D’Alvise Ms. D’Alvise has extensive experience in the pharmaceutical, diagnostic, medical device, and drug discovery research segments of the healthcare industry, and has served as the president and CEO of Acasti since 2016. Prior to Acasti, Ms. D’Alvise was the President and Chairman of Pediatric Bioscience, a private company that was developing a diagnostic test for autism. Before that, she was the CEO of Gish Biomedical, a cardiopulmonary medical device company that she sold to the Sorin Group. Prior to Gish, Ms. D’Alvise was the CEO of the Sidney Kimmel Cancer Center (SKCC), a drug discovery research institute focused on translational medicine in oncology. Prior to SKCC, she was the Co- Founder/President/CEO/Chairman of NuGEN, Inc., and was also the Co-Founder and Executive VP/COO of Metrika Inc. Ms. D’Alvise built both companies from technology concept through to successful regulatory approvals, product introduction and sustainable revenue growth. Prior to Metrika, Ms. D’Alvise was a VP of Drug Development at Syntex/Roche and Business Unit Director of their Pain and Inflammation business, and prior to that, VP of Commercial Operations at SYVA, (Syntex’s clinical diagnostics division). Ms. D’Alvise began her career with Diagnostic Products Corporation. Ms. D’Alvise has a B.S. in Biochemistry from Michigan Technological University. She has completed post-graduate work at the University of Michigan, Stanford University, and the Wharton Business School. In addition to Acasti, Ms. D’Alvise currently serves on the board and audit committee for Spectral Medical (EDT:TO) and is the Chairman of The ObG Project, Inc, a private company. She has previously served on the boards of numerous private companies and non-profits. Dr. Roderick N. Carter Dr. Carter has a strong history of contributions to healthcare through clinical, research, business, and people leadership. He has significant experience developing and commercializing nutraceutical and pharmaceutical products and has successfully led clinical research and business development strategies for cardiovascular and inflammation-related diseases. Dr. Carter is currently Principal at Aquila Life Sciences LLC, a consulting firm he founded in April 2008 focusing on pharmaceutical development and commercialization. Prior to this, he was Vice President of Clinical Development at Reliant Pharmaceuticals, which developed the omega-3 cardiovascular drug LOVAZA, and today is a wholly owned subsidiary of GlaxoSmithKline. He also served as Executive Director at Merck and Co., USA, President and Chief Executive Officer of WellGen and Senior Medical Director at Pfizer Inc., USA. Dr. Carter received his Medical Degree from the University of Witwatersrand, Johannesburg, along with a Master of Science degree in Sports Medicine from Trinity College, Dublin. 41 Jean-Marie (John) Canan Mr. Canan is an accomplished business executive with over 34 years of strategic, business development and financial leadership experience. Mr. Canan recently retired from Merck & Co., Inc. where his last senior position was as Senior Vice-President, Global Controller, and Chief Accounting Officer for Merck from November 2009 to March 2014. He has managed all interactions with the audit committee of the Merck board of directors, while participating extensively with the main board and the compensation & benefits committee. Mr. Canan serves as a director of REV Group, a public company, where he chairs the audit committee and is the lead independent director. He also serves on the board of trustees of Angkor Hospital for Children Inc. Mr. Canan is a graduate of McGill University, Montreal, Canada, and is a Canadian Professional Accountant. Donald Olds Until May 2019, Mr. Olds was the President and Chief Executive Officer of the NEOMED Institute, a research and development organization dedicated to advancing Canadian research discoveries to commercial success. Prior to NEOMED, he was the Chief Operating Officer of Telesta Therapeutics Inc., a TSX-listed biotechnology company, where he was responsible for finance and investor relations, manufacturing operations, business development, human resources, and strategy. In 2016, he led the successful sale of Telesta to a larger public biotechnology company. Prior to Telesta, he was President and Chief Executive Officer of Presagia Corp., and Chief Financial Officer and Chief Operating Officer of Aegera Therapeutics, where he was responsible for clinical operations, business development, finance, and mergers and acquisitions. At both Telesta and Aegera, Mr. Olds was responsible for raising more than C$100 million in equity financing and leading regional and global licensing transactions with life sciences companies. Mr. Olds is currently lead director of Goodfood Market Corp, Chair of Aifred Health, lease director of Cannara Biotech Inc, and director of Presagia Corp. Since December 2019, Mr. Olds has also been the Chairman of the board of directors for Alfred Health Inc. He has extensive past corporate governance experience serving on the boards of private and public for-profit and not-for-profit organizations. He holds an MBA (Finance & Strategy) and M.Sc. (Renewable Resources) from McGill University. Dr. Pierre Lemieux Dr. Lemieux has been our Chief Operating Officer since April 12, 2010, and our Chief Scientific Officer since June 2018 . Previously, Mr. Lemieux was CEO, Co-Founder and Chairman of BiolActis Inc. which he sold in 2009 to interests affiliated with the Nestlé multinational group. Mr. Lemieux joined Suprateck Pharma in 1999 as Director and Vice-President involved in the development of formulations for gene therapy on behalf of Rhone-Poulenc Rorer and Genzyme, which today are under the Sanofi banner. Prior to this, Mr. Lemieux was involved in the development of cardiovascular products at Angiotech Pharmaceuticals. Mr. Lemieux has a Ph.D. in biochemistry from Université Laval (Québec). He holds more than 16 patents and has authored over 50 publications. Mr. Lemieux’s research was conducted at Université Laval as well as at the anti-cancer center Paul Papin D’Angers (France) and the University of Nottingham (England). His research focused on ovarian cancer and its treatment with monoclonal antibodies used to target cancer drugs. After completing his graduate studies, Mr. Lemieux joined the Oncology division of the Center for Health Research, University of Texas. He obtained a postdoctoral fellowship from the Susan G. Komen Foundation (Breast Cancer). Mr. Lemieux has served on the boards of BioQuébec, Montreal in vivo and PharmaBio Development. Brian Ford Mr. Ford has been our CFO since September 24, 2021. Prior to joining Acasti, Mr. Ford served both publicly traded as well as privately owned organizations. Mr. Ford has been responsible for developing business recovery strategies, negotiating M&A transactions, as well as managing quarterly and yearly accounting reports. In 2017 Mr. Ford started his own consulting firm, Petersford Consulting, where he provided clients with finance and business risk services. From 2017 to 2020, through his consulting firm, Mr. Ford served as Chief Financial Officer and Senior Business Advisor at a private group of Ontario based medical clinics, including the largest chronic pain management practice in Canada. Prior to that, Mr. Ford served as Chief Financial Officer at Telesta Therapeutics. At Telesta Therapeutics, Mr. Ford helped develop a new business plan and was heavily involved in all capital transactions Mr. Ford began his career in 1982 at Ernst & Young, working his way to Principal, Business Risk Services, developing essential business plans that evaluated revenue and cost profiles supporting budget planning and understanding drivers of growth, specifically with healthcare companies. Additionally, at Ernst & Young, Mr. Ford participated in and often led teams in due diligence assignments in relation to mergers and acquisitions or the sale of a business, having extensive experience in developing financial forecasts, product and market valuation, and audits of critical accounting and processes. Mr. Ford holds a B.A. in Economics, History, and English from the University of Guelph and has a Graduate Diploma in Accounting from the University of McGill. Mr. Ford is a member of the Ontario Institute of Chartered Accountants. 42 Family Relationships There are no family relationships between any directors or officers of the Company. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires directors, executive officers, and shareholders owning more than 10% of any class of a company’s outstanding equity shares to file reports of ownership and changes of ownership with the SEC. As of April 1, 2020, we are required to comply with Section 16(a) because we are no longer eligible to rely upon foreign private issuer exemptions under U.S. securities laws and NASDAQ’s corporate governance rules. Based solely upon its review of the copies of such forms it received, or written representations from certain reporting persons for whom no such forms were required, we are aware of no late Section 16(a) filings. Code of Business Conduct and Ethics Please see the section entitled “Code of Business Conduct and Ethics” in “Item 13. Certain Relationships and Related Transactions and Director Independence.” Audit Committee Our audit committee is responsible for assisting the board of directors in fulfilling its oversight responsibilities with respect to financial reporting, including: · reviewing our procedures on overall financial reporting and internal control framework. · reviewing and approving the engagement of the auditor. · reviewing annual and quarterly financial statements and all other material continuous disclosure documents, including our annual information form and management’s discussion and analysis. · assessing our financial and accounting personnel. · assessing our accounting policies. · reviewing our risk management procedures; and · reviewing any significant transactions outside our ordinary course of business and any pending litigation involving us. The audit committee has direct communication channels with our management performing financial functions and our external auditor, to discuss and review such issues as the audit committee may deem appropriate. As of March 31, 2021, the audit committee was composed of Mr. Canan, as chairperson, Dr. Carter, and Mr. Olds. Each of Mr. Canan, Dr. Carter and Mr. Olds is “financially literate” and “independent” within the meaning of the Exchange Act. As of the date of this annual report, the composition of the audit committee remains the same as at March 31, 2021. Audit Committee Financial Expert Our board of directors has determined that Mr. Canan is the “audit committee financial expert”, as defined by applicable regulations of the SEC. The SEC has indicated that the designation of Mr. Canan as an audit committee financial expert does not make him an “expert” for any purpose, impose any duties, obligations or liability on Mr. Canan that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation or affect the duties, obligations or liability of any other member of the audit committee or board of directors. 43 Item 11. Executive Compensation Summary of our Compensation Programs Our executive compensation program is intended to attract, motivate and retain high-performing senior executives, encourage and reward superior performance, and align the executives’ interests with ours as well as shareholders by providing compensation that is competitive with the compensation received by executives employed by comparable companies, and ensuring that the achievement of annual objectives is rewarded through the payment of bonuses, and providing executives with long-term incentive through the grant of stock options. Our governance and human resources committee, or GHR committee, has authority to retain the services of independent compensation consultants to advise its members on executive and board compensation and related matters, and to determine the fees and the terms and conditions of the engagement of those consultants. During our fiscal year ended March 31, 2021, the GHR committee retained compensation consulting services from FW Cook to review our executive compensation programs, including base salary, short-term and long-term incentives, total cash compensation levels and total direct compensation of certain senior positions, against those of peer groups of similar and larger size, as measured by market capitalization, biotechnology and pharmaceutical companies listed or headquartered in North America. The consultants also reviewed board compensation, including advisory fees and equity incentives. All of the services provided by the consultants were provided to the GHR committee. The GHR committee assessed the independence of the consultants and concluded that its engagement of the consultants did not raise any conflict of interest with us or any of our directors or executive officers. Compensation for our CEO was below the peer company median following FW Cook’s review during fiscal period 2020. Use of Fixed and Variable Pay Components Compensation of our named executive officers, or NEOs, is revised each year and has been structured to encourage and reward executive officers on the basis of short-term and long-term corporate performance. In the context of its analysis of compensation for our fiscal year ended March 31, 2021, the following components were examined by the GHR committee: · base salary; · short term incentive plan, consisting of a cash bonus; · long term incentive plan, consisting of stock options and equity incentive grants based on performance and/or time vesting conditions; and · other elements of compensation, consisting of group benefits and perquisites. Base Salary We intend to be competitive over time, with comparator companies and to attract and retain top talent. The GHR committee reviews compensation periodically to be sure that it meets this strategic imperative. Base salary is set to reflect an individual’s skills, experience, and contributions within a salary structure consistent with peer group data, and with our gender pay equity policy. Base salary structure is revised annually by the GHR committee as our financial and market conditions evolve. Retention Agreements In connection with our strategic review process and upon the recommendation of our Governance and Human Resources Committee, in October 2020 we entered into retention incentive agreements with Ms. Jan D’Alvise, our President and CEO, and Mr. Pierre Lemieux, our Chief Operating Officer (“COO”) and Chief Scientific Officer (the “ Retention Agreements ”). The Retention Agreements provide that we will pay Ms. D’Alvise an employment retention incentive of $100,000 provided that she remains employed with the Corporation until the earlier of April 30, 2021, or the closing of a merger or like transaction with a third party. This amount is also payable by the Corporation to Ms. D’Alvise in the event of the termination of her employment without cause prior to the achievement of such milestones. 44 Mr. Lemieux was also awarded and paid a $25,000 retention bonus in April 2021. In addition, the Retention Agreements also provide that we will pay each of Ms. D’Alvise and Mr. Lemieux an amount of up to $125,000 in the event that certain milestones are met in relation to the monetization by the Company of its assets relating to CaPre. A minimum amount of $75,000 is also payable by the Corporation to each of Ms. D’Alvise and Mr. Lemieux in the event of the termination of their employment without cause prior to the achievement of such milestones. Short Term Incentive Plan (STIP) Our Short-Term Incentive Plan, or STIP, provides for potential rewards when a threshold of corporate performance is met. Personal objectives that support corporate goals are established annually with each employee and are assessed at the end of each financial year. Personal objectives are assessed through a performance grid, with pre-specified, objective performance criteria. STIP awards are paid out in proportion to overall company performance which establishes the STIP pool, and individual performance, which is determined in end-of-year performance reviews. For the most senior participants in the STIP, greater weight is assigned to corporate objectives. Target payout is expressed as a percentage of base salary, and is determined by benchmarking against peer group data, and board discretion. Annual salary for STIP purposes is the annual salary in effect at the end of the plan year (i.e., prior to any annual salary increases awarded for the subsequent year). The STIP is a discretionary variable compensation plan, and all STIP payments are subject to board approval. Participants must be employed by us at the end of the financial year to qualify. We reserve the right to modify or discontinue the STIP at any time. Ms. D’Alvise, our CEO, is eligible for up to a 50% bonus of her annual base salary. Dr. Lemieux, our COO, is eligible for up to a 40% bonus of their annual base salary. These performance goals will take into account the achievement of corporate milestones within timelines and budget and individual objectives determined annually by the board according to short-term priorities. Long Term Incentive Plan (LITP) The LTIP has been adopted as a reward and retention mechanism. Participation is determined annually at the discretion of the board. Employees approved by our board of directors may participate in our stock option plan, which is designed to align the long-term interests of participants with those of shareholders, in order to promote shareholder value. The GHR committee may also determine, in its sole discretion, ad hoc stock option awards to be granted to participants in order to address extraordinary situations. Awards at any level may be adjusted as necessary to maintain an equity burn rate and overhang similar to comparator companies. In addition to our stock option plan, the board is also empowered to grant ad hoc awards, from time to time, under our equity incentive plan to provide for a share-related mechanism to attract, retain and motivate qualified directors, senior employees, and consultants. The GHR committee determines the number of stock options to be granted to a participant based on peer group data and taking into account corporate performance and the employee’s level in the organization. The LTIP calculation for NEOs is determined from both reviewing grant values and a dilution-based methodology that considers the annual grant rate as a percent of shares outstanding. The board did not award stock option grants for FY’21. Our directors and executive officers are not permitted to purchase financial instruments, such as prepaid variable forward contracts, equity swaps, collars or units of exchange funds that are designed to hedge or offset a decrease in market value of equity securities granted as compensation or held, directly or indirectly, by the director or officer. Share Ownership Guidelines To further align the interests of our executives and board members with those of our other shareholders, the board has adopted share ownership guidelines. Under these guidelines, non-employee directors, the CEO, and other executives (i.e., CFO, COO, VPs) are required to retain and hold 50% of the shares acquired by them under any equity incentive award granted on or after June 7, 2017 (after subtracting shares sold to pay for option exercise costs, and relevant federal, state, and local taxes which are assumed to be at the highest marginal tax rates). In addition, the share retention rule applies unless the executive or non-employee director beneficially owns shares with a value at or in excess of the following share ownership guidelines: 45 · Non-employee directors — 2x then-current total annual cash retainer · CEO — 2x then-current annual base salary · Other executives — 1x then-current annual base salary. The value of an individual’s shares for purposes of the share ownership guidelines is deemed to be the greater of the then- current fair market value of the shares, or the individual’s cost basis in the shares. Shares counted in calculating the share ownership guidelines include shares beneficially owned outright, whether from open market purchases, shares retained after option exercises, and shares of restricted stock or deferred stock units that have fully vested. In addition, in the case of vested, unexercised, in-the-money stock options, the in-the-money value of the stock options will be included in the share ownership calculation. Executives have five years from their date of hire or promotion to satisfy the share ownership guidelines. Stock Option Plan Our stock option plan was adopted by our board of directors on October 8, 2008, and has been amended from time to time, as most recently amended on September 30, 2020, and approved by shareholders on September 30, 2020. The grant of options is part of the long-term incentive component of executive and director compensation and an essential part of compensation. Qualified directors, employees and consultants may participate in our stock option plan, which is designed to encourage option holders to link their interests with those of our shareholders, in order to promote an increase in shareholder value. Awards and the determination of any exercise price are made by our board of directors, after recommendation by the GHR committee. Awards are established, among other things, according to the role and responsibilities associated with the participant’s position and his or her influence over appreciation in shareholder value. Any award grants a participant the right to purchase a certain number of common shares during a specified term in the future, after a vesting period and/or specific performance conditions, at an exercise price equal to at least 100% of the market price (as defined below) of our common shares on the grant date. The “market price” of common shares as of a particular date generally means the highest closing price per common share on the TSXV, NASDAQ, or any other exchange on which the common shares are listed from time to time, for the last preceding date on which there was a sale of common shares on that exchange (subject to certain exceptions set forth in the stock option plan in the event that we are no longer traded on any stock exchange). Previous awards may sometimes be taken into account when new awards are considered. In accordance with the stock option plan, all of an option holder’s options will immediately fully vest on the date of a Change of Control event (as defined in the stock option plan), subject to the terms of any employment agreement or other contractual arrangement between the option holder and us. However, in no case will the grant of options under the plan, together with any proposed or previously existing security based compensation arrangement, result in (in each case, as determined on the grant date): the grant to any one consultant within any 12-month period, of options reserving for issuance a number of common shares exceeding in the aggregate 2% of our issued and outstanding common shares (on a non-diluted basis); or the grant to any one employee, director and/or consultant, which provides investor relations services, within any 12-month period, of options reserving for issuance a number of common shares exceeding in the aggregate 2% of our issued and outstanding common shares (on a non-diluted basis). Options granted under the stock option plan are non-transferable and are subject to a minimum vesting period of 36 months for management, and 18 months for non-executive board members, in each case with gradual and equal vesting on no less than a quarterly basis. They are exercisable, subject to vesting and/or performance conditions, at a price equal to the highest closing price of the common shares on the TSXV, NASDAQ, or any other exchange on which the common shares are listed from time to time, on the day prior to the grant of such options. In addition, and unless otherwise provided for in the agreement between us and the holder, options will also lapse upon termination of employment or the end of the business relationship with us except that they may be exercised for 90 days after termination, ceasing to hold office or the end of the business relationship (30 days for investor relations services employees), in each case to the extent that they will have vested on such date of termination of employment, end of the business relationship or ceasing to hold office, as applicable, except in the case of death, disability or retirement where this period is extended to 12 months. 46 Subject to the approval of relevant regulatory authorities, including the TSXV, NASDAQ, if applicable, and compliance with any conditions attached to that approval (including, in certain circumstances, approval by disinterested shareholders) if applicable, the board of directors has the right to amend or terminate the stock option plan. However, unless option holders’ consent to the amendment or termination of the stock option plan in writing, any such amendment or termination of the stock option plan cannot affect the conditions of options that have already been granted and that have not been exercised under the stock option plan. Options for common shares representing a fixed rate of 15% of our outstanding issued common shares as of August 26, 2020, may be granted by the board under the stock option plan. As of the date of this annual report, there were 14,533,881 common shares reserved for issuance under the stock option plan and 7,294,919 options outstanding under the stock option plan. Equity Incentive Plan On May 22, 2013, our equity incentive plan was adopted by the board in order to, among other things, provide us with a share-related mechanism to attract, retain and motivate qualified directors, employees and consultants. The adoption of the equity incentive plan was initially approved by shareholders at our 2013 Shareholders’ meeting held on June 27, 2013, and has been amended from time to time, as most recently amended on August 27, 2020, and approved by shareholders on September 30, 2020. Eligible persons may participate in the equity incentive plan. “Eligible persons” under the equity incentive plan consist of any director, officer, employee, or consultant (as defined in the equity incentive plan) of our Company or a subsidiary who may participate in the equity incentive plan. A participant is an eligible person to whom an award has been granted under the equity incentive plan. The equity incentive plan provides us with the option to grant to eligible persons bonus shares, restricted shares, restricted share units, performance share units, deferred share units and other share-based awards. If, and for so long as our common shares are listed on the TSXV, no more than 2% of the issued and outstanding common shares may be granted to any one consultant or employee conducting investor relations activities in any 12-month period. The board has the right to determine that any unvested or unearned restricted share units, deferred share units, performance share units or other share-based awards or restricted shares subject to a restricted period outstanding immediately prior to the occurrence of a change in control will become fully vested or earned or free of restriction upon the occurrence of a change in control. The board may also determine that any vested or earned restricted share units, deferred share units, performance share units or other share-based awards will be cashed out at the market price as of the date a change in control is deemed to have occurred, or as of such other date as the board may determine prior to the change in control. Further, the board has the right to provide for the conversion or exchange of any restricted share unit, deferred share unit, performance share unit or other share-based award into or for rights or other securities in any entity participating in or resulting from the change in control. The equity incentive plan is administered by the board and the board has sole and complete authority, in its discretion, to determine the type of awards under the equity incentive plan relating to the issuance of common shares (including any combination of bonus shares, restricted share units, performance share units, deferred share units, restricted shares or other share-based awards) in such amounts, to such persons and under such terms and conditions as the board may determine, in accordance with the provisions of the equity incentive plan and the recommendations made by the GHR committee. 47 Subject to the adjustment provisions provided for in the equity incentive plan and the applicable rules and regulations of all regulatory authorities to which we are subject (including any stock exchange), the total number of common shares reserved for issuance pursuant to awards granted under the equity incentive plan will be equal to a number that (A) if, and for so long as the common shares are listed on the TSXV, will not exceed the lower of (i) 1,953,318 common shares, and (ii) 15% of the issued and outstanding common shares, which as of April 9, 2019, representing 11,719,910 common shares, which includes common shares issuable pursuant to options issued under our stock option plan. Other Forms of Compensation Retirement Plans . Effective June 1, 2016, we sponsor a voluntary Registered Retirement Savings Plan, or RRSP, matching program, which is open to all eligible employees, including NEOs who reside in Canada. The RRSP matching program matches employees’ contributions up to a maximum of $1,500 per fiscal year for eligible employees who participate in the program. Effective January 1, 2019, a 401K plan was implemented for US employees. Because of the small size of our current employee population in the US and to assure passage of anti-discrimination testing, the 401K administrator, TransAmerica, required either a 4% match or a 3% “safe harbor” contribution. Balancing cost considerations with a plan design that is both externally competitive and internally equitable, Acasti adopted the “safe harbor” provision which provides a contribution of 3% of salary to the 401K accounts of all eligible US employees, including NEOs who reside in the US. Other Benefits and Perquisites. Our executive employee benefit program also includes life, medical, dental and disability insurance. These benefits and perquisites are designed to be competitive overall with equivalent positions in comparable organizations. We do not have a pension plan for employees. Compensation Governance Compensation of our executive officers and directors is recommended to the board of directors by the GHR committee. In its review process, the GHR committee informally reviews executive and corporate performance on a quarterly basis, with input from management. Annually, the GHR committee conducts a more formal review and assessment of executive and corporate performance. During the fiscal year ended March 31, 2021, the GHR committee was composed of the following members, each of whom is independent: Mr. Olds (Chairman), Dr. Carter, and Mr. Canan. The GHR committee establishes management compensation policies and oversees their general implementation. All members of the GHR committee have direct experience, which is relevant to their responsibilities as GHR committee members. All members are or have held senior executive or director roles within significant businesses in our industry, several also having public companies experience, and have a good financial understanding which allows them to assess the costs versus benefits of compensation plans. The GHR committee’s members combined experience in our sector provides them with a good understanding of our success factors and risks, which is very important when determining metrics for measuring success. Risk management is a primary consideration of the GHR committee when implementing its compensation program. We do not believe that our compensation program results in unnecessary or inappropriate risk taking, including risks that are likely to have a material adverse effect on us. Payments of bonuses, if any, are not made unless performance goals are met. For executives, more than half of their target compensation (base salary + target STIP awards + target LTIP awards) is considered “at risk”. We believe this mix results in a strong pay-for-performance relationship and alignment with shareholders and is competitive with other firms of comparable size in similar fields. The CEO (or any person acting in that capacity) makes recommendations to the GHR committee as to the compensation of our executive officers, other than herself for review and approval by the board. The GHR committee makes recommendations to the board of directors as to the compensation of the CEO, for approval. The CEO’s salary is based on comparable market consideration, and the GHR committee’s assessment of her performance, with regard to our financial performance, and progress in achieving key strategic business goals. 48 Qualitative factors beyond the quantitative financial metrics are also a key consideration in determination of individual executive compensation payments. How executives achieve their financial results and demonstrate leadership consistent with our values are key to individual compensation decisions. Compensation Paid to Named Executive Officers The following table sets forth the compensation information for our principal executive officers, and our most highly paid executive officers, during the fiscal years ended March 31, 2021, and 2020, respectively. Name and Year Salary Bonus ($) Stock Option Nonequity All Other Total Principal ($) Awards Awards Incentive Compensation Compensation Position ($) ($) (1) (2) Plans ($) ($) ($) Jan D’Alvise March 31, 2021 428,040 - - - - - 428,040 President and CEO March 31, 2020 410,703 154,781 - 1,620,863 - - 2,186,347 Pierre Lemieux March 31, 2021 276,377 - - - - - 276,377 COO March 31, 2020 264,128 80,018 - 603,458 - - 947,604 Brian Ford 3 March 31, 2021 190,605 - - - - - 190,605 CFO March 31, 2020 - - - - - - - Brian Groch 4 March 31, 2021 229,680 - - - - - 229,680 Former CCO March 31, 2020 289,615 87,000 - 357,461 - - 734,106 ___________________________ Notes: (1) The fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model. This model requires the input of a number of parameters, including share price, share exercise price, expected share price volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect management’s best estimates, they involve inherent uncertainties based on market conditions generally outside of our control (2) The fair value of the option-based awards granted on March 31, 2020, was CAD$0.41. (3) Mr.Ford was appointed our CFO September 24, 2020. (4) Departure of Brian Groch, Chief Commercial Officer, from his position with the Corporation effective December 31, 2020 Outstanding Equity Awards at March 31, 2021 The following tables provide information about the number and value of the outstanding option-based awards held by the NEOs as of March 31, 2021. Option awards Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) Option exercise price ($) (1) Option expiration date 525,000 – – $ 1.56 May 12, 2023 258,000 – – $ 1.77 June 14, 2027 Jan D’Alvise 172,000 – – $ 1.77 June 14, 2027 830,000 75,521 75,521 $ 0.77 July 2, 2028 150,733 75,367 75,367 $ 1.28 April 15, 2029 514,600 257,300 275,300 $ 1.28 April 15, 2029 445,500 890,000 890,000 $ 0.53 March 31, 2030 16,900 – – $ 4.50 June 1, 2022 31,400 – – $ 1.99 May 30, 2023 50,000 – – $ 1.65 February 24, 2027 Pierre Lemieux 93,000 – – $ 1.77 June 14, 2027 62,000 – – $ 1.77 June 14, 2027 335,055 30,460 30,460 $ 0.77 July 2, 2028 52,867 59,475 59,475 $ 1.28 April 15, 2029 180,467 203,025 203,025 $ 1.28 April 15, 2029 195,667 587,000 587,000 $ 0.53 March 31, 2030 ______________________________ Notes: (1) Canadian dollars. 49 Employment Agreements with Named Executive Officers Jan D’Alvise, President and CEO On May 11, 2015, we entered into an executive employment agreement with Ms. D’Alvise. Pursuant to her executive employment agreement, Ms. D’Alvise’s annual base salary was set at $330,000 and she is eligible to receive annual performance bonuses based on target amount of 40% of her annual base salary with a maximum of up to 80% of her annual base salary. In accordance with the terms and provisions of the executive employment agreement we entered into with Ms. D’Alvise, we may terminate the executive’s employment at any time for “good and sufficient cause”, as defined in the employment agreement, without notice or severance. We may terminate the executive’s employment at any time without cause or upon a change of control, as defined in our Stock Option Plan, by providing the executive with sixty days’ notice of termination and payment equal to twelve months’ base salary plus any bonus payable. The executive may decide to resign from employment and must provide us with at least sixty days' advance written notice. The executive may decide to terminate employment with “good reason”, as defined in the employment agreement, and we are required to make payment equal to twelvemonths’ base salary plus any bonus payable. Pierre Lemieux, COO On September 26, 2017, we entered into an executive employment agreement with Dr. Lemieux. Pursuant to his executive employment agreement, Dr. Lemieux’s annual base salary was set at CAD$253,700 and he is eligible to receive annual performance bonuses of up to 40% of his annual base salary. In accordance with the terms and provisions of the executive employment agreement we entered into with Dr. Lemieux, we may terminate the executive’s employment at any time for “good and sufficient cause”, as defined in the employment agreement, without notice or severance. We may terminate the executive’s employment at any time without cause or upon a change of control, as defined in our Stock Option Plan, by providing the executive with thirty days’ notice of termination and payment equal to twelve months’ base salary plus any bonus payable. The executive may decide to resign from employment and must provide us with at least sixty days' advance written notice. The executive may decide to terminate employment with “good reason”, as defined in the employment agreement, and we are required to make payment equal to twelve months of base salary. Brian Ford, CFO On September 14, 2021, we entered into a consulting agreement with PFC Business Advisory Services Inc., an entity through which Mr. Ford provides consulting services (the “Consulting Agreement”). The Consulting Agreement provides, among other things, that Mr. Ford will serve as a non-employee Chief Financial Officer on a full-time basis, in exchange for a fee of CAD$36,000 per month. There is no arrangement or understanding between Mr. Ford and any other persons pursuant to which Mr. Ford was selected as an officer. 50 Compensation of Directors Our directors’ compensation consists of an annual fixed compensation of $60,000 for the chairman of the board and $30,000 for the other non-executive board members. In addition, the chairperson of the audit committee and the chairperson of the governance and human resources committee receive additional compensation of $15,000 and $10,000, respectively, while members of the audit committee and the governance and human resources committee receive additional compensation of $7,500 and $5,000, respectively. The directors are also entitled to a fee of $1,000 per non-regularly scheduled board meeting as well as a reimbursement for travelling and other reasonable expenses properly incurred by them in attending meetings of the board or any committee or in otherwise serving us, in accordance with our policy on travel and expenses. Following their first election to our board of directors, non-executive directors are eligible to receive an initial equity grant of up to 150% of their annual cash retainer worth of stock options vesting monthly in equal installments over a 12-month period, subject to the other terms and conditions set forth under the heading “Stock Option Plan”. In addition to their initial grant, non-executive directors are eligible to receive an annual equity-based award equal to 100% of their total annual cash retainer vesting monthly in equal installments over a 12-month period. These awards will be granted at the same time that we are performing our annual performance review for our employees, subject to availability of common shares and subject to the terms and conditions described under the headings “Stock Purchase Plan” and “Equity Incentive Plan”. The level of these awards will be consistent with equivalent awards in comparable companies obtained from the benchmark exercise and in accordance with the recommendations obtained from our independent compensation consultant. The total compensation for our non-executive directors during fiscal year ended March 31, 2021, was as follows: Name Fees earned or Stock Option Non-equity incentive plan Nonqualified deferred compensation All other paid in cash awards awards compensation earnings compensation Total ($) ($) ($) ($) ($) ($) ($) Roderick N. Carter 106,500 – - – – – 106,500 Jean-Marie (John) Canan 84,000 – - – – – 84,000 Donald Olds 81,500 – - – – – 81,500 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Equity Compensation Plan Information 51 The following table sets forth certain information regarding the Company’s equity compensation plans as of March 31, 2021: Plan category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Equity compensation plans approved by security holders ( Stock Option Plan )(1): 7,294,919 CAD$1.04 6,896,271 Equity compensation plans approved by security holders ( Equity Incentive Plan )(2): – $– – Equity compensation plans not approved by security holders ( Stock Option Plan ): – $– – Equity compensation plans not approved by security holders ( Equity Incentive Plan ): – $– – Total 7,294,919 CAD$1.04 6,896,271 ______________________________ Notes: (1) A summary of certain material provisions of the Company’s Stock Option Plan is available under “Item 11. Executive Compensation – Summary of our Compensation Programs – Stock Option Plan”. (2) The total number of common shares reserved for issuance under the Company’s Equity Incentive Plan is limited by the number of options that are outstanding under the Stock Option Plan such that the total number of common shares available for issuance under both stock-based compensation plans shall not exceed 11,719,910. A summary of certain material provisions of the Company’s Equity Incentive Plan is available under “Item 11. Executive Compensation – Summary of our Compensation Programs – Equity Incentive Plan”. Security ownership of certain beneficial owners The following table sets forth certain information regarding beneficial ownership of our common shares as of May 31 , 2021, by each director and the executive officer identified above, and all directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. All common shares are common shares with the same voting rights. For the purposes of calculating percent ownership, as of May 31, 2021, 208,375,505 common shares were issued and outstanding, and, for any individual who beneficially owns shares represented by options exercisable within sixty days of May 31, 2021, these shares are treated as if outstanding for that person, but not for any other person. Name and Address of Beneficial Owner (1) Amount and Nature of Beneficial Ownership Percentage of Common Shares Jan D’Alvise 2,948,560 (2) 1.4% Roderick N. Carter 505,577 (3) * Jean-Marie (John) Canan 383,983 (4) * Donald Olds 226,200 (5) * Pierre Lemieux 1,024,353 (7) * Directors and officers as a group (5 persons) 3,392,655 2.4% ____________ * Less than 1%. Notes : (1) Unless otherwise indicated, the address of each of the executive officers and directors named above is 3009 boul. de la Concorde East, Suite 102, Laval, Québec, Canada H7E 2B5 (2) Includes 2,896,060 common shares that Jan D’Alvise may acquire through the exercise of share options within 60 days hereof. (3) Includes 505,577 common shares that Roderick N. Carter may acquire through the exercise of share options within 60 days hereof. (4) Includes 283,983 common shares that Jean-Marie (John) Canan may acquire through the exercise of share options within 60 days hereof. (5) Includes 188,200 common shares that Donald Olds may acquire through the exercise of share options within 60 days hereof. Includes 38,000 common shares held and controlled by Mr. Olds’ spouse, Ofra Aslan. (7) Includes 1,017,356 common shares that Pierre Lemieux may acquire through the exercise of share options within 60 days hereof. 52 To the best of our knowledge, there are no beneficial owners of 5% or more of any class of our voting securities. Changes in Control There existed no change in control arrangements at March 31, 2021. Item 13. Certain Relationships and Related Transactions and Director Independence Related Transactions None. Director Independence Our board of directors believes that, in order to maximize its effectiveness, the board must be able to operate independently. A majority of directors must satisfy the applicable tests of independence, such that the board of directors complies with all independence requirements under applicable corporate and securities laws and stock exchange requirements applicable to us. No director will be independent unless the board of directors has affirmatively determined that the director has no material relationship with us or any of our affiliates, either directly or indirectly or as a partner, shareholder or officer of an organization that has a relationship with us or our affiliates. Such determinations will be made on an annual basis and, if a director joins the board of directors between annual meetings, at such time. Independent Directors The board of directors determined that Mr. Canan, Dr. Carter, and Mr. Olds are independent within the meaning of NI 52-110 and NASDAQ Stock Market rules. Directors Who are Not Independent The board of directors determined that Ms. D’Alvise is not independent within the meaning of NI 52-110 and NASDAQ Stock Market rules given that she is our President and Chief Executive Officer. During the fiscal year ended March 31, 2021, the board of directors held 3 special meetings for independent directors. All directors were in attendance for each regularly scheduled quarterly and annual meeting of the Board. Chairman of the Board Dr. Carter acts as chairman of the board. His duties and responsibilities consist of the oversight of the quality and integrity of the board of directors’ practices. Board Mandate The board of directors is responsible for overseeing management in carrying out the business and affairs of the Company. Directors are required to act and exercise their powers with reasonable prudence in the best interests of the Company. The board agrees with and confirms its responsibility for overseeing management's performance in the following particular areas: • approving and monitoring the Company’s compliance procedures; • establishing and developing of the Company’s corporate governance principles and committees; • evaluating the strategic plan of the Company; 53 • identification and oversight of the principal risks associated with the business of the Company and application of appropriate systems to manage and mitigate such risks; • planning for succession of management; • the Company's policies regarding communications with its shareholders and others; and • the integrity of the internal controls and management information systems of the Company. In carrying out its mandate, the board relies primarily on management to provide it with regular detailed reports on the operations of the Company and its financial position. The board reviews and assesses these reports and other information provided to it at meetings of the board and/or of its committees. At least annually, the board approves a strategic plan for the Company taking into account, among other things, the opportunities and risks of the Company’s business, its risk appetite, emerging trends, and the competitive environment in the industry. Position Descriptions Written position description has been approved for the chairs of each committee of the board of directors. The primary role and responsibility of the chair of each committee of the board of directors is to: (i) in general, ensure that the committee fulfills its mandate, as determined by the board of directors and in accordance with the committee’s charter; (ii) chair meetings of the committee; (iii) report to the board of directors; and (iv) act as liaison between the committee and the board of directors and our management. The board of directors has adopted a written position description for the chairman of the board of directors. Chairman of the Board The chairman of the board of directors is responsible for leading the board to fulfill its duties under the board’s mandate as independent of management and acting as an advisor to the chief executive officer. The chairman’s duties include, but are not limited to, setting meeting agendas, approving, and supervising management’s progress towards achieving strategic goals, chairing meetings and working with the respective committee and management to ensure, to the greatest extent possible, the effective functioning of the committee and the board of directors. The chairman must oversee that the relationship between the board of directors, management of the Company, the Company’s shareholders and other stakeholders are effective, efficient, and further to the best interests of the Company. Orientation and Continuing Education We provide orientation for new appointees to the board of directors and committees in the form of informal meetings with members of the board and senior management, complemented by presentations on the main areas of our business. The board does not formally provide continuing education to its directors, as directors are experienced members. The board of directors relies on third party professional assistance, when judged necessary, in order to be educated/updated on a particular topic. Code of Business Conduct and Ethics The board of directors adopted a Code of Business Conduct and Ethics, or Code of Conduct, for our directors, officers and employees on May 31, 2007, as amended from time to time. Our Code of Conduct can be found on SEDAR at www.sedar.com and on our web site on www.acastipharma.com. A copy of the Code of Conduct can also be obtained by contacting our corporate secretary. Since its adoption by the board of directors, any breach of the Code of Conduct must be brought to the attention of the board of directors by our CEO or other senior executives. No report has ever been filed which pertains to any conduct of a director or executive officer that constitutes a breach to our Code of Conduct. Since the adoption of the Code of Conduct and the following policies, the board of directors actively monitors compliance with the Code Conduct and promotes a business environment where employees are encouraged to report malfeasance, irregularities, and other concerns. The Code of Conduct provides for specific procedures for reporting non-compliant practices in a manner which, in the opinion of the board of directors, encourages and promotes a culture of ethical business conduct. 54 The board of directors also adopted a disclosure policy, insider trading policy, majority voting policy, management and board compensation policies, and a whistleblower policy. In addition, under the Civil Code of Québec, to which we are subject as a legal person incorporated under the Business Corporations Act (Québec) (L.R.Q., c. S-31), a director must immediately disclose to the board any situation that may place him or her in a conflict of interest. Any such declaration of interest is recorded in the minutes of proceeding of the board of directors. The director abstains, except if required, from the discussion and voting on the question. In addition, it is our policy that an interested director recuse himself or herself from the decision-making process pertaining to a contract or transaction in which he or she has an interest. Nomination of Directors The board of directors receives recommendations from the GHR committee, but retains responsibility for managing its own affairs by, among other things, giving its approval for the composition and size of the board of directors, and the selection of candidates nominated for election to the board of directors. The GHR committee initially evaluates candidates for nomination for election as directors, having regard to the background, employment, and qualifications of possible candidates. The selection of the nominees for the board of directors is made by the other members of the board, based on our needs and the qualities required for the board of directors, including ethical character, integrity and maturity of judgment of the candidates; the level of experience of the candidates, their ideas regarding the material aspects of our business, the expertise of the candidates in fields relevant to us while complementing the training and experience of the other members of the board of directors; the will and ability of the candidates to devote the necessary time to their duties to the board of directors and its committees, the will of the candidates to serve on the board of directors for numerous consecutive financial periods and finally, the will of the candidates to refrain from engaging in activities which conflict with the responsibilities and duties of a director. The board researches the training and qualifications of potential new directors which seem to correspond to the selection criteria of the board of directors and, depending on the results of said research, organizes meetings with the potential candidates. In the case of incumbent directors whose terms of office are set to expire, the board will review such directors’ overall service to us during their term of office, including the number of meetings attended, level of participation, quality of performance and any transactions of such directors with us during their term of office. We may use various sources in order to identify the candidates for the board of directors, including our own contacts and the references of other directors, officers, advisors and executive placement agencies. We will consider director candidates recommended by shareholders and will evaluate those director candidates in the same manner in which we evaluate candidates recommended by other sources. In making recommendations for director nominees for the annual meeting of shareholders, we will consider any written recommendations of director candidates by shareholders received by our corporate secretary not later than 120 days before the anniversary of the previous year’s annual meeting of shareholders. Recommendations must include the candidate’s name, contact information and a statement of the candidate’s background and qualifications, and must be mailed to us. Following the selection of the candidates by the board of directors, we will propose a list of candidates to the shareholders, for our annual meeting of shareholders. The board of directors does not have a nominating committee and has not adopted any formal written director term limit policy. Proposed nominations of director candidates are evaluated by our GHR committee. 55 GHR Committee The mandate of the GHR committee consists of the evaluation of the proposed nominations of senior executives and director candidates to our board of directors, recommending for board approval, if appropriate, revisions of our corporate governance practices and procedures, developing new charters for any new committees established by the board of directors, monitoring relationships and communication between management and the board of directors, monitoring emerging best practices in corporate governance and oversight of governance matters and assessing the board of directors and its committees. The GHR committee is also in charge of establishing the procedure which must be followed by us to comply with applicable guidelines of the TSXV and NASDAQ Stock Market regarding corporate governance. The GHR committee has the responsibility of evaluating the compensation, performance incentives as well as the benefits granted to our upper management in accordance with their responsibilities and performance as well as to recommend the necessary adjustments to our board of directors. The GHR committee also reviews the amount and method of compensation granted to the directors. The GHR committee may retain an external firm in order to assist it during the execution of its mandate. The GHR committee considers time commitment, comparative fees, and responsibilities in determining compensation. The GHR committee is composed of independent members within the meaning of NI 52-110 and NASDAQ Stock Exchange rules, namely Mr. Olds, Dr. Carter, and Mr. Canan. Periodic Assessments The board of directors, its committees and each director are subject to periodic evaluations of their efficacy and contribution. The evaluation procedure consists in identifying any shortcomings and implementing adjustments proposed by directors at the beginning and during meetings of the board of directors and of each of its committees. Among other things, these adjustments deal with the level of preparation of directors, management and consultants employed by us, the relevance and sufficiency of the documentation provided to directors and the time allowed to directors for discussion and debate of items on the agenda. Director Term Limits The board actively considers the issue of term limits from time to time. At this time, the board does not believe that it is in our best interests to establish a limit on the number of times a director may stand for election. While such a limit could help create an environment where fresh ideas and viewpoints are available to the board, a director term limit could also disadvantage us through the loss of the beneficial contribution of directors who have developed increasing knowledge of, and insight into, us and our operations over a period of time. As we operate in a unique industry, it is difficult to find qualified directors with the appropriate background and experience and the introduction of a director term limit would impose further difficulty. Policies Regarding the Representation of Women on the Board and Among Executive Officers We have not adopted a formal written policy regarding diversity amongst executive officers and members of the board of directors, including mechanisms for board renewal, in connection with, among other things, the identification and nomination of women directors. Nevertheless, we recognize that gender diversity is a significant aspect of diversity and acknowledges the important role that women with appropriate and relevant skills and experience can play in contributing to the diversity of perspective on the board of directors. Rather than considering the level of representation of women for directorship and executive officer positions when making board or executive officer appointments, we consider all candidates based on their merit and qualifications relevant to the specific role. While we recognize the benefits of diversity at all levels within its organization, we do not currently have any targets, rules or formal policies that specifically require the identification, consideration, nomination, or appointment of candidates for directorship or executive management positions or that would otherwise force the composition of our board of directors and executive management team. Currently, we have one women director who is also our CEO. 56 Item 14. Principal Accounting Fees and Services Audit Fees “Audit fees” consist of fees for professional services for the audit of our annual financial statements, interim reviews, and fees related to securities filings. Audit fees for KPMG LLP, our external auditors are CAD $364,870 for the fiscal year ended March 31, 2021, and CAD $308,160 for the fiscal year ended March 31, 2020. Audit fees for the fiscal year ended March 31, 2021, include fees related to securities filings. Audit-Related Fees “Audit-related fees” consist of fees for professional services that are reasonably related to the performance of the audit or review of our financial statements, and which are not reported under “Audit Fees” above. KPMG LLP billed CAD nil for the fiscal year ended March 31, 2021, and CAD $82,390 for the fiscal year ended March 31, 2020. Audit-Related fees for the fiscal year ended March 31, 2020, include fees related to securities filings. Tax Fees “Tax fees” consist of fees for professional services for tax compliance, tax advice and tax planning. KPMG LLP billed CAD $42,067 for tax fees for fiscal year ended March 31, 2021, and CAD $46,660 for tax fees for fiscal year ended March 31, 2020. Tax fees include, but are not limited to, preparation of tax returns. All Other Fees “Other fees” include all other fees billed for professional services other than those mentioned hereinabove. KPMG LLP billed no fees under this category for the fiscal years ended March 31, 2021, and March 31, 2020. Pre-Approval Policies and Procedures The audit committee approves all audit, audit-related services, tax services and other non-audit related services provided by the external auditors in advance of any engagement. Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve certain fees for non-audit related services pursuant to a de minimus exception prior to the completion of an audit engagement. Non-audit related services satisfy the de minimus exception if the following conditions are met: · the aggregate amount of all non-audit services that were not pre-approved is reasonably expected to constitute no more than five per cent of the total amount of fees paid by us and our subsidiaries to our external auditors during the fiscal year in which the services are provided; · we or our subsidiaries, as the case may be, did not recognize the services as non-audit services at the time of the engagement; and · the services are promptly brought to the attention of the audit committee and approved, prior to the completion of the audit, by the audit committee or by one or more of its members to whom authority to grant such approvals had been delegated by the audit committee. None of the services described above under “Principal Accounting Fees and Services” were approved by the audit committee pursuant to the de minimus exception. PART IV 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. 57 (a)(2) Financial Statement Schedules—All schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the consolidated Financial Statements or notes thereto included in Item 8 of this annual report on Form 10-K. (a)(3) Exhibits—The exhibits required by Item 601 of Regulation S-K are listed in paragraph (b) below. (b) Exhibits—The exhibits listed on the Exhibit Index below are filed herewith or are incorporated by reference to exhibits previously filed with the SEC. EXHIBITS INDEX Exhibit No. Description 2.1 Agreement and Plan of Merger, dated as of May 7, 2021, among Acasti Pharma Inc., Grace Therapeutics Inc. and Acasti Pharma U.S., Inc. (incorporated by reference to Exhibit 2.1 of from Form 8-K (File No. 001-35776 ) filed with the Commission on May 7, 2021) 3.1 Articles of Incorporation (incorporated by reference to Exhibit 4.1 from Form S-8 (File No. 333-191383) filed with the Commission on September 25, 2013) 3.2 Amended and Restated General By-Law (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on February 21, 2017) 3.3 Advance Notice bylaw No. 2013-1 (incorporated by reference to Exhibit 4.3 from Form S-8 (File No. 333-191383) filed with the Commission on September 25, 2013) 4.1 Specimen Certificate for Common Shares of Acasti Pharma Inc. (incorporated by reference to Exhibit 2.1 from Form 20-F (File No. 001-35776) filed with the Commission on June 6, 2014) 4.2 Warrant Indenture dated December 3, 2013 between Acasti Pharma Inc. and Computershare Trust Company of Canada (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on December 3, 2013) 4.3 Warrant Indenture dated February 21, 2017 between Acasti Pharma Inc. and Computershare Trust Company of Canada (incorporated by reference to Exhibit 2.3 from Form 20-F (File No. 001-35776) filed with the Commission on June 27, 2017) 4.4 Warrant Agency Agreement dated December 27, 2017 between Acasti Pharma Inc. and Computershare Inc. and its wholly-owned subsidiary, Computershare Trust Company N.A. (incorporated by reference to Exhibit 2.4 from Form 20-F (File No. 001-35776) filed with the Commission on June 29, 2018) 4.5 Amended and Restated Warrant Indenture dated May 10, 2018 between Acasti Pharma Inc. and Computershare Trust Company of Canada (incorporated by reference to Exhibit 2.5 from Form 20-F (File No. 001-35776) filed with the Commission on June 29, 2018) 10.1 Prepayment Agreement, dated December 4, 2012, between Neptune Technologies & Bioressources Inc. and Acasti Pharma Inc. (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on October 29, 2013) 10.2 Acasti Pharma Inc., Equity Incentive Plan, as amended August 27, 2020. 10.3 Acasti Pharma Inc., Stock Option Plan, as amended August 27, 2020. 58 10.4 Employment Agreement with Jan D’Alvise, dated May 11, 2015 (incorporated by reference to Exhibit 10.6 from Form F-1 (File No. 333-220755) filed with the SEC on September 29, 2017) 10.5 Employment Agreement with Pierre Lemieux, dated September 26, 2017 (incorporated by reference to Exhibit 10.7 from Form F-1 (File No. 333-220755) filed with the SEC on September 29, 2017) 10.6 Independent contractor agreement with PFC Business Advisory Services Inc. dated September 14, 2020, and amended March 15, 2021, and June 16, 2021. 10.7 Amended and Restated Sales Agreement, dated June 29, 2020, by and among Acasti Pharma Inc., B. Riley FBR, Inc. and Oppenheimer & Co. Inc. and H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit 1.2 from Form S-3 (File No. 333-239538) filed with the Commission on June 29, 2020) 10.8 Retention agreement, dated October 27, 2020, between Acasti Pharma Inc. and Jan D’Alvise (incorporated by reference to Exhibit 10.2 from the quarterly report on Form 10-Q filed with the Commission on November 16, 2020) 10.9 Retention agreement, dated October 29, 2020 between Acasti Pharma Inc. and Pierre Lemieux (incorporated by reference to Exhibit 10.3 from the quarterly report on Form 10-Q filed with the Commission on November 16, 2020) 23.1 Consent of KPMG LLP, an Independent Registered Public Accounting Firm. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 59 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 22, 2021 ACASTI PHARMA INC. By: /s/ Janelle D’Alvise Name: Janelle D’Alvise Title: President and Chief Executive Officer and Director (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/ Janelle D’Alvise President and Chief Executive Officer and Director June 22, 2021 Janelle D’Alvise (Principal Executive Officer) /s/ Brian Ford Chief Financial Officer June 22, 2021 Brian Ford (Principal Financial Officer and Principal Accounting Officer) /s/ Dr. Roderick N. Carter Director June 22, 2021 Dr. Roderick N. Carter /s/ Jean-Marie (John) Canan Director June 22, 2021 Jean-Marie (John) Canan /s/ Donald Olds Director June 22, 2021 Donald Olds 60 Consolidated Financial Statements of Acasti pharma inc. For the years ended March 31, 2021 and 2020 F- 1 Acasti pharma inc. Consolidated Financial Statements For the years ended March 31, 2021 and 2020 Financial Statements Consolidated Balance Sheets F-4 Consolidated Statements of Loss and Comprehensive Loss F-5 Consolidated Statements of Changes in Shareholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to the Consolidated Financial Statements F-8 F- 2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors Acasti Pharma Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Acasti Pharma Inc. (the "Company") as of March 31, 2021 and 2020, the related consolidated statements of loss, comprehensive loss, shareholders’ equity, and cash flows for the years ended March 31, 2021 and 2020, and the related notes (collectively, the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2021 and 2020, and the consolidated results of its operations and its consolidated cash flows for the years ended March 31, 2021 and 2020, 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 audits. 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 audits 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, 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 Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits 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 audits 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 audits provide a reasonable basis for our opinion. Critical Audit Matter Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. We have served as the Company’s auditor since 2009. Montréal, Québec June 22, 2021 F- 3 Acasti pharma inc. Consolidated Balance Sheets March 31, 2021 March 31, 2020 (Expressed in thousands of U.S. dollars except share data) Notes $ $ Assets Current assets: Cash and cash equivalents 50,942 14,240 Short- term investments 5 9,789 - Receivables 4 530 546 Assets held for sale 7 768 2,578 Deferred financing costs 12(b) - 121 Prepaid expenses 343 977 Total current assets 62,372 18,462 Right of Use Asset 86 147 Intangible assets 6 - 4,244 Total assets 62,458 22,853 Liabilities and Shareholders’ equity Current liabilities: Trade and other payables 9 1,493 7,319 Lease liability 86 76 Total current liabilities 1,579 7,395 Derivative warrant liabilities 10, 12(b) 5,219 2,393 Lease Liability - 71 Total liabilities 6,798 9,859 Shareholders’ Equity: Common shares 12 197,194 137,424 Additional paid-in capital 12 10,817 9,797 Accumulated other comprehensive loss (6,333) (7,887 ) Accumulated deficit (146,018) (126,340 ) Total Shareholder’s equity 55,660 12,994 Commitments and contingencies 20 Total liabilities and shareholders’ equity 62,458 22,853 The accompanying notes are an integral part of these consolidated financial statements F- 4 ACASTI PHARMA INC. Consolidated Statements of Loss and Comprehensive Loss Year ended Year ended March 31, 2021 March 31, 2020 (Expressed in thousands of U.S. dollars except share data) Notes $ $ Revenues Revenues from product sales 13 196 - Operating Expenses Cost of sales of products (76) - Research and development expenses, net of government assistance 8 (4,173 ) (15,974 ) General and administrative expenses (5,521) (5,799 ) Sales and marketing (1,142 ) (2,665 ) Impairment of Intangible assets 6 (3,706 ) - Impairment of Equipment 7 (1,584 ) - Impairment of Other assets and prepaid 7 (413 ) - Loss from operating activities (16,419 ) (24,438 ) Financial Expenses 14 (3,259) (1,075 ) Net loss and total comprehensive loss (19,678) (25,513 ) Basic and diluted loss per share 16 (0.17) (0.30 ) Weighted average number of shares outstanding 118,625,833 84,581,764 The accompanying notes are an integral part of these consolidated financial statements F- 5 Acasti pharma inc. Consolidated Statements of Changes in 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, 2020 90,209,449 137,424 9,797 (7,887 ) (126,340 ) 12,994 Net loss and total comprehensive loss for the period - - - - (19,678) (19,678) Cumulative translation adjustment - - - 1,554 - 1,554 Warrants exercised 10, 14 222,975 274 (91) - - 183 Net proceeds from shares issued under the at-the-market (ATM) program 12(b) 117,724,769 59,336 - - - 59,336 Stock based compensation 218,356 160 1,111 - - 1,271 Balance at March 31, 2021 208,375,549 197,194 10,817 (6,333) (146,018) 55,660 Common Shares Notes Number Dollar $ Additional Paid-in Capital $ Accumulated other comprehensive loss $ Deficit $ Total $ Balance, March 31, 2019 2, 20 78,132,734 110,857 8,150 (7,135 ) (100,827 ) 11,045 Net loss and total comprehensive loss for the period - - - - (25,513 ) (25,513 ) Cumulative translation adjustment - - - (752 ) - (752 ) Warrants exercised 10, 14 7,056,103 18,810 (262 ) - - 18,548 Net proceeds from shares issued under the at-the-market (ATM) program 12(b) 4,065,986 6,941 - - - 6,941 Shares issued as a settlement 900,000 738 - - - 738 Stock based compensation 54,626 78 1,909 - - 1,987 Balance at March 31, 2020 90,209,449 137,424 9,797 (7,887 ) (126,340 ) 12,994 The accompanying notes are an integral part of these consolidated financial statements F- 6 Acasti pharma inc. Consolidated Statements of Cash Flows Year Ended Year Ended (Expressed in thousands of U.S. dollars except share data) March 31, 2021 March 31, 2020 Notes $ $ Cash flows used in operating activities: Net loss for the year (19,678) (25,513 ) Adjustments: Amortization of intangible assets 6 781 1,910 Depreciation of equipment 7 143 410 Impairment of intangible assets 6 3,706 - Impairment of Equipment 7 1,584 - Impairment of other assets and prepaids 7 413 - Stock-based compensation expense 15 1,174 1,953 Change in fair value of warrant liabilities 10 2,426 1,116 Accretion of interest on convertible debenture - 145 Write off-of deferred financing costs of at-the-market (ATM) program 264 - Unrealized exchange loss 814 246 Changes in non-cash working capital items 17 (5,971) (2,993 ) Changes in other assets 25 (225 ) Net cash used in operating activities (14,319 ) (22,951 ) Cash flows from (used in) investing activities: Acquisition of equipment 7 (69) (319 ) Acquisition of short-term investments (9,810) (1,923 ) Maturity of short-term investments 21 10,380 Net cash from (used in) investing activities (9,858) 8,138 Cash flows from (used in) financing activities: Net proceeds from shares issued under the at-the-market (ATM) program 59,332 6,981 Deferred financing costs (14 3) 7 Proceeds from exercise of warrants 183 7,706 Proceeds from exercise of stock options 118 45 Payment of convertible debenture - (1,556 ) Net cash from financing activities 59,490 13,183 Effect of exchange rate fluctuations on cash and cash equivalents 6,329 (254 ) Translation effect on cash and cash equivalents related to reporting currency (4,940) (747 ) Net (decrease) increase in cash and cash equivalents 36,702 (2,631 ) Cash and cash equivalents, beginning of year 14,240 16,871 Cash and cash equivalents, end of year 50,942 14,240 Cash and cash equivalents are comprised of: Cash 38,406 4,869 Cash equivalents 12,536 9,371 F- 7 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except 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. In December 2019, Acasti incorporated a new wholly owned subsidiary named Acasti Innovation AG (“AIAG”) under the laws of Switzerland for the purpose of future development of the Corporation’s intellectual property. In January 2020 and August 2020, the Corporation released Phase 3 clinical study results for the Corporation’s lead drug candidate, CaPre. The TRILOGY studies did not to meet the primary endpoint resulted in the Corporation making a decision not to proceed with a filing of an NDA with the FDA. With the completion of the TRILOGY studies research and development activities and expenses were reduced. In September 2020, the Corporation commenced a formal process to explore and evaluate strategic alternatives to enhance shareholder value. Towards this end, the Corporation has engaged a financial advisor to assist in the process. The Corporation has also greatly reduced its commercial activities including a reduction in workforce to reduce operating expenses, while it evaluates these opportunities. In addition, the equipment and other assets are classified as held for resale as they are expected to be sold. In May 2021 (note 21), the Corporation announced a definitive agreement to acquire Grace Therapeutics Inc. a privately held emerging biopharmaceutical company focused on developing innovative drug delivery technologies for the treatment of rare and orphan diseases. Subject to the completion of the Proposed Transaction, the Corporation will acquire Grace’s pipeline of drug candidates. The Proposed Transaction has been approved by the boards of directors of both companies and is supported by Grace’s shareholders through voting and lock-up agreements with the Corporation. The transaction remains subject to approval of Acasti stockholders, as well as applicable stock exchanges. The Corporation remains subject to a number of risks similar to other companies in the biotechnology industry, including compliance with government regulations, protection of proprietary technology, dependence on third parties and product liability. 2. Summary of significant accounting policies Basis of presentation These consolidated financial statements of Acasti Pharma Inc., which include the accounts of its subsidiary have been prepared in accordance with U.S. GAAP. All intercompany transactions and balances are eliminated on consolidation. The following summarizes the principal conditions or events relevant to the Corporation’s going concern assessment, which primarily considers the period of one year from the issuance date of these financial statements. The Corporation has incurred operating losses and negative cash flows from operations since its inception. In prior years there was substantial doubt regarding the Corporation’s ability to realize its assets and discharge its liabilities and commitments in the ordinary course of business. During year ended March 31, 2021, the Corporation has raised net proceeds of $59.3 million under the ATM program. The Corporation’s assets as at March 31, 2021 include cash and cash equivalents and short-term investments totaling $60.7 million. The Corporation’s current liabilities total $1.6 million as at March 31, 2021 and are comprised primarily of amounts due to or accrued for creditors. F- 8 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 2. Summary of significant accounting policies (continued): The Corporation’s ability to continue as a going concern is dependent upon its ability to achieve a successful strategic alternative and ultimately generate cashflows to meet its obligations. To date, the Corporation has financed its operations primarily through public offerings of common shares, private placements, and the proceeds from research tax credits, and will require additional financing in the future. Refer to note 21 Subsequent Events regarding the Corporation’s agreement to acquire Grace Therapeutics Inc. There is no assurance that a strategic transaction will be consummated as such transaction is not within the Corporation’s control. As a result of the Corporation’s current liquidity profile, the reduction of operating expenses and limited liabilities management has assessed that substantial doubt no longer exists regarding its ability to continue as a going concern for one year from the issuance date of these financial statements. Significant accounting policies, estimates and judgments: 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 10 ) and stock-based compensation ( note 15 )) and impairment of intangibles and assets held for sale (notes 6 and 7) and the take-or-pay contract (note 20(a)). Estimates and assumptions are also involved in measuring the accrual of services rendered with respect to research and developments expenditures at each reporting date, are determining which research and development expenses qualify for research and development tax credits and in what amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and, therefore, could be different from the amounts recorded. Functional and reporting currency: Effective March 31, 2020, the consolidated financial statements reporting currency has changed from Canadian dollars to U.S dollars. This change in reporting currency has been applied retrospectively such that all amounts are expressed in the consolidated financial statements of the Corporation and the accompanying notes thereto are expressed in thousands of U.S dollars, except for per share data. References to “$” are U.S dollars and references to “CAD $” are to Canadian dollars. Translation gains and losses from the application of the U.S. dollar as the reporting currency while the Canadian dollar is the functional currency are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity under accumulated other comprehensive loss. The Corporation’s functional currency is the Canadian dollar. The effects of exchange rate fluctuations on translating foreign currency monetary assets and liabilities into Canadian dollars are included in the statement of loss and comprehensive loss as foreign exchange gain/loss. Expense transactions are translated into the U.S. dollar reporting currency at the average exchange rate during the period, and assets and liabilities are translated at end of period exchange rates, except for equity transactions, which are translated at historical exchange rates. F- 9 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 2. Summary of significant accounting policies (continued): 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. Receivables: Receivables are classified at amortized cost and recorded at the outstanding amount net of any provisions for uncollectible amount. Deferred Financing Costs: Deferred financing costs consists of fees charged by underwriters, attorneys, accountants, and other fees directly attributable to future issuances of shares. Provided these costs are determined to be recoverable, these costs are deferred and charged subsequently against the gross proceeds of the related equity transaction when it occurs. If at such time, the Corporation deems that these costs are no longer recoverable, they will be expensed as a component of finance expenses. 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. F- 10 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 2. Summary of significant accounting policies (continued): (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. The estimated useful lives and rates for the current and comparative periods are as follows: Assets Method Period/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: Intellectual property and licenses that are acquired by the Corporation from a third party are capitalized and subsequently measured at cost less accumulated amortization and accumulated impairment losses, if they have finite useful lives, they are for approved products or if there are alternative future uses. Amortization group Amortization is calculated over the cost of the intangible asset less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: Assets Period (years) Patents 20 License 8 to 14 Subsequent expenditure: Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditure on internally generated goodwill and brands, are recognized in profit or loss as incurred. 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. F- 11 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 2. Summary of significant accounting policies (continued): Impairment of Long-Lived Assets: The Corporation reviews the recoverability of its 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. An impairment of $5,703 was recognized in the year ended March 31, 2021, and nil in the year ended March 31, 2020. 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 estimated 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 estimated 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. 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. F- 12 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 2. Summary of significant accounting policies (continued): Leases: Adoption of Topic 842 (Leases) On April 1, 2019, the Corporation adopted Topic 842. There was no material impact on the consolidated financial statement from adopting the new standard given the Corporation only had short term leases at the time of adoption and the Corporation elected to apply the short-term lease exemption. Subsequent to April 1, 2019, 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 and in accordance with the guidance of ASC Topic 842 “Leases”. 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 does not have financing leases. 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. In the year ended March 31, 2020, the Corporation modified the lease for its lab facility and recognized a right of use asset and a corresponding lease liability of $147. The new lease is for a two-year term, and it was discounted using an incremental borrowing rate of 8%. The undiscounted obligation is $80 per year. The Corporation’s lease expense is recognized in research and development expenses. 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. F- 13 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 2. Summary of significant accounting policies (continued): 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 for cardiovascular diseases. The majority of the Corporation’s assets are located in Canada, while one major production unit, with a carrying value of $156 (March 31, 2020 - $1,510), is located in France at a third-party contract manufacturing facility. Convertible Debentures: The unsecured convertible debentures that existed in the financial statements for the year ended March 31, 2020, were fully paid at maturity in February 2020. The unsecured convertible debentures could have been converted to Common Shares at the option of the holder, and the number of shares to be issued was fixed. The embedded conversion option in the convertible debentures meet the criteria to not be separately accounted for as a derivative. The convertible debentures were separated into liability and equity components. The liability component was recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component was recognized initially as the difference between the fair value of the financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs were allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component was measured at amortized cost using the effective interest method. The equity component of the convertible debt was not remeasured subsequent to initial recognition. 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. F- 14 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 2. Summary of significant accounting policies (continued): 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. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. 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 . 3. Recent Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13-Financial Instruments-Credit Losses (Topic 326), which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost, the new guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU 2016-13 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2022. Management has not yet evaluated the impact of this ASU on the consolidated financial statements. F- 15 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 4. Receivables: March 31, 2021 March 31, 2020 Notes $ $ Sales tax receivables 160 301 Government assistance 8 339 209 Interest receivable 13 11 Other receivables 18 25 Total receivables 530 546 5. Short-term Investments: The Corporation holds various marketable securities with maturities greater than 3 months at the time of purchase as follows: March 31, 2021 March 31, 2020 $ $ Term deposits issued in US currency earning interest at ranges between 0.23% and 0.40% and maturing on various dates from June 22, 2021 to July 27, 2021 7,542 - Term deposits issued in CAD currency earning interest at ranges between 0.58% and 0.67% and maturing on various dates from April 16, 2021 to July 27, 2021 2,247 - Total investments 9,789 - Short-term investments 9,789 - Investments - - 6. Impairment loss Intangible assets: In prior years, the Corporation entered into agreements with Neptune Wellness Solutions Inc. (Neptune) pursuant to which the Corporation obtained a license and exercised its option under this license agreement to pay in advance all of the future royalties payable to Neptune. This license allows the Corporation to exploit the intellectual property rights in-order to develop novel active pharmaceutical ingredients into commercial products for the prescription drugs market. The Corporation tests intangible assets for impairment should circumstances change or events occur that would indicate that the fair value of an asset may be below its carrying value. During the second quarter of fiscal 2021, the Corporation released its Phase 3 clinical programs data and its failure to meet its primary endpoints, and the resulting decision to not file an NDA to obtain FDA approval for CaPre. In addition, a significant share price reduction occurred. Due to these indicators of impairment under ASC 350, the Corporation undertook an analysis to determine the fair value of its intangible asset this quarter. In assessing the magnitude of any impairment of the license the Corporation considered all available evidence including i) significant adverse impact from business climate due to Phase 3 clinical programs failure to meet its primary endpoints, and the resulting decision to not file an NDA to obtain FDA approval for CaPre, and the resulting internal forecasts that no cash flows from the use of the license was possible, and (ii) management’s estimate that a market place participant would place minimal to no value on the license if it were to be sold on its own or in combination with other assets, recognized or not, which is a level 3 measurement in the fair value hierarchy which included unobservable inputs. Accordingly, an impairment loss of $3,706 was recognized in the second quarter of the year ended March 31, 2021, which represents the totality of the intangible assets net book value prior to the impairment trigger. For the year ended March 31, 2021, amortization expense, prior to the impairment was $781 (2020 - $1,910) and was included in research and development expenses. F- 16 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 7. Assets held for sale: During the period the Corporation committed to a plan and is actively marketing for sale Other assets and Equipment and has met the criteria for classification of assets held for sale: March 31, 2021 March 31, 2020 $ $ Other assets 387 668 Equipment 381 1,910 768 2,578 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 is expected to sell this reserve. The other asset is being recorded at the fair value less costs to sell, which has resulted in an impairment loss of $413. Management’s estimate of the fair value of the RKO less cost -to sell, is based primarily on estimated market prices obtained from an appraiser specialized in the krill oil market. These projections are based on Level 3 inputs of the fair value hierarchy and reflect management’s best estimate of market participants’ pricing of the assets as well as the general condition of the asset. The total impairment loss recognized, includes amounts paid for krill oil in advance, but not yet received and was recorded as a prepaid. b. Equipment March 31, 2021 Cost Accumulated depreciation Impairment loss Net book value $ $ $ $ Furniture and office equipment 17 (5 ) - 12 Computer equipment 148 (30 ) (54 ) 64 Laboratory equipment 756 (436 ) (171 ) 149 Production equipment 2,538 (1,023 ) (1,359 ) 156 3,459 (1,494 ) (1,584 ) 381 March 31, 2020 Cost Accumulated depreciation Net book value $ $ $ Furniture and office equipment 15 3 12 Computer equipment 64 18 46 Laboratory equipment 684 343 341 Production equipment 2,341 830 1,511 3,104 1,194 1,910 For the year ended March 31, 2021, depreciation expense was $143 (2020 $410) and was included in research and development expenses. Equipment is made up of Laboratory, Production, Computer and Office equipment that was utilized in the development of CaPre. Given that the development of CaPre will no longer be pursued, the Corporation is expected to sell this equipment. Similarly, to the intangible assets, the announcement of the outcomes of the TRILOGY clinical trials resulted in an impairment trigger for the laboratory and production equipment. The impairment loss is based on management’s estimate of the fair value of the equipment less cost -to sell, which is based primarily on estimated market prices obtained from brokers specialized in selling used equipment. These projections are based on Level 3 inputs of the fair value hierarchy and reflect the Corporations best estimate of market participants’ pricing of the assets as well as the general condition of the assets. F- 17 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 8. Government assistance: March 31, 2021 March 31, 2020 $ $ Investment tax credit 339 182 Government grant - 27 Total government assistance 339 209 Government assistance is comprised of a government grant from the Canadian federal government and 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, 2021, and 2020, the Corporation recorded $127 and $149, respectively, as a reduction of research and development expenses in the Consolidated Statements of Loss and Comprehensive Loss. The amounts recorded as receivables are subject to a government tax audit and the final amounts received may differ from those recorded. 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 343 2033 351 2034 347 2035 413 2036 228 2037 251 2038 180 2039 247 2040 369 2041 170 2,967 In September 2019, the Corporation was awarded up to CAD $750,000 in non-dilutive and non-repayable funding from the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP) to apply towards eligible research and development disbursements of the Corporation’s unique commercial production platform for CaPre. As at March 31, 2021 the Corporation has claimed $79 in connection with this program, which has been recorded as a reduction of research and development expenses in the Consolidated Statements of Loss and Comprehensive Loss. In October 2020, the Corporation received correspondence from the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP) that the eligible amount awarded to the Corporation for non-dilutive and non-repayable funding was reduced from up to CAD $750,000 to up to CAD $326,357. F- 18 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 9. Trade and other payables: March 31, 2021 March 31, 2020 $ $ Trade payables 115 1,713 Accrued liabilities and other payables 607 4,247 Employee salaries and benefits payable 771 1,359 Total trade and other payables 1,493 7,319 10. Derivative warrant liabilities: On May 9, 2018, the Corporation closed a Canadian public offering issuing 9,530,000 units at a price of CAD $1.05 per unit for gross proceeds of $7.8 million (CAD$10 million). The units issued consist of 9,530,000 Common Shares and 9,530,000 warrants. Each warrant entitles the holder thereof to acquire one Common Share at an exercise price of CAD $1.31 at any time until May 9, 2023. On May 14, 2018, the underwriters exercised their over-allotment option by purchasing an additional 1,429,500 units at a price of CAD $1.05 per unit, for additional gross proceeds of $1.1 million (CAD $1.5 million). The units issued consist of 1,429,500 Common Shares and 1,429,500 warrants. Each Warrant entitles the holder thereof to acquire one Common Share of the Corporation at an exercise price of CAD $1.31 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. On December 27, 2017, the Corporation closed a U.S. public offering of 9,900,990 units at a price of US$1.01 per unit for gross proceeds of $10 million. The units issued consist of 9,900,990 Common Shares and 8,910,891 warrants to purchase one Common Share. As part of this closing, the underwriters also partially exercised for nil consideration the over-allotment option for warrants, which were issued for a right to purchase 892,044 Common Shares at an exercise price of $1.26. 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, 2021 March 31, 2020 March 31, 2021 March 31, 2020 $ $ $ $ Balance – beginning of year 1,146 6,177 1,247 6,005 Issued during the year - - Amount transferred to Equity - (6,072 ) - (4,770 ) Change in fair value 1,252 1,115 1,174 1 Translation effect 199 (74 ) 201 (11 ) Balance – end of year 2,597 1,146 2,622 1,247 Fair value per warrant issuable 0.39 0.17 0.37 0.18 The fair value of the derivative warrant liabilities was estimated using the Black-Scholes option pricing model and based on the following assumptions: F- 19 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 10. Derivative warrant liabilities (continued): Warrant liabilities issued May 2018 Warrant liabilities issued December 27, 2017 March 31, 2021 $ March 31, 2020 $ March 31, 2021 $ March 31, 2020 $ Exercise price CAD $1.31 CAD $1.31 USD $1.26 USD $1.26 Share price CAD $0.76 CAD $0.53 USD $0.60 USD $0.38 Risk-free interest 1.39 % 0.66 % 0.92 % 0.37 % Contractual life (years) 2.11 3.11 1.74 2.74 Expected volatility 156.00 % 107.59 % 171.12 % 125.03 % 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 12) . As at March 31, 2021, 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 result in a loss of $241 or a gain of $257, respectively. As at March 31, 2021, the effect of a 5% strengthening of the U.S. dollar against the Canadian dollar, would result in a loss of $129. An assumed 5% weakening of the U.S. dollar against the Canadian dollar would have an equal but opposite effect on the basis that all other variables remained constant. 11. Unsecured convertible debentures On February 21, 2017, the Corporation issued $ 1,522 (CAD$ 2,000) aggregate principal amount of unsecured convertible debentures maturing February 21, 2020, and contingent warrants to acquire up to 1,052,630 Common Shares. The debentures were paid in full at maturity. The proceeds were split between liability and equity. Both the conversion option and contingent warrants were considered the equity component of the Private Placement. The split between the liability and equity component portions are summarized below: Liability component Equity component Total Private Placement $ $ $ Balance at March 31, 2019 1,361 220 1,581 Accretion of interest on convertible debenture 145 - 145 Translation effect 50 - 50 Shares issued upon exercise of warrants - (33 ) (33 ) Payment upon maturity of debentures (1,556 ) - (1,556 ) Balance at March 31, 2020 - 187 187 F- 20 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 12. Capital and other components of equity (a) Common Shares: Authorized capital stock: Unlimited number of shares: Ø Class A shares (Common Shares), voting (one vote per share), participating and without par value. Ø 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 none issued and outstanding. Ø 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 none issued and outstanding. Ø 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 none issued and outstanding. (b) “At-the-market” sales agreement On February 14, 2019, the Corporation entered into an “at-the-market” (ATM) sales agreement with B. Riley FBR, Inc. (“B. Riley”) pursuant to which the Common Shares may be sold from time to time for aggregate gross proceeds of up to $30 million, with sales only being made on the NASDAQ Stock Market. The Common Shares would be issued at market prices prevailing at the time of the sale and, as a result, prices may vary between purchasers and during the period of distribution. The ATM has a 3-year term and requires the Corporation to pay between 3% and 4% commission to B. Riley based on volume of sales made. On June 29, 2020, the Corporation entered into an amended and restated sales agreement (the Sales Agreement) with B. Riley, Oppenheimer& Co. Inc. and H.C. Wainwright & Co., LLC (collectively, the “Agents”) to amend the existing ATM program. Under the terms of the Sales Agreement, 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 Shares. For the year ended March 31, 2021, a total of 117.7 million common shares (March 31, 2020 – 4.1 million common shares) were sold for total net proceeds of approximately $59.3 million (March 31, 2020, $7.0 million) under the ATM program. Commission, legal and costs related to share sale amounted to $2.0 million (March 31, 2020 - $291). The shares were sold at the prevailing market prices, which resulted in an average price of approximately $0.52 per share (March 31, 2020 - $1.79 per share). Accordingly, proportional costs of $18 related to the common shares sold, have been reclassified from deferred financings costs to equity (March 31, 2020 - $40). Total costs incurred to register the Sales Agreements were initially recorded as deferred financing costs in the Consolidated Balance Sheet. As at March 31, 2021, the remaining balance of the costs incurred of $264 were written off to financing expenses. F- 21 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 12. Capital and other components of equity (continued): (b) Warrants: The warrants of the Corporation are composed of the following: March 31, 2021 March 31, 2020 Number outstanding Amount Number outstanding Amount $ $ Liability May 2018 public offering warrants 2018 (i) 6,593,750 2,597 6,593,750 1,146 Series December 2017 U.S. public offering warrants 2017 (ii) 7,072,962 2,622 7,072,962 1,247 13,666,712 5,219 13,666,712 2,393 Equity Public offering warrants Public offering broker warrants May 2018 (iii) 1 - 222,976 89 Public offering U.S. broker warrants December 2017 (iv) 259,121 161 259,121 161 Public offering warrants February 2017 (v) 1,723,934 631 1,723,934 631 1,983,056 792 2,206,031 881 (i) Warrant to acquire one Common Share at an exercise price of CAD $1.31, expiring on May 9, 2023. (ii) Warrant to acquire one Common Share at an exercise price of $1.26, expiring on December 27, 2022. (iii) Warrant to acquire one Common Share o at an exercise price of CAD $1.05, expiring on May 9, 2023. (iv) Warrant to acquire one Common Share at an exercise price of $1.2625, expiring on December 19, 2022. (v) Warrant to acquire one Common Share at an exercise price of CAD $2.15, expiring on February 21, 2022. During the year ending March 31, 2021, 222,975 broker warrants offered as part of the May 2018 public offering were exercised at a price of $0.83 per Common Share of the Company, resulting in $183 of cash proceeds. During the year ended March 31, 2020, 235,929 broker warrants and 52,288 derivative warrants offered as part of the December 2017 U.S. public offering were exercised on a cashless basis to acquire 136,013 Common Shares. 13. Revenues: In October 2020, the Corporation entered into an agreement with the Centre Integre Universitaire et des services sociaux de L’Estrie - Centre hospitalier Universitaire de Sherbrooke to start producing and selling Viral transport medium tubes to be utilized in testing related to the Covid-19 pandemic. Revenue is recognized when the product is received by the customer. F- 22 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 14. Financial expenses: March 31, 2021 March 31, 2020 $ $ Foreign exchange gain (loss) (676) (2 ) Interest payable on convertible debenture - (102 ) Accretion of interest on convertible debenture - (145 ) Financing costs (264 ) (46 ) Interest income 107 336 Change in fair value of warrant liabilities (2,426) (1,116 ) Financial expenses (3,259) (1,075 ) 15. 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 30, 2020. The amendment provides for an increase to the existing limits for Common Shares reserved for issuance under the Stock Option Plan as well as certain changes to the minimum vesting period applicable to options granted to directors 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 TSXV 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 was increased from 11,719.910 representing 15% of the issued and outstanding Common Shares of the Company as of April 9, 2019, to 14,533,881 representing 15% of the issued and outstanding Common Shares of the Company as of August 26, 2020. 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 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 Common 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. F- 23 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 15. Stock based compensation (continued): (a) Corporation stock option plan (continued): 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 CAD $ CAD $ Outstanding, March 31, 2019 4,046,677 1.25 0.81 Granted 6,140,517 0.85 0.85 Exercised (30,874 ) 0.81 0.79 Forfeited (212,334 ) 1.62 1.16 Expired (7,500 ) 6.50 3.02 Outstanding, March 31, 2020 9,936,486 1.00 0.83 Granted - - - Exercised (241,750) 0.62 0.47 Forfeited (2,399,817) 0.90 0.74 Expired - - - Outstanding, March 31, 2021 7,294,919 1.04 0.87 Exercisable at end of year 5,025,583 1.17 0.93 March 31, 2021 March 31, 2020 Weighted average fair value of the options granted to employees and directors of the Corporation - CAD$0.85 Compensation expense recognized under the stock option plan is summarized as follows: March 31, 2021 March 31, 2020 $ $ Research and development expenses 353 443 General and administrative expenses 828 1,217 Sales and marketing expenses (7) 293 1,174 1,953 As of March 31, 2021, there was CAD $476 (March 31, 2020 – CAD $2,802) of total unrecognized compensation cost, related to non-vested share options, which is expected to be recognized over a remaining weighted average vesting period of 1.03 years (March 31, 2020 - 1.35 years). A summary of the non-vested stock option activity and related information for the Corporation’s stock options granted is as follows: Number of options Weighted average grant date fair value CAD ($) Non- vested, March 31, 2020 6,764,252 0.83 Options granted - - Options vested 1,720,280 0.83 Options forfeited and cancelled 2,774,636 0.90 Non- vested, March 31, 2021 2,269,336 0.76 F- 24 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 15. Stock based compensation (continued): (a) Corporation stock option plan (continued): 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: March 31, 2020 CAD Weighted average Exercise price $ 0.85 Share price $ 1.09 Dividend — Risk-free interest 0.88 % Estimated life (years) 5.71 Expected volatility 99.11 The following tables summarize the status of the outstanding and exercisable options of the Corporation: March 31, 2021 Exercise price CAD Weighted average remaining contractual life Number of options outstanding Number of options exercisable $ 0.53 – 0.65 8.99 2,418,167 988,167 $ 0.66 – 1.02 7.25 1,527,573 1,300,529 $ 1.03 – 1.42 8.04 1,680,058 1,067,766 $ 1.43 – 1.61 2.11 525,000 525,000 $ 1.62 – 1.71 5.90 108,333 108,333 $ 1.72 – 1.88 6.20 737,500 737,500 $ 1.89 – 3.25 2.16 262,500 262,500 $ 3.26 – 4.65 1.17 22,500 22,500 $ 4.66 – 4.80 1.38 13,288 13,288 7.31 7,294,919 5,025,583 Stock-based compensation payment transactions and broker warrants: 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; contractual life for broker warrants), 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. F- 25 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 15. Stock based compensation (continued): (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, 2021, and March 31, 2020, and no stock-based compensation was recognized for the period ended March 31, 2021 and March 31, 2020. 16. Loss per share: Diluted loss per share was the same amount as basic loss per share, as the effect of options, RSUs and warrants would have been anti-dilutive, as the Corporation has incurred losses in each of the periods presented. All outstanding options, RSUs and warrants could potentially be dilutive in the future. 17. Supplemental cash flow disclosure: (a) Changes in working capital items: March 31, 2021 March 31, 2020 $ $ Receivables 58 581 Prepaid expenses 672 (185 ) Trade and other payables (6,701) (3,389 ) Total changes in working capital items (5,971) (2,993 ) (b) Non-cash transactions: March 31, 2021 March 31, 2020 $ $ ATM transaction costs included in trade and other payables 18 - Shares issued as settlement - 738 Deferred financing costs reclassified to Equity (23) 40 Fair value of derivative warrants liability reclassified to equity - 10,691 F- 26 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 18. Income taxes: Reconciliation of effective tax rate: March 31, 2021 March 31, 2020 $ $ Loss before income taxes (19,678) (25,513 ) Basic combined Canadian statutory income tax rate 1 26.50% 26.58 % Computed income tax recovery (5,105) (6,781 ) Increase resulting from: Non-deductible stock-based compensation 311 519 Non-deductible change in fair value of warrants 643 205 Change in valuation allowance 4,162 6,004 Other – Foreign exchange (11) 20 Other - 33 Total tax (recovery) expense - - 1 The Canadian combined statutory income tax rate has decreased due to a reduction in the provincial statutory income tax rate. At March 31, 2021 and 2020, the net deferred tax assets have not been recognized in these financial statements. A valuation allowance is recognized to reduce the deferred tax assets as it is more likely than not that a tax benefit will not be realized. Net deferred income tax assets as of March 31, 2021, and 2020 were comprised of the following: March 31, 2021 March 31, 2020 $ $ Deferred tax assets Tax losses carried forward 28,643 22,052 Research and development expenses 5,424 4,544 Property, plan and equipment 933 324 Intangible assets - 1 Financing expenses 1,167 998 Tax credit carry forwards 2,968 2,468 Other temporary differences 86 76 Deferred tax assets 39,221- 30,463 Deferred tax liabilities Tax basis of unsecured convertible debentures in excess of carrying value - - Deferred tax liabilities - - Valuation allowance (39,221) (30,463 ) Net deferred tax assets - - F- 27 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 18. Income taxes (continued): As at March 31, 2021, the amounts and expiry dates of tax attributes and temporary differences, which are available to reduce future years’ taxable income, were as follows: March 31, 2021 Federal Provincial $ $ Tax losses carried forward 2028 568 568 2029 1,296 1,290 2030 1,649 1,642 2031 1,800 1,784 2032 1,476 1,453 2033 2,864 2,864 2034 3,658 3,549 2035 4,374 4,374 2036 6,435 6,337 2037 398 394 2038 13,803 13,748 2039 32,252 32,209 2040 23,451 23,315 2041 14,279 14,279 108,303 107,808 Research and development expenses, without time limitation 19,905 21,203 Tax credit carry forwards 2,968 - Other deductible temporary differences, without time limitation 8,249 - Unrecognized tax benefits The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended March 31, 2021 and 2020: March 31, 2021 March 31, 2020 $ $ Beginning of year: Increase (decrease) resulting from: Positions taken in the current year - 164 Change in valuation allowance - (164 ) End of year - - 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. F- 28 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 19. 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 statements of financial position, 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 Corporations functional currency of the Canadian 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 U.S. dollar in relation to the Canadian dollar and other foreign currencies will consequently have an impact upon the Corporation’s net loss. The operating results and financial position of the Corporation are reported in U.S. dollars (reporting currency) in the Corporation’s financial statements. (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. Refer to Note 2 – Basis of Presentation. The Corporation’s financial liabilities obligations include trade and other payables, which fall due within the next 12 months in addition to the warrant derivatives that fall due beyond 12 months and are likely to be settled by the Corporation’s equity. F- 29 Acasti pharma inc. Notes to the Consolidated Financial Statements (Expressed in thousands of U.S. dollars except share data) 20. Commitments (a) Take or pay contract : On October 25, 2019, the Corporation signed a supply agreement with Aker Biomarine Antartic AS (“Aker”), to purchase raw krill oil product for a committed volume of commercial starting material for CaPre for a total value of $3.1 million (take or pay). The delivery of the products must be completed by October 31, 2021. As at March 31, 2021, the remaining balance of the commitment with Aker amounts to $2.8 million. There are no termination provisions within the supply agreement. Management is currently assessing whether they can recover value from the raw krill oil product and given the uncertainty of recoverability, there is a risk that the Corporation may have a loss on this contract in the near term. (b) Success fees On September 23, 2020 the Corporation engaged Oppenheimer & Co., Inc., as its financial advisor to assist in the formal process to explore and evaluate strategic alternatives to enhance shareholder value. This arrangement includes fees of $1.2 million to be paid by the Corporation based on the success of a strategic outcome. (c) Retention agreements In October 2020 in connection with its strategic review process, the Corporation entered into retention incentive agreements with the Chief Executive Officer (CEO) and Chief Operating Officer (COO). The Retention Agreements provide that the Corporation will pay the CEO an employment retention incentive of $100 provided that the CEO remains employed with the Corporation until the earlier of April 30, 2021 or the closing of a merger or like transaction with a third party. In addition, the Retention Agreements also provide that the Corporation will pay each of the CEO and COO an amount of up to $125 in the event that certain milestones are met in relation to the monetization by the Corporation of its assets. 21. Subsequent events Definitive Agreement to Acquire Grace Therapeutics, Inc. On May 7, 2021, the Corporation announced it has entered into a definitive agreement to acquire Grace Therapeutics, Inc., a privately held emerging biopharmaceutical company focused on developing innovative drug delivery technologies for the treatment of rare and orphan diseases. Subject to the completion of the Proposed Transaction, Acasti will acquire Grace and its pipeline of drug candidates. The Proposed Transaction has been approved by the boards of directors of both companies and is supported by Grace’s shareholders through voting and lock-up agreements with the Company. The transaction remains subject to approval of Acasti stockholders, as well as applicable stock exchanges. NASDAQ Communication On May 17, 2021 it was announced that, on May 11, 2021, the Corporation received notice from the Nasdaq Listing Qualifications Department (the “Staff”) indicating that, based upon the Corporation’s non-compliance with the $1.00 bid price requirement set forth in Nasdaq Listing Rule 5550(a) (the “Rule”) as of May 10, 2021, the Corporation’s securities were subject to delisting unless the Corporation timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”). The Corporation has requested and was granted a hearing, which will stay any further action by Nasdaq pending the conclusion of the hearing process. F-30